Diamondback Energy (FANG) Update - Nov 8

[dan_s]

I have updated my forecast/valuation model for Diamondback. My forecast is now based on the assumption that the merger with Energen will be approved by shareholders on Nov. 27 and close on Nov. 30. The combined company will have production of approximately 250,000 Boepd (~67% crude oil).

FANG is an incredible growth story.

My valuation increases by $10/share to $180.00, which compares to First Call's price target of $171.93. Keep in mind that many of the forecasts submitted to Reuters / First Call are dated prior to the company's outstanding Q3 results. Some of them do not assume the deal with Energen will close this month (or ever).

On Nov. 7 Gabriele Sorbara at Williams Capital submitted a fresh report to Reuters on FANG. He rates it a BUY with a $171.00 valuation.

Just a reminder that all of my forecast models are based on WTI at $65/bbl and natural gas at $2.75/mcf for all future years. I do adjust for regional commodity price differenced and each company's hedges. The oil, gas and NGL prices at the bottom of the forecast models are actual realized prices for each company, including cash settlements on hedges. < This part requires a lot of experience and guess work on my part. It is why you pay me the big bucks to be an EPG member.

FANG's realized prices for Q3:
$1.93/mcf for natural gas
$51.23/bbl for crude oil
$30.44/bbl for NGLs < very pleasant surprise for all of the companies.

NOTE that FANG is extremely profitable at commodity prices much lower that what you see on the business news. One of the biggest "myths" is that these companies need much higher oil prices to make money.