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Diamondback Energy, Inc. reported a net income of $915 million for the third quarter, compared to $1.18 billion in the prior-year period.
The company’s adjusted net income for the quarter was $990 million, or $5.49 per diluted share, beating the Zacks Consensus Estimate of $4.90 per share. Diamondback posted revenues of $2.34 billion for the quarter ended September, compared to $2.44 billion in the same period in 2022, and surpassing the Zacks Consensus Estimate by 7.49 percent.
In the third quarter, Diamondback spent $611 million on operated and non-operated drilling and completions, $34 million on infrastructure and environmental, and $39 million on midstream, for total cash capital expenditures of $684 million, the Texas-based company said in an earnings release Monday.
On the operations side, Diamondback drilled 79 gross wells in the Midland Basin and seven gross wells in the Delaware Basin for the quarter. The company said it turned 73 operated wells to production in the Midland Basin and one gross well in the Delaware Basin with an average lateral length of 11,864 feet. For the first nine months of the year, Diamondback drilled 235 gross wells in the Midland Basin and 31 gross wells in the Delaware Basin. The company turned 213 operated wells to production in the Midland Basin and 38 operated wells to production in the Delaware Basin. The average lateral length for wells completed during the first nine months of 2023 was 11,184 feet.
In a letter to stockholders posted on the company’s website, Diamondback Chairman and CEO Travis Stice said the third quarter “can be summarized as a significant quarter-over-quarter increase to stockholder returns and reduced capital and operating expenses”, adding that the company’s total debt and net debt also decreased by over $300 million and $1 billion, respectively, in the quarter due to the closing of multiple non-core asset sales.
Third-quarter oil and total production were both above the high end of their guidance ranges at 266.1 thousand barrels of oil per day (MBO/d) and 452.8 thousand barrels of oil equivalent (MBOE/d) respectively, Stice noted in the letter. “As a result of this outperformance, combined with the addition of volumes from Viper’s mineral acquisition from GRP that closed last week, we are increasing our full-year oil and total production estimates above their prior ranges. The midpoint of annual daily oil production moves to approximately 263 MBO/d from 261 MBO/d, while the midpoint of annual total daily production moves to approximately 447 MBOE/d from 440 MBOE/d”, Stice continued.
In September, Viper Energy Partners LP, a subsidiary of Diamondback, announced it was acquiring mineral and royalty interests from affiliates of Warwick Capital Partners LLP and GRP Energy Capital LLC in exchange for approximately 9.02 million Viper common units and $750 million in cash, subject to customary adjustments. The acquisition includes approximately 4,600 net royalty acres in the Permian Basin, plus an additional 2,700 net royalty acres in other major basins, totaling roughly 7,300 net royalty acres.
“Production is again expected to grow in the fourth quarter, with estimated fourth-quarter oil production projected to be 269 – 273 MBO/d (455 – 460 MBOE/d)”, Stice wrote. “We continue to expect to grow oil production organically at a low single-digit annual pace next year with a similar level of activity to this year. This is primarily a result of the quality of the acreage we are developing in the Midland Basin with long laterals, multi-well pads, and a high mineral interest across the portfolio”.
Also in September, Diamondback and Five Point Energy LLC formed a joint venture (JV), Deep Blue Midland Basin LLC, which creates the largest independent water infrastructure platform in the Midland Basin with substantial excess capacity in place to pursue third-party growth. The joint venture resulted in an integrated midstream water infrastructure network with over 800 miles of pipelines for gathering, transport, disposal, and reuse, as well as a permitted disposal capacity of approximately two million barrels per day and over 65 million barrels of water storage, extensive recycling facilities in place with the capacity to supply over 500,000 barrels per day of recycled water for completions activity.
Referring to Deep Blue Midland Basin, Stice wrote, “This JV, of which Diamondback retained 30 percent ownership, creates the largest independent water business in the Midland Basin and brought in proceeds of ~$500 million to Diamondback. We are excited about the early commercial success of the JV, and believe there is significant potential for future growth in this business, both organic and inorganic. The Deep Blue team also brings expertise for the next wave of oilfield water management, including water recycling, enhanced evaporation and eventually desalination”.
“All in all, we believe the upfront cash proceeds and potential for value creation at the JV far outweigh the go-forward financial impacts”, Stice remarked.
The CEO also discussed plans for the company’s non-core asset sales. Stice wrote, “We have now announced and closed non-core asset sales for gross proceeds of approximately $1.7 billion, significantly exceeding our target of at least $1.0 billion of sales by year-end 2023. While we still have significant value remaining in our portfolio of midstream assets that may be monetized at some point in the future, we are not going to increase our non-core asset sale target at this point”.
“We remain confident in our business model, the durability of our inventory, and our ability to convert that inventory into cash flow efficiently for many years to come. We believe in the pure-play independent E&P business model, and know we can compete for investor capital in a consolidated space” Stice concluded. “While we recognize size and scale are being rewarded by the public markets, we have to get ‘better’ when we get ‘bigger’, which we have proven through many acquisitions and subsequent execution over the years”.
To contact the author, email rocky.teodoro@rigzone.com
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