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# Diamondback Bolts On More Than 150 Locations in $1.5-Billion Cash/Stock Deal ## The Permian Basin operator said the purchase ‘checks all the boxes’ it looks for in an acquisition. Consolidation in the Permian Basin continues to bubble with Diamondback Energy’s announcement on 16 November that it is set to add to its position with its purchase of Lario Permian in a cash-and-stock transaction. Terms include$850 million in cash and 4.18 million shares of Diamondback common stock, bringing the deal’s total value at $1.5 billion. Diamondback described the deal as a “bolt-on acquisition” that includes more than 150 gross horizontal locations covering 25,000 gross acres in the core of the Northern Midland Basin. “Lario is an attractive bolt-on to our existing Martin County position, home to some of the best rock in the Permian Basin,” stated Travis Stice, chairman and CEO of Diamondback. “This is a deal that checks all the boxes Diamondback looks for in an acquisition, as it brings over 150 gross locations in the core of the Northern Midland Basin and also provides immediate accretion to all relevant financial metrics, enhancing Diamondback’s overall value proposition to our stockholders.” The US independent said it plans to reduce the number of rigs operating on the Lario position from two to one by next year. Full-year 2023 estimated average production of the Lario asset is about 18,000 B/D of crude. Diamondback expects to reduce operated rig count from two currently to one or less post-closing for 2023 development. This is the second billion-dollar deal announced by Diamondback in little more than a month. In October the company announced it was acquiring the privately held FireBird Energy in a deal with a total value pegged at nearly$1.6 billion.

“When combined with our pending FireBird acquisition, we will grow our Midland Basin footprint by approximately 83,000 net acres, add 500 high-quality drilling opportunities that compete for capital with our current development plan, and increase our 2023 production profile by approximately 37,000 B/D (50,000 BOE/D),” said Stice. “Our enhanced size and scale in the Midland Basin, along with our low-cost operations, puts us in an advantageous position to deliver differentiated near-term and long-term returns to our stockholders."

Subject to approvals, the transaction is expected to close by the end of January 2023. Diamondback will at the close of each transaction have spent a combined \$3.1 billion to expand its position in the Midland Basin.

Plenty of opportunities
Andrew Dittmar, director with Enverus, said that the Lario transaction "walks the line of staying accretive to Diamondback’s 2023 EBITDA multiple and free cash flow yield while adding inventory that is immediately competitive in its portfolio."

In contrast to the FireBird acquisition, Dittmar said the purchase from Lario is more immediately accretive to free cash flow but has less runway for undeveloped locations.

"The acreage is also more centrally located within the core development fairway of the Midland Basin relative to FireBird but scattered whereas the FireBird land was nearly in one contiguous block," he said, adding that Diamonback is leveraging its position as a large cap E&P to consolidate opportunities in the Midland Basin.

"Large-cap E&Ps focused on oil like Diamondback, as well as other big buyers from 2022 like Marathon Oil and Devon Energy, are trading at an average of 5x EBITDA and a 14% yield on free cash flow whereas small-cap companies are trading at just 3x EBITDA and their stock price implies a yield of 20% on free cash flow," he said.

He noted that this puts smaller companies at a significant competitive disadvantage when bidding on deals because they cannot offer the same value as larger companies without diluting shareholders.

"The challenging part is that smaller companies are, in many cases, much more in need of the inventory that is included in these acquisitions," he said.

"While the number of acquisition targets in the Permian, particularly targets with core acreage, have been narrowed by the acquisitions of Diamondback and others, there are still opportunities to find good deals in both the Midland and Delaware Basin," he said.

"The emergence of large-cap buyers willing to offer higher prices, along with a bit of stability in crude prices, seems to have narrowed the bid/ask spread and helped deal flow accelerate.

"For those that think the Permian is getting too competitive again, other plays like the Eagle Ford that have more consolidation targets and fewer buyers may be put on the top of the list for deals. Investors seem willing to continue to support M&A as long as the deals stay accretive to key metrics, particularly free cash flow yields."