U.S. oil producer Diamondback Energy (FANG.O) said on Monday it would buy privately held rival Endeavor Energy Partners in $26 billion cash-and-stock deal that continues a rapid consolidation in the top U.S. shale oilfield.
The combined company would be the third-largest oil and gas producer in the Permian basin of West Texas and New Mexico, behind Exxon Mobil (XOM.N) and Chevron (CVX.N), with both having announced recent deals.
The deal comes amid a wave of consolidation in the Permian Basin in a drive to boost ongoing production and secure future drilling inventory. There have more than two dozen shale deals in recent years, led by Exxon's $60 billion offer for Pioneer Natural Resources (PXD.N).
"Diamondback has proven itself to be a premier low-cost operator in the Permian Basin over the last 12 years, and this combination allows us to bring this cost structure to a larger asset and allocate capital to a stronger pro forma inventory position," CEO Travis Stice said in a statement.
Shares of Diamondback were up 2.5% in premarket trading at $155.50
The combined company would pump 816,000 barrels of oil and gas per day (boepd), behind the Exxon-Pioneer combination of about 1.3 million boepd and Chevron's current 867,000 boepd in the Permian.
"While FANG's price paid is towards the high end of deals we have seen in the recent past, we believe FANG will be able to build upside through its suggested $550 million annual synergies forecast," analysts at Truist Securities said.
Reuters had on Sunday reported about merger talks between Diamondback and Endeavor, citing sources.
The deal to buy Endeavor consists of about 117.3 million shares of Diamondback common stock and $8 billion in cash. The sale comes almost 45 years after Texas oilman Autry Stephens started the company that would become Endeavor.
HIGH QUALITY INVENTORY
The deal would combine two companies with deep roots in Midland, Texas, and with similar acreage and operations, said Andrew Dittmar, a senior vice president at data analytics firm Enverus.
"The quality of the inventory that Diamondback will have is extremely high," he said. The combined company would be the only pure-play Permian oil producer outside of Pioneer, which is being acquired by Exxon. That status "will make this a very attractive investment on Wall Street".
The deal also guarantees Stephens and other Endeavor shareholders continued influence in the business with their 39.5% of the combined company.
Stephens grew Endeavor by acquiring the unloved acreage of his competitors and managing to extract oil and gas profitably.
Endeavor's operations span about 350,000 net acres in the Midland portion of the Permian and it expects to produce some 350,000 to 365,000 barrels of oil equivalent per day in 2024.
Diamondback expects the deal to close in the fourth quarter and its stockholders are expected to own 60.5% of the combined entity, while Endeavor will own the rest.
