Diamondback Energy (FANG) Update - August 30
Posted: Fri Aug 30, 2024 8:13 am
FANG and EOG are at the top of my "Elite Eight", a subset of our Sweet 16 Growth Portfolio. They both have outstanding Tier One leasehold with thousands of low-risk development drilling locations that only need $40 oil prices to be economical. Size matters in this business.
“We are clearly doing more with less and becoming more operationally efficient
each quarter. To help put this into perspective, at the beginning of the year we were
anticipating a rig would drill 24 wells a year, and now we are modeling one rig drilling at
least 26 wells per year. On average, we are drilling wells approximately 10% faster than at
the beginning of the year, primarily due to bit and bottom hole assembly improvements.
In fact, we set a new record this quarter on one of our wells in the Midland Basin, drilling
over 20,000’ with a single bit run.
Similarly, efficiency gains on completions have allowed us to increase the per crew annual
completion rate to nearly 100 wells per year, up from our original budget of 80 wells per
year. As a result of these drilling and completion efficiencies, in July we reduced drilling
activity from 12 rigs to 10 and lowered our frac fleet count from four simulfrac crews to
three, while raising full year production guidance.” - Travis D. Stice, Diamondback's CEO
Diamondback will soon be closing the merger with Endeavor Energy. The transaction will cost $8 billion in cash, as well as 117.3 million of Diamondback shares to be issued to Endeavor’s holders. Diamondback plans on paying for the deal through a combination of cash on hand, borrowings under its credit facility, and also proceeds from term loans and senior notes offerings.
Based on my forecast, Diamondback's 2025 revenues should be approximately $16.0 billion and operating cash flow should exceed $10.2 billion ($34.81/share). I'm expecting the Company's base + variable dividends to exceed $12.00/share next year and they will continue to buyback shares.
My current valuation of FANG is $242/share, which compares to TipRanks' consensus price target of $231.23. < In the last 3 months, 16 ranked analysts set 12-month price targets for FANG. The average price target among the analysts is $231.23. The 16 price targets range from $154 to $286.
After the merger with Endeavor Energy closes, I expect TipRanks' price target to go up because some members of the Wall Street Gang don't put the impact of large transactions into their models until the deals close.
“We are clearly doing more with less and becoming more operationally efficient
each quarter. To help put this into perspective, at the beginning of the year we were
anticipating a rig would drill 24 wells a year, and now we are modeling one rig drilling at
least 26 wells per year. On average, we are drilling wells approximately 10% faster than at
the beginning of the year, primarily due to bit and bottom hole assembly improvements.
In fact, we set a new record this quarter on one of our wells in the Midland Basin, drilling
over 20,000’ with a single bit run.
Similarly, efficiency gains on completions have allowed us to increase the per crew annual
completion rate to nearly 100 wells per year, up from our original budget of 80 wells per
year. As a result of these drilling and completion efficiencies, in July we reduced drilling
activity from 12 rigs to 10 and lowered our frac fleet count from four simulfrac crews to
three, while raising full year production guidance.” - Travis D. Stice, Diamondback's CEO
Diamondback will soon be closing the merger with Endeavor Energy. The transaction will cost $8 billion in cash, as well as 117.3 million of Diamondback shares to be issued to Endeavor’s holders. Diamondback plans on paying for the deal through a combination of cash on hand, borrowings under its credit facility, and also proceeds from term loans and senior notes offerings.
Based on my forecast, Diamondback's 2025 revenues should be approximately $16.0 billion and operating cash flow should exceed $10.2 billion ($34.81/share). I'm expecting the Company's base + variable dividends to exceed $12.00/share next year and they will continue to buyback shares.
My current valuation of FANG is $242/share, which compares to TipRanks' consensus price target of $231.23. < In the last 3 months, 16 ranked analysts set 12-month price targets for FANG. The average price target among the analysts is $231.23. The 16 price targets range from $154 to $286.
After the merger with Endeavor Energy closes, I expect TipRanks' price target to go up because some members of the Wall Street Gang don't put the impact of large transactions into their models until the deals close.