Diamondback Energy acquires Brigham Resources for $2.4 billion
Diamondback Energy (ticker: FANG) announced late Wednesday that the company has entered into a definitive purchase agreement to acquire all leasehold interests and related assets of Brigham Resources Operating, LLC and Brigham Resources Midstream, LLC for an aggregate purchase price of $2.4 billion.
The deal consists of $1.6 billion in cash and 7.7 million shares of Diamondback common stock based on the company’s December 13, 2016, closing price of $105.28 per share. The transaction will add 76,319 net acres to the company’s leasehold interest, bringing total leasehold in the Permian Basin to 182,000 acres, the company said in a press release.
Highlights of the acquisition include:
- 76,319 net leasehold acres in the highest oil content region of the Delaware Basin, which has been de-risked by 48 producing horizontal wells on the acreage
- Mineral interests comprised of 1,149 net royalty acres under leasehold acres
- November 2016 average net production of 9,482 BOEPD (77% oil)
- 1,213 net identified potential horizontal drilling locations across four proven zones with additional upside potential in multiple other zones and via downspacing
- Contiguous position supports average lateral lengths of approximately 8,000 feet based on current leasehold, with multiple opportunities to increase lateral lengths
- Significant operating control with approximately 83% of acreage operated and over 81% working interest
- Existing infrastructure valued at approximately $50 million; future upside from midstream development
- An effective date of January 1, 2017 with anticipated close at the end of February 2017
The deal will double Diamondback’s tier one inventory at “an attractive entry price” FANG CEO Travis Stice said in the press release. Assuming $40,000 per flowing BOE, and backing out the $50 million in midstream assets, Diamondback paid approximately $25,821.88 per acre, well below similar deals in the area.
By comparison, Callon Petroleum (ticker: CPE) purchased Delaware Basin assets at approximately $32,500 per acre this week. Callon issued a supplement to its prospectus today, regarding a $750 million equity raise in conjunction with its pending Ameredev acquisition.
Diamondback raises production guidance, targets 60% year-over-year production growth
“We believe our near-term acceleration across our asset base, along with the production from this acquisition, will put us in a position to achieve over 60% production growth in 2017 at the midpoint of our current guidance range,” said Stice.
Recent horizontal wells on and surrounding the properties have confirmed geochemical data that indicates four primary targets: Wolfcamp A, Wolfcamp B, 3rd Bone Spring and the 2nd Bone Spring. Diamondback believes that development potential within the footprint of the acquisitions includes 1,213 net horizontal locations, based on 880-foot spacing (6 wells per section) in the Wolfcamp A and Wolfcamp B and 1,320-foot inter-lateral spacing (4 wells per section) in the 3rd Bone Spring and 2ndBone Spring. Additional development and downspacing potential may exist throughout the Wolfcamp and Bone Spring intervals.
Pro forma for the pending acquisition, Diamondback is increasing its preliminary full year 2017 production guidance to a range of 64.0 to 73.0 MBOEPD, up 25% from the midpoint of the prior range of 52.0 to 58.0 MBOEPD. As a result of the increased production, FANG is also increasing its 2017 capex budget to $700-$900 million from previous guidance of $500-$650 million. The company said it expects $75 million of the new budget will go toward infrastructure in the Delaware Basin.
Based on assumed development type curves in a presentation that accompanied the deal, Diamondback expects Wolfcamp A wells in Pecos Country to cost $6.7 million and realize a rate of return of 118%, giving the wells a PV-10 value of $11.5 million.
Diamondback raises more than $1.4 billion along with acquisition
Along with news of the acquisition, Diamondback Energy also announced offerings of both senior notes and common stock. FANG plans to offer $250 million in aggregate principal senior notes due 2025 to qualified institutional buyers, and “certain non-U.S. persons,” as well as 10.5 million shares of common stock with an option for an additional 1.6 million share green shoe. In its press release, Diamondback said it expects proceeds from the common shares will total approximately $1.0 billion, implying a per share value of $97.05 per share. With the addition of the green shoe, the gross proceeds from the common stock and senior note offerings would total more than $1.4 billion.
The company plans to use the proceeds and cash on hand to fund the cash consideration for the deal, with any net proceeds funding a portion of the company’s exploration and development activities and for general corporate purposes.
