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$1.55 Billion Deal, Diamond Energy Acquires Lario Permian12/14/2022
On November 16 Diamondback Energy Inc. decided to expand in the Midland portion of the Permian Basin with the acquisition of Lario Permian LLC in a $1.55 billion cash-and-stock transaction.
The Permian operator announced another billion-dollar agreement to purchase FireBird Energy LLC, a private Midland Basin operator. In total, Diamondback is paying almost $3.3 billion to extend in the Midland Basin.
When combined with the pending FireBird acquisition, Diamondback is increasing its Midland Basin footprint by roughly 83,000 net acres, is adding 500 high-quality drilling opportunities that compete for capital with the current development plan and is raising the 2023 production profile by almost 37,000 bbl/d of oil (50,000 boe/d).
In 2007, Diamondback started with 10,000 acres in Midland Basin and has since built up to 500,000 acres in the Permian today.
The acquisition of Lario Permian adds about 25,000 gross (15,000 net) acres and over 150 gross locations in the core of the northern Midland Basin. Full-year 2023 estimated average production of about 18,000 bbl/d of oil (25,000 boe/d).
Founded in 1927, Lario Oil & Gas has operated throughout both the U.S. and Canada concentrating its resources and capital on rate-of-return driven projects. Over the last several years, Lario divested over $500 million worth of properties, according to the company website.
Lario buys a chunk of its Permian footprint in 2017 with the $345 million acquisition of 10,000 net acres mainly in Midland and Martin counties.
Meanwhile, Diamondback purchases all leasehold interest and related assets of Lario Permian from Lario Oil & Gas and certainly associated sellers in exchange for 4.18 million shares of Diamondback common stock and $850 million of cash.
The cash portion of this transaction is anticipated being funded through a combination of cash on hand, borrowings under the Diamondback’s credit facility, and/or proceeds from senior notes offering.
The cash outlay at closing is anticipated being roughly $775 million because of the expected free cash flow to be generated by the bought assets between the deal's effective date of November 1 and the closing date, which is expected to be January 31.
The transaction is estimated at almost 3.3x 2023 EBITDA with a 21% unlevered free cash flow yield at strip pricing. According to the company release, it is reducing the operated rig count from 2 now to 1 or less post-closing for 2023 development.
Jefferies LLC is serving as financial adviser to Diamondback and Kirkland & Ellis LLP is serving as legal adviser to Diamondback.
J.P. Morgan Securities LLC is serving as financial adviser to Lario and the associated sellers and Vinson & Elkins LLP and Boigon Law Ltd. are serving as legal advisers to Lario and the associated sellers.
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