Diamondback Signs Agreement To Acquire Interests In Midland County

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To purchase mineral interests in Midland County under 15,000 gross (12,500 net) acres.

Diamondback Energy Inc. (Nasdaq: FANG) entered into a definitive agreement with an unrelated third party seller to purchase mineral interests in Midland County, Texas, for $440 million, the company announced on Sept. 3.

The acquisition includes mineral interests under 15,000 gross (12,500 net) acres. More than half of these minerals are operated by Diamondback. The proposed transaction is expected to close by the end of September, subject to completion of due diligence and satisfaction of closing conditions. Diamondback intends to finance the acquisition with debt and cash on hand.

Wexford Capital LP served in an advisory capacity to Diamondback management during negotiations of this transaction.

"I am tremendously excited about this pending minerals acquisition in Midland County as it offers a unique opportunity for Diamondback stockholders to expand their exposure to what we believe to be one of the most prolific basins in North America," Travis Stice, Diamondback's CEO, said in the release. "We expect the value of owning minerals to show up in our results immediately upon completion of this acquisition. These assets should add approximately 1,500 BOE/d of production at closing and the last reported free cash flow of approximately $3.5 million in June. Because these are mineral interests, there will be no additional capital expenditures or operating expenses beyond our initial acquisition costs. Netbacks per barrel of oil equivalent were approximately $76/BOE in June blended commodity price less taxes, with no capital expenditure associated with them. Given what we know about the continued pace of development of this acreage, we forecast 2014 free cash flow from these mineral interests of $70 to $80 million based on current prices. The long life of this free cash flow stream should continue to increase further in the future as additional horizontal zones, including not only the Wolfcamp "B", but also Wolfcamp benches in the "A", "C" and Cline along with both the middle and lower Spraberry shales, are developed. This area is among Diamondback's most prolific and economically attractive acreage. This transaction should also increase netbacks, reduce our breakeven costs and enhance the free cash flow profile of Diamondback for our stockholders."


Diamondback's first operated Andrews County horizontal well, UL III 4-1H, produced at a peak IP rate of 613 barrels of oil equivalent per day (BOE/d) with 85% oil from a 4,051 foot lateral and has averaged 585 BOE/d over the last seven days, on submersible pump.

"I am excited about the early success of our first operated Andrews County horizontal well. We believe this is the northern most test of the horizontal Wolfcamp "B" completed to date, and the success of this well is encouraging not only for this lease but is also a positive data point for our recently announced pending acquisitions in Martin and Dawson Counties. This well was drilled in the Wolfcamp "B" with a short lateral due to lease geometry and completed for just over $6 million. When normalized to a 7,500 foot lateral, which is how we compare results across the basin, our test results equate to almost 1,100 BOE/d," Stice said in the release.

Diamondback recently completed its second horizontal well in Andrews County, a 7,540 foot lateral targeting the Clearfork, and flowback operations are underway.

Pro forma production for July, after giving effect to our pending acquisitions in Martin and Dawson counties, was 8,000 BOE/d. Near record heat has impacted electrical reliability on electric submersible pump operations and offset wells have been shut in prior to frac operations. While these events have impacted production, there are seven wells currently in the early stages of completion or flowback. These wells are expected to add significant volumes by the end of the quarter.

Diamondback Energy Inc. is an independent energy company focused on the acquisition, development, exploration, and exploitation of onshore oil and natural gas reserves in the U.S. The company is headquartered in Midland, Texas.