ENDEAVOR ENERGY RESOURCES, LP ACQUISITION

12 Months Ended

Dec. 31, 2024

Business Combination, Asset Acquisition, and Joint Venture Formation [Abstract]

ENDEAVOR ENERGY RESOURCES, LP ACQUISITION

ENDEAVOR ENERGY RESOURCES, LP ACQUISITION

On September 10, 2024, the Company completed its acquisition of Endeavor Parent, LLC (“Endeavor”) (the “Endeavor Acquisition”) for consideration consisting of (i) $7.1 billion in cash paid to the Endeavor equityholders, (ii) $238 million for the repayment of Endeavor’s net debt, which included the $219 million net debt position and the associated $19 million make-whole premium paid upon redemption of the senior notes and costs incurred to terminate Endeavor’s revolving credit facility, and (iii) approximately 117.27 million shares of the Company’s common stock. The Endeavor Acquisition included approximately 500,849 gross (361,927 net) acres, which are primarily located in the Permian Basin. Following the

Endeavor Acquisition, the Company believes its inventory has industry-leading depth and quality that will be converted into cash flow with the industry’s lowest cost structure, creating a differentiated value proposition for Diamondback stockholders.

The cash consideration for the Endeavor Acquisition was funded through a combination of cash on hand, the net proceeds from the Company’s April 2024 Notes offering and borrowings under the Tranche A Loans (as defined and discussed in Note 9—Debt). Immediately following the close of the Endeavor Acquisition, Endeavor equityholders held approximately 39.8% of Diamondback’s common stock. As of December 31, 2024, Endeavor’s equityholders held approximately 36% of the Company’s common stock.

Following the closing of the Endeavor Acquisition, the Company filed with the SEC a shelf registration statement, which became immediately effective upon filing, registering for resale the shares of common stock issued in the Endeavor Acquisition, as required by the terms of the related registration rights agreement.

The following table presents the acquisition consideration paid to Endeavor equityholders in the Endeavor Acquisition (in millions, except per share data, shares in thousands):

Consideration:
Shares of Diamondback common stock issued at closing	117,267
Closing price per share of Diamondback common stock on the closing date	$	171.49
Fair value of Diamondback common stock issued	$	20,110
Base cash amount	$	8,000
Preliminary closing adjustments	(928)
Cash consideration to Endeavor equityholders	7,072
Cash payment of net debt position and make-whole amount	238
Total cash consideration	7,310
Total consideration (including fair value of Diamondback common stock issued)	$	27,420

Purchase Price Allocation

The Endeavor Acquisition has been accounted for under the acquisition method of accounting for business combinations in accordance with ASC Topic 805, “Business Combinations.” The following table represents the preliminary allocation of the total purchase price for the acquisition of Endeavor to the identifiable assets acquired and the liabilities assumed based on the fair values at the acquisition date. Although the purchase price allocation is substantially complete as of the date of this filing, certain data necessary to complete the purchase price allocation is not yet available, including, but not limited to, final tax returns that provide the underlying tax basis of Endeavor’s assets and liabilities. As such, there may be further adjustments to the fair value of certain assets acquired and liabilities assumed, including Endeavor’s deferred tax liability, oil and natural gas properties, which include mineral and royalty interests acquired, and other property and equipment. The Company expects to complete the purchase price allocation during the 12-month period following the acquisition date.

The following table sets forth the Company’s preliminary purchase price allocation (in millions):

Total consideration	$	27,420
Fair value of liabilities assumed:
Accounts payable - trade	$	18
Accrued capital expenditures	173
Other accrued liabilities	613
Revenues and royalties payable	567
Derivative instruments	5
Income taxes payable	261
Other current liabilities	21
Asset retirement obligations	259
Deferred income taxes	7,211
Other long-term liabilities	5
Amount attributable to liabilities acquired	$	9,133
Fair value of assets acquired:
Accounts receivable - joint interest and other, net	$	69
Accounts receivable - oil and natural gas sales, net	659
Inventories	77
Derivative instruments	25
Prepaid expenses and other current assets	20
Oil and natural gas properties	34,824
Other property, equipment and land	849
Other assets	30
Amount attributable to assets acquired	36,553
Net assets acquired and liabilities assumed	$	27,420

The purchase price allocation above is based on the fair values of the assets and liabilities of Endeavor as of the closing date of the Endeavor Acquisition. The majority of the value of assets acquired and liabilities assumed was measured based on inputs that are not observable in the market and are therefore considered Level 3 inputs. The fair value of acquired property and equipment is based on the cost approach, which utilized asset listings and cost records with consideration for the reported age, condition, utilization and economic support of the assets. Oil and natural gas properties were valued using an income approach utilizing the discounted cash flow method, which takes into account production and mineral interest forecasts, projected commodity prices and pricing differentials, and estimates of future capital and operating costs which were then discounted utilizing an estimated weighted-average cost of capital for industry market participants. The value of derivative instruments was based on observable inputs including forward commodity-price curves which are considered Level 2 inputs. Deferred income taxes represent the tax effects of differences in the tax basis and acquisition-date fair values of assets acquired and liabilities assumed. The fair values of asset retirement obligations and inventories were calculated in accordance with the Company’s internal policies as described in Note 2—Summary of Significant Accounting Policies. The fair values of various current assets and liabilities including accounts receivable and accounts payable approximate their carrying values on the closing date of the Endeavor Acquisition because of the short-term nature of the instruments.

With the completion of the Endeavor Acquisition, the Company acquired proved properties of $20.6 billion and unproved properties of $14.2 billion, primarily in the Midland Basin.

The results of operations attributable to the Endeavor Acquisition since the acquisition date have been included in the consolidated statements of operations and include $1.8 billion of total revenue and $459 million of net income for the year ended December 31, 2024.

Pro Forma Financial Information (Unaudited)

The following unaudited summary pro forma financial information for the year ended December 31, 2024, 2023 and 2022 has been prepared to give effect to (i) the Endeavor Acquisition as if it had occurred on January 1, 2023, (ii) the TRP Exchange as if it had occurred on January 1, 2023, (iii) the Lario Acquisition as if it had occurred on January 1, 2022, and (iv) the FireBird Acquisition as if it had occurred on January 1, 2021. The unaudited pro forma financial information does not purport to be indicative of what the combined company’s results of operations would have been if the transaction had occurred on the dates indicated, nor is it indicative of the future financial position or results of operations of the combined company.

The below information reflects pro forma adjustments for the issuance of the Company’s common stock as consideration for the Endeavor Acquisition, the Lario Acquisition and the Firebird Acquisition as well as pro forma adjustments based on available information and certain assumptions that the Company believes are reasonable, including adjustments to depreciation, depletion and amortization based on the full cost method of accounting.

Additionally, pro forma earnings for the year ended December 31, 2024 include historical acquisition-related costs incurred by Endeavor of $415 million, which consist primarily of incentive compensation, investment banking and legal costs. The Company incurred acquisition related costs of $303 million for the year ended December 31, 2024 which consist primarily of $197 million in severance and accelerated incentive compensation payments to former Endeavor employees, $78 million in investment banking and legal costs incurred upon the closing of the Endeavor Acquisition, $14 million related to regulatory reviews under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and other individually insignificant items including SEC filing fees and other professional fees. The pro forma results of operations do not include any cost savings or other synergies that may result from the Endeavor Acquisition or any estimated costs that have been or will be incurred by the Company to integrate the acquired assets. The pro forma financial data does not include the results of operations for any other acquisitions made during the periods presented, as they were primarily acreage acquisitions, and their results were not deemed material.

	Year Ended December 31,
	2024		2023		2022
	(In millions, except per share amounts)
Revenues	$	15,706	$	14,618	$	10,542
Income (loss) from operations	$	6,448	$	7,787	$	7,071
Net income (loss) attributable to Diamondback Energy, Inc.	$	3,315	$	5,668	$	4,834
Basic earnings (loss) per common share	$	11.19	$	18.95	$	25.74
Diluted earnings (loss) per common share	$	11.19	$	18.95	$	25.74