Fitch Ratings has placed the 'BBB-' Long-Term Issuer Default Rating (IDR) and all issue-level ratings of Endeavor Energy Resources, L.P. (Endeavor) on Rating Watch Positive (RWP).

The RWP follows the announcement that Diamondback Energy, Inc. (Diamondback) has entered into a definitive agreement to merge with 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 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 RWP and equalize Endeavor's ratings with Diamondback's ratings at close, 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

High Quality, Credit-Positive Merger: Fitch views the proposed merger positively for Endeavor's ratings as the company will benefit from Diamondback's higher ratings through strong strategic and operational ties post-close. Endeavor's large, low-cost Midland basin asset base will increase both Diamondback's total acreage and production size by approximately 70% and 75%, respectfully, 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 816,000 barrels of oil equivalent per day (boepd). 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.

Conservative Standalone Leverage Below 0.5x: Fitch forecasts standalone EBITDA leverage will be maintained below 0.5x through 2027, given the company's low gross debt balance of just $907 million at 3Q23. Fitch expects management will maintain its conservative financial policy and does not expect any increases in the gross debt balance, given its robust FCF generation and strong liquidity position. This includes full availability on the $1.5 billion reserve-based lending (RBL) facility and nearly $2.1 billion cash on hand at Sept. 30, 2023.

Potential Standalone Corporate Governance Risks: Fitch views Endeavor's lack of an independent board and its ownership concentration as potential risks to the company's standalone credit profile. The company's founder, Autry C. Stephens, controls the managing member of Endeavor's parent holding company. He and his family trusts own the majority of the membership interests of the parent holding company.

Endeavor also engages in related-party transactions with companies owned by the founder. However, the terms of the credit agreement mitigate these risks, and Endeavor has moved toward professional management, including making outside hires for key management positions. Fitch recognizes corporate governance-related risks will meaningfully diminish post-close.

The credit agreement allows for income tax distributions to the limited partners in an amount necessary to cover their taxes. Additional cash distributions may be made if there is no event of default, at least 20% availability on the revolver and net funded debt to EBITDA is below 3.0x. Additionally, all transactions with affiliates must be done on fair and reasonable terms as would be accepted in a comparable arm's length transaction.

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;

Announced Diamondback merger closes in 4Q24;

Continued standalone production growth in 2024 with growth-linked spending thereafter;

Standalone discretionary distributions of $50 million per annum.


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 and favorable treatment of Endeavor debt.

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

Continued operational momentum and proved developed, producing reserve growth that leads to through-the-cycle production sustained above 300 mboepd;

Maintenance of midcycle EBITDA leverage below 2.0x;

Steps taken to further moderate corporate governance-related risks.

Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade

Material deviation from management's target leverage, resulting in midcycle EBITDA leverage sustained over 2.5x;

Pursuit of a growth-oriented capital deployment strategy in a manner that results in a substantially weaker liquidity position or leverage exceeding the above threshold;

Material deviation from financial policies that heightens governance risks and could negatively affect the credit profile.

Liquidity and Debt Structure

Robust Liquidity: Endeavor's liquidity profile is robust and consists of cash and cash equivalents of nearly $2.1 billion and full availability under its committed $1.5 billion RBL facility ($5.0 billion borrowing base) as of Sept. 30, 2023. The company's standalone maturity profile remains clear until Endeavor's remaining $907 million of senior unsecured notes mature in 2028.

Issuer Profile

Endeavor Energy Resources, L.P. is a privately-owned exploration & production (E&P) company focused on liquids-weighted production in the Midland basin, a sub-basin of the Permian in West Texas.


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

ESG Considerations

Endeavor has an ESG Relevance Score of '4' for Governance Structure as the company's founder, Autry C. Stephens, controls the managing member of Endeavor's parent holding company. He and his family trusts also own the majority of the membership interests of the parent holding company. Additionally, the company does not have an independent board of directors and Mr. Stephens has the power to select all seven board members. Issues related to Governance Structure have a negative impact on the company's credit profile and are relevant to the rating in conjunction with other factors.

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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