10-QPeriod: Q2 FY2018

Diamondback Energy, Inc. Quarterly Report for Q2 Ended Jun 30, 2018

Filed August 9, 2018For Securities:FANG

Summary

Diamondback Energy, Inc. (FANG) reported strong performance for the second quarter and first half of 2018, demonstrating significant revenue growth driven by increased production volumes and higher commodity prices. The company achieved substantial year-over-year increases in both revenue and net income, underscoring its operational execution and strategic growth initiatives in the Permian Basin. Operationally, FANG continued to expand its drilling and completion activities, increasing its rig count and frac spreads. The company also announced several significant strategic transactions, including a pending acquisition from Ajax Resources, LLC, and a drop-down transaction with its subsidiary Viper Energy Partners LP. These moves indicate a focus on expanding acreage, enhancing production, and potentially optimizing its asset base. Despite increased operating expenses and interest expense, the company maintained strong cash operating margins and provided an updated capital budget reflecting its growth plans.

Financial Highlights

41 data points
Beta

Revenue

$527.00M

Net Income

$219.00M

41.6% Net Margin

EPS (Diluted)

$2.22

Total Assets

$8.95B

Cash & Equivalents

$114.00M

Free Cash Flow

$425.00M

Financial Statements
Beta
Revenue$527.00M
SG&A Expenses$15.00M
Operating Expenses$246.00M
Operating Income$281.00M
Net Income$219.00M
EPS (Basic)$2.22
EPS (Diluted)$2.22
Shares Outstanding (Basic)98.61M
Shares Outstanding (Diluted)98.80M

Key Highlights

  • 1Record revenue for the three and six months ended June 30, 2018, driven by a significant increase in oil, natural gas, and natural gas liquids production volumes and higher average sales prices.
  • 2Net income attributable to Diamondback Energy, Inc. rose to $219.1 million in Q2 2018 and $382.0 million for the first half, compared to $158.4 million and $294.7 million in the prior year periods.
  • 3Significant growth in average daily production, with Q2 2018 production up 46.3% year-over-year to 112,592 BOE/d, and H1 2018 production up 55.2% to 107,627 BOE/d.
  • 4Announced a pending acquisition of 25,493 net leasehold acres from Ajax Resources, LLC for approximately $900 million in cash and 2.6 million shares, significantly expanding its Permian Basin footprint.
  • 5Entered into a definitive agreement to sell mineral interests to its subsidiary Viper Energy Partners LP for $175 million, indicating ongoing strategic asset management.
  • 6Increased its capital budget for 2018 to $1.4 billion - $1.5 billion, focusing on drilling and completion of 170-190 gross horizontal wells.
  • 7Maintained a conservative balance sheet with a low leverage ratio and strong cash operating margins exceeding 80% on a per BOE basis.

Frequently Asked Questions

Revenue growth was primarily driven by a substantial increase in production volumes across oil, natural gas, and natural gas liquids, coupled with higher average sales prices for these commodities compared to the prior year period. Increased drilling activity and growth through acquisitions were key contributors to the higher production.

The acquisition of Ajax Resources, LLC is expected to significantly expand Diamondback's acreage in the Permian Basin, adding approximately 25,493 net leasehold acres, with a substantial portion being held by production. It also includes midstream assets, which complement the company's existing infrastructure, and adds a significant number of potential horizontal drilling locations, further strengthening its development pipeline.

Diamondback noted that oilfield service costs were increasing. To mitigate this, the company proactively secured frac sand supply for future well completions and committed to seeking opportunities to control and de-bundle additional costs. They also stated their 2018 drilling and completion budget accounted for potential increases in service costs.

As of June 30, 2018, Diamondback had $321.5 million outstanding under its $5.0 billion revolving credit facility, leaving $678.5 million available. The company's debt-to-EBITDAX ratio was below the covenant limit of 4.0 to 1.0. Management believes that its cash flow from operations, cash on hand, and available credit facility borrowings are sufficient to fund operations through year-end 2018.