There has been a flurry of acquisitions in the oil patch over the past couple of years. The biggest was ExxonMobil's (XOM +0.30%) more than $60 billion megadeal for Pioneer Natural Resources to solidify its position in the oil-rich Permian Basin. That transaction forced several rivals to also make deals to bolster their position in that key basin, including Occidental Petroleum's (OXY +1.82%) $12 billion purchase of CrownRock and Diamondback Energy's (FANG +0.84%) $26 billion merger with Endeavor Energy Resources.
Diamondback Energy is now at it again with another multibillion-dollar deal to further expand its position in the Permian. That acquisition puts the oil stock in an even stronger position to compete against its big oil rivals.
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Key Data Points
Drilling down into Diamondback Energy's latest deal
Diamondback Energy has agreed to acquire certain subsidiaries of Double Eagle IV Midco for 6.9 million shares and $3 billion in cash (about $4.1 billion total). The deal will add about 40,000 net acres in the core of the Midland Basin side of the Permian. That largely undeveloped land bank has 407 estimated remaining drilling locations.
CEO Travis Stice commented in a press release that "Double Eagle is the most attractive asset remaining in the Midland Basin." He noted that the acreage is largely adjacent to the company's core position in that region. That will allow Diamondback to drill longer horizontal wells and benefit from its existing infrastructure, enabling it to generate higher returns and produce at lower costs.
The company expects the deal will add 27,000 barrels of oil per day to its total. It anticipates that the transaction will be immediately accretive to all its important financial metrics, including cash flow and free cash flow per share. It estimates that the acquisition will boost its free cash flow per share by more than 5% next year at current oil prices.
As part of the deal, Diamondback and Double Eagle have also agreed to accelerate the development of some of Diamondback's non-core position in the southern Midland Basin. This accelerated development of lower-quality acreage will help drive significant free cash flow growth for the company in 2026 and beyond.
Building a leader in the Permian
Diamondback has steadily built a leading position in the Permian. Stice stated in the press release unveiling the Double Eagle deal that "The Permian Basin continues to consolidate rapidly. We have worked tirelessly over the last thirteen years to position Diamondback to have the longest duration of high quality, low-breakeven inventory; a position we are solidifying with today's announcement."
Its merger with Endeavor Energy Resources transformed it into the third-largest oil and gas producer in the Permian. The company is adding to that position and now has about 900,000 net acres in the region. It will produce roughly 500,000 barrels of oil per day and around 900,000 barrels of oil equivalent (BOE) per day. It will also have approximately 6,500 future drilling locations in the region.
On the one hand, it's still well behind ExxonMobil and Occidental Petroleum in some regards. Exxon's Permian production run rate is about 1.2 million BOE/d, which it expects to roughly double to 2.3 million BOE/d by 2030. Meanwhile, Occidental is producing over 750,000 BOE/d in the Permian where it has a vast 2.8 million net acre land position.
However, Diamondback is the sector leader in producing free cash flow from every BOE it produces (36% free cash flow margin compared to 29% from its next closest peer) and in delivering production from every dollar of capital it invests (41.9 barrels of oil per $1 million invested compared to 35.9 barrels from its next closest rival). Because of that, it's in a strong position to get the most out of its remaining drilling locations. Its ability to maximize its return on investment and free cash flow should give it the fuel to grow shareholder value at an above-average rate.
A lesser-known leader in the Permian
Diamondback Energy has remained in the shadows of big oil rivals like Exxon and Occidental. However, it has quietly built up a leading position in the Permian, not just in size but in its ability to optimize its free cash flow and capital spending. Because of that, it's in a strong position to grow shareholder value in the future as it maximizes its position in that oil-rich region. That's why investors won't want to overlook Diamondback when buying an oil stock to cash in on the Permian's continued growth.
