U.S. energy companies are increasing their size through large-scale mergers and acquisitions. The Wall Street Journal (WSJ) reported on the 12th that Diamondback Energy is conducting an M&A with Endeavor Energy Resources, a rival U.S. crude oil drilling company.
Endeavor Energy is a company known to have secured the largest drilling area in the Permian Basin of Texas, a major crude oil production area in the United States. After the merger, Diamondback Energy is expected to produce approximately 816,000 barrels of crude oil and gas per day. Due to the positive outlook on the merger, Diamondback Energy’s stock price soared nearly 10% on the New York Stock Exchange (NYSE). When the merger is completed, Diamondback Energy’s market capitalization will reach $53 billion.
American energy companies extracting shale oil from the Permian Basin were once on the verge of going out of business but escaped the crisis thanks to technological advancements and a surge in crude oil prices following the Ukraine war. The explanation is that companies that have recorded outstanding performance in recent years are expanding their size in order to cope with government regulations on fossil fuels in each country.
The plan is to increase size to prepare for rising costs due to the introduction and strengthening of various regulations. This is because the cost of crude oil drilling decreases as the drilling area expands. Diamondback Energy, which decided to pay about $26 billion for this contract, will also be able to significantly reduce the cost of crude oil drilling in the future. Experts are analysing that Diamondback Energy may drop the cost of crude oil drilling below $40 per barrel.
Considering that West Texas Intermediate (WTI) crude oil is trading at around $76 per barrel, this means that the company has secured profits to continue its business even if the cost rises sharply or the price of crude oil plummets. “The industry’s leading leaders have come together to create a powerful oil company,” said Travis Stice, CEO of Diamondback Energy.