Two major Texas oil producers are joining forces in a $26 billion deal, the latest in a wave of consolidation in the U.S. energy industry.Thank you for reading this post, don't forget to subscribe!
Diamondback Energy and Endeavor Energy Resources, both major players in the Permian Basin oil field spanning New Mexico and Texas, announced Monday that they will merge in a cash-and-stock deal that will see Diamondback shareholders own about 60 percent of the combined stake. . company.
The Permian Basin was once viewed as a cliché. But over the past decade or so, technological advances, including the advent of fracking, or hydraulically fractured horizontal wells, have opened up its oil and gas-rich shale fields to development. The basin has been transformed into the most productive oil and gas field in the United States.
“With this combination, Diamondback not only gets bigger, but also better,” company Chief Executive Travis Stice said in a statement.
Diamondback Energy, which was founded in 2007 and has been publicly traded since 2012, reported it had revenues of $9.6 billion, mainly from oil, and profits of more than $4 billion in the last fiscal year. happened. Its market cap is approximately $27 billion.
“Diamondback was built through an acquisition-and-exploit strategy,” Mr. Stice wrote in a letter to shareholders in November. He said that being a “low-cost operator” was the company’s strength, and “we expect Diamondback to remain a consolidator in the future.”
Endeavor’s roots begin in 1979, when Autry Stephens, a wildcatter, drilled his first well in West Texas. He transformed his business into Endeavor in 2000 and it became one of the largest privately owned operators in the country. But Mr. Stephens, who is worth about $15 billion according to Bloomberg estimates, is now 85, and the current wave of consolidation makes it a good time to sell.
“As we look to the future, we believe joining forces with Diamondback is a transformative opportunity for us,” Mr. Stephens said in a statement.
Deal fever is taking over the industry, as oil and gas companies race to consolidate despite predictions that peak oil is only years away as the world transitions away from fossil fuels. Over the past few years, the shale drilling industry has become an industrial process, with the strongest companies acquiring more acreage to give themselves better options and lower costs.
The combined company will be a larger company, producing 816,000 barrels of oil and gas per day from a total of 838,000 acres. According to a news release, they will also be able to recover economically with oil priced below $40 a barrel, which is significantly lower than the current price of about $76 a barrel for the U.S. standard West Texas Intermediate.
The companies expect the deal to close in the fourth quarter of this year, subject to regulatory and shareholder approval.
Several major deals were announced one after another last fall. In October, Exxon Mobil said it would buy Pioneer Natural Resources for $59.5 billion, establishing Exxon Mobil as the largest player in the Permian. Later that month, Chevron, the second-largest US oil company, said it would buy Hess in a $53 billion deal, although the most prized asset in that transaction was overseas in Guyana.
Occidental Petroleum made an aggressive play in the Permian in 2019, when it beat out Chevron by spending about $40 billion to buy Anadarko Petroleum. Last December, Occidental announced it was buying CrownRock, a privately owned oil producer in the region, for $12 billion. Occidental said the purchase covers 94,000 acres of land, including about 1,700 undeveloped sites.
The Permian Basin has been of concern to environmentalists because of how the fracking boom has depleted water resources and given rise to methane emissions.
Stanley Reed contributed reporting.