01—Abstract
Summary
Summary of the 10-K filed February 23, 2023. Cited figures are marked; the original filing is the authoritative source.
Diamondback Energy's FY2022 10-K shows a strong year driven by commodity prices: total revenue of $9.64 billiona (up about 42% in oil, gas and NGL revenue to $9.57 billion) and net income attributable to the company of $4.39 billion, versus $2.18 billion in 2021.
Production averaged 386,005 BOE/d, up about 3% year over year, with the mix at roughly 58% oil. The company generated $6.3 billionb of operating cash flow and spent $1.9 billion on drilling, completions and infrastructure. Management held oil output flat and directed excess cash toward debt reduction (about $2.4 billion of senior notes retired), $1.1 billion of buybacks and a base-plus-variable dividend.
Management commits to returning at least 75% of quarterly free cash flow, and it raised the annual base dividend 50% to $3.00 in 2022 and then to $3.20c in February 2023. The balance sheet is conservative, with total debt of about $6.2 billion, $157 million of cash and roughly $1.6 billion of undrawn revolver capacity. Liquidity stood at about $1.8 billion at year-end.
Credit ratings are investment grade (BBB-/BBB/Baa2). Growth came mainly through acquisitions: FireBird (about 75,000 gross acres in the Midland Basin, closed November 2022) and Lario (about 25,000 gross acres, closed January 2023, for $814 milliond cash plus 4.33 million shares). Both were paid partly in stock, which lifted the share count.
Pending divestitures of non-core assets total $439 million, and management has raised its non-core sale target to $1.0 billion for 2023. The 2023 plan calls for capital spending of $2.50 to $2.70 billion, which is about 37% above 2022, with 325 to 345 gross horizontal wells drilled. The company has 613 gross operated horizontal wells on its acreage.
Key risks include commodity price volatility, Permian produced-water disposal restrictions, rising costs from inflation, the IRA's methane fee and corporate alternative minimum tax, and concentration of production in one basin with two purchasers representing 43% of revenue. The company recorded no impairment in 2022, and that stance depends on continued high trailing-twelve-month commodity prices.
02—Key points
Key Highlights
- Revenue reached $9.64 billion in 2022, up from $6.80 billion, and net income attributable to Diamondback was $4.39 billion (EPS $24.61), versus $2.18 billion in 2021.
- Average production was 386,005 BOE/d (about 58% oil), up roughly 3% year over year, with 2022 capital expenditures of $1.9 billion.
- Operating cash flow was $6.3 billion, and the company retired $2.4 billion of senior notes, repurchased $1.1 billion of stock and paid $1.6 billion in dividends.
- Shareholder returns were raised: the base dividend rose 50% to $3.00 in 2022 and then to $3.20 in February 2023, and the company committed to returning at least 75% of free cash flow.
- Acquisitions in late 2022 and early 2023 added roughly 100,000 gross Midland Basin acres (FireBird and Lario), partly paid in stock; $439 million of pending non-core divestitures and a $1.0 billion 2023 asset-sale target are planned.
- The 2023 capital budget is $2.50-$2.70 billion (about 37% above 2022), aimed at roughly flat oil production with 325-345 gross horizontal wells.
- Year-end liquidity was about $1.8 billion, with $6.2 billion of debt and investment-grade ratings (BBB-/BBB/Baa2); a $1.6 billion revolver (expandable to $2.6 billion) was undrawn.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2022filed February 23, 2023Financial Statements
FY2022 against FY2021
| Line item | FY2022FY2021 | Change |
|---|---|---|
| Revenue | $9.64B$6.80B | +41.9% |
| SG&A Expenses | $144.00M$146.00M | −1.4% |
| Operating Expenses | $3.13B$2.80B | +12.1% |
| Operating Income | $6.51B$4.00B | +62.7% |
| Interest Expense | $154.00M$199.00M | −22.6% |
| Net Income | $4.56B$2.28B | +100.4% |
| EPS (Basic) | $24.61$12.24 | +101.1% |
| EPS (Diluted) | $24.61$12.24 | +101.1% |
| Shares Outstanding (Basic) | 176.54M176.64M | −0.1% |
| Shares Outstanding (Diluted) | 176.54M176.64M | −0.1% |
05—Questions
Frequently Asked Questions
How did Diamondback's profitability change in 2022?
Net income attributable to Diamondback rose to $4.39 billion ($24.61 per share) from $2.18 billion in 2021. The increase came mainly from higher oil prices: the average oil price was $93.85/Bbl versus $66.19, and hedged oil realized $86.76/Bbl. Derivative losses of $586 million partly offset these gains.
What is Diamondback's plan for capital spending and production in 2023?
Management plans capital spending of $2.50 to $2.70 billion, roughly 37% above 2022, to drill 325-345 gross horizontal wells and complete 330-350. The goal is to hold oil production roughly flat, excluding recent acquisitions. The company may cut spending if commodity prices weaken.
How does Diamondback return capital to shareholders?
Diamondback commits to returning at least 75% of quarterly free cash flow through a base dividend, variable dividends and buybacks. The base dividend was raised to $3.20 per share annually in February 2023, and a $2.95 per share base-plus-variable dividend was declared for Q4 2022. About $2.5 billion remained under the $4.0 billion buyback authorization at year-end 2022.
What are the main risks to investors?
Key risks include commodity price volatility, which could trigger impairments, since none were recorded in 2022 due to high trailing prices. Other risks are Texas Railroad Commission restrictions on produced-water disposal, inflation in service costs, the IRA's methane charge and 1% buyback excise tax, and concentration of output in the Permian Basin. Two purchasers accounted for 43% of 2022 revenue.
How strong is the balance sheet and what are the debt obligations?
Total debt was about $6.2 billion at year-end 2022, and the company retired $2.4 billion of notes during the year. Cash was $157 million, and $1.6 billion was available under the revolver, for total liquidity of about $1.8 billion. Senior note maturities are small until 2026-2027 (about $1.2 billion combined), and most debt matures after 2028. Credit ratings are BBB-/BBB/Baa2.
06—Continue