The consolidation of the US oil market continues and the cards are being reshuffled: Diamondback Energy confirmed on Monday that it has agreed to a merger with Endeavour Energy Resources, the largest private oil and gas producer in the Permian Basin. The deal, valued at approximately $26 billion including debt, will be completed through a cash and stock transaction.

Investors seem to be pleased with the transaction: Diamondback Energy’s stock saw a sharp increase of over 9% immediately after the announcement. The merger is significant as it creates the largest exploration company focused solely on the most active oil field in the Western Hemisphere.

Consolidation gaining momentum In the past twelve months, consolidation in the US oil sector has progressed massively. For example, Exxon acquired Pioneer Resources for $60 billion. Chevron wants to acquire Hess for $53 billion. Additionally, Occidental Petroleum has reached an agreement to purchase CrownRock for nearly $11 billion.

With this announced merger, the value of shale oil company takeovers reaches approximately $150 billion. More and more oil managers are striving to fill their portfolios with future drilling locations to secure cash flow. The effects will be felt far beyond the Permian Basin in West Texas and New Mexico, where rapid production growth is challenging the efforts of the OPEC+ alliance to curb global crude oil supply and support prices.

Largest oil company in the Permian Basin The acquisition of Endeavour is a major success for Diamondback. Endeavour was able to secure one of the most valuable areas in the Permian long before the shale boom and is one of the few acquisition targets that will enhance the quality of Diamondback’s portfolio, according to industry expert Andrew Dittmar of Enverus Intelligence Research.

Together with Endeavour, oil production in the Permian Basin will now be even more efficient. Through synergies, the two oil companies expect annual savings of $550 million. Together, they have rights to 838,000 hectares of land and can produce 816,000 barrels of oil equivalent per day. This makes them collectively larger than rivals Marathon Oil Corp. and Devon Energy Corp.

Background: The Permian Basin is the cornerstone of US oil production growth. The country’s production reached a record high last year, surpassing Saudi Arabia by about 45%. This is mainly due to the wells in the Permian Basin, which can be drilled and fracked cheaper and faster than in many other regions.

Deal with cash and stock Diamondback will finance the acquisition with 117.3 million shares and $8 billion in cash. After the transaction is completed, Diamondback shareholders will own 60.5% of the company. Endeavour will be valued at approximately $25 billion, while Diamondback’s market capitalization will be $27.2 billion. With their stock and cash based offer, Diamondback is said to have prevailed against larger competitors such as ConocoPhillips.

Meanwhile, Diamondback has secured a bridge financing of $8 billion from Citigroup. The agreement with Endeavour includes a termination fee of $1.4 billion, according to the documents. Once the sale is completed, Diamondback plans to issue bonds worth $5 to $6 billion.