Diamondback Energy, Inc. FANG has secured key Midland Basin assets from Double Eagle IV Midco, LLC in a cash and stock deal. The deal enhances the company’s core holdings and positions it for long-term free cash flow growth.
Diamondback has also agreed with Double Eagle to accelerate development at one of its non-core southern Midland Basin assets. This acceleration will enhance the net asset value of Diamondback’s lower-quality acreage faster and help grow its free cash flow in 2026 and beyond with minimum capital deployment.
This deal, which is expected to close pending regulatory approvals by April 1, 2025, marks a significant step in Diamondback’s strategy to consolidate its leadership in the most prolific Permian Basin.
The consideration for the deal will be paid in both cash and stock. The approximate value of the contract is $4 billion, and Diamondback will pay $3 billion in cash and about 6.9 million shares of its common stock in exchange for the same.
The cash portion of the transaction will be paid through a combination of cash on hand, borrowings under a credit facility and proceeds from term loans and senior notes offerings.
The acquisition covers approximately 40,000 net acres in the Midland Basin, a region known for its high-quality oil reserves. With 68% of the undeveloped acreage and 407 new locations in development target, this deal significantly extends Diamondback’s high-quality inventory. This deal will also help Diamondback achieve the estimated run-rate production of about 27 MBo/d (Thousand Barrels of Oil per Day).
With the completion of this agreement, Diamondback would be solidifying its position to have the longest duration of high-quality inventory with a low breakeven.
A portion of the consideration of this deal will be financed through borrowings and loans, which can impact Diamondback’s balance sheet. Therefore, in order to maintain financial discipline, the company has committed to selling at least $1.5 billion of its non-core assets, ensuring that the acquisition does not overly strain its balance sheet. After the sale, the company expects to reduce net debt to $10 billion and maintain long-term leverage between $6 and $8 billion.
Texas-headquartered Diamondback Energy is an independent oil and gas exploration & production company. Currently, FANG has a Zacks Rank #3 (Hold).
Investors interested in the energy sector might look at some top-ranked stocks like SM Energy Company SM, Prairie Operating Co. PROP and Gulfport Energy Corporation GPOR.While SM Energy and PROP currently sport a Zacks Rank #1 (Strong Buy) each, Gulfport Energy carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Denver, CO-based SM Energy Company is an independent oil and gas company engaged in the exploration, exploitation, development, acquisition and production of natural gas and crude oil in North America. The Zacks Consensus Estimate for SM’s 2024 earnings indicates 15.11% year-over-year growth.
Houston-based Prairie Operating is an independent energy company engaged in the development and acquisition of proven, producing oil and natural gas resources principally in the United States. The Zacks Consensus Estimate for PROP’s 2024 earnings indicates 81.19% year-over-year growth.
Gulfport Energy is an independent natural gas and oil company focused on the exploration and development of natural gas and oil properties in North America. The Zacks Consensus Estimate for GPOR’s 2024 earnings indicates 108.53% year-over-year growth.
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