Diamondback Energy (NASDAQ:FANG) closed +9.4% on Monday for its best one-day gain in nearly three days after promising to cut drilling rigs while raising production as a result of its $26B cash and stock acquisition of rival Endeavor Energy Resources.
The two companies will run a combined 26 rigs in the Permian Basin this year, but the total will drop into the 20-22 range over time as drilling efficiencies pay off, Diamondback (FANG) CFO Kaes Van’t Hof said Monday on a conference call.
The combined company plans to produce ~475K bbl/day of oil in 2025, based on the midpoint of its guidance range, or ~1.5% more than the companies’ estimated Q4 output; even if the merged company pumps at the top end of its forecast, it would represent growth of ~2.5%.
“Our shareholders are not paying us for growth these days,” Van’t Hof said, according to Bloomberg. “They want return of capital per share growth through lower share count.”
Diamondback (FANG) executives said they see as many as 175 drilling locations that could benefit from longer sideways laterals – a technical advance that can raise production – when Endeavor’s acreage is included.
The deal is expected to result in annual savings of $550M, representing more than $3B in net value over the next decade, the companies said.