Quarterly / Earnings Reports | Second Quarter (2Q) Update

Diamondback Energy Reports Q2 2019 Results

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Diamondback Energy, Inc. reported its Q2 2019 results.

Highlights:

• Updated 2019 CAPEX guidance of $2.725 - $2.950 billion, narrowed from $2.7 - $3.0 billion previously; expect to complete between 300 and 320 operated horizontal wells, up from 290 to 320 wells previously
• Q2 2019 net income of $349 million, or $2.11 per diluted share; adjusted net income (as defined and reconciled below) of $280 million, or $1.70 per diluted share
• Q2 2019 production of 280.4 Mboe/d (68% oil), up 7% over Q1 2019 and 149% over Q2 2018
• Updated 2019 production guidance of 277.0 - 284.0 Mboe/d, narrowed from prior guidance of 272.0 - 287.0 Mboe/d; implies 26% annualized production growth at the midpoint from 2018 combined volumes
• Second quarter capital expenditures of $721 million; turned 69 wells to production
• Repurchased 1,016,000 shares in Q2 2019 for ~$104 million; represents 5.2% of Board approved program for up to $2.0 billion of stock repurchases through December 31, 2020
• Received $720 million in net cash proceeds upon the closing of subsidiary Rattler Midstream LP's (NASDAQ: RTLR) ("Rattler") initial public offering of 43.7 million units in May 2019
• Closed divestiture of conventional Permian assets acquired from Energen on July 1, 2019; closed another previously announced divestiture of non-core Southern Midland Basin assets in Q2 2019
• As previously announced, divesting 5,090 net royalty acres in the Permian Basin through a drop down transaction ("Drop Down") to subsidiary Viper Energy Partners LP (NASDAQ: VNOM) ("Viper"), for 18.3 million Class B units of Viper, an equal number of common units in Viper's operating subsidiary and $150 million in cash; the Drop Down, with an aggregate value of $700 million, is expected to close in Q4 2019, subject to continued diligence and closing conditions
• Company expects unhedged oil price realizations of 95% or greater of WTI for the second half of 2019, based on existing firm transportation agreements and current commodity prices

"In the second quarter of 2019, Diamondback continued to execute on its disciplined 2019 capital plan, delivering record EBITDA per share from 7% sequential production growth. Our per lateral foot well costs, which include every dollar spent bringing our operated wells to production, and the six months of production costs thereafter, are down 7% year over year from Q2 2018 in the Midland Basin and 16% in the Delaware Basin. As such, we are narrowing the midpoint of our 2019 capital budget and increasing the midpoint of our operated completions, which implies over $110 per completed lateral foot of improved capital efficiency versus our initial budget presented in December. Based on existing contracts in place and current commodity prices, we expect to realize 95% or greater of WTI for the second half of 2019, putting our widest oil basis differential quarters behind us. By early next year, we expect to realize oil prices at parity with or greater than WTI, which we believe, combined with our track record of cost leadership, will fuel free cash flow per share growth well in excess of our future production growth," stated Travis Stice, Chief Executive Officer of Diamondback.

Mr. Stice continued, "Following the successful initial public offering of Rattler Midstream in late May, Diamondback immediately commenced the next phase in our previously announced return of capital program. Through the end of the second quarter, Diamondback repurchased approximately $104 million of stock while reducing its consolidated net debt by $400 million relative to the prior quarter. On July 1, 2019, we closed the previously announced divestiture of conventional Permian assets acquired in the Energen acquisition, and expect to close the recently announced Drop Down sale of mineral assets to Viper in the fourth quarter of 2019. We intend to use proceeds from both transactions, along with increasing free cash flow from operations, for debt reduction and continuing our stock repurchase program, as we also work to strengthen our balance sheet and deliver industry leading per share metrics and growth. Diamondback has now completed every major strategic objective and exceeded our stated synergies presented one year ago when we announced the Energen acquisition. Our capital efficiency continues to improve with our post-close well costs now significantly below Diamondback standalone well costs in the second quarter of 2018, all while doubling the size of our team over the last year."

Operations Update

Diamondback's Q2 2019 production averaged 280.4 Mboe/d (68% oil), up 149% year over year from 112.6 Mboe/d in Q2 2018, and up 7% quarter over quarter from 262.6 Mboe/d in Q1 2019.

During the second quarter of 2019, Diamondback drilled 89 gross horizontal wells and turned 69 operated horizontal wells to production. The average lateral length for the wells completed during the second quarter was 9,833 feet. Operated completions during the second quarter consisted of 45 Wolfcamp A wells, 10 Lower Spraberry wells, six Wolfcamp B wells, three Middle Spraberry wells, two Jo Mill wells, two Second Bone Springs wells and one Third Bone Springs well.

In the first half of 2019, the Company drilled 172 gross horizontal wells and turned 151 operated horizontal wells to production. The average lateral length for wells completed during the first six months of 2019 was 9,733 feet, and consisted of 84 Wolfcamp A wells, 33 Lower Spraberry wells, 18 Wolfcamp B wells, five Middle Spraberry wells, five Second Bone Springs wells, four Third Bone Springs wells and two Jo Mill wells.

Financial Highlights

Diamondback's second quarter 2019 net income was $349 million, or $2.11 per diluted share. Adjusted net income (a non-GAAP financial measure as defined and reconciled below) was $280 million, or $1.70 per diluted share, up 22% from $1.39 in Q1 2019 and up 7% from $1.59 in Q2 2018

Second quarter 2019 Adjusted EBITDA (as defined and reconciled below) was $772 million, up 19% from $651 million in Q1 2019 and up 109% from $370 million in Q2 2018.

Second quarter 2019 average realized prices were $54.41 per barrel of oil, $(0.41) per Mcf of natural gas and $13.60 per barrel of natural gas liquids, resulting in a total equivalent unhedged price of $39.19/boe. As previously indicated, Diamondback expects realized prices to improve through the remainder of 2019 and 2020 as fixed differential contracts roll off and convert to our commitments on the EPIC and Gray Oak pipelines or move to the current Midland market price. Based on current market differentials and estimated in-basin gathering costs, Diamondback expects to realize 95% or greater of WTI for the second half of 2019 and 100% or greater of WTI in 2020, all including the effect of current basis hedges, firm transportation agreements and in-basin gathering costs.

Diamondback's cash operating costs for the second quarter of 2019 were $8.67 per boe, including LOE of $4.98 per boe, cash G&A expenses of $0.51 per boe and taxes and transportation of $3.18 per boe.

As of June 30, 2019, Diamondback had $310 million in standalone cash and approximately $1.6 billion of outstanding borrowings under its revolving credit facility. In connection with its Spring 2019 redetermination, which closed in June, the borrowing base under Diamondback's credit facility increased to $3.4 billion from $2.65 billion, with the Company's aggregate elected commitment amount unchanged at $2.5 billion. This borrowing base excludes the value of reserves held by Energen, whose final borrowing base prior to closing the merger with Diamondback was $2.15 billion. As part of this redetermination, the Company added "fall away" provisions, which would make the Company's revolving credit facility unsecured in the event the Company receives an investment grade rating from either S&P or Moody's, along with its current investment grade rating at Fitch.

During the second quarter of 2019, Diamondback spent $579 million on drilling and completion, $42 million on non-operated properties, $47 million on infrastructure and $53 million on midstream, for total capital expenditures of $721 million. In the first half of 2019, the Company spent $1,100 million on drilling and completion, $55 million on non-operated properties, $83 million on infrastructure and $111 million on midstream, for total capital expenditures of $1,349 million.

Capital Return Program

Diamondback announced today that the Company's Board of Directors declared a cash dividend for the second quarter of 18.75 cents per common share payable on August 26, 2019, to stockholders of record at the close of business on August 16, 2019.

In May 2019, Diamondback's Board of Directors authorized the Company to acquire up to $2.0 billion of common stock through December 31, 2020. During the second quarter of 2019, Diamondback repurchased 1,016,000 shares of common stock for approximately $104 million.

The repurchase program is authorized to extend through December 31, 2020, and the Company intends to purchase stock under the repurchase program opportunistically with funds from cash generated from operations and liquidity events such as the sale of assets. This repurchase program may be suspended from time to time, modified, extended or discontinued by the Board of Directors 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, contractual obligations and other factors. Any stock purchased as part of this program will be retired and made available for future issuances by the Company.

Full Year 2019 Guidance

Diamondback is narrowing its full year 2019 guidance for average daily production to between 277.0 to 284.0 Mboe/d, up slightly at the midpoint from prior guidance of 272.0 to 287.0 Mboe/d. As a result of continued cost reductions and capital efficiency improvements, the Company expects full year 2019 CAPEX between $2.725 - $2.950 billion, down slightly at the midpoint from $2.7 - $3.0 billion previously, and is lowering Midland Basin well costs to between $730 - $760 per foot, down from $740 - $780 per foot previously. Diamondback now expects to complete 300 - 320 gross operated horizontal wells in 2019, up 2% from the midpoint of prior guidance of 290 - 320 wells. Finally, the Company is lowering guidance for cash G&A expense to under $0.75/boe, down from under $1.00/boe previously.

(a) Includes production taxes of 4.6% for crude oil and 7.5% for natural gas and NGLs and ad valorem taxes.