Permian Resources and Earthstone Energy have entered into a definitive agreement under which Permian Resources will acquire Earthstone in an all-stock transaction valued at approximately $4.5 billion, inclusive of Earthstone’s net debt. Under the terms of the transaction, each share of Earthstone common stock will be exchanged for a fixed ratio of 1.446 shares of Permian Resources common stock. The transaction strengthens Permian Resources’ position as a leading Delaware Basin independent E&P with over 400,000 Permian net acres, pro forma production of approximately 300,000 Boe/d(1) and an enhanced free cash flow profile to increase returns to shareholders.

Key Highlights

• Enhances leading position in the Delaware Basin and increases operating size and scale
• Adds significant high-quality inventory offset the Company’s existing core acreage in New Mexico
• Highly accretive to key financial metrics before synergies, including operating cash flow, free cash flow and net asset value per share
• Expected to be accretive to free cash flow per share by an average of >30% per year during the next two years and >25% per year during the next five and ten years
• Expect to achieve synergies that will drive ~$175 million of annual cash flow improvement
• Improved free cash flow profile supports 20% increase to base dividend per share and higher future variable shareholder returns
• Meets and exceeds all of Permian Resources’ rigorous investment criteria
• Maintains strong balance sheet with expected leverage2 of less than 1.0x at closing
• Represents an 8% premium to the exchange ratio based on the 20-day volume weighted average share prices

“We believe the acquisition of Earthstone represents a compelling value proposition for our shareholders and strengthens our position as a premier Delaware Basin independent E&P. Earthstone’s Northern Delaware position brings high-quality acreage with core inventory that immediately competes for capital within our portfolio,” said Will Hickey, Co-CEO of Permian Resources. “Additionally, we have identified numerous ways to leverage our deep Delaware Basin experience and incremental scale to improve upon these assets across the board, including approximately $175 million of annual synergies. Permian Resources has a proven integration track record, and we believe the successful execution of these cost savings will create incremental value for both Permian Resources and Earthstone stakeholders.”

“We are very pleased to announce this transaction with Permian Resources and believe the combination of the two companies’ top-tier assets and history of success will create an even stronger large-cap E&P company which is uniquely positioned to drive profitable growth and development in the world-class Permian Basin. We believe this all-stock transaction provides Earthstone’s shareholders with excellent value for their investment now and in the future,” said Robert Anderson, President and Chief Executive Officer of Earthstone. “In less than three years, we have grown Earthstone from a small-cap E&P company producing approximately 15,000 Boe per day to one with a production base of over 130,000 Boe per day, delivering significant value enhancement for shareholders along the way. Our success directly reflects our outstanding employees’ dedication, hard work and perseverance. I personally thank each and every one of our employees. I could not be prouder of the Earthstone team and the company we have built together.”

“As significant owners of the business, our primary goal is to drive value for our investors, and the Earthstone transaction is another example of value creation for shareholders. We expect the transaction to be accretive across all key financial metrics before synergies and significantly accretive including synergies, both over the short and long-term,” said James Walter, Co-CEO of Permian Resources. “After evaluating over $20 billion of potential transactions during the past twelve months, we firmly believe the acquisition of Earthstone represented the best transaction for Permian Resources. It checks all the boxes, enhancing shareholder value while improving upon an already best-in-class company.”

Strategic and Financial Benefits

• Accretive to All Key Financial Metrics Over the Long-Term. The transaction is expected to be accretive to all relevant per share metrics before synergies, including operating cash flow, free cash flow and net asset value per share. The Company expects the transaction to deliver accretion to free cash flow per share of over 30% per year during the next two years and over 25% during the next five and ten-year periods. This is consistent with the Company’s disciplined acquisition strategy, pursuing transactions which provide significant accretion to all relevant per share metrics over both the short and long-term.
• Acceleration of Cash Returns to Shareholders. The accretive nature of this transaction immediately improves Permian Resources’ current return of capital program. The Company plans to increase its quarterly base dividend by 20% to $0.06 per share beginning with its first quarter 2024 dividend. Permian Resources’ variable return program remains unchanged, distributing at least 50% of free cash flow after the base dividend through a variable dividend, share repurchases or a combination of both.
• Extensive, High Rate of Return Combined Inventory. The transaction adds significant core inventory and bolsters Permian Resources’ position in highly productive areas within the Northern Delaware Basin, characterized by proven stacked-pay intervals and low-cost operating environment. Earthstone’s New Mexico acreage position is highly complementary to Permian Resources’ existing high-return asset base, which has generated repeatable strong results. Additionally, this transaction provides the ability to high grade the combined company’s capital allocation across a broader asset base, improving capital efficiency.
• Adds Significant Size and Scale. The transaction increases Permian Resources’ position in the Permian Basin by approximately 223,000 net acres to over 400,000 net acres with pro forma production of approximately 300,000 Boe/d1. In the Delaware Basin, the acquisition adds approximately 56,000 net acres of high-quality, stacked-pay reservoirs, largely offset to Permian Resources’ existing acreage in Lea and Eddy Counties. Earthstone’s remaining acreage is located in the Midland Basin, and the Company expects to primarily harvest free cash flow from this asset at current commodity prices.
• Strong Balance Sheet. The Company expects to have a net debt-to-LQA EBITDAX2 ratio of less than 1.0x at closing, assuming strip prices. In conjunction with the transaction, the Company has secured a $500 million incremental commitment under its credit facility from Wells Fargo Bank, which will increase aggregate lender commitments thereunder to $2.0 billion. Permian Resources expects to have pro forma liquidity of over $1.0 billion at closing, providing significant financial flexibility. The combined company will also maintain a strong maturity profile, with its first debt maturity occurring in 2026. Lastly, the transaction is expected to enhance Permian Resources’ credit profile and decrease its overall cost of capital, as larger scale and higher production levels accelerate its path to investment grade.

Tangible Operational and Financial Synergies

Total synergies resulting from the transaction are expected to drive approximately $175 million in annual cash flow improvements, which include $145 million of operational and G&A synergies expected to be fully realized by year-end 2024. Expected annual operational synergies total $115 million and are primarily associated with reduced drilling, completions and facilities (“DC&F”), lease operating and midstream costs. Permian Resources expects to realize significant DC&F savings in the Delaware Basin through improved efficiencies and lower cost structure. The Company expects to reduce LOE expense on a per unit basis through personnel and contract services optimization and enhanced production operations. Additionally, the combined company expects to leverage its enhanced size and scale to optimize pricing across completion, production and midstream operations.

Permian Resources has identified $30 million of annual general and administrative savings. The combined company is also expected to benefit from a lower overall cost of capital, leading to potential financial synergies of $30 million annually. Permian Resources has proven operational and integration track records and plans to leverage its best practices and lower corporate cost structure to advance cost reductions across all operating expenses and capital expenditures. The all-stock transaction structure allows for shareholders of both Permian Resources and Earthstone to benefit from the cost synergies and significant upside potential of the combined companies.

(1) Pro forma net production reflects second quarter 2023 actual results for Permian Resources and the midpoint of Earthstone’s fourth quarter 2023 guidance which includes the Novo acquisition that closed on August 15, 2023.

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