Diamondback Energy (FANG) Q2 Results - August 7

[dan_s]

See Stifel's take on FANG's Q2 Results below.

HIGHLIGHTS

Q2 2019 net income of $349 million, or $2.11 per diluted share; adjusted net income of $280 million, or $1.70 per diluted share < This compares to my forecast of $301 net income / $1.83/share.
Q2 2019 Consolidated Adjusted EBITDA of $789 million; adjusted EBITDA net of non-controlling interest of $772 million
Q2 2019 production of 280.4 Mboe/d (68% oil), up 7% over Q1 2019 and 149% over Q2 2018 < This compares to my Q2 production forecast of 275,000 Boepd.

Updated 2019 production guidance of 277.0 - 284.0 Mboe/d, narrowed from prior guidance of 272.0 - 287.0 Mboe/d; implies 26% annualized production growth at the midpoint from 2018 combined volumes
Second quarter capital expenditures of $721 million; turned 69 wells to production
Updated 2019 CAPEX guidance of $2.725 - $2.950 billion, narrowed from $2.7 - $3.0 billion previously; expect to complete between 300 and 320 operated horizontal wells, up from 290 to 320 wells previously < This is good news because more well means higher exit rate of production heading into 2020.

Declared Q2 2019 cash dividend of $0.1875 per share payable on August 26, 2019; implies a 0.8% annualized yield based on the August 2, 2019 share closing price of $97.49
Repurchased 1,016,000 shares in Q2 2019 for ~$104 million; represents 5.2% of Board approved program for up to $2.0 billion of stock repurchases through December 31, 2020
Received $720 million in net cash proceeds upon the closing of subsidiary Rattler Midstream LP's (NASDAQ: RTLR) ("Rattler") initial public offering of 43.7 million units in May 2019
Closed divestiture of conventional Permian assets acquired from Energen on July 1, 2019; closed another previously announced divestiture of non-core Southern Midland Basin assets in Q2 2019
As previously announced, divesting 5,090 net royalty acres in the Permian Basin through a drop down transaction ("Drop Down") to subsidiary Viper Energy Partners LP (NASDAQ: VNOM) ("Viper"), for 18.3 million Class B units of Viper, an equal number of common units in Viper's operating subsidiary and $150 million in cash; the Drop Down, with an aggregate value of $700 million, is expected to close in Q4 2019, subject to continued diligence and closing conditions
Company expects unhedged oil price realizations of 95% or greater of WTI for the second half of 2019, based on existing firm transportation agreements and current commodity prices.

"In the second quarter of 2019, Diamondback continued to execute on its disciplined 2019 capital plan, delivering record EBITDA per share from 7% sequential production growth. Our per lateral foot well costs, which include every dollar spent bringing our operated wells to production, and the six months of production costs thereafter, are down 7% year over year from Q2 2018 in the Midland Basin and 16% in the Delaware Basin. As such, we are narrowing the midpoint of our 2019 capital budget and increasing the midpoint of our operated completions, which implies over $110 per completed lateral foot of improved capital efficiency versus our initial budget presented in December. Based on existing contracts in place and current commodity prices, we expect to realize 95% or greater of WTI for the second half of 2019, putting our widest oil basis differential quarters behind us. By early next year, we expect to realize oil prices at parity with or greater than WTI, which we believe, combined with our track record of cost leadership, will fuel free cash flow per share growth well in excess of our future production growth," stated Travis Stice, Chief Executive Officer of Diamondback.

Mr. Stice continued, “Following the successful initial public offering of Rattler Midstream in late May, Diamondback immediately commenced the next phase in our previously announced return of capital program. Through the end of the second quarter, Diamondback repurchased approximately $104 million of stock while reducing its consolidated net debt by $400 million relative to the prior quarter. On July 1, 2019, we closed the previously announced divestiture of conventional Permian assets acquired in the Energen acquisition, and expect to close the recently announced Drop Down sale of mineral assets to Viper in the fourth quarter of 2019. We intend to use proceeds from both transactions, along with increasing free cash flow from operations, for debt reduction and continuing our stock repurchase program, as we also work to strengthen our balance sheet and deliver industry leading per share metrics and growth. Diamondback has now completed every major strategic objective and exceeded our stated synergies presented one year ago when we announced the Energen acquisition. Our capital efficiency continues to improve with our post-close well costs now significantly below Diamondback standalone well costs in the second quarter of 2018, all while doubling the size of our team over the last year."
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Stifel: Diamondback Energy, Inc. (FANG, $91.06, Buy; Target $135.00) by Derrick Whitfield

Hitting on all cylinders and providing investors certainty during a time of uncertainty

We view the release as positive.
The positives include i) a total equivalent and oil production beat (1.2% and 0.8% above consensus, respectively) on lower capex (4.2% below consensus), ii) raised 2019 full-year production guidance (in line with consensus) and lowered total capex guidance (in line with consensus), iii) decreased Midland Basin well costs by 2% and iv) detailed account of M&A synergies delivered ahead of schedule and above plan.
The only negative is a slight EBITDAX miss (1.1% below consensus) due to lower than expected realizations during the quarter, which the company expects to improve during 2H19 and 2020.
Net-net, the company is hitting on all cylinders. The company is delivering flawless execution (production beat and raise on lower capex), better than expected M&A synergies, and a growing return of capital program. Management is providing investors certainty during a time of uncertainty (macro and micro).
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MY TAKE: Diamondback is funding incredible production and proven reserve growth that is funded entirely by cash flow from operation. If Tesla was doing this it would be trading for $1,000/share.

[dan_s]

Two more analysts have updated their opinions on FANG today:

Jeff Grampp at Northland Securities rates it a BUY on 08/07/19 with a price target of $150.00

Gabriele Sorbara at Williams Capital rates it a BUY on 08/07/19 with a price target of $165.00

[dan_s]

I've updated my forecast/valuation model for FANG and it will be posted to the EPG website this afternoon.

Here is a first: FANG's realized natural gas price, including the cash settlements paid to them on their hedges, was $0.04/mcf in Q2. NGL prices were also much lower Q1 to Q2. Despite those low commodity prices, FANG generated $742 million cash flow from operations during the 2nd quarter. They are on-track to generate over $3 Billion of cash flow from operations this year.