On May 15, Earthstone Energy Inc. (NYSE MKT: ESTE) entered into a definitive exchange agreement with Oak Valley Resources LLC, the companies said jointly that day. The agreement was approved by Earthstone’s board of directors and Oak Valley’s board of managers, they added.

In exchange for about 9.1 million of its common shares, Denver-based Earthstone bought all of Oak Valley’s subsidiaries, including their producing assets, undeveloped acreage and about $138 million in cash, the companies said.

The amount of cash represented existing cash, plus $107 million of capital commitments that Oak Valley might get from its members under the terms of a limited liability company agreement, they added.

After the transaction is completed, about 10.9 million common shares will be outstanding, and current Earthstone stockholders will own 16% of the combined company, while Houston-based Oak Valley will own the remaining 84%, they said.

As of Dec. 31, 2013, Oak Valley has more than 67,000 acres producing 2,150 barrels of oil equivalent per day (boe/d) in Texas, the companies said, noting that Earthstone produces about 600 boe/d in the Williston Basin.

The transaction should be completed in third-quarter 2014, they noted.

Additionally, Oak Valley’s president and CEO Frank A. Lodzinski will become a director of the combined company, and also will be its president and CEO, they said. Similarly, Ray Singleton, Earthstone’s president and CEO, will have a senior executive role and will be a director of the combined companies, they added. Other board positions will be filled through Oak Valley, the companies noted.

The combined company will move to Houston, and keep an office in Denver, they noted.

Singleton said, "The combination will allow Earthstone's stockholders to enjoy the benefits of a much larger company driven by a proven management team. Already on the road to success, Oak Valley is rapidly expanding its production and reserves. The combination enhances our access to capital, diversifies our asset base, strengthens our balance sheet and gives us scale. Our Bakken position gives the Oak Valley management team an opportunity to re-enter the Rockies with a Denver presence."

Lodzinski said, "We believe the time is right for our team to re-enter the public arena and build another successful company. In a year and a half, we have established a production base, an Eagle Ford drilling program, and are now partnering with a fine company. We look forward to working with Earthstone to promptly complete this transaction and advance our collective portfolio of projects. I strongly believe this transaction provides our mutual owners with significant growth potential and is a path towards enhancing shareholder value."

SunTrust Robinson Humphrey Inc. was Earthstone’s financial advisor, the companies said. Earthstone’s legal counsel was Davis Graham & Stubbs LLP, while Jones & Keller PC was Oak Valley’s, they added.