The US shale industry is undergoing a major transformation as Diamondback Energy Inc. announced on Monday that it will acquire Endeavor Energy Resources LP, the largest private oil and gas producer in the Permian Basin, for $26 billion in cash and stock. The deal will create the biggest pure-play operator in the most prolific oil region in the country, surpassing Exxon Mobil Corp. and Chevron Corp., which have also made recent acquisitions in the area.
A combination of Strengths and Synergies
Diamondback and Endeavor are both based in Midland, Texas, the heart of the Permian, which spans West Texas and eastern New Mexico. The two companies have complementary assets that will allow them to produce more oil and gas at lower costs and with greater efficiency. The combined company will have a total of 838,000 net acres and a net production of 816,000 barrels of oil equivalent per day, according to the statement.
The deal will also generate annual synergies of $550 million, resulting in more than $3 billion in net value over the next decade. Diamondback CEO Travis Stice said in the statement that the combination of the two companies will create a “must-own” North American independent oil company. “With this combination, Diamondback not only gets bigger, it gets better,” he said.
A Wave of Consolidation in the Shale Industry
The Diamondback-Endeavor deal is the latest in a series of mega-deals that have reshaped the US energy landscape in the past few months. The shale industry, which has been traditionally fragmented and struggled to attract mainstream investors, is now seeing a wave of consolidation as companies seek to secure future drilling sites and cut costs. Some of the biggest deals in 2023 were:
- Exxon Mobil buying Pioneer Natural Resources for about $60 billion
- Chevron agreeing to buy Hess Corp. for about $53 billion
- Occidental Petroleum agreeing to buy CrownRock LP for about $10.8 billion
The consolidation also reflects a maturing of the shale industry, as many of the top drilling locations have been tapped and producers face pressure from investors to maintain buybacks and dividends. By acquiring larger and more diversified portfolios, companies can extend their inventory life and improve their cash flow.
A Coup for Diamondback and a Win for Endeavor
The acquisition of Endeavor is a remarkable achievement for Diamondback, which was founded in 2007 and went public in 2012. Endeavor, on the other hand, was established in 1979 by shale pioneer Autry Stephens, who still owns 95% of the company. Endeavor is one of the last remaining privately held producers in the Permian and has been coveted by several major oil companies, including Exxon, Chevron, and ConocoPhillips.
By selling to Diamondback, Endeavor will gain access to the public markets and benefit from Diamondback’s low-cost operations and strong balance sheet. Endeavor shareholders will own 39.5% of the combined company, while Diamondback shareholders will own 60.5%. The deal, which includes Endeavor’s net debt, has been approved by Diamondback’s board and is expected to close in the fourth quarter of 2024. Diamondback will fund the cash portion of the deal through a combination of cash on hand, its credit facility, term loans, and bonds.