Diamondback Energy, Inc. — Q1 2024 Form 10-Q
Business context and reporting period. Unaudited results for the three months ended March 31, 2024. Diamondback is a Permian Basin-focused oil and gas producer with one reportable segment, upstream. Its consolidated statements include Viper, in which Diamondback held approximately 48% at quarter-end but continued to consolidate as Viper’s primary beneficiary. Unless noted, amounts are U.S. dollars.
Financial and operating performance
| Metric | Q1 2024 | Q1 2023 |
|---|---|---|
| Total revenue | $2.227 billion | $1.925 billion |
| Income from operations | $1.118 billion | $1.025 billion |
| Net income attributable to Diamondback | $768 million | $712 million |
| Diluted EPS | $4.28 | $3.88 |
| Net cash from operating activities | $1.334 billion | $1.425 billion |
| Cash capital expenditures, excluding acquisitions | $609 million | $657 million |
- Oil, natural gas and NGL revenue was $2.101 billion, up $199 million (10%) year over year. Total revenue also includes $116 million of purchased-oil sales, substantially offset by $117 million of purchased-oil expense.
- Average production was 461.1 MBOE/d, up from 425.0 MBOE/d (about 8%). Average realized price was $50.07/BOE versus $49.72/BOE; oil averaged $75.06/Bbl and natural gas $0.99/Mcf.
- Calculated operating margin was approximately 50.2% of total revenue, compared with 53.2% in Q1 2023; the 2024 figure includes purchased-oil sales and expense. Cash operating costs were $11.52/BOE, including lease operating expenses of $6.08/BOE.
- Operating cash flow declined $91 million year over year, reflecting higher cash operating costs and working-capital timing, partly offset by higher revenue. Investing cash outflow was $751 million; financing cash outflow was $269 million.
- Cash and cash equivalents were $896 million at March 31, 2024 ($876 million standalone cash cited in MD&A). Total debt, net of issuance costs and other adjustments, was $6.629 billion. Diamondback’s revolver had no borrowings and $1.6 billion available; Viper had $273 million drawn and $577 million available under its elected commitment. Management reported approximately $2.5 billion of liquidity, excluding acquisition financing sources.
Material changes and notable items
- Year-over-year oil and gas production growth reflected the GRP acquisition, a full quarter of Lario production, and new wells. Lease operating expense rose to $255 million from $192 million, including higher water-service costs following the water-asset divestiture, increased volumes and wellwork.
- Production and ad valorem taxes fell to $119 million from $155 million, including a $17 million production-tax audit settlement refund in Q1 2024. DD&A increased to $469 million from $403 million, primarily from higher production and depletion rates after the GRP acquisition.
- Derivative instruments produced a $48 million net loss versus a $93 million loss in Q1 2023. Q1 2024 included a $32 million loss on interest-rate swaps and a $16 million loss on commodity contracts. No impairment expense was recorded in the quarter.
- Diamondback sold 13.23 million Viper shares in March for approximately $451 million net proceeds, while retaining control and continuing consolidation. It paid $548 million in dividends and repurchased $42 million of its shares during the quarter.
Outlook, financing, risks and contingencies
- 2024 guidance, excluding the pending Endeavor acquisition: production of 458–466 MBOE/d, including oil of 270–275 MBbl/d; capital budget of $2.30–$2.55 billion. Management expected Q2 production to remain relatively flat and capital spending to remain flat, citing capital efficiency, lower well costs and reduced drilling activity.
- Guidance includes 2024 cash taxes of 15%–18% of pre-tax income and Q2 cash taxes of $180–$220 million. The board’s return-of-capital commitment targets at least 50% of 75% of free cash flow for dividends and repurchases, with the remainder primarily for debt reduction. Q1 2024 dividend declared after quarter-end was $1.97/share.
- The pending Endeavor acquisition, announced in February, calls for $8.0 billion cash, subject to adjustment, plus approximately 117.27 million Diamondback shares. Closing was expected in Q4 2024, subject to customary conditions; stockholders approved the share issuance on April 26. A $1.4 billion termination fee may apply in specified circumstances; certain failed-approval circumstances instead require expense reimbursement, capped at $260 million.
- After quarter-end, Diamondback issued $5.5 billion of senior notes at stated rates of 5.15%–5.90%, intending to fund part of the Endeavor cash consideration. The notes reduced the committed acquisition bridge facility to $1.0 billion available; $1.5 billion of term loans also remained available at March 31. The notes add substantial future interest obligations.
- Key risks include commodity-price volatility, production and reserve uncertainty, regulation and environmental requirements, water availability and induced-seismicity restrictions, operating and service-cost risks, customer and counterparty credit risk, and completion, financing and termination risks related to Endeavor. Management warned that lower future commodity prices could cause material full-cost ceiling-test impairments. Routine legal matters were not expected by management to have a material adverse effect, though outcomes remain uncertain.
Important facts for investors to verify
- Endeavor closing conditions, final cash consideration and share issuance, acquisition funding mix, and the resulting debt, interest burden and ownership dilution.
- Whether production and unit-cost guidance and the $2.30–$2.55 billion capital budget remain achievable as commodity prices, costs and drilling plans change.
- Cash conversion and working-capital movements, plus the sustainability of dividends and repurchases alongside acquisition financing and debt reduction.
- Viper’s continued consolidation despite Diamondback’s sub-50% ownership, and the distinction between consolidated liquidity/debt and resources available to Diamondback standalone.
- Commodity-price sensitivity, derivative exposures and potential future ceiling-test impairments; no Q1 impairment does not rule out later charges.