Lonestar Resources Provides Operations Update Following Merger Announcement

Lonestar Resources US Inc., an independent E&P based in Fort Worth, Texas, provided an update on its operations on July 15, days after agreeing to merge with fellow Eagle Ford operator Penn Virginia Corp.

“Our 2021 capital program continues to deliver new extended reach laterals on-time and on-budget,” commented Lonestar CEO Frank D. Bracken III in a company release.

So far in 2021, Lonestar has placed 7.0 gross (5.5 net) wells onstream and is currently conducting drilling operations on a three-wellpad, all located in the company’s Hawkeye and Horned Frog areas in the Eagle Ford Shale.

Hawkeye (Gonzales County, Texas)

• In February, Lonestar began flowback operations on 3.0 gross (1.5 net) wells, the Hawkeye 33H, Hawkeye 34H, and Hawkeye 35H. These wells recorded initial rates over a 30-day period of 909 boe/d, 91% of which was crude oil. Recently, Lonestar introduced artificial lift operations on these wells, and they have responded favorably, logging average rates over the first 90 days of production of 784 boe/d. The company holds a 50% working interest / 38% net revenue interest in these wells.
• Lonestar is currently drilling a three-wellpad for the Hawkeye #9H, #10H and #11H wells, which are expected to have perforated intervals exceeding 11,000 ft.

Horned Frog West (Dimmit County, Texas)

• In March, Lonestar began flowback operations on 2.0 gross (2.0 net) wells on its Horned Frog West property, the Horned Frog West #1H and #2H. Lonestar has a 100% working interest / 78% net revenue interest in these wells. These wells, which have average perforated intervals of 7,496 ft, have registered average Max-30-day rates of 629 bbl/d of oil, 197 bbl/d of NGL, and 2,246 Mcf/d of natural gas, or 1,200 boe/d on a three-stream basis.

Horned Frog (Dimmit and La Salle counties, Texas)

• On June 14, Lonestar commenced flowback operations on 2.0 gross (2.0 net) wells on its Horned Frog South property, the Horned Frog Alderman #1H and #2H. Lonestar has a 100% working interest / 77.96% net revenue interest in these wells. These wells were drilled to an average total depth of 22,025 ft and had perforated intervals averaging 12,012 ft with proppant concentrations averaging 2,029 lb/ft. Over the last 22 days, these two wells are currently producing an average of 816 bbl/d of oil, 606 bbl/d of NGL and 5,716 Mcf/d of natural gas, equating to 2,302 boe/d on a three-stream basis, which is materially higher than the third-party forecast, particularly with respect to oil volumes, which are almost twice the forecasted rates.

The wells already onstream, according to the company release, have increased estimated production for the month of June by 23% to approximately 12,750 boe/d. Production consists approximately 6,400 bbl/d of crude oil, 2,600 bbl/d of NGL and 22,500 Mcf/d of natural gas.

As a result, Bracken noted Lonestar is currently on track to deliver production results at the high end of its guidance for the second quarter of between 11,500 and 12,000 boe/d. Additionally, the production results indicate exceptional rates of return with adjusted EBITDAX expected to be $23 million, exceeding the high end of Lonestar’s second-quarter guidance of $20 million to $22 million.

On July 12, Lonestar agreed to be acquired by Houston-based Penn Virginia in an all-stock transaction valued at about $370 million. 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.

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Eagle Ford Producers Penn Virginia, Lonestar to Combine in $370 Million Deal

In a July 12 release announcing the transaction, Bracken commented that the merger exposes Lonestar shareholders to a substantially larger, more liquid, publicly-listed platform, “positioning the company as a dominant force in the Eagle Ford Shale.”

“In today’s environment, size and scale are paramount, both in terms of operations and in the public markets,” he said in the release.

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%.

Following the closing, Lonestar will also 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 for the transaction. Kirkland & Ellis LLP is Penn Virginia’s legal adviser. Barclays Capital is financial adviser to Lonestar. Vinson & Elkins LLP is Lonestar’s legal adviser.