01—Abstract
Summary
Summary of the 10-K filed February 24, 2022. Cited figures are marked; the original filing is the authoritative source.
Diamondback Energy (FANG) closed 2021 as a much larger, more profitable company after the QEP Merger (March 2021, ~$987Ma in stock) and the Guidon Acquisition (February 2021, $375M cash plus stock).
Net income attributable to Diamondback was $2.18 billionb, versus a $4.52 billion loss in 2020 that was driven by a $6.0 billion non-cash ceiling-test impairment. Total revenue rose to $6.8 billion, and average production reached 375,348 BOE/d, up 25% in volume. Operating cash flow was $3.94 billion, and capital expenditures were held to about $1.5 billion, 11% below April 2021 guidance.
Management is maintaining flat oil production and expects to spend $1.75c–1.90 billion in 2022. Capital returns and balance sheet work were central to the year. Diamondback repurchased $431 million of stock under a new $2 billion program, paid $312 million in dividends, and retired roughly $3.2 billion of senior notes, including QEP and legacy Energen debt.
Management says it will return at least 50% of quarterly free cash flow to stockholders, and the Q4 2021 dividend was raised 20% to $0.60d per share. Liquidity was about $2.2 billion at year end, comprising $0.7 billion of cash and $1.6 billion of undrawn revolver capacity. Total debt was about $6.7 billion, and the company carries investment-grade ratings of BBB-, Baa3, and BBB.
The main risks are commodity-price exposure, reserve estimate uncertainty, and concentration in the Permian Basin. Approximately 33% of proved reserves are undeveloped.
Roughly 9,314 gross identified drilling locations are economic at $50 WTI, but only 602 of those are booked as proved. Management also flagged Texas produced-water disposal restrictions, which may raise costs in parts of the Permian, and the company recorded $848 million in derivative losses for 2021, which reduced reported earnings.
02—Key points
Key Highlights
- Net income attributable to Diamondback of $2.18 billion for 2021, compared with a $4.52 billion loss in 2020 that included a $6.0 billion ceiling-test impairment; no impairment was recorded in 2021.
- Total revenue of $6.8 billion, up from $2.8 billion, with oil, gas, and NGL revenue up 145% on higher prices and a 25% increase in volumes from the QEP and Guidon acquisitions.
- Average production of 375,348 BOE/d (60% oil), and 2022 capital budget of $1.75–1.90 billion aimed at holding oil production flat.
- Operating cash flow of $3.94 billion, up from $2.12 billion, which funded $1.5 billion of capex, $431 million of buybacks, $312 million of dividends, and $3.2 billion of debt redemptions.
- Quarterly dividend increased 20% to $0.60 per share, with a stated policy of returning at least 50% of quarterly free cash flow to stockholders through a base dividend, buybacks, and variable dividends.
- Proved reserves of 1,789 MMBOE, up about 36% year over year, with 67% proved developed; $1.6 billion of revolver capacity remains available and total debt is about $6.7 billion.
- Ongoing risks include Texas produced-water disposal restrictions in the Permian, derivative losses of $848 million in 2021, and 33% of proved reserves being undeveloped.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2021filed February 24, 2022Financial Statements
FY2021 against FY2020
| Line item | FY2021FY2020 | Change |
|---|---|---|
| Revenue | $6.80B$2.81B | +141.6% |
| SG&A Expenses | $146.00M$88.00M | +65.9% |
| Operating Expenses | $2.80B$8.29B | −66.3% |
| Operating Income | $4.00B-$5.48B | +173.1% |
| Interest Expense | $199.00M$197.00M | +1.0% |
| Net Income | $2.28B-$4.52B | +150.4% |
| EPS (Basic) | $12.24$-28.61 | +142.8% |
| EPS (Diluted) | $12.24$-28.61 | +142.8% |
| Shares Outstanding (Basic) | 176.64M157.98M | +11.8% |
| Shares Outstanding (Diluted) | 176.64M157.98M | +11.8% |
05—Questions
Frequently Asked Questions
How did Diamondback perform financially in 2021 compared with 2020?
Diamondback swung from a $4.52 billion net loss attributable to the company in 2020 to net income of $2.18 billion in 2021. The 2020 result reflected a $6.0 billion non-cash impairment, which was not repeated in 2021. Revenue rose to $6.8 billion, driven by higher commodity prices and a 25% increase in production volumes from the QEP Merger and Guidon Acquisition. Derivative losses of $848 million partly offset the gains.
What is the company's capital allocation plan for 2022?
The board approved a 2022 capital budget of $1.75–1.90 billion for drilling, completions, midstream, and infrastructure. The plan calls for about 270–290 gross horizontal wells drilled, with 10–12 rigs running on average. Management intends to hold oil production flat and does not budget any leasehold or property acquisitions. Management also said it expects to distribute at least 50% of quarterly free cash flow to stockholders.
How much debt does Diamondback carry and how liquid is it?
At December 31, 2021, total debt was about $6.7 billion, including roughly $6.2 billion of senior notes across Diamondback, Viper, and Rattler, plus borrowings under the revolvers. Liquidity was about $2.2 billion, consisting of $0.7 billion of cash and $1.6 billion of undrawn Diamondback revolver capacity. Only $45 million of senior notes mature in the next 12 months. Credit ratings are BBB- (S&P), BBB (Fitch), and Baa3 (Moody's).
How much of the company's reserves are undeveloped, and how certain are they?
Proved undeveloped reserves total about 588 MMBOE, roughly 33% of the 1,789 MMBOE proved total, and management expects to develop them within five years. Reserves were estimated by independent engineers Ryder Scott using SEC pricing rules. The filing warns that reserve estimates are inherently uncertain. Downward PUD revisions of 243 MMBOE were recorded in 2021, mainly from changes to the development plan after the QEP and Guidon acquisitions.
What are the most significant risks flagged for investors?
The main risks are commodity price volatility, which affects revenue, reserves, and possible future impairments under the full cost method, and concentration in the Permian Basin. Texas regulators have restricted produced-water disposal in parts of the basin, which could raise operating costs. The company also faces counterparty and purchaser credit risk, delivery shortfall penalties under some oil contracts, and rising LIBOR-linked interest costs. Its hedge book runs through 2023, and the company does not require collateral from counterparties.
06—Continue