Diamondback Closes Permian Divestitures, Eyes More Midstream Sales

Diamondback Energy continued to sell upstream and midstream assets in the first quarter, part of the company’s ambitions to divest $1 billion in non-core assets by year’s end.

Midland-based Diamondback closed Texas deals to sell about 19,000 net acres in Glasscock County and about 4,900 acres in Ward and Winkler counties, the company reported in first-quarter earnings after markets closed on May 1.

The two deals, first announced in fourth-quarter earnings in February, were expected to generate total consideration of $439 million.

Diamondback anticipated that its companywide production would fall by about 2,000 bbl/d of crude oil, or 7,000 boe/d as a result of the Permian divestitures.

Also on the upstream side, Diamondback completed a divestiture of royalty interests to its mineral- and royalty-focused subsidiary, Viper Energy Partners LP.

Viper acquired 819 net royalty acres during the first quarter, 696 of which are operated by Diamondback, for $115.8 million. That included the $75.1 million dropdown from Diamondback.

Diamondback has completed $773 million in asset sales since announcing its initial target last year, excluding the dropdown to Viper.

Diamondback had previously planned to raise $500 million through asset sales but upped its divestiture target to $1 billion earlier this year.

Elsewhere in the Permian, Diamondback is expanding. The company closed a $1.55 billion acquisition of Lario Permian LLC on Jan. 31, after completing a $1.75 billion acquisition of FireBird Energy LLC in fourth-quarter 2022.

Those deals expanded Diamondback’s position in the Midland Basin by about 83,000 net acres, added 500 drilling locations and increased the company’s 2023 production profile by approximately 37,000 bbl/d of oil (50,000 boe/d).

RELATED: Diamondback Doubles Asset Sales Target to $1B, Reveals More Midland M&A

Monetizing midstream

Part of the reasoning behind doubling Diamondback’s divestiture target to $1 billion was the ability to monetize some of its midstream holdings. The company anticipated selling off more midstream assets than E&P assets, Diamondback President and CFO Kaes Van’t Hof said during the company’s fourth-quarter earnings call in February.

During the first quarter, Diamondback sold a 10% equity ownership in the Gray Oak crude pipeline for $180 million. The 900,000-bbl/d pipeline transports crude oil from the Permian Basin and the Eagle Ford Shale to demand centers on the Gulf Coast.

Canadian midstream company Enbridge Inc. acquired the additional 10% interest from Diamondback’s subsidiary Rattler Midstream in January.

Diamondback owns equity interests in several other midstream assets, including long-haul product pipelines and in-basin processing and gathering systems, that have “a pretty high probability” of being sold this year, Van’t Hof said during a May 2 first-quarter earnings call.

“I can't guarantee it's going to happen today, but certainly there's a few things in the works, either on the JV [joint venture] side or some of the small operated midstream assets that could be up for sale,” Van’t Hof said.

RELATED: Brazos Midstream Bets on the Permian’s Prowess

Earnings results

Diamondback reported average production of 251,400 bbl/d during the first quarter or 425,000 boe/d. That was up from average daily production of 226,100 bbl/d (391,400 boe/d) during the fourth quarter of 2022.

Diamondback expects crude oil production to range between 256,000 bbl/d and 262,000 bbl/d in 2023, in line with its previous forecasts. Net production is expected to range between 430,000 boe/d and 440,000 boe/d for the year.

First quarter revenues totaled $1.93 billion, down about 25% from first-quarter 2022's $2.41 billion and 5% from fourth-quarter 2022’s $2.03 billion.

Diamondback’s quarterly net income came in at $712 million, or $3.88 per share. Adjusting for non-recurring items, adjusted net income was $751 million, or $4.10 per share.