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Diamondback (FANG) Inks Acquisition Deal With QEP Resources

Diamondback Energy, Inc. FANG has reached an agreement to acquire QEP Resources QEP in an all-stock deal worth $2.2 billion comprising $1.6-billion net debt as of Sep 30. The deal is the latest among the spree of U.S. oil mergers and acquisitions, which are a strategic measure taken by the shale players to combat the coronavirus-induced weak crude price scenario.

This move will provideQEP 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 per share as of the closing price on Dec 18.

Rationale Behind the Deal

Per the takeover deal, Diamondback will get 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. If the deal gets through, Diamondback will significantly expand its production and proved reserves in the Midland Basin acreage.

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

Moreover, both the contracts will immediately increase Diamondback’s 2021 free cash flow per share, thereby resulting in 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".

The transaction is expected to close by the first quarter or early second quarter of next year and is contingent on a considerable support from QEP Resources shareholders, pending approvals and customary conditions. Upon the closure of this deal, Diamondback stakeholders will possess 92.8% of the consolidated company while the rest will be held by QEP Resources stockholders.

Recent Deals in the Permian Basin

Apart from the currently Zacks Rank #3 (Hold) Diamondback’s impending transaction, Pioneer Natural Resources Company PXD had earlier in the year confirmed its $4.5-billion all-stock accord to acquire smaller rival Parsley Energy. Another energy player ConocoPhillips COP confirmed its decision to buy Concho Resourcesin an all-stock transaction, valued at $9.7 billion. During the coronavirus pandemic, this was the largest oil pact in the United States. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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ConocoPhillips (COP) : Free Stock Analysis Report
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