424B3
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Filed pursuant to Rule 424(b)(3)
Registration Number 333-227328

 

 

LOGO    LOGO

JOINT LETTER TO STOCKHOLDERS OF DIAMONDBACK ENERGY, INC.

AND SHAREHOLDERS OF ENERGEN CORPORATION

Dear Security Holders:

Diamondback Energy, Inc., or Diamondback, and Energen Corporation, or Energen, have entered into a merger agreement (which, as it may be amended from time to time, we refer to as the “merger agreement”) providing for the acquisition of Energen by Diamondback pursuant to a merger between a wholly owned subsidiary of Diamondback and Energen (which we refer to as the “merger”). Diamondback stockholders as of the close of business on October 19, 2018, the Diamondback record date, are invited to attend a special meeting of Diamondback stockholders on November 27, 2018, at 11:00 a.m., Central Time, to consider and vote upon a proposal to approve the issuance of shares of Diamondback common stock in connection with the merger. Energen shareholders as of the close of business on October 19, 2018, the Energen record date, are invited to attend a special meeting of Energen shareholders on November 27, 2018, at 9:30 a.m., Central Time, to consider and vote upon a proposal to approve the merger agreement and a non-binding advisory proposal to approve certain compensation that may be paid or become payable to Energen’s named executive officers that is based on or otherwise relates to the merger.

For Energen shareholders, if the merger is completed, you will be entitled to receive, for each issued and outstanding share of Energen common stock owned by you immediately prior to the effective time of the merger, 0.6442 of a share of Diamondback common stock, with cash in lieu of any fractional shares (which we refer to as the “merger consideration”), with certain exceptions as further described in the joint proxy statement/prospectus accompanying this notice. The market value of the merger consideration will fluctuate with the price of Diamondback common stock. Based on the closing price of Diamondback common stock on August 13, 2018, the last trading day before the public announcement of the signing of the merger agreement, the value of the per share merger consideration payable to holders of Energen common stock upon completion of the merger was approximately $84.95. Based on the closing price of Diamondback common stock on October 23, 2018, the last practicable date before the date of the joint proxy statement/prospectus accompanying this notice, the value of the merger consideration payable to holders of Energen common stock upon completion of the merger was approximately $7.6 billion. We urge you to obtain current stock price quotations for Diamondback common stock and Energen common stock. Diamondback common stock is traded on The Nasdaq Global Select Market under the symbol “FANG” and Energen common stock is traded on the New York Stock Exchange under the symbol “EGN.”

The Diamondback board of directors has determined that the merger agreement and the transactions contemplated by the merger agreement, including the issuance of shares of Diamondback common stock in connection with the merger, are fair to, and in the best interests of, Diamondback and its stockholders, unanimously approved and declared advisable the merger agreement and the transactions contemplated by the merger agreement, including the issuance of shares of Diamondback common stock in connection with the merger and unanimously recommends that Diamondback stockholders vote “FOR” the issuance of shares of Diamondback common stock in connection with the merger.

The Energen board of directors has determined that the merger agreement and the transactions contemplated thereby, including the merger, are fair to, and in the best interests of, Energen and the Energen shareholders, adopted and approved the merger agreement and the transactions contemplated thereby, including the merger, directed that the merger agreement be submitted to the Energen shareholders for approval and recommended that the Energen shareholders approve the merger agreement and the transactions contemplated thereby, including the merger. The Energen board


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unanimously recommends that Energen shareholders vote “FOR” the merger proposal and “FOR” the non-binding compensation advisory proposal.

Diamondback and Energen will each hold a special meeting of their respective stockholders and shareholders to consider certain matters relating to the merger. Diamondback and Energen cannot complete the merger unless, among other things, Diamondback stockholders approve the issuance of shares of Diamondback common stock in connection with the merger and Energen shareholders approve the merger agreement.

Your vote is very important. To ensure your representation at your company’s special meeting, complete and return the applicable enclosed proxy card or submit your proxy by phone or the Internet. Please vote promptly whether or not you expect to attend your company’s special meeting. Submitting a proxy now will not prevent you from being able to vote in person at your company’s special meeting.

The joint proxy statement/prospectus accompanying this notice is also being delivered to Energen shareholders as Diamondback’s prospectus for its offering of shares of Diamondback common stock to Energen shareholders in connection with the merger.

The obligations of Diamondback and Energen to complete the merger are subject to the satisfaction or waiver of the conditions set forth in the merger agreement, a copy of which is included as part of the accompanying joint proxy statement/prospectus. The joint proxy statement/prospectus provides you with detailed information about the merger. It also contains or incorporates by references information about Diamondback and Energen and certain related matters. You are encouraged to read the joint proxy statement/prospectus carefully and in its entirety. In particular, you should carefully read the section entitled “Risk Factors” beginning on page 43 of the joint proxy statement/prospectus for a discussion of risks you should consider in evaluating the merger and the issuance of shares of Diamondback common stock in connection with the merger and how they will affect you.

 

Sincerely,

 

LOGO

    

Sincerely,

 

LOGO

Travis D. Stice

Chief Executive Officer

Diamondback Energy, Inc.

    

James T. McManus, II

Chairman, Chief Executive Officer and President

Energen Corporation

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of the securities to be issued under the accompanying joint proxy statement/prospectus or passed upon the adequacy or accuracy of the disclosure in this document. Any representation to the contrary is a criminal offense.

The joint proxy statement/prospectus is dated October 24, 2018 and is first being mailed to stockholders of Diamondback and shareholders of Energen on or about October 26, 2018.


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LOGO

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

TO BE HELD ON NOVEMBER 27, 2018

AT 1200 NORTH WALKER AVENUE, OKLAHOMA CITY, OKLAHOMA 73103

NOTICE IS HEREBY GIVEN that a special meeting of stockholders of Diamondback Energy, Inc. will be held on November 27, 2018, at 11:00 a.m., Central Time, at 1200 North Walker Avenue, Oklahoma City, Oklahoma 73103, to consider and vote on the following proposal:

 

   

to approve the issuance of shares of Diamondback common stock (which we refer to as the “Diamondback issuance proposal”) in connection with the merger between a wholly owned subsidiary of Diamondback and Energen Corporation, or Energen, as contemplated by the Agreement and Plan of Merger, dated August 14, 2018 by and among Diamondback, Sidewinder Merger Sub Inc., a wholly owned subsidiary of Diamondback, and Energen (which, as it may be amended from time to time, we refer to as the “merger agreement”).

Diamondback stockholder approval of the Diamondback issuance proposal is required to complete the merger. Diamondback will transact no other business at the Diamondback special meeting. The record date for the Diamondback special meeting has been set as October 19, 2018. Only Diamondback stockholders of record as of the close of business on such record date are entitled to notice of, and to vote at, the Diamondback special meeting or any adjournments and postponements of the Diamondback special meeting. For additional information regarding the Diamondback special meeting, see the section entitled “Special Meeting of Diamondback Stockholders” beginning on page 58 of the joint proxy statement/prospectus accompanying this notice.

The Diamondback board of directors unanimously recommends that you vote “FOR” the Diamondback issuance proposal.

The Diamondback issuance proposal is described in more detail in the accompanying joint proxy statement/prospectus, which you should read carefully and in its entirety before you vote. A copy of the merger agreement is attached as Annex A to the accompanying joint proxy statement/prospectus.

PLEASE VOTE AS PROMPTLY AS POSSIBLE, WHETHER OR NOT YOU PLAN TO ATTEND THE DIAMONDBACK SPECIAL MEETING. IF YOU LATER DESIRE TO REVOKE OR CHANGE YOUR PROXY FOR ANY REASON, YOU MAY DO SO IN THE MANNER DESCRIBED IN THE ACCOMPANYING JOINT PROXY STATEMENT/PROSPECTUS. FOR FURTHER INFORMATION CONCERNING THE PROPOSAL BEING VOTED UPON, USE OF THE PROXY AND OTHER RELATED MATTERS, YOU ARE URGED TO READ THE ACCOMPANYING JOINT PROXY STATEMENT/PROSPECTUS.

 

Your vote is very important. Approval of the Diamondback issuance proposal by the Diamondback stockholders require the affirmative vote of a majority of votes cast by Diamondback stockholders present in person or by proxy at the Diamondback special meeting and entitled to vote on such proposal. Approval of the Diamondback issuance proposal is a condition to the merger. Diamondback stockholders are requested to complete, date, sign and return the enclosed proxy in the envelope provided, which requires no postage if mailed in the United States, or to submit their votes by phone or the Internet. Simply follow the instructions provided on the enclosed proxy card. Abstentions, failure to submit a proxy or vote in person at the Diamondback special meeting and broker non-votes will not be counted as votes cast “FOR” or “AGAINST” the Diamondback issuance proposal and will have no effect on the proposal.

 

BY ORDER OF THE BOARD OF DIRECTORS,

LOGO

Steven E. West
Chairman of the Board

Diamondback Energy, Inc.

October 24, 2018


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LOGO

NOTICE OF THE SPECIAL MEETING OF SHAREHOLDERS

TO BE HELD ON NOVEMBER 27, 2018

AT 605 RICHARD ARRINGTON JR. BOULEVARD NORTH, BIRMINGHAM, ALABAMA 35203-2707

NOTICE IS HEREBY GIVEN that a special meeting of shareholders of Energen Corporation, or Energen, will be held on November 27, 2018, at 9:30 a.m., Central Time, at 605 Richard Arrington Jr. Boulevard North, Birmingham, Alabama 35203-2707, to consider and vote on the following proposals:

 

   

to approve the Agreement and Plan of Merger, dated August 14, 2018 (which, as it may be amended from time to time, we refer to as the “merger agreement”), by and among Diamondback Energy, Inc., or Diamondback, Sidewinder Merger Sub Inc., a wholly owned subsidiary of Diamondback, and Energen (the “merger proposal”); and

 

   

to approve, by a non-binding advisory vote, certain compensation that may be paid or become payable to Energen’s named executive officers that is based on or otherwise relates to the merger contemplated by the merger agreement (the “non-binding compensation advisory proposal”).

Energen shareholder approval of the merger proposal is required to complete the merger between a wholly owned subsidiary of Diamondback and Energen, as contemplated by the merger agreement. Energen shareholders will also be asked to approve the non-binding compensation advisory proposal, which is not a condition to the merger. Energen does not intend to transact any other business at the Energen special meeting. The record date for the Energen special meeting has been set as October 19, 2018. Only Energen shareholders of record as of the close of business on such record date are entitled to notice of, and to vote at, the Energen special meeting or any adjournments and postponements of the Energen special meeting. For additional information regarding the Energen special meeting, see the section entitled “Special Meeting of Energen Shareholders” beginning on page 64 of the joint proxy statement/prospectus accompanying this notice.

The Energen board of directors unanimously recommends that holders of Energen common stock vote “FOR” the merger proposal and “FOR” the non-binding compensation advisory proposal.

The Energen shareholder proposals are described in more detail in the accompanying joint proxy statement/prospectus, which you should read carefully and in its entirety before you vote. A copy of the merger agreement is attached as Annex A to the accompanying joint proxy statement/prospectus.

PLEASE VOTE AS PROMPTLY AS POSSIBLE, WHETHER OR NOT YOU PLAN TO ATTEND THE ENERGEN SPECIAL MEETING. IF YOU LATER DESIRE TO REVOKE OR CHANGE YOUR PROXY FOR ANY REASON, YOU MAY DO SO IN THE MANNER DESCRIBED IN THE ACCOMPANYING JOINT PROXY STATEMENT/PROSPECTUS. FOR FURTHER INFORMATION CONCERNING THE PROPOSALS BEING VOTED UPON, USE OF THE PROXY AND OTHER RELATED MATTERS, YOU ARE URGED TO READ THE ACCOMPANYING JOINT PROXY STATEMENT/PROSPECTUS.

 

Your vote is very important. Approval of the merger proposal by the Energen shareholders is a condition to the merger and requires the affirmative vote of two-thirds of the outstanding shares of Energen common stock entitled to vote on the proposal. Approval of the non-binding compensation advisory proposal requires the affirmative vote of a majority of the shares of Energen common stock present in person or represented by proxy at the special meeting and entitled to vote on the proposal. Energen shareholders are requested to complete, date, sign and return the enclosed proxy in the envelope provided, which requires no postage if mailed in the United States, or to submit their votes by phone or the Internet. Simply follow the instructions provided on the enclosed proxy card. Abstentions or failure to submit a proxy or vote in person at the Energen special meeting will have the same effect as a vote “AGAINST” the merger proposal and the non-binding compensation advisory proposal. Broker non-votes will have the same effect as a vote “AGAINST” the merger proposal and will have no effect on the non-binding compensation advisory proposal.

 

LOGO

John K. Molen

Secretary

Energen Corporation

October 24, 2018


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REFERENCES TO ADDITIONAL INFORMATION

This joint proxy statement/prospectus incorporates by reference important business and financial information about Diamondback Energy, Inc. (which we refer to as “Diamondback”) and Energen Corporation (which we refer to as “Energen”) from other documents that are not included in or delivered with this joint proxy statement/prospectus, including documents that Diamondback and Energen have filed with the U.S. Securities and Exchange Commission (which we refer to as the “SEC”). For a listing of documents incorporated by reference herein, see the sections entitled “Where You Can Find More Information” and “Information Incorporated by Reference,” each beginning on page 197. This information is available for you to review free of charge at the public reference room of the SEC located at 100 F Street, N.E., Washington, DC 20549, and through the SEC’s website at www.sec.gov.

You may request copies of this joint proxy statement/prospectus and any of the documents incorporated by reference herein or other information concerning Diamondback or Energen, without charge, upon written or oral request to the applicable company’s principal executive offices. The respective addresses and phone numbers of such principal offices are listed below.

 

For Diamondback Stockholders:    For Energen Shareholders:

Diamondback Energy, Inc.

9400 N. Broadway, Suite 700
Oklahoma City, Oklahoma 73114
Attention: Corporate Secretary
Telephone: (405) 463-6900

  

Energen Corporation.

605 Richard Arrington Jr. Boulevard North

Birmingham, Alabama 35203

Attention: Corporate Secretary

Telephone: (205) 326-2700

To obtain timely delivery of these documents before the Diamondback special meeting, Diamondback stockholders must request the information no later than November 19, 2018 (which is five business days before the date of the Diamondback special meeting).

To obtain timely delivery of these documents before the Energen special meeting, Energen shareholders must request the information no later than November 19, 2018 (which is five business days before the date of the Energen special meeting).

In addition, if you have questions about the merger or this joint proxy statement/prospectus, would like additional copies of this joint proxy statement/prospectus or need to obtain proxy cards or other information related to the proxy solicitation, contact MacKenzie Partners, Inc., the proxy solicitor for Diamondback, toll-free at (800) 322-2885 or, for brokers and banks, collect at (212) 929-5500, or Innisfree M&A Incorporated, the proxy solicitor for Energen, toll-free at (877) 456-3524 (from the U.S. and Canada) or (412) 232-3651 (from other locations). You will not be charged for any of these documents that you request.


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ABOUT THIS JOINT PROXY STATEMENT/PROSPECTUS

This document, which forms part of a registration statement on Form S-4 filed with the SEC by Diamondback (File No. 333-227328), constitutes a prospectus of Diamondback under Section 5 of the Securities Act of 1933, as amended (which we refer to as the “Securities Act”) with respect to the shares of common stock of Diamondback, par value $0.01 per share (which we refer to as “Diamondback common stock”), to be issued to Energen shareholders pursuant to the Agreement and Plan of Merger, dated August 14, 2018 (which, as it may be amended from time to time, we refer to as the “merger agreement”), by and among Diamondback, Energen and Sidewinder Merger Sub Inc., which we refer to as “Merger Sub.”

This document also constitutes a notice of meeting and proxy statement of each of Diamondback and Energen under Section 14(a) of the Securities Exchange Act of 1934, as amended (which we refer to as the “Exchange Act”).

Diamondback has supplied all information contained or incorporated by reference herein relating to Diamondback, and Energen has supplied all information contained or incorporated by reference herein relating to Energen. Diamondback and Energen have both contributed to the information relating to the merger and the merger agreement contained in this joint proxy statement/prospectus.

You should rely only on the information contained in or incorporated by reference herein in connection with any vote, the giving or withholding of any proxy or any investment decision in connection with the merger agreement. Diamondback and Energen have not authorized anyone to provide you with information that is different from that contained in or incorporated by reference herein. This joint proxy statement/prospectus is dated October 24, 2018, and you should not assume that the information contained in this joint proxy statement/prospectus is accurate as of any date other than such date unless otherwise specifically provided herein. Further, you should not assume that the information incorporated by reference herein is accurate as of any date other than the date of the incorporated document. Neither the mailing of this joint proxy statement/prospectus to the stockholders of Diamondback and shareholders of Energen, nor the issuance by Diamondback shares of Diamondback common stock pursuant to the merger agreement, will create any implication to the contrary.

All currency amounts referenced in this joint proxy statement/prospectus are in U.S. dollars.

 


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QUESTIONS AND ANSWERS ABOUT THE MERGER AND THE SPECIAL MEETINGS

     1  

SUMMARY

     15  

SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF DIAMONDBACK

     33  

SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF ENERGEN

     36  

SUMMARY UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL DATA

     38  

SUMMARY PRO FORMA OIL, NATURAL GAS AND NGL RESERVE INFORMATION

     39  

COMPARATIVE HISTORICAL AND UNAUDITED PRO FORMA PER SHARE DATA

     40  

COMPARATIVE PER SHARE MARKET PRICE AND DIVIDEND INFORMATION

     41  

RISK FACTORS

     43  

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

     55  

INFORMATION ABOUT THE COMPANIES

     57  

SPECIAL MEETING OF DIAMONDBACK STOCKHOLDERS

     58  

DIAMONDBACK PROPOSAL

     63  

SPECIAL MEETING OF ENERGEN SHAREHOLDERS

     64  

ENERGEN PROPOSALS

     69  

THE MERGER

     71  

THE MERGER AGREEMENT

     133  

MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER

     169  

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

     172  

NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

     178  

COMPARISON OF RIGHTS OF STOCKHOLDERS OF DIAMONDBACK AND SHAREHOLDERS OF ENERGEN

     185  

VALIDITY OF COMMON STOCK

     192  

TAX OPINIONS

     193  

EXPERTS

     194  

HOUSEHOLDING OF PROXY MATERIALS

     195  

FUTURE STOCKHOLDER PROPOSALS

     196  

WHERE YOU CAN FIND MORE INFORMATION

     197  

INFORMATION INCORPORATED BY REFERENCE

     197  
ANNEX A –  

AGREEMENT AND PLAN OF MERGER, DATED AS OF AUGUST 14, 2018

     A-1  
ANNEX B –  

OPINION OF CITIGROUP GLOBAL MARKETS INC.

     B-1  
ANNEX C –  

OPINION OF J.P. MORGAN SECURITIES LLC

     C-1  
ANNEX D –  

OPINION OF TUDOR PICKERING HOLT & CO ADVISORS LP

     D-1  
ANNEX E –  

ARTICLE 13 OF ALABAMA BUSINESS AND NON PROFIT ENTITIES CODE

     E-1  


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QUESTIONS AND ANSWERS ABOUT THE MERGER AND THE SPECIAL MEETINGS

The following are answers to certain questions that you may have regarding the Diamondback and Energen special meetings. Diamondback and Energen urge you to read carefully the remainder of this document because the information in this section may not provide all the information that might be important to you in determining how to vote. Additional important information is also contained in the annexes to, and the documents incorporated by reference in, this document.

 

Q:

Why am I receiving this joint proxy statement/prospectus?

 

A.

You are receiving this joint proxy statement/prospectus because Diamondback, Energen and Merger Sub have entered into the merger agreement, pursuant to which, on the terms and subject to the conditions included in the merger agreement, Diamondback has agreed to acquire Energen by means of a merger of Merger Sub with and into Energen, with Energen surviving the merger as a wholly owned subsidiary of Diamondback (which we refer to as the “merger”) and your vote is required in connection with the merger. The merger agreement, which governs the terms of the merger, is attached to this joint proxy statement/prospectus as Annex A.

Diamondback. The issuance of shares of common stock in connection with the merger must be approved by the Diamondback stockholders in accordance with the rules of The Nasdaq Global Select Market (which we refer to as “Nasdaq”) in order for the merger to be consummated. Diamondback is holding a special meeting of its stockholders (which we refer to as the “Diamondback special meeting”) to obtain that approval. Your vote is very important. We encourage you to submit a proxy to have your shares of Diamondback common stock voted as soon as possible.

Energen. The merger agreement must be approved by the Energen shareholders in accordance with the Alabama Business and Non-Profit Entity Code (which we refer to as the “ABNEC”), its charter and bylaws in order for the merger to be consummated. Energen is holding a special meeting of its shareholders (which we refer to as the “Energen special meeting”) to obtain that approval. Energen shareholders will also be asked to vote on a non-binding advisory proposal to approve certain compensation that may be paid or become payable to Energen’s named executive officers that is based on or otherwise relates to the merger. Your vote is very important. We encourage you to submit a proxy to have your shares of Energen common stock voted as soon as possible.

 

Q:

When and where will the special meetings take place?

 

A:

Diamondback. The Diamondback special meeting will be held at 11:00 a.m., Central Time, on November 27, 2018, at 1200 North Walker Avenue, Oklahoma City, Oklahoma 73103.

Energen. The Energen special meeting will be held at 9:30 a.m., Central Time, on November 27, 2018, at 605 Richard Arrington Jr. Boulevard North, Birmingham, Alabama 35203-2707.

 

Q:

What matters will be considered at the special meetings?

 

A:

Diamondback. The Diamondback stockholders are being asked to consider and vote on a proposal to approve the issuance of shares of Diamondback common stock in connection with the merger as contemplated by the merger agreement (which we refer to as the “Diamondback issuance proposal”).

Energen. The Energen shareholders are being asked to consider and vote on:

 

   

a proposal to approve the merger agreement (which we refer to as the “merger proposal”); and

 

   

a proposal to approve, by a non-binding advisory vote, certain compensation that may be paid or become payable to Energen’s named executive officers that is based on or otherwise relates to the merger (which we refer to as the “non-binding compensation advisory proposal”).

 

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Q:

Is my vote important?

 

A:

Diamondback. Yes. Your vote is very important. The merger cannot be completed unless the Diamondback issuance proposal is approved by the affirmative vote of a majority of votes cast by Diamondback stockholders present in person or by proxy at the Diamondback special meeting and entitled to vote on the proposal. Only Diamondback stockholders as of the close of business on the Diamondback record date are entitled to vote at the Diamondback special meeting. The board of directors of Diamondback (which we refer to as the “Diamondback board” or the “Diamondback board of directors”) unanimously recommends that such Diamondback stockholders vote “FOR” the approval of the Diamondback issuance proposal.

Energen. Yes. Your vote is very important. The merger cannot be completed unless the merger proposal is approved by the affirmative vote of two-thirds of the outstanding shares of Energen common stock entitled to vote on the proposal. Only Energen shareholders as of the close of business on the Energen record date are entitled to vote at the Energen special meeting. Energen shareholders will also be asked to approve the non-binding compensation advisory proposal, which is not a condition to the merger. The board of directors of Energen (which we refer to as the “Energen board” or the “Energen board of directors”) unanimously recommends that such Energen shareholders vote “FOR” the approval of the merger proposal and “FOR” the approval of the non-binding compensation advisory proposal.

 

Q:

If my shares of Diamondback and/or Energen common stock are held in “street name” by my broker, bank or other nominee, will my broker, bank or other nominee automatically vote those shares for me?

 

A:

If your shares are held through a broker, bank or other nominee, you are considered the “beneficial holder” of the shares held for you in what is known as “street name.” The “record holder” of such shares is your broker, bank or other nominee, and not you. If this is the case, this joint proxy statement/prospectus has been forwarded to you by your broker, bank or other nominee. If you hold your shares in “street name,” you must provide your broker, bank or other nominee with instructions on how to vote your shares. Otherwise, your broker, bank or other nominee cannot vote your shares on any of the proposals to be considered at the Diamondback special meeting or the Energen special meeting, as applicable. A so called “broker non-vote” will result if your broker, bank or other nominee returns a proxy but does not provide instruction as to how shares should be voted on a particular matter.

Diamondback Proposal

Under the current Nasdaq rules, brokers, banks or other nominees do not have discretionary authority to vote on the Diamondback issuance proposal. Because the only proposals for consideration at the Diamondback special meeting are non-discretionary proposals, it is not expected that there will be any broker non-votes at the Diamondback special meeting. However, if there are any broker non-votes, they will have no effect on the Diamondback issuance proposal.

Energen Proposals

Under the current New York Stock Exchange (which we refer to as the “NYSE”) rules, brokers, banks or other nominees do not have discretionary authority to vote on any of the proposals at the Energen special meeting. Because the only proposals for consideration at the Energen special meeting are nondiscretionary proposals, it is not expected that there will be any broker non-votes at the Energen special meeting. However, if there are any broker non-votes, they will have (i) the same effect as a vote “AGAINST” the merger proposal and (ii) no effect on the non-binding compensation advisory proposal.

 

Q:

What Diamondback stockholder vote is required for the approval of the Diamondback issuance proposal?

 

A:

Approval of the Diamondback issuance proposal requires the affirmative vote of a majority of votes cast by Diamondback stockholders present in person or by proxy at the Diamondback special meeting and entitled

 

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  to vote on the proposal. Abstentions, failure to vote in person or by proxy and broker non-votes will not be counted as votes cast “FOR” or “AGAINST” such proposal and, as a result, will have no effect on the outcome of the vote on such proposal.

 

Q:

What Energen shareholder vote is required for the approval of the merger proposal and non-binding compensation advisory proposal?

 

A:

The Energen merger proposal. Approval of the merger proposal requires the affirmative vote of two-thirds of the outstanding shares of Energen common stock entitled to vote on the proposal. Abstentions and broker non-votes will have the same effect as a vote “AGAINST” the proposal. Failure to vote on the merger proposal will have the same effect as a vote “AGAINST” the merger proposal.

The Energen non-binding compensation advisory proposal. Approval of the non-binding compensation advisory proposal requires the affirmative vote of a majority of the shares of Energen common stock present in person or represented by proxy at the Energen special meeting and entitled to vote on the proposal. Abstentions will have the same effect as a vote “AGAINST” the proposal, and broker non-votes will have no effect on the outcome of the vote. As an advisory vote, this proposal is not binding upon Energen or the Energen board or Diamondback or the Diamondback board, and approval of this proposal is not a condition to completion of the merger.

 

Q:

Who will count the votes?

 

A:

The votes at the Diamondback special meeting will be counted by Computershare Trust Company, N.A., Diamondback’s transfer agent which will serve as an independent inspector of elections. The votes at the Energen special meeting will be counted by Computershare Trust Company, N.A., Energen’s transfer agent which will serve as an independent inspector of elections.

 

Q:

What will Energen shareholders receive if the merger is completed?

 

A:

As a result of the merger, each share of Energen common stock issued and outstanding immediately prior to the effective time of the merger (other than shares held in treasury by Energen, shares owned by Diamondback or Merger Sub and, in each case, not held on behalf of third parties (which we refer to collectively as the “cancelled shares”), or shares with respect to which dissenters’ rights have been validly exercised in accordance with Alabama law (which we refer to as the “dissenting shares”)) will be converted into the right to receive 0.6442 of a share of Diamondback common stock (which we refer to as the “exchange ratio”), with cash in lieu of any fractional shares (which we refer to as the “merger consideration”). For information regarding the treatment of Energen equity awards, please see the Question and Answer directly below.

If you receive the merger consideration and would otherwise be entitled to receive a fractional share of Diamondback common stock, you will receive cash in lieu of such fractional share, and you will not be entitled to dividends, voting rights or any other rights in respect of such fractional share. For additional information regarding the merger consideration, see the sections entitled “The Merger—Consideration to Energen Shareholders” and “The Merger Agreement—Effect of the Merger on Capital Stock; Merger Consideration” beginning on pages 71 and 134, respectively.

 

Q:

What will holders of Energen equity awards receive in the merger?

 

A:

Energen Options

At the effective time of the merger, each option to purchase shares of Energen common stock that is outstanding immediately prior to the effective time of the merger shall be converted into a fully vested option to purchase (i) that number of whole shares of Diamondback common stock (rounded down to the nearest whole share) equal to the product of (A) the total number of shares of Energen common stock subject to such option immediately prior to the effective time of the merger multiplied by (B) the exchange

 

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ratio, (ii) at an exercise price per share of Diamondback common stock (rounded up to the nearest whole cent) equal to the quotient of (A) the exercise price per share of Energen common stock of such option immediately prior to the effective time divided by (B) the exchange ratio.

Energen SARs

At the effective time of the merger, each outstanding stock appreciation right in respect of Energen common stock that is outstanding immediately prior to the effective time of the merger shall be converted into a fully vested stock appreciation right in respect of (i) that number of whole shares of Diamondback common stock (rounded down to the nearest whole share) equal to the product of (A) the total number of shares of Energen common stock subject to such stock appreciation right immediately prior to the effective time of the merger multiplied by (B) the exchange ratio, (ii) at an exercise price per share of Diamondback common stock (rounded up to the nearest whole cent) equal to the quotient of (A) the exercise price per share of Energen common stock of such stock appreciation right immediately prior to the effective time of the merger divided by (B) the exchange ratio.

Energen RSU Awards

At the effective time of the merger, each outstanding time-vesting RSU award in respect of shares of Energen common stock that is outstanding immediately prior to the effective time of the merger shall be converted into an award of RSUs in respect of that number of whole shares of Diamondback common stock (rounded to the nearest whole share) equal to the product of (i) the total number of shares of Energen common stock subject to such time-vesting RSU award immediately prior to the effective time of the merger multiplied by (ii) the exchange ratio.

Accelerating Energen Performance Share Awards

At the effective time of the merger, each performance share award in respect of shares of Energen common stock subject to a performance period scheduled to terminate on December 31, 2018 (each, an “accelerating performance share award”) that is outstanding immediately prior to the effective time of the merger shall fully vest and shall be cancelled and converted automatically into the right to receive the merger consideration in respect of each share of Energen common stock underlying such accelerating performance share award, less applicable employment and withholding tax. The accelerating performance share awards will be deemed to be achieved at the greater of the target level and the actual level of performance as of the effective time of the merger, as determined by Energen’s compensation committee prior to the effective time of the merger.

Rollover Energen Performance Share Awards

At the effective time of the merger, each performance share award in respect of shares of Energen common stock that is outstanding immediately prior to the effective time of the merger (other than an accelerating performance share award) shall be converted into an award of RSUs in respect of that number of whole shares of Diamondback common stock (rounded to the nearest whole share) equal to the product of (i) the total number of shares of Energen common stock subject to such performance share award immediately prior to the effective time of the merger multiplied by (ii) the exchange ratio. The performance share awards will be deemed to be achieved at the greater of the target level and the actual level of performance as of the effective time of the merger, as determined by Energen’s compensation committee prior to the effective time of the merger and will be subject solely to time-based vesting over the originally scheduled vesting period of the corresponding performance share awards.

For additional information regarding the treatment of Energen equity awards, see the section entitled “The Merger Agreement—Treatment of Energen Equity Awards in the Merger” beginning on page 135.

 

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Q:

What equity stake will Energen shareholders hold in Diamondback immediately following the merger?

 

A:

Based on the number of issued and outstanding shares of Diamondback and Energen common stock as of October 19, 2018, and the exchange ratio of 0.6442 of a share of Diamondback common stock for each share of Energen common stock, holders of shares of Energen common stock as of immediately prior to the effective time of the merger would hold, in the aggregate, approximately 39% of the issued and outstanding shares of Diamondback common stock immediately following the effective time of the merger (without giving effect to any shares of Diamondback common stock held by Energen shareholders prior to the merger or shares to be issued in Diamondback’s pending acquisition of certain assets from Ajax Resources, LLC). The exact equity stake of Energen shareholders in Diamondback immediately following the effective time of the merger will depend on the number of shares of Diamondback common stock and Energen common stock issued and outstanding immediately prior to the effective time of the merger, as provided in the section entitled “The Merger Agreement—Effect of the Merger on Capital Stock; Merger Consideration” beginning on page 134.

 

Q:

How do the Diamondback and Energen boards recommend that I vote?

 

A:

Diamondback. The Diamondback board unanimously recommends that Diamondback stockholders vote “FOR” the approval of the Diamondback issuance proposal. For additional information regarding how the Diamondback board recommends that Diamondback stockholders vote, see the section entitled “The Merger—Recommendation of the Diamondback Board of Directors and Diamondback’s Reasons for the Merger” beginning on page 76.

Energen. The Energen board unanimously recommends that Energen shareholders vote “FOR” the approval of the merger proposal and “FOR” the approval of the non-binding compensation advisory proposal. For additional information regarding how the Energen board recommends that Energen shareholders vote, see the section entitled “The Merger—Recommendation of the Energen Board of Directors and Energen’s Reasons for the Merger” beginning on page 90.

 

Q:

Why are Energen shareholders being asked to vote on executive officer compensation?

 

A:

The SEC has adopted rules that require Energen to seek a non-binding advisory vote on certain compensation that may be paid or become payable to Energen’s named executive officers that is based on or otherwise relates to the merger. For additional information regarding the non-binding compensation advisory proposal, see the section entitled “Energen Proposals—Non-Binding Compensation Advisory Proposal” beginning on page 69. Energen urges its shareholders to read the section entitled “The Merger—Interests of Energen Directors and Executive Officers in the Merger” beginning on page 123.

 

Q:

Who is entitled to vote at the special meeting?

 

A:

Diamondback special meeting. The Diamondback board has fixed October 19, 2018 as the record date for the Diamondback special meeting (which we refer to as the “Diamondback record date”). All holders of record of shares of Diamondback common stock as of the close of business on the Diamondback record date are entitled to receive notice of, and to vote at, the Diamondback special meeting, provided that those shares remain outstanding on the date of the Diamondback special meeting. As of the Diamondback record date, there were 98,673,931 shares of Diamondback common stock outstanding. Physical attendance at the Diamondback special meeting is not required to vote. Instructions on how to vote your shares without attending the Diamondback special meeting are provided in this section below.

Energen special meeting. The Energen board has fixed October 19, 2018 as the record date for the Energen special meeting (which we refer to as the “Energen record date”). All holders of record of shares of Energen common stock as of the close of business on the Energen record date are entitled to receive notice of, and to vote at, the Energen special meeting, provided that those shares remain outstanding on the date of the Energen special meeting. As of the Energen record date, there were 97,527,659 shares of Energen common stock outstanding. Physical attendance at the Energen special meeting is not required to vote. Instructions on how to vote your shares without attending the Energen special meeting are provided in this section below.

 

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Q:

How many votes do I have?

 

A:

Diamondback stockholders. Each Diamondback stockholder of record is entitled to one vote for each share of Diamondback common stock held of record by him or her as of the close of business on the Diamondback record date.

Energen shareholders. Each Energen shareholder of record is entitled to one vote for each share of Energen common stock held of record by him or her as of the close of business on the Energen record date.

 

Q:

What constitutes a quorum for the Diamondback and/or Energen special meetings?

 

A:

A quorum is the minimum number of stockholders necessary to hold a valid meeting.

Quorum for Diamondback special meeting. The presence at the Diamondback special meeting, in person or by proxy, of the holders of a majority of the outstanding shares of Diamondback common stock entitled to vote at the Diamondback special meeting constitutes a quorum. If you submit a properly executed proxy card, even if you do not vote for the proposal or vote to “abstain” in respect of the proposal, your shares of Diamondback common stock will be counted for purposes of determining whether a quorum is present for the transaction of business at the Diamondback special meeting. Broker non-votes will not be treated as present for purposes of determining the presence of a quorum at the Diamondback special meeting.

Quorum for Energen special meeting. The presence at the Energen special meeting, in person or by proxy, of the holders of a majority of the outstanding shares of Energen common stock entitled to vote at the Energen special meeting constitutes a quorum. If you submit a properly executed proxy card, even if you do not vote for one or both proposals or vote to “abstain” in respect of one or both proposals, your shares of Energen common stock will be counted for purposes of determining whether a quorum is present for the transaction of business at the Energen special meeting. Broker non-votes will not be treated as present for purposes of determining the presence of a quorum at the Energen special meeting.

 

Q:

What will happen to Energen as a result of the merger?

 

A:

If the merger is completed, Merger Sub will merge with and into Energen. As a result of the merger, the separate corporate existence of Merger Sub will cease, and Energen will continue as the surviving corporation in the merger and as a wholly owned subsidiary of Diamondback. Furthermore, shares of Energen common stock will no longer be publicly traded and will be delisted from the NYSE.

 

Q:

I own shares of Energen common stock. What will happen to those shares as a result of the merger?

 

A:

If the merger is completed, unless you exercise statutory dissenters’ rights as further described under “The Merger—Appraisal Rights/Dissenters’ Rights in the Merger,” your shares of Energen common stock will be converted into the right to receive the merger consideration. All such shares of Energen common stock, when so converted, will cease to be outstanding and will automatically be cancelled. Each holder of a share of Energen common stock that was outstanding immediately prior to the effective time of the merger will cease to have any rights with respect to shares of Energen common stock except the right to receive the merger consideration, any dividends or distributions made with respect to shares of Diamondback common stock with a record date after the effective time of the merger, and any cash to be paid in lieu of any fractional shares of Diamondback common stock, in each case to be issued or paid upon the exchange of any certificates or book-entry shares of Energen common stock for merger consideration. For additional information, see the sections entitled “The Merger—Consideration to Energen Shareholders” and “The Merger Agreement—Effect of the Merger on Capital Stock; Merger Consideration” beginning on page 71 and 134, respectively.

 

Q:

Where will the Diamondback common stock that Energen shareholders receive in the merger be publicly traded?

 

A:

Assuming the merger is completed, the shares of Diamondback common stock that Energen shareholders receive in the merger will be listed and traded on Nasdaq.

 

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Q:

What happens if the merger is not completed?

 

A:

If the merger proposal is not approved by Energen shareholders or if the Diamondback issuance proposal is not approved by Diamondback stockholders or if the merger is not completed for any other reason, Energen shareholders will not receive any merger consideration in connection with the merger, and their shares of Energen common stock will remain outstanding. Energen will remain an independent public company and Energen common stock will continue to be listed and traded on the NYSE. Additionally, if the merger proposal is not approved by Energen shareholders or if the merger is not completed for any other reason, Diamondback will not issue shares of Diamondback common stock to Energen shareholders, regardless of whether the Diamondback issuance proposal is approved. If the merger agreement is terminated under specified circumstances, either Energen or Diamondback (depending on the circumstances) may be required to pay the other party a termination fee or other termination-related payment. For a more detailed discussion of the termination fees, see “The Merger Agreement—Termination” beginning on page 164.

 

Q:

What happens if the non-binding compensation advisory proposal is not approved by Energen shareholders?

 

A:

This vote is advisory and non-binding, and the merger is not conditioned or dependent upon the approval of the non-binding compensation advisory proposal by Energen shareholders. However, Energen and Diamondback value the opinions of Energen shareholders and Diamondback expects to consider the outcome of the vote, along with other relevant factors, when considering future executive compensation, assuming the merger is completed. Because the executive compensation to be paid in connection with the merger is based on the terms of the merger agreement as well as the contractual arrangements with Energen’s named executive officers, such compensation will be payable, regardless of the outcome of this advisory vote, if the merger proposal is approved (subject only to the contractual conditions applicable thereto). However, Energen seeks the support of its shareholders and believes that shareholder support is appropriate because Energen has a comprehensive executive compensation program designed to link the compensation of its executives with Energen’s performance and the interests of Energen shareholders.

 

Q:

What is a proxy and how can I vote my shares in person at the special meetings?

 

A:

A proxy is a legal designation of another person to vote the stock you own.

Diamondback. Shares of Diamondback common stock held directly in your name as the stockholder of record as of the close of business on October 19, 2018, the Diamondback record date, may be voted in person at the Diamondback special meeting. If you choose to attend the Diamondback special meeting, you will need to bring valid, government-issued photo identification. If you are a beneficial owner of Diamondback common stock but not the stockholder of record of such shares of Diamondback common stock, you will also need proof of stock ownership to be admitted to the Diamondback special meeting. A recent brokerage statement or a letter from a broker, bank or other nominee are examples of proof of ownership. Please note that if your shares are held in “street name” by a broker, bank or other nominee and you wish to vote at the Diamondback special meeting, you will not be permitted to vote in person unless you first obtain a legal proxy issued in your name from the record owner and present it to the inspector of election with your ballot at the Diamondback special meeting. To request a legal proxy, contact your broker, bank or other nominee holder of record. It is suggested you do so in a timely manner to ensure receipt of your legal proxy prior to the Diamondback special meeting.

Failure to bring the appropriate documentation may delay your entry into or prevent you from attending the Diamondback special meeting. The doors to the meeting room will be closed promptly at the start of the meeting and stockholders may not be permitted to enter after that time.

Energen. Shares of Energen common stock held directly in your name as the shareholder of record as of the close of business on October 19, 2018, the Energen record date, may be voted in person at the Energen special meeting. If you choose to attend the Energen special meeting, you will need to bring valid, government-issued photo identification. If you are a beneficial owner of Energen common stock but not the

 

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shareholder of record of such shares of Energen common stock, you will also need proof of stock ownership to be admitted to the Energen special meeting. A recent brokerage statement or a letter from a broker, bank or other nominee are examples of proof of ownership. Please note that if your shares are held in “street name” by a broker, bank or other nominee and you wish to vote at the Energen special meeting, you will not be permitted to vote in person unless you first obtain a legal proxy issued in your name from the record owner and present it to the inspector of election with your ballot at the Energen special meeting. To request a legal proxy, contact your broker, bank or other nominee holder of record. It is suggested you do so in a timely manner to ensure receipt of your legal proxy prior to the Energen special meeting.

Failure to bring the appropriate documentation may delay your entry into or prevent you from attending the Energen special meeting. The doors to the meeting room will be closed promptly at the start of the meeting and shareholders may not be permitted to enter after that time.

 

Q:

How can I vote my shares without attending the special meetings?

 

A:

Diamondback. If you are a stockholder of record of Diamondback common stock as of the close of business on October 19, 2018, the Diamondback record date, you can vote by proxy by phone, the Internet or mail by following the instructions provided in the enclosed proxy card. Please note that if you are a beneficial owner, you must vote by submitting voting instructions to your broker, bank or other nominee, or otherwise by following instructions provided by your broker, bank or other nominee. Phone and Internet voting may be available to beneficial owners. Please refer to the vote instruction form provided by your broker, bank or other nominee.

Energen. If you are a shareholder of record of Energen common stock as of the close of business on October 19, 2018, the Energen record date, you can vote by proxy by phone, the Internet or mail by following the instructions provided in the enclosed proxy card. Please note that if you are a beneficial owner, you must vote by submitting voting instructions to your broker, bank or other nominee, or otherwise by following instructions provided by your broker, bank or other nominee. Phone and Internet voting may be available to beneficial owners. Please refer to the vote instruction form provided by your broker, bank or other nominee.

Energen shareholders who hold their shares as a participant in the Energen Corporation Employee Savings Plan can vote the shares of common stock held for their account through any of the proxy voting options set forth above. If you hold your shares as a participant in the Energen Corporation Employee Savings Plan, the proxy that you submit will provide your voting instructions to the plan trustee. If you do not submit a proxy, the plan trustee will vote your plan shares in the same proportion as the shares for which the trustee receives voting instructions from other participants in that plan. To allow sufficient time for the Employee Savings Plan trustees to tabulate the vote of the plan shares, such shareholders’ voting instructions must be received by 11:59 p.m., Central Time, on November 21, 2018.

 

Q:

What is the difference between holding shares as a holder of record and as a beneficial owner?

 

A:

Diamondback. If your shares of Diamondback common stock are registered directly in your name with Diamondback’s transfer agent, Computershare Trust Company, N.A., you are considered the stockholder of record with respect to those shares, and access to proxy materials is being provided directly to you. If your shares are held in a stock brokerage account or by a broker, bank or other nominee, then you are considered the beneficial owner of those shares, which are considered to be held in “street name.” Access to proxy materials is being provided to you by your broker, bank or other nominee who is considered the stockholder of record with respect to those shares.

Energen. If your shares of Energen common stock are registered directly in your name with Energen’s transfer agent, Computershare Trust Company, N.A., you are considered the shareholder of record with respect to those shares, and access to proxy materials is being provided directly to you. If your shares are held in a stock brokerage account or by a broker, bank or other nominee, then you are considered the beneficial owner of those shares, which are considered to be held in “street name.” Access to proxy

 

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materials is being provided to you by your broker, bank or other nominee who is considered the shareholder of record with respect to those shares.

 

Q:

What should I do if I receive more than one set of voting materials?

 

A:

You may receive more than one set of voting materials relating to the Diamondback special meeting and/or the Energen special meeting if you hold shares of both Diamondback and Energen common stock or if you hold shares of Diamondback and/or Energen common stock in “street name” and also directly in your name as a holder of record or otherwise or if you hold shares of Diamondback and/or Energen common stock in more than one brokerage account.

Direct holders (holders of record). For shares of Diamondback and/or Energen common stock held directly, complete, sign, date and return each proxy card (or cast your vote by phone or the Internet as provided on each proxy card) or otherwise follow the voting instructions provided in this joint proxy statement/prospectus in order to ensure that all of your shares of Diamondback and/or Energen common stock are voted.

Shares in street name.” For shares of Diamondback and/or Energen common stock held in “street name” through a broker, bank or other nominee, follow the instructions provided by your broker, bank or other nominee to vote your shares.

 

Q:

I hold shares of both Diamondback and Energen common stock. Do I need to vote separately for each company?

 

A:

Yes. You will need to separately follow the applicable procedures described in this joint proxy statement/prospectus both with respect to the voting of shares of Diamondback common stock and with respect to the voting of shares of Energen common stock in order to effectively vote the shares of common stock you hold in each company.

 

Q:

If a holder of shares gives a proxy, how will the shares of Diamondback or Energen common stock, as applicable, covered by the proxy be voted?

 

A:

If you provide a proxy, regardless of whether you provide that proxy by phone, the Internet or completing and returning the applicable enclosed proxy card, the individuals named on the enclosed proxy card will vote your shares of Diamondback common stock or your shares of Energen common stock, as applicable, in the way that you indicate when providing your proxy in respect of the shares of common stock you hold in such company. When completing the phone or Internet processes or the proxy card, you may specify whether your shares of Diamondback or Energen common stock, as applicable, should be voted for or against, or abstain from voting on, all, some or none of the specific items of business to come before the Diamondback special meeting or the Energen special meeting, as applicable.

 

Q:

How will my shares of common stock be voted if I return a blank proxy?

 

A:

Diamondback. If you sign, date and return your proxy and do not indicate how you want your shares of Diamondback common stock to be voted, then your shares of Diamondback common stock will be voted “FOR” the approval of the Diamondback issuance proposal, in accordance with the recommendation of the Diamondback board.

Energen. If you sign, date and return your proxy and do not indicate how you want your shares of Energen common stock to be voted, then your shares of Energen common stock will be voted “FOR” the approval of the merger proposal and “FOR” the approval of the non-binding compensation advisory proposal, in accordance with the recommendation of the Energen board. Returning a blank proxy will preclude your ability to exercise dissenters’ rights as further described under The Merger—Appraisal Rights/Dissenters’ Rights in the Merger.

 

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Q:

Can I change my vote after I have submitted my proxy?

 

A:

Diamondback. Yes. If you are a stockholder of record of Diamondback common stock as of the close of business on the Diamondback record date, whether you vote by phone, the Internet or mail, you can change or revoke your proxy before it is voted at the Diamondback special meeting in one of the following ways:

 

   

submit a new proxy card bearing a later date;

 

   

vote again by phone or the Internet at a later time;

 

   

give written notice of your revocation to Diamondback’s corporate secretary at 9400 N. Broadway, Suite 700, Oklahoma City, Oklahoma 73114 stating that you are revoking your proxy; or

 

   

vote in person at the Diamondback special meeting. Please note that your attendance at the Diamondback special meeting will not alone serve to revoke your proxy.

If you are a beneficial owner of Diamondback common stock as of the close of business on the Diamondback record date, you must follow the instructions of your broker, bank or other nominee to revoke or change your voting instructions.

Energen. Yes. If you are a shareholder of record of Energen common stock as of the close of business on the Energen record date, whether you vote by phone, the Internet or mail, you can change or revoke your proxy before it is voted at the Energen special meeting in one of the following ways:

 

   

submit a new proxy card bearing a later date;

 

   

vote again by phone or the Internet at a later time;

 

   

give written notice of your revocation to Energen’s corporate secretary at 605 Richard Arrington Jr. Boulevard North, Birmingham, Alabama 35203-2707 stating that you are revoking your proxy; or

 

   

vote in person at the Energen special meeting. Please note that your attendance at the Energen special meeting will not alone serve to revoke your proxy.

If you are a beneficial owner of Energen common stock as of the close of business on the Energen record date, you must follow the instructions of your broker, bank or other nominee to revoke or change your voting instructions.

 

Q:

Where can I find the voting results of the special meetings?

 

A:

Within four business days following certification of the final voting results, Diamondback and Energen each intend to file the final voting results of its special meeting with the SEC in a Current Report on Form 8-K.

 

Q:

If I do not favor the merger as a Diamondback stockholder or Energen shareholder, what are my rights?

 

A:

Under Delaware law, Diamondback stockholders are not entitled to appraisal rights in connection with the issuance of shares of Diamondback common stock as contemplated by the merger agreement. Diamondback stockholders may vote against the Diamondback issuance proposal if they do not favor the merger.

Energen shareholders have dissenters’ rights in connection with the merger. Under Alabama law, an Energen shareholder may dissent from the merger and receive the fair value of its common stock if such Energen shareholder follows the procedures under Alabama law. To perfect the dissenters’ rights, the dissenting shareholder must follow precisely the required statutory procedures. If the merger is consummated, then to the extent the dissenting shareholder is successful in pursuing his or her dissenters’ rights, the dissenting shareholder will be paid cash for his or her common stock, and such cash payment may be taxable income to such shareholder.

Please carefully review the information under the heading “The Merger—Appraisal Rights/Dissenters’ Rights in the Merger.

 

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Q:

Are there any risks that I should consider as a Diamondback stockholder and/or Energen shareholder in deciding how to vote?

 

A:

Yes. You should read and carefully consider the risk factors set forth in the section entitled “Risk Factors” beginning on page 43. You also should read and carefully consider the risk factors of Diamondback and Energen contained in the documents that are incorporated by reference in this joint proxy statement/prospectus.

 

Q:

What happens if I sell my shares before the special meetings?

 

A:

Diamondback stockholders. The record date for Diamondback stockholders entitled to vote at the Diamondback special meeting is earlier than the date of the Diamondback special meeting. If you transfer your shares of Diamondback common stock after the Diamondback record date but before the Diamondback special meeting, you will, unless special arrangements are made, retain your right to vote at the Diamondback special meeting.

Energen shareholders. The record date for Energen shareholders entitled to vote at the Energen special meeting is earlier than the date of the Energen special meeting. If you transfer your shares of Energen common stock after the Energen record date but before the Energen special meeting, you will, unless special arrangements are made, retain your right to vote at the Energen special meeting but will have transferred the right to receive the merger consideration to the person to whom you transferred your shares of Energen common stock.

 

Q:

What are the material U.S. federal income tax consequences of the merger to Energen shareholders?

 

A:

Energen and Diamondback intend for the merger to qualify as a “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (which we refer to as the “Code”). It is a condition to Diamondback’s obligation to complete the merger that Diamondback receive a written opinion from Akin Gump Strauss Hauer & Feld LLP (or another nationally recognized tax counsel reasonably acceptable to the parties) (which we refer to as “Diamondback tax counsel”) to the effect that, on the basis of facts, representations and assumptions set forth or referred to in such opinion, the merger will qualify as a “reorganization” within the meaning of Section 368(a) of the Code, and it is a condition to Energen’s obligation to complete the merger that Energen receive a written opinion from Wachtell, Lipton, Rosen & Katz (or another nationally recognized tax counsel reasonably acceptable to the parties) (which we refer to as “Energen tax counsel”) to the effect that, on the basis of facts, representations and assumptions set forth or referred to in such opinion, the merger will qualify as a “reorganization” within the meaning of Section 368(a) of the Code.

If the merger so qualifies, then U.S. holders (as defined in the section entitled “Material U.S. Federal Income Tax Consequences of the Merger”) of shares of Energen common stock generally will not recognize any gain or loss for U.S. federal income tax purposes upon receipt of Diamondback common stock in exchange for Energen common stock in the merger (other than gain or loss, if any, with respect to any cash received in lieu of a fractional share of Diamondback common stock). The material U.S. federal income tax consequences of the merger are discussed in more detail in the section entitled “Material U.S. Federal Income Tax Consequences of the Merger” beginning on page 169. The discussion of the material U.S. federal income tax consequences contained in this joint proxy statement/prospectus is intended to provide only a general discussion and is not a complete analysis or description of all potential U.S. federal income tax consequences of the merger that may vary with, or are dependent on, individual circumstances. In addition, it does not address the effects of any foreign, state or local tax laws or any U.S. federal tax laws other than U.S. federal income tax laws.

 

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TAX MATTERS ARE COMPLICATED AND THE TAX CONSEQUENCES OF THE MERGER WILL DEPEND ON THE FACTS OF YOUR OWN SITUATION. YOU SHOULD CONSULT YOUR OWN TAX ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES OF THE MERGER TO YOU IN YOUR PARTICULAR CIRCUMSTANCES.

 

Q:

When is the merger expected to be completed?

 

A:

Diamondback and Energen are working to complete the merger as quickly as possible. Subject to the satisfaction or waiver of the conditions described in the section entitled “The Merger Agreement—Conditions to the Completion of the Merger” beginning on page 162, including the approval of the merger proposal by Energen shareholders at the Energen special meeting and the approval of the Diamondback issuance proposal by Diamondback stockholders at the Diamondback special meeting, the transaction is expected to be completed by the end of the fourth quarter of 2018. However, neither Diamondback nor Energen can predict the actual date on which the merger will be completed, nor can the parties assure that the merger will be completed, because completion is subject to conditions beyond either company’s control.

 

Q:

If I am an Energen shareholder, how will I receive the merger consideration to which I am entitled?

 

A:

If you are a holder of certificates that represent eligible shares of Energen common stock (which we refer to as “Energen common stock certificates”), a notice advising you of the effectiveness of the merger and a letter of transmittal and instructions for the surrender of your Energen common stock certificates will be mailed to you as soon as practicable after the effective time of the merger. After receiving proper documentation from you, the exchange agent will send to you (i) a statement reflecting the aggregate whole number of shares of Diamondback common stock (which will be in uncertificated book-entry form) that you have a right to receive pursuant to the merger agreement and (ii) a check in the amount equal to the cash payable in lieu of any fractional shares of Diamondback common stock and dividends and other distributions on the shares of Diamondback common stock issuable to you as merger consideration.

If you are a holder of book-entry shares representing eligible shares of Energen common stock (which we refer to as “Energen book-entry shares”) which are held through the Depository Trust Company (which we refer to as “DTC”), the exchange agent will transmit to DTC or its nominees as soon as reasonably practicable on or after the closing date, the merger consideration, cash in lieu of any fractional shares of Diamondback common stock and any dividends and other distributions on the shares of Diamondback common stock issuable as merger consideration, in each case, that DTC has the right to receive.

If you are a holder of record of Energen book-entry shares which are not held through DTC, the exchange agent will deliver to you, as soon as practicable after the effective time of the merger, (i) a notice advising you of the effectiveness of the merger, (ii) a statement reflecting the aggregate whole number of shares of Diamondback common stock (which will be in uncertificated book-entry form) that you have a right to receive pursuant to the merger agreement and (iii) a check in the amount equal to the cash payable in lieu of any fractional shares of Diamondback common stock and dividends and other distributions on the shares of Diamondback common stock issuable to you as merger consideration.

No interest will be paid or accrued on any amount payable for shares of Energen common stock eligible to receive the merger consideration pursuant to the merger agreement.

For additional information on the exchange of Energen common stock for the merger consideration, see the section entitled “The Merger Agreement—Payment for Securities; Exchange” beginning on page 136.

 

Q:

If I am a holder of Energen common stock certificates, do I need to send in my stock certificates at this time to receive the merger consideration?

 

A:

No. Please DO NOT send your Energen common stock certificates with your proxy card. You should carefully review and follow the instructions set forth in the letter of transmittal, which will be mailed to you, regarding the surrender of your stock certificates.

 

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Q:

If I am an Energen shareholder, will the shares of Diamondback common stock issued in the merger receive a dividend?

 

A:

After the completion of the merger, the shares of Diamondback common stock issued in connection with the merger will carry with them the right to receive the same dividends on shares of Diamondback common stock as the shares of Diamondback common stock held by all other holders of such shares for any dividend the record date for which occurs after the merger is completed.

For each of the first two quarter of 2018, Diamondback paid a dividend on the shares of Diamondback common stock, as described in greater detail in the section entitled “Comparative Per Share Market Price and Dividend Information—Diamondback Market Price and Dividend Information” beginning on page 41. Prior to 2018, Diamondback did not pay dividends on its common stock. Any future Diamondback dividends will remain subject to approval by the Diamondback board and other considerations.

 

Q:

Who will solicit and pay the cost of soliciting proxies?

 

A:

Diamondback. Diamondback has retained MacKenzie Partners, Inc. (which we refer to as “MacKenzie Partners”) to assist in the solicitation process. Diamondback will pay MacKenzie Partners a fee of approximately $25,000, as well as reasonable and documented out-of-pocket expenses. Diamondback also has agreed to indemnify MacKenzie Partners against various liabilities and expenses that relate to or arise out of its solicitation of proxies (subject to certain exceptions).

Energen. Energen has retained Innisfree M&A Incorporated (which we refer to as “Innisfree”) to assist in the solicitation process. Energen will pay Innisfree a fee expected not to exceed $25,000, as well as reasonable expenses. Energen also has agreed to indemnify Innisfree against various liabilities and expenses that relate to or arise out of its solicitation of proxies (subject to certain exceptions).

 

Q:

What is “householding”?

 

A:

To reduce the expense of delivering duplicate proxy materials to shareholders who may have more than one account holding a corporation’s common stock but who share the same address, a corporation may adopt a procedure approved by the SEC called “householding.” Under this procedure, certain holders of record who have the same address and last name will receive only one copy of proxy materials until such time as one or more of these shareholders notifies such corporation that they want to receive separate copies. Neither Diamondback nor Energen has elected to institute householding in connection with the Diamondback special meeting or Energen special meeting.

 

Q:

What should I do now?

 

A:

You should read this joint proxy statement/prospectus carefully and in its entirety, including the annexes, and return your completed, signed and dated proxy card by mail in the enclosed postage-paid envelope or submit your voting instructions by phone or the Internet as soon as possible so that your shares of Diamondback and/or Energen common stock will be voted in accordance with your instructions.

 

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Q:

Who can answer my questions about the Diamondback and/or Energen special meeting or the transactions contemplated by the merger agreement?

 

A:

Diamondback stockholders. If you have questions about the Diamondback special meeting or the information contained in this joint proxy statement/prospectus, or desire additional copies of this joint proxy statement/prospectus or additional proxies, contact Diamondback’s proxy solicitor:

 

LOGO

1407 Broadway, 27th Floor

New York, New York 10018

Diamondback@mackenziepartners.com

Call Collect: (212) 929-5500

Toll-Free: (800) 322-2885

Energen shareholders. If you have questions about the Energen special meeting or the information contained in this joint proxy statement/prospectus, or desire additional copies of this joint proxy statement/prospectus or additional proxies, contact Energen’s proxy solicitor:

 

LOGO

Innisfree M&A Incorporated

501 Madison Avenue, 20th floor

New York, New York 10022

Shareholders May Call Toll-Free:

(877) 456-3524 (from the U.S. and Canada); or

+1 (412) 232-3651 (from other locations).

 

Q:

Where can I find more information about Diamondback, Energen and the merger?

 

A:

You can find out more information about Diamondback, Energen and the merger by reading this joint proxy statement/prospectus and, with respect to Diamondback and Energen, from various sources described in the sections entitled “Where You Can Find More Information” and “Information Incorporated by Reference,” each beginning on page 197.

 

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SUMMARY

This summary highlights selected information included in this joint proxy statement/prospectus and does not contain all of the information that may be important to you. You should read this joint proxy statement/prospectus and its annexes carefully and in their entirety and the other documents to which Diamondback and Energen refer before you decide how to vote with respect to the proposals to be considered and voted on at the special meeting for your company. In addition, Diamondback and Energen incorporate by reference important business and financial information about Diamondback and Energen into this joint proxy statement/prospectus, as further described in the sections entitled “Where You Can Find More Information” and “Information Incorporated by Reference,” each beginning on page 197. You may obtain the information incorporated by reference into this joint proxy statement/prospectus without charge by following the instructions in the sections entitled “Where You Can Find More Information” and “Information Incorporated by Reference,” each beginning on page 197. Each item in this summary includes a page reference directing you to a more complete description of that item in this joint proxy statement/prospectus.

Information About the Companies (page 57)

Diamondback Energy, Inc.

500 West Texas

Suite 1200

Midland, Texas 79701

Phone: (432) 221-7400

Diamondback Energy, Inc. was incorporated in Delaware on December 30, 2011. Based in Midland, Texas, Diamondback is an independent oil and natural gas company focused on the acquisition, development, exploration and exploitation of unconventional, onshore oil and natural gas reserves in the Permian Basin in West Texas. Diamondback’s activities are primarily directed at the horizontal development of the Wolfcamp and Spraberry formations in the Midland Basin and the Wolfcamp and Bone Spring formations in the Delaware Basin. Diamondback intends to continue to develop its reserves and increase production through development drilling and exploitation and exploration activities on its multi-year inventory of identified potential drilling locations and through acquisitions that meet its strategic and financial objectives, targeting oil-weighted reserves. Substantially all of its revenues are generated through the sale of oil, natural gas liquids and natural gas production.

Energen Corporation

605 Richard Arrington Jr. Boulevard North

Birmingham, Alabama 35203

Phone: (205) 326-2700

Energen is an oil and natural gas exploration and production company engaged in the exploration, development and production of oil, natural gas liquids and natural gas. Energen’s operations are conducted through its subsidiary, Energen Resources Corporation (which we refer to as “Energen Resources”) and primarily occur within the Midland Basin, the Delaware Basin and the Central Basin Platform areas of the Permian Basin in west Texas and New Mexico. Energen was incorporated in Alabama in 1978 in connection with a corporate reorganization which resulted in Energen becoming the parent company to a predecessor company of Energen Resources. Energen’s corporate headquarters are based in Birmingham, Alabama.



 

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Sidewinder Merger Sub Inc.

c/o Diamondback Energy, Inc.

500 West Texas

Suite 1200

Midland, Texas 79701

Phone: (432) 221-7400

Sidewinder Merger Sub Inc., or Merger Sub, is a direct, wholly owned subsidiary of Diamondback. Upon the completion of the merger, Merger Sub will cease to exist. Merger Sub was incorporated in Alabama on August 14, 2018 for the sole purpose of effecting the merger.

The Merger and the Merger Agreement (page 71)

The terms and conditions of the merger are contained in the merger agreement, which is attached to this document as Annex A and is incorporated by reference herein in its entirety. Diamondback and Energen encourage you to read the merger agreement carefully and in its entirety, as it is the legal document that governs the merger.

The Diamondback board of directors and the Energen board of directors each has unanimously approved and adopted the merger agreement and the transactions contemplated by the merger agreement. Pursuant to the terms and subject to the conditions included in the merger agreement, Diamondback has agreed to acquire Energen by means of a merger of Merger Sub with and into Energen, with Energen surviving the merger as a wholly owned subsidiary of Diamondback.

Merger Consideration (page 134)

As a result of the merger, each eligible share of Energen common stock (other than shares held in treasury by Energen, shares owned by Diamondback or Merger Sub and, in each case, not held on behalf of third parties (which we refer to collectively as the “cancelled shares”), or shares with respect to which dissenters’ rights have been validly exercised in accordance with Alabama law (which we refer to as the “dissenting shares”)) issued and outstanding immediately prior to the effective time of the merger will be converted into the right to receive 0.6442 of a share of Diamondback common stock, with cash in lieu of any fractional shares (which we refer to as the “merger consideration”).

Energen shareholders will not be entitled to receive any fractional shares of Diamondback common stock in the merger, and no Energen shareholders will be entitled to dividends, voting rights or any other rights in respect of any fractional shares of Diamondback common stock. Each holder of shares of Energen common stock exchanged pursuant to the merger who would otherwise have been entitled to receive a fraction of a share of Diamondback common stock (after taking into account all certificates and book-entry shares delivered by such holder) shall receive, in lieu thereof, cash (without interest) in an amount equal to the product of (i) such fractional part of a share of Diamondback common stock multiplied by (ii) the volume weighted average price of Diamondback common stock for the five consecutive trading days ending on the date that is two business days prior to the closing date as reported by The Wall Street Journal.

Risk Factors (page 43)

The merger and an investment in Diamondback common stock involve risks, some of which are related to the transactions contemplated by the merger agreement. You should carefully consider the information about these risks set forth under the section entitled “Risk Factors” beginning on page 43, together with the other information included or incorporated by reference in this joint proxy statement/prospectus, particularly the risk



 

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factors contained in Diamondback’s and Energen’s Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and other filings they make with the SEC. Energen shareholders should carefully consider the risks set out in that section before deciding how to vote with respect to the merger proposal and non-binding compensation advisory proposal to be considered and voted on at the Energen special meeting, and Diamondback stockholders should carefully consider the risks set out in that section before deciding how to vote with respect to the Diamondback issuance proposal to be considered and voted on at the Diamondback special meeting. For additional information, see the sections entitled “Where You Can Find More Information” and “Information Incorporated by Reference,” each beginning on page 197.

Treatment of Energen Equity Awards (page 135)

Energen Options

At the effective time of the merger, each option to purchase shares of Energen common stock that is outstanding immediately prior to the effective time of the merger shall be converted into a fully vested option to purchase (i) that number of whole shares of Diamondback common stock (rounded down to the nearest whole share) equal to the product of (A) the total number of shares of Energen common stock subject to such option immediately prior to the effective time of the merger multiplied by (B) the exchange ratio, (ii) at an exercise price per share of Diamondback common stock (rounded up to the nearest whole cent) equal to the quotient of (A) the exercise price per share of Energen common stock of such option immediately prior to the effective time divided by (B) the exchange ratio.

Energen SARs

At the effective time of the merger, each outstanding stock appreciation right in respect of Energen common stock that is outstanding immediately prior to the effective time of the merger shall be converted into a fully vested stock appreciation right in respect of (i) that number of whole shares of Diamondback common stock (rounded down to the nearest whole share) equal to the product of (A) the total number of shares of Energen common stock subject to such stock appreciation right immediately prior to the effective time of the merger multiplied by (B) the exchange ratio, (ii) at an exercise price per share of Diamondback common stock (rounded up to the nearest whole cent) equal to the quotient of (A) the exercise price per share of Energen common stock of such stock appreciation right immediately prior to the effective time of the merger divided by (B) the exchange ratio.

Energen RSU Awards

At the effective time of the merger, each outstanding time-vesting RSU award in respect of shares of Energen common stock that is outstanding immediately prior to the effective time of the merger shall be converted into an award of RSUs in respect of that number of whole shares of Diamondback common stock (rounded to the nearest whole share) equal to the product of (i) the total number of shares of Energen common stock subject to such time-vesting RSU award immediately prior to the effective time of the merger multiplied by (ii) the exchange ratio.

Accelerating Energen Performance Share Awards

At the effective time of the merger, each performance share award in respect of shares of Energen common stock subject to a performance period scheduled to terminate on December 31, 2018 (each, an “accelerating performance share award”) that is outstanding immediately prior to the effective time of the merger shall fully vest and shall be cancelled and converted automatically into the right to receive the merger consideration in respect of each share of Energen common stock underlying such accelerating performance share award, less



 

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applicable employment and withholding tax. The accelerating performance share awards will be deemed to be achieved at the greater of the target level and the actual level of performance as of the effective time of the merger, as determined by Energen’s compensation committee prior to the effective time of the merger.

Rollover Energen Performance Share Awards

At the effective time of the merger, each performance share award in respect of shares of Energen common stock that is outstanding immediately prior to the effective time of the merger (other than an accelerating performance share award) shall be converted into an award of RSUs in respect of that number of whole shares of Diamondback common stock (rounded to the nearest whole share) equal to the product of (i) the total number of shares of Energen common stock subject to such performance share award immediately prior to the effective time of the merger multiplied by (ii) the exchange ratio. The performance share awards will be deemed to be achieved at the greater of the target level and the actual level of performance as of the effective time of the merger, as determined by Energen’s compensation committee prior to the effective time of the merger and will be subject solely to time-based vesting over the originally scheduled vesting period of the corresponding performance share awards.

Recommendation of the Diamondback Board of Directors and Diamondback’s Reasons for the Merger (page 76)

The Diamondback board unanimously recommends that you vote “FOR” the Diamondback issuance proposal. For the factors considered by the Diamondback board in reaching this decision and additional information on the recommendation of the Diamondback board, see the section entitled “The Merger—Recommendation of the Diamondback Board of Directors and Diamondback’s Reasons for the Merger” beginning on page 76.

Recommendation of the Energen Board of Directors and Energen’s Reasons for the Merger (page 90)

The Energen board unanimously recommends that you vote “FOR” the merger proposal and “FOR” the non-binding compensation advisory proposal. For the factors considered by the Energen board in reaching this decision and additional information on the recommendation of the Energen board, see the section entitled “The Merger—Recommendation of the Energen Board of Directors and Energen’s Reasons for the Merger” beginning on page 90.

Opinions of Financial Advisors (page 80)

Opinion of Citigroup Global Markets Inc., Diamondback’s financial advisor

In connection with the merger, Diamondback’s financial advisor, Citigroup Global Markets Inc. (which we refer to as “Citi”), delivered a written opinion, dated August 14, 2018, to the Diamondback board of directors as to the fairness, from a financial point of view and as of the date of the opinion, to Diamondback of the exchange ratio provided for pursuant to the merger agreement.

The full text of Citi’s written opinion, dated August 14, 2018, which describes the assumptions made, procedures followed, matters considered and limitations and qualifications on the review undertaken, is attached as Annex B to this joint proxy statement/prospectus and is incorporated into this joint proxy statement/prospectus by reference. The description of Citi’s opinion set forth in this joint proxy statement/prospectus is qualified in its entirety by reference to the full text of Citi’s opinion. Citi’s opinion was provided for the information of the Diamondback board of directors (in its capacity as such) in connection with its evaluation of the exchange ratio from a financial point of view to Diamondback and did not address any other terms, aspects or implications of the merger. Citi expressed no view as to, and its opinion did not address, the underlying business decision of Diamondback to effect or enter into the merger, the relative merits of the merger as compared to any alternative business strategies that might



 

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exist for Diamondback or the effect of any other transaction which Diamondback might engage in or consider. Citi’s opinion is not intended to be and does not constitute a recommendation to any securityholder as to how such securityholder should vote or act on any matters relating to the proposed merger or otherwise. For further information, see the section of this joint proxy statement/prospectus entitled “The Merger—Opinion of Citi, Diamondback’s Financial Advisor” and Annex B.

Opinion of J.P. Morgan, Energen’s financial advisor

The Energen board retained J.P. Morgan Securities LLC (which we refer to as “J.P. Morgan”) as financial advisor to Energen in connection with the merger. At the meeting of the Energen board on August 14, 2018, J.P. Morgan rendered its oral opinion to the Energen board that, as of such date and based upon and subject to the factors and assumptions set forth in its opinion, the exchange ratio in the merger was fair, from a financial point of view, to the holders of Energen common stock. J.P. Morgan has confirmed its August 14, 2018 oral opinion by delivering its written opinion to the Energen board, dated August 14, 2018, that, as of such date, the exchange ratio in the merger was fair, from a financial point of view, to the holders of Energen common stock.

The full text of the written opinion of J.P. Morgan dated August 14, 2018, which sets forth the assumptions made, matters considered and limits on the review undertaken, is attached as Annex C to this joint proxy statement/prospectus and is incorporated herein by reference. The summary of the opinion of J.P. Morgan set forth in this joint proxy statement/prospectus is qualified in its entirety by reference to the full text of such opinion. Energen’s shareholders are urged to read the opinion in its entirety. J.P. Morgan’s written opinion was addressed to the Energen board (in its capacity as such) in connection with and for the purposes of its evaluation of the merger, was directed only to the exchange ratio in the merger and did not address any other aspect of the merger. J.P. Morgan expressed no opinion as to the fairness of any consideration to be paid in connection with the merger to the holders of any other class of securities, creditors or other constituencies of Energen or as to the underlying decision by Energen to engage in the merger. The issuance of J.P. Morgan’s opinion was approved by a fairness committee of J.P. Morgan. The opinion does not constitute a recommendation to any shareholder of Energen as to how such shareholder should vote with respect to the merger or any other matter. For a description of the opinion that the Energen board received from J.P. Morgan, see “The Merger—Opinion of J.P. Morgan, Energen’s Financial Advisor” and Annex C.

Opinion of TPH, Energen’s financial advisor

The Energen board engaged Tudor Pickering Holt & Co Advisors LP (which we refer to as “TPH”) to act as Energen’s financial advisor in connection with the merger. On August 14, 2018, at a meeting of the Energen board held to evaluate the merger, TPH rendered its oral opinion, subsequently confirmed in writing, that, as of August 14, 2018 and based on and subject to the assumptions, limitations and qualifications set forth in the opinion and based on other matters as TPH considered relevant, the exchange ratio in the merger was fair, from a financial point of view, to the holders of the Eligible Shares (as defined under “The Merger—Opinion of TPH, Energen’s Financial Advisor”) of Energen.

The full text of TPH’s written opinion, dated August 14, 2018, is attached as Annex D to this joint proxy statement/prospectus and is incorporated herein by reference in its entirety. We encourage you to read the opinion carefully in its entirety for a description of, among other things, the assumptions made, procedures followed, factors considered and qualifications and limitations on the review undertaken. TPH’s opinion was provided to the Energen board in connection with the board’s consideration of the transactions, does not address any other aspect of the merger agreement or the transactions and does not constitute a recommendation as to how any holder of interests in Energen should vote with respect to the



 

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transactions or any other matter. For further information, see the section of this joint proxy statement/prospectus entitled “The Merger—Opinion of TPH, Energen’s Financial Advisor” and Annex D.

Special Meeting of Diamondback Stockholders (page 58)

Date, Time, Place and Purpose of the Diamondback Special Meeting

The Diamondback special meeting will be held on November 27, 2018, at 11:00 a.m., Central Time, at 1200 North Walker Avenue, Oklahoma City, Oklahoma 73103. The purpose of the Diamondback special meeting is to consider and vote on the Diamondback issuance proposal. Approval of the Diamondback issuance proposal by Diamondback stockholders is a condition to the obligation of Diamondback and Energen to complete the merger.

Record Date and Outstanding Shares of Diamondback Common Stock

Only holders of record of issued and outstanding shares of Diamondback common stock as of the close of business on October 19, 2018 (which we refer to as the “Diamondback record date”) , are entitled to notice of, and to vote at, the Diamondback special meeting or any adjournment or postponement of the Diamondback special meeting.

As of the close of business on the Diamondback record date, there were 98,673,931 shares of Diamondback common stock issued and outstanding and entitled to vote at the Diamondback special meeting. You may cast one vote for each share of Diamondback common stock that you held as of the close of business on the Diamondback record date.

A complete list of Diamondback stockholders entitled to vote at the Diamondback special meeting will be available for inspection at Diamondback’s principal place of business at 9400 N. Broadway, Suite 700, Oklahoma City, Oklahoma 73114 during regular business hours for a period of no less than 10 days before the Diamondback special meeting and during the Diamondback special meeting to be held at 1200 North Walker Avenue, Oklahoma City, Oklahoma 73103.

Quorum; Abstentions and Broker Non-Votes

A quorum of Diamondback stockholders is necessary for Diamondback to hold a valid meeting. The presence at the Diamondback special meeting, in person or by proxy, of the holders of a majority of the outstanding shares of Diamondback common stock entitled to vote at the Diamondback special meeting constitutes a quorum.

If you submit a properly executed proxy card, even if you do not vote for the proposal or vote to “abstain” in respect of the proposal, your shares of Diamondback common stock will be counted for purposes of determining whether a quorum is present for the transaction of business at the Diamondback special meeting. Diamondback common stock held in “street name” with respect to which the beneficial owner fails to give voting instructions to the broker, bank or other nominee, and Diamondback common stock with respect to which the beneficial owner otherwise fails to vote, will not be considered present and entitled to vote at the Diamondback special meeting for the purpose of determining the presence of a quorum.

A broker non-vote will result if your broker, bank or other nominee returns a proxy but does not provide instruction as to how shares should be voted on a particular matter. It is not expected that there will be any broker non-votes at the Diamondback special meeting. However, if there are any broker non-votes, the shares will not be considered present and entitled to vote at the Diamondback special meeting for the purpose of determining the presence of a quorum.



 

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Executed but unvoted proxies will be voted in accordance with the recommendation of the Diamondback board.

Required Vote to Approve the Diamondback Issuance Proposal

Approval of the Diamondback issuance proposal requires the affirmative vote of a majority of votes cast by Diamondback stockholders present in person or by proxy at the Diamondback special meeting and entitled to vote on this proposal. Abstentions, failure to vote in person or by proxy and broker non-votes will not be counted as votes cast “FOR” or “AGAINST” this proposal and, as a result, will have no effect on the outcome of the vote on this proposal.

The Diamondback issuance proposal is described in the section entitled “Diamondback Proposal” beginning on page 63.

Voting by Diamondback Directors and Executive Officers

As of the Diamondback record date, Diamondback directors and executive officers, and their affiliates, as a group, owned and were entitled to vote 547,892 shares of Diamondback common stock, or approximately 0.6% of the total outstanding shares of Diamondback common stock as of the Diamondback record date.

Diamondback currently expects that all of its directors and executive officers will vote their shares “FOR” the Diamondback issuance proposal.

Adjournment

If a quorum is not present or if there are not sufficient votes for the approval of the Diamondback issuance proposal, Diamondback expects that the Diamondback special meeting will be adjourned by the chairman of the Diamondback special meeting to solicit additional proxies. At any subsequent reconvening of the Diamondback special meeting, all proxies will be voted in the same manner as the manner in which such proxies would have been voted at the original convening of the Diamondback special meeting, except for any proxies that have been validly revoked or withdrawn prior to the subsequent meeting.

Special Meeting of Energen Shareholders (page 64)

Date, Time, Place and Purpose of the Energen Special Meeting

The Energen special meeting will be held on November 27, 2018, at 9:30 a.m., Central Time, at 605 Richard Arrington Jr. Boulevard North, Birmingham, Alabama 35203-2707. The purpose of the Energen special meeting is to consider and vote on the merger proposal and the non-binding compensation advisory proposal. Approval of the merger proposal is a condition to the obligation of Energen and Diamondback to complete the merger. Approval of the non-binding compensation advisory proposal is not a condition to the obligation of either Energen or Diamondback to complete the merger.

Record Date and Outstanding Shares of Energen Common Stock

Only holders of record of issued and outstanding shares of Energen common stock as of the close of business on October 19, 2018 (which we refer to as the “Energen record date”) are entitled to notice of, and to vote at, the Energen special meeting or any adjournment or postponement of the Energen special meeting.

As of the close of business on the Energen record date, there were 97,527,659 shares of Energen common stock issued and outstanding and entitled to vote at the Energen special meeting. You may cast one vote for each share of Energen common stock that you held as of the close of business on the Energen record date.



 

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A complete list of Energen shareholders entitled to vote at the Energen special meeting will be available for inspection at Energen’s principal office at 605 Richard Arrington Jr. Boulevard North, Birmingham, Alabama 35203-2707 during regular business hours beginning two business days after notice of the meeting is given and continuing through the Energen special meeting and during the Energen special meeting.

Quorum; Abstentions and Broker Non-Votes

A quorum of Energen shareholders is necessary for Energen to hold a valid meeting. The presence of the holders of a majority of the outstanding shares of Energen common stock entitled to vote at the special meeting, present in person or represented by proxy, constitutes a quorum.

If you submit a properly executed proxy card, even if you do not vote for the proposal or vote to “abstain” in respect of the proposal, your shares of Energen common stock will be counted for purposes of determining whether a quorum is present for the transaction of business at the Energen special meeting. Energen common stock held in “street name” with respect to which the beneficial owner fails to give voting instructions to the broker, bank or other nominee, and Energen common stock with respect to which the beneficial owner otherwise fails to vote, will not be considered present and entitled to vote at the Energen special meeting for the purpose of determining the presence of a quorum. A broker non-vote will result if your broker, bank or other nominee returns a proxy but does not provide instruction as to how shares should be voted on a particular matter. It is not expected that there will be any broker non-votes at the Energen special meeting. However, if there are any broker non-votes, the shares will not be considered present and entitled to vote at the Energen special meeting for the purpose of determining the presence of a quorum.

Executed but unvoted proxies will be voted in accordance with the recommendations of the Energen board.

Required Vote to Approve the Merger Proposal

Approval of the merger proposal requires the affirmative vote of two-thirds of the outstanding shares of Energen common stock entitled to vote on the proposal. Abstentions and broker non-votes will have the same effect as a vote “AGAINST” the merger proposal. Failure to vote on the merger proposal will also have the same effect as a vote “AGAINST” the merger proposal.

The merger proposal is described in the section entitled “Energen Proposals” beginning on page 69.

Required Vote to Approve the Non-Binding Compensation Advisory Proposal

Approval of the non-binding compensation advisory proposal requires the affirmative vote of a majority of the shares of Energen common stock present in person or represented by proxy at the Energen special meeting and entitled to vote on the proposal. Abstentions will have the same effect as a vote “AGAINST” the proposal, and broker non-votes will have no effect on the outcome of the vote.

The non-binding compensation advisory proposal is described in the section entitled “Energen Proposals” beginning on page 69.

Voting by Energen Directors and Executive Officers

As of the Energen record date, Energen directors and executive officers, and their affiliates, as a group, owned and were entitled to vote 463,276 shares of Energen common stock, or approximately 0.5% of the total outstanding shares of Energen common stock as of the Energen record date.



 

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Energen currently expects that all of its directors and executive officers will vote their shares “FOR” the merger proposal and “FOR” the non-binding compensation advisory proposal.

Adjournment

If a quorum is not present or if there are not sufficient votes for the approval of the merger proposal, Energen expects that the Energen special meeting will be adjourned by the chairman of the meeting to solicit additional proxies in accordance with the merger agreement. At any subsequent reconvening of the Energen special meeting, all proxies will be voted in the same manner as the manner in which such proxies would have been voted at the original convening of the Energen special meeting, except for any proxies that have been validly revoked or withdrawn prior to the subsequent reconvening of the Energen special meeting.

Interests of Diamondback Directors and Executive Officers in the Merger (page 123)

In considering the recommendation of the Diamondback board with respect to the Diamondback issuance proposal, Diamondback stockholders should be aware that the directors and executive officers of Diamondback have interests in the merger that may be different from, or in addition to, the interests of Diamondback stockholders generally. These interests are described in more detail in the section entitled “The Merger—Interests of Diamondback Directors and Executive Officers in the Merger” beginning on page 123. The members of the Diamondback board were aware of and considered these interests, among other matters, in evaluating and negotiating the merger agreement, in approving the merger agreement and in determining to recommend that Diamondback stockholders approve the Diamondback issuance proposal.

Board of Directors and Management of Diamondback Following Completion of the Merger (page 123)

Upon closing of the merger, Diamondback’s board and executive management will remain unchanged. Additionally, Diamondback will continue to be headquartered in Midland, Texas.

Interests of Energen Directors and Executive Officers in the Merger (page 123)

In considering the recommendation of Energen’s board of directors, Energen shareholders should be aware that the directors and executive officers of Energen have certain interests in the merger that may be different from, or in addition to, the interests of Energen shareholders generally. Energen’s board of directors was aware of these interests and considered them, among other matters, in making its recommendation that Energen shareholders vote to approve the merger proposal.

These interests include:

 

   

Energen stock options and time-vesting RSU awards would convert, as of the effective time of the merger, into stock options and RSU awards of approximately equivalent value in respect of common stock of Diamondback;

 

   

Energen performance share awards with a performance period ending December 31, 2018 would vest upon the effective time of the merger (based on the greater of target and actual performance as of the effective time of the merger) and be settled for the merger consideration;

 

   

All other Energen performance share awards would convert, as of the effective time of the merger, into RSU awards in respect of common stock of Diamondback of approximately equivalent value (with the number of shares determined based on the greater of target and actual performance as of the effective time of the merger), which would be subject to time-based vesting in accordance with the vesting schedule of the underlying Energen performance share award;



 

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Annual incentives and other bonuses for 2018 would be paid in full at the earlier of the effective time of the merger and the time that they are normally paid, based on the greater of target and actual performance as of the effective time, and if an executive officer experienced a qualifying termination of employment during 2019, he would be entitled to a prorated annual incentive award at the target level for 2019;

 

   

Severance compensation agreements with Energen’s executive officers provide for severance benefits upon a qualifying termination of employment; and

 

   

Energen’s directors and executive officers are entitled to continued indemnification and insurance coverage under the merger agreement.

For a more complete description of these interests, see “The Merger—Interests of Energen Directors and Executive Officers in the Merger.”

Conditions to the Completion of the Merger (page 162)

Each party’s obligation to complete the merger is subject to the satisfaction or waiver of the following mutual conditions:

 

   

Diamondback Stockholder Approval. The Diamondback issuance proposal must have been approved by the affirmative vote of the holders of a majority of the votes cast at the Diamondback stockholders meeting in accordance with the rules and regulations of Nasdaq and the Diamondback organizational documents, as applicable.

 

   

Energen Shareholder Approval. The Energen merger proposal must have been approved by the affirmative vote of two-thirds of the outstanding shares of Energen common stock entitled to vote on the merger proposal, in accordance with the ABNEC and the Energen organizational documents.

 

   

Regulatory Approval. Any waiting period under the HSR Act applicable to the merger and the other transactions contemplated by the merger agreement must have expired or been terminated.

 

   

No Injunctions or Restraints. No governmental entity of the United States or any state thereof having jurisdiction over Diamondback, Energen or Merger Sub shall have issued any order, decree, ruling, injunction or other action that is in effect (whether temporary, preliminary or permanent) restraining, enjoining or otherwise prohibiting the consummation of the merger and no law that makes the consummation of the merger illegal or otherwise prohibited shall have been adopted after August 14, 2018.

 

   

Effectiveness of the Registration Statement. The registration statement, of which this joint proxy statement/prospectus forms a part, must have been declared effective by the SEC under the Securities Act and must not be the subject of any stop order or proceedings seeking a stop order.

 

   

Nasdaq Listing. The shares of Diamondback common stock issuable to Energen shareholders pursuant to the merger agreement must have been authorized for listing on Nasdaq, upon official notice of issuance.

The obligations of Diamondback and Merger Sub to complete the merger are subject to the satisfaction or waiver of further conditions, including:

 

   

the accuracy of the representations and warranties of Energen contained in the merger agreement as of August 14, 2018 and as of the closing date (other than representations that by their terms speak specifically as of another date or period of time), subject to the materiality standards provided in the merger agreement;



 

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Energen having performed and complied with in all material respects all of its obligations under the merger agreement required to be performed or complied with at or prior to the effective time of the merger;

 

   

Diamondback having received a certificate of Energen signed by an executive officer of Energen, dated as of the closing date, confirming that the conditions set forth in the two bullets directly above have been satisfied; and

 

   

Diamondback having received an opinion from Diamondback tax counsel, in form and substance reasonably satisfactory to Diamondback, dated as of the closing date, to the effect that, on the basis of the facts, representations and assumptions set forth or referred to in such opinion, the merger will qualify as a “reorganization” within the meaning of Section 368(a) of the Code.

The obligation of Energen to complete the merger is subject to the satisfaction or waiver of the following additional conditions:

 

   

the accuracy of the representations and warranties of Diamondback contained in the merger agreement as of August 14, 2018 and as of the closing date (other than representations that by their terms speak specifically as of another date or period of time), subject to the materiality standards provided in the merger agreement;

 

   

Diamondback and Merger Sub having performed and complied with in all material respects all of their respective obligations under the merger agreement required to be performed or complied with by them at or prior to the effective time of the merger;

 

   

Energen having received a certificate of Diamondback signed by an executive officer of Diamondback, dated as of the closing date, confirming that the conditions in the two bullets directly above have been satisfied; and

 

   

Energen having received an opinion from Energen tax counsel, in form and substance reasonably satisfactory to Energen, dated as of the closing date, to the effect that, on the basis of the facts, representations and assumptions set forth or referred to in such opinion, the merger will qualify as a “reorganization” within the meaning of Section 368(a) of the Code.

No Solicitation (page 146)

No Solicitation by Diamondback

Diamondback has agreed that, from and after August 14, 2018, Diamondback will, and will cause its subsidiaries, and its and their respective directors, officers and representatives to, immediately cease, and cause to be terminated, any solicitation, encouragement, discussion or negotiations that commenced prior to and were ongoing as of August 14, 2018 with respect to a Diamondback competing proposal (as defined in the section entitled “The Merger Agreement—No Solicitation; Changes of Recommendation—Definitions of Competing Proposals” beginning on page 153).

Diamondback has also agreed that, from and after August 14, 2018 until the effective time of the merger or the termination of the merger agreement in accordance with the terms thereof, Diamondback will not, and will cause its affiliates and subsidiaries, and its and their respective directors and officers, and will cause its representatives not to, directly or indirectly:

 

   

initiate, solicit or knowingly encourage or knowingly facilitate any inquiries, proposals, or offers regarding, or the making of a Diamondback competing proposal;

 

   

engage in any discussions or negotiations with any person with respect to a Diamondback competing proposal;



 

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furnish any non-public information regarding Diamondback or its subsidiaries, or access to the properties, assets or employees of Diamondback or its subsidiaries, to any person in connection with or in response to a Diamondback competing proposal;

 

   

enter into any letter of intent or agreement in principle, or other agreement or commitment in respect of any proposal or offer that constitutes a Diamondback competing proposal (other than a confidentiality agreement in accordance with the merger agreement); or

 

   

resolve, agree or publicly propose to, or permit Diamondback or any of its subsidiaries or any of its or their representatives to agree or publicly propose to take any of the actions referred to in the bullets directly above.

Notwithstanding the agreements described above, prior to, but not after, the time the issuance proposal has been approved by Diamondback stockholders, Diamondback may engage in the first, second and third bullets directly above with any person if Diamondback receives a bona fide written Diamondback competing proposal that did not arise from a breach of the obligations described directly above and in the section entitled “The Merger Agreement—No Solicitation; Changes of Recommendation—Definitions of Competing Proposals” beginning on page 147; provided, however, that:

 

   

no information that is prohibited from being furnished pursuant to the foregoing obligations may be furnished until Diamondback receives an executed confidentiality agreement from the person making such Diamondback competing proposal, subject to certain conditions; and

 

   

prior to taking any such actions, the Diamondback board of directors or any committee of the Diamondback board of directors determines in good faith, after consultation with Diamondback’s financial advisor and outside legal counsel, that such Diamondback competing proposal is, or could reasonably be expected to lead to, a Diamondback superior proposal (as defined in the section entitled “The Merger Agreement–No Solicitation; Changes of Recommendation—Diamondback: No Solicitation Exceptions” beginning on page 146).

Notwithstanding the agreements described above, prior to, but not after, the time the issuance proposal has been approved by Diamondback stockholders, Diamondback may seek clarification from (but not engage in negotiations with or provide non-public information to) any person that has made a Diamondback competing proposal solely to clarify and understand the terms and conditions of such proposal to provide adequate information for the Diamondback board of directors or any committee thereof to make an informed determination under the relevant provisions of the merger agreement.

No Solicitation by Energen

Energen has agreed that, from and after August 14, 2018, Energen will, and will cause its subsidiaries, and its and their respective directors, officers and representatives to, immediately cease, and cause to be terminated, any solicitation, encouragement, discussion or negotiations that commenced prior to and were ongoing as of August 14, 2018 with respect to an Energen competing proposal (as defined in the section entitled “The Merger Agreement—No Solicitation; Changes of Recommendation—Definitions of Competing Proposals” beginning on page 153).

Energen has also agreed that, from and after August 14, 2018 until the effective time of the merger or the termination of the merger agreement in accordance with the terms thereof, Energen will not, and will cause its affiliates and subsidiaries, and its and their respective directors and officers, and will cause its representatives not to, directly or indirectly:

 

   

initiate, solicit or knowingly encourage or knowingly facilitate any inquiries, proposals, or offers regarding, or the making of an Energen competing proposal;



 

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engage in any discussions or negotiations with any person with respect to an Energen competing proposal;

 

   

furnish any non-public information regarding Energen or its subsidiaries, or access to the properties, assets or employees of Energen or its subsidiaries, to any person in connection with or in response to an Energen competing proposal;

 

   

enter into any letter of intent or agreement in principle, or other agreement or commitment in respect of any proposal or offer that constitutes an Energen competing proposal (other than a confidentiality agreement in accordance with the merger agreement); or

 

   

resolve, agree or publicly propose to, or permit Energen or any of its subsidiaries or any of its or their representatives to agree or publicly propose to take any of the actions referred to in the bullets directly above.

Notwithstanding the agreements described above, prior to, but not after, the time the merger proposal has been approved by Energen shareholders, Energen may engage in the first, second and third bullets directly above with any person if Energen receives a bona fide written Energen competing proposal that did not arise from a breach of the obligations described directly above and in the section entitled “The Merger Agreement—No Solicitation; Changes of Recommendation—Definitions of Competing Proposals” beginning on page 147; provided, however, that:

 

   

no information that is prohibited from being furnished pursuant to the foregoing obligations may be furnished until Energen receives an executed confidentiality agreement, from the person making such Energen competing proposal, subject to certain conditions; and

 

   

prior to taking any such actions, the Energen board of directors or any committee of the Energen board of directors determines in good faith, after consultation with its financial advisor and outside legal counsel, that such Energen competing proposal is, or could reasonably be expected to lead to, an Energen superior proposal (as defined in the section entitled “The Merger Agreement–No Solicitation; Changes of Recommendation—Energen: No Solicitation Exceptions” beginning on page 148).

Notwithstanding the agreements described above, prior to, but not after, the time the merger proposal has been approved by Energen shareholders, Energen or any of its representatives may seek clarification from any person that has made an Energen competing proposal solely to clarify and understand the terms and conditions of such proposal to provide adequate information for Energen board of directors or any committee thereof to make an informed determination under the relevant provisions of the merger agreement.

Changes of Recommendation (page 146)

Diamondback Restrictions on Changes of Recommendation

Subject to certain exceptions described below, the Diamondback board of directors may not effect a Diamondback recommendation change (as defined in the section entitled “The Merger Agreement—No Solicitation; Changes of Recommendation—Diamondback: Restrictions on Changes of Recommendation” beginning on page 149).

Energen Restrictions on Changes of Recommendation

Subject to certain exceptions described below, the Energen board of directors may not effect an Energen recommendation change (as defined in the section entitled “The Merger Agreement—No Solicitation; Changes of Recommendation—Energen: Restrictions on Changes of Recommendation” beginning on page 149).



 

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Diamondback: Permitted Changes of Recommendation and Permitted Termination to Enter into a Diamondback Superior Proposal

Prior to, but not after, the time that the Diamondback issuance proposal has been approved by Diamondback stockholders, in response to a bona fide written Diamondback competing proposal from a third party that is conditioned upon the termination of the merger agreement or the failure of the transactions contemplated thereby to be consummated and that did not arise from a breach of the “no solicitation” obligations described above and in the section entitled “The Merger Agreement—No Solicitation; Changes of Recommendation—No Solicitation by Diamondback,” the Diamondback board of directors may effect a Diamondback recommendation change or terminate the merger agreement if:

 

   

the Diamondback board of directors determines in good faith, after consultation with Diamondback’s financial advisor and outside legal counsel, that such Diamondback competing proposal is a Diamondback superior proposal (taking into account adjustment in terms and conditions of the merger proposed by Energen in response to such Diamondback competing proposal): and

 

   

Diamondback provides Energen written notice of such proposed action and the basis of such proposed action five business days in advance and complies with certain obligations, each as described in the section entitled “The Merger Agreement—No Solicitation; Changes of Recommendation— Diamondback: Permitted Changes of Recommendation and Permitted Termination to Enter into a Diamondback Superior Proposal” beginning on page 149.

Diamondback: Permitted Changes of Recommendation in Connection with Intervening Events

Prior to, but not after, the time that the Diamondback issuance proposal has been approved by Diamondback stockholders, if a Diamondback intervening event (as defined in the section entitled “The Merger Agreement—No Solicitation; Changes of Recommendation—Diamondback: Permitted Changes of Recommendation in Connection with Intervening Events” beginning on page 150) occurs or arises after August 14, 2018, Diamondback may effect a Diamondback recommendation change if:

 

   

the Diamondback board of directors determines in good faith, after consultation with Diamondback’s financial advisor and outside legal counsel, that a Diamondback intervening event has occurred and that the failure to effect a Diamondback recommendation change in response to such Diamondback intervening event would be reasonably likely to be inconsistent with the fiduciary obligations owed by the Diamondback board of directors to the Diamondback stockholders under applicable law; and

 

   

Diamondback provides Energen written notice of such proposed action and the basis of such proposed action five business days in advance and complies with certain obligations, each as described in the section entitled “The Merger Agreement—No Solicitation; Changes of Recommendation” beginning on page 146.

Energen: Permitted Changes of Recommendation and Permitted Termination to Enter into an Energen Superior Proposal

Prior to, but not after, the merger proposal has been approved by Energen shareholders, in response to a bona fide written Energen competing proposal from a third party that did not arise from a breach of the “no solicitation” obligations described above and in the section entitled “The Merger Agreement—No Solicitation; Changes of Recommendation—No Solicitation by Energen,” the Energen board of directors may effect an Energen recommendation change or terminate the merger agreement if:

 

   

the Energen board of directors determines in good faith, after consultation with its financial advisor and outside legal counsel, that such Energen competing proposal is an Energen superior proposal (taking into account adjustment in terms and conditions of the merger proposed by Diamondback in response to such Energen competing proposal); and

 

   

Energen provides Diamondback written notice of such proposed action and the basis of such proposed action five business days in advance and complies with certain obligations, each as described in the



 

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section entitled “The Merger Agreement—No Solicitation; Changes of Recommendation—Energen: Permitted Changes of Recommendation and Permitted Termination to Enter into an Energen Superior Proposal” beginning on page 151.

Energen: Permitted Changes of Recommendation in Connection with Intervening Events

Prior to, but not after, the time the merger proposal has been approved by Energen shareholders, in response to an Energen intervening event (as defined in the section entitled “The Merger Agreement—No Solicitation; Changes of Recommendation—Energen: Permitted Changes of Recommendation in Connection with Intervening Events” beginning on page 152) that occurs or arises after August 14, 2018, Energen may effect an Energen recommendation change if:

 

   

the Energen board of directors determines in good faith, after consultation with its financial advisors and outside legal counsel, that an Energen intervening event has occurred and that failure to effect an Energen recommendation change in response to such Energen intervening event would be reasonably likely to be inconsistent with the fiduciary obligations owed by the Energen board of directors to the Energen shareholders under applicable law; and

 

   

Energen provides Diamondback written notice of such proposed action and the basis of such proposed action five business days in advance and complies with certain obligations, each as described in the section entitled “The Merger Agreement—No Solicitation; Changes of Recommendation—Energen: Permitted Changes of Recommendation in Connection with Intervening Events” beginning on page 152.

Termination (page 164)

Diamondback and Energen may terminate the merger agreement and abandon the merger at any time prior to the effective time of the merger by mutual written consent of Diamondback and Energen.

The merger agreement may also be terminated by either Diamondback or Energen at any time prior to the effective time of the merger in any of the following situations:

 

   

if any governmental entity of the United States or any state thereof having jurisdiction over any party has issued any order, decree, ruling or injunction or taken any other action permanently restraining, enjoining or otherwise prohibiting the consummation of the merger and such order, decree, ruling or injunction or other action has become final and nonappealable, or if any law has been adopted that permanently makes the consummation of the merger illegal or otherwise permanently prohibited, so long as the terminating party has not failed to fulfill any material covenant or agreement under the merger agreement that has been the primary cause of or resulted in such order, decree, ruling or injunction or other action;

 

   

upon an end date termination event (as defined in the section entitled “The Merger Agreement—Termination—Termination Rights” beginning on page 164);

 

   

upon a Diamondback terminable breach event or Energen terminable breach event (as each term is defined in the section entitled “The Merger Agreement—Termination—Termination Rights” beginning on page 164); or

 

   

upon an Energen shareholder approval termination event or a Diamondback stockholder approval termination event (as each term is defined in the section entitled “The Merger Agreement—Termination—Termination Rights” beginning on page 164).

In addition, the merger agreement may be terminated by Diamondback:

 

   

if prior to, but not after, the time the merger proposal has been approved by Energen shareholders, the Energen board of directors or a committee of the Energen board of directors has effected an Energen recommendation change; or



 

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upon a Diamondback superior proposal termination event (as defined in the section entitled “The Merger Agreement—Termination—Termination Rights” beginning on page 163).

Further, the merger agreement may be terminated by Energen:

 

   

if prior to, but not after, the time the Diamondback issuance proposal has been approved by Diamondback stockholders, if the Diamondback board of directors or a committee of the Diamondback board of directors has effected a Diamondback recommendation change; or

 

   

upon an Energen superior proposal termination event (as defined in the section entitled “The Merger Agreement—Termination—Termination Rights” beginning on page 163).

Expenses and Termination Fees (page 164)

Termination Fees Payable by Diamondback

The merger agreement requires Diamondback to pay Energen a termination fee of $400 million (which we refer to as the “reverse termination fee”) if:

 

   

Energen terminates the merger agreement due to a Diamondback recommendation change;

 

   

Diamondback terminates the merger agreement due to a Diamondback superior proposal termination event;

 

   

(i) Diamondback or Energen terminates the merger agreement due to a Diamondback stockholder approval termination event or Energen terminates the merger agreement due to a Diamondback terminable breach event and such breach giving rise to such termination was a willful and material breach by Diamondback of a covenant or other agreement in the merger agreement, (ii) on or before the date of any such termination a Diamondback competing proposal shall have been publicly announced or disclosed prior to the Diamondback stockholders meeting and (iii) within 12 months after the date of such termination, Diamondback enters into a definitive agreement with respect to a Diamondback competing proposal or consummates any transaction meeting the parameters of a Diamondback competing proposal. For purposes of this paragraph, any reference in the definition of Diamondback competing proposal to “25%” will be deemed to be a reference to “more than 80%.”

In no event will Diamondback be required to pay the reverse termination fee on more than one occasion.

Termination Fees Payable by Energen

The merger agreement requires Energen to pay Diamondback a termination fee of $250 million (which we refer to as the “termination fee”) if:

 

   

Diamondback terminates the merger agreement due to an Energen recommendation change;

 

   

Energen terminates the merger agreement due to an Energen superior proposal event;

 

   

(i) (A) Diamondback or Energen terminates the merger agreement due to an Energen shareholder approval termination event or (B) Diamondback terminates the merger agreement due to an Energen terminable breach event and such breach giving rise to such termination was a willful and material breach by Energen of a covenant or other agreement in the merger agreement, (ii) on or before the date of any such termination an Energen competing proposal shall have been publicly announced or disclosed prior to the Energen shareholders meeting and (iii) within 12 months after the date of such termination, Energen enters into a definitive agreement with respect to an Energen competing proposal or consummates any transaction meeting the parameters of an Energen competing proposal. For



 

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purposes of this paragraph, any reference in the definition of Energen competing proposal to “25%” will be deemed to be a reference to “more than 80%.”

In no event will Energen be required to pay the termination fee on more than one occasion.

Expenses

If the merger agreement is terminated because of a failure of Energen’s shareholders or Diamondback’s stockholders to approve the proposals required to complete the merger, Energen and Diamondback, as applicable, may be required to reimburse the other party for its actual transaction expenses in an amount not to exceed $40 million, in the case of Energen’s expenses, and $25 million, in the case of Diamondback’s expenses. In no event will either party be entitled to receive more than one termination fee, net of any expense reimbursement.

Appraisal Rights/Dissenters’ Rights in the Merger (page 137)

Appraisal rights, which are also sometimes known as dissenters’ rights, are statutory rights that, if applicable under law, enable shareholders to dissent from an extraordinary transaction, such as a merger, and to demand that the corporation pay the fair value for their shares as determined immediately prior to the effective time of the merger) in cash, instead of receiving the consideration offered to shareholders in connection with the extraordinary transaction.

Under Delaware law, Diamondback stockholders are not entitled to appraisal rights in connection with the issuance of shares of Diamondback common stock as contemplated by the merger agreement. Diamondback stockholders may vote against the Diamondback issuance proposal if they do not favor the merger.

The holders of Energen common stock are entitled to dissenters’ rights in the merger under the Alabama Business and Non-Profit Entity Code (which we refer to as “ABNEC”). An Energen shareholder wishing to exercise dissenters’ rights must (1) not vote in favor of the merger, (2) deliver to Energen before the vote on the merger proposal is taken written notice of such shareholder’s intent to demand payment for his or her shares under the dissenters’ rights statute, (3) submit a payment demand to Energen following the merger within the time frame specified by a notice that Energen will provide to such shareholder who provided notification under clause (2), and (4) surrender the stock certificate to Energen that represents the shares subject to the appraisal. For more information, see “The Merger—Appraisal Rights/Dissenters’ Rights in the Merger.”

Material U.S. Federal Income Tax Consequences of the Merger (page 169)

Energen and Diamondback intend for the merger to qualify as a “reorganization” within the meaning of Section 368(a) of the Code. It is a condition to Diamondback’s obligation to complete the merger that Diamondback receive a written opinion from Diamondback tax counsel to the effect that, on the basis of facts, representations and assumptions set forth or referred to in such opinion, the merger will qualify as a “reorganization” within the meaning of Section 368(a) of the Code, and it is a condition to Energen’s obligation to complete the merger that Energen receive a written opinion from Energen tax counsel to the effect that, on the basis of facts, representations and assumptions set forth or referred to in such opinion, the merger will qualify as a “reorganization” within the meaning of Section 368(a) of the Code.

If the merger so qualifies, then U.S. holders (as defined in the section entitled “Material U.S. Federal Income Tax Consequences of the Merger”) of shares of Energen common stock generally will not recognize any gain or loss for U.S. federal income tax purposes upon receipt of Diamondback common stock in exchange for Energen common stock in the merger (other than gain or loss, if any, with respect to any cash received in lieu of a fractional share of Diamondback common stock). The material U.S. federal income tax consequences of the merger are discussed in more detail in the section entitled “Material U.S. Federal Income Tax Consequences



 

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of the Merger” beginning on page 169. The discussion of the material U.S. federal income tax consequences contained in this joint proxy statement/prospectus is intended to provide only a general discussion and is not a complete analysis or description of all potential U.S. federal income tax consequences of the merger that may vary with, or are dependent on, individual circumstances. In addition, it does not address the effects of any foreign, state or local tax laws or any U.S. federal tax laws other than U.S. federal income tax laws.

TAX MATTERS ARE COMPLICATED AND THE TAX CONSEQUENCES OF THE MERGER WILL DEPEND ON THE FACTS OF YOUR OWN SITUATION. YOU SHOULD CONSULT YOUR OWN TAX ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES AS A RESULT OF THE MERGER TO YOU IN YOUR PARTICULAR CIRCUMSTANCES.

Litigation Relating to the Merger (page 132)

In connection with the merger agreement and the transactions contemplated thereby, a purported class action lawsuit and an individual lawsuit have been filed. Both complaints, captioned Melvin Gross v. Energen Corporation, et al., Case No. 2:18-cv-01711-RDP (filed October 17, 2018) and Shiva Stein v. Energen Corporation, et al., Case 2:18-cv-01746-JHE (filed October 22, 2018), were filed in the United States District Court for the Northern District of Alabama. The complaints assert claims against Energen and its directors. In general, the complaints allege that the defendants violated Sections 14(a) and 20(a) of the Exchange Act because the preliminary Form S-4, as amended by Amendment No. 1 to the Form S-4, filed with the SEC allegedly misrepresents or omits material information. The complaints seek, among other things, injunctive relief preventing the consummation of the merger until additional disclosures are made, and damages. The defendants believe that these actions are without merit. For more information regarding these complaints and the risks associated with these complaints and any other similar litigation, see the sections entitled “The MergerLitigation Relating to the Merger” beginning on page 132 and “Risk Factors—Risk Factors Relating to the Merger—Diamondback and Energen may be targets of securities class action and derivative lawsuits which could result in substantial costs and may delay or prevent the merger from being completed” beginning on page 49.

Comparison of Rights of Stockholders of Diamondback and Shareholders of Energen (page 185)

The rights of Energen shareholders who receive shares of Diamondback common stock in the merger will be governed by the Amended and Restated Certificate of Incorporation of Diamondback, as amended (which we refer to as the “Diamondback certificate of incorporation”), and the Amended and Restated Bylaws of Diamondback, as amended (which we refer to as the “Diamondback bylaws”), which are governed by Delaware law, rather than by the Restated Certificate of Incorporation of Energen, as amended (which we refer to as the “Energen certificate of incorporation”), and the Bylaws of Energen, as amended (which we refer to as the “Energen bylaws”), which are governed by Alabama law. As a result, Energen shareholders will have different rights once they become Diamondback stockholders due to the differences in the organizational documents of Energen and Diamondback and the differences between Alabama and Delaware law. The key differences are described in the section entitled “Comparison of Rights of Stockholders of Diamondback and Shareholders of Energen” beginning on page 185.

Listing of Diamondback Common Stock; Delisting and Deregistration of Energen Shares (page 128)

If the merger is completed, the shares of Diamondback common stock to be issued in the merger will be listed for trading on Nasdaq, shares of Energen common stock will be delisted from the NYSE and deregistered under the Exchange Act, and Energen will no longer be required to file periodic reports with the SEC pursuant to the Exchange Act.



 

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SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF DIAMONDBACK

The following table presents selected historical consolidated financial data for Diamondback (1) as of and for the years ended December 31, 2017, 2016, 2015, 2014 and 2013 and (2) as of and for the six months ended June 30, 2018 and 2017. The consolidated financial data for each of the years ended December 31, 2017, 2016 and 2015, and as of December 31, 2017 and 2016 have been derived from Diamondback’s selected financial data and audited consolidated financial statements included in its Annual Report on Form 10-K for the fiscal year ended December 31, 2017 filed on February 15, 2018, which is incorporated by reference herein in its entirety. The selected historical consolidated financial data of Diamondback for each of the years ended December 31, 2014 and 2013 and as of December 31, 2015, 2014 and 2013 have been derived from Diamondback’s selected financial data and audited consolidated financial statements for such years, which have not been incorporated by reference herein. The selected historical consolidated financial data for the six months ended June 30, 2018 and 2017 and as of June 30, 2018 have been derived from Diamondback’s unaudited consolidated financial data included in its Quarterly Report on Form 10-Q for the quarter ended June 30, 2018 filed August 9, 2018, which is incorporated by reference herein in its entirety. The selected balance sheet data as of June 30, 2017 has been derived from Diamondback’s unaudited consolidated financial statements as of June 30, 2017, which have not been incorporated by reference herein.

The information set forth below is only a summary and is not necessarily indicative of the results of future operations of Diamondback nor does it include the effects of the merger. This summary should be read together with the other information contained in Diamondback’s Annual Report on Form 10-K for the fiscal year ended December 31, 2017 and Quarterly Report on Form 10-Q for the quarter ended June 30, 2018, including the sections entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and related notes therein. For additional information, see the sections entitled “Where You Can Find More Information” and “Information Incorporated by Reference,” in each case beginning on page 197.

 

    Six Months Ended June 30,     Year Ended December 31,  
    2018     2017     2017     2016     2015     2014     2013  
    (In thousands, except per
share data)
    (In thousands, except per share amounts)  

Statements of Operations Data:

             

Total revenues

  $ 1,006,468     $ 504,664     $ 1,205,111     $ 527,107     $ 446,733     $ 495,718     $ 208,002  

Total costs and expenses

    457,519       255,946       600,091       595,724       1,187,002       283,048       112,808  

Income (loss) from operations

    548,949       248,718       605,020       (68,617     (740,269     212,670       95,194  

Other income (expense)

    (29,157     60,020       (107,831     (96,099     (8,831     92,286       (8,853

Income (loss) before income taxes

    519,792       308,738       497,189       (164,716     (749,100     304,956       86,341  

Provision for (benefit from) income taxes

    40,474       3,536       (19,568     192       (201,310     108,985       31,754  

Net income (loss)

    479,318       305,202       516,757       (164,908     (547,790     195,971       54,587  

Less: Net income attributable to non-controlling interest

    97,360       10,524       34,496       126       2,838       2,216       —    

Net income (loss) attributable to Diamondback Energy, Inc.

  $ 381,958     $ 294,678     $ 482,261     $ (165,034   $ (550,628   $ 193,755     $ 54,587  

Earnings per common share:

             

Basic

  $ 3.87     $ 3.08     $ 4.95     $ (2.20   $ (8.74   $ 3.67     $ 1.30  

Diluted

  $ 3.87     $ 3.07     $ 4.94     $ (2.20   $ (8.74   $ 3.64     $ 1.29  

Weighted average common shares outstanding:

             

Basic

    98,584       95,665       97,458       75,077       63,019       52,826       42,015  

Diluted

    98,820       95,925       97,688       75,077       63,019       53,297       42,255  


 

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Table of Contents
    As of June 30,     As of December 31,  
    2018     2017     2017     2016     2015     2014     2013  
    (In thousands)     (In thousands)  

Balance Sheet Data:

             

Cash and cash equivalents

  $ 113,927     $ 16,588     $ 112,446     $ 1,666,574     $ 20,115     $ 30,183     $ 15,555  

Net property and equipment

    8,343,044       6,508,747       7,343,617       3,390,857       2,597,625       2,791,807       1,446,337  

Total assets

    8,954,395       6,783,809       7,770,985       5,349,680       2,750,719       3,095,481       1,521,614  

Current liabilities

    727,077       323,166       577,428       209,342       141,421       266,729       121,320  

Long-term debt

    1,967,074       1,151,515       1,477,347       1,105,912       487,807       673,500       460,000  

Total stockholders’ / members’ equity(1)

    5,631,449       4,817,624       5,254,860       3,697,462       1,875,972       1,751,011       845,541  

Total equity

    6,012,467       5,286,934       5,581,737       4,018,292       2,108,973       1,985,213       —    

 

    Six Months Ended June 30,     Year Ended December 31,  
    2018     2017     2017     2016     2015     2014     2013  
    (In thousands)     (In thousands)  

Other Financial Data:

             

Net cash provided by operating activities

  $ 764,353     $ 394,431     $ 888,625     $ 332,080     $ 416,501     $ 356,389     $ 155,777  

Net cash used in investing activities

    (1,198,594     (2,221,476     (3,132,282     (1,310,242     (895,050     (1,481,997     (940,140

Net cash provided by financing activities

    435,722       177,059       689,529       2,624,621       468,481       1,140,236       773,560  

Consolidated Adjusted EBITDA(2)

  $ 710,913     $ 393,685     $ 928,039     $ 387,535     $ 449,245     $ 398,334     $ 157,604  

 

(1)

For the years ended December 31, 2017, 2016, 2015 and 2014, total stockholders’ equity excludes $326.9 million, $320.8 million, $233.0 million and $234.2 million, respectively, of non-controlling interest related to Viper Energy Partners LP, one of Diamondback’s subsidiaries (which we refer to as “Viper”). There was no equity related to non-controlling interest for the year ended December 31, 2013.

(2)

Consolidated Adjusted EBITDA is a supplemental non-GAAP financial measure. For Diamondback’s definition of Consolidated Adjusted EBITDA and a reconciliation of Consolidated Adjusted EBITDA to net income (loss) see “—Non-GAAP Financial Measures” below.

Non-GAAP Financial Measures

Reconciliation of Net Income (Loss) to Consolidated Adjusted EBITDA

Consolidated Adjusted EBITDA (as defined below) is a supplemental non-GAAP financial measure that is used by Diamondback’s management and external users of Diamondback’s financial statements, such as industry analysts, investors, lenders and rating agencies.

For purposes of the Selected Historical Consolidated Financial Data of Diamondback, Consolidated Adjusted EBITDA is defined as net income (loss) plus non-cash (gain) loss on derivative instruments, net; interest expense, net; depreciation, depletion and amortization expense, impairment of oil and natural gas properties, non-cash equity-based compensation expense, capitalized equity-based compensation expense, asset retirement obligation accretion expense, income tax (benefit) provision and EBITDA attributable to non-controlling interest gain on revaluation of investment and loss on extinguishment of debt. Consolidated Adjusted EBITDA is not a measure of net income (loss) as determined by United States’ generally accepted



 

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accounting principles (which we refer to as “GAAP”). Diamondback’s management believes Consolidated Adjusted EBITDA is useful because it allows it to more effectively evaluate Diamondback’s operating performance and compare the results of Diamondback’s operations from period to period without regard to Diamondback’s financing methods or capital structure. Diamondback adds the items listed above to net income (loss) in arriving at Consolidated Adjusted EBITDA because these amounts can vary substantially from company to company within Diamondback’s industry depending upon accounting methods and book values of assets, capital structures and the method by which the assets were acquired. Consolidated Adjusted EBITDA should not be considered as an alternative to, or more meaningful than, net income (loss) as determined in accordance with GAAP or as an indicator of Diamondback’s operating performance or liquidity. Certain items excluded from Consolidated Adjusted EBITDA are significant components in understanding and assessing a company’s financial performance, such as a company’s cost of capital and tax structure, as well as the historic costs of depreciable assets, none of which are components of Consolidated Adjusted EBITDA. Diamondback’s computations of Consolidated Adjusted EBITDA may not be comparable to other similarly titled measure of other companies or to such measure in Diamondback’s revolving credit facility or any of Diamondback’s other contracts, including the indentures governing its outstanding senior notes. Diamondback has included a reconciliation of Consolidated Adjusted EBITDA to net income, the most directly comparable GAAP financial measure, below for the periods indicated:

 

    Six Months Ended June 30,     Year Ended December 31,  
    2018     2017     2017     2016     2015     2014     2013  
    (In thousands)     (In thousands)  

Net income (loss)

  $ 479,318     $ 305,202     $ 516,757     $ (164,908   $ (547,790   $ 195,971     $ 54,587  

Non-cash (gain) loss on derivative instruments, net

    13,705       (68,010 )       84,240       26,522       112,918       (117,109     (5,346

Interest expense, net

    30,797       20,470       40,554       40,684       41,510       34,515       8,059  

Depreciation, depletion and amortization

    245,083       134,102       326,759       178,015       217,697       170,005       66,597  

Impairment of oil and natural gas properties

    —         —         —         245,536       814,798       —         —    

Non-cash equity-based compensation expense

    18,091       17,475       34,178       33,532       24,572       14,253       2,724  

Capitalized equity-based compensation expense

    (4,990     (4,244     (8,641     (7,079     (6,043     (4,437     (972

Asset retirement obligation accretion expense

    720       673       1,391       1,064       833       467       201  

Gain on revaluation of investment

    (5,364     —              

Loss on extinguishment of debt

    —         —         —         33,134       —         —         —    

Income tax (benefit) provision

    40,474       3,536       (19,568     192       (201,310     108,985       31,754  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Consolidated Adjusted EBITDA

  $ 817,834     $ 409,204     $ 928,039     $ 387,535     $ 449,245     $ 398,334     $ 157,604  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Non Controlling Interest Adjustment

    (106,921     (15,519     (47,631     843       (7,940     (4,316     —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA attributable to Diamondback Energy, Inc.

  $ 710,913     $ 393,685       928,039       387,535       449,245       398,334       157,604  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 


 

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SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF ENERGEN

The following table sets forth Energen’s selected consolidated historical financial information that has been derived from Energen’s consolidated financial statements (1) as of and for the years ended December 31, 2017, 2016, 2015, 2014 and 2013 and (2) as of and for the six months ended June 30, 2018 and June 30, 2017. The information set forth below is only a summary and is not necessarily indicative of the results of future operations of Energen nor does it include the effects of the merger. You should read this financial information together with Energen’s consolidated financial statements, the related notes and the sections entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in its Annual Report on Form 10-K for the year ended December 31, 2017 filed on February 28, 2018, and Quarterly Reports on Form 10-Q for the quarter ended March 31, 2018 filed on May 9, 2018 and for the quarter ended June 30, 2018 filed on August 8, 2018, each of which is incorporated into this joint proxy statement/prospectus by reference. The selected statement of operations data and cash flow data for the years ended December 31, 2014 and 2013, and selected balance sheet data as of December 31, 2015, 2014 and 2013 have been derived from Energen’s audited consolidated financial statements for such years, which have not been incorporated into this joint proxy statement/prospectus by reference. The selected historical consolidated financial data for the six months ended June 30, 2018 and 2017 and as of June 30, 2018 have been derived from Energen’s unaudited consolidated financial data included in its Quarterly Report on Form 10-Q for the quarter ended June 30, 2018, which is incorporated into this joint proxy statement/prospectus by reference. The selected balance sheet data as of June 30, 2017 has been derived from Energen’s unaudited consolidated financial statements as of June 30, 2017, which have not been incorporated by reference herein. For additional information, see the sections entitled “Where You Can Find More Information” and “Information Incorporated by Reference,” each beginning on page 197.

Selected Financial and Common Stock Data

 

    As of and for the Six
Months Ended

(in thousands, except
per share amounts)
    As of and for the Years Ended December 31,
(in thousands, except per share amounts)
 
    June 30,
2018
    June 30,
2017
    2017     2016     2015     2014     2013  

STATEMENT OF OPERATIONS

             

Total revenues

  $ 695,819     $ 497,745     $ 961,045     $ 532,889     $ 878,554     $ 1,679,213     $ 1,206,293  

Income (loss) from continuing operations

  $ 187,189     $ 62,884     $ 306,828     $ (167,513   $ (945,731   $ 99,643     $ 141,881  

Net income (loss)

  $ 187,189     $ 62,884     $ 306,828     $ (167,513   $ (945,731   $ 568,032     $ 204,554  

Diluted earnings per average common share from continuing operations

  $ 1.91     $ 0.64     $ 3.14     $ (1.77   $ (12.43   $ 1.36     $ 1.96  

Diluted earnings per average common share

  $ 1.91     $ 0.64     $ 3.14     $ (1.77   $ (12.43   $ 7.75     $ 2.82  

BALANCE SHEET

             

Total property, plant and equipment, net

  $ 5,133,216     $ 4,558,984     $ 4,763,520     $ 4,061,552     $ 4,350,690     $ 5,199,137     $ 5,118,088  

Total assets

  $ 5,462,012     $ 4,746,732     $ 5,033,895     $ 4,579,823     $ 4,611,156     $ 6,138,258     $ 6,622,212  

Long-term debt

  $ 829,068     $ 659,158     $ 782,861     $ 527,443     $ 773,550     $ 1,038,563     $ 1,093,541  

Total shareholders’ equity

  $ 3,628,859     $ 3,187,742     $ 3,438,457     $ 3,120,602     $ 2,895,860     $ 3,414,604     $ 2,858,019  

COMMON STOCK DATA

             

Cash dividends paid per common share

  $ —       $ —       $ —       $ —       $ 0.08     $ 0.47     $ 0.58  

Diluted average common shares outstanding

    97,942       97,648       97,707       94,476       76,078       73,275       72,471  

Price range:

             

High

  $ 74.07     $ 60.21     $ 60.21     $ 64.44     $ 77.12     $ 90.66     $ 89.92  

Low

  $ 47.81     $ 46.25     $ 46.16     $ 20.76     $ 39.99     $ 53.78     $ 44.46  

Close

  $ 72.82     $ 49.37     $ 57.57     $ 57.67     $ 40.99     $ 63.76     $ 70.75  


 

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Table of Contents

Selected Historical Business Data

 

    As of and for the
Six Months Ended

(in thousands, except
per unit data)
    As of and for the Years Ended December 31,
(in thousands, except per unit data)
 
    June 30,
2018
    June 30,
2017
    2017     2016     2015     2014     2013  

Oil, natural gas liquids and natural gas sales from continuing operations

 

   

Oil

  $ 620,077     $ 329,371     $ 814,470     $ 521,017     $ 631,663     $ 988,868     $ 961,055  

Natural gas liquids

  $ 76,184     $ 34,268     $ 98,298     $ 48,652     $ 48,856     $ 110,918     $ 91,407  

Natural gas

  $ 33,172     $ 31,459     $ 74,670     $ 51,697     $ 82,742     $ 244,408     $ 203,855  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $ 729,433     $ 395,098     $ 987,438     $ 621,366     $ 763,261     $ 1,344,194     $ 1,256,317  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Open non-cash mark-to-market gains (losses) on derivative instruments

 

   

Oil

  $ 17,384     $ 89,125     $ (10,658   $ (57,148   $ (242,227   $ 271,200     $ (43,261

Natural gas liquids

  $ (8,817   $ 11,617     $ (9,011   $ (6,868   $ —       $ 287     $ (652

Natural gas

  $ 253     $ 8,961     $ 8,910     $ (7,174   $ (39,525   $ 43,958     $ (3,919
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $ 8,820     $ 109,703     $ (10,759   $ (71,190   $ (281,752   $ 315,445     $ (47,832
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Closed gains (losses) on derivative instruments

 

       

Oil

  $ (33,680   $ (5,858   $ (11,364   $ (17,701   $ 346,404     $ 4,377     $ (52,694

Natural gas liquids

  $ (10,230   $ (1,545   $ (7,780   $ —       $ —       $ 6,218     $ 10,795  

Natural gas

  $ 1,476     $ 347     $ 3,510     $ 414     $ 50,641     $ 8,979     $ 39,707  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $ (42,434   $ (7,056   $ (15,634   $ (17,287   $ 397,045     $ 19,574     $ (2,192
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

  $ 695,819     $ 497,745     $ 961,045     $ 532,889     $ 878,554     $ 1,679,213     $ 1,206,293  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Production volumes from continuing operations

 

       

Oil (MBbl)

    10,148       7,098       16,951       13,213       14,023       11,814       10,364  

Natural gas liquids (MMgal)

    146.7       85.3       220.7       163.5       170.7       172.3       135.8  

Natural gas (MMcf)

    21,480       13,326       33,528       27,204       35,604       58,602       58,104  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Production volumes from continuing operations (MBOE)

    17,220       11,350       27,794       21,639       24,022       25,684       23,281  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total production volumes (MBOE)

    17,220       11,350       27,794       21,639       24,022       25,849       25,362  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Proved reserves

             

Oil (MBbl)

    274,346       228,322       257,010       199,575       210,691       181,227       164,870  

Natural gas liquids (MBbl)

    96,864       65,814       90,779       58,046       71,713       73,463       63,011  

Natural gas (MMcf))

    621,690       405,089       577,489       352,248       433,904       707,926       719,725  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total (MBOE)

    474,825       361,651       444,038       316,329       354,722       372,678       347,835  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Costs per BOE from continuing operations

 

       

Oil, natural gas liquids and natural gas production expenses

  $ 6.42     $ 7.51     $ 6.61     $ 7.94     $ 9.51     $ 10.68     $ 11.06  

Production and ad valorem taxes

  $ 2.75     $ 2.29     $ 2.14     $ 1.98     $ 2.39     $ 3.97     $ 4.04  

Depreciation, depletion and amortization

  $ 15.00     $ 19.49     $ 17.39     $ 20.70     $ 24.72     $ 21.36     $ 19.45  

Exploration expense

  $ 0.14     $ 0.50     $ 0.36     $ 0.25     $ 0.62     $ 1.09     $ 0.60  

General and administrative expense

  $ 2.57     $ 3.56     $ 3.05     $ 4.42     $ 6.21     $ 4.75     $ 4.89  

Capital expenditures (including acquisitions)

  $ 594,922     $ 720,246     $ 1,189,342     $ 582,898     $ 1,114,808     $ 1,451,951     $ 1,120,753  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 


 

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SUMMARY UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL DATA

The following summary unaudited pro forma condensed combined balance sheet data gives effect to the proposed merger as if it had occurred on June 30, 2018, while the unaudited pro forma condensed combined statement of operations data for the year ended December 31, 2017 and the six months ended June 30, 2018 is presented as if the merger had occurred on January 1, 2017. The following summary unaudited pro forma condensed combined financial information has been prepared for illustrative purposes only and is not necessarily indicative of what the combined company’s financial position or results of operations actually would have been had the merger occurred as of the dates indicated. In addition, the unaudited pro forma condensed combined financial information does not purport to project the future financial position or operating results of the combined company. Future results may vary significantly from the results reflected because of various factors, including those discussed in the section entitled “Risk Factors” beginning on page 43. The following summary unaudited pro forma condensed combined financial information should be read in conjunction with the section titled “Unaudited Pro Forma Condensed Combined Financial Statements” beginning on page 172 and the related notes.

 

     Six Months
Ended
June 30, 2018
     Year Ended
December 31,
2017
 
     (in thousands, except
per share amounts)
 

Pro Forma Statements of Condensed Combined Operations Data:

     

Total revenues

   $ 1,736,293      $ 2,195,726  

Net income attributable to Diamondback Energy, Inc.

   $ 571,251      $ 873,317  

Earnings per share, basic

   $ 3.54      $ 5.45  

Earnings per share, diluted

   $ 3.53      $ 5.44  

 

     As of
June 30, 2018
 
     (in thousands)  

Pro Forma Condensed Combined Balance Sheet Data:

  

Cash and cash equivalents

   $ 115,115  

Total assets

   $ 18,946,338  

Long-term debt

   $ 2,805,074  

Stockholder’s equity

   $ 13,153,401  


 

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Table of Contents

SUMMARY PRO FORMA OIL, NATURAL GAS AND NGL RESERVE INFORMATION

The following tables present the estimated pro forma combined net proved developed and undeveloped oil, natural gas and NGL reserves as of December 31, 2017. The pro forma reserve information set forth below gives effect to the merger as if the merger had been completed on January 1, 2017. The following summary pro forma reserve information has been prepared for illustrative purposes only and is not intended to be a projection of future results of the combined company. Future results may vary significantly from the results reflected because of various factors, including those discussed in the section entitled “Risk Factors” beginning on page 43. The summary pro forma reserve information should be read in conjunction with the section titled “Unaudited Pro Forma Condensed Combined Financial Statements” beginning on page 172 and the related notes included in this joint proxy statement/prospectus.

 

     Year Ended December 31, 2017  
     Diamondback
Historical
     Energen
Historical
     Diamondback
Pro Forma
Combined
 

Proved Developed Reserves:

        

Oil (MBbls)

     141,246        143,907        285,153  

Natural Gas Liquids (MBbls)

     35,412        52,882        88,294  

Natural Gas (MMcf)

     190,740        342,616        533,356  

Proved Undeveloped Reserves:

        

Oil (MBbls)

     91,935        113,103        205,038  

Natural Gas Liquids (MBbls)

     19,198        37,897        57,095  

Natural Gas (MMcf)

     94,629        234,873        329,502  
     Year Ended December 31, 2017  
     Diamondback
Historical
     Energen
Historical
     Diamondback
Pro Forma
Combined
 

Production:

        

Oil (MBbls)

     21,417        16,951        38,368  

Natural Gas Liquids (MBbls)

     4,056        5,255        9,311  

Natural Gas (MMcf)

     20,660        33,528        54,188  
     Six Months Ended June 30, 2018  
     Diamondback
Historical
     Energen
Historical
     Diamondback
Pro Forma
Combined
 

Production:

        

Oil (MBbls)

     14,278        10,148        24,426  

Natural Gas Liquids (MBbls)

     2,883        3,492        6,375  

Natural Gas (MMcf)

     13,913        21,480        35,393  


 

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COMPARATIVE HISTORICAL AND UNAUDITED PRO FORMA PER SHARE DATA

The following table presents Diamondback’s and Energen’s historical and pro forma per share data for the year ended December 31, 2017 and as of and for the six months ended June 30, 2018. The pro forma per share data for the year ended December 31, 2017 and as of and for the six months ended June 30, 2018 is presented as if the merger had been completed on January 1, 2017. Except for the historical information for the year ended December 31, 2017, the information provided in the table below is unaudited. This information should be read together with the historical consolidated financial statements and related notes of Diamondback and Energen, filed by each with the SEC, and incorporated by reference in this joint proxy statement/prospectus, and with the unaudited pro forma condensed combined financial statements included in the section entitled “Unaudited Pro Forma Condensed Combined Financial Statements” beginning on page 172.

 

     For the Year Ended
December 31, 2017
     As of and for the
Six Months Ended
June 30, 2018
 

Diamondback

     

Net income attributable to common stockholders (per basic share)

   $ 4.95      $ 3.87  

Net income attributable to common stockholders (per diluted share)

   $ 4.94      $ 3.87  

Cash dividends declared per share

     —        $ 0.25  

Net book value per share

      $ 57.10  

Energen

     

Net income attributable to common shareholders (per basic share)

   $ 3.16      $ 1.92  

Net income attributable to common shareholders (per diluted share)

   $ 3.14      $ 1.91  

Cash dividends declared per share

     —          —    

Net book value per share

      $ 36.03  

Pro Forma Condensed Combined (Unaudited)

     

Net income attributable to common stockholders (per basic share)

   $ 5.45      $ 3.54  

Net income attributable to common stockholders (per diluted share)

   $ 5.44      $ 3.53  

Cash dividends declared per share

     —        $ 0.25  

Net book value per share

      $ 79.06  

Equivalent Energen

     

Net income attributable to common shareholders (per basic share)

   $ 3.47      $ 2.28  

Net income attributable to common shareholders (per diluted share)

   $ 3.47      $ 2.28  

Cash dividends declared per share

     —          —    

Net book value per share

      $ 50.93  


 

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COMPARATIVE PER SHARE MARKET PRICE AND DIVIDEND INFORMATION

Diamondback Market Price and Dividend Information

Diamondback common stock is listed on The Nasdaq Global Select Market under the symbol “FANG.” The following table sets forth the high and low prices per share for Diamondback common stock for the periods indicated and the cash dividends per share declared with respect to Diamondback common stock in the periods indicated, in each case rounded to the nearest whole cent. Diamondback’s fiscal year ends on December 31. Diamondback commenced the payment of dividends beginning with the first quarter of 2018.

 

     High ($)      Low ($)      Dividend ($)  

2016:

        

First Quarter

     79.87        55.48        —    

Second Quarter

     96.01        73.12        —    

Third Quarter

     99.69        83.90        —    

Fourth Quarter

     113.23        88.74        —    

2017:

        

First Quarter

     114.00        96.05        —    

Second Quarter

     108.17        83.22        —    

Third Quarter

     98.36        82.77        —    

Fourth Quarter

     127.45        95.69        —    

2018:

        

First Quarter

     134.6        105.66        0.125  

Second Quarter

     138.14        107.78        0.125  

Third Quarter

     138.25        111.31        *  

Fourth Quarter (through October 23, 2018)

     140.78        117.12        *  

 

*

The Diamondback board has not made any determinations with respect to dividends for the third and fourth quarters of 2018.

Energen Market Price and Dividend Information

Energen common stock is listed on the NYSE under the symbol “EGN.” The following table sets forth the high and low prices per share for Energen common stock for the periods indicated and the cash dividends per share declared with respect to Energen common stock in the periods indicated, in each case rounded to the nearest whole cent. Energen’s fiscal year ends on December 31.

 

     High ($)      Low ($)      Dividend ($)  

2016:

        

First Quarter

     42.76        20.76        —    

Second Quarter

     51.27        34.03        —    

Third Quarter

     60.00        43.70        —    

Fourth Quarter

     64.44        47.88        —    

2017:

        

First Quarter

     60.21        47.95        —    

Second Quarter

     58.96        46.25        —    

Third Quarter

     55.22        46.16        —    

Fourth Quarter

     58.96        48.59        —    

2018:

        

First Quarter

     63.29        47.81        —    

Second Quarter

     74.07        60.00        —    

Third Quarter

     87.88        70.31        —    

Fourth Quarter (through October 23, 2018)

     89.83        75.21        —    


 

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Comparison of Diamondback and Energen Market Prices and Implied Share Value of the Stock Consideration

The following table sets forth the closing sale price per share of Diamondback common stock and Energen common stock as reported on Nasdaq and the NYSE, respectively, on August 13, 2018, the last trading day prior to the public announcement of the merger, and on October 23, 2018, the last practicable trading day prior to the mailing of this joint proxy statement/prospectus. The table also shows the estimated implied value of the merger consideration proposed for each share of Energen common stock as of the same two dates. This implied value was calculated by multiplying the closing price of a share of Diamondback common stock on the relevant date by the exchange ratio of 0.6442 of a share of Diamondback common stock for each share of Energen common stock.

 

     Diamondback
Common Stock
     Energen Common
Stock
     Implied Per Share
Value of Merger
Consideration
 

August 13, 2018

   $ 131.87      $ 71.36      $ 84.95  

October 23, 2018

   $ 119.11      $ 76.36      $ 76.73  

Holders of Diamondback and Energen common stock are encouraged to obtain current market quotations for Diamondback common stock and Energen common stock and to review carefully the other information contained in this joint proxy statement/prospectus or incorporated by reference herein. No assurance can be given concerning the market price of Diamondback common stock before or after the effective date of the merger. For additional information, see the sections entitled “Where You Can Find More Information” and “Information Incorporated by Reference,” each beginning on page 197.



 

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RISK FACTORS

In addition to the other information contained in or incorporated by reference into this joint proxy statement/prospectus, including the matters addressed in the section entitled “Cautionary Statement Regarding Forward-Looking Statements” beginning on page 55, Energen shareholders should carefully consider the following risks before deciding how to vote with respect to the merger proposal and the non-binding compensation advisory proposal to be considered and voted on at the Energen special meeting, and Diamondback stockholders should carefully consider the following risks before deciding how to vote with respect to the Diamondback issuance proposal to be considered and voted on at the Diamondback special meeting. In addition, Energen shareholders and Diamondback stockholders should also read and consider the risks associated with each of the businesses of Energen and Diamondback because these risks will also affect the combined company. These risks can be found in Diamondback’s and Energen’s Annual Reports on Form 10-K for the year ended December 31, 2017, their subsequent reports on Form 10-Q and other documents they file with the SEC, in each case incorporated by reference into this joint proxy statement/prospectus. Energen shareholders and Diamondback stockholders should also read and consider the other information in this joint proxy statement/prospectus and the other documents incorporated by reference into this joint proxy statement/prospectus. For additional information, see the sections entitled “Where You Can Find More Information” and “Information Incorporated by Reference,” each beginning on page 197.

Risk Factors Relating to the Merger

Because the exchange ratio is fixed and because the market price of Diamondback common stock will fluctuate, Energen shareholders cannot be certain of the precise value of the merger consideration they will receive in the merger.

If the merger is completed, at the effective time of the merger, each issued and outstanding eligible share of Energen common stock will be converted into the right to receive the merger consideration. The exchange ratio for the merger consideration is fixed at 0.6442 of a share of Diamondback common stock for each share of Energen common stock (with certain exceptions described in this joint proxy statement/prospectus), and there will be no adjustment to the merger consideration for changes in the market price of Diamondback common stock or Energen common stock prior to the completion of the merger.

If the merger is completed, there will be a time lapse between each of the date of this joint proxy statement/ prospectus, the dates on which Energen shareholders vote to approve the Energen merger proposal and Diamondback stockholders vote to approve the Diamondback issuance proposal, and the date on which Energen shareholders entitled to receive the merger consideration actually receive the merger consideration. The market value of shares of Diamondback common stock will fluctuate, possibly materially, during and after these periods as a result of a variety of factors, including general market and economic conditions, changes in Diamondback’s businesses, operations and prospects and regulatory considerations. Such factors are difficult to predict and in many cases are be beyond the control of Diamondback and Energen. The actual value of any merger consideration received by Energen shareholders at the completion of the merger will depend on the market value of the shares of Diamondback common stock at that time. Consequently, at the time Energen shareholders must decide whether to approve the merger proposal, they will not know the actual market value of any merger consideration they will receive when the merger is completed. For additional information about the merger consideration, see the sections entitled “The Merger—Consideration to Energen Shareholders” and “The Merger Agreement—Effect of the Merger on Capital Stock; Merger Consideration” beginning on pages 71 and 134, respectively.

 

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The merger may not be completed and the merger agreement may be terminated in accordance with its terms. Failure to complete the merger could negatively impact the price of shares of Diamondback common stock and the price of shares of Energen common stock, as well as Diamondback’s and Energen’s respective future businesses and financial results.

The merger is subject to a number of conditions that must be satisfied, including the approval by Diamondback stockholders of the share issuance proposal and approval by Energen shareholders of the merger agreement proposal, or waived, in each case prior to the completion of the merger. These conditions are described in the section entitled “The Merger Agreement—Conditions to the Completion of the Merger” beginning on page 162. These conditions to the completion of the merger, some of which are beyond the control of Diamondback and Energen, may not be satisfied or waived in a timely manner or at all, and, accordingly, the merger may be delayed or may not be completed.

The merger agreement may be terminated by either Diamondback or Energen if the merger is not completed by March 31, 2019 or, at either party’s discretion—if the only conditions to closing that have not been satisfied or waived by that date are those related to the termination or expiration of any waiting period under the HSR Act or the adoption of an antitrust law prohibiting the merger—June 30, 3019, except that this right to terminate the merger agreement will not be available to any party whose failure to fulfill any material covenant or agreement under the merger agreement is the primary cause of or resulted in the failure of the transactions to be consummated on or before that date. Diamondback and Energen can also mutually decide to terminate the merger agreement at any time, before or after stockholder approval. In addition, Diamondback and Energen may elect to terminate the merger agreement in certain other circumstances as further detailed in the section entitled “The Merger Agreement—Termination” beginning on page 164.

If the transactions contemplated by the merger agreement are not completed for any reason, Diamondback’s and Energen’s respective ongoing businesses and financial results may be adversely affected and, without realizing any of the benefits of having completed the transactions, Diamondback and Energen will be subject to a number of risks, including the following:

 

   

Diamondback and Energen will be required to pay their respective costs relating to the transactions, which are substantial, such as legal, accounting, financial advisory and printing fees, whether or not the transactions are completed;

 

   

time and resources committed by Diamondback’s and Energen’s management to matters relating to the transactions could otherwise have been devoted to pursuing other beneficial opportunities;

 

   

Diamondback and Energen may experience negative reactions from financial markets, including negative impacts on the prices of their common stock, including to the extent that the current market price reflects a market assumption that the transactions will be completed;

 

   

Diamondback and Energen may experience negative reactions from employees, customers or vendors; and

 

   

Since the merger agreement restricts the conduct of Energen’s and Diamondback’s business prior to completion of the merger, Energen and Diamondback may not have been able to take certain actions during the pendency of the merger that would have benefitted it as an independent company and the opportunity to take such actions may no longer be available. For a description of the restrictive covenants to which Diamondback and Energen are subject, see the section entitled “The Merger Agreement—Interim Operations of Energen and Diamondback Pending the Merger” beginning on page 142.

If the merger agreement is terminated and Energen’s board of directors seeks another merger or business combination, Energen may not be able to find a party willing to offer equivalent or more attractive consideration than the consideration Diamondback has agreed to provide in the merger, or that such other merger or business combination is completed. If the merger agreement is terminated under specified circumstances, Diamondback

 

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may be required to pay Energen a termination fee of $400 million, and Energen may be required to pay Diamondback a termination fee of $250 million. If the merger agreement is terminated because of a failure of Energen’s shareholders or Diamondback’s stockholders to approve the proposals required to complete the merger, Energen and Diamondback, as applicable, may be required to reimburse the other party for its actual transaction expenses in an amount not to exceed $40 million, in the case of Energen’s expenses, and $25 million, in the case of Diamondback’s expenses. For a description of these circumstances, see the section entitled “The Merger Agreement—Termination” beginning on page 164. In addition, any delay in completing the merger may significantly reduce the synergies and other benefits that Diamondback and Energen expect to achieve if they successfully complete the merger within the expected timeframe and integrate their respective businesses.

Current Energen and Diamondback stockholders will have a reduced ownership and voting interest in Diamondback after the merger compared to their current ownership in the separate companies and will exercise less influence over management.

Currently, Energen shareholders have the right to vote in the election of the Energen board of directors and on other matters requiring shareholder approval under Alabama law and the Energen certificate of incorporation and bylaws. Diamondback stockholders have the right to vote in the election of the Diamondback board of directors and on other matters requiring stockholder approval under Delaware law and the Diamondback certificate of incorporation and bylaws. Based on the number of issued and outstanding shares of Diamondback and Energen common stock as of October 19, 2018, and the exchange ratio, immediately after the merger is completed, it is expected that, on a fully-diluted basis, current Diamondback stockholders will collectively own approximately 61%, and current Energen shareholders will collectively own approximately 39%, of the outstanding shares of Diamondback common stock (without giving effect to any shares of Diamondback common stock held by Energen shareholders prior to the merger or shares to be issued in Diamondback’s pending acquisition of certain assets from Ajax Resources, LLC). As a result of the merger, current Energen shareholders and current Diamondback stockholders will own a smaller percentage of the combined company than they currently own of Energen and Diamondback, respectively, and as a result will have less influence on the management and policies of Diamondback post-merger than they now have on the management and policies of Energen and Diamondback, respectively.

The merger is subject to the receipt of approvals, consents or clearances from regulatory authorities that may impose conditions that could have an adverse effect on Diamondback or Energen or, if not obtained, could prevent completion of the transactions.

Completion of the merger is conditioned upon the receipt of certain governmental approvals. Although each party has agreed to use their respective reasonable best efforts to obtain the requisite governmental approvals, there can be no assurance that these approvals will be obtained and that the other conditions to completing the merger will be satisfied. In addition, the governmental authorities from which the regulatory approvals are required may impose conditions on the completion of the merger or require changes to the terms of the merger or other agreements to be entered into in connection with the merger agreement. Under the terms of the merger agreement, Diamondback has agreed to take any and all action necessary to obtain these governmental approvals; however Diamondback does not have to agree to any action that would reasonably be expected to have a material adverse effect on the post-closing business, financial condition or operations of Diamondback and its subsidiaries (including Energen and its subsidiaries), taken as a whole. The actions that Diamondback may be required to take include, among others, disposing of assets, categories of assets or businesses, or holding assets, categories of assets or businesses separately, terminating existing relationships, contractual rights or obligations, terminating any venture or other arrangement, creating new relationships, contractual rights or obligations and making other changes or restructurings. These actions may adversely affect the business of Diamondback and its subsidiaries, including, post-merger, Energen. Diamondback and Energen cannot provide any assurance that these approvals will be obtained or that there will not be any adverse consequences to Diamondback’s or Energen’s business resulting from the failure to obtain these governmental approvals or from conditions that could be imposed in connection with obtaining these governmental approvals, including divestitures or other operating restrictions upon Diamondback, Energen, or their subsidiaries.

 

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Completion of the merger is also conditioned upon the authorization for listing of Diamondback common stock to be issued in connection with the merger on Nasdaq. Although Diamondback has agreed take all action necessary to obtain the requisite stock exchange approval, there can be no assurance that such approval will be obtained and that the other conditions to completing the merger will be satisfied.

Such conditions or changes and the process of obtaining regulatory approvals could have the effect of delaying or impeding consummation of the transaction or of imposing additional costs or limitations on Diamondback or Energen following completion of the merger, any of which might have an adverse effect on Diamondback or Energen following completion of the merger and may diminish the anticipated benefits of the merger. For additional information about the regulatory approvals process, see “The Merger—Regulatory Approvals.”

Diamondback and Energen will be subject to business uncertainties while the merger is pending, which could adversely affect their respective businesses.

In connection with the pendency of the merger, it is possible that certain persons with whom Diamondback and Energen have a business relationship may delay or defer certain business decisions or might decide to seek to terminate, change or renegotiate their relationships with Diamondback or Energen, as the case may be, as a result of the merger, which could negatively affect Diamondback’s or Energen’s revenues, earnings and cash flows, as well as the market price of Diamondback’s or Energen’s respective common stock, regardless of whether the merger is completed.

Under the terms of the merger agreement, each of Diamondback and Energen are subject to certain restrictions on the conduct of its business prior to the effective time, which may adversely affect its ability to execute certain of its business strategies. Restrictions on Energen include, among other things, the ability to issue capital stock, modify or enter into material contracts in certain cases, acquire or dispose of assets, hire or terminate certain key employees, incur indebtedness, incur encumbrances or incur capital expenditures. Restrictions on Diamondback include, among other things, the ability to issue capital stock and, if the acquisition could reasonably be expected to have an adverse effect on the consummation of the merger, the ability to acquire other businesses. Such limitations could negatively affect Diamondback’s or Energen’s businesses and operations prior to the completion of the transactions. For a description of the restrictive covenants to which Diamondback and Energen are subject, see the section entitled “The Merger Agreement—Interim Operations of Energen and Diamondback Pending the Merger” beginning on page 142.

The merger agreement contains provisions that limit Energen’s and Diamondback’s ability to pursue alternatives to the merger, could discourage a potential competing acquiror of Energen or Diamondback from making a favorable alternative transaction proposal and, in specified circumstances, could require Energen or Diamondback to pay the other party a termination fee.

The merger agreement contains certain provisions that restrict Energen’s and Diamondback’s ability to initiate, solicit or knowingly encourage or knowingly facilitate any inquiries, proposals, or offers regarding, or the making of a competing proposal, engage in any discussions or negotiations with respect to a competing proposal or furnish any non-public information or access to its assets to any person in connection with a competing proposal, or enter into any letter of intent or agreement in principle concerning a competing proposal. Further, even if the Energen board or the Diamondback board changes, withdraws, modifies, or qualifies its recommendation with respect to the merger agreement proposal or the share issuance proposal, as applicable, unless the merger agreement has been terminated in accordance with its terms, both parties will still be required to submit the merger agreement proposal and the share issuance proposal, as applicable, to a vote at its special meeting. In addition, the other party generally has an opportunity to offer to modify the terms of the transactions contemplated by the merger agreement in response to any third-party alternative transaction proposal before a party’s board of directors may change, withdraw, modify, or qualify its recommendation with respect to the merger agreement proposal or the share issuance proposal, as applicable. In some circumstances, upon

 

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termination of the merger agreement, Energen or Diamondback will be required to pay a termination fee of $250 million or $400 million, respectively, to the other party.

These provisions could discourage a potential third-party acquiror or merger partner that might have an interest in acquiring all or a significant portion of Energen or Diamondback or pursuing an alternative transaction with either entity from considering or proposing such a transaction. In Energen’s case, the provisions could discourage a potential third-party acquiror or merger partner that was prepared to pay consideration with a higher per share price than the per share price proposed to be received in the merger, or might result in a potential third-party acquiror or merger partner proposing to pay a lower per share price than it might otherwise have proposed to pay because of the added expense of the termination fee that is payable in certain circumstances.

For additional information, see the sections entitled “The Merger Agreement—No Solicitation; Changes of Recommendation” and “The Merger Agreement—Termination.”

Uncertainties associated with the merger may cause a loss of management personnel and other key employees, which could adversely affect the future business and operations of the combined company.

Whether or not the merger is completed, the announcement and pendency of the merger could disrupt the businesses of Diamondback or Energen. Diamondback and Energen are dependent on the experience and industry knowledge of their senior management and other key employees to execute their business plans. Diamondback’s success after the merger will depend in part upon the ability of Diamondback and Energen to retain key management personnel and other key employees in advance of the merger, and of the combined company’s ability to do so following the merger. Current and prospective employees of Diamondback and Energen may experience uncertainty about their roles within the combined company following the merger, which may have an adverse effect on the current ability of each of Diamondback and Energen to attract or retain key management and other key personnel or the ability of the combined company to do so following the merger.

No assurance can be given that the combined company will be able to attract or retain key management personnel and other key employees of Diamondback and Energen to the same extent that such companies have previously been able to attract or retain employees. In addition, following the merger, Diamondback might not be able to locate suitable replacements for any such key employees who leave Diamondback or Energen or offer employment to potential replacements on satisfactory terms.

Directors and executive officers of Energen may have interests in the merger that are different from, or in addition to, the interests of Energen’s shareholders.

Energen’s directors and executive officers have interests in the merger that may be different from, or in addition to, the interests of Energen shareholders generally. The Energen board was aware of and considered these interests, among other matters, during its deliberations on the merits of the merger and in deciding to approve the terms of the merger and to recommend that Energen shareholders vote for the approval of the merger agreement. These interests include, among others, the treatment of outstanding equity and equity-based awards pursuant to the merger agreement, potential severance and other benefits upon a qualifying termination in connection with the merger, and rights to ongoing indemnification and insurance coverage. These interests are described in more detail in the section entitled “The Merger—Interests of Energen Directors and Executive Officers in the Merger” beginning on page 123.

Diamondback and Energen will incur significant transaction and merger-related costs in connection with the merger, which may be in excess of those anticipated by Diamondback or Energen.

Each of Diamondback and Energen has incurred and expects to continue to incur a number of non-recurring costs associated with the merger, many of which are payable regardless of whether or not the merger is completed. These fees and costs have been, and will continue to be, substantial. These costs include, among

 

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others, employee retention costs, fees paid to legal, accounting and financial advisors, severance and benefit costs, fees related to regulatory filings and notices, filing fees and printing and mailing fees. Diamondback and Energen will also incur transaction fees and costs related to the integration of the companies, which may be substantial. Moreover, each company may incur additional unanticipated expenses in connection with the merger and the integration, including costs associated with any stockholder litigation related to the merger.

The costs described above, as well as other unanticipated costs and expenses, could have an adverse effect on the financial condition and operating results of Diamondback, Energen or, following the completion of the merger, the combined company.

Completion of the merger may trigger change in control or other provisions in certain agreements to which Energen is a party.

The completion of the transactions may trigger change in control or other provisions in certain agreements to which Energen is a party. For a description of the treatment of Energen’s indebtedness in the merger, see “—Diamondback expects to assume substantial indebtedness in connection with the merger, which combined with Diamondback’s current debt may limit its financial flexibility and adversely affect its financial results” and “The Merger—Treatment of Indebtedness” beginning on pages 48 and 129, respectively. If Diamondback and Energen are unable to negotiate waivers of the change in control and other provisions in certain other agreements, the counterparties to those agreements may exercise their rights and remedies under the agreements, potentially terminating the agreements or seeking monetary damages. Even if Diamondback and Energen are able to negotiate waivers, the counterparties may require a fee for such waivers or seek to renegotiate the agreements on terms less favorable to Energen.

Diamondback expects to assume substantial indebtedness in connection with the merger, which combined with Diamondback’s current debt may limit its financial flexibility and adversely affect its financial results.

Under the merger agreement, Diamondback has agreed to assume Energen’s outstanding debt, which as of August 14, 2018 was approximately $830 million and consisted of amounts outstanding under Energen’s notes and existing credit facility. As of June 30, 2018, Diamondback had total long-term debt of approximately $1.6 billion, consisting of amounts outstanding under its senior unsecured credit facility and its senior unsecured notes. Viper Energy Partners LLC, a subsidiary of Diamondback (which we refer to as “Viper OpCo”), had approximately $350 million in outstanding borrowings under its revolving credit facility.

Diamondback continues to review the treatment of its and Energen’s existing indebtedness and Diamondback may seek to repay, refinance, repurchase, redeem, exchange or otherwise terminate its or Energen’s existing indebtedness prior to, in connection with or following the completion of the merger. If Diamondback does seek to refinance its or Energen’s existing indebtedness, there can be no guarantee that Diamondback would be able to execute the refinancing on favorable terms or at all. Assuming Diamondback does not repay, repurchase, redeem, exchange or otherwise terminate any of its or Energen’s existing indebtedness, immediately following the completion of the merger, Diamondback is expected to have outstanding indebtedness of approximately $2.8 billion, based on Diamondback’s and Viper OpCo’s outstanding indebtedness as of June 30, 2018 and the outstanding indebtedness of Energen as of August 14, 2018. Additionally, Diamondback is not restricted under the merger agreement from incurring additional debt, which Diamondback may do to fund its current operations, capital expenditures, planned or new acquisitions, or for any other purpose.

Any increase in Diamondback’s indebtedness could have adverse effects on its financial condition and results of operations, including:

 

   

increasing the difficulty of Diamondback to satisfy its obligations with respect to its debt obligations, including any repurchase obligations that may arise thereunder;

 

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diverting a significant portion Diamondback’s cash flows to service its indebtedness, which could reduce the funds available to it for operations and other purposes;

 

   

increasing Diamondback’s vulnerability to general adverse economic and industry conditions;

 

   

placing Diamondback at a competitive disadvantage compared to its competitors that are less leveraged and, therefore, may be able to take advantage of opportunities that Diamondback would be unable to pursue due to its indebtedness;

 

   

limiting Diamondback’s ability to access the capital markets to raise capital on favorable terms;

 

   

impairing Diamondback’s ability to obtain additional financing in the future for working capital, capital expenditures, acquisitions, general corporate or other purposes; and

 

   

increasing Diamondback’s vulnerability to interest rate increases, as its borrowings under its revolving credit facility are at variable interest rates.

A high level of indebtedness increases the risk that Diamondback may default on its debt obligations, including those it is assuming from Energen. Diamondback’s ability to meet its debt obligations and to reduce its level of indebtedness depends its future performance. Diamondback’s future performance depends on many factors independent of the merger, some of which are beyond its control, such as general economic conditions and oil and natural gas prices. Diamondback may not be able to generate sufficient cash flows to pay the interest on its debt, and future working capital, borrowings or equity financing may not be available to pay or refinance such debt.

Investigations regarding the merger could result in one or more lawsuits against the Energen board and/or Energen, and other lawsuits may be filed against Energen, Diamondback and/or their respective boards challenging the merger. An adverse ruling in any such lawsuit may prevent the merger from being completed.

Following the public announcement of the merger, investigations were launched by several law firms generally regarding whether the Energen board failed to satisfy its duties to its shareholders, including whether the board adequately pursued alternatives to the acquisition and whether the board obtained the best price possible for Energen shares of common stock. There is a possibility that one or more of these investigations could result in a lawsuit against the Energen board and/or Energen, in addition to the pending complaints discussed below, seeking, among other things, injunctive relief or other equitable relief, including a request to rescind parts of the merger agreement already implemented and to otherwise enjoin the parties from consummating the merger, in addition to other fees and costs.

Diamondback and Energen may be targets of securities class action and derivative lawsuits which could result in substantial costs and may delay or prevent the merger from being completed.

Securities class action lawsuits and derivative lawsuits are often brought against public companies that have entered into merger agreements and, in connection with the merger agreement and the transactions contemplated thereby, a purported class action lawsuit and an individual lawsuit have been filed. Both complaints, captioned Melvin Gross v. Energen Corporation, et al., Case No. 2:18-cv-01711-RDP (filed October 17, 2018) and Shiva Stein v. Energen Corporation, et al., Case 2:18-cv-01746-JHE (filed October 22, 2018), were filed in the United States District Court for the Northern District of Alabama. In general, the complaints allege that the defendants violated Sections 14(a) and 20(a) of the Exchange Act because the preliminary Form S-4, as amended by Amendment No. 1 to the Form S-4, filed with the SEC allegedly misrepresents or omits material information. See “The Merger—Litigation Relating to the Merger” beginning on page 132.

Even if such lawsuits are without merit, as the defendants believe these to be, defending against these claims can result in substantial costs and divert management time and resources. An adverse judgment could result in

 

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monetary damages, which could have a negative impact on Diamondback’s and Energen’s respective liquidity and financial condition. The complaints seek, among other things, injunctive relief preventing the consummation of the merger until additional disclosures are made, and damages. Any other lawsuits that may be brought against the parties to the merger agreement or their respective directors could also seek, among other things, injunctive relief or other equitable relief, including a request to rescind parts of the merger agreement already implemented and to otherwise enjoin the parties from consummating the merger. If a plaintiff is successful in obtaining an injunction prohibiting completion of the merger in these complaints or any other similar lawsuits, then that injunction may delay or prevent the merger from being completed, which may adversely affect Diamondback’s and Energen’s respective business, financial position and results of operation.

One of the conditions to the closing of the merger is that no injunction by any court or other tribunal of competent jurisdiction has been entered and continues to be in effect and no law has been adopted or is effective, in either case that prohibits or makes illegal the closing of the merger. Consequently, if a plaintiff is successful in obtaining an injunction prohibiting completion of the merger, then that injunction may delay or prevent the merger from being completed within the expected timeframe or at all, which may adversely affect Diamondback’s and Energen’s respective business, financial position and results of operations.

After the merger is completed, Energen shareholders will become shareholders of a Delaware corporation and have their rights as shareholders governed by Diamondback’s organizational documents and Delaware law.

The rights of Energen shareholders are currently governed by Energen’s organizational documents and Alabama law. Upon consummation of the merger, Energen shareholders will receive Diamondback common stock that will be governed by Diamondback’s organizational documents and Delaware law. As a result, there will be differences between the rights currently enjoyed by Energen shareholders and the rights of Energen shareholders post-merger. For a detailed discussion of the differences between rights as shareholders of Energen and rights as a stockholder of Diamondback, see the section entitled “Comparison of Rights of Stockholders of Diamondback and Shareholders of Energen” beginning on page 185.

The exclusive forum provisions contained in the Diamondback certificate of incorporation could limit the ability of stockholders to obtain a favorable judicial forum for certain disputes with Diamondback or its directors, officers or other employees.

The Diamondback certificate of incorporation provides that unless Diamondback consents in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware shall be the sole and exclusive forum for (i) any derivative action or proceeding brought on behalf of Diamondback, (ii) any action asserting a claim of breach of a fiduciary duty owed by any director, officer or other employee of Diamondback to Diamondback or its stockholders, (iii) any action asserting a claim against Diamondback arising pursuant to any provision of the Delaware General Corporation Law, the Diamondback certificate of incorporation or bylaws or (iv) any action asserting a claim against Diamondback governed by the internal affairs doctrine. The Diamondback certificate of incorporation further provides that any person or entity purchasing or otherwise acquiring any interest in share of capital stock of Diamondback shall be deemed to have notice of and to have consented to these provisions.

Such provisions may limit a stockholder’s ability to bring a claim in a judicial forum that such stockholder may find favorable for disputes with Diamondback or its directors, officers or other employees and may discourage lawsuits with respect to such claims. Further, it is possible that a court could rule that such provisions are inapplicable or unenforceable, in which case Diamondback may incur additional costs associated with resolving such disputes in other jurisdictions, which could have an adverse impact on Diamondback’s business and financial condition. The exclusive forum provisions of the Diamondback certificate of incorporation, however, do not apply to claims arising under the federal securities laws.

 

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Risk Factors Relating to Diamondback Following the Merger

The integration of Energen into Diamondback may not be as successful as anticipated, and Diamondback may not achieve the intended benefits or do so within the intended timeframe.

The merger involves numerous operational, strategic, financial, accounting, legal, tax and other risks, including potential liabilities associated with the acquired business. Difficulties in integrating Energen into Diamondback, and Diamondback’s ability to manage the combined company, may result in the combined company performing differently than expected, in operational challenges or in the delay or failure to realize anticipated expense-related efficiencies, and could have an adverse effect on the financial condition, results of operations or cash flows on Diamondback. Potential difficulties that may be encountered in the integration process include, among other factors:

 

   

the inability to successfully integrate the businesses of Energen into Diamondback, operationally and culturally;

 

   

complexities associated with managing the larger, more complex, integrated business;

 

   

complexities resulting from the different accounting methods of Diamondback and Energen;

 

   

not realizing anticipated operating synergies;

 

   

integrating personnel from the two companies and the loss of key employees;

 

   

potential unknown liabilities and unforeseen expenses, delays or regulatory conditions associated with the merger;

 

   

integrating relationships with customers, vendors and business partners;

 

   

performance shortfalls at one or both of the companies as a result of the diversion of management’s attention caused by completing the merger and integrating Energen’s operations into Diamondback; and

 

   

the disruption of, or the loss of momentum in, each company’s ongoing business or inconsistencies in standards, controls, procedures and policies.

Additionally, the success of the merger will depend, in part, on Diamondback’s ability to realize the anticipated benefits and cost savings from combining Diamondback’s and Energen’s businesses, including operational and other synergies that Diamondback believes the combined company will achieve, discussed in more detail under the heading “The Merger—Recommendation of the Diamondback Board of Directors and Diamondback’s Reasons for the Merger.” The anticipated benefits and cost savings of the merger may not be realized fully or at all, may take longer to realize than expected or could have other adverse effects that Diamondback does not currently foresee.

Diamondback’s results may suffer if it does not effectively manage its expanded operations following the merger.

Following completion of the merger, the size of the business of Diamondback will increase significantly beyond the current size of Diamondback’s existing business. Diamondback’s future success will depend, in part, on its ability to manage this expanded business, which poses numerous risks and uncertainties, including the need to integrate the operations and business of Energen into its existing business in an efficient and timely manner, to combine systems and management controls and to integrate relationships with customers, vendors and business partners. Failure to successfully manage the combined company may have an adverse effect on Diamondback’s financial condition, results of operations or cash flows.

The unaudited pro forma financial statements are presented for illustrative purposes only and may not be an indication of the combined company’s financial condition or results of operations following the merger.

The unaudited pro forma financial statements contained in this joint proxy statement/prospectus are presented for illustrative purposes only and may not be an indication of the combined company’s financial

 

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condition or results of operations following the merger. The actual financial positions and results of operations of the combined company following the merger may be different, possibly materially, from the unaudited pro forma financial statements included in this joint proxy statement/prospectus for several reasons. The unaudited pro forma financial statements have been derived from the historical financial statements of Diamondback and Energen and certain adjustments and assumptions have been made regarding the combined company after giving effect to the merger. The information upon which these adjustments and assumptions have been made is preliminary, and these kinds of adjustments and assumptions are difficult to make with complete accuracy. Moreover, the unaudited pro forma financial statements do not reflect all costs that are expected to be incurred by the combined company in connection with the merger. For example, the impact of any incremental costs incurred in integrating the two companies is not reflected in the unaudited pro forma financial statements. Additionally, the unaudited pro forma financial statements do not reflect the effect of any potential divestitures that may occur prior to or subsequent to the completion of the merger. Other factors may affect the combined company’s financial conditions or results of operations following the merger as well. As a result, the actual financial condition and results of operations of the combined company following the merger may not be consistent with, or evident from, these unaudited pro forma financial statements. Any potential decline in the combined company’s financial condition or results of operations may cause significant variations in the stock price of Diamondback’s common stock following the merger. For additional information, see the section entitled “Unaudited Pro Forma Condensed Combined Financial Statements” beginning on page 172.

Sales of substantial amounts of Diamondback common stock in the open market, by former Energen shareholders or otherwise, could depress Diamondback’s stock price.

Former Energen shareholders and current Diamondback stockholders may not wish to continue to invest in the additional operations of the combined company, or for other reasons may wish to dispose of some or all of their interests in the combined company, and as a result may seek to sell their shares of Diamondback common stock. Shares of Diamondback common stock that are issued to current holders of Energen common stock in the merger will be freely tradable by such stockholders without restrictions or further registration under the Securities Act of 1933 (which we refer to as the “Securities Act”), provided, however, that any stockholders who are affiliates of Diamondback will be subject to the resale restrictions of Rule 144 under the Securities Act. These sales (or the perception that these sales may occur), coupled with the increase in the outstanding number of shares of Diamondback common stock, may affect the market for, and the market price of, Diamondback common stock in an adverse manner. Based on the number of shares of Energen common stock outstanding as of September 5, 2018, and the number of outstanding Energen equity awards currently estimated to be payable in Diamondback common stock following the merger, Diamondback expects to issue up to approximately 63,991,645 shares of Diamondback common stock to Energen shareholders in the merger. As of the date of this joint proxy statement/prospectus, Diamondback had approximately 98,673,931 shares of common stock outstanding and approximately 561,033 shares of common stock subject to unvested restricted stock units outstanding.

If the merger is completed and stockholders of Diamondback, including former Energen shareholders, sell substantial amounts of Diamondback common stock in the public market following the closing of the merger, the market price of Diamondback common stock may decrease. These sales might also make it more difficult for Diamondback to raise capital by selling equity or equity-related securities at a time and price that it otherwise would deem appropriate.

The market price of Diamondback common stock will continue to fluctuate after the merger, and may decline if the benefits of the merger do not meet the expectations of financial analysts.

Upon completion of the merger, holders of Energen common stock will become holders of shares of Diamondback common stock. The market price of Diamondback common stock may fluctuate significantly following completion of the merger, including if Diamondback does not achieve the perceived benefits of the

 

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merger as rapidly, or to the extent anticipated by, financial analysts or the effect of the merger on Diamondback’s financial results is not consistent with the expectations of financial analysts. If the price of Diamondback’s common stock decreases after the merger, holders of Energen common stock will lose some or all of the value of their investment in Diamondback common stock. In addition, the stock market has experienced significant price and volume fluctuations in recent times which, if they continue to occur, could have a material adverse effect on the market for, or liquidity of, the Diamondback common stock, regardless of Diamondback’s actual operating performance.

The market price of Diamondback common stock may be affected by factors different from those that historically have affected Energen common stock.

Upon completion of the merger, holders of Energen common stock who receive merger consideration will become holders of Diamondback common stock. The businesses of Diamondback differ from those of Energen in certain respects, and, accordingly, the financial position or results of operations and/or cash flows of Diamondback after the merger, as well as the market price of Diamondback common stock, may be affected by factors different from those currently affecting the financial position or results of operations and/or cash flows of Energen. Following the completion of the merger, Energen will be part of a larger company, so decisions affecting Energen may be made in respect of the larger combined business as a whole rather than the Energen businesses individually. For a discussion of the businesses of Diamondback and Energen and of some important factors to consider in connection with those businesses, see the section entitled “Information About the Companies” and the documents incorporated by reference in the section entitled “Where You Can Find More Information” and “Information Incorporated by Reference” beginning on pages 57, 197 and 197, respectively, including, in particular, in the sections entitled “Risk Factors” in each of Diamondback’s and Energen’s Annual Report on Form 10-K for the year ended December 31, 2017 and subsequent Quarterly Reports on Form 10-Q and Current Reports on Form 8-K.

Following the completion of the merger, Diamondback may incorporate Energen’s hedging activities into Diamondback’s business, and Diamondback may be exposed to additional commodity price risks arising from such hedges.

To mitigate its exposure to changes in commodity prices, Energen hedges oil, natural gas liquids and natural gas prices from time to time, primarily through the use of certain derivative commodity instruments. If Diamondback assumes existing Energen hedges, Diamondback will bear the economic impact of all of Energen’s current hedges following the completion of the merger. Actual crude oil, natural gas and natural gas liquids prices may differ from the combined company’s expectations and, as a result, such hedges could have a negative impact on Diamondback’s business.

The combined company will record goodwill and other intangible assets that could become impaired and result in material non-cash charges to the results of operations of the combined company in the future.

The merger will be accounted for as an acquisition by Diamondback in accordance with accounting principles generally accepted in the United States (which we refer to as “GAAP”). Under the acquisition method of accounting, the assets and liabilities of Energen and its subsidiaries will be recorded, as of completion, at their respective fair values and added to those of Diamondback. The reported financial condition and results of operations of Diamondback for periods after completion of the merger will reflect Energen balances and results after completion of the merger but will not be restated retroactively to reflect the historical financial position or results of operations of Energen and its subsidiaries for periods prior to the merger. For additional information, see the section entitled “Unaudited Pro Forma Condensed Combined Financial Statements” beginning on page 172.

Under the acquisition method of accounting, the total purchase price will be allocated to Energen’s tangible assets and liabilities and identifiable intangible assets based on their fair values as of the date of completion of

 

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the merger. The excess of the purchase price over those fair values will be recorded as goodwill. Diamondback and Energen expect that the merger will result in the creation of goodwill based upon the application of the acquisition method of accounting. To the extent the value of goodwill or intangibles becomes impaired, the combined company may be required to incur material non-cash charges relating to such impairment. The combined company’s operating results may be significantly impacted from both the impairment and the underlying trends in the business that triggered the impairment.

Risks Relating to Diamondback’s Business.

You should read and consider risk factors specific to Diamondback’s businesses that will also affect the combined company after the completion of the merger. These risks are described in Part I, Item 1A of Diamondback’s Annual Report on Form 10-K for the fiscal year ended December 31, 2017 and in Part II, Item 1A of Diamondback’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2018, and in other documents that are incorporated by reference herein. For the location of information incorporated by reference in this joint proxy statement/prospectus, see the sections entitled “Where You Can Find More Information” and “Information Incorporated by Reference,” each beginning on page 197.

Risks Relating to Energen’s Business.

You should read and consider risk factors specific to Energen’s businesses that will also affect the combined company after the completion of the merger. These risks are described in Part I, Item 1A of Energen’s Annual Report on Form 10-K for the fiscal year ended December 31, 2017 and in Part II, Item 1A of Energen’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2018, and in other documents that are incorporated by reference herein. For the location of information incorporated by reference in this joint proxy statement/prospectus, see the sections entitled “Where You Can Find More Information” and “Information Incorporated by Reference,” each beginning on page 197.

 

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This joint proxy statement/prospectus, and the documents to which Energen and Diamondback refer you in this joint proxy statement/prospectus, as well as oral statements made or to be made by Energen and Diamondback, include certain “forward-looking statements” within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended (which we refer to as the “Exchange Act”). All statements, other than statements of historical fact, included in this joint proxy statement/prospectus that address activities, events or developments that Diamondback or Energen expects, believes or anticipates will or may occur in the future are forward-looking statements. Words such as “estimate,” “project,” “predict,” “believe,” “expect,” “anticipate,” “potential,” “create,” “intend,” “could,” “may,” “foresee,” “plan,” “will,” “guidance,” “look,” “outlook,” “goal,” “future,” “assume,” “forecast,” “build,” “focus,” “work,” “continue” or the negative of such terms or other variations thereof and words and terms of similar substance used in connection with any discussion of future plans, actions, or events identify forward-looking statements. However, the absence of these words does not mean that the statements are not forward-looking. These forward-looking statements include, but are not limited to, statements regarding the merger, pro forma descriptions of the combined company and its operations, integration and transition plans, synergies, opportunities and anticipated future performance. There are a number of risks and uncertainties that could cause actual results to differ materially from the forward-looking statements included in this joint proxy statement/prospectus. These include:

 

   

the risk that the merger agreement may be terminated in accordance with its terms and that the merger may not be completed;

 

   

the possibility that Diamondback stockholders may not approve the Diamondback issuance proposal;

 

   

the possibility that Energen shareholders may not approve the merger proposal;

 

   

the risk that the parties may not be able to satisfy the conditions to the completion of the merger in a timely manner or at all;

 

   

the risk that the merger may not be accretive, and may be dilutive, to Diamondback’s earnings per share, which may negatively affect the market price of Diamondback shares;

 

   

the possibility that Diamondback and Energen will incur significant transaction and other costs in connection with the merger, which may be in excess of those anticipated by Diamondback or Energen;

 

   

the risk that the combined company may be unable to achieve operational or corporate synergies or that it may take longer than expected to achieve those synergies;

 

   

the risk that Diamondback may fail to realize other benefits expected from the merger;

 

   

the risk of any litigation relating to the merger;

 

   

the risk that any announcements relating to, or the completion of, the merger could have adverse effects on the market price of Diamondback common stock;

 

   

the risk related to disruption of management time from ongoing business operations due to the merger;

 

   

the risk that the merger and its announcement and/or completion could have an adverse effect on the ability of Diamondback and Energen to retain customers and retain and hire key personnel and maintain relationships with their suppliers and customers; and

 

   

the risks to their operating results and businesses generally.

Such factors are difficult to predict and in many cases may be beyond the control of Diamondback and Energen. Diamondback’s and Energen’s forward-looking statements are based on assumptions that Diamondback and Energen, respectively, believe to be reasonable but that may not prove to be accurate. Consequently, all of the forward-looking statements Diamondback and Energen make in this joint proxy statement/prospectus are qualified by the information contained or incorporated by reference herein, including the information contained

 

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under this heading and the information detailed in Diamondback’s Annual Report on Form 10-K for the fiscal year ended December 31, 2017, Quarterly Reports on Form 10-Q for the quarterly periods ended March 31, 2018 and June 30, 2018, Current Reports on Form 8-K and other filings Diamondback makes with the SEC, which are incorporated herein by reference, and in Energen’s Annual Report on Form 10-K for the fiscal year ended December 31, 2017, Quarterly Reports on Form 10-Q for the quarterly periods ended March 31, 2018 and June 30, 2018, Current Reports on Form 8-K and other filings Energen makes with the SEC, which are incorporated herein by reference. For additional information, see the sections entitled “Risk Factors,” “Where You Can Find More Information” and “Information Incorporated by Reference” beginning on pages 43, 197 and 197, respectively.

Diamondback and Energen undertake no obligation to publicly release the result of any revisions to any such forward-looking statements that may be made to reflect events or circumstances that occur, or which they become aware of, except as required by applicable law or regulation. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof.

 

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INFORMATION ABOUT THE COMPANIES

Diamondback Energy, Inc.

500 West Texas

Suite 1200

Midland, Texas 79701

Phone: (432) 221-7400

Diamondback Energy, Inc. was incorporated in Delaware on December 31, 2011. Based in Midland, Texas, Diamondback is an independent oil and natural gas company focused on the acquisition, development, exploration and exploitation of unconventional, onshore oil and natural gas reserves in the Permian Basin in West Texas. Diamondback’s activities are primarily directed at the horizontal development of the Wolfcamp and Spraberry formations in the Midland Basin and the Wolfcamp and Bone Spring formations in the Delaware Basin. Diamondback intends to continue to develop its reserves and increase production through development drilling and exploitation and exploration activities on its multi-year inventory of identified potential drilling locations and through acquisitions that meet its strategic and financial objectives, targeting oil-weighted reserves. Substantially all of its revenues are generated through the sale of oil, natural gas liquids and natural gas production.

Energen Corporation

605 Richard Arrington Jr. Boulevard North

Birmingham, Alabama 35203

Phone: (205) 326-2700

Energen is an oil and natural gas exploration and production company engaged in the exploration, development and production of oil, natural gas liquids and natural gas. Energen’s operations are conducted through its subsidiary, Energen Resources Corporation, or Energen Resources, and primarily occur within the Midland Basin, the Delaware Basin and the Central Basin Platform areas of the Permian Basin in west Texas and New Mexico. Energen was incorporated in Alabama in 1978 in connection with a corporate reorganization which resulted in Energen becoming the parent company to a predecessor company of Energen Resources. Energen’s corporate headquarters are based in Birmingham, Alabama.

Sidewinder Merger Sub Inc.

c/o Diamondback Energy, Inc.

500 West Texas

Suite 1200

Midland, Texas 79701

Phone: (432) 221-7400

Sidewinder Merger Sub Inc. is a direct, wholly owned subsidiary of Diamondback. Upon the completion of the merger, Merger Sub will cease to exist. Merger Sub was incorporated in Alabama on August 14, 2018 for the sole purpose of effecting the merger.

 

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SPECIAL MEETING OF DIAMONDBACK STOCKHOLDERS

Date, Time and Place

The Diamondback special meeting will be held on November 27, 2018, at 11:00 a.m. , Central Time, at 1200 North Walker Avenue, Oklahoma City, Oklahoma 73103.

Purpose of the Diamondback Special Meeting

The purpose of the Diamondback special meeting is to consider and vote on the Diamondback issuance proposal.

Diamondback will transact no other business at the Diamondback special meeting.

Recommendation of the Diamondback Board of Directors

The Diamondback board unanimously recommends that Diamondback stockholders vote “FOR” the approval of the Diamondback issuance proposal.

For additional information on the recommendation of the Diamondback board, see the section entitled “The Merger—Recommendation of the Diamondback Board of Directors and Diamondback’s Reasons for the Merger” beginning on page 76.

Record Date and Outstanding Shares of Diamondback Common Stock

Only holders of record of issued and outstanding shares of Diamondback common stock as of the close of business on October 19, 2018, the record date for the Diamondback special meeting (which we refer to as the “Diamondback record date”), are entitled to notice of, and to vote at, the Diamondback special meeting or any adjournment or postponement of the Diamondback special meeting.

As of the close of business on the Diamondback record date, there were 98,673,931 shares of Diamondback common stock issued and outstanding and entitled to vote at the Diamondback special meeting. You may cast one vote for each share of Diamondback common stock that you held as of the close of business on the Diamondback record date.

A complete list of Diamondback stockholders entitled to vote at the Diamondback special meeting will be available for inspection at Diamondback’s principal place of business during regular business hours for a period of no less than 10 days before the Diamondback special meeting and during the Diamondback special meeting at 9400 N. Broadway, Suite 700, Oklahoma City, Oklahoma 73114.

Quorum; Abstentions and Broker Non-Votes

A quorum of Diamondback stockholders is necessary to hold a valid meeting. The presence at the Diamondback special meeting, in person or by proxy, of the holders of a majority of the outstanding shares of Diamondback common stock entitled to vote at the Diamondback special meeting constitutes a quorum. If you submit a properly executed proxy card, even if you do not vote for the proposal or vote to “abstain” in respect of proposal, your shares of Diamondback common stock will be counted for purposes of determining whether a quorum is present for the transaction of business at the Diamondback special meeting.

Diamondback common stock held in “street name” with respect to which the beneficial owner fails to give voting instructions to the broker, bank or other nominee, and Diamondback common stock with respect to which the beneficial owner otherwise fails to vote, will not be considered present and entitled to vote at the Diamondback special meeting for the purpose of determining the presence of a quorum.

 

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A broker non-vote will result if your broker, bank or other nominee returns a proxy but does not provide instruction as to how shares should be voted on a particular matter. Under the current Nasdaq rules, brokers, banks or other nominees do not have discretionary authority to vote on the Diamondback issuance proposal. Because the only proposal for consideration at the Diamondback special meeting is a non-discretionary proposal, it is not expected that there will be any broker non-votes at the Diamondback special meeting. However, if there are any broker non-votes, the shares will not be considered present and entitled to vote at the Diamondback special meeting for the purpose of determining the presence of a quorum.

Executed but unvoted proxies will be voted in accordance with the recommendations of the Diamondback board on the proposal.

Required Vote

Approval of the Diamondback issuance proposal requires the affirmative vote of a majority of votes cast by Diamondback stockholders present in person or by proxy at the Diamondback special meeting and entitled to vote on the proposal. Abstentions, failure to vote in person or by proxy on a proposal and broker non-votes will not be counted as votes cast “FOR” or “AGAINST” such proposal and, as a result, will have no effect on the outcome of the vote on such proposal.

The Diamondback issuance proposal is described in the section entitled “Diamondback Proposal” beginning on page 63.

Methods of Voting

Diamondback stockholders, whether holding shares directly as stockholders of record or beneficially in “street name,” may vote on the Internet by going to the web address provided on the enclosed proxy card and following the instructions for Internet voting, by phone using the toll-free phone number listed on the enclosed proxy card, or by completing, signing, dating and returning the enclosed proxy card in the postage-paid envelope provided.

Diamondback stockholders of record may vote their shares in person by ballot at the Diamondback special meeting or by submitting their proxies:

 

   

by phone until 11:59 p.m. Central Time on November 26, 2018;

 

   

by the Internet until 11:59 p.m. Central Time on November 26, 2018; or

 

   

by completing, signing and returning your proxy or voting instruction card via mail. If you vote by mail, your proxy card must be received by 11:59 p.m. Central Time on November 26, 2018.

Diamondback stockholders who hold their shares in “street name” by a broker, bank or other nominee should refer to the proxy card, voting instruction form or other information forwarded by their broker, bank or other nominee for instructions on how to vote their shares.

Voting in Person

Shares held directly in your name as stockholder of record may be voted in person at the Diamondback special meeting. If you choose to vote your shares in person at the Diamondback special meeting, bring your enclosed proxy card and proof of identification. Even if you plan to attend the Diamondback special meeting, the Diamondback board recommends that you vote your shares in advance as described below so that your vote will be counted if you later decide not to attend the Diamondback special meeting.

If you are a beneficial holder, you will receive separate voting instructions from your broker, bank or other nominee explaining how to vote your shares. Please note that if your shares are held in “street name” by a broker,

 

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bank or other nominee and you wish to vote at the Diamondback special meeting, you will not be permitted to vote in person unless you first obtain a legal proxy issued in your name from the record owner. You are encouraged to request a legal proxy from your broker, bank or other nominee promptly as the process can be lengthy.

Voting by Proxy

Whether you hold your shares of Diamondback common stock directly as the stockholder of record or beneficially in “street name,” you may direct your vote by proxy without attending the Diamondback special meeting. You can vote by proxy by phone, the Internet or mail by following the instructions provided in the enclosed proxy card.

Questions About Voting

If you have any questions about how to vote or direct a vote in respect of your shares of Diamondback common stock, you may contact MacKenzie Partners, Inc., Diamondback’s proxy solicitor, toll-free at (800) 322-2885 or, for brokers and banks, collect at (212) 929-5500.

Adjournment

In accordance with the Diamondback bylaws, whether or not a quorum is present, the chairman of the Diamondback special meeting will have the power to adjourn the Diamondback special meeting from time to time for the purpose of, among other things, soliciting additional proxies. If the Diamondback special meeting is adjourned with respect to the Diamondback issuance proposal, Diamondback stockholders who have already submitted their proxies will be able to revoke them at any time prior to their use. At any subsequent reconvening of the Diamondback special meeting, all proxies will be voted in the same manner as the manner in which such proxies would have been voted at the original convening of the Diamondback special meeting, except for any proxies that have been validly revoked or withdrawn prior to the subsequent meeting.

In addition, the merger agreement provides that Diamondback (1) will be required to adjourn or postpone the Diamondback special meeting to the extent necessary to ensure that any legally required supplement or amendment to this joint proxy statement/prospectus is provided to the Diamondback stockholders or if, as of the time the Diamondback special meeting is scheduled, there are insufficient shares of Diamondback common stock represented to constitute a quorum necessary to conduct business at the Diamondback special meeting, and (2) may adjourn or postpone the Diamondback special meeting if, as of the time for which the Diamondback special meeting is scheduled, Diamondback reasonably determines in good faith that there are insufficient shares of Diamondback common stock represented to obtain the approval of the Diamondback issuance proposal. However, unless Diamondback and Energen otherwise agree, the Diamondback special meeting will not be adjourned or postponed to a date that is more than 30 days after the date for which the Diamondback special meeting was previously scheduled (though the Diamondback special meeting may be adjourned or postponed every time the circumstances described in (1) exist, and every time the circumstances described in (2) exist) or to a date on or after two business days prior to the end date (as defined under “The Merger Agreement—Termination—Termination Rights”).

Revocability of Proxies

If you are a stockholder of record of Diamondback, whether you vote by phone, the Internet or mail, you can change or revoke your proxy before it is voted at the meeting in one of the following ways:

 

   

submit a new proxy card bearing a later date;

 

   

vote again by phone or the Internet at a later time;

 

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give written notice before the meeting to the Diamondback Executive Vice President, General Counsel and Secretary at the above address stating that you are revoking your proxy; or

 

   

attend the Diamondback special meeting and vote your shares in person. Please note that your attendance at the meeting will not alone serve to revoke your proxy.

Proxy Solicitation Costs

The enclosed proxy card is being solicited by Diamondback and the Diamondback board. In addition to solicitation by mail, Diamondback’s directors, officers and employees may solicit proxies in person, by phone or by electronic means. These persons will not be specifically compensated for conducting such solicitation.

Diamondback has retained MacKenzie Partners, Inc. to assist in the solicitation process. Diamondback will pay McKenzie Partners a fee of approximately $25,000, as well as reasonable and documented out-of-pocket expenses. Diamondback also has agreed to indemnify MacKenzie Partners against various liabilities and expenses that relate to or arise out of its solicitation of proxies (subject to certain exceptions).

Diamondback will ask brokers, banks and other nominees to forward the proxy solicitation materials to the beneficial owners of shares of Diamondback common stock held of record by such nominee holders. Diamondback will reimburse these nominee holders for their customary clerical and mailing expenses incurred in forwarding the proxy solicitation materials to the beneficial owners.

No Appraisal Rights

Under Delaware law, Diamondback stockholders are not entitled to appraisal rights in connection with the issuance of shares of Diamondback common stock as contemplated by the merger agreement.

Other Information

The matter to be considered at the Diamondback special meeting is of great importance to the Diamondback stockholders. Accordingly, you are urged to read and carefully consider the information contained in or incorporated by reference into this joint proxy statement/prospectus and submit your proxy by phone or the Internet or complete, date, sign and promptly return the enclosed proxy card in the enclosed postage-paid envelope. If you submit your proxy by phone or the Internet, you do not need to return the enclosed proxy card.

Assistance

If you need assistance in completing your proxy card or have questions regarding the Diamondback special meeting, contact:

 

LOGO

1407 Broadway, 27th Floor

New York, New York 10018

Diamondback@mackenziepartners.com

Call Collect: (212) 929-5500

Toll-Free: (800) 322-2885

Vote of Diamondback’s Directors and Executive Officers

As of the Diamondback record date, Diamondback directors and executive officers, and their affiliates, as a group, owned and were entitled to vote 547,892 shares of Diamondback common stock, or approximately 0.6% of the total outstanding shares of Diamondback common stock as of the Diamondback record date.

 

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Diamondback currently expects that all of its directors and executive officers will vote their shares “FOR” the Diamondback issuance proposal.

Attending the Diamondback Special Meeting

You are entitled to attend the Diamondback special meeting only if you were a stockholder of record of Diamondback at the close of business on the Diamondback record date or you held your shares of Diamondback beneficially in the name of a broker, bank or other nominee as of the Diamondback record date, or you hold a valid proxy for the Diamondback special meeting.

If you were a stockholder of record of Diamondback at the close of business on the Diamondback record date and wish to attend the Diamondback special meeting, so indicate on the appropriate proxy card or as prompted by the phone or Internet voting system. Your name will be verified against the list of stockholders of record prior to your being admitted to the Diamondback special meeting.

If a broker, bank or other nominee is the record owner of your shares of Diamondback common stock, you will need to have proof that you are the beneficial owner as of the Diamondback record date to be admitted to the Diamondback special meeting. A recent statement or letter from your broker, bank or other nominee confirming your ownership as of the Diamondback record date, or presentation of a valid proxy from a broker, bank or other nominee that is the record owner of your shares, would be acceptable proof of your beneficial ownership.

You should be prepared to present government-issued photo identification for admittance. If you do not provide photo identification or comply with the other procedures outlined above upon request, you might not be admitted to the Diamondback special meeting.

Results of the Diamondback Special Meeting

Within four business days following the Diamondback special meeting, Diamondback intends to file the final voting results with the SEC on a Current Report on Form 8-K. If the final voting results have not been certified within that four business day period, Diamondback will report the preliminary voting results on a Current Report on Form 8-K at that time and will file an amendment to the Current Report on Form 8-K to report the final voting results within four days of the date that the final results are certified.

DIAMONDBACK STOCKHOLDERS SHOULD CAREFULLY READ THIS JOINT PROXY STATEMENT/PROSPECTUS IN ITS ENTIRETY FOR MORE DETAILED INFORMATION CONCERNING THE DIAMONDBACK ISSUANCE PROPOSAL.

 

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DIAMONDBACK PROPOSAL

Diamondback Issuance Proposal

It is a condition to the completion of the merger that Diamondback stockholders approve the issuance of shares of Diamondback common stock in the merger. In the merger, each Energen shareholder will receive, for each share of Energen common stock that is issued and outstanding as of immediately prior to the effective time of the merger, the merger consideration of 0.6442 of a share of Diamondback common stock, with certain exceptions further described in the section entitled “The Merger Agreement—Effect of the Merger on Capital Stock; Merger Consideration” and “The Merger—Appraisal Rights/Dissenters’ Rights in the Merger” beginning on pages 134 and 129, respectively.

The Nasdaq Stock Market Rule 5635(a) requires, in its relevant part, that a Nasdaq-listed company obtain stockholder approval prior to the issuance of common stock in connection with the acquisition of the stock or assets of another company, if the potential issuance is equal to 20% or more of the number of shares of common stock or voting power outstanding before the issuance of the shares of common stock. If the merger is completed pursuant to the merger agreement, Diamondback expects to issue up to approximately 63,991,645 shares of Diamondback common stock in connection with the merger based on the number of shares of Energen common stock outstanding as of September 5, 2018. Accordingly, the aggregate number of shares of Diamondback common stock that Diamondback will issue in the merger will exceed 20% of the shares of Diamondback common stock outstanding before such issuance, and for this reason, Diamondback is seeking the approval of Diamondback stockholders for the issuance of shares of Diamondback common stock pursuant to the merger agreement. In the event the Diamondback issuance proposal is not approved by Diamondback stockholders, the merger will not be completed.

In the event the Diamondback issuance proposal is approved by Diamondback stockholders, but the merger agreement is terminated (without the merger being completed) prior to the issuance of shares of Diamondback common stock pursuant to the merger agreement, Diamondback will not issue any shares of Diamondback common stock as a result of the approval of the Diamondback issuance proposal.

Approval of the Diamondback issuance proposal requires the affirmative vote of a majority of votes cast by Diamondback stockholders present in person or by proxy at the Diamondback special meeting and entitled to vote on the proposal. Abstentions, failure to vote in person or by proxy and broker non-votes with respect to the Diamondback issuance proposal will not be counted as votes cast “FOR” or “AGAINST” such proposal and, as a result, will have no effect on the outcome of the vote on such proposal.

 

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SPECIAL MEETING OF ENERGEN SHAREHOLDERS

Date, Time and Place

The Energen special meeting will be held on November 27, 2018, at 9:30 a.m., Central Time, at 605 Richard Arrington Jr. Boulevard North, Birmingham, Alabama 35203-2707.

Purpose of the Energen Special Meeting

The purpose of the Energen special meeting is to consider and vote on:

 

   

the merger proposal; and

 

   

the non-binding compensation advisory proposal.

Energen will transact no other business at the Energen special meeting.

Recommendation of the Energen Board of Directors

The Energen board unanimously recommends that Energen shareholders vote:

 

   

FOR” the merger proposal; and

 

   

FOR” the non-binding compensation advisory proposal.

For additional information on the recommendation of the Energen board, see the section entitled “Energen Proposals” and “The Merger—Recommendation of the Energen Board of Directors and Energen’s Reasons for the Merger” beginning on pages 69 and 90.

Record Date and Outstanding Shares of Energen Common Stock

Only holders of record of issued and outstanding shares of Energen common stock as of the close of business on October 19, 2018, the record date for the Energen special meeting (which we refer to as the “Energen record date”), are entitled to notice of, and to vote at, the Energen special meeting or any adjournment or postponement of the Energen special meeting.

As of the close of business on the Energen record date, there were 97,527,659 shares of Energen common stock issued and outstanding and entitled to vote at the Energen special meeting. You may cast one vote for each share of Energen common stock that you held as of the close of business on the Energen record date.

A complete list of Energen shareholders entitled to vote at the Energen special meeting will be available for inspection at Energen’s principal office at 605 Richard Arrington Jr. Boulevard North, Birmingham, Alabama 35203-2707 during regular business hours beginning two business days after notice of the meeting is given and continuing through the Energen special meeting and during the Energen special meeting at 605 Richard Arlington Jr. Boulevard North, Birmingham, Alabama 35203.

Quorum; Abstentions and Broker Non-Votes

A quorum of Energen shareholders is necessary to hold a valid meeting. The presence of the holders of a majority of the outstanding shares of Energen common stock entitled to vote at the special meeting, present in person or represented by proxy, constitutes a quorum. If you submit a properly executed proxy card, even if you do not vote for one or both of the proposals or vote to “abstain” in respect of one or both of the proposals, your shares of Energen common stock will be counted for purposes of determining whether a quorum is present for the transaction of business at the Energen special meeting.

 

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Energen common stock held in “street name” with respect to which the beneficial owner fails to give voting instructions to the broker, bank or other nominee, and Energen common stock with respect to which the beneficial owner otherwise fails to vote, will not be considered present and entitled to vote at the Energen special meeting for the purpose of determining the presence of a quorum.

A broker non-vote will result if your broker, bank or other nominee returns a proxy but does not provide instruction as to how shares should be voted on a particular matter. Under the current rules of the NYSE, brokers, banks or other nominees do not have discretionary authority to vote on any of the proposals to be considered at the Energen special meeting. Because the only proposals for consideration at the Energen special meeting are nondiscretionary proposals, it is not expected that there will be any broker non-votes at the Energen special meeting. However, if there are any broker non-votes, the shares will not be considered present and entitled to vote at the Energen special meeting for the purpose of determining the presence of a quorum.

Executed but unvoted proxies will be voted in accordance with the recommendations of the Energen board.

Required Votes

Approval of the merger proposal requires the affirmative vote of two-thirds of the outstanding shares of Energen common stock entitled to vote on the proposal. Abstentions and broker non-votes will have the same effect as a vote “AGAINST” the proposal. Failure to vote on the merger proposal will have the same effect as a vote “AGAINST” the merger proposal.

Approval of the non-binding compensation advisory proposal requires the affirmative vote of a majority of the shares of Energen common stock present in person or represented by proxy at the Energen special meeting and entitled to vote on the proposal. Abstentions will have the same effect as a vote “AGAINST” the proposal, and broker non-votes will have no effect on the outcome of the vote.

The merger proposal and non-binding compensation advisory proposal are described in the section entitled “Energen Proposals” beginning on page 69.

Methods of Voting

Energen shareholders, whether holding shares directly as shareholders of record or beneficially in “street name,” may vote on the Internet by going to the web address provided on the enclosed proxy card and following the instructions for Internet voting, by phone using the toll-free phone number listed on the enclosed proxy card, or by completing, signing, dating and returning the enclosed proxy card in the postage-paid envelope provided.

Energen shareholders of record may vote their shares in person by ballot at the Energen special meeting or by submitting their proxies:

 

   

by phone until 11:59 p.m., Central Time, on November 26, 2018;

 

   

by the Internet until 11:59 p.m., Central Time, on November 26, 2018; or

 

   

by completing, signing and returning your proxy or voting instruction card via mail. If you vote by mail, your proxy card must be received by 11:59 p.m., Central Time, on November 26, 2018.

Energen shareholders who hold their shares in “street name” by a broker, bank or other nominee should refer to the proxy card, voting instruction form or other information forwarded by their broker, bank or other nominee for instructions on how to vote their shares.

Voting by Employee Savings Plan participants

Energen shareholders who hold their shares as a participant in the Energen Corporation Employee Savings Plan can vote the shares of common stock held for their account through any of the proxy voting options set forth

 

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above. If you hold your shares as a participant in the Energen Corporation Employee Savings Plan, the proxy that you submit will provide your voting instructions to the plan trustee. If you do not submit a proxy, the plan trustee will vote your plan shares in the same proportion as the shares for which the trustee receives voting instructions from other participants in that plan. To allow sufficient time for the Employee Savings Plan trustees to tabulate the vote of the plan shares, such shareholders’ voting instructions must be received by 11:59 p.m., Central Time, on November 21, 2018.

Voting in Person

Shares held directly in your name as shareholder of record may be voted in person at the Energen special meeting. If you choose to vote your shares in person at the Energen special meeting, bring your enclosed proxy card and proof of identification. Even if you plan to attend the Energen special meeting, the Energen board recommends that you vote your shares in advance as described below so that your vote will be counted if you later decide not to attend the Energen special meeting.

If you are a beneficial holder, you will receive separate voting instructions from your broker, bank or other nominee explaining how to vote your shares. Please note that if your shares are held in “street name” by a broker, bank or other nominee and you wish to vote at the Energen special meeting, you will not be permitted to vote in person unless you first obtain a legal proxy issued in your name from the record owner. You are encouraged to request a legal proxy from your broker, bank or other nominee promptly as the process can be lengthy.

Voting by Proxy

Whether you hold your shares of Energen common stock directly as the shareholder of record or beneficially in “street name,” you may direct your vote by proxy without attending the Energen special meeting. You can vote by proxy by phone, the Internet or mail by following the instructions provided in the enclosed proxy card.

Questions About Voting

If you have any questions about how to vote or direct a vote in respect of your shares of Energen common stock, you may contact Innisfree, Energen’s proxy solicitor, toll-free at (877) 456-3524 (from the U.S. and Canada) or +1 (412) 232-3651 (from other locations).

Revocability of Proxies

If you are a shareholder of record of Energen, whether you vote by phone, the Internet or mail, you can change or revoke your proxy before it is voted at the meeting in one of the following ways:

 

   

submit a new proxy card bearing a later date;

 

   

vote again by phone or the Internet at a later time;

 

   

give written notice before the meeting to Energen’s corporate secretary at 605 Richard Arrington Jr. Boulevard North, Birmingham, Alabama 35203-2707 stating that you are revoking your proxy; or

 

   

attend the Energen special meeting and vote your shares in person. Please note that your attendance at the meeting will not alone serve to revoke your proxy.

Proxy Solicitation Costs

The enclosed proxy card is being solicited on behalf of the Energen board. In addition to solicitation by mail, Energen’s directors, officers and employees may solicit proxies in person, by phone or by electronic means. These persons will not be specifically compensated for conducting such solicitation.

 

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Energen has retained Innisfree to assist in the solicitation process. Energen will pay Innisfree a fee expected not to exceed $25,000, as well as reasonable expenses. Energen also has agreed to indemnify Innisfree against various liabilities and expenses that relate to or arise out of its solicitation of proxies (subject to certain exceptions).

Energen will ask brokers, banks and other nominees to forward the proxy solicitation materials to the beneficial owners of shares of Energen common stock held of record by such nominee holders. Energen will reimburse these nominee holders for their customary clerical and mailing expenses incurred in forwarding the proxy solicitation materials to the beneficial owners.

Adjournment

In accordance with the Energen bylaws, whether or not a quorum is present, the chairman of the Energen special meeting will have the power to adjourn the Energen special meeting from time to time for the purpose of, among other things, soliciting additional proxies. If the Energen special meeting is adjourned, Energen shareholders who have already submitted their proxies will be able to revoke them at any time prior to their use. At any subsequent reconvening of the Energen special meeting, all proxies will be voted in the same manner as the manner in which such proxies would have been voted at the original convening of the Energen special meeting, except for any proxies that have been validly revoked or withdrawn prior to the subsequent reconvening of the Energen special meeting.

In addition, the merger agreement provides that Energen (1) will be required to adjourn or postpone the Energen special meeting to the extent necessary to ensure that any legally required supplement or amendment to this joint proxy statement/prospectus is provided to the Energen shareholders or if, as of the time the Energen special meeting is scheduled, there are insufficient shares of Energen common stock represented to constitute a quorum necessary to conduct business at the Energen special meeting, and (2) may adjourn or postpone the Energen special meeting if, as of the time for which the Energen special meeting is scheduled, Energen reasonably determines that there are insufficient shares of Energen common stock represented to obtain the approval of the merger proposal. However, unless Diamondback and Energen otherwise agree, the Energen special meeting will not be adjourned or postponed to a date that is more than 30 days after the date for which the Energen special meeting was previously scheduled (though the Energen special meeting must be adjourned or postponed every time the circumstances described in (1) exist, and may be adjourned or postponed every time the circumstances described in (2) exist) or to a date on or after two business days prior to the end date (as defined under “The Merger Agreement—Termination—Termination Rights”).

Dissenters’ Rights in the Merger

The holders of Energen common stock are entitled to dissenters’ rights in the merger under the ABNEC. A shareholder wishing to exercise dissenters’ rights must (1) not vote in favor of the merger, (2) deliver to Energen before the vote on the merger proposal is taken written notice of such shareholder’s intent to demand payment for his or her shares under the dissenters’ rights statute, (3) submit a payment demand to Energen following the merger within the time frame specified by a notice that Energen will provide to such shareholder who provided notification under clause (2), and (4) surrender the stock certificate to Energen that represents the shares subject to the appraisal. For more information, see “The Merger—Appraisal Rights/Dissenters’ Rights in the Merger” beginning on page 129.

Other Information

The matters to be considered at the Energen special meeting are of great importance to the Energen shareholders. Accordingly, you are urged to read and carefully consider the information contained in or incorporated by reference into this joint proxy statement/prospectus and submit your proxy by phone or the Internet or complete, date, sign and promptly return the enclosed proxy card in the enclosed postage-paid envelope. If you submit your proxy by phone or the Internet, you do not need to return the enclosed proxy card.

 

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Assistance

If you need assistance in completing your proxy card or have questions regarding the Energen special meeting, contact:

 

LOGO

Innisfree M&A Incorporated

501 Madison Avenue, 20th floor

New York, New York 10022

Shareholders May Call Toll-Free:

(877) 456-3524 (from the U.S. and Canada); or

+1 (412) 232-3651 (from other locations).

Vote of Energen’s Directors and Executive Officers

As of the Energen record date, Energen directors and executive officers, and their affiliates, as a group, owned and were entitled to vote 463,276 shares of Energen common stock, or approximately 0.5% of the total outstanding shares of Energen common stock as of the Energen record date.

Energen currently expects that all of its directors and executive officers will vote their shares “FOR” the merger proposal and “FOR” the non-binding compensation advisory proposal.

Attending the Energen Special Meeting

You are entitled to attend the Energen special meeting only if you were a shareholder of record of Energen at the close of business on the Energen record date or you held your shares of Energen beneficially in the name of a broker, bank or other nominee as of the Energen record date, or you hold a valid proxy for the Energen special meeting.

If you were a shareholder of record of Energen at the close of business on the Energen record date and wish to attend the Energen special meeting, you should be prepared to present government-issued photo identification for admittance. If your name does not appear on the list of record holders as of the Energen record date or you do not provide photo identification upon request, you might not be admitted to the Energen special meeting.

If a broker, bank or other nominee is the record owner of your shares of Energen common stock, you will need to have proof that you are the beneficial owner as of the Energen record date to be admitted to the Energen special meeting. A recent statement or letter from your broker, bank or other nominee confirming your ownership as of the Energen record date, or presentation of a valid proxy from a broker, bank or other nominee that is the record owner of your shares, would be acceptable proof of your beneficial ownership. You should also be prepared to present government-issued photo identification for admittance. If you do not provide photo identification or comply with the other procedures outlined above upon request, you might not be admitted to the Energen special meeting.

Results of the Energen Special Meeting

Within four business days following the Energen special meeting, Energen intends to file the final voting results with the SEC on a Current Report on Form 8-K. If the final voting results have not been certified within that four business day period, Energen will report the preliminary voting results on a Current Report on Form 8-K at that time and will file an amendment to the Current Report on Form 8-K to report the final voting results within four days of the date that the final results are certified.

ENERGEN SHAREHOLDERS SHOULD CAREFULLY READ THIS JOINT PROXY STATEMENT/PROSPECTUS IN ITS ENTIRETY FOR MORE DETAILED INFORMATION CONCERNING THE MERGER PROPOSAL AND THE NON-BINDING COMPENSATION ADVISORY PROPOSAL.

 

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ENERGEN PROPOSALS

Merger Proposal

It is a condition to completion of the merger that Energen shareholders approve the merger proposal. In the merger, each Energen shareholder will receive, for each share of Energen common stock that is issued and outstanding as of immediately prior to the effective time of the merger, the merger consideration of 0.6442 of a share of Diamondback common stock, with certain exceptions further described in the sections entitled “The Merger—Consideration to Energen Shareholders,” “The Merger Agreement—Effect of the Merger on Capital Stock; Merger Consideration” and “The Merger—Appraisal Rights/Dissenters’ Rights in the Merger” beginning on pages 71, 134 and 129, respectively.

The approval by such shareholders of this proposal is required by Section 10A-2-11.03 of the ABNEC and is a condition to the completion of the merger.

Approval of the merger proposal requires the affirmative vote of two-thirds of the outstanding shares of Energen common stock entitled to vote on the proposal. Abstentions and broker non-votes will have the same effect as a vote “AGAINST” the merger proposal. Failure to vote on the merger proposal will have the same effect as a vote “AGAINST” the merger proposal.

The Energen board unanimously recommends a vote “FOR” the merger proposal.

Non-Binding Compensation Advisory Proposal

As required by Section 14A of the Exchange Act and the applicable SEC rules issued thereunder, which were enacted pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act, Energen is required to provide its shareholders the opportunity to vote to approve, on a non-binding, advisory basis, certain compensation that may be paid or become payable to Energen’s named executive officers that is based on or otherwise relates to the merger, as described in the section entitled “The Merger—Interests of Energen Directors and Executive Officers in the Merger—Quantification of Potential Payments to Energen’s Named Executive Officers in Connection with the Merger” beginning on page 126. Accordingly, Energen shareholders are being provided the opportunity to cast an advisory vote on such payments.

As an advisory vote, this proposal is not binding upon Energen or the Energen board or Diamondback or the Diamondback board, and approval of this proposal is not a condition to completion of the merger and is a vote separate and apart from the merger proposal. Accordingly, you may vote to approve the merger proposal and vote not to approve the non-binding compensation advisory proposal and vice versa. Because the executive compensation to be paid in connection with the merger is based on the terms of the merger agreement as well as the contractual arrangements with Energen’s named executive officers, such compensation will be payable, regardless of the outcome of this advisory vote, if the merger proposal is approved (subject only to the contractual conditions applicable thereto). However, Energen seeks the support of its shareholders and believes that shareholder support is appropriate because Energen has a comprehensive executive compensation program designed to link the compensation of its executives with Energen’s performance and the interests of Energen shareholders. Accordingly, holders of shares of Energen common stock are being asked to vote on the following resolution:

RESOLVED, that the shareholders of Energen Corporation approve, on an advisory, non-binding basis, certain compensation that may be paid or become payable to the named executive officers of Energen Corporation that is based on or otherwise relates to the merger, as disclosed pursuant to Item 402(t) of Regulation S-K under the heading “The MergerInterests of Energen Directors and Executive Officers in the Merger—Quantification of Potential Payments to Energen’s Named Executive Officers in Connection with the Merger,” in the joint proxy statement/prospectus with respect to the special meeting of Energen shareholders to be held on November 27, 2018.

 

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Approval of the non-binding compensation advisory proposal requires the affirmative vote of a majority of the shares of Energen common stock present in person or represented by proxy at the Energen special meeting and entitled to vote on the proposal. Abstentions will have the same effect as a vote “AGAINST” the proposal, and broker non-votes will have no effect on the outcome of the vote.

The Energen board unanimously recommends a vote “FOR” the non-binding compensation advisory proposal.

 

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THE MERGER

This discussion of the merger is qualified in its entirety by reference to the merger agreement, which is attached to this joint proxy statement/prospectus as Annex A and incorporated by reference herein in its entirety. You should read the entire merger agreement carefully as it is the legal document that governs the merger.

Transaction Structure

At the effective time of the merger, Merger Sub will merge with and into Energen. As a result of the merger, the separate corporate existence of Merger Sub will cease, and Energen will continue as the surviving corporation in the merger and as a wholly owned subsidiary of Diamondback.

Consideration to Energen Shareholders

As a result of the merger, each eligible share of Energen common stock (other than any cancelled shares or dissenting shares) issued and outstanding immediately prior to the effective time of the merger will be converted into the right to receive the merger consideration.

Energen shareholders will not be entitled to receive any fractional shares of Diamondback common stock in the merger, and no Energen shareholders will be entitled to dividends, voting rights or any other rights in respect of any fractional shares of Diamondback common stock. Energen shareholders that would have otherwise been entitled to receive a fractional share of Diamondback common stock will instead be entitled to receive, in lieu of fractional shares, an amount in cash, without interest, equal to the product of the volume weighted average price of Diamondback common stock for the five consecutive trading days ending on the date that is two business days prior to the closing date, as reported by The Wall Street Journal, multiplied by the fraction of a share of Diamondback common stock to which the holder would otherwise be entitled.

Background of the Merger

Energen’s management and the Energen board regularly review Energen’s performance, prospects and strategy in light of the current business and economic environment, as well as developments in the oil and gas exploration and production sector, particularly in the Permian Basin region in west Texas and New Mexico where Energen’s assets and operations are primarily located. Energen also has a longstanding practice of maintaining an active dialogue with Energen’s shareholders regarding the company.

The Diamondback board and Diamondback management periodically review opportunities to develop its reserves and increase production through additional acquisitions that meet its strategic and financial objectives.

On May 31, 2017, Corvex Management LP and certain of its affiliates (which we refer to collectively as “Corvex”) filed a Schedule 13D with the Commission disclosing, among other things, Corvex’s belief that Energen should conduct a review of the potential value that could be delivered to shareholders through a change of control transaction.

In early and mid-2017, both before and after Corvex’s initial Schedule 13D filing and in accordance with Energen’s longstanding practice of maintaining an active dialogue with its shareholders, members of Energen management held discussions with Corvex and other shareholders to better understand their views regarding the company.

On June 15 and 16, 2017, at a regularly scheduled meeting attended by representatives of J.P. Morgan and TPH, Energen’s independent financial advisors, and Wachtell, Lipton, Rosen & Katz (which we refer to as “Wachtell Lipton”), Energen’s legal advisor, the Energen board discussed, among other things, Energen’s recent communications with Corvex and other shareholders, and engaged in a detailed review of Energen’s strategic

 

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alternatives at that time, including the alternative of pursuing an extraordinary transaction. Based on its assessment of Energen’s top-tier assets, its improving execution and the broader macroeconomic and commodity price environment, and taking into account the input of Energen’s advisors and its shareholders, the Energen board unanimously concluded that the best path to enhancing shareholder value at that time was continued execution of Energen’s business plan.

On June 19, 2017, Energen issued a press release announcing the Energen board’s determination, as well as raising Energen’s fiscal year 2017 production guidance.

In the second half of 2017, Energen management continued to focus its attention on execution of Energen’s business plan while continuing to engage in dialogue with Energen’s shareholders, including Corvex, regarding Energen’s strategy and business. During this time period, Corvex filed several amendments to its Schedule 13D disclosing increases in its ownership position in Energen as well as Corvex’s intention to seek representation on the Energen board, including by seeking to call a special meeting of Energen shareholders in order to expand the size of the Energen board and elect Corvex nominees to fill the resulting vacancies.

On September 12, 2017, because Energen did not believe that its articles of incorporation or Alabama corporate law permitted Corvex to call a special meeting of shareholders for the purposes described in Corvex’s Schedule 13D filings, Energen filed for a declaratory judgment and injunctive relief from the Circuit Court of Jefferson County, Alabama (which we refer to as the “Court”).

On October 31, 2017, the Court issued a declaratory judgment order affirming that Energen’s articles of incorporation and related provisions of the Alabama law grant to the Energen board the exclusive right to determine the number of directors within a range of nine to 15 and to fill any vacancies resulting from an increase in the number of directors.

On January 31, 2018, Corvex nominated four candidates for election to the Energen board at Energen’s 2018 annual meeting of shareholders. Following these nominations, members of Energen management continued to engage in discussions with Corvex regarding Energen’s business and strategy, and members of the Energen board interviewed the Corvex nominees. In early March 2018, these discussions developed into more specific negotiations regarding the possibility of expanding the Energen board on a consensual basis to include two of Corvex’s nominees.

At a meeting on March 6, 2018 at which representatives of Wachtell Lipton were also in attendance, the Energen board determined that it would be in the best interests of Energen and its shareholders to enter into an agreement with Corvex pursuant to which Messrs. Jonathan Cohen and Vincent Intrieri, two of Corvex’s nominees, would be appointed to the Energen board and nominated for election by Energen’s shareholders at Energen’s 2018 annual meeting. In addition, based on its updated assessment of the prevailing industry, macroeconomic and commodity price environment, and taking into account the input of Energen’s advisors and shareholders (including Corvex), the Energen board also determined to promptly conduct an in-depth review, assisted by Energen’s financial advisors, of Energen’s business plan, competitive positioning and potential strategic alternatives.

Following the March 6, 2018 Energen board meeting and continuing until early June 2018, Energen management, with the assistance of J.P. Morgan and TPH, conducted the review that had been authorized by the Energen board.

On June 5, 2018, the Energen board held a regularly scheduled meeting, together with members of Energen management and representatives of J.P. Morgan, TPH and Wachtell Lipton, to discuss the status of the review undertaken at the Energen board’s direction following its March 6, 2018 meeting. Based on the results of the review, preliminary input from Energen’s financial and legal advisors and its assessment of Energen’s strategic positioning and prevailing conditions in the industry, the Energen board determined that it would be in the best

 

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interests of Energen and its shareholders for Energen to contact other companies in the industry to determine whether there would be interest in a value creating strategic combination or sale of Energen at a valuation level that would be attractive relative to Energen’s standalone prospects, and authorized and instructed Energen’s management and financial advisors to do so.

Following the June 5, 2018 Energen board meeting, Energen’s representatives contacted a total of 16 potentially-interested companies identified by Energen’s management and financial advisors to determine their interest in a business combination transaction with Energen (or, in the case of three companies contacted on a “no-names” basis, to determine their interest in pursuing a large scale acquisition of an upstream exploration and production company). Five of the 16 were identified by management and Energen’s financial advisors as the most likely to be interested in and capable of engaging in a transaction with Energen that would be compelling to Energen’s shareholders (the “top-tier potential counterparties”). Of the companies contacted, three (all of which were among the top-tier potential counterparties) entered into non-disclosure agreements with Energen and were subsequently provided with certain non-public information, including Diamondback (which signed a non-disclosure agreement dated June 15, 2018), a second oil and gas company (which signed a non-disclosure agreement dated June 15, 2018, and is referred to as “Company A”) and a third oil and gas company (which signed a non-disclosure agreement dated June 26, 2018, and is referred to as “Company B”).

In the second half of June and throughout July 2018, each of Diamondback, Company A and Company B performed due diligence on Energen, and members of Energen management and representatives of J.P. Morgan and TPH regularly interacted with representatives of each party. In mid-July 2018, representatives of TPH, as instructed by Energen management, informed each of Diamondback, Company A and Company B that, should they wish to pursue a transaction with Energen, they should plan to make a specific proposal by July 31, 2018.

On July 26, 2018, representatives of Company B informed a representative of TPH that Company B had elected not to pursue a transaction with Energen, and a representative of Company A informed a representative of TPH that Company A would not be able to make a proposal by July 31, 2018, but rather intended to revisit the matter after Energen had reported its second quarter 2018 financial results, which was scheduled to occur on August 7, 2018. Energen subsequently provided its preliminary second quarter 2018 financial results to each of Company A and Diamondback.

On July 30, 2018, the Diamondback board held a telephonic meeting to discuss the potential strategic combination of Diamondback and Energen, including the merits and risks of such a combination. Members of Diamondback management, as well as representatives of Citi, Diamondback’s financial advisor, were also in attendance. At the meeting, members of Diamondback management and Citi provided the Diamondback board with an overview of Energen and discussed with the Diamondback board certain strategic, operational and financial considerations with respect to the proposed transaction. Diamondback management and Citi also reviewed with the Diamondback board certain preliminary financial aspects of the proposed transaction. After discussion regarding the potential strategic combination, the Diamondback board authorized Diamondback’s management to proceed with negotiating a stock-for-stock combination transaction with Energen, on the terms that Diamondback management had described to the Diamondback board.

On July 30, 2018, following the Diamondback board meeting, a representative of Diamondback informed a representative of TPH that Diamondback would not be in a position to submit a transaction proposal until August 1, 2018.

On August 1, 2018, Travis D. Stice, Diamondback’s Chief Executive Officer, delivered Diamondback’s proposal to acquire Energen for $85 per share in an all-stock transaction, which, consistent with the authorization granted by the Diamondback board, implied an exchange ratio of 0.6442 of a share of Diamondback common stock for each outstanding share of Energen common stock (based on Diamondback’s July 31, 2018 closing price). Diamondback also proposed a 15-day period during which the parties would negotiate on an exclusive basis. Later that day, Mr. Stice called Mr. James T. McManus, II, Energen’s Chairman, Chief Executive Officer and President, to discuss Diamondback’s proposal.

 

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On August 2, 2018, the Energen board met in person at a regularly scheduled meeting, together with members of Energen management and representatives of J.P. Morgan, TPH and Wachtell Lipton, to discuss Diamondback’s proposal. At the meeting, Mr. McManus and representatives of J.P. Morgan and TPH updated the Energen board on recent discussions with each of Diamondback, Company A and Company B, and J.P. Morgan and TPH provided their preliminary financial analyses of the Diamondback proposal and preliminary perspectives on the potential combination. The Energen board determined that Diamondback’s proposal had the potential to result in a compelling transaction for Energen, and accordingly authorized and instructed Energen’s management and advisors to proceed with a due diligence review of, and negotiation of definitive transaction documents with, Diamondback on the basis of the economic terms set forth in Diamondback’s proposal, while also authorizing management and the advisors to seek improved economic terms from Diamondback. In addition, noting that Diamondback had requested a brief exclusivity period and no other company had made a proposal or appeared likely to make a proposal that would be competitive with Diamondback’s, the Energen board also authorized entry into an exclusivity agreement with Diamondback upon confirmation that Company A was not prepared to promptly make a proposal.

Later on August 2, 2018, a representative of TPH contacted Mr. Stice to seek an increase in the proposed transaction consideration.

On August 3, 2018, Mr. Stice contacted the representative of TPH to inform TPH that Diamondback was not willing to increase its proposed exchange ratio and that Energen should consider the proposed 0.6442 exchange ratio to be Diamondback’s best and final offer. Mr. Stice noted, however, that Diamondback was willing to fix the exchange ratio at that time (as opposed to utilizing a fixed dollar amount of Diamondback common stock), and that based on then-current trading prices of Energen common stock and Diamondback common stock, the implied value of the exchange ratio had increased to approximately $87 per share of Energen common stock from $85 per share in Diamondback’s August 1st proposal.

Also on August 3, 2018, a representative of TPH contacted the Chief Executive Officer of Company A to inform him that Energen had received an attractive transaction proposal from another company and if Company A desired to make a proposal, it should do so promptly. Later that day, the Chief Executive Officer of Company A contacted the representative of TPH to confirm that Company A would not be making a proposal at that time. Company A’s Chief Executive Officer noted that even if Company A were to determine to submit a proposal, such proposal would be unlikely to be competitive with any alternative transaction valuing Energen at a meaningful premium to its then-current trading price, though he also indicated a willingness to continue discussions with Energen at a later time should a transaction with the other party fail to materialize.

Later on August 3, 2018, members of Energen’s management and representatives of J.P. Morgan, TPH and Wachtell Lipton updated the Energen board on developments since the Energen board’s August 2, 2018 meeting.

On August 4, 2018, Energen and Diamondback executed an exclusivity agreement providing for a period of exclusive negotiations expiring on August 15, 2018, as well as an amended and restated non-disclosure agreement that provided for mutual disclosure of confidential information and included a mutual standstill provision.

On August 5, 2018, Wachtell Lipton sent Akin Gump Strauss Hauer & Feld LLP (“Akin Gump”), Diamondback’s legal advisor, a draft merger agreement. From August 5, 2018 through the morning of August 14, 2018, the parties and their respective legal advisors negotiated the merger agreement and the parties completed mutual due diligence.

On August 9, 2018, Messrs. McManus, Stice and other members of senior management of each of Energen and Diamondback, as well as representatives of each of J.P. Morgan, TPH and Citi, met in person in Houston to discuss Energen’s and Diamondback’s respective businesses, potential synergies that might be created in the proposed combination and related matters.

 

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On August 12, 2018, the Energen board met telephonically, together with members of Energen senior management and representatives of J.P. Morgan, TPH and Wachtell Lipton, to receive an update on the status of negotiations with Diamondback. During the meeting, representatives of Wachtell Lipton summarized the key terms of the draft merger agreement and reviewed the status of negotiations with Diamondback’s counsel. It was the consensus of the Energen board that Energen’s management and legal advisors should continue with negotiations.

On August 13, 2018, the Diamondback board held a telephonic meeting. Members of Diamondback management, as well as representatives of Citi and Akin Gump, also were in attendance. Mr. Stice updated the Diamondback board on the events and developments since the prior meeting of the Diamondback board, including the current state of negotiations between Diamondback and Energen with respect to the proposed strategic combination. During this meeting, representatives of Akin Gump reviewed with the Diamondback board materials summarizing the key provisions of the current draft of the merger agreement, which materials previously had been provided to the Diamondback board. Akin Gump informed the Diamondback board that the terms of the merger agreement were substantially complete, subject to finalization of the merger agreement following Energen’s board meeting scheduled for August 14, 2018. Also at this meeting, Citi reviewed with the Diamondback board of directors Citi’s preliminary financial analysis of the exchange ratio and indicated that, assuming there were no material changes in the information considered, Citi would be in a position to render its opinion in connection with the finalization and execution of the merger agreement. Following a discussion of these matters, the Diamondback board unanimously (1) determined that, subject to the finalization of the merger agreement and related matters, the merger agreement and the transactions contemplated thereby, including the issuance of Diamondback common stock in the merger, were fair to, and in the best interests of, Diamondback and Diamondback’s stockholders, (2) approved and declared advisable the merger agreement and the transactions contemplated thereby and (3) resolved to recommend that Diamondback’s stockholders approve the issuance of Diamondback common stock in the merger. On August 14, 2018, in connection with the finalization and execution of the merger agreement, Citi delivered an updated financial analysis of the exchange ratio and its written opinion, dated August 14, 2018, to the Diamondback board of directors to the effect that, as of such date and based on and subject to various assumptions made, procedures followed, matters considered and limitations and qualifications on the review undertaken, the exchange ratio provided for pursuant to the merger agreement was fair, from a financial point of view, to Diamondback.

In the afternoon of August 14, 2018, the Energen board met telephonically, together with members of Energen management and representatives of J.P. Morgan, TPH and Wachtell Lipton. Representatives of Wachtell Lipton presented to the board a detailed summary of the terms of the draft merger agreement and reviewed the outcome of negotiations with Diamondback’s counsel. Representatives of J.P. Morgan and TPH provided the directors with their respective financial analysis presentations. After discussion among the Energen board and Energen’s advisors, representatives of each of J.P. Morgan and TPH delivered their respective oral opinions, confirmed by delivery of written opinions dated August 14, 2018, to the Energen board to the effect that, as of such date and based upon and subject to the assumptions made, procedures followed, factors considered and limitations and qualifications on the review undertaken described in each financial advisor’s written opinion, the exchange ratio in the merger was fair, from a financial point of view, to holders of Energen common stock. See the sections entitled “—Opinion of J.P. Morgan, Energen’s Financial Advisor” and “—Opinion of TPH, Energen’s Financial Advisor” for more information. After carefully considering the proposed terms of the transaction, and taking into consideration the matters discussed during that meeting and prior meetings of the Energen board, including the factors described under the sections entitled “—Recommendation of the Energen Board and Energen’s Reasons for the Merger,” the Energen board unanimously (1) determined that the merger agreement and the transactions contemplated thereby were fair to, and in the best interests of, Energen and its shareholders, (2) adopted and approved the merger agreement and the transactions contemplated thereby, (3) directed that the merger agreement be submitted to Energen’s shareholders for approval and (4) resolved to recommend the approval of the merger agreement by Energen shareholders.

 

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Following the Energen board’s approval of the merger and the merger agreement, during the afternoon of August 14, 2018, Energen and Diamondback finalized and executed the merger agreement and issued a joint press release announcing execution of the merger agreement.

Recommendation of the Diamondback Board of Directors and Diamondback’s Reasons for the Merger

The Diamondback board unanimously determined the merger agreement and the transactions contemplated thereby, including the issuance of shares of Diamondback common stock in connection with the merger, to be advisable and fair to, and in the best interests of, Diamondback and its stockholders and approved the merger agreement and the transactions contemplated thereby, including the issuance of shares of Diamondback common stock in connection with the merger. The Diamondback board unanimously recommends that Diamondback stockholders vote “FOR” the Diamondback issuance proposal.

In evaluating the merger, the Diamondback board consulted with Diamondback management, as well as Diamondback’s legal and financial advisors, and considered a number of factors, weighing both perceived benefits of the merger as well as potential risks of the merger.

In the course of its deliberations, the Diamondback board considered a variety of factors and information that it believes support its determinations and recommendations, including the following (which are not necessarily presented in order of relative importance):

 

   

Diamondback’s expectation that the merger will reinforce its leadership position as the premier large cap Permian independent company with peer-leading production growth, cost structure and capital efficiency, resulting in over 266,000 net Tier One acres in the Permian Basin, an increase of 57% from Diamondback’s current Tier One acreage of approximately 170,000 net acres (pro forma for Diamondback’s previously announced pending acquisition of certain assets from Ajax Resources, LLC (which we refer to as the “Ajax acquisition”)).

 

   

Diamondback’s expectation that the merger will be accretive in 2019 on key per-share metrics, including earnings per share, cash flow per share, net asset value, production growth per debt-adjusted share and acreage.

 

   

Diamondback’s acreage will increase to 390,000 net acres across the Midland and Delaware Basins, an increase of 85% from 211,000 net acres as of June 30, 2018 (pro forma for Diamondback’s previously announced Ajax acquisition).

 

   

Diamondback’s estimated total net horizontal Permian locations will increase to 7,000, an increase of over 120% from Diamondback’s current estimated net locations (pro forma for Diamondback’s previously announced Ajax acquisition).

 

   

Diamondback’s expectation that the merger will provide free cash flow enhancement expected to support increases in return of capital, with Diamondback’s dividend to be maintained and growth in return of capital program to be assessed in 2019.

 

   

Diamondback’s expectation that the merger will produce primary deliverable synergies, which are expected to be realized beginning in 2019, with net present value of $2.0 billion or more, including: (i) capital productivity relating to drilling, completion and equipment (which we refer to as “D,C&E”) well cost savings of up to $200 per lateral foot across over 2,000 net operated locations in the Midland Basin, (ii) estimated annual general and administrative (which we refer to as “G&A”) savings of $30 to $40 million and (iii) lower cost of capital and accelerated path to investment grade profile.

 

   

The attractiveness of the merger to Diamondback in comparison to other acquisition opportunities reasonably available to Diamondback, including Energen’s desirable asset quality, potential synergies between the companies and the immediate actionability of the Energen acquisition opportunity.

 

   

That Diamondback will continue to be led by the experienced Diamondback management team, with a strong record of successful acquisition integration and realization of the projected financial goals and benefits of acquisitions, which Diamondback believes will provide continuity and enhance the likelihood of realizing the strategic benefits that Diamondback expects to derive from the merger.

 

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Diamondback’s expectations that the merger will produce secondary synergies, which are expected to be realized post integration, with net present value of $1.0 billion or more, including capital productivity relating to D,C&E well cost savings of up to $50 per lateral foot across over 1,500 net operated locations in the Delaware Basin, benefits of economies of scale, benefit of overlapping and adjacent acreage in Howard, Martin and Ward counties, lease operating expense reduction, high grading of inventory allowing for cash flow acceleration and reinvestment, “grow and prune” strategy for non-core assets with cash reinvested into higher return projects, substantial mineral ownership and acreage with net revenue interest greater than 75%, providing compelling drop down opportunities for Viper Energy Partners LP, Diamondback’s consolidated subsidiary (which we refer to as “Viper”), and combination of significant midstream assets across both Midland and Delaware Basins.

 

   

Diamondback’s expectation that the increased size, scale and resources of Diamondback following the merger will create additional stockholder value and allow Diamondback to be even more competitive in leveraging its operating capabilities and capturing strategic opportunities.

 

   

Diamondback’s expectation that the held by production nature of assets subject to the merger will allow for development optimization with multi-zone, multi-well pads in both Midland and Delaware Basins.

 

   

Diamondback’s expectation that the merger will enhance Diamondback’s combined pro forma second quarter 2018 production to over 222 Mboe/d (67% oil), the third largest production for a pure play company in the Permian Basin, an increase of 79% from Diamondback’s second quarter 2018 production of 124.7 Mboe/d (includes production from Diamondback’s previously announced Ajax acquisition).

 

   

The Diamondback board’s knowledge of, and discussions with Diamondback’s management and advisors regarding, Diamondback’s and Energen’s respective business operations, financial condition, earnings and prospects, taking into account Energen’s publicly-filed information and the results of Diamondback’s due diligence review of Energen.

 

   

The recommendation of the merger by Diamondback’s executive management team.

 

   

The delivery by Citi of an opinion, dated August 14, 2018, to the Diamondback board of directors as to the fairness, from a financial point of view and as of the date of the opinion, to Diamondback of the exchange ratio provided for pursuant to the merger agreement, which opinion was based on and subject to various assumptions made, procedures followed, matters considered and limitations and qualifications on the review undertaken as more fully described below under the caption “Opinion of Citi, Diamondback’s Financial Advisor.”

 

   

That the Diamondback board believes the restrictions imposed on Diamondback’s business and operations during the pendency of the merger are reasonable and not unduly burdensome.

 

   

That the exchange ratio is fixed and will not fluctuate in the event that the market price of Energen common stock increases relative to the market price of Diamondback common stock between the date of the merger agreement and the completion of the merger.

 

   

The likelihood of consummation of the merger and the Diamondback board’s evaluation of the likely time period necessary to close the merger.

 

   

That the Diamondback stockholders will have the opportunity to vote on the Diamondback issuance proposal, which is a condition precedent to the merger.

 

   

The representations, warranties, covenants and conditions contained in the merger agreement, including the following (which are not necessarily presented in order of relative importance):

 

   

That Diamondback has the ability, in specified circumstances, to provide information to and to engage in discussions or negotiations with a third party that makes an unsolicited acquisition

 

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proposal, as further described in the section entitled “The Merger Agreement—No Solicitation; Changes of Recommendation—Diamondback: No Solicitation Exceptions” beginning on page 147.

 

   

That the Diamondback board has the ability, in specified circumstances, to change its recommendation to Diamondback stockholders in favor of the Diamondback issuance proposal, subject to the obligation to pay Energen a termination fee of $400 million, as further described in the section entitled “The Merger Agreement—No Solicitation; Changes of Recommendation—Diamondback: Permitted Changes of Recommendation and Permitted Termination to Enter into a Diamondback Superior Proposal” beginning on page 149 and “The Merger Agreement—Termination—Termination Fees Payable by Diamondback” beginning on page 165.

 

   

That there are limited circumstances in which the Energen board may terminate the merger agreement or change its recommendation that Energen shareholders approve the merger proposal, and if the merger agreement is terminated by Diamondback as a result of a change in recommendation of the Energen board or by Energen in order to enter into a definitive agreement with a third party providing for the consummation of a Energen superior proposal, then in each case Energen has agreed to pay Diamondback a termination fee of $250 million. For additional information, see the section entitled “The Merger Agreement—Termination” beginning on page 164.

 

   

That if the merger agreement is terminated by either party because Energen shareholders have not approved the merger proposal, then Energen has agreed to pay Diamondback an expense reimbursement fee of not to exceed $25 million. For additional information, see the section entitled “The Merger Agreement—Termination” beginning on page 164.

In the course of its deliberations, the Diamondback board also considered a variety of risks, uncertainties and other potentially negative factors, including the following (which are not necessarily presented in order of relative importance):

 

   

That the merger may not be completed in a timely manner or at all and the potential consequences of non-completion or delays in completion.

 

   

The effect that the length of time from announcement of the merger until completion of the merger could have on the market price of Diamondback common stock, Diamondback’s operating results and the relationship with Diamondback’s employees, stockholders, customers, suppliers, regulators and others who do business with Diamondback.

 

   

That the integration of Energen and Diamondback may not be as successful as expected and that the anticipated benefits of the merger may not be realized in full or in part, including the risk that synergies and cost-savings may not be achieved or not achieved in the expected time frame.

 

   

That the attention of Diamondback’s senior management may be diverted from other strategic priorities to implement the merger and make arrangements for the integration of Energen’s and Diamondback’s operations, assets and employees following the merger.

 

   

That Energen shareholders may not approve the merger proposal or that Diamondback stockholders may not approve the Diamondback issuance proposal.

 

   

The impact of the merger on the existing debt financing arrangements of Diamondback and Energen and the risk that any refinancing that may be undertaken in connection with the merger may not ultimately be available at all or on the terms anticipated by Diamondback.

 

   

The risk that antitrust regulatory authorities may not approve the merger or may impose terms and conditions on their approvals that adversely affect the business and financial results of Diamondback following the merger.

 

   

That the exchange ratio is fixed and will not fluctuate in the event that the market price of Diamondback common stock increases relative to the market price of Energen common stock between the date of the merger agreement and the completion of the merger.

 

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That the merger agreement imposes restrictions on Diamondback’s ability to solicit alternative transactions and make certain acquisitions, which are described in the sections entitled “The Merger Agreement—Interim Operations of Energen and Diamondback Pending the Merger” and “The Merger Agreement—No Solicitation; Changes of Recommendation” beginning on pages 142 and 146, respectively.

 

   

That there are limited circumstances in which the Diamondback board may terminate the merger agreement or change its recommendation that Diamondback stockholders approve the Diamondback issuance proposal, and if the merger agreement is terminated by Energen as a result of a change in recommendation of the Diamondback board, Diamondback has agreed to pay Energen a reverse termination fee of $400 million. For additional information, see the section entitled “The Merger Agreement—Termination” beginning on page 164.

 

   

That if the merger agreement is terminated by either party because Diamondback stockholders have not approved the merger proposal, Diamondback has agreed to pay Energen an expense reimbursement fee of up to $40 million. For additional information, see the section entitled “The Merger Agreement—Termination” beginning on page 164.

 

   

The requirement that Diamondback must hold a stockholder vote on the approval of the Diamondback issuance proposal, even if the Diamondback board has withdrawn or changed its recommendation in favor of the Diamondback issuance proposal, and the inability of Diamondback to terminate the merger agreement in connection with an acquisition proposal (except in the limited circumstance when it qualifies as a Diamondback superior proposal). For additional information, see the section entitled “The Merger Agreement—No Solicitation; Changes of Recommendation” beginning on page 146.

 

   

The ability of the Energen board, in certain circumstances, to terminate the merger agreement or change its recommendation that Energen’s shareholders approve the merger proposal.

 

   

The transaction costs to be incurred by Diamondback in connection with the merger.

 

   

The likelihood of lawsuits being brought against Diamondback, Energen or their respective boards in connection with the merger.

 

   

The risks associated with the occurrence of events that may materially and adversely affect the financial condition, properties, assets, liabilities, business or results of operations of Energen and its subsidiaries but that will not entitle Diamondback to terminate the merger agreement.

 

   

The potential impact on the market price of Diamondback common stock as a result of the issuance of the merger consideration to Energen shareholders.

 

   

Various other risks described in the section entitled “Risk Factors” beginning on page 43.

The Diamondback board considered all of these factors as a whole and unanimously concluded that they supported a determination to approve the merger agreement and the transactions contemplated thereby, including the issuance of shares of Diamondback common stock in connection with the merger. The foregoing discussion of the information and factors considered by the Diamondback board is not exhaustive. In view of the wide variety of factors considered by the Diamondback board in connection with its evaluation of the merger and the complexity of these matters, the Diamondback board did not consider it practical to, nor did it attempt to, quantify, rank or otherwise assign relative weights to the specific factors that it considered in reaching its decision. In considering the factors described above and any other factors, individual members of the Diamondback board may have viewed factors differently or given different weight or merit to different factors.

In considering the recommendation of the Diamondback board that the Diamondback stockholders vote to approve the Diamondback issuance proposal, Diamondback stockholders should be aware that the directors and executive officers of Diamondback may have certain interests in the merger that may be different from, or in addition to, the interests of Diamondback stockholders generally. The Diamondback board was aware of these interests and considered them when approving the merger agreement and recommending that Diamondback

 

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stockholders vote to approve the Diamondback issuance proposal, which are described in the section entitled “The Merger—Interests of Diamondback Directors and Executive Officers in the Merger” beginning on page 123.

The foregoing discussion of the information and factors considered by the Diamondback board is forward-looking in nature and should be read in light of the factors described in the section entitled “Cautionary Statement Regarding Forward-Looking Statements” beginning on page 55.

Opinion of Citi, Diamondback’s Financial Advisor

Diamondback has engaged Citi to act as its financial advisor in connection with the proposed merger. In connection with Citi’s engagement, the Diamondback board of directors requested that Citi evaluate the fairness, from a financial point of view, to Diamondback of the exchange ratio provided for pursuant to the merger agreement. On August 14, 2018, in connection with the finalization and execution of the merger agreement, Citi delivered a written opinion, dated August 14, 2018, to the Diamondback board of directors to the effect that, as of such date and based on and subject to various assumptions made, procedures followed, matters considered and limitations and qualifications on the review undertaken, the exchange ratio provided for pursuant to the merger agreement was fair, from a financial point of view, to Diamondback.

The full text of Citi’s written opinion, dated August 14, 2018, which describes the assumptions made, procedures followed, matters considered and limitations and qualifications on the review undertaken, is attached as Annex B to this joint proxy statement/prospectus and is incorporated into this joint proxy statement/prospectus by reference. The description of Citi’s opinion set forth below is qualified in its entirety by reference to the full text of Citi’s opinion. Citi’s opinion was provided for the information of the Diamondback board of directors (in its capacity as such) in connection with its evaluation of the exchange ratio from a financial point of view to Diamondback and did not address any other terms, aspects or implications of the merger. Citi expressed no view as to, and its opinion did not address, the underlying business decision of Diamondback to effect or enter into the merger, the relative merits of the merger as compared to any alternative business strategies that might exist for Diamondback or the effect of any other transaction which Diamondback might engage in or consider. Citi’s opinion is not intended to be and does not constitute a recommendation to any securityholder as to how such securityholder should vote or act on any matters relating to the proposed merger or otherwise.

In arriving at its opinion, Citi:

 

   

reviewed an execution version, provided to Citi on August 14, 2018, of the merger agreement;

 

   

held discussions with certain senior officers, directors and other representatives of Diamondback and certain senior officers and other representatives of Energen concerning the businesses, operations and prospects of Energen and Diamondback;

 

   

reviewed certain publicly available and other business and financial information provided to or discussed with Citi by the managements of Energen and Diamondback, including certain financial forecasts and other information and data relating to Energen and Diamondback provided to or discussed with Citi by the management of Diamondback and certain publicly available future commodity price estimates and assumptions reviewed and discussed with the management of Diamondback;

 

   

reviewed certain information and data relating to the potential strategic implications and financial and operational benefits (including the amount, timing and achievability thereof) anticipated by the management of Diamondback to result from the merger;

 

   

reviewed the financial terms of the merger as set forth in the merger agreement in relation to, among other things, current and historical market prices of Energen common stock and Diamondback common stock, the financial condition and certain historical and projected financial and operating data of Energen and Diamondback, and the capitalization of Energen and Diamondback;

 

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analyzed certain financial, stock market and other publicly available information relating to the businesses of certain other companies whose operations Citi considered relevant in evaluating those of Energen and Diamondback;

 

   

considered, to the extent publicly available, the financial terms of certain other transactions which Citi considered relevant in evaluating the merger;

 

   

reviewed certain potential pro forma financial effects of the merger on Diamondback utilizing the financial forecasts and other information and data relating to Diamondback and Energen and the potential strategic implications and financial and operational benefits referred to above; and

 

   

conducted such other analyses and examinations and considered such other information and financial, economic and market criteria as Citi deemed appropriate in arriving at its opinion.

In rendering its opinion, Citi assumed and relied, without independent verification, upon the accuracy and completeness of all financial and other information and data publicly available or provided to or otherwise reviewed by or discussed with Citi and upon the assurances of the managements and other representatives of Diamondback and Energen that they were not aware of any relevant information that was omitted or that remained undisclosed to Citi. With respect to the financial forecasts and other information and data that Citi was directed to utilize in its analyses, Citi was advised by the management of Diamondback and Citi assumed, with Diamondback’s consent, that they were reasonably prepared on bases reflecting the best currently available estimates and judgments of the management of Diamondback as to, and were a reasonable basis upon which to evaluate, the future financial performance of Energen and Diamondback, the potential strategic implications and financial and operational benefits (including the amount, timing and achievability thereof) anticipated by the management of Diamondback to result from, and other potential pro forma financial effects of, the merger and the other matters covered thereby. With respect to the future commodity price estimates and assumptions that Citi was directed to utilize in its analyses, Citi assumed, with Diamondback’s consent, that they were a reasonable basis upon which to evaluate the matters covered thereby. Citi expressed no view or opinion as to any financial forecasts and other information or data (or underlying assumptions on which any such financial forecasts and other information or data were based) provided to or otherwise reviewed by or discussed with Citi and Citi assumed, with Diamondback’s consent, that the financial results, including with respect to the potential strategic implications and financial and operational benefits anticipated to result from the merger, reflected in such financial forecasts and other information and data would be realized in the amounts and at the times projected.

Citi relied, at Diamondback’s direction, upon the assessments of the managements of Diamondback and Energen, as the case may be, as to, among other things, (i) Diamondback’s pending acquisition of leasehold interests and related assets of Ajax Resources, LLC (“Ajax”), including with respect to the timing thereof and assets, liabilities and financial and other terms involved, (ii) the oil, natural gas liquids and natural gas reserves, and drilling, completion and development plans and exploration projects, of Energen and Diamondback and related capital requirements and expenditures, (iii) the distribution policies of each of Energen and Diamondback on a standalone basis and of the pro forma combined entity following consummation of the merger, (iv) the potential impact on Energen and Diamondback of market, competitive, seasonal, cyclical and other trends and developments in and prospects for, and governmental, regulatory and legislative matters relating to or otherwise affecting, the oil and natural gas industry, including with respect to the geographical regions and basins in which Energen and Diamondback operate, environmental regulations and commodity pricing and supply and demand for oil, natural gas liquids and natural gas, which are subject to significant volatility and which, if different than as assumed, could have a material impact on Citi’s analyses or opinion, (v) existing and future contracts and relationships, agreements and arrangements with, and the ability to attract, retain and/or replace, key employees, customers, service providers, derivatives counterparties and other commercial relationships of Energen and Diamondback, and (vi) the ability of Diamondback to integrate the operations of Diamondback and Energen. Citi assumed, with Diamondback’s consent, that there would be no developments with respect to any such matters that would have an adverse effect on Energen, Diamondback or the merger (including the contemplated benefits thereof) or that otherwise would be meaningful in any respect to Citi’s analyses or opinion.

 

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Citi did not make and, except for certain reserve reports relating to Energen and Diamondback, was not provided with an independent evaluation or appraisal of the assets or liabilities (contingent, accrued, derivative, off-balance sheet or otherwise) of Energen, Diamondback or any other entity nor did Citi make any physical inspection of the properties or assets of Energen, Diamondback or any other entity. Citi did not conduct or provide geological, environmental or other technical assessments and Citi is not an expert in the evaluation of oil, natural gas liquids or natural gas reserves or properties and Citi expressed no view or opinion as to reserve quantities, or the exploration, development or production (including, without limitation, as to the feasibility or timing thereof), of any properties of Energen, Diamondback or any other entity. Citi did not evaluate the solvency or fair value of Energen, Diamondback or any other entity under any state, federal or other laws relating to bankruptcy, insolvency or similar matters. Citi expressed no view or opinion as to the potential impact on Energen, Diamondback or any other entity of any pending or potential litigation, claims or governmental, regulatory or other proceedings, orders, audits or investigations. Citi assumed, with Diamondback’s consent, that the merger would be consummated in accordance with its terms and in compliance with all applicable laws, documents and other requirements, without waiver, modification or amendment of any material term, condition or agreement, and that, in the course of obtaining the necessary governmental, regulatory or third party approvals, consents, releases, waivers and agreements for the merger, no delay, limitation, restriction, condition or other action, including any divestiture or other requirements, amendments or modifications, would be imposed or occur that would have an adverse effect on Energen, Diamondback or the merger (including the contemplated benefits thereof) or that otherwise would be meaningful in any respect to Citi’s analyses or opinion. Citi also assumed, with Diamondback’s consent, that the merger would qualify as a reorganization within the meaning of Section 368(a) of the Code. Citi’s opinion, as expressed therein, relates to the relative values of Diamondback and Energen. Citi did not express any view or opinion as to the actual value of Diamondback common stock or any other securities when issued in connection with the merger or the prices at which Diamondback common stock, Energen common stock or any other securities will trade or otherwise be transferable at any time, including following the announcement or consummation of the merger. Representatives of Diamondback advised Citi, and Citi further assumed, that the final terms of the merger agreement would not vary materially from those set forth in the execution version reviewed by Citi. Citi did not express any view or opinion with respect to accounting, tax, regulatory, legal or similar matters, including, without limitation, as to tax consequences resulting from the merger or otherwise or changes in, or the impact of, tax laws, regulations and governmental and legislative policies on Energen, Diamondback or the merger (including the contemplated benefits thereof), and Citi relied, with Diamondback’s consent, upon the assessments of representatives of Diamondback as to such matters.

Citi’s opinion did not address any terms (other than the exchange ratio to the extent expressly specified therein), aspects or implications of the merger, including, without limitation, the form or structure of the merger or any other agreement, arrangement or understanding to be entered into in connection with or contemplated by the merger or otherwise. Citi expressed no view as to, and its opinion did not address, the fairness (financial or otherwise) of the amount or nature or any other aspect of any compensation or other consideration to any officers, directors or employees of any parties to the merger, or any class of such persons, relative to the exchange ratio or otherwise. Citi’s opinion was necessarily based upon information available, and financial, stock market and other conditions and circumstances existing and disclosed, to Citi as of the date of its opinion. Although subsequent developments may affect its opinion, Citi has no obligation to update, revise or reaffirm its opinion. As the Diamondback board of directors was aware, the credit, financial and stock markets, and the industry in which Diamondback and Energen operate, have experienced and continue to experience volatility and Citi expressed no view or opinion as to any potential effects of such volatility on Diamondback or Energen (or their respective businesses) or the merger (including the contemplated benefits thereof). The issuance of Citi’s opinion was authorized by Citi’s fairness opinion committee.

In preparing its opinion, Citi performed a variety of financial and comparative analyses, including those described below. The summary of the analyses below is not a complete description of Citi’s opinion or the analyses underlying, and factors considered in connection with, Citi’s opinion. The preparation of a financial opinion is a complex analytical process involving various determinations as to the most appropriate and relevant

 

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methods of financial analysis and the application of those methods to the particular circumstances and, therefore, a financial opinion is not readily susceptible to summary description. Citi arrived at its ultimate opinion based on the results of all analyses and factors assessed as a whole, and it did not draw, in isolation, conclusions from or with regard to any one factor or method of analysis. Accordingly, Citi believes that the analyses must be considered as a whole and that selecting portions of its analyses and factors or focusing on information presented in tabular format, without considering all analyses and factors or the narrative description of the analyses, could create a misleading or incomplete view of the processes underlying such analyses and its opinion.

In its analyses, Citi considered industry performance, general business, economic, market and financial conditions and other matters existing as of the date of its opinion, many of which are beyond the control of Diamondback and Energen. No company, business or transaction reviewed is identical or directly comparable to Diamondback, Energen or the merger and an evaluation of these analyses is not entirely mathematical; rather, the analyses involve complex considerations and judgments concerning financial and operating characteristics and other factors that could affect the public trading, acquisition or other values of the companies, businesses or transactions reviewed or the results of any particular analysis.

The estimates contained in Citi’s analyses and the ranges resulting from any particular analysis are not necessarily indicative of actual values or predictive of future results or values, which may be significantly more or less favorable than those suggested by such analyses. In addition, analyses relating to the value of businesses or securities do not purport to be appraisals or to reflect the prices at which businesses or securities actually may be sold or acquired. Accordingly, the estimates used in, and the results derived from, Citi’s analyses are inherently subject to substantial uncertainty.

Citi was not requested to, and it did not, recommend or determine the specific consideration payable in the merger. The type and amount of consideration payable in the merger were determined through negotiations between Diamondback and Energen and the decision to enter into the merger agreement was solely that of the Diamondback board of directors. Citi’s opinion was only one of many factors considered by the Diamondback board of directors in its evaluation of the merger and should not be viewed as determinative of the views of the Diamondback board of directors or Diamondback management with respect to the merger or the exchange ratio.

Financial Analyses

The summary of the financial analyses described below under this heading “—Financial Analyses” is a summary of the material financial analyses prepared for the Diamondback board of directors in connection with Citi’s opinion, dated August 14, 2018. The summary set forth below does not purport to be a complete description of the financial analyses performed by, and underlying the opinion of, Citi, nor does the order of the financial analyses described represent the relative importance or weight given to those financial analyses by Citi. Certain financial analyses summarized below include information presented in tabular format. In order to fully understand the financial analyses, the tables must be read together with the text of each summary as the tables alone do not constitute a complete description of the financial analyses. Considering the data in the tables below without considering the full narrative description of the financial analyses, including the methodologies and assumptions underlying the financial analyses, could create a misleading or incomplete view of such financial analyses. Future results may be different from those described and such differences may be material. Approximate implied per share equity value reference ranges derived from the financial analyses described below were rounded to the nearest $0.50. For purposes of the financial analyses described below, (i) the term “adjusted EBITDAX” generally refers to earnings before interest, taxes, depreciation, depletion, amortization and exploration expenses, adjusted for certain non-recurring items and before stock-based compensation expense, and (ii) the term “CFPS” refers to cash flow per share. Except as otherwise noted, financial data utilized for Energen and Diamondback in the financial analyses described below were based on certain financial forecasts and other information and data relating to Energen and Diamondback provided to or discussed with Citi by the management of Diamondback, referred to as the Diamondback-Energen forecasts and Diamondback forecasts, respectively. Financial information utilized for Diamondback in the

 

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financial analyses described below reflected Diamondback’s majority owned subsidiary, Viper, on a consolidated basis and was pro forma, to the extent meaningful, for Diamondback’s pending acquisition of leasehold interests and related assets of Ajax.

In calculating implied exchange ratio reference ranges as reflected in the financial analyses described below, other than the selected precedent transactions analysis and relative contributions analysis, Citi divided the low-ends (or high-ends, as the case may be) of the approximate implied per share equity value reference ranges derived for Energen from such analyses by the high-ends (or low-ends, as the case may be) of the approximate implied per share equity value reference ranges derived for Diamondback from such analyses in order to calculate the low-ends (or high-ends) of the implied exchange ratio reference ranges. In calculating implied exchange ratio reference ranges as reflected in the selected precedent transactions analysis described below, Citi divided the low-ends (or high-ends, as the case may be) of the approximate implied per share equity value reference ranges derived for Energen from such analysis by the closing price per share of Diamondback common stock on August 13, 2018 in order to calculate the low-ends (or high-ends) of the implied exchange ratio reference ranges. In calculating an implied exchange ratio reference range as reflected in the relative contributions analysis described below, Citi derived overall low to high exchange ratios implied by certain earnings metrics of Diamondback and Energen utilizing publicly available Wall Street consensus commodity price estimates as of August 13, 2018 (referred to as Wall Street consensus pricing) and New York Mercantile Exchange strip pricing as of August 13, 2018 (referred to as NYMEX strip pricing).

Selected Public Companies Analyses. Citi performed separate selected public companies analyses of Energen and Diamondback in which Citi reviewed certain financial and stock market information relating to Energen, Diamondback and the selected publicly traded companies listed below.

Energen. In its selected public companies analysis of Energen, Citi reviewed certain financial and stock market information relating to Energen and the following six selected companies that Citi considered generally relevant as publicly traded oil and gas exploration and production companies with operations primarily in the Permian Basin, collectively referred to as the Energen selected companies:

 

   

Callon Petroleum Company

 

   

Centennial Resource Development, Inc.

 

   

Concho Resources Inc.

 

   

Jagged Peak Energy Inc.

 

   

Parsley Energy, Inc.

 

   

Pioneer Natural Resources Company

Citi reviewed, among other information, enterprise values, calculated as implied equity values based on closing stock prices on August 13, 2018 plus total debt, preferred equity and non-controlling interests (as applicable) and less cash and cash equivalents, as a multiple of calendar year 2018 and calendar year 2019 estimated adjusted EBITDAX and closing stock prices (as of August 13, 2018) as a multiple of calendar year 2018 and calendar year 2019 estimated CFPS. Financial data (pro forma, as applicable, for certain recent acquisitions) of the Energen selected companies were based on publicly available Wall Street research analysts’ estimates, public filings and other publicly available information. Financial data of Energen were based on publicly available Wall Street research analysts’ estimates and the Diamondback-Energen forecasts utilizing Wall Street consensus pricing.

The overall low to high calendar year 2018 and calendar year 2019 estimated adjusted EBITDAX multiples and calendar year 2018 and calendar year 2019 estimated CFPS multiples observed for the Energen selected companies were as follows:

 

   

calendar year 2018 estimated adjusted EBITDAX multiples: 7.0x to 9.6x (with a mean of 8.4x and a median of 8.2x);

 

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calendar year 2019 estimated adjusted EBITDAX multiples: 4.8x to 8.0x (with a mean of 6.4x and a median of 6.3x);

 

   

calendar year 2018 estimated CFPS multiples: 5.6x to 10.0x (with a mean of 7.7x and a median of 7.4x); and

 

   

calendar year 2019 estimated CFPS multiples: 4.0x to 7.4x (with a mean of 5.8x and a median of 5.6x).

Citi noted that the calendar year 2018 and calendar year 2019 estimated adjusted EBITDAX multiples observed for Energen were 7.6x and 5.4x, respectively, and the calendar year 2018 and calendar year 2019 estimated CFPS multiples observed for Energen were 6.8x and 4.9x, respectively, in each case based on publicly available Wall Street research analysts’ estimates. Citi then applied selected ranges of calendar year 2018 and calendar year 2019 estimated adjusted EBITDAX multiples of 7.0x to 8.2x and 4.8x to 6.3x, respectively, and calendar year 2018 and calendar year 2019 estimated CFPS multiples of 5.6x to 7.4x and 4.0x to 5.6x, respectively, derived from the Energen selected companies to corresponding data of Energen based on the Diamondback-Energen forecasts utilizing Wall Street consensus pricing. This analysis indicated approximate implied equity value reference ranges for Energen based on calendar year 2018 and calendar year 2019 estimated adjusted EBITDAX multiples of $66.50 to $79.50 per share and $60.50 to $82.00 per share, respectively, and approximate implied equity value reference ranges for Energen based on calendar year 2018 and calendar year 2019 estimated CFPS multiples of $63.50 to $83.00 per share and $54.50 to $75.50 per share, respectively.

Diamondback. In its selected public companies analysis of Diamondback, Citi reviewed certain financial and stock market information relating to Diamondback and the following six selected companies that Citi considered generally relevant as publicly traded oil and gas exploration and production companies with operations primarily in the Permian Basin, collectively referred to as the Diamondback selected companies:

 

   

Callon Petroleum Company

 

   

Centennial Resource Development, Inc.

 

   

Concho Resources Inc.

 

   

Jagged Peak Energy Inc.

 

   

Parsley Energy, Inc.

 

   

Pioneer Natural Resources Company

Citi reviewed, among other information, enterprise values, calculated as implied equity values based on closing stock prices on August 13, 2018 plus total debt, preferred equity and non-controlling interests (as applicable) and less cash and cash equivalents, as a multiple of calendar year 2018 and calendar year 2019 estimated adjusted EBITDAX and closing stock prices (as of August 13, 2018) as a multiple of calendar year 2018 and calendar year 2019 estimated CFPS. Financial data (pro forma, as applicable, for certain recent acquisitions) of the Diamondback selected companies were based on publicly available Wall Street research analysts’ estimates, public filings and other publicly available information. Financial data of Diamondback were based on publicly available Wall Street research analysts’ estimates and the Diamondback forecasts utilizing Wall Street consensus pricing.

The overall low to high calendar year 2018 and calendar year 2019 estimated adjusted EBITDAX multiples and calendar year 2018 and calendar year 2019 estimated CFPS multiples observed for the Diamondback selected companies were as follows:

 

   

calendar year 2018 estimated adjusted EBITDAX multiples: 7.0x to 9.6x (with a mean of 8.4x and a median of 8.2x);

 

   

calendar year 2019 estimated adjusted EBITDAX multiples: 4.8x to 8.0x (with a mean of 6.4x and a median of 6.3x);

 

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calendar year 2018 estimated CFPS multiples: 5.6x to 10.0x (with a mean of 7.7x and a median of 7.4x); and

 

   

calendar year 2019 estimated CFPS multiples: 4.0x to 7.4x (with a mean of 5.8x and a median of 5.6x).

Citi noted that the calendar year 2018 and calendar year 2019 estimated adjusted EBITDAX multiples observed for Diamondback were 10.4x and 7.7x, respectively, and the calendar year 2018 and calendar year 2019 estimated CFPS multiples observed for Diamondback were 8.4x and 5.9x, respectively, in each case based on publicly available Wall Street research analysts’ estimates. Citi then applied selected ranges of calendar year 2018 and calendar year 2019 estimated adjusted EBITDAX multiples of 8.2x to 10.4x and 6.3x to 8.0x, respectively, and calendar year 2018 and calendar year 2019 estimated CFPS multiples of 7.4x to 10.0x and 5.6x to 7.4x, respectively, derived from the Diamondback selected companies to corresponding data of Diamondback based on the Diamondback forecasts utilizing Wall Street consensus pricing. This analysis indicated approximate implied equity value reference ranges for Diamondback based on calendar year 2018 and calendar year 2019 estimated adjusted EBITDAX multiples of $100.00 to $135.50 per share and $100.00 to $138.50 per share, respectively, and approximate implied equity value reference ranges for Diamondback based on calendar year 2018 and calendar year 2019 estimated CFPS multiples of $115.00 to $156.50 per share and $118.00 to $155.00 per share, respectively.

Utilizing the approximate implied per share equity value reference ranges derived for Energen and the approximate implied per share equity value reference ranges derived for Diamondback, in each case as described above, Citi calculated the following approximate implied exchange ratio reference ranges, as compared to the exchange ratio:

 

               Implied Exchange Ratio Reference Ranges Based on:                                         

  

Exchange
Ratio

CY2018E Adj.
EBITDAX

  

CY2019E Adj.
EBITDAX

  

CY2018E
CFPS

  

CY2019E
CFPS

    
0.491x – 0.795x    0.437x – 0.820x    0.406x – 0.722x    0.352x – 0.640x    0.6442x

Selected Precedent Transactions Analysis. Using publicly available information, Citi reviewed financial data relating to the following 13 selected transactions that Citi considered generally relevant as transactions involving U.S. publicly traded target companies with operations primarily in the upstream segment of the oil and gas industry, collectively referred to as the selected precedent transactions:

 

Announced

  

Acquiror

  

Target

March 2018    Concho Resources Inc.    RSP Permian, Inc.
May 2016    Range Resources Corporation    Memorial Resource Development Corp.
May 2015    Noble Energy, Inc.    Rosetta Resources Inc.
September 2014    Encana Corporation    Athlon Energy Inc.
March 2014    Energy XXI Gulf Coast, Inc.    EPL Oil & Gas, Inc.
December 2012    Freeport-McMoRan Copper & Gold Inc.    Plains Exploration & Production Company
December 2012    Freeport-McMoRan Copper & Gold Inc.    McMoRan Exploration Co.
April 2012    Halcon Resources Corporation    GeoResources, Inc.
October 2011    Statoil ASA    Brigham Exploration Company
April 2010    Apache Corporation    Mariner Energy, Inc.
April 2010    SandRidge Energy, Inc.    Arena Resources, Inc.
December 2009    Exxon Mobil Corporation    XTO Energy Inc.
November 2009    Denbury Resources Inc.    Encore Acquisition Company

 

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Citi reviewed, among other information and to the extent meaningful, transaction values (based on the consideration payable in the selected precedent transactions) as a multiple of the target company’s next 12 months estimated adjusted EBITDAX and per share purchase prices implied for such target companies in such transactions as a multiple of such target companies’ next 12 months estimated CFPS, in each case as of the date of announcement of the transactions. Financial data of the selected precedent transactions were based on public filings and other publicly available information. Financial data of Energen were based on the Diamondback-Energen forecasts utilizing Wall Street consensus pricing.

The overall low to high next 12 months estimated adjusted EBITDAX multiples and the overall low to high next 12 months estimated CFPS multiples observed for the selected precedent transactions were 5.0x to 17.5x (with a median of 8.1x) and 2.4x to 9.0x (with a median of 6.8x), respectively. Citi then applied selected ranges of next 12 months estimated adjusted EBITDAX multiples of 7.0x to 9.0x and next 12 months estimated CFPS multiples of 6.0x to 8.0x derived from the selected precedent transactions to Energen’s next 12 months (ending June 30, 2019) estimated adjusted EBITDAX and next 12 months (ending June 30, 2019) estimated CFPS, respectively. This analysis indicated approximate implied equity value reference ranges for Energen of $76.00 to $99.50 per share based on next 12 months estimated adjusted EBITDAX multiples and $75.00 to $100.50 per share based on next 12 months estimated CFPS multiples.

Utilizing the approximate implied per share equity value reference ranges derived for Energen as described above and the closing price per share of Diamondback common stock on August 13, 2018, Citi calculated the following approximate implied exchange ratio reference ranges, as compared to the exchange ratio:

 

Implied Exchange Ratio Reference Ranges Based on:

  

Exchange
Ratio

Next 12 Months Adj.
            EBITDAX             

  

Next 12 Months
              CFPS              

    
0.576x – 0.755x    0.569x – 0.762x    0.6442x

Discounted Cash Flow Analyses. Citi performed separate discounted cash flow analyses of Energen and Diamondback.

Energen. Citi performed a discounted cash flow analysis of Energen by calculating the estimated present value (as of June 30, 2018) of the standalone unlevered, after-tax free cash flows that Energen was forecasted to generate during the second half of the fiscal year ending December 31, 2018 through the full fiscal year ending December 31, 2023 based on the Diamondback-Energen forecasts utilizing both Wall Street consensus pricing and NYMEX strip pricing for calendar years 2018 through 2023. For purposes of this analysis, stock-based compensation was treated as a cash expense. Citi calculated terminal values for Energen by applying to Energen’s fiscal year 2023 estimated adjusted EBITDAX a selected range of adjusted EBITDAX multiples of 6.0x to 7.0x. The present values (as of June 30, 2018) of the cash flows and terminal values were then calculated using a selected range of discount rates of 8.7% to 10.1%. This analysis indicated approximate implied equity value reference ranges for Energen based on Wall Street consensus pricing and NYMEX strip pricing of $135.50 to $165.50 per share and $101.50 to $125.50 per share, respectively.

Diamondback. Citi performed a discounted cash flow analysis of Diamondback by calculating the estimated present value (as of June 30, 2018) of the standalone unlevered, after-tax free cash flows that Diamondback was forecasted to generate during the second half of the fiscal year ending December 31, 2018 through the full fiscal year ending December 31, 2023 based on the Diamondback forecasts utilizing both Wall Street consensus pricing and NYMEX strip pricing for calendar years 2018 through 2023. For purposes of this analysis, stock-based compensation was treated as a cash expense. Citi calculated terminal values for Diamondback by applying to Diamondback’s fiscal year 2023 estimated adjusted EBITDAX a selected range of adjusted EBITDAX multiples of 7.0x to 8.0x. The present values (as of June 30, 2018) of the cash flows and terminal values were then calculated using a selected range of discount rates of 8.2% to 9.4%. This analysis indicated approximate implied equity value reference ranges for Diamondback based on Wall Street consensus pricing and NYMEX strip pricing of $204.50 to $247.50 per share and $154.50 to $189.50 per share, respectively.

 

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Utilizing the approximate implied per share equity value reference ranges derived for Energen and the approximate implied per share equity value reference ranges derived for Diamondback, in each case as described above, Citi calculated the following implied exchange ratio reference ranges, as compared to the exchange ratio:

 

Implied Exchange Ratio Reference Ranges Based on:

  

Exchange
Ratio

Wall Street
      Consensus Pricing      

  

NYMEX
         Strip Pricing         

    
0.547x – 0.809x    0.536x – 0.812x    0.6442x

Net Asset Value Analyses. Citi performed separate net asset value analyses of Energen and Diamondback.

Energen. Citi performed a net asset value analysis of Energen based on the Diamondback-Energen forecasts, public filings and other publicly available information. An implied aggregate reference range for Energen’s proved developed producing reserves and currently undeveloped resources was derived by calculating the net present values (as of June 30, 2018) of the unlevered, after-tax free cash flows that Energen was projected to generate from such assets based on the Diamondback-Energen forecasts using a selected range of discount rates of 8.7% to 10.1%. In performing its analysis, Citi utilized both Wall Street consensus pricing and NYMEX strip pricing and took into account, based on the Diamondback-Energen forecasts, public filings and other publicly available information, as applicable, (a) the net present value (as of June 30, 2018, utilizing a discount rate range of 8.7% to 10.1%) of Energen’s estimated pre-tax corporate expenses, taxes and net hedge gains and losses and (b) Energen’s estimated net debt as of June 30, 2018. This analysis indicated approximate implied per share equity value reference ranges for Energen based on Wall Street consensus pricing and NYMEX strip pricing of $105.50 to $123.50 and $68.00 to $81.00, respectively.

Diamondback. Citi performed a net asset value analysis of Diamondback based on the Diamondback forecasts, public filings and other publicly available information. An implied aggregate reference range for Diamondback’s proved developed producing reserves and currently undeveloped resources was derived by calculating the net present values (as of June 30, 2018) of the unlevered, after-tax free cash flows that Diamondback was projected to generate from such assets based on the Diamondback forecasts using a selected range of discount rates of 8.2% to 9.4%. In performing its analysis, Citi utilized both Wall Street consensus pricing and NYMEX strip pricing and took into account, based on the Diamondback forecasts, public filings and other publicly available information, as applicable, (a) the net present value (as of June 30, 2018, utilizing a discount rate range of 8.2% to 9.4%) of Diamondback’s estimated pre-tax corporate expenses, taxes and net hedge gains and losses and (b) Diamondback’s estimated net debt and non-controlling interests as of June 30, 2018. This analysis indicated approximate implied per share equity value reference ranges for Diamondback based on Wall Street consensus pricing and NYMEX strip pricing of $168.50 to $198.00 and $114.00 to $136.50, respectively.

Utilizing the approximate implied per share equity value reference ranges derived for Energen and the approximate implied per share equity value reference ranges derived for Diamondback, in each case as described above, Citi calculated the following implied exchange ratio reference ranges, as compared to the exchange ratio:

 

Implied Exchange Ratio Reference Ranges Based on:

  

Exchange
Ratio

Wall Street
      Consensus Pricing      

  

NYMEX
         Strip Pricing         

    
0.533x – 0.733x    0.498x – 0.711x    0.6442x

 

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Relative Contributions Analysis. Citi performed a relative contributions analysis in which Citi reviewed the relative contributions of Energen and Diamondback to, among other things, the combined company’s calendar years 2019 and 2020 estimated adjusted EBITDAX and calendar years 2019 and 2020 estimated operating cash flow. Financial data of Energen and Diamondback were based on the Diamondback-Energen forecasts and the Diamondback forecasts, respectively, utilizing both Wall Street consensus pricing and NYMEX strip pricing for calendar years 2019 and 2020. This analysis indicated overall approximate implied relative contribution percentages (unadjusted for net debt and non-controlling interests, as applicable) of Energen and Diamondback (i) to the combined company’s calendar years 2019 and 2020 estimated adjusted EBITDAX of 38.0% to 41.3% in the case of Energen and 62.0% to 58.7% in the case of Diamondback and (ii) to the combined company’s calendar years 2019 and 2020 estimated operating cash flow of 38.4% to 41.4% in the case of Energen and 61.6% to 58.6% in the case of Diamondback.

Utilizing the approximate implied contribution percentage ranges derived for Energen and Diamondback described above, Citi calculated the following implied exchange ratio reference range, as compared to the exchange ratio:

 

Implied Exchange Ratio Reference Range

  

Exchange Ratio

0.642x – 0.900x    0.6442x

Certain Additional Information

Citi also observed certain additional information that was not considered part of its financial analyses with respect to its opinion but was noted for informational purposes, including the following:

 

   

historical intraday prices of Energen common stock and Diamondback common stock during the 52-week period ended August 13, 2018, which indicated low and high intraday prices of Energen common stock and Diamondback common stock of approximately $47.77 and $78.30 per share and approximately $85.73 and $138.25 per share, respectively, and historical implied exchange ratios of Energen common stock and Diamondback common stock during such 52-week period based on observed closing prices of such common stock, which indicated an implied exchange ratio reference range of 0.416x to 0.579x; and

 

   

publicly available Wall Street research analysts’ price targets for Energen common stock and Diamondback common stock, which indicated an overall low to high target stock price range for Energen common stock of $72.00 to $110.00 per share, implying a range of approximately $65.50 to $100.00 per share on a discounted basis (discounted one year using a selected discount rate of 9.9%), and an overall low to high target stock price range for Diamondback common stock of $145.00 to $183.00 per share, implying a range of approximately $132.50 to $167.50 per share on a discounted basis (discounted one year using a selected discount rate of 9.3%), and the exchange ratios implied by the stock price targets of such analysts that had provided stock price targets for both Energen common stock and Diamondback common stock, which indicated an implied exchange ratio reference range of 0.448x to 0.639x.

Miscellaneous

Diamondback has agreed to pay Citi for its services in connection with the proposed merger an aggregate fee of $18 million, of which a portion was payable upon delivery of Citi’s opinion and $16 million is payable contingent upon consummation of the merger. In addition, Diamondback agreed to reimburse Citi for Citi’s reasonable expenses, including fees and expenses of counsel, and to indemnify Citi and related parties against certain liabilities, including liabilities under federal securities laws, arising out of Citi’s engagement.

As the Diamondback board of directors was aware, Citi and its affiliates in the past have provided, currently are providing and in the future may provide investment banking, commercial banking and other similar financial

 

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services to Diamondback and certain of its affiliates unrelated to the proposed merger, for which services Citi and its affiliates received and expect to receive compensation, including, during the two-year period prior to the date of Citi’s opinion, having acted or acting as (i) joint bookrunning manager, senior co-manager and/or initial purchaser for equity offerings and a private debt offering of Diamondback and/or certain of its affiliates and (ii) co-documentation agent for, and/or as a lender under, various credit facilities of certain affiliates of Diamondback, for which services described in clauses (i) and (ii) above Citi and its affiliates received during such two-year period aggregate fees of approximately $1.5 million from Diamondback and/or certain of its affiliates. Although Citi and its affiliates did not provide investment banking, commercial banking or other similar financial services to Energen during the two-year period prior to the date of Citi’s opinion for which Citi and its affiliates received compensation, Citi and its affiliates in the future may provide such services to Energen and/or its affiliates for which services Citi and its affiliates would expect to receive compensation. In the ordinary course of business, Citi and its affiliates may actively trade or hold the securities of Diamondback, Energen and their respective affiliates for their own account or for the account of customers and, accordingly, may at any time hold a long or short position in such securities. In addition, Citi and its affiliates (including Citigroup Inc. and its affiliates) may maintain relationships with Diamondback, Energen and their respective affiliates.

Diamondback selected Citi to act as financial advisor in connection with the proposed merger based on Citi’s reputation, experience and familiarity with Diamondback, Energen and their respective businesses. Citi is an internationally recognized investment banking firm that regularly engages in the valuation of businesses and their securities in connection with mergers and acquisitions, negotiated underwritings, competitive bids, secondary distributions of listed and unlisted securities, private placements and valuations for estate, corporate and other purposes.

Recommendation of the Energen Board of Directors and Energen’s Reasons for the Merger

By unanimous vote, the Energen board, at a meeting held on August 14, 2018, (1) determined the merger agreement and the transactions contemplated thereby, including the merger, are fair to, and in the best interests of, Energen and the Energen shareholders, (2) adopted and approved the merger agreement and the transactions contemplated thereby, including the merger, (3) directed that the merger agreement be submitted to the Energen shareholders for approval and (4) recommended that the Energen shareholders approve the merger agreement and the transactions contemplated thereby, including the merger. The Energen board unanimously recommends that Energen shareholders vote “FOR” the merger proposal and “FOR” the non-binding compensation advisory proposal.

In reaching its determinations and recommendations, the Energen board consulted with Energen’s management and financial and legal advisors and considered a number of factors, including the following factors that weighed in favor of the merger:

 

   

Attractive Value and Attractive Acquisition Currency. The aggregate value and nature of the consideration to be received in the merger by Energen shareholders, including the fact that:

 

   

based on the closing trading price of Diamondback common stock of $131.87 on August 13, 2018, the last trading day prior to public announcement of the merger, the merger consideration represented an implied value of $84.95 per share of Energen common stock, a premium of 19.0% to the $71.36 closing trading price of Energen common stock on August 13, 2018; and

 

   

following the merger, Energen shareholders will also have the opportunity as stockholders of Diamondback to participate in the value of the combined company, including the expected future growth, which the Energen board viewed as an important opportunity for Energen shareholders from the perspective of maximizing long-term returns.

 

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Benefits of a Combined Company. The belief of the Energen board that the company resulting from a merger of Diamondback and Energen would be well positioned to achieve future growth and generate additional returns for Energen’s former shareholders, including due to:

 

   

significant operational synergies from combining the companies’ acreage positions given the complementary nature of such positions in the Midland Basin;

 

   

combining exceptional technical teams with similar execution-focused cultures;

 

   

significant primary and secondary synergies including drilling, completing and equipping well cost savings, general and administrative savings, lease expense reduction and economies of scale;

 

   

shared facilities and infrastructure, including infrastructure optimization benefits through pad sites, production facilities, water and roads;

 

   

held by production nature of assets allows for development optimization with multi-zone, multi-well pads in both Midland and Delaware Basins;

 

   

combination of significant midstream assets across both Midland and Delaware Basins;

 

   

greater optionality to direct capital to high rate-of-return projects, including the opportunity for the combined company to implement a “grow and prune” strategy for non-core assets with cash reinvested into higher return projects;

 

   

immediate knowledge transfer from adjacent technology projects;

 

   

the quality and scale of the combined company’s assets and the complementary nature of the assets, including the value creation opportunities anticipated from the combined company’s substantial mineral ownership and infrastructure in light of Diamondback’s subsidiaries Viper and Rattler Midstream Partners LP (which we refer to as “Rattler”);

 

   

the fact that the combined company is expected to have a lower cost of capital and an accelerated path to investment grade credit rating, resulting in a lower cost of debt capital than would be realized by Energen on a stand-alone basis; and

 

   

the improved ability of a larger enterprise to withstand commodity price volatility and other benefits that will potentially be available to the combined company due to the scale of its operations.

 

   

Superior Alternative to Continuing Energen on an Independent, Standalone Basis. The Energen board determined that entering into the merger agreement with Diamondback provided the best alternative for maximizing shareholder value reasonably available to Energen, including when compared to continuing to operate on a stand-alone basis in light of certain risks associated with continuing to operate as a stand-alone company, such as:

 

   

the risk that it will become increasingly difficult for Energen to grow its production and reserves on a cost-efficient basis at the same pace as it has been able to do so historically, given its increased size and the fact that many of the most attractive third party acquisition targets have already been acquired by larger companies; and

 

   

the risk that, as the performance of Permian Basin producers becomes more dependent on the most efficient development of existing resources and less dependent on the acquisition and discovery of new resources, Energen may become less competitive, on a relative basis, compared with larger Permian Basin producers, due the scale-related advantages available to larger companies.

 

   

Strategic Review Process. In the summer of 2018, at the direction of the Energen board, Energen’s representatives contacted a total of 16 potentially-interested companies to determine their interest in a business combination transaction with Energen (or, in the case of three companies contacted on a

 

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“no-names” basis, to determine their interest in pursuing a large scale acquisition of an upstream exploration and production company). Five of the 16 were identified by management and Energen’s financial advisors as the most likely to be interested in and capable of engaging in a transaction with Energen that would be compelling to Energen’s shareholders (the “top-tier potential counterparties”). Diamondback and two other companies, all three of which were among the top-tier potential counterparties, entered into confidentiality agreements with Energen, but Diamondback was the only party to make a proposal, and the Energen board believed that it was unlikely that any potential alternative bidder could consummate a transaction that would be on superior terms, and that would provide Energen shareholders more valuable consideration, than is being provided in connection with the merger.

 

   

Opportunity to Receive Alternative Acquisition Proposals and to Terminate the Merger in Order to Accept a Superior Proposal. The Energen board considered the terms of the merger agreement related to Energen’s ability to respond to unsolicited acquisition proposals and determined that third parties would be unlikely to be deterred from making a competing proposal by the provisions of the merger agreement, including because the Energen board may, under certain circumstances, furnish information or enter into discussions in connection with a competing proposal. In this regard, the Energen board considered that:

 

   

subject to its compliance with the merger agreement, the Energen board can change its recommendation to Energen shareholders with respect to the approval of the merger agreement prior to Energen shareholder’s approval of the merger agreement if the Energen board determines in good faith (after consultation with its financial advisors and outside legal advisors) that a competing proposal is an Energen superior proposal or, with respect to an intervening event, the failure to take such action would be reasonably likely to be inconsistent with the Energen board’s fiduciary obligations;

 

   

subject to its compliance with the merger agreement, the Energen board may terminate the merger agreement for a superior proposal; and

 

   

while the merger agreement contains a termination fee of $250 million that Energen would be required to pay to Diamondback in certain circumstances, including if (i) Diamondback terminates the merger agreement in connection with a change in the Energen board’s recommendation to its shareholders with respect to approval of the merger agreement or (ii) if Energen terminates the merger agreement in order to enter into a definitive agreement with respect to a superior proposal, the Energen board believed that the termination fee is reasonable in light of the circumstances and the overall terms of the merger agreement, consistent with fees in comparable transactions, and not preclusive of other offers.

 

   

Tax Considerations. The Energen board considered that the merger is intended to qualify as a “reorganization” within the meaning of Section 368(a) of the Code.

 

   

Receipt of Fairness Opinions and Presentations from J.P. Morgan and TPH. The Energen board considered the respective financial analyses reviewed and discussed with representatives of each of J.P. Morgan and TPH, as well as the respective oral opinions of J.P. Morgan and TPH rendered to the Energen board on August 14, 2018, which opinions were subsequently confirmed by delivery of their respective written opinions, each dated as of August 14, 2018, to the effect that, based upon and subject to the limitations, qualifications and assumptions set forth in each opinion, as of the date of each such opinion, from a financial point of view, the exchange ratio in the merger was fair to holders of the Energen common stock, as more fully described below under the heading “—Opinion of J.P. Morgan, Energen’s Financial Advisor” and “—Opinion of TPH, Energen’s Financial Advisor” beginning on pages 94 and 105, respectively.

 

   

Terms of the Merger Agreement. The Energen board reviewed and considered that the terms of the merger agreement, taken as a whole, including the parties’ representations, warranties and covenants, and the circumstances under which the merger agreement may be terminated, in its belief, are

 

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reasonable. The Energen board also reviewed and considered the conditions to the completion of the merger, and concluded that while the completion of the merger is subject to various regulatory approvals, such approvals were likely to be satisfied on a timely basis.

In the course of its deliberations, the Energen board also considered a variety of risks and other potentially negative factors, including the following:

 

   

Fixed Exchange Ratio. The Energen board considered that, because the merger consideration is based on a fixed exchange ratio rather than a fixed value, Energen shareholders bear the risk of a decrease in the trading price of Diamondback common stock during the pendency of the merger and the fact that the merger agreement does not provide Energen with a value-based termination right.

 

   

Risks Associated with the Pendency of the Merger. The risks and contingencies relating to the announcement and pendency of the merger, including the potential for diversion of management and employee attention and the potential effect of the combination on the businesses of both companies and the restrictions on the conduct of Energen’s business during the period between the execution of the merger agreement and the completion of the transactions contemplated thereby as set forth in the merger agreement.

 

   

Possible Failure to Achieve Synergies. The potential challenges and difficulties in integrating the operations of Energen and Diamondback and the risk that anticipated cost savings and operational efficiencies between the two companies, or other anticipated benefits of the merger, might not be realized or might take longer to realize than expected.

 

   

Right of Diamondback to Terminate the Merger Agreement for a Superior Proposal. The Energen board considered Diamondback’s right to terminate the merger agreement in order to enter into a definitive agreement with respect to a superior proposal, subject to payment of a termination fee of $400 million.

 

   

Diamondback Stockholder Vote. The Energen board also considered that, even if the merger agreement is approved by Energen shareholders, Diamondback’s stockholders may not approve the Diamondback issuance proposal, which is a condition of the merger.

 

   

Termination Fees. The Energen board considered that Energen would be required to pay to Diamondback a termination fee of $250 million in the event the Energen board were to terminate the merger agreement in order for Energen to enter into a superior proposal, should one be made, or if the merger agreement were to be terminated by Diamondback in connection with a change in the Energen board’s recommendation to its shareholders with respect to approval of the merger agreement.

 

   

Other Risks. The Energen board considered risks of the type and nature described under the sections entitled “Risk Factors” and “Cautionary Statements Regarding Forward-Looking Statements” beginning on pages 43 and 55, respectively.

The Energen board believed that, overall, the potential benefits of the merger to Energen shareholders outweighed the risks and uncertainties of the merger.

In addition, the Energen board was aware of and considered that Energen’s directors and executive officers may have interests in the merger that may be different from, or in addition to, their interests as shareholders of Energen generally, as described below under the heading “—Interests of Energen Directors and Executive Officers in the Merger” beginning on page 123.

The foregoing discussion of factors considered by the Energen board is not intended to be exhaustive, but includes the material factors considered by the Energen board. In light of the variety of factors considered in connection with its evaluation of the merger, the Energen board did not find it practicable to, and did not, quantify or otherwise assign relative weights to the specific factors considered in reaching its determinations and

 

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recommendations. Moreover, each member of the Energen board applied his or her own personal business judgment to the process and may have given different weight to different factors. The Energen board did not undertake to make any specific determination as to whether any factor, or any particular aspect of any factor, supported or did not support its ultimate determination. The Energen board based its recommendation on the totality of the information presented.

Opinion of J.P. Morgan, Energen’s Financial Advisor

Pursuant to an engagement letter dated August 2, 2018, Energen retained J.P. Morgan as financial advisor in connection with the merger.

At the meeting of the Energen board on August 14, 2018, J.P. Morgan rendered its oral opinion to the Energen board that, as of such date and based upon and subject to the factors and assumptions set forth in its opinion, the exchange ratio in the merger was fair, from a financial point of view, to the holders of Energen common stock. J.P. Morgan has confirmed its August 14, 2018 oral opinion by delivering its written opinion to the Energen board, dated August 14, 2018, that, as of such date, the exchange ratio in the merger was fair, from a financial point of view, to the holders of Energen common stock.

The full text of the written opinion of J.P. Morgan dated August 14, 2018, which sets forth the assumptions made, matters considered and limits on the review undertaken, is attached as Annex C to this joint proxy statement/prospectus and is incorporated herein by reference. The summary of the opinion of J.P. Morgan set forth in this joint proxy statement/prospectus is qualified in its entirety by reference to the full text of such opinion. Energen’s shareholders are urged to read the opinion in its entirety. J.P. Morgan’s written opinion was addressed to the Energen board (in its capacity as such) in connection with and for the purposes of its evaluation of the merger, was directed only to the exchange ratio in the merger and did not address any other aspect of the merger. J.P. Morgan expressed no opinion as to the fairness of any consideration to be paid in connection with the merger to the holders of any other class of securities, creditors or other constituencies of Energen or as to the underlying decision by Energen to engage in the merger. The issuance of J.P. Morgan’s opinion was approved by a fairness committee of J.P. Morgan. The opinion does not constitute a recommendation to any shareholder of Energen as to how such shareholder should vote with respect to the merger or any other matter.

In arriving at its opinion, J.P. Morgan, among other things:

 

   

reviewed the merger agreement;

 

   

reviewed certain publicly available business and financial information concerning Energen and Diamondback and the industries in which they operate;

 

   

compared the proposed financial terms of the merger with the publicly available financial terms of certain transactions involving companies J.P. Morgan deemed relevant and the consideration paid for such companies;

 

   

compared the financial and operating performance of Energen and Diamondback with publicly available information concerning certain other companies J.P. Morgan deemed relevant and reviewed the current and historical market prices of Energen common stock and Diamondback common stock and certain publicly traded securities of such other companies;

 

   

reviewed certain internal financial analyses and forecasts prepared by the management of Energen relating to its business and certain internal financial analyses and forecasts prepared by the management of Diamondback, as adjusted and approved for use by the management of Energen, relating to its business, as well as the estimated amount and timing of the cost savings and related expenses and synergies expected to result from the merger (which we refer to for the purposes of this section as the “Synergies”); and

 

   

performed such other financial studies and analyses and considered such other information as J.P. Morgan deemed appropriate for the purposes of its opinion.

 

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In addition, J.P. Morgan held discussions with certain members of the management of Energen and Diamondback with respect to certain aspects of the merger, and the past and current business operations of Energen and Diamondback, the financial condition and future prospects and operations of Energen and Diamondback, the effects of the merger on the financial condition and future prospects of Energen and Diamondback, and certain other matters J.P. Morgan believed necessary or appropriate to its inquiry.

In giving its opinion, J.P. Morgan relied upon and assumed the accuracy and completeness of all information that was publicly available or was furnished to or discussed with J.P. Morgan by Energen and Diamondback or otherwise reviewed by or for J.P. Morgan. J.P. Morgan did not independently verify any such information or its accuracy or completeness and, pursuant to J.P. Morgan’s engagement letter with Energen, J.P. Morgan did not assume any obligation to undertake any such independent verification. J.P. Morgan did not conduct and was not provided with any valuation or appraisal of any assets or liabilities, nor did J.P. Morgan evaluate the solvency of Energen or Diamondback under any state or federal laws relating to bankruptcy, insolvency or similar matters. In relying on financial analyses and forecasts provided to J.P. Morgan or derived therefrom, including the Synergies, J.P. Morgan assumed that they were reasonably prepared based on assumptions reflecting the best currently available estimates and judgments by management as to the expected future results of operations and financial condition of Energen and Diamondback to which such analyses or forecasts relate. J.P. Morgan expressed no view as to such analyses or forecasts (including the Synergies) or the assumptions on which they were based. J.P. Morgan also assumed that the merger and the other transactions contemplated by the merger agreement will qualify as a tax-free reorganization for U.S. federal income tax purposes, and will be consummated as described in the merger agreement. J.P. Morgan also assumed that the representations and warranties made by Energen, Diamondback and Merger Sub in the merger agreement and the related agreements were and will be true and correct in all respects material to its analysis. J.P. Morgan is not a legal, regulatory or tax expert and relied on the assessments made by advisors to Energen with respect to such issues. J.P. Morgan further assumed that all material governmental, regulatory or other consents and approvals necessary for the consummation of the merger will be obtained without any adverse effect on Energen or Diamondback or on the contemplated benefits of the merger.

J.P. Morgan’s opinion was necessarily based on economic, market and other conditions as in effect on, and the information made available to J.P. Morgan as of, the date of such opinion. J.P. Morgan’s opinion noted that subsequent developments may affect J.P. Morgan’s opinion, and that J.P. Morgan does not have any obligation to update, revise, or reaffirm such opinion. J.P. Morgan’s opinion is limited to the fairness, from a financial point of view, to the holders of Energen’s common stock of the exchange ratio in the merger, and J.P. Morgan has expressed no opinion as to the fairness of any consideration to be paid in connection with the merger to the holders of any other class of securities, creditors or other constituencies of Energen or the underlying decision by Energen to engage in the merger. Furthermore, J.P. Morgan expressed no opinion with respect to the amount or nature of any compensation to any officers, directors, or employees of any party to the merger, or any class of such persons relative to the exchange ratio applicable to the holders of Energen’s common stock in the merger or with respect to the fairness of any such compensation. J.P. Morgan expressed no opinion as to the price at which Energen’s common stock or Diamondback’s common stock will trade at any future time.

In accordance with customary investment banking practice, J.P. Morgan employed generally accepted valuation methods in rendering its opinion to the Energen board on August 14, 2018. The following is a summary of the material financial analyses undertaken by J.P. Morgan in connection with rendering its opinion to the Energen board on August 14, 2018 and does not purport to be a complete description of the analyses or data presented by J.P. Morgan. Some of the summaries of the financial analyses include information presented in tabular format. The tables are not intended to stand alone, and in order to more fully understand the financial analyses used by J.P. Morgan, the tables must be read together with the full text of each summary. Considering the data set forth below without considering the full narrative description of the financial analyses, including the methodologies and assumptions underlying the analyses, could create a misleading or incomplete view of J.P. Morgan’s analyses.

 

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Public Trading Multiples

Using publicly available information, J.P. Morgan compared selected financial data of Energen and Diamondback with similar data for selected publicly traded companies engaged in businesses which J.P. Morgan judged to be analogous to Energen and Diamondback, respectively. For both Energen and Diamondback, the companies selected by J.P. Morgan were as follows:

Primary public Permian-focused exploration & production (which we refer to as “E&P”) companies:

 

   

Callon Petroleum Company;

 

   

Concho Resources Inc.;

 

   

Laredo Petroleum, Inc.;

 

   

Parsley Energy Inc.;

 

   

Pioneer Natural Resources Company;

 

   

Diamondback Energy, Inc. (with respect to the Energen analysis only); and

 

   

Energen Corporation (with respect to the Diamondback analysis only).

Secondary Delaware Basin-focused E&P companies:

 

   

Centennial Resource Development, Inc.;

 

   

Jagged Peak Energy Inc.; and

 

   

Matador Resources Company.

None of the selected companies reviewed is identical or directly comparable to Energen or Diamondback. Certain of these companies may have characteristics that are materially different from those of Energen and Diamondback. However, these companies were selected, among other reasons, because they are publicly traded companies with operations and businesses that, for purposes of J.P. Morgan’s analysis, may be considered sufficiently similar in certain respects to those of Energen and Diamondback. The analysis necessarily involves complex considerations and judgments concerning differences in financial and operational characteristics of the companies involved and other factors that could affect the companies differently than they would affect Energen or Diamondback.

For each company listed above, J.P. Morgan calculated and compared various financial multiples and ratios based on publicly available information as of August 10, 2018. For each of the following analyses performed by J.P. Morgan, estimated financial data for the selected companies were based on the Energen forecast and the Diamondback forecast (in the case of Energen and Diamondback, respectively, each assuming Wall Street consensus commodity price estimates) and information obtained from FactSet Research Systems (which we refer to as “Street estimates”) (in the case of the other selected companies as well as in the case of Energen and Diamondback). The information J.P. Morgan calculated for each of the selected companies included:

 

   

Multiple of debt adjusted firm value (calculated as the market value of the company’s common stock on a fully diluted basis, plus debt and other adjustments, including non-controlling interest and preferred stock (with estimated free cash flow deficits capitalized as debt), less cash and cash equivalents) to estimated EBITDAX (defined as earnings before interest, taxes, depreciation, amortization and exploration expenses) for the fiscal years ending December 31, 2018 and December 31, 2019;

 

   

Multiple of equity value (calculated as the market value of the company’s common stock on a fully diluted basis) to estimated operating cash flow (calculated as EBITDAX, less cash interest expense, less cash taxes, plus non-cash general and administrative and other expenses) for the fiscal years ending December 31, 2018 and December 31, 2019; and

 

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Multiple of production adjusted firm value (calculated as the firm value less assumed run rate production for the quarter ending June 30, 2018 (assuming $40,000 per Bbl/d for oil, $3,000 per Mcf/d for gas and $16,000 per Bbl/d for Natural Gas Liquids (which we refer to as “NGLs”), per Energen management)) to current net acreage (in thousands of dollars per acre (which we refer to as “$000/acre”).

Results of the analysis for Energen and Diamondback, respectively, are as follows:

Energen

Primary Public Permian-Focused E&P Companies

 

     Debt Adjusted Firm
Value / EBITDAX
     Equity Value /
Operating Cash Flow
     Production Adjusted Firm
Value / Net Acreage
($000/acre)
 
     2018E      2019E      2018E      2019E      Current  

Concho

     10.1x        7.7x        7.5x        7.2x      $ 38.3  

Pioneer

     9.9x        7.1x        9.8x        7.3x      $ 34.7  

Callon

     8.9x        5.8x        6.2x        4.5x      $ 29.1  

Parsley

     8.4x        6.5x        7.7x        5.7x      $ 39.1  

Laredo

     4.7x        4.2x        3.6x        3.2x      $ 9.3  

Diamondback (based on management forecast)

     11.2x        8.5x        9.8x        7.2x      $ 65.9  

Diamondback (based on Street estimates)

     11.5x        7.7x        8.8x        6.0x      $ 65.9  

Secondary Delaware Basin-focused E&P Companies

 

     Debt Adjusted Firm
Value / EBITDAX
     Equity Value / Operating
Cash Flow
     Production Adjusted
Firm Value / Net
Acreage ($000/acre)
 
     2018E      2019E      2018E      2019E      Current  

Matador

     8.5x        7.4x        7.6x        6.4x      $ 21.9  

Jagged Peak

     8.5x        6.9x        8.0x        6.4x      $ 29.2  

Centennial

     8.4x        6.4x        7.9x        5.8x      $ 48.3  

J.P. Morgan also calculated the same financial multiples and ratios for Energen based on both the Energen forecast (assuming Wall Street consensus commodity price estimates) and Street estimates.

 

     Debt Adjusted Firm
Value / EBITDAX
     Equity Value /
Operating Cash Flow
     Production Adjusted Firm
Value / Net Acreage
($000/acre)
 
     2018E      2019E      2018E      2019E      Current  

Energen (based on management forecast)

     8.3x        6.1x        7.6x        5.2x      $ 31.1  

Energen (based on Street estimates)

     8.0x        5.9x        7.1x        5.3x      $ 31.1  

J.P. Morgan did not rely solely on the quantitative results of the selected public company analysis, but also made qualitative judgments concerning differences between the business, financial and operating characteristics and prospects of Energen and the selected companies that could affect the public trading values of each in order to provide a context in which to consider the results of the quantitative analysis. These qualitative judgments related primarily to the differing sizes, growth prospects, asset profiles and capital structures between Energen and the companies included in the selected public company analysis. Based upon these judgments, J.P. Morgan

 

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selected multiple reference ranges for Energen of 8.00x – 9.00x and 5.75x – 6.50x for debt adjusted firm value to estimated 2018 and 2019 EBITDAX, respectively; 6.25x – 7.75x and 4.50x – 5.75x for equity value to estimated 2018 and 2019 operating cash flow, respectively, and $29,000 – $40,000 per acre for production adjusted firm value to net acreage (based on 160,000 acres per Energen management).

After applying such ranges to the appropriate metrics for Energen based on the Energen forecast (assuming Wall Street consensus commodity price estimates), the analysis indicated the following implied equity value (adjusted in the case of Production Adjusted Firm Value to Net Acreage for an assumed run-rate production value of $2,960 million for the quarter ending June 30, 2018 (assuming $40,000 per Bbl/d for oil, $3,000 per Mcf/d for gas and $16,000 per Bbl/d for NGLs, per Energen management)) per share ranges for Energen common stock (resulting per share values were in all cases rounded to the nearest $0.25 per share):

Energen Implied Equity Value Per Share Range

 

     Debt Adjusted Firm
Value / EBITDAX
     Equity Value /
Operating Cash Flow
     Production Adjusted Firm
Value / Net Acreage
($000/acre)
 
     2018E      2019E      2018E        2019E      Current  

Low

   $ 69.50      $ 68.00      $ 59.75        $ 62.50      $ 68.75  

High

   $ 79.50      $ 78.50      $ 74.00        $ 80.00      $ 86.50  

Diamondback

As shown in the “Primary Public Permian-Focused E&P Companies” table above, J.P. Morgan also calculated the same financial multiples and ratios for Diamondback based on both the Diamondback forecast (assuming Wall Street consensus commodity price estimates) and Street estimates.

J.P. Morgan did not rely solely on the quantitative results of the selected public company analysis, but also made qualitative judgments concerning differences between the business, financial and operating characteristics and prospects of Diamondback and the selected companies that could affect the public trading values of each in order to provide a context in which to consider the results of the quantitative analysis. These qualitative judgments related primarily to the differing sizes, growth prospects, asset profiles and capital structures between Diamondback and the companies included in the selected public company analysis. Based upon these judgments, J.P. Morgan selected multiple reference ranges for Diamondback of 10.00x – 11.50x and 7.00x – 8.00x for debt adjusted firm value to estimated 2018 and 2019 EBITDAX, respectively; 7.50x – 10.00x and 6.00x – 7.25x for equity value to estimated 2018 and 2019 operating cash flow, respectively, and $35,000 – $45,000 per acre for production adjusted firm value to net acreage (based on 211,000 acres per Diamondback public filings).

After applying such ranges to the appropriate metrics for Diamondback based on the Diamondback forecast (assuming Wall Street consensus commodity price estimates), the analysis indicated the following implied equity value (adjusted in the case of Production Adjusted Firm Value to Net Acreage for (1) an assumed run-rate production value of $3,781 million for the quarter ending June 30, 2018 (assuming $40,000 per Bbl/d for oil, $3,000 per Mcf/d for gas and $16,000 per Bbl/d for NGLs, per Energen management), and (2) for the current market value of Diamondback stockholder’ ownership interest in Viper’s public units) per share ranges for Diamondback common stock (resulting per share values were in all cases rounded to the nearest $0.25 per share):

Diamondback Implied Equity Value Per Share Range

 

     Debt Adjusted Firm
Value / EBITDAX
     Equity Value /
Operating Cash Flow
     Production Adjusted Firm
Value / Net Acreage
($000/acre)
 
     2018E      2019E      2018E      2019E      Current  

Low

   $ 115.25      $ 102.25      $ 103.25      $ 113.00      $ 113.75  

High

   $ 139.00      $ 123.75      $ 137.75      $ 136.50      $ 134.50  

 

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Transaction Multiples Analysis

Using publicly available information, J.P. Morgan examined selected transactions in the Midland Basin and the Delaware Basin valued at greater than $250,000,000 as well as corporate transactions in the exploration and production sector generally where the parties had similar operations to Energen.

For each of the selected Midland Basin and Delaware Basin transactions for which the relevant information was publicly available, among other calculations, J.P. Morgan calculated the multiple of the production adjusted transaction value (calculated as the transaction value less the estimated run rate production value (assuming $35,000/Boepd)) to net acreage, both unadjusted and index-adjusted to reflect the change in the 36-month NYMEX strip from the transaction announcement date relative to the 36-month NYMEX strip on August 10, 2018 (which we refer to as the “Adjusted Transaction Value”). Specifically, J.P. Morgan reviewed the following Midland Basin and Delaware Basin transactions (buyer / seller):

Midland Basin

 

   

Diamondback Energy, Inc. / Ajax Resources, LLC

 

   

Concho Resources Inc. / RSP Permian, Inc.

 

   

QEP Resources, Inc. / JM Cox Resources, Alpine Oil, Kelly Cox

 

   

Parsley Energy Inc. / Double Eagle Energy Permian LLC

 

   

Parsley Energy Inc. / Apache Corp.; Undisclosed seller

 

   

SM Energy Company / QStar LLC; RRP-QStar LLC

 

   

Callon Petroleum Co. / Plymouth Petroleum LLC; Element Petroleum II

 

   

Concho Resources, Inc. / Reliance Energy Partners LLC; Peregrine Petroleum LLC

 

   

Parsley Energy Inc. / BTA Oil Producers LLC

 

   

SM Energy Company / Rock Oil Co. LLC

 

   

QEP Resources Inc. / RK Petroleum Corp.; Individual Sellers

 

   

Callon Petroleum Co. / BSM Energy; Crux Energy; Zaniah Energy

 

   

Parsley Energy Inc. / Riverbend Permian

Delaware Basin

 

   

Callon Petroleum Company / Cimarex Energy Co.

 

   

Undisclosed Buyer / Concho Resources Inc.

 

   

Oasis Petroleum, Inc. / Forge Energy LLC

 

   

Carrizo Oil & Gas Inc. / ExL Petroleum Management LLC

 

   

Marathon Oil Corp / Black Mountain O&G

 

   

Halcon Resources Corporation / Samson Exploration LLC

 

   

ExxonMobil Corporation / BOPCO, L.P.

 

   

Noble Energy, Inc. / Clayton Williams Energy, Inc.

 

   

WPX Energy, Inc. / Panther Energy Company II, LLC and Carrier Energy Partners, LLC

 

   

Diamondback Energy, Inc. / Brigham Resources Operating, LLC and Brigham Resources Midstream, LLC

 

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Callon Petroleum Company / American Resource Development LLC

 

   

Noble Energy, Inc. / Manti Tarka Permian, LP

 

   

Centennial Resource Development, Inc. / Silverback Exploration, LLC

 

   

Concho Resources Inc. / Endurance Resources

 

   

Occidental Petroleum Corporation / J Cleo Thompson Operating

 

   

RSP Permian Inc. / Silver Hill Energy Partners, LLC and Silver Hill E&P II, LLC

 

   

PDC Energy, Inc. / Arris Petro. and 299 Resources

 

   

Riverstone; Silver Run Acquisition Corporation / Natural Gas Partners LP (Centennial Resources Production, LLC)

 

   

Diamondback Energy, Inc. / Luxe Energy LLC

For each of the selected corporate transactions for which the relevant information was publicly available, among other calculations, J.P. Morgan calculated the multiple of the transaction value to current year EBITDAX. Specifically, J.P. Morgan reviewed the following corporate transactions in the E&P sector (buyer / seller):

 

   

Concho Resources Inc. / RSP Permian, Inc.

 

   

EQT Corporation / Rice Energy Inc.

 

   

Noble Energy, Inc. / Clayton Williams Energy, Inc.

 

   

Range Resources Corporation / Memorial Resource Development Corp.

 

   

Noble Energy, Inc. / Rosetta Resources Inc.

 

   

Encana Corporation / Athlon Energy Inc.

 

   

Whiting Petroleum Corporation / Kodiak Oil & Gas Corp.

 

   

Baytex Energy Corp. / Aurora Oil & Gas Ltd.

 

   

ExxonMobil Corporation / Celtic Exploration Ltd.

 

   

Statoil ASA / Brigham Exploration Company

 

   

BHP Billiton Petroleum (North America) Inc. / Petrohawk Energy Corporation

 

   

Chevron Corporation / Atlas Energy, Inc.

 

   

Apache Corporation / Mariner Energy, Inc.

 

   

ExxonMobil Corporation / XTO Energy Inc.

 

   

Denbury Resources Inc. / Encore Acquisition Company

Based on the results of this analysis, J.P. Morgan selected a multiple reference range for Energen of $35,000 – $55,000 for Adjusted Transaction Value to acreage (based on 160,000 acres per Energen management) and 8.5x – 10.0x for transaction value to estimated EBITDAX for the calendar year ending December 31, 2018.

After applying such ranges to the appropriate metrics for Energen based on the Energen forecasts (assuming Wall Street consensus commodity price estimates, in the case of estimated EBITDAX), the analysis indicated the following implied equity value (adjusted, in the case of the Adjusted Transaction Value to Net Acreage multiple, for an assumed run-rate production value of $2,960 million for the quarter ending June 30, 2018 (assuming $40,000 per Bbl/d for oil, $3,000 per Mcf/d for gas and $16,000 per Bbl/d for NGLs, per Energen management))

 

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per share ranges for Energen common stock (resulting per share values were in all cases rounded to the nearest $0.25 per share):

Energen Implied Equity Value Per Share Range

 

     Adjusted Transaction
Value / Net Acreage
     Transaction
Value / 2018E
EBITDAX
 

Low

   $ 78.50      $ 76.75  

High

   $ 111.00      $ 91.75  

Net Asset Value Analysis

J.P. Morgan conducted an after-tax discounted cash flow, net asset valuation analysis for the purpose of determining an implied equity value per share for Energen common stock and Diamondback common stock. A discounted cash flow analysis is a method of evaluating an asset using estimates of the future unlevered free cash flows generated by the asset and taking into consideration the time value of money with respect to those future cash flows by calculating their “present value.” “Present value” refers to the current value of an asset’s cash flows, and is obtained by discounting those cash flows back to the present using a discount rate that takes into account macro-economic assumptions and estimates of risk, the opportunity cost of capital, capitalized returns and other appropriate factors. A “net asset valuation” is a multi-decade life-of-field model with no terminal value assumptions (except as otherwise described below). “Terminal value” refers to the capitalized value of all cash flows from an asset for periods beyond the final forecast period.

J.P. Morgan calculated the present value, as of June 30, 2018, of unlevered free cash flows that Energen is expected to generate from the calendar year 2018 onward using the Energen forecasts and assuming (i) NYMEX strip pricing through 2022, with prices held flat thereafter (which we refer to as “Strip + LT Held Flat Pricing”), (ii) NYMEX strip pricing through 2022, with prices escalated at 3% per year thereafter with a cap of $60.00 per barrel of oil and $3.00 per million British thermal units (which we refer to as “Mmbtu”) (which we refer to as “Strip + LT Escalation Pricing”) and (iii) Wall Street consensus pricing (which we refer to as “Consensus Pricing”), which pricing assumptions were reviewed and authorized by Energen’s management. Energen’s projected cash flows were discounted to present values using a range of discount rates from 9% to 11%, which were chosen by J.P. Morgan based upon an analysis of the weighted average cost of capital of Energen, and then were adjusted for Energen’s hedges, projected general and administrative expenses, projected cash taxes, net debt as of June 30, 2018 and stock appreciation rights to indicate a range of implied net asset equity values for Energen, which were divided by the number of fully diluted shares outstanding at Energen to arrive at the following range of implied net asset values per share of Energen common stock, based on Strip + LT Held Flat Pricing, Strip + LT Escalation Pricing and Consensus Pricing. Resulting per share values were in all cases rounded to the nearest $0.25 per share.

Energen Implied Equity Value Per Share Range

 

     Low      High  

Energen Implied Net Asset Equity Value Per Share –Strip + LT Held Flat Pricing

   $ 70.25      $ 93.50  

Energen Implied Net Asset Equity Value Per Share –Strip + LT Escalation Pricing

   $ 81.50      $ 107.50  

Energen Implied Net Asset Equity Value Per Share – Consensus Pricing