Diamondback: Surprise Acquisition of Endeavor Energy Creates a New Giant in the Permian

Narrow-moat Diamondback surprised markets by announcing the purchase of Endeavor Energy Resources. We knew Endeavor was in play, but we had expected a peer like ConocoPhillips as a possible acquirer, not Diamondback. Still, we think the fit is good, especially given Diamondback's strengths in driving down costs. We forecast the combination to achieve significant per-barrel cost savings while increasing production from 462,000 barrels of oil equivalent per day in the fourth quarter of 2023 to well over 800,000 barrels of oil equivalent per day in 2025. As a result, we are nudging up our fair value estimate to $169 from $164 per share.