Diamondback to buy shale rival Endeavor for $26 billion in latest big oil deal

By Barbara Kollmeyer and Steve Gelsi

Diamondback will pay about 117.3 million shares of its common stock and $8 billion in cash

Diamondback Energy Inc.'s stock rallied Monday on its plans to buy Endeavor Energy Resources LP in a deal valued at about $26 billion, including debt, that marks the latest big oil merger.

Under the terms of the deal, which involves the liquids-rich Permian Basin, Diamondback (FANG) will pay about 117.3 million shares of its common stock and $8 billion in cash, to give its current stockholders approximately 60.5% of the combined company. Endeavor's equity holders would own the remaining 39.5%.

Diamondback said it is boosting its annual dividend by 7% to $3.60 a share, or 90 cents per quarter, starting in the fourth quarter.

The company will also reduce its capital-return commitment to shareholders to 50% of free cash flow, from 75% previously, in order to pay down debt.

"Our near-term objective is to reduce pro forma net debt below $10 billion very quickly, ensuring balance-sheet strength and best-in-class credit quality," Diamondback said.

Diamondback Energy's stock was up by 9% in afternoon trading.

Prior to Monday, the stock was down by 2.2% so far in 2024, compared with a 5.4% rise in the S&P 500 SPX.

Moody's Investors Service placed Endeavor Energy Resources' debt ratings under review for an upgrade in wake of news of the deal.

"While the business combination will substantially expand Diamondback's production, reserves, drilling inventory and operational flexibility in the Permian Basin, it will also add a material amount of debt, which Diamondback will look to reduce after the acquisition," Moody's said. "Management's ability to successfully integrate Endeavor's operations, realize synergies and unlock value from Endeavor's significant undeveloped acreage will also take some time to materialize."

Gerdes Energy Research reiterated a buy rating on Diamondback Energy and hiked its price target by $13, to $197 a share.

"Our analysis suggests the integration of Endeavor should lower overall capital intensity by 5%-10% and generate stable production," Gerdes said.

Diamondback Chief Executive Travis Stice said the deal will create a "must-own" North American independent oil company with "industry-leading depth and quality that will be converted into cash flow with the industry's lowest cost structure," according to a statement.

The deal is expected to generate annual synergies of $550 million over the next decade.

"Diamondback has proven itself to be a premier low-cost operator in the Permian Basin over the last 12 years, and this combination allows us to bring this cost structure to a larger asset and allocate capital to a stronger pro forma inventory position," said Stice.

The deal was reported earlier by the Wall Street Journal, which cited sources close to the discussions.

ConocoPhillips (COP) was also vying for Midland, Texas-based Endeavor, the sources said. Diamondback, also based in Midland, has a market capitalization of $27.3 billion, according to FactSet, far below ConocoPhillips' $133 billion.

Diamondback CEO Stice said Endeavor has built "the highest-quality private oil company in the United States." The two companies "share a similar culture and operating philosophy" as well as the same block in Midland, where their two offices are located across the street from one another.

Founded in 1979, Endeavor is led Autry C. Stephens, the company's founder and general partner, and has 1,200 employees and 344,000 net acres in the Midland Basin, which includes a large portion of Texas and part of New Mexico.

The combined company will have about 838,000 acres and produce 816,000 oil-equivalent barrels a day. Diamondback expects to close the deal in the fourth quarter of this year.

The deal continues a run of major energy tie-ups, after Chevron Corp.'s (CVX) $53 billion all-stock buyout of Hess Corp. in October, which came days after Exxon Mobil Corp.'s (XOM) $59.5 billion deal to buy Pioneer Natural Resources Co. (PXD)

Last month, Southwestern Energy Co. (SWN) and Chesapeake Energy Corp. (CHK) agreed to form a natural-gas giant in a $7.4 billion tie-up.

-Barbara Kollmeyer -Steve Gelsi

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02-12-24 1434ET

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