Diamondback Energy Inc. (NASDAQ: FANG) cobbled together more than 1,000 net acres and more than 950 net royalty acres at an attractive price but CEO Travis Stice said Nov. 7 that larger tier-one Permian Basin assets remain out of stock.

Diamondback said it acquired the leasehold and mineral acreage for $102 million during third-quarter 2017. The royalty acres will likely be dropped down to Viper after commencing active development in 2018, the company said.

David Kistler, an analyst with Piper Jaffray & Co., said the bolt-on deals were “the biggest news” of an otherwise solid operating quarter for which the company had pre-announced production results above expectations.

In the five years since its IPO, Diamondback has made more than $4.9 billion in acquisitions in the Midland and Delaware basins. In March the company completed its largest deal with the purchase of Brigham Resources Operating LLC and a midstream affiliate for $2.55 billion. The deal, which was announced in December, added 76,319 net acres in the Delaware’s Pecos and Reeves counties, Texas.

Kaes Van't Hof, senior vice president for strategy and corporate development, said on a Nov. 7 earnings call that the company is excited about the small deals it has done to increase lateral lengths and working interests. In one area, the company originally bought into, its working interests have increased to more than 70% from its initial 49%.

“On the larger M&A side, it’s been tough to see a lot of tier one properties available in 2017,” Van’t Hof said. “From our perspective, we’re focused on finding something that is immediately accretive to cash flow per share and our overall asset base. And we really haven’t seen that across the Permian in 2017.”

No one on the call mentioned recent court filings in Breitburn Energy Partners LP’s bankruptcy that show Diamondback has twice bid on the company’s Midland asset. Initially, Diamondback offered $675 million for the asset before it raised the ante on itself in October with a $725 million bid. Both of the bids were unsolicited and Breitburn had not responded to Diamondback’s offer as of October.

Stice said that Diamondback is confident in its inventory and that “we don’t feel compelled to do something unless it’s accretive to our shareholders.”

But Stice acknowledged the scarcity of tier-one assets and a business responsibility to continue looking for accretive deals.

“I’ve said in the past that our fingerprints should be on every trade that occurs our in the Permian Basin,” Stice said. “You’re either in that game of business development or you’re not.”

But on the ground land teams are doing a good job at bolt-on acquisitions, which Stice called “Little A.”

“Those deals are really negotiated at the asset team level,” Stice said of the bolt-on acquisitions. “They do it strategically in advance of the drilling schedule. You really can’t predict on a quarterly basis what the asset teams are going to do.”

“Big A we handle at the business development level,” Stice added.

Stice also addressed the prevailing theme of capital discipline during the conference call, noting that Diamondback has had a consistent focus on corporate returns and full-cycle economics.

“The industry commentary has pivoted recently, but Diamondback has always emphasized that returns matter,” Stice said, adding that through capital discipline the company has grown production 175% within operating cash flow in the past 11 quarters. “Management is not rewarded for growth but rather rewarded for capital efficiency and cash control.”

Darren Barbee can be reached at dbarbee@hartenergy.com.

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