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Diamondback Energy Second Quarter 2020 Results

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   |    Tuesday,August 04,2020

Diamondback Energy Inc. reported its Q2 2020 results.

Q2 2020 Highlights:

• Generated second quarter cash flow from operating activities of $324 million. Operating Cash Flow Before Working Capital Changes was $390 million

• Q2 2020 cash operating costs of $6.44 per BOE; including cash G&A expenses of $0.41 per BOE and LOE of $3.85 per BOE

• Declared Q2 2020 cash dividend of $0.375 per share payable on August 20, 2020; implies a 3.8% annualized yield based on the July 31, 2020 share closing price of $39.86

• Included in the Company's Q2 2020 results are $2,539 million in impairment charges related to the lower average trailing 12-month commodity pricing. As such, the Company reported a net loss of $2,393 million; adjusted net income of $23 million, or $0.15 per diluted share

• Q2 2020 Consolidated Adjusted EBITDA of $441 million; Adjusted EBITDA net of non-controlling interest of $414 million

• Standalone liquidity of $1.9 billion as of June 30, 2020

• Lowering LOE and G&A unit guidance by a combined $0.35 per BOE at the midpoint of each guidance range, implying estimate of total cash cost savings of over $38 million for full year 2020

• Current drilling and completion costs in the Midland Basin are between $450 and $500 per lateral foot, with an estimated additional $80 to $100 of equip costs per lateral foot

• Current drilling and completion costs in the Delaware Basin are between $650 and $700 per lateral foot, with an estimated additional $100 to $150 of equip costs per lateral foot

• Completed a four well pad in Spanish Trail in 10.5 days, completing approximately 4,000 lateral feet per day using 25% recycled water versus prior completions at 1,500 to 2,000 lateral feet per day

• Using new rotary steerable technology, Diamondback set a Permian Basin record for most footage drilled in a 24 hour period with 8,150 lateral feet drilled in 24 hours

• Reduced flaring as a percentage of net production to 0.3%, down 82% from Q1 2020 and down 84% from 2019

Previously Announced Q2 Highlights:

• Q2 2020 average production of 176.3 MBO/d (294.1 MBOE/d)

• Q2 2020 cash capital expenditures of $562 million; Q2 2020 activity-based capital expenditures incurred of approximately $348 million

• Q2 2020 average realized hedged prices of $35.21 per barrel of oil, $7.17 per barrel of natural gas liquids and $0.33 per Mcf of natural gas, resulting in a total equivalent price of $22.95 per BOE. Diamondback realized total hedging gains of $211 million in the second quarter, including $11 million of realized gains from the early termination of 10.0 MBO/d of Q3 2020 oil hedges

• Q2 2020 average unhedged realized prices of $21.99 per barrel of oil, $7.17 per barrel of natural gas liquids and $0.63 per Mcf of natural gas, resulting in a total equivalent price of $15.39 per BOE

• Drilled 58 gross operated horizontal wells and turned 15 wells to production in the second quarter, with nine wells turned to production in April, six in May and zero in June

• Assuming a continuation of current market conditions, Diamondback plans to operate between five and six operated drilling rigs and between three and four completion crews for the remainder of 2020

CEO Travis Stice said: "Diamondback's operated rig count declined rapidly in the second quarter of 2020, from 20 rigs on March 31 to six rigs today. In response to historically low commodity prices, we made the decision to complete as few wells as possible in the second quarter, with zero wells turned to production in the month of June. We also curtailed 5% of our oil production during the second quarter. This curtailed production has been restored and is now receiving significantly higher realized prices than it would have received when the decision was made to curtail. We have three completion crews working to stem production declines to meet our fourth quarter production target of between 170,000 and 175,000 barrels of oil per day. Diamondback decreased activity levels throughout the second quarter while not spending excessive dollars on early termination fees or other one time' expenses that are headwinds to cash generation. Our cash operating costs declined dramatically in the second quarter, and we expect some of this decrease to become permanent.

"Diamondback is expected to generate significant free cash flow in the second half of 2020 and in 2021 at current forward commodity prices. Under a maintenance capital scenario next year, should that become the base case operating plan, Diamondback can hold expected fourth quarter 2020 oil production flat while spending 25% - 35% less than 2020's capital budget, including lower midstream and infrastructure budgets. We remain focused on returning capital through our quarterly dividend while protecting our balance sheet, and continue to drill, complete and produce barrels with the highest margins at best-in-class capital and operating metrics."

Ops Update

During the second quarter of 2020, Diamondback drilled 37 gross horizontal wells in the Midland Basin and 21 gross horizontal wells in the Delaware Basin. The Company turned ten operated horizontal wells to production in the Midland Basin and five operated horizontal wells in the Delaware Basin. The average lateral length for the wells completed during the second quarter was 11,256 feet. Operated completions during the second quarter consisted of four Wolfcamp A wells, four Lower Spraberry wells, two Wolfcamp B wells, two Middle Spraberry wells, one Second Bone Spring well, one Third Bone Spring well and one Jo Mill well.

In the first half of 2020, the Company drilled 151 gross horizontal wells and turned 95 operated horizontal wells to production. The average lateral length for wells completed during the first six months of 2020 was 9,987 feet, and consisted of 51 Wolfcamp A wells, 11 Wolfcamp B wells, 11 Lower Spraberry wells, eight Middle Spraberry wells, six Second Bone Spring wells, five Third Bone Spring wells and three Jo Mill wells.

Financial Update

Diamondback's second quarter 2020 net loss was $2,393 million, or $15.17 per diluted share. Adjusted net income (a non-GAAP financial measure as defined and reconciled below) was $23 million, or $0.15 per diluted share. Second quarter 2020 net loss includes a non-cash impairment charge of $2.5 billion as a result of the lower SEC Pricing because of the sharp decline in commodity prices.

Second quarter 2020 Consolidated Adjusted EBITDA (as defined and reconciled below) was $441 million. Adjusted EBITDA net of non-controlling interest was $414 million.

Second quarter 2020 average unhedged realized prices were $21.99 per barrel of oil, $0.63 per Mcf of natural gas and $7.17 per barrel of natural gas liquids, resulting in a total equivalent unhedged price of $15.39/BOE.

Diamondback's cash operating costs for the second quarter of 2020 were $6.44 per BOE, including LOE of $3.85 per BOE, cash G&A expenses of $0.41 per BOE and production and ad valorem taxes and gathering and transportation expenses of $2.18 per BOE. Cash operating costs for Q2 2020 were down 24% from $8.52 per BOE in Q1 2020 even with lower production volumes in the second quarter of 2020.

As of June 30, 2020, Diamondback had $30 million in standalone cash and approximately $119 million of outstanding borrowings under its revolving credit facility, with approximately $1.9 billion available for future borrowing under the facility and $1.9 billion of total liquidity.

During the second quarter of 2020, Diamondback spent $456 million on drilling and completion, $50 million on midstream, $32 million on non-operated properties and $24 million on infrastructure, for total capital expenditures of $562 million. In the first half of 2020, the Company spent $1,128 million on drilling and completion, $94 million on midstream, $80 million on infrastructure and $50 million on non-operated properties, for total capital expenditures of $1,352 million.

Dividend

Diamondback announced today that the Company's Board of Directors declared a cash dividend of $0.375 per common share for the second quarter of 2020 payable on August 20, 2020, to stockholders of record at the close of business on August 13, 2020. Future dividends remain subject to review and approval at the discretion of the Company's Board of Directors.

Full Year 2020 Guidance

Below is Diamondback's guidance for the full year 2020. Diamondback narrowed its full year 2020 guidance for LOE to between $4.20 to $4.60 per BOE, cash G&A expense to between $0.50 to $0.70 per BOE, gathering and transportation expense to between $1.25 to $1.35 per BOE and interest expense to $1.75 per BOE.

2024 Development Plan

Category	2023	2024 Est. Initial	Updated 2024 Guidance	%Difference (2023 vs 2024)
Total Capital Expenditure($mm)

Production Daily Equivalent(boe/d)
Production Oil(bbls/d)

 Click here for More Planned 2024 Activity