Diamondback expects Q2 production increase, sees ‘meaningful decreases’ to well costs ahead

Diamondback Energy Inc., Midland, Tex., will this quarter for the first time complete a majority of its new wells with a simul-frac or simul-frac e-fleet as it looks to increase oil production about 3% from the first 3 months of the year.

The operated rig count at Diamondback topped out early this year at 16-17 and will average 14-15 during the second half, chairman and chief executive officer Travis Stice and his team told analysts and investors May 1 as part of the company's first-quarter earnings report. Diamondback's 2023 capital spending forecast remains at $2.5-2.7 billion but its spend rate will dip as the year progresses thanks to efficiencies from simul-frac operations and lower prices for various input costs, especially those of some materials.

“We believe well costs peaked over the last two quarters and have line of sight to meaningful decreases in the upcoming quarters,” Stice said in a letter to shareholders, echoing—and fortifying—recent comments from Rich Dealy of Pioneer Natural Resources (OGJ Online, April 27, 2023).

During the first 3 months of the year, Diamondback produced a net profit of $712 million on revenues of a little more than $1.9 billion. In the same period of 2022, those numbers were $779 million and $2.4 billion, respectively. The company averaged daily oil and combined volumes of about 251,000 b/d and 425,000 boe/d, increases of 13% and 11% from a year earlier, while its average combined price per boe slid nearly 29% to $49.72.

Contributing to expected production increases are the recently acquired operations of Lario Permian LLC and FireBird Energy LLC. Chief financial officer Kaes Van’t Hof called out the second of those deals as one that “over time, […] will prove to be one of [the company's] better deals” both in terms of acreage and production upside from a geological perspective (OGJ Online, Oct. 11, 2022). Diamondback is forecasting that FireBird will produce an average of 19,000 b/d this year, in line with previous forecasts.

Stice and his team, who have raised their 2023 target for asset divestitures to $1 billion, last month sold about 19,000 acres in Glasscock County, east of their home base, and in first quarter offloaded their 10% stake in a pipeline as well as nearly 5,000 acres in two Texas counties. Van’t Hof told analysts it’s reasonable to expect more deals involving Diamondback’s holdings in other joint ventures as well as midstream operations.

Shares of Diamondback (Ticker: FANG) were down more than 6% to about $132.70 in midday trading May 2. Over the past 6 months, shares have lost nearly 15% of their value, trimming the company’s market capitalization to about $24.1 billion.