Fitch Ratings has placed the 'BBB' Long-Term Issuer Default Ratings (IDRs) and all issue-level ratings of Diamondback Energy, Inc., Diamondback O&G LLC and Energen Corporation (collectively Diamondback) on Ratings Watch Positive (RWP).

The RWP placement follows the announcement that Diamondback has entered into a definitive agreement to merge with Endeavor Energy Resources, L.P. (Endeavor) in a nearly 70% stock-funded transaction valued at approximately $26 billion, inclusive of Endeavor's net debt. The consideration for the transaction will consist of approximately 117.3 million shares of Diamondback common stock and $8 billion of cash. The cash portion is expected to include a combination of cash on hand, borrowings under the company's credit facility and/or proceeds from term loans and senior notes offerings.

The transaction significantly enhances Diamondback's footprint by adding high-quality acreage in the core of the Midland Basin, low cost, oil-weighted production and nearly doubles the company's sub-$40/barrel WTI breakeven inventory. Fitch believes Diamondback's pro forma operating and financial metrics will be in-line with Fitch's 'BBB+' rating category thresholds and consistent with rated 'BBB+' E&P peers.

Fitch expects to resolve the Rating Watch upon closing of the transaction, which is currently expected in 4Q24 subject to customary closing conditions. The closing of the transaction and resolution of the RWP could take longer than six months.

Key Rating Drivers

Credit-Accretive Merger: Fitch views Diamondback's announced merger with Endeavor favorably given it is nearly 70% stock-funded and will have minimal impact on pro forma mid-cycle leverage metrics. Management remains committed to reducing pro forma net debt to below $10 billion quickly after close, which Fitch believes is achievable by the end of 2025 or early 2026 given robust pro forma FCF generation potential and could be accelerated via potential non-core assets sales or if commodity prices rise. Fitch also recognizes the strong FCF generation potential of both entities from now until close which will help fund the $8 billion cash portion of the transaction value and could reduce the debt component.

Highly Accretive Midland Basin Assets: Endeavor's large, low-cost Midland basin asset base will increase both Diamondback's total acreage and production size by approximately 70% and 75%, respectively, and will be immediately accretive to operating and cash flow metrics. The pro forma company will hold approximately 838,000 net acres in the Permian (83% in the Midland Basin) and will produce approximately 816 thousand barrels of oil equivalent per day (Mboepd). Endeavor's high-quality acreage position will add approximately 2,300 net drilling locations with breakevens at or below $40/bbl WTI, bringing the pro forma total to approximately 6,100 and creating a company with industry-leading inventory depth and quality.

At 3Q23, both standalone companies had the lowest Fitch-calculated production expenses per barrel among IG peers and consistently generate peer-leading Fitch-calculated cash netbacks supported by their high oil mix. Fitch expects the pro forma cost structure will improve further given the expectation of meaningful synergy realization post-close.

Significant FCF; Synergy Opportunities: Fitch forecasts significant FCF generation from the pro forma company and believes synergy opportunities associated with the deal are achievable post-close. Management has outlined approximately $550 million of potential annual synergies which includes $325 million of capital and operational synergies, $150 million of capital allocation and land synergies and $75 million of financial and corporate cost savings.

By combining two peer-leading cost structures, Fitch expects immediate FCF accretion and forecasts over $4.0 billion of pro forma pre-dividend FCF in 2025 at $65/bbl WTI oil and $3.00/mcf Henry Hub natural gas with significant upside at higher prices. Fitch expects management will remain disciplined and prioritize FCF generation over organic production growth through the rating horizon.

Sub-1.5x Leverage; Disciplined FCF Allocation: Fitch's pro forma base case forecasts gross debt/EBITDA of 1.1x in 2025 and similar levels in 2027 at our $57/bbl WTI mid-cycle oil price. Management also stated it will reduce the company's return of capital commitment from at least 75% of FCF to stockholders to at least 50% which will enhance financial flexibility and allow for retention of extra cash on hand for debt reduction. Fitch believes the company's credit-conscious transaction funding, change in capital allocation and downside-focused hedging program further support its balance sheet and are favorable to the credit profile.

Supportive MLP Affiliates: Diamondback has one publicly-traded affiliate with its approximately 56% ownership in Viper Energy, Inc. and now fully owns Rattler Midstream LP. Both entities support Diamondback's advantaged unit economics, as Rattler has core water infrastructure assets, which reduce the company's cost structure in all seven of Diamondback's core operating areas. In addition, Diamondback's well economics are higher on Viper acreage given the advantaged net revenue interest. Both entities also provide a source of contingent liquidity.

Derivation Summary

Pro forma the merger, Diamondback will be among the largest producers in Fitch's rated coverage. With pro forma production of approximately 815 Mboepd, Diamondback will be larger than standalone Pioneer Natural Resources (BBB+/RWP; 721 Mboepd in 3Q23), Devon Energy Corp. (BBB+/Stable; 665 Mboepd in 3Q23), Canadian producer Suncor Energy, Inc. (BBB+/Stable; 700 Mboepd at 3Q23) and meaningfully larger than Continental Resources, Inc. (BBB/Stable; 456 Mboepd in 3Q23).

Fitch believes Diamondback's Permian Basin focus, particularly the company's pro forma considerable, contiguous positions, provides an opportunity to focus capital, optimize drilling and completion techniques to maximize returns, and provides operational flexibility in commodity price downturns. However, the limited geographic and hydrocarbon diversification can heighten asset-level risks in the longer term.

Diamondback's standalone, unhedged half-cycle netbacks of $41.9/boe for 3Q23 were similar to Endeavor's, but higher than standalone Pioneer ($38.9/boe), Suncor ($38.7/boe), Continental ($34.1/boe) and Devon ($34.1/boe) and are consistently toward the high end of Fitch's Permian peer average. Diamondback's 2025 pro forma leverage of 1.1x is also consistent with the aforementioned peers.

Key Assumptions

WTI oil prices of $75/bbl in 2024, $65/bbl in 2025, $60/bbl in 2026 and $57/bbl thereafter;

Henry Hub prices of $3.25/mcf in 2024, $3.00/mcf in 2025 and $2.75/mcf thereafter;

Pro forma 2025 production of 815 Mboepd followed by flat growth thereafter;

Pro forma 2025 capex of $4.25 billion followed by growth-linked spending thereafter;

Prioritization of FCF toward managements post-close net debt target of $10 billion;

Measured increases in shareholder returns following achievement of debt targets;

Announced Endeavor merger closes in 4Q24.


Factors that could, individually or collectively, lead to positive rating action/upgrade:

Fitch expects to resolve the RWP upon completion of the contemplated transaction under proposed terms.

Factors that could lead to a positive rating action for Diamondback independent of the transaction include:

Increased size and scale evidenced by production trending above 550 mboe/d while maintaining economic drilling inventory;

Standalone debt/PD at or below $4.00/boe on a sustained basis;

Standalone mid-cycle EBITDA Leverage below 1.5x on a sustained basis.

Factors that could, individually or collectively, lead to negative rating action/downgrade:

Standalone mid-cycle EBITDA Leverage above 2.5x on a sustained basis;

Standalone debt/PD above $5.50/boe on a sustained basis;

Material loss of operational momentum leading to lower than expected production volumes (300 mboe/d or lower) over a sustained period.

Liquidity and Debt Structure

Strong Liquidity: Diamondback's standalone cash and equivalents were approximately $680 million as of 3Q23, excluding approximately $147 million held at Viper. Additional liquidity is provided by the company's unsecured $1.6 billion revolver due 2028 which was fully undrawn at 3Q23.

Fitch does not expect material borrowings under the revolver post-close and believes the liquidity profile will be further supported by enhanced FCF generation post-close. Fitch believes Diamondback could enhance liquidity and accelerate debt reduction toward its post-close net debt goal of $10 billion through potential non-core asset sales.

Issuer Profile

Diamondback Energy, Inc. (Diamondback; NASDAQ:FANG) is a public exploration and production company focused in both the Midland and Delaware Basins in the Permian Basin. The combined company will hold over 835,000 net acres in the Permian basin.


The principal sources of information used in the analysis are described in the Applicable Criteria.

ESG Considerations

The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on Fitch's ESG Relevance Scores, visit

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