Diamondback Energy (FANG) Update - Dec 6

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dan_s
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Joined: Fri Apr 23, 2010 8:22 am

Diamondback Energy (FANG) Update - Dec 6

Post by dan_s »

John White at Roth Capital published a new report on FANG this morning.

"We have employed a blended valuation of a 90% weighting of FANG’s PV10% NAV per share and a 10% weighting of FANG’s Leverage-Production Adjusted Multiple NAV per share which resulted in a blended NAV of $147.02 which we adjusted lower to $147.00 which is our price target."

FANG: Big Boost to Balance Sheet Strength; Updating Estimates

After updating our model following FANG’s recent issuance of new senior notes and FANG’s plans to apply the proceeds to redeem a higher coupon issue and our assumption FANG will significantly reduce the revolving credit facility, we see significant free cash flow in 2020 and, in our view, a likely increase in the dividend.

FANG recently flexed its financial muscle and announced an offering of approximately $3.0 billion of senior notes, consisting of $1.0 billion of 2.875% due 2024, $800 million of 3.250% due 2026 and $1.2 billion of 3.500% due 2029. Proceeds from the offering will repay a portion of the revolving credit facility and redeem all of the $1.25 billion of the 4.75% senior notes at approximately $1.3 billion.

The approximate $3.0 billion of proceeds less the $1.3 billion for the redemption of the 4.75% notes leaves about $1.7 billion for 2020 revolver reduction and capex. We estimate the revolving credit facility will be reduced from $1.6 billion at 9/30/2019 to about $250 million at 12/31/2019.

Interest expense decreases significantly, from our estimate for 2019 of $175 million to our 2020 estimate of $97 million. Our 2020 interest expense estimate is subject to change depending on actual revolving credit facility reduction and capex allocation from the proceeds. If our assumption of a revolving credit facility balance of $250 million on 12/31/2019 is correct, we model the revolver being paid to zero in 2Q 2020.

Total dividends modeled for 2020 at the current $0.75 per share total $123 million. Using $55.50/bbl WTI crude oil in 2020 and using $2.9 billion of capex (the midpoint of guidance of $2.8 billion to $3.0 billion), we model $631 million of free cash flow, leaving more than ample free cash flow for a dividend increase.

Our previous 4Q 2019 EPS/CFPS/EBITDA of $1.86/$4.76/$849 million are essentially unchanged and are now $1.92/$4.78/$820 million. Our previous 2020 EPS/CFPS/EBITDA of $8.50/$20.00/$3.5 billion increase and are now $9.13/$21.59/$3.6 billion. < My forecast for 2020 is slightly higher ($9.79/$23.32/$3.7 billion) because I am assuming that WTI will average $60/bbl in 2020.
Dan Steffens
Energy Prospectus Group
dan_s
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Joined: Fri Apr 23, 2010 8:22 am

Re: Diamondback Energy (FANG) Update - Dec 6

Post by dan_s »

Jeanine Wai at Barclays also published a fresh report on FANG this morning. She rates it a BUY with a price target of $125.00

FANG is trading at $81.75 this morning.
Dan Steffens
Energy Prospectus Group
ChuckGeb
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Re: Diamondback Energy (FANG) Update - Dec 6

Post by ChuckGeb »

How did John determine NAV?
dan_s
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Joined: Fri Apr 23, 2010 8:22 am

Re: Diamondback Energy (FANG) Update - Dec 6

Post by dan_s »

(PV10 of P1 reserves + Current Asset - Total Debt) / Share count for 90%. I'm not sure how he came up with the other 10%; probably just some guess at the value of all their undeveloped leasehold. Keep in mind that FANG hold a very large and very valuable stake in VNOM.

Stifel's new reports for upstream companies show their estimated price target and a "4P Valuation", which is their guess at what the company would sell for in an arms-length negotiated and competitive sale. On December 2nd Stifel rated FANG a BUY with a $143/share price target and a $178.55/share 4P NAV. Companies with lots of midstream assets and other assets have higher 4P valuations.

Send me an email and I will forward the Stifel report which values about half of the companies that I follow.
Dan Steffens
Energy Prospectus Group
ChuckGeb
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Re: Diamondback Energy (FANG) Update - Dec 6

Post by ChuckGeb »

The question was actually in the PV10 as of Dec 2018 (a year ago) or have they had a more recent reserve report that they have released?
dan_s
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Joined: Fri Apr 23, 2010 8:22 am

Re: Diamondback Energy (FANG) Update - Dec 6

Post by dan_s »

I've not seen a fresh reserve report, so they are probably using the 12-31-2018 reserve report.
Dan Steffens
Energy Prospectus Group
dan_s
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Joined: Fri Apr 23, 2010 8:22 am

Re: Diamondback Energy (FANG) Update - Dec 6

Post by dan_s »

Keith Kohl published a new report this morning (12/9) that included FANG. He rates it a BUY up to $150/share.
Dan Steffens
Energy Prospectus Group
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