Diamondback Energy (FANG 1.02%)
Q3 2022 Earnings Call
Nov 08, 2022, 9:00 a.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Hello, and thank you for standing by. Welcome to the Diamondback Energy third quarter 2022 earnings conference call. [Operator instructions] It is now my pleasure to introduce vice president of investor relations, Adam Lawlis.
Adam Lawlis — Vice President, Investor Relations
Thank you, Andrew. Good morning, and welcome to Diamondback Energy third quarter 2022 conference call. During our call today, we will reference an updated investor presentation, which can be found on Diamondback’s website. Representing Diamondback today are Travis Stice, chairman and CEO; Kaes Van’t Hof, president and CFO; and Danny Wesson, COO.
During this conference call, the participants may make certain forward-looking statements relating to the company’s financial condition, results of operations, plans, objectives, future performance, and businesses. We caution you that actual results could differ materially from those that are indicated in these forward-looking statements due to a variety of factors. Information concerning these factors can be found in the company’s filings with the SEC. In addition, we will make reference to certain non-GAAP measures.
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The reconciliations with the appropriate GAAP measures can be found in our earnings release issued yesterday afternoon. I’ll now turn the call over to Travis Stice.
Travis Stice — Chairman and Chief Executive Officer
Thank you, Adam. And before we start with my prepared remarks this morning, I want to encourage each of you to please take advantage of one of our greatest privileges we have as Americans, our freedom to elect our representatives. Please take the time off your busy schedules today to go vote, if you’ve not already done so. Welcome to Diamondback’s third quarter earnings call.
A Diamondback, we pride ourselves on our execution. Our commitment to being the lowest-cost operator in the Permian Basin has and will continue to position us for success through the cycle. The third quarter was no exception. In the quarter, we produced over 224,000 barrels of oil per day and generated approximately $1.7 billion in operating cash flow.
Our capex was once again within our guidance range, leading to free cash flow of nearly $1.2 billion. As we previously announced, we increased our return of capital commitment and stated that beginning this quarter, we would return at least 75% of free cash flow back to our shareholders, up from at least 50% previously. At 75%, total capital return was nearly $875 million, with dividends totaling $403 million or $2.26 per share. The remaining $472 million went toward our opportunistic share repurchase program, where we bought back nearly 4 million shares at an average price of approximately $120 a share.
To date, we’ve spent approximately $1.2 billion of our $4 billion buyback authorization, repurchasing nearly 6% of our shares outstanding since September of last year when we initiated our program. In October, we announced the pending acquisition of the assets of FireBird Energy, a company with a large, contiguous position in the Midland Basin. We feel FireBird has right balance of cash flow and inventory and the acquisition is immediately accretive on all relevant per-share financial metrics while providing a long runway of high-quality drilling opportunities. With over 350 locations, we expect to have well over a decade of run room at our projected one-rig development phase.
In conjunction with the acquisition, we announced that we would sell at least $500 million of non-core assets by the year-end 2023, with net proceeds primarily used to pay down debt. Since then, we closed on a $155 million sale of non-core assets in the Delaware Basin, jump-starting our program and ensuring continuous improvement to our investment-grade balance sheet. We will continue to pursue strategic divestitures, including the sale of certain assets within our Rattler portfolio, generating unrealized value for our shareholders. In closing, we know our business.
We know we have some of the best inventory in the United States with our low-cost operational machine in place. We have the unique ability to generate significant repeatable returns through the drill bit for decades to come. In 2019, we began co-developing our primary targets. Since then, we’ve learned how to optimize our development patterns and spacing, and as a result, are seeing material improvement in well productivity over the past 36 months.
In fact, our well performance this year is back at 2019 levels, when we were primarily targeting one-off wells in our — zones, which while having great performance and economics and the potential to withstand significant components of our inventory, leading to material parent-child concerns down the line. Fortunately, we are well-positioned for the future. We expect to close on the FireBird transaction at the end of November and slow the development pace on that asset from three rigs to one. We are working with our service providers to ensure that we have the most efficient and cost-effective personnel and equipment in place for next year, including the two e-fleet simul-frac crews we’ve secured from Halliburton, the first of which is already in the field and performing well.
All of this will provide operational momentum as we move into 2023 we expect to deliver the same operational results you’ve come to expect from Diamondback. While we won’t be giving detailed for the 2023 guidance today, we believe that we’ll be able to generate low single-digit pro forma oil production growth next year by maintaining our current stand-alone activity levels plus the one additional FireBird rig. It’s not easy to operate in this environment, but our size, scale and quality of the inventory uniquely position us to deliver differentiated results and create meaningful value for our shareholders. Before I open up for questions, I want to address all the Diamondback employees that are on the phone.
At Diamondback, we’ve just celebrated our 10 years as a public company, growing from a $500 million market cap to almost $30 billion today. The people around me this morning and sometimes me individual get too much credit for the success. It’s you, the men and women of Diamondback that deserve the credit. It’s your pursuit of excellence, your desire to be the very best version of yourself, your dedication to integrity that is responsible for our success.
It remains my privilege to represent you. Thank you for all that you do. Operator, please open the line for questions.
Questions & Answers:
Operator
Certainly. [Operator instructions] And our first question comes from the line of Neal Dingmann with Truist.
Neal Dingmann — Truist Securities — Analyst
Thanks. Good morning, Travis and team. Travis, my first question is on your developmental strategy, specifically, could you all discuss if you have or will continue to develop, you mentioned, I think it’s Slide 7, you’ve gone to the co-development, you all went there really, I think, before a lot of others did. And I’m just wondering, are you going to do that is that pretty much on all the assets included when you take over FireBird, and I’m just wondering the second part of that, are there parts of this process that you believe you still have an advantage over peers.
It just seems to me when I’m looking at sort of margins in the perm, you all still are leading. So I’m just wondering, if there are some things you’re doing when looking at that Slide 7 that you still think are leading as sort of the pack.
Kaes Van’t Hof — President and Chief Financial Officer
Yeah, Neal. Good question. This is Kaes. I think generally, we obviously had a tough earnings call at the end of 2019, when we made this shift to co-development.
I think we learned very, very quickly from that as well as moving more of our capital to the Midland Basin. And I think just generally, the teams have done a really good job on not only spacing within each zone, but the intra-zonal spacing given that these zones talk to each other. And the result is better overall assets here over the last couple of years. So nothing is going to change there.
I think we’re going to keep co-developing. And in fact, in some ways, we’ll end up doing some larger pads, and we even have prior given the amount of virgin rock we have in that sale of Robertson Ranch area that is kicking off in a real way right now. I think generally — on the other — on the other question, well costs are certainly the biggest advantage we have as a company at Diamondback, and that’s a cultural thing from top to bottom. We’re very focused on cost, very focused on keeping costs down in this inflationary environment.
I think that gives us an advantage, particularly in looking at stuff like FireBird, right? FireBird we’re going to co-develop a lot of zones up in the north at a low-cost structure and that central position. There’s opportunities for upside, if we bring the Wolfcamp B into the Lower Spraberry development. And that, I think the testament that we can drill them cheap, the returns make sense to compete for capital.
Neal Dingmann — Truist Securities — Analyst
Yeah. It really sounds encouraging. Then turn to my second question, well, I guess, I’d call it the topic your and that’s on shareholder return and capital…
Read More: Diamondback Energy (FANG) Q3 2022 Earnings Call Transcript | The Motley Fool