Diamondback Energy (FANG)
Posted: Thu Dec 29, 2016 11:54 am
John White at Roth Capital send out a new report on FANG this morning. Below are his comments.
Our net asset value and target price are based on proved and probable reserves, financial position, historical and expected drilling results. Incorporating the production and estimated oil and gas reserves attributable to the recently announced acquisition, our price target increases from $117 to $130 and our Buy rating is maintained.
FANG recently announced that it has entered into an agreement to acquire all the assets of privately owned Brigham Resources Operating, LLC and Brigham Resources Midstream, LLC for a purchase price of $2.43 billion, consisting of $1.62 billion in cash and 7.69 million shares of FANG common stock.
This is, in our view, a very significant transaction, as it will increase FANG's acreage significantly, an increase of 72%, to 182,000 net surface acres in the Permian Basin. By our calculations, key metrics are approximately $19,100 per net surface acre and about $1.2 million per identified well location, after adjusting the purchase price for existing oil and gas production. The price per net acre and per identified location is favorable compared with other recent Delaware Basin transactions.
We like the transaction and we note this management and technical team have a successful record of acquisitions in the highly competitive Midland Basin, and in our view this experience and skill set will accrue to this deal and future development of this large property package.
FANG’s historical performance makes it, in our view, the quintessence of success in the shale era. Consider the following:
> FANG’s production for 2012 was 2,946 BOE per day. For 2017, our estimate (which is in line with company guidance) is 68,438 BOE per day, for a five year CAGR of 87.6%.
> FANG’s LOE/BOE in 2012 was $14.14, with 3Q 2016 actual of $5.37, a 62% per unit reduction in lease operating cost.
> FANG’s G&A/BOE in 2012 was $9.62, with 3Q 2016 actual of $2.40, a 75% per unit reduction in overhead expenses.
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Morgan Stanley rates FANG a BUY with a price target of $135
Wells Fargo rates FANG a BUY with a price target of $124
Both firms have updated their forecasts since the big Permian Basin acquisition was announced.
Our net asset value and target price are based on proved and probable reserves, financial position, historical and expected drilling results. Incorporating the production and estimated oil and gas reserves attributable to the recently announced acquisition, our price target increases from $117 to $130 and our Buy rating is maintained.
FANG recently announced that it has entered into an agreement to acquire all the assets of privately owned Brigham Resources Operating, LLC and Brigham Resources Midstream, LLC for a purchase price of $2.43 billion, consisting of $1.62 billion in cash and 7.69 million shares of FANG common stock.
This is, in our view, a very significant transaction, as it will increase FANG's acreage significantly, an increase of 72%, to 182,000 net surface acres in the Permian Basin. By our calculations, key metrics are approximately $19,100 per net surface acre and about $1.2 million per identified well location, after adjusting the purchase price for existing oil and gas production. The price per net acre and per identified location is favorable compared with other recent Delaware Basin transactions.
We like the transaction and we note this management and technical team have a successful record of acquisitions in the highly competitive Midland Basin, and in our view this experience and skill set will accrue to this deal and future development of this large property package.
FANG’s historical performance makes it, in our view, the quintessence of success in the shale era. Consider the following:
> FANG’s production for 2012 was 2,946 BOE per day. For 2017, our estimate (which is in line with company guidance) is 68,438 BOE per day, for a five year CAGR of 87.6%.
> FANG’s LOE/BOE in 2012 was $14.14, with 3Q 2016 actual of $5.37, a 62% per unit reduction in lease operating cost.
> FANG’s G&A/BOE in 2012 was $9.62, with 3Q 2016 actual of $2.40, a 75% per unit reduction in overhead expenses.
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Morgan Stanley rates FANG a BUY with a price target of $135
Wells Fargo rates FANG a BUY with a price target of $124
Both firms have updated their forecasts since the big Permian Basin acquisition was announced.