Earthstone Energy, Inc. (NYSE MKT: ESTE) (“Earthstone”) and Lynden Energy Corp. (TSX Venture: LVL; PINKSHEETS: LVLEF) (“Lynden”) today announced a definitive agreement (the “Agreement”) whereby Earthstone will acquire Lynden in an all-stock transaction (the “Transaction”). At closing, Earthstone will issue approximately 3.7 million shares of its common stock to Lynden stockholders, which will represent approximately 21% of Earthstone’s outstanding common stock following the closing.
The Transaction will create a growth-oriented company with a strong balance sheet and an asset portfolio focused on the Eagle Ford, Permian Basin, and Bakken, producing approximately 6,100 barrels of oil equivalent per day (“Boepd”). Earthstone’s existing senior management team will lead the combined company.
As previously disclosed, Lynden’s primary assets include:
– 14,765 gross / 5,883 net acres located in the core Midland Basin counties of Glasscock, Midland, Martin, and Howard, Texas.
— Working interests in 107 gross / 43.8 net vertical producing Wolfberry wells
— Working interests in 2 gross / 0.9 net recently drilled horizontal Wolfcamp wells in Glasscock County
— Working interests in 2 gross / 0.4 net horizontal wells in Martin County (1 gross Lower Spraberry well and 1 gross Wolfcamp well)
– Over 150 proved gross vertical Wolfberry locations on 20 to 40 acre spacing, with potential for 50 gross horizontal Wolfcamp A and B wells.
– Additional upside in the expanding horizontal Spraberry trend, multiple benches of the Wolfcamp, and the Cline.
– Further upside in 104,000 gross / 52,000 net acres in a single contiguous lease on the eastern shelf of the Permian Basin located in Coke, Mitchell, and Sterling Counties, Texas.
– Daily production of approximately 1,450 Boepd (53% oil, 77% liquids).
– As of June 30, 2015, SEC proved reserves totaled approximately 13.4 million barrels of oil equivalent (34% proved developed, 50% oil, 76% liquids), as prepared by Lynden’s independent reserve engineers, Cawley, Gillespie & Associates, Inc. The proved reserves exclude any associated reserves related to future horizontal development.
CrownQuest Operating LLC (“CrownQuest”) serves as operator of most of Lynden’s assets and has a well-deserved reputation as one of the premier operators in the Midland Basin. Lynden’s first two CrownQuest-operated horizontal Wolfcamp wells in Glasscock County, the Mallard 23 #1H and McDaniel 2413 #1H, were drilled during June and July 2015. The Mallard 23 #1H well has a lateral length of approximately 6,900 feet and was completed with 35 frac stages. Gross production at the wellhead averaged 505 Boepd (91% oil) in the first 60 days of production. The McDaniel 2413 #1H well has a lateral length of approximately 9,500 feet and was completed with 48 frac stages. Gross production at the wellhead averaged 600 Boepd (91% oil) in the first 60 days of production.
As previously disclosed, Earthstone’s most significant assets are located in the Eagle Ford trend of south Texas, and include:
– 39,875 gross / 19,575 net operated acres located in Karnes, Gonzales, and Fayette Counties, Texas that are being developed in the Eagle Ford and Austin Chalk formations.
— Working interests in 64 gross / 29.2 net Eagle Ford wells
— Working interests in 11 gross / 5.1 net Austin Chalk Wells
— The acreage is further prospective for the Upper Eagle Ford, Buda, and other formations
– Over 260 gross identified Eagle Ford drilling locations and 8 gross Austin Chalk drilling locations.
– Daily production of 4,646 Boepd (58% oil, 71% liquids) for the three month period ended September 30, 2015.
– As of June 30, 2015, SEC proved reserves, as prepared by management, totaled approximately 18.8 million barrels of oil equivalent (47% proved developed, 72% oil, 81% liquids).
Earthstone also has approximately 5,700 net core acres predominantly in McKenzie and Dunn Counties of North Dakota that are being developed in the Bakken and Three Forks formations.
– An average 4% working interest in approximately 140 gross producing wells.
— 30 gross wells currently being drilled or completed
— 200 gross drilling locations
Frank A. Lodzinski, President and Chief Executive Officer of Earthstone, commented, “Our acquisition of Lynden Energy is a pivotal event for our Company. We will diversify our asset base and move into attractive acreage with significant horizontal potential in the Midland Basin. We will also broaden our shareholder base through this all-stock deal. Many in the financial community will recall that in our prior public company, GeoResources, Inc. (NASDAQ: “GEOI”), we initially entered the Bakken shale play in the Williston Basin on a non-operated basis with another excellent operator and quickly established an operating presence thereafter. We intend to expand our presence in west Texas and pursue operated properties and acreage as our management team has done in each of our four prior public companies. While the transaction puts the Company in a new basin, rest assured that our management team has significant experience across the entire Permian Basin. For this transaction, we look forward to working with CrownQuest to maximize our respective interests. The acquisition of Lynden is consistent with our corporate strategy of gaining exposure to premium plays with low cost structures and compelling economics. Lynden’s assets are highly complementary to our existing assets in the Eagle Ford and Bakken.”
Colin Watt, President and Chief Executive Officer of Lynden, commented, “The business combination allows Lynden’s stockholders to combine with and realize the benefits of a much larger company driven by an experienced management team that has a successful track record in several prior public companies. On a combined basis, we will produce approximately 6,100 Boepd and have a management team with a plan and the capability to further expand in the current market environment. The combination should collectively enhance our access to capital and expand our shareholder base. Our assets provide Earthstone an opportunity to enter the prolific Permian Basin while giving the combined company greater scale, efficiencies, and market visibility.”
Transaction Details
Under the Agreement, Earthstone will issue a total of approximately 3.7 million shares of common stock to Lynden stockholders. Each Lynden stockholder will receive 0.02842 of a share of Earthstone stock in exchange for each share of Lynden common stock held, representing consideration to each Lynden stockholder of US$0.52 per share based on the closing price of Earthstone common stock on December 16, 2015. Following the Transaction, stockholders of Earthstone and Lynden are expected to own approximately 79% and 21%, respectively, of the combined company on a fully diluted basis.
Earthstone intends to refinance under its secured revolving credit facility all indebtedness of Lynden, consisting solely of US$37.2 million of borrowings under its revolving credit facility. As of September 30, 2015, the combined company would have had US$49.3 million in cash on hand and US$48.3 million drawn under a borrowing base of US$117.5 million. At closing, Earthstone anticipates that a new borrowing base will be established.
Approvals
The Boards of Directors of both companies have unanimously approved the Agreement. The Board of Directors of Lynden will recommend the approval of the Transaction to its stockholders, and determined that the consideration to be received by Lynden stockholders pursuant to the Agreement is fair from a financial point of view and has unanimously resolved to recommend a vote in favor of the Agreement. Completion of the Transaction is subject to the approval of Lynden stockholders, a final order from the court in British Columbia to approve the Agreement and the fairness of the terms and conditions of the Transaction, certain stock exchange approvals, and customary closing conditions. While a joint information statement/circular will be submitted to all Earthstone stockholders, the Transaction has been approved by the requisite majority pursuant to Earthstone’s certificate of incorporation which provides for approval via stockholder action by written consent.
Concurrently with the execution of the Agreement, Oak Valley Resources, LLC (“Oak Valley”), which owns approximately 66.0% of the outstanding shares of Earthstone common stock, executed a written consent in favor of the Transaction. Also, with the execution of the Agreement, the executive officers and directors of Lynden and affiliates of JVL Advisors, LLC, all in their capacities as stockholders of Lynden, each entered into a voting support agreement with Earthstone to vote in favor of the Transaction. Their shares of Lynden common stock constitute approximately 1% and 18%, respectively, of the total outstanding shares of Lynden common stock.
Complete details of the terms of the Transaction are set out in the Agreement, which will be filed by each of the parties and will be available for viewing under each company’s respective profile atwww.sec.gov, and in the case of Lynden, under its profile on www.sedar.com.
Conference Call
Earthstone and Lynden will host a joint conference call on Thursday, December 17, 2015 to discuss the proposed Transaction at 3:00p.m. EST. Investors may participate in the conference call via telephone by dialing (877) 407-8035 for domestic U.S. and Canadian callers or (201) 689-8035 for international callers, in both cases asking for the Earthstone / Lynden call a few minutes prior to the start time.
Advisors
SunTrust Robinson Humphrey, Inc. acted as exclusive financial advisor to Lynden. Vinson & Elkins LLP and Owen Bird Law Corporation acted as U.S. and Canadian counsel to Lynden, respectively. Jones & Keller, P.C. and Gowling Lafleur Henderson LLP acted as U.S. and Canadian counsel to Earthstone, respectively.
About Earthstone
Earthstone is a growth-oriented independent oil and gas exploration and production company engaged in the development and acquisition of oil and gas reserves through an active and diversified program that includes the acquisition, drilling and development of undeveloped leases, purchases of reserves, and exploration activities, with its current primary assets located in the Eagle Ford trend of south Texas and in the Williston Basin of North Dakota and Montana. Earthstone is traded on NYSE MKT under the symbol “ESTE.” Its corporate headquarters is located in The Woodlands, Texas. Additional information on Earthstone can be found at www.earthstoneenergy.com.
