Skip to main content

Market Overview

Diamondback Joins Permian Basin Consolidation Wave With Double Acquisition Deals

Share:
Diamondback Joins Permian Basin Consolidation Wave With Double Acquisition Deals

Mineral exploration company Diamondback Energy Inc (NASDAQ: FANG) acquired independent natural gas and oil exploration company QEP Resources Inc (NYSE: QEP), the company announced on Monday.

What Happened: As a part of the $2.2 billion acquisition agreement, Diamondback will absorb QEP’s business along with the $1.6 billion debt that was outstanding on Sept. 30, 2020. The entire consideration of $2.2 billion will be paid in Diamondback’s stock. It will issue 0.05 Diamondback shares for each share of QEP.

Based on Diamondback’s closing price on Friday last week, the deal puts an implied value of $2.29 for each QEP share.

Diamondback is also buying all leasehold interests of oil exploration company Guidon Operating LLC for $862 million. The Guidon deal was original with QEP, but Diamondback is acquiring it now. Guidon deal is expected to close by Feb 2021.

Guidon deal includes a cash component of $375 million and the balance in Diamondback stock issue of 10.63 million shares.

Related News: Concho Resources Rallies On Report Of M&A Interest From ConocoPhillips

Why Does It Matter: The coronavirus pandemic has dented oil demand, which led to a crash in crude oil prices in March 2020. A steep fall in oil prices has pushed many oil producers to the verge of bankruptcy, leading to consolidation in the oil-rich shale patch

Diamondback’s portfolio will now include the Midland basin region — a material Tier 1 inventory. The management expects that the two companies’ synergies improve other key operational metrics like leverage, cash flow per share, and free cash flow per share in 2021.

This, along with a combined “drilled but uncompleted” wells in Diamondback’s 2021 portfolio, would reduce the reinvestment ratio next year.

The company management estimates that these deals could offer annual synergies in the range of $60 million to $80 million. Additionally, the agreement classifies QEP’s assets on the Williston basin as a non-core asset, which can be used to pay off a portion of the outstanding debt balance.

After the deal’s close, Diamondback will retain a 92.8% stake, and the remaining 7.2% will be held by QEP. However, the new shareholding pattern does not account for any share issue to settle QEP’s pending acquisition deals like the Guidon Operating LLC acquisition.

Price Action: On Monday, FANG closed 1.79% lower at $45.02, and QEP fell 3.46% to close at $2.23.

Related News: Morgan Stanley Upgrades Diamondback Energy, Valero Energy, Sees ‘Sustained Rally’ For Oil Stocks

 

Related Articles (QEP + FANG)

View Comments and Join the Discussion!

Posted-In: M&A News Penny Stocks Commodities Small Cap Top Stories Markets Media Best of Benzinga

Don't Miss Any Updates!
News Directly in Your Inbox
Subscribe to:
Benzinga Premarket Activity
Get pre-market outlook, mid-day update and after-market roundup emails in your inbox.
Market in 5 Minutes
Everything you need to know about the market - quick & easy.
Fintech Focus
A daily collection of all things fintech, interesting developments and market updates.
SPAC
Everything you need to know about the latest SPAC news.
Thank You

Thank you for subscribing! If you have any questions feel free to call us at 1-877-440-ZING or email us at vipaccounts@benzinga.com