Shares of Diamondback Energy (FANG) are climbing Monday morning following the announcement of a merger agreement with Endeavor Energy Resources, the latest acquisition deal to hit the energy sector. Diamondback plans to acquire Endeavor in an all-stock deal valued at $26 billion, the total deal valued at over $50 billion.
The merger will make Diamondback one of the largest independent oil and gas producers in the Permian Basin.
Yahoo Finance Senior Business Reporter Ines Ferré breaks down the details and analyst comments on consolidation plans sweeping energy producers.
For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.
Editor's note: This article was written by Luke Carberry Mogan.
Video Transcript
AKIKO FUJITA: Well Diamondback Energy and Endeavor Energy announcing a merger this morning valued at $26 billion. The marriage between the Permian rivals just the latest in a string of mergers we've been seeing in the energy patch. Let's bring in Yahoo Finance's Ines Ferre to give us more details. Ines.
INES FERRÉ: Yeah, that's right, Akiko. And this is a big deal because we have been seeing over the last, I would say, six months or so, companies since the fall really, a slew of companies that have been announcing mergers, specifically in the Permian Basin area. And this is sort of the heartland, the hotbed where there have been technological advances when it comes to drilling and where we have seen these acquisitions happening.
And I spoke to one analyst on the phone just a few minutes ago who was telling me this is a logical move for Diamondback and Endeavor, and that it is probably one of the last few big deals that you will see because there are some smaller individual players, but there have been, as I said, these bigger mergers that have happened over the last couple of months.
You've got ExxonMobil buying Pioneer, you have Chevron buying Hess, and then you also have Occidental Petroleum buying CrownRock. And what this analyst was telling me is, look, the geology of the area is very well known. You don't need that many CFOs, that many CEOs in the area. And what is happening is that with the Permian Basin as you drill more, you get into a higher gas to oil ratio. So it starts to become gassier.
So what that means is that they're producing a lot more gas than oil after a while. And so we have seen in the market sort of an influx, an oversupply, if you will, of gas. And so when that happens, you need to lower your operating costs. So part of the reason why you're seeing this-- this is part of the reason why you're seeing this consolidation in the space.
You also had Pioneer's CEO in one of the earnings call last year talking about this consolidation that would be coming to this space because companies needed inventory. So they are really securing their drilling sites for the future, Akiko.
