Diamondback Energy (FANG) Update - May 8

[dan_s]

I am updating my forecast/valuation model for FANG today.

MIDLAND, Texas, May 08, 2018 (GLOBE NEWSWIRE) -- Diamondback Energy, Inc. (FANG) (“Diamondback” or the “Company”) today announced financial and operating results for the first quarter ended March 31, 2018.

HIGHLIGHTS
•Q1 2018 net income of $163 million, or $1.65 per diluted share; adjusted net income (as defined and reconciled below) of $162 million, or $1.64 per diluted share < This compares to my forecast of $1.55 EPS
•Previously announced Q1 2018 production of 102.6 Mboe/d (74% oil), up 10% over Q4 2017 and 67% year over year < Hit my forecast on the nose.
•Q1 2018 CAPEX of $318 million, generated $21 million of free cash flow in the quarter
•Narrowing full year 2018 production guidance to 110.0 – 116.0 Mboe/d, up 1% from prior guidance midpoint; implies 43% annualized growth at the midpoint from full year 2017 average daily production
•Q1 2018 cash operating costs of $8.42/boe, down 10% year over year with realized pricing up 21% over the same period
•Lowering full year 2018 LOE guidance to $3.75 - $4.50 per boe, down 13% from prior guidance midpoint
•Q1 2018 cash dividend of $0.125 per share payable on May 29, 2018; implies a 0.4% annualized yield based on May 7, 2018 share closing price of $130.24
•Executed 50,000 bo/d firm transportation agreement as shipper on Gray Oak pipeline
•Currently operating 11 horizontal drilling rigs and five dedicated frac spreads

“Diamondback remains committed to capital discipline by continuing to grow production at industry leading rates within cash flow and achieving an annualized return on average capital employed of over 13% in the first quarter, well above our estimated cost of capital. The execution of our forward operating plan while maintaining best in class operating metrics is the primary focus of our organization in an increasingly active Permian Basin," stated Travis Stice, Chief Executive Officer of Diamondback.

Mr. Stice continued, "We have made significant progress on our Permian Basin takeaway strategy, with the 50,000 barrel per day commitment to the Gray Oak Pipeline being the first step of many as we work to increase our exposure to international pricing away from the Midland market. Additionally, Diamondback will continue to be active, yet selective, in our acquisition strategy, with accretion and full-cycle economics remaining key drivers of our decision making process. Our disciplined approach to all facets of the business, from day-to-day operations to longer-term strategic decisions, is evidenced by Diamondback's significant Adjusted EBITDA per share growth since going public just over five years ago."

[dan_s]

In the last 3 months, 11 ranked analysts set 12-month price targets for FANG. The average price target among the analysts is $152.55. Only one report included in the First Call price target has been updated since the company announced Q1 results. Many of them are based on much lower oil prices than we have today.

70% of FANG's production is crude oil.

[dan_s]

I have updated my forecast/valuation model for FANG. My valuation increases by $10 to $172.00/share.

FANG is heavily weighted to oil and I am now assuming WTI oil stays at $65/bbl for all future periods.

I have lowered the natural gas price used in my forecast because differential for ngas in the Permian for gas are now quite large. If I take the ngas price to $0.00 for all future periods, it only lowers the valuation to $167.00.