Diamondback Energy (FANG) Q4 Results - Feb 23

[dan_s]

I plan to update the forecast/valuation models for the five Sweet 16 companies (FANG, LPI, MTDR, NOG and RRC) that announced Q4 results yesterday.
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MIDLAND, Texas, Feb. 22, 2022 (GLOBE NEWSWIRE) -- Diamondback Energy, Inc. (NASDAQ: FANG) (“Diamondback” or the “Company”) today announced financial and operating results for the fourth quarter and full year ended December 31, 2021.

FOURTH QUARTER 2021 HIGHLIGHTS

Average production of 226.3 MBO/d (387.1 MBOE/d) < Compares to my forecast of 225,500 BOPD and 375,000 Boepd

Permian Basin production of 224.4 MBO/d (383.5 MBOE/d)

Cash flow from operating activities of $1,167 million; Operating Cash Flow Before Working Capital Changes of $1,206 million < Compares to my forecast of $1,171 million of operating cash flow for Q4.

Cash capital expenditures of $434 million; Q4 2021 activity-based capital expenditures incurred of approximately $427 million

Free Cash Flow of $772 million < Outstanding !

Increasing annual dividend by 20.0% to $2.40 per share; declared Q4 2021 cash dividend of $0.60 per share payable on March 11, 2022; implies a 1.8% annualized yield based on the February 18, 2022 share closing price of $131.47

Repurchased 3,858,931 shares of common stock (~2.1% of prior quarter shares outstanding) in Q4 2021 for ~$409 million ($105.96 / share)

Total return of capital of $515 million (67% of Q4 2021 Free Cash Flow) from stock repurchases and the declared Q4 2021 dividend; above commitment to return at least 50% of Free Cash Flow to stockholders

Flared 1.55% (1.32% excluding QEP Permian) of gross natural gas production in the fourth quarter of 2021

FULL YEAR 2021 HIGHLIGHTS

Full year 2021 average production of 223.3 MBO/d (375.3 MBOE/d)

Generated full year 2021 cash flow from operating activities of $3,944 million; Operating Cash Flow Before Working Capital Changes (as defined and reconciled below) of $3,908 million

Full year 2021 cash capital expenditures of $1,487 million; turned 275 horizontal wells to production

Generated full year 2021 Free Cash Flow (as defined and reconciled below) of $2,421 million

YE 2021 total debt of $6,756 million and consolidated net debt (as defined and reconciled below) of $6,102 million, down 20% from the end of Q1 2021; redeemed $1,277 million of Senior Notes over the same period

Proved reserves as of December 31, 2021 of 1,789 MMBOE (928 MMBO, 52% oil), up 36% year over year; proved developed producing ("PDP") reserves of 1,201 MMBOE (620 MMBO, 52% oil, 67% of proved reserves), up 47% year over year

2021 consolidated proved developed finding and development (as defined below and referred to as "PD F&D") costs of $7.87/BOE; drill bit finding and development (as defined below and referred to as "Drill bit F&D") costs of $4.53/BOE

Flared 1.00% (1.45% including QEP Permian) of gross natural gas production for the full year ended 2021, down 49% (26% including QEP Permian) from 2020

2022 GUIDANCE HIGHLIGHTS

Full year 2022 oil production guidance of 218 - 222 MBO/d (369 - 376 MBOE/d) < Compares to my prelimary forecast for 2022 of 226,000 BOPD and 376,425 Boepd. Rising oil prices will more than make up for slightly lower production.

Full year 2022 cash CAPEX guidance of $1.75 - $1.90 billion

Assuming current strip commodity prices and the midpoint of Diamondback's production and operating cost guidance, the Company expects to generate approximately $5.8 billion of net cash provided by operating activities in 2022 < My forecast assumes WTI averages $85/bbl this year, so operating cash flow will be over $6 billion.

Assuming the net cash provided by operating activities guidance above and the midpoint of 2022 CAPEX guidance, the Company expects to generate approximately $4.0 billion of Free Cash Flow in 2022

The Company expects to drill between 270 and 290 gross (248 – 267 net) wells and complete between 260 and 280 gross (240 – 258 net) wells with an average lateral length of approximately 10,200 feet in 2022

Q1 2022 oil production guidance of 218 - 222 MBO/d (369 - 376 MBOE/d)

Q1 2022 cash CAPEX guidance of $435 - $475 million

“Diamondback's fourth quarter topped off a record year for the Company. In the quarter, Diamondback generated $772 million of Free Cash Flow with production and capital both positively exceeding expectations. As we have stated previously, we are committed to returning at least 50% of this Free Cash Flow to stockholders, and in the fourth quarter we exceeded this target and returned 67% of our Free Cash Flow through opportunistic share repurchases and our growing base dividend,” stated Travis Stice, Chief Executive Officer of Diamondback.

Mr. Stice continued, “Going forward, we will remain committed to capital discipline by maintaining flat Permian oil production. In 2022, at current strip pricing, we expect this maintenance capital plan to generate nearly $4.0 billion of Free Cash Flow, of which at least 50% will be returned to stockholders through a combination of our growing base dividend, our opportunistic share repurchase program and, if needed, a variable dividend. Diamondback's Board believes long-term shareholder value is created in this business through consistent execution at the lowest cost structure. Free Cash Flow generation and the return of that Free Cash Flow to the owners of the Company is the output of that value creation. As mentioned earlier, we expect to return a significant amount of cash back to stockholders this year, at least 50% of Free Cash Flow. The Board also retains discretion on what to do with the other 50% of the Free Cash Flow we generate. If we do not have a use for this capital that creates unreasonable value for our shareholders, then we will return it through the method our Board believes presents the best return to our stockholders at the time.”

Mr. Stice continued, “Our operational achievements in the field in 2021 set a new bar for Diamondback. We will continue to build off of these operational efficiencies by controlling the variable portion of our operating and capital costs, which will help mitigate the inflationary pressures we are seeing across our business. As a result, we are confident we can maintain our best-in-class capital efficiency and cost structure through the cycle.”

[dan_s]

At the time of this post FANG was trading at ~$128. My valuation increases by $14 to $174 based on Q4 2021 excellent results and their detailed guidance for 2022. My updated forecast/valuation model for FANG will be posted to the EPG website this afternoon.