Quarterly / Earnings Reports | First Quarter (1Q) Update | Financial Results | Hedging | Capital Markets | Capital Expenditure | Drilling Activity | Capex Decrease | Capital Expenditure - 2020

Diamondback Reports First Quarter 2020 Results

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Diamondback Energy, Inc. reported its Q1 2020 results.

Q1 Highlights

• Q1 2020 average production of 201.4 MBO/d (321.1 MBOE/d), with average oil production up 3% over Q4 2019 and up 12% over Q1 2019
• Q1 2020 net loss of $272 million; adjusted net income (as defined and reconciled below) of $230 million, or $1.45 per diluted share
• Q1 2020 Consolidated Adjusted EBITDA (as defined and reconciled below) of $713 million; adjusted EBITDA net of non-controlling interest of $670 million
• Q1 2020 capital expenditures of $790 million; turned 80 gross operated horizontal wells to production
• Declared Q1 2020 cash dividend of $0.375 per share payable on May 21, 2020; implies a 3.7% annualized yield based on the May 1, 2020 share closing price of $40.28
• Standalone liquidity of $1.9 billion as of March 31, 2020
• Q1 2020 cash operating costs of $8.52 per BOE; including cash general and administrative ("G&A") expenses of $0.51 per BOE

Response to Price Volatility

• Immediately ceased all completion operations in early March 2020 for minimum of one month
• Hedged ~100% of expected 2020 oil production, including basis differentials and a majority of WTI contract roll exposure; removed all three way collar hedge exposure to maximize downside protection
• Hedged approximately 50% of expected 2021 oil production in the form of swaps and two way collars
• The Company plans to voluntarily curtail 10 - 15% of expected May 2020 oil production in areas where the Company can manage production economically and without the addition of material operating expense. Diamondback will continue to monitor whether additional strategic curtailments are warranted in June and beyond
• Immediately reduced full year 2020 capital budget by over 40%, with run rate activity based capital spend 60% below original 2020 expectations
• Plans to average less than one completion crew in Q2 2020 to meet leasehold obligations, and will assess bringing completion crews back to work in Q3 2020 depending on commodity prices
• Expects to complete less than 10% of its estimated full year 2020 completed gross well count in Q2 2020
• Currently operating 14 drilling rigs, plans to enter Q3 2020 running eight drilling rigs and enter Q4 2020 running seven drilling rigs with the ability to reduce the rig count further should conditions warrant in Q4 2020 and into 2021
• Reduced operating costs by increasing water infrastructure efficiencies and reducing trucking costs
• Reduced flaring to less than 0.5% of net production exiting Q1 2020 from over 1.5% of net production in January 2020

CEO Travis Stice said: "First of all, and most importantly, our thoughts and prayers go out to all of those affected by the COVID-19 pandemic. The challenges presented so far in 2020 are unprecedented, but we have taken quick and decisive action to preserve our strength through this cycle.

"When commodity prices fell in March, Diamondback responded by ceasing all completion activity and immediately restructured our hedge book to maximize downside protection through 2020 and a portion of 2021. We then worked to reduce our forward capital budget and cost structure while high-grading our operating plan to acreage with the highest returns where we own mineral and royalty interests and have little required midstream or infrastructure spend. By the end of the second quarter, our rig count will be cut in half from the beginning of the year, and we will have a high quality DUC backlog for our future return to completion activity. Diamondback is prepared to operate in a lower-for-longer oil price environment, and our cost structure will prove to be a differentiator through this downturn. Low interest expense, low leverage, industry-leading low cash G&A, a full hedge book, strong midstream contracts and the benefits of Viper Energy Partners LP and Rattler Midstream LP will allow Diamondback to operate effectively through these uncertain times.

"Diamondback is prepared to preserve our strength through this cycle and protect our stockholders' investment. Our industry, through the free market, has responded as quickly as ever to this unprecedented global demand shock without the need for regulatory intervention. Diamondback is choosing to curtail production in May because of economics, which should be the baseline for decisions on whether or not to produce barrels. The addition of regulatory uncertainty to operators in the state of Texas is a distraction to managing the social and economic crisis we are all currently facing."

Ops Update

Diamondback's Q1 2020 production averaged 321.1 MBOE/d (201.4 MBO/d), up 7% quarter over quarter from 301.3 MBOE/d in Q4 2019, and up 22% year over year from 262.6 MBOE/d in Q1 2019. Diamondback's Q1 2020 average oil production increased 3% quarter over quarter from 195.0 MBO/d in Q4 2019 and increased 12% year over year from 179.1 MBO/d in Q1 2019.

During the first quarter of 2020, Diamondback drilled 55 gross horizontal wells in the Midland Basin and 38 gross horizontal wells in the Delaware Basin. The Company turned 34 operated horizontal wells to production in the Midland Basin and 46 operated horizontal wells in the Delaware Basin. The average lateral length for the wells completed during the first quarter was 9,751 feet. Operated completions during the first quarter consisted of 47 Wolfcamp A wells, nine Wolfcamp B wells, seven Lower Spraberry wells, six Middle Spraberry wells, five Second Bone Spring wells, four Third Bone Spring wells and two Jo Mill wells.

Financials

Diamondback's first quarter 2020 net loss was $272 million, or $1.72 per diluted share. Adjusted net income (a non-GAAP financial measure as defined and reconciled below) was $230 million, or $1.45 per diluted share, down 25% from $1.93 in Q4 2019 and up 4% from $1.39 in Q1 2019. First quarter 2020 net loss includes a non-cash impairment charge of $1 billion as a result of the sharp decline in commodity prices.

First quarter 2020 Adjusted EBITDA net of non-controlling interest (as defined and reconciled below) was $670 million, down 19% from $827 million in Q4 2019 and up 3% from $651 million in Q1 2019.

First quarter 2020 average unhedged realized prices were $45.10 per barrel of oil, $0.14 per Mcf of natural gas and $9.45 per barrel of natural gas liquids, resulting in a total equivalent unhedged price of $30.23/BOE.

Diamondback's cash operating costs for the first quarter of 2020 were $8.52 per BOE, including lease operating expenses ("LOE") of $4.35 per BOE, cash G&A expenses of $0.51 per BOE and production and ad valorem taxes and gathering and transportation expenses of $3.66 per BOE.

As of March 31, 2020, Diamondback had $93 million in standalone cash and approximately $199 million of outstanding borrowings under its revolving credit facility, with approximately $1.8 billion available for future borrowing under the facility and $1.9 billion of total liquidity. To preserve liquidity, the Company has suspended its previously announced share repurchase program.

During the first quarter of 2020, Diamondback spent $672 million on drilling and completion, $18 million on non-operated properties, $56 million on infrastructure and $44 million on midstream, for total capital expenditures of $790 million.

The Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") was enacted on March 27, 2020. This legislation included a number of provisions applicable to U.S. income taxes for corporations, including providing for carryback of certain net operating losses, accelerated refund of minimum tax credits, and modifications to the rules limiting the deductibility of business interest expense. The Company has considered the impact of this legislation in the period of enactment, resulting in discrete income tax benefit for the three months ended March 31, 2020 related to the anticipated carryback of approximately $179 million of the Company's federal net operating losses as noted above. As a result of the refund associated with such carryback as well as the accelerated refund available for minimum tax credits, the Company's current federal taxes receivable total approximately $101 million as of March 31, 2020.