FANG
Posted: Fri Dec 16, 2016 12:51 pm
Comments below from Wells Fargo Equity Research
Diamondback Energy, Inc.
FANG: Dealing In The Delaware--Acquiring Brigham
Summary - Positive. Diamondback announced expansion of Delaware assets
with purchase agreement for Brigham Resources which includes 76,000 net
acres, 1,149 net royalty acres, and 9.5 MBoe/d (thousand barrels of oil equivalent
per day) of production located in Pecos and Reeves Counties for purchase price of
$2.43B to be financed via debt/equity as well as cash on hand. The Brigham
acquisition follows 19,000 net Delaware acquisition in September with a
matching a per acre price of $26,000/acre after backing out production +
$50MM of infrastructure. Following initial entry into the Delaware in
September, it’s not surprising to see Diamondback scoop up more acreage and
this transaction solidifies the company’s position in the southern Delaware with
size and scale that should help drive further efficiency gains. Further bolsters
inventory of high return drilling opportunities, with upside potential from
additional zones, downspacing and acreage infill opportunities, with potential
VNOM synergies, and FANG appears well positioned to drive above peer growth
for years to come--deal should be well-received in our view.
Acquisition Details. FANG purchased 76,319 net acres in Pecos and Reeves
counties from Brigham Resources for approximately $2.43B. Includes 9,482
Boe/d of production (77% oil) as well as infrastructure with an estimated value of
$50MM, resulting in a per acre purchase price of approximately $26,000/acre at
$45,000/Mboe/d– in line with metrics from their initial Delaware acquisition
from September. Diamondback currently estimates 1,213 net locations across the
Wolfcamp A, B and 2nd and 3rd Bone Spring formations with upside potential
from downspacing and infill acreage acquisition potential. The acquisition is
expected to close at month end February 2017.
Funded with Equity/Debt Offerings. The transaction is to be financed with
$1.62B in cash and 7.69 MM in shares. To fund cash portion FANG announced a
10.5MM share equity offering along with $250MM in senior note offering. Given
the transaction included 1,149 mineral acres, perhaps provides an opportunity for
VNOM in the future. After first pass with model we estimate transaction is
7%/3% dilutive to 2017E/2018E DCFPS.
Updated Guidance. FANG has increased its 2017 production estimates from
52.0-58.0 Mboe/d to 64.0-73.0 Mboe/d, an increase of 4% at the midpoint from
prior guidance after accounting for acquired volumes of 9.5 MBoe/d. The
company’s capital budget also increased from $500-$650MM to $700-$900MM
with $75MM dedicated to Delaware infrastructure investments.
Valuation Range: $120.00 to $124.00
Our valuation range is based on our NAV estimate, which includes value for both
proven and potential reserves, as well as other net assets and liabilities. Our NAV
estimate for FANG is $120.85 per share. Risks to our range include material,
sustained commodity price weakness and failure of exploration upside potential to
materialize.
Diamondback Energy, Inc.
FANG: Dealing In The Delaware--Acquiring Brigham
Summary - Positive. Diamondback announced expansion of Delaware assets
with purchase agreement for Brigham Resources which includes 76,000 net
acres, 1,149 net royalty acres, and 9.5 MBoe/d (thousand barrels of oil equivalent
per day) of production located in Pecos and Reeves Counties for purchase price of
$2.43B to be financed via debt/equity as well as cash on hand. The Brigham
acquisition follows 19,000 net Delaware acquisition in September with a
matching a per acre price of $26,000/acre after backing out production +
$50MM of infrastructure. Following initial entry into the Delaware in
September, it’s not surprising to see Diamondback scoop up more acreage and
this transaction solidifies the company’s position in the southern Delaware with
size and scale that should help drive further efficiency gains. Further bolsters
inventory of high return drilling opportunities, with upside potential from
additional zones, downspacing and acreage infill opportunities, with potential
VNOM synergies, and FANG appears well positioned to drive above peer growth
for years to come--deal should be well-received in our view.
Acquisition Details. FANG purchased 76,319 net acres in Pecos and Reeves
counties from Brigham Resources for approximately $2.43B. Includes 9,482
Boe/d of production (77% oil) as well as infrastructure with an estimated value of
$50MM, resulting in a per acre purchase price of approximately $26,000/acre at
$45,000/Mboe/d– in line with metrics from their initial Delaware acquisition
from September. Diamondback currently estimates 1,213 net locations across the
Wolfcamp A, B and 2nd and 3rd Bone Spring formations with upside potential
from downspacing and infill acreage acquisition potential. The acquisition is
expected to close at month end February 2017.
Funded with Equity/Debt Offerings. The transaction is to be financed with
$1.62B in cash and 7.69 MM in shares. To fund cash portion FANG announced a
10.5MM share equity offering along with $250MM in senior note offering. Given
the transaction included 1,149 mineral acres, perhaps provides an opportunity for
VNOM in the future. After first pass with model we estimate transaction is
7%/3% dilutive to 2017E/2018E DCFPS.
Updated Guidance. FANG has increased its 2017 production estimates from
52.0-58.0 Mboe/d to 64.0-73.0 Mboe/d, an increase of 4% at the midpoint from
prior guidance after accounting for acquired volumes of 9.5 MBoe/d. The
company’s capital budget also increased from $500-$650MM to $700-$900MM
with $75MM dedicated to Delaware infrastructure investments.
Valuation Range: $120.00 to $124.00
Our valuation range is based on our NAV estimate, which includes value for both
proven and potential reserves, as well as other net assets and liabilities. Our NAV
estimate for FANG is $120.85 per share. Risks to our range include material,
sustained commodity price weakness and failure of exploration upside potential to
materialize.