Diamondback Energy lead this week's handful of year-end reports due from top U.S. gas and oil stocks. Diamondback and Matador Resources reported after the stock market close Tuesday.
Like most oil producers, Diamondback's sales and earnings pulled back over the past year. That reflects a retreat from the powerful gains in 2022 as Russia's February 2022 invasion of Ukraine forced oil prices higher.
Diamondback reported earnings of $4.74, down 10% but still better than the $4.70 forecast by FactSet analysts. Revenue edged up to $2.32 billion, better than the $2.17 billion estimate and Diamondback's first sales increase in four quarters.
Production Up Slightly, Spending Down For 2024
Details on production took center stage, given Diamondback's pending status as the Permian Basin's largest pure-play producer. Diamondback agreed on Feb. 12 to swap 117.3 million FANG shares, plus $8 billion cash, for privately held Endeavor Energy, founded by wildcatter Autry Stephens. Existing Diamondback holders will own 60.5% of the combined company.
The combination places Diamondback third after Chevron and after Exxon Mobil's tie-up with Pioneer Natural Resources, as the largest producers in the Permian Basin, according to Wood Mackenzie.
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Diamondback management points to 2024 production of between 270,000 and 275,000 barrels of oil per day. Measured in oil-equivalent barrels, the company guides to 458,000 to 466,000 barrels per day.
For the full year 2023, the company averaged production of 263.5 thousand barrels of oil per day, and 447.7 thousand barrels of oil equivalent.
Management guided to full-year capital expenditures of $2.3 billion to $2.55 billion for 2024. In 2023, the company spent $2.7 billion.
All of those numbers do not include spending, costs, income or production from Endeavour.
Additional details on how Diamondback plans to handle the Endeavour consolidation, and how it expects to wrest $550 million in annual "synergies" — costs saved between the two companies will also be of central interest during the company's conference call with analysts.
"Both companies already have very similar approaches to well design including similar water, proppant, and wells per pad" strategies, wrote Wood Mackenzie analyst Alex Beeker. "How challenging will it be to achieve these synergy targets?"
Positive Reaction For Oil Stocks
Diamondback last week also raised its annual dividend 7% to $3.60 a share. But it said it would reduce its return of capital commitment to 50% of free cash flow (to investors) starting in Q1, vs. 75% previously.
The Diamondback/Endeavour deal comes on the heels of a record-setting run in consolidations among oil stocks.
In October, Exxon Mobil agreed to buy Permian Shale giant Pioneer for $59.5 billion in an all-stock deal. Exxon plans to report production from Pioneer as the bulk of its production growth for the year.
Later that month, Dow giant Chevron announced a $53 billion deal for Hess, which is a significant player in the Montana/North Dakota Bakken shale oil field, and has significant reserves in Guyana.
After $130 billion in deals during 2023, oil patch mergers this year are already passing $50 billion.
"So far, immediate market reaction has been positive," Wood Mackenzie's Beeker wrote, with shares of Diamondback up more than 6% after the companies' call with analysts to announce the buyout. "It has been rare for the market to respond so positively in favor of the buyer when it comes to Permian M&A."
Oil Stocks: Diamondback, Matador
Last week's news of the Endeavour acquisition lifted Diamondback stock above a 171.40 buy point in a long flat base. Like many oil stocks, Diamondback had battled resistance right around the 70 mark since late 2002 — as oil prices fell away from post-Russia/Ukraine invasion highs.
The stock ended the week atop that resistance, and at the very top of a buy range that runs to 179.91.
West Texas Intermediate oil prices held above $78 on Tuesday, after Friday's close above $79.
Diamondback dipped 0.8% to close at $178.06 on Tuesday. Shares were unchanged in Wednesday's premarket session.
Matador shed 1% to 58.74 on Tuesday.
Viper Energy Partners and Marathon Oil deliver results Wednesday. EOG Resources, Northern Oil & Gas and Cheniere Energy are scheduled to report on Thursday.
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