Diamondback Energy spurs new U.S. shale consolidation with two deals (updated)

Natural Resource Partners

21/12/2020 18:02

(Add analyst comment, updates share prices)
    Dec 21 (Reuters) - U.S. oil producer Diamondback Energy Inc
 FANG.O  on Monday agreed to buy two rivals for a combined $3.2
billion including debt, continuing a consolidation spurred by
the coronavirus pandemic-induced oil downturn.
    Facing heavy debt burdens and weak oil prices, shale oil
producers have been selling at low- to no premiums to market
value. Investors, unlike during the 2016 oil slump, have not
shown a willingness to put new money into struggling firms. 
    "It is a realization among small producers how difficult it
is to deliver on returns expectations," said Enverus M&A analyst
Andrew Dittmar. Sellers are having to accept low or no premium
deals with a payoff down the road if the buyer's stock
appreciates, he said. 
    Diamondback will buy QEP Resources in a stock-and-debt that
swaps 0.05 of a Diamondback share for each QEP share, or about
$2.29, a discount to Friday close. Including debt, the deal is
valued at $2.2 billion. 
    It also agreed to purchase lease interests and assets from
Blackstone Group-backed Guidon Operating LLC for 10.63 million
shares and $375 million in cash, or about $850 million. 
    QEP shares lost 8% shortly after midday while Diamondback's
shares fell 6% to $43.03.
    "Every time Diamondback concludes a transaction it's
objectively shown shareholders are better off," Diamondback
Chief Executive Travis Stice said. "These are extraordinary
times and it creates extraordinary opportunities," he said.     
    The deals will add to its projected 2021 free cash flow per
share and deliver annual savings of $60 million to $80 million
after closing by the second quarter of 2021.    
    The two purchases will add 276,000 acres in West Texas, and
increase Diamondback's output by up to 95,000 barrels per day.
The QEP deal includes North Dakota properties that the company
expects to divest.     
    Recent deals in the Permian Basin include Pioneer Natural
Resource Co's  PXD.N  $4.5 billion buyout of Parsley Energy Inc
 PE.N  and ConocoPhillips'  COP.N  $9.7 billion deal for Concho
Resources Inc  CXO.N . 

 (Reporting by Shariq Khan and Arundhati Sarkar in Bengaluru;
writing by Gary McWilliams; editing by Sriraj Kalluvila, Grant
McCool and Richard Chang)
 ((Shariq.Khan@thomsonreuters.com; Within U.S.+1 646 223 8780,
outside U.S. +91 80 6182 2681; Twitter: @shariqrtrs))