U.S. shale oil rivals Diamondback Energy (FANG.O), opens new tab and Endeavor Energy Resources are close to finalizing a roughly $25 billion cash-and-stock deal that would create an oil and gas company valued at more than $50 billion, sources said on Sunday.

Diamondback could announce a transaction as soon as Monday that would give its shareholders more than half of the combined companies, the people said, which would become the largest, pure-play oil producer in the Permian shale field.

Reuters in December reported that Endeavor Energy Partners was exploring a sale that could value the largest privately held oil and gas producer in the Permian basin at between $25 billion and $30 billion.

Endeavor and Diamondback did not immediately respond to a request for comment.

The combined company would be the third-largest oil and gas producer in the Permian, the top U.S. oilfield that straddles West Texas and New Mexico. Its oil and gas volumes would be behind Exxon Mobil  and Chevron, which have announced recent deals

PRESSURE TO COMBINE

“This is a layup in terms of the acreage overlap and fit,” said Dan Pickering, chief investment officer of Pickering Energy Partners. The combined company would replace Pioneer Natural Resources, which is being acquired by Exxon, as the top solely Permian producer, he said.

Permian producers are consolidating in a race to lock in future drilling inventory and output from the top U.S. oilfield. The deal is likely to put additional pressure on the remaining firms to combine for greater efficiencies and scale, analysts said.

But future deals are unlikely to match the sheer size of Permian shale deals in recent months, said Andrew Dittmar, a senior vice president at data analytics firm Enverus. He ruled out any competing bids for Endeavor.

Diamondback’s use of cash and stock will allow Endeavor founder Autry Stephens and family to retain a major role in the largest oil company in Midland, Texas, where both companies are based, said Dittmar.

“Their (drilling) inventory is extremely high quality that will make the combined companies a very attractive investment on Wall Street. I imagine it will be well received by the market on Monday,” he said.

Diamondback fended off competition from other parties including ConocoPhillips (COP.N), opens new tab, the Wall Street Journal earlier reported.

The sale would come almost 45 years after Texas oilman Stephens started the company that would become Endeavor.

Endeavor’s operations span 350,000 acres (1,416 square kilometers) in the Midland portion of the Permian Basin.

Stephens, a former appraisals engineer who became more known through his appearances on the TV documentary series Black Gold, grew Endeavor by acquiring the unloved acreage of his competitors and managing to extract oil and gas profitably.

To lower his production costs, Stephens created and used his own fracking, construction, trucking and other services companies.

Reporting by Utkarsh Shetti in Bengaluru; additional reporting by Gary McWilliams in Houston; Editing by Josie Kao, Mark Porter and Diane Craft.

By Reuters / Anirban Sen, February 11, 2024