Permian Operator Will Use Equity Proceeds to Pay Debt
While the oil and gas industry is battening down the hatches, issuing bailing buckets to all hands and looking for a solid toehold as forty-six dollar crude oil sloshes under and around it, North American shale player Diamondback Energy (ticker: FANG) is a point of light. The company zoomed to the market yesterday by announcing and pricing an equity offering.
Yesterday the Midland, Texas-based independent E&P announced it planed to sell 1.75 million shares in an underwritten public offering that would generate gross proceeds of $106 million. The company said it will use the net proceeds from the offering to repay a portion of the outstanding borrowings under its revolving credit facility. The offering is expected to close January 26, 2015, according to a company press release. Credit Suisse Securities (USA) LLC is acting as sole book-running manager for the offering.
Shoring up a balance sheet is generally viewed as a wise move in times of uncertainty, and Wunderlich Securities’ Houston analyst Jason Wangler applauded the Diamondback move, saying in a research note: “Frankly this is a rare opportunity in the E&P (if not energy in general) space, given oil’s decline and the tough environment that comes with it; but Diamondback has performed better than most, as it did on the way up, due to its strong asset base, solid balance sheet and impressive management/strategy. In these tough times it makes sense for investors to migrate toward quality names and we feel Diamondback is high on that list and as such we remain “Buy” rated and raise our price target [to $80 from $70] as we look for the company to show solid organic growth while also remaining acquisitive.”
If oil prices stay low in 2015, many analysts expect to see assets held by highly leveraged operators to go on the block later in the year, and Diamondback will be financially positioned to take action. In a telephone interview with Oil & Gas 360®, Wangler characterized the action by saying “Their stock has done better than most, there’s been a lot of demand for it and right now cash is king. They had a chance to take a little risk off the table and they did. I think they’re going to be a consolidator in the basin.”
Diamondback’s activities are primarily focused on the horizontal exploitation of multiple intervals within the Wolfcamp, Spraberry, Clearfork and Cline formations in the Permian basin. Shares of Diamondback Energy closed today at $67.98.
Wangler told Oil & Gas 360® he believed a handful of other companies are in a similar position “in terms of dry powder”: Gulfport Energy (ticker: GPOR), Matador Resources (ticker: MTDR), Memorial Resource Development (ticker: MRD) and Synergy Resources (ticker: SYRG).
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