Earthstone Energy Inc. (NYSE MKT: ESTE) and privately-held Oak Valley Resources LLC jointly announced today that they have entered into an agreement with Parallel Resource Partners LLC and Flatonia Energy LLC, a Parallel-managed portfolio company, to acquire a stake in a horizontal Eagle Ford project.
Denver’s Earthstone and Houston-based Oak Valley bought an undivided 20% interest the development project located in Fayette and Gonzales counties, Texas, in exchange for the issuance to Flatonia of about 2.957 million shares of Earthstone common stock.
After the transaction, Flatonia will continue to hold a 50% undivided interest in the project and an Oak Valley subsidiary, which will then be owned by Earthstone, will hold the remaining 50%. The transaction is specifically subject to Earthstone and Oak Valley closing their previously announced strategic combination.
At closing, Flatonia will own a 21.4% equity interest in the combined company, while Oak Valley and the current Earthstone stockholders will own 66% and 12.6%, respectively.
The effective date of the Flatonia transaction will be July 1 and the agreement provides for customary post-effective date financial adjustments which will be made in cash. The transaction is expected to close concurrently with or immediately after the closing of the strategic combination.
Currently, Flatonia owns a 70% undivided interest, and an Oak Valley subsidiary owns a 30% undivided interest in this horizontal development project that is operated by Oak Valley.
Upon closing, the working interests in producing wells and acreage collectively owned by the parties will be owned 50% each. As of October 1, Flatonia and Oak Valley collectively held interests in 47 operated wells and five nonoperated wells and 47,200 net acres.
With the Flatonia transaction, working interests in operated producing wells range from 38% to 50%, depending on the extent of acreage contributed to the unit. Current operated gross field production is approximately 6,300 barrels of oil equivalent per day (90% oil).
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