America’s Permian shale basin has seen another big money deal with Diamondback Energy Inc (NASDAQ:FANG) acquiring rival Energen Corporation (NYSE:EGN) for US$9.2bn.
The all-stock deal is pitched at an implied takeover price of US$84.95 per Energen share, a premium of around 16% to Tueday’s closing price of US$73.14. Energen’s backers will receive 0.6442 Diamondback shares for each share they hold.
In early premarket transactions, Energen stock is indicated around 7% higher at US$78.25, whilst Diamondback is set to adjust 5.5% lower ahead of the opening bell in New York.
It comes amid a flurry of deal activity in the Permian basin. Indeed, Diamondback itself only last week picked up another Permian firm, acquiring Ajax Resources for US$1.2bn.
In late July, meanwhile, BP agreed to pay BHP Billiton US$10.5bn for its Permian business, picking up some 4.6bn barrels of discovered resources.
Deal aims to create premier Permian independent
Diamondback Energy, in a statement, highlighted that the combination with Energen creates ‘the premier large cap Permian independent’.
It increases the company’s position by 57% to 266,000 net acres , increases well locations by 120% to more than 7,000.
Significantly, it will see combined pro forma production of 222,000 barrels oil equivalent per day (comprising 67% oil), representing an improvement of some 79% from the 124,700 boepd produced by Diamondback in the second quarter of 2018.
Diamondback sees the potential to create around US$3bn of synergies though the combination, while some US$30-40mln of admin costs savings are also eyed.
Transformational for Diamondback and Energen shareholders
“This transaction represents a transformational moment for both Diamondback and Energen shareholders as they are set to benefit from owning the premier large cap Permian independent with industry leading production growth, operating efficiency, margins and capital productivity supporting an increasing capital return program,” said Travis Stice, Diamondback chief executive.
He added: “This transaction also adds critical mass for driving capital efficiencies in what is now truly becoming a manufacturing business. I expect the pro forma company to be able to grow at industry leading rates while returning capital at a competitive yield.”