10-QPeriod: Q1 FY2014

Diamondback Energy, Inc. Quarterly Report for Q1 Ended Mar 31, 2014

Filed May 9, 2014For Securities:FANG

Summary

Diamondback Energy, Inc. (FANG) demonstrated significant growth in the first quarter of 2014, reporting a substantial increase in revenues and production volumes compared to the prior year. This expansion was driven by both organic development, evidenced by increased drilling activity, and strategic acquisitions, notably the Martin County acquisition completed in late February 2014. The company's focus remains on the Permian Basin, with a strong emphasis on oil-weighted reserves. Financially, FANG saw a dramatic rise in net income and operating cash flow, supported by higher commodity prices for oil and natural gas liquids. However, this growth came with increased operating expenses, particularly depreciation, depletion, and amortization (DD&A) and interest expense, largely due to recent acquisitions and the issuance of senior notes. The company also successfully raised capital through a public offering of common stock and leveraged its credit facility to fund its aggressive growth strategy, positioning itself for continued development and exploration in its core Permian Basin assets.

Financial Highlights

38 data points
Beta

Net Income

$23.59M

EPS (Diluted)

$0.48

Total Assets

$1.94B

Cash & Equivalents

$25.31M

Free Cash Flow

$71.47M

Financial Statements
Beta
SG&A Expenses$4.26M
Operating Expenses$49.94M
Operating Income$48.06M
Interest Expense$6.50M
Net Income$23.59M
EPS (Basic)$0.49
EPS (Diluted)$0.48
Shares Outstanding (Basic)48.45M
Shares Outstanding (Diluted)48.87M

Key Highlights

  • 1Revenue surged by 239% to $98 million in Q1 2014 compared to Q1 2013, driven by a 183% increase in average daily production to 13,552 BOE/d.
  • 2A significant acquisition in Martin County, Texas, for approximately $292.2 million was completed in late February 2014, adding 4,785 net acres and 2,200 BOE/d of production.
  • 3The company raised $208.4 million in net proceeds from a public offering of common stock in February 2014 to fund acquisitions and capital expenditures.
  • 4Net income increased by 337% to $23.6 million in Q1 2014 from $5.4 million in Q1 2013.
  • 5Operating cash flow more than quadrupled to $71.5 million in Q1 2014 from $16.9 million in Q1 2013.
  • 6Capital expenditures for the first three months of 2014 totaled $399.2 million, primarily for drilling and property acquisitions, reflecting an aggressive development strategy.
  • 7The borrowing base under the revolving credit facility was increased to $450 million in April 2014, and as of March 31, 2014, outstanding borrowings were $137 million.

Frequently Asked Questions

The significant revenue growth of 239% was driven by a substantial increase in production volumes (up 183% year-over-year) and an increase in average realized prices, particularly for oil. This production growth was a result of both increased drilling activity and the successful integration of recent acquisitions.

Diamondback Energy funded its growth through a combination of sources. The Martin County acquisition was financed by proceeds from a February 2014 public offering of common stock and borrowings under its revolving credit facility. The company also issued $450 million in senior unsecured notes in September 2013 to fund acquisitions and capital expenditures.

For 2014, Diamondback Energy anticipates capital expenditures of $425 million to $475 million, primarily focused on horizontal well development in the Permian Basin. The company believes its cash flow from operations and availability under its revolving credit facility will be sufficient to fund its operations through year-end 2014, though significant additional capital will be required for further development. Future acquisitions are not included in the current capital budget but remain a possibility.

Diamondback Energy uses price swap derivatives to mitigate the volatility of oil prices. These contracts involve payments based on the difference between agreed-upon swap prices and prevailing market prices. As of March 31, 2014, the company had a net derivative liability position, but it notes that any gains or losses from these derivatives would be substantially offset by changes in the actual sales value of the underlying production.