Diamondback Energy, Inc. — FY 2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020. This is an annual filing; the provided text does not give a complete standalone fourth-quarter income statement. Diamondback is a Permian-focused oil and gas producer, with upstream and midstream operations; Viper and Rattler are consolidated subsidiaries.
Key financial and operating metrics
| Metric | FY 2020 | FY 2019 |
|---|---|---|
| Total revenue | $2.813 billion | $3.964 billion |
| Oil, natural gas and NGL revenue | $2.756 billion | $3.887 billion |
| Net income (loss) attributable to Diamondback | $(4.517) billion | $240 million |
| Net cash from operating activities | $2.118 billion | $2.739 billion |
| Net cash used in investing activities | $2.101 billion | $3.888 billion |
| Net cash from (used in) financing activities | $(37) million | $1.062 billion |
| Production | 300,331 BOE/d | 282,972 BOE/d |
| Average realized price, combined | $25.07/BOE | $37.63/BOE |
| Cash operating expense | $7.37/BOE | $8.54/BOE |
The reported loss was driven principally by a $6.021 billion non-cash full-cost ceiling impairment of oil and gas properties, compared with $790 million in 2019. The impairment reduced earnings and asset carrying values, but not cash flow. Operating cash flow declined about 23%; lower commodity prices outweighed higher production and lower lease operating expenses. Oil production fell while natural gas and NGL volumes rose.
At year-end, total assets were $17.619 billion, total liabilities $7.815 billion, and cash and cash equivalents $104 million. Total debt, net, was $5.815 billion, including $191 million of current maturities. Diamondback had $1.98 billion available under its $2.0 billion revolving facility. Viper and Rattler had $496 million and $521 million, respectively, available on their revolving facilities. The company reported compliance with applicable financial covenants.
Capital expenditures for drilling, infrastructure and midstream additions were $1.859 billion, excluding acquisitions and equity-method investments. Proved reserves were 1.316 billion BOE, up from 1.128 billion BOE; 62% were proved developed. The standardized measure of discounted future net cash flows was $6.758 billion, down from $10.184 billion.
Material changes and notable items
- Revenue decreased 29% from 2019, primarily because lower oil prices reduced oil sales. Average daily production nevertheless increased 6%, to 300,331 BOE/d.
- Cash operating expense per BOE decreased, including lease operating expense falling to $3.87 from $4.74. Gathering and transportation expense rose to $1.27 from $0.86/BOE, partly due to minimum-volume commitment fees and a greater gas/NGL mix.
- Debt increased from $5.371 billion to $5.815 billion. Diamondback issued $500 million of 4.750% notes due 2025; Rattler issued $500 million of 5.625% notes due 2025. Net interest expense rose to $197 million from $172 million.
- Cash dividends paid were $236 million, versus $112 million in 2019. The company’s share repurchase program was suspended during the first quarter and expired at year-end; $98 million of shares were repurchased in 2020.
- Commodity derivative settlements generated $250 million of net cash receipts; derivatives recorded a net loss of $81 million in earnings. The year-end commodity-derivative position was a net liability of $255 million.
Outlook, management commentary and risks
- For 2021, management budgeted $1.4–$1.6 billion of drilling, midstream and infrastructure capital spending, including $1.2–$1.4 billion for drilling and completions. It expected to complete 215–235 gross operated horizontal wells and operate an average of 8–12 rigs.
- Management planned to hold fourth-quarter 2020 production approximately flat for 2021, generate free cash flow for dividends and debt reduction, and adjust spending if commodity prices weakened. It stated that current expected cash flows, cash on hand and revolver capacity should fund operations through year-end 2021, subject to commodity prices and production.
- Management expected winter storms in the Permian to cause approximately four to five days of net production loss in first-quarter 2021, but expected to overcome the impact for the full year. No specific 2021 production-volume guidance is provided in the text.
- The pending QEP acquisition was an all-stock transaction valued at approximately $2.2 billion, including QEP net debt. Management forecast $60–$80 million of annual synergies and expected accretion on relevant 2021 per-share metrics before synergies; completion remained subject to approvals and other conditions. The filing identified approximately $7.4 billion of pro forma debt assuming the merger had closed at year-end.
- The pending Guidon acquisition covered approximately 32,500 net acres for $375 million cash and 10.6 million Diamondback shares, subject to adjustment; it was expected to close February 26, 2021. The cash portion was expected to be funded from cash and revolver borrowings.
- Key risks include continued COVID-19 and commodity-price volatility, possible further impairments, Permian concentration and infrastructure constraints, customer concentration, derivative counterparty risk, capital access and leverage, lease expirations, and environmental or regulatory changes. Nine lawsuits relating to the QEP transaction had been filed as of February 22, 2021; the company and QEP considered the allegations without merit.
- Diamondback announced Scope 1 greenhouse-gas intensity and methane-intensity reduction targets of at least 50% and 70%, respectively, by 2024 from 2019 levels, and a “Net Zero Now” initiative effective January 1, 2021. It reported flaring 2.0% of gross natural gas production in 2020, down 64% from 2019.
- The board declared a fourth-quarter 2020 dividend of $0.40 per share, payable March 11, 2021. Management reported effective disclosure controls and internal control over financial reporting; the auditor issued unqualified opinions on the financial statements and internal controls.
Most important facts for investors to verify
- Whether subsequent commodity prices, reserve revisions and the quarterly ceiling-test process caused additional impairments after year-end.
- Actual 2021 production, capital spending, free cash flow, dividend payments and debt reduction versus management’s plans.
- Completion terms and realized integration results for QEP and Guidon, including synergies, share issuance, debt and any litigation or other closing conditions.
- Liquidity and covenant headroom, particularly after acquisitions and the $191 million debt maturity due in 2021; distinguish parent-company liquidity from subsidiary facility availability.
- Whether reserve estimates, proved-undeveloped development schedules, derivative settlements and customer concentrations evolve materially from the filing’s year-end disclosures.