Diamondback Energy (FANG) Misses Q2 EPS by 4c, Revenues Beat

Diamondback Energy (NASDAQ: FANG) reported Q2 EPS of $1.59, $0.04 worse than the analyst estimate of $1.63. Revenue for the quarter came in at $526.27 million versus the consensus estimate of $479.13 million.

• Q2 2018 net income of $219 million, or $2.22 per diluted share; adjusted net income (as defined and reconciled below) of $158 million, or $1.59 per diluted share
• Q2 2018 production of 112.6 Mboe/d (73% oil), up 10% over Q1 2018 and 46% year over year
• Increasing pro forma full year 2018 production guidance range to 115.0 – 119.0 Mboe/d, up 4% from prior guidance midpoint; implies over 45% annualized growth at the midpoint from full year 2017 average daily production
• Q2 2018 cash dividend of $0.125 per share payable on August 27, 2018; implies a 0.4% annualized yield based on August 6, 2018 share closing price of $133.62
• Executed agreements to secure firm oil transportation out of the basin at fixed discounts to Gulf Coast pricing beginning Q3 2018; term sales agreements cover the remainder of expected production
• Executed agreement for option to acquire up to 10% equity interest in the EPIC Crude Oil Pipeline project; increases previously announced volume commitment from 50,000 bo/d to 100,000 bo/d (50% take or pay)
• Announced drop down sale of 1,696 net royalty acres to Viper for $175 million, subject to post-closing adjustments; expected to close in August 2018

“Diamondback extended its track record of successful execution in the second quarter, growing production 10% quarter over quarter, while maintaining its peer leading cash margins and return on average capital employed. Additionally, I am extremely pleased with our organization's continued ability to deliver on securing firm takeaway out of the Permian as we look to maximize our exposure to international pricing. Diamondback's oil marketing strategy in the near term is to secure firm transportation at fixed discounts to Gulf Coast pricing while not compromising realizations over the long term," stated Travis Stice, Chief Executive Officer of Diamondback.

Mr. Stice continued, "Diamondback’s announced acquisition of high quality assets from Ajax Resources provides additional Tier 1 resource directly adjacent to our existing acreage in Northwest Martin and Northeast Andrews counties. With approximately 220 net locations capable of generating 100% or greater IRRs at $60/Bbl across three zones, this transaction is accretive to our top quartile inventory, NAV and 2019 financial metrics. We expect the transaction to close at the end of October 2018, with interim Ajax development focused on large multi-well, multi-zone pad development to be assumed by Diamondback in November. Credit is due to the Ajax team for displaying impressive results in two emerging zones for the area, the Wolfcamp A and Middle Spraberry. These results highlight the value of this acreage in our existing portfolio, and more than doubles Diamondback's inventory to 680 net pro forma locations in this area."

Rich Little, Chief Executive Officer of Ajax Resources stated, “This transaction represents a logical transition for the Ajax asset base, as it complements Diamondback’s acreage position very well and further consolidates the Northern Midland Basin. I am extremely proud of what the Ajax team accomplished over the past three years. With the strong sponsorship and support of our private equity partner, Kelso, we were able to deploy the necessary resources and capital to delineate and strategically develop an underexploited asset base.”

For earnings history and earnings-related data on Diamondback Energy (FANG) click here.

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