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Earthstone Acquires Novo with a Buy-In by Northern O&G

June 15, 2023 Allen Pusey

In a buy-sell transaction, Earthstone Energy announced Thursday that it is acquiring privately held Novo Oil & Gas Holdings for $1.5 billion; it then sold working interests to Northern Oil & Gas (NOG) equal in value to a one-third interest in the deal for $500 million.

Truist Securities Inc. acted as the exclusive financial advisor to Earthstone. Raymond James & Associates Inc. served as financial advisor for and provided a fairness opinion to Earthstone’s conflicts committee.

Kirkland & Ellis advised Earthstone as well as NOG on the deal. Vinson & Elkins advised EnCap and Novo with Texas-heavy teams. Richards, Layton & Finger advised Earthstone’s conflicts committee.

The Kirkland team was led by corporate partners David Castro, Jr., Cyril Jones, Lindsey Jaquillard, Chad Smith and William Eiland; with assistance from corporate partner Randy Santa Ana and associates Daniel Cadis, Jarrod Gamble and Jonathan Strom; debt finance partners Mary Kogut and Jordan Roberts and associate Lauren Elledge; and capital markets partners Bryan Flannery and Matt Pacey associate Erin Meziere. 

The Vinson & Elkins team was led by partner Bryan Loocke, with assistance from senior associate Michael Zarcaro and associates Laura Byrd, Brad Oster and Vestita Kuntz. Other key team members include partners Mike Marek, Jackson O’Maley and Matt Strock, senior associate David Lassetter and associates Houston Morgan, Drew Clements, Rivers Stephens and Terrance Ogren (corporate); partners John Lynch, Todd Way and Gary Huffman and associates Dan Henderson, Ryan Dolmanet and Adam Bateman (tax); partner James Longhofer (finance); partner Becky Baker (employment/labor); and partner David D’Alessandro (executive compensation/benefits).

Earthstone’s outside finance counsel was Haynes and Boone with a team led by partner Austin Elam and including associates Reem Abdelrazik and Grant Armentor.

Novo, an E&P company with assets concentrated in the Delaware Basin, is backed by Houston-based EnCap Investments. Earthstone intends to move one of its two drilling rigs currently operating in the Midland Basin to the Delaware Basin to focus on the Novo assets. The net result will be Earthstone having four rigs operating in the Delaware Basin and one in the Midland Basin post-closing.

The Novo acquisition and revised development plan continue Earthstone’s evolution over the past several years, with its drilling inventory and development program now heavily weighted toward the highly economic northern Delaware Basin assets.

The acquisition is effective May 1, 2023, and closing is anticipated to occur in the third quarter of 2023, subject to customary closing conditions.  

In addition to the $500 million represented by the NOG transaction, Earthstone’s acquisition of Novo will be funded with cash on hand and borrowings under a senior secured revolving credit facility. Earthstone has secured $250 million of incremental commitments from existing lenders, building Earthstone’s credit facility from the current $1.4 billion to $1.65 billion and provides for $1.2 billion in undrawn commitments at closing based on $452 million debt outstanding as of March 31, 2023.  

The effective date of the acquisition is May 1, and is accordingly subject to price adjustments between now and then.

Allen Pusey

Allen Pusey is a senior editor and writer at The Texas Lawbook.

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