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$26B Endeavor Buyout Signals Slower Growth in Midland

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Diamondback Energy (FANG) will merge with Endeavor Energy Resources in a $26B cash-and-stock deal. The buyout of Endeavor, one of the fastest growing producers in the Permian Basin, signals slower growth ahead in the Midland.

Under the deal announced last Monday (January 12), FANG will pay $8B in cash and 117.3MM shares for Endeavor. The combination will create one of the largest Permian producers with nearly 840,000 acres and a combined ~470 Mb/d of crude oil production, 90% based in the Midland.

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Private Endeavor has operated 13-15 rigs consistently the past few years, dropping to 12 rigs in 4Q23 ahead of the sale. Endeavor’s crude oil production has grown rapidly at a 5-year CAGR of 31%, averaging ~220 Mb/d in 2023. But the companies intend to slash the growth rate after the merger.

In updated guidance, FANG said it expects crude oil production of 470-480 Mb/d in 2025 after the companies combine, only 1.6% higher at the midpoint than stand-alone guidance for FANG and Endeavor in 2024.

East Daley Analytics Consulting Service can build custom producer models for clients interested in learning more about the impacts of Permian mergers and acquisistions (M&A). We estimate Endeavor would need to run 9 rigs to hold its production flat, or a decline of 3 rigs from recent activity. Based on the FANG guidance, we model the post-merger slowdown could result in ~75 Mb/d less oil production by 2025 compared to Endeavor’s growth trajectory as a stand-alone company (see figure).

FANG will likely lower the Endeavor rig count to maintain current production. Recently Endeavor’s 12 rigs in the Midland have focused on Enterprise Products’ (EPD) Navitas system (7 rigs) and Targa's (TRGP) West Texas system (3 rigs), according to rig allocations in EDA’s Energy Data Studio.

A slowdown at Endeavor could impact natural gas volumes on several G&P systems. The “G&P System Analysis” dashboard in Energy Data Studio shows EPD - Navitas and Energy Transfer’s (ET) Midland system are the largest gas processors for Endeavor, followed by TRGP – West Texas and EnLink Midstream’s (ENLC) Midland system (see chart from G&P System Analysis).

The FANG-Endeavor deal continues a trend of buyouts of private Permian operators by public producers, with negative consequences for the midstream sector. Permian producers dropped 70 rigs over the course of 2023, a decline of 24%. – Ryan Smith Tickers: ENLC, EPD, ET, FANG, TRGP.




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