A Midland, Texas-based oil and gas operator planned to expand its operations in the Permian Basin in a $1.6 billion deal intended to consolidate fossil fuel assets and capitalize on ongoing growth in the region.
Diamondback Energy announced its purchase of FireBird Energy Oct. 11, paying $775 million in cash and 5.6 million shares of Diamondback valued at about $140 a share.
The transaction included about 75,000 acres in the eastern Midland sub-basin of the Permian, producing about 22,000 barrels of oil equivalent per day (boe/d), expected to rise to 25,000 boe/d.
Diamondback said it plan to maintain present production levels as it reduces operating oil and gas rigs from three to one on the operated lands.
The assets included 353 horizontal drilling locations, with about 98 percent of acreage operated.
The sale was expected to close by the end of 2022.
Diamondback Chief Executive Officer Travis Stice said the company plans to also sell off about $500 million in assets from other regions by the end of 2023 to pay of debt.
He said the FireBird assets were also expected to generate quick profits in the next two years.
“With over 350 locations adjacent to our current Midland Basin position, this asset adds more than a decade of inventory at our anticipated development pace, including inventory that competes for capital right away in Diamondback’s current development plan,” Stice said.
“Also, importantly, this transaction is accretive on all relevant 2023 and 2024 financial metrics, immediately increasing expected per share returns to our stockholders in the near-term while also improving the long-term duration of the Company’s cash return profile.”
Another Permian Basin land sale announced Oct. 11 saw a Minnesota-based company continue to grow its presence in the region, buying up $130 million in acres in the western Delaware sub-basin, covering Eddy and Lea counties in New Mexico and Living and Winkler counties in West Texas.
That deal included about 2,100 acres, five producing wells and two in the process of being completed, along with about 17 undeveloped locations.
Mewbourne Oil was the main operators of the assets, per Northern’s announcement, along with Permian Resources and Coterra.
This sale was the latest in a string of purchases by Northern Oil and Gas, following a $110 million transaction closed Oct. 6 that saw the company buy 1,600 acres and six producing wells in Howard County in the Midland Basin, and a $157 million purchase of 2,800 acres in Eddy and Lea counties and Loving County, Texas.
“NOG continues to press its advantage as a well-capitalized, reliable and consistent purchaser of high-quality non-operated properties,” said Northern CEO Nick O’Grady. “More importantly, NOG’s technical team continues to underwrite for returns with precision and focus on the best assets available in the marketplace today.”
The company’s President Adam Dirlam said the assets would bring higher returns to shareholders by partnering with top oil and gas operators in the region.
“This transaction lies squarely in NOG’s fairway on a number of levels,” he said. “The assets contain high-quality, low breakeven development that is leveraged to some of NOG’s top operating partners, as our investors have come to expect.”
These latest transactions followed a trend of energy companies consolidating assets and focusing on core-operated regions, aiming for capital discipline rather seeking out new areas to produce fossil fuels from.
Worldwide oil and gas exploration was on the decline this year, per a report from global energy analytics firm Rystad Energy, which said companies sought to insulate themselves from potential downshifts in the market.
This uncertainty was brought on by threats of economic recession following the COVID-19 pandemic which led to a decline in fuel demand and an historic bust in oil prices, along with political trends seeing governments opting to invest less in oil and gas as they move toward more pollution reduction targets.
In the U.S., this took the form of a halt on federal oil and gas leases imposed by the administration of President Joe Biden in early 2021. Leases recently resume albeit under stricter regulations aimed at reducing pollution, along with higher fees.
Onshore acreage leases globally decline from a peak of 560,000 square kilometers – about 216,00 square miles – in 2019 to 115 square kilometers so far this year, read the September report.
“Global exploration activity has been on a downward trend in recent years, even before the COVID-19 pandemic and oil market crash, and that looks set to continue this year and beyond,” said Rystad Vice President of Analysis Aatisha Mahajan.
“It is clear that oil and gas companies are unwilling to take on the increased risk associated with new exploration or exploration in environmentally or politically sensitive areas.”
Adrian Hedden can be reached at 575-628-5516, [email protected] or @AdrianHedden on Twitter.