Earthstone continued the trend of consolidation today with the announcement of their acquisition of Independence Resource Management, a Warburg backed Midland basin company. Some metrics:

• an announced PV 10 of the PDP of $173 mm against a purchase price of $185.9 mm
• trailing 12 month EBITDA of $81.3 mm (but note in included 6 months pre CV prices)
• 4,900 acres with 70 locations having an IRR of 45%
• About 65% cash (~135 mm) and the rest in stock

Some takeaways:  All the rock worth owning is owned by someone in some capital structure and bolting on and cutting G&A is the best (and only) way to maximize value and running room. But, when you look at the valuation (~PDP PV9) public companies trade at substantial premiums to private transactions and that will remain an anchor on public equities WHEN YE20 numbers reveal PDP only values.

Not surprisingly, the market likes the deal for Earthstone, trading them up 12%, but it’s the implications in the asset market that PE should be paying attention to.

#hottakeoftheday