Diamondback Energy has made a definitive purchase agreement to acquire all leasehold interest and related assets of Firebird Energy LLC in a deal expected to close late in the fourth quarter.
The stock-and-cash deal is valued at $1.6 billion, consisting of exchanging 5.86 million shares of Diamondback common stock and $775 million in cash.
Travis Stice, Diamondback chairman and chief executive officer, said in a statement: “This bolt-on acquisition adds significant, high-quality inventory right in our backyard. With over 350 locations adjacent to our current Midland Basin position, this asset adds more than a decade of inventory at our anticipated development pace, including inventory that competes for capital right away in Diamondback’s development plan.
“Also, importantly, this transaction is accretive to all relevant 2023 and 2024 financial metrics, immediately increasing expected per share returns to our stockholders in the near-term while also improving the long-term duration of the company’s cash return profile.”
In addition to the agreement with FireBird, the company has set a target to sell at least $500 million of non-core assets by year-end 2023, with proceeds earmarked for further debt reduction.
Stice stated: “We remain committed to capital discipline by returning at least 75 percent of our free cash flow to stockholders while also maintaining a fortress balance sheet.”
The cash portion of the FireBird transaction is expected to be funded through a combination of cash on hand, borrowings under Diamondback’s credit facility and/or proceeds from a senior note offering. The cash outlay at closing is expected to be approximately $700 million due to the expected free cash flow to be generated on the asset between the effective date and the expected closing date.
Andrew Dittmar, director at the energy-focused Software as a Service firm Enverus, in an initial reaction to the announcement, said that Permian Basin mergers and acquisitions had been in a bit of a logjam because buyers and sellers are so far apart on the value of inventory.
Dittmar wrote: “Seeing a leading company like Diamondback come to terms with a seller for a big deal is refreshing. It looks like they were able to keep the deal modestly accretive to their own trading multiples while still adding about 400 high-quality locations. I wouldn’t be surprised if this deal ignites more Permian M&A after a quiet third quarter.”
(Source: Tank News Int., Oct. 17-2022)