Energy Prospectus

Sorry for the delay on getting to this one. I will update my forecast model and post it to the website today. Check out the F&C costs below. FANG is a "Keeper". - Dan

MIDLAND, Texas, Feb. 16, 2016 (GLOBE NEWSWIRE) -- Diamondback Energy, Inc. (FANG) (“Diamondback” or the “Company”) today announced financial and operating results for the fourth quarter ended December 31, 2015 and provided updated guidance for 2016.

HIGHLIGHTS
•The Company has completed its first three-well pad in Glasscock County targeting the Lower Spraberry, Wolfcamp A and Wolfcamp B with an average lateral length of 7,400 feet. The wells are in various stages of flowback and artificial lift but produced an average in excess of 3,600 boe/d (81% oil) on a combined basis over seven days.

•Proved reserves as of December 31, 2015 increased 39% year over year to 156.9 MMboe (67% oil, 16% natural gas, 17% natural gas liquids), with a PV-10 value of approximately $1.4 billion as calculated and reconciled below. Additions replaced 465% (422% organically) of 2015 production with a drill bit finding cost ("F&D") of $5.51/boe as calculated below.

•Costs to drill, complete and equip are currently trending between $5.0 and $5.5 million for a 7,500 foot lateral and between $6.5 and $7.0 million for a 10,000 foot lateral. Each of these new wells should produce over 500,000 boe, primarily oil.

•Lease operating expenses ("LOE") declined 12% from $7.79/boe in 2014 to $6.84/boe in 2015. 2015 LOE was below the $7.00 to $8.00/boe guidance range. The Company anticipates LOE of $6.00 to $7.00/boe in 2016.

•Diamondback’s Q4 2015 production was 37.6 Mboe/d (76% oil), up 10% from 34.1 Mboe/d (73% oil) in Q3 2015.

•Due to ongoing commodity price volatility, the Company has widened its 2016 production guidance to a range of 32.0 to 38.0 Mboe/d. Diamondback anticipates completing between 30 and 70 gross horizontal wells during 2016, and capital expenditures for 2016 are expected to be between $250 million to $375 million.

“2016 began with oil prices testing recent lows. We believe Diamondback is well-positioned in this environment and continues to demonstrate that it is a low cost operator with superior execution abilities. After our equity raise last month, Diamondback had over $250 million in cash at the end of January 2016 and an undrawn revolver. We continue to emphasize our strategy of capital discipline, especially in light of current low oil prices and their impact on stockholder returns. We have widened our 2016 production and capital guidance ranges to allow for capital flexibility in our operations as rig counts and completions may fluctuate throughout the year. In a 'lower for longer' $35 per barrel WTI price scenario that assumes service costs remain stable, we believe we can maintain leverage under 2.0x through the end of the decade without accessing additional debt, equity or drawing on our revolver. Under this scenario, we can also maintain our current leasehold," stated Travis Stice, Chief Executive Officer of Diamondback.

Mr. Stice continued, “We have a deep inventory of high return projects, a strong balance sheet with significant liquidity and the ability to deploy capital quickly to pull value forward in a higher price environment. Additionally, we are extremely encouraged by early results from our three-well pad in Glasscock County which produced an average of over 3,600 boe/d on a combined basis over seven days. While 2016 appears to be a very challenging year for our industry, Diamondback anticipates opportunities for accretive growth during the year.”

I have updated my forecast model and it will be posted to the EPG website this afternoon. Q4 production was well above my forecast. If they can just hold production flat in 2016, FANG should generate $250 to $300 million in cash flow from operations. They continue to get very good well results. This is a pure play on the Permian Basin.

My valuation increases to $80.85/share, compared to First Call's price target of $80.19.

The increase is primarily the result of lower lease operating expenses and a shift in the production mix to more oil. Higher NGL prices also helps.

NGL prices are not talked about much, but all of the Sweet 16 that have reported so far got a higher price for NGLs in Q4 than they got in Q3. This trend should continue in 2016.

Diamondback is unhedged in 2016, so they have more exposure if oil prices do stay "lower for longer". However, the company's equity offering in January totally covers their 2016 capex budget and they have plenty of liquidity.

Roth Capital Update 2-22-2016

Our net asset value and target price are based on proved and probable reserves, financial position, and historical and expected drilling and completion results. Successful development drilling during 2015 has, in our view, de-risked large portions of FANG’s acreage positions. We are maintaining our target price of $85 and our Buy rating.

FANG recorded another strong quarter, with 4Q 2015 production of 37.6 MBOE per day, in line with our estimate of 37.5 MBOE per day and recent company guidance. FANG beat on operating EPS with $0.58 compared to our estimate of $0.48, primarily due to lower lease operating expense and lower DD&A. EBITDA of $121 million was in line with our estimate of $119 million.

FANG continues to make progress toward expanding its operations into Glasscock County, and completed its first three-well pad in Glasscock County targeting the Lower Spraberry, Wolfcamp A and Wolfcamp B with an average lateral length of 7,400 feet. The wells are in various stages of flow back and artificial lift and produced an average in excess of 3,600 BOE per day (81% oil) on a combined basis over seven days.

Due to the recent volatility in oil and natural gas prices, FANG desires a wide amount of flexibility regarding guidance for 2016. As such, FANG stretched the range its 2016 production guidance to 32.0 to 38.0 MBOE per day. FANG is guiding to a range of 30 to 70 gross horizontal well completions during 2016, and capital expenditures are expected to be between $250 million to $375 million.

Due to, in our opinion, FANG’s concentrated acreage position in the sweet spots of the Midland basin, its technical talent and its strong execution, proved reserves as of 12/31/2015 increased 39% year over year to 156.9 million BOE, with 67% oil, 16% natural gas, 17% natural gas liquids. Reserve additions replaced 465% of 2015 production with a 422% reserve replacement rate from drilling and completions. FANG’s 2015 finding and development cost was a very impressive $5.51/BOE and its SEC PV10 value was approximately $1.4 billion.