10-QPeriod: Q1 FY2017

Diamondback Energy, Inc. Quarterly Report for Q1 Ended Mar 31, 2017

Filed May 4, 2017For Securities:FANG

Summary

Diamondback Energy, Inc. (FANG) reported a significant turnaround in its financial performance for the first quarter of 2017 compared to the same period in 2016. The company experienced a substantial increase in revenues, driven by both higher production volumes and improved commodity prices, particularly for oil. This positive trend is further bolstered by the company's successful acquisition of assets in the Delaware Basin in February 2017, expanding its acreage and operational footprint. Operationally, Diamondback demonstrated strong execution with increased drilling and completion activity, leading to a 60.8% rise in average daily production. The company continues to focus on cost optimization and operational efficiency, reporting reduced well costs and operating expenses per BOE. Management expresses confidence in their position to navigate the volatile commodity price environment and forecasts sufficient liquidity to fund operations and capital expenditures through year-end 2017.

Financial Highlights

41 data points
Beta

Revenue

$235.23M

Net Income

$136.27M

57.9% Net Margin

EPS (Diluted)

$1.46

Total Assets

$6.37B

Cash & Equivalents

$37.44M

Free Cash Flow

$175.93M

Financial Statements
Beta
Revenue$235.23M
SG&A Expenses$13.74M
Operating Expenses$118.82M
Operating Income$116.41M
Net Income$136.27M
EPS (Basic)$1.46
EPS (Diluted)$1.46
Shares Outstanding (Basic)93.16M
Shares Outstanding (Diluted)93.36M

Key Highlights

  • 1Revenue more than doubled year-over-year, increasing by approximately 166% to $232.5 million, driven by higher production volumes and improved commodity prices.
  • 2Net income swung from a loss of $32.9 million in Q1 2016 to a profit of $136.3 million in Q1 2017.
  • 3Completed a significant acquisition in the Delaware Basin on February 28, 2017, for approximately $2.5 billion, expanding its acreage position to over 191,000 net acres in the Permian Basin.
  • 4Average daily production increased by 60.8% to 61,610 BOE/d in Q1 2017, compared to 38,308 BOE/d in Q1 2016.
  • 5Operating expenses per BOE decreased from $17.33 in Q1 2016 to $14.11 in Q1 2017, reflecting improved cost management.
  • 6The company reported no impairment charges in Q1 2017, a significant improvement from the $30.8 million impairment recorded in Q1 2016 due to low commodity prices.
  • 7Net cash provided by operating activities increased substantially by 140% to $175.9 million in Q1 2017, up from $72.8 million in Q1 2016.

Frequently Asked Questions

The substantial increase in revenue was driven by two main factors: higher average sales prices for oil, natural gas liquids, and natural gas, and a significant increase in production volumes due to expanded drilling activity and growth from acquisitions. Higher oil prices, in particular, had a pronounced positive impact as oil constitutes the majority of Diamondback's revenue.

The acquisition, completed in February 2017, significantly expanded Diamondback's acreage in the Permian Basin, particularly in the Delaware Basin. This not only increased its potential for future production but also led to a substantial increase in investing activities for leasehold and midstream asset acquisitions during the quarter. Operationally, the company is focused on transferring its cost-control best practices to this new acreage.

Diamondback acknowledges the continued volatility and challenging price environment for oil and natural gas, although prices improved in Q1 2017. The company states it is well-positioned to operate in this environment and actively monitors commodity prices. It can adjust its rig cadence up or down in response to market conditions, with a stated intention to add more rigs if commodity prices strengthen. Management believes its 2017 drilling and completion budget can accommodate potential increases in service costs.

The company has a 2017 capital budget of $800 million to $1 billion, primarily for drilling and completion activities, and infrastructure. Management believes that cash flow from operations, existing cash, and available borrowings under its revolving credit facility will be sufficient to fund operations through year-end 2017. They also indicate flexibility to adjust capital expenditures based on market conditions and the availability of financing, and have outlined various potential sources for additional capital if needed, including debt and equity offerings.