PERMIAN BASIN DEAL FRENZY RISES

Diamondback’s acquisition of Energen points to further consolidation over time

DIAMONDBACK Energy Inc’s agreement to buy Energen Corp in an US$8.4 billion (RM34.5 billion) all-stock deal makes it official: the long-awaited Permian Basin buying spree has arrived, promising to shake up the United States shale industry.

Some US$30 billion in transactions this year centre on the Permian, where pipeline shortages and other hurdles have boosted costs, adding fresh momentum to the push for consolidation.

In March, Concho Resources Inc paid US$9.5 billion including debt for RSP Permian Inc. Last month, BP Plc said it would spend US$10.5 billion across three US shale plays, including Permian.

“There will be further consolidation over time for sure. There are a lot of players in the Permian and a lot of economies of scale can be achieved such as lowercost debt and reducing competition for services,” said NatAlliance Securities analyst Leo Mariani.

At the end of last year, Energen owned drilling rights for about 60,702ha across the Permian, which stretches across West Texas and New Mexico. The driller was “undervalued” with “three different activist investors”, said Mariani.

The US$84.95 per share price represents a 16 per cent premium to Energen’s closing price on Tuesday. Diamondback will also assume US$830 million in Energen debt in a deal approved by both boards, the company said in a statement on Tuesday.

Diamondback shares fell 5.2 per cent to US$126.85 at 6.15pm, here, while Energen jumped 9.7 per cent to US$80.26.

The move comes a week after Diamondback announced it was buying Ajax Resources LLC for US$1.2 billion.

The two deals are set to make Diamondback the third biggest producer in the Permian among companies focused on the region.