Following Diamondback's recent business transaction, not many Permian Basin targets are left unexplored.
In the Permian Basin, Diamondback Energy seized the title of top independent producer last year after snatching Endeavor Energy Resources in a whopping $26 billion deal. This merger, coupled with ExxonMobil's subsequent acquisition of Pioneer Natural Resources in October 2023, cemented Diamondback's position as the region's colossal, privately-held kid.
Diamondback's recent tussle to acquire Double Eagle IV for $3 billion in cash and $1.08 billion in stock strengthens its supremacy among peers in the upstream industry. As shown on the map below, culled from Diamondback Energy's investor slide deck, the purchase provides Diamondback with an additional trove of contiguous acreage.
Andrew Dittmar, Enverus' Director, stated via email that this deal elevates Diamondback to the zenith of large-scale, Permian-focused producers, boasting a market cap comparable to Pioneer's pre-sale value. Post-Double Eagle acquisition, Diamondback's market cap would approximate $50 billion.
In their announcement, Diamondback emphasized that the deal elevates their net acreage holdings to around 40,000, with an anticipated daily output of 27 Mboe/d, comprised of 69% oil, in the Midland Basin's central fairway. Dittmar draws attention to Diamondback's improved standing as the second-largest Midland Basin acreage holder, surpassed only by ExxonMobil.
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The $3 billion acquisition of Double Eagle IV reflects the prevailing trend in the Permian Basin's oil sector, where consolidation has been the driving force over the past half-decade. Diamondback has been a champion in this process, growing exponentially through a series of acquisitions, primarily involving contiguous acreage positions, which boosts economies of scale and reduces overall costs.
Dittmar acknowledges that Diamondback appears to have paid a premium for the Double Eagle acreage and production, attributing it to the high demand for Permian assets in contrast to limited opportunities.
As larger corporate producers have gradually vacated the Permian Basin's landscape, acquiring companies have increasingly leaned on privately held producers for growth opportunities. However, Dittmar suggests that as the trend has persisted, few such opportunities remain.
Scarcity of attractive private assets leaves no other option than to court family-owned independents or eye takeover targets, such as Devon Energy or Diamondback itself. Despite limited opportunities, consolidation will persist, albeit at a slower pace compared to the breakneck speed of the previous two years.
As Dittmar illustrated in late January, the union of assets and securing management team alignment has grown more complex, implying the process of consolidating will continue, albeit at a reduced pace.
Still, the oil and gas industry remains an enigma wrapped in mystery; the aforementioned adage—nothing is certain—remains a reliable truth in the unpredictable world of petroleum.
- Diamondback Energy's acquisition of Double Eagle IV for $3 billion is in line with the trend of consolidation in the Permian Basin's oil sector, a process that Diamondback has led through a series of acquisitions.
- Andrew Dittmar, Enverus' Director, stated that Diamondback's acquisition of Double Eagle IV elevates it to the top among large-scale, Permian-focused producers.
- Post-Double Eagle acquisition, Diamondback's market cap would be approximately $50 billion, putting it in the same league as Pioneer Natural Resources before its acquisition by ExxonMobil.
- The acquisition increases Diamondback's net acreage holdings in the Midland Basin's central fairway to around 40,000, with an anticipated daily output of 27 Mboe/d, comprised of 69% oil.
- Dittmar highlights that Diamondback now sits as the second-largest Midland Basin acreage holder, surpassed only by ExxonMobil, after acquiring Double Eagle IV.
- The prevailing trend in the Permian Basin's oil sector over the past half-decade has seen larger corporate producers gradually vacating the landscape, leaving room for consolidation among acquiring companies.
- As the trend of consolidation persists, Dittmar suggests that attractive private assets are becoming scarce, pushing companies to court family-owned independents or eye takeover targets such as Devon Energy or Diamondback itself.
