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By David French
Drilling joint ventures, referred to in the energy industryas "DrillCos," allow companies to raise cash from investors suchas private equity firms to develop acreage.
Such a structure could prove attractive to energy companiesat a time when shareholders are putting increasing pressure onthem to improve returns and efficiency, instead of spendingextra cash on new developments.
Diamondback has sent out a teaser to potential investors ina DrillCo arrangement, according to sources. UBS Group AGis advising the company on the process, two of thesources said. The amount of money raised by the DrillCo willdepend on investor demand, one of the sources added.
Diamondback did not immediately respond to a request forcomment. UBS declined to comment.
Given its position in the Permian Basin, a field whichstretches across
Traditionally, DrillCos take control of drillable land andgenerally turn over 100 percent of the cash flow from oil andgas production to investors until they earn a 15 percent return.At that point, control reverts to the producer, with theinvestor's stake shrinking to about 10 percent of remainingproduction.
Other oil producers that have completed DrillCos in recentyears include EOG Resources and Alta Mesa Holdings. Jones Energy said in November it wasevaluating a number of strategic and financial options includinga possible DrillCo.(Additional reporting by Ernest Scheyder in HoustonEditing by Leslie Adler)
