Business Context and Reporting Period
This Form 8-K, dated November 29, 2018, reports the completion of the merger between Diamondback Energy, Inc. ("Diamondback") and Energen Corporation ("Energen"). On this date, Sidewinder Merger Sub Inc., a wholly owned subsidiary of Diamondback, merged with and into Energen, with Energen continuing as a wholly owned subsidiary of Diamondback. The filing also details amendments to Diamondback's credit facility to facilitate the transaction.
Key Financial Metrics and Capital Structure
- Debt and Liquidity: Immediately following the merger, Diamondback had approximately $1.4 billion in borrowings outstanding under its Amended Revolving Credit Facility.
- Repayment Activity: Approximately $560.3 million of the outstanding borrowings was used to repay in full all borrowings under Energen's credit facility.
- Credit Facility Terms: The borrowing base was reaffirmed at $2.65 billion, with an aggregate elected commitment amount of $2.0 billion.
- Letter of Credit Commitments: Increased from $100 million to $150 million for midstream assets and from $15 million to $30 million for other letters of credit.
- Outstanding Notes: Energen retained $530 million in aggregate principal notes, including $400 million of 4.625% senior notes due 2021, $100 million of 7-1/8% notes due 2028, $20 million of 7.32% notes due 2022, and $10 million of 7.35% notes due 2027.
Material Changes Versus Prior Period
The primary material change is the acquisition of Energen, converting Energen common stock into Diamondback common stock at a ratio of 0.6442 shares of Diamondback for each share of Energen. Additionally, Diamondback entered into a Ninth Amendment to its credit agreement to:
- Remove the $50 million cap on netting unrestricted cash in the total debt to EBITDAX calculation.
- Increase the add-back for acquisition-related expenses in the EBITDAX definition from $10 million to $50 million per calendar year.
- Grant flexibility to consummate acquisitions of entities in similar lines of business.
Guidance, Outlook, and Management Commentary
This filing does not contain forward-looking guidance, revenue projections, or management commentary regarding future operational performance. The document focuses on the legal and financial mechanics of the merger completion and the restructuring of debt obligations. Energen has guaranteed Diamondback's indebtedness and granted a lien on certain assets, which obligates Diamondback to cause Energen to guarantee its 2024 and 2025 Senior Notes.
Investor Verification Checklist
- Verify the exact number of Diamondback shares issued to Energen shareholders based on the 0.6442 exchange ratio.
- Confirm the pro forma combined financial statements filed as Exhibit 99.4 to understand the consolidated balance sheet impact.
- Review the full text of the Ninth Amendment (Exhibit 10.1) for specific covenant definitions and restrictions.
- Monitor the timeline for Energen to formally guarantee Diamondback's 2024 and 2025 Senior Notes as required by the indentures.
- Assess the impact of the $560.3 million debt repayment on Energen's remaining $530 million in unsecured notes.