This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

Diamondback Pays $538M for Permian Basin Assets

Stocks in this article: FANG

HOUSTON (The Deal) -- Midland, Texas, oil and gas explorer Diamondback Energy (FANG) agreed to buy properties for $538 million, boosting its acreage in a hot area of the Permian Basin and delivering a three times return for the private equity backer involved, according to a person close to the situation.

The properties were largely in Midland and western Glasscock Counties, Texas, Diamondback said on Monday. The company didn't name the sellers, but according to a filing with the Securities and Exchange Commission, they included Quantum Energy Partners-backed Rio Oil and Gas LLC, Bluestem Energy LP and Crump Energy along with BC Operating Inc., Crown Oil Partners V LP and Crump Energy Partners V LP and their affiliates.

Quantum tripled its money on the sale, a source close to the situation said.

The deal implies $30,000 to $35,000 per undeveloped acre, the highest range of metrics seen in Midland basin over the past six to 12 months, Tudor, Pickering, Holt & Co. Securities Inc. wrote in a report. However, the firm expects the deal to be modestly accretive to its $100 per share proved, probable and possible net asset value for the company after layering in drilling acceleration and equity financing.

Topeka Capital Markets analyst Gabriele Sorbara said while the acquisition is on the expensive side at $103.46 per proved barrel of oil equivalent, $247,584 per flowing barrel of production and $27,722 per acre (after backing out a value for the acquired production), the acreage is in the core area of the play and accretive to its market metrics.

The 13,136 net acres will boost Diamondback's position in the basin to 85,000 net acres.

The properties produced 2,173 barrels of oil equivalent per day in May from 94 net wells and had net proved reserves of 5.2 million barrels of oil equivalent based on Diamondback's estimates as of June.

The acquisition is expected to close in early September. Diamondback plans to finance it with equity and availability under its borrowing base.

Separately, Diamondback said it priced 5 million shares at $87 per share, representing net proceeds of $421.7 million. Credit Suisse Securities (USA) LLC is sole book-running manager for the offering.

After the acquisition, Diamondback will have liquidity of $257 million, including $255 million available under its $350 million borrowing base (excluding the $55 million revolver at publicly traded unit Viper Energy Partners LP) and around $2 million in cash, Sorbara estimates.

Diamondback has bought $1.4 billion worth of properties in the Midland and Permian basins in less than a year. In February it agreed to pay $288 million for 4,683 net acres representing a 72.6% working interest, or around $27,000 per acre.

The area has been a hot one for deals, with Athlon Energy Inc. announcing in April it was acquiring producing properties and undeveloped acreage on the western side of the northern Midland Basin from various sellers for $873 million in cash, or around $25,000 per acre.

General Counsel Randall Holder and Deputy General Counsel Marc Dingler were inside counsel for Diamondback, which used Akin Gump Straus Hauer & Feld LLP's Michael Byrd, Seth Molay, Cody Carper and Rahul Vashi for outside counsel.

CIBC advised the sellers, including Joe Small, Joel Saber, Richard Griffis, Grant Butkus and Mark Nelson. Locke Lord LLP provided legal counsel with a team that included Terry Radney, Mitch Tiras, Dale Smith and J. Hunter Summerford.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 16,805.41 +127.51 0.76%
S&P 500 1,964.58 +13.76 0.71%
NASDAQ 4,483.7150 +30.9230 0.69%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs