2 big Texas oil producers announce $26B merger

Diamondback-Endeavor plan latest deal for energy industry

Two large Texas oil producers are joining forces in a deal valued at $26 billion, the latest in a wave of consolidation in the U.S. energy industry.

Diamondback Energy and Endeavor Energy Resources, major players in the booming Permian Basin oil field that straddles New Mexico and Texas, announced Monday that they would merge in a cashand-stock deal, with Diamondback’s shareholders owning about 60% of the combined company.

The Permian Basin was once seen as a worn-out patch. But over the past decade or so, technological advances, including the advent of fracking, or hydraulically fractured horizontal wells, have opened its oiland gas-rich shale fields to development. The basin has become the most productive oil and gas field in the United States.

“With this combination, Diamondback not only gets bigger, it gets better,” Travis Stice, the company’s CEO, said in a statement.

Diamondback Energy, which was founded in 2007 and has been publicly traded since 2012, reported that it had $9.6 billion in revenue, primarily from oil, and more than $4 billion in profit in its last fiscal year. It has a market value of about $27 billion.

Endeavor’s roots date to 1979, when a wildcatter, Autry Stephens, drilled his first well in West Texas. He turned his business into Endeavor in 2000, and it has grown into one of the largest privately held operators in the country. But Stephens, whose worth Bloomberg estimates at almost $15 billion, is 85, and the current wave of consolidation makes this a good time to sell.

Deal fever has been sweeping the industry, as oil and gas companies race to consolidate despite predictions that peak oil is only years away as the world turns away from fossil fuels. Over the years, the shale drilling industry has become an industrial process, with the strongest companies acquiring more acreage to give themselves better options and lower costs.

The combined company would be a substantial player, producing 816,000 barrels of oil and gas a day from a total of 838,000 acres. According to a news release, they would be able to break even financially with oil at less than $40 a barrel, well below the current price of about $77 a barrel for West Texas Intermediate, the U.S. standard.

The companies expect the deal to close in the fourth quarter of this year, subject to approvals by regulators and shareholders.

Several major deals were announced one after another last fall. In October, Exxon Mobil said it would buy Pioneer Natural Resources for $59.5 billion, positioning Exxon Mobil as the largest player in the Permian Basin. Later that month, Chevron, the second-largest U.S. oil company, said it would buy Hess in a deal valued at $53 billion, although the most highly prized assets in that transaction are in Guyana.

The Permian Basin has been a focus for environmentalists concerned about how the fracking boom has depleted water resources and led to methane emissions.