Why Diamondback Energy shares fell more than 11% in September

Actions of Diamondback Energy (FANG 3.87%) fell 11.6% in September, according to data provided by S&P Global Market Intelligence. Low crude oil prices weighed on the oil company’s share price last month. That offset some positive news for the oil producer.

Down despite some positive catalysts

Crude oil prices continued to fall last month. West Texas Intermediate (WTI), the main benchmark for US oil prices, fell 7.3% on the month, closing at just over $68 a barrel. WTI has now lost 16.4% over the past quarter. Weighing on oil are growing expectations that supplies will rise OPEC members may increase their production in December. This would occur amid demand concerns about a potential global economic slowdown. Low oil prices will impact the cash flows of oil companies such as Diamondback Energy, which has affected oil stock prices last month.

Low oil prices overshadowed some positive strategic developments for the oil company last month. The biggest was the completion of its $26 billion merger with Endeavor Energy Resources. The transaction will make Diamondback bigger and better. It improves its position of premiere in the Permian Basin. The highly profitable business should grow its free cash flow per share by about 10% next year.

Diamondback primarily financed the deal with stock (it paid $8 billion in cash and issued 117.3 million shares to the sellers). Those new investors sold some of their shares (nearly 12.8 million) shortly after the deal closed in September in a secondary offering, of which Diamondback repurchased 2 million directly. Equity selling also put downward pressure on the stock price last month.

The Endeavor deal wasn’t the only transformational deal the company completed last month. diamondback, Kinetic Holdingsand Epic Midstream announced a number of deals for Epic Crude. Diamondback and Kinetic bought an additional 30% stake in Epic Crude and now own 27.5% each. In addition, Diamondback increased its committed volumes following the Endeavor merger, which made it the third largest producer in the Permian. The deal increases the company’s capacity to transport crude oil from the region.

Getting stronger

The past month has been a transformative time for Diamondback Energy. It completed its merger with Endeavor Energy Resources and strengthened its mid-market position. These deals will increase its scale and reduce its costs, putting it in a better position to weather lower oil prices in the future. Because of this, the oil-driven decline in stocks looks like a potentially attractive buying opportunity for investors looking for a top play in the oil space.