Diamondback strikes big with $9.2B buy of Energen's shale assets

By Diamondback Energy | August 15, 2018

Diamondback Energy Inc. and Energen Corp., have announced that they have entered into a definitive agreement under which Diamondback will acquire Energen in an all-stock transaction valued at approximately $9.2 billion, including Energen’s net debt of $830 million as of June 30, 2018. The consideration will consist of 0.6442 shares of Diamondback common stock for each share of Energen common stock, representing an implied value to each Energen shareholder of $84.95 per share based on the closing price of Diamondback common stock on August 13, 2018. The transaction was unanimously approved by the Board of Directors of each company.

Transaction highlights:

 -Creates the premier large cap Permian independent with peer-leading production growth, cost structure and capital efficiency

-Over 266,000 net Tier One acres in the Permian Basin, an increase of 57 percent from Diamondback’s current Tier One acreage of approximately 170,000 net acres (pro forma for previously announced Ajax acquisition)

-Over 7,000 estimated total net horizontal Permian locations, an increase of over 120 percent from Diamondback’s current estimated net locations (pro forma for previously announced Ajax acquisition)

-Combined pro forma Q2 2018 production of over 222 Mboe/d (67 percent oil), third largest production for a pure play company in the Permian Basin, an increase of 79 percent from Diamondback’s Q2 2018 production of 124.7 Mboe/d (includes production from the previously announced Ajax acquisition)

-390,000 net acres across the Midland and Delaware basins, an increase of 85 percent from 211,000 net acres as of June 30, 2018 (pro forma for previously announced Ajax acquisition)

-Immediately accretive in 2019 on key per-share metrics including: earnings per share, cash flow per share, net asset value, production growth per debt-adjusted share and acreage

-Free cash flow enhancement expected to support increases in return of capital; Diamondback dividend to be maintained and growth in return of capital program to be assessed in 2019

-Held by production nature of assets allows for development optimization with multi-zone, multi-well pads in both Midland and Delaware Basins

-Primary deliverable synergies with net present value of $2.0 billion or more include:

-Capital Productivity: Drilling, completion and equip  well cost savings of up to $200 per lateral foot across over 2,000 net operated locations in the Midland Basin

-Estimated annual general and administrative savings of $30 to $40 million

-Lower cost of capital and accelerated path to investment grade profile

-Primary deliverable synergies expected to be realized beginning in 2019

-Secondary synergies with net present value of $1.0 billion or more include:

-Capital Productivity: D,C and E well cost savings of up to $50 per lateral foot across over 1,500 net operated locations in the Delaware Basin

-Benefits of economies of scale

-Benefit of overlapping and adjacent acreage in Howard, Martin and Ward counties

-Lease operating expense reduction

-High grading of inventory allows for cash flow acceleration and reinvestment

-“Grow and prune” strategy for non-core assets with cash reinvested into higher return projects

-Substantial mineral ownership and acreage with net revenue interest greater than 75 percent, providing compelling drop-down opportunities for Viper Energy Partners LP

-Combination of significant midstream assets across both Midland and Delaware basins

-Secondary synergies expected to be realized post integration

 

“This transaction represents a transformational moment for both Diamondback and Energen shareholders as they are set to benefit from owning the premier large cap Permian independent with industry leading production growth, operating efficiency, margins and capital productivity supporting an increasing capital return program. The Energen team has done an outstanding job assembling a portfolio of Tier One acreage in both the Midland and Delaware basins, which, when combined with Diamondback’s current portfolio, will present an extended runway for Diamondback’s record of best-in-class execution and low-cost operations. This transaction also adds critical mass for driving capital efficiencies in what is now truly becoming a manufacturing business. I expect the pro forma company to be able to grow at industry leading rates while returning capital at a competitive yield,” stated Travis Stice, Chief Executive Officer of Diamondback.

Mr. Stice continued, “We look forward to welcoming Energen’s employees as members of the Diamondback team, and applaud them for the hard work and dedication they have put forth to create this opportunity for the two teams to become one. The synergies provided in this transaction, as well as the opportunities for capital improvements provided by increased size and scale, create a truly outstanding value proposition. The combined company’s expected production growth, capital productivity and cost structure will enhance our free cash flow profile to grow our long-term capital return program.”

James McManus, Chairman and Chief Executive Officer of Energen, stated, “We are very pleased about this transaction and believe the combination of the two companies’ quality assets, track record of execution, and peer-leading cost structures will form an even stronger, large-cap independent producer uniquely positioned to drive growth and development in the Permian Basin. This transaction is the outcome of a comprehensive strategic review by Energen’s Board with the assistance of our outside advisors. The process examined our business plan, competitive positioning, and strategic alternatives. We believe this all-stock transaction with Diamondback is the best path forward for our company and provides Energen shareholders with an excellent value for their investment, now and in the future.”

Mr. McManus added, “I also want to take this opportunity to recognize Energen’s biggest strength, our employees, and publicly thank them for their dedication and hard work in driving Energen’s success.”

TRANSACTION DETAILS

Under the terms of the definitive merger agreement, shareholders of Energen will receive 0.6442 shares of Diamondback common stock in exchange for each share of Energen common stock, representing an implied value to each Energen shareholder of $84.95 per share based on the closing price of Diamondback common stock on August 13, 2018. The consideration represents an approximately 19% premium to Energen’s closing price of $71.36 on August 13, 2018. Upon closing the transaction, Diamondback shareholders will own approximately 62 percent of the combined company, and Energen shareholders will own approximately 38 percent. The resulting capital structure is consistent with Diamondback’s strategy of maintaining a conservative financial profile and will accelerate the Company’s path to an investment grade credit rating profile.

The transaction, which is expected to be completed by the end of the fourth quarter of 2018, is subject to the approval of both Diamondback and Energen shareholders, the satisfaction of certain regulatory approvals and other customary closing conditions.

Upon closing, Diamondback’s Board of Directors and executive team will remain unchanged. Additionally, the Company will continue to be headquartered in Midland, Texas.