/biz/ - Business & Finance

Here's your FANG rundown btw

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FANG (Diamondback Energy; Buy; PO $52.00): Company recently revised production
guidance to 295-310Mboe/d, which implies YoY growth of 5% at the midpoint with
capex coming down ~40% YoY. Under this activity program, we expect FANG will be able
to generate ~$450mm of FCF and fully fund the dividend and distributions. With its
recently provided update, FANG eliminated its three-way collars and replaced them with
two-way collars, improving downside protection. FANG is now ~96% hedged for the
remainder of the year and expects to generate ~$800mm from its hedge book at $32
WTI. We model a 4Q20 oil exit rate of 170-180Mboe/d, implying a YoY decline of (-8%)
in Q4, and management believes it can maintain this exit rate in 2021 under 0-1
additional rigs and an additional 1-2 completion crews while reducing capex by 20-30%.
While we believe this achievable, it hinges on a slower decline rate and the company’s
ability to continue to hold existing and potentially improve on existing efficiencies.
Diamondback runs a very lean team given the size of its production base. The company
will enforce up to a 3-month frac holiday in 2Q20, which could give it leverage while
negotiating service costs. How sustainable these savings are particularly in light of many
service companies operating on negative EBITDA in the current environment remains to
be seen. We change our income rating to 8 (same/lower) from 7 (same/higher),

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