Diamondback Energy Inc. is nearly a third of the way along in a $500 million divestment goal it announced less than a month ago in connection with its October deal to buy FireBird Energy LLC for $1.6 billion.
In its Nov. 7 earnings release, Diamondback said it had completed the divestiture of about 3,250 net acres in the Delaware Basin for $155 million. The asset averaged net production of about 800 boe/d including 550 bbl/d of oil. Diamondback didn’t disclose the buyer of the asset.
The Permian Basin operator said proceeds from sales of noncore assets through year-end 2023 would be used to pay down debt.
“As previously announced in conjunction with the $1.6 billion FireBird acquisition in mid-October set to close at the end of November, FANG (Diamondback Energy) is already at work on the $500 million noncore divestiture target,” Cowen analyst David Deckelbaum said in a Nov. 7 report.
Diamondback chairman and CEO Travis Stice said the company’s divestment goal, including the $155 million noncore asset sale, would ensure the company maintains “our investment grade balance sheet and [improves] our overall financial position.”
Diamondback is targeting a payout to shareholders of 75% of free cash flow. The company could also retire about $1 billion of debt through the end of 2023 by using asset sales to reduce debt, Deckelbaum said.
Gabriele Sorbara, managing director of equity research at Siebert Williams Shank & Co. LLC, said in a Nov. 8 report that Diamondback received an “attractive $193,750 per flowing boe, accretive to its current implied market value of $93,842 per flowing boe.”
“We believe additional asset sales in the southern Delaware Basin, as well as stranded or fringe acreage across its Midland Basin and northern Delaware Basin assets will allow it to reach its >$500 million target,” Sorbara wrote.
On Oct. 11, Diamondback announced a $1.6 billion deal to buy FireBird Energy, which is backed by RedBird Capital and the Ontario Teachers’ Pension Plan.
Diamondback said the acquisition of FireBird would add about 68,000 net “highly contiguous acres” in the Midland Basin in West Texas. The acreage is 98.5% operated with an average 92% working interest and is currently 84% HBP.
The FireBird asset includes 316 net horizontal locations in primary development targets with an average lateral length of approximately 11,400 ft, which Stice said are adjacent to Diamondback’s current Midland Basin position.
Primary targets are the Middle Spraberry, Lower Spraberry, Wolfcamp A and Wolfcamp B formations, according to the company release.
Diamondback expects the FireBird asset to add roughly 17,000 bbl/d of oil, or 22,000 boe/d, of production at closing, set for late in the fourth quarter. Production from the FireBird asset is estimated to average about 19,000 bbl/d of oil, or 25,000 boe/d, in 2023.
Consideration for the FireBird asset is comprised of 5.86 million shares of Diamondback common stock and $775 million of cash.
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