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Diamondback (FANG) Concludes Takeover Deal With QEP Resources

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Diamondback Energy, Inc. FANG recently completed the acquisition of QEP Resourcesin an all-stock deal worth $2.2 billion comprising $1.6-billion net debt as of Sep 30. The deal was closed upon fulfilling all the pending approvals and customary conditions.

As a result of the merger, Diamondback stakeholders will possess 92.8% of the consolidated company while the rest will be held by QEP Resources stockholders. Also, the acquired entity’scommon stock is no longer listed for trading on NYSE.

This move provides QEP Resources shareholders with 0.05 shares of Diamondback common stock for each share held, accounting for an implied value to each QEP stockholder of $2.29 as of the closing price on Dec 18.

Rationale Behind the Deal

Per the takeover deal, Diamondback gets nearly 49,000 more acres in the Midland area of the leading U.S. oil field, the Permian Basin in Texas, which is the much coveted prospect in the latest slew of acquisitions. It’s noteworthy that the company is already one of the top producers in the Permian Basin. Therefore, the QEP transaction is a strategic fit for the company, which will further strengthen its position in the United States’ hottest shale region of lowest cost. Following the conclusion of the transaction, Diamondback significantly expanded its production and proved reserves in the Midland Basin acreage.

Management also informed that it recently purchased lease interests and assets in Midland from the privately held Guidon Operating LLC for approximately $850 million. The QEP Resources buyout combined with the acquired assets of Guidon Operating LLC will add to Diamondback’s total leasehold interests to above 276,000 net surface acres in the Midland Basin.

Moreover, both contracts will immediately increase Diamondback’s 2021 free cash flow per share, leading to annual savings of not less than $60-$80 million post the completion of the deal.

QEP Resources’ president and CEO Tim Cutt states that “we believe that this strategic merger with Diamondback, along with the addition of the Guidon assets, provides our shareholders with an exciting investment opportunity, now and in the future. The large contiguous Tier-1 acreage position in the Northern Midland Basin is expected to lead to operational synergies and deliver capital efficiencies beyond what each company could achieve independently.”

Recent Energy Deals in the Permian Basin & Elsewhere

Apart from the currently Zacks Rank #1 (Strong Buy) Diamondback’s transaction, Pioneer Natural Resources Company PXD had earlier in the year culminated its $4.5-billion all-stock acquisition of smaller rival Parsley Energy. Another energy player ConocoPhillips COP concluded the buyout of Concho Resources in an all-stock transaction, valued at $9.7 billion. During the coronavirus pandemic, this was the largest oil pact in the United States.

Meanwhile, Cenovus Energy Inc. CVE recently ended the previously-announced strategic merger with Husky Energy wherein the shareholders of the latter received 0.7845 Cenovus shares for each share they hold and 0.0651 of a Cenovus common share purchase warrant. The all-stock accord created the third biggest energy producer in Canada. You can see the complete list of today’s Zacks #1 Rank stocks here.

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