Diamondback boosts Delaware basin position with $2.4-billion purchase

Diamondback Energy Inc., Midland, Tex., has agreed to acquire Austin-based Brigham Resources Operating LLC and Brigham Resources Midstream LLC for $2.43 billion. It’s Diamondback’s second deal for southern Delaware basin acreage since it entered the area earlier this year.

The deal covers 76,319 net leasehold acres in Pecos and Reeves counties, Tex., with November net production averaging 9,482 boe/d, of which 77% was oil, from 48 gross producing horizontal wells and 16 gross producing vertical wells. The acreage is 83% operated with average working interest of 81%.

Diamondback says recent horizontal wells on and surrounding the properties have confirmed geochemical data that indicate Wolfcamp A, Wolfcamp B, 3rd Bone Spring, and 2nd Bone Spring as primary targets.

The firm estimates development potential within the footprint of the deal includes 1,213 net horizontal locations, and says additional development and downspacing potential may exist throughout the Wolfcamp and Bone Spring intervals.

The contiguous position supports average lateral lengths of 8,000 ft based on current leasehold, with multiple opportunities to increase lateral lengths, the firm says.

The acquisition, effective Jan. 1, 2017, and expected to close in February, comprises $1.62 billion in cash and 7.69 million shares of Diamondback common stock. Diamondback also will receive $50 million in existing infrastructure, including gas pipeline, fresh water access, frac ponds, and salt water gathering and disposal infrastructure.

Major Permian player

Once complete, Diamondback’s leasehold interests in the Permian basin will total 182,000 net surface acres.

“We feel that the single well economics of over 100% internal rates of return at today’s commodity prices on this [newly acquired] acreage compete for capital in the top quartile of our existing inventory and are comparable to the acreage we acquired in July 2016 in the southern Delaware basin,” said Travis Stice, Diamondback chief executive officer. In that deal, Diamondback gained 19,180 net surface acres primarily in Reeves and Ward counties, Tex., from an unnamed seller for $560 million.

Stice said the firm believes it can now support 15-20 operated rigs overall. “In addition to our soon to be added sixth rig that will begin developing our previously acquired acreage in the Delaware basin, we plan to add two additional rigs to develop this pending acquisition in 2017,” he said.

Diamondback also believes production from the new acreage along with increased production from its other assets will enable the firm’s overall production growth to surpass 60% in 2017 at the midpoint of its current guidance range.

Brigham Resources was founded in 2012 by current Chairman Bud Brigham, current Chief Executive Officer Gene Shepherd, and former members of management from Brigham Exploration Co. following its sale to Statoil ASA. It’s backed by private equity firms Warburg Pincus LLC, Yorktown Partners LLC, and Pine Brook Road Partners LLC.

Contact Matt Zborowski at matthewz@ogjonline.com.

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