Read on Twitter
$ESTE agrees to acquire Independence Res. Mgt., a Warburg-backed co operating in the Midland Basin, for $186 mm, composed of $135 mm in cash and 12.7 mm shares valued at $51 mm based on $ESTE's closing price of $3.99. Average production was 8,780 boepd (66% oil) in 3Q. /1
Personally mixed reactions. In line with what @pickeringenergy has posted, not all cos and mgts are bad, and in $ESTE's case their mgt has traditionally done well in grow/sell environments. They have been fairly conservative in their use of debt, so have dry powder /2
They had earlier tried to purchase Sabalo to gain additional scale, but terminated that deal when prices cratered in 2018 (?), so should be being very cautious in stepping back into the M&A market. Hopefully a good deal for them. On the flip side, it had better be. /3
Their #s show PV10 of $173 mm as of 12/1, and 16.3 mmboe of proved reserves. 4,900 net core areas, all HBP and almost all operated, with 70 HZ locations with 45% IRRs at strip pricing. Another 38,500 net acres in eastern Midland Basin. /4
50% increase in production, ebitda and BB (from $240 mm to $360 mm). "Accretive" on all metrics- one of my least favorite terms, since the transaction is being financed with bank debt, so will be accretive as long as IRR > 5% or so. Leverage will only be 1.1x LTM EBITDA /5
On the flip side, $ESTE was one of my favorites to merge with another co ($JAG, $PE or other) at a premium ... back in those days! Now, I am hoping that will still be the case, but how the market reacts to its use of cash here will be telling /6
25% reduction in G&A expected, so there is that also. Full release link:
https://s24.q4cdn.com/478275335/files/doc_news/2020/12/ESTE-IRM-Acquisition-PR-vF.pdf
https://s24.q4cdn.com/478275335/files/doc_news/2020/12/ESTE-IRM-Acquisition-PR-vF.pdf
