10-QPeriod: Q3 FY2015

Diamondback Energy, Inc. Quarterly Report for Q3 Ended Sep 30, 2015

Filed November 6, 2015For Securities:FANG

Summary

Diamondback Energy, Inc. (FANG) reported its third-quarter results for the period ending September 29, 2015. The company demonstrated significant production growth, with average daily production increasing by 65% year-over-year for the quarter and 81.8% for the nine-month period. This growth was driven by increased drilling activity and strategic acquisitions, adding approximately 16,000 net acres in the Permian Basin. Despite the strong production increases, Diamondback faced a challenging commodity price environment. The average realized oil price decreased substantially from $88.63 per barrel in Q3 2014 to $44.12 per barrel in Q3 2015. This price decline, coupled with lower natural gas liquids and natural gas prices, led to a reported net loss of $156.0 million for the quarter, compared to a net income of $44.6 million in the prior year. The company also recorded significant non-cash impairment charges of $273.7 million for the quarter and $597.2 million for the nine-month period due to the decline in oil prices.

Financial Highlights

39 data points
Beta

Net Income

-$156.78M

EPS (Diluted)

$-2.40

Total Assets

$2.99B

Cash & Equivalents

$43.83M

Free Cash Flow

$139.82M

Financial Statements
Beta
SG&A Expenses$7.53M
Operating Expenses$366.72M
Operating Income-$254.77M
Interest Expense$10.63M
Net Income-$156.78M
EPS (Basic)$-2.40
EPS (Diluted)$-2.40
Shares Outstanding (Basic)65.25M
Shares Outstanding (Diluted)65.25M

Key Highlights

  • 1Significant production growth: Average daily production increased by 65% year-over-year for the third quarter of 2015, reaching 34,082 BOE/d.
  • 2Strategic acreage expansion: Acquired approximately 12,396 net acres in the Permian Basin for $425.5 million, enhancing future development potential.
  • 3Substantial revenue decline due to lower commodity prices: Despite higher production volumes, revenues decreased by 20% year-over-year to $111.9 million for the quarter, driven by a significant drop in oil prices.
  • 4Recorded significant non-cash impairment charges: Recognized impairment of oil and gas properties totaling $273.7 million for the quarter and $597.2 million for the nine-month period due to falling commodity prices.
  • 5Equity financing to support growth: Raised approximately $119.4 million, $333.6 million, and $197.6 million through separate common stock offerings in January, May, and August 2015, respectively.
  • 6Operational efficiency improvements: Secured cost concessions from service providers (20-30%) and improved drilling efficiencies, enabling economic wells even in a lower price environment.
  • 7Strong operating cash flow generation: Despite the net loss, net cash provided by operating activities increased to $339.6 million for the nine-month period, up from $252.0 million in the prior year.

Frequently Asked Questions

Diamondback Energy reported a net loss primarily due to a sharp decline in commodity prices, particularly for oil, which is their main revenue driver. While production volumes increased substantially, the lower average selling prices ($44.12/Bbl for oil in Q3 2015 vs. $88.63/Bbl in Q3 2014) and significant non-cash impairment charges of $273.7 million for the quarter negatively impacted the company's profitability.

Diamondback Energy significantly expanded its acreage in the Permian Basin, acquiring approximately 12,396 net acres primarily in northwest Howard County for $425.5 million. This acquisition is expected to add approximately 232 net potential horizontal drilling locations and enhances the company's long-term development prospects and reserve growth potential in a key producing region.

The substantial decrease in oil and gas prices led to a significant drop in revenues and necessitated large non-cash impairment charges of $597.2 million for the nine months ended September 30, 2015. However, the company has taken steps to mitigate these effects, including securing cost concessions from service providers and improving operational efficiencies, which they believe allow for economic well development even in the current price environment. The company also raised substantial capital through equity offerings to fund its operations and growth.

Diamondback Energy's primary sources of liquidity are equity offerings, its revolving credit facility, and operating cash flows. As of September 30, 2015, the company had $10.0 million in outstanding borrowings under its $2.0 billion credit facility, with $490.0 million available. They maintained compliance with all financial covenants. Despite the challenging commodity price environment, the company believed its cash flow from operations and available credit would be sufficient to fund operations through year-end 2015.