Permian Resources $14bn acquisition of Earthstone Energy

Deal Overview

Deal Overview
Element	Details
Acquirer	Permian Resources (PR)
Target	Earthstone Energy (ESTE)
Date of Announcement	August 21, 2023
Deal Value	$4.5 billion
Enterprise Value	$14 billion (pro forma for combined company post-close)
Deal Type	All stock merger
Purchase Price per Share	Fixed Exchange Ratio: 1.446 PR per 1 ESTE Implied Value: $18.64 per ESTE
Premium Paid	8.06% above the 20-day VWAP of ESTE’s stock prior to the announcement.
Expected Close	Before the end of the year 2023, closed on Nov. 1, 2023
Advisors	Kirkland & Ellis LLP, Vinson & Elkins L.L.P., Morgan Stanley & Co. LLC, RBC Capital Markets, LLC

Acquirer and Target Background

Permian Resources

Industry: Independent oil & natural gas exploration and production (E&P), focused exclusively on the Delaware Basin within the broader Permian Basin

Strategy:

Pure‐play, low-cost production in the highest-return region of the Delaware Basin.
Disciplined capital allocation through bolt-on acquisitions that are accretive to value and free cash flow.
Free cash flow generation, strong balance sheet, and shareholder returns via dividends and large share buyback programs (~$1 B authorization).
Contrarian acquisition approach, buying strategically in downturns to add high-quality assets.

Recent Acquisitions:

Colgate Energy Partners III (Sept 1, 2022), $5.3 B, structured as a merger of equals with Centennial Resource Development, forming Permian Resources Corporation
Earthstone Energy (Nov 1, 2023), $4.5 B
APA Corp. acreage (June 2025), $608 M
Other bolt-ons (2023–2024), Minor acquisitions, $175 M

M&A Rationale:

Scale & efficiency – Consolidate the second-largest pure-play in the Delaware Basin to improve operational leverage
Capital efficiency – Acquisitions are accretive to net asset value (NAV) and free cash flow
Low-cost growth – Augment inventory with high-return, operated acreage at attractive prices via bolt-on deals
Shareholder value – Consistent dividend, buyback, and discipline on capital deployment

Earthstone Energy

Core Business: Earthstone Energy was an independent oil & gas exploration and production (E&P) company. Focused on acquiring, developing, and producing onshore crude oil, natural gas, and NGL reserves—primarily in the Midland Basin, Delaware Basin, and Eagle Ford trend in Texas, as well as the Williston Basin in North Dakota and Montana

Revenue/Profitability:

2023 TTM Revenue: Approximately $1.75 billion USD
Q3 2023 Financials:
- Total revenues of $475.8 million (9M 2023: $1.259 billion)
- GAAP net income of $87.2 million (9M: $255.8 million)
- Adjusted EBITDAX of $302.3 million (9M: $808.0 million)
- Free cash flow of $76.1 million in Q3 and $159.8 million YTD
- Historical growth: Revenue surged from ~$530 million in 2021 to ~$1.69 billion in 2022, and continued expanding in 2023

Market Position:

As of Q3 2023, Earthstone produced 117,000 Boe/d, up from 94,000 Boe/d in Q3 2022 (Barrels of oil equivalent per day)
Market Cap is around $3 billion, while Enterprise Value stands at $5.13 billion
It is positioned as a mid-cap E&P operator with strong profitability (EBITDAX margin, healthy free cash flow), especially given its asset concentration in top-tier basins

Deal Rationale

The deal was highly effective for both parties due to the following key strategic benefits:

Permian Resources gained significant scale and operational synergies by consolidating high-quality assets in the Delaware Basin, improving capital efficiency and boosting free cash flow per share.
The deal created the second-largest pure-play E&P operator in the Permian, enhancing Permian’s ability to return capital through dividends and buybacks.
Earthstone Energy shareholders benefited from a premium to market value and immediate ownership in a larger, more liquid, and better-capitalized entity.
The all-stock structure aligned incentives and maintained balance sheet strength, while $175 million in expected annual synergies supported long-term value creation for both sets of shareholders.

Deal Structure

Deal Structure
Element	Details
Cash/Stock Combo	All stock transaction
Consideration per Share	Earthstone shareholders received 1.446 shares of PR for each ESTE share Implied value of $18.64 per share, based on PR’s stock price at announcement
Financing Highlights	No new debt raised; funded entirely with stock issuance. Permian assumed ~$1.8 billion in Earthstone’s debt
Management/Governance Transitions	Permian’s existing leadership remained in place Earthstone’s CEO and executive team did not join Permian post-close
Ownership Split Post-Close	Permian shareholders: ~73% Earthstone shareholders: ~27%

Valuation and Premium

(As of Dec. 21, 2023)

Enterprise Value (EV): ~$4.05 B
Valuation Multiples
- EV/EBITDA: ~3.0× based on Earthstone’s standalone EV/EBITDA (2.9× for 4Q2023E, 2.6× for 2024E), vs. multiples of 3.3×–3.5× for peers
- EV/Revenue: ~2.31×
- P/E: ~7.21×
Premium: 8.06%
Comparison to Peers: Valuation multiples were considered significantly below peers in both EV/EBITDA and EV/Revenue

Financial Impact

Accretive/Dilutive: The deal was immediately accretive to free cash flow per share, with Permian projecting >30% accretion over the next 2 years.
Leverage Impact: Permian assumed ~$1.8 billion in Earthstone’s net debt, but the combined company maintained a strong balance sheet with low leverage (~1.0× Net Debt/EBITDAX) post-close
Synergies: Expected to generate ~$175 million in annual synergies, primarily from operational efficiencies and G&A cost reductions
ROI and Return: Management projected a double-digit IRR on the acquisition and sustained enhancement to long-term shareholder returns through disciplined capital allocation.

Deal Timeline

Deal Timeline
Milestone	Date
Announcement Date	August 21, 2023 – Definitive all-stock merger agreement announced
Due Diligence/S-4 Filing	September 6, 2023 – Form S-4 registration and joint proxy filed with the SEC
Record Date for Voting	September 20, 2023 – Permian Resources September 22, 2023 – Earthstone Energy
Shareholder Vote	October 30, 2023 – Both Permian and Earthstone shareholders unanimously approved the merger
Closing Date	November 1, 2023 – Transaction officially completed; Permian issued shares and assumed Earthstone debt

Market Reaction

Stock Price Response
- Earthstone (ESTE) stock jumped ~15% on the acquisition announcement
- Permian (PR) shares rose about 2–3%, signaling positive investor sentiment on the strategic value of the deal
Analyst Commentary
- Truist Securities noted the Permian Resources deal "will ultimately be one of the most accretive transactions in several quarters, based on the agreed price
- UBS noted the transaction was “consistent with prior deals while adding scale in Delaware to improve capital efficiency.”
Media Coverage
- Reuters: “Rather than pursue the common private equity acquisition, Permian is picking up another public company,” said Andrew Dittmar of Enverus Intelligence Research
- S&P Global Commodity Insights: “The transaction highlights the trend of public companies buying other public operators, reflecting the challenges of acquiring large-scale private E&Ps at attractive valuations,” said Andrew Dittmar, director at Enverus Intelligence Research.

Conclusion

This merger represents a calculated consolidation move that strengthens Permian Resources' position in the Delaware Basin. With over $175 million in annual synergies, low leverage, and strong free cash flow accretion, the deal aligns with Permian's disciplined growth strategy.

In addition, Earthstone shareholders largely benefited from an all-stock structure and premium that provided immediate value and long-term upside.

This transaction reflects a broader trend of public E&Ps prioritizing scale and efficiency through peer acquisitions rather than private equity deals. It also highlights Permian’s ability to pursue high-quality bolt-ons while preserving balance sheet strength and shareholder returns. Analyst sentiment and market reaction further underscore confidence in long-term value creation.

Ultimately, the $14 billion pro forma company created through this merger is now one of the largest pure-play operators in the Permian. As capital discipline and consolidation shape the U.S. shale landscape, this deal sets a benchmark for accretive, well-structured transactions. Investors will closely watch the execution of synergies and capital returns as Permian integrates Earthstone's assets.

Sources

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