Diamondback Energy, Inc. FANG is considering selling its West Permian Basin non-core assets, per recent news. This comes as a surprise to many in the industry as Diamondback, a leading independent oil and gas exploration and production company in the United States, has been a major player in the West Texas oil and gas scene for some time.
The Permian Basin is one of the most prolific oil-producing regions in the United States. It spans across West Texas and southeastern New Mexico, and covers approximately 86,000 square miles. The West Permian Basin is a sub-basin of the larger Permian Basin, and is situated in the western part of the region.
Diamondback has been actively involved in the exploration and production of oil and natural gas in the Permian Basin since its inception in 2007. The company has built a significant presence in the region and developed a diverse portfolio of assets across multiple zones, including the Wolfcamp and Spraberry formations.
The potential sale of Diamondback's West Permian Basin assets can have significant implications for the company and the wider industry. Let’s explore the reasons behind the probable sale.
Reasons Behind the Potential Sale
There are several reasons why Diamondback may be considering the sale of its West Permian Basin assets. The company's focus on optimizing its portfolio and improving its capital efficiency is one of the key reasons.
In recent years, the Permian Basin has experienced a significant increase in production, resulting in a surplus of supply. This oversupply has led to a decline in oil and natural gas prices, making it challenging for companies to generate sufficient returns on their investments. As a result, companies are focusing on optimizing their portfolios and divesting non-core assets to improve their overall capital efficiency.
Diamondback's West Permian Basin assets may not be considered core to the company's long-term growth strategy. By divesting these assets, the company can generate significant cash proceeds, which can be used to invest in other core assets or to return capital to shareholders.
Zacks Rank and Stocks to Consider
Diamondback is a Texas-based company that focuses on the acquisition, development, exploration and production of oil and natural gas reserves in the United States. The company has a strong presence in the Permian Basin, which is one of the largest and most productive oil and gas regions in the world. Diamondback has a diverse portfolio of assets in the region, including the Midland Basin and the Delaware Basin.
Currently, Diamondback carries a Zacks Rank #5 (Strong Sell). Investors interested in the energy sector can consider better-ranked stocks like NGL Energy Partners NGL, currentlysporting a Zacks Rank #1 (Strong Buy), and Liberty Energy LBRT and Ranger Energy Services RNGR, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
NGL Energy is worth $420.23 million. The company’s shares have gained 19.5% in the past year.
NGL is a limited partnership company that operates a vertically-integrated propane business with three segments — retail propane, wholesale supply and marketing, and midstream.
Liberty Energy is valued at $2.40 billion. The company delivered an average earnings surprise of 81.53% for the last four quarters and its current dividend yield is 1.55%.
LBRT currently has a forward P/E ratio of 3.76. In comparison, its industry has an average forward P/E of 11.60, which suggests that the company is trading at a discount to the group.
Ranger Energy is valued at $242.99 million. In the past year, the company’s shares have fallen 4.7%.
RNGR currently has a forward P/E ratio of 5.30. In comparison, its industry has an average forward P/E of 11.60, which indicates that the company is trading at a discount to the group.
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