US-based oil rivals, Endeavor Energy and Diamondback Energy (FANG.O) are close to finalizing a deal worth $50 billion that would be creating a joint oil and gas company. The deal will include $25 billion cash and stock transactions.
Diamondback may announce the deal as soon as Monday, giving its shareholders more than half of the combined company, making it the largest pure-play oil producer in the Permian shale oil field.
Earlier in December, Reuters reported that Endeavor Energy was actively looking out for a partner to explore options for valuing the largest private oil and gas producer in the Permian region, at between $25 – $30 billion.
This combined oil and gas company would be the third largest in the Permian region, only after Exxon Mobil (XOM.N) and Chevron (CVX.N), who recently completed their deals. Moreover, the Permian basin is the top US oilfield that mounts on New Mexico and West Texas.
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Merger Race
Dan Pickering, the chief investment officer of Pickering Energy Partners said that, “this is a layup in terms of the acreage overlap and fit.”. The merged company would replace Pioneer Natural Resources, acquired by Exxon, as the top solely Permian producer.
As Diamondback and Endeavor Energy are close to creating their combined $50 billion oil company, many Permian oil producers are joining in the race to lock in future drilling inventory and output from this oil field.Â
This deal, along with other deals happening in the background will certainly put a pressure on remaining firms to merge for greater efficiencies and economies of scale, as per the analysts.
However, Andrew Dittmar, a senior vice president at data analytics firm Enverus, rules out any future deals that are likely to match the sheer size of Permian shale deals in recent months.
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Diamondback and Endeavor
Diamondback’s use of stock and cash will allow Endeavor Energy to retain the role in the largest oil company in Midland Texas, where both the companies are initially based. Moreover, their drilling inventory is of extremely high quality, making the combined company a great investment option on Wall Street.
The Wall Street earlier reported that Diamondback had fended off its competition several times in the past, ConocoPhillips (COP.N) being one of them.Â
The sale comes nearly 45 years after Texas based oilman Stephen started the company that would become Endeavor. Its operations span across 350,000 acres (1,416 Sq. Km) in the center portion of Permian Basin.
Stephens, a former engineer who became famous for his consistent TV documentary appearances in Blackgold, grew the company acquiring unwanted land from his competitors and managing to profitably extract oil and gas from it.
To lower his production costs and achieve a higher productivity, Stephens retorted to making his own construction, fracking and trucking companies.
