MIDLAND, Texas, Feb 18, 2020 (GLOBE NEWSWIRE via COMTEX) -- Diamondback Energy, Inc. /zigman2/quotes/201200230/composite FANG +0.02% ("Diamondback" or the "Company") today announced financial and operating results for the fourth quarter and full year ended December 31, 2019.
FOURTH QUARTER 2019 HIGHLIGHTS
"Diamondback ended 2019 in a position of strength, achieving 5% sequential oil production growth along with our highest oil realizations of the year. This, combined with our industry-leading cost structure, resulted in 18% quarter over quarter Adjusted EBITDA growth and 31% Adjusted EPS growth in the quarter. We repurchased 2.4 million shares in the quarter for approximately $199 million, utilizing free cash flow and a $43 million gain from interest rate swaps unwound as part of our first investment grade bond offering in November to repurchase shares at a depressed valuation. Further, Diamondback did not slow operations in the second half of 2019 and maintained continuous operations with eight completion crews running consistently through the end of the year, setting us up for continued growth and operational momentum in 2020," stated Travis Stice, Chief Executive Officer of Diamondback.
FULL YEAR 2019 HIGHLIGHTS
"Looking back, 2019 was a historic year for Diamondback. We successfully integrated our merger with Energen Resources, doubling the size of our Company while achieving greater cost synergies in a shorter period of time than originally promised at time of deal announcement. We grew pro forma oil production 26% year over year with a $2.9 billion capital budget, increased our dividend by 50% and repurchased 6.4 million shares, or ~4% of our float entering the year. We sold non-core assets for over $320 million of gross proceeds, dropped down mineral interests to Viper and took our midstream business public with approximately $720 million of net proceeds to Diamondback while retaining 71% post-IPO ownership. In November, we executed the final piece of our synergy scorecard and refinanced $3.0 billion of the Company's long-term debt following our upgrade to investment grade at a weighted average 3.23% interest rate," stated Travis Stice, Chief Executive Officer of Diamondback.
Mr. Stice continued, "While we are proud of what we accomplished in 2019, we do not spend time looking backward at our tracks in the sand, but rather looking ahead and concentrating on the future. 2020 has already brought its own industry challenges, and we are focused on navigating these challenges by staying disciplined, improving our industry-leading cost structure, growing production, increasing environmental transparency, and returning more cash to stockholders as evidenced by our dividend announcement today. Should commodity prices weaken further or remain weak for an extended period of time, we will act responsibly as we have many times in the past and reduce capital spending. If commodity prices strengthen, we will grow oil production within our previously announced 2020 budget, and return cash to stockholders or pay down debt."
ENVIRONMENTAL, SOCIAL, GOVERNANCE AND COMPENSATION: RECENT AND EXPECTED CHANGES
Additionally, Diamondback today announced recent and planned changes regarding environmental, social and governance ("ESG") disclosure and performance, as well as approved and expected changes to its compensation program. The Company plans to provide additional detail for these and other changes in its upcoming proxy, which it expects to file in the second quarter of 2020.
"Diamondback has steadily made changes to compensation and governance practices as the Company has grown and the market has evolved. The Company was one of the first in our industry to remove all growth metrics from its scorecard five years ago, replacing those metrics with cost control and capital efficiency metrics while also adding return on average capital employed in 2018. The Company is taking the next step forward in 2020 by adding tangible environmental and safety targets to the scorecard. One unique aspect of Diamondback's annual cash incentive program is that while 100 percent of senior management's cash incentive compensation is tied to the scorecard, up to half of each employee's discretionary cash incentive compensation is also tied to the same scorecard, creating alignment throughout the organization. Diamondback is committed to being both best in class in terms of disclosure, but more importantly performance, when it comes to sustainable development of our natural resources in West Texas, where we are headquartered and operate," stated Steve West, Chairman of the Board of Directors of Diamondback.
Diamondback's Q4 2019 production averaged 301.3 MBOE/d (195.0 MBO/d), up 5% quarter over quarter from 287.1 MBOE/d in Q3 2019, and up 65% year over year from 182.8 MBOE/d in Q4 2018.
During the fourth quarter of 2019, Diamondback drilled 76 gross horizontal wells and turned 78 operated horizontal wells to production. The average lateral length for the wells completed during the fourth quarter was 9,393 feet. Operated completions during the fourth quarter consisted of 37 Wolfcamp A wells, 21 Lower Spraberry wells, eight Wolfcamp B wells, six Third Bone Spring wells, two Second Bone Spring wells, two Jo Mill wells, one Middle Spraberry well and one Wolfcamp D well.
For the full year ended December 31, 2019, the Company drilled 331 gross horizontal wells and turned 317 operated horizontal wells to production. The average lateral length for wells completed during the full year 2019 was 9,598 feet, and consisted of 179 Wolfcamp A wells, 64 Lower Spraberry wells, 33 Wolfcamp B wells, 11 Third Bone Spring wells, 10 Middle Spraberry wells, nine Second Bone Spring wells, eight Jo Mill wells, two Wolfcamp D wells and one Meramec well.
Diamondback recently began initial appraisal of its Limelight exploration acreage in Southeast Ector and Northeast Crane counties, completing its first well targeting the Meramec with a 4,720 foot lateral. This well, the Xanadu 31 1H, commenced with an average 30-day 2-stream initial production ("IP") rate of 104 boe/d per 1,000 feet (83% oil) and went on to achieve an average 90-day rate of 76 boe/d per 1,000 feet (82% oil).
In the Midland Basin, Diamondback continues to have success in the Middle Spraberry and Jo Mill intervals. The Company recently completed a three well pad in Midland County with an average lateral length of 9,253 feet. These wells commenced with an average peak 30-day IP rate of 113 boe/d per 1,000 feet (83% oil).
In the Delaware Basin, the Company continues to be encouraged by operated completions targeting the Second Bone Spring. Most recently, Diamondback completed the SNL 27-25 UNIT 4BS well with a 7,554 lateral in Pecos County, which achieved a peak 30-day IP rate of 154 boe/d per 1,000 feet (89% oil).
Diamondback's fourth quarter 2019 net loss was $(487) million, or $(3.04) per diluted share. Adjusted net income (a non-GAAP financial measure as defined and reconciled below) was $308 million, or $1.93 per diluted share, up 31% from $1.47 in Q3 2019 and up 60% from $1.21 in Q4 2018.
Fourth quarter 2019 Adjusted EBITDA net of non-controlling interest (as defined and reconciled below) was $827 million, up 18% from $699 million in Q3 2019 and up 82% from $455 million in Q4 2018.
Fourth quarter 2019 average realized prices were $54.74 per barrel of oil, $1.07 per Mcf of natural gas and $15.15 per barrel of natural gas liquids, resulting in a total equivalent unhedged price of $39.28/BOE. As previously indicated, Diamondback expects realized prices to improve relative to WTI through the remainder of 2020 as out of market fixed differential contracts have now rolled off and converted to Diamondback's commitments on the EPIC and Gray Oak pipelines or the current Midland market price. Based on current market differentials and estimated in-basin gathering costs, Diamondback expects to realize ~98-101% of WTI in 2020, all including the effect of current basis hedges, firm transportation agreements and in-basin gathering costs.
Diamondback's cash operating costs for the fourth quarter of 2019 were $8.77 per BOE, including lease operating expenses ("LOE") of $4.52 per BOE, cash general and administrative ("G&A") expenses of $0.54 per BOE and production and ad valorem taxes and gathering and transportation of $3.71 per BOE.
In December 2019, Diamondback completed an offering of $3.0 billion aggregate principal amount of investment grade notes, comprised of $1.0 billion of 2.875% senior notes due 2024, $800 million of 3.250% senior notes due 2026 and $1.2 billion of 3.500% senior notes due 2029. Net proceeds from these transactions were used to repay a portion of the outstanding borrowings under its credit facility, and to fully redeem $1.25 billion aggregate principal amount of its 4.750% senior notes at an aggregate purchase price of approximately $1.3 billion.
As of December 31, 2019, Diamondback had $109 million in standalone cash and approximately $13 million of outstanding borrowings under its revolving credit facility.
During the fourth quarter of 2019, Diamondback spent $652 million on drilling and completion, $23 million on non-operated properties, $15 million on infrastructure and $58 million on midstream, for total capital expenditures of $748 million. For the year ended December 31, 2019, the Company spent $2,452 million on drilling and completion, $105 million on non-operated properties, $120 million on infrastructure and $244 million on midstream, for total capital expenditures of $2,921 million.
CAPITAL RETURN PROGRAM
Diamondback announced today that the Company's Board of Directors declared a cash dividend of $0.375 per common share for the fourth quarter of 2019 payable on March 10, 2020, to stockholders of record at the close of business on March 3, 2020.
During the fourth quarter of 2019, Diamondback repurchased 2,415,000 shares of common stock for approximately $199 million. For the full year 2019, Diamondback repurchased 6,385,000 shares, or approximately 30% of the Board approved program.
The repurchase program is authorized to extend through December 31, 2020, and the Company intends to purchase stock under the repurchase program opportunistically with funds from cash generated from operations and liquidity events such as the sale of assets. This repurchase program may be suspended from time to time, modified, extended or discontinued by the Board of Directors at any time. Purchases under the repurchase program may be made from time to time in open market or privately negotiated transactions in compliance with Rule 10b-18 under the Securities Exchange Act of 1934, as amended, and will be subject to market conditions, applicable legal requirements, contractual obligations and other factors. Any stock purchased as part of this program will be retired and made available for future issuances by the Company.
Ryder Scott Company, L.P. prepared estimates of Diamondback's proved reserves as of December 31, 2019. Reference prices of $55.69 per barrel of oil and $2.58 per MMbtu of natural gas were used in accordance with applicable rules of the Securities and Exchange Commission. Realized prices with applicable differentials were $51.88 per barrel of oil, $0.18 per Mcf of natural gas and $15.65 per barrel of natural gas liquids.
Proved reserves at year-end 2019 of 1,128 MMboe represent a 14% increase over year-end 2018 reserves. Proved developed reserves increased by 18% to 760 MMboe (67% of total proved reserves) as of December 31, 2019, reflecting the continued development of the Company's horizontal well inventory. Proved undeveloped reserves ("PUD" or "PUDs") increased to 368 MMboe, a 6% increase over year-end 2018, and are comprised of 499 locations, 97 which are in the Delaware Basin. Crude oil represents 63% of Diamondback's total proved reserves.
Net proved reserve additions of 239 MMboe resulted in a reserve replacement ratio of 231% (defined as the sum of extensions, discoveries, revisions and purchases, divided by annual production). The organic reserve replacement ratio was 250% (defined as the sum of extensions, discoveries and revisions, divided by annual production).
Extensions and discoveries of reserves were the primary contributor to the increase in reserves totaling 376 MMboe followed by net purchases of reserves totaling 21 MMboe, with divestitures of 41 MMboe and downward revisions of 118 MMboe. PDP extensions accounted for 41% of the total increase in reserves. PDP extensions were the result of 283 wells in which the Company has a working interest, and PUD extensions were the result of 291 new locations in which the Company has a working interest. Net divestitures of reserves of 20 MMboe were the net result of acquisitions of 21 MMboe and divestitures of 41 MMboe primarily associated with the sale of the Company's conventional Central Basin Platform assets. Downward revisions of 118 MMboe were the result of negative revisions due to lower product pricing of 42 MMboe and PUD downgrades of 70 MMboe primarily from changes in the corporate development plan and inventory optimization. These revisions were partially offset by positive performance revisions of 10 MMboe from increased NGL recoveries.
88% of the PUD downgrades, or 61 MMboe, are related to the reclassification of PUDs to non-proved categories that do not fit in the Company's current three year development plan due to inventory optimization and high grading after the Energen and Diamondback merger. The SEC PUD guidelines allow a company to book PUD reserves associated with projects that are to occur within the next five years, but Diamondback takes a more conservative approach to the booking of PUD reserves by choosing to book minimal PUD reserves outside of its three year development plan. The benefit of booking PUDs has decreased as the Company has grown and no longer has a reserve-based revolving credit facility after earning investment grade status in late 2019. With its current development plan, the Company expects to continue its strong PUD conversion ratio in 2020 by converting an estimated 35% of its PUDs to a Proved Developed category, and develop ~66% of the consolidated 2019 year-end PUD reserves by the end of 2021.