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Diamondback Sells More After Hitting $1B Target
08/10/2023![Diamondback-Sells-More-After-Hitting-1B-Target](https://images2.rextag.com/public/blog/169Blog_Diamondback announces $1.1 Billion in asset sales since program start.png)
Diamondback Energy sold more midstream assets in Q2 as part of a $1B plan to shed non-core assets, reducing debt in the Permian Basin.
In July, Texas-based Diamondback Energy Inc. sold a 43% stake in the OMOG crude oil system, revealing this in its Q2 earnings on July 31. OMOG JV LLC, running 400 miles of pipelines and 350,000 bbl of storage in Midland, Martin, Andrews, and Ector counties, was detailed in Diamondback's filings. The sale provided $225 million in gross proceeds. Diamondback has announced or completed $1.1 billion in non-core asset sales since initiating the program. Initially aimed at raising $500 million, the 2023 target was increased to $1 billion.
Deal Details
- Diamondback exceeded its $1 billion divestiture target by year-end, possibly eyeing more asset sales.
- As of July 31, TD Cowen analysts noted $742 million in assets held for sale at Q2's end, hinting at likely further cash reserves to favorably increase capital returns.
- This is up from the $143 million in assets held for sale reported after Q1 earnings in May.
- Diamondback's balance sheet also reflected $587 million in equity method investments at the close of the second quarter.
Managing Director Gabriele Sorbara of Siebert Williams Shank & Co. remarked in an Aug. 1 report that Diamondback hasn't increased its non-core asset sale target, yet it still holds considerable value in midstream assets and equity investments that might be monetized later.
Diamondback has utilized the proceeds from asset sales to reduce debt. The company's total debt decreased to roughly $6.7 billion in Q2, down from about $7 billion the prior quarter.
The ongoing plan for the company includes further debt reduction in Q3 through the generation of free cash flow, proceeds from pending divestitures, and a reduction in its income tax receivable.
Diamondback's Divestitures
During the quarter, Diamondback emphasized its divestments while also advancing its efforts in leasing negotiations, according to the company's President and CFO, Kaes Van’t Hof, who spoke about it on the Aug. 1 earnings call with analysts.
Diamondback invested $145 million in property acquisitions in the second quarter, in connection with leasing activities in the Permian Basin.
Van't Hof mentioned, “We've been exploring the leasing of some of the deeper rights within the Midland Basin across some of our holdings, and this is connected to some of those purchases reflected in the cash flow statement.”
Diamondback's business development team is actively extending offers for undeveloped interests and positions that the company does not own within its areas of operation.
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SM Energy Acquires 20,000 Acres in Texas for $90.6M
![$data['article']['post_image_alt']](https://images2.rextag.com/public/blog/171Blog_SM Energy Buys 20,000 Acres in Dawson and north Martin Texas in Q2 2023.png)
SM Energy acquired 20,000 net acres in Dawson and north Martin counties in Texas, completing the transaction in cash. SM Energy Co., based in Denver, intends to expand on its success from the second quarter by increasing its drilling and completion activities in the coming quarter. This plan also includes preparations to develop the newly acquired land in the Midland basin. In June, the company's president and CEO, Herb Vogel, along with his team, raised their target for total oil and gas production for the second quarter to 13.9 MMboe, up from 13.4 MMboe. They exceeded this target, reaching nearly 14.1 MMboe, with oil making up 42% of that figure. During the quarter, SM Energy drilled 17 wells, with 12 located in South Texas and five in the Midland basin. They also completed 25 wells, 17 of which were in the Midland basin.
Anticipated Growth: Endeavor Energy's Value Nearing $30 Billion
![$data['article']['post_image_alt']](https://images2.rextag.com/public/blog/206Blog_Endeavor Energy’s Value Nearing 30 Billion.png)
This summer, J.P. Morgan Securities highlighted Endeavor Energy Resources as the Midland Basin's standout in mergers and acquisitions, suggesting its value might approach $30 billion. Endeavor Energy Resources, a privately-owned entity in Midland focusing solely on its operations, has seen a significant uptick in production. It now boasts a production rate of 331,000 barrels of oil equivalent per day (boe/d), marking a 25% increase from the previous year.
![$data['article']['post_image_alt']](https://images2.rextag.com/public/blog/297_Blog_Keystone XL Pipeline Controversy and Wildlife Disaster From Trump's Green Light to Biden's Red Light on the 15 Billion Project.jpg)
The pipeline industry in the USA faced and still faces a range of regulatory challenges, including permitting delays, environmental requirements, and public opposition to pipeline projects. In recent years, pipeline projects like the Keystone XL and Dakota Access pipelines had legal and regulatory obstacles that delayed or canceled their construction. Keystone XL Pipeline, proposed by TransCanada in 2008, aimed to transport crude oil from Canada (around Calgary and Edmonton) to refineries on the Gulf Coast (Port Arthur). The project faced opposition from environmental groups and indigenous communities, who argued that it would contribute to climate change and pose a risk to water resources. In 2015, President Obama rejected the project, citing concerns about its environmental impact. However, in 2017, President Trump revived the project, leading to further legal challenges. In June 2021, U.S. President Joe Biden officially canceled the project on his first day in office.
![$data['article']['post_image_alt']](https://images2.rextag.com/public/blog/282_Blog_Renewable Natural Gas How RNG Changes the Industry.jpg)
The renewable natural gas (RNG) industry in the United States is showing promising signs of growth. As of 2019, the U.S. consumed 261 billion cubic feet (BCF) of RNG, primarily utilized by independent power producers, electric utilities, and various commercial and industrial entities. However, this figure represents only a small fraction of its potential. Research indicates that the U.S. could theoretically produce up to 2,200 BCF of RNG through anaerobic digestion alone, which would equate to about 11% of daily national natural gas consumption.
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Recently, the progress toward an energy transition is hitting a snag. Sales of electric vehicles are decelerating, and the growth in wind and solar power needs to be keeping pace with expectations. To make matters more challenging, electricity prices are climbing when they were expected to fall. Amidst these setbacks, the oil and gas sectors are proving resilient. According to BP's latest energy outlook, not only are these energy mainstays here to stay, but their demand is expected to remain relatively high even after reaching a peak. Interestingly, BP forecasts that oil demand will reach its zenith next year, marking a critical moment in energy consumption trends. This isn't the first time BP has projected a peak in oil demand. Back in 2019, their review anticipated a decline in demand growth, but the prediction fell flat. Instead, oil demand surged to unprecedented levels following the end of the global pandemic lockdowns, defying previous forecasts and underscoring the enduring dominance of traditional energy sources in the global market.