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.
Diamondback Energy and Endeavor Energy Resources, both major players in the booming Permian Basin oil field spanning New Mexico and Texas, announced Monday that they will merge in a cash-and-stock deal, with Diamondback shareholders owning about 60% of the Company combination.
The Permian Basin was once thought of as a worn patch. But in the past decade or so, technological advances, including the advent of fracking, or hydraulically fractured horizontal drilling, have opened up its oil- and gas-rich shale fields to development. The basin has become the most productive oil and gas field in the United States.
“With this combination, Diamondback not only gets bigger, it gets better,” Travis Stice, the company’s chief executive, said in a statement.
Diamondback Energy, which was founded in 2007 and has been publicly traded since 2012, reported $9.6 billion in revenue, mostly from oil, and more than $4 billion in profits in its last fiscal year. It has a market value of about $27 billion.
“Diamondback was built through an acquisition and exploitation strategy,” Mr. Stice wrote in a letter to shareholders in November. He added that being a “low-cost carrier” was the company’s strength and that “we expect Diamondback to remain a consolidator going forward.”
Endeavor’s roots date back to 1979, when a prospector, Autry Stephens, drilled his first well in West Texas. He converted his business to Endeavor in 2000 and has grown into one of the largest private providers in the country. But Mr. Stephens, whose worth Bloomberg estimates is nearly $15 billion, is now 85, and the current wave of consolidation makes now a good time to sell.
“As we look to the future, we are convinced that joining Diamondback is a transformative opportunity for us,” Mr. Stephens said in a statement.
Deal fever is sweeping the industry as oil and gas companies struggle to consolidate despite predictions that peak oil is only years away as the world moves away from fossil fuels. Over the years, the shale drilling industry has become an industrial process, with the strongest companies acquiring more acreage to offer better options and lower costs.
The combined company would be a major player, producing 816,000 barrels of oil and natural gas per day from a total of 838,000 acres. According to a news release, they would be able to break even with oil below $40 a barrel, well below the current price of $76 a barrel for West Texas Intermediate, the US benchmark.
The companies expect the deal to close in the fourth quarter of this year, subject to regulatory and shareholder approvals.
A series of big deals were announced back-to-back last fall. In October, Exxon Mobil said it would buy Pioneer Natural Resources for $59.5 billion, positioning Exxon Mobil as the biggest player in the Permian. Later that month, Chevron, the second largest US oil company, said it would buy Hess in a deal valued at $53 billion, although the highest-valued assets in that transaction were overseas, in Guyana.
Occidental Petroleum made an aggressive play in the Permian in 2019 when it beat Chevron to spend nearly $40 billion to buy Anadarko Petroleum. Last December, Occidental announced it was buying CrownRock, a private oil producer in the region, for $12 billion. The purchase covered 94,000 acres, including about 1,700 undeveloped sites, Occidental said.
The Permian Basin has been the focus of environmentalists concerned about how the fracking boom has depleted water resources and led to methane emissions.
Stanley Reed contributed to the report.
