Diamondback adds 19,180 net Delaware acres to its primarily Midland Basin assets
Diamondback Energy (ticker: FANG) announced today that the company purchased 38,765 gross (19,180 net) acres in the Southern Delaware Basin for $560 million. The acquisition will provide Diamondback with primarily operated leasehold interests, the majority of which are located along the Pecos River in reeves and Ward counties, Texas.
The new properties are west of Diamondback’s primarily-Midland Basin focused portfolio. The company holds roughly 85,000 net acres in the Northern Midland Basin.
The new assets fit well with the rest of FANG’s Texas acreage, with horizontal wells in the surrounding area confirming geochemical data that indicates three primary targets (Wolfcamp A, Wolfcamp B and 3rd Bone Spring) are within the over-pressured oil window, according to the company’s press release, fitting Diamondback’s oil-weighted production. FANG reported average daily production during Q2’16 of 36.8 MBOEPD (72% oil).
Source: Shale Experts
“We believe that two of the three derisked zones across the acreage have comparable estimated ultimate recoveries per lateral foot to the Lower Spraberry in the Northern Midland Basin,” said Diamondback CEO Travis Stice. “We now believe we have a path to achieve 100 MBOEPD in the coming years.”
Diamondback reports the acreage is currently producing around 1,000 BOEPD net to the company, and has net proved developed reserves of 2.2 MMBOE. Given the $560 million price tag, FANG paid $560,000 per flowing BOE, or $254.55 per BOE of proved developed reserves. The company paid $29,197.08 on a per acre basis.
The assets include 290 net identified potential horizontal drilling locations across four zones with additional upside in other zones through downspacing, the company said. Diamondback believes the contiguous position supports average lateral lengths of approximately 9,500 feet.
Diamondback finances the deal with 5.5 million share offering and cash on hand
FANG also announced an underwritten public offering of 5.5 million shares of its common stock today. The total gross proceeds of the offering will be approximately $491 million, according to Diamondback’s press release. The company said that it will use the proceeds from the offering, along with cash on hand, to fund the Delaware Basin acquisition.
New assets prompt higher production guidance
Along with its acquisition, Diamondback announced that it will be increasing its production guidance for the year to 39 MBOEPD at its midpoint, up 11% from its previous guidance of 35 MBOEPD. FANG said this was done as a result of increasing activity from three to four rigs in the second half of the year, as well as continued strong well performance.
The company now plans to complete 60 to 75 gross horizontal wells this year, an increase of approximately 30% from the midpoint of its prior range of 35 to 70 gross horizontal wells.
In addition to the increased completions, Diamondback is increasing its 2016 capital expenditure guidance to $387.5 million at its midpoint from $312.5 million at the midpoint of its previous guidance.
If commodity prices continue to strengthen, Diamondback said it could add a fifth rig in the fourth quarter as well.
While discussing the asset, Stice added that the cost of entry was much lower than in the Midland Basin, which he believes will help the company maintain its strong leverage metrics as it continues to grow.
According to EnerCom’s E&P Weekly, Diamondback has the third-lowest debt-to-market cap among its E&P peers at just 8%. The company also has above-average capital efficiency at 126% compared to a median of 82% among its peers.
