Diamondback Energy and Endeavor Energy merger creates the largest pure play company in the Permian, according to Wood Mackenzie

Addressing Diamondback Energy, Inc. and Endeavor Energy Resources L.P.’s US$26 billion merger transaction, Alex Beeker, research director, corporate research for Wood Mackenzie said, “This deal creates the largest Permian pure play company, and it will trail just ExxonMobil and Chevron in terms of total Permian production.”

According to Wood Mackenzie analysis, with 816 thousand barrels of equivalent per day (kboe/d) of combined production, the new company is effectively the size of Pioneer and ExxonMobil and Diamondback will now operate nearly 50% of production in the Midland Basin. Six companies will now produce more than 700 kboe/d in the Permian. The top 10 companies in the Permian will now produce more than 6.4 million boe/d.

“The deal continues a record streak of M&A in the US,” said Beeker. “After US$130 billion of deals last year, there has already been nearly US$50 billion of deals in the US this year. So far, immediate market reaction has been positive, with shares of Diamondback up more than 6% after the announcement call. It has been rare for the market to respond so positively in favor of the buyer when it comes to Permian M&A.”

Diamondback estimates meaningful synergies of US$550 million per year with an NPV of US$3.0 billion.

“Both companies already have very similar approaches to well design including similar water, proppant, and wells per pad,” said Beeker. “How challenging will it be to achieve these synergy targets? Costs will be under the microscope once the deal closes.”

Beeker concluded, “Diamondback’s oil-weighted portfolio affords it some of the best cash margins in the industry. By adding more low-cost Midland oil to its portfolio, the company helps ensure it can protect its strong margins for the next decade.”