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Diamondback sheds US Williston, non-core Permian assets for $832 million

Highlights

Plans to pay down debt

Focuses on capital discipline

Denver — Diamondback Energy plans to sell more than $800 million of its assets to reduce debt as it focuses on core acreage in the Permian Basin and, like many other large producers, maintain steady oil and gas volumes through the end of 2021.

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The company is selling 95,000 acres of Williston Basin assets for $745 million it acquired during its recent acquisition of QEP Resources. Diamondback is also shedding another 8,300 acres of non-core Permian assets for $87 million. The deals are expected to close during the second and third quarters of 2021.

"Yesterday we announced three non-core divestitures for $832 million," said Travis Stice, Diamondback Energy CEO, during the Q1 2021 earnings call on May 4. "We were able to take advantage of a strong A&D [acquisition and divestitures] market. We plan to use the proceeds from these sales for debt reduction."

The company now holds 418,000 net acres in the Midland and Delaware basins of the Permian. Diamondback expects to drill 200-215 gross wells and complete 275-285 gross horizontal wells in 2021 with 75% of those located in the Midland Basin. Production is expected to average 355,000 boe/d throughout 2021 compared to 307,400 boe/d in Q1.

"Diamondback started 2021 with a successful first quarter, effectively overcoming the production obstacles presented by Winter Storm Uri while keeping our capital and operating costs near all-time lows," Stice said. "At current strip pricing, and pro forma for our asset sales announced today, we expect to continue generating significant free cash flow in 2021."

After entering 2020 with 20 rigs in the field, Diamondback is currently running 11.

After making a tremendous recovery since April 2020, WTI, the US benchmark for crude prices, has seemingly stabilized in the low $60/b range. Meanwhile, rig activity continues to recover, but at a slower pace.

Higher prices coupled with increased drilling and completion activity present some amount of high-side risk to S&P Global Platts Analytics' production forecast. This is particularly apparent among the private operators, which have responded more swiftly to sustained higher prices.

However, capital discipline and a maintenance mode mindset among the publicly traded operators will likely keep production growth in check. As such, US crude production is forecast to average 11 million b/d in 2021, roughly 300 Mb/d lower than the previous year. While crude production is forecast to remain below 2020 levels, it is expected that it will begin to recover in the next couple of months, according to Platts Analytics.

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