Diamondback sets $26 billion deal for shale oil rival Endeavor Energy

By Seher Dareen and Arunima Kumar

(Reuters) -U.S. oil producer Diamondback Energy said on Monday it would buy privately held rival Endeavor Energy Partners in $26 billion cash-and-stock deal that continues a rapid consolidation in the top U.S. shale oilfield.

The combined company would be the third-largest oil and gas producer in the Permian Basin of West Texas and New Mexico, behind Exxon Mobil and Chevron, with both having announced recent deals.

The deal comes amid a wave of consolidation in the basin in a drive to boost ongoing production and secure future drilling inventory.

The combined company would pump 816,000 barrels of oil and gas per day (boepd), behind the Exxon-Pioneer combination of about 1.3 million boepd and Chevron's 867,000 boepd in the basin.

Fewer wells would be needed to keep production flat in 2025 and beyond, with both companies being able to run a full business on Diamondback's cost structure, CFO Kaes Van't Hof said in a call to analysts.

"Eventually there will be non-core asset sales. We still have some significant joint-venture interest...the Delaware Basin is going to get less capital than as a percentage of total than it did previously. But we're not a forced seller."

Shares of Diamondback were up nearly 10% at $166.93 in morning trading. Reuters had on Sunday reported about merger talks between Diamondback and Endeavor, citing sources.

The deal to buy Endeavor consists of about 117.3 million shares of Diamondback common stock and $8 billion in cash. The sale comes almost 45 years after Texas oilman Autry Stephens started the company that would become Endeavor.

Diamondback would be able to pay the large cash component and still keep its balance sheet strong due to its relatively low debt-to-capital of 23%, Tim Rezvan, an analyst at KeyBanc Capital Markets, said.

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The combined company would be the only pure-play Permian oil producer outside of Pioneer, which is being acquired by Exxon.

That status, said Andrew Dittmar, a senior vice president at data analytics firm Enverus, will make this "a very attractive investment on Wall Street".

"The fact that Diamondback is based in Midland also keeps the business local and eases the transition for the Endeavor team," he said.

The deal also guarantees continued influence of Endeavor founder Stephens and other shareholders in the business with their 39.5% stake of the combined company.

Stephens grew Endeavor by acquiring the unloved acreage of his competitors and managing to extract oil and gas profitably.

Endeavor's operations span about 350,000 net acres in the Midland portion of the Permian and it expects to produce some 350,000 to 365,000 barrels of oil equivalent per day in 2024.

Diamondback expects the deal to close in the fourth quarter and its stockholders are expected to own 60.5% of the combined entity, while Endeavor will own the rest.

(Reporting by Seher Dareen and Arunima Kumar; Additional reporting by Tanay Dhumal in Bengaluru; Editing by Sharon Singleton and Arun Koyyur)