Diamondback Energy, a major player in the shale oil industry, has announced its acquisition of certain units of Double Eagle Energy.
The deal, valued at approximately $4.08 billion, will be settled through a combination of cash and stock.
Double Eagle Energy, backed by EnCap Investments, operates primarily in the Permian Basin, a region renowned for its abundant oil reserves.
This strategic move by Diamondback Energy aligns with its goal of expanding its footprint in the Permian Basin and solidifying its position in the US shale oil market.
Diamondback Energy’s expansion plans
Diamondback Energy has been actively expanding its presence in the Permian Basin, a prolific hydrocarbon-producing region located in West Texas and New Mexico.
This strategic move was solidified last year when Diamondback made a significant acquisition by purchasing Endeavor Energy Partners, a privately held rival, for a substantial sum of $26 billion.
This acquisition significantly bolstered Diamondback’s position in the Permian Basin, establishing it as the third-largest oil and gas producer in the region.
The Permian Basin is renowned for its abundant oil and gas reserves, making it a highly attractive area for energy companies seeking to expand their production and reserves.
Diamondback’s increased presence in this region allows it to tap into these vast resources and capitalise on the opportunities presented by the Permian Basin’s prolific hydrocarbon potential.
Oil production growth to slow down
However, the growth of oil production in the Permian Basin, the most productive oilfield in the US, is projected to experience a significant slowdown of at least 25% in 2025.
This deceleration occurs despite President Donald Trump’s encouragement to increase drilling activities.
The primary factors behind this trend are oil producers’ strategic decisions to prioritise fiscal discipline by controlling spending and their aim to secure higher market prices for their oil and gas resources.
The acquisition deal will provide Diamondback with approximately 40,000 net acres of land in the heart of the Midland Basin, a prime location within the Permian Basin.
This acquisition is notable because it represents one of the last remaining substantial assets available in the Permian Basin.
Debt
To reduce pro-forma debt, Diamondback has also committed to selling at least $1.5 billion of non-core assets.
The company expects to lower net debt to $10 billion and maintain leverage of $6 billion to $8 billion over the long term.
Diamondback CEO Travis Stice said in a statement:
While we are adding a small amount of leverage to complete this trade, we are confident that we can quickly reduce debt both naturally through our consistent and growing Free Cash Flow and through our commitment to sell at least $1.5 billion of non-core assets.
Reuters reported last year that Double Eagle, a Permian Basin-based producer, was exploring a sale.
“Double Eagle is the most attractive asset remaining in the Midland Basin. With 407 locations adjacent to our core position, this largely undeveloped asset adds high-quality inventory,” Stice said.
Diamondback announced its plan to finance the acquisition through a combination of cash on hand and borrowings, with the payment comprising approximately 6.9 million shares and a cash component of $3 billion.
The closing date for the transaction is April 1.
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