Diamondback Energy Inc., Midland, Tex., has agreed to acquire all leasehold interest and related assets of FireBird Energy LLC, Fort Worth, Tex., in a cash and stock deal valued at $1.6 billion that builds scale in the Midland basin in Texas and immediately competes for development capital, the operator said in a release Oct. 11.
In exchange for 5.86 million shares of Diamondback common stock and $775 million in cash, Diamondback will add some 75,000 gross (68,000 net) contiguous acres and estimated production at closing of about 17,000 b/d of oil (22,000 boe/d), the company said. About 98.5% of the acreage is operated with an average 92% working interest. About 84% of the acreage is currently held by production.
Production from the acquired assets for 2023 is estimated to average 19,000 b/d of oil (25,000 boe/d). Diamondback expects this production to be maintained for 'multiple years' with one rig running. Post deal close, the operator expects to reduce the operated rig count to one from the current three.
The assets include 353 estimated gross (316 net) horizontal locations in primary development targets with an average lateral length of about 11,400 ft and 84 gross upside locations from co-development based on recent well results. The primary targets are Middle Spraberry, Lower Spraberry, Wolfcamp A, and Wolfcamp B formations, the company said.
FireBird had acquired a portion of the oil-weighted Midland basin acreage (Ector, Midland, Crane, and Upton Counties) through a late 2021 deal with Chevron ().
In a first-quarter 2022 earnings call with investors in May, Travis Stice, Diamondback chairman and chief executive officer, said the Permian-focused operator would hold the line on production growth plans and that a 'large-scale' merger or acquisition would not happen ‘anytime soon’ (OGJ Online, May 3, 2022).
Full year 2022 production guidance from an August investor presentation was 221,000 bo/d (net), roughly in line with the 230,000 bo/d (net) from 2021. Prior to the FireBird deal, Diamondback held about 268,000 net Midland basin acres and 153,000 net Delaware basin acres.
As part of its FireBird acquisition announcement, Stice said Diamondback will maintain its capital discipline (including intent to return at least 75% of its free cash flow to stockholders beginning in third-quarter 2022) and plans to sell at least $500 million of non-core assets by yearend 2023, with proceeds earmarked for further debt reduction.
The deal is expected to close late in this year’s fourth quarter.