Diamondback Energy Expands Its Reach with Acquisition of Double Eagle

In a significant move to bolster its assets in the heart of the U.S. oil industry, Diamondback Energy, Inc. has entered into a definitive agreement to acquire certain subsidiaries of Double Eagle IV Midco, LLC. This deal, announced on February 18, 2025, illustrates Diamondback's ongoing strategy to consolidate its dominance within the Permian Basin, one of the most lucrative oil-producing regions in the United States.

Details of the Acquisition

Diamondback is set to pay approximately $3 billion in cash and issue about 6.9 million shares of its common stock in exchange for the assets. This transaction values the deal at roughly $4.08 billion, marking it as one of the largest acquisitions in the oil sector this year. The acquisition includes roughly 40,000 net acres in the Midland Basin, which is known for its high-quality, low-breakeven oil inventory.

Strategic Implications

The acquisition of Double Eagle's assets adds significant value to Diamondback's portfolio. With this deal, Diamondback not only expands its land holdings but also secures an estimated 407 gross horizontal drilling locations with an average lateral length exceeding 11,000 feet. Travis Stice, Chairman and CEO of Diamondback, highlighted the strategic fit, stating, "Double Eagle is the most attractive asset remaining in the Midland Basin. With 407 locations adjacent to our core position, this largely undeveloped asset adds high-quality inventory that immediately competes for capital."

This move is expected to enhance Diamondback's free cash flow by over 5% in 2026, providing immediate accretion to key financial metrics. Moreover, the deal includes an agreement to accelerate the development of some of Diamondback's non-core assets in the southern Midland Basin, potentially bringing forward the Net Asset Value (NAV) sooner than anticipated.

Financial Strategy

To manage the financial implications of this acquisition, Diamondback has committed to selling at least $1.5 billion in non-core assets. This divestiture strategy aims to reduce pro forma debt, targeting a net debt level of $10 billion, with long-term leverage expected to be maintained between $6 billion and $8 billion. The cash portion of the deal will be funded through a combination of cash on hand, borrowings from Diamondback's credit facility, and possibly through term loans or senior notes offerings.

Market Reaction and Future Outlook

The market's reaction to the deal has been mixed, with some analysts noting that the cost of acquisition might be higher compared to other recent transactions in the Permian. However, the stability and quality of the assets acquired are seen as positive attributes. Diamondback shares experienced marginal movements in morning trade following the announcement, reflecting cautious optimism among investors.

Looking forward, this acquisition reaffirms Diamondback's commitment to growth through strategic acquisitions in high-potential regions like the Permian Basin. It positions Diamondback to potentially lead in production volumes, leveraging its expanded asset base to capitalize on the region's prolific oil reserves.

The acquisition of Double Eagle by Diamondback Energy is a testament to the ongoing consolidation in the oil sector, particularly in areas with promising geological prospects like the Permian Basin. This deal not only enhances Diamondback's operational footprint but also strengthens its financial position through strategic asset management. As the energy sector continues to navigate through volatile oil prices and shifting global demands, such strategic acquisitions could set precedents for future industry moves, focusing on efficiency, sustainability, and growth in core production areas.