Boston, MA 05/20/2014 (wallstreetpr) – Earthstone Energy Inc (NYSEMKT:ESTE) will acquire all the subsidiary of Oak Valley Resources for an exchange of ~9.1 million outstanding shares of Earthstone. The transaction includes the existing assets, undeveloped properties and ~$138 million cash of Oak Valley.
On completion of the transaction, Earthstone will have ~10.9 million shares and Oak Valley will be the major stakeholders with 9.124 million shares (84% of ownerships) in the combined company and Earthstone will own the remaining 1.738 million shares (16%).
Advantage
A. Capital structure
The merged company will be well capitalized to grow with current liquidity of $177.3 million. It comprises of cash and cash equivalents of $139.6 million and $56.5 million of the borrowing base under credit facility, which include total debt of $18.8 million. The combined company will be efficient to raise the capital with a clean capital structure of only senior secured bank debt and equity to support future growth. The Company also has strong sponsorships with EnCap, Wells Forgo and Blackstone for financing.
B. Operational efficiency
The combined company will increase the scale as most of the assets are available in Eagle Ford and Bakken shales that will produce significant exposure to oil reserves. The combined company has total proved reserves of ~14.6 MMBoe and $186 million of proved PV-10 as of December 31, 2013.
C. Management
Strong management with proven track records can execute the strategy for successful growth of the merged company and will create value for its shareholders.
Conclusion
The combination will strengthen the balance sheet while diversifying the asset base and maintain financial flexibility to facilitate additional acquisitions for growth. It will increase the scale by optimizing the existing properties and enhance the production capacity that will help to increase the operating margin and generate significant cash flow.
