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Non-core Permian assets to be sold for $160 million by Diamondback Energy in a massive Drop-Down Transaction
10/28/21
Diamondback Energy Inc. intends to reduce its debt through the divestment as it pivots to its core Permian Basin acreage and maintains steady oil volumes through 2021, just like many other leading players in the industry.
In line with this, Diamondback sold some of its water assets to its midstream affiliate, Rattler Midstream LP, in a recent drop-down deal, taking advantage of a strong A&D (acquisition and divestitures) market. Most of the divested assets the company had acquired through its acquisitions of QEP Resources and Guidon Operating earlier in the year.
Besides this motion, the company had already sold its Williston Basin assets for more than $800 million back in May 2021.
And now Diamondback was able to win $160 million more out of Rattler, seeing as the affiliate had already agreed to acquire its produced water gathering and disposal infrastructure, produced water recycling facilities, and source water gathering and storage.
Rattler and Diamondback also agreed to add certain Diamondback leasehold acreage to Rattler's commitment of produced water collection and disposal services as part of the amendment announced on October 21.
According to the arrangement of the drop-down deal, Rattler will make use of its cash on hand and borrowings under its revolving credit facility to fund the transaction, which is expected to close during the fourth quarter.
As for Rattler Midstream itself, Diamondback Energy formed it as a growth-oriented Delaware limited partnership in July 2018 in order to own, operate, develop and acquire midstream infrastructure assets in the Midland and Delaware basins of the Permian Basin.
And through its joint venture with a private affiliate of an investment fund, it recently acquired a majority stake in a gas gathering and processing company in the Midland Basin from West Texas Gas Inc.
As for the transaction at hand, Raymond James & Associates Inc. and Hunton Andrews Kurth LLP are providing financial and legal advice to the conflicts committee of Rattler's board of directors.
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Diamondback Sells More After Hitting $1B Target
Diamondback Energy sold more midstream assets in Q2 as part of a $1B plan to shed non-core assets, reducing debt in the Permian Basin. In July, Texas-based Diamondback Energy Inc. sold a 43% stake in the OMOG crude oil system, revealing this in its Q2 earnings on July 31. OMOG JV LLC, running 400 miles of pipelines and 350,000 bbl of storage in Midland, Martin, Andrews, and Ector counties, was detailed in Diamondback's filings. The sale provided $225 million in gross proceeds. Diamondback has announced or completed $1.1 billion in non-core asset sales since initiating the program. Initially aimed at raising $500 million, the 2023 target was increased to $1 billion.
Permian Basin Giants: 2024 Net Production Forecasts
Rystad Energy predicts that the merged company of Diamondback Energy and Endeavor Energy will produce 819,500 barrels of oil per day in the Permian Basin in 2024. Rystad, an energy research and business intelligence company from Norway, expects the ExxonMobil-Pioneer Natural Resources merger to lead the Permian in total net production for the year, with a projection of nearly 1.4 million barrels per day. Notably, about 53% of this production will be oil. Chevron is set to produce slightly more than Diamondback-Endeavor, with Occidental-CrownRock following closely. ConocoPhillips ranks fifth, with a production forecast of just under 800,000 barrels per day. Chevron's production is 47% oil, while Diamondback-Endeavor and ConocoPhillips have 57% oil in their mix, and Occidental-CrownRock is just below 50%.
The U.S. has overtaken Saudi Arabia and Russia to become the world's largest oil and gas producer. In 2024, America's oil output has surpassed last year's record by 1.4%, reaching new heights. Even as oil-producing countries in the Middle East cut back, the U.S. continued to ramp up production after a downturn in 2020, establishing itself as a dominant force in the global market. In terms of numbers, U.S. oil production jumped from an average of 2.93 million barrels per day in 2023 to 13.12 million barrels per day in 2024, marking a significant 7.1% increase.
Kinetik Holdings recently announced a series of transactions in the energy sector. They struck a deal to buy Durango Permian infrastructure for $765 million. At the same time, they're selling their 16% share in the Gulf Coast Express Pipeline to ArcLight Capital Partners for $540 million. The total purchase cost includes $510 million in cash paid immediately and an additional $30 million that will be paid later, depending on whether they decide to expand further.
Recently, the Permian has seen significant acquisitions: Exxon Mobil purchased Pioneer Natural Resources for about $60 billion. Diamondback Energy's $26 billion deal to acquire Endeavor Energy Resources is currently on hold due to requests from the U.S. Federal Trade Commission. Occidental’s acquisition of CrownRock for $12 billion in the Midland.