Business/economics

Shale Consolidation: Diamondback Snaps Up 350+ Locations in $1.6-Billion Cash-Stock Deal

The Permian Basin operator said the purchase translates to more than a decade of additional inventory.

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Source: Diamondback Energy.

Permian Basin shale producer Diamondback Energy announced this week that it struck a deal to acquire smaller private- equity-backed operator FireBird Energy. Terms include $775 million in cash and $5.86 million in Diamondback common stock which pegs the deal’s total value at nearly $1.6 billion.

Diamondback described the deal as a “bolt-on acquisition” that will give it more than 350 additional drilling locations in the Midland Basin portion of the Permian. These locations cover some 75,000 gross acres that Diamondback said are “highly contiguous” to its existing operations.

The US independent added that at its planned pace of drilling, the newly acquired drilling locations will translate to more than a decade of development work. Diamondback said it also plans to reduce the number of rigs operating on the FireBird position from three to one by next year.

The FireBird asset is estimated to be producing an average of almost 17,000 B/D of crude which is expected to increase to an average of about 19,000 B/D next year. This builds upon Diamondback’s existing production base of around 221,000 B/D of crude.

Diamondback added in its announcement that it can sustain its projected level of output from the FireBird asset with the single rig.

FireBird has developed its acreage using laterals more than 11,000 ft long on average and targets the popular Sprayberry and Wolfcamp formations.

The acquisition of FireBird marks the first major purchase by Diamondback since December of 2020 when it moved to buy rivals Guidon Energy and QEP Resources for more than $3 billion in cash and stock.

In a reflection of the sectorwide priority to appease investors, Diamondback said it is committed to its goal of returning 75% of free cash flow to shareholders, which means to help offset the cost of this latest deal it plans to sell off $500 million of noncore assets by next year.

Subject to approvals, the transaction is expected to close by the end of December.

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Diamondback Energy's pro forma Midland Basin acreage position.
Source: Diamondback Energy.