Two major Texas oil producers are joining forces in a deal valued at $26 billion, the latest in a wave of consolidation in the U.S. energy sector.
Diamondback Energy and Endeavor Energy Resources, both major players in the booming Permian Basin oil field that straddles New Mexico and Texas, announced Monday that they would merge in a cash-and-stock deal, with Diamondback shareholders owning about 60 percent of the combined company.
The Permian Basin was once considered a worn out area. But over the past decade, technological advances, including the advent of hydraulic fracturing, or hydraulically fractured horizontal wells, have opened up its oil- and gas-rich shale fields to development. The basin was transformed into the most productive oil and gas field in the USA.
“With this combination, Diamondback isn’t just getting bigger, it’s getting better,” Travis Stice, the company’s chief executive, said in a statement. The news sent Diamondback shares up 10 percent.
Diamondback Energy, founded in 2007 and publicly traded since 2012, said it had $9.6 billion in revenue, mostly from oil, and more than $4 billion in profits in 2012. its last financial year. Its market value is around $27 billion.
“Diamondback was built through an buy-and-operate strategy,” Mr. Stice wrote in a letter to shareholders in November. He added that being a “low-cost operator” has been the company’s strength and that “we hope Diamondback remains a consolidator going forward.”
Endeavor’s roots date back to 1979, when a wildcatter, Autry Stephens, drilled his first well in West Texas. He transformed his company into Endeavor in 2000, and it became one of the largest private operators in the country. But Mr. Stephens, whose Bloomberg value estimates At nearly $15 billion, it’s now at $85 billion, and the current wave of consolidation makes it a great time to sell.
“As we look to the future, we are confident that joining Diamondback represents a transformational opportunity for us,” Mr. Stephens said in a statement.
Deal fever has swept the industry, as oil and gas companies rush to consolidate despite predictions that peak oil is only years away as the world turns away from fossil fuels. Over the years, the shale drilling industry has become an industrial process, with stronger companies acquiring more acreage to afford better options and lower costs.
The combined company would become a significant player, producing 816,000 barrels of oil and gas per day on a total of 838,000 acres. According to a press release, they would be able to break even with oil at less than $40 a barrel, well below the current price of around $76 a barrel for West Texas Intermediate, the U.S. standard. .
The companies expect the deal to be finalized in the fourth quarter of this year, subject to approval from regulators and shareholders.
A series of major transactions were announced one after another last fall. In October, Exxon Mobil announced it would buy Pioneer Natural Resources for $59.5 billion, positioning Exxon Mobil as the largest player in the Permian. Later that month, Chevron, the second-largest U.S. oil company, announced it would buy Hess in a deal. valued at $53 billioneven if the most prized assets in this transaction were located abroad, in Guyana.
Occidental Petroleum made an aggressive move in the Permian in 2019, beating Chevron by spending nearly $40 billion to buy Anadarko Petroleum. Last December, Occidental announced the purchase of CrownRock, a private oil producer in the region, for $12 billion. The purchase covered 94,000 acres, including approximately 1,700 undeveloped sites, Occidental said.
The Permian Basin is a focus of environmentalists concerned about how the fracking boom has depleted water resources and led to methane emissions.
Stanley Reed reports contributed.
