Diamondback Energy Closed In On A $50 Billion Merger

Diamondback Energy Closed In On A $50 Billion Merger
Theodora Lee Joseph, CFA

11 days ago2 mins

Mentioned in story

What’s going on here?

Diamondback Energy closed in on a $50 billion merger on Monday, just the sort of spending you’d expect from the Texas-based oil and gas company’s glitzy moniker.

What does this mean?

Endeavor Energy has been in high demand, with major oil and gas companies like ConocoPhillips sidling up to the privately held $25 billion business. But Diamondback has outbid them all, pitching a stock-and-cash deal that would turn the duo into one $50 billion company. Together, they’d have nearly as much land as ConocoPhillips and the capacity to churn out more than 400,000 barrels of crude oil a day, enough to secure one of the sector’s top spots.

Diamondback stock
Source: Google Finance

Why should I care?

Zooming out: A whole greater than the sum of its parts.

Oil companies like Exxon, Occidental, and Chevron were scouting for partners last year. No surprise: the more land and equipment an oil company has, the more slippery stuff it can pull from the ground, and the more money it can make. The whole process – called “consolidation” – tends to save them money, too. Not only can they share resources and costs, but they can invest the savings into all sorts of projects. Good job, too: governments are clamping down on fossil fuels, so traditional oil and gas firms will need to work on sustainable solutions to meet increasingly stringent standards.

Big Oil deals

The bigger picture: It’s a power play.

Smaller oil firms can play fast and loose with their production schedules, but bigger companies need to take a steadier approach. That means sitting on their hands even when a higher oil price tempts them to pull their fingers out, in turn producing less oil than if they were still two smaller companies, say. That’s a headache for oilfield services and midstream operators that make their money solely transporting and storing black gold: with merged oil companies becoming bigger fish in a shrinking pond, the middlemen will be at their mercy.

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