Diamondback Energy Inc. and Endeavor Energy Resources LP on Monday confirmed reports they’re combining in a deal valued at about $26 billion including debt, that marks the latest big oil merger.
Under the terms of the deal which involves the liquids-rich Permian Basin, Diamondback FANG, -1.13% will pay about 117.3 million shares of its common stock and $8 billion of cash, to give its current stockholders approximately 60.5% of the combined company. Endeavor’s equity holders would own the remaining 39.5%.
Diamondback said it is boosting its annual dividend by 7% to $3.60 a share, or 90 cents per quarter, starting in the fourth quarter.
The company will also reduce its capital-return commitment to shareholders to 50% of free cash flow, from 75% of free cash flow, in order to pay down debt.
“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,” Diamondback said.
Diamondback Energy’s stock rose 0.8% in premarket trades. The stock fell 1% on Friday and is down 2.2% so far in 2024, compared with a 5.4% rise in the S&P 500 SPX.
Diamondback Chief Executive Travis Stice said the deal will create a “must own” North American independent oil company with “industry-leading depth and quality that will be converted into cash flow with the industry’s lowest cost structure,” according to a statement.
The deal is expected to generate annual synergies of $550 million over the next decade.
“Diamondback has proven itself to be a premier low-cost operator in the Permian Basin over the last 12 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,” said Stice.
The deal was reported earlier by The Wall Street Journal, which cited sources close to the discussions.
ConocoPhillips COP, -2.41% was also vying for Midland, Texas-headquartered Endeavor, the sources said. Diamondback, based in Midland, has a market cap of $27.3 billion, according to FactSet, far below ConocoPhillips’ $133 billion.
Diamondback’s Chief Executive Stice said Endeavor has built “the highest quality private oil company in the United States.” The two companies “share a similar culture and operating philosophy” as well as the same block in Midland, Texas, where their two offices are located across the street from one another.
Founded in 1979, Endeavor is led by Autry C. Stephens, with 1,200 employees and 344,000 net acres in the Midland Basin, which includes a large portion of Texas and New Mexico.
The combined company will have about 838,000 acres and 816,000 oil-equivalent barrels a day (MBOE) production. Diamondback expects to close the deal in the fourth quarter.
The deal continues a run of major energy tie-ups, after Chevron Corp.’s CVX, -1.96% $53 billion all-stock buyout of Hess Corp. in October, which came days after Exxon Mobil Corp.’s XOM, -2.12% $59.5 billion deal to buy Pioneer Natural Resources Co. PXD, -1.96%.
Last month, Southwestern Energy Co. SWN, -0.77% and Chesapeake Energy Corp. CHK, -0.57% agreed to form a natural gas giant in a $7.4 billion tie-up.
