Diamondback Energy, Endeavor Energy Resources agree to merger valued at $26 bn

Investing.com -- Diamondback Energy (NASDAQ:FANG) and Endeavor Energy Resources have agreed to merge in a transaction valued at approximately $26 billion, the firms announced on Monday.

The tie-up gives the new entity a huge stake in the all-important Permian Basin, a prolific oil and gas producing region that stretches across Texas and New Mexico. Combined, the companies would become the top solely Permian producer, Reuters has reported.

“Diamondback has proven itself to be a premier low-cost operator in the Permian Basin over the last twelve years, and this combination allows us to bring this cost structure to a larger asset," Stice added.

The merger will consist of about 117.3 million shares of Diamondback common stock and $8B in cash. Following the deal, which is expected to close in the fourth quarter of this year, Diamondback shareholders are projected to own about 60.5% of the combined business. Endeavor's stakeholders will hold about 39.5% of the entity.

In a statement, Diamondback Chief Executive Travis Stice said the move will create "tangible synergies" that are anticipated to be realized in 2025.

Texas-based Diamondback said it expects to produce 800 to 825 million barrels of oil equivalent per day on a capital budget of between $4.1B to $4.4B on a pro forma basis. The plan, it added, implies "significant pro forma cash flow and free cash flow per share accretion."

Despite headwinds from higher interest rates and a more stringent regulatory environment, the energy sector has seen an uptick in consolidation activity thanks to elevated oil prices and a need to bolster output portfolios. Recently, supermajors ExxonMobil (NYSE:XOM) and Chevron (NYSE:CVX) have both revealed multi-billion dollar deals.

"Endeavor is one of the most highly sought after deals remaining in the Permian Basin, so this is a bit of a coup for [Diamondback]," analysts at Roth Capital Partners wrote in a note.