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After the close of New York trading today, Diamondback Energy (FANG) announced fourth quarter earnings of $1.56 a share (excluding one-time items). That beat the Wall Street consensus by 5 cents a share. Revenue climbed 116% year over year to $399 million, above expectations for $366 million.
Fourth quarter production of 93 million barrels of oil equivalent a day (of which 74% was oil) was up 9% from the third quarter and ahead 79% from the fourth quarter of 2016. Production for the full 2017 of 79 million barrels of oil equivalent a day was up 84%. Proved reserves rose to 335 million barrels of oil equivalent. That’s an increase of 63% year over year. Thanks to the incredible economics of the prolific Permian Basin proved finding and development costs for 2017 were $9.09 per barrel of oil equivalent. For the full year the company had EBITDA (earnings before interest, taxes, depreciation, and amortization of $928 million, up from $388 million in 2016. Free cash flow for the year come to $28 million. The average realized price per barrel of oil was $53.59 in the fourth quarter.
For 2018, the company guided Wall Street analysts to expect production of 108 to 116 million barrels of oil equivalent a day. That would be growth of about 47% year over year at the upper end of guidance. The company expects to complete between 170 to 190 horizontal wells in 2018 using 10 to 12 rigs. The capital spending budget for the year is $1.3 billion to $1.5 billion.
The company finished off this very positive report by announcing that it will initiate an annual cash dividend of 50 cents a share beginning with the first quarter of 2018. That’s not a huge yield–about 0.4% on today’s close of $115.03. But it is an important vote of confidence by the board in the sustainability of Diamondback’s production and revenue. It’s also a significant plus for the stock since it enables money managers who are restricted by their charters to buying stocks that pay dividends to buy shares of Diamondback.
The stock is a member of my Jubak Picks portfolio where it is up 10.68% since I added it to that portfolio on February 9, 2017. The stock traded to a high of $132.31 on January 23 before falling to $110 on February 9. The shares moved ahead 3.51% in after-hours trading post the earnings report today.
As of today, February 13, I’m raising my target price to $140 a share from the prior $130 a share.