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Diamondback increases production guidance, cuts capital costs

Diamondback Energy Inc. was able to increase its annual production guidance and cut its capital expenditures projections for the year after an efficient second quarter, CEO Travis Stice said Aug. 7.

Speaking during Diamondback's second-quarter earnings call, Stice said production had increased 7% quarter over quarter and production guidance for 2019 would be increased to between 277,000 barrels of oil equivalent per day and 284,000 boe/d, up from 272,000 boe/d to 287,000 boe/d.

Diamondback also dropped its capital expenditures projections by approximately 0.4%, from a range of $2.7 billion to $3 billion to a range of $2.73 billion to $2.95 billion. The company also increased its well completion guidance to between 300 and 320 wells, up approximately 1.6% from previous estimates.

Stice said Diamondback's performance during the quarter showed its emphasis on efficiency, capital discipline and shareholder returns.

"Based on the second-quarter numbers, Diamondback now generates more annualized EBITDA per share than our IPO price seven years ago," he said. "Diamondback continues to focus on per-share metrics with shareholders now owning more production, cash flow and earnings per share than prior to our acquisition of Energen a year ago even in the face of a lower commodity price environment."

Stice said the company's production-related costs were down 7% year-over-year in the Midland Basin and down 16% year-over-year in the Delaware Basin.

"Our operations organization continues to drive material costs out of the business with expectations for continued tailwinds due to improved efficiencies and service cost deflation," he said. "With respect to oil realizations, we believe the worst of our widest basis differential quarters are behind us, and we now expect to realize greater than 95% of WTI pricing for the second half of 2019."

During the second quarter, Diamondback completed the IPO of its midstream unit, Rattler Midstream LP, and dropped down 5,000 net acres to subsidiary Viper Energy Partners LP, for a total of $1.42 billion. Stice said the capital raised will be used on investor-friendly moves.

"We intend to use the majority of the remainder of these proceeds, along with increasing free cash flow from operations, to continue our stock repurchase program," he said. "Our balance sheet is strong with both absolute debt levels and leverage metrics low. And we will continue to return capital to shareholders via our share repurchase program and dividend. At current valuations, we continue to fuel the best use of our free capital at Diamondback is buying back our own stock."

In spite of the positives mentioned by Stice, Diamondback missed earnings estimates for the second quarter. The company reported $280 million, or $1.70 per share, of adjusted net income, which was 5 cents below the S&P Global Market Intelligence consensus estimate. It was up 11 cents per share from the second quarter of 2018.