Letter to Stockholders Issued by Diamondback Energy, Inc.
01 Maio 2023 - 5:02PM
Diamondback Stockholders,
This letter is meant to be a supplement to our
earnings release and is being furnished to the Securities and
Exchange Commission (SEC) and released to our stockholders
simultaneously with our earnings release. The intent of this new
form of communication is to increase transparency with our
stockholders and add additional color as to how management is
thinking about the business outside of the numbers presented in the
earnings release. Instead of beginning tomorrow morning’s earnings
call with prepared remarks, we will instead move straight to
Q&A. I hope you enjoy this new form of stockholder
communication. Please see the information regarding forward-looking
statements and non-GAAP financial information included at the end
of this letter.
Production:Diamondback
continued to execute in the first quarter, with oil production near
the high end of our first quarter guidance and total production
above the high end of our guidance. Production is expected to
continue to increase in the second quarter as we will have a full
quarter of contribution from our Lario acquisition in our numbers,
as well as some expected organic growth. This trend is expected to
continue through 2023 as we bring on large pads with high net
revenue interest in our core development areas in the Northern
Midland Basin. Therefore, we are guiding to second quarter
production of 258 - 261 MBO/d (430 - 436 MBOE/d), and
remain confident in our full year production projection of
256 - 262 MBO/d (430 - 440 MBOE/d).
Oil realizations were slightly lower than prior
quarters at 96% of WTI, as WTI declined in the quarter and we had
one-time true up payments for our Brent-linked marketing contracts.
We still expect to realize at least 95% of WTI when WTI is at least
$65 per barrel, with some quarters above that number. Gas
realizations were also weaker than expected and hit by one-time
items, but we expect unhedged realizations to normalize around Waha
less $0.60 - $0.80 per mcf. We expect periodic continued price
weakness at the Waha pricing hub through 2024, and have therefore
hedged most of our price exposure.
Capital Expenditures:Cash capex
for the first quarter was $657 million. We expect capex to increase
in the second quarter to $675 - $725 million as we will be paying
for peak activity and well costs, primarily from the second half of
the first quarter, in the second quarter. We believe well costs
peaked over the last two quarters and have line of sight to
meaningful decreases in the upcoming quarters. Both raw materials
(including steel, diesel, sand) and service costs are now
decreasing. We also expect lower completion costs in the coming
quarters through increased efficiencies with the start-up of our
second simulfrac e-fleet. The majority of our wells will be
completed with either a simulfrac or simulfrac e-fleet beginning in
the second quarter, reducing our exposure to spot frac prices. Our
operated rig count for the year peaked at 16 - 17 rigs and we
expect to average 14 - 15 rigs in the second half of the year.
Therefore we remain confident in our $2.5 - $2.7 billion annual
capex budget with our capex burden decreasing in the second half of
the year.
Operating Costs:
Lease operating expenses were lower than
guidance expectations in the first quarter, primarily due to power
costs that were lower than expectations. We have fixed price
contracts covering a significant percentage of our expected power
use to reduce our exposure to power price spikes which are
particularly prevalent in the summer months in Texas. Cash G&A
and gathering, processing and transportation costs continue to
trend in line with expectations. Production and ad valorem taxes as
a percentage of revenue were slightly higher than expectations in
the first quarter as commodity prices decreased through the
quarter, but we expect that to level out through the remainder of
the year at current strip prices.
Balance Sheet:Total debt
increased to just over $7.1 billion, and net debt increased to just
over $7 billion in the first quarter, with net debt to last twelve
months adjusted EBITDA of 1.0x. This quarterly increase is
primarily attributable to the cash portion of the Lario
acquisition, which closed in the first quarter. Also, our fourth
quarter base plus variable dividend payment of $542 million plus
our first quarter share repurchases of $332 million were
significant calls on cash in the quarter. We expect net debt to
decrease in the second quarter through Free Cash Flow generation,
proceeds from asset sales closing in the quarter, a smaller cash
dividend relative to the first quarter (as highlighted below) and
the continued reduction of our income tax receivable.
Return of Capital:We generated
$646 million of Free Cash Flow in the first quarter. With our
commitment to return at least 75% of our Free Cash Flow to
stockholders on a quarterly basis, this means we are going to
return $485 million of Free Cash Flow for the quarter. Of
this, $147 million is attributable to our quarterly base dividend
of $0.80 / share. Secondly, we repurchased $332 million worth of
stock in the first quarter, which encompasses the majority of our
post-dividend Free Cash Flow. This leaves $6 million, or $0.03 per
share, for our variable dividend for the quarter.
The first quarter is exactly the reason we
elected to implement a return of capital program with flexibility
to allocate capital between share repurchases and a variable
dividend. During the banking crisis and Silicon Valley Bank
collapse, we took advantage of volatility and repurchased a
significant amount of stock. In total, we repurchased
2.53 million shares for $332 million ($131.34 / share average)
in the first quarter. Since the inception of our share repurchase
program, we have repurchased 15.86 million shares for
$1.93 billion ($121.85 / share average).
Other Business:We continue to
make progress on our non-core asset sale target that we increased
to at least $1.0 billion by the end of 2023. We closed both the
sale of our 10% interest in the Gray Oak crude oil pipeline and the
divestiture of approximately 4,900 net acres in Ward and Winkler
counties in the first quarter. In April, we closed the divestiture
of approximately 19,000 net acres in Glasscock County. We have
executed on transactions involving gross proceeds of $773 million.
As a result, we expect to meet or exceed our divestiture target
through the sale of other midstream or upstream non-core assets
throughout the remainder of this year. As shown in our investor
presentation, we own significant interests in multiple midstream
joint ventures.
Thank you for your interest in Diamondback
Energy,
Travis D. SticeChairman of the Board and Chief Executive
Officer
Important Information Regarding Forward-Looking
Statements and Non-GAAP Financial Measures
This letter contains "forward-looking
statements" within the meaning of Section 27A of the Securities Act
of 1933, as amended, and Section 21E of the Securities Exchange Act
of 1934, as amended, which involve risks, uncertainties and
assumptions. Important information regarding forward-looking
statements is included in our earnings release furnished to the SEC
simultaneously with this letter.
This letter also contains certain Non-GAAP
financial measures. For definitions and reconciliations of the
Non-GAAP financial measures to the most directly comparable GAAP
financial measures, please see our earnings release furnished to
the SEC simultaneously with this letter.
Investor Contact:Adam Lawlis+1
432.221.7467alawlis@diamondbackenergy.com
Diamondback Energy (NASDAQ:FANG)
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