Diamondback Energy Inc. is looking to sell non-core assets in the western Permian Basin as the oil producer looks to cash in on an increasingly active deal market in US shale.
The company is working with a financial adviser to find a buyer for assets in Pecos County, Texas, according to people familiar with the matter, who asked not to be identified because the process is confidential. No final decision has been made and Diamondback could choose to retain the assets, the people added.
The move makes strategic sense and would allow the Midland, Texas-based explorer to reduce debt more quickly, according to KeyBanc Capital Markets.
“Diamondback is drilling stronger wells than industry peers in this part of the basin,” KeyBanc analyst Tim Rezvan wrote in a note to investors on Wednesday. “Above average results naturally increase the appeal of this surface.”
While it’s unclear what the assets would fetch in a sale, Diamondback raised its non-core asset sale target to $1 billion from $500 million in February. Shares rose 1.3% in premarket trading Wednesday, giving the company a market value of about $27 billion.
A Diamondback representative declined to comment.
After the recent surprise OPEC+ production cut that helped floor oil prices, US shale deal activity is picking up as oil producers and gas are looking to add new inventory after shying away from making deals in recent years. Ovintiv Inc. agreed to buy assets in the Permian this month from EnCap Investments for $4.3 billion.
“We believe these items may incentivize Diamondback to pursue non-core sales, such as Pecos County,” Rezvan wrote.
Most shale producers used record profits last year to pay down debt and are now in a position to buy producing assets as well as undeveloped acreage that would expand their drilling locations.
Diamondback “will be patient and cautious when it comes to selling assets,” Chief Financial Officer Kaes Van’t Hof said during a conference call with analysts on February 22. The company is more likely to sell pipeline assets than exploration properties, he said. said Two previous asset sales involved acreage that would not be developed for years, he said.
–With assistance from Mitchell Ferman and David Wethe.
