Diamondback (FANG) Beats On Q3 Earnings, Ups Production View

Diamondback Energy, Inc. (NASDAQ:FANG) reported third-quarter adjusted net income per share of $1.67, ahead of the Zacks Consensus Estimate of $1.52 and the comparable 2017 period profit of $1.33 on strong production.

The Permian pure play’s total revenues of $538 million came above the Zacks Consensus Estimate of $524 million and increased 78.6% year over year. The company, which is in the process of acquiring Energen Corporation (NYSE:EGN) , saw its third-quarter adjusted EBITDA of $371.6 million increase 59.8% from $232.5 million a year ago.

Production & Realized Prices

The production of oil and natural gas averaged 123 MBOE/d (72% oil), up 44.6% from last year. Diamondback’s oil production increased 43% year over year, while natural gas volumes surged 31.5%.

The average realized crude oil price during the third quarter was $55.99 per barrel, representing an increase of 22.7% from the year-ago realization of $45.62. However, the average realized natural gas price during the September quarter of 2018 was $1.90 per thousand cubic feet (Mcf), down 24.3% from the year-ago period. Overall, the company fetched $46.59 per barrel compared with $38.25 a year ago.

Expenses

Third-quarter cash operating cost was $8.7 per barrel of oil equivalent (BOE), up from $7.67 per BOE in last year’s corresponding period. Diamondback’s lease operating expense and cash G&A expense came in at $4.34 and 78 cents, respectively, increasing from $4.15 and 73 cents incurred in the third quarter of 2017. The company, which closed the previously announced acquisition of Ajax Resources during the quarter, shelled out $321 million on drilling, completion and non-operated properties, while infrastructure and midstream budget was $74 million.

Financial Position

As of Sep 30, 2018, the Permian-focused operator with a market capitalization of almost $11 billion, had $508.4 million in cash and cash equivalents. The company had long-term debt of $2.3 billion, representing a debt-to-capitalization ratio of 28.2%. At the end of the third quarter, Diamondback had $2.7 billion undrawn credit facility.

Importantly, Diamondback delivered a good cash flow performance this year – a benchmark for the oil and gas industry – with $12 million in free cash flow since the beginning of 2018.

Guidance

The company raised its full-year production forecast to reflect a number of acquisitions and surge in output over the past 12 months. Diamondback upsized 2018 output guidance to 1118.5–119.5 MBOE/d – representing annualized production growth of 50% at the midpoint – up from previous estimate of 115–119 MBOE/d. The company also hiked its full-year capital spending outlook to $1.5–$1.575 billion from $1.4–$1.5 billion earlier on added midstream infrastructure outgo.

Zacks Rank & Stock Picks

Diamondback Energy currently retains a Zacks Rank #3 (Hold).

Some better-ranked players in the energy space are Magnolia Oil & Gas Corp. (NYSE:MGY) and Murphy Oil Corp. (NYSE:MUR) . Both have Zacks Rank #2 (Buy).

(You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.)

Murphy Oil’s earnings beat the Zacks Consensus Estimate in three of the last four quarters, the average positive surprise being 76.2%.

Meanwhile, over 30 days, Magnolia Oil & Gas has seen the Zacks Consensus Estimate for 2018 and 2019 increase 19.1% and 8.8%, to $1.37 and $1.74 per share, respectively.

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