Diamondback Boosts Permian Basin Presence With 2 Shale Deals
(Bloomberg) - Diamondback Energy Inc. rounded off a turbulent year for the US shale industry with the acquisition of two competitors for approximately $ 1.4 billion that will expand the company's position in the Permian Basin.
Diamondback announced on Monday an agreement to purchase shale explorer QEP Resources Inc. in an all-stock deal and, separately, an agreement to acquire closely held Guidon Operating LLC, which was co-founded in 2016 by funds managed by Blackstone Group Mix of Cash and stocks.
The purchases are a bet by Diamondback of Midland, Texas on the resilience of the shale sector, where production has declined after the historic collapse in crude oil prices this year. The deals are Diamondback's largest since taking over Energen Corp. valued at $ 7 billion in 2018 and will bring the total lease to more than 276,000 net acres in the Permian Midland lower basin.
"These troubled times offer great opportunities for companies prepared for them," Travis Stice, Diamondback chief executive officer, told analysts and investors during a conference call. "These acquisitions place a checkmark in every box on Diamondback's corporate development strategy."
At least four major shale deals have been announced in recent months, the largest of which was ConocoPhillips' proposed acquisition of Concho Resources Inc. for approximately $ 9.7 billion.
According to Diamondback, QEP's assets in the Williston Basin in Dakotas and Montana are "non-core" and are used as a money generator or sold. Diamondback fell 6.3% to $ 42.97 at 12:06 PM. in New York. The QEP fell 8.9% to $ 2.11.
While the assets to be acquired represent a "solid fit" with Diamondback's existing operations, the two transactions add nearly $ 2 billion to total assets. This is not exactly what we believe the market wants the company to do right now and goes against the company's plan to prioritize absolute debt settlement in 2021, ”wrote Leo Mariani, an Austin-based analyst at KeyBanc Capital Markets Inc., in a notice to clients.
Prior to Monday's announcement, Diamondback stock had nearly doubled in less than two months.
"Fortunately, we've had real conversations and two deals through the rally over the past few months," said Kaes Van’t Hof, Diamondback's chief financial officer, during the call. "If we get bigger, we have to get better and this area makes us better."
With oil prices slowly recovering from their historic crash earlier in the year, shale researchers have viewed consolidation as a means to rally in a depressed demand environment.
Marathon Oil Corp. addressed the Topic du Jour last month, saying it was ready to look for a combination beyond its primary uses in the Eagle Ford Shale in South Texas and the Bakken area of North Dakota. Meanwhile, billionaire Harold Hamm said in October that he was open to merging his Continental Resources Inc. with a rival if the opportunity arises.
Diamondback's moves on Monday appear to contradict recent public statements that there is already enough scope to be competitive, analysts from Tudor, Pickering, Holt & Co. wrote in a statement to investors.
The deals, however, are in line with "management's acquisitive track record and comments in support of general industry consolidation." "The no-premium deals increase Diamondback's engagement at the highest level" and ideally close the book on more deals in the near future.
Goldman Sachs Group Inc. is serving as lead financial advisor to Diamondback on the QEP deal, with Moelis & Co. also serving as financial advisor. Legal advisers are Akin Gump Strauss Hauer & Feld LLP and Gibson, Dunn & Crutcher LLP. Evercore and Latham & Watkins LLP are the financial and legal advisers to QEP.
Morgan Stanley is the financial advisor to Diamondback and Akin Gump Strauss Hauer & Feld LLP is the legal advisor to Guidon. Citigroup Inc. and RBC Capital Markets are the financial advisers to Guidon, and Kirkland & Ellis LLP is its legal advisor.
(Updates with other industry agreements start in the fifth paragraph.)
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