Feb 13, 2024 - Energy & Environment

A $26B deal looks to solve a U.S. oil "puzzle"

Animated illustration of two pools of oil merging to form a dollar sign.

Illustration: Brendan Lynch/Axios

Diamondback Energy's $26 billion deal for Endeavor Energy Resources will create a new shale powerhouse that will be the largest "pure play" producer in the Permian Basin.

Why it matters: Located in Texas and New Mexico, the Permian region is the most prolific U.S. oilfield. The combined Diamondback-Endeavor entity will have the third largest total production there behind Exxon and Chevron, per Wood Mackenzie.

Context: The market likes it. Diamondback's stock jumped over 9% on the news, suggesting investors like the goods and don't think they overpaid for privately held Endeavor's 344,000 acres.

  • "It has been rare for the market to respond so positively in favor of the buyer when it comes to Permian M&A," Woodmac's Alex Beeker said in a note.

What they're saying: The tie-up has a strong chance of being 2024's biggest upstream deal and "is among the last major outstanding M&A puzzle pieces to put together in the Permian Basin," Enverus Intelligence Research SVP Andrew Dittmar said in a note.

  • He writes that Endeavor's holdings "towered over private peers," while there's a fairly small list of private equity-backed targets still available.
  • "While there are a handful of potential public company tie-ups, the next wave of Permian dealmaking will likely need to be driven by non-core asset sales from the big buyers."
  • Rystad Energy's Matthew Bernstein notes that "companies looking to pay up to enter the 'upper echelon' of inventory holders would need to bundle together smaller operators or merge with other big publicly traded firms."
  • Don't forget it comes after deals including Exxon-Pioneer and Chevron-Hess.

The bottom line: Competition was reportedly fierce. Bloomberg calls it a "resounding coup" for Diamondback, citing prior interest from Exxon, Chevron and ConocoPhillips.

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