Diversified Energy's $1.8 billion Birch deal builds scaled Permian platform

Diversified Energy agreed to buy Birch Permian Holdings from Elliott Investment Management for about $1.8 billion, its largest acquisition in 25 years, adding roughly 68,000 barrels of oil equivalent a day of Permian Basin production.

"I am thrilled to announce the acquisition of Birch, a premier Permian Basin operator that represents an important milestone in Diversified's evolution and long-term growth strategy," Rusty Hutson Jr., chairman and chief executive officer at Diversified Energy, said.

The deal, expected to close in the fourth quarter, will be funded mainly through a roughly $1.5 billion asset-backed securitization arranged by Carlyle, with the remainder drawn from Diversified's revolving credit facility. Diversified expects the acquisition to lift production about 35 percent and adjusted EBITDA about 55 percent, adding roughly $548 million of annualized earnings from an asset base with about 80 percent EBITDA margins.

The transaction makes Diversified a scaled operator in the Permian, the most productive U.S. oil basin, and gives it a base to consolidate further proved developed producing assets as the region matures. Carlyle and Diversified also agreed to expand their partnership from an original $2 billion framework to pursue up to $10 billion of potential acquisition opportunities over time.

The Birch assets span 480 net wells across roughly 46,000 net mineral acres in the core of the Permian, with proved reserves of about 1,168 billion cubic feet equivalent and a PV-10 of about $2.0 billion. Production is weighted about 38 percent oil, 32 percent natural gas liquids and 30 percent gas, with about 96 percent of output operated and an average lease net revenue interest of about 77 percent. The purchase price works out to about 3.3 times next-12-month adjusted EBITDA.

The deal deepens a consolidation wave across the Permian that has seen Exxon Mobil, Chevron and Diamondback Energy bulk up in the basin over the past two years. For Diversified, the acquisition shifts its center of gravity toward oil-weighted, lower-decline fields that fit its model of buying mature, cash-generating assets and optimizing them rather than drilling new wells. Birch brings integrated gathering, processing and water infrastructure, including 12 central production facilities able to process up to 345,000 barrels of oil a day, plus more than 150 permitted enhanced-oil-recovery locations that Diversified said could extend asset lives and lift recoveries.

The financing structure is as notable as the asset base. The roughly $1.5 billion asset-backed securitization, originated and structured by Carlyle and backed by the acquired producing wells, extends a partnership the two companies first struck under a $2 billion framework. Expanding that ceiling to as much as $10 billion hands Diversified a standing war chest to pursue further proved-developed-producing acquisitions as Permian output matures and more long-life assets change hands — the same pattern that has defined its growth since its founding.

For Elliott, the sale marks a divestment of a Permian position the activist investor had assembled, freeing capital as it rotates holdings. The deal carries a $50 million break fee and remains subject to regulatory approvals.

Diversified said pro forma gross volumes under its control would reach about 2.5 billion cubic feet equivalent a day, roughly 1.6 billion net, strengthening its standing as a marketer of oil and natural gas. The company expects the transaction to be immediately accretive on key per-share financial metrics, with closing targeted for the fourth quarter of 2026.

This article is for informational purposes only and does not constitute investment advice.