Diamondback Energy and Endeavor Energy Resources announced that they have entered into a definitive merger agreement under which Diamondback and Endeavor will merge in a transaction valued at about $26 billion, including Endeavor’s net debt. This combination will create a premier Permian independent operator.
The deal consideration will consist of approximately 117.3 million shares of Diamondback common stock and $8 billion of cash, subject to customary adjustments. And the cash portion of the consideration is expected to be funded through a combination of cash on hand, borrowings under the company’s credit facility and proceeds from term loans and senior notes offerings. As a result of the deal, the company’s existing stockholders are expected to own approximately 60.5% of the combined company, and Endeavor’s equity holders are expected to own approximately 39.5% of the combined company.
Strategic/Financial Benefits
— Combined pro forma scale of approximately 838,000 net acres and 816 MBOE/d of net production
— Best in-class inventory depth and quality with approximately 6,100 pro forma locations with break evens at <$40 WTI
— Annual synergies of $550 million representing over $3.0 billion in NPV10 over the next decade
— Capital and operating cost synergies: approximately $325 million
— Capital allocation and land synergies: approximately $150 million
— Financial and corporate cost synergies: approximately $75 million
— Substantial near and long-term financial accretion with about 10% free cash flow per share accretion expected in 2025
— Stock-weighted transaction solidifies investment grade balance sheet
The deal was unanimously approved by the Board of Directors of the Company and has all necessary Endeavor approvals.
Diamondback expects operational synergies to be realized in 2025 by the combined company. So the company is providing a preliminary look at its pro forma 2025 combined company capital and operating plan assuming Diamondback’s cost structure and current estimated well costs. The 2025 plan is preliminary and subject to changes, including the result of changes in oil and gas prices, the macro environment and well costs.
On a pro forma basis in 2025, Diamondback expects to generate oil production of 470 – 480 MBO/d (800 – 825 MBOE/d) with a capital budget of approximately $4.1 – $4.4 billion. And this operating plan implies significant pro forma cash flow and free cash flow per share accretion.
The combined company will continue to be headquartered in Midland, Texas. Upon closing of the deal, Diamondback’s Board of Directors will expand to 13 members, and Charles Meloy and Lance Robertson, together with two other individuals mutually agreed upon by Diamondback and Endeavor, will be added to the Board of Directors.
At the close of the deal, Diamondback will enter into a stockholders’ agreement with the former equity holders of Endeavor. Under that agreement, the former Endeavor equity holders will be subject to certain standstill, voting, and transfer restrictions and will be provided with certain director nomination rights and customary registration rights with respect to the shares of Diamondback common stock issued to them as transaction consideration.
Jefferies is serving as lead financial advisor to Diamondback and Citi is serving as M&A and Capital Markets advisor to Diamondback. And Citi is the sole provider of committed bridge financing, as well as leading the term loan issuances and senior notes offerings. Wachtell, Lipton, Rosen & Katz is acting as legal advisor to Diamondback.
J.P. Morgan Securities is acting as exclusive financial advisor to Endeavor, Goldman Sachs & Co. provided corporate advisory services and Paul, Weiss, Rifkind, Wharton & Garrison and Vinson & Elkins are acting as legal advisors to Endeavor.
KEY QUOTES:
“This is a combination of two strong, established companies merging to create a ‘must own’ North American independent oil company. The combined company’s inventory will have industry-leading depth and quality that will be converted into cash flow with the industry’s lowest cost structure, creating a differentiated value proposition for our stockholders. This combination meets all the required criteria for a successful combination: sound industrial logic with tangible synergies, improved combined capital allocation and significant near and long-term financial accretion. With this combination, Diamondback not only gets bigger, it gets better.”
“Over the past forty-five years, Mr. Stephens and his team at Endeavor have built the highest quality private oil company in the United States. Our companies share a similar culture and operating philosophy and are headquartered across the street from one another, which should allow for a seamless integration of our two teams. As a result, we look forward to continuing to deliver best-in-class results with a combined employee base headquartered in Midland, assuring Midland’s relevance in the global oil market for the next generation.”
“This combination offers significant, tangible synergies that will accrue to the pro forma stockholder base. Diamondback has proven itself to be a premier low-cost operator in the Permian Basin over the last twelve years, and this combination allows us to bring this cost structure to a larger asset and allocate capital to a stronger pro forma inventory position. We expect both teams will learn from each other and implement best practices to improve combined capital efficiency for years to come.”
“Diamondback today released fourth quarter production that exceeded expectations and announced a 2024 capital and operating plan that prioritizes capital efficiency and free cash flow generation over growth. The decision to reduce our return of capital to stockholders reflects our Board’s desire to increase financial flexibility and pay down debt added through this combination. Our near-term objective is to reduce pro forma net debt below $10 billion very quickly, ensuring balance sheet strength and best-in-class credit quality. Return of capital to stockholders will always remain a core tenet of our value proposition and capital allocation philosophy at Diamondback.”
– Travis Stice, Chairman and Chief Executive Officer of Diamondback
“I am grateful to the Endeavor team and proud of what we have built since 1979. We believe Diamondback is the right partner for Endeavor, our employees, families and communities. Together we will create value for shareholders and our other stakeholders.”
– Autry C. Stephens, Founder and Chairman of the Board of Endeavor
“As we look toward the future, we are confident joining with Diamondback is a transformational opportunity for us. Our success up to this point is attributable to the dedication and hard work of Endeavor employees, and today’s announcement is recognition by Diamondback of the significant efforts from our team over the past seven years, driving production growth, improving safety performance and building a more sustainable company. We look forward to working together to scale our combined business, unlock value for all of our stakeholders and ensure our new company is positioned for long-term success as we build the premier Permian-focused company in Midland.”
– Lance Robertson, President and Chief Executive Officer of Endeavor
