US Oil Industry M&A Wave... A 70 Trillion Won 'Giant' Emerges from Shale Oil

U.S. oil companies are expanding their size through large-scale mergers and acquisitions.

The Wall Street Journal (WSJ) reported on the 12th (local time) that U.S. shale company Diamondback Energy is acquiring competitor oil drilling company Endeavor Energy Resources in a merger and acquisition (M&A) deal worth $26 billion (approximately 34.6 trillion KRW).

Endeavor Energy is known as the company that secured the largest drilling area in the Permian Basin, a major oil-producing region in Texas, USA. After the merger, Diamondback Energy is expected to produce about 816,000 barrels of oil and gas per day.

Oil drilling rig in the Permian Basin, Texas, USA
Photo by Yonhap News Agency

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The reason oil companies with outstanding performance in recent years are expanding their size like this is interpreted as a response to government regulations on fossil fuels. The cost of oil drilling decreases as the drilling area expands, and by growing through large-scale mergers and acquisitions, they aim to prepare for cost increases caused by government regulations.

Experts analyze that Diamondback Energy could reduce the oil drilling cost to below $40 per barrel. Considering that West Texas Intermediate (WTI) is trading around $76 per barrel, it is expected that even if oil prices fluctuate sharply, Diamondback Energy will have no difficulty generating the profits necessary to sustain its business.

Travis Stice, CEO of Diamondback Energy, said, "Powerful industry leaders have come together to create a strong oil company," adding, "Our short-term goal is to quickly reduce net debt below $10 billion to strengthen the balance sheet and ensure the best credit rating in the industry."

Upon completion of the merger, Diamondback Energy's market capitalization will reach $53 billion (approximately 70.6 trillion KRW), making it the third largest in the U.S. after ExxonMobil and Chevron.

This acquisition comes amid a recent rally of U.S. oil companies acquiring oil drilling firms. Last year, ExxonMobil acquired oil driller Pioneer Natural Resources for $60 billion (approximately 78 trillion KRW), and Chevron also signed a $53 billion acquisition deal for oil exploration company Hess Corporation.

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