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Diamondback Energy Fourth Quarter, Full Year 2021 Results

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   |    Tuesday,February 22,2022

Diamondback Energy, Inc. announced financial and operating results for the fourth quarter and full year ended December 31, 2021.

4Q21 Highlights:

  • Average production of 226.3 MBO/d (387.1 MBOE/d)
  • Permian Basin production of 224.4 MBO/d (383.5 MBOE/d)
  • Cash flow from operating activities of $1,167 million; Operating Cash Flow Before Working Capital Changes (as defined and reconciled below) of $1,206 million
  • Cash capital expenditures of $434 million; Q4 2021 activity-based capital expenditures incurred of approximately $427 million
  • Free Cash Flow (as defined and reconciled below) of $772 million
  • Increasing annual dividend by 20.0% to $2.40 per share; declared Q4 2021 cash dividend of $0.60 per share payable on March 11, 2022; implies a 1.8% annualized yield based on the February 18, 2022 share closing price of $131.47
  • Repurchased 3,858,931 shares of common stock (~2.1% of prior quarter shares outstanding) in Q4 2021 for ~$409 million ($105.96 / share)
  • Total return of capital of $515 million (67% of Q4 2021 Free Cash Flow) from stock repurchases and the declared Q4 2021 dividend; above commitment to return at least 50% of Free Cash Flow to stockholders
  • Flared 1.55% (1.32% excluding QEP Permian) of gross natural gas production in the fourth quarter of 2021

Full Year 2021 Highlights:

  • Full year 2021 average production of 223.3 MBO/d (375.3 MBOE/d)
  • Generated full year 2021 cash flow from operating activities of $3,944 million; Operating Cash Flow Before Working Capital Changes (as defined and reconciled below) of $3,908 million
  • Full year 2021 cash capital expenditures of $1,487 million; turned 275 horizontal wells to production
  • Generated full year 2021 Free Cash Flow (as defined and reconciled below) of $2,421 million
  • YE 2021 total debt of $6,756 million and consolidated net debt (as defined and reconciled below) of $6,102 million, down 20% from the end of Q1 2021; redeemed $1,277 million of Senior Notes over the same period
  • Proved reserves as of December 31, 2021 of 1,789 MMBOE (928 MMBO, 52% oil), up 36% year over year; proved developed producing ("PDP") reserves of 1,201 MMBOE (620 MMBO, 52% oil, 67% of proved reserves), up 47% year over year
  • 2021 consolidated proved developed finding and development (as defined below and referred to as "PD F&D") costs of $7.87/BOE; drill bit finding and development (as defined below and referred to as "Drill bit F&D") costs of $4.53/BOE
  • Flared 1.00% (1.45% including QEP Permian) of gross natural gas production for the full year ended 2021, down 49% (26% including QEP Permian) from 2020

CEO Travis Stice said: "Diamondback's fourth quarter topped off a record year for the Company. In the quarter, Diamondback generated $772 million of Free Cash Flow with production and capital both positively exceeding expectations. As we have stated previously, we are committed to returning at least 50% of this Free Cash Flow to stockholders, and in the fourth quarter we exceeded this target and returned 67% of our Free Cash Flow through opportunistic share repurchases and our growing base dividend.

Mr. Stice continued, "Going forward, we will remain committed to capital discipline by maintaining flat Permian oil production. In 2022, at current strip pricing, we expect this maintenance capital plan to generate nearly $4.0 billion of Free Cash Flow, of which at least 50% will be returned to stockholders through a combination of our growing base dividend, our opportunistic share repurchase program and, if needed, a variable dividend. Diamondback's Board believes long-term shareholder value is created in this business through consistent execution at the lowest cost structure. Free Cash Flow generation and the return of that Free Cash Flow to the owners of the Company is the output of that value creation. As mentioned earlier, we expect to return a significant amount of cash back to stockholders this year, at least 50% of Free Cash Flow. The Board also retains discretion on what to do with the other 50% of the Free Cash Flow we generate. If we do not have a use for this capital that creates unreasonable value for our shareholders, then we will return it through the method our Board believes presents the best return to our stockholders at the time."

Mr. Stice continued, "Our operational achievements in the field in 2021 set a new bar for Diamondback. We will continue to build off of these operational efficiencies by controlling the variable portion of our operating and capital costs, which will help mitigate the inflationary pressures we are seeing across our business. As a result, we are confident we can maintain our best-in-class capital efficiency and cost structure through the cycle."

Operations Update

The tables below provide a summary of operating activity for the fourth quarter of 2021.

During the fourth quarter of 2021, Diamondback drilled 40 gross horizontal wells in the Midland Basin and 13 gross horizontal wells in the Delaware Basin. The Company turned 55 operated horizontal wells to production in the Midland Basin and 15 operated horizontal wells to production in the Delaware Basin. The average lateral length for the wells completed during the fourth quarter was 9,711 feet. Operated completions during the fourth quarter consisted of 27 Wolfcamp A wells, 18 Lower Spraberry wells, eight Middle Spraberry wells, eight Wolfcamp B wells, four Third Bone Spring wells, two Jo Mill wells, two Second Bone Spring wells and one Barnett well.

For the full year ended December 31, 2021, Diamondback drilled 175 gross horizontal wells in the Midland Basin and 41 gross horizontal wells in the Delaware Basin. The Company turned 207 operated horizontal wells to production in the Midland Basin, 64 operated horizontal wells in the Delaware Basin and four operated horizontal wells in the Williston Basin. The average lateral length for wells completed during the full year was 10,602 feet, and consisted of 88 Wolfcamp A wells, 68 Lower Spraberry wells, 33 Middle Spraberry wells, 25 Wolfcamp B wells, 23 Jo Mill wells, 13 Third Bone Spring wells, 12 Second Bone Spring wells, seven Dean wells, two Barnett wells, two Bakken wells and two Three Forks wells.

Financial Update

Diamondback's fourth quarter 2021 net income was $1,002 million, or $5.54 per diluted share. Adjusted net income (a non-GAAP financial measure as defined and reconciled below) was $657 million, or $3.63 per diluted share.

Fourth quarter 2021 Consolidated Adjusted EBITDA (as defined and reconciled below) was $1,256 million. Adjusted EBITDA net of non-controlling interest was $1,192 million.

Fourth quarter 2021 average unhedged realized prices were $74.50 per barrel of oil, $4.56 per Mcf of natural gas and $35.02 per barrel of natural gas liquids ("NGLs"), resulting in a total equivalent unhedged realized price of $56.47 per BOE.

Diamondback's cash operating costs for the fourth quarter of 2021 were $10.17 per BOE, including lease operating expenses ("LOE") of $4.21 per BOE, cash general and administrative ("G&A") expenses of $0.93 per BOE, production and ad valorem taxes of $3.40 per BOE and gathering and transportation expenses of $1.63 per BOE.

As of December 31, 2021, Diamondback had $595 million in standalone cash and no borrowings outstanding under its revolving credit facility, with approximately $1.6 billion available for future borrowing under the facility and approximately $2.2 billion of total liquidity.

During the fourth quarter of 2021, Diamondback spent $347 million on operated drilling and completion and non-operated properties, $80 million on infrastructure and $7 million on midstream, for total cash capital expenditures of $434 million. For the year ended December 31, 2021, Diamondback spent $1,298 million on operated drilling and completion, $123 million on infrastructure, $36 million on non-operated properties and $30 million on midstream, for total cash capital expenditures of $1,487 million.

Dividend

Diamondback announced today that the Company's Board of Directors declared a cash dividend of $0.60 per common share for the fourth quarter of 2021 payable on March 11, 2022, to stockholders of record at the close of business on March 4, 2022. Future dividends remain subject to review and approval at the discretion of the Company's Board of Directors.

Stock Repurchase Program

On September 15, 2021 the Board of Directors of Diamondback authorized the Company to acquire up to $2.0 billion of common stock. During the fourth quarter of 2021, Diamondback repurchased 3,858,931 shares of common stock at an average share price of $105.96 for a total cost of approximately $409 million. For the full year 2021, the Company repurchased 4,127,222 shares of common stock for a total cost of approximately $431 million, or approximately 22% of the Board approved program.

Diamondback intends to purchase common stock under the common stock repurchase program opportunistically with cash on hand, free cash flow from operations and proceeds from potential liquidity events such as the sale of assets. This repurchase program has no time limit and may be suspended from time to time, modified, extended or discontinued by the Board at any time. Purchases under the repurchase program may be made from time to time in open market or privately negotiated transactions in compliance with Rule 10b-18 under the Securities Exchange Act of 1934, as amended, and will be subject to market conditions, applicable legal requirements and other factors. Any common stock purchased as part of this program will be retired.

Reserves

Ryder Scott Company, L.P. prepared estimates of Diamondback's proved reserves as of December 31, 2021. Reference prices of $66.56 per barrel of oil and $3.60 per Mmbtu of natural gas were used in accordance with applicable rules of the Securities and Exchange Commission. Realized prices with applicable differentials were $64.78 per barrel of oil, $2.61 per Mcf of natural gas and $23.71 per barrel of natural gas liquids.

Proved reserves at year-end 2021 of 1,789 MMBOE represent a 36% increase over year-end 2020 reserves. Proved developed reserves increased by 47% to 1,201 MMBOE (67% of total proved reserves) as of December 31, 2021, reflecting the continued development of the Company's horizontal well inventory. Proved undeveloped reserves ("PUD" or "PUDs") increased to 588 MMBOE, an 18% increase over year-end 2020, and are comprised of 619 locations, of which 65 are in the Delaware Basin. Crude oil represents 52% of Diamondback's total proved reserves.

Net proved reserve additions of 610 MMBOE resulted in a reserve replacement ratio of 445% (defined as the sum of extensions, discoveries, revisions, purchases and divestitures, divided by annual production). The organic reserve replacement ratio was 280% (defined as the sum of extensions, discoveries and revisions, divided by annual production).

Extensions and discoveries of reserves were the primary contributor to the increase in reserves totaling 519 MMBOE followed by net purchases of reserves totaling 225 MMBOE, with downward revisions of 135 MMBOE. PDP extensions accounted for 15% of the total increase in reserves. PDP extensions were the result of 125 wells in which the Company has a working interest, and PUD extensions were the result of 439 new locations in which the Company has a working interest. Net acquisitions of reserves of 225 MMBOE were the net result of acquisitions of 285 MMBOE and divestitures of 60 MMBOE. Downward revisions of 135 MMBOE were primarily the result of PUD downgrades related to changes in the corporate development plan following the QEP and Guidon acquisitions of 256 MMBOE, which were partially offset by positive revisions of 121 MMBOE associated with higher commodity prices and improved well performance.

The SEC PUD guidelines allow a company to book PUD reserves associated with projects that are to occur within the next five years. With its current development plan, the Company expects to continue its strong PUD conversion ratio in 2022 by converting an estimated 25% of its PUDs to a Proved Developed category, and develop approximately 86% of the consolidated 2021 year-end PUD reserves by the end of 2024.


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