Diamondback Energy Inc. surged more than 10% after agreeing to buy fellow Permian Basin driller Endeavor Energy Resources LP in a $26 billion deal that’ll create the largest explorer focused exclusively on the western hemisphere’s busiest oil field.
The agreement swells the value of recent shale takeovers to roughly $150 billion as oil executives scramble to pad portfolios with future drilling sites and shore up cash flows. The impacts will be felt far afield from the Permian Basin of West Texas and New Mexico, where rampant output growth is challenging the OPEC+ alliance’s efforts to curb global crude supplies and prop up prices.
Diamondback’s advance made it the day’s second-best performer in the S&P 500 Index, an atypical price reaction for the acquirer in such a major transaction. While some Wall Street analysts said the company paid a full price for closely held Endeavor, the deal also solidifies Diamondback’s “position as a must-own Permian pure play,” TPH Energy Research’s Jeoffrey Lambujon wrote in a note.
The two companies headquartered across the street from one another in the Texas town of Midland, the de facto capital city of the Permian region, will pump the combined equivalent of 816,000 barrels a day, making it larger than both Marathon Oil Corp. and Devon Energy Corp.
The consolidation marks a maturation of the long-fragmented shale industry and as publicly traded companies face increasing investor pressure to sustain dividends and buybacks.
Diamondback will fund the deal with 117.3 million shares and $8 billion in cash, the companies said in a joint statement Monday. Diamondback shareholders will own 60.5% of the company after closure.
Diamondback has secured an $8 billion bridge-facility commitment from Citigroup Inc. The deal with Endeavor includes a $1.4 billion termination fee, according to a filing. When the sale closes, Diamondback expects to launch a debt offering of $5 billion to $6 billion.
Acquiring Endeavor is a resounding coup for Diamondback. The company founded by shale pioneer Autry Stephens has long been a titan among the relatively small so-called mom-and-pop operations that long steered Permian exploration. Endeavor has previously attracted the interest of Exxon Mobil Corp., Chevron Corp. and ConocoPhillips.
Stephens, who grew up on a watermelon-and-peanut farm and had to shut down almost all his rigs during the 2008 financial crisis, had a net worth of $14.8 billion before…