Diamondback Energy, Inc. Announces Sale of WTG Midstream
Diamondback Energy (NASDAQ: FANG) has announced the sale of WTG Midstream Holdings to Energy Transfer LP for approximately $375 million, subject to customary closing conditions and adjustments. The transaction, expected to close in Q3 2024, includes a mix of cash and ET common units. Diamondback has held a 25% stake in WTG Midstream through its subsidiary Rattler Midstream LP since October 2021, and the sale represents a 3.5x return on invested capital. The proceeds will be used to reduce debt related to the merger with Endeavor Energy Resources. CEO Travis Stice highlighted the successful economic return and ongoing support for Diamondback's activities.
- Sale of WTG Midstream for $375 million.
- Transaction represents a 3.5x return on invested capital.
- Proceeds to reduce debt linked to Endeavor Energy Resources merger.
- Partnership with Energy Transfer strengthens future operations.
- Transaction is subject to customary closing conditions.
- Potential adjustments to the $375 million consideration.
- Timing risk with closing expected in Q3 2024.
Insights
The sale of WTG Midstream Holdings LLC to Energy Transfer LP for
From a financial perspective, leveraging the proceeds to reduce debt is a strategic move that strengthens Diamondback's financial position. Reducing debt can help improve financial ratios such as the debt-to-equity ratio, making the company less risky and potentially more attractive to investors.
The mix of cash and ET common units means Diamondback also gains equity in Energy Transfer, a diversified midstream entity. This can potentially offer dividends and capital appreciation, diversifying Diamondback's income sources.
Short-term implications: The immediate use of proceeds to pay down debt will likely improve Diamondback's credit profile and could lead to a positive market reaction. Long-term implications: The equity stake in Energy Transfer may provide ongoing income and capital gains, contributing to Diamondback's financial stability.
This transaction entails important market dynamics. By selling its stake in WTG Midstream, Diamondback can refocus on its core operations while maintaining strategic alignment with Energy Transfer, a key player in the midstream sector. This could streamline Diamondback’s business model and possibly lead to more efficient operations.
Midstream assets are essential in the oil and gas sector for gathering, processing and transportation. While Diamondback loses direct control of WTG Midstream, its ongoing relationship with Energy Transfer could ensure continuous support for its gas gathering needs. The synergies resulting from this relationship could drive operational efficiencies and reduce costs.
From an industry perspective, this move highlights the importance of strategic partnerships and asset optimization. Diamondback is trading a non-core asset for liquidity to strengthen its financial position while maintaining operational support through a new partnership with Energy Transfer.
Short-term implications: The market may view this as a positive sign of strategic asset management and financial prudence. Long-term implications: The partnership with Energy Transfer could lead to more stable and possibly lower-cost midstream services for Diamondback, enhancing its competitive positioning.
This transaction is pivotal for understanding the evolving landscape of the energy sector. The sale underscores the trend of consolidation and strategic realignment among energy firms. For Diamondback, selling a 25% stake in a midstream asset allows it to focus on upstream activities, reflecting a broader industry trend where companies streamline operations to focus on core competencies and enhance shareholder value.
The consideration involving both cash and Energy Transfer common units also signifies trust in Energy Transfer's growth prospects and stability. This move provides Diamondback with not just immediate liquidity but also a share in future growth, mitigating risk associated with volatile oil and gas prices.
The backdrop of using the proceeds to reduce debt tied to the Endeavor Energy merger highlights Diamondback’s strategic planning and forward-looking financial management. The merger itself is a significant undertaking and this sale eases some financial burdens, positioning Diamondback for a smoother integration and potential future investments in core operations.
Short-term implications: The immediate benefit of debt reduction will likely be positively received by the market, showing proactive financial management. Long-term implications: Continued support from Energy Transfer's midstream services could enable Diamondback to maintain operational efficiency and focus on value creation in its core upstream activities.
MIDLAND, Texas, May 28, 2024 (GLOBE NEWSWIRE) -- Diamondback Energy, Inc. (NASDAQ: FANG) (“Diamondback”) today announced the sale of WTG Midstream Holdings LLC to Energy Transfer LP (NYSE: ET) (“ET”) resulting in total pre-tax consideration net to Diamondback of approximately
Diamondback, through its wholly-owned subsidiary Rattler Midstream LP (“Rattler”), has owned a
“We would like to congratulate Stonepeak and the WTG team on this fantastic outcome,” stated Travis Stice, Chairman and Chief Executive Officer of Diamondback. “Not only has our partnership generated an outsized economic return, but WTG’s gas gathering and processing system continues to support Diamondback’s substantial activity on our dedicated acreage. We are excited to further expand our relationship with Energy Transfer and expect a smooth operational transition.”
About Diamondback
Diamondback is an independent oil and natural gas company headquartered in Midland, Texas focused on the acquisition, development, exploration and exploitation of unconventional, onshore oil and natural gas reserves in the Permian Basin in West Texas. For more information, please visit www.diamondbackenergy.com.
Diamondback Investor Contact:
Adam Lawlis
+1 432.221.7467
alawlis@diamondbackenergy.com
Forward-Looking Statements
This news release contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which involve risks, uncertainties, and assumptions. All statements, other than statements of historical fact, including statements regarding Diamondback’s: future performance; business strategy; future operations (including drilling plans and capital plans); estimates and projections of revenues, losses, costs, expenses, returns, cash flow, and financial position; reserve estimates and its ability to replace or increase reserves; anticipated benefits of strategic transactions (including acquisitions and divestitures); and plans and objectives of management (including plans for future cash flow from operations and for executing environmental strategies) are forward-looking statements. When used in this news release, the words “aim,” “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “forecast,” “future,” “guidance,” “intend,” “may,” “model,” “outlook,” “plan,” “positioned,” “potential,” “predict,” “project,” “seek,” “should,” “target,” “will,” “would,” and similar expressions (including the negative of such terms) as they relate to Diamondback are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words. Although Diamondback believes that the expectations and assumptions reflected in its forward-looking statements are reasonable as and when made, they involve risks and uncertainties that are difficult to predict and, in many cases, beyond Diamondback’s control. Accordingly, forward-looking statements are not guarantees of future performance and Diamondback’s actual outcomes could differ materially from what Diamondback has expressed in its forward-looking statements. Information concerning these risks and uncertainties and other factors can be found in Diamondback’s filings with the Securities and Exchange Commission ("SEC"), including its reports on Forms 10-K, 10-Q and 8-K, which can be obtained free of charge on the SEC’s web site at http://www.sec.gov. Diamondback undertakes no obligation to update or revise any forward-looking statement unless required by applicable law.
FAQ
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