Diamondback To Acquire Energen In $9.2 Billion All-Stock Deal

[Editor's note: This story was updated at 11:49 a.m. CST Aug. 16.]

Diamondback Energy Inc. (NASDAQ: FANG) said Aug. 14 it will create a Permian powerhouse with the acquisition of Energen Corp. (NYSE: EGN) in an all-stock transaction worth roughly $9.2 billion including debt.

The transaction comes days after Diamondback, based in Midland, Texas, said it will add to its Northern Midland position with the roughly $1.25 billion cash-and-stock purchase of Ajax Resources LLC. In total, the company has announced acquisitions totaling more than $10 billion within the span of less than a week.

Diamondback’s acquisition of Energen includes its 179,000 net-acre-position across the Midland and Delaware basins where the Birmingham, Ala.-based company produced about 97,400 boe/d during second-quarter 2018.

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Energen is coming off a stellar second quarter with average production beating the high end of its guidance by 3%. The company’s oil production came in at 56,700 bbl/d, 4% over its top end guidance.

In addition, Energen said 10 of its new “Generation 3” Wolfcamp wells delivered peak 24-hour IPs of more than 300 boe/d per 1,000 ft of lateral length. The company also bolted on about 670 net leasehold acres during the quarter for $9.5 million.

Combined with Energen, Diamondback will boast about 215,100 boe/d of production, which is expected to be the third largest for a pure-play company in the Permian Basin. In total, the combined company will control a position in the prolific basin covering 309,000 net acres across both the Midland and Delaware basins.

Diamondback CEO Travis Stice said the combination of Energen’s acreage with Diamondback’s position 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,” Stice added.

Consideration for Energen consists of 0.6442 shares of Diamondback common stock for each share of Energen common stock. This represents an implied value to each Energen shareholder of $84.95 per share based on the closing price of Diamondback’s stock on Aug. 13.

The transaction also includes the assumption of Energen’s net debt of $830 million as of June 30.

Stice said the transaction represents a transformational moment for the shareholders of both companies 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.”

Earlier this year, Energen had been under pressure to sell the company from activist shareholder Keith Meister, who leads New York-based hedge fund Corvex Management. At the time, Corvex owned 8.5 million shares, or roughly 8.7% of Energen.

Even though Energen had settled that dispute in March by agreeing to review its businesses while also expanding its board, Meister and billionaire investor Carl Icahn said in a regulatory filing in May that they may try to buy the company themselves.

The transaction was unanimously approved by the board of directors of each company, according to the joint-company release.

The companies expect to complete the transaction by the end of fourth-quarter 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.

Citigroup Global Markets Inc. was exclusive financial adviser to Diamondback, and Akin Gump Strauss Hauer & Feld LLP was its legal adviser. J.P. Morgan Securities LLC and Tudor, Pickering, Holt & Co. were exclusive financial advisers to Energen and Wachtell, Lipton, Rosen & Katz was its legal adviser.

Emily Patsy can be reached at epatsy@hartenergy.com.