Letter to Stockholders Issued by Diamondback Energy, Inc.
This letter is meant to be a supplement to our earnings release and is being furnished to the
The second quarter of 2023 was characterized by volume outperformance, reduced operating and administrative expenses, decreased net debt, additional non-core divestitures and another increase to our base dividend. Further, we have line of sight to significant capex reductions through the remainder of the year, which will result in higher expected Free Cash Flow ("FCF") at current commodity prices. To summarize, we continue to execute across all facets of our business model.
Diamondback continued to execute and exceed expectations in the second quarter, with both oil and total production above the high end of our second quarter guidance ranges. As a result of this year-to-date outperformance and our continued confidence in the forward outlook, we are increasing our full year oil and total production estimates to the high end of their respective annual ranges. The midpoint of annual daily oil production moves to 261 MBO/d from 259 MBO/d, while the midpoint of annual total daily production moves to 440 MBOE/d from 435 MBOE/d.
Oil production is expected to grow slightly in the second half of the year, with third quarter oil production projected to be 262 – 265 MBO/d (440 – 445 MBOE/d). We anticipate we will continue 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 on a large scale in the
Oil realizations increased quarter over quarter to 97% of West Texas Intermediate ("WTI") pricing for the quarter. We still expect to realize at least 95% of WTI when WTI is at least
We continue to protect our downside exposure through a hedge program where we buy deferred premium puts up to 12 months in advance for oil, with a goal of being at least 60% hedged heading into a respective quarter. For gas, we hedge with wide two-way collars and a well-protected basis exposure. To us, this hedging philosophy is an insurance policy that protects against the extreme downside where we protect our dividend, still generate FCF and manage our leverage ratio.
Cash capex for the second quarter was
Our revised full year 2023 cash capex guidance is
We also expect to have higher than previously expected capital spend on midstream projects in 2023, primarily for high-return third-party water business that utilizes our extensive existing recycling and disposal infrastructure in the
Lease operating expenses (“LOE”) were lower than guidance expectations in the second quarter, primarily due to the ability of our field and operations organizations to "control what they can control", which is primarily the variable costs that make up LOE. Therefore, we are reducing our LOE guidance by
Cash G&A has trended lower than expectations due to cost control and the increase in production seen this year. Therefore, we feel comfortable reducing our annual guidance by
As it relates to non-cash costs, we increased our DD&A guidance to
Return of Capital:
Our Board continues to believe the primary method to return capital to stockholders needs to be through our base dividend, one that is sustainable and well-protected through the cycles inherent in a cyclical industry. The Board considers the base dividend to be a “debt” owed to our stockholders, and stress-tests that debt to ensure it is protected down to
Year to date, we have repurchased 5.36 million shares, which is more shares than were issued for our Lario acquisition that closed in
Total debt and net debt decreased to just under
We exceeded our non-core asset sale target of
To summarize, we remain confident in the forward outlook for the business. We continue to develop our best assets in the core of the
Thank you for your interest in
Chairman of the Board and Chief Executive Officer
Important Information Regarding Forward-Looking Statements and Non-GAAP Financial Measures
This letter contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which involve risks, uncertainties and assumptions. Important information regarding forward-looking statements is included in our earnings release furnished to the
This letter also contains certain Non-GAAP financial measures. For definitions and reconciliations of the Non-GAAP financial measures to the most directly comparable GAAP financial measures, please see our earnings release furnished to the
Source: Diamondback Energy, Inc.