Diamondback – Analysis of Q2 results
Posted: Tue Aug 06, 2024 5:25 am
Summary
Diamondback reported good Q2 results. Production was above expectations. The balance sheet is sound. Profitability is good. Shareholder returns in 2024 are limited due to the payments for Endeavor, but thereafter will increase. The merger with Endeavor will close in Q3 or Q4.
Production
• Q2 production (474.7 K BoE/d) was well above the outlook (459-466 K BoE/d).
• This was the 10th consecutive quarter that Diamondback beats its outlook and proof that its outlooks are very conservative.
• Q2 production (474.7 K BoE/d) was 3% above Q1 (463.1 K BoE/d, continuing its growth trend.
• I expect a Q3 production of 474 K BoE/d. Diamondback gave a (conservative) outlook of 459-466 K BoE/d.
• Diamondback increased its 2024 outlook by 4 K BoE/d from 458-466 K BoE/d to 466-470 K BoE/d.
• The outlook again looks conservative. I expect a 2024 production of 473-474 K BoE/d.
• With Endeavor included, 2025 production can increase to 840-850 K BoE/d.
• With ample reserves (equivalent to 15.9 years 2024 production) and a high Reserves Replacement Ratio (RRR 2019-2023 = 2.52), production can grow with 3-5%/year to 1,050 K BoE/d in 2023.
• Fluids are 58% oil, 22% NGL and 20% gas.
Balance sheet
• Long term debt was $ 12.0 B up $ 5.4 B from $ 6.6 B late 2023.
• The increase is due to the issue of a $ 5.5 B senior note issued in April in preparation of the Endeavor acquisition which requires a $B cash payment. Consequently, cash increased $ 5.3 B from $ 0.6 B to $ 5.9 B.
• With extra debt and cash on the balance sheet the solvency temporary dropped from 60.7% (late 2023) to 54.2% (Q2).
• After closure of the merger with Endeavor solvency should be a very healthy 58%.
• The balance sheet allows shareholder returns.
Profitability
• Unit costs (inclusive interest, depreciation and overheads) are a low $ 24.65/BoE.
• Q2 net profit was $ 837 M (eps $ 4.52).
• With WTI=$ 70-75/bbl in H2, 2024 net profit can be $ 3,025 – 3,250 M (eps $ 17.20-18.20, PE=10.2-10.8).
• In 2025 the eps can increase to $ 19.60-21.20 (PE=8.7-9.2).
• By 2028 the eps can reach % 25.80-28.60 (PE=6.5-7.2)
• Diamondback is a very profitable company.
Shareholder returns
• Diamondback paid a fixed dividend of $ 0.90 and a variable dividend of $ 1.44.
• In preparation of its Endeavor acquisition, Diamondback did not buyback any shares in Q2.
• Share buybacks can restart in 2025.
• Total yield in 2024 will be 4.7-5.0%.
• In 2025 share buybacks can restart and the yield can increase to 6.2-6.5%, increasing to 8% over time.
Conclusions
Diamondback reported good Q2 results. Production was above expectations. The balance sheet is sound. Profitability is good. Shareholder returns in 2024 are limited due to the payments for Endeavor, but thereafter will increase. The merger with Endeavor will close in Q3 or Q4.
Diamondback is out of the 81 oil and gas companies that I track, the one with the lowest risk profile.
Diamond back ranks a high 17th in my oil and gas company ranking.
Diamondback reported good Q2 results. Production was above expectations. The balance sheet is sound. Profitability is good. Shareholder returns in 2024 are limited due to the payments for Endeavor, but thereafter will increase. The merger with Endeavor will close in Q3 or Q4.
Production
• Q2 production (474.7 K BoE/d) was well above the outlook (459-466 K BoE/d).
• This was the 10th consecutive quarter that Diamondback beats its outlook and proof that its outlooks are very conservative.
• Q2 production (474.7 K BoE/d) was 3% above Q1 (463.1 K BoE/d, continuing its growth trend.
• I expect a Q3 production of 474 K BoE/d. Diamondback gave a (conservative) outlook of 459-466 K BoE/d.
• Diamondback increased its 2024 outlook by 4 K BoE/d from 458-466 K BoE/d to 466-470 K BoE/d.
• The outlook again looks conservative. I expect a 2024 production of 473-474 K BoE/d.
• With Endeavor included, 2025 production can increase to 840-850 K BoE/d.
• With ample reserves (equivalent to 15.9 years 2024 production) and a high Reserves Replacement Ratio (RRR 2019-2023 = 2.52), production can grow with 3-5%/year to 1,050 K BoE/d in 2023.
• Fluids are 58% oil, 22% NGL and 20% gas.
Balance sheet
• Long term debt was $ 12.0 B up $ 5.4 B from $ 6.6 B late 2023.
• The increase is due to the issue of a $ 5.5 B senior note issued in April in preparation of the Endeavor acquisition which requires a $B cash payment. Consequently, cash increased $ 5.3 B from $ 0.6 B to $ 5.9 B.
• With extra debt and cash on the balance sheet the solvency temporary dropped from 60.7% (late 2023) to 54.2% (Q2).
• After closure of the merger with Endeavor solvency should be a very healthy 58%.
• The balance sheet allows shareholder returns.
Profitability
• Unit costs (inclusive interest, depreciation and overheads) are a low $ 24.65/BoE.
• Q2 net profit was $ 837 M (eps $ 4.52).
• With WTI=$ 70-75/bbl in H2, 2024 net profit can be $ 3,025 – 3,250 M (eps $ 17.20-18.20, PE=10.2-10.8).
• In 2025 the eps can increase to $ 19.60-21.20 (PE=8.7-9.2).
• By 2028 the eps can reach % 25.80-28.60 (PE=6.5-7.2)
• Diamondback is a very profitable company.
Shareholder returns
• Diamondback paid a fixed dividend of $ 0.90 and a variable dividend of $ 1.44.
• In preparation of its Endeavor acquisition, Diamondback did not buyback any shares in Q2.
• Share buybacks can restart in 2025.
• Total yield in 2024 will be 4.7-5.0%.
• In 2025 share buybacks can restart and the yield can increase to 6.2-6.5%, increasing to 8% over time.
Conclusions
Diamondback reported good Q2 results. Production was above expectations. The balance sheet is sound. Profitability is good. Shareholder returns in 2024 are limited due to the payments for Endeavor, but thereafter will increase. The merger with Endeavor will close in Q3 or Q4.
Diamondback is out of the 81 oil and gas companies that I track, the one with the lowest risk profile.
Diamond back ranks a high 17th in my oil and gas company ranking.