Midland-based Diamondback Energy Inc. announced Nov. 16 that it agreed to acquire all leasehold interest and related assets of Lario Permian, a unit of Lario Oil & Gas Co., and associated sellers for $1.44 billion.
The deal includes 4.18 million shares of Diamondback common stock and $850 million in cash. The cash portion is expected to be funded through cash on hand, borrowings under Diamondback’s credit facility and/or proceeds from a senior notes offering.
The cash outlay at closing is anticipated to be $775 million due to the expected free cash flow that the acquired assets generate between the effective date and the closing date, which is set for Jan. 31, 2023.
“Lario is an attractive bolt-on to our existing Martin County position, home to some of the best rock in the Permian Basin,” Diamondback chairman and CEO Travis Stice said in a press release. “This is a deal that checks all the boxes Diamondback looks for in an acquisition, as it brings over 150 gross locations in the core of the northern Midland Basin and also provides immediate accretion to all relevant financial metrics, enhancing Diamondback’s overall value proposition to our stockholders.”
When combined with its $1.6 billion FireBird acquisition announced last month, Stice said the company will grow its Midland Basin footprint by 83,000 net acres, add 500 high quality drilling opportunities that compete for capital with its current development plan and increase its 2023 production profile.
“Our enhanced size and scale in the Midland Basin, along with our low-cost operations, puts us in an advantageous position to deliver differentiated near-term and long-term returns to our stockholders,” he said.
Upstream deal activity has been picking up pace in the second half of the year, and investors have applauded companies taking advantage of arbitrage opportunities to add cash flow and inventory runway relatively inexpensively, according to Mark Lear, an analyst with Piper Jaffray.
“Lario has delivered fairly consistent well performance across its core Midland asset base, and we expect the deal to be well-received,” he wrote in a Nov. 17 note.
Jeoffrey Lambujon, who follows Diamondback for TPH, said in a note that the transaction came at a similar valuation to the FireBird deal.
“On the margin, we view the deal as positive for macro/industry with more private operatorship taken off the board,” he wrote.
Jefferies is financial advisor to Diamondback, which used Kirkland & Ellis as its outside counsel.
The Kirkland team was led by real asset M&A partners Anthony Speier, Chris Heasley and Fraser Wayne and associates Jarrod Gamble and Lauren Stelck; corporate M&A partner Sean Wheeler; and capital markets partners Michael Rigdon and Billy Vranish.
The team also included tax partners David Wheat and Joe Tobias; environmental transactions partners Jon Kidwell and Jennifer Cornejo; antitrust partner Carla Hine; executive compensation partner Rob Fowler; and labor and employment partner Christie Alcala.
Much of the same group at Kirkland – including Speier, Heasley and Wayne – worked on the FireBird deal.
J.P. Morgan Securities is Lario’s financial advisor to Lario and the associated sellers and Vinson & Elkins and Boigon Law Ltd. in Denver are their outside counsel.
The V&E team was led by partners John Grand, Doug McWilliams and Brian Moss and counsel Elena Sauber with assistance from partner David Cohen, senior associates Jackson O’Maley and Alexander Baker and associates Anne Jensen, Alex Turner, Katherine Harclerode and Walt Baker.
Other team members included partners James Longhofer and Guy Gribov (finance); partner Todd Way and associates Jeff Slusher and Steve Campbell (tax); partners Matt Stammel and Hill Wellford and associate Paul Hill (litigation); partner Matt Dobbins and associate Kelly Rondinelli (environmental); partner Sarah Mitchell (insurance); partner Sean Becker and associate Ryan Penner (employment/labor); partner Shane Tucker and senior associate Nicole Waterstradt (executive compensation/benefits); and partner Michael Kurzer (technology transactions/IP).