EUR 850.00 For Business Accounts Only

Morningstar | Diamondback Targeting 27% Annual Production Growth in 2019

Diamondback Energy was a modest-size oil and gas producer when it went public in 2012, but it has rapidly become one of the largest Permian Basin operators. This was supported by a series of corporate acquisitions, most notably Energen in 2018. Nevertheless, the company's organic volume growth has been impressive, too, and we believe there are several more years of double-digit growth yet to come.Keeping costs low is baked into the culture at Diamondback, and we expect operations to remain lean and efficient, despite the recent expansion. From the outset the company has enjoyed a considerable competitive advantage that enables it to systematically undercut its upstream peers. This was initially based on the ideal location of its acreage in the core of the play, and by the early adoption of innovations like high-intensity completions (resulting in more production for each dollar spent). More recently, the firm has started seeing economies of scale as well.Management has fiercely protected the balance sheet over the years and has been willing to tap equity markets when necessary, as it did several times during the 2015-16 downturn in global crude prices. But there's no need for further issuances--the firm's financial health is excellent and it can deliver substantial production growth within cash flows under a wide range of crude price scenarios. There's little chance of outspending unless oil prices stay well below our midcycle estimate of $55 per barrel (and in that scenario Diamondback would still be better off than most of its peers due to its highly competitive cost structure).Finally, we highlight the firm's stake in its mineral rights subsidiary, Viper Energy Partners. This vehicle owns the mineral rights relating to some of Diamondback's most attractive acreage, further juicing returns on drilling for the parent.