Penn Virginia Corp. agreed to acquire Lonestar Resources US Inc. in an all-stock transaction valued at about $370 million, which Penn Virginia President and CEO David Henke said will expand the Houston-based company’s Eagle Ford footprint.

“This transaction further solidifies the company’s position as a premier Eagle Ford operator and provides additional scale and synergies while still delivering operational excellence,” commented Henke in a company release on July 12.

“The benefits of basin consolidation are very compelling, and we strongly believe this is a value-creating opportunity for both companies,” Henke also said in his statement.

As of March 31, Lonestar, an independent E&P based in Fort Worth, Texas, held approximately 72,682 gross (53,550 net) acres in the crude oil and condensate windows of the Eagle Ford Shale. Penn Virginia expects the acquisition of Lonestar to increase its inventory locations by 50% to 750 gross locations, according to its release.

Also, in addition to expected annual synergies of over $20 million, Penn Virginia said the acquisition improves projected 2021 free cash flow per share by approximately 30%. The company also expects the additional scale to allow for further potential consolidation opportunities.

“In today’s environment, size and scale are paramount, both in terms of operations and in the public markets,” added Lonestar CEO Frank D. Bracken III in the release. “The merger exposes Lonestar shareholders to a substantially larger, more liquid, publicly-listed platform and the combination of the two companies’ high quality, liquids-focused operations should provide significant benefit to both shareholder groups, positioning the company as a dominant force in the Eagle Ford Shale.”

Under the terms of the merger agreement, Lonestar shareholders will receive 0.51 shares of Penn Virginia for each Lonestar share. Upon completion, Penn Virginia shareholders will own approximately 87% of the combined company, with  Lonestar owning the remaining 13%.

The Lonestar acquisition follows closing of a strategic investment in Penn Virginia by Juniper Capital Advisors LP earlier this year. The investment included $188.4 million consisting of  $150 million in cash plus the contribution of assets from its portfolio company, Rocky Creek Resources.

Commenting on the Lonestar acquisition, Edward Geiser, managing partner of Juniper Capital who joined the Penn Virginia board as chairman as part of the investment, said: “This is exactly the type of accretive Eagle Ford consolidation we have been targeting and creates a significant opportunity for investors.”

“Penn Virginia and Lonestar fit well strategically,” he continued, “and the combined company will be stronger across key financial metrics, will operate more efficiently than each company standalone, and will continue Penn Virginia’s commitment to environmental and social stewardship.”

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In his statement, Geiser also noted that the Lonestar team will be actively screening for additional attractive consolidation opportunities going forward.

The Lonestar transaction value is comprised of about 5.9 million shares of Penn Virginia common stock and the assumption of approximately $236 million of net debt.

The closing of the transaction is expected in the second half of 2021 and is subject to customary closing conditions, including the approval of Penn Virginia and Lonestar shareholders.

Following the closing, Lonestar will have the right to nominate one independent director to the Penn Virginia board of directors.

Evercore, BofA Securities, and RBC Capital Markets, LLC are financial advisers to Penn Virginia. Kirkland & Ellis LLP is Penn Virginia’s legal adviser. Barclays Capital is financial adviser to Lonestar. Vinson & Elkins LLP is Lonestar’s legal adviser.

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