UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of report (Date of earliest event reported): February 20, 2024
___________
(Exact Name of Registrant as Specified in Charter)
(State or other jurisdiction of incorporation) | (Commission File Number) | (I.R.S. Employer Identification Number) | |||||||||||||||
| (Address of principal executive offices) | (Zip code) | ||||||||||||||||
(432 ) 221-7400
(Registrant's telephone number, including area code)
Not Applicable
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K is intended to simultaneously satisfy the filing obligation of the Registrant under any of the following provisions:
Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||
| (NASDAQ Global Select Market) | ||||||||
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Item 2.02. Results of Operations and Financial Condition.
On February 20, 2024, Diamondback Energy, Inc. (the “Company”) issued a press release announcing financial and operating results for the fourth quarter and full year ended December 31, 2023 and announcing the fourth quarter 2023 base and variable cash dividends (the “earnings release”). A copy of the earnings release is furnished to the Securities and Exchange Commission (the “SEC”) as Exhibit 99.1 to this Current Report on Form 8-K. The Company also issued a letter to its stockholders as a supplement to the earnings release, which is furnished to the SEC as Exhibit 99.2 to this Current Report on Form 8-K.
Item 9.01. Financial Statements and Exhibits.
(d) Exhibits
| Exhibit Number | Description | |||||||
| 99.1 | ||||||||
| 99.2 | ||||||||
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL). | |||||||
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| DIAMONDBACK ENERGY, INC. | ||||||||||||||
| Date: | February 20, 2024 | |||||||||||||
| By: | /s/ Teresa L. Dick | |||||||||||||
| Name: | Teresa L. Dick | |||||||||||||
| Title: | Executive Vice President, Chief Accounting Officer and Assistant Secretary | |||||||||||||
Exhibit 99.1
DIAMONDBACK ENERGY, INC. ANNOUNCES FOURTH QUARTER AND FULL YEAR 2023 FINANCIAL AND OPERATING RESULTS
Midland, TX (February 20, 2024) - Diamondback Energy, Inc. (NASDAQ: FANG) (“Diamondback” or the “Company”) today announced financial and operating results for the fourth quarter and full year ended December 31, 2023.
FOURTH QUARTER 2023 HIGHLIGHTS
•Average production of 273.1 MBO/d (462.6 MBOE/d)
•Net cash provided by operating activities of $1.6 billion; Operating Cash Flow Before Working Capital Changes (as defined and reconciled below) of $1.6 billion
•Cash capital expenditures of $649 million
•Free Cash Flow (as defined and reconciled below) of $910 million
•Increased annual base dividend by 7% to $3.60 per share; declared Q4 2023 base cash dividend of $0.90 per share and a variable cash dividend of $2.18 per share, in each case payable on March 12, 2024; implies an 6.9% annualized yield based on February 16, 2024 closing share price of $179.42
•Repurchased 872,667 shares of common stock in Q4 2023 for $129 million, excluding excise tax (at a weighted average price of $148.15/share); repurchased 279,266 shares of common stock to date in Q1 2024 for $42 million, excluding excise tax (at a weighted average price of $149.50/share)
•Total Q4 2023 return of capital of $683 million; represents ~75% of Q4 2023 Free Cash Flow (as defined and reconciled below) from stock repurchases and the declared Q4 2023 base-plus-variable dividend
FULL YEAR 2023 HIGHLIGHTS
•Average production of 263.5 MBO/d (447.7 MBOE/d)
•Net cash provided by operating activities of $5.9 billion; Operating Cash Flow Before Working Capital Changes (as defined and reconciled below) of $5.6 billion
•Cash capital expenditures of $2.7 billion
•Generated Free Cash Flow (as defined and reconciled below) of $2.9 billion
•Declared total base-plus-variable dividends of $8.12 per share for the full year 2023
•Repurchased 6,237,893 shares of common stock in 2023 for $838 million, excluding excise tax (at a weighted average price of $134.37/share)
•Total full year 2023 return of capital of $2.3 billion from stock repurchases and declared base-plus-variable dividends; represents ~79% of FY 2023 Free Cash Flow (as defined and reconciled below)
•Proved reserves as of December 31, 2023 of 2,178 MMBOE (1,144 MBO, 53% oil), up 7% year over year; proved developed producing ("PDP") reserves of 1,497 MMBOE (744 MBO, 50% oil, 69% of proved reserves), up 7% year over year
2024 GUIDANCE HIGHLIGHTS
•Full year 2024 oil production guidance of 270 - 275 MBO/d (458 - 466 MBOE/d)
•Full year 2024 cash capital expenditures guidance of $2.30 - $2.55 billion
•The Company expects to drill between 265 - 285 gross (244 - 263 net) wells and complete between 300 - 320 gross (273 - 291 net) wells with an average lateral length of approximately 11,500 feet in 2024
•Q1 2024 oil production guidance of 270 - 274 MBO/d (458 - 464 MBOE/d)
•Q1 2024 cash capital expenditures guidance of $580 - $620 million
OPERATIONS UPDATE
The tables below provide a summary of operating activity for the fourth quarter of 2023.
| Total Activity (Gross Operated): | |||||||||||
| Number of Wells Drilled | Number of Wells Completed | ||||||||||
| Midland Basin | 80 | 50 | |||||||||
| Delaware Basin | 4 | 9 | |||||||||
| Total | 84 | 59 | |||||||||
| Total Activity (Net Operated): | |||||||||||
| Number of Wells Drilled | Number of Wells Completed | ||||||||||
| Midland Basin | 70 | 45 | |||||||||
| Delaware Basin | 3 | 8 | |||||||||
| Total | 73 | 53 | |||||||||
During the fourth quarter of 2023, Diamondback drilled 80 gross wells in the Midland Basin and four gross wells in the Delaware Basin. The Company turned 50 operated wells to production in the Midland Basin and nine gross well in the Delaware Basin with an average lateral length of 11,457 feet. Operated completions during the fourth quarter consisted of 14 Lower Spraberry wells, 14 Wolfcamp A wells, 13 Wolfcamp B wells, nine Jo Mill wells, four Third Bone Spring wells, three Middle Spraberry wells and two Wolfcamp D wells.
For the year ended December 31, 2023, Diamondback drilled 315 gross wells in the Midland Basin and 35 gross wells in the Delaware Basin. The Company turned 263 operated wells to production in the Midland Basin and 47 operated wells to production in the Delaware Basin. The average lateral length for wells completed during the year ended December 31, 2023 was 11,236 feet, and consisted of 83 Lower Spraberry wells, 78 Wolfcamp A wells, 54 Wolfcamp B wells, 41 Jo Mill wells, 21 Middle Spraberry wells, 19 Third Bone Spring wells, eight Second Bone Spring wells, two Upper Spraberry wells, two Wolfcamp D wells and two Barnett wells.
FINANCIAL UPDATE
Diamondback's fourth quarter 2023 net income was $960 million, or $5.34 per diluted share. Adjusted net income (as defined and reconciled below) was $854 million, or $4.74 per diluted share.
Fourth quarter 2023 net cash provided by operating activities was $1.6 billion. For the year ended December 31, 2023, Diamondback's net cash provided by operating activities was $5.9 billion.
During the fourth quarter of 2023, Diamondback spent $603 million on operated and non-operated drilling and completions, $31 million on infrastructure and environmental and $15 million on midstream, for total cash capital expenditures of $649 million for the quarter. For the year ended December 31, 2023, Diamondback spent $2.4 billion on operated and non-operated drilling and completions, $153 million on infrastructure and environmental and $119 million on midstream, for total cash capital expenditures of $2.7 billion.
Fourth quarter 2023 Consolidated Adjusted EBITDA (as defined and reconciled below) was $1.7 billion. Adjusted EBITDA net of non-controlling interest (as defined and reconciled below) was $1.6 billion.
Diamondback's fourth quarter 2023 Free Cash Flow (as defined and reconciled below) was $910 million. For the year ended December 31, 2023, Diamondback's Free Cash Flow was $2.9 billion.
Fourth quarter 2023 average unhedged realized prices were $76.42 per barrel of oil, $1.29 per Mcf of natural gas and $19.96 per barrel of natural gas liquids ("NGLs"), resulting in a total equivalent unhedged realized price of $50.87 per BOE.
Diamondback's cash operating costs for the fourth quarter of 2023 were $10.83 per BOE, including lease operating expenses ("LOE") of $5.97 per BOE, cash general and administrative ("G&A") expenses of $0.59 per BOE, production and ad valorem taxes of $2.44 per BOE and gathering, processing and transportation expenses of $1.83 per BOE.
As of December 31, 2023, Diamondback had $556 million in standalone cash and no borrowings under its revolving credit facility, with approximately $1.6 billion available for future borrowing under the facility and approximately $2.2 billion of total liquidity. As of December 31, 2023, the Company had consolidated total debt of $6.8 billion and consolidated net debt of $6.2 billion, up from consolidated total debt of $6.4 billion and net debt of $5.6 billion as of September 30, 2023.
DIVIDEND DECLARATIONS
Diamondback announced today that the Company's Board of Directors declared a base cash dividend of $0.90 per common share for the fourth quarter of 2023 payable on March 12, 2024, to stockholders of record at the close of business on March 5, 2024.
The Company's Board of Directors also declared a variable cash dividend of $2.18 per common share for the fourth quarter of 2023 payable on March 12, 2024, to stockholders of record at the close of business on March 5, 2024.
Future base and variable dividends remain subject to review and approval at the discretion of the Company's Board of Directors.
COMMON STOCK REPURCHASE PROGRAM
During the fourth quarter of 2023, Diamondback repurchased 872,667 shares of common stock at an average share price of $148.15 for a total cost of approximately $129 million, excluding excise tax. To date, Diamondback has repurchased 19,337,765 shares of common stock at an average share price of $124.52 for a total cost of approximately $2.4 billion and has approximately $1.6 billion remaining on its current share buyback authorization. Diamondback intends to continue to purchase common stock under the common stock repurchase program opportunistically with cash on hand, free cash flow from operations and proceeds from potential liquidity events such as the sale of assets. This repurchase program has no time limit and may be suspended from time to time, modified, extended or discontinued by the Board at any time. Purchases under the repurchase program may be made from time to time in privately negotiated transactions, or in open market 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 and other factors. Any common stock purchased as part of this program will be retired.
RESERVES
Estimates of Diamondback's proved reserves as of December 31, 2023 were prepared by Diamondback's internal reservoir engineers and audited by Ryder Scott Company, L.P., an independent petroleum engineering firm. Reference prices of $78.22 per barrel of oil and $2.64 per Mmbtu of natural gas were used in accordance with applicable rules of the Securities and Exchange Commission. Realized prices with applicable differentials were $77.62 per barrel of oil, $1.53 per Mcf of natural gas and $24.40 per barrel of natural gas liquids.
Proved reserves at year-end 2023 of 2,178 MMBOE represent a 7% increase over year-end 2022 reserves. Proved developed reserves increased by 7% to 1,497 MMBOE (69% of total proved reserves) as of December 31, 2023, reflecting the continued development of the Company's horizontal well inventory. Proved undeveloped reserves ("PUD" or "PUDs") increased to 681 MMBOE, an 8% increase over year-end 2022, and are comprised of 802 locations, of which 727 are in the Midland Basin. Crude oil represents 53% of Diamondback's total proved reserves.
Net proved reserve additions of 308 MMBOE resulted in a reserve replacement ratio of 189% (defined as the sum of extensions and discoveries, revisions, purchases and divestitures, divided by annual production). The organic reserve replacement ratio was 184% (defined as the sum of extensions and discoveries and revisions, divided by annual production).
Extensions and discoveries of reserves were the primary contributor to the increase in reserves totaling 356 MMBOE followed by net purchases of reserves totaling 6 MMBOE, with downward revisions of 54 MMBOE. PDP extensions were the result of 954 new wells in which the Company has an interest, and PUD extensions were the result of 344 new locations in which the Company has a working interest. Net purchases of reserves of 6 MMBOE were the net result of acquisitions of 70 MMBOE and divestitures of 64 MMBOE. Downward revisions of 54 MMBOE were primarily the result of 62 MMBOE associated with lower commodity prices partially offset by positive performance revisions and other adjustments.
The SEC PUD guidelines allow a company to book PUD reserves associated with projects that are to occur within the next five years. With its current development plan, the Company expects to continue its strong PUD conversion ratio in 2024 by converting an estimated 38% of its PUDs to a Proved Developed category, and develop approximately 83% of the consolidated 2023 year-end PUD reserves by the end of 2026.
| Oil (MBbls) | Gas (MMcf) | Liquids (MBbls) | MBOE | ||||||||||||||||||||
| As of December 31, 2022 | 1,069,508 | 2,868,861 | 485,319 | 2,032,971 | |||||||||||||||||||
| Extensions and discoveries | 206,562 | 424,881 | 78,498 | 355,874 | |||||||||||||||||||
| Revisions of previous estimates | (56,482) | (47,697) | 9,962 | (54,470) | |||||||||||||||||||
| Purchase of reserves in place | 41,790 | 79,507 | 15,440 | 70,481 | |||||||||||||||||||
| Divestitures | (21,258) | (130,013) | (20,755) | (63,682) | |||||||||||||||||||
| Production | (96,176) | (198,117) | (34,217) | (163,413) | |||||||||||||||||||
| As of December 31, 2023 | 1,143,944 | 2,997,422 | 534,247 | 2,177,761 | |||||||||||||||||||
Diamondback's exploration and development costs in 2023 were $2.7 billion. PD F&D costs were $9.73/BOE. PD F&D costs are defined as exploration and development costs, excluding midstream, divided by the sum of reserves associated with transfers from proved undeveloped reserves at year-end 2022 including any associated revisions in 2023 and extensions and discoveries placed on production during 2022. Drill bit F&D costs were $9.06/BOE including the effects of all revisions including pricing revisions. Drill bit F&D costs are defined as the exploration and development costs, excluding midstream, divided by the sum of extensions, discoveries and revisions.
| Year Ended December 31, | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| (In millions) | |||||||||||||||||
| Acquisition costs: | |||||||||||||||||
| Proved properties | $ | 1,314 | $ | 778 | $ | 2,805 | |||||||||||
| Unproved properties | 1,701 | 1,536 | 1,829 | ||||||||||||||
| Development costs | 1,962 | 566 | 516 | ||||||||||||||
| Exploration costs | 768 | 1,698 | 1,223 | ||||||||||||||
| Total | $ | 5,745 | $ | 4,578 | $ | 6,373 | |||||||||||
FULL YEAR 2024 GUIDANCE
Below is Diamondback's guidance for the full year 2024, which includes first quarter production, cash tax and capital guidance.
2024 Guidance | 2024 Guidance | |||||||
| Diamondback Energy, Inc. | Viper Energy, Inc. | |||||||
| Net production - MBOE/d | 458 - 466 | 45.50 - 49.00 | ||||||
| Oil production - MBO/d | 270 - 275 | 25.50 - 27.50 | ||||||
Q1 2024 oil production - MBO/d (total - MBOE/d) | 270 - 274 (458 - 464) | 25.00 - 25.50 (44.75 - 45.50) | ||||||
| Unit costs ($/BOE) | ||||||||
| Lease operating expenses, including workovers | $6.00 - $6.50 | |||||||
| G&A | ||||||||
| Cash G&A | $0.55 - $0.65 | $0.80 - $1.00 | ||||||
| Non-cash equity-based compensation | $0.40 - $0.50 | $0.10 - $0.15 | ||||||
| DD&A | $10.50 - $11.50 | $11.00 - $11.50 | ||||||
| Interest expense (net of interest income) | $1.05 - $1.25 | $4.00 - $4.50 | ||||||
Gathering, processing and transportation | $1.80 - $2.00 | |||||||
| Production and ad valorem taxes (% of revenue) | ~7% | ~7% | ||||||
| Corporate tax rate (% of pre-tax income) | 23% | 20% - 22% | ||||||
| Cash tax rate (% of pre-tax income) | 15% - 18% | |||||||
Q1 2024 Cash taxes ($ - million) | $150 - $190 | $10.0 - $15.0 | ||||||
| Capital Budget ($ - million) | ||||||||
| Drilling, completion, capital workovers, and non-operated properties | $2,100 - $2,330 | |||||||
Infrastructure and midstream | $200 - $220 | |||||||
2024 Capital expenditures | $2,300 - $2,550 | |||||||
Q1 2024 Capital expenditures | $580 - $620 | |||||||
| Gross horizontal wells drilled (net) | 265 - 285 (244 - 263) | |||||||
| Gross horizontal wells completed (net) | 300 - 320 (273 - 291) | |||||||
| Average lateral length (Ft.) | ~11,500' | |||||||
FY 2024 Midland Basin well costs per lateral foot | $600 - $650 | |||||||
FY 2024 Delaware Basin well costs per lateral foot | $875 - $925 | |||||||
| Midland Basin net lateral feet (%) | ~90% | |||||||
| Delaware Basin net lateral feet (%) | ~10% | |||||||
CONFERENCE CALL
Diamondback will host a conference call and webcast for investors and analysts to discuss its results for the fourth quarter of 2023 on Wednesday, February 21, 2024 at 8:00 a.m. CT. Access to the webcast, and replay which will be available following the call, may be found here. The live webcast of the earnings conference call will also be available via Diamondback’s website at www.diamondbackenergy.com under the “Investor Relations” section of the site.
About Diamondback Energy, Inc.
Diamondback is an independent oil and natural gas company headquartered in Midland, Texas focused on the acquisition, development, exploration and exploitation of unconventional, onshore oil and natural gas reserves primarily in the Permian Basin in West Texas. For more information, please visit www.diamondbackenergy.com.
Forward-Looking Statements
This news release contains “forward-looking statements” within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act, which involve risks, uncertainties, and assumptions. All statements, other than statements of historical fact, including statements regarding Diamondback’s: future performance; business strategy; future operations (including drilling plans and capital plans); estimates and projections of revenues, losses, costs, expenses, returns, cash flow, and financial position; reserve estimates and its ability to replace or increase reserves; anticipated benefits of strategic transactions (including acquisitions and divestitures); and plans and objectives of management (including plans for future cash flow from operations and for executing environmental strategies) are forward-looking statements. When used in this news release, the words “aim,” “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “forecast,” “future,” “guidance,” “intend,” “may,” “model,” “outlook,” “plan,” “positioned,” “potential,” “predict,” “project,” “seek,” “should,” “target,” “will,” “would,” and similar expressions (including the negative of such terms) as they relate to Diamondback are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words. Although Diamondback believes that the expectations and assumptions reflected in its forward-looking statements are reasonable as and when made, they involve risks and uncertainties that are difficult to predict and, in many cases, beyond Diamondback’s control. Accordingly, forward-looking statements are not guarantees of future performance and Diamondback’s actual outcomes could differ materially from what Diamondback has expressed in its forward-looking statements.
Factors that could cause the outcomes to differ materially include (but are not limited to) the following: changes in supply and demand levels for oil, natural gas, and natural gas liquids, and the resulting impact on the price for those commodities; the impact of public health crises, including epidemic or pandemic diseases, and any related company or government policies or actions; actions taken by the members of OPEC and Russia affecting the production and pricing of oil, as well as other domestic and global political, economic, or diplomatic developments, including any impact of the ongoing war in Ukraine and Israel-Hamas war on the global energy markets and geopolitical stability; instability in the financial sector; concerns over a potential economic slowdown or recession; inflationary pressures; rising interest rates and their impact on the cost of capital; regional supply and demand factors, including delays, curtailment delays or interruptions of production, or governmental orders, rules or regulations that impose production limits; federal and state legislative and regulatory initiatives relating to hydraulic fracturing, including the effect of existing and future laws and governmental regulations; physical and transition risks relating to climate change and the risks and other factors disclosed in Diamondback’s filings with the Securities and Exchange Commission, including its Forms 10-K, 10-Q and 8-K, which can be obtained free of charge on the Securities and Exchange Commission’s web site at http://www.sec.gov.
In light of these factors, the events anticipated by Diamondback’s forward-looking statements may not occur at the time anticipated or at all. Moreover, Diamondback operates in a very competitive and rapidly changing environment and new risks emerge from time to time. Diamondback cannot predict all risks, nor can it assess the impact of all factors on its business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those anticipated by any forward-looking statements it may make. Accordingly, you should not place undue reliance on any forward-looking statements made in this news release. All forward-looking statements speak only as of the date of this news release or, if earlier, as of the date they were made. Diamondback does not intend to, and disclaims any obligation to, update or revise any forward-looking statements unless required by applicable law.
| Diamondback Energy, Inc. | |||||||||||
Consolidated Balance Sheets | |||||||||||
| (unaudited, in millions, except share amounts) | |||||||||||
| December 31, | December 31, | ||||||||||
| 2023 | 2022 | ||||||||||
| Assets | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | 582 | $ | 157 | |||||||
| Restricted cash | 3 | 7 | |||||||||
| Accounts receivable: | |||||||||||
| Joint interest and other, net | 192 | 104 | |||||||||
| Oil and natural gas sales, net | 654 | 618 | |||||||||
| Income tax receivable | 1 | 284 | |||||||||
| Inventories | 63 | 67 | |||||||||
| Derivative instruments | 17 | 132 | |||||||||
| Prepaid expenses and other current assets | 109 | 23 | |||||||||
| Total current assets | 1,621 | 1,392 | |||||||||
| Property and equipment: | |||||||||||
Oil and natural gas properties, full cost method of accounting ($8,659 million and $8,355 million excluded from amortization at December 31, 2023 and December 31, 2022, respectively) | 42,430 | 37,122 | |||||||||
| Other property, equipment and land | 673 | 1,481 | |||||||||
| Accumulated depletion, depreciation, amortization and impairment | (16,429) | (14,844) | |||||||||
| Property and equipment, net | 26,674 | 23,759 | |||||||||
| Funds held in escrow | — | 119 | |||||||||
| Equity method investments | 529 | 566 | |||||||||
| Assets held for sale | — | 158 | |||||||||
| Derivative instruments | 1 | 23 | |||||||||
| Deferred income taxes, net | 45 | 64 | |||||||||
| Investment in real estate, net | 84 | 86 | |||||||||
| Other assets | 47 | 42 | |||||||||
| Total assets | $ | 29,001 | $ | 26,209 | |||||||
| Liabilities and Stockholders’ Equity | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable - trade | $ | 261 | $ | 127 | |||||||
| Accrued capital expenditures | 493 | 480 | |||||||||
| Current maturities of long-term debt | — | 10 | |||||||||
| Other accrued liabilities | 475 | 399 | |||||||||
| Revenues and royalties payable | 764 | 619 | |||||||||
| Derivative instruments | 86 | 47 | |||||||||
| Income taxes payable | 29 | 34 | |||||||||
| Total current liabilities | 2,108 | 1,716 | |||||||||
| Long-term debt | 6,641 | 6,238 | |||||||||
| Derivative instruments | 122 | 148 | |||||||||
| Asset retirement obligations | 239 | 336 | |||||||||
| Deferred income taxes | 2,449 | 2,069 | |||||||||
| Other long-term liabilities | 12 | 12 | |||||||||
| Total liabilities | 11,571 | 10,519 | |||||||||
| Stockholders’ equity: | |||||||||||
Common stock, $0.01 par value; 400,000,000 shares authorized; 178,723,871 and 179,840,797 shares issued and outstanding at December 31, 2023 and December 31, 2022, respectively | 2 | 2 | |||||||||
| Additional paid-in capital | 14,142 | 14,213 | |||||||||
| Retained earnings (accumulated deficit) | 2,489 | 801 | |||||||||
| Accumulated other comprehensive income (loss) | (8) | (7) | |||||||||
| Total Diamondback Energy, Inc. stockholders’ equity | 16,625 | 15,009 | |||||||||
| Non-controlling interest | 805 | 681 | |||||||||
| Total equity | 17,430 | 15,690 | |||||||||
| Total liabilities and stockholders' equity | $ | 29,001 | $ | 26,209 | |||||||
| Diamondback Energy, Inc. | |||||||||||||||||||||||
| Condensed Consolidated Statements of Operations | |||||||||||||||||||||||
| (unaudited, $ in millions except per share data, shares in thousands) | |||||||||||||||||||||||
| Three Months Ended December 31, | Year Ended December 31, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Revenues: | |||||||||||||||||||||||
| Oil, natural gas and natural gas liquid sales | $ | 2,165 | $ | 2,008 | $ | 8,228 | $ | 9,566 | |||||||||||||||
| Sales of purchased oil | 52 | — | 111 | — | |||||||||||||||||||
| Other operating income | 11 | 22 | 73 | 77 | |||||||||||||||||||
| Total revenues | 2,228 | 2,030 | 8,412 | 9,643 | |||||||||||||||||||
| Costs and expenses: | |||||||||||||||||||||||
| Lease operating expenses | 254 | 161 | 872 | 652 | |||||||||||||||||||
| Production and ad valorem taxes | 104 | 116 | 525 | 611 | |||||||||||||||||||
| Gathering, processing and transportation | 78 | 67 | 287 | 258 | |||||||||||||||||||
| Purchased oil expense | 52 | — | 111 | — | |||||||||||||||||||
| Depreciation, depletion, amortization and accretion | 469 | 365 | 1,746 | 1,344 | |||||||||||||||||||
| General and administrative expenses | 39 | 35 | 150 | 144 | |||||||||||||||||||
| Merger and integration expense | — | 3 | 11 | 14 | |||||||||||||||||||
| Other operating expenses | 27 | 27 | 140 | 112 | |||||||||||||||||||
| Total costs and expenses | 1,023 | 774 | 3,842 | 3,135 | |||||||||||||||||||
| Income (loss) from operations | 1,205 | 1,256 | 4,570 | 6,508 | |||||||||||||||||||
| Other income (expense): | |||||||||||||||||||||||
| Interest expense, net | (37) | (37) | (175) | (159) | |||||||||||||||||||
| Other income (expense), net | (1) | (2) | 68 | (5) | |||||||||||||||||||
| Gain (loss) on derivative instruments, net | 99 | 91 | (259) | (586) | |||||||||||||||||||
| Gain (loss) on extinguishment of debt | — | (40) | (4) | (99) | |||||||||||||||||||
| Income (loss) from equity investments, net | 9 | 21 | 48 | 77 | |||||||||||||||||||
| Total other income (expense), net | 70 | 33 | (322) | (772) | |||||||||||||||||||
| Income (loss) before income taxes | 1,275 | 1,289 | 4,248 | 5,736 | |||||||||||||||||||
| Provision for (benefit from) income taxes | 264 | 261 | 912 | 1,174 | |||||||||||||||||||
| Net income (loss) | 1,011 | 1,028 | 3,336 | 4,562 | |||||||||||||||||||
| Net income (loss) attributable to non-controlling interest | 51 | 21 | 193 | 176 | |||||||||||||||||||
| Net income (loss) attributable to Diamondback Energy, Inc. | $ | 960 | $ | 1,007 | $ | 3,143 | $ | 4,386 | |||||||||||||||
| Earnings (loss) per common share: | |||||||||||||||||||||||
| Basic | $ | 5.34 | $ | 5.62 | $ | 17.34 | $ | 24.61 | |||||||||||||||
| Diluted | $ | 5.34 | $ | 5.62 | $ | 17.34 | $ | 24.61 | |||||||||||||||
| Weighted average common shares outstanding: | |||||||||||||||||||||||
| Basic | 178,811 | 177,640 | 179,999 | 176,539 | |||||||||||||||||||
| Diluted | 178,811 | 177,640 | 179,999 | 176,539 | |||||||||||||||||||
| Diamondback Energy, Inc. | |||||||||||||||||||||||
Consolidated Statements of Cash Flows | |||||||||||||||||||||||
| (unaudited, in millions) | |||||||||||||||||||||||
| Three Months Ended December 31, | Year Ended December 31, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Cash flows from operating activities: | |||||||||||||||||||||||
| Net income (loss) | $ | 1,011 | $ | 1,028 | $ | 3,336 | $ | 4,562 | |||||||||||||||
| Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | |||||||||||||||||||||||
| Provision for (benefit from) deferred income taxes | 193 | 345 | 378 | 720 | |||||||||||||||||||
| Depreciation, depletion, amortization and accretion | 469 | 365 | 1,746 | 1,344 | |||||||||||||||||||
| (Gain) loss on extinguishment of debt | — | 40 | 4 | 99 | |||||||||||||||||||
| (Gain) loss on derivative instruments, net | (99) | (91) | 259 | 586 | |||||||||||||||||||
| Cash received (paid) on settlement of derivative instruments | (48) | (34) | (110) | (850) | |||||||||||||||||||
| (Income) loss from equity investment, net | (9) | (21) | (48) | (77) | |||||||||||||||||||
| Equity-based compensation expense | 14 | 13 | 54 | 55 | |||||||||||||||||||
| Other | 28 | 28 | 5 | 85 | |||||||||||||||||||
| Changes in operating assets and liabilities: | |||||||||||||||||||||||
| Accounts receivable | 147 | 66 | (71) | (47) | |||||||||||||||||||
| Income tax receivable | 16 | (282) | 283 | (283) | |||||||||||||||||||
| Prepaid expenses and other current assets | (94) | 37 | (89) | 21 | |||||||||||||||||||
| Accounts payable and accrued liabilities | 11 | (18) | 57 | (47) | |||||||||||||||||||
| Income taxes payable | (9) | 3 | (5) | 17 | |||||||||||||||||||
| Revenues and royalties payable | (16) | (26) | 123 | 156 | |||||||||||||||||||
| Other | 10 | (12) | (2) | (16) | |||||||||||||||||||
| Net cash provided by (used in) operating activities | 1,624 | 1,441 | 5,920 | 6,325 | |||||||||||||||||||
| Cash flows from investing activities: | |||||||||||||||||||||||
| Drilling, completions and infrastructure additions to oil and natural gas properties | (634) | (527) | (2,582) | (1,854) | |||||||||||||||||||
| Additions to midstream assets | (15) | (15) | (119) | (84) | |||||||||||||||||||
| Property acquisitions | (820) | (1,052) | (2,013) | (1,675) | |||||||||||||||||||
| Proceeds from sale of assets | 7 | 222 | 1,407 | 327 | |||||||||||||||||||
| Other | (2) | (6) | (16) | (44) | |||||||||||||||||||
| Net cash provided by (used in) investing activities | (1,464) | (1,378) | (3,323) | (3,330) | |||||||||||||||||||
| Cash flows from financing activities: | |||||||||||||||||||||||
| Proceeds from borrowings under credit facilities | 313 | 1,104 | 4,779 | 5,204 | |||||||||||||||||||
| Repayments under credit facilities | (300) | (1,432) | (4,668) | (5,551) | |||||||||||||||||||
| Proceeds from senior notes | 400 | 1,750 | 400 | 2,500 | |||||||||||||||||||
| Repayment of senior notes | — | (500) | (134) | (2,410) | |||||||||||||||||||
| Proceeds from (repayments to) joint venture | — | (33) | — | (74) | |||||||||||||||||||
| Premium on extinguishment of debt | — | (14) | — | (63) | |||||||||||||||||||
| Repurchased shares under buyback program | (131) | (316) | (840) | (1,098) | |||||||||||||||||||
| Repurchased shares/units under Viper's buyback program | (28) | (31) | (95) | (153) | |||||||||||||||||||
| Dividends paid to stockholders | (603) | (398) | (1,444) | (1,572) | |||||||||||||||||||
| Dividends/distributions to non-controlling interest | (45) | (36) | (129) | (217) | |||||||||||||||||||
| Other | (11) | (27) | (45) | (69) | |||||||||||||||||||
| Net cash provided by (used in) financing activities | (405) | 67 | (2,176) | (3,503) | |||||||||||||||||||
| Net increase (decrease) in cash and cash equivalents | (245) | 130 | 421 | (508) | |||||||||||||||||||
| Cash, cash equivalents and restricted cash at beginning of period | 830 | 34 | 164 | 672 | |||||||||||||||||||
| Cash, cash equivalents and restricted cash at end of period | $ | 585 | $ | 164 | $ | 585 | $ | 164 | |||||||||||||||
| Diamondback Energy, Inc. | |||||||||||||||||||||||
| Selected Operating Data | |||||||||||||||||||||||
| (unaudited) | |||||||||||||||||||||||
| Three Months Ended December 31, | Year Ended December 31, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Production Data: | |||||||||||||||||||||||
| Oil (MBbls) | 25,124 | 20,803 | 96,176 | 81,616 | |||||||||||||||||||
| Natural gas (MMcf) | 50,497 | 45,020 | 198,117 | 176,376 | |||||||||||||||||||
| Natural gas liquids (MBbls) | 9,016 | 7,703 | 34,217 | 29,880 | |||||||||||||||||||
Combined volumes (MBOE)(1) | 42,556 | 36,009 | 163,413 | 140,892 | |||||||||||||||||||
| Daily oil volumes (BO/d) | 273,087 | 226,120 | 263,496 | 223,605 | |||||||||||||||||||
| Daily combined volumes (BOE/d) | 462,565 | 391,402 | 447,707 | 386,005 | |||||||||||||||||||
| Average Prices: | |||||||||||||||||||||||
| Oil ($ per Bbl) | $ | 76.42 | $ | 80.37 | $ | 75.68 | $ | 93.85 | |||||||||||||||
| Natural gas ($ per Mcf) | $ | 1.29 | $ | 3.20 | $ | 1.32 | $ | 4.86 | |||||||||||||||
| Natural gas liquids ($ per Bbl) | $ | 19.96 | $ | 24.93 | $ | 20.08 | $ | 35.07 | |||||||||||||||
| Combined ($ per BOE) | $ | 50.87 | $ | 55.76 | $ | 50.35 | $ | 67.90 | |||||||||||||||
Oil, hedged ($ per Bbl)(2) | $ | 75.59 | $ | 79.08 | $ | 74.72 | $ | 86.76 | |||||||||||||||
Natural gas, hedged ($ per Mcf)(2) | $ | 1.31 | $ | 3.20 | $ | 1.48 | $ | 4.12 | |||||||||||||||
Natural gas liquids, hedged ($ per Bbl)(2) | $ | 19.96 | $ | 24.93 | $ | 20.08 | $ | 35.07 | |||||||||||||||
Average price, hedged ($ per BOE)(2) | $ | 50.40 | $ | 55.01 | $ | 49.98 | $ | 62.85 | |||||||||||||||
| Average Costs per BOE: | |||||||||||||||||||||||
| Lease operating expenses | $ | 5.97 | $ | 4.47 | $ | 5.34 | $ | 4.63 | |||||||||||||||
| Production and ad valorem taxes | 2.44 | 3.22 | 3.21 | 4.34 | |||||||||||||||||||
| Gathering, processing and transportation expense | 1.83 | 1.86 | 1.76 | 1.83 | |||||||||||||||||||
| General and administrative - cash component | 0.59 | 0.61 | 0.59 | 0.63 | |||||||||||||||||||
| Total operating expense - cash | $ | 10.83 | $ | 10.16 | $ | 10.90 | $ | 11.43 | |||||||||||||||
| General and administrative - non-cash component | $ | 0.33 | $ | 0.36 | $ | 0.33 | $ | 0.39 | |||||||||||||||
| Depreciation, depletion, amortization and accretion per BOE | $ | 11.02 | $ | 10.14 | $ | 10.68 | $ | 9.54 | |||||||||||||||
| Interest expense, net | $ | 0.87 | $ | 1.03 | $ | 1.07 | $ | 1.13 | |||||||||||||||
(1)Bbl equivalents are calculated using a conversion rate of six Mcf per one Bbl.
(2)Hedged prices reflect the effect of our commodity derivative transactions on our average sales prices and include gains and losses on cash settlements for matured commodity derivatives, which we do not designate for hedge accounting. Hedged prices exclude gains or losses resulting from the early settlement of commodity derivative contracts.
NON-GAAP FINANCIAL MEASURES
ADJUSTED EBITDA
Adjusted EBITDA is a supplemental non-GAAP financial measure that is used by management and external users of our financial statements, such as industry analysts, investors, lenders and rating agencies. The Company defines Adjusted EBITDA as net income (loss) attributable to Diamondback Energy, Inc., plus net income (loss) attributable to non-controlling interest ("net income (loss)") before non-cash (gain) loss on derivative instruments, net, interest expense, net, depreciation, depletion, amortization and accretion, depreciation and interest expense related to equity method investments, (gain) loss on extinguishment of debt, non-cash equity-based compensation expense, capitalized equity-based compensation expense, merger and integration expense, other non-cash transactions and provision for (benefit from) income taxes, if any. Adjusted EBITDA is not a measure of net income as determined by United States generally accepted accounting principles ("GAAP"). Management believes Adjusted EBITDA is useful because the measure allows it to more effectively evaluate the Company’s operating performance and compare the results of its operations from period to period without regard to its financing methods or capital structure. The Company adds the items listed above to net income (loss) to determine Adjusted EBITDA because these amounts can vary substantially from company to company within its industry depending upon accounting methods and book values of assets, capital structures and the method by which the assets were acquired. Adjusted EBITDA should not be considered as an alternative to, or more meaningful than, net income as determined in accordance with GAAP or as an indicator of the Company’s operating performance or liquidity. Certain items excluded from Adjusted EBITDA are significant components in understanding and assessing a company’s financial performance, such as a company’s cost of capital and tax structure, as well as the historic costs of depreciable assets. The Company’s computation of Adjusted EBITDA may not be comparable to other similarly titled measures of other companies or to such measure in our credit facility or any of our other contracts.
The following tables present a reconciliation of the GAAP financial measure of net income (loss) attributable to Diamondback Energy, Inc. to the non-GAAP financial measure of Adjusted EBITDA:
| Diamondback Energy, Inc. | |||||||||||||||||||||||
| Reconciliation of Net Income (Loss) to Adjusted EBITDA | |||||||||||||||||||||||
| (unaudited, in millions) | |||||||||||||||||||||||
| Three Months Ended December 31, | Year Ended December 31, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Net income (loss) attributable to Diamondback Energy, Inc. | $ | 960 | $ | 1,007 | $ | 3,143 | $ | 4,386 | |||||||||||||||
| Net income (loss) attributable to non-controlling interest | 51 | 21 | 193 | 176 | |||||||||||||||||||
| Net income (loss) | 1,011 | 1,028 | 3,336 | 4,562 | |||||||||||||||||||
| Non-cash (gain) loss on derivative instruments, net | (147) | (125) | 149 | (264) | |||||||||||||||||||
| Interest expense, net | 37 | 37 | 175 | 159 | |||||||||||||||||||
| Depreciation, depletion, amortization and accretion | 469 | 365 | 1,746 | 1,344 | |||||||||||||||||||
| Depreciation and interest expense related to equity method investments | 18 | 16 | 70 | 63 | |||||||||||||||||||
| (Gain) loss on extinguishment of debt | — | 40 | 4 | 99 | |||||||||||||||||||
| Non-cash equity-based compensation expense | 21 | 18 | 80 | 76 | |||||||||||||||||||
| Capitalized equity-based compensation expense | (7) | (5) | (26) | (21) | |||||||||||||||||||
| Merger and integration expenses | — | 3 | 11 | 14 | |||||||||||||||||||
| Other non-cash transactions | 12 | 1 | (52) | 11 | |||||||||||||||||||
| Provision for (benefit from) income taxes | 264 | 261 | 912 | 1,174 | |||||||||||||||||||
| Consolidated Adjusted EBITDA | 1,678 | 1,639 | 6,405 | 7,217 | |||||||||||||||||||
| Less: Adjustment for non-controlling interest | 82 | 33 | 290 | 211 | |||||||||||||||||||
| Adjusted EBITDA attributable to Diamondback Energy, Inc. | $ | 1,596 | $ | 1,606 | $ | 6,115 | $ | 7,006 | |||||||||||||||
ADJUSTED NET INCOME
Adjusted net income is a non-GAAP financial measure equal to net income (loss) attributable to Diamondback Energy, Inc. plus net income (loss) attributable to non-controlling interest ("net income (loss)") adjusted for non-cash (gain) loss on derivative instruments, net, other non-cash transactions and related income tax adjustments, if any. The Company’s computation of adjusted net income may not be comparable to other similarly titled measures of other companies or to such measure in our credit facility or any of our other contracts. Management believes adjusted net income helps investors in the oil and natural gas industry to measure and compare the Company's performance to other oil and natural gas companies by excluding from the calculation items that can vary significantly from company to company depending upon accounting methods, the book value of assets and other non-operational factors.
The following table presents a reconciliation of the GAAP financial measure of net income (loss) attributable to Diamondback Energy, Inc. to the non-GAAP measure of adjusted net income:
| Diamondback Energy, Inc. | |||||||||||
| Adjusted Net Income | |||||||||||
| (unaudited, $ in millions except per share data, shares in thousands) | |||||||||||
| Three Months Ended December 31, 2023 | |||||||||||
| Amounts | Amounts Per Diluted Share | ||||||||||
Net income (loss) attributable to Diamondback Energy, Inc.(1) | $ | 960 | $ | 5.34 | |||||||
| Net income (loss) attributable to non-controlling interest | 51 | 0.28 | |||||||||
Net income (loss)(1) | 1,011 | 5.62 | |||||||||
| Non-cash (gain) loss on derivative instruments, net | (147) | (0.82) | |||||||||
| Other non-cash transactions | 12 | 0.07 | |||||||||
Adjusted net income excluding above items(1) | 876 | 4.87 | |||||||||
| Income tax adjustment for above items | 28 | 0.15 | |||||||||
Adjusted net income(1) | 904 | 5.02 | |||||||||
| Less: Adjusted net income attributable to non-controlling interest | 50 | 0.28 | |||||||||
Adjusted net income attributable to Diamondback Energy, Inc.(1) | $ | 854 | $ | 4.74 | |||||||
| Weighted average common shares outstanding: | |||||||||||
| Basic | 178,811 | ||||||||||
| Diluted | 178,811 | ||||||||||
(1) The Company’s earnings (loss) per diluted share amount has been computed using the two-class method in accordance with GAAP. The two-class method is an earnings allocation which reflects the respective ownership among holders of common stock and participating securities. Diluted earnings per share using the two-class method is calculated as (i) net income attributable to Diamondback Energy, Inc, (ii) less the reallocation of $6 million in earnings attributable to participating securities, (iii) divided by diluted weighted average common shares outstanding.
OPERATING CASH FLOW BEFORE WORKING CAPITAL CHANGES, FREE CASH FLOW AND ADJUSTED FREE CASH FLOW
Operating cash flow before working capital changes, which is a non-GAAP financial measure, represents net cash provided by operating activities as determined under GAAP without regard to changes in operating assets and liabilities. The Company believes operating cash flow before working capital changes is a useful measure of an oil and natural gas company’s ability to generate cash used to fund exploration, development and acquisition activities and service debt or pay dividends. The Company also uses this measure because changes in operating assets and liabilities relate to the timing of cash receipts and disbursements that the Company may not control and may not relate to the period in which the operating activities occurred. This allows the Company to compare its operating performance with that of other companies without regard to financing methods and capital structure.
Free Cash Flow, which is a non-GAAP financial measure, is cash flow from operating activities before changes in working capital in excess of cash capital expenditures. Adjusted Free Cash Flow, which is a non-GAAP financial measure, is Free Cash Flow adjusted for early termination of commodity derivative contracts and the tax impact of certain divestitures. The Company believes that Free Cash Flow and Adjusted Free Cash Flow are useful to investors as they provide measures to compare both cash flow from operating activities and additions to oil and natural gas properties across periods on a consistent basis as adjusted for non-recurring early settlements of commodity derivative contracts and impacts of non-recurring divestitures. These measures should not be considered as an alternative to, or more meaningful than, net cash provided by operating activities as an indicator of operating performance. The Company's computation of operating cash flow before working capital changes, Free Cash Flow and Adjusted Free Cash Flow may not be comparable to other similarly titled measures of other companies. The Company uses Free Cash Flow to reduce debt, as well as return capital to stockholders as determined by the Board of Directors.
The following tables present a reconciliation of the GAAP financial measure of net cash provided by operating activities to the non-GAAP measure of operating cash flow before working capital changes and to the non-GAAP measures of Free Cash Flow and Adjusted Free Cash Flow:
| Diamondback Energy, Inc. | |||||||||||||||||||||||
| Operating Cash Flow Before Working Capital Changes, Free Cash Flow and Adjusted Free Cash Flow | |||||||||||||||||||||||
| (unaudited, in millions) | |||||||||||||||||||||||
| Three Months Ended December 31, | Year Ended December 31, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Net cash provided by operating activities | $ | 1,624 | $ | 1,441 | $ | 5,920 | $ | 6,325 | |||||||||||||||
| Less: Changes in cash due to changes in operating assets and liabilities: | |||||||||||||||||||||||
| Accounts receivable | 147 | 66 | (71) | (47) | |||||||||||||||||||
| Income tax receivable | 16 | (282) | 283 | (283) | |||||||||||||||||||
| Prepaid expenses and other current assets | (94) | 37 | (89) | 21 | |||||||||||||||||||
| Accounts payable and accrued liabilities | 11 | (18) | 57 | (47) | |||||||||||||||||||
| Income taxes payable | (9) | 3 | (5) | 17 | |||||||||||||||||||
| Revenues and royalties payable | (16) | (26) | 123 | 156 | |||||||||||||||||||
| Other | 10 | (12) | (2) | (16) | |||||||||||||||||||
| Total working capital changes | 65 | (232) | 296 | (199) | |||||||||||||||||||
| Operating cash flow before working capital changes | 1,559 | 1,673 | 5,624 | 6,524 | |||||||||||||||||||
| Drilling, completions and infrastructure additions to oil and natural gas properties | (634) | (527) | (2,582) | (1,854) | |||||||||||||||||||
| Additions to midstream assets | (15) | (15) | (119) | (84) | |||||||||||||||||||
| Total Cash CAPEX | (649) | (542) | (2,701) | (1,938) | |||||||||||||||||||
| Free Cash Flow | 910 | 1,131 | 2,923 | 4,586 | |||||||||||||||||||
Tax impact from divestitures(1) | — | — | 64 | — | |||||||||||||||||||
| Early termination of derivatives | — | — | — | 138 | |||||||||||||||||||
| Adjusted Free Cash Flow | $ | 910 | $ | 1,131 | $ | 2,987 | $ | 4,724 | |||||||||||||||
(1) The year ended December 31, 2023 includes the tax impact of the disposal of certain Midland Basin water assets and Delaware Basin oil gathering assets.
NET DEBT
The Company defines the non-GAAP measure of net debt as total debt (excluding debt issuance costs, discounts, premiums and fair value hedges) less cash and cash equivalents. Net debt should not be considered an alternative to, or more meaningful than, total debt, the most directly comparable GAAP measure. Management uses net debt to determine the Company's outstanding debt obligations that would not be readily satisfied by its cash and cash equivalents on hand. The Company believes this metric is useful to analysts and investors in determining the Company's leverage position because the Company has the ability to, and may decide to, use a portion of its cash and cash equivalents to reduce debt.
| Diamondback Energy, Inc. | |||||||||||||||||||||||||||||||||||
| Net Debt | |||||||||||||||||||||||||||||||||||
| (unaudited, in millions) | |||||||||||||||||||||||||||||||||||
| December 31, 2023 | Net Q4 Principal Borrowings/(Repayments) | September 30, 2023 | June 30, 2023 | March 31, 2023 | December 31, 2022 | ||||||||||||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||||||||||||||
Diamondback Energy, Inc.(1) | $ | 5,697 | $ | — | $ | 5,697 | $ | 6,040 | $ | 6,426 | $ | 5,837 | |||||||||||||||||||||||
Viper Energy, Inc.(1) | 1,093 | 413 | 680 | 654 | 700 | 582 | |||||||||||||||||||||||||||||
| Total debt | 6,790 | $ | 413 | 6,377 | 6,694 | 7,126 | 6,419 | ||||||||||||||||||||||||||||
| Cash and cash equivalents | (582) | (827) | (18) | (46) | (157) | ||||||||||||||||||||||||||||||
| Net debt | $ | 6,208 | $ | 5,550 | $ | 6,676 | $ | 7,080 | $ | 6,262 | |||||||||||||||||||||||||
(1) Excludes debt issuance costs, discounts, premiums and fair value hedges.
DERIVATIVES
As of February 19, 2024, the Company had the following outstanding consolidated derivative contracts, including derivative contracts at Viper Energy, Inc. The Company’s derivative contracts are based upon reported settlement prices on commodity exchanges, with crude oil derivative settlements based on New York Mercantile Exchange West Texas Intermediate pricing and Crude Oil Brent pricing and with natural gas derivative settlements based on the New York Mercantile Exchange Henry Hub pricing. When aggregating multiple contracts, the weighted average contract price is disclosed.
| Crude Oil (Bbls/day, $/Bbl) | |||||||||||||||||||||||||||||
| Q1 2024 | Q2 2024 | Q3 2024 | Q4 2024 | FY 2025 | |||||||||||||||||||||||||
| Long Puts - Crude Brent Oil | 124,000 | 110,000 | 78,000 | 42,000 | — | ||||||||||||||||||||||||
| Long Put Price ($/Bbl) | $55.40 | $55.45 | $55.13 | $55.00 | — | ||||||||||||||||||||||||
| Deferred Premium ($/Bbl) | $-1.48 | $-1.49 | $-1.55 | $-1.62 | — | ||||||||||||||||||||||||
| Long Puts - WTI (Magellan East Houston) | 32,000 | 30,000 | 24,000 | 10,000 | — | ||||||||||||||||||||||||
| Long Put Price ($/Bbl) | $55.00 | $55.33 | $55.42 | $56.00 | — | ||||||||||||||||||||||||
| Deferred Premium ($/Bbl) | $-1.60 | $-1.56 | $-1.57 | $-1.68 | — | ||||||||||||||||||||||||
| Long Puts - WTI (Cushing) | 16,000 | 31,000 | 35,000 | 18,000 | — | ||||||||||||||||||||||||
| Long Put Price ($/Bbl) | $58.13 | $59.03 | $56.86 | $56.11 | — | ||||||||||||||||||||||||
| Deferred Premium ($/Bbl) | $-1.54 | $-1.48 | $-1.59 | $-1.72 | — | ||||||||||||||||||||||||
Costless Collars - WTI (Cushing) | 6,000 | 6,000 | 4,000 | 4,000 | — | ||||||||||||||||||||||||
| Long Put Price ($/Bbl) | $65.00 | $65.00 | $55.00 | $55.00 | — | ||||||||||||||||||||||||
Ceiling Price ($/Bbl) | $95.55 | $95.55 | $93.66 | $93.66 | — | ||||||||||||||||||||||||
| Basis Swaps - WTI (Midland) | 10,000 | 12,000 | 12,000 | 12,000 | — | ||||||||||||||||||||||||
| $1.19 | $1.19 | $1.19 | $1.19 | — | |||||||||||||||||||||||||
Roll Swaps - WTI | 30,000 | 30,000 | 30,000 | 30,000 | — | ||||||||||||||||||||||||
| $0.81 | $0.81 | $0.81 | $0.81 | — | |||||||||||||||||||||||||
| Natural Gas (Mmbtu/day, $/Mmbtu) | |||||||||||||||||||||||||||||
| Q1 2024 | Q2 2024 | Q3 2024 | Q4 2024 | FY 2025 | |||||||||||||||||||||||||
| Costless Collars - Henry Hub | 290,000 | 290,000 | 290,000 | 290,000 | 20,000 | ||||||||||||||||||||||||
| Long Put Price ($/Mmbtu) | $2.83 | $2.83 | $2.83 | $2.83 | $2.50 | ||||||||||||||||||||||||
| Ceiling Price ($/Mmbtu) | $7.52 | $7.52 | $7.52 | $7.52 | $6.00 | ||||||||||||||||||||||||
| Natural Gas Basis Swaps - Waha Hub | 380,000 | 380,000 | 380,000 | 380,000 | 310,000 | ||||||||||||||||||||||||
| $-1.18 | $-1.18 | $-1.18 | $-1.18 | $-0.69 | |||||||||||||||||||||||||
Investor Contact:
Adam Lawlis
+1 432.221.7467
alawlis@diamondbackenergy.com
Exhibit 99.2
LETTER TO STOCKHOLDERS ISSUED BY DIAMONDBACK ENERGY, INC.
Midland, TX (February 20, 2024)
Diamondback Stockholders,
This letter is meant to be a supplement to our earnings release and is being furnished to the Securities and Exchange Commission (SEC) and released to our stockholders simultaneously with our earnings release. Please see the information regarding forward-looking statements and non-GAAP financial information included at the end of this letter.
The fourth quarter of 2023 rounded out a great year for Diamondback Energy and our stockholders. We seamlessly integrated our acquisitions of Lario and FireBird, exceeded production guidance, generated $5.9 billion of Net Cash Provided by Operating Activities, $2.9 billion of Free Cash Flow and returned $2.3 billion of that Free Cash Flow back to our stockholders via our $3.38 per share of base dividends, $838 million of share repurchases and $4.74 per share of variable dividends. We exceeded our non-core asset sale targets set out when we acquired FireBird and Lario, and exited the year with $6.8 billion of total debt and $6.2 billion of consolidated net debt, below 1.0x 2023 EBITDA.
Last Monday, we announced a transformational combination with Endeavor Energy Resources (“Endeavor”). This combination will create a “must-own” North American independent oil company. Combined, the two companies produced 468 MBO/d (816 MBOE/d) in the fourth quarter of 2023 across approximately 838,000 acres in the core of the Permian Basin. The combined business will have an unmatched depth of high-quality inventory, which, when combined with Diamondback’s cost structure, is set to generate significant long-term Free Cash Flow accretion to our stockholders. The combination is subject to stockholder and regulatory approvals, and we look forward to providing more information when permitted.
Production:
Fourth quarter oil and total production, at 273.1 MBO/d and 462.6 MBOE/d respectively, were both above the high end of our fourth quarter guidance ranges. As a result of this outperformance, full year oil production was approximately 263.5 MBO/d, up almost 18% year over year with an average diluted share count that was up only 2% year over year, despite closing two acquisitions. Diamondback is focused on per share growth, and we have now grown oil production per share 14x since our 2012 IPO.
Looking ahead to 2024, we have shifted our production philosophy from what we previously described as “low single digit growth with the same amount of activity” to a plan where we are expecting to hold fourth quarter 2023 oil production flat with less capital and activity than last year, emphasizing our commitment to capital efficiency and “value over volumes.” As mentioned in last week’s merger announcement, Diamondback released 2024 production guidance of 270 - 275 MBO/d (458 - 466 MBOE/d). First quarter
oil production is expected to be 270 - 274 MBO/d (458 - 464 MBOE/d). The global oil market appears to be well-supplied, and there is currently significant OPEC spare capacity. Therefore, Diamondback is positioned to maintain our production, grow Free Cash Flow and return that Free Cash Flow to our stockholders. Should there be a "call for growth" from the global oil market, Diamondback has the inventory quality and depth to answer that call, but that is not today.
Oil realizations decreased quarter over quarter to 97% of West Texas Intermediate ("WTI") pricing for the quarter, but in line with our average realization for the year of 97% of WTI. We still expect to realize at least 95% of WTI when WTI is at least $65 per barrel, with most quarters above that number. Gas and NGL realizations decreased quarter over quarter as each commodity declined in the fourth quarter.
Capital Expenditures:
Cash capex for the fourth quarter was $649 million; at the high end of our quarterly guidance range, but still down 5% quarter over quarter. We expect cash capex to decline by 5% - 11% in the first quarter to $580 - $620 million as we continue to see the benefits of lower well costs and strong capital efficiency from long-lateral, multi-well pad development.
As mentioned in our announcement last week, Diamondback released full year 2024 capex guidance of $2.30 - $2.55 billion. The midpoint of this range is down 10% year over year due to a combination of lower well costs and lower activity expected to maintain fourth quarter 2023 oil production. We expect to drill approximately 275 wells and turn approximately 310 wells to production, with almost 30% of those wells expected to be turned to production in the first quarter of 2024. Average estimated completed lateral length is expected to be the longest in our Company history at approximately 11,500 feet, highlighting our contiguous and advantaged acreage position.
Operating Costs:
Total cash operating costs increased by $0.32 per BOE quarter over quarter primarily because of an increase to lease operating expenses (“LOE”) as the fourth quarter was the first full quarter where our Deep Blue joint venture was in place, raising our water disposal costs. While this is a structural change to our LOE profile, we believe the cash received from the sale of 70% of the business and the upside value creation potential far outweigh this change. As a result, we expect run-rate LOE to be in the $6.00 - $6.50 per BOE range.
We do not expect any other major changes to our cash operating cost structure this year except for interest expense, which will increase to fund the cash portion of our proposed merger with Endeavor. We will update our full cash operating cost structure at the appropriate time pending deal approval and executing the financing.
As it relates to non-cash unit costs, we expect non-cash G&A to be between $0.40 and $0.50 per BOE and DD&A to remain between $10.50 and $11.50 per BOE, respectively.
Return of Capital:
We generated $1.6 billion of Net Cash Provided by Operating Activities ($1.6 billion after adjusting for working capital changes) and $910 million of FCF in the fourth quarter.
In conjunction with our announcement last week, we increased our annual base dividend by 7% to $3.60 per share. We believe consistent base dividend growth is a key tenet to long-term success, and we will continue to target a base dividend that is protected down to $40 per barrel oil.
We repurchased 872,667 shares in the fourth quarter for a cost of $129 million ($148.15 / share average). So far in the first quarter, we took advantage of some early weakness to repurchase 279,266 shares at a cost of $42 million ($149.50 / share average). Because we did not return 75% of fourth quarter Free Cash Flow through the combination of our base dividend and executed buybacks, we are paying a variable cash dividend of $2.18 per share to keep our stockholders whole on our return of capital commitment.
Concurrent with our announcement last week, we reduced our going-forward return of capital commitment to 50% of Free Cash Flow from 75% previously. Because we are adding debt to fund the cash portion of the merger, we are going to allocate more Free Cash Flow to pay down our debt quickly. Our near-term goal will be to get pro forma net debt below $10 billion, which will be done through Free Cash Flow generation and potentially supplemented with non-core asset sales. Our long-term priority is to return cash to stockholders, but using Free Cash Flow to pay down newly-added debt is in the best long-term interest of the stockholders.
Balance Sheet:
Total debt and net debt ended the year at $6.8 billion and $6.2 billion, respectively. Net debt increased quarter over quarter primarily due to an increase at our mineral subsidiary, Viper, for the cash portion of its acquisition of GRP minerals.
Other Business:
Last quarter, I noted that “Diamondback was built through an acquire and exploit strategy, where our execution prowess and low-cost structure allowed us to create value on acquired assets over the last decade. This remains our core competency as we believe the low-cost operator in a commodity-based business “wins”.”
I also laid out Diamondback’s criteria for successful M&A, including:
•Sound industrial logic (physical adjacencies, tangible cost and operations synergies)
•The assets compete for capital right away (get “better”, not just bigger)
•Accretive on financial metrics (CFPS, FCFPS, EPS)
Looking at the Endeavor merger through the lens of the above, we believe this combination checks all of these boxes.
Thank you for your interest in Diamondback Energy,
Travis D. Stice
Chairman of the Board and Chief Executive Officer
Investor Contact:
Adam Lawlis
+1 432.221.7467
alawlis@diamondbackenergy.com
Forward-Looking Statements:
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 Exchange Act of 1934, as amended, which involve risks, uncertainties, and assumptions. All statements, other than statements of historical fact, including statements regarding the proposed business combination transaction between Diamondback and Endeavor; future performance; business strategy; future operations (including drilling plans and capital plans); estimates and projections of revenues, losses, costs, expenses, returns, cash flow, and financial position; reserve estimates and its ability to replace or increase reserves; anticipated benefits of strategic transactions (including acquisitions and divestitures), including the proposed transaction; the expected amount and timing of synergies from the proposed transaction; the anticipated timing of the proposed transaction; and plans and objectives of management (including plans for future cash flow from operations and for executing environmental strategies) are forward-looking statements. When used in this letter, the words “aim,” “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “forecast,” “future,” “guidance,” “intend,” “may,” “model,” “outlook,” “plan,” “positioned,” “potential,” “predict,” “project,” “seek,” “should,” “target,” “will,” “would,” and similar expressions (including the negative of such terms) are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words. Although Diamondback believes that the expectations and assumptions reflected in its forward-looking statements are reasonable as and when made, they involve risks and uncertainties that are difficult to predict and, in many cases, beyond Diamondback’s control. Accordingly, forward-looking statements are not guarantees of future performance and actual outcomes could differ materially from what Diamondback has expressed in its forward-looking statements.
Factors that could cause the outcomes to differ materially include (but are not limited to) the following: the completion of the proposed transaction on anticipated terms and timing or at all, including obtaining Diamondback stockholder approval, regulatory approval and satisfying other conditions to the completion of the transaction; uncertainties as to whether the proposed transaction, if consummated, will achieve its anticipated benefits and projected synergies within the expected time period or at all; Diamondback’s ability to integrate Endeavor’s operations in a successful manner and in the expected time period; the occurrence of any event, change, or other circumstance that could give rise to the termination of the proposed transaction; risks that the anticipated tax treatment of the proposed transaction is not obtained; unforeseen or unknown liabilities; unexpected future capital expenditures; potential litigation relating to the proposed transaction; the possibility that the proposed transaction may be more expensive to complete than anticipated, including as a result of unexpected factors or events; the effect of the announcement, pendency, or completion of the proposed transaction on the parties’ business relationships and business generally; risks that the proposed transaction disrupts current plans and operations of Diamondback or Endeavor and their respective management teams and potential difficulties in retaining employees as a result of the proposed transaction; the risks related to Diamondback’s financing of the proposed transaction; potential negative effects of this announcement and the pendency or completion of the proposed transaction on the market price of Diamondback’s common stock and/or operating results; rating agency actions and Diamondback’s ability to access short- and long-term debt markets on a timely and affordable basis; changes in supply and demand levels for oil, natural gas, and natural gas liquids, and the
resulting impact on the price for those commodities; the impact of public health crises, including epidemic or pandemic diseases and any related company or government policies or actions; actions taken by the members of OPEC and Russia affecting the production and pricing of oil, as well as other domestic and global political, economic, or diplomatic developments, including any impact of the ongoing war in Ukraine and the Israel-Hamas war on the global energy markets and geopolitical stability; instability in the financial markets; concerns over a potential economic slowdown or recession; inflationary pressures; rising interest rates and their impact on the cost of capital; regional supply and demand factors, including delays, curtailment delays or interruptions of production, or governmental orders, rules or regulations that impose production limits; federal and state legislative and regulatory initiatives relating to hydraulic fracturing, including the effect of existing and future laws and governmental regulations; physical and transition risks relating to climate change; those risks described in Item 1A of Diamondback’s Annual Report on Form 10-K, filed with the SEC on February 23, 2023, and those risks disclosed in its subsequent filings on Forms 10-Q and 8-K, which can be obtained free of charge on the SEC’s website at http://www.sec.gov and Diamondback’s website at www.diamondbackenergy.com/investors/; and those risks that will be more fully described in the definitive proxy statement on Schedule 14A that is intended to be filed with the SEC in connection with the proposed transaction.
In light of these factors, the events anticipated by Diamondback’s forward-looking statements may not occur at the time anticipated or at all. Moreover, Diamondback operates in a very competitive and rapidly changing environment and new risks emerge from time to time. Diamondback cannot predict all risks, nor can it assess the impact of all factors on its business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those anticipated by any forward-looking statements it may make. Accordingly, you should not place undue reliance on any forward-looking statements. All forward-looking statements speak only as of the date of this letter or, if earlier, as of the date they were made. Diamondback does not intend to, and disclaims any obligation to, update or revise any forward-looking statements unless required by applicable law.
Non-GAAP Financial Measures
This letter includes financial information not prepared in conformity with generally accepted accounting principles (GAAP), including free cash flow and NPV10. The non-GAAP information should be considered by the reader in addition to, but not instead of, financial information prepared in accordance with GAAP. A reconciliation of the differences between these non-GAAP financial measures and the most directly comparable GAAP financial measures can be found in Diamondback's quarterly results posted on Diamondback's website at www.diamondbackenergy.com/investors/. Furthermore, this letter includes or references certain forward-looking, non-GAAP financial measures. Because Diamondback provides these measures on a forward-looking basis, it cannot reliably or reasonably predict certain of the necessary components of the most directly comparable forward-looking GAAP financial measures, such as future impairments and future changes in working capital. Accordingly, Diamondback is unable to present a quantitative reconciliation of such forward-looking, non-GAAP financial measures to the respective most directly comparable forward-looking GAAP financial measures. Diamondback believes that these forward-looking, non-GAAP measures may be a useful tool for the investment community in comparing Diamondback's forecasted financial performance to the forecasted financial performance of other companies in the industry.
Additional Information about the Merger and Where to Find It
In connection with the potential transaction between Diamondback and Endeavor, Diamondback expects to file relevant materials with the SEC including a proxy statement on Schedule 14A. Promptly after filing its definitive proxy statement with the SEC, Diamondback will mail the definitive proxy statement to each stockholder entitled to vote at the meeting relating to the proposed transaction. This letter is not a substitute for the proxy statement or for any other document that Diamondback may file with the SEC and send to its stockholders in connection with the proposed transaction. INVESTORS AND STOCKHOLDERS ARE URGED TO CAREFULLY READ THE PROXY STATEMENT (INCLUDING ANY AMENDMENTS OR SUPPLEMENTS THERETO AND ANY DOCUMENTS INCORPORATED BY REFERENCE THEREIN) AND ANY OTHER RELEVANT DOCUMENTS IN CONNECTION WITH THE TRANSACTION THAT DIAMONDBACK WILL FILE WITH THE SEC WHEN THEY BECOME AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT THE TRANSACTION AND THE PARTIES TO THE TRANSACTION. The definitive proxy statement, the preliminary proxy statement, and other relevant materials in connection with the transaction (when they become available) and any other documents filed by Diamondback with the SEC, may be obtained free of charge at the SEC’s website www.sec.gov. Copies of the documents filed with the SEC by Diamondback will be available free of charge on Diamondback ’s website at www.diamondbackenergy.com/investors.
Participants in the Solicitation
Diamondback and its directors and executive officers may be deemed, under SEC rules, to be participants in the solicitation of proxies from Diamondback’s stockholders in connection with the transaction. Information about the directors and executive officers of Diamondback is set forth in (i) in Diamondback ’s proxy statement for its 2023 annual meeting, including under the headings “Proposal 1—Election of Directors”, “Executive Officers”, “Compensation Discussion and Analysis”, “Compensation Tables”, “Stock Ownership” and “Certain Relationships and Related Transactions”, which was filed with the SEC on April 27, 2023 and is available at https://www.sec.gov/ixviewer/ix.html?doc=/Archives/edgar/data/1539838/000130817923000793/fang-20221231.htm, (ii) Diamondback ’s Annual Report on Form 10-K for the year ended December 31, 2022, including under the headings “Item 10. Directors, Executive Officers and Corporate Governance”, “Item 11. Executive Compensation”, “Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters” and “Item 13. Certain Relationships and Related Transactions, and Director Independence”, which was filed with the SEC on February 23, 2023 and is available at https://www.sec.gov/ixviewer/ix.html?doc=/Archives/edgar/data/1539838/000153983823000022/fang-20221231.htm and (iii) subsequent statements of changes in beneficial ownership on file with the SEC. Additional information regarding the participants in the proxy solicitation and a description of their direct or indirect interests, by security holdings or otherwise, will be contained in the proxy statement and other relevant materials filed with the SEC when they become available. These documents may be obtained free of charge from the SEC’s website at www.sec.gov and Diamondback’s website at www.diamondbackenergy.com/investors.
No Offer or Solicitation
This letter does not constitute an offer to sell or the solicitation of an offer to buy any securities, or a solicitation of any vote or approval, nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction.