Earthstone’s Bakken sale of about 1,300 acres carves out nearly 9% of its production but positions it to step up operations in its focus area—the Midland Basin. (Source: Hart Energy)
[Editor's note: This story was updated at 11:10 a.m. CST Nov. 21.]
Earthstone Energy Inc. (NYSE: ESTE) is ditching its nonop position in the Bakken Shale as the company continues to narrow its focus on the “highly economic” Midland Basin, Earthstone said Nov. 20.
The Woodlands, Texas-based company agreed to sell all of its Bakken assets for about $27 million in cash to an affiliate of Statoil ASA (NYSE: STO), according to filings with the Securities and Exchange Commission (SEC).
Earthstone sold about 1,320 net nonoperating acres in McKenzie and Dunn counties, N.D., Robert J. Anderson, the company’s executive vice president for corporate development and engineering said. The assets averaged about 876 barrels of oil equivalent per day (boe/d) in third-quarter 2017, including 64% oil and 82% liquids overall.
Anderson said the company has slowly sold most of its Bakken assets, whittling down about 5,600-net-acres in the Bakken. The company still has some scattered acreage in the region.
“This was our most core asset and tier one Bakken position,” Anderson told Hart Energy, adding that TenOaks Advisors LLC marketed the assets for Earthstone. He noted that production figures had changed since the acreage was marketed.
As of Nov. 3, Earthstone reported its Bakken position, which is nonoperated, covered about 5,900 net core aces predominantly in McKenzie and Dunn. Previously, the company reported at year-end 2016 that its nonop position in the Williston Basin included about 9,300 net acres in North Dakota, SEC filings said.
During the third quarter, the Williston assets Earthstone sold produced 876 boe/d, or about 9% of the company’s total production for the quarter. At $30,000 per flowing boe, the company likely received $544 per acre for its nonop acreage.
Recent core Bakken deals have attracted about $7,000 per acre, Seaport Global Securities said in a Nov. 20 report.
Michael W. Gaiden, an analyst at Baird Equity Research, said in a Nov. 21 report that the firm would trim Earthstone’s fourth-quarter production estimates by 3% to 9,600 boe/d to reflect the Bakken sale.
“These funds will serve as additional funding for Permian development,” he said. “At the same time, this monetization should bring greater corporate focus on the company's long-term Midland opportunity, increasing returns on capital, and the potential for overhead savings.”
For the coming year, Gaiden said Baird continues to model a one-rig Permian program, “which looks increasingly ripe for another rig after the Bakken sale. We project 10,300 boe/d in output for next year and related EBITDAX of $89.1 million.”
The sale represents an important step in Earthstone’s transition, Seaport said. The deal helps continue the company’s evolution from a micro-cap, nonop Bakken/Three Forks company to a small-cap operator that is primarily focused in the Midland Basin.
Earthstone established its initial presence in the Midland Basin in 2016 through the closing of a business combination with Lynden Energy Corp., which held about 5,883 net acres in Howard, Glasscock, Midland and Martin counties, Texas.
By May 2017, Earthstone’s Midland position more than tripled with the closing of its acquisition of Bold Energy III LLC for $324 million. The transaction included about 20,900 net acres and more than 500 gross locations primarily in Reagan, Upton and Midland counties, Texas.
Overall, the company has established a roughly 27,000 net-acre position in the Midland Basin over the past 18 months with production of about 7,000 boe/d.
RELATED: Barter Town: Shale Operators Adding Value Through Acreage Swaps
“The divestiture of our Bakken assets allows us to continue focusing our human and capital resources on our highly economic assets in the Midland Basin,” Robert J. Anderson, executive vice president of corporate development and engineering at Earthstone, said in a statement.
Earlier this year, Earthstone kicked off a one-rig drilling program on its Midland Basin acreage. The company is considering adding a second rig in 2018 “given the recent strength in crude prices as well as potential efficiency gains,” Seaport said.
“Post today’s announced Bakken sale, we believe Earthstone may be more-so inclined to pursue this option given its enhanced balance sheet,” the firm said.
Pro forma the sale, the company’s net debt/EBITDA is now less than 0.5x and its liquidity is roughly $157 million, according to Seaport.
Additionally, Earthstone holds about 16,500 net leasehold acres in the Eagle Ford Shale. In July, the company formed a joint venture with IOG Capital LP to partner in the development of 11 Eagle Ford wells in Gonzales County, Texas.
Earthstone said it expects to close the divestiture of its Bakken assets by year-end 2017, subject to customary closing conditions and adjustments. The transaction’s effective date will be Dec. 1.
Emily Patsy can be reached at epatsy@hartenergy.com.
Recommended Reading
Help Wanted (Badly): Attracting Workers to Energy is Becoming Difficult
2024-03-27 - Attracting workers to the energy industry is becoming a difficult job, despite forecasted growth in the industry.
E&P Highlights: March 4, 2024
2024-03-04 - Here’s a roundup of the latest E&P headlines, including a reserves update and new contract awards.
NAPE: Turning Orphan Wells From a Hot Mess Into a Hot Opportunity
2024-02-09 - Certain orphaned wells across the U.S. could be plugged to earn carbon credits.
Petrobras to Step Up Exploration with $7.5B in Capex, CEO Says
2024-03-26 - Petrobras CEO Jean Paul Prates said the company is considering exploration opportunities from the Equatorial margin of South America to West Africa.
Exxon Versus Chevron: The Fight for Hess’ 30% Guyana Interest
2024-03-04 - Chevron's plan to buy Hess Corp. and assume a 30% foothold in Guyana has been complicated by Exxon Mobil and CNOOC's claims that they have the right of first refusal for the interest.