Permian Basin rival energy companies set to merge in a $26 billion deal later this year

Diamondback Energy will buy Endeavor Energy Resources, making it the largest “pure-play” in the region.

By Elisabeth Jimenez & Laura RiceFebruary 13, 2024 11:18 am,

Two energy companies based in the West Texas Permian Basin are merging in a $26 billion deal later this year.

Diamondback Energy is set to buy Endeavor Energy Resources and will own over 60% of the combined businesses.

Houston Chronicle energy reporter Amanda Drane is covering the story and joined Texas Standard to discuss the merger. Listen to the interview above or read the transcript below.

This transcript has been edited lightly for clarity:

Texas Standard: This is quite the deal between two rivals, no less big players in this industry. What’s known about the merger and how it came about?

Amanda Drane: This is a pretty sizable one. $26 billion is a big number. It’s being described as the largest private buyout in five years. Diamondback is a large public company, and it’s buying a large private company in Endeavor.

Sounds like a real trophy for Diamondback.

Yeah. It’s going to make Diamondback the largest pure play in the Permian Basin. And that means that it’s a large company that is focused solely on the Permian Basin. That’s what makes it a pure-play Permian player.

“Pure-play Permian player.” That’s a mouthful. What’s the big idea behind a deal like this Diamondback-Endeavor deal and some of the others that we’ve seen in the Permian of late?

With deals like this, what’s driving them is that the inventory in the Permian Basin is getting tighter – what they’re describing as “tier-one inventory,” meaning it’s the premium rock that they can drill most cheaply and with the most minimal expense and technical challenge… It’s largely spoken for.

So for the Exxon’s, Chevrons, Occidental Petroleum, and the Diamondbacks of the world, for them to grow as companies, which every public company wants to do, they need to acquire other companies to grow their inventory of so-called tier-one shale. So that’s what they’re all trying to do right now.

Could you say more about the shift toward renewables? Is that having an effect on ratcheting up the number of deals we’ve been hearing about?

I mean, I’m not an oil and gas analyst. I just speak to them a lot. But I believe that they’re happening on separate tracks.

The idea being that oil companies are expected to produce oil for a long time, even though within the next decade demand will start to taper. That doesn’t mean that it will fall off a cliff. And so, for oil companies to make sure they can continue to produce oil for the next decade and beyond, they need to seek out inventory that allows them to grow.

What are folks saying about this deal making such a big splash with this $26 billion merger?

The deal makes Diamondback a very large player in the Permian Basin. It already was, but this puts it behind only Exxon and Chevron.

And speaking from an investor perspective, the fact that Diamondback is now the largest pure-play company, it makes it attractive from a shareholder perspective. You saw their share price jump 10% in public trading.

Were there any eyebrows raised about this deal other than over the size of the deal? I’m curious if this caught anyone in the industry by surprise, that you’d have these two arch-rivals joining forces.

Not that I heard. I mean, it seems like the draw here was that the Stephens family, who owned Endeavor, is said to be very loyal to the Permian, very loyal to Midland. And so, potentially, they were trying to keep it close to home, and Diamondback is right across the street.

Do you see these continuing, or are the numbers of big players who might be takeover targets – or perhaps interested in or had the ability to make mergers – or are they thinning out at this juncture? Because it seems like this wave of mergers has been going on for at least a couple of years.

I don’t think this is the last merger that we’ll see this year. But you’re right to say that the size might be going down, but there are only so many large companies left that haven’t made a recent acquisition. So the merger trend is hitting a trough, I guess you could say.

What happens next? And is this likely to get any pushback from regulators?

Hard to say. I’m not sure how the regulators have been evaluating which deals to target. They’ve clearly been looking at Exxon and Chevron’s mega-mergers that are significantly larger than this one. But, yeah, remains to be seen.

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