Diamondback Trims 2020 Capital Budget, Lowers Output View

Diamondback Energy, Inc. (NASDAQ:FANG) recently announced its plan to trim its 2020 capex guidance by $1.2 billion (or in excess of 40%) to the tune of $1.5-$1.9 billion from its prior guidance of $2.58-$3 billion. This strategic move comes at a time when the ongoing turmoil in the hydrocarbon market dwindle oil prices.

Last week, Diamondback announced a cutback in its completion activity, putting all completion crews functioning for the company on a month-long hiatus. On completing the halting period, the company plans to resume its drilling activities, reactivate crews and operate three to five completion crews (indicating a reduction from 9 crews) for the remainder of the year.

It intends to slash its rig count to 10 within the first half of 2020 as contracts roll off over the next few months, and operate 6-10 rigs thereafter, reflecting an above 50% reduction in rigs from the level at the onset of this year. This Midland, TX-headquartered Diamondback expects its 2020 production volumes to be lower than the level of 195,000 barrels per day (bpd) in fourth-quarter 2019.

Even though Diamondback hopes to gain traction from these key adopted measures, it looks to closely monitor the commodity price movement, adapting to the capex adjustment plans further in response to an unpredictable price scenario.

In a separate press release, Viper Energy Partners (NASDAQ:VNOM) , a subsidiary of Diamondback announced about slashing its full-year production outlook from 22,500-27,000 boe/d to 14,000-17,000 boe/d.

With the capex reduction move, Diamondback joins other energy companies including Matador Resources Company (NYSE:MTDR) , Apache Corporation (NYSE:APA) and Occidental Petroleum Corporation (NYSE:OXY) . These companies intend to navigate through this tough phase while maintaining their financial flexibility and strong operational efficiency. It is important to note that fortifying the companies’ financials at a time when oil prices yield zero profits for most producers is considered a clever strategic move.

Price Performance

This Zacks Rank #5 (Strong Sell) company’s shares have lost 82.3% year to date compared with 77.4% decline of the industry it belongs to.

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