Diamondback (FANG) Declares Strategic Sale of WTG Midstream

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Diamondback Energy, Inc. FANG has declared the sale of WTG Midstream Holdings LLC to Energy Transfer LP ET. This strategic move will yield a total pre-tax consideration of approximately $375 million for Diamondback. The transaction will consist of a mix of cash and ET common units. The deal will be finalized in the third quarter of 2024.

Significance of the Sale

Financial Impact: This sale represents a significant financial milestone for FANG. Through its subsidiary, Rattler Midstream LP, FANG has owned a 25% stake in Remuda Midstream Holdings LLC (WTG Midstream) since October 2021. The sale of WTG Midstream Holdings LLC represents an approximate 3.5x on invested capital for FANG.

Debt Reduction Strategy: Proceeds from this transaction will be strategically used to reduce debt associated with the pending Endeavor Energy Resources, L.P. merger. This approach highlights FANG's commitment to financial stability and prudent debt management.

Strategic Partnership and Operational Transition

Expanding Relationships: Travis Stice, chairman and chief executive officer of Diamondback, emphasized that the partnership has generated an outsized economic return and highlighted the continued support WTG’s gas gathering and processing system provides to Diamondback’s substantial activity on its dedicated acreage.

Operational Synergies: The sale will enable Diamondback to leverage operational synergies with Energy Transfer, facilitating a seamless transition that supports ongoing gas gathering and processing activities on FANG’s dedicated acreage. This continuity is crucial for maintaining Diamondback's substantial operational footprint and ensuring sustained productivity.

Market Context and Future Prospects

Industry Dynamics: The midstream sector, encompassing the gathering, processing and transportation of oil and gas, remains a critical component of the energy value chain. The strategic sale of WTG Midstream Holdings LLC aligns with broader industry trends as companies are optimizing portfolios, focusing on core assets and strengthening financial positions through strategic divestitures and mergers.

Competitive Positioning: By divesting a significant midstream asset, FANG looks to enhance its competitive positioning within the industry. The proceeds will not only reduce debt but also potentially fund growth initiatives and operational expansions. This proactive financial strategy positions FANG favorably in a competitive and evolving market landscape.

Detailed Analysis of Transaction Components

Cash and Equity Consideration: The transaction involves a mix of cash and ET common units. This hybrid consideration structure provides Diamondback with immediate liquidity while maintaining an equity interest in Energy Transfer, potentially benefiting from future appreciation and dividend income from ET common units.