Earthstone Energy has agreed to acquire Novo Oil and Gas Holdings, a Delaware Basin-focused oil and gas company backed by EnCap Investments, for a total of $1.5bn.

Simultaneously, Northern Oil and Gas will acquire around 33.3% working interests in Novo’s oil and gas assets from Earthstone, for a total of $0.5bn.

Earthstone’s retained 66.6% interest will result in a net purchase price of $1bn.

The acquisition, effective 1 May 2023, is expected to be completed in the third quarter of this year, subject to customary closing conditions.

Earthstone intends to fund the acquisition using cash on hand and borrowings under its senior secured revolving credit facility.

In addition, it has secured $250m of incremental commitments from existing lenders.

Earthstone president and CEO Robert J Anderson said: “Over the past few years, we strategically positioned the Company as a significant operator in the Permian Basin.

“In 2022, we materially advanced our consolidation strategy, closing three accretive acquisitions totaling ~$2.0 billion, including two significant northern Delaware Basin asset acquisitions.

“I am pleased that we are continuing to further our consolidation strategy with today’s announcement of the Novo Acquisition as we further build our northern Delaware Basin asset base.”

Earthstone said that the transaction will enhance its operational and financial performance, and strengthen its position as a consolidator in the Permian basin.

The company intends to maintain its five operated drilling rigs after closing.

It intends to move one of its two currently operating drilling rigs in the Midland Basin to the Delaware Basin, to increase focus on the Novo assets.

Upon closing, Earthstone will have four rigs operating in the Delaware Basin and one in the Midland Basin.

Truist Securities served as the exclusive financial advisor to Earthstone, Raymond James & Associates as financial advisor, and offered a fairness opinion to its Conflicts Committee.

RBC Richardson Barr served as exclusive financial advisor to Novo, while Kirkland & Ellis served as legal advisors to Earthstone, Richards, Layton & Finger to Earthstone’s Conflicts Committee, and Vinson & Elkins to EnCap and Novo.