Diamondback Energy, Inc. - Form 8-K Summary
Business Context and Reporting Period
This Current Report on Form 8-K was filed by Diamondback Energy, Inc. on December 13, 2016. The filing primarily announces the entry into a Material Definitive Agreement to acquire assets from Brigham Resources Operating, LLC and Brigham Resources Midstream, LLC. The transaction is referred to as the "Pending Acquisition" and is scheduled to close in February 2017, subject to due diligence and other closing conditions.
Key Financial Metrics and Transaction Details
- Aggregate Purchase Price: Approximately $2.43 billion.
- Payment Structure: $1.62 billion in cash and the issuance of 7.69 million shares of Diamondback common stock.
- Asset Production: Approximately 9,500 BOE/d (77% oil) average net production for November 2016.
- Asset Footprint: Over 93,761 gross (76,319 net) acres in Pecos and Reeves counties.
- Well Count: 48 gross producing horizontal wells, 16 gross producing vertical wells, and six drilled but uncompleted wells.
- Development Potential: Estimated 1,213 net horizontal locations within the acquired footprint.
Material Changes and Strategic Impact
Upon consummation of the Pending Acquisition, Diamondback's operational scale is projected to increase significantly. The company estimates that its total leasehold interest would have been approximately 182,000 net acres as of September 30, 2016, and production for that quarter would have been approximately 54.4 MBOE/d (74% oil). To develop the new assets, the company plans to add two additional rigs in 2017, in addition to a previously announced sixth rig.
Guidance, Outlook, and Financing
Production Guidance: Giving effect to the Pending Acquisition, Diamondback increased its preliminary full-year 2017 production guidance to 64.0 to 73.0 MBOE/d.
Financing Activities: To fund the cash portion of the purchase price, the company announced two financing initiatives on December 14, 2016:
- Equity Offering: An underwritten public offering of 10,500,000 shares of common stock, with an option for underwriters to purchase up to an additional 1,575,000 shares.
- Debt Offering: A proposed offering of $250.0 million aggregate principal amount of Senior Notes due 2025.
Risks and Contingencies: The transaction remains subject to the completion of due diligence and satisfaction of other closing conditions. There is no assurance that the acquisition will be completed on the terms set forth or at all. Production data provided by the seller has not been verified by Diamondback.
Investor Verification Checklist
- Verify the final closing date and confirmation that all due diligence conditions have been met.
- Confirm the final share count issued to the seller and the closing price of the equity offering.
- Review the final terms and interest rate of the $250 million Senior Notes due 2025.
- Monitor the integration of the 9,500 BOE/d assets and the actual addition of the two new drilling rigs in 2017.
- Assess the accuracy of the seller's production data once Diamondback completes its own verification.