Diamondback (FANG) to Merge With Endeavor in a $26B Deal

Diamondback Energy, Inc. and Endeavor Energy Resources, L.P. have announced a definitive merger agreement, set to create a Permian Basin powerhouse. This deal, valued at $26 billion, will combine the strengths of two major players in the U.S. shale oil industry.

Let's delve into the details of this agreement.

Understanding the Merger Agreement

Per the terms of the agreement, Diamondback and Endeavor will come together in a transaction structured to include a combination of stock and cash. This transaction is anticipated to be funded through various means, including cash on hand, borrowings and proceeds from financial offerings. After completion, Diamondback's existing shareholders are expected to own approximately 60.5% of the combined company, with Endeavor's equity holders holding the remaining 39.5%.

Timing and Approvals

The merger is anticipated to be completed in the fourth quarter of 2024, subject to customary closing conditions and regulatory approvals. The absence of a financing contingency highlights the confidence of both parties in the strategic rationale and fiscal viability of the transaction.

Strategic and Financial Benefits

The merger creates a pro forma scale of approximately 838,000 net acres and 816 MBOE/d of net production, positioning the combined entity as a dominant player in the Permian Basin. With a robust inventory depth and quality, and more than 6,100 pro forma locations with break-evens below $40 WTI, the new company is primed for sustained growth and profitability.

Annual synergies of $550 million are expected over the next decade. These synergies include capital and operating costs, capital allocation, and financial and corporate expenses, bolstering the combined company's competitive edge and investment-grade balance sheet.

Guidance and Outlook

Both Diamondback and Endeavor have provided stand-alone guidance for 2024, underscoring their commitment to transparency and accountability. Diamondback's plans include an increase in its base dividend, reflecting its focus on delivering value to shareholders while prioritizing capital efficiency and debt reduction.

Looking ahead to 2025, the pro forma outlook for the combined company is optimistic, with expectations of enhanced operational efficiency and cash flow generation. Oil production targets and capital budgets underscore the ambitious yet achievable growth trajectory envisioned by the leadership.

Governance and Integration

Post-merger, the combined company will maintain its headquarters in Midland, TX, leveraging the synergies of its shared geography and operational expertise. Governance structures will be revised to accommodate the expanded board of directors, ensuring representation and alignment of interests among stakeholders. A stockholders’ agreement will be developed to define the rights and obligations of the former Endeavour equity holders, thereby strengthening the partnership and commitment to shared success.

Conclusion

This merger represents a significant consolidation within the Permian Basin, creating a formidable competitor with the potential to reshape the industry landscape. The combined company will benefit from economies of scale, a diversified asset base and enhanced financial flexibility.

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