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Why This Matters: Diamondback and Endeavor’s $26 Billion Merger Creates a Permian Titan

What happens when two giants merge to form an oil empire?

Diamondback Energy has just completed a massive $26 billion merger with Endeavor Energy Resources, following months of review by the Federal Trade Commission (FTC).

The outcome? A powerful new player in the oil industry, poised to transform production in the Permian Basin, one of the richest shale regions in the world. Analysts are calling this merger a game-changer, as Diamondback and Endeavor now control a vast expanse of oil-rich land, referred to as the "last and best oil sandbox" for its potential to maximize production using advanced technology.

The Legacy of a Wildcatter

The roots of Endeavor run deep, founded by legendary wildcatter Autry C. Stephens, who passed away at 86 just before the merger was completed. Known for his relentless pursuit of oil, Stephens built Endeavor into a powerhouse, leaving behind a legacy that now forms the backbone of Diamondback’s future in the Permian Basin.

A Deal Built on Patience and Persistence

Getting here wasn’t easy. Diamondback had to navigate not one, but two exhaustive reviews by the FTC, which were in part triggered by broader investigations into the communications between major U.S. oil companies and OPEC. Along the way, rumors swirled that Diamondback, alongside other energy giants like Hess and Occidental Petroleum, was under scrutiny for potential coordination with the oil cartel. But despite these hurdles, the deal pushed through, changing the landscape of U.S. oil production.

The Numbers Behind the Mega-Merger

So, what does this $26 billion price tag mean? At its core, the deal boils down to land and drilling potential. Endeavor’s 344,000 net acres in the Midland Basin come with roughly 2,300 prime drilling locations. That puts the price at about $31,200 per acre and $4.7 million per location, according to analyst David Deckelbaum of TD Cowen.

The merger will significantly boost Diamondback’s oil output, growing production from 273,000 barrels per day (bbl/d) to a staggering 468,000 bbl/d. In terms of overall production, that’s 816,000 barrels of oil equivalent per day (boe/d), up from 463,000 boe/d pre-merger. And with this added land, Diamondback now controls a colossal 838,000 net acres of Permian land—a scale few companies can match.

Creating a $52 Billion Powerhouse

The merger, a combination of cash and stock, forms a company valued at over $52 billion. When the deal was first announced in February, the terms included 117.3 million shares of Diamondback stock and $8 billion in cash. Now, as the dust settles, the industry is taking note of what this new behemoth can accomplish.

Endeavor, previously the largest privately-held operator in the Midland Basin, was well known for its strong focus on pure-play drilling. Combining this with Diamondback’s expertise in both the Southern Delaware and Midland basins makes for a formidable team.

A Transformative Deal for the U.S. Oil Industry

Diamondback’s CEO, Travis Stice, didn’t mince words about the importance of this merger. "Today, Diamondback is not only bigger, but better," he said, reflecting on the company’s strengthened position. "Our high-quality inventory located in the heart of the Permian Basin gives us the running room to do what we do best: turn rock into cash flow."

Stice also took a moment to recognize the hard work of his team in finalizing the deal and welcomed Endeavor’s employees into the Diamondback fold. The combined operational expertise of both teams promises to drive long-term success for the newly expanded company.

The Bigger Picture: Why This Matters

Analysts at Bernstein were quick to point out that this merger comes at a pivotal time for the shale industry. With 4.6 million barrels of oil equivalent per day changing hands in mergers over the past two quarters, this Diamondback-Endeavor deal stands out as a model for how large-scale transactions should be done. "There is simply no other public oil company with such focused scale in the most prolific shale basin on Earth," wrote Bernstein’s Bob Brackett.

The merger is expected to push Diamondback’s share price higher, with Bernstein setting a target of $243 per share—an 8% increase over the current consensus. This target is based on an estimated enterprise value of $65 billion for the combined company, a reflection of the efficiency and scale Diamondback now commands in the Midland Basin.

Synergies and Savings: More Than Just Land

What excites investors is the synergy between the two companies. Diamondback estimates that the merger will generate annual cost savings of $550 million, translating to a net present value of $3 billion over the next decade. These synergies come from several key areas:

Capital and Operating Costs: Expected savings of around $325 million.
Land and Capital Allocation: An additional $150 million saved through smarter land use and capital allocation.
Corporate and Financial Savings: Around $75 million in corporate and financial efficiencies.

The Future Looks Bright for Diamondback

In the world of U.S. shale, scale is everything. The bigger the footprint, the more efficient the drilling, completion, and operations. With this merger, Diamondback has not only grown its landholdings but also its ability to capitalize on its expertise in the Permian Basin.

This deal is about more than just numbers and acreage—it’s about the future of U.S. oil production. With its expanded resources and sharpened focus, Diamondback is set to become an even more dominant player, ready to take advantage of every opportunity the Permian Basin has to offer.

And as the dust settles on this $26 billion merger, one question remains: How will this reshape the future of oil in America’s most prolific shale basin?

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Anticipated Growth: Endeavor Energy's Value Nearing $30 Billion

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.

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