10-QPeriod: Q3 FY2014

Diamondback Energy, Inc. Quarterly Report for Q3 Ended Sep 30, 2014

Filed November 6, 2014For Securities:FANG

Summary

Diamondback Energy, Inc. (FANG) reported significant operational and financial growth for the nine months ending September 30, 2014, driven by aggressive acquisitions and increased drilling activity in the Permian Basin. Revenues surged by 176% year-over-year to $364.1 million, largely fueled by a substantial increase in oil and natural gas production volumes. The company successfully executed major acquisitions, including significant acreage in Martin County and Midland, Glasscock, Reagan, and Upton Counties, Texas, demonstrating a clear strategy of expanding its operational footprint. Financially, the company raised substantial capital through equity offerings and debt to fund these expansions. Net cash provided by operating activities also saw a significant increase, more than doubling year-over-year. Despite increased operational scale and associated expenses like DD&A and interest expense, the company maintained profitability and indicated confidence in its ability to fund operations through year-end 2014 with existing cash flow and credit facilities, though future growth remains dependent on continued capital availability.

Financial Highlights

39 data points
Beta

Net Income

$43.74M

EPS (Diluted)

$0.79

Total Assets

$2.82B

Cash & Equivalents

$40.64M

Free Cash Flow

$92.29M

Financial Statements
Beta
SG&A Expenses$6.02M
Operating Expenses$75.61M
Operating Income$63.52M
Interest Expense$9.85M
Net Income$43.74M
EPS (Basic)$0.79
EPS (Diluted)$0.79
Shares Outstanding (Basic)55.15M
Shares Outstanding (Diluted)55.44M

Key Highlights

  • 1Revenue increased by 176% to $364.1 million for the nine months ended September 30, 2014, compared to the same period in 2013, driven by a 177% increase in average daily production.
  • 2The company executed significant acquisitions in the Permian Basin during the period, notably in Martin County ($292.2 million) and Midland, Glasscock, Reagan, and Upton Counties ($523.3 million), expanding its net acreage position to approximately 84,746 acres.
  • 3Diamondback Energy raised substantial capital through multiple equity offerings and debt issuance, totaling over $1 billion during the nine months ended September 30, 2014, to fund its growth strategy.
  • 4Net cash provided by operating activities more than doubled, reaching $252.0 million for the nine months ended September 30, 2014, compared to $91.6 million in the prior year.
  • 5Capital expenditures for drilling, completion, and infrastructure were $313.9 million for the nine months ended September 30, 2014, with a significant portion allocated to developing new acreage.
  • 6The company experienced a substantial increase in Net Interest Expense due to the issuance of $450 million in senior notes in September 2013.
  • 7Diamondback Energy successfully launched Viper Energy Partners LP (VNOM) through an IPO, raising approximately $137.2 million in net proceeds for the Partnership, which in turn distributed $148.8 million to Diamondback as of September 30, 2014.

Frequently Asked Questions

Diamondback Energy experienced substantial growth in both production and revenue. For the nine months ended September 30, 2014, average daily production increased by 177% to 17,367 BOE/d, and total revenues grew by 176% to $364.1 million compared to the same period in 2013. This growth was primarily driven by increased drilling activity and strategic acquisitions.

The company made significant acquisitions, including interests in Martin County, Texas, for approximately $292.2 million and further interests in Midland, Glasscock, Reagan, and Upton Counties, Texas, for approximately $523.3 million. These acquisitions were financed through a combination of proceeds from equity offerings completed in February and July 2014, and borrowings under its revolving credit facility.

Diamondback Energy's primary sources of liquidity include proceeds from equity offerings, borrowings under its revolving credit facility, and cash flow from operations. For the nine months ended September 30, 2014, the company raised over $1 billion through financing activities to support its capital expenditures and acquisitions. Management believes its current cash flow from operations and credit facilities are sufficient to fund operations through year-end 2014, but future growth is contingent on continued access to capital.

The company's revenues are sensitive to volatile oil and natural gas prices. While average realized oil prices decreased from the prior year, higher production volumes more than offset this impact, leading to revenue growth. Diamondback uses fixed price swap derivatives to mitigate price volatility. As of September 30, 2014, the company held a net asset derivative position of $6.1 million. The report notes a recent decline in oil prices from over $105/bbl in June 2014 to below $80/bbl currently, which could impact future capital expenditure plans if conditions do not improve.