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Permian Basin giants Diamondback Energy and Endeavor Energy will combine in a $26 billion megamerger as the shale sector continues to rapidly consolidate, according to a Feb. 12 press release. The price tag includes Endeavor’s debt.
Diamondback will acquire Endeavor in a cash-and-stock agreement that would create a Permian juggernaut with a combined value of more than $52 billion in a merger of near equals. The transaction consideration will consist of approximately 117.3 million shares of Diamondback common stock and $8 billion of cash, subject to customary adjustments.
Endeavor is the largest, privately held pure-play operator in the Midland Basin, while Diamondback is a Permian pure-play focused on both the Southern Delaware and Midland basins.
Diamondback said it sees annual synergies of $550 million, representing $3 billion in net present value over the decade. That includes capital and operating cost synergies of approximately $325 million; capital allocation and land synergies of $150 million; and financial and corporate cost synergies of approximately $75 million.
Endeavor, founded by wildcatter Autry Stephens, 85, has been the largest prize for sale in the consolidating Permian. The Wall Street Journal reported that the smaller Diamondback reportedly outbid ConocoPhillips and others. Endeavor is fully held by Stephens.
"This is a combination of two strong, established companies merging to create a must own' North American independent oil company. The combined company's inventory will have industry-leading depth and quality that will be converted into cash flow with the industry's lowest cost structure, creating a differentiated value proposition for our stockholders,” Travis Stice, chairman and CEO of Diamondback said in the release. "This combination meets all the required criteria for a successful combination: sound industrial logic with tangible synergies, improved combined capital allocation and significant near and long-term financial accretion. With this combination, Diamondback not only gets bigger, it gets better."
Hart Energy reported in November that Endeavor could sell for up to $30 billion. Reuters reported in December that the ask was for a minimum of between $25 billion and $30 billion.
Midland, Texas-based Endeavor produces an average 331,000 boe/d, up 25% from 2022, according to a November Fitch Ratings report. Endeavor’s output is 57% crude oil and about 80% liquids, including NGL, according to Fitch.
Fitch expects Endeavor’s free cash flow to be $1 billion in 2024 and 2025 at a base-case oil price assumption of $70 next year and $65 oil in 2025. About 10% of 2024 oil production is hedged at $70; associated gas—about 20%—at $3.25.
Endeavor operates more than 1,000 horizontal wells on its mostly contiguous footprint concentrated in Martin, Midland and Reagan counties, Texas. The company had 13 rigs drilling as of mid-October.
The 45-year-old E&P, which employs 1,200, holds about 470,000 net acres, including 344,000 net acres in the core of the Midland Basin, according to Endeavor.
The shale industry, especially the Permian, is quickly consolidating amid higher, but more stable, oil prices and a lack of premier inventory on the market. Private players are selling and corporate M&A is on the rise.
Last year saw a record-breaking $192 billion in upstream M&A, led by the roughly $60 billion acquisition of Pioneer Natural Resources by Exxon Mobil.
With Chevron, ConocoPhillips and Occidental Petroleum among the Permian’s other top players, Diamondback is looking to scale up rather than be a takeover candidate for now if the deal comes to fruition.
Stice said the company, built on an “acquire and exploit” strategy, will continue to follow the same criteria it always has for purchasing new assets: The acquisition must make logical industrial sense for the company, compete for capital immediately and be accretive on the company’s financial metrics.
Last year, Stephens had asked JPMorgan Chase bankers to prepare to launch a sale process for Endeavor in the first quarter of 2024, Reuters had said in December.
"We believe Diamondback is the right partner for Endeavor, our employees, families and communities,” Stephens said in the press release. "Together we will create value for shareholders and our other stakeholders.”
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