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Diamondback Wraps Up Permian Divestitures, Sets Sights on Midstream Deals
06/14/2023![Diamondback-Wraps-Up-Permian-Divestitures-Sets-Sights-on-Midstream-Deals](https://images2.rextag.com/public/blog/156Blog_Diamondback Closes Permian Divestitures_ Eyes More Midstream Sales.png)
Diamondback Energy is on a roll! In the first quarter, they made impressive strides towards their goal of divesting $1 billion in non-core assets by year-end. They successfully sold their upstream and midstream assets, marking a significant achievement.
During this period, Diamondback closed two major deals in Texas, selling around 19,000 net acres in Glasscock County and an additional 4,900 acres in Ward and Winkler counties. These deals, initially announced in the company's fourth-quarter earnings report, generated $439 million.
Diamondback Energy remains dedicated to optimizing its portfolio and maximizing value for stakeholders. Their progress in shedding non-core assets showcases their strategic focus and commitment to delivering strong results. Exciting times ahead for Diamondback Energy!
Strategic Divestitures and Expansions in Permian Basin
- Diamondback expects a decrease in companywide production by approximately 2,000 bbl/d of crude oil or 7,000 boe/d due to Permian divestitures.
- The company completed a divestiture of royalty interests to its subsidiary, Viper Energy Partners LP, acquiring 819 net royalty acres for $115.8 million, including a $75.1 million dropdown from Diamondback.
- Diamondback has successfully sold $773 million in assets, excluding the Viper dropdown, since announcing its original target, surpassing the initial $500 million goal.
- Initially planning to raise $500 million through asset sales, Diamondback raised its divestiture target to $1 billion earlier this year.
- These acquisitions added 500 drilling locations and are expected to boost Diamondback's 2023 production profile by around 37,000 bbl/d of oil (50,000 boe/d).
In terms of expansion, Diamondback closed a $1.55 billion acquisition of Lario Permian LLC and a $1.75 billion acquisition of FireBird Energy LLC, increasing its presence in the Midland Basin by approximately 83,000 net acres.
Diamondback's Strategic Push to Monetize Midstream Assets
“I can't guarantee it's going to happen today, but certainly there's a few things in the works, either on the JV [joint venture] side or some of the small operated midstream assets that could be up for sale,” Van’t Hof, Diamondback President and CFO.
Diamondback Energy, a prominent player in the energy sector, has doubled its divestiture target to a staggering $1 billion, driven by the potential monetization of its midstream holdings. The company's President and CFO, Kaes Van't Hof, revealed this ambitious plan during the fourth-quarter earnings call in February.
In line with their strategy, Diamondback wasted no time and swiftly made a significant move in the first quarter. They successfully sold a 10% equity ownership in the highly sought-after Gray Oak crude pipeline for a remarkable $180 million. This pipeline, boasting a capacity of 900,000 barrels per day, serves as a vital conduit for transporting crude oil from the Permian Basin and the Eagle Ford Shale to the Gulf Coast's demand centers.
Adding to the excitement, Enbridge Inc., a Canadian midstream powerhouse, seized the opportunity and acquired an additional 10% interest in the Gray Oak pipeline from Diamondback's subsidiary, Rattler Midstream, in January. This strategic acquisition not only enhances Enbridge's portfolio but also strengthens Diamondback's commitment to unlocking the full value of its midstream assets.
Beyond the Gray Oak pipeline, Diamondback Energy holds equity interests in various other midstream assets, including long-haul product pipelines and advanced in-basin processing and gathering systems. During the first-quarter earnings call on May 2, Van't Hof expressed confidence in the likelihood of selling these assets throughout the year, stating that they have "a pretty high probability" of being divested. He further hinted at potential joint ventures and the possible sale of smaller operated midstream assets, indicating that negotiations are already underway.
Financial Performance Update
- Diamondback, a leading energy company, has reported impressive production figures for the first quarter.
- The company's average daily production reached 251,400 barrels of oil per day (bbl/d) or 425,000 barrels of oil equivalent per day (boe/d).
- This represents a significant increase compared to the previous quarter, where the average daily production was 226,100 bbl/d (391,400 boe/d) in the fourth quarter of 2022.
- Looking ahead to 2023, Diamondback maintains a positive outlook for crude oil production.
- The company expects production levels to remain consistent, ranging between 256,000 bbl/d and 262,000 bbl/d, aligning with its previous forecasts.
- Net production is projected to range between 430,000 boe/d and 440,000 boe/d for the entire year.
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US Midstream Research 2022 Overview: TOP Providers, Their Assets and Stories
![$data['article']['post_image_alt']](https://images2.rextag.com/public/blog/R 161_ Blog - US Midstream Research Overview TOP Providers, Their Assets and Stories.png)
The midstream sector plays a vital role in the oil and gas supply chain, serving as a crucial link. As the energy transition continues, this industry, like the broader sector, encounters various risks. Yet, existing analyses have predominantly concentrated on the risks faced by the upstream and downstream sectors, leaving the fate of the midstream relatively unexplored. In a nutshell, midstream operators differentiate themselves by offering services instead of products, resulting in potentially distinct revenue models compared to extraction and refining businesses. However, they are not immune to the long-term risks associated with the energy transition away from oil and gas. Over time, companies involved in transporting and storing hydrocarbons face the possibility of encountering a combination of reduced volumes, heightened costs, and declining prices.
Civitas Makes $4.7B Entry into Permian Basin
![$data['article']['post_image_alt']](https://images2.rextag.com/public/blog/163Blog_Hibernia and Tap Rock Combine Forces Across Texas and New Mexico.png)
Civitas Resources Expands into Denver-Julesburg Basin through $4.7B Cash and Stock Deals for NGP's Tap Rock and Hibernia. Civitas Resources has recently secured two definitive agreements to expand its presence in the Permian Basin's Midland and Delaware basins. The company will achieve this expansion through the acquisition of two private exploration and production companies, namely Hibernia Energy III LLC and Tap Rock Resources LLC. The total value of the deal, paid in both cash and stock, amounts to $4.7 billion. Both Hibernia Energy III LLC and Tap Rock Resources LLC are supported by NGP Energy Capital Management LLC. These acquisitions reflect the increasing demand for oil and gas reserves in the Permian Basin, with companies specializing in the region actively seeking new opportunities. Currently, Civitas Resources' primary production operations are focused in the Denver-Julesburg Basin (D-J Basin).
![$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.
![$data['article']['post_image_alt']](https://images2.rextag.com/public/blog/282_Blog_Renewable Natural Gas How RNG Changes the Industry.jpg)
The renewable natural gas (RNG) industry in the United States is showing promising signs of growth. As of 2019, the U.S. consumed 261 billion cubic feet (BCF) of RNG, primarily utilized by independent power producers, electric utilities, and various commercial and industrial entities. However, this figure represents only a small fraction of its potential. Research indicates that the U.S. could theoretically produce up to 2,200 BCF of RNG through anaerobic digestion alone, which would equate to about 11% of daily national natural gas consumption.
![$data['article']['post_image_alt']](https://images2.rextag.com/public/blog/295_Blog_Renewable Efforts Lag as Global Oil and Gas Demand Continues to Rise.jpg)
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.