Diamondback Energy wraps up $26bn merger with Endeavor Energy Resources; Stock dips slightly but shows after-hours promise

Diamondback Energy, Inc. (NASDAQ: FANG) has officially closed its $26 billion merger with Endeavor Energy Resources, L.P., creating one of the largest independent oil operators in North America. This strategic consolidation significantly enhances Diamondback’s position in the Permian Basin, a region central to the U.S. shale revolution, marking a transformative moment in the energy sector.

Merger Overview and Strategic Significance

The merger, announced in February 2024 and finalized on September 10, 2024, involves a mix of approximately 117.3 million shares of Diamondback common stock and $8 billion in cash. The deal brings together Diamondback’s operational expertise in both the Southern Delaware and Midland basins with Endeavor’s significant holdings in the Midland Basin, which include 344,000 net acres and 2,300 core drilling locations. This combination results in a formidable footprint of about 838,000 net acres in the Permian Basin, including 696,000 acres in the Midland Basin alone. Pro forma, Diamondback’s oil production is set to grow from 273,000 barrels per day (bbl/d) to 468,000 bbl/d, or 816,000 barrels of oil equivalent per day (boe/d).

The merger is expected to generate annual synergies of approximately $550 million, creating a net present value of $3 billion over the next decade. These synergies encompass capital and operating cost reductions, optimized capital allocation, and enhanced financial strategies. The merger’s completion followed two extensive reviews by the Federal Trade Commission (FTC), highlighting the significance of the deal in reshaping the landscape of oil production in the Permian Basin.

Travis Stice, Chairman and Chief Executive Officer of Diamondback Energy, expressed enthusiasm about the merger’s completion, stating, “We are pleased to announce the closing of this transformative merger, creating a ‘must own’ North American independent oil company. Today, Diamondback is not only bigger, but better. Our high-quality inventory located in the heart of the Permian Basin gives us the running room to do what we do best: turn rock into cash flow.” Stice also emphasized the importance of the combined workforce, welcoming Endeavor’s employees to the Diamondback team.

Impact on Stock Price and Market Reactions

Following the merger announcement, Diamondback Energy’s stock closed at $168.46 on September 11, 2024, reflecting a decline of 1.77% or $3.03 for the day. This slight dip is typical for large-scale mergers due to initial market uncertainties surrounding integration costs and potential operational disruptions. However, the stock showed resilience in after-hours trading, rising to $168.80, up by 0.20%, indicating that investors remain optimistic about the long-term strategic benefits.

Analysts have responded positively to the merger’s potential to create value and are highlighting its unique position with large, contiguous high-quality acreage. The merged entity, with increased production capacity, enhanced operational efficiencies, and substantial synergies, is expected to deliver strong shareholder returns. The stock’s initial dip could thus be seen as a temporary reaction, with room for future appreciation as integration progresses and synergies are realized.

Leadership and Governance Changes

The merger has also brought changes to the governance structure of Diamondback. The Board of Directors will expand to 13 members, with new appointees from Endeavor, including Charles Meloy and Lance Robertson, along with two other individuals mutually agreed upon by both companies. A stockholders agreement will be implemented, providing former Endeavor equity holders with director nomination rights and other conditions to ensure smooth integration and alignment of interests.

The Future of Diamondback Energy

With the merger now complete, Diamondback Energy is well-positioned to capitalize on its expanded footprint and asset quality to achieve long-term growth and enhanced shareholder returns. As the company integrates Endeavor’s assets and operations, it plans to focus on optimizing production, reducing costs, and leveraging its larger scale for strategic advantages in the competitive North American oil market.

Travis Stice noted, “Together, I am confident we can continue to build off of Diamondback’s impressive operational track record of low-cost operations and position the new Diamondback for long-term success.” As a dominant independent operator in the Permian Basin, Diamondback is poised to drive efficiency and profitability, assuring its relevance in the global oil market for years to come.