The leading U.S. shale oilfield is rapidly consolidating as U.S. oil producer Diamondback Energy (FANG.O), announced on Monday that it would acquire privately owned rival Endeavour Energy Partners for $26 billion in cash and stock.
In the Permian Basin of West Texas and New Mexico, the combined business would rank third in terms of oil and gas production, behind only Exxon Mobil (XOM.N), and Chevron (CVX.N), both of which have recently announced acquisitions.
The transaction takes place in the midst of a wave of basin consolidation aimed at securing future drilling inventory and increasing ongoing output.
With 816,000 barrels of oil and gas produced daily (boepd), the combined business would trail only Exxon-Pioneer’s 1.3 million boepd and Chevron’s 867,000 boepd in the basin.
CFO Kaes Van’t Hof told investors in a call that both businesses could run a full business on Diamondback’s cost structure, and that fewer wells would be required to keep production level in 2025 and beyond.
The transaction takes place in the midst of a wave of basin consolidation aimed at securing future drilling inventory and increasing ongoing output.
With 816,000 barrels of oil and gas produced daily (boepd), the combined business would trail only Exxon-Pioneer’s 1.3 million boepd and Chevron’s 867,000 boepd in the basin.
CFO Kaes Van’t Hof told investors in a call that both businesses could run a full business on Diamondback’s cost structure, and that fewer wells would be required to keep production level in 2025 and beyond.
In early morning trade, Diamondback’s shares were up almost 10% at $166.93. Reuters had reported on the merger negotiations between Endeavour and Diamondback on Sunday, citing sources.
Approximately 117.3 million shares of Diamondback common stock and $8 billion in cash are exchanged in the Endeavour purchase agreement. The business that would become Endeavour was founded by Texas oilman Autry Stephens, and the transaction occurs over 45 years after that.
Because of its relatively low debt-to-capital ratio of 23%, Diamondback would be able to pay the significant cash component and maintain a healthy balance sheet, according to Tim Rezvan, an analyst at KeyBanc Capital Markets.
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The combined business would be the only pure-play producer of Permian oil apart from Pioneer, which Exxon is buying.
According to senior vice president Andrew Dittmar of the data analytics company Enverus, such status will make this”a very attractive investment on Wall Street”.
“The fact that Diamondback is based in Midland also keeps the business local and eases the transition for the Endeavor team,” he said.
With their 39.5% ownership in the combined company, the acquisition also ensures that Endeavour founder Stephens and other shareholders will continue to have influence in the business.
Stephens expanded Endeavour by purchasing his rivals’ abandoned land and successfully extracting gas and oil.
In the Midland region of the Permian, Endeavour operates on roughly 350,000 net acres. By 2024, it hopes to produce between 350,000 and 365,000 barrels of oil equivalent per day.
Diamondback anticipates that the transaction will close in the fourth quarter, with its investors expected to hold 60.5% of the combined company and Endeavour holding the remaining shares.
