Chris Mathews | Hart Energy, via Yahoo Finance | Diamondback Energy will drop down billions of dollars in mineral and royalty interests to its subsidiary Viper Energy.
The transaction will accelerate Diamondback’s debt reduction and boost its exposure to Viper’s “differentiated growth profile and market-leading minerals position,” Diamondback Chairman and CEO Travis Stice said Jan. 30.
Diamondback will exchange certain mineral and royalty interests for $1 billion in cash and approximately 69.6 million units of Viper’s operating subsidiary.
Based on the $49.55 per share 30-trading day average sales price of Viper’s common stock, the drop-down transaction is valued at $4.45 billion.
Viper plans to fund the cash portion of the deal through cash on hand, borrowings under its credit facility and proceeds from one or more capital markets transactions.
“This [drop-down] transaction with Viper is a major milestone in the continued synergy capture and execution of corporate development objectives related to the Endeavor transaction,” Stice said.
Diamondback is working to deleverage after a massive $26 billion acquisition of private Midland Basin producer Endeavor Energy Resources. The Endeavor acquisition closed in September.
The company is expected to end 2025 with around $8.8 billion in net debt, or a 0.8x leverage ratio.
Diamondback management was clear in messaging its aim to execute the drop-down transaction early in 2025.
KeyBanc analysts said a flattish price for Viper shares and a fourth-quarter 2024 pullback in Diamondback shares may have been an impetus for the transaction.
Viper’s last deal was a $915 million acquisition of Midland Basin mineral and royalty interests from Tumbleweed Royalty IV LLC. Tumbleweed was founded in 2014 by Cody Campbell and John Sellers, the co-executives behind Permian E&P Double Eagle Energy.
RBC Capital Markets is serving as financial adviser and Kirkland & Ellis LLP is acting as legal adviser to Diamondback for the drop-down deal.
Evercore is serving as financial adviser to the audit committee of Viper’s board of directors. Hunton Andrews Kurth LLP is acting as legal adviser to Viper’s audit committee.
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