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Oil and Gas: Diamondback and Endeavor's $26 Billion Merger Redefines Permian Basin

The new entity, valued at over $50 billion, will unite two major Permian Basin operators in the U.S.'s largest oil-producing area.
Post-announcement, Diamondback's shares increased 3% to $156, still 9% below their all-time high in October.
Diamondback Energy's acquisition of Endeavor Energy Resources for $26 billion will form the third-largest oil company in the Permian Basin.
The deal includes 117.3 million Diamondback shares and $8 billion cash, with the new company expected to produce 816,000 barrels per day across 838,000 net acres.

The new company formed from the merger will be valued at over $50 billion and can produce 816,000 barrels of oil and gas each day.

Diamondback's buyout of Endeavor happened about four months after ExxonMobil and Chevron made huge deals, with Exxon buying Pioneer Natural Resources for $59 billion and Chevron getting Hess for $53 billion. Even though 2023 was a slow year for company buyouts and mergers, with the total deals at $3.2 trillion (the lowest since 2013 and 47% less than the $6 trillion peak in 2021), the energy sector was still active. Experts think this buzz in energy deals is because these companies made a lot of money in 2022.

Key Background
Last year's merger wave in the shale sector revealed that U.S. energy companies might end up being more disciplined in production than OPEC+. This theory was supported recently when Diamondback Energy announced its acquisition of Endeavor Energy, a private Texas oil and gas producer, for $26 billion in cash and stock. This deal positions Diamondback as the third-largest oil producer in the Permian Basin and it becomes the largest operator focused solely on the Permian.

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To finance the acquisition, Diamondback will use 117.3 million shares and $8 billion in cash. Diamondback shareholders will control 60.5% of the merged entity post-deal, with the remaining ownership going to Endeavor's shareholders.

"Eventually there will be non-core asset sales. We still have some significant joint-venture interest...the Delaware Basin is going to get less capital than as a percentage of total than it did previously. But we're not a forced seller."

CFO Kaes Van't Hof

Fewer wells would be required to maintain production levels in 2025 and beyond, as both companies can operate efficiently using Diamondback's cost structure.

In recent months, Exxon acquired Pioneer Resources for about $60 billion, Chevron purchased Hess Corp for approximately $53 billion, and Occidental Petroleum took over CrownRock LP for around $10.8 billion.

In Midland, Texas, the core of the Permian Basin, Diamondback Energy, and Endeavor Energy are merging. Their combined output will be 816,000 barrels daily, outpacing Marathon Oil Corp. and Devon Energy Corp and behind Exxon-Pioneer's 1.3 million barrels and Chevron's 867,000 barrels in the Permian Basin.

Endeavor operates across approximately 350,000 net acres in the Midland area of the Permian Basin. It anticipates producing 350,000 - 365,000 barrels of oil equivalent per day in 2024.

Diamondback secured an $8 billion bridge loan from Citigroup Inc. for the acquisition, which includes a $1.4 billion termination fee. Following the closure, Diamondback plans a debt offering between $5 billion and $6 billion.

The purchase of Endeavor marks a strategic win for Diamondback. Endeavor, established by shale pioneer Autry Stephens, stands out among smaller Permian operators and has drawn interest from industry giants like Exxon Mobil Corp., Chevron Corp., and ConocoPhillips.

According to Dan Pickering, a shale finance veteran, the assets of both companies complement each other well, enhancing efficiency in crude production. This move allows Diamondback to remain competitive and independent amidst the merger trend. With the merger, the company will use fewer drilling rigs but still aims for future growth, noted Diamondback President Kaes Van’t Hof.

Diamondback plans to wrap up the deal by the end of this year. The Permian Basin is crucial for U.S. oil, helping the country outdo Saudi Arabia's production by 45% last year, thanks to its cost-effective and quick drilling. Even with the world trying to use less oil, demand is still expected to grow until 2030 and maybe even after that.

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