(Reuters) - U.S. oil and gas producer Diamondback Energy Inc (O:FANG) on Tuesday agreed to buy shale rival Energen Corp (N:EGN) in an all-stock deal valued at $9.2 billion, giving it an expanded footprint in the country's largest and fastest growing oil field.
Energen had been under pressure from activist investor Corvex Management for more than a year to sell itself to address weak returns. The proposed acquisition is Diamondback's second in the Permian in a week, after striking a deal to pay $1.2 billion for Ajax Resources LLC.
West Texas shale producers also are facing pressure to expand scale and efficiency in the Permian basin as higher costs for services, and the need to secure limited pipeline transport out of the region, weigh on smaller and midsize companies.
The deal values Energen's properties at about $65,000 per acre (0.4 hectare), among the highest prices in the Permian in the last several years, said Andrew Dittmar, an M&A analyst at data provider DrillingInfo.
Concho Resources Inc earlier this year paid $8 billion in stock, or more than $70,000 per acre, for West Texas shale rival RSP Permian.
The purchase brings together two companies with holdings in the same areas of the Permian, said Dittmar, potentially allowing for longer horizontal wells, shared labour and equipment.
For independent oil producers like Diamondback, adding new drilling prospects represents the best way to compete for services with larger rivals that have moved into the Permian this year despite pressure by investors to focus on shareholder returns.
Shale producers including Apache Corp (N:APA), ConocoPhillips (N:COP), Parsley Energy (N:PEN) and Pioneer Natural Resources (N:PXD) recently have increased their 2018 capital budgets as oil prices have held above $65 a barrel.
Exxon Mobil Corp (N:XOM), BP PLC (L:BP) and other large oil companies that missed out on in the early years of the shale boom are also boosting shale investments, using historical alliances to secure a larger role with oilfield service and pipeline companies in the Permian.
Last month, BP agreed to pay $10.5 billion, its largest purchase in nearly two decades, to acquire assets in three shale basins from Australian mining company BHP Billiton (LON:BLT). That deal also was spurred by hedge fund Elliott Management.
Corvex and activist Carl Icahn, who last week disclosed he had acquired more stock in Energen, were not available for immediate comment.
Diamondback's implied offer of $84.95 per Energen share represents a premium of about 16 percent to Energen's Tuesday close. The transaction includes $830 million in net debt.
Energen shares rose 9.3 percent to $79.90 in after-market trading, while Diamondback shares fell 5.5 percent to $126.40.
Citigroup (NYSE:C) Global Markets Inc is the financial adviser to Diamondback, while J.P. Morgan Securities LLC and Tudor, Pickering, Holt & Co are financial advisers to Energen.