The United States competition regulator has launched an anti-trust review of Diamondback Energy Inc’s $26 billion acquisition of fellow Permian basin player Endeavor Energy Resources LP, Diamondback said.
The merger parties separately received the so-called “second request” for transaction details from the Federal Trade Commission (FTC) this week, Diamondback said in a disclosure with the U.S. Securities and Exchange Commission.
The Hart-Scott-Rodino (HSR) Antitrust Improvements Act requires parties in certain acquisitions and mergers to notify the FTC and the Department of Justice (DOJ) of the transactions. The two enforcement agencies then review such a transaction for a period usually 30 days—called a waiting period—before it can be consummated, according to the FTC.
If during the waiting period either the FTC or the DOJ deems a further inquiry is warranted, the determining agency can ask the transaction parties for additional information and documents. This action called a second request extends the waiting period usually also by 30 days, according to the FTC. The FTC can initiate a court request for an injunction order if it finds a possible anti-trust violation.
“The Company and Endeavor will continue to work cooperatively with the FTC in its review”, Diamondback said. “The Company expects that the transactions contemplated by the Merger Agreement will close in the fourth quarter of 2024, subject to the expiration or termination of the waiting period under the HSR Act and the satisfaction or waiver of the other customary closing conditions”.
The Midland, Texas-based companies jointly announced the merger agreement February 12. The cash-and-stock, debt-inclusive purchase would expand Diamondback’s leaseholdings in the Permian basin to 838,000 net acres. The companies said they expected the average daily production of the combined entity to grow to 816,000 barrels of oil equivalent per day.
“The transaction was unanimously approved by the Board of Directors of the Company and has all necessary Endeavor approvals”, a joint statement said at the time. Last Friday, Diamondback said shareholders voted to approve the issuance of Diamondback common shares in connection with the merger.
In a letter to shareholders on Tuesday highlighting the company’s quarterly financial results, Diamondback chief executive Travis D. Stice said, “As a reminder, the combined business will have an unmatched depth of high-quality inventory in the core of the Midland Basin, which, when combined with Diamondback’s cost structure, is set to generate significant long-term Free Cash Flow accretion to our stockholders”.
Confirming the second request from the FTC, the letter, shared on Diamondback’s website, said, “This second request was factored into our previously announced closing timeline”.
“We still expect the Endeavor transaction to close in the fourth quarter of this year and will provide more information when possible”, Stice added.
Diamondback reported $768 million in net profit for the first quarter of 2024, producing 461,100 barrels of oil equivalent per day. It had $1.9 billion in current assets—assets convertible to cash within a year—including $896 million of cash and cash equivalents. Meanwhile Diamondback’s current liabilities totaled $2.1 billion as of end-March. It had $791 million in free cash flow.
‘Concentrated’ Industry
The Diamondback-Endeavor merger follows a spurt of multi-billion mergers in the U.S. oil and gas industry over the past year. Chevron Corp’s absorption of Hess Corp, Exxon Mobil Corp’s acquisition of Pioneer Natural Resources Co. and Occidental Petroleum Corp’s acquisition of CrownRock LP have all received second requests from the FTC.
In the ExxonMobil and Pioneer deal, announced October 11, Pioneer’s over 850,000 net acres in the Midland sub-basin of the Permian basin would be combined with ExxonMobil’s 570,000 net acres in the Midland and Delaware sub-basins. ExxonMobil expects the $64.5-billion all-stock, debt-inclusive acquisition to double its production to 1.3 million barrels of oil equivalent per day (MMboepd) relative to 2023, reaching 2.0 MMboepd by 2027.
Chevron’s $60-billion all-stock, debt-inclusive purchase of Hess would result in Chevron controlling 465,000 net acres in the Bakken shale play in North Dakota, besides Hess’ Guyana assets, according to the merger announcement October 23.
Meanwhile the $12-billion cash-and-stock, debt-inclusive purchase of CrownRock by Occidental expands the Warren Buffet-backed company’s leaseholdings in the Permian by 94,000 net acres. Occidental expects the assets, located in the Midland sub-basin, to add an average daily volume of 170,000 boe to its production this year.
The pending acquisitions by San Ramon, California-based Chevron and Spring, Texas-based Exxon Mobil of their smaller U.S. competitors have prompted a group of senators to ask for an FTC investigation. They warned the country’s oil and gas industry was already “too concentrated”.
“By allowing Exxon and Chevron to further integrate their extensive operations into important oil-and-gas fields, these deals are likely to harm competition, risking increased consumer prices and reduced output throughout the United States”, the 23 senators wrote in a letter to the FTC last November 1.
“At the regional level, the deals threaten to harm small operators and suppress wages”.
To contact the author, email jov.onsat@rigzone.com
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