Add Diamondback Energy Inc., Midland, Tex., to the list of oil and gas producers not looking to produce much growth in 2022.
In reporting fourth-quarter earnings, Diamondback Chief Executive Officer Travis Stice and Chief Financial Officer Kaes Van’t Hof said the company will keep its oil production flat this year at around 220,000 b/d while ramping up its dividend payouts and continuing to buy back its own shares. Stice told analysts and investors on the company’s conference call that “the global balance remains tenuous at best” with Iran expected to bring hundreds of thousands of barrels per day to market later this year and a number of operators preparing to increase output from their Permian basin holdings.
“Both of these supply factors could be bearish signals for oil, therefore Diamondback’s team and board believe that we have no reason to put growth before returns,” Stice said, saying the same things his peers at Pioneer Natural Resources Co. and Devon Energy Inc., among others, have said (OGJ Online, Feb. 17, 2022). “Our shareholders, the owners of our company agreed. And as a result, we will continue to be disciplined.”
Diamondback earned a fourth-quarter net profit of more than $1 billion—reversing a year-earlier loss of $739 million—on revenues of $2.0 billion. The company averaged production of about 226,300 b/d and generated nearly $1.2 billion in cash flow from its operations. That latter number gave Diamondback’s directors the green light to hike the company’s quarterly dividend by 20% to 60 cents per share.
For 2022, Stice and his team plan to spend $1.75-1.9 billion on capital projects, an increase from spending of nearly $1.5 billion last year—with inflation accounting for $150 million of that rise. In terms of wells, that spending translated to 216 wells drilled in 2021 and is forecast to turn into 270-290 wells drilled this year. Diamondback will maintain its program of 12 rigs and three simulfrac crews.
Speaking more broadly to the competitive environment in the Permian, Stice—who on Feb. 22 was named Diamondback’s chairman in addition to chief executive while Van’t Hof was appointed president to add to his chief financial officer role—said he finds it “really hard to see” how Diamondback could find opportunities to replicate the work it did in buying QEP Resources Inc. and Guidon Operating LLC about a year ago (OGJ Online, Dec. 23, 2020). Despite the mid- and long-term uncertainties, the expectations, he added, are simply too frothy.
“I wish I could articulate clearly what the catalyst is going to be that allows consolidation to occur, because it’s needed,” Stice said. “There’s a lot of companies that [were] whistling through the graveyard with one foot in the grave. And now a couple of years later, oil is at $90/bbl and they’re expecting to sell out and get value on future cash flows at $90/bbl.”