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Diamondback Energy Inc FANG

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Morningstar’s Analysis

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Raising Diamondback Fair Value Estimate to $119, Putting Shares Back in 4-Star Territory

Analyst Note

| Dave Meats, CFA |

We have increased our fair value estimate for Diamondback to $119 per share, from $88 previously. The increase partly reflects the much-improved outlook for near-term crude prices. But the biggest modeling change supporting the valuation increase was a reduction in our base decline percentage estimate, which is now in the mid-20s (based on data from Rystad Energy). We were previously expecting a base decline of around 35%. That higher estimate made sense when the company was still in growth mode, but the pandemic severely dented global demand, reducing the call on U.S. firms. Like most peers, Diamondback has responded by reducing its capital program to keep production more or less flat. Shale wells exhibit steep declines after first coming online, but the decline rate typically tapers quickly. With reduced activity levels, fewer rapidly declining new wells are being drilled, so the weighted average decline across the Diamondback portfolio is now skewed further to its more slowly declining legacy wells.

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Company Profile

Business Description

Diamondback Energy is an independent oil and gas producer in the United States. The company operates exclusively in the Permian Basin. At the end of 2020, the company reported net proven reserves of 1.3 billion barrels of oil equivalent. Net production averaged about 300,000 barrels per day in 2020, at a ratio of 60% oil, 20% natural gas liquids, and 20% natural gas.

500 West Texas Avenue, Suite 1200
Midland, TX, 79701
T +1 432 221-7400
Sector Energy
Industry Oil & Gas E&P
Most Recent Earnings Jun 30, 2021
Fiscal Year End Dec 31, 2021
Stock Type Hard Assets
Employees 732