Diamondback鈥檚 Van鈥檛 Hof Plays Coy on Potential Delaware Divestiture

Diamondback Energy鈥檚 President and CFO Kaes Van't Hof also addressed new Permian exploration and the lack of 鈥渇un鈥� dealing with the FTC on its deal to buy Endeavor Energy Resources.

Darren
Barbee
Oil and Gas Investor

FORT WORTH, Texas 鈥� Diamondback Energy will take a wait-and-see approach on whether it eventually sells some of its Delaware Basin assets once the company closes its $26 billion deal for Endeavor Energy Resources.

鈥淭he Delaware Basin, for us, has not attracted a ton of capital, but I think there's a lot of upside in the Delaware, there's a lot of secondary zones,鈥� Diamondback President and CFO Kaes Van't Hof said May 15 at Hart Energy鈥檚 SUPER DUG conference. 鈥淚 think we are going to get a lot more attention over the next few years so I don't think we're ever rushed to sell necessarily, but I think we certainly listen to offers, as we should, for anything.鈥�

鈥淚'm not committing to a sale right now. I think we're going to be patient,鈥� Van鈥檛 Hof said.

He added, somewhat coyly, 鈥淚 get to play both sides.鈥�

In a sideline interview with moderator Jordan Blum, Hart Energy鈥檚 editorial director, Van't Hof said, "Our preference is probably to keep it. We will have to be a seller of an asset if it's the right price, but I think the base case right now is keep it and learn from" offset operators.

However, part of the reason for the Endeavor deal鈥檚 structure was to insulate Diamondback from being a 鈥渇orced seller of assets,鈥� which Van鈥檛 Hof noted is not a position oil and gas producers want to face.

For now, Diamondback still has the Federal Trade Commission (FTC) to contend with in getting the deal over the finish line.

Van't Hof also discussed Diamondback鈥檚 pending Endeavor deal鈥攊ncluding more rigorous preparation for antitrust review by the FTC鈥攁s well as the company鈥檚 exploration efforts in new Permian Basin zones.

鈥淓ndeavor was what we call a unicorn asset that had been rumored to be for sale for years,鈥� Van't Hof said. Diamondback finally managed to 鈥渂reak the code鈥� on the deal with a proposal that made a combined company far better than as two standalones.

Asked if the FTC鈥檚 handling of the Exxon Mobil-Pioneer Natural Resources deal had created a chilling effect for M&A, Van鈥檛 Hof noted that it was 鈥渋nteresting to see the FTC get involved in oil deals. We haven鈥檛 seen that for the last 10 years.鈥�

The FTC approved Exxon鈥檚 acquisition, but ordered that Pioneer Chairman and former CEO Scott Sheffield be excluded from Exxon鈥檚 board.

Van鈥檛 Hof said the Pioneer close was an 鈥渋mportant data point for the rest of us鈥� because it showed compliance with requests could prevail. However, it was another deal that made Diamondback do a double take when putting together its own deal with Endeavor.

The FTC鈥檚 second request for more information from Occidental Petroleum regarding its $12 billion acquisition of CrownRock LP 鈥渞eally made our ears perk up and say, 鈥榠t鈥檚 more than likely we鈥檙e going to get one ourselves,鈥欌€� he said.

鈥淪o we had a plan for a long period between sign and close,鈥� he said. 鈥淵ou have to handle certain things in the merger agreement on how you're going to cooperate with the FTC, cooperate with any type of requests 鈥� how you're going to motivate employees over what could be a nine- or 12-month period.鈥�

Inevitably, Diamondback received a second request from the FTC.

Van鈥檛 Hof added: 鈥淚t鈥檚 not a fun process but we鈥檙e getting through. We should be on our way to close the deal here early in Q4.鈥�

The upshot of a Diamondback-Endeavor is essentially a successor to Pioneer as a large independent Permian pure play.

The Endeavor deal will create a business that is now, 鈥渆specially with Pioneer, having sold to Exxon, the largest in the Permian Basin 鈥� with a lot undeveloped resource, a low cost structure.鈥�

鈥淚'm just excited for what it does for Diamondback shareholders but also for the city of Midland for the Permian to have that big company presence in the basin,鈥� he said.

Van鈥檛 Hof lauded Autry Stephens for building a company from the ground up, beginning in 1979, into a private juggernaut now averaging 350,000 boe/d.

Permian exploration redux

While Diamondback is still bound by antitrust rules, Van鈥檛 Hof ventured that combining with Endeavor creates a good amount of acreage that overlaps, 鈥渨hich is great.鈥�

As other areas zones are tested, Van鈥檛 Hof said that down the line, Diamondback will likely have to move more toward three-mile and four-mile laterals to tap into secondary zones in order for those wells to be competitive.

With Endeavor鈥檚 acreage, there鈥檚 probably between 150 and 250 locations that can be extended to 15,000 ft laterals from 10,000 ft because of the blocky nature of the pro forma company鈥檚 position.

Diamondback is also beginning to take a more serious look at zones it had previously not talked about two or three years ago, such as the Upper Spraberry.

鈥淣ow it鈥檚 a zone for us in the northern Midland Basin that鈥檚 going to be of our primary development,鈥� he said, noting that one of Diamondback鈥檚 best wells in 鈥渙ur entire portfolio is in Upper Spraberry.鈥�

He cautioned that such wells may not be present across its entire position, 鈥渂ut I think we have a really good set up to start development in the Upper Spraberry in the northern part of the Midland.鈥�

Moving south, the Wolfcamp D has been part of the company鈥檚 lexicon throughout the years, but now Diamondback is 鈥渒ind of moving into primary development, and pretty exciting results there as you move kind of south in the southern Martin County [,Texas] and in Midland County [,Texas],鈥�  Van鈥檛 Hof said.

As far as the eastern portion of Midland and Glasscock counties, 鈥渆veryone鈥檚 all up in arms about the Barnett, the Woodford,鈥� he said.

鈥淚'd still say that those two are kind of exploratory zones,鈥� he said.

Still, Van鈥檛 Hof said that because of the nature of the original leases, 鈥渨e鈥檙e having to lease these deep zones separately from 鈥� the existing leases we have.鈥�

鈥淚t's kind of been a fever pitch to get the assets and get the leases and 鈥� with the clock [ticking] that comes naturally with a lease, we're going to have to start spending a lot more money here in the next few years,鈥� he said.

Post-Endeavor plans

As the company preps for integration of Endeavor鈥檚 assets, Diamondback remains focused on keeping its promises to investors, including levels of oil production and capex.

Van鈥檛 Hof said he suspects the combined company will run between 20 rigs and 24 rigs combined with four crews or five crews across the basin.

鈥淚t鈥檚 going to be a big business with a lot of moving parts,鈥� he said.

One point of optimism: Diamondback will be retaining its team of talented people in addition to Endeavor鈥檚 highly qualified people.

A mesh of new ideas and expertise from previous acquisitions has worked out well in the past. Van鈥檛 Hof cited the 2021 acquisition of QEP Resources, a much smaller company.

Diamondback noticed QEP was drilling with clear fluids. At the time, Diamondback was using oil-based mud in the Midland Basin.

鈥淎nd we saw that was taking 4, 5, 6 days off of a well as well as reducing the cost of an oil-based model,鈥� he said. 鈥淪o our guys said, 鈥榯his works. Let鈥檚 put it in place.鈥� And we had our entire Midland fleet turned over in six months.鈥�

鈥淭hat鈥檚 the kind of small company mentality that we have to maintain as we get bigger,鈥� he said.

原文链接/HartEnergy

Diamondback’s Van’t Hof Plays Coy on Potential Delaware Divestiture

Diamondback Energy’s President and CFO Kaes Van't Hof also addressed new Permian exploration and the lack of “fun” dealing with the FTC on its deal to buy Endeavor Energy Resources.

Darren
Barbee
Oil and Gas Investor

FORT WORTH, Texas – Diamondback Energy will take a wait-and-see approach on whether it eventually sells some of its Delaware Basin assets once the company closes its $26 billion deal for Endeavor Energy Resources.

“The Delaware Basin, for us, has not attracted a ton of capital, but I think there's a lot of upside in the Delaware, there's a lot of secondary zones,” Diamondback President and CFO Kaes Van't Hof said May 15 at Hart Energy’s SUPER DUG conference. “I think we are going to get a lot more attention over the next few years so I don't think we're ever rushed to sell necessarily, but I think we certainly listen to offers, as we should, for anything.”

“I'm not committing to a sale right now. I think we're going to be patient,” Van’t Hof said.

He added, somewhat coyly, “I get to play both sides.”

In a sideline interview with moderator Jordan Blum, Hart Energy’s editorial director, Van't Hof said, "Our preference is probably to keep it. We will have to be a seller of an asset if it's the right price, but I think the base case right now is keep it and learn from" offset operators.

However, part of the reason for the Endeavor deal’s structure was to insulate Diamondback from being a “forced seller of assets,” which Van’t Hof noted is not a position oil and gas producers want to face.

For now, Diamondback still has the Federal Trade Commission (FTC) to contend with in getting the deal over the finish line.

Van't Hof also discussed Diamondback’s pending Endeavor deal—including more rigorous preparation for antitrust review by the FTC—as well as the company’s exploration efforts in new Permian Basin zones.

“Endeavor was what we call a unicorn asset that had been rumored to be for sale for years,” Van't Hof said. Diamondback finally managed to “break the code” on the deal with a proposal that made a combined company far better than as two standalones.

Asked if the FTC’s handling of the Exxon Mobil-Pioneer Natural Resources deal had created a chilling effect for M&A, Van’t Hof noted that it was “interesting to see the FTC get involved in oil deals. We haven’t seen that for the last 10 years.”

The FTC approved Exxon’s acquisition, but ordered that Pioneer Chairman and former CEO Scott Sheffield be excluded from Exxon’s board.

Van’t Hof said the Pioneer close was an “important data point for the rest of us” because it showed compliance with requests could prevail. However, it was another deal that made Diamondback do a double take when putting together its own deal with Endeavor.

The FTC’s second request for more information from Occidental Petroleum regarding its $12 billion acquisition of CrownRock LP “really made our ears perk up and say, ‘it’s more than likely we’re going to get one ourselves,’” he said.

“So we had a plan for a long period between sign and close,” he said. “You have to handle certain things in the merger agreement on how you're going to cooperate with the FTC, cooperate with any type of requests … how you're going to motivate employees over what could be a nine- or 12-month period.”

Inevitably, Diamondback received a second request from the FTC.

Van’t Hof added: “It’s not a fun process but we’re getting through. We should be on our way to close the deal here early in Q4.”

The upshot of a Diamondback-Endeavor is essentially a successor to Pioneer as a large independent Permian pure play.

The Endeavor deal will create a business that is now, “especially with Pioneer, having sold to Exxon, the largest in the Permian Basin … with a lot undeveloped resource, a low cost structure.”

“I'm just excited for what it does for Diamondback shareholders but also for the city of Midland for the Permian to have that big company presence in the basin,” he said.

Van’t Hof lauded Autry Stephens for building a company from the ground up, beginning in 1979, into a private juggernaut now averaging 350,000 boe/d.

Permian exploration redux

While Diamondback is still bound by antitrust rules, Van’t Hof ventured that combining with Endeavor creates a good amount of acreage that overlaps, “which is great.”

As other areas zones are tested, Van’t Hof said that down the line, Diamondback will likely have to move more toward three-mile and four-mile laterals to tap into secondary zones in order for those wells to be competitive.

With Endeavor’s acreage, there’s probably between 150 and 250 locations that can be extended to 15,000 ft laterals from 10,000 ft because of the blocky nature of the pro forma company’s position.

Diamondback is also beginning to take a more serious look at zones it had previously not talked about two or three years ago, such as the Upper Spraberry.

“Now it’s a zone for us in the northern Midland Basin that’s going to be of our primary development,” he said, noting that one of Diamondback’s best wells in “our entire portfolio is in Upper Spraberry.”

He cautioned that such wells may not be present across its entire position, “but I think we have a really good set up to start development in the Upper Spraberry in the northern part of the Midland.”

Moving south, the Wolfcamp D has been part of the company’s lexicon throughout the years, but now Diamondback is “kind of moving into primary development, and pretty exciting results there as you move kind of south in the southern Martin County [,Texas] and in Midland County [,Texas],”  Van’t Hof said.

As far as the eastern portion of Midland and Glasscock counties, “everyone’s all up in arms about the Barnett, the Woodford,” he said.

“I'd still say that those two are kind of exploratory zones,” he said.

Still, Van’t Hof said that because of the nature of the original leases, “we’re having to lease these deep zones separately from … the existing leases we have.”

“It's kind of been a fever pitch to get the assets and get the leases and … with the clock [ticking] that comes naturally with a lease, we're going to have to start spending a lot more money here in the next few years,” he said.

Post-Endeavor plans

As the company preps for integration of Endeavor’s assets, Diamondback remains focused on keeping its promises to investors, including levels of oil production and capex.

Van’t Hof said he suspects the combined company will run between 20 rigs and 24 rigs combined with four crews or five crews across the basin.

“It’s going to be a big business with a lot of moving parts,” he said.

One point of optimism: Diamondback will be retaining its team of talented people in addition to Endeavor’s highly qualified people.

A mesh of new ideas and expertise from previous acquisitions has worked out well in the past. Van’t Hof cited the 2021 acquisition of QEP Resources, a much smaller company.

Diamondback noticed QEP was drilling with clear fluids. At the time, Diamondback was using oil-based mud in the Midland Basin.

“And we saw that was taking 4, 5, 6 days off of a well as well as reducing the cost of an oil-based model,” he said. “So our guys said, ‘this works. Let’s put it in place.’ And we had our entire Midland fleet turned over in six months.”

“That’s the kind of small company mentality that we have to maintain as we get bigger,” he said.