8-K: Diamondback Energy to Acquire Double Eagle Assets in $3 Billion Cash and Stock Deal

Diamondback Energy is set to acquire Double Eagle IV Midco subsidiaries for $3 billion in cash and approximately 6.9 million shares, expanding its Midland Basin footprint.

Summary

• Diamondback Energy, Inc. has entered into a definitive agreement to acquire certain subsidiaries of Double Eagle IV Midco, LLC.
• The acquisition involves a payment of $3.0 billion in cash and approximately 6.9 million shares of Diamondback's common stock.
• The cash portion will be funded through a combination of cash on hand, borrowings under the company's credit facility, and/or proceeds from term loans and senior notes offerings.
• The transaction is expected to close on April 1, 2025, pending customary closing conditions and regulatory approval.
• The acquired assets include approximately 40,000 net acres in the core of the Midland Basin.
• The assets have an estimated run-rate production of approximately 27 MBo/d (69% oil).
• Diamondback anticipates $200 million of capital expenditures in 2025 at current Midland Basin well costs of $555 to $605 per foot.
• Diamondback is committing to sell at least $1.5 billion of non-core assets to accelerate pro forma debt reduction.
• The company expects to reduce net debt to $10 billion and maintain long-term leverage of $6 billion to $8 billion.

Sentiment

Score: 8

Explanation: The document presents a positive outlook for Diamondback Energy, highlighting the strategic benefits of the acquisition and the company's commitment to debt reduction and Free Cash Flow growth. The management comments are optimistic, and the transaction is expected to be accretive to financial metrics.

Positives

• The acquisition expands Diamondback's position in the core of the Midland Basin with approximately 40,000 net acres.
• The acquired assets are expected to add high-quality inventory and immediately compete for capital.
• The transaction is expected to enhance expected pro forma 2026 Free Cash Flow per share by 5%+
• The deal is immediately accretive to all relevant financial metrics including Cash Flow per share, Free Cash Flow per share and NAV per share.
• Diamondback expects significant Free Cash Flow growth in 2026 and beyond with minimal capital deployment through an accelerated development plan.

Negatives

• The acquisition will initially add a small amount of leverage to Diamondback's balance sheet.
• Diamondback is committing to sell at least $1.5 billion of non-core assets to accelerate pro forma debt reduction.

Risks

• The transaction is subject to customary closing conditions and regulatory approval, which may not be obtained.
• Changes in supply and demand levels for oil, natural gas, and natural gas liquids could impact the price for those commodities.
• Instability in the financial markets, trade wars, inflationary pressures, and higher interest rates could impact the cost of capital.
• Federal and state legislative and regulatory initiatives relating to hydraulic fracturing could impact operations.
• Physical and transition risks relating to climate change could impact operations.

Future Outlook

Diamondback expects significant Free Cash Flow growth in 2026 and beyond with minimal capital deployment through an accelerated development plan. The company is also committing to sell at least $1.5 billion of non-core assets to accelerate pro forma debt reduction.

Management Comments

• Travis Stice, Chairman and Chief Executive Officer of Diamondback, stated, 'Double Eagle is the most attractive asset remaining in the Midland Basin.'
• Travis Stice continued, 'With 407 locations adjacent to our core position, this largely undeveloped asset adds high-quality inventory that immediately competes for capital.'
• Travis Stice also stated, 'We have worked tirelessly over the last thirteen years to position Diamondback to have the longest duration of high quality, low-breakeven inventory; a position we are solidifying with todays announcement.'
• Cody Campbell and John Sellers, Co-Chief Executive Officers of Double Eagle, commented, 'We believe our team has built a truly standout asset that further increases Diamondbacks high-quality inventory.'

Industry Context

The Permian Basin continues to consolidate rapidly, with Diamondback positioning itself to have the longest duration of high-quality, low-breakeven inventory through this acquisition.

Comparison to Industry Standards

• Other companies active in the Permian Basin include Pioneer Natural Resources, ConocoPhillips, and EOG Resources.
• The acquisition of 40,000 net acres is a significant addition to Diamondback's portfolio, comparable to other major acquisitions in the region.
• The estimated run-rate production of 27 MBo/d is a substantial contribution to Diamondback's overall production profile.
• The commitment to sell $1.5 billion of non-core assets is a common strategy among oil and gas companies to optimize their portfolios and reduce debt.

Stakeholder Impact

• Shareholders are expected to benefit from the enhanced Free Cash Flow per share and accretive financial metrics.
• Employees of both Diamondback and Double Eagle may be affected by the integration of the two companies.
• The acquisition could impact suppliers and customers in the Permian Basin.

Next Steps

• The transaction is expected to close on April 1, 2025, subject to customary closing conditions and regulatory approval.
• Diamondback will work to integrate the acquired assets into its existing operations.
• Diamondback will sell at least $1.5 billion of non-core assets to accelerate pro forma debt reduction.

Key Dates