10-QPeriod: Q1 FY2013

Diamondback Energy, Inc. Quarterly Report for Q1 Ended Mar 31, 2013

Filed May 9, 2013For Securities:FANG

Summary

Diamondback Energy, Inc. (FANG) reported its first quarter 2013 results, showcasing significant operational growth and a strategic shift following its October 2012 IPO and acquisition of Gulfport properties. The company experienced a substantial increase in production, up 115% year-over-year, driven by aggressive drilling activity and the integration of newly acquired assets in the Permian Basin. Despite a decrease in average commodity prices compared to the prior year, revenue grew by 77% due to the higher production volumes. Management highlights efforts to reduce lease operating expenses through pipeline infrastructure development. The company also successfully increased its borrowing base under its credit facility and is well-positioned with its 2013 capital expenditure budget focused on development drilling and infrastructure expansion, indicating a strong commitment to future growth.

Financial Highlights

39 data points
Beta

Net Income

$5.40M

EPS (Diluted)

$0.15

Total Assets

$648.46M

Cash & Equivalents

$5.52M

Free Cash Flow

$16.86M

Financial Statements
Beta
SG&A Expenses$2.19M
Operating Expenses$20.25M
Operating Income$8.66M
Interest Expense$485K
Net Income$5.40M
EPS (Basic)$0.15
EPS (Diluted)$0.15
Shares Outstanding (Basic)37.06M
Shares Outstanding (Diluted)37.21M

Key Highlights

  • 1Production increased by an impressive 115% year-over-year, reaching 4,788 BOE/d in Q1 2013, driven by 19 net wells drilled and the acquisition of Gulfport assets.
  • 2Total revenues surged by 77% to $28.9 million, largely attributable to increased production volumes, which offset a decline in average commodity prices.
  • 3Lease operating expenses per BOE decreased slightly, with ongoing initiatives to further reduce these costs through pipeline infrastructure for water disposal and oil transportation.
  • 4Depreciation, depletion, and amortization (DD&A) expense more than doubled to $10.7 million, reflecting the increased asset base from the Gulfport acquisition and higher capital expenditures.
  • 5Net interest expense decreased by 45% due to lower weighted average borrowings under the credit facility.
  • 6The company's borrowing base under its credit facility was increased to $135 million at March 31, 2013, and subsequently to $180 million in May 2013, providing ample liquidity.
  • 7Diamondback plans a significant 2013 capital expenditure budget of $270-$300 million, primarily for drilling and completion of operated wells and infrastructure development.

Frequently Asked Questions

The primary driver for the 77% revenue increase was a substantial rise in production volumes, up 115% year-over-year. This growth was fueled by increased drilling activity and the integration of the Gulfport asset acquisition in late 2012. While average commodity prices declined compared to the previous year, the sheer increase in the quantity of oil, natural gas liquids, and natural gas sold more than compensated for this price dip.

Diamondback is actively working to reduce lease operating expenses. For Q1 2013, expenses per BOE saw a slight decrease. Key initiatives include transitioning water disposal from trucking to pipeline, and developing gathering systems to eliminate processing and treating expenses for non-hydrocarbon gases. Management expects these infrastructure improvements to further lower operating costs in future periods.

Diamondback's liquidity position appears strong. The company's revolving credit facility has a borrowing base that has been increasing, standing at $135 million as of March 31, 2013, and further increased to $180 million in May 2013. Despite having $36.5 million in borrowings at the end of the quarter, the company generated positive operating cash flow and has a projected 2013 capital expenditure budget of $270-$300 million focused on development and infrastructure. Management believes current cash flow and available borrowings will be sufficient to fund operations and capital expenditures through the end of 2013.

Several cost components have seen significant increases due to growth and acquisitions. Depreciation, Depletion, and Amortization (DD&A) more than doubled, reflecting the expanded asset base and higher capital investment. General and administrative expenses also increased due to higher salaries, stock-based compensation, and professional services. However, lease operating expenses per BOE have seen some efficiencies, and net interest expense decreased due to reduced debt levels.