Diamondback to merge with Endeavor in blockbuster $26 billion private buyout

Diamondback Energy said Monday it would acquire Endeavor Energy Resources in a transaction valued at $26 billion, a blockbuster deal that would create the largest pure-play in the Permian Basin of West Texas and New Mexico.

The large publicly owned oil company based in Midland said it would buy Endeavor, a private company also based in Midland, for $8 billion in cash and 117.3 million of its shares. Existing Diamondback shareholders are expected to own 60.5% of the combined company.

The deal continues a consolidation trend that is rippling across Texas as publicly held oil companies seek to expand their inventories through acquisition. Expected to close during the fourth quarter, the deal would create the largest company dedicated solely to the basin, and the new company would trail only Exxon and Chevron in terms of total oil production in the Permian, said Alex Beeker, research director at Wood Mackenzie.

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The deal itself is the largest private buyout in the past five years, said Dan Pickering, chief investment officer for Pickering Energy Partners. Diamondback is rumored to have beat out larger buyers such as ConocoPhillips with the bid.

“This was the last big private operator that we think could be purchased in the Permian,” Pickering said Monday. “They got the last big one.”

Diamondback’s Midland headquarters is across the street from Endeavor’s, allowing for a smooth integration, Diamondback CEO Travis Stice said in a statement. “We look forward to continuing to deliver best-in-class results with a combined employee base headquartered in Midland,” he said, “assuring Midland’s relevance in the global oil market for the next generation.”

Diamondback said the combined company would have an estimated 838,000 acres, 6,100 production sites and the equivalent of 816,000 barrels per day of production.

As pure-play peer Pioneer Natural Resources readies its massive merger with Exxon, “Diamondback will be the standard bearer for Permian pure plays and will have an enviable combination of scale, remaining inventory quality and operational execution,” Andrew Dittmar, senior vice president for Enverus Intelligence Research, said in a research note.

“We’ve evaluated every deal in the Permian over the past decade, and there has not been another opportunity that has come close to this scale and quality,” Stice said during an investor call Monday, according to a transcript provided by Capital IQ. “This combination extends the duration of our top-tier inventory and will allow us to maintain best-in-class capital efficiency for a longer period of time.”

When the deal closes, Diamondback’s board would expand to 13 members, including Endeavor CEO Lance Robertson and retired CEO and board member Charles Meloy, plus two additional members mutually agreed upon by Diamondback and Endeavor.

The market responded favorably to the deal. Diamondback’s shares jumped nearly 10% in Monday trading.

“This is notable because it’s the first really large transaction where the market has rewarded the acquirer,” Pickering said of the jump. “They did an attractive deal and the market is rewarding them for it.”

Correction (Feb 12, 5:05 p.m.) This story was updated to correct the number of barrels per day expected to be produced by the combined company.