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Oil and Gas E&P Faces Headwind After Posting Solid Quarter

Source: Streetwise Reports

 

May 21, 2018 (Investorideas.com Newswire) Raymond James reviewed the issue this energy company is currently tackling.


In a May 11 research note, Raymond James analyst John Freeman reported that Diamondback Energy Inc. (FANG:NASDAQ) "delivered a solid Q1/18 earnings beat, driven by an impressive beat on operating costs. The focus, however, remains on concerns around Permian takeaway and the ability to limit in-basin pricing exposure."

In Q1/18, the company reported adjusted EBITDA of $361.1 million ($361.1M), above both Raymond James and consensus' estimates of $349M and $337M, respectively. Similarly, adjusted earnings per share of $1.64 exceeded expectations of Raymond James and consensus, which were $1.53 and $1.58, respectively.

For 2018, Diamondback slightly increased the low end of its production guidance to 110–116 thousand barrels of oil equivalent per day (110–116 Mboe/day) from 108–116 Mboe/day. It lowered its lease operating expense guidance by 13% at the midpoint, to $3.75–4.50 per barrel of oil equivalent. Capital spending and completions remain unchanged.

As for current operations, Diamondback is operating 11 rigs and 5 fracking crews. Given the last rig came online in Q1/18 and the oil price recently has been strong, the company likely will bring on a 12th rig this summer, noted Freeman.

A likely temporary headwind for Diamondback is its lack of near-term solutions to the problem of "extremely limited takeaway through at least early 2019," Freeman indicated. The company did recently secure 50 Mboe/day in firm transportation on the Gray Oak pipeline, which should help improve its exposure to out-of-basin pricing, but that pipeline will not start up until late 2019. "In the meantime, basis hedges cover ~13% of forecasted 2018 production volumes," he added.

Freeman pointed out that while Diamondback is pursuing "multiple deals to increase international pricing exposure and while its scale should help lock in a price that is less than the cash market today (we model H2/18 differentials at ~$11 per barrel), any solution here will likely still be relatively expensive."

Despite the takeaway concerns, however, Freeman concluded, "we remain constructive on the name, given Diamondback's prime acreage position, strong operational prowess and very attractive growth profile."

Raymond James maintains its Outperform rating and $176 per share target price on Diamondback, whose stock is currently trading at around $134.58 per share.

Disclosure:

1) Doresa Banning compiled this article for Streetwise Reports LLC and provides services to Streetwise reports as an independent contractor. She or members of her household own securities of the following companies mentioned in the article: None. She or members of her household are paid by the following companies mentioned in this article: None.

2) The following companies mentioned in this article are billboard sponsors of Streetwise Reports: None. Click here for important disclosures about sponsor fees.

3) Comments and opinions expressed are those of the specific experts and not of Streetwise Reports or its officers. The information provided above is for informational purposes only and is not a recommendation to buy or sell any security.

4) The article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports' terms of use and full legal disclaimer. This article is not a solicitation for investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company mentioned on Streetwise Reports.

5) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their immediate families are prohibited from making purchases and/or sales of those securities in the open market or otherwise from the time of the interview or the decision to write an article, until one week after the publication of the interview or article.

Disclosures from Raymond James, Diamondback Energy Inc., May 11, 2018

ANALYST INFORMATION

Analyst Compensation: Equity research analysts and associates at Raymond James are compensated on a salary and bonus system. Several factors enter into the compensation determination for an analyst, including i) research quality and overall productivity, including success in rating stocks on an absolute basis and relative to the local exchange composite Index and/or a sector index, ii) recognition from institutional investors, iii) support effectiveness to the institutional and retail sales forces and traders, iv) commissions generated in stocks under coverage that are attributable to the analyst's efforts, v) net revenues of the overall Equity Capital Markets Group, and vi) compensation levels for analysts at competing investment dealers.

The views expressed in this report accurately reflect the personal views of the analyst(s) covering the subject securities. No part of said person's compensation was, is, or will be directly or indirectly related to the specific recommendations or views contained in this research report. In addition, said analyst has not received compensation from any subject company in the last 12 months.

RAYMOND JAMES RELATIONSHIP DISCLOSURES
Raymond James Ltd. or its affiliates expects to receive or intends to seek compensation for investment banking services from all companies under research coverage within the next three months.

Raymond James & Associates makes a market in shares of FANG.


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