Summary

• Diamondback Energy Inc. is an independent oil and gas producer company operates business focusing on the acquisition, development, exploration and unconventional, onshore oil and natural gas reserves in the Permian Basin in west Texas.
• The company also owns, operates, develops, and acquires midstream infrastructure assets, including 770 miles of crude oil gathering pipelines, natural gas pipelines, and an integrated water system in the Midland Delaware basin of the Permian Basin. Diamondback Energy Inc. operates its business with two segments, the Upstream segment and the Midstream segment.
• On December 31, 2022, the company experienced growth in sales, with total sales reaching $9,643 million. This marked an increase of $2,846 million or 41.88% compared to the sales figure of $6,797 million in 2021.
• Net profit of the company for the year 2022 was $4,386 million, representing an increase of $2,204 million compared to the net profit of $2,182 million in 2021.
• Diluted earnings per share (EPS) for 2022 were reported as $24.61 which showed an increase of $12.37 compared to the diluted EPS of $12.24 in 2021.  

Brief Company Overview

Diamondback Energy Inc. (NASDAQ; FANG) is an independent oil and gas producer company located in Midland, Texas. The company was founded in 2007 by Travis Stice and W. Permian Resources. The company operates its business focusing on the acquisition, development, exploration and unconventional, onshore oil and natural gas reserves in the Permian Basin in west Texas.  The company also owns, operates, develops, and acquires midstream infrastructure assets, including 770 miles of crude oil gathering pipelines, natural gas pipelines, and an integrated water system in the Midland Delaware basin of the Permian Basin. Diamondback Energy Inc. operates its business with two segments, the Upstream segment and the Midstream segment. The company founded headquarters in Midland, Texas. Mr. Travis D. Stice has served as the Chief Executive Officer of Diamondback Energy Inc. since January 2012. The company had 972 employees on December 31, 2022.

Recent Developments

• In July 2023, Diamondback Energy Inc. completed divestiture of 43% equity ownership in the OMOG crude oil gathering system for gross proceeds of $225 million.¹
• As previously announced in the 3^rd quarter 2023, Diamondback Energy Inc. completed joint venture transaction with Five Point Energy LLC, forming Deep Blue Midland Basin LLC ("Deep Blue"), contributing certain Midland Basin water assets for gross proceeds of $516 million and 30% equity ownership in the new joint venture entity.²

Recent Financing Activities

• In the second quarter of 2023, Repurchased $130 million in aggregate principal amount across Diamondback's 2026 and 2029 Senior Notes at an average cost of 95.5% of par (~$124 million)
• On September 15, 2021, Diamondback's Board of Directors authorized the company to acquire up to $2.0 billion of common stock, later increased to $4.0 billion on July 28, 2022. In the second quarter of 2023, Diamondback repurchased 2,427,880 shares at an average price of $132.21, costing around $321 million. Cumulatively, the company has repurchased 18,176,932 shares at an average price of $122.99, totaling approximately $2.2 billion.³
• During the third quarter of 2023, Diamondback repurchased 406,700 shares of common stock at an average share price of $136.59 for a total cost of approximately $56 million, excluding excise tax. To date, Diamondback has repurchased 18,403,732 shares of common stock at an average share price of $123.28 for a total cost of approximately $2.3 billion and has approximately $1.7 billion remaining on its current share buyback authorization.

Q3 2023 Performance overview of Diamondback Energy Inc.

On November 6, 2023; The Company reported its third quarter financial and operating results ended September 30, 2023. Quarterly earnings per share (EPS) of $5.07, down 24.55% from 2022. All earnings per share figures refer to diluted EPS. Total revenue of $2,340 million was 3.98% lower than previous year. The company reported a net income of $915 million, or $5.07 per diluted share, and an average production of 266.1 MBO/d. The net cash provided by operating activities was $1400 million, with cash capital expenditures amounting to $684 million. The company reported a Free Cash Flow of $820 million and an Adjusted Free Cash Flow of $884 million. The company declared a Q3 2023 base cash dividend of $0.84 per share and a variable cash dividend of $2.53 per share, payable on November 24, 2023. This implies an 8.3% annualized yield based on the November 3, 2023 closing share price of $162.10. Third quarter operating income was $1,340 million a 16.18% decline year over year. Diamondback Energy gross profit for the quarter ending September 30, 2023 was $2,041 million a 6.5% decline year-over-year.

The Company's third quarter 2023 net interest expense was $41 million, compared with $43 million last year, reflecting a decrease in interest income, partially offset by higher debt levels and the impact of higher floating interest rates on interest rate swaps. The Company declared dividends per share $3.37 million in the third quarter, compared with $2.26 million last year, reflecting a 49.1% increase in the dividend per share.

Annual Performance Highlights

During the fiscal ended December 31, 2022, the company experienced growth in sales, with total sales reaching $9,643 million. This marked an increase of $2,846 million or 41.88% compared to the sales figure of $6,797 million in 2021. The company's gross profit for 2022 amounted to $8,733 million, reflecting a difference of $2,713 million or 45.1% from the gross profit of $6,020 million in the previous year, 2021. Additionally, the company's operating profit increased in 2022, totaling $6,508 million, which was higher by $2,507 million or 62.6% compared to the operating profit of $4,001 million in 2021. The net profit for the year 2022 was $4,386 million, representing an increase of $2,204 million compared to the net profit of $2,182 million in 2021. Moreover, the diluted earnings per share (EPS) for 2022 were reported as $24.61 which showed an increase of $12.37 compared to the diluted EPS of $12.24 in 2021. Current asset of the company was $1,392 million in 2022 and $1,446 million a year earlier. The total asset of the company was $26,209 million in 2022 and $22,898 million a year earlier. Current liabilities of the company were $1,716 million and $1,438 million a year earlier. In 2022, total liabilities of the company were $10,519 million and $9,653 million in 2021. 

Cash provided by operating activities in 2022 was $6,325 million. The primary sources of cash from operating activities were from higher operating income as well as effective working capital management, partially offset by interest payments. The primary sources of cash from operating activities were collections on accounts receivables, partially offset by interest payments. Net cash used in investing activities was $3,300 million compared to $1,500 million for the years ended December 31, 2022 and 2021, respectively. The majority net cash used for investing activities during the year ended December 31, 2022 was for the purchase and development of oil and natural gas properties and related assets, including the FireBird Acquisition.

Cash used in investing activities in 2022 was $3,330 million. The primary uses of cash from investing activities were of $1,854 million; partially offset by proceeds from the addition to midstream assets of $84 million. Cash used in financing activities in 2022 was $3,503 million.

Business Overview

Diamondback Energy, Inc. is an independent oil and natural gas company focused on the acquisition, development, exploration and exploitation of unconventional, onshore oil and natural gas reserves in the Permian Basin in West Texas. It reports operations in one reportable segment, the upstream segment. Prior to the Rattler Merger, both the upstream operations segment and the midstream operations segment were considered separate reportable segments. Following the Rattler Merger, the Company determined only the upstream operations segment met the quantitative requirements of a reportable segment.

The upstream segment in the oil and gas industry encompasses the initial phases of the extraction process, involving the exploration, drilling, and production of crude oil and natural gas. This sector begins with geological surveys and seismic exploration to identify potential reserves. Subsequently, exploration and production (E&P) companies engage in drilling exploratory wells and operating production wells to extract raw materials from the earth. The upstream segment plays a pivotal role in the industry's supply chain, as it focuses on the fundamental tasks of discovering and extracting hydrocarbons, forming the foundational stage in the journey from resource identification to energy production.

Major operational area

The Permian Basin area covers a significant portion of western Texas and eastern New Mexico and is considered one of the major producingbasins in the United States. As of December 31, 2022, total acreage position in the Permian Basin was approximately 615,348 gross (508,767 net) acres, which consisted primarily of 371,915 gross (325,540 net) acres in the Midland Basin and 201,624 gross (150,719 net) acres in the Delaware Basin.

Midland Basin: The Midland Basin constitutes a substantial portion of the company's operations in the Permian Basin, with a noteworthy 2,310 horizontal wells as of December 31, 2022. This basin, known for its prolific hydrocarbon resources, plays a pivotal role in the company's overall production portfolio. The extensive number of horizontal wells in the Midland Basin reflects the company's strategic focus on harnessing the region's potential for hydrocarbon extraction and underscores their commitment to maximizing production efficiency in this particular geological formation.

Delaware Basin: In the Delaware Basin, the company boasts 891 horizontal wells, showcasing a significant presence in this region of the Permian Basin. The Delaware Basin, characterized by its complex and stacked reservoirs, presents unique challenges and opportunities for oil and gas exploration. The company's substantial investment in horizontal wells in the Delaware Basin signifies a strategic commitment to unlocking the region's hydrocarbon potential. By leveraging their expertise in horizontal drilling and reservoir management, the company aims to capitalize on the rich geological formations in the Delaware Basin, contributing to their overall production and resource development objectives.

Upstream Operations

Diamondback Energy, a prominent player in the oil and gas industry, has demonstrated robust performance in its upstream operations. The company's production activities span key basins, with a significant focus on the Midland Basin, Delaware Basin, and other regions.

Production Data by Basin:

Midland Basin: The Midland Basin emerges as the primary contributor to Diamondback Energy's upstream production, accounting for the majority of oil, natural gas, natural gas liquids, and total production. The robust figures in the Midland Basin underscore the company's strategic focus and operational strength in this prolific region.

Delaware Basin: The Delaware Basin also demonstrates substantial production figures, with noteworthy contributions to oil, natural gas, natural gas liquids, and total production. Diamondback Energy's operations in the Delaware Basin add diversification to its portfolio, capitalizing on the unique characteristics of this basin.

Other Basins Contribution: While production in the "Other" category is comparatively modest, it reflects the company's presence in additional basins. This diversification strategy ensures a balanced and resilient portfolio, mitigating risks associated with dependence on a single region.

Comprehensive Total Production: Diamondback Energy's total production for the year reached an impressive 140,892 MBOE. This comprehensive output showcases the company's efficiency in extracting and delivering oil, natural gas, and natural gas liquids across its operational basins.

Revenue Stream

Diamondback Energy experienced a substantial increase in total revenues for the year ended December 31, 2022, reflecting the company's robust performance in the energy sector. The total revenue amounted to $9.566 billion, marking a noteworthy surge from the previous year's figure of $6.747 billion. This revenue growth can be attributed to increased sales across various segments, with oil sales leading the way.

Oil Sales

Oil sales constituted the largest share of the revenue, totaling $7.66 billion in 2022, a significant increase from $5.396 billion in the previous year. This surge can be attributed to favorable market conditions, increased production, and potentially higher realized prices for crude oil during the period. Oil sales accounted for approximately 80% of the total revenue, emphasizing the significant role of crude oil in Diamondback Energy's revenue stream. The oil segment was the primary revenue driver, contributing the majority of the total revenue. The substantial increase in oil sales underscored the company's effective exploration, production, and marketing strategies in the oil sector.

Natural Gas Sales

Revenue from natural gas sales reached $858 million in 2022, up from $569 million in 2021. This increase reflects the company's effective monetization of natural gas resources amidst evolving market dynamics and sustained demand. Natural gas sales contributed approximately 9% to the total revenue, reflecting a meaningful but smaller share compared to oil. The natural gas segment, while smaller in percentage, demonstrated meaningful growth, contributing to the overall revenue increase. This indicates Diamondback Energy's ability to optimize the value of its natural gas resources.

Natural Gas Liquid (NGL) Sales

NGL sales contributed $1.048 billion to the total revenue in 2022, compared to $782 million in 2021. This growth underscores the company's success in extracting and marketing natural gas liquids, which often accompany oil and natural gas production. NGL sales represented approximately 11% of the total revenue, showcasing the importance of diversification across hydrocarbon products. The NGL segment, with a double-digit percentage contribution, played a crucial role in the revenue surge. Diamondback Energy's success in extracting and monetizing natural gas liquids further diversified its revenue streams.

Other Business Information

Though the company report upstream as only reportable segment but the entity possesses and operates an extensive midstream infrastructure, encompassing 770 miles of crude oil gathering pipelines and an integrated water system strategically located across nine core development areas in the Midland and Delaware Basins. The crude oil infrastructure, inclusive of gathering pipelines and metering facilities, facilitates the collection of crude oil from horizontal and vertical wells within key Permian Basin regions such as ReWard, Spanish Trail, Pecos, and Fivestones. Their water sourcing and distribution assets, comprising water wells, frac pits, pipelines, and water treatment facilities, efficiently gather and distribute water from Permian Basin aquifers to drilling and completion sites via buried and temporary surface pipelines. Additionally, as of the same date, the entity holds interests in diverse midstream investments, including equity stakes in EPIC Crude Holdings LP and OMOG JV LLC, as well as past holdings in Gray Oak Pipeline, LLC. These investments collectively contribute to the transportation, storage, and processing of crude oil and natural gas liquids across various strategic routes and locations.

Company History

Diamondback Energy Inc. (NASDAQ; FANG) is an independent oil and gas producer company located in Midland, Texas. The company was founded in 2007 by Travis Stice and W. Permian Resources. The company started its business with the acquisition of 4,174 net acres in the Permian Basin. The company primarily focuses on the acquisition, development, exploration and exploitation of unconventional, onshore oil and natural gas reserves in the Permian Basin in West Texas. In 2012, Diamondback Energy Inc. (FANG) went public on the NASDAQ stock exchange under the ticker symbol FANG. The company’s initial public offering (IPO) was priced at $17 million in net proceeds. At the time estimated total proven reserves of approximately 28,000 net acres in the Permian Basin, with estimated total proven reserves of approximately 19.4 million barrels of oil equivalent (BOE). In March 2017, the company acquired assets from Brigham Resources for $255 million. In October 2018, the company acquired the assets of Ajax Resources for $1.25 billion.  In November 2018, the company acquired Energen Corporation for approximately $920 million, adding approximately 180000 net acres in the Permian basin and increasing its estimated total proved reserved to approximately 992 million BOE.

In February 2021, the company acquired leasehold interests and assets from Guidon Resources for $375 million in cash and 10.68 million shares. In 2020, the company produced an average of 287,200 BOE per day, with approximately 70% of production being crude oil. In March 2021, the company acquired QEP Resources and became one of the largest oil and natural gas producer in the Permian Basin over the year. A 2023 Bloomberg news story identified the company, as well as Permian Resources, as major contributors to the increase of flaring gas in the Permian oil field. At December 31, 2022, the company’s total acreage position in the Permian Basin was approximately 615,348 gross (508,767 net) acres, which consisted primarily of 371,915 gross (325,540 net) acres in the Midland Basin and 201,624 gross (150,719 net) acres in the Delaware Basin. As of December 31, 2022, the company’s estimated proved oil and natural gas reserves were 2,032,971 MBOE (which includes estimated reserves of 148,900 MBOE attributable to the mineral interests owned by Viper). Of these reserves, approximately 69% are classified as proved developed producing. Proved undeveloped, or PUD, reserves included in this estimate are from 703 gross (650 net) horizontal well locations in which the company has a working interest, and 15 horizontal wells in which it owns only a mineral interest through Viper. As of December 31, 2022, the company’s estimated proved reserves were approximately 53% oil, 23% natural gas and 24% natural gas liquids.

References

1. ^ https://www.ogj.com/pipelines-transportation/pipelines/article/14297349/plains-adds-permian-basin-gathering-interests-sanctions-canadian-expansion-project
2. ^ https://www.energy-pedia.com/news/usa/diamondback-energy-and-five-point-energy-form-deep-blue-midland-basin-llc-192628
3. ^ https://www.investing.com/news/diamondback-energy-increases-share-buyback-to-4b-reports-q2-results-432SI-2859715