Oil and gas production is pumping strong in southeast New Mexico. The outlook for 2022 is positive, with the first quarter bringing a new big scale operator to the area.
Earthstone Energy, Inc., headquartered in Woodland, Texas with offices in Midland, announced in a press release on December 16 that it is acquiring assets of Chisholm Energy Holdings, LLC. The assets that Earthstone is acquiring consist of over 36,000 net acres located in the heart of the Delaware Basin in Lea and Eddy counties.
Hart Energy at its website describes Earthstone Energy Inc. as “a growth-oriented, independent energy company engaged in development and operation of oil and natural gas properties….Earthstone is traded on NYSE [New York Stock Exchange] under the symbol ‘ESTE’.”
The Deal
The deal will close during the first quarter of 2022 at the aggregate purchase price of “approximately $604 million”. According to the press release, the terms of the purchase consist of “$340 million in cash at closing, subject to customary closing adjustments, $70 million of deferred cash due over the 12 months after closing and approximately 19.4 million shares of Earthstone’s Class A common stock valued at $194 million based on a closing share price of $9.98 on December 15, 2021.”
Seller Chisholm Energy Holdings, LLC is a privately held company headquartered in Fort Worth Texas “with operating assets in Lea and Eddy counties.”
The boards of directors of both Earthstone and Chisholm have approved the deal.
According to the Earthstone press release, 92 percent of the acres being acquired are currently being operated -55 percent are Working Interest (WI) and 85 percent are Held By Production (HBP). All are “in the core of the Delaware Basin in Eddy and Lee [Lea] Counties, New Mexico”. Daily production is estimated at approximately 13,500 barrels (B/D).
Earthstone Energy to Focus on the Permian Basin
In the press release President and CEO of Earthstone Energy Robert J. Anderson states, “The Chisholm acquisition caps off a series of highly-accretive and value-adding transactions that have dramatically transformed Earthstone during 2021 and further establishes Earthstone as a Permian Basin focused company with increasing scale.”
The Chisholm acquisition, plus four other 2021 acquisitions, increases Earthstone’s presence in the Permian Basin by about 400 percent. Daily production, as a result, is estimated to increase by approximately 300 percent.
Anderson predicts that “free cash flow generation capacity” will increase meaningfully. He says, “In particular, the Chisholm acquisition expands our operations into the Delaware Basin with low cost, high margin assets that are generating significant production and cash flow from existing producing wells while also providing growth opportunities from a high-return drilling inventory.”
Outlook for the Permian Basin Positive in 2022
The US Energy Information Administration (EIA) predicts that in 2022 crude oil production in the Permian Basin will be up some 200,000 B/D. “ We raised our expectation of production in the Permian Basin as a result of higher expected drilling productivity,” states the EIA.
With more than half of US oil rigs located in the Permian Basin in West Texas and eastern New Mexico, the outlook for 2022 is positive. The research firm East Daley is quoted in a Reuters article published earlier this year as saying, “We project Permian drilling to grow by 70+ rigs by early 2022 to over 285 basin rigs, setting the stage for a new multi-year growth cycle in Permian oil and gas production if oil prices can hold recent gains.”
Outlook for Lea County Also Positive
With 15 percent of the net acres acquired by Earthstone in Lea and Eddy counties under lease but not HBP and with CEO Anderson’s statement that his company is looking at “growth opportunities”, the forecast is good for both Lea and Eddy counties in 2022. Likely more wells will be drilled. In turn, more jobs will likely be created, and more dollars will find their way into both the local and state economies.
