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Diamondback (FANG) Q1 Earnings Beat, Unveils $2B Buyback

Nilanjan Choudhury

Diamondback Energy, Inc. FANG reported first-quarter adjusted net income per share of $1.39, above the Zacks Consensus Estimate of $1.36 on strong production. In more good news for investors, the energy explorer unveiled a new $2 billion share repurchase scheme through year-end 2020. Further, following up on its earlier announcement, the company raised its quarterly dividend by 50% to 18.75 cents per share (or 75 cents per share annualized).

However, the bottom line fell from the comparable 2018 period profit of $1.64 on lower realized prices. The Permian pure play’s total revenues of $864 million came below the Zacks Consensus Estimate of $875 million but increased more than 80% year over year.

The company saw its first-quarter adjusted EBITDA of $651 million increase 91% from $341 million a year ago.

Diamondback Energy, Inc. Price, Consensus and EPS Surprise

 

Diamondback Energy, Inc. Price, Consensus and EPS Surprise

Diamondback Energy, Inc. price-consensus-eps-surprise-chart | Diamondback Energy, Inc. Quote

Production & Realized Prices

The production of oil and natural gas averaged 262.6 MBOE/d (68% oil), up 156% from last year and slightly ahead of the Zacks Consensus Estimate of 261.8 MBOE/d. Diamondback’s oil production surged 137% year over year, while natural gas volumes more than tripled. The 2018 purchases of Energen Corporation and Ajax Resources has transformed Diamondback into one of the leading Permian Basin oil producers.

The average realized crude oil price during the first quarter was $46.12 per barrel, representing a decrease of 25.2% from the year-ago realization of $61.64. Moreover, the average realized natural gas price during the March quarter of 2019 was $1.32 per thousand cubic feet (Mcf), down 39.4% from the year-ago period. Overall, the company fetched $35.63 per barrel compared with $50.52 a year ago.

Expenses

First-quarter cash operating cost was $8 per barrel of oil equivalent (BOE), down from $8.38 per BOE in last year’s corresponding period. Diamondback’s cash G&A expense came in at 55 cents, falling from 96 cents incurred in the first quarter of 2018. However, lease operating expense of $4.61 was up 14.1% year over year. Meanwhile, production taxes fell 21.3% to $2.33 per BOE. The company shelled out $533 million on drilling, completion and non-operated properties, while infrastructure and midstream budget was $94 million.

Financial Position

As of Mar 31, 2019, the Permian-focused operator had $126 million in cash and cash equivalents, while having long-term debt of $4.7 billion. At the end of the quarter, Diamondback, which also has other oil and gas-related operations through Viper Energy Partners L.P. (VNOM), had $1.9 billion undrawn credit facility.

Lowers Full-year Production, LOE Guidance

The company disclosed that it agreed to sell non-core Permian assets (some of it acquired during the Energen transaction) worth $322 million during the quarter. The sale – expected to be complete by Jul 1 – prompted Diamondback to revise its guidance for 2019.

The company is now forecasting full-year output range of 272-287 MBOE/d, of which 68-70% is oil. The earlier prediction was for production between 275 MBOE/d and 299 MBOE/d. Further, management lowered this year’s lease operating expense guidance to $4.25-$4.75 per BOE as against $4.50-$5 before. 

Zacks Rank & Stock Picks

Diamondback Energy holds a Zacks Rank #3 (Hold).

Meanwhile, investors interested in the energy space could look at some better options like ProPetro Holding Corp. PUMP, Continental Resources, Inc. CLR and Apache Corporation APA that sport a Zacks Rank #2 (Buy).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The 2019 Zacks Consensus Estimate for Midland, TX-based ProPetro is $2.53, representing some 26.5% earnings per share growth over 2018. Next year’s average forecast is $2.80 pointing to another 10.5% growth.

Over 30 days, the Oklahoma City-based Continental Resources has seen the Zacks Consensus Estimate for 2019 and 2020 increase 25.6% and 17.9%, to $2.80 and $3.49 per share, respectively.

Apache has a 100% track of outperforming estimates over the last four quarters at an average rate of 31.1%.

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