10-QPeriod: Q2 FY2020

Diamondback Energy, Inc. Quarterly Report for Q2 Ended Jun 30, 2020

Filed August 10, 2020For Securities:FANG

Summary

Diamondback Energy, Inc. (FANG) reported its second quarter 2020 results amidst significant industry headwinds from the COVID-19 pandemic and a sharp decline in oil prices. The company recorded a substantial non-cash impairment charge of $2.5 billion for the quarter ($3.5 billion year-to-date) primarily due to the "ceiling test" related to oil and natural gas property valuations under the full cost accounting method, directly impacting net income. Despite a reported net loss of $2.4 billion for the quarter, the company's operating cash flow remained robust at $1.17 billion for the first six months of 2020, reflecting strong operational execution and cost management. In response to market conditions, Diamondback implemented significant operational adjustments, including a reduction in drilling and completion activity, curtailment of oil production, and a decrease in capital expenditures. The company is focused on preserving liquidity and maintaining a strong balance sheet, evidenced by suspending its share repurchase program. Diamondback also demonstrated a commitment to returning capital to shareholders by declaring a quarterly dividend of $0.375 per share for the second quarter of 2020.

Financial Highlights

43 data points
Beta

Revenue

$425.00M

Net Income

-$2.39B

-563.1% Net Margin

EPS (Diluted)

$-15.16

Total Assets

$20.34B

Cash & Equivalents

$51.00M

Free Cash Flow

$324.00M

Financial Statements
Beta
Revenue$425.00M
SG&A Expenses$20.00M
Operating Expenses$3.10B
Operating Income-$2.67B
Net Income-$2.39B
EPS (Basic)$-15.16
EPS (Diluted)$-15.16
Shares Outstanding (Basic)157.83M
Shares Outstanding (Diluted)157.83M

Key Highlights

  • 1Reported a significant net loss of $2.4 billion for Q2 2020, largely driven by a $2.5 billion non-cash impairment charge on oil and natural gas properties due to falling commodity prices.
  • 2Maintained strong operating cash flow, generating $1.17 billion in the first six months of 2020.
  • 3Reduced capital expenditures significantly for 2020, now projected between $1.8 billion and $1.9 billion, down from an earlier estimate, and adjusted operational plans by reducing rig count and completion crews.
  • 4Curtailed 5% of oil production in Q2 2020 and completed zero wells in June 2020 to manage lower commodity prices.
  • 5Maintained a healthy liquidity position with $1.9 billion available under its revolving credit facility as of June 30, 2020.
  • 6Declared a quarterly dividend of $0.375 per share for Q2 2020, signaling continued commitment to shareholder returns despite market challenges.
  • 7Hedged approximately 100% of remaining 2020 oil production and 50% of expected 2021 oil production to mitigate commodity price volatility.

Frequently Asked Questions

The significant net loss of $2.4 billion for the second quarter of 2020 was primarily caused by a non-cash impairment charge of $2.5 billion related to oil and natural gas properties. This impairment was a result of the "ceiling test" required under the full cost accounting method, triggered by the sharp decline in commodity prices during the period.

Diamondback responded by significantly reducing its capital expenditures for 2020, lowering its rig count, curtailing a portion of its oil production, and completing fewer wells. The company also suspended its share repurchase program to preserve liquidity and focused on operational efficiencies to reduce cash operating costs.

As of June 30, 2020, Diamondback had approximately $1.9 billion of availability for future borrowings under its revolving credit facility and approximately $0.1 billion of cash on hand, indicating a strong liquidity position to navigate the challenging market conditions.

Based on current forward commodity prices, Diamondback expects to generate significant free cash flow in the second half of 2020. The company intends to remain focused on returning capital to stockholders through its quarterly dividend while protecting its balance sheet and maintaining operational efficiency.