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Diamondback Strikes Gold with Pro-Forma Production Increase After Endeavor Acquisition Diamondback Strikes Gold with Pro-Forma Production Increase After Endeavor Acquisition

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Diamondback Energy (NASDAQ:FANG) wrapped up Monday with a remarkable surge of +9.4%, marking its best one-day gain in nearly three days. The rally followed an announcement indicating a reduction in drilling rigs but a hike in production, triggered by the company’s $26B cash and stock purchase of competitor Endeavor Energy Resources.

The consolidated entity will operate a total of 26 rigs in the Permian Basin for this year. However, this number is expected to decrease to a range of 20-22 in the long run, as drilling efficiencies start to yield fruit. This insight was shared by Diamondback’s (FANG) CFO Kaes Van’t Hof during a conference call on Monday.

The combined company aims to achieve a daily oil production of ~475K bbl/day by 2025, as per the mid-point of its guidance range. This represents an increase of ~1.5% compared to the estimated Q4 output of the individual companies. Even if the merged company performs at the upper end of its forecast, the growth would still amount to about 2.5%.

β€œOur shareholders are not paying us for growth these days,” remarked Van’t Hof, as reported by Bloomberg. β€œThey want return of capital per share growth through lower share count.”

Diamondback (FANG) executives have identified as many as 175 drilling locations that could benefit from longer sideways laterals – a technical innovation that can boost production – when integrating Endeavor’s acreage.

The acquisition is anticipated to generate yearly savings of $550M, constituting a net value of over $3B over the next decade, as stated by the companies.

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