Diamondback becomes next Permian acquisition candidate on heels of Endeavor megadeal

Geoffrey Morgan, Bloomberg February 14, 2024

(Bloomberg) – Diamondback Energy Inc.’s blockbuster deal for Endeavor Energy Resources LP makes the company’s shares the best way to invest in the prolific Permian basin in Texas, according to Tortoise Capital Advisors LLC.

“Diamondback will become an acquisition target in 2025 given its larger size,” Tortoise senior portfolio manager Rob Thummel said in a note Tuesday. ConocoPhillips Co., Exxon Mobil Corp. and Chevron Corp. appear as likely buyout candidates as they look to scale up their businesses in Texas. In the meantime, Diamondback is “best way to invest in a pure-play Permian basin operator,” Thummel said.

Diamondback Energy shares climbed 9.1% Monday, marking the stock’s best day since April 2021, after the Midland, Texas-based oil producer struck an agreement to acquire privately-held Endeavor, prompting analysts to raise their price targets to an average of $187 a share, implying a 12% further upside.

The deal was widely praised by analysts. “The $26 billion transaction continues the buyer’s strategy of growing through M&A and creates the largest, most important independent domestic liquids producer,” Bloomberg Intelligence analyst Vincent Piazza said in a note.

Occidental Petroleum Corp.’s deal for Crown Rock and Diamondback’s purchase of Endeavor have taken two private takeover targets off the board at a time when operators are looking to scale up in the Permian basin, according to Thummel. There’s also private Mewbourne Oil Co., which has indicated it doesn’t want to sell.

Smaller operators in the basin including Permian Resources Corp., SM Energy Co. and Matador Resources Co. will need to consolidate before the likes of Exxon, Chevron or Conoco would consider buying them, he said.

This leaves Diamondback itself, which now boasts “some of the best real estate in the best neighborhood” in the Texas oil field, according to Thummel.

Diamondback, Chevron, Conoco and Exxon didn’t immediately respond to a request for comment.