01—Abstract
Summary
Summary of the 10-K filed February 19, 2016. Cited figures are marked; the original filing is the authoritative source.
Diamondback Energy (FANG) closed 2015 with a sharp deterioration in reported results driven by the collapse in oil prices, even as operational growth was strong.
Total revenue fell about 10% to $446.7 milliona from $495.7 million, while average production rose 70% to 33,098 BOE/d, meaning realized pricing (average $36.98/BOE versus $69.74 in 2014) more than offset volume gains. The company recorded an $814.8 million non-cash full-cost ceiling impairment, producing a net loss attributable to Diamondback of $550.6 million, or $(8.74) per share, compared with net income of $193.8 million in 2014. Adjusted EBITDA still rose to $449.2 million from $398.3 million, and operating cash flow increased to $416.5 million, highlighting that the loss is largely non-cash.
Balance sheet and liquidity remain conservative relative to the sector. Long-term debt fell to $495.5 millionb from $673.5 million, comprising $450 million of 7.625% senior notes due 2021, $11 million drawn on the Diamondback revolver (with $489 million of availability under a $500 million elected commitment), and $34.5 million at the Viper subsidiary. Total equity stands at $2.1 billion after three 2015 equity offerings raising about $650 million, and a further $254.5 million offering was completed in January 2016.
Management cut the 2016 capital budget to $250c-375 million (down 26%), plans to release one of three horizontal rigs in March 2016, and has no hedges beyond January-February 2016 Brent swaps. The key investor focus is the trade-off between a low-cost, oil-weighted Permian position (about 156.9 MMBOE of proved reserves, 67% oil, roughly 1,500 gross identified horizontal locations) and the risks from continued price weakness.
Proved reserves are highly dependent on the price deck (the SEC 12-month average was $50.28d/Bbl oil), 41% are proved undeveloped, and a lower price environment could trigger further write-downs and borrowing base reductions. Revenue concentration is high, with Shell Trading accounting for 59% of 2015 revenue.
02—Key points
Key Highlights
- Revenue declined 10% to $446.7M as a 47% drop in realized prices outweighed a 70% increase in production to 33,098 BOE/d.
- $814.8M non-cash full-cost ceiling impairment drove a net loss attributable to Diamondback of $550.6M ($8.74 per share loss) versus $193.8M of net income in 2014.
- Adjusted EBITDA rose 13% to $449.2M and operating cash flow grew 17% to $416.5M, supported by volume growth and lower per-BOE cash costs ($11.18 versus $14.45).
- Proved reserves of 156.9 MMBOE (about 67% oil) at year-end 2015, with 41% classified as proved undeveloped; PUD reserves were revised down 12.7 MMBOE on lower prices.
- Total long-term debt reduced to $495.5M from $673.5M; $489M of revolver availability, and $450M of 7.625% senior notes due 2021.
- 2016 capital budget cut to $250–375M (down 26%), with one of three horizontal rigs to be released in March 2016 and no significant 2016 hedges entered as of February 17, 2016.
- Equity raised about $650M in 2015 across three offerings plus a $254.5M offering in January 2016, bolstering liquidity amid the downturn.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2015filed February 19, 2016Financial Statements
FY2015 against FY2014
| Line item | FY2015FY2014 | Change |
|---|---|---|
| SG&A Expenses | $31.97M$21.27M | +50.3% |
| Operating Expenses | $1.19B$283.05M | +319.4% |
| Operating Income | -$740.27M$212.67M | −448.1% |
| Interest Expense | $41.51M$34.52M | +20.3% |
| Net Income | -$550.63M$193.75M | −384.2% |
| EPS (Basic) | $-8.74$3.67 | −338.1% |
| EPS (Diluted) | $-8.74$3.64 | −340.1% |
| Shares Outstanding (Basic) | 63.02M52.83M | +19.3% |
| Shares Outstanding (Diluted) | 63.02M53.30M | +18.2% |
05—Questions
Frequently Asked Questions
Why did Diamondback report a large net loss in 2015 despite growing production?
The loss was driven primarily by an $814.8 million non-cash full-cost ceiling impairment, triggered by the sharp decline in oil prices during 2015. Average realized price per BOE fell to $36.98 from $69.74, which more than offset a 70% increase in production volumes. The impairment does not reduce cash flow, and adjusted EBITDA actually increased to $449.2 million.
How much debt does Diamondback carry and when does it mature?
Long-term debt totaled $495.5 million at December 31, 2015: $450 million of 7.625% senior unsecured notes due October 2021, $11 million drawn on the Diamondback revolving credit facility, and $34.5 million drawn on Viper's facility. The company had $489 million available under its $500 million elected commitment, with a borrowing base of $750 million, and the revolver matures November 1, 2018.
What is the risk that lower prices reduce Diamondback's reserves and borrowing base?
The filing notes that proved reserves were estimated using the 2015 12-month average price of $50.28/Bbl, and that using the year-end price of $37.04/Bbl would reduce PUD reserves by about 20 MMBOE. Lower prices may also trigger further impairments and reduce the borrowing base, which is redetermined semi-annually and could require repayment of borrowings. Management says it can decelerate or accelerate drilling depending on prices.
How is Diamondback managing spending and liquidity going into 2016?
The 2016 capital budget for drilling, completion and infrastructure is $250–375 million, a 26% reduction from 2015, with no budget for acquisitions. Management intends to release one of three horizontal rigs in March 2016 and has the option to release a second in Q2 2016. The company states that operating cash flow and revolver borrowings should be sufficient to fund operations through year-end 2016, and it raised $254.5 million in equity in January 2016.
How concentrated is Diamondback's customer base and hedging position?
Two purchasers accounted for more than 10% of 2015 revenue: Shell Trading (US) Company at 59% and Enterprise Crude Oil LLC at 15%. As of December 31, 2015, the company had only 91,000 barrels of Brent swaps at $88.72 covering January–February 2016, and as of February 17, 2016 had not entered into significant hedges for 2016 production, leaving it fully exposed to spot oil prices for the rest of the year.
06—Continue