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Diamondback Energy, Inc. (ticker: FANG) pulled in a net income of $115 million in the fourth quarter of 2017, or $1.16 per diluted share. Diamondback spent $246 million on drilling, completions, non-operated properties and $61 million on infrastructure in the fourth quarter of 2017.

For the full year 2017, Diamondback spent $737 million on drilling, completions, non-operated properties and $124 million on infrastructure – while generating free cash flow of $28 million, excluding acquisitions.

Diamondback Energy Spent $737 Million on Drilling in 2017

Diamondback Company Profile, Feb. 2018

“In a year where investor focus shifted from resource capture to resource execution and capital discipline in the Permian Basin, Diamondback delivered on its promises by achieving 84% year over year production growth within cash flow,” Diamondback CEO Travis Stice said in an announcement.

“After successfully integrating multiple large acquisitions and doubling our asset base, we decreased cash costs by over 10% year over year and increased proved reserves by over 60% while maintaining peer-leading capital efficiency,” Stice said.

“Capital discipline and growth within cash flow are not new concepts to Diamondback, with our 2018 plan calling for over 40% growth within cash flow at current commodity prices,” Stice said, “Diamondback continues to increase its focus on return on and return of capital, with our return on average capital employed nearly doubling in 2017 and expected to continue to rise given current commodity prices and our continued development of undeveloped acreage.”


Diamondback’s Q4 2017 production was 92.9 MBOEPD (74% oil), up 79% year over year from 51.9 MBOEPD in Q4 2016, and up 9% quarter over quarter from 85.0 MBOEPD in Q3 2017.

Average daily production for the full year of 2017 was 79.2 MBOEPD (74% oil), up 84% year over year from 43.0 MBOEPD (73% oil) in 2016.

During the fourth quarter of 2017, Diamondback drilled 46 gross horizontal wells and turned 38 operated horizontal wells to production. The average completed lateral length for fourth quarter wells was 10,091 feet, up from 9,603 feet in the third quarter.

Operated completions during the fourth quarter consisted of 19 Lower Spraberry wells, 15 Wolfcamp A wells and four Wolfcamp B wells. The company operated 10 rigs and four dedicated frac spreads during the quarter.

Diamondback Energy Spent $737 Million on Drilling in 2017

Diamondback 2017-18 Overview, Feb. 2018

Drilled 150 gross hz wells in 2017 – planning a 10-12 rig program in 2018 yielding 170-190 gross hz wells to production in 2018

For the full year of 2017, Diamondback drilled 150 gross horizontal wells, with 123 gross operated horizontal wells turned to production over the same period. The company is currently operating 10 horizontal rigs and plans to operate between 10 and 12 horizontal rigs throughout 2018. As a result, Diamondback expects to turn between 170 and 190 gross operated horizontal wells to production for the full year 2018.

2017 year-end reserves

Proved reserves at year-end 2017 of 335.4 MMboe represent a 63% increase over year-end 2016 reserves. Proved developed reserves increased by 75% to 208.4 MMboe (62% of total proved reserves) as of December 31, 2017. Proved undeveloped reserves increased to 127 MMboe, a 47% increase over year-end 2016, and are comprised of 168 locations, 35 of which are in the Delaware Basin. Crude oil represents 70% of Diamondback’s total proved reserves.

Net proved reserve additions of 158.8 MMboe resulted in a reserve replacement ratio of 549% (defined as the sum of extensions, discoveries, revisions and purchases, divided by annual production).

The organic reserve replacement ratio was 443% (defined as the sum of extensions, discoveries and revisions, divided by annual production).

Extensions totaling 139.0 MMboe of reserves were the primary contributor to the increase in reserves, followed by purchases of reserves of 30.7 MMboe, with downward revisions of 10.9 MMboe. Proved developed producing extensions accounted for 49% of the total. PDP extensions were the result of 102 wells in which the company has a working interest, and proved undeveloped extensions resulted from 87 new locations in which the company has a working interest.

Delaware Basin

Diamondback’s Delaware Basin properties accounted for 29% of the total extensions. Net purchases of reserves of 30.7 MMboe were the result of acquisitions of 32.7 MMboe and divestitures of 2.0 MMboe. Acquisitions in the Delaware Basin contributed 92% of the total acquisitions with small bolt-on working interests and Midland Basin royalty interests accounting for the remainder. Downward revisions of 10.9 MMboe were the result of technical revisions, and PUD re-classes to ‘probable’ as a result of development timing, Diamondback said.

Diamondback’s exploration and development costs in 2017 were $925.1 million.

2018 guidance and CapEx

The company expects full year production to be between 108.0 and 116.0 MBOEPD with an estimated capital spend for drilling, completion, infrastructure and non-operated properties of $1,300 to $1,500 million. Drilling, completions and equipping will be allocated approximately $1,175 to $1,325 million, and infrastructure will receive approximately $125 – $175 million of the budget.

During 2018, Diamondback expects to complete between 170 and 190 gross operated horizontal wells from a 10- to 12-rig program. The company estimates average lateral lengths of 9,300 feet.

Conference call Q&A

Q: Just on that CapEx that you put out there for the year, could you just talk about, is that going to be relatively linear or is there any kind of color that you all can give around that? How many rigs will you add in Q1 2018?

CEO Stice: It’s pretty linear. We’re adding rig 11 here probably towards the end of Q1, and we don’t anticipate a major boost after that, so a fairly linear spend throughout the year.

Q: Do you expect to increase activity this year if we have higher oil prices from where we stand today?

CEO Stice: Well, we certainly want to maintain maximum flexibility. And we said we could accelerate activity, but we’ve got to accelerate activity in a timeframe where commodity price is supportive, but also service cost support that we can still generate the kind of growth we’re talking about at industry-leading efficiency rates.

So we’ve never been about growth for growth sake, and Diamondback’s never been a drill, baby, drill company. It’s about very efficient and thoughtful prosecution of our development plan that generates maximum returns to our shareholders, and we’ve done it in 2015 when – post-OPEC meeting and we started laying drilling rigs down.

We did it again in 2016 when there was a dislocation between service cost and stimulation cost and oil price, and I think we’ve got a pretty good track record of demonstrating how we think about funding the business.

Q: In Pecos County, could you talk a bit about how your completion design is evolving and how ESP is impacting well performance?

CEO Stice: Yes, we’ve seen a correlation between sand volume, fluid volume and EUR. And so we’re continuing to try to optimize that, because there’s a cost component in that equation as well. So we’re trying to actually hunt for the right balance of increased cost and increased EUR with the corresponding increase in project IRR.

So, I would say, probably around 2,500 pounds on the Delaware right now is probably our most common. And then on the Midland Basin side, we’re somewhere in that 1,600 to 1,800 pounds per foot on the Midland Basin side.

Q: About the Limelight prospect, could you give us some more color on the genesis of the play?

Diamondback Energy Spent $737 Million on Drilling in 2017

Diamondback Limelight Prospect, Feb. 2018

CEO Stice: Yeah. Our scientists had actually identified the play about three years ago up in Andrews County. There’s couple of private equity companies that have actually gone up there and drilled some pretty good wells. And so with that knowledge, we continue to push along trend there, and we found – at a real low entry point, we found a similar play or the similar depositional environment that we were able to acquire grassroots leasing at a really attractive price.

And so, for a $11 billion, $12 billion company, Diamondback, it’s not going to be a huge needle mover, but it’s a nice piece of business for us and it’s going to compete for capital given success. So it’s still too premature to talk, because we haven’t and we’re still on our assessment phase doing an above-ground technical work, but look for us to provide more color on that as soon as we get results sometime this year.

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