Shares of Diamondback Energy Inc. surged after it announced a $26 billion cash-and-stock deal to acquire fellow Texan oil and gas producer Endeavor Energy Resources LP to create the largest operator focused on the prolific Permian Basin.
Diamondback (FANG) will fund the deal with 117.3 million shares and $8 billion in cash, the two Midland, Texas-based companies said in a statement Monday. Diamondback shareholders will own 60.5% of the company after the deal closes. Shareholders of Endeavor, which isn’t publicly traded, will own the rest.
Diamondback rose as much as 6.4% in New York, the most since April.
The agreement is the latest in a string of massive deals transforming the US energy landscape as companies push to line up future drilling sites and cut costs. Over the past four months, Exxon Mobil struck a deal to buy Pioneer Resources for about $60 billion, Chevron agreed to buy Hess for about $53 billion and Occidental Petroleum agreed to buy CrownRock for about $10.8 billion.
Diamondback shares rose 0.5% before the start of regular trading in New York.
The consolidation marks a maturing of the long-fragmented shale industry, which has traditionally had few players of significant size and struggled to attract mainstream investors. It comes as publicly traded producers face pressure from investors to keep buybacks and dividends flowing even as many of the top drilling sites have been tapped.
Acquiring Endeavor is a resounding coup for Diamondback. The company, founded by shale pioneer Autry Stephens, is one of the last remaining closely held producers in the Permian. It has attracted the interest of Exxon, Chevron and ConocoPhillips.
Diamondback and Endeavor’s assets compliment each other very well, paving the way for the combined company to produce crude more efficiently, said Dan Pickering, who is founder and chief investment officer of Pickering Energy Partners and helped finance the shale revolution.
The two companies, headquartered across the street from one another in Midland, the heart of the Permian, will have a combined 838,000 net acres and have net production of 816,000 barrels of oil equivalent, according to the statement.
The move also appears to be somewhat defensive for Diamondback, putting the company in better position to survive the ongoing merger wave as an independent operator, according to Bloomberg Intelligence.
The deal, which includes Endeavor’s net debt, has been approved by Diamondback’s board. The company will fund the cash portion of it through a combination of cash on hand, its credit facility, term loans and bonds. Diamondback expects the deal to close in the fourth quarter.
The Permian Basin, straddling West Texas and New Mexico, is the cornerstone of oil-production growth in the US. The nation’s output surged to a record high last year — besting Saudi Arabia by about 45% — thanks largely to wells in the Permian that can be drilled and fracked cheaper and faster than those in many other regions.
Oil remains in high demand globally despite efforts to transition away from it, with consumption expected to rise through 2030 — and perhaps beyond.
Jefferies was Diamondback’s lead financial adviser on the deal. JP Morgan advised Endeavor.
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