Fitch moves Earthstone view to positive

Fitch Ratings said it revised its outlook for Earthstone Energy, Inc. and Earthstone Energy Holdings, LLC to positive from stable and affirmed their B+ issuer default ratings. The agency also affirmed the BB+/RR1 ratings on Earthstone's senior secured reserve-based loan credit facility and the B+/RR4 ratings on its senior unsecured bonds.

The positive outlook reflects the announcement that Earthstone has entered into an agreement to acquire Novo Oil & Gas Holdings, LLC (Novo) for $1.5 billion. Concurrently, Northern Oil & Gas, Inc. will acquire a one-third working interest in Novo for $500 million, resulting in a net $1 billion purchase price to Earthstone. The transaction is expected to close in 3Q23,” Fitch said in a press release.

The agency said it expects the deal to substantially boost Earthstone’s production size and proved reserves base and will immediately add to its free cash flow. Earthstone is expected to use cash and RBL borrowings to fund the deal.

“It will increase absolute debt and modestly increase leverage; however, the company will maintain clear headroom under Fitch's EBITDA leverage sensitivity with leverage projected to remain between 1x and 1.5x throughout Fitch's forecast,” the agency said.

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