UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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ý | QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE QUARTERLY PERIOD ENDED June 30, 2017March 31, 2018
OR
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o | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number 001-35700
Diamondback Energy, Inc.
(Exact Name of Registrant As Specified in Its Charter)
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Delaware | | 45-4502447 |
(State or Other Jurisdiction of Incorporation or Organization) | | (IRS Employer Identification Number) |
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500 West Texas, Suite 1200 Midland, Texas | | 79701 |
(Address of Principal Executive Offices) | | (Zip Code) |
(432) 221-7400
(Registrant Telephone Number, Including Area Code)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check One):
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Large Accelerated Filer | | ý | | Accelerated Filer | | o |
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Non-Accelerated Filer | | o | | Smaller Reporting Company | | o |
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| | | | Emerging Growth Company | | o |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No ý
As of July 28, 2017, 98,132,793May 4, 2018, 98,611,408 shares of the registrant’s common stock were outstanding.
DIAMONDBACK ENERGY, INC.
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2017MARCH 31, 2018
TABLE OF CONTENTS
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PART I. FINANCIAL INFORMATION |
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PART II. OTHER INFORMATION |
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GLOSSARY OF OIL AND NATURAL GAS TERMS
The following is a glossary of certain oil and gas terms that are used in this Quarterly Report on Form 10-Q (this “report”):
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Basin | A large depression on the earth’s surface in which sediments accumulate. |
Bbl | Stock tank barrel, or 42 U.S. gallons liquid volume, used in this report in reference to crude oil or other liquid hydrocarbons. |
BOE | Barrels of oil equivalent, with six thousand cubic feet of natural gas being equivalent to one barrel of oil. |
BOE/d | BOE per day. |
British Thermal Unit or Btu | The quantity of heat required to raise the temperature of one pound of water by one degree Fahrenheit. |
Completion | The process of treating a drilled well followed by the installation of permanent equipment for the production of natural gas or oil, or in the case of a dry hole, the reporting of abandonment to the appropriate agency. |
Crude oil | Liquid hydrocarbons retrieved from geological structures underground to be refined into fuel sources. |
Finding and development costs | Capital costs incurred in the acquisition, exploitation and exploration of proved oil and natural gas reserves divided by proved reserve additions and revisions to proved reserves. |
Gross acres or gross wells | The total acres or wells, as the case may be, in which a working interest is owned. |
Horizontal drilling | A drilling technique used in certain formations where a well is drilled vertically to a certain depth and then drilled at a right angle with a specified interval. |
Horizontal wells | Wells drilled directionally horizontal to allow for development of structures not reachable through traditional vertical drilling mechanisms. |
Mcf | Thousand cubic feet of natural gas. |
Mcf/d | Mcf per day. |
Mineral interests | The interests in ownership of the resource and mineral rights, giving an owner the right to profit from the extracted resources. |
MMBtu | Million British Thermal Units. |
Net acres or net wells | The sum of the fractional working interest owned in gross acres. |
Oil and natural gas properties | Tracts of land consisting of properties to be developed for oil and natural gas resource extraction. |
Play | A set of discovered or prospective oil and/or natural gas accumulations sharing similar geologic, geographic and temporal properties, such as source rock, reservoir structure, timing, trapping mechanism and hydrocarbon type. |
Plugging and abandonment | Refers to the sealing off of fluids in the strata penetrated by a well so that the fluids from one stratum will not escape into another or to the surface. Regulations of all states require plugging of abandoned wells. |
Prospect | A specific geographic area which, based on supporting geological, geophysical or other data and also preliminary economic analysis using reasonably anticipated prices and costs, is deemed to have potential for the discovery of commercial hydrocarbons. |
Proved reserves | The estimated quantities of oil, natural gas and natural gas liquids which geological and engineering data demonstrate with reasonable certainty to be commercially recoverable in future years from known reservoirs under existing economic and operating conditions. |
Reserves | The estimated remaining quantities of oil and natural gas and related substances anticipated to be economically producible, as of a given date, by application of development projects to known accumulations. In addition, there must exist, or there must be a reasonable expectation that there will exist, the legal right to produce or a revenue interest in the production, installed means of delivering oil and natural gas or related substances to the market and all permits and financing required to implement the project. Reserves are not assigned to adjacent reservoirs isolated by major, potentially sealing, faults until those reservoirs are penetrated and evaluated as economically producible. Reserves should not be assigned to areas that are clearly separated from a known accumulation by a non-productive reservoir (i.e., absence of reservoir, structurally low reservoir or negative test results). Such areas may contain prospective resources (i.e., potentially recoverable resources from undiscovered accumulations). |
Reservoir | A porous and permeable underground formation containing a natural accumulation of producible natural gas and/or oil that is confined by impermeable rock or water barriers and is separate from other reservoirs. |
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Royalty interest | An interest that gives an owner the right to receive a portion of the resources or revenues without having to carry any costs of development. |
Spacing | The distance between wells producing from the same reservoir. Spacing is often expressed in terms of acres (e.g., 40-acre spacing) and is often established by regulatory agencies. |
Working interest | An operating interest that gives the owner the right to drill, produce and conduct operating activities on the property and receive a share of production and requires the owner to pay a share of the costs of drilling and production operations. |
GLOSSARY OF CERTAIN OTHER TERMS
The following is a glossary of certain other terms that are used in this report.
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Company | Diamondback Energy, Inc., a Delaware corporation. |
Equity Plan | The Company’s Equity Incentive Plan. |
Exchange Act | The Securities Exchange Act of 1934, as amended. |
GAAP | Accounting principles generally accepted in the United States. |
General Partner | Viper Energy Partners GP LLC, a Delaware limited liability company and the General Partner of the Partnership. |
NYMEX | New York Mercantile Exchange. |
Partnership | Viper Energy Partners LP, a Delaware limited partnership. |
Partnership agreementAgreement | The first amended and restated agreement of limited partnership, dated June 23, 2014, entered into by the General Partner and Diamondback in connection with the closing of the Viper Offering. |
SEC | United States Securities and Exchange Commission. |
Securities Act | The Securities Act of 1933, as amended. |
2024 Senior Notes | The Company’s 4.750% senior unsecured notes due 2024 in the aggregate principal amount of $500 million. |
2025 Senior Notes | The Company’s 5.375% senior unsecured notes due 2025 in the aggregate principal amount of $500 million. |
Senior Notes | The 2024 Senior Notes and the 2025 Senior Notes. |
Viper LTIP | Viper Energy Partners LP Long Term Incentive Plan. |
Viper Offering | The Partnerships’ initial public offering. |
Wells Fargo | Wells Fargo Bank, National Association. |
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Various statements contained in this report that express a belief, expectation, or intention, or that are not statements of historical fact, are forward-looking statements within the meaning of Section 27A of the Securities Act, and Section 21E of the Exchange Act. These forward-looking statements are subject to a number of risks and uncertainties, many of which are beyond our control. All statements, other than statements of historical fact, regarding our strategy, future operations, financial position, estimated revenues and losses, projected costs, prospects, plans and objectives of management are forward-looking statements. When used in this report, the words “could,” “believe,” “anticipate,” “intend,” “estimate,” “expect,” “may,” “continue,” “predict,” “potential,” “project” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words. In particular, the factors discussed in this report and detailed under Part II, Item 1A. Risk Factors in this report and our Annual Report on Form 10–K for the year ended December 31, 20162017 could affect our actual results and cause our actual results to differ materially from expectations, estimates or assumptions expressed, forecasted or implied in such forward-looking statements.
Forward-looking statements may include statements about our:
business strategy;
exploration and development drilling prospects, inventories, projects and programs;
oil and natural gas reserves;
acquisitions, including our acquisition in the Southern Delaware Basin;acquisitions;
identified drilling locations;
ability to obtain permits and governmental approvals;
technology;
financial strategy;
realized oil and natural gas prices;
production;
lease operating expenses, general and administrative costs and finding and development costs;
future operating results; and
plans, objectives, expectations and intentions.
All forward-looking statements speak only as of the date of this report or, if earlier, as of the date they were made. We do not intend to, and disclaim any obligation to, update or revise any forward-looking statements unless required by securities laws. You should not place undue reliance on these forward-looking statements. These forward-looking statements are subject to a number of risks, uncertainties and assumptions. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. Although we believe that our plans, intentions and expectations reflected in or suggested by the forward-looking statements we make in this report are reasonable, we can give no assurance that these plans, intentions or expectations will be achieved or occur, and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.
Diamondback Energy, Inc. and Subsidiaries
Consolidated Balance Sheets
(Unaudited)
| | | June 30, | December 31, | March 31, | December 31, |
| 2017 | 2016 | 2018 | 2017 |
| (In thousands, except par values and share data) | (In thousands, except par values and share data) |
Assets | | |
Current assets: | | |
Cash and cash equivalents | $ | 16,588 |
| $ | 1,666,574 |
| $ | 72,487 |
| $ | 112,446 |
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Restricted cash | — |
| 500 |
| |
Accounts receivable: | | |
Joint interest and other | 71,677 |
| 49,476 |
| 71,017 |
| 73,038 |
|
Oil and natural gas sales | 82,950 |
| 70,349 |
| 165,263 |
| 158,575 |
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Related party | 8 |
| 297 |
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Inventories | 4,925 |
| 1,983 |
| 8,963 |
| 9,108 |
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Derivative instruments | 41,732 |
| — |
| — |
| 531 |
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Prepaid expenses and other | 3,457 |
| 2,987 |
| 6,737 |
| 4,903 |
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Total current assets | 221,337 |
| 1,792,166 |
| 324,467 |
| 358,601 |
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Property and equipment: | | |
Oil and natural gas properties, full cost method of accounting ($4,008,388 and $1,730,519 excluded from amortization at June 30, 2017 and December 31, 2016, respectively) | 8,311,094 |
| 5,160,261 |
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Oil and natural gas properties, full cost method of accounting ($4,204,745 and $4,105,865 excluded from amortization at March 31, 2018 and December 31, 2017, respectively) | | 9,648,825 |
| 9,232,694 |
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Midstream assets | 95,491 |
| 8,362 |
| 295,161 |
| 191,519 |
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Other property, equipment and land | 71,978 |
| 58,290 |
| 82,095 |
| 80,776 |
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Accumulated depletion, depreciation, amortization and impairment | (1,969,816 | ) | (1,836,056 | ) | (2,274,909 | ) | (2,161,372 | ) |
Net property and equipment | 6,508,747 |
| 3,390,857 |
| 7,751,172 |
| 7,343,617 |
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Funds held in escrow | — |
| 121,391 |
| 10 |
| 6,304 |
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Derivative instruments | 4,379 |
| 709 |
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Deferred income taxes | 321 |
| — |
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Investment in real estate, net | | 109,103 |
| — |
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Other assets | 49,025 |
| 44,557 |
| 40,136 |
| 62,463 |
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Total assets | $ | 6,783,809 |
| $ | 5,349,680 |
| $ | 8,224,888 |
| $ | 7,770,985 |
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Liabilities and Stockholders’ Equity | | |
Current liabilities: | | |
Accounts payable-trade | $ | 27,764 |
| $ | 47,648 |
| $ | 63,129 |
| $ | 94,590 |
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Accounts payable-related party | — |
| 1 |
| |
Accrued capital expenditures | 153,765 |
| 60,350 |
| 262,242 |
| 221,256 |
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Other accrued liabilities | 89,589 |
| 55,330 |
| 100,557 |
| 92,512 |
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Revenues and royalties payable | 52,048 |
| 23,405 |
| 82,055 |
| 68,703 |
|
Derivative instruments | — |
| 22,608 |
| 99,685 |
| 100,367 |
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Total current liabilities | 323,166 |
| 209,342 |
| 607,668 |
| 577,428 |
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Long-term debt | 1,151,515 |
| 1,105,912 |
| 1,701,912 |
| 1,477,347 |
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Derivative instruments | | 6,492 |
| 6,303 |
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Asset retirement obligations | 19,539 |
| 16,134 |
| 21,258 |
| 20,122 |
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Deferred income taxes | 2,655 |
| — |
| 152,369 |
| 108,048 |
|
Other long term liabilities | | 7 |
| — |
|
Total liabilities | 1,496,875 |
| 1,331,388 |
| 2,489,706 |
| 2,189,248 |
|
Commitments and contingencies (Note 15) | | |
Commitments and contingencies (Note 16) | | |
Stockholders’ equity: | | |
Common stock, $0.01 par value, 200,000,000 shares authorized, 98,128,877 issued and outstanding at June 30, 2017; 90,143,934 issued and outstanding at December 31, 2016 | 981 |
| 901 |
| |
Common stock, $0.01 par value, 200,000,000 shares authorized, 98,610,608 issued and outstanding at March 31, 2018; 98,167,289 issued and outstanding at December 31, 2017 | | 986 |
| 982 |
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Additional paid-in capital | 5,041,359 |
| 4,215,955 |
| 5,299,811 |
| 5,291,011 |
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Accumulated deficit | (224,716 | ) | (519,394 | ) | 116,286 |
| (37,133 | ) |
Total Diamondback Energy, Inc. stockholders’ equity | 4,817,624 |
| 3,697,462 |
| 5,417,083 |
| 5,254,860 |
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Non-controlling interest | 469,310 |
| 320,830 |
| 318,099 |
| 326,877 |
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Total equity | 5,286,934 |
| 4,018,292 |
| 5,735,182 |
| 5,581,737 |
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Total liabilities and equity | $ | 6,783,809 |
| $ | 5,349,680 |
| $ | 8,224,888 |
| $ | 7,770,985 |
|
See accompanying notes to combined consolidated financial statements.
Diamondback Energy, Inc. and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
| | | Three Months Ended June 30, | | Six Months Ended June 30, | Three Months Ended March 31, |
| 2017 | 2016 | | 2017 | 2016 | 2018 | 2017 |
| (In thousands, except per share amounts) | (In thousands, except per share amounts) |
Revenues: | | | | |
Oil sales | $ | 237,884 |
| $ | 101,325 |
| | $ | 444,958 |
| $ | 180,345 |
| $ | 419,268 |
| $ | 207,074 |
|
Natural gas sales | 12,693 |
| 4,109 |
| | 22,615 |
| 8,131 |
| 14,378 |
| 9,922 |
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Natural gas liquid sales | 16,857 |
| 7,049 |
| | 32,359 |
| 11,488 |
| 33,113 |
| 15,502 |
|
Lease bonus | 583 |
| — |
| | 2,185 |
| — |
| — |
| 1,602 |
|
Midstream services | 1,417 |
| — |
| | 2,547 |
| — |
| 11,395 |
| 1,130 |
|
Other operating income | | 2,041 |
| — |
|
Total revenues | 269,434 |
| 112,483 |
| | 504,664 |
| 199,964 |
| 480,195 |
| 235,230 |
|
Costs and expenses: | | | | |
Lease operating expenses | 28,989 |
| 18,677 |
| | 55,615 |
| 36,900 |
| 37,345 |
| 26,626 |
|
Production and ad valorem taxes | 15,879 |
| 8,159 |
| | 31,604 |
| 16,121 |
| 27,304 |
| 15,725 |
|
Gathering and transportation | 3,015 |
| 2,432 |
| | 5,634 |
| 5,221 |
| 4,285 |
| 2,619 |
|
Midstream services | 1,828 |
| — |
| | 2,682 |
| — |
| 11,189 |
| 854 |
|
Depreciation, depletion and amortization | 75,173 |
| 39,871 |
| | 134,102 |
| 81,940 |
| 115,216 |
| 58,929 |
|
Impairment of oil and natural gas properties | — |
| 168,352 |
| | — |
| 199,168 |
| |
General and administrative expenses (including non-cash equity-based compensation, net of capitalized amounts, of $6,168 and $6,029 for the three months ended June 30, 2017 and 2016, respectively, and $13,231 and $14,378 for the six months ended June 30, 2017 and 2016, respectively) | 11,892 |
| 9,524 |
| | 25,636 |
| 22,503 |
| |
General and administrative expenses (including non-cash equity-based compensation, net of capitalized amounts, of $7,451 and $7,063 for the three months ended March 31, 2018 and 2017, respectively) | | 16,325 |
| 13,744 |
|
Asset retirement obligation accretion | 350 |
| 254 |
| | 673 |
| 500 |
| 355 |
| 323 |
|
Other operating expense | | 530 |
| — |
|
Total costs and expenses | 137,126 |
| 247,269 |
| | 255,946 |
| 362,353 |
| 212,549 |
| 118,820 |
|
Income (loss) from operations | 132,308 |
| (134,786 | ) | | 248,718 |
| (162,389 | ) | |
Income from operations | | 267,646 |
| 116,410 |
|
Other income (expense): | | | | |
Interest expense | (8,245 | ) | (10,019 | ) | | (20,470 | ) | (20,032 | ) | |
Other income | 8,324 |
| 177 |
| | 9,469 |
| 740 |
| |
Interest expense, net | | (13,701 | ) | (12,225 | ) |
Other income, net | | 2,736 |
| 1,145 |
|
Gain (loss) on derivative instruments, net | 33,320 |
| (12,125 | ) | | 71,021 |
| (10,699 | ) | (32,345 | ) | 37,701 |
|
Gain on revaluation of investment | | 899 |
| — |
|
Total other income (expense), net | 33,399 |
| (21,967 | ) | | 60,020 |
| (29,991 | ) | (42,411 | ) | 26,621 |
|
Income (loss) before income taxes | 165,707 |
| (156,753 | ) | | 308,738 |
| (192,380 | ) | |
Income before income taxes | | 225,235 |
| 143,031 |
|
Provision for income taxes | 1,579 |
| 368 |
| | 3,536 |
| 368 |
| 47,081 |
| 1,957 |
|
Net income (loss) | 164,128 |
| (157,121 | ) | | 305,202 |
| (192,748 | ) | |
Net income (loss) attributable to non-controlling interest | 5,723 |
| (1,631 | ) | | 10,524 |
| (4,346 | ) | |
Net income (loss) attributable to Diamondback Energy, Inc. | $ | 158,405 |
| $ | (155,490 | ) | | $ | 294,678 |
| $ | (188,402 | ) | |
Net income | | 178,154 |
| 141,074 |
|
Net income attributable to non-controlling interest | | 15,342 |
| 4,801 |
|
Net income attributable to Diamondback Energy, Inc. | | $ | 162,812 |
| $ | 136,273 |
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Earnings per common share: |
| |
|
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Basic | $ | 1.61 |
| $ | (2.17 | ) | | $ | 3.08 |
| $ | (2.64 | ) | $ | 1.65 |
| $ | 1.46 |
|
Diluted | $ | 1.61 |
| $ | (2.17 | ) | | $ | 3.07 |
| $ | (2.64 | ) | $ | 1.65 |
| $ | 1.46 |
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Weighted average common shares outstanding: | | | | |
Basic | 98,142 |
| 71,719 |
| | 95,665 |
| 71,372 |
| 98,555 |
| 93,161 |
|
Diluted | 98,354 |
| 71,719 |
| | 95,925 |
| 71,372 |
| 98,769 |
| 93,364 |
|
Dividends declared per share | | $ | 0.125 |
| $ | — |
|
See accompanying notes to combined consolidated financial statements.
Diamondback Energy, Inc. and Subsidiaries
Consolidated Statements of Stockholders’ Equity
(Unaudited)
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| | | | | | | | | | | | | | | | |
| Common Stock | Additional Paid-in Capital | Retained Earnings (Accumulated Deficit) | Non-Controlling Interest | Total |
| Shares | Amount |
| (In thousands) |
Balance December 31, 2015 | 66,797 | $ | 668 |
| $ | 2,229,664 |
| $ | (354,360 | ) | $ | 233,001 |
| $ | 2,108,973 |
|
Unit-based compensation |
| — |
| — |
| — |
| 1,930 |
| 1,930 |
|
Stock-based compensation |
| — |
| 17,057 |
| — |
| — |
| 17,057 |
|
Distribution to non-controlling interest |
| — |
| — |
| — |
| (3,497 | ) | (3,497 | ) |
Common shares issued in public offering, net of offering costs | 4,600 | 46 |
| 254,293 |
| — |
| — |
| 254,339 |
|
Exercise of stock options and vesting of restricted stock units | 309 | 3 |
| 495 |
| — |
| — |
| 498 |
|
Net loss |
| — |
| — |
| (188,402 | ) | (4,346 | ) | (192,748 | ) |
Balance June 30, 2016 | 71,706 | $ | 717 |
| $ | 2,501,509 |
| $ | (542,762 | ) | $ | 227,088 |
| $ | 2,186,552 |
|
| | | | | | |
Balance December 31, 2016 | 90,144 | $ | 901 |
| $ | 4,215,955 |
| $ | (519,394 | ) | $ | 320,830 |
| $ | 4,018,292 |
|
Net proceeds from issuance of common units - Viper Energy Partners LP | | — |
| — |
| — |
| 147,492 |
| 147,492 |
|
Unit-based compensation |
| — |
| — |
| — |
| 1,537 |
| 1,537 |
|
Common units issued for acquisition |
| — |
| — |
| — |
| 3,050 |
| 3,050 |
|
Stock-based compensation |
| — |
| 15,939 |
| — |
| — |
| 15,939 |
|
Distribution to non-controlling interest |
| — |
| — |
| — |
| (14,123 | ) | (14,123 | ) |
Common shares issued in public offering, net of offering costs |
| — |
| 14 |
| — |
| — |
| 14 |
|
Common shares issued for acquisition | 7,686 | 77 |
| 809,096 |
| — |
| — |
| 809,173 |
|
Exercise of stock options and vesting of restricted stock units | 299 | 3 |
| 355 |
| — |
| — |
| 358 |
|
Net income |
| — |
| — |
| 294,678 |
| 10,524 |
| 305,202 |
|
Balance June 30, 2017 | 98,129 | $ | 981 |
| $ | 5,041,359 |
| $ | (224,716 | ) | $ | 469,310 |
| $ | 5,286,934 |
|
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| | | | | | | | | | | | | | | | |
| Common Stock | Additional Paid-in Capital | Retained Earnings (Accumulated Deficit) | Non-Controlling Interest | Total |
| Shares | Amount |
| (In thousands) |
Balance December 31, 2016 | 90,144 | $ | 901 |
| $ | 4,215,955 |
| $ | (519,394 | ) | $ | 320,830 |
| $ | 4,018,292 |
|
Net proceeds from issuance of common units - Viper Energy Partners LP |
| — |
| — |
| — |
| 147,523 |
| 147,523 |
|
Unit-based compensation |
| — |
| — |
| — |
| 819 |
| 819 |
|
Stock-based compensation |
| — |
| 8,587 |
| — |
| — |
| 8,587 |
|
Distribution to non-controlling interest |
| — |
| — |
| — |
| (6,482 | ) | (6,482 | ) |
Common shares issued in public offering, net of offering costs |
| — |
| 14 |
| — |
| — |
| 14 |
|
Common shares issued for acquisition | 7,686 | 77 |
| 809,096 |
| — |
| — |
| 809,173 |
|
Exercise of stock options and vesting of restricted stock units | 298 | 3 |
| 355 |
| — |
| — |
| 358 |
|
Net income |
| — |
| — |
| 136,273 |
| 4,801 |
| 141,074 |
|
Balance March 31, 2017 | 98,128 | $ | 981 |
| $ | 5,034,007 |
| $ | (383,121 | ) | $ | 467,491 |
| $ | 5,119,358 |
|
| | | | | | |
Balance December 31, 2017 | 98,167 | $ | 982 |
| $ | 5,291,011 |
| $ | (37,133 | ) | $ | 326,877 |
| $ | 5,581,737 |
|
Impact of adoption of ASU 2016-01, net of tax | | — |
| — |
| (9,393 | ) | (6,671 | ) | (16,064 | ) |
Unit-based compensation |
| — |
| — |
| — |
| 1,288 |
| 1,288 |
|
Stock-based compensation |
| — |
| 8,804 |
| — |
| — |
| 8,804 |
|
Distribution to non-controlling interest |
| — |
| — |
| — |
| (18,737 | ) | (18,737 | ) |
Exercise of stock options and vesting of restricted stock units | 443 | 4 |
| (4 | ) | — |
| — |
| — |
|
Net income |
| — |
| — |
| 162,812 |
| 15,342 |
| 178,154 |
|
Balance March 31, 2018 | 98,610 | $ | 986 |
| $ | 5,299,811 |
| $ | 116,286 |
| $ | 318,099 |
| $ | 5,735,182 |
|
See accompanying notes to combined consolidated financial statements.
Diamondback Energy, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
| | | Six Months Ended June 30, | Three Months Ended March 31, |
| 2017 | 2016 | 2018 | 2017 |
| | |
| (In thousands) | (In thousands) |
Cash flows from operating activities: | | |
Net income (loss) | $ | 305,202 |
| $ | (192,748 | ) | |
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | |
Net income | | $ | 178,154 |
| $ | 141,074 |
|
Adjustments to reconcile net income to net cash provided by operating activities: | | |
Provision for deferred income taxes | 2,334 |
| — |
| 46,908 |
| 1,425 |
|
Impairment of oil and natural gas properties | — |
| 199,168 |
| |
Asset retirement obligation accretion | 673 |
| 500 |
| 355 |
| 323 |
|
Depreciation, depletion, and amortization | 134,102 |
| 81,940 |
| |
Depreciation, depletion and amortization | | 115,216 |
| 58,929 |
|
Amortization of debt issuance costs | 1,811 |
| 1,340 |
| 748 |
| 852 |
|
Change in fair value of derivative instruments | (68,010 | ) | 15,283 |
| 38 |
| (39,375 | ) |
Income from equity investment | (156 | ) | (18 | ) | (2,167 | ) | (3 | ) |
Gain on revaluation of investment | | (899 | ) | — |
|
Equity-based compensation expense | 13,231 |
| 14,378 |
| 7,451 |
| 7,063 |
|
Gain on sale of assets, net | (67 | ) | (28 | ) | — |
| (12 | ) |
Changes in operating assets and liabilities: | | |
Accounts receivable | (36,137 | ) | 2,434 |
| 6,322 |
| (20,104 | ) |
Accounts receivable-related party | 289 |
| (15 | ) | — |
| 199 |
|
Restricted cash | 500 |
| — |
| — |
| 500 |
|
Inventories | (3,059 | ) | 234 |
| (12,778 | ) | (1,044 | ) |
Prepaid expenses and other | (4,966 | ) | 574 |
| (6,765 | ) | (19,894 | ) |
Accounts payable and accrued liabilities | 26,782 |
| 2,609 |
| (18,280 | ) | 10,281 |
|
Accounts payable and accrued liabilities-related party | (2 | ) | 464 |
| — |
| (2 | ) |
Accrued interest | (7,756 | ) | (9 | ) | 11,413 |
| 10,313 |
|
Income tax payable | 1,017 |
| — |
| 359 |
| — |
|
Revenues and royalties payable | 28,643 |
| (4,325 | ) | 13,352 |
| 25,402 |
|
Net cash provided by operating activities | 394,431 |
| 121,781 |
| 339,427 |
| 175,927 |
|
Cash flows from investing activities: | | |
Additions to oil and natural gas properties | (291,767 | ) | (149,192 | ) | (280,015 | ) | (116,174 | ) |
Additions to oil and natural gas properties-related party | — |
| (469 | ) | |
Additions to midstream assets | (4,444 | ) | — |
| (38,395 | ) | (59 | ) |
Purchase of other property and equipment | (13,825 | ) | (1,224 | ) | |
Purchase of other property, equipment and land | | (1,947 | ) | (11,918 | ) |
Acquisition of leasehold interests | (1,860,980 | ) | (17,533 | ) | (16,011 | ) | (1,760,810 | ) |
Acquisition of mineral interests | (122,679 | ) | (11,319 | ) | (150,013 | ) | (8,579 | ) |
Acquisition of midstream assets | (50,279 | ) | — |
| — |
| (48,329 | ) |
Proceeds from sale of assets | 1,295 |
| 161 |
| 125 |
| 1,238 |
|
Investment in real estate | | (109,664 | ) | — |
|
Funds held in escrow | 121,391 |
| — |
| 10,989 |
| 119,340 |
|
Equity investments | (188 | ) | (800 | ) | — |
| (188 | ) |
Net cash used in investing activities | (2,221,476 | ) | (180,376 | ) | (584,931 | ) | (1,825,479 | ) |
Cash flows from financing activities: | | |
Proceeds from borrowings under credit facility | 266,000 |
| 17,000 |
| 224,000 |
| — |
|
Repayment under credit facility | (221,000 | ) | (11,000 | ) | (308,000 | ) | (120,500 | ) |
Proceeds from senior notes | | 312,000 |
| — |
|
Debt issuance costs | (1,605 | ) | (66 | ) | (3,718 | ) | (418 | ) |
Public offering costs | (296 | ) | (179 | ) | — |
| (265 | ) |
Proceeds from public offerings | 147,725 |
| 254,518 |
| — |
| 147,725 |
|
Proceeds from exercise of stock options | 358 |
| 498 |
| — |
| 358 |
|
Distributions to non-controlling interest | (14,123 | ) | (3,497 | ) | (18,737 | ) | (6,482 | ) |
Net cash provided by financing activities | 177,059 |
| 257,274 |
| 205,545 |
| 20,418 |
|
Diamondback Energy, Inc. and Subsidiaries
Consolidated Statements of Cash Flows - Continued
(Unaudited)
| | | Six Months Ended June 30, | Three Months Ended March 31, |
| 2017 | 2016 | 2018 | 2017 |
| | |
Net increase (decrease) in cash and cash equivalents | (1,649,986 | ) | 198,679 |
| |
Net decrease in cash and cash equivalents | | (39,959 | ) | (1,629,134 | ) |
Cash and cash equivalents at beginning of period | 1,666,574 |
| 20,115 |
| 112,446 |
| 1,666,574 |
|
Cash and cash equivalents at end of period | $ | 16,588 |
| $ | 218,794 |
| $ | 72,487 |
| $ | 37,440 |
|
| | |
Supplemental disclosure of cash flow information: | | |
Interest paid, net of capitalized interest | $ | 26,500 |
| $ | 18,823 |
| $ | 4,305 |
| $ | 1,118 |
|
Supplemental disclosure of non-cash transactions: | | |
Change in accrued capital expenditures | $ | 93,415 |
| $ | (13,769 | ) | $ | 40,986 |
| $ | 34,460 |
|
Capitalized stock-based compensation | $ | 4,244 |
| $ | 4,609 |
| $ | 2,641 |
| $ | 2,343 |
|
Common stock issued for oil and natural gas properties | $ | 809,173 |
| $ | — |
| $ | — |
| $ | 809,173 |
|
Asset retirement obligations acquired | $ | 2,180 |
| $ | 803 |
| $ | 12 |
| $ | 2,129 |
|
See accompanying notes to combined consolidated financial statements.
Diamondback Energy, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
1. DESCRIPTION OF THE BUSINESS AND BASIS OF PRESENTATION
Organization and Description of the Business
Diamondback Energy, Inc. (“Diamondback” or the “Company”), together with its subsidiaries, is an independent oil and gas company currently focused on the acquisition, development, exploration and exploitation of unconventional, onshore oil and natural gas reserves in the Permian Basin in West Texas. Diamondback was incorporated in Delaware on December 30, 2011.
The wholly-owned subsidiaries of Diamondback, as of June 30, 2017,March 31, 2018, include Diamondback E&P LLC, a Delaware limited liability company, Diamondback O&G LLC, a Delaware limited liability company, Viper Energy Partners GP LLC, a Delaware limited liability company, and Rattler Midstream LLC (formerly known as White Fang Energy LLC), a Delaware limited liability company, and Tall City Towers LLC, a Delaware limited liability company. The consolidated subsidiaries include these wholly-owned subsidiaries as well as Viper Energy Partners LP, a Delaware limited partnership (the “Partnership”), and the Partnership’s wholly-owned subsidiary Viper Energy Partners LLC, a Delaware limited liability company.
Basis of Presentation
The consolidated financial statements include the accounts of the Company and its subsidiaries after all significant intercompany balances and transactions have been eliminated upon consolidation.
The Partnership is consolidated in the financial statements of the Company. As of June 30, 2017,March 31, 2018, the Company owned approximately 74%64% of the common units of the Partnership and thePartnership. The Company’s wholly-owned subsidiary, Viper Energy Partners GP LLC, is the General Partner of the Partnership.
These financial statements have been prepared by the Company without audit, pursuant to the rules and regulations of the SEC. They reflect all adjustments that are, in the opinion of management, necessary for a fair statement of the results for interim periods, on a basis consistent with the annual audited financial statements. All such adjustments are of a normal recurring nature. Certain information, accounting policies and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been omitted pursuant to such rules and regulations, although the Company believes the disclosures are adequate to make the information presented not misleading. This Quarterly Report on Form 10–Q should be read in conjunction with the Company’s most recent Annual Report on Form 10–K for the fiscal year ended December 31, 2016,2017, which contains a summary of the Company’s significant accounting policies and other disclosures.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
Certain amounts included in or affecting the Company’s consolidated financial statements and related disclosures must be estimated by management, requiring certain assumptions to be made with respect to values or conditions that cannot be known with certainty at the time the consolidated financial statements are prepared. These estimates and assumptions affect the amounts the Company reports for assets and liabilities and the Company’s disclosure of contingent assets and liabilities at the date of the consolidated financial statements. Actual results could differ from those estimates.
The Company evaluates these estimates on an ongoing basis, using historical experience, consultation with experts and other methods the Company considers reasonable in the particular circumstances. Nevertheless, actual results may differ significantly from the Company’s estimates. Any effects on the Company’s business, financial position or results of operations resulting from revisions to these estimates are recorded in the period in which the facts that give rise to the revision become known. Significant items subject to such estimates and assumptions include estimates of proved oil and natural gas reserves and related present value estimates of future net cash flows therefrom, the carrying value of oil and natural gas properties, asset retirement obligations, the fair value determination of acquired assets and liabilities assumed, equity-based compensation, fair value estimates of commodity derivatives and estimates of income taxes.
Diamondback Energy, Inc. and Subsidiaries
Notes to Consolidated Financial Statements-(Continued)
(Unaudited)
Investments
The Partnership has an equity interest in a limited partnership that is so minor that the Partnership has no influence over the limited partnership’s operating and financial policies. This interest was acquired during the year ended December 31, 2014 and is accounted for under the cost method. Effective January 1, 2018, the Partnership adopted Accounting Standards Update 2016-01 which requires the Partnership to measure this investment at fair value which resulted in a downward adjustment of $18.7 million to record the impact of this adoption. For the three months ended March 31, 2018, the Partnership recorded a gain of $0.9 million which then increased the Partnership’s investment balance to $16.0 million, which is included in other assets in the accompanying consolidated balance sheets.
New Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board issued Accounting Standards Update 2014-09, “Revenue from Contracts with Customers”. This update supersedes most of the existing revenue recognition requirements in GAAP and requires (i) an entity to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services and (ii) requires expanded disclosures regarding the nature, amount, timing and certainty of revenue and cash flows from contracts with customers. The standard will be effective for annual and interim reporting periods beginning after December 15, 2017, with early application permitted for annual reporting period beginning after December 31, 2016. The standard allows for either full retrospective adoption, meaning the standard is applied to all periods presented in the financial statements, or modified retrospective adoption, meaning the standard is applied only to the most current period presented. The Company is currently evaluating the impact of this standard; however, it does not believe this standard will have a material impact on the Company’s consolidated financial statements.
In July 2015, the Financial Accounting Standards Board issued Accounting Standards Update 2015-11, “Inventory”. This update applies to all inventory that is not measured using last-in, first-out or the retail inventory method. Under this update, an entity should measure inventory at the lower of cost and net realizable value. This standard was effective for financial statements issued for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. This standard should be applied prospectively with early adoption permitted as of the beginning of an interim or annual reporting period. The Company adopted this standard prospectively effective January 1, 2017. The adoption of this standard had no impact on the Company’s financial position, results of operations or liquidity because the Company currently measures its inventory at the lower of cost or net realizable value.
In November 2015, the Financial Accounting Standards Board issued Accounting Standards Update 2015-17, “Income Taxes”. This update requires that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. The standard was effective for financial statements issued for annual periods beginning after December 15, 2016, and interim periods within those annual periods. This standard may be applied either prospectively to all deferred tax liabilities and assets or retrospectively to all periods presented. The Company adopted this standard prospectively effective January 1, 2017. The Company will present deferred tax liabilities and assets as noncurrent.Recently Adopted Pronouncements
In January 2016, the Financial Accounting Standards Board issued Accounting Standards Update 2016-01, “Financial Instruments–Overall”. This update applies to any entity that holds financial assets or owes financial liabilities. This update requires equity investments (except for those accounted for under the equity method or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income. This update will beThe Partnership adopted this standard effective for public entities for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years, with early adoption permitted. Entities should apply the amendmentsJanuary 1, 2018 by means of a negative cumulative-effect adjustment totaling $18.7 million.
In August 2016, the Financial Accounting Standards Board issued Accounting Standards Update 2016-15, “Statement of Cash Flows - Classification of Certain Cash Receipts and Cash Payments”. This update apples to all entities that are required to present a statement of cash flows. This update provides guidance on eight specific cash flow issues: debt prepayment or debt extinguishment costs; settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the balance sheet aseffective interest rate of the beginningborrowing; contingent consideration payments made after a business combination; proceeds from the settlement of insurance claims; proceeds from the settlement of corporate-owned life insurance policies; including bank-owned life insurance policies; distributions received from equity method investees; beneficial interests in securitization transactions; and separately identifiable cash flows and application of the fiscal year of adoption. Whilepredominance principle. The Company adopted this update willeffective January 1, 2018 using the retrospective transition method. Adoption of this standard did not have a direct impactan effect on the presentation on the Statement of Cash Flows.
In November 2016, the Financial Accounting Standards Board issued Accounting Standards Update 2016-18, “Statement of Cash Flows - Restricted Cash”. This update affects entities that have restricted cash or restricted cash equivalents. The Company the Partnership will be required to mark its cost method investment to fair value with theadopted this update effective January 1, 2018. The adoption of this update.update did not have an effect on the presentation on the Statement of Cash Flows.
In January 2017, the Financial Accounting Standards Board issued Accounting Standards Update 2017-01, “Business Combinations - Clarifying the Definition of a Business”. This update apples to all entities that must determine whether they acquired or sold a business. This update provides a screen to determine when a set is not a business. The screen requires that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the set is not a business. The Company adopted this update prospectively effective January 1, 2018. The adoption of this update did not have an impact on its financial position, results of operations or liquidity.
Accounting Pronouncements Not Yet Adopted
In February 2016, the Financial Accounting Standards Board issued Accounting Standards Update 2016-02, “Leases”. This update applies to any entity that enters into a lease, with some specified scope exemptions. Under this update, a lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. While there were no major changes to the lessor accounting, changes were made to align key aspects with the revenue recognition guidance. This update will be effective for public entities for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, with early adoption permitted. Entities will be required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. The Company
Diamondback Energy, Inc. and Subsidiaries
Notes to Consolidated Financial Statements-(Continued)
(Unaudited)
believes the primary impact of adopting this standard will be the recognition of assets and liabilities on the balance sheet for current operating leases. The Company is still evaluating the impact of this standard.
In March 2016,January 2018, the Financial Accounting Standards Board issued Accounting Standards Update 2016-08, “Revenue from Contracts with Customers2018-01, “Leases - Principal versus Agent Considerations (Reporting Revenue Gross versus Net)”. Under this update, an entity should recognize revenueLand Easement Practical Expedient for Transition to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This update will be effective for annual and interim reporting periods beginning after December 15,
Diamondback Energy, Inc. and Subsidiaries
Notes to Consolidated Financial Statements-(Continued)
(Unaudited)
2017, with early application not permitted. This update allows for either full retrospective adoption, meaning this update is applied to all periods presented in the financial statements, or modified retrospective adoption, meaning this update is applied only to the most current period presented. The Company is in its initial evaluation of the impact of this standard. However, it does not expect that there will be a significant change in the manner of the Company’s revenue recognition. The Company expects that certain additional disclosures will be required upon adoption of this standard. The Company is still determining which adoption method it will use.
In March 2016, the Financial Accounting Standards Board issued Accounting Standards Update 2016-09, "Compensation - Stock Compensation"Topic 842”. This update applies to allany entity that holds land easements. The update allows entities that issue equity-based payment awards to their employees. Under this update, there were several areasadopt a practical expedient to not evaluate existing or expired land easements under Topic 842 that were simplified includingnot previously accounted for as leases under the income tax consequences, classification of awards as either equitycurrent leases guidance. An entity that elects this practical expedient should evaluate new or liabilities, and classification onmodified land easements under Topic 842 beginning at the statement of cash flows. This update was effective for financial statements issued for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years.date that the entity adopts Topic 842. The Company prospectively adopted this standard effective January 1, 2017. The Company revised its calculation of diluted earnings per share to excludebelieves the amount of excess tax benefits that would be recognized in additional paid-in capital. The Company also adopted a policy to account for forfeitures as they occur.
In April 2016, the Financial Accounting Standards Board issued Accounting Standards Update 2016-10, “Revenue from Contracts with Customers - Identifying Performance Obligations and Licensing”. This update clarifies two principles of Accounting Standards Codification Topic 606: identifying performance obligations and the licensing implementation guidance. This standard has the same effective date as Accounting Standards Update 2016-08, the revenue recognition standard discussed above. The adoption of this standard isupdate will not expected to have a materialan impact on the Company'sits financial position, results of operations and liquidity.
In May 2016, the Financial Accounting Standards Board issued Accounting Standards Update 2016-12, “Revenue from Contracts with Customers - Narrow-Scope Improvements and Practical Expedients”. This update applies only to the following areas from Accounting Standards Codification Topic 606: assessing the collectability criterion and accounting for contracts that do not meet the criteria for step 1, presentation of sales taxes and other similar taxes collected from customers, non-cash consideration, contract modification at transition, completed contracts at transition and technical correction. This standard has the same effective date as Accounting Standards Update 2016-08, the revenue recognition standard discussed above. The adoption of this standard is not expected to have a material impact on the Company's financial position, results of operations andor liquidity.
In June 2016, the Financial Accounting Standards Board issued Accounting Standards Update 2016-13, “Financial Instruments - Credit Losses”. This update affects entities holding financial assets and net investment in leases that are not accounted for at fair value through net income. The amendments affect loans, debt securities, trade receivables, net investments in leases, off-balance sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash. This update will be effective for financial statements issued for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. This update will be applied through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. The Company does not believe the adoption of this standard will have a material impact on the Company’s consolidated financial statements since the Company does not have a history of credit losses.
3. REVENUE FROM CONTRACTS WITH CUSTOMERS
Impact of Accounting Standards Codification Topic 606 Adoption
In August 2016,May 2014, the Financial Accounting Standards Board issued Accounting Standards Update 2016-15, “Statement of Cash Flows - Classification of Certain Cash Receipts and Cash Payments”2014-09, “Revenue from Contracts with Customers”. This update applesstandard included a five-step revenue recognition model to all entitiesdepict the transfer of goods or services to customers in an amount that arereflects the consideration to which the Company expects to be entitled in exchange for those goods or services. Among other things, the standard also eliminated industry-specific revenue guidance, required enhanced disclosures about revenue, provided guidance for transactions that were not previously addressed comprehensively and improved guidance for multiple-element arrangements. The Company adopted this Accounting Standards Update effective January 1, 2018 using the modified retrospective approach. The Company utilized a bottom-up approach to present a statement of cash flows. This update provides guidance on eight specific cash flow issues: debt prepayment or debt extinguishment costs, settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation toanalyze the effective interest rateimpact of the borrowing, contingent consideration payments made after a business combination, proceedsnew standard by reviewing its current accounting policies and practices to identify potential differences that would result from applying the settlement of insurance claims, proceeds from the settlement of corporate-owned life insurance policies, including bank-owned life insurance policies, distributions received from equity method investees, beneficial interests in securitization transactions and separately identifiable cash flows and applicationrequirements of the predominance principle. Thisnew standard to its revenue contracts and the impact of adopting this standards update will be effective for financial statements issued for fiscal years beginning after December 31, 2017, including interim periods within those fiscal years with earlyon its total revenues, operating income and its consolidated balance sheet. The adoption permitted. This update should be applied using the retrospective transition method. Adoption of this standard will only affectdid not result in a cumulative-effect adjustment.
Revenue from Contracts with Customers
Sales of oil, natural gas and natural gas liquids are recognized at the presentationpoint control of the product is transferred to the customer. Virtually all of the pricing provisions in the Company’s cash flowscontracts are tied to a market index, with certain adjustments based on, among other factors, whether a well delivers to a gathering or transmission line, the quality of the oil or natural gas and will not havethe prevailing supply and demand conditions. As a material impactresult, the price of the oil, natural gas and natural gas liquids fluctuates to remain competitive with other available oil, natural gas and natural gas liquids supplies.
Oil sales
The Company’s oil sales contracts are generally structured where it delivers oil to the purchaser at a contractually agreed-upon delivery point at which the purchaser takes custody, title and risk of loss of the product. Under this arrangement, the Company or a third party transports the product to the delivery point and receives a specified index price from the purchaser with no deduction. In this scenario, the Company recognizes revenue when control transfers to the purchaser at the delivery point based on the price received from the purchaser. Oil revenues are recorded net of any third-party transportation fees and other applicable differentials in the Company’s consolidated financial statements.statements of operations.
Diamondback Energy, Inc. and Subsidiaries
Notes to Consolidated Financial Statements-(Continued)
(Unaudited)
Natural gas and natural gas liquids sales
Under the Company’s natural gas processing contracts, it delivers natural gas to a midstream processing entity at the wellhead, battery facilities or the inlet of the midstream processing entity’s system. The midstream processing entity gathers and processes the natural gas and remits proceeds to the Company for the resulting sales of natural gas liquids and residue gas. In November 2016,these scenarios, the Financial Accounting Standards Board issued Accounting Standards Update 2016-18, “StatementCompany evaluates whether it is the principal or the agent in the transaction. For those contracts where the Company has concluded it is the principal and the ultimate third party is its customer, the Company recognizes revenue on a gross basis, with transportation, gathering, processing, treating and compression fees presented as an expense in its consolidated statements of Cash Flows - Restricted Cash”. This update affects entities that have restricted cash operations.
In certain natural gas processing agreements, the Company may elect to take its residue gas and/or restricted cash equivalents. This update will be effectivenatural gas liquids in-kind at the tailgate of the midstream entity’s processing plant and subsequently market the product. Through the marketing process, the Company delivers product to the ultimate third-party purchaser at a contractually agreed-upon delivery point and receives a specified index price from the purchaser. In this scenario, the Company recognizes revenue when control transfers to the purchaser at the delivery point based on the index price received from the purchaser. The gathering, processing, treating and compression fees attributable to the gas processing contract, as well as any transportation fees incurred to deliver the product to the purchaser, are presented as transportation, gathering, processing, treating and compression expense in its consolidated statements of operations.
Midstream Revenue
Substantially all revenues from gathering, compression, water handling, disposal and treatment operations are derived from intersegment transactions for financial statements issued for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted, including adoptionservices Rattler Midstream LLC (“Rattler”) provides to exploration and production operations. The portion of such fees shown in an interim period. This update will be applied retrospectively. The Company does not expect the adoption of this standard to have a material impact on the Company’s consolidated financial statements.statements represent amounts charged to interest owners in the Company’s operated wells, as well as fees charged to other third parties for water handling and treatment services provided by Rattler or usage of Rattler’s gathering and compression systems. For gathering and compression revenue, Rattler satisfies its performance obligations and recognizes revenue when low pressure volumes are delivered to a specified delivery point. Revenue is recognized based on the per MMbtu gathering fee or a per barrel gathering fee charged by Rattler in accordance with the gathering and compression agreement. For water handling and treatment revenue, Rattler satisfies its performance obligations and recognizes revenue when the fresh water volumes have been delivered to the fracwater meter for a specified well pad and the wastewater volumes have been metered downstream of the Company’s facilities. For services contracted through third party providers, Rattler’s performance obligation is satisfied when the service performed by the third party provider has been completed. Revenue is recognized based on the per barrel fresh water delivery or a wastewater gathering and disposal fee charged by Rattler in accordance with the water services agreement.
In January 2017,Transaction price allocated to remaining performance obligations
The Company’s product sales contracts do not originate until production occurs and, therefore, are not considered to exist beyond each days’ production. Therefore, there are no remaining performance obligation under any of our product sales contracts.
Contract balances
Under the FinancialCompany’s product sales contracts, it has the right to invoice its customers once the performance obligations have been satisfied, at which point payment is unconditional. Accordingly, the Company’s product sales contracts do not give rise to contract assets or liabilities under Accounting Standards Board issued Accounting Standards Update 2017-01, “Business Combinations - ClarifyingCodification 606.
Prior-period performance obligations
The Company records revenue in the Definitionmonth production is delivered to the purchaser. However, settlement statements for certain natural gas and natural gas liquids sales may not be received for 30 to 90 days after the date production is delivered, and as a result, the Company is required to estimate the amount of a Business”. This update applesproduction delivered to all entitiesthe purchaser and the price that must determine whether they acquired or sold a business. This update provides a screen to determine when a set is not a business. The screen requires that when substantially allwill be received for the sale of the fair value ofproduct. The Company records the gross assets acquired (or disposed of)differences between its estimates and the actual amounts received for product sales in the month that payment is concentratedreceived from the purchaser. The Company has existing internal controls for its revenue estimation process and related accruals, and any identified differences between its revenue estimates and actual revenue received historically have not been significant. For the
Diamondback Energy, Inc. and Subsidiaries
Notes to Consolidated Financial Statements-(Continued)
(Unaudited)
three months ended March 31, 2018, revenue recognized in a single identifiable asset or a group of similar identifiable assets, the set isreporting period related to performance obligations satisfied in prior reporting periods was not a business. This update will be effective for financial statements issued for fiscal years beginning after December 31, 2017, including interim periods within those fiscal years. This update should be applied prospectively on or after the effective date. This update is not expected to have a material impact on the Company’s financial statements or results of operations.material. The adoption of this update will change the processCompany believes that the Company usespricing provisions of its oil, natural gas and natural gas liquids contracts are customary in the industry. To the extent actual volumes and prices of oil and natural gas sales are unavailable for a given reporting period because of timing or information not received from third parties, the revenue related to evaluate whether the Company has acquired a business or an asset. This update will be applied prospectivelyexpected sales volumes and will not have an effect on prior acquisitions.prices for those properties are estimated and recorded.
3.4. ACQUISITIONS
On January 31, 2018, Tall City Towers LLC, a subsidiary of the Company, completed its acquisition of the Fasken Center office buildings in Midland, TX where the Company’s corporate offices are located for a net purchase price of $109.7 million.
On February 28, 2017, the Company completed its acquisition of certain oil and natural gas properties, midstream assets and other related assets in the Delaware Basin for an aggregate purchase price consisting of $1.74 billion in cash and 7.69 million shares of the Company’s common stock, of which approximately 1.15 million shares were placed in an indemnity escrow. This transaction includes the acquisition of (i) approximately 100,306 gross (80,339 net) acres primarily in Pecos and Reeves counties for approximately $2.5 billion and (ii) midstream assets for approximately $47.6 million. The Company used the net proceeds from its December 2016 equity offering, net proceeds from its December 2016 debt offering, cash on hand and other financing sources to fund the cash portion of the purchase price for this acquisition.
The Company is in the process of identifying and determining the fair values of the assets and liabilities assumed, and as a result, the estimates for fair value at June 30, 2017 are subject to change. The following represents the preliminary estimated fair value of the assets and liabilities assumed on the acquisition date. The aggregate consideration transferred was $2.6$2.5 billion, subject to post-closing adjustments, resulting in no goodwill or bargain purchase gain.
| | | (in thousands) | (in thousands) |
Proved oil and natural gas properties | $ | 387,571 |
| $ | 386,308 |
|
Unevaluated oil and natural gas properties | 2,122,415 |
| 2,122,597 |
|
Midstream assets | 47,554 |
| 47,432 |
|
Prepaid capital costs | 3,460 |
| 3,460 |
|
Oil inventory | 839 |
| 839 |
|
Revenues payable | (8,723 | ) | |
Equipment | | 163 |
|
Revenues and royalties payable | | (9,650 | ) |
Asset retirement obligations | (1,550 | ) | (1,550 | ) |
Total fair value of net assets | $ | 2,551,566 |
| $ | 2,549,599 |
|
The Company has included in its consolidated statements of operations revenues of $48.0$12.2 million and direct operating expenses of $6.9$2.7 million for the period from February 28, 2017 to June 30,March 31, 2017 due to the acquisition.
Diamondback Energy, Inc. and Subsidiaries
Notes to Consolidated Financial Statements-(Continued)
(Unaudited)
Pro Forma Financial Information
The following unaudited summary pro forma consolidated statement of operations data of Diamondback for the three and six months June 30,ended March 31, 2017 and 2016 have been prepared to give effect to the February 28, 2017 acquisition as if it had occurred on January 1, 2016. The pro forma data are not necessarily indicative of financial results that would have been attained had the acquisitions occurred on January 1, 2016.
Diamondback Energy, Inc. and Subsidiaries
Notes to Consolidated Financial Statements-(Continued)
(Unaudited)
The pro forma data also necessarily exclude various operation expenses related to the properties and the financial statements should not be viewed as indicative of operations in future periods.
| | | Three Months Ended June 30, | | Six Months Ended June 30, | | | |
| 2017 | 2016 | | 2017 | 2016 | Three Months Ended March 31, 2017 |
| (in thousands, except per share amounts) | (in thousands, except per share amounts) |
Revenues | $ | 269,434 |
| $ | 135,752 |
| | $ | 527,593 |
| $ | 238,416 |
| $ | 258,159 |
|
Income (loss) from operations | 132,308 |
| (119,254 | ) | | 263,060 |
| (143,257 | ) | |
Net income (loss) | 164,128 |
| (139,958 | ) | | 310,414 |
| (169,270 | ) | |
Income from operations | | 133,162 |
|
Net income | | 150,615 |
|
Basic earnings per common share | 1.61 |
| (1.95 | ) | | 3.24 |
| (2.37 | ) | 1.62 |
|
Diluted earnings per common share | 1.61 |
| (1.95 | ) | | 3.24 |
| (2.37 | ) | 1.61 |
|
4.5. VIPER ENERGY PARTNERS LP
The Partnership is a publicly traded Delaware limited partnership, the common units of which are listed on the NASDAQ Global Market under the symbol “VNOM”. The Partnership was formed by Diamondback on February 27, 2014, to, among other things, own, acquire and exploit oil and natural gas properties in North America. The Partnership is currently focused on oil and natural gas properties in the Permian Basin.Basin and the Eagle Ford Shale. Viper Energy Partners GP LLC, a fully-consolidated subsidiary of Diamondback, serves as the general partner of, and holds a non-economic general partner interest in, the Partnership. As of June 30, 2017,March 31, 2018, the Company owned approximately 74%64% of the common units of the Partnership. See Note 16–Subsequent Events for information regarding the Company’s current ownership interest in the Partnership.
Partnership Agreement
In connection with the closing of the Viper Offering, the General Partner and Diamondback entered into the first amended and restated agreement of limited partnership, dated June 23, 2014 (the “Partnership Agreement”). The Partnership Agreement requires the Partnership to reimburse the General Partner for all direct and indirect expenses incurred or paid on the Partnership’s behalf and all other expenses allocable to the Partnership or otherwise incurred by the General Partner in connection with operating the Partnership’s business. The Partnership Agreement does not set a limit on the amount of expenses for which the General Partner and its affiliates may be reimbursed. These expenses include salary, bonus, incentive compensation and other amounts paid to persons who perform services for the Partnership or on its behalf and expenses allocated to the General Partner by its affiliates. The General Partner is entitled to determine the expenses that are allocable to the Partnership. For both the three months ended March 31, 2018 and 2017, the General Partner allocated $0.6 million to the Partnership.
Tax Sharing
In connection with the closing of the Viper Offering, the Partnership entered into a tax sharing agreement with Diamondback, dated June 23, 2014, pursuant to which the Partnership agreed to reimburse Diamondback for its share of state and local income and other taxes for which the Partnership’s results are included in a combined or consolidated tax return filed by Diamondback with respect to taxable periods including or beginning on June 23, 2014. The amount of any such reimbursement is limited to the tax the Partnership would have paid had it not been included in a combined group with Diamondback. Diamondback may use its tax attributes to cause its combined or consolidated group, of which the Partnership may be a member for this purpose, to owe less or no tax. In such a situation, the Partnership agreed to reimburse Diamondback for the tax the Partnership would have owed had the tax attributes not been available or used for the Partnership’s benefit, even though Diamondback had no cash tax expense for that period.
Diamondback Energy, Inc. and Subsidiaries
Notes to Consolidated Financial Statements-(Continued)
(Unaudited)
Other Agreements
See Note 11—12—Related Party Transactions for information regarding the advisory services agreement the Partnership and the General Partner entered into with Wexford Capital LP (“Wexford”).
The Partnership has entered into a secured revolving credit facility with Wells Fargo, as administrative agent sole book runner and lead arranger. See Note 8—9—Debt for a description of this credit facility.
5.
Diamondback Energy, Inc. and Subsidiaries
Notes to Consolidated Financial Statements-(Continued)
(Unaudited)
6. PROPERTY AND EQUIPMENT
Property and equipment includes the following:
| | | June 30, | December 31, | March 31, | December 31, |
| 2017 | 2016 | 2018 | 2017 |
| | |
| (in thousands) | (in thousands) |
Oil and natural gas properties: | | |
Subject to depletion | $ | 4,302,706 |
| $ | 3,429,742 |
| $ | 5,444,080 |
| $ | 5,126,829 |
|
Not subject to depletion | 4,008,388 |
| 1,730,519 |
| 4,204,745 |
| 4,105,865 |
|
Gross oil and natural gas properties | 8,311,094 |
| 5,160,261 |
| 9,648,825 |
| 9,232,694 |
|
Accumulated depletion | (819,970 | ) | (687,685 | ) | (1,114,399 | ) | (1,009,893 | ) |
Accumulated impairment | (1,143,498 | ) | (1,143,498 | ) | (1,143,498 | ) | (1,143,498 | ) |
Oil and natural gas properties, net | 6,347,626 |
| 3,329,078 |
| 7,390,928 |
| 7,079,303 |
|
Midstream assets | 95,491 |
| 8,362 |
| 295,161 |
| 191,519 |
|
Other property, equipment and land | 71,978 |
| 58,290 |
| 82,095 |
| 80,776 |
|
Accumulated depreciation | (6,348 | ) | (4,873 | ) | (17,012 | ) | (7,981 | ) |
Property and equipment, net of accumulated depreciation, depletion, amortization and impairment | $ | 6,508,747 |
| $ | 3,390,857 |
| $ | 7,751,172 |
| $ | 7,343,617 |
|
| | |
Balance of acquisition costs not subject to depletion | | |
Balance of costs not subject to depletion: | | |
Incurred in 2018 | | $ | 159,352 |
| |
Incurred in 2017 | $ | 2,359,070 |
| | 2,746,718 |
| |
Incurred in 2016 | $ | 784,212 |
| | 721,400 |
| |
Incurred in 2015 | $ | 343,744 |
| | 283,673 |
| |
Incurred in 2014 | $ | 429,866 |
| | 293,602 |
| |
Incurred in 2013 | $ | 37,439 |
| | |
Incurred in 2012 | $ | 54,057 |
| | |
Total not subject to depletion | | $ | 4,204,745 |
| |
The Company uses the full cost method of accounting for its oil and natural gas properties. Under this method, all acquisition, exploration and development costs, including certain internal costs, are capitalized and amortized on a composite unit of production method based on proved oil, natural gas liquids and natural gas reserves. Internal costs capitalized to the full cost pool represent management’s estimate of costs incurred directly related to exploration and development activities such as geological and other administrative costs associated with overseeing the exploration and development activities. Costs, including related employee costs, associated with production and operation of the properties are charged to expense as incurred. All other internal costs not directly associated with exploration and development activities are charged to expense as they are incurred. Capitalized internal costs were approximately $5.1$7.0 million and $4.1$5.1 million for the three months ended June 30,March 31, 2018 and 2017, and 2016, respectively, and $10.2 million and $9.1 million for the six months ended June 30, 2017 and 2016, respectively. Costs associated with unevaluated properties are excluded from the full cost pool until the Company has made a determination as to the existence of proved reserves. The inclusion of the Company’s unevaluated costs into the amortization base is expected to be completed within three to five years. Acquisition costs not currently being amortized are primarily related to unproved acreage that the Company plans to prove up through drilling. The Company has no plans to let any acreage expire. Sales of oil and natural gas properties, whether or not being amortized currently, are accounted for as adjustments of capitalized costs, with no gain
Diamondback Energy, Inc. and Subsidiaries
Notes to Consolidated Financial Statements-(Continued)
(Unaudited)
or loss recognized, unless such adjustments would significantly alter the relationship between capitalized costs and proved reserves of oil, natural gas liquids and natural gas.
Under this method of accounting, the Company is required to perform a ceiling test each quarter. The test determines a limit, or ceiling, on the book value of the proved oil and natural gas properties. Net capitalized costs are limited to the lower of unamortized cost net of deferred income taxes, or the cost center ceiling. The cost center ceiling is defined as the sum of (a) estimated future net revenues, discounted at 10% per annum, from proved reserves, based on the trailing 12-month unweighted average of the first-day-of-the-month price, adjusted for any contract provisions or financial derivatives, if any, that hedge the Company’s oil and natural gas revenue, and excluding the estimated abandonment costs for properties with asset retirement obligations recorded on the balance sheet, (b) the cost of
Diamondback Energy, Inc. and Subsidiaries
Notes to Consolidated Financial Statements-(Continued)
(Unaudited)
properties not being amortized, if any, and (c) the lower of cost or market value of unproved properties included in the cost being amortized, including related deferred taxes for differences between the book and tax basis of the oil and natural gas properties. If the net book value, including related deferred taxes, exceeds the ceiling, an impairment or non-cash writedown is required.
As a result of the decline in prices, the Company recorded a non-cash impairment for the six months ended June 30, 2016 of $199.2 million, which is included in accumulated depletion, depreciation, amortization and impairment. The Company did not record an impairment for the six months ended June 30, 2017. The 2016 impairment charge affected the Company’s reported net income but did not reduce its cash flow. In addition to commodity prices, the Company’s production rates, levels of proved reserves, future development costs, transfers of unevaluated properties and other factors will determine its actual ceiling test calculation and impairment analysis in future periods.
At June 30, 2017,March 31, 2018, there was $6.8$48.5 million in exploration costs and development costs and $8.7$28.8 million in capitalized interest that arewas not subject to depletion. At December 31, 2016,2017, there were no$26.0 million in exploration costs and development costs orand $22.1 million in capitalized interest that arewas not subject to depletion.
6.7. ASSET RETIREMENT OBLIGATIONS
The following table describes the changes to the Company’s asset retirement obligation liability for the following periods:
| | | Six Months Ended June 30, | Three Months Ended March 31, |
| 2017 | 2016 | 2018 | 2017 |
| | |
| (in thousands) | (in thousands) |
Asset retirement obligations, beginning of period | $ | 17,422 |
| $ | 12,711 |
| $ | 21,285 |
| $ | 17,422 |
|
Additional liabilities incurred | 990 |
| 250 |
| 765 |
| 741 |
|
Liabilities acquired | 2,180 |
| 803 |
| 12 |
| 2,129 |
|
Liabilities settled | (149 | ) | (369 | ) | (775 | ) | (102 | ) |
Accretion expense | 673 |
| 500 |
| 355 |
| 323 |
|
Revisions in estimated liabilities | (2 | ) | 88 |
| 10 |
| (2 | ) |
Asset retirement obligations, end of period | 21,114 |
| 13,983 |
| 21,652 |
| 20,511 |
|
Less current portion | 1,575 |
| 196 |
| 394 |
| 1,572 |
|
Asset retirement obligations - long-term | $ | 19,539 |
| $ | 13,787 |
| $ | 21,258 |
| $ | 18,939 |
|
The Company’s asset retirement obligations primarily relate to the future plugging and abandonment of wells and related facilities. The Company estimates the future plugging and abandonment costs of wells, the ultimate productive life of the properties, a risk-adjusted discount rate and an inflation factor in order to determine the current present value of this obligation. To the extent future revisions to these assumptions impact the present value of the existing asset retirement obligation liability, a corresponding adjustment is made to the oil and natural gas property balance. The current portion of the asset retirement obligation liability is included in other accrued liabilities in the Company’s consolidated balance sheets.
Diamondback Energy, Inc. and Subsidiaries
Notes to Consolidated Financial Statements-(Continued)
(Unaudited)
7.8. EQUITY METHOD INVESTMENTS
In October 2014, the Company paid $0.6 million forobtained a 25% interest in HMW Fluid Management LLC, which was formed to develop, own and operate an integrated water management system to gather, store, process, treat, distribute and dispose of water to exploration and production companies operating in Midland, Martin and Andrews Counties, Texas. The board of this entity may also authorize the entity to offer these services to other counties in the Permian Basin and to pursue other business opportunities. During the sixthree months ended June 30,March 31, 2018, the Company recorded $2.2 million, which is the Company’s share of HMW Fluid Management LLC’s net income, bringing its total investment to $9.4 million at March 31, 2018. During the three months ended March 31, 2017, and 2016, the Company invested $0.2 million and $0.8 million, respectively, in this entity and recorded $3,000, which is the Company’s share of HMW Fluid Management LLC’s net income, bringing its total investment to $6.7 million and $4.1$6.5 million at June 30, 2017 and 2016, respectively.March 31, 2017. The Company will retain a minority interest after all commitments are received. The entity was formed as a limited liability company and maintains a specific ownership account for each investor, similar to a partnership capital account structure. Therefore, the Company accounts for this investment under the equity method of accounting.
8.
Diamondback Energy, Inc. and Subsidiaries
Notes to Consolidated Financial Statements-(Continued)
(Unaudited)
9. DEBT
Long-term debt consisted of the following as of the dates indicated:
| | | June 30, | December 31, | March 31, | December 31, |
| 2017 | 2016 | 2018 | 2017 |
| | |
| (in thousands) | (in thousands) |
4.750 % Senior Notes due 2024 | $ | 500,000 |
| $ | 500,000 |
| $ | 500,000 |
| $ | 500,000 |
|
5.375 % Senior Notes due 2025 | 500,000 |
| 500,000 |
| 800,000 |
| 500,000 |
|
Unamortized debt issuance costs | (13,985 | ) | (14,588 | ) | (16,312 | ) | (13,153 | ) |
Unamortized premium costs | | 11,724 |
| — |
|
Revolving credit facility | 84,000 |
| — |
| 166,000 |
| 397,000 |
|
Partnership revolving credit facility | 81,500 |
| 120,500 |
| 240,500 |
| 93,500 |
|
Total long-term debt | $ | 1,151,515 |
| $ | 1,105,912 |
| $ | 1,701,912 |
| $ | 1,477,347 |
|
2024 Senior Notes
On October 28, 2016, the Company issued $500.0 million in aggregate principal amount of 4.750% Senior Notes due 2024 (the “2024 Senior Notes”). The 2024 Senior Notes bear interest at a rate of 4.750% per annum, payable semi-annually, in arrears on May 1 and November 1 of each year, commencing on May 1, 2017 and will mature on November 1, 2024. All of the Company’s existing and future restricted subsidiaries that guarantee its revolving credit facility or certain other debt guarantee the 2024 Senior Notes; provided, however, that the 2024 Senior Notes are not guaranteed by the Partnership, the General Partner, Viper Energy Partners LLC or Rattler Midstream LLC, and will not be guaranteed by any of the Company’s future unrestricted subsidiaries.
The 2024 Senior Notes were issued under, and are governed by, an indenture among the Company, the subsidiary guarantors party thereto and Wells Fargo, as the trustee, as supplemented (the “2024 Indenture”). The 2024 Indenture contains certain covenants that, subject to certain exceptions and qualifications, among other things, limit the Company’s ability and the ability of the restricted subsidiaries to incur or guarantee additional indebtedness, make certain investments, declare or pay dividends or make other distributions on capital stock, prepay subordinated indebtedness, sell assets including capital stock of restricted subsidiaries, agree to payment restrictions affecting the Company’s restricted subsidiaries, consolidate, merge, sell or otherwise dispose of all or substantially all of its assets, enter into transactions with affiliates, incur liens, engage in business other than the oil and natural gas business and designate certain of the Company’s subsidiaries as unrestricted subsidiaries.
The Company may on any one or more occasions redeem some or all of the 2024 Senior Notes at any time on or after November 1, 2019 at the redemption prices (expressed as percentages of principal amount) of 103.563% for the 12-month period beginning on November 1, 2019, 102.375% for the 12-month period beginning on November 1, 2020, 101.188% for the 12-month period beginning on November 1, 2021 and 100.000% beginning on November 1, 2022 and at any time thereafter with any accrued and unpaid interest to, but not including, the date of redemption. Prior to November 1, 2019, the Company may on any one or more occasions redeem all or a portion of the 2024 Senior Notes at a price equal to 100% of the principal amount of the 2024 Senior Notes plus a “make-whole” premium and accrued and unpaid interest to the redemption date. In addition, any time prior to November 1, 2019, the Company may on any
Diamondback Energy, Inc. and Subsidiaries
Notes to Consolidated Financial Statements-(Continued)
(Unaudited)
one or more occasions redeem the 2024 Senior Notes in an aggregate principal amount not to exceed 35% of the aggregate principal amount of the 2024 Senior Notes issued prior to such date at a redemption price of 104.750%, plus accrued and unpaid interest to the redemption date, with an amount equal to the net cash proceeds from certain equity offerings.
In connection with the issuance of the 2024 Senior Notes, the Company and the subsidiary guarantors entered into a registration rights agreement (the “2024 Registration Rights Agreement”) with the initial purchasers on October 28, 2016, pursuant to which the Company agreed to file a registration statement with respect to an offer to exchange the 2024 Senior Notes for a new issue of substantially identical debt securities registered under the Securities Act. Under the 2024 Registration Rights Agreement, the Company also agreed to use its commercially reasonable efforts to have the registration statement declared effective by the SEC on or prior to the 360th day after the issue date of the 2024 Senior Notes and to keep the exchange offer open for not less than 30 days (or longer if required by applicable law). The Company may be required to file a shelf registration statement to cover resales of the 2024 Senior Notes under certain circumstances. If the Company fails to satisfy these obligations under the 2024 Registration Rights Agreement, it agreed to pay additional interest to the holders of the 2024 Senior Notes as specified in the 2024 Registration Rights Agreement.
2025 Senior Notes
On December 20, 2016, the Company issued $500.0 million in aggregate principal amount of 5.375% Senior Notes due 2025 (the “2025 Senior Notes”). The 2025 Senior Notes bear interest at a rate of 5.375% per annum, payable semi-annually, in arrears on May 31 and November 30 of each year, commencing on May 31, 2017 and will mature on May 31, 2025. All of the Company’s existing and future restricted subsidiaries that guarantee its revolving credit
Diamondback Energy, Inc. and Subsidiaries
Notes to Consolidated Financial Statements-(Continued)
(Unaudited)
facility or certain other debt guarantee the 2025 Senior Notes, provided, however, that the 2025 Senior Notes are not guaranteed by the Partnership, the General Partner, Viper Energy Partners LLC or Rattler Midstream LLC, and will not be guaranteed by any of the Company’s future unrestricted subsidiaries.
On January 29, 2018, the Company issued $300.0 million aggregate principal amount of new 5.375% Senior Notes due 2025 (the “New 2025 Notes”) as additional notes under, and subject to the terms of, the 2025 Indenture. The New 2025 Senior Notes were issued in a transaction exempt from the registration requirements under an indenture, dated asthe Securities Act. The Company received approximately $308.4 million in net proceeds, after deducting the initial purchaser’s discount and its estimated offering expenses, but disregarding accrued interest, from the issuance of December 20, 2016, among the New 2025 Notes. The Company used the guarantors party thereto and Wells Fargo Bank, asnet proceeds from the trustee (the “2025 Indenture”). issuance of the New 2025 Notes to repay a portion of the outstanding borrowings under its revolving credit facility.
The 2025 Indenture contains certain covenants that, subject to certain exceptions and qualifications, among other things, limit the Company’s ability and the ability of the restricted subsidiaries to incur or guarantee additional indebtedness, make certain investments, declare or pay dividends or make other distributions on capital stock, prepay subordinated indebtedness, sell assets including capital stock of restricted subsidiaries, agree to payment restrictions affecting the Company’s restricted subsidiaries, consolidate, merge, sell or otherwise dispose of all or substantially all of itsthe Company’s assets, enter into transactions with affiliates, incur liens, engage in business other than the oil and natural gas business and designate certain of the Company’s subsidiaries as unrestricted subsidiaries.
The Company may on any one or more occasions redeem some or all of the 2025 Senior Notes (including the New 2025 Notes) at any time on or after May 31, 2020 at the redemption prices (expressed as percentages of principal amount) of 104.031% for the 12-month period beginning on May 31, 2020, 102.688% for the 12-month period beginning on May 31, 2021, 101.344% for the 12-month period beginning on May 31, 2022 and 100.000% beginning on May 31, 2023 and at any time thereafter with any accrued and unpaid interest to, but not including, the date of redemption. Prior to May 31, 2020, the Company may on any one or more occasions redeem all or a portion of the 2025 Senior Notes (including the New 2025 Notes) at a price equal to 100% of the principal amount of the 2025 Senior Notes (including the New 2025 Notes) plus a “make-whole” premium and accrued and unpaid interest to the redemption date. In addition, any time prior to May 31, 2020, the Company may on any one or more occasions redeem the 2025 Senior Notes (including the New 2025 Notes) in an aggregate principal amount not to exceed 35% of the aggregate principal amount of the 2025 Senior Notes (including the New 2025 Notes) issued prior to such date at a redemption price of 105.375%, plus accrued and unpaid interest to the redemption date, with an amount equal to the net cash proceeds from certain equity offerings.
The Company’s Credit Facility
The Company and Diamondback O&G LLC, as borrower, entered into the second amended and restated credit agreement, dated November 1, 2013, as amended on June 9, 2014, November 13, 2014, June 21, 2016, December 15, 2016 and November 28, 2017, with a syndicate of banks, including Wells Fargo, as administrative agent, and its affiliate Wells Fargo Securities, LLC, as sole book runner and lead arranger. The credit agreement provides for a revolving credit facility in the maximum credit amount of $5.0 billion, subject to a borrowing base based on the Company’s oil and natural gas reserves and other factors (the “borrowing base”). The borrowing base is scheduled to be redetermined, under certain circumstances, annually with an effective date of May 1st, and, under certain circumstances, semi-annually with effective dates of May 1st and November 1st. In connection withaddition, the issuanceCompany may request up to two additional redeterminations of the 2025 Senior Notes,borrowing base during any 12-month period. As of March 31, 2018, the borrowing base was set at $1.8 billion, the Company had elected a commitment amount of $1.0 billion and the subsidiary guarantors entered into a registration rightsCompany had $166.0 million of outstanding borrowings under the revolving credit facility and $834.0 million available for future borrowings under its revolving credit facility.
Diamondback O&G LLC is the borrower under the credit agreement. As of December 31, 2017, the credit agreement (the “2025 Registration Rights Agreement”) with the initial purchasers on December 20, 2016, pursuant to whichis guaranteed by the Company, agreed to fileDiamondback E&P LLC and Rattler Midstream LLC (formerly known as White Fang Energy LLC) and will also be guaranteed by any of the Company’s future subsidiaries that are classified as restricted subsidiaries under the credit agreement. The credit agreement is also secured by substantially all of the assets of the Company, Diamondback O&G LLC and the guarantors.
The outstanding borrowings under the credit agreement bear interest at a registration statement with respectper annum rate elected by the Company that is equal to an offer to exchange the 2025 Senior Notes for a new issue of substantially identical debt securities registered under the Securities Act. Under the 2025 Registration Rights Agreement, the Company also agreed to use its commercially reasonable efforts to have the registration statement declared effective by the SEC on or prioralternate base rate (which is equal to the 360th day after the issue dategreatest of the 2025 Senior Notes and to keepprime rate, the exchange offer open for not less than 30 days (or longer if required by applicable law). The Company may be required to file a shelf registration statement to cover resales of the 2025 Senior NotesFederal Funds effective rate
Diamondback Energy, Inc. and Subsidiaries
Notes to Consolidated Financial Statements-(Continued)
(Unaudited)
under certain circumstances. If the Company fails to satisfy these obligations under the 2025 Registration Rights Agreement, it agreed to pay additional interest to the holders of the 2025 Senior Notes as specified in the 2025 Registration Rights Agreement.
On April 26, 2017, the Company filed with the SEC its Registration Statement on Form S-4 relating to the exchange offers of the 2024 Senior Notes and the 2025 Senior Notes for substantially identical debt securities registered under the Securities Act.
The Company’s Credit Facility
On June 9, 2014, Diamondback O&G LLC, as borrower, entered into a first amendment and on November 13, 2014, Diamondback O&G LLC entered into a second amendment to the second amended and restated credit agreement, dated November 1, 2013 (the “credit agreement”). The first amendment modified certain provisions of the credit agreement to, among other things, allow one or more of the Company’s subsidiaries to be designated as “Unrestricted Subsidiaries” that are not subject to certain restrictions contained in the credit agreement. In connection with the Viper Offering, the Partnership, the General Partner and Viper Energy Partners LLC were designated as unrestricted subsidiaries under the credit agreement. As of June 30, 2017, the credit agreement was guaranteed by Diamondback, Diamondback E&P LLC and Rattler Midstream LLC and will also be guaranteed by any future restricted subsidiaries of Diamondback. The credit agreement is also secured by substantially all of the assets of Diamondback O&G LLC, the Company and the other guarantors.
The second amendment increased the maximum amount of the credit facility to $2.0 billion, modified the dates and deadlines of the credit agreement relating to the scheduled borrowing base redeterminations based on the Company’s oil and natural gas reserves and other factors and added new provisions that allow the Company to elect a commitment amount that is less than its borrowing base as determined by the lenders. The borrowing base is scheduled to be re-determined semi-annually with effective dates of May 1st and November 1st. In addition, the Company may request up to three additional redeterminations of the borrowing base during any 12-month period. As of June 30, 2017, the borrowing base was set at $1.5 billion, of which the Company had elected a commitment amount of $750.0 million, and the Company had $84.0 million in outstanding borrowings.
The outstanding borrowings under the credit agreement bear interest at a rate elected by the Company that is equal to an alternative base rate (which is equal to the greatest of the prime rate, the Federal Funds effective rate plus 0.5%, and 3-month LIBOR plus 1.0%) or LIBOR, in each case plus the applicable margin. The applicable margin ranges from 0.50%0.25% to 1.50%1.25% in the case of the alternativealternate base rate and from 1.50%1.25% to 2.50%2.25% in the case of LIBOR, in each case dependingof which applicable margin rates is increased by 0.25% per annum if the total debt to EBITDAX ratio is greater than 3.0 to 1.0. The applicable margin depends on the amount of the loanloans and letters of credit outstanding in relation to the commitment, which is defined as the least of the maximum credit amount, the borrowing base.base and the elected commitment amount. The Company is obligated to pay a quarterly commitment fee ranging from 0.375% to 0.500% per year on the unused portion of the borrowing base,commitment, which fee is also dependent on the amount of the loanloans and letters of credit outstanding in relation to the borrowing base.commitment. Loan principal may be optionally repaid from time to time without premium or penalty (other than customary LIBOR breakage), and is required to be repaid (a) to the extent that the loan amount exceeds the commitment or the borrowing base, whether due to a borrowing base redetermination or otherwise (in some cases subject to a cure period), (b) in an amount equal to the net cash proceeds from the sale of property when a borrowing base deficiency or event of default exists under the credit agreement and (c) at the maturity date of November 1, 2018.2022.
The credit agreement contains various affirmative, negative and financial maintenance covenants. These covenants, among other things, limit additional indebtedness, additional liens, sales of assets, mergers and consolidations, dividends and distributions, transactions with affiliates and entering into certain swap agreements and require the maintenance of the financial ratios described below.
|
| | |
Financial Covenant | | Required Ratio |
Ratio of total debt to EBITDAX | Not greater than 4.0 to 1.0 |
Ratio of current assets to liabilities, as defined in the credit agreement | Not less than 1.0 to 1.0 |
The covenant prohibiting additional indebtedness, as amended in December 2016,November 2017, allows for the issuance of unsecured debt of up to $1.0 billion in the form of senior or senior subordinated notes if no default would result from the incurrence of such debt after giving effect thereto and if, in connection with any such issuance, the reduction of the borrowing base is reduced by 25% of the stated principal amount of each such issuance. A borrowing base reduction in connection with such issuance may require a portion of the outstanding principal of the loan to be
Diamondback Energy, Inc. and Subsidiaries
Notes to Consolidated Financial Statements-(Continued)
(Unaudited)
repaid. As of June 30, 2017, the Company had $1.0 billion in aggregate principal amount of senior unsecured notes outstanding.
As of June 30, 2017March 31, 2018 and December 31, 2016,2017, the Company was in compliance with all financial covenants under its revolving credit facility, as then in effect. The lenders may accelerate all of the indebtedness under the Company’s revolving credit facility upon the occurrence and during the continuance of any event of default. The credit agreement contains customary events of default, including non-payment, breach of covenants, materially incorrect representations, cross-default, bankruptcy and change of control. There are no cure periods for events of default due to non-payment of principal and breaches of negative and financial covenants, but non-payment of interest and breaches of certain affirmative covenants are subject to customary cure periods.
The Partnership’s Credit Agreement
TheOn July 8, 2014, the Partnership entered into a $500.0 million secured revolving credit agreement dated as of July 8, 2014, as amended, with Wells Fargo, as the administrative agent, and Wells Fargo Securities, as sole book runner and lead arranger,arranger. The credit agreement, as amended, provides for a revolving credit facility in the maximum credit amount of $2.0 billion and certaina borrowing base based on the Partnership’s oil and natural gas reserves and other lenders party thereto.factors (the “borrowing base”) of $400.0 million, subject to scheduled semi-annual and other elective borrowing base redeterminations. The borrowing base is scheduled to be re-determined semi-annually with effective dates of AprilMay 1st and OctoberNovember 1st. In addition, the Partnership may request up to three additional redeterminations of the borrowing base during any 12-month period. As of June 30, 2017,March 31, 2018, the borrowing base was set at $315.0$400.0 million, and the Partnership had $81.5$240.5 million inof outstanding borrowings and $159.5 million available for future borrowings under theits revolving credit agreement.facility.
The outstanding borrowings under the credit agreement bear interest at a per annum rate elected by the Partnership that is equal to an alternativealternate base rate (which is equal to the greatest of the prime rate, the Federal Funds effective rate plus 0.5% and 3-month LIBOR plus 1.0%) or LIBOR, in each case plus the applicable margin. The applicable margin ranges from 1.00%0.75% to 2.00%1.75% per annum in the case of the alternativealternate base rate and from 2.00%1.75% to 3.00%2.75% per annum in the case of LIBOR, in each case depending on the amount of the loanloans and letters of credit outstanding in relation to the commitment, which is defined as the lesser of the maximum credit amount and the borrowing base. The Partnership is obligated to pay a quarterly commitment fee ranging from 0.375% to 0.500% per year on the unused portion of the borrowing base,commitment, which fee is also dependent on the amount of the loanloans and letters of credit outstanding in relation to the borrowing base.commitment. Loan principal may be optionally repaid from time to time without premium or penalty (other
Diamondback Energy, Inc. and Subsidiaries
Notes to Consolidated Financial Statements-(Continued)
(Unaudited)
(other than customary LIBOR breakage), and is required to be repaid (a)(i) to the extent that the loan amount exceeds the commitment or the borrowing base, whether due to a borrowing base redetermination or otherwise (in some cases subject to a cure period), (ii) in an amount equal to the net cash proceeds from the sale of property when a borrowing base deficiency or event of default exists under the credit agreement and (b)(iii) at the maturity date of July 8, 2019.November 1, 2022. The loan is secured by substantially all of the assets of the Partnership and its subsidiaries.subsidiary’s assets.
The credit agreement contains various affirmative, negative and financial maintenance covenants. These covenants, among other things, limit additional indebtedness, purchases of margin stock, additional liens, sales of assets, mergers and consolidations, dividends and distributions, transactions with affiliates and entering into certain swap agreements and require the maintenance of the financial ratios described below.
|
| | |
Financial Covenant | | Required Ratio |
Ratio of total debt to EBITDAX | Not greater than 4.0 to 1.0 |
Ratio of current assets to liabilities, as defined in the credit agreement | Not less than 1.0 to 1.0 |
The covenant prohibiting additional indebtedness allows for the issuance of unsecured debt of up to $250.0$400.0 million in the form of senior unsecured notes and, in connection with any such issuance, the reduction of the borrowing base by 25% of the stated principal amount of each such issuance. A borrowing base reduction in connection with such issuance may require a portion of the outstanding principal of the loan to be repaid.
The lenders may accelerate all of the indebtedness under the Partnership’s credit agreement upon the occurrence and during the continuance of any event of default. The Partnership’s credit agreement contains customary events of default, including non-payment, breach of covenants, materially incorrect representations, cross-default, bankruptcy and change of control. There are no cure periods for events of default due to non-payment of principal and breaches of negative and financial covenants, but non-payment of interest and breaches of certain affirmative covenants are subject to customary cure periods.
9.10. CAPITAL STOCK AND EARNINGS PER SHARE
In January 2016, the Company completed an underwritten public offering of 4,600,000 shares of common stock, which included 600,000 shares of common stock issued pursuant to an option to purchase additional shares
Diamondback Energy, Inc. and Subsidiaries
Notes to Consolidated Financial Statements-(Continued)
(Unaudited)
granted to the underwriter. The stock was sold to the underwriter at $55.33 per share and the Company received proceeds of approximately $254.5 million from the sale of these shares of common stock, net of offering expenses and underwriting discounts and commissions.
Diamondback completed no other equity offerings during the sixthree months ended June 30, 2017March 31, 2018 and 2016.March 31, 2017.
Partnership Equity OfferingOfferings
In January 2017, the Partnership completed an underwritten public offering of 9,775,000 common units, which included 1,275,000 common units issued pursuant to an option to purchase additional common units granted to the underwriters. The Partnership received net proceeds from this offering of approximately $147.6$147.5 million, after deducting underwriting discounts and commissions and estimated offering expenses, of which the Partnership used $120.5 million to repay the outstanding borrowings under its revolving credit agreement and intends to use the remaining net proceedsbalance was used for general partnership purposes, which may includeincluded additional acquisitions.
Earnings Per Share
The Company’s basic earnings per share amounts have been computed based on the weighted-average number of shares of common stock outstanding for the period. Diluted earnings per share include the effect of potentially dilutive shares outstanding for the period. Additionally, for the diluted earnings per share computation, the per share earnings of the Partnership are included in the consolidated earnings per share computation based on the consolidated group’s holdings of the subsidiary.
Diamondback Energy, Inc. and Subsidiaries
Notes to Consolidated Financial Statements-(Continued)
(Unaudited)
A reconciliation of the components of basic and diluted earnings per common share is presented in the table below:
| | | Three Months Ended June 30, | | Six Months Ended June 30, | Three Months Ended March 31, |
| 2017 | 2016 | | 2017 | 2016 | 2018 | 2017 |
| (in thousands, except per share amounts) | (in thousands, except per share amounts) |
Net income (loss) attributable to common stock | $ | 158,405 |
| $ | (155,490 | ) | | $ | 294,678 |
| $ | (188,402 | ) | |
Net income attributable to common stock | | $ | 162,812 |
| $ | 136,273 |
|
Weighted average common shares outstanding | | | | |
Basic weighted average common units outstanding | 98,142 |
| 71,719 |
| | 95,665 |
| 71,372 |
| 98,555 |
| 93,161 |
|
Effect of dilutive securities: | | | | |
Potential common shares issuable | 212 |
| — |
| | 260 |
| — |
| 214 |
| 203 |
|
Diluted weighted average common shares outstanding | 98,354 |
| 71,719 |
| | 95,925 |
| 71,372 |
| 98,769 |
| 93,364 |
|
Basic net income (loss) attributable to common stock | $ | 1.61 |
| $ | (2.17 | ) | | $ | 3.08 |
| $ | (2.64 | ) | |
Diluted net income (loss) attributable to common stock | $ | 1.61 |
| $ | (2.17 | ) | | $ | 3.07 |
| $ | (2.64 | ) | |
Basic net income attributable to common stock | | $ | 1.65 |
| $ | 1.46 |
|
Diluted net income attributable to common stock | | $ | 1.65 |
| $ | 1.46 |
|
For the three months ended June 30,March 31, 2018 and 2017, and 2016, there were 64,411zero shares and 25,591 shares, respectively, and during the six months ended June 30, 2017 and 2016, there were 0 shares and 174,27914 shares, respectively, that were not included in the computation of diluted earnings per share because their inclusion would have been anti-dilutive for the periods presented. These shares could dilute basic earnings per share in future periods.
Diamondback Energy, Inc. and Subsidiaries
Notes to Consolidated Financial Statements-(Continued)
(Unaudited)
10.11. EQUITY-BASED COMPENSATION
The following table presents the effects of the equity compensation plans and related costs:
|
| | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2017 | 2016 | | 2017 | 2016 |
| (in thousands) |
General and administrative expenses | $ | 6,168 |
| $ | 6,029 |
| | $ | 13,231 |
| $ | 14,378 |
|
Equity-based compensation capitalized pursuant to full cost method of accounting for oil and natural gas properties | 1,901 |
| 1,845 |
| | 4,244 |
| 4,609 |
|
Stock Options
The following table presents the Company’s stock option activity under the Company’s Equity Incentive Plan (“Equity Plan”) for the six months ended June 30, 2017.
|
| | | | | | | | | |
| | Weighted Average | |
| | Exercise | Remaining | Intrinsic |
| Options | Price | Term | Value |
| | | (in years) | (in thousands) |
Outstanding at December 31, 2016 | 15,750 |
| $ | 22.72 |
| | |
Exercised | (15,750 | ) | $ | 22.72 |
| | |
Outstanding at June 30, 2017 | — |
| $ | — |
| 0.00 | $ | — |
|
The aggregate intrinsic value of stock options that were exercised during the six months ended June 30, 2017 and 2016 was $1.2 million and $1.3 million, respectively. |
| | | | | | |
| Three Months Ended March 31, |
| 2018 | 2017 |
| (in thousands) |
General and administrative expenses | $ | 7,451 |
| $ | 7,063 |
|
Equity-based compensation capitalized pursuant to full cost method of accounting for oil and natural gas properties | 2,641 |
| 2,343 |
|
Restricted Stock Units
The following table presents the Company’s restricted stock units activity under the Equity Plan during the sixthree months ended June 30, 2017.March 31, 2018.
| | | Restricted Stock Awards & Units | Weighted Average Grant-Date Fair Value | Restricted Stock Awards & Units | Weighted Average Grant-Date Fair Value |
Unvested at December 31, 2016 | 206,004 |
| $ | 70.33 |
| |
Unvested at December 31, 2017 | | 243,577 |
| $ | 90.88 |
|
Granted | 87,641 |
| $ | 107.97 |
| 73,763 |
| $ | 113.78 |
|
Vested | (109,528 | ) | $ | 75.44 |
| (106,691 | ) | $ | 86.30 |
|
Forfeited | (759 | ) | $ | 85.15 |
| (1,427 | ) | $ | 94.43 |
|
Unvested at June 30, 2017 | 183,358 |
| $ | 85.21 |
| |
Unvested at March 31, 2018 | | 209,222 |
| $ | 101.26 |
|
The aggregate fair value of restricted stock units that vested during the sixthree months ended June 30,March 31, 2018 and 2017 and 2016 was $11.4$9.2 million and $8.2$11.3 million, respectively. As of June 30, 2017,March 31, 2018, the Company’s unrecognized compensation cost related to unvested restricted stock awards and units was $10.5$17.3 million. Such cost is expected to be recognized over a weighted-average period of 1.51.8 years.
Diamondback Energy, Inc. and Subsidiaries
Notes to Consolidated Financial Statements-(Continued)
(Unaudited)
Performance Based Restricted Stock Units
To provide long-term incentives for the executive officers to deliver competitive returns to the Company’s stockholders, the Company has granted performance-based restricted stock units to eligible employees. The ultimate number of shares awarded from these conditional restricted stock units is based upon measurement of total stockholder return of the Company’s common stock (“TSR”) as compared to a designated peer group during a two-year or three-year performance period.
Diamondback Energy, Inc. and Subsidiaries
Notes to Consolidated Financial Statements-(Continued)
(Unaudited)
In February 2017,2018, eligible employees received performance restricted stock unit awards totaling 37,440117,423 units from which a minimum of 0% and a maximum of 200% units could be awarded. The awards have a performance period of January 1, 20172018 to December 31, 20182020 and cliff vest at December 31, 2018. Eligible employees received additional performance restricted stock unit awards totaling 74,880 units from which a minimum of 0% and a maximum of 200% units could be awarded. The awards have a performance period of January 1, 2017 to December 31, 2019 and cliff vest at December 31, 2019.2020.
The fair value of each performance restricted stock unit is estimated at the date of grant using a Monte Carlo simulation, which results in an expected percentage of units to be earned during the performance period.
The following table presents a summary of the grant-date fair values of performance restricted stock units granted and the related assumptions for the February 20172018 awards.
| | | 2017 | 2018 |
| Two-Year Performance Period | Three-Year Performance Period | Three-Year Performance Period |
Grant-date fair value | $ | 162.13 |
| $ | 168.73 |
| $ | 170.45 |
|
Risk-free rate | 1.27 | % | 1.59 | % | 1.99 | % |
Company volatility | 39.32 | % | 41.14 | % | 35.90 | % |
The following table presents the Company’s performance restricted stock units activity under the Equity Plan for the sixthree months ended June 30, 2017.March 31, 2018.
|
| | | | | |
| Performance Restricted Stock Units | Weighted Average Grant-Date Fair Value |
Unvested at December 31, 2016 | 252,471 |
| $ | 103.06 |
|
Granted | 118,169 |
| $ | 166.53 |
|
Unvested at June 30, 2017(1) | 370,640 |
| $ | 123.29 |
|
|
| | | | | |
| Performance Restricted Stock Units | Weighted Average Grant-Date Fair Value |
Unvested at December 31, 2017 | 202,326 |
| $ | 139.83 |
|
Granted | 285,737 |
| $ | 130.96 |
|
Vested | (168,314 | ) | $ | 103.41 |
|
Unvested at March 31, 2018(1) | 319,749 |
| $ | 151.08 |
|
| |
(1) | A maximum of 741,280639,498 units could be awarded based upon the Company’s final TSR ranking. |
As of June 30, 2017,March 31, 2018, the Company’s unrecognized compensation cost related to unvested performance based restricted stock awards and units was $25.6$34.8 million. Such cost is expected to be recognized over a weighted-average period of 1.82.8 years.
Phantom Units
Under the Viper LTIP, the Board of Directors of the General Partner is authorized to issue phantom units to eligible employees. The Partnership estimates the fair value of phantom units as the closing price of the Partnership’s common units on the grant date of the award, which is expensed over the applicable vesting period. Upon vesting the phantom units entitle the recipient one common unit of the Partnership for each phantom unit.
The following table presents the phantom unit activity under the Viper LTIP for the six months ended June 30, 2017.
|
| | | | | | |
| Phantom Units | | Weighted Average Grant-Date Fair Value |
Unvested at December 31, 2016 | 21,048 |
| | $ | 16.23 |
|
Granted | 3,126 |
| | $ | 17.49 |
|
Vested | (13,816 | ) | | $ | 16.05 |
|
Unvested at June 30, 2017 | 10,358 |
| | $ | 16.85 |
|
Diamondback Energy, Inc. and Subsidiaries
Notes to Consolidated Financial Statements-(Continued)
(Unaudited)
The following table presents the phantom unit activity under the Viper LTIP for the three months ended March 31, 2018.
|
| | | | | | |
| Phantom Units | | Weighted Average Grant-Date Fair Value |
Unvested at December 31, 2017 | 105,439 |
| | $ | 17.10 |
|
Granted | 101,403 |
| | $ | 23.18 |
|
Vested | (39,147 | ) | | $ | 22.30 |
|
Unvested at March 31, 2018 | 167,695 |
| | $ | 19.56 |
|
The aggregate fair value of phantom units that vested during the sixthree months ended June 30, 2017March 31, 2018 was $0.2$0.9 million. As of June 30, 2017,March 31, 2018, the unrecognized compensation cost related to unvested phantom units was $0.2$2.4 million. Such cost is expected to be recognized over a weighted-average period of 1.31.6 years.
11.12. RELATED PARTY TRANSACTIONS
Immediately upon the completion of the Company’s initial public offering on October 17, 2012, Wexford beneficially owned approximately 44% of the Company’s outstanding common stock. As of December 31, 2016, Wexford beneficially owned less than 1% of the Company’s outstanding common stock. The Chairman of the Board of Directors of both the Company and the General Partner was a partner at Wexford until his retirement from Wexford effective December 31, 2016. Another partner at Wexford serves as a member of the Board of Directors of the General Partner. Beginning January 1, 2017, Wexford and entities affiliated with Wexford are no longer considered related parties of the Company and any expenses after December 31, 2016 are no longer classified as related party expenses.
Related Party Revenue and Expenses
During the three months ended June 30, 2016, the Company paid $1.3 million in lease operating expenses and $0.6 million in general and administrative expenses to related parties. During the three months ended June 30, 2016, the Company received less than $0.1 million in other income from related parties. During the six months ended June 30, 2016, the Company paid $1.6 million in lease operating expenses and $1.0 million in general and administrative expenses to related parties. During the six months ended June 30, 2016, the Company received $0.1 million in other income from related parties.
Advisory Services Agreement - The Company
The Company entered into an advisory services agreement (the “Advisory Services Agreement”) with Wexford, dated as of October 11, 2012, under which Wexford provides the Company with general financial and strategic advisory services related to the business in return for an annual fee of $0.5 million, plus reasonable out-of-pocket expenses. The Advisory Services Agreement had an initial term of two years commencing on October 18, 2012, and continues for additional one-year periods unless terminated in writing by either party at least ten days prior to the expiration of the then current term. The Company incurred total costs of $0.1 million and $0.3 million during the three months and six months ended June 30, 2016, respectively, under the Advisory Services Agreement.
Advisory Services Agreement - The Partnership
In connection with the closing of the Viper Offering, the Partnership and the General Partner entered into an advisory services agreement (the “Viper Advisory Services Agreement”) with Wexford, dated as of June 23, 2014, under which Wexford provides the Partnership and the General Partner with general financial and strategic advisory services related to the business in return for an annual fee of $0.5 million, plus reasonable out-of-pocket expenses. The Viper Advisory Services Agreement had an initial term of two years commencing on June 23, 2014, and will continue for additional one-year periods unless terminated in writing by either party at least ten days prior to the expiration of the then current term. The Partnership did not incur any costs during the three months and six months ended June 30,March 31, 2018 or March 31, 2017 or June 30, 2016 under the Viper Advisory Services Agreement.
Midland Corporate Lease Bonus - The Partnership
Effective May 15, 2011, the Company occupied corporate office space in Midland, Texas under a lease with an initial five-year term, which was extended for an additional ten-years in November 2014. The office space is owned by Fasken, which is controlled by an affiliate of Wexford. The Company paid rent of $0.4 million and $0.7 million forDuring the three months and six months ended June 30, 2016, respectively.
Field Office Lease
The Company leased field office space in Midland, Texas from an unrelated third party commencing on March 1, 2011. On March 1, 2014, the building was purchased by WT Commercial Portfolio, LLC, which is controlled by an affiliate of Wexford. The term of the lease expires on February 28, 2018. During the third quarter of 2014,31, 2018, the Company entered into a sublease with Bison, in which Bison leaseddid not pay the field office space on the same terms as the Company’s
Diamondback Energy, Inc. and Subsidiaries
Notes to Consolidated Financial Statements-(Continued)
(Unaudited)
Partnership any lease for the remainder of the lease term. The Company paid rent of less than $0.1 million during bothbonus payments. During the three months and six months ended June 30, 2016. The Company received payments of less than $0.1 million and $0.1 million from Bison in respect of this sublease during the three months and six months ended June 30, 2016, respectively. During the second quarter of 2017, the sublease between the Company and Bison as well as the original lease between the Company and WT Commercial Portfolio, LLC were terminated.
The Partnership - Lease Bonus
During both the three months and six months ended June 30,March 31, 2017, the Company paid the Partnership $0.1 million$1,500 in lease bonus payments to extend the term of two leases,one lease, reflecting an average bonus of $7,459 per acre. During the three months and six months ended June 30, 2016, the Company paid the Partnership $0.2 million and $0.3 million, respectively, in lease bonus payments to extend the term of four leases, reflecting an average bonus of $1,519$400 per acre.
12.13. INCOME TAXES
The Company’s effective income tax rates were 1.1%20.9% and 0.2%1.4% for the sixthree months ended June 30,March 31, 2018 and 2017, and 2016, respectively. Total income tax expense for the sixthree months ended June 30, 2017March 31, 2018 differed from amounts computed by applying the United States federal statutory tax rate to pre-tax income primarily due to current and deferred state income taxes, net income attributable to the non-controlling interest and the impact of permanent differences between book and taxable income. The Company recorded a discrete income tax benefit of approximately $0.2 million related to equity-based compensation for the three months ended March 31, 2018. Total income tax expense for the three months ended March 31, 2017 differed from amounts computed by applying the federal statutory rate to pre-tax income primarily due to state income taxes
The Tax Cuts and Jobs Act, a historic reform of the U.S. federal income tax statutes, was enacted on December 22, 2017. As of the completion of the Company’s financial statements for the year ended December 31, 2017, the Company had substantially completed its accounting for the effects of the enactment of the Tax Cuts and Jobs Act and, with respect to those items for which the Company’s accounting was not complete, the Company made reasonable estimates of the effects on its deferred tax balances. At March 31, 2018, the Company has not made an adjustment to the provisional estimates recorded for the year ended December 31, 2017. The Company has considered in its estimated annual effective tax rate for 2018 the impact of the statutory changes enacted by the Tax Cuts and Jobs Act, including reasonable estimates of those provisions effective for the 2018 tax year.
As discussed further in Note 17, on March 29, 2018, the Partnership announced that the Board of Directors of its General Partner had unanimously approved a change of the Partnership’s federal income tax status from that of a pass-through partnership to that of a taxable entity, which change became effective on May 10, 2018. The transactions
Diamondback Energy, Inc. and Subsidiaries
Notes to Consolidated Financial Statements-(Continued)
(Unaudited)
to be undertaken in connection with the change in valuation allowance that offsets the Company’s federal net deferredPartnership’s tax asset position. The Company incurs state income tax obligations in Texas, the primary state in which it operates, pursuant to the Texas margin tax. Any positive net taxable income generated by the Company for federal income tax purposes for the six months ended June 30, 2017 isstatus are not expected to be offset by federal net operating loss (“NOL”) carryforwards, for which a full valuation allowance has been provided. During the six months ended June 30, 2017, the Company reduced its valuation allowance against its federal NOL by $56.8 million, bringing the total valuation allowance to $30.2 million. The valuation allowance reduces the Company’s deferred assets to a zero value, as management does not believe that it is more-likely-than-not that this portion of the Company's NOLs are realizable. Management believes that the balance of the Company's NOLs are realizable onlytaxable to the extent of future taxable income primarily related to the excess of book carrying value of properties over their respective tax bases. No other sources of future taxable income are considered in this judgment.Company.
13.14. DERIVATIVES
All derivative financial instruments are recorded at fair value. The Company has not designated its derivative instruments as hedges for accounting purposes and, as a result, marks its derivative instruments to fair value and recognizes the cash and non-cash changes in fair value in the combined consolidated statements of operations under the caption “Gain (loss) on derivative instruments, net.”
The Company has used fixed price swap contracts, fixed price basis swap contracts and three-way costless collars with corresponding put, short put and call options to reduce price volatility associated with certain of its oil and natural gas sales. With respect to the Company’s fixed price swap contracts and fixed price basis swap contracts, the counterparty is required to make a payment to the Company if the settlement price for any settlement period is less than the swap or basis price, and the Company is required to make a payment to the counterparty if the settlement price for any settlement period is greater than the swap or basis price. The Company has fixed price basis swaps for the spread between the WTI Midland price and the WTI Cushing price.
Under the Company’s costless collar contracts, thea three-way collar is a combination of three options: a ceiling call, a floor put, and a short put. The counterparty is required to make a payment to the Company if the settlement price for any settlement period is less than the put optionceiling price to a maximum of the difference between the floor price and the short put price. The Company is required to make a payment to the counterparty if the settlement price for any settlement period is greater than the call optionceiling price. If the settlement price is between the putfloor and the callceiling price, there is no payment required.
The Company’s derivative contracts are based upon reported settlement prices on commodity exchanges, with crude oil derivative settlements based on New York Mercantile Exchange West Texas Intermediate pricing and Crude Oil Brent, and with natural gas derivative settlements based on the New York Mercantile Exchange Henry Hub pricing.
By using derivative instruments to hedge exposure to changes in commodity prices, the Company exposes itself to credit risk and market risk. Credit risk is the failure of the counterparty to perform under the terms of the derivative contract. When the fair value of a derivative contract is positive, the counterparty owes the Company, which creates credit risk. The Company’s counterparties are participants in the secured second amended and restated credit agreement, which is secured by substantially all of the assets of the guarantor subsidiaries; therefore, the Company is not required to post any collateral. The Company does not require collateral from its counterparties. The Company has entered into derivative instruments only with counterparties that are also lenders in our credit facility and have been deemed an acceptable credit risk.
As of June 30, 2017,March 31, 2018, the Company had the following outstanding derivative contracts. When aggregating multiple contracts, the weighted average contract price is disclosed.
Diamondback Energy, Inc. and Subsidiaries
Notes to Consolidated Financial Statements-(Continued)
(Unaudited)
|
| | | | | | | | | | | | | | | | | |
| 2017 | | 2018 | | 2019 |
| Volume (Bbls/MMBtu) | | Fixed Price Swap (per Bbl/MMBtu) | | Volume (Bbls/MMBtu) | | Fixed Price Swap (per Bbl/MMBtu) | | Volume (Bbls/MMBtu) | | Fixed Price Swap (per Bbl/MMBtu) |
Oil Swaps | 2,576,000 | | $ | 53.40 |
| | 4,919,000 | | $ | 51.30 |
| | 730,000 | | $ | 49.65 |
|
Oil Basis Swaps | 4,416,000 | | $ | (0.72 | ) | | 5,475,000 | | $ | (0.88 | ) | | 0 | | $ | — |
|
Natural Gas Swaps | 5,520,000 | | $ | 3.25 |
| | 5,000,000 | | $ | 3.21 |
| | 0 | | $ | — |
|
|
| | | | | | | | | | | |
| Floor | | Ceiling |
| Volume (Bbls) | | Fixed Price (per Bbl) | | Volume (Bbls) | | Fixed Price (per Bbl) |
July 2017 - December 2017 | | | | | | | |
Costless Collars | 3,128,000 | | $ | 47.12 |
| | 1,564,000 | | $ | 56.45 |
|
January 2018 - March 2018 | | | | | | | |
Costless Collars | 540,000 | | $ | 47.00 |
| | 270,000 | | $ | 56.34 |
|
|
| | | | | | | | | | | | |
| 2018 | | 2019 |
| Volume (Bbls/MMBtu) | | Fixed Price Swap (per Bbl/MMBtu) | | Volume (Bbls/MMBtu) | | Fixed Price Swap (per Bbl/MMBtu) |
Oil Swaps - WTI | 7,515,000 |
| | $ | 51.26 |
| | 1,638,000 | | $ | 52.78 |
|
Oil Swaps - BRENT | 1,650,000 |
| | $ | 54.99 |
| | 0 | | $ | — |
|
Oil Basis Swaps | 4,125,000 |
| | $ | (0.88 | ) | | 0 | | $ | — |
|
Natural Gas Swaps | 5,500,000 |
| | $ | 3.03 |
| | 0 | | $ | — |
|
Balance sheet offsetting of derivative assets and liabilities
The fair value of swaps is generally determined using established index prices and other sources which are based upon, among other things, futures prices and time to maturity. These fair values are recorded by netting asset and liability positions that are with the same counterparty and are subject to contractual terms which provide for net settlement.
Diamondback Energy, Inc. and Subsidiaries
Notes to Consolidated Financial Statements-(Continued)
(Unaudited)
The following tables present the gross amounts of recognized derivative assets and liabilities, the amounts offset under master netting arrangements with counterparties and the resulting net amounts presented in the Company’s consolidated balance sheets as of June 30, 2017March 31, 2018 and December 31, 2016.2017.
|
| | | | | | |
| June 30, 2017 | December 31, 2016 |
| (in thousands) |
Gross amounts of assets presented in the Consolidated Balance Sheet | $ | 46,111 |
| $ | 709 |
|
Net amounts of assets presented in the Consolidated Balance Sheet | 46,111 |
| 709 |
|
| | |
Gross amounts of liabilities presented in the Consolidated Balance Sheet | — |
| 22,608 |
|
Net amounts of liabilities presented in the Consolidated Balance Sheet | $ | — |
| $ | 22,608 |
|
Diamondback Energy, Inc. and Subsidiaries
Notes to Consolidated Financial Statements-(Continued)
(Unaudited)
|
| | | | | | |
| March 31, 2018 | December 31, 2017 |
| (in thousands) |
Gross amounts of assets presented in the Consolidated Balance Sheet | $ | — |
| $ | 531 |
|
Net amounts of assets presented in the Consolidated Balance Sheet | — |
| 531 |
|
| | |
Gross amounts of liabilities presented in the Consolidated Balance Sheet | 106,177 |
| 106,670 |
|
Net amounts of liabilities presented in the Consolidated Balance Sheet | $ | 106,177 |
| $ | 106,670 |
|
The net amounts are classified as current or noncurrent based on their anticipated settlement dates. The net fair value of the Company’s derivative assets and liabilities and their locations on the consolidated balance sheet are as follows:
| | | June 30, 2017 | December 31, 2016 | March 31, 2018 | December 31, 2017 |
| (in thousands) | (in thousands) |
Current assets: derivative instruments | $ | 41,732 |
| $ | — |
| $ | — |
| $ | 531 |
|
Noncurrent assets: derivative instruments | 4,379 |
| 709 |
| — |
| — |
|
Total assets | $ | 46,111 |
| $ | 709 |
| $ | — |
| $ | 531 |
|
Current liabilities: derivative instruments | $ | — |
| $ | 22,608 |
| $ | 99,685 |
| $ | 100,367 |
|
Noncurrent liabilities: derivative instruments | | 6,492 |
| 6,303 |
|
Total liabilities | $ | — |
| $ | 22,608 |
| $ | 106,177 |
| $ | 106,670 |
|
None of the Company’s derivatives have been designated as hedges. As such, all changes in fair value are immediately recognized in earnings. The following table summarizes the gains and losses on derivative instruments included in the consolidated statements of operations:
| | | Three Months Ended June 30, | | Six Months Ended June 30, | Three Months Ended March 31, |
| 2017 | 2016 | | 2017 | 2016 | 2018 | 2017 |
| (in thousands) | (in thousands) |
Change in fair value of open non-hedge derivative instruments | $ | 28,635 |
| $ | (11,592 | ) | | $ | 68,010 |
| $ | (15,283 | ) | $ | (38 | ) | $ | 39,375 |
|
Gain (loss) on settlement of non-hedge derivative instruments | 4,685 |
| (533 | ) | | 3,011 |
| 4,584 |
| |
Loss on settlement of non-hedge derivative instruments | | (32,307 | ) | (1,674 | ) |
Gain (loss) on derivative instruments | $ | 33,320 |
| $ | (12,125 | ) | | $ | 71,021 |
| $ | (10,699 | ) | $ | (32,345 | ) | $ | 37,701 |
|
14.15. FAIR VALUE MEASUREMENTS
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs.
The fair value hierarchy is based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value. The Company’s assessment of the significance of a particular input to the fair value measurements requires judgment and may affect the valuation of the assets and liabilities being measured and their placement within the fair value hierarchy. The Company uses appropriate valuation techniques based on available inputs to measure the fair values of its assets and liabilities.
Level 1 - Observable inputs that reflect unadjusted quoted prices for identical assets or liabilities in active markets as of the reporting date.
Diamondback Energy, Inc. and Subsidiaries
Notes to Consolidated Financial Statements-(Continued)
(Unaudited)
Level 2 - Observable market-based inputs or unobservable inputs that are corroborated by market data. These are inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date.
Level 3 - Unobservable inputs that are not corroborated by market data and may be used with internally developed methodologies that result in management’s best estimate of fair value.
Financial assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurement.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
Certain assets and liabilities are reported at fair value on a recurring basis, including the Company’s derivative instruments. The fair values of the Company’s fixed price swaps, fixed price basis swaps and costless collars are
Diamondback Energy, Inc. and Subsidiaries
Notes to Consolidated Financial Statements-(Continued)
(Unaudited)
measured internally using established commodity futures price strips for the underlying commodity provided by a reputable third party, the contracted notional volumes, and time to maturity. These valuations are Level 2 inputs.
The following table provides fair value measurement information for financial assets and liabilities measured at fair value on a recurring basis as of June 30, 2017March 31, 2018 and December 31, 2016.2017.
| | | June 30, 2017 | December 31, 2016 | March 31, 2018 | December 31, 2017 |
| (in thousands) | (in thousands) |
Fixed price swaps: | | |
Quoted prices in active markets level 1 | $ | — |
| $ | — |
| $ | — |
| $ | — |
|
Significant other observable inputs level 2 | 46,111 |
| 23,317 |
| (106,177 | ) | (106,139 | ) |
Significant unobservable inputs level 3 | — |
| — |
| — |
| — |
|
Total | $ | 46,111 |
| $ | 23,317 |
| $ | (106,177 | ) | $ | (106,139 | ) |
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
The following table provides the fair value of financial instruments that are not recorded at fair value in the consolidated balance sheets.
| | | June 30, 2017 | December 31, 2016 | March 31, 2018 | December 31, 2017 |
| Carrying | | Carrying | | Carrying | | Carrying | |
| Amount | Fair Value | Amount | Fair Value | Amount | Fair Value | Amount | Fair Value |
| (in thousands) | (in thousands) |
Debt: | | |
Revolving credit facility | $ | 84,000 |
| $ | 84,000 |
| $ | — |
| $ | — |
| $ | 166,000 |
| $ | 166,000 |
| $ | 397,000 |
| $ | 397,000 |
|
4.750% Senior Notes due 2024 | 500,000 |
| 498,750 |
| 500,000 |
| 491,250 |
| 500,000 |
| 496,250 |
| 500,000 |
| 501,855 |
|
5.375% Senior Notes due 2025 | 500,000 |
| 511,250 |
| 500,000 |
| 502,850 |
| 800,000 |
| 813,200 |
| 500,000 |
| 515,000 |
|
Partnership revolving credit facility | 81,500 |
| 81,500 |
| 120,500 |
| 120,500 |
| 240,500 |
| 240,500 |
| 93,500 |
| 93,500 |
|
The fair value of the revolving credit facility and the Partnership’s revolving credit facility approximates itstheir carrying value based on borrowing rates available to the Company for bank loans with similar terms and maturities and is classified as Level 2 in the fair value hierarchy. The fair value of the Senior Notes was determined using the June 30, 2017March 31, 2018 quoted market price, a Level 1 classification in the fair value hierarchy. The fair value of the Partnership’s revolving credit facility approximates its carrying value based on borrowing rates available to us for bank loans with similar terms and maturities and is classified as Level 2 in the fair value hierarchy.
15.16. COMMITMENTS AND CONTINGENCIES
The Company could be subject to various possible loss contingencies which arise primarily from interpretation of federal and state laws and regulations affecting the natural gas and crude oil industry. Such contingencies include differing interpretations as to the prices at which natural gas and crude oil sales may be made, the prices at which royalty
Diamondback Energy, Inc. and Subsidiaries
Notes to Consolidated Financial Statements-(Continued)
(Unaudited)
owners may be paid for production from their leases, environmental issues and other matters. Management believes it has complied with the various laws and regulations, administrative rulings and interpretations.
16.17. SUBSEQUENT EVENTS
Commodity Contracts
Subsequent to June 30, 2017,March 31, 2018, the Company entered into new fixed price swaps.swaps and three-way costless collars. The Company’s derivative contracts are based upon reported settlement prices on commodity exchanges, with crude oil derivative settlements based on New York Mercantile Exchange West Texas Intermediate pricing.pricing and Crude Oil Brent.
The following tables present the derivative contracts entered into by the Company subsequent to March 31, 2018. When aggregating multiple contracts, the weighted average contract price is disclosed.
|
| | | | | |
| Volume (Bbls/MMBtu) | | Fixed Price Swap (per Bbl/MMBtu) |
January 2019 - December 2019 | | | |
Oil Swaps - WTI | 273,000 | | $ | 57.96 |
|
|
| | | | | | | |
| January 2019 - June 2019 |
Oil Three-Way Collars | WTI | | Brent |
Volume (Bbls) | 1,810,000 | | 724,000 |
Short put price (per Bbl) | $ | 45.00 |
| | $ | 55.00 |
|
Floor price (per Bbl) | $ | 55.00 |
| | $ | 65.00 |
|
Ceiling price (per Bbl) | $ | 70.31 |
| | $ | 77.85 |
|
Proposed Tax Status Election and Related Transactions of the Partnership
On March 29, 2018, the Partnership announced that the Board of Directors of its General Partner had unanimously approved a change of the Partnership’s federal income tax status from that of a pass-through partnership to that of a taxable entity via a “check the box” election (the “Tax Status Election”). In connection with making this election, on May 9, 2018, the Partnership (i) amended and restated its First Amended and Restated Partnership Agreement, (ii) amended and restated the First Amended and Restated Limited Liability Company Agreement of Viper Energy Partners LLC (the “Operating Company”), (iii) amended and restated its existing registration rights agreement with Diamondback and (iv) entered into an exchange agreement with Diamondback, the General Partner and the Operating Company. Simultaneously with the effectiveness of these agreements, Diamondback delivered and assigned to the Partnership the 73,150,000 common units it owned in exchange for (i) 73,150,000 newly-issued Class B Units of the Partnership and (ii) 73,150,000 newly-issued units of the Operating Company pursuant to the terms of a Recapitalization Agreement dated March 28, 2018, as amended as of May 9, 2018. The Tax Status Election was effective on May 10, 2018. On that date, pursuant to the terms of the Recapitalization Agreement, (i) the General Partner made a cash capital contribution of $1.0 million to the Partnership in respect of its general partner interest and (ii) the Company made a cash capital contribution of $1.0 million to the Partnership in respect of its Class B Units. The Company, as the holder of the Class B Units, and the General Partner, as the holder of the general partner interest, are entitled to receive an 8% annual distribution on the outstanding amount of these capital contributions, payable quarterly, as a return on their invested capital. None of the transactions undertaken as part of the change in the Partnership’s tax status are expected to be taxable to the Company. On May 10, 2018, the Company also exchanged 731,500 Class B Units and 731,500 units in the Operating Company for 731,500 common units of the Partnership and a cash amount of $10,000 representing a proportionate return of the $1.0 million invested capital made in respect of the Class B Units.
The Company’s Credit Facility
In connection with the Company’s spring 2018 redetermination, the agent lender under the credit agreement has recommended that the Company’s borrowing base be increased to $2.0 billion. This increase is subject to approval
Diamondback Energy, Inc. and Subsidiaries
Notes to Consolidated Financial Statements-(Continued)
(Unaudited)
The following tables presentof the derivative contracts entered into byrequired other lenders. Notwithstanding such adjustment, the Company subsequentintends to June 30, 2017. When aggregating multiple contracts,continue to limit the weighted average contract price is disclosed.
|
| | | | | |
| Volume (Bbls/MMBtu) | | Fixed Price Swap (per Bbl/MMBtu) |
January 2018 - December 2018 | | | |
Oil Swaps | 2,920,000 | | $ | 48.92 |
|
January 2019 - December 2019 | | | |
Oil Swaps | 730,000 | | $ | 49.65 |
|
lenders’ aggregate commitment to $1.0 billion.
The Partnership’s Equity Offering and Repayment of Outstanding Borrowings under the Partnership’s Revolving Credit Facility
In July 2017,connection with the Partnership completed an underwritten public offering of 16,100,000 common units, which included 2,100,000 common units issued pursuantPartnership’s spring 2018 redetermination, the agent lender under the credit agreement has recommended that the Partnership’s borrowing base be increased to an option$475.0 million. This increase is subject to purchase additional common units granted to the underwriters. In this offering, the Company purchased 700,000 common units, an affiliateapproval of the General Partner purchased 3,000,000 common units and certain officers and directors of the Company and the General Partner purchased an aggregate of 114,000 common units, in each case directly from the underwriters. Following this offering, the Company had an approximate 64% limited partner interest in the Partnership. The Partnership received net proceeds from this offering of approximately $232.6 million, after deducting underwriting discounts and commissions and estimated offering expenses, of which the Partnership used $152.8 million to repay all of the then-outstanding borrowings under the Partnership’s revolving credit facility and intends to use the remaining net proceeds to fund a portion of the purchase price for pending acquisitions and for general partnership purposes, which may include additional acquisitions.required other lenders.
Senior Notes Exchange Offer
As required under the terms of the registration rights agreements relating to the 2024 Senior Notes and the 2025 Senior Notes, the Company filed with the SEC its Registration Statement on Form S-4, as amended (the “Registration Statement”), relating to the exchange offers of the 2024 Senior Notes and the 2025 Senior Notes for substantially identical notes registered under the Securities Act (the “Exchange Offers”). The Registration Statement was declared effective by the SEC on June 21, 2017 and the Company closed the Exchange Offers on July 27, 2017, in which all privately placed 2024 Senior Notes and 2025 Senior Notes were exchanged for substantially identical notes registered under the Securities Act.
17.18. GUARANTOR FINANCIAL STATEMENTS
As of June 30, 2017,March 31, 2018, Diamondback E&P LLC and Diamondback O&G LLC (the “Guarantor Subsidiaries”) are guarantors under the indentures relating to the 2024 Senior Notes and the 2025 Senior Notes.Notes, as supplemented. In connection with the issuance of the 2024 Senior Notes and the 2025 Senior Notes (including the New 2025 Senior Notes), the Partnership, the General Partner, Viper Energy Partners LLC and Rattler Midstream LLC were designated as Non-Guarantor Subsidiaries. The following presents condensed consolidated financial information for the Company (which for purposes of this Note 1718 is referred to as the “Parent”), the Guarantor Subsidiaries and the Non–Guarantor Subsidiaries on a consolidated basis. Elimination entries presented are necessary to combine the entities. The information is presented in accordance with the requirements of Rule 3-10 under the SEC’s Regulation S-X. The financial information may not necessarily be indicative of results of operations, cash flows or financial position had the Guarantor Subsidiaries operated as independent entities. The Company has not presented separate financial and narrative information for each of the Guarantor Subsidiaries because it believes such financial and narrative information would not provide any additional information that would be material in evaluating the sufficiency of the Guarantor Subsidiaries.
Diamondback Energy, Inc. and Subsidiaries
Notes to Consolidated Financial Statements-(Continued)
(Unaudited)
| | Condensed Consolidated Balance Sheet | June 30, 2017 | |
March 31, 2018 | | March 31, 2018 |
(In thousands) | | | | | | Non– | | | | | | | | | Non– | | | | |
| | | Guarantor | | Guarantor | | | | | | | Guarantor | | Guarantor | | | | |
| Parent | | Subsidiaries | | Subsidiaries | | Eliminations | | Consolidated | Parent | | Subsidiaries | | Subsidiaries | | Eliminations | | Consolidated |
Assets | | | | | | | | | | | | | | | | | | |
Current assets: | | | | | | | | | | | | | | | | | | |
Cash and cash equivalents | $ | 896 |
| | $ | 14,078 |
| | $ | 1,614 |
| | $ | — |
| | $ | 16,588 |
| $ | 28,247 |
| | $ | 26,089 |
| | $ | 18,151 |
| | $ | — |
| | $ | 72,487 |
|
Accounts receivable | — |
| | 143,529 |
| | 11,098 |
| | — |
| | 154,627 |
| — |
| | 207,407 |
| | 28,873 |
| | — |
| | 236,280 |
|
Accounts receivable - related party | — |
| | 8 |
| | 3,224 |
| | (3,224 | ) | | 8 |
| — |
| | — |
| | 6,505 |
| | (6,505 | ) | | — |
|
Intercompany receivable | 3,000,954 |
| | 572,954 |
| | — |
| | (3,573,908 | ) | | — |
| 2,869,030 |
| | 654,684 |
| | — |
| | (3,523,714 | ) | | — |
|
Inventories | — |
| | 4,925 |
| | — |
| | — |
| | 4,925 |
| — |
| | 8,963 |
| | — |
| | — |
| | 8,963 |
|
Other current assets | 301 |
| | 44,697 |
| | 191 |
| | — |
| | 45,189 |
| 538 |
| | 5,838 |
| | 361 |
| | — |
| | 6,737 |
|
Total current assets | 3,002,151 |
| | 780,191 |
| | 16,127 |
| | (3,577,132 | ) | | 221,337 |
| 2,897,815 |
| | 902,981 |
| | 53,890 |
| | (3,530,219 | ) | | 324,467 |
|
Property and equipment: | | | | | | | | | | | | | | | | | | |
Oil and natural gas properties, at cost, full cost method of accounting | — |
| | 7,424,971 |
| | 886,537 |
| | (414 | ) | | 8,311,094 |
| — |
| | 8,390,912 |
| | 1,258,327 |
| | (414 | ) | | 9,648,825 |
|
Midstream assets | — |
| | 95,491 |
| | — |
| | — |
| | 95,491 |
| — |
| | 295,161 |
| | — |
| | — |
| | 295,161 |
|
Other property, equipment and land | — |
| | 71,978 |
| | — |
| | — |
| | 71,978 |
| — |
| | 82,095 |
| | — |
| | — |
| | 82,095 |
|
Accumulated depletion, depreciation, amortization and impairment | — |
| | (1,811,340 | ) | | (166,467 | ) | | 7,991 |
| | (1,969,816 | ) | — |
| | (2,074,783 | ) | | (200,992 | ) | | 866 |
| | (2,274,909 | ) |
Net property and equipment | — |
| | 5,781,100 |
| | 720,070 |
| | 7,577 |
| | 6,508,747 |
| — |
| | 6,693,385 |
| | 1,057,335 |
| | 452 |
| | 7,751,172 |
|
Derivative instruments | — |
| | 4,379 |
| | — |
| | — |
| | 4,379 |
| |
Funds held in escrow | | — |
| | 10 |
| | — |
| | — |
| | 10 |
|
Investment in subsidiaries | 2,811,248 |
| | — |
| | — |
| | (2,811,248 | ) | | — |
| 3,992,760 |
| | — |
| | — |
| | (3,992,760 | ) | | — |
|
Deferred income taxes | 321 |
| | — |
| | — |
| | — |
| | 321 |
| |
Investment in real estate | | — |
| | 109,103 |
| | — |
| | — |
| | 109,103 |
|
Other assets | — |
| | 13,942 |
| | 35,083 |
| | — |
| | 49,025 |
| — |
| | 21,312 |
| | 18,824 |
| | — |
| | 40,136 |
|
Total assets | $ | 5,813,720 |
| | $ | 6,579,612 |
| | $ | 771,280 |
| | $ | (6,380,803 | ) | | $ | 6,783,809 |
| $ | 6,890,575 |
| | $ | 7,726,791 |
| | $ | 1,130,049 |
| | $ | (7,522,527 | ) | | $ | 8,224,888 |
|
Liabilities and Stockholders’ Equity | | | | | | | | | | | | | | | | | | |
Current liabilities: | | | | | | | | | | | | | | | | | | |
Accounts payable-trade | $ | 4 |
| | $ | 27,756 |
| | $ | 4 |
| | $ | — |
| | $ | 27,764 |
| $ | — |
| | $ | 62,553 |
| | $ | 576 |
| | $ | — |
| | $ | 63,129 |
|
Intercompany payable | — |
| | 3,577,132 |
| | — |
| | (3,577,132 | ) | | — |
| — |
| | 3,530,219 |
| | — |
| | (3,530,219 | ) | | — |
|
Other current liabilities | 7,422 |
| | 286,287 |
| | 1,693 |
| | — |
| | 295,402 |
| 25,711 |
| | 516,910 |
| | 1,918 |
| | — |
| | 544,539 |
|
Total current liabilities | 7,426 |
| | 3,891,175 |
| | 1,697 |
| | (3,577,132 | ) | | 323,166 |
| 25,711 |
| | 4,109,682 |
| | 2,494 |
| | (3,530,219 | ) | | 607,668 |
|
Long-term debt | 986,015 |
| | 84,000 |
| | 81,500 |
| | — |
| | 1,151,515 |
| 1,295,412 |
| | 166,000 |
| | 240,500 |
| | — |
| | 1,701,912 |
|
Derivative instruments | | — |
| | 6,492 |
| | — |
| | — |
| | 6,492 |
|
Asset retirement obligations | — |
| | 19,539 |
| | — |
| | — |
| | 19,539 |
| — |
| | 21,258 |
| | — |
| | — |
| | 21,258 |
|
Deferred income taxes | 2,655 |
| | — |
| | — |
| | — |
| | 2,655 |
| 152,369 |
| | — |
| | — |
| | — |
| | 152,369 |
|
Other long term liabilities | | — |
| | 7 |
| | — |
| | — |
| | 7 |
|
Total liabilities | 996,096 |
| | 3,994,714 |
| | 83,197 |
| | (3,577,132 | ) | | 1,496,875 |
| 1,473,492 |
| | 4,303,439 |
| | 242,994 |
| | (3,530,219 | ) | | 2,489,706 |
|
Commitments and contingencies | | | | | | | | | | | | | | | | | | |
Stockholders’ equity | 4,817,624 |
| | 2,584,898 |
| | 688,083 |
| | (3,272,981 | ) | | 4,817,624 |
| 5,417,083 |
| | 3,423,352 |
| | 887,055 |
| | (4,310,407 | ) | | 5,417,083 |
|
Non-controlling interest | — |
| | — |
| | — |
| | 469,310 |
| | 469,310 |
| — |
| | — |
| | — |
| | 318,099 |
| | 318,099 |
|
Total equity | 4,817,624 |
| | 2,584,898 |
| | 688,083 |
| | (2,803,671 | ) | | 5,286,934 |
| 5,417,083 |
| | 3,423,352 |
| | 887,055 |
| | (3,992,308 | ) | | 5,735,182 |
|
Total liabilities and equity | $ | 5,813,720 |
| | $ | 6,579,612 |
| | $ | 771,280 |
| | $ | (6,380,803 | ) | | $ | 6,783,809 |
| $ | 6,890,575 |
| | $ | 7,726,791 |
| | $ | 1,130,049 |
| | $ | (7,522,527 | ) | | $ | 8,224,888 |
|
Diamondback Energy, Inc. and Subsidiaries
Notes to Consolidated Financial Statements-(Continued)
(Unaudited)
| | Condensed Consolidated Balance Sheet | December 31, 2016 | |
December 31, 2017 | | December 31, 2017 |
(In thousands) | | | | | | Non– | | | | | | | | | Non– | | | | |
| | | Guarantor | | Guarantor | | | | | | | Guarantor | | Guarantor | | | | |
| Parent | | Subsidiaries | | Subsidiaries | | Eliminations | | Consolidated | Parent | | Subsidiaries | | Subsidiaries | | Eliminations | | Consolidated |
Assets | | | | | | | | | | | | | | | | | | |
Current assets: | | | | | | | | | | | | | | | | | | |
Cash and cash equivalents | $ | 1,643,226 |
| | $ | 14,135 |
| | $ | 9,213 |
| | $ | — |
| | $ | 1,666,574 |
| $ | 54,074 |
| | $ | 34,175 |
| | $ | 24,197 |
| | $ | — |
| | $ | 112,446 |
|
Restricted cash | — |
| | — |
| | 500 |
| | — |
| | 500 |
| |
Accounts receivable | — |
| | 109,782 |
| | 10,043 |
| | — |
| | 119,825 |
| — |
| | 205,859 |
| | 25,754 |
| | — |
| | 231,613 |
|
Accounts receivable - related party | — |
| | 297 |
| | 3,470 |
| | (3,470 | ) | | 297 |
| — |
| | — |
| | 5,142 |
| | (5,142 | ) | | — |
|
Intercompany receivable | 3,060,566 |
| | 359,502 |
| | — |
| | (3,420,068 | ) | | — |
| 2,624,810 |
| | 2,267,308 |
| | — |
| | (4,892,118 | ) | | — |
|
Inventories | — |
| | 1,983 |
| | — |
| | — |
| | 1,983 |
| — |
| | 9,108 |
| | — |
| | — |
| | 9,108 |
|
Other current assets | 481 |
| | 2,319 |
| | 187 |
| | — |
| | 2,987 |
| 618 |
| | 4,461 |
| | 355 |
| | — |
| | 5,434 |
|
Total current assets | 4,704,273 |
| | 488,018 |
| | 23,413 |
| | (3,423,538 | ) | | 1,792,166 |
| 2,679,502 |
| | 2,520,911 |
| | 55,448 |
| | (4,897,260 | ) | | 358,601 |
|
Property and equipment: | | | | | | | | | | | | | | | | | | |
Oil and natural gas properties, at cost, full cost method of accounting | — |
| | 4,400,002 |
| | 760,818 |
| | (559 | ) | | 5,160,261 |
| — |
| | 8,129,211 |
| | 1,103,897 |
| | (414 | ) | | 9,232,694 |
|
Midstream assets | — |
| | 8,362 |
| | — |
| | — |
| | 8,362 |
| — |
| | 191,519 |
| | — |
| | — |
| | 191,519 |
|
Other property, equipment and land | — |
| | 58,290 |
| | — |
| | — |
| | 58,290 |
| — |
| | 80,776 |
| | — |
| | — |
| | 80,776 |
|
Accumulated depletion, depreciation, amortization and impairment | — |
| | (1,695,701 | ) | | (148,948 | ) | | 8,593 |
| | (1,836,056 | ) | — |
| | (1,976,248 | ) | | (189,466 | ) | | 4,342 |
| | (2,161,372 | ) |
Net property and equipment | — |
| | 2,770,953 |
| | 611,870 |
| | 8,034 |
| | 3,390,857 |
| — |
| | 6,425,258 |
| | 914,431 |
| | 3,928 |
| | 7,343,617 |
|
Funds held in escrow | — |
| | 121,391 |
| | — |
| | — |
| | 121,391 |
| — |
| | — |
| | 6,304 |
| | — |
| | 6,304 |
|
Derivative instruments | — |
| | 709 |
| | — |
| | — |
| | 709 |
| |
Investment in subsidiaries | (15,500 | ) | | — |
| | — |
| | 15,500 |
| | — |
| 3,809,557 |
| | — |
| | — |
| | (3,809,557 | ) | | — |
|
Other assets | — |
| | 9,291 |
| | 35,266 |
| | — |
| | 44,557 |
| — |
| | 25,609 |
| | 36,854 |
| | — |
| | 62,463 |
|
Total assets | $ | 4,688,773 |
| | $ | 3,390,362 |
| | $ | 670,549 |
| | $ | (3,400,004 | ) | | $ | 5,349,680 |
| $ | 6,489,059 |
| | $ | 8,971,778 |
| | $ | 1,013,037 |
| | $ | (8,702,889 | ) | | $ | 7,770,985 |
|
Liabilities and Stockholders’ Equity | | | | | | | | | | | | | | | | | | |
Current liabilities: | | | | | | | | | | | | | | | | | | |
Accounts payable-trade | $ | 30 |
| | $ | 45,838 |
| | $ | 1,780 |
| | $ | — |
| | $ | 47,648 |
| $ | 1 |
| | $ | 91,629 |
| | $ | 2,960 |
| | $ | — |
| | $ | 94,590 |
|
Accounts payable-related party | 1 |
| | — |
| | — |
| | — |
| | 1 |
| |
Intercompany payable | — |
| | 3,423,538 |
| | — |
| | (3,423,538 | ) | | — |
| 132,067 |
| | 4,765,193 |
| | — |
| | (4,897,260 | ) | | — |
|
Other current liabilities | 5,868 |
| | 155,454 |
| | 371 |
| | — |
| | 161,693 |
| 7,236 |
| | 472,933 |
| | 2,669 |
| | — |
| | 482,838 |
|
Total current liabilities | 5,899 |
| | 3,624,830 |
| | 2,151 |
| | (3,423,538 | ) | | 209,342 |
| 139,304 |
| | 5,329,755 |
| | 5,629 |
| | (4,897,260 | ) | | 577,428 |
|
Long-term debt | 985,412 |
| | — |
| | 120,500 |
| | — |
| | 1,105,912 |
| 986,847 |
| | 397,000 |
| | 93,500 |
| | — |
| | 1,477,347 |
|
Derivative instruments | | — |
| | 6,303 |
| | — |
| | — |
| | 6,303 |
|
Asset retirement obligations | — |
| | 16,134 |
| | — |
| | — |
| | 16,134 |
| — |
| | 20,122 |
| | — |
| | — |
| | 20,122 |
|
Deferred income taxes | | 108,048 |
| | — |
| | — |
| | — |
| | 108,048 |
|
Total liabilities | 991,311 |
| | 3,640,964 |
| | 122,651 |
| | (3,423,538 | ) | | 1,331,388 |
| 1,234,199 |
| | 5,753,180 |
| | 99,129 |
| | (4,897,260 | ) | | 2,189,248 |
|
Commitments and contingencies |
| |
| |
| |
| |
|
| |
| |
| |
| |
|
Stockholders’ equity | 3,697,462 |
| | (250,602 | ) | | 547,898 |
| | (297,296 | ) | | 3,697,462 |
| 5,254,860 |
| | 3,218,598 |
| | 913,908 |
| | (4,132,506 | ) | | 5,254,860 |
|
Non-controlling interest | — |
| | — |
| | — |
| | 320,830 |
| | 320,830 |
| — |
| | — |
| | — |
| | 326,877 |
| | 326,877 |
|
Total equity | 3,697,462 |
| | (250,602 | ) | | 547,898 |
| | 23,534 |
| | 4,018,292 |
| 5,254,860 |
| | 3,218,598 |
| | 913,908 |
| | (3,805,629 | ) | | 5,581,737 |
|
Total liabilities and equity | $ | 4,688,773 |
| | $ | 3,390,362 |
| | $ | 670,549 |
| | $ | (3,400,004 | ) | | $ | 5,349,680 |
| $ | 6,489,059 |
| | $ | 8,971,778 |
| | $ | 1,013,037 |
| | $ | (8,702,889 | ) | | $ | 7,770,985 |
|
Diamondback Energy, Inc. and Subsidiaries
Notes to Consolidated Financial Statements-(Continued)
(Unaudited)
| | Condensed Consolidated Statement of Operations | Three Months Ended June 30, 2017 | |
Three Months Ended March 31, 2018 | | Three Months Ended March 31, 2018 |
(In thousands) | | | | | | Non– | | | | | | | | | Non– | | | | |
| | | Guarantor | | Guarantor | | | | | | | Guarantor | | Guarantor | | | | |
| Parent | | Subsidiaries | | Subsidiaries | | Eliminations | | Consolidated | Parent | | Subsidiaries | | Subsidiaries | | Eliminations | | Consolidated |
Revenues: | | | | | | | | | | | | | | | | | | |
Oil sales | $ | — |
| | $ | 206,113 |
| | $ | — |
| | $ | 31,771 |
| | $ | 237,884 |
| $ | — |
| | $ | 363,581 |
| | $ | — |
| | $ | 55,687 |
| | $ | 419,268 |
|
Natural gas sales | — |
| | 10,739 |
| | — |
| | 1,954 |
| | 12,693 |
| — |
| | 11,800 |
| | — |
| | 2,578 |
| | 14,378 |
|
Natural gas liquid sales | — |
| | 14,649 |
| | — |
| | 2,208 |
| | 16,857 |
| — |
| | 28,985 |
| | — |
| | 4,128 |
| | 33,113 |
|
Royalty income | — |
| | — |
| | 35,933 |
| | (35,933 | ) | | — |
| — |
| | — |
| | 62,393 |
| | (62,393 | ) | | — |
|
Lease bonus income | — |
| | — |
| | 689 |
| | (106 | ) | | 583 |
| |
Midstream services | — |
| | 1,417 |
| | — |
| | — |
| | 1,417 |
| — |
| | 11,395 |
| | — |
| | — |
| | 11,395 |
|
Other operating income | | — |
| | 1,991 |
| | 50 |
| | — |
| | 2,041 |
|
Total revenues | — |
| | 232,918 |
| | 36,622 |
| | (106 | ) | | 269,434 |
| — |
| | 417,752 |
| | 62,443 |
| | — |
| | 480,195 |
|
Costs and expenses: | | | | | | | | | | | | | | | | | | |
Lease operating expenses | — |
| | 28,989 |
| | — |
| | — |
| | 28,989 |
| — |
| | 37,345 |
| | — |
| | — |
| | 37,345 |
|
Production and ad valorem taxes | — |
| | 13,106 |
| | 2,773 |
| | — |
| | 15,879 |
| — |
| | 23,065 |
| | 4,239 |
| | — |
| | 27,304 |
|
Gathering and transportation | — |
| | 2,871 |
| | 144 |
| | — |
| | 3,015 |
| — |
| | 4,020 |
| | 265 |
| | — |
| | 4,285 |
|
Midstream services | — |
| | 1,828 |
| | — |
| | — |
| | 1,828 |
| — |
| | 11,189 |
| | — |
| | — |
| | 11,189 |
|
Depreciation, depletion and amortization | — |
| | 65,091 |
| | 9,672 |
| | 410 |
| | 75,173 |
| — |
| | 100,216 |
| | 11,525 |
| | 3,475 |
| | 115,216 |
|
General and administrative expenses | 6,432 |
| | 4,521 |
| | 1,554 |
| | (615 | ) | | 11,892 |
| 7,490 |
| | 6,739 |
| | 2,711 |
| | (615 | ) | | 16,325 |
|
Asset retirement obligation accretion | — |
| | 350 |
| | — |
| | — |
| | 350 |
| — |
| | 355 |
| | — |
| | — |
| | 355 |
|
Other operating expense | | — |
| | 530 |
| | — |
| | — |
| | 530 |
|
Total costs and expenses | 6,432 |
| | 116,756 |
| | 14,143 |
| | (205 | ) | | 137,126 |
| 7,490 |
| | 183,459 |
| | 18,740 |
| | 2,860 |
| | 212,549 |
|
Income (loss) from operations | (6,432 | ) | | 116,162 |
| | 22,479 |
| | 99 |
| | 132,308 |
| (7,490 | ) | | 234,293 |
| | 43,703 |
| | (2,860 | ) | | 267,646 |
|
Other income (expense) | | | | | | | | | | | | | | | | | | |
Interest expense | (6,325 | ) | | (1,277 | ) | | (643 | ) | | — |
| | (8,245 | ) | |
Other income | — |
| | 8,626 |
| | 313 |
| | (615 | ) | | 8,324 |
| |
Gain on derivative instruments, net | — |
| | 33,320 |
| | — |
| | — |
| | 33,320 |
| |
Total other income (expense), net | (6,325 | ) | | 40,669 |
| | (330 | ) | | (615 | ) | | 33,399 |
| |
Interest expense, net | | (8,932 | ) | | (2,671 | ) | | (2,098 | ) | | — |
| | (13,701 | ) |
Other income, net | | 123 |
| | 2,836 |
| | 392 |
| | (615 | ) | | 2,736 |
|
Loss on derivative instruments, net | | — |
| | (32,345 | ) | | — |
| | — |
| | (32,345 | ) |
Gain on revaluation of investment | | — |
| | — |
| | 899 |
| | — |
| | 899 |
|
Total other expense, net | | (8,809 | ) | | (32,180 | ) | | (807 | ) | | (615 | ) | | (42,411 | ) |
Income (loss) before income taxes | (12,757 | ) | | 156,831 |
| | 22,149 |
| | (516 | ) | | 165,707 |
| (16,299 | ) | | 202,113 |
| | 42,896 |
| | (3,475 | ) | | 225,235 |
|
Provision for income taxes | 1,579 |
| | — |
| | — |
| | — |
| | 1,579 |
| 47,081 |
| | — |
| | — |
| | — |
| | 47,081 |
|
Net income (loss) | (14,336 | ) | | 156,831 |
| | 22,149 |
| | (516 | ) | | 164,128 |
| (63,380 | ) | | 202,113 |
| | 42,896 |
| | (3,475 | ) | | 178,154 |
|
Net income attributable to non-controlling interest | — |
| | — |
| | — |
| | 5,723 |
| | 5,723 |
| — |
| | — |
| | — |
| | 15,342 |
| | 15,342 |
|
Net income (loss) attributable to Diamondback Energy, Inc. | $ | (14,336 | ) | | $ | 156,831 |
| | $ | 22,149 |
| | $ | (6,239 | ) | | $ | 158,405 |
| $ | (63,380 | ) | | $ | 202,113 |
| | $ | 42,896 |
| | $ | (18,817 | ) | | $ | 162,812 |
|
Diamondback Energy, Inc. and Subsidiaries
Notes to Consolidated Financial Statements-(Continued)
(Unaudited)
| | Condensed Consolidated Statement of Operations | Three Months Ended June 30, 2016 | |
Three Months Ended March 31, 2017 | | Three Months Ended March 31, 2017 |
(In thousands) | | | | | | Non– | | | | | | | | | Non– | | | | |
| | | Guarantor | | Guarantor | | | | | | | Guarantor | | Guarantor | | | | |
| Parent | | Subsidiaries | | Subsidiaries | | Eliminations | | Consolidated | Parent | | Subsidiaries | | Subsidiaries | | Eliminations | | Consolidated |
Revenues: | | | | | | | | | | | | | | | | | | |
Oil sales | $ | — |
| | $ | 85,812 |
| | $ | — |
| | $ | 15,513 |
| | $ | 101,325 |
| $ | — |
| | $ | 178,230 |
| | $ | — |
| | $ | 28,844 |
| | $ | 207,074 |
|
Natural gas sales | — |
| | 3,571 |
| | — |
| | 538 |
| | 4,109 |
| — |
| | 8,575 |
| | — |
| | 1,347 |
| | 9,922 |
|
Natural gas liquid sales | — |
| | 6,264 |
| | — |
| | 785 |
| | 7,049 |
| — |
| | 13,643 |
| | — |
| | 1,859 |
| | 15,502 |
|
Royalty income | — |
| | — |
| | 16,836 |
| | (16,836 | ) | | — |
| — |
| | — |
| | 32,050 |
| | (32,050 | ) | | — |
|
Lease bonus income | — |
| | — |
| | 196 |
| | (196 | ) | | — |
| — |
| | — |
| | 1,602 |
| | — |
| | 1,602 |
|
Midstream services | | — |
| | 1,130 |
| | — |
| | — |
| | 1,130 |
|
Total revenues | — |
| | 95,647 |
| | 17,032 |
| | (196 | ) | | 112,483 |
| — |
| | 201,578 |
| | 33,652 |
| | — |
| | 235,230 |
|
Costs and expenses: | | | | | | | | | | | | | | | | | | |
Lease operating expenses | — |
| | 18,677 |
| | — |
| | — |
| | 18,677 |
| — |
| | 26,626 |
| | — |
| | — |
| | 26,626 |
|
Production and ad valorem taxes | — |
| | 6,756 |
| | 1,403 |
| | — |
| | 8,159 |
| — |
| | 13,655 |
| | 2,070 |
| | — |
| | 15,725 |
|
Gathering and transportation | — |
| | 2,341 |
| | 91 |
| | — |
| | 2,432 |
| — |
| | 2,476 |
| | 143 |
| | — |
| | 2,619 |
|
Midstream services | | — |
| | 854 |
| | — |
| | — |
| | 854 |
|
Depreciation, depletion and amortization | — |
| | 34,107 |
| | 6,584 |
| | (820 | ) | | 39,871 |
| — |
| | 50,891 |
| | 7,847 |
| | 191 |
| | 58,929 |
|
Impairment of oil and natural gas properties | — |
| | 146,894 |
| | 21,458 |
| | — |
| | 168,352 |
| |
General and administrative expenses | 6,067 |
| | 2,250 |
| | 1,207 |
| | — |
| | 9,524 |
| 7,108 |
| | 5,109 |
| | 2,142 |
| | (615 | ) | | 13,744 |
|
Asset retirement obligation accretion | — |
| | 254 |
| | — |
| | — |
| | 254 |
| — |
| | 323 |
| | — |
| | — |
| | 323 |
|
Total costs and expenses | 6,067 |
| | 211,279 |
| | 30,743 |
| | (820 | ) | | 247,269 |
| 7,108 |
| | 99,934 |
| | 12,202 |
| | (424 | ) | | 118,820 |
|
Income (loss) from operations | (6,067 | ) | | (115,632 | ) | | (13,711 | ) | | 624 |
| | (134,786 | ) | (7,108 | ) | | 101,644 |
| | 21,450 |
| | 424 |
| | 116,410 |
|
Other income (expense) | | | | | | | | | | | | | | | | | | |
Interest expense | (8,844 | ) | | (719 | ) | | (456 | ) | | — |
| | (10,019 | ) | |
Other income | 63 |
| | 217 |
| | 147 |
| | (250 | ) | | 177 |
| |
Loss on derivative instruments, net | — |
| | (12,125 | ) | | — |
| | — |
| | (12,125 | ) | |
Interest expense, net | | (10,808 | ) | | (805 | ) | | (612 | ) | | — |
| | (12,225 | ) |
Other income (expense), net | | 1,092 |
| | 854 |
| | (186 | ) | | (615 | ) | | 1,145 |
|
Gain on derivative instruments, net | | — |
| | 37,701 |
| | — |
| | — |
| | 37,701 |
|
Total other expense, net | (8,781 | ) | | (12,627 | ) | | (309 | ) | | (250 | ) | | (21,967 | ) | (9,716 | ) | | 37,750 |
| | (798 | ) | | (615 | ) | | 26,621 |
|
Income (loss) before income taxes | (14,848 | ) | | (128,259 | ) | | (14,020 | ) | | 374 |
| | (156,753 | ) | (16,824 | ) | | 139,394 |
| | 20,652 |
| | (191 | ) | | 143,031 |
|
Provision for income taxes | 368 |
| | — |
| | — |
| | — |
| | 368 |
| 1,957 |
| | — |
| | — |
| | — |
| | 1,957 |
|
Net income (loss) | (15,216 | ) | | (128,259 | ) | | (14,020 | ) | | 374 |
| | (157,121 | ) | (18,781 | ) | | 139,394 |
| | 20,652 |
| | (191 | ) | | 141,074 |
|
Net loss attributable to non-controlling interest | — |
| | — |
| | — |
| | (1,631 | ) | | (1,631 | ) | |
Net income attributable to non-controlling interest | | — |
| | — |
| | — |
| | 4,801 |
| | 4,801 |
|
Net income (loss) attributable to Diamondback Energy, Inc. | $ | (15,216 | ) | | $ | (128,259 | ) | | $ | (14,020 | ) | | $ | 2,005 |
| | $ | (155,490 | ) | $ | (18,781 | ) | | $ | 139,394 |
| | $ | 20,652 |
| | $ | (4,992 | ) | | $ | 136,273 |
|
Diamondback Energy, Inc. and Subsidiaries
Notes to Consolidated Financial Statements-(Continued)
(Unaudited)
|
| | | | | | | | | | | | | | | | | | | |
Condensed Consolidated Statement of Operations |
Six Months Ended June 30, 2017 |
(In thousands) |
| | | | | Non– | | | | |
| | | Guarantor | | Guarantor | | | | |
| Parent | | Subsidiaries | | Subsidiaries | | Eliminations | | Consolidated |
Revenues: | | | | | | | | | |
Oil sales | $ | — |
| | $ | 384,343 |
| | $ | — |
| | $ | 60,615 |
| | $ | 444,958 |
|
Natural gas sales | — |
| | 19,314 |
| | — |
| | 3,301 |
| | 22,615 |
|
Natural gas liquid sales | — |
| | 28,292 |
| | — |
| | 4,067 |
| | 32,359 |
|
Royalty income | — |
| | — |
| | 67,983 |
| | (67,983 | ) | | — |
|
Lease bonus income | — |
| | — |
| | 2,291 |
| | (106 | ) | | 2,185 |
|
Midstream services | — |
| | 2,547 |
| | — |
| | — |
| | 2,547 |
|
Total revenues | — |
| | 434,496 |
| | 70,274 |
| | (106 | ) | | 504,664 |
|
Costs and expenses: | | | | | | | | | |
Lease operating expenses | — |
| | 55,615 |
| | — |
| | — |
| | 55,615 |
|
Production and ad valorem taxes | — |
| | 26,761 |
| | 4,843 |
| | — |
| | 31,604 |
|
Gathering and transportation | — |
| | 5,347 |
| | 287 |
| | — |
| | 5,634 |
|
Midstream services | — |
| | 2,682 |
| | — |
| | — |
| | 2,682 |
|
Depreciation, depletion and amortization | — |
| | 115,982 |
| | 17,519 |
| | 601 |
| | 134,102 |
|
General and administrative expenses | 13,540 |
| | 9,630 |
| | 3,696 |
| | (1,230 | ) | | 25,636 |
|
Asset retirement obligation accretion | — |
| | 673 |
| | — |
| | — |
| | 673 |
|
Total costs and expenses | 13,540 |
| | 216,690 |
| | 26,345 |
| | (629 | ) | | 255,946 |
|
Income (loss) from operations | (13,540 | ) | | 217,806 |
| | 43,929 |
| | 523 |
| | 248,718 |
|
Other income (expense) | | | | | | | | | |
Interest expense | (17,133 | ) | | (2,082 | ) | | (1,255 | ) | | — |
| | (20,470 | ) |
Other income | 1,092 |
| | 9,480 |
| | 127 |
| | (1,230 | ) | | 9,469 |
|
Gain on derivative instruments, net | — |
| | 71,021 |
| | — |
| | — |
| | 71,021 |
|
Total other income (expense), net | (16,041 | ) | | 78,419 |
| | (1,128 | ) | | (1,230 | ) | | 60,020 |
|
Income (loss) before income taxes | (29,581 | ) | | 296,225 |
| | 42,801 |
| | (707 | ) | | 308,738 |
|
Provision for income taxes | 3,536 |
| | — |
| | — |
| | — |
| | 3,536 |
|
Net income (loss) | (33,117 | ) | | 296,225 |
| | 42,801 |
| | (707 | ) | | 305,202 |
|
Net income attributable to non-controlling interest | — |
| | — |
| | — |
| | 10,524 |
| | 10,524 |
|
Net income (loss) attributable to Diamondback Energy, Inc. | $ | (33,117 | ) | | $ | 296,225 |
| | $ | 42,801 |
| | $ | (11,231 | ) | | $ | 294,678 |
|
|
| | | | | | | | | | | | | | | | | | | |
Condensed Consolidated Statement of Cash Flows |
Three Months Ended March 31, 2018 |
(In thousands) |
| | | | | Non– | | | | |
| | | Guarantor | | Guarantor | | | | |
| Parent | | Subsidiaries | | Subsidiaries | | Eliminations | | Consolidated |
Net cash provided by operating activities | $ | 26,895 |
| | $ | 263,320 |
| | $ | 49,212 |
| | $ | — |
| | $ | 339,427 |
|
Cash flows from investing activities: | | | | | | | | | |
Additions to oil and natural gas properties | — |
| | (280,015 | ) | | — |
| | — |
| | (280,015 | ) |
Additions to midstream assets | — |
| | (38,395 | ) | | — |
| | — |
| | (38,395 | ) |
Purchase of other property, equipment and land | — |
| | (1,947 | ) | | — |
| | — |
| | (1,947 | ) |
Acquisition of leasehold interests | — |
| | (16,011 | ) | | — |
| | — |
| | (16,011 | ) |
Acquisition of mineral interests | — |
| | (19 | ) | | (149,994 | ) | | — |
| | (150,013 | ) |
Proceeds from sale of assets | — |
| | — |
| | 125 |
| | — |
| | 125 |
|
Funds held in escrow | — |
| | 10,989 |
| | — |
| | — |
| | 10,989 |
|
Intercompany transfers | (86,679 | ) | | 86,679 |
| | — |
| | — |
| | — |
|
Investment in real estate | — |
| | (109,664 | ) | | — |
| | — |
| | (109,664 | ) |
Net cash used in investing activities | (86,679 | ) | | (348,383 | ) | | (149,869 | ) | | — |
| | (584,931 | ) |
Cash flows from financing activities: | | | | | | | | | |
Proceeds from borrowing under credit facility | — |
| | 77,000 |
| | 147,000 |
| | — |
| | 224,000 |
|
Repayment under credit facility | — |
| | (308,000 | ) | | — |
| | — |
| | (308,000 | ) |
Proceeds from senior notes | 312,000 |
| | — |
| | — |
| | — |
| | 312,000 |
|
Debt issuance costs | (3,692 | ) | | (23 | ) | | (3 | ) | | — |
| | (3,718 | ) |
Distributions from subsidiary | 33,649 |
| | — |
| | — |
| | (33,649 | ) | | — |
|
Distributions to non-controlling interest | — |
| | — |
| | (52,386 | ) | | 33,649 |
| | (18,737 | ) |
Intercompany transfers | (308,000 | ) | | 308,000 |
| | — |
| | — |
| | — |
|
Net cash provided by financing activities | 33,957 |
| | 76,977 |
| | 94,611 |
| | — |
| | 205,545 |
|
Net decrease in cash and cash equivalents | (25,827 | ) | | (8,086 | ) | | (6,046 | ) | | — |
| | (39,959 | ) |
Cash and cash equivalents at beginning of period | 54,074 |
| | 34,175 |
| | 24,197 |
| | — |
| | 112,446 |
|
Cash and cash equivalents at end of period | $ | 28,247 |
| | $ | 26,089 |
| | $ | 18,151 |
| | $ | — |
| | $ | 72,487 |
|
Diamondback Energy, Inc. and Subsidiaries
Notes to Consolidated Financial Statements-(Continued)
(Unaudited)
|
| | | | | | | | | | | | | | | | | | | |
Condensed Consolidated Statement of Operations |
Six Months Ended June 30, 2016 |
(In thousands) |
| | | | | Non– | | | | |
| | | Guarantor | | Guarantor | | | | |
| Parent | | Subsidiaries | | Subsidiaries | | Eliminations | | Consolidated |
Revenues: | | | | | | | | | |
Oil sales | $ | — |
| | $ | 151,907 |
| | $ | — |
| | $ | 28,438 |
| | $ | 180,345 |
|
Natural gas sales | — |
| | 6,980 |
| | — |
| | 1,151 |
| | 8,131 |
|
Natural gas liquid sales | — |
| | 10,155 |
| | — |
| | 1,333 |
| | 11,488 |
|
Royalty income | — |
| | — |
| | 30,922 |
| | (30,922 | ) | | — |
|
Lease bonus income | — |
| | — |
| | 304 |
| | (304 | ) | | — |
|
Total revenues | — |
| | 169,042 |
| | 31,226 |
| | (304 | ) | | 199,964 |
|
Costs and expenses: | | | | | | | | | |
Lease operating expenses | — |
| | 36,900 |
| | — |
| | — |
| | 36,900 |
|
Production and ad valorem taxes | — |
| | 13,416 |
| | 2,705 |
| | — |
| | 16,121 |
|
Gathering and transportation | — |
| | 5,042 |
| | 177 |
| | 2 |
| | 5,221 |
|
Depreciation, depletion and amortization | — |
| | 69,235 |
| | 14,734 |
| | (2,029 | ) | | 81,940 |
|
Impairment of oil and natural gas properties | — |
| | 151,699 |
| | 47,469 |
| | — |
| | 199,168 |
|
General and administrative expenses | 14,374 |
| | 5,173 |
| | 2,956 |
| | — |
| | 22,503 |
|
Asset retirement obligation accretion | — |
| | 500 |
| | — |
| | — |
| | 500 |
|
Total costs and expenses | 14,374 |
| | 281,965 |
| | 68,041 |
| | (2,027 | ) | | 362,353 |
|
Income (loss) from operations | (14,374 | ) | | (112,923 | ) | | (36,815 | ) | | 1,723 |
| | (162,389 | ) |
Other income (expense) | | | | | | | | | |
Interest expense | (17,702 | ) | | (1,444 | ) | | (886 | ) | | — |
| | (20,032 | ) |
Other income | 120 |
| | 524 |
| | 346 |
| | (250 | ) | | 740 |
|
Loss on derivative instruments, net | — |
| | (10,699 | ) | | — |
| | — |
| | (10,699 | ) |
Total other expense, net | (17,582 | ) | | (11,619 | ) | | (540 | ) | | (250 | ) | | (29,991 | ) |
Income (loss) before income taxes | (31,956 | ) | | (124,542 | ) | | (37,355 | ) | | 1,473 |
| | (192,380 | ) |
Provision for income taxes | 368 |
| | — |
| | — |
| | — |
| | 368 |
|
Net income (loss) | (32,324 | ) | | (124,542 | ) | | (37,355 | ) | | 1,473 |
| | (192,748 | ) |
Net loss attributable to non-controlling interest | — |
| | — |
| | — |
| | (4,346 | ) | | (4,346 | ) |
Net income (loss) attributable to Diamondback Energy, Inc. | $ | (32,324 | ) | | $ | (124,542 | ) | | $ | (37,355 | ) | | $ | 5,819 |
| | $ | (188,402 | ) |
Diamondback Energy, Inc. and Subsidiaries
Notes to Consolidated Financial Statements-(Continued)
(Unaudited)
|
| | | | | | | | | | | | | | | | | | | |
Condensed Consolidated Statement of Cash Flows |
Six Months Ended June 30, 2017 |
(In thousands) |
| | | | | Non– | | | | |
| | | Guarantor | | Guarantor | | | | |
| Parent | | Subsidiaries | | Subsidiaries | | Eliminations | | Consolidated |
Net cash provided by (used in) operating activities | $ | (25,139 | ) | | $ | 358,123 |
| | $ | 61,447 |
| | $ | — |
| | $ | 394,431 |
|
Cash flows from investing activities: | | | | | | | | | |
Additions to oil and natural gas properties | — |
| | (291,767 | ) | | — |
| | — |
| | (291,767 | ) |
Additions to midstream assets | — |
| | (4,444 | ) | | — |
| | — |
| | (4,444 | ) |
Purchase of other property and equipment | — |
| | (13,825 | ) | | — |
| | — |
| | (13,825 | ) |
Acquisition of leasehold interests | — |
| | (1,860,980 | ) | | — |
| | — |
| | (1,860,980 | ) |
Acquisition of mineral interests | — |
| | — |
| | (122,679 | ) | | — |
| | (122,679 | ) |
Acquisition of midstream assets | — |
| | (50,279 | ) | | — |
| | — |
| | (50,279 | ) |
Proceeds from sale of assets | — |
| | 1,295 |
| | — |
| | — |
| | 1,295 |
|
Funds held in escrow | — |
| | 121,391 |
| | — |
| | — |
| | 121,391 |
|
Equity investments | — |
| | (188 | ) | | — |
| | — |
| | (188 | ) |
Intercompany transfers | (1,657,407 | ) | | 1,657,407 |
| | — |
| | — |
| | — |
|
Net cash used in investing activities | (1,657,407 | ) | | (441,390 | ) | | (122,679 | ) | | — |
| | (2,221,476 | ) |
Cash flows from financing activities: | | | | | | | | | |
Proceeds from borrowing on credit facility | — |
| | 162,000 |
| | 104,000 |
| | — |
| | 266,000 |
|
Repayment on credit facility | — |
| | (78,000 | ) | | (143,000 | ) | | — |
| | (221,000 | ) |
Debt issuance costs | (635 | ) | | (790 | ) | | (180 | ) | | — |
| | (1,605 | ) |
Public offering costs | (79 | ) | | — |
| | (217 | ) | | — |
| | (296 | ) |
Proceeds from public offerings | — |
| | — |
| | 147,725 |
| | — |
| | 147,725 |
|
Distribution from subsidiary | 40,572 |
| | — |
| | — |
| | (40,572 | ) | | — |
|
Exercise of stock options | 358 |
| | — |
| | — |
| | — |
| | 358 |
|
Distribution to non-controlling interest | — |
| | — |
| | (54,695 | ) | | 40,572 |
| | (14,123 | ) |
Net cash provided by financing activities | 40,216 |
| | 83,210 |
| | 53,633 |
| | — |
| | 177,059 |
|
Net decrease in cash and cash equivalents | (1,642,330 | ) | | (57 | ) | | (7,599 | ) | | — |
| | (1,649,986 | ) |
Cash and cash equivalents at beginning of period | 1,643,226 |
| | 14,135 |
| | 9,213 |
| | — |
| | 1,666,574 |
|
Cash and cash equivalents at end of period | $ | 896 |
| | $ | 14,078 |
| | $ | 1,614 |
| | $ | — |
| | $ | 16,588 |
|
Diamondback Energy, Inc. and Subsidiaries
Notes to Consolidated Financial Statements-(Continued)
(Unaudited)
| | Condensed Consolidated Statement of Cash Flows | Six Months Ended June 30, 2016 | |
Three Months Ended March 31, 2017 | | Three Months Ended March 31, 2017 |
(In thousands) | | | | | | Non– | | | | | | | | | Non– | | | | |
| | | Guarantor | | Guarantor | | | | | | | Guarantor | | Guarantor | | | | |
| Parent | | Subsidiaries | | Subsidiaries | | Eliminations | | Consolidated | Parent | | Subsidiaries | | Subsidiaries | | Eliminations | | Consolidated |
Net cash provided by (used in) operating activities | $ | (18,829 | ) | | $ | 110,609 |
| | $ | 30,001 |
| | $ | — |
| | $ | 121,781 |
| |
Net cash provided by operating activities | | $ | 40 |
| | $ | 149,822 |
| | $ | 26,065 |
| | $ | — |
| | $ | 175,927 |
|
Cash flows from investing activities: | | | | | | | | | | | | | | | | | | |
Additions to oil and natural gas properties | — |
| | (149,661 | ) | | — |
| | — |
| | (149,661 | ) | — |
| | (116,174 | ) | | — |
| | — |
| | (116,174 | ) |
Purchase of other property and equipment | — |
| | (1,224 | ) | | — |
| | — |
| | (1,224 | ) | |
Purchase of other property, equipment and land | | — |
| | (11,918 | ) | | — |
| | — |
| | (11,918 | ) |
Acquisition of leasehold interests | — |
| | (17,533 | ) | | — |
| | — |
| | (17,533 | ) | — |
| | (1,760,810 | ) | | — |
| | — |
| | (1,760,810 | ) |
Acquisition of mineral interests | — |
| | — |
| | (11,319 | ) | | — |
| | (11,319 | ) | — |
| | — |
| | (8,579 | ) | | — |
| | (8,579 | ) |
Acquisition of midstream assets | | — |
| | (48,329 | ) | | — |
| | — |
| | (48,329 | ) |
Additions to midstream assets | | — |
| | (59 | ) | | — |
| | — |
| | (59 | ) |
Proceeds from sale of assets | — |
| | 161 |
| | — |
| | — |
| | 161 |
| — |
| | 1,238 |
| | — |
| | — |
| | 1,238 |
|
Funds held in escrow | | — |
| | 119,340 |
| | — |
| | — |
| | 119,340 |
|
Equity investments | — |
| | (800 | ) | | — |
| | — |
| | (800 | ) | — |
| | (188 | ) | | — |
| | — |
| | (188 | ) |
Intercompany transfers | (60,712 | ) | | 60,712 |
| | — |
| | — |
| | — |
| (1,660,917 | ) | | 1,660,917 |
| | — |
| | — |
| | — |
|
Net cash used in investing activities | (60,712 | ) | | (108,345 | ) | | (11,319 | ) | | — |
| | (180,376 | ) | (1,660,917 | ) | | (155,983 | ) | | (8,579 | ) | | — |
| | (1,825,479 | ) |
Cash flows from financing activities: | | | | | | | | | | | | | | | | | | |
Proceeds from borrowing on credit facility | — |
| | — |
| | 17,000 |
| | — |
| | 17,000 |
| |
Repayment on credit facility | — |
| | (11,000 | ) | | — |
| | — |
| | (11,000 | ) | |
Repayment under credit facility | | — |
| | — |
| | (120,500 | ) | | — |
| | (120,500 | ) |
Debt issuance costs | — |
| | (46 | ) | | (20 | ) | | — |
| | (66 | ) | (409 | ) | | (8 | ) | | (1 | ) | | — |
| | (418 | ) |
Public offering costs | (179 | ) | | — |
| | — |
| | — |
| | (179 | ) | (79 | ) | | — |
| | (186 | ) | | — |
| | (265 | ) |
Proceeds from public offerings | 254,518 |
| | — |
| | — |
| | — |
| | 254,518 |
| — |
| | — |
| | 147,725 |
| | — |
| | 147,725 |
|
Distribution from subsidiary | 26,560 |
| | — |
| | — |
| | (26,560 | ) | | — |
| |
Distributions from subsidiary | | 18,692 |
| | — |
| | — |
| | (18,692 | ) | | — |
|
Exercise of stock options | 498 |
| | — |
| | — |
| | — |
| | 498 |
| 358 |
| | — |
| | — |
| | — |
| | 358 |
|
Distribution to non-controlling interest | — |
| | — |
| | (30,057 | ) | | 26,560 |
| | (3,497 | ) | |
Intercompany transfers | (11,000 | ) | | 11,000 |
| | — |
| | — |
| | — |
| |
Distributions to non-controlling interest | | — |
| | — |
| | (25,174 | ) | | 18,692 |
| | (6,482 | ) |
Net cash provided by (used in) financing activities | 270,397 |
| | (46 | ) | | (13,077 | ) | | — |
| | 257,274 |
| 18,562 |
| | (8 | ) | | 1,864 |
| | — |
| | 20,418 |
|
Net increase in cash and cash equivalents | 190,856 |
| | 2,218 |
| | 5,605 |
| | — |
| | 198,679 |
| |
Net increase (decrease) in cash and cash equivalents | | (1,642,315 | ) | | (6,169 | ) | | 19,350 |
| | — |
| | (1,629,134 | ) |
Cash and cash equivalents at beginning of period | 148 |
| | 19,428 |
| | 539 |
| | — |
| | 20,115 |
| 1,643,226 |
| | 14,135 |
| | 9,213 |
| | — |
| | 1,666,574 |
|
Cash and cash equivalents at end of period | $ | 191,004 |
| | $ | 21,646 |
| | $ | 6,144 |
| | $ | — |
| | $ | 218,794 |
| $ | 911 |
| | $ | 7,966 |
| | $ | 28,563 |
| | $ | — |
| | $ | 37,440 |
|
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with our unaudited consolidated financial statements and notes thereto presented in this report as well as our audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2016.2017. The following discussion contains “forward-looking statements” that reflect our future plans, estimates, beliefs, and expected performance. Actual results and the timing of events may differ materially from those contained in these forward-looking statements due to a number of factors. See “Part II. Item 1A. Risk Factors” and “Cautionary Statement Regarding Forward-Looking Statements.”
Overview
We are an independent oil and natural gas company focused on the acquisition, development, exploration and exploitation of unconventional, onshore oil and natural gas reserves in the Permian Basin in West Texas. Our activities are primarily directed at the horizontal development of the Wolfcamp and Spraberry formations in the Midland Basin and the Wolfcamp and Bone Spring formations in the Delaware Basin. We intend to continue to develop our reserves and increase production through development drilling and exploitation and exploration activities on our multi-year inventory of identified potential drilling locations and through acquisitions that meet our strategic and financial objectives, targeting oil-weighted reserves. Substantially all of our revenues are generated through the sale of oil, natural gas liquids and natural gas production.
The following table sets forth our production data for the periods indicated:
|
| | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2017 | 2016 | | 2017 | 2016 |
Oil (Bbls) | 75 | % | 72 | % | | 75 | % | 74 | % |
Natural gas (Mcf) | 12 | % | 13 | % | | 11 | % | 12 | % |
Natural gas liquids (Bbls) | 13 | % | 15 | % | | 14 | % | 14 | % |
| 100 | % | 100 | % | | 100 | % | 100 | % |
|
| | | | |
| Three Months Ended March 31, |
| 2018 | 2017 |
Oil (MBbls) | 74 | % | 75 | % |
Natural gas (MMcf) | 12 | % | 11 | % |
Natural gas liquids (MBbls) | 14 | % | 14 | % |
| 100 | % | 100 | % |
During the second quarterAs of 2017,March 31, 2018, we addedhad approximately 3,200207,336 net acres, in the Southern Delaware Basin bringing our net acreage position in the Permian Basin towhich consisted of approximately 191,000 net acres at June 30, 2017, which included approximately 87,000102,511 net acres in the Northern Midland Basin and approximately 104,000104,825 net acres in the Southern Delaware Basin. We have an estimated 4,3003,800 gross horizontal locations that we believe to be economic at $50$60 per Bbl West Texas Intermediate.Intermediate, or WTI.
The challenging commodity price environment that we experienced in 2016 has continued in 2017. Commodity prices continued to be volatile duringIn the secondfirst quarter of 2017. We believe2018, we remain well-positioned in this environment. In 2017, we have again demonstrated our operational focus on achieving best-in-class execution, low-cost operations and a conservative balance sheet as we continuecontinued to reduce drilling days, well costs and operating expenses while maintainingimproving cash operating margins on a per BOE and percentage basis. In doing so, we achieved another quarter of robust production growth within cash flow, which has allowed us to maintain what we believe to be a peer leading leverage ratio. Our leading-edge Midland Basin costs to drill, complete and equip wells currently fall within a range of $5.0 million to $5.5 million for a 7,500 foot lateral well. WeWe are currently operating nine11 drilling rigs and threefive completion crews and plan to operate between eight10 and nine12 drilling rigs for the remainder of 20172018 at current commodity prices. We will continue monitoring commodity prices and overall market conditions and can adjust our rig cadence up or down in response to changes in commodity prices and overall market conditions. We will continue to evaluate adding additional rigs throughout the year if commodity prices strengthen.
20172018 Highlights
Our Recent Acquisition
On February 28, 2017, we completed our acquisition of oil and natural gas properties, midstream assets and other related assets in the Delaware Basin for an aggregate purchase price consisting of $1.74 billion in cash and 7.69 million shares of our common stock, of which approximately 1.15 million shares were placed in an indemnity escrow. This transaction includes the acquisition of (i) approximately 100,306 gross (80,339 net) acres primarily in Pecos and
Reeves counties for approximately $2.5 billion and (ii) midstream assets for approximately $47.6 million. We used the net proceeds from our December 2016 equity offering, net proceeds from our December 2016 debt offering, cash on hand and other financing sources to fund the cash portion of the purchase price for this acquisition.
Viper Equity Offerings
In January 2017, Viper completed an underwritten public offering of 9,775,000 common units, which included 1,275,000 common units issued pursuant to an option to purchase additional common units granted to the underwriters. Viper received net proceeds from this offering of approximately $147.6 million, after deducting underwriting discounts and commissions and estimated offering expenses, of which Viper used $120.5 million to repay the outstanding borrowings under its revolving credit agreement and intends to use the remaining net proceeds for general partnership purposes, which may include additional acquisitions.
In July 2017, Viper completed an underwritten public offering of 16,100,000 common units, which included 2,100,000 common units issued pursuant to an option to purchase additional common units granted to the underwriters. In this offering, we purchased 700,000 common units, an affiliate of the General Partner purchased 3,000,000 common units and certain officers and directors of our Company and the General Partner purchased an aggregate of 114,000 common units, in each case directly from the underwriters. Following this offering, we had an approximate 64% limited partner interest in Viper. Viper received net proceeds from this offering of approximately $232.6 million, after deducting underwriting discounts and commissions and estimated offering expenses, of which Viper used $152.8 million to repay all of the then-outstanding borrowings under Viper’s revolving credit facility and intends to use the remaining net proceeds to fund a portion of the purchase price for pending acquisitions and for general partnership purposes, which may include additional acquisitions.
Operational Update
During the second quarter of 2017,three months ended March 31, 2018, we drilled 3441 gross (31(36 net) operated horizontal wells, eightof which 14 gross (eight(13 net) of whichwells were in the Delaware Basin. WeBasin and the remaining wells were in the Midland Basin, and turned 35 gross (31(30 net) operated horizontal wells into production, of which six gross (five(six net) wells were wells in the Delaware Basin. We also participatedBasin and the remaining wells were in the drilling of three gross (one net) wells and in the completion of three gross (one net) non-operated wells.Midland Basin.
We are currently operating nine11 drilling rigs and intend to operate between eight10 and nine12 drilling rigs during the remainder of 20172018 across our asset base in the Midland and Delaware Basins.Basins, based on current commodity prices. We plan to operate fivesix to sixseven of these drilling rigs in the Midland Basin targeting horizontal development of the Wolfcamp and Spraberry
formations, while the remainder of the drilling rigs are expected to operate in the Delaware Basin targeting the Wolfcamp and Bone Spring formations.
In the Midland Basin, we continue to see positive well results from our core development areas in Midland, Glasscock, Howard, Andrews and Martin Counties.counties. Assuming commodity prices at current levels, we anticipate operating one rig in Glasscock County, one rig in Howard Countybetween six and three or moreseven drilling rigs inacross our Northern Midland Martin and Andrews Counties throughBasin acreage for the remainder of 2017. 2018.
In the Delaware Basin, we are currently operating threefive drilling rigs, which we planwith plans to maintain throughoperate between five and six drilling rigs for the remainder of 2017 targeting2018. Our 2018 development plan is primarily focused on long-lateral Wolfcamp A wells in Pecos, Reeves and Ward counties. Additionally, in 2018 we expect to conduct further appraisal of the Second Bone Spring interval in Pecos county as well as the Wolfcamp B interval in Reeves and Bone Spring formations. Our early operated well results in the Delaware Basin have confirmed the productivity of the asset base, and we are focused on transferring our best practices on cost control from the Midland Basin to the Delaware Basin.Ward counties.
We continue to focus on low cost operations and best in class execution. In doing so, we are focused on controlling oilfield service costs as our service providers seek to increaseadditional pricing increases after two yearsa prolonged period of declining service costs during the downturn in the oil market.2015 and 2016. To combat rising service costs, we have looked to lock in pricingtaken proactive measures such as securing frac sand supply for dedicated activity levelsfuture well completions and will continue to seek opportunities to control and de-bundle additional well costcosts where possible, including de-bundling of completion costs.possible. We believe that our 20172018 drilling and completion budget will covercovers potential increases in our service costs during the year.
Proposed Tax Status Election and Related Transactions by Viper
On March 29, 2018, Viper announced that the Board of Directors of its general partner had unanimously approved a change of Viper’s federal income tax status from that of a pass-through partnership to that of a taxable entity via a “check the box” election. In connection with making this election, on May 9, 2018 Viper (i) amended and restated its First Amended and Restated Partnership Agreement, (ii) amended and restated the First Amended and Restated Limited Liability Company Agreement of Viper Energy Partners LLC, or the Operating Company, (iii) amended and restated its existing registration rights agreement with us and (iv) entered into an exchange agreement with us, Viper’s general partner, or the General Partner, and the Operating Company. Simultaneously with the effectiveness of these agreements, we delivered and assigned to Viper the 73,150,000 common units we owned in exchange for (i) 73,150,000 of Viper’s newly-issued Class B units and (ii) 73,150,000 newly-issued units of the Operating Company pursuant to the terms of a Recapitalization Agreement dated March 28, 2018, as amended as of May 9, 2018, or the Recapitalization Agreement. Immediately following that exchange, Viper continued to be the managing member of the Operating Company, with sole control of its operations, and owned approximately 36% of the outstanding units issued by the Operating Company, and we owned the remaining approximately 64% of the outstanding units issued by the Operating Company. The Operating Company units and Viper’s Class B units owned by us are exchangeable from time to time for Viper’s common units (that is, one Operating Company unit and one Viper Class B unit, together, will be exchangeable for one Viper common unit).
On May 10, 2018, the change in Viper’s income tax status became effective. On that date, pursuant to the terms of the Recapitalization Agreement, (i) the General Partner made a cash capital contribution of $1.0 million to Viper in respect of its general partner interest and (ii) we made a cash capital contribution of $1.0 million to Viper in respect of the Class B Units. We, as the holder of the Class B units, and the General Partner, as the holder of the general partner interest, are entitled to receive an 8% annual distribution on the outstanding amount of these capital contributions, payable quarterly, as a return on this invested capital. On May 10, 2018, we also exchanged 731,500 Class B Units and 731,500 units in the Operating Company for 731,500 common units of Viper and a cash amount of $10,000 representing a proportionate return of the $1.0 million invested capital in respect of the Class B Units. The General Partner, our wholly-owned subsidiary, continues to serve as Viper’s general partner. Accordingly, we continue to control Viper and its financial results will continue to be consolidated with ours. None of the transactions undertaken as part of the change in Viper’s tax status are expected to be taxable to us. After the effectiveness of the tax status election and the completion of related transactions, Viper’s minerals business will continue to be conducted through the Operating Company, which will be taxed as a partnership for federal and state income tax purposes. This structure is anticipated to provide significant benefits to Viper’s business, including operational effectiveness, acquisition and disposition transactional planning flexibility and income tax efficiency. For additional information regarding the tax status election and related transactions, please refer to Viper’s Definitive Information Statement on Schedule 14C filed with the SEC on April 17, 2018.
The following table summarizes our average daily production for the periods presented:
| | | Three Months Ended June 30, | | Six Months Ended June 30, | Three Months Ended March 31, |
| 2017 | 2016 | | 2017 | 2016 | 2018 | 2017 |
Oil (Bbls)/d | 57,543 | 26,589 | | 51,903 | 27,770 | 75,557 | 46,201 |
Natural Gas (Mcf)/d | 54,273 | 28,203 | | 47,635 | 26,831 | 72,728 | 40,923 |
Natural Gas Liquids (Bbls)/d | 10,388 | 5,552 | | 9,493 | 5,333 | 14,929 | 8,589 |
Total average production per day (BOE) | 76,977 | 36,841 | | 69,336 | 37,575 | 102,607 | 61,610 |
Our average daily production for the three months ended June 30, 2017March 31, 2018 as compared to the three months ended June 30, 2016March 31, 2017 increased 40,13640,997 BOE/d, or 108.9%66.5%.
Sources of Our RevenueRevenues
Our main sourcesources of revenues are derived from the sale of oil and natural gas production, as well as the sale of natural gas liquids that are extracted from our natural gas during processing. Our oil and natural gas revenues do not include the effects of derivatives. Our revenues may vary significantly from period to period as a result of changes in volumes of production sold, production mix or commodity prices.
The following table presents the breakdown of our revenues for the following periods:
| | | Three Months Ended June 30, | | Six Months Ended June 30, | Three Months Ended March 31, |
| 2017 | 2016 | | 2017 | 2016 | 2018 | 2017 |
Revenues | | | | |
Oil sales | 89 | % | 90 | % | | 89 | % | 90 | % | 90 | % | 89 | % |
Natural gas sales | 5 | % | 4 | % | | 5 | % | 4 | % | 3 | % | 4 | % |
Natural gas liquid sales | 6 | % | 6 | % | | 6 | % | 6 | % | 7 | % | 7 | % |
| 100 | % | 100 | % | | 100 | % | 100 | % | 100 | % | 100 | % |
Since our production consists primarily of oil, our revenues are more sensitive to fluctuations in oil prices than they are to fluctuations in natural gas liquids or natural gas liquids prices. Oil, natural gas liquids and natural gas liquids prices have historically been volatile. During 2016, West Texas Intermediate posted prices ranged from $26.19 to $54.01 per Bbl and the Henry Hub spot market price of natural gas ranged from $1.49 to $3.80 per MMBtu. During the first six months of 2017, West Texas IntermediateWTI posted prices ranged from $42.48 to $54.48$60.46 per Bbl and the Henry Hub spot market price of natural gas ranged from $2.44 to $3.71 per MMBtu. During the first three months of 2018, WTI posted prices ranged from $59.20 to $66.27 per Bbl and the Henry Hub spot market price of natural gas ranged from $2.49 to $6.24 per MMBtu. On June 30, 2017,March 29, 2018, the West Texas IntermediateWTI posted price for crude oil was $46.02$64.87 per Bbl and the Henry Hub spot market price of natural gas was $2.98$2.81 per MMBtu. Lower commodity prices may not only decrease our revenues, but also potentially the amount of oil and natural gas that we can produce economically. Lower oil and natural gas prices may also result in a reduction in the borrowing base under our credit agreement, which may be redetermined at the discretion of our lenders.
Results of Operations
The following table sets forth selected historical operating data for the periods indicated.
| | | Three Months Ended June 30, | | Six Months Ended June 30, | Three Months Ended March 31, |
| 2017 | 2016 | | 2017 | 2016 | 2018 | 2017 |
| (in thousands, except Bbl, Mcf and BOE amounts) | (in thousands, except Bbl, Mcf and BOE amounts) |
Revenues | | | | |
Oil, natural gas liquids and natural gas | $ | 267,434 |
| $ | 112,483 |
| | $ | 499,932 |
| $ | 199,964 |
| |
Oil, natural gas and natural gas liquids | | $ | 466,759 |
| $ | 232,498 |
|
Lease bonus | 583 |
| — |
| | 2,185 |
| — |
| — |
| 1,602 |
|
Midstream services | 1,417 |
| — |
| | 2,547 |
| — |
| 11,395 |
| 1,130 |
|
Other operating income | | 2,041 |
| — |
|
Total revenues | 269,434 |
| 112,483 |
| | 504,664 |
| 199,964 |
| 480,195 |
| 235,230 |
|
Operating expenses | | | | |
Lease operating expenses | 28,989 |
| 18,677 |
| | 55,615 |
| 36,900 |
| 37,345 |
| 26,626 |
|
Production and ad valorem taxes | 15,879 |
| 8,159 |
| | 31,604 |
| 16,121 |
| 27,304 |
| 15,725 |
|
Gathering and transportation | 3,015 |
| 2,432 |
| | 5,634 |
| 5,221 |
| 4,285 |
| 2,619 |
|
Midstream services | 1,828 |
| — |
| | 2,682 |
| — |
| 11,189 |
| 854 |
|
Depreciation, depletion and amortization | 75,173 |
| 39,871 |
| | 134,102 |
| 81,940 |
| 115,216 |
| 58,929 |
|
Impairment of oil and natural gas properties | — |
| 168,352 |
| | — |
| 199,168 |
| |
General and administrative expenses | 11,892 |
| 9,524 |
| | 25,636 |
| 22,503 |
| 16,325 |
| 13,744 |
|
Asset retirement obligation accretion | 350 |
| 254 |
| | 673 |
| 500 |
| 355 |
| 323 |
|
Other operating expense | | 530 |
| — |
|
Total expenses | 137,126 |
| 247,269 |
| | 255,946 |
| 362,353 |
| 212,549 |
| 118,820 |
|
Income (loss) from operations | 132,308 |
| (134,786 | ) | | 248,718 |
| (162,389 | ) | |
Interest expense | (8,245 | ) | (10,019 | ) | | (20,470 | ) | (20,032 | ) | |
Other income | 8,324 |
| 177 |
| | 9,469 |
| 740 |
| |
Income from operations | | 267,646 |
| 116,410 |
|
Interest expense, net | | (13,701 | ) | (12,225 | ) |
Other income, net | | 2,736 |
| 1,145 |
|
Gain (loss) on derivative instruments, net | 33,320 |
| (12,125 | ) | | 71,021 |
| (10,699 | ) | (32,345 | ) | 37,701 |
|
Gain on revaluation of investment | | 899 |
| — |
|
Total other income (expense), net | 33,399 |
| (21,967 | ) | | 60,020 |
| (29,991 | ) | (42,411 | ) | 26,621 |
|
Income (loss) before income taxes | 165,707 |
| (156,753 | ) | | 308,738 |
| (192,380 | ) | |
Income before income taxes | | 225,235 |
| 143,031 |
|
Provision for income taxes | 1,579 |
| 368 |
| | 3,536 |
| 368 |
| 47,081 |
| 1,957 |
|
Net income (loss) | 164,128 |
| (157,121 | ) | | 305,202 |
| (192,748 | ) | |
Net income (loss) attributable to non-controlling interest | 5,723 |
| (1,631 | ) | | 10,524 |
| (4,346 | ) | |
Net income (loss) attributable to Diamondback Energy, Inc. | $ | 158,405 |
| $ | (155,490 | ) | | $ | 294,678 |
| $ | (188,402 | ) | |
Net income | | 178,154 |
| 141,074 |
|
Net income attributable to non-controlling interest | | 15,342 |
| 4,801 |
|
Net income attributable to Diamondback Energy, Inc. | | $ | 162,812 |
| $ | 136,273 |
|
| | | Three Months Ended June 30, | | Six Months Ended June 30, | Three Months Ended March 31, |
| 2017 | 2016 | | 2017 | 2016 | 2018 | 2017 |
| (in thousands, except Bbl, Mcf and BOE amounts) | (in thousands) |
Production Data: | | | | |
Oil (Bbls) | 5,236,445 |
| 2,419,589 |
| | 9,394,528 |
| 5,054,100 |
| |
Natural gas (Mcf) | 4,938,843 |
| 2,566,510 |
| | 8,621,915 |
| 4,883,159 |
| |
Natural gas liquids (Bbls) | 945,295 |
| 505,235 |
| | 1,718,290 |
| 970,626 |
| |
Combined volumes (BOE) | 7,004,881 |
| 3,352,576 |
| | 12,549,804 |
| 6,838,586 |
| |
Oil (MBbls) | | 6,800 |
| 4,158 |
|
Natural gas (MMcf) | | 6,546 |
| 3,683 |
|
Natural gas liquids (MBbls) | | 1,344 |
| 773 |
|
Combined volumes (MBOE) | | 9,235 |
| 5,545 |
|
Daily combined volumes (BOE/d) | 76,977 |
| 36,841 |
| | 69,336 |
| 37,575 |
| 102,607 |
| 61,610 |
|
| | | | |
Average Prices: | | | | |
Oil (per Bbl) | $ | 45.43 |
| $ | 41.88 |
| | $ | 47.36 |
| $ | 35.68 |
| $ | 61.66 |
| $ | 49.80 |
|
Natural gas (per Mcf) | 2.57 |
| 1.60 |
| | 2.62 |
| 1.67 |
| 2.20 |
| 2.69 |
|
Natural gas liquids (per Bbl) | 17.83 |
| 13.95 |
| | 18.83 |
| 11.84 |
| 24.64 |
| 20.05 |
|
Combined (per BOE) | 38.18 |
| 33.55 |
| | 39.84 |
| 29.24 |
| 50.55 |
| 41.93 |
|
Oil, hedged($ per Bbl)(1) | 46.32 |
| 41.66 |
| | 47.68 |
| 36.59 |
| |
Oil, hedged ($ per Bbl)(1) | | 56.82 |
| 49.40 |
|
Natural gas, hedged ($ per MMbtu)(1) | 3.52 |
| 1.39 |
| | 2.97 |
| 2.60 |
| 2.29 |
| 2.69 |
|
Average price, hedged($ per BOE)(1) | 38.85 |
| 33.39 |
| | 40.08 |
| 29.91 |
| |
Average price, hedged ($ per BOE)(1) | | 47.05 |
| 41.63 |
|
| | | | |
Average Costs per BOE: | | | | |
Lease operating expense | $ | 4.14 |
| $ | 5.57 |
| | $ | 4.43 |
| $ | 5.40 |
| $ | 4.04 |
| $ | 4.80 |
|
Production and ad valorem taxes | 2.27 |
| 2.43 |
| | 2.52 |
| 2.36 |
| 2.96 |
| 2.84 |
|
Gathering and transportation expense | 0.43 |
| 0.73 |
| | 0.45 |
| 0.76 |
| 0.46 |
| 0.47 |
|
General and administrative - cash component | 0.82 |
| 1.04 |
| | 0.99 |
| 1.19 |
| 0.96 |
| 1.20 |
|
Total operating expense - cash | 7.66 |
| 9.77 |
| | 8.39 |
| 9.71 |
| 8.42 |
| 9.31 |
|
| | | | |
General and administrative - non-cash component | 0.88 |
| 1.80 |
| | 1.05 |
| 2.10 |
| 0.81 |
| 1.28 |
|
Depreciation, depletion, and amortization | 10.73 |
| 11.89 |
| | 10.69 |
| 11.98 |
| |
Interest expense | 1.18 |
| 2.99 |
| | 1.63 |
| 2.93 |
| |
Depreciation, depletion and amortization | | 12.48 |
| 10.63 |
|
Interest expense, net | | 1.48 |
| 2.20 |
|
Total expenses | 12.79 |
| 16.68 |
| | 13.37 |
| 17.01 |
| 14.77 |
| 14.11 |
|
| | | | |
Average realized oil price ($/Bbl) | $ | 45.43 |
| $ | 41.88 |
| | $ | 47.36 |
| $ | 35.68 |
| $ | 61.66 |
| $ | 49.80 |
|
Average NYMEX ($/Bbl) | 47.88 |
| 45.59 |
| | 49.66 |
| 39.52 |
| 62.91 |
| 51.62 |
|
Differential to NYMEX | (2.45 | ) | (3.71 | ) | | (2.30 | ) | (3.84 | ) | (1.25 | ) | (1.82 | ) |
Average realized oil price to NYMEX | 95 | % | 92 | % | | 95 | % | 90 | % | 98 | % | 96 | % |
| | | | |
Average realized natural gas price ($/Mcf) | $ | 2.57 |
| $ | 1.60 |
| | $ | 2.62 |
| $ | 1.67 |
| $ | 2.20 |
| $ | 2.69 |
|
Average NYMEX ($/Mcf) | 3.35 |
| 2.15 |
| | 3.04 |
| 2.07 |
| 3.08 |
| 3.02 |
|
Differential to NYMEX | (0.78 | ) | (0.55 | ) | | (0.42 | ) | (0.40 | ) | (0.88 | ) | (0.33 | ) |
Average realized natural gas price to NYMEX | 77 | % | 74 | % | | 86 | % | 81 | % | 71 | % | 89 | % |
| | | | |
Average realized natural gas liquids price ($/Bbl) | $ | 17.83 |
| $ | 13.95 |
| | $ | 18.83 |
| $ | 11.84 |
| $ | 24.64 |
| $ | 20.05 |
|
Average NYMEX oil price ($/Bbl) | 47.88 |
| 45.59 |
| | 49.66 |
| 39.52 |
| 62.91 |
| 51.62 |
|
Average realized natural gas liquids price to NYMEX oil price | 37 | % | 31 | % | | 38 | % | 30 | % | 39 | % | 39 | % |
| |
(1) | Hedged prices reflect the effect of our commodity derivative transactions on our average sales prices. Our calculation of such effects include realized gains and losses on cash settlements for commodity derivatives, which we do not designate for hedge accounting. |
Comparison of the Three Months Ended June 30,March 31, 2018 and 2017 and 2016
Oil, Natural Gas Liquids and Natural Gas Liquids Revenues. Our oil, natural gas liquids and natural gas liquids revenues increased by approximately $155.0$234.3 million, or 138%101%, to $267.4$466.8 million for the three months ended June 30, 2017March 31, 2018 from $112.5$232.5 million for the three months ended June 30, 2016.March 31, 2017. Our revenues are a function of oil, natural gas liquids and natural gas liquids production volumes sold and average sales prices received for those volumes. Average daily production sold increased by 40,13640,997 BOE/d to 76,977102,607 BOE/d during the three months ended June 30, 2017March 31, 2018 from 36,84161,610 BOE/d during the three months ended June 30, 2016.March 31, 2017. The total increase in revenue of approximately $155.0$234.3 million is largely attributable to higher oil, natural gas liquids and natural gas liquids production volumes and higher average sales prices for the three months ended June 30, 2017March 31, 2018 as compared to the three months ended June 30, 2016.March 31, 2017. The increases in production volumes were due to a combination of increased drilling activity and growth through acquisitions. Our production increased by 2,816,8562,642,003 Bbls of oil, 440,060570,623 Bbls of natural gas liquids and 2,372,3332,862,436 Mcf of natural gas for the three months ended June 30, 2017March 31, 2018 as compared to the three months ended June 30, 2016.March 31, 2017.
The net dollar effect of the increases in prices of approximately $27.1$83.6 million (calculated as the change in period-to-period average prices multiplied by current period production volumes of oil, natural gas liquids and natural gas)gas liquids) and the net dollar effect of the increase in production of approximately $127.9$150.7 million (calculated as the increase in period-to-period volumes for oil, natural gas liquids and natural gas liquids multiplied by the period average prices) are shown below.
| | | Change in prices | Production volumes(1) | Total net dollar effect of change | Change in prices | Production volumes(1) | Total net dollar effect of change |
| | (in thousands) | | (in thousands) |
Effect of changes in price: | | |
Oil | $ | 3.55 |
| 5,236,445 |
| $ | 18,591 |
| $ | 11.86 |
| 6,800 |
| $ | 80,611 |
|
Natural gas | | (0.49 | ) | 6,546 |
| (3,207 | ) |
Natural gas liquids | 3.88 |
| 945,295 |
| 3,668 |
| 4.59 |
| 1,344 |
| 6,167 |
|
Natural gas | 0.97 |
| 4,938,843 |
| 4,791 |
| |
Total revenues due to change in price | | $ | 27,050 |
| | $ | 83,571 |
|
| | |
| Change in production volumes(1) | Prior period Average Prices | Total net dollar effect of change | Change in production volumes(1) | Prior period Average Prices | Total net dollar effect of change |
| | (in thousands) | | (in thousands) |
Effect of changes in production volumes: | | |
Oil | 2,816,856 |
| $ | 41.88 |
| $ | 117,963 |
| 2,642 |
| $ | 49.80 |
| $ | 131,535 |
|
Natural gas | | 2,862 |
| 2.69 |
| 7,711 |
|
Natural gas liquids | 440,060 |
| 13.95 |
| 6,140 |
| 571 |
| 20.05 |
| 11,444 |
|
Natural gas | 2,372,333 |
| 1.60 |
| 3,798 |
| |
Total revenues due to change in production volumes | | 127,901 |
| | 150,690 |
|
Total change in revenues | | $ | 154,951 |
| | $ | 234,261 |
|
| |
(1) | Production volumes are presented in BblsMBbls for oil and natural gas liquids and McfMMcf for natural gas. |
Lease Bonus Revenue. During the three months ended March 31, 2018, we did not receive any lease bonus revenue. Lease bonus revenue was $0.6$1.6 million for the three months ended June 30,March 31, 2017 attributable to lease bonus payments to extend the term of two leases,one lease, reflecting an average bonus of $6,000$2,500 per acre. We had no lease bonus revenue for the three months ended June 30, 2016.
Midstream Services Revenue. Midstream services revenue was $1.4$11.4 million for the three months ended June 30, 2017. We had no midstream services revenueMarch 31, 2018, an increase of $10.3 million as compared to $1.1 million for the three months ended June 30, 2016.March 31, 2017. We began generating midstream services revenue during the first quarter of 2017 and, prior to that period, had no midstream services revenue. Our midstream services revenue represents fees charged to our joint interest owners and third parties for the transportation of oil and natural gas along with water gathering and related disposal facilities. These assets complement our operations in areas where we have significant production.
Lease Operating Expense. Lease operating expense was $29.0$37.3 million ($4.144.04 per BOE) for the three months ended June 30, 2017March 31, 2018 as compared to $18.7$26.6 million ($5.574.80 per BOE) for the three months ended June 30, 2016.March 31, 2017. The decrease in lease operating expense per BOE was a result of steady lease operating expenses offset by higher production volumes.
Production and Ad Valorem Tax Expense. Production and ad valorem taxes were $15.9$27.3 million for the three months ended June 30, 2017,March 31, 2018, an increase of $7.7$11.6 million, or 95%74%, from $8.2$15.7 million for the three months ended June 30, 2016.March 31, 2017. In general, production taxes and ad valorem taxes are directly related to commodity price changes; however, Texas ad valorem taxes are based upon prior year commodity prices, among other factors, whereas production taxes are based upon current year commodity prices. During the three months ended June 30, 2017,March 31, 2018, our production and ad valorem taxes per BOE decreasedincreased by $0.16$0.12 as compared to the three months ended June 30, 2016,March 31, 2017, primarily due to a higher percentage increase inincreased commodity prices and production volumes as compared to production and ad valorem tax expense.volumes.
Midstream Services Expense. Midstream services expense was $1.8$11.2 million for the three months ended June 30, 2017. We had no midstream services expenseMarch 31, 2018, an increase of $10.3 million as compared to $0.9 million for the three months ended June 30, 2016.March 31, 2017. Prior to the first quarter of 2017, we had no midstream services expense. Midstream services expense represents costs incurred to operate and maintain our oil and natural gas gathering and transportation systems, natural gas lift, compression infrastructure and water transportation facilities.
Depreciation, Depletion and Amortization. Depreciation, depletion and amortization expense increased $35.3$56.3 million, or 89%96%, to $75.2$115.2 million for the three months ended June 30, 2017March 31, 2018 from $39.9$58.9 million for the three months ended June 30, 2016.March 31, 2017.
The following table provides the components of our depreciation, depletion and amortization expense for the periods presented:
| | | Three Months Ended June 30, | Three Months Ended March 31, |
| 2017 | 2016 | 2018 | 2017 |
| | |
| (in thousands, except BOE amounts) | (in thousands, except BOE amounts) |
Depletion of proved oil and natural gas properties | $ | 73,808 |
| $ | 39,472 |
| $ | 108,987 |
| $ | 58,138 |
|
Depreciation of midstream assets | 996 |
| — |
| 4,502 |
| 435 |
|
Depreciation of other property and equipment | 369 |
| 399 |
| 1,727 |
| 356 |
|
Depreciation, depletion and amortization expense | $ | 75,173 |
| $ | 39,871 |
| $ | 115,216 |
| $ | 58,929 |
|
Oil and natural gas properties depreciation, depletion and amortization per BOE | $ | 10.56 |
| $ | 11.77 |
| $ | 11.80 |
| $ | 10.49 |
|
Total depreciation, depletion and amortization per BOE | $ | 10.73 |
| $ | 11.89 |
| |
The increase in depletion of proved oil and natural gas properties of $34.3$50.8 million for the three months ended June 30, 2017March 31, 2018 as compared to the three months ended June 30, 2016March 31, 2017 resulted primarily from higher production levels and an increase in net book value on new reserves added.
Impairment of Oil and Natural Gas Properties. During the three months ended June 30, 2016, we recorded an impairment of oil and natural gas properties of $168.4 million as a result of the significant decline in commodity prices, which resulted in a reduction of the discounted present value of our proved oil and natural gas reserves. We did not record an impairment of oil and natural gas properties during the three months ended June 30, 2017.
General and Administrative Expense.Expenses. General and administrative expenseexpenses increased $2.4$2.6 million from $9.5$13.7 million for the three months ended June 30, 2016March 31, 2017 to $11.9$16.3 million for the three months ended June 30, 2017.March 31, 2018. The increase was primarily due to an increase in salaries and benefits of $3.3 million.benefits.
Net Interest Expense. Net interest expense for the three months ended June 30, 2017March 31, 2018 was $8.2$13.7 million as compared to $10.0$12.2 million for the three months ended June 30, 2016, a decreaseMarch 31, 2017, an increase of $1.8$1.5 million. This decreaseincrease was primarily due to the issuance of new senior notes due 2024 at a lowerhigher interest rate than the previous senior notes which were redeemed in the fourth quarter of 2016. In addition to the lower interest rate on the senior notes due 2024, additional senior notes due 2025 were issued in the fourth quarter 2016 for which all of the interest forand increased borrowings during the three months ended June 30, 2017 was capitalized.March 31, 2018 as compared to the three months ended March 31, 2017.
Derivatives. We are required to recognize all derivative instruments on the balance sheet as either assets or liabilities measured at fair value. We have not designated our derivative instruments as hedges for accounting purposes. As a result, we mark our derivative instruments to fair value and recognize the cash and non-cash changes in fair value on derivative instruments in our consolidated statements of operations under the line item captioned “Gain (loss) on derivative instruments, net.” For the three months ended June 30,March 31, 2018 and 2017, we had a cash gain on settlement of derivative instruments of $4.7 million as compared to a cash loss on settlement of derivative instruments of $0.5$32.3 million and $1.7 million, respectively. For the three months ended March 31, 2018, we had a negative change in the fair value of open derivative instruments of $38,000 as compared to a positive change of $39.4 million for the three months ended June 30, 2016. For the three months ended June 30, 2017, we had a positive change in the fairMarch 31, 2017.
value of open derivative instruments of $28.6 million as compared to a negative change of $11.6 million during the three months ended June 30, 2016.
Provision for Income Taxes. We recorded an income tax provision of $1.6$47.1 million and $0.4$2.0 million for the three months ended June 30,March 31, 2018 and 2017, and 2016, respectively.
Comparison of The change in our income tax provision was primarily due to the Six Months Ended June 30, 2017 and 2016
Oil, Natural Gas Liquids and Natural Gas Revenues. Our oil, natural gas liquids and natural gas revenues increased by approximately $300.0 million, or 150%, to $499.9 millionincrease in pre-tax book income for the sixthree months ended June 30, 2017 from $200.0 million for the six months ended June 30, 2016. Our revenues are a function of oil, natural gas liquids and natural gas production volumes sold and average sales prices received for those volumes. Average daily production sold increased by 31,761 BOE/d to 69,336 BOE/d during the six months ended June 30, 2017 from 37,575 BOE/d during the six months ended June 30, 2016. The total increase in revenue of approximately $300.0 million is largely attributable to higher oil, natural gas liquids and natural gas production volumes and higher average sales prices for the six months ended June 30, 2017March 31, 2018 as compared to the sixthree months ended June 30, 2016. The increasesMarch 31, 2017, and the change in production volumes were due to a combination of increased drilling activity and growth through acquisitions. Our production increased by 4,340,428 Bbls of oil, 747,664 Bbls of natural gas liquids and 3,738,756 Mcf of natural gasthe valuation allowance for the sixthree months ended June 30, 2017 as compared to the six months ended June 30, 2016.March 31, 2017.
The net dollar effect of the increases in prices of approximately $130.0 million (calculated as the change in period-to-period average prices multiplied by current period production volumes of oil, natural gas liquids and natural gas) and the net dollar effect of the increase in production of approximately $170.0 million (calculated as the increase in period-to-period volumes for oil, natural gas liquids and natural gas multiplied by the period average prices) are shown below.
|
| | | | | | | | | |
| Change in prices | Production volumes(1) | Total net dollar effect of change |
| | | (in thousands) |
Effect of changes in price: | | | |
Oil | $ | 11.68 |
| 9,394,528 |
| $ | 109,770 |
|
Natural gas liquids | 6.99 |
| 1,718,290 |
| 12,011 |
|
Natural gas | 0.95 |
| 8,621,915 |
| 8,191 |
|
Total revenues due to change in price | | | $ | 129,972 |
|
| | | |
| Change in production volumes(1) | Prior period Average Prices | Total net dollar effect of change |
| | | (in thousands) |
Effect of changes in production volumes: | | | |
Oil | 4,340,428 |
| $ | 35.68 |
| $ | 154,922 |
|
Natural gas liquids | 747,664 |
| 11.84 |
| 8,849 |
|
Natural gas | 3,738,756 |
| 1.67 |
| 6,225 |
|
Total revenues due to change in production volumes | | | 169,996 |
|
Total change in revenues | | | $ | 299,968 |
|
| |
(1) | Production volumes are presented in Bbls for oil and natural gas liquids and Mcf for natural gas. |
Lease Bonus Revenue. Lease bonus revenue was $2.2 million for the six months ended June 30, 2017 attributable to lease bonus payments to extend the term of three leases, reflecting an average bonus of $2,963 per acre. We had no lease bonus revenue for the six months ended June 30, 2016.
Midstream Services Revenue. Midstream services revenue was $2.5 million for the six months ended June 30, 2017. We had no midstream services revenue for the six months ended June 30, 2016. Our midstream services revenue represents fees charged to our joint interest owners and third parties for the transportation of oil and natural gas along with water gathering and related disposal facilities. These assets complement our operations in areas where we have significant production.
Lease Operating Expense. Lease operating expense was $55.6 million ($4.43 per BOE) for the six months ended June 30, 2017 as compared to $36.9 million ($5.40 per BOE) for the six months ended June 30, 2016. The
decrease in lease operating expense per BOE was a result of steady lease operating expenses offset by higher production volumes.
Production and Ad Valorem Tax Expense. Production and ad valorem taxes were $31.6 million for the six months ended June 30, 2017, an increase of $15.5 million, or 96%, from $16.1 million for the six months ended June 30, 2016. In general, production taxes and ad valorem taxes are directly related to commodity price changes; however, Texas ad valorem taxes are based upon prior year commodity prices, among other factors, whereas production taxes are based upon current year commodity prices. During the six months ended June 30, 2017, our production and ad valorem taxes per BOE increased by $0.16 as compared to the six months ended June 30, 2016, primarily due to increased commodity prices and production volumes.
Midstream Services Expense. Midstream services expense was $2.7 million for the six months ended June 30, 2017. We had no midstream services expense for the six months ended June 30, 2016. Midstream services expense represents costs incurred to operate and maintain our oil and natural gas gathering and transportation systems, natural gas lift, compression infrastructure and water transportation facilities.
Depreciation, Depletion and Amortization. Depreciation, depletion and amortization expense increased $52.2 million, or 64%, to $134.1 million for the six months ended June 30, 2017 from $81.9 million for the six months ended June 30, 2016.
The following table provides the components of our depreciation, depletion and amortization expense for the periods presented:
|
| | | | | | |
| Six Months Ended June 30, |
| 2017 | 2016 |
| | |
| (in thousands, except BOE amounts) |
Depletion of proved oil and natural gas properties | $ | 131,947 |
| $ | 81,135 |
|
Depreciation of midstream assets | 1,431 |
| — |
|
Depreciation of other property and equipment | 724 |
| 805 |
|
Depreciation, depletion and amortization expense | $ | 134,102 |
| $ | 81,940 |
|
Oil and natural gas properties depreciation, depletion and amortization per BOE | $ | 10.52 |
| $ | 11.86 |
|
Total depreciation, depletion and amortization per BOE | $ | 10.69 |
| $ | 11.98 |
|
The increase in depletion of proved oil and natural gas properties of $50.8 million for the six months ended June 30, 2017 as compared to the six months ended June 30, 2016 resulted primarily from higher production levels and an increase in net book value on new reserves added.
Impairment of Oil and Gas Natural Properties. During the six months ended June 30, 2016, we recorded an impairment of oil and natural gas properties of $199.2 million as a result of the significant decline in commodity prices, which resulted in a reduction of the discounted present value of our proved oil and natural gas reserves. We did not record an impairment of oil and natural gas properties during the six months ended June 30, 2017.
General and Administrative Expense. General and administrative expense increased $3.1 million from $22.5 million for the six months ended June 30, 2016 to $25.6 million for the six months ended June 30, 2017. The increase was primarily due to an increase in salaries and benefits of $4.7 million partially offset by a decrease in non-cash equity compensation of $1.1 million.
Net Interest Expense. Net interest expense for the six months ended June 30, 2017 was $20.5 million as compared to $20.0 million for the six months ended June 30, 2016, an increase of $0.4 million. This increase was primarily due to interest on our senior notes issued in December 2016.
Derivatives. We are required to recognize all derivative instruments on the balance sheet as either assets or liabilities measured at fair value. We have not designated our derivative instruments as hedges for accounting purposes. As a result, we mark our derivative instruments to fair value and recognize the cash and non-cash changes in fair value on derivative instruments in our consolidated statements of operations under the line item captioned “Gain (loss) on derivative instruments, net.” For the six months ended June 30, 2017 and 2016, we had a cash gain on settlement of derivative instruments of $3.0 million and $4.6 million, respectively. For the six months ended June 30, 2017, we had
a positive change in the fair value of open derivative instruments of $68.0 million as compared to a negative change of $15.3 million for the six months ended June 30, 2016.
Provision for Income Taxes. We recorded an income tax provision of $3.5 million and $0.4 million for the six months ended June 30, 2017 and 2016, respectively.
Liquidity and Capital Resources
Our primary sources of liquidity have been proceeds from our public equity offerings, borrowings under our revolving credit facility, proceeds from the issuance of theour senior notes and cash flows from operations. Our primary uses of capital have been for the acquisition, development and exploration of oil and natural gas properties. As we pursue reserves and production growth, we regularly consider which capital resources, including equity and debt financings, are available to meet our future financial obligations, planned capital expenditure activities and liquidity requirements. Our future ability to grow proved reserves and production will be highly dependent on the capital resources available to us.
Liquidity and Cash Flow
Our cash flows for the sixthree months ended June 30,March 31, 2018 and 2017 and 2016 are presented below:
| | | Six Months Ended June 30, | Three Months Ended March 31, |
| 2017 | 2016 | 2018 | 2017 |
| (in thousands) | (in thousands) |
Net cash provided by operating activities | $ | 394,431 |
| $ | 121,781 |
| $ | 339,427 |
| $ | 175,927 |
|
Net cash used in investing activities | (2,221,476 | ) | (180,376 | ) | (584,931 | ) | (1,825,479 | ) |
Net cash provided by financing activities | 177,059 |
| 257,274 |
| 205,545 |
| 20,418 |
|
Net increase (decrease) in cash | $ | (1,649,986 | ) | $ | 198,679 |
| |
Net decrease in cash | | $ | (39,959 | ) | $ | (1,629,134 | ) |
Operating Activities
Net cash provided by operating activities was $394.4$339.4 million for the sixthree months ended June 30, 2017March 31, 2018 as compared to $121.8$175.9 million for the sixthree months ended June 30, 2016.March 31, 2017. The increase in operating cash flows is primarily the result of an increase in our oil and natural gas revenues due to an increase in average prices and production growth during the sixthree months ended June 30, 2017.March 31, 2018.
Our operating cash flow is sensitive to many variables, the most significant of which is the volatility of prices for the oil and natural gas we produce. Prices for these commodities are determined primarily by prevailing market conditions. Regional and worldwide economic activity, weather and other substantially variable factors influence market conditions for these products. These factors are beyond our control and are difficult to predict. See “—Sources of our revenue” above.
Investing Activities
The purchase and development of oil and natural gas properties accounted for the majority of our cash outlays for investing activities. Net cash used in investing activities was $2,221.5$584.9 million and $180.4$1,825.5 million during the sixthree months ended June 30,March 31, 2018 and 2017, and 2016, respectively.
During the sixthree months ended June 30, 2017,March 31, 2018, we spent (a) $296.2$280.0 million on capital expenditures in conjunction with our development program, in which we drilled 6441 gross (55(36 net) operated horizontal wells, completed 61of which 14 gross (52(13 net) wells were in the Delaware Basin and the remaining wells were in the Midland Basin, and turned 35 gross (30 net) operated horizontal wells and participatedinto production, of which six gross (six net) wells were in the drilling of 11 gross (two net) non-operatedDelaware Basin and the remaining wells were in the PermianMidland Basin, (b) $1,861.0$38.4 million on additions to midstream assets, (c) $16.0 million on leasehold acquisitions, (c) $50.3(d) $150.0 million for midstream assetsthe acquisition of mineral interests and (d) $13.8(e) $1.9 million for the purchase of other property and equipment.
During the sixthree months ended June 30, 2016,March 31, 2017, we spent $149.7(a) $116.2 million on capital expenditures in conjunction with our drilling program and related infrastructure projects, in which we drilled 3128 gross (25(23 net) horizontal wells, completed 1926 gross (17(20 net) horizontal wells and participated in the drilling of eightsix gross (two(one net) non-operated wells in the Permian Basin. We spent an additional $17.5Basin, (b) $1,760.8 million on leasehold acquisitions, $11.3(c) $48.3 million for the acquisition of midstream assets, (d) $8.6 million on royaltymineral interest acquisitions and $1.2(e) $11.9 million for the purchase of other property and equipment.
Our investing activities for the sixthree months ended June 30,March 31, 2018 and 2017 and 2016 are summarized in the following table:
| | | Six Months Ended June 30, | Three Months Ended March 31, |
| 2017 | 2016 | 2018 | 2017 |
| (in thousands) | (in thousands) |
Drilling, completion and infrastructure | $ | (296,211 | ) | $ | (149,661 | ) | $ | (280,015 | ) | $ | (116,174 | ) |
Additions to midstream assets | | (38,395 | ) | (59 | ) |
Acquisition of leasehold interests | (1,860,980 | ) | (17,533 | ) | (16,011 | ) | (1,760,810 | ) |
Acquisition of mineral interests | (122,679 | ) | (11,319 | ) | (150,013 | ) | (8,579 | ) |
Acquisition of midstream assets | (50,279 | ) | — |
| — |
| (48,329 | ) |
Purchase of other property and equipment | (13,825 | ) | (1,224 | ) | |
Proceeds from sale of property and equipment | 1,295 |
| 161 |
| |
Purchase of other property, equipment and land | | (1,947 | ) | (11,918 | ) |
Investment in real estate | | (109,664 | ) | — |
|
Proceeds from sale of assets | | 125 |
| 1,238 |
|
Funds held in escrow | 121,391 |
| — |
| 10,989 |
| 119,340 |
|
Equity investments | (188 | ) | (800 | ) | — |
| (188 | ) |
Net cash used in investing activities | $ | (2,221,476 | ) | $ | (180,376 | ) | $ | (584,931 | ) | $ | (1,825,479 | ) |
Financing Activities
Net cash provided by financing activities for the sixthree months ended June 30,March 31, 2018 and 2017 and 2016 was $177.1$205.5 million and $257.3$20.4 million, respectively. During the sixthree months ended June 30, 2017,March 31, 2018, the amount provided by financing activities was primarily attributable to the issuance of $300.0 million of new senior notes and $12.0 million of premium on proceeds from Viper’s January 2017 equity offering of $147.7 millionthe new senior notes, partially offset by $84.0 million of repayments, net of net borrowings, and $18.7 million of $45.0 million.distributions to non-controlling interest. The 20162017 amount provided by financing activities was primarily attributable to the$147.7 million of proceeds from ourViper’s January 20162017 equity offering, of $254.5 million partially offset by $120.5 million of repayments, net of net borrowings, of $6.0 million under ourViper’s credit facility.
2024 Senior Notes
On October 28, 2016, we issued $500.0 million in aggregate principal amount of 4.750% senior notes due 2024, which we refer to as the 2024 senior notes. The 2024 senior notes bear interest at a rate of 4.750% per annum, payable semi-annually, in arrears on May 1 and November 1 of each year, commencing on May 1, 2017 and will mature on November 1, 2024. All of our existing and future restricted subsidiaries that guarantee our revolving credit facility or certain other debt guarantee the 2024 senior notes; provided, however, that the 2024 senior notes are not guaranteed by Viper, Viper Energy Partners GP LLC, Viper Energy Partners LLC or Rattler Midstream LLC, and will not be guaranteed by any of the our future unrestricted subsidiaries.
The 2024 senior notes were issued under, and are governed by, an indenture among us, the subsidiary guarantors party thereto and Wells Fargo, as the trustee, as supplemented. The 2024 indenture contains certain covenants that, subject to certain exceptions and qualifications, among other things, limit our ability and the ability of the restricted subsidiaries to incur or guarantee additional indebtedness, make certain investments, declare or pay dividends or make other distributions on capital stock, prepay subordinated indebtedness, sell assets including capital stock of restricted subsidiaries, agree to payment restrictions affecting our restricted subsidiaries, consolidate, merge, sell or otherwise dispose of all or substantially all of our assets, enter into transactions with affiliates, incur liens, engage in business other than the oil and natural gas business and designate certain of our subsidiaries as unrestricted subsidiaries.
We may on any one or more occasions redeem some or all of the 2024 senior notes at any time on or after November 1, 2019 at the redemption prices (expressed as percentages of principal amount) of 103.563% for the 12-month period beginning on November 1, 2019, 102.375% for the 12-month period beginning on November 1, 2020, 101.188% for the 12-month period beginning on November 1, 2021 and 100.000% beginning on November 1, 2022 and at any time thereafter with any accrued and unpaid interest to, but not including, the date of redemption. Prior to November 1, 2019, we may on any one or more occasions redeem all or a portion of the 2024 senior notes at a price equal to 100% of the principal amount of the 2024 senior notes plus a “make-whole” premium and accrued and unpaid interest to the redemption date. In addition, any time prior to November 1, 2019, we may on any one or more occasions redeem the 2024 senior notes in an aggregate principal amount not to exceed 35% of the aggregate principal amount
of the 2024 senior notes issued prior to such date at a redemption price of 104.750%, plus accrued and unpaid interest to the redemption date, with an amount equal to the net cash proceeds from certain equity offerings.
2025 Senior Notes
On December 20, 2016, we issued $500.0 million in aggregate principal amount of 5.375% senior notes due 2025, which we refer to as the exiting 2025 notes, under an indenture (which, as may be amended or supplemented from time to time, is referred to as the 2025 Indenture) among us, the subsidiary guarantors party thereto and Wells Fargo, as the trustee. On July 27, 2017, we exchanged all of the existing 2025 notes for substantially identical notes in the same aggregate principal amount that were registered under the Securities Act.
On January 29, 2018, we issued $300.0 million aggregate principal amount of new 5.375% senior notes due 2025, which we refer to as the new 2025 notes, as additional notes under the 2025 Indenture. The new 2025 notes were issued in a transaction exempt from the registration requirements under the Securities Act. We refer to the new 2025 notes, together with the existing 2025 notes, as the 2025 senior notes. We received approximately $308.4 million in net proceeds, after deducting the initial purchaser’s discount and our estimated offering expenses, but disregarding accrued interest, from the issuance of the new 2025 notes. We used the net proceeds from the issuance of the new 2025 notes to repay a portion of the outstanding borrowings under our revolving credit facility.
The 2025 senior notes bear interest at a rate of 5.375% per annum, payable semi-annually, in arrears on May 31 and November 30 of each year commencing on May 31, 2017 and will mature on May 31, 2025. All of our existing and future restricted subsidiaries that guarantee our revolving credit facility or certain other debt guarantee the 2025 senior notes,notes; provided, however, that the 2025 senior notes are not guaranteed by Viper, Viper Energy Partners GP LLC, Viper Energy Partners LLC or Rattler Midstream LLC, and will not be guaranteed by any of our future unrestricted subsidiaries.
The 2025 senior notes were issued under an indenture, dated as of December 20, 2016, among us, the guarantors party thereto and Wells Fargo, as the trustee. The 2025 Indenture contains certain covenants that, subject to certain exceptions and qualifications, among other things, limit our ability and the ability of the restricted subsidiaries to incur or guarantee additional indebtedness, make certain investments, declare or pay dividends or make other distributions on capital stock, prepay subordinated indebtedness, sell assets including capital stock of restricted subsidiaries, agree to payment restrictions affecting our restricted subsidiaries, consolidate, merge, sell or otherwise dispose of all or substantially all of our assets, enter into transactions with affiliates, incur liens, engage in business other than the oil and natural gas business and designate certain of our subsidiaries as unrestricted subsidiaries.
We may on any one or more occasions redeem some or all of the 2025 senior notes at any time on or after May 31, 2020 at the redemption prices (expressed as percentages of principal amount) of 104.031% for the 12-month period beginning on May 31, 2020, 102.688% for the 12-month period beginning on May 31, 2021, 101.344% for the 12-month period beginning on May 31, 2022 and 100.000% beginning on May 31, 2023 and at any time thereafter with any accrued and unpaid interest to, but not including, the date of redemption. Prior to May 31, 2020, we may on any one or more occasions redeem all or a portion of the 2025 senior notes at a price equal to 100% of the principal amount of the 2025 senior notes plus a “make-whole” premium and accrued and unpaid interest to the redemption date. In addition, any time prior to May 31, 2020, we may on any one or more occasions redeem the 2025 senior notes in an aggregate principal amount not to exceed 35% of the aggregate principal amount of the 2025 senior notes issued prior to such date at a redemption price of 105.375%, plus accrued and unpaid interest to the redemption date, with an amount equal to the net cash proceeds from certain equity offerings.
As requiredUnder a registration rights agreement executed in connection with the issuance of the new 2025 notes, we and our subsidiary guarantors agreed to file, subject to certain conditions, a registration statement relating to the new 2025 notes with the SEC pursuant to which we will either offer to exchange the new 2025 notes for registered notes with substantially identical terms or, in certain circumstances, register the resale of the new 2025 notes. Additional interest on the new 2025 notes may become payable if we do not comply with our obligations under the terms of the registration rights agreementsagreement relating to the 2024 senior notes and thenew 2025 senior notes, we filed with the SEC our Registration Statement on Form S-4, as amended, relating to the exchange offers of the 2024 senior notes and the 2025 senior notes for substantially identical notes registered under the Securities Act. The Registration Statement was declared effective by the SEC on June 21, 2017 and we closed these exchange offers on July 27, 2017, in which all privately placed 2024 senior notes and 2025 senior notes were exchanged for substantially identical notes registered under the Securities Act.notes.
Second Amended and Restated Credit Facility
Our second amended and restated credit agreement dated November 1, 2013, as amended and restated, with a syndicate of banks, including Wells Fargo, as administrative agent, and its affiliate Wells Fargo Securities, LLC, as sole book runner and lead arranger, provides for a revolving credit facility in the maximum credit amount of $2.0 billion.$5.0 billion, subject to a borrowing base based on our oil and natural gas reserves and other factors (the “borrowing base”). The borrowing base is scheduled to be redetermined, under certain circumstances, annually with an effective date of May 1st, and, under certain circumstances, semi-annually with effective dates of May 1st and November 1st. In addition, we may request up to two additional
redeterminations of the borrowing base during any 12-month period. As of June 30, 2017,March 31, 2018, the borrowing base was set at $1.5$1.8 billion, although we had elected a commitment amount of $750.0 million. As of June 30, 2017,$1.0 billion and we had $84.0borrowings of $166.0 million in outstanding borrowingsunder the revolving credit facility and $666.0$834.0 million available for future borrowings under thisour revolving credit facility. In connection with our spring 2018 redetermination, the agent lender under the credit agreement has recommended that our borrowing base be increased to $2.0 billion. This increase is subject to approval of the required other lenders. Notwithstanding such adjustment, we intend to continue to limit the lenders’ aggregate commitment to $1.0 billion.
Diamondback O&G LLC is the borrower under our credit agreement. As of March 31, 2018, the credit agreement is guaranteed by us, Diamondback E&P LLC and Rattler Midstream LLC (formerly known as White Fang Energy LLC) and will also be guaranteed by any of our future subsidiaries that are classified as restricted subsidiaries under the credit agreement. The credit agreement is also secured by substantially all of our assets and the assets of Diamondback O&G LLC and the guarantors.
The outstanding borrowings under the credit agreement bear interest at a per annum rate elected by us that is equal to an alternative base rate (which is equal to the greatest of the prime rate, the Federal Funds effective rate plus 0.50% and 3-month LIBOR plus 1.0%) or LIBOR, in each case plus the applicable margin. The applicable margin ranges from 0.50%0.25% to 1.50%1.25% in the case of the alternative base rate and from 1.50%1.25% to 2.50%2.25% in the case of LIBOR, in each case dependingof which applicable margin rates is increased by 0.25% per annum if the total debt to EBITDAX ratio is greater than 3.0 to 1.0. The applicable margin depends on the amount of the loanloans and letters of credit outstanding in relation to the commitment, which is defined as the least of the maximum credit amount, the borrowing base.base and the elected commitment amount. We are obligated to pay a quarterly commitment fee ranging from 0.375% to 0.500% per year on the unused portion of the borrowing base, which fee is also dependent on the amount of the loanloans and letters of credit outstanding in relation to the borrowing base.commitment. Loan principal may be optionally repaid from time to time without premium or penalty (other than customary LIBOR breakage), and is required to be repaid (a) to the extent that the loan amount exceeds the commitment or the borrowing base, whether due to a borrowing base redetermination or otherwise (in some cases subject to a cure period), (b) in an amount equal to the net cash proceeds from the sale of property when a borrowing base deficiency or event of default exists under the credit agreement and (c) at the maturity date of November 1, 2018.
The credit agreement contains various affirmative, negative and financial maintenance covenants. These covenants, among other things, limit additional indebtedness, additional liens, sales of assets, mergers and consolidations, dividends and distributions, transactions with affiliates and entering into certain swap agreements and require the maintenance of the financial ratios described below.
|
| |
Financial Covenant | Required Ratio |
Ratio of total debt to EBITDAX | Not greater than 4.0 to 1.0 |
Ratio of current assets to liabilities, as defined in the credit agreement | Not less than 1.0 to 1.0 |
The covenant prohibiting additional indebtedness, as amended in December 2016,November 2017, allows for the issuance of unsecured debt of up to $1.0 billion in the form of senior or senior subordinated notes if no default would result from the incurrence of such debt after giving effect thereto and if, in connection with any such issuance, the reduction of the borrowing base is reduced by 25% of the stated principal amount of each such issuance. A borrowing base reduction in connection with such issuance may require a portion of the outstanding principal of the loan to be repaid. As of June 30, 2017, we had $1.0 billion in aggregate principal amount of senior notes outstanding.
As of June 30, 2017,March 31, 2018, we were in compliance with all financial covenants under our revolving credit facility. The lenders may accelerate all of the indebtedness under our revolving credit facility upon the occurrence and during the continuance of any event of default. The credit agreement contains customary events of default, including non-payment, breach of covenants, materially incorrect representations, cross-default, bankruptcy and change of control. With certain specified exceptions, the terms and provisions of our revolving credit facility generally may be amended with the consent of the lenders holding a majority of the outstanding loans or commitments to lend.
Viper’s Facility-Wells Fargo Bank
On July 8, 2014, Viper isentered into a party to a $500.0 million secured revolving credit agreement dated as of July 8, 2014, as amended, with Wells Fargo, as the administrative agent, and Wells Fargo Securities, as sole book runner and lead arranger, and certain other lenders party thereto.arranger. The credit agreement, maturesas amended, provides for a revolving credit facility in the maximum credit amount of $2.0 billion and a borrowing base based on July 8, 2019.Viper’s oil and natural gas reserves and other factors (the “borrowing base”) of $400.0 million, subject to scheduled semi-annual and other elective borrowing base redeterminations. The borrowing base is scheduled to be re-determined semi-annually with effective dates of AprilMay 1st and OctoberNovember 1st. In addition, the PartnershipViper may request up to three additional redeterminations of the borrowing base during any 12-month period. As of June 30, 2017,March 31, 2018, the borrowing base was set at $315.0$400.0 million,
and Viper had $81.5$240.5 million inof outstanding borrowings under its credit agreement. As of July 14, 2017, Viper had $152.8 million outstanding under its revolving credit facility, all of which was repaid with a portion of the net proceeds from Viper’s July 2017 public offering of common units. Following Viper’s July 2017 public offering and the application of the net proceeds thereof, Viper had $315.0$159.5 million available for future borrowings under its revolving credit facility. In connection with Viper’s spring 2018 redetermination, the agent lender under the credit agreement has recommended that Viper’s borrowing base be increased to $475.0 million. This increase is subject to approval of the required other lenders.
The outstanding borrowings under Viper’s credit agreement bear interest at a per annum rate elected by Viper that is equal to an alternativealternate base rate (which is equal to the greatest of the prime rate, the Federal Funds effective rate plus 0.5% and 3-month LIBOR plus 1.0%) or LIBOR, in each case plus the applicable margin. The applicable margin ranges from 1.00%0.75% to 2.00%1.75% per annum in the case of the alternativealternate base rate and from 2.00%1.75% to 3.00%2.75% per annum in the case of LIBOR, in each case depending on the amount of the loanloans and letters of credit outstanding in relation to the commitment, which is defined as the lesser of the maximum credit amount and the borrowing base. Viper is obligated to pay a quarterly commitment fee ranging from 0.375% to 0.500% per year on the unused portion of the borrowing base,commitment, which fee is also dependent on the amount of the loanloans and letters of credit outstanding in relation to the borrowing base.commitment. Loan principal may be optionally repaid from time to time without premium or penalty (other than customary LIBOR breakage), and is required to be repaid (a) to the extent that the loan amount exceeds the commitment or the borrowing base, whether due to a borrowing base redetermination or otherwise (in some cases subject to a cure period), (b) in an amount equal to the net cash proceeds from the sale of property when a borrowing base deficiency or event of default exists under the credit agreement and (b)(c) at the maturity date of July 8, 2019.November 1, 2022. The loan is secured by substantially all of the assets of Viper and its subsidiaries.subsidiary’s assets.
The Viper credit agreement contains various affirmative, negative and financial maintenance covenants. These covenants, among other things, limit additional indebtedness, purchases of margin stock, additional liens, sales of assets, mergers and consolidations, dividends and distributions, transactions with affiliates and entering into certain swap agreements and require the maintenance of the financial ratios described below.
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Financial Covenant | Required Ratio |
Ratio of total debt to EBITDAX | Not greater than 4.0 to 1.0 |
Ratio of current assets to liabilities, as defined in the credit agreement | Not less than 1.0 to 1.0 |
The covenant prohibiting additional indebtedness allows for the issuance of unsecured debt of up to $250.0$400.0 million in the form of senior unsecured notes and, in connection with any such issuance, the reduction of the borrowing
base by 25% of the stated principal amount of each such issuance. A borrowing base reduction in connection with such issuance may require a portion of the outstanding principal of the loan to be repaid.
The lenders may accelerate all of the indebtedness under Viper’s revolving credit facility upon the occurrence and during the continuance of any event of default. Viper’s credit agreement contains customary events of default, including non-payment, breach of covenants, materially incorrect representations, cross-default, bankruptcy and change of control. There are no cure periods for events of default due to non-payment of principal and breaches of negative and financial covenants, but non-payment of interest and breaches of certain affirmative covenants are subject to customary cure periods.
Capital Requirements and Sources of Liquidity
Our board of directors approved a 20172018 capital budget for drilling and infrastructure of approximately $800.0 million$1.3 billion to $950.0 million,$1.5 billion, representing an increase of 126%60% over our 20162017 capital budget. We estimate that, of these expenditures, approximately:
$650.01,175.0 million to $825.0$1,325.0 million will be spent on drilling and completing 130170 to 165190 gross (110(146 to 140163 net) operated horizontal wells focusedacross our operated leasehold acreage in the Northern Midland and Southern Delaware BasinsBasins; and participating in non-operated activity;
$150.0125.0 million to $175.0 million will be spent on infrastructure and other expenditures, excluding the cost of any leasehold and mineral interest acquisitions; and
$75.0 million in midstream assets.
acquisitions.
During the sixthree months ended June 30, 2017,March 31, 2018, our aggregate capital expenditures for our development program were $296.2$280.0 million. We do not have a specific acquisition budget since the timing and size of acquisitions cannot be accurately forecasted. During the sixthree months ended June 30, 2017,March 31, 2018, we spent approximately $1.9 billion$16.0 million in cash on acquisitions of leasehold interests. interests and mineral acres.
The amount and timing of these capital expenditures are largely discretionary and within our control. We could choose to defer a portion of these planned capital expenditures depending on a variety of factors, including but not limited to the success of our drilling activities, prevailing and anticipated prices for oil and natural gas, the availability of necessary equipment, infrastructure and capital, the receipt and timing of required regulatory permits and approvals, seasonal conditions, drilling and acquisition costs and the level of participation by other interest owners. We are currently operating nine11 drilling rigs and threefive completion crews. We will continue monitoring commodity prices and overall market conditions and can adjust our rig cadence up or down in response to changes in commodity prices and overall market conditions.
Based upon current oil and natural gas priceprices and production expectations for 2017,2018, we believe that our cash flow from operations, cash on hand and borrowings under our revolving credit facility will be sufficient to fund our operations through year-end 2017.2018. However, future cash flows are subject to a number of variables, including the level of oil and natural gas production and prices, and significant additional capital expenditures will be required to more fully develop our properties. Further, our 20172018 capital expenditure budget does not allocate any funds for leasehold interest and property acquisitions.
We monitor and adjust our projected capital expenditures in response to success or lack of success in drilling activities, changes in prices, availability of financing, drilling and acquisition costs, industry conditions, the timing of regulatory approvals, the availability of rigs, contractual obligations, internally generated cash flow and other factors both within and outside our control. If we require additional capital, we may seek such capital through traditional reserve base borrowings, joint venture partnerships, production payment financing, asset sales, offerings of debt and or equity securities or other means. We cannot assure you that the needed capital will be available on acceptable terms or at all. If we are unable to obtain funds when needed or on acceptable terms, we may be required to curtail our drilling programs, which could result in a loss of acreage through lease expirations. In addition, we may not be able to complete acquisitions that may be favorable to us or finance the capital expenditures necessary to replace our reserves. If there is furthera decline in commodity prices, our revenues, cash flows, results of operations, liquidity and reserves may be materially and adversely affected.
Contractual Obligations
Except as discussed in Note 1516 of the Notes to the Consolidated Financial Statements of this report, there were no material changes to our contractual obligations and other commitments, as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2016.2017.
Critical Accounting Policies
There have been no changes in our critical accounting policies from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2016.2017.
Off-Balance Sheet Arrangements
We had no off-balance sheet arrangements as of June 30, 2017.March 31, 2018. Please read Note 1516 included in Notes to the Combined Consolidated Financial Statements set forth in Part I, Item 1 of this report, for a discussion of our commitments and contingencies, some of which are not recognized in the balance sheets under GAAP.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Commodity Price Risk
Our major market risk exposure is in the pricing applicable to our oil and natural gas production. Realized pricing is primarily driven by the prevailing worldwide price for crude oil and spot market prices applicable to our natural gas production. Pricing for oil and natural gas production has been volatile and unpredictable for several years, and we expect this volatility to continue in the future. The prices we receive for production depend on many factors outside of our control.
We use price swap derivatives, including basis swaps and costless collars, to reduce price volatility associated with certain of our oil and natural gas sales. With respect to these fixed price swap contracts, the counterparty is required to make a payment to us if the settlement price for any settlement period is less than the swap price, and we are required to make a payment to the counterparty if the settlement price for any settlement period is greater than the swap price.
Our derivative contracts are based upon reported settlement prices on commodity exchanges, with crude oil derivative settlements based on NYMEX West Texas Intermediate pricing and Crude Oil - Brent and with natural gas derivative settlements based on NYMEX Henry Hub pricing.
At June 30,March 31, 2018 and December 31, 2017, we had a net asset derivative position of $46.1 million as compared to a net liability derivative position of $22.6$106.2 million at December 31, 2016and $106.7 million, respectively, related to our price swap derivatives. Utilizing actual derivative contractual volumes under our fixed price swaps as of June 30, 2017,March 31, 2018, a 10% increase in forward curves associated with the underlying commodity would have decreasedincreased the net assetliability position to $21.7$172.8 million, a decreasean increase of $24.4$66.6 million, while a 10% decrease in forward curves associated with the underlying commodity would have increaseddecreased the net asset derivative position to $70.5$39.6 million, an increasea decrease of $24.4$66.6 million. However, any cash derivative gain or loss would be substantially offset by a decrease or increase, respectively, in the actual sales value of production covered by the derivative instrument.
Counterparty and Customer Credit Risk
Our principal exposures to credit risk are through receivables resulting from joint interest receivables (approximately $71.7$71.0 million at June 30, 2017)March 31, 2018) and receivables from the sale of our oil and natural gas production (approximately $83.0$165.3 million at June 30, 2017)March 31, 2018).
We are subject to credit risk due to the concentration of our oil and natural gas receivables with several significant customers. We do not require our customers to post collateral, and the inability of our significant customers to meet their obligations to us or their insolvency or liquidation may adversely affect our financial results. For the sixthree months ended June 30,March 31, 2018, two purchasers each accounted for more than 10% of our revenue: Shell Trading (US) Company (30%) and Koch Supply & Trading LP (20%). For the three months ended March 31, 2017, three purchasers each accounted for more than 10% of our revenue: Shell Trading (US) Company (37%(42%); Koch Supply & Trading LP (17%(18%); and Enterprise Crude Oil LLC (11%). For the six months ended June 30, 2016, three purchasers each accounted for more than 10% of our revenue: Shell Trading (US) Company (52%); Enterprise Crude Oil LLC (13%); and Koch Supply & Trading LP (11%(14%). No other customer accounted for more than 10% of our revenue during these periods.
Joint operations receivables arise from billings to entities that own partial interests in the wells we operate. These entities participate in our wells primarily based on their ownership in leases on which we intend to drill. We have little ability to control whether these entities will participate in our wells. At June 30, 2017,March 31, 2018, we had twofive customers that represented approximately 62%86% of our total joint operations receivables. At December 31, 2016,2017, we had three customers that represented approximately 75%74% of our total joint operations receivables.
Interest Rate Risk
We are subject to market risk exposure related to changes in interest rates on our indebtedness under our revolving credit facility. The terms of our revolving credit facility provide for interest on borrowings at a floating rate equal to an alternative base rate (which is equal to the greatest of the prime rate, the Federal Funds effective rate plus 0.5% and 3-month LIBOR plus 1.0%) or LIBOR, in each case plus the applicable margin. The applicable margin ranges from 0.50%0.25% to 1.50%1.25% in the case of the alternative base rate and from 1.50%1.25% to 2.50%2.25% in the case of LIBOR, in each case depending on the amount of the loan outstanding in relation to the borrowing base.
As of June 30, 2017,March 31, 2018, we had $84.0$166.0 million in outstanding borrowings under our revolving credit facility. Our weighted average interest rate on borrowings under our revolving credit facility was 2.63%3.05%. An increase or decrease of 1% in the interest rate would have a corresponding decrease or increase in our interest expense of approximately $0.8$1.7 million based on an aggregate of $84.0$166.0 million outstanding under our revolving credit facility as of June 30, 2017.March 31, 2018.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Control and Procedures
Under the direction of our Chief Executive Officer and Chief Financial Officer, we have established disclosure controls and procedures, as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act, that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. The disclosure controls and procedures are also intended to ensure that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures. In designing and evaluating
the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.
As of June 30, 2017,March 31, 2018, an evaluation was performed under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15(b) under the Exchange Act. Based upon our evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that as of June 30, 2017,March 31, 2018, our disclosure controls and procedures are effective.
Changes in Internal Control over Financial Reporting
There have not been any changes in our internal control over financial reporting that occurred during the quarter ended June 30, 2017March 31, 2018 that have materially affected, or are reasonably likely to materially affect, internal controls over financial reporting.
PART II
ITEM 1. LEGAL PROCEEDINGS
Due to the nature of our business, we are, from time to time, involved in routine litigation or subject to disputes or claims related to our business activities, including workers’ compensation claims and employment related disputes. In the opinion of our management, none of the pending litigation, disputes or claims against us, if decided adversely, will have a material adverse effect on our financial condition, cash flows or results of operations.
ITEM 1A. RISK FACTORS
Our business faces many risks. Any of the risks discussed in this Form 10-Q and our other SEC filings could have a material impact on our business, financial position or results of operations. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may also materially impair our business operations, financial condition or future results.
In addition to the information set forth in this report, you should carefully consider the risk factors discussed in Part I, Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2016.2017. There have been no material changes in our risk factors from those described in our Annual Report on Form 10-K for the year ended December 31, 2016.2017.
ITEM 6. EXHIBITS
EXHIBIT INDEX
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Exhibit Number | Description |
3.1 | |
3.2 | |
4.1 | |
4.2 | |
4.3 | |
4.4 | Indenture, dated as of October 28, 2016, among Diamondback Energy, Inc., the guarantors party thereto and Wells Fargo Bank, National Association, as trustee (including the form of Diamondback Energy, Inc.’s 4.750 % Senior Notes due 2024) (incorporated by reference to Exhibit 4.1 to the Form 8-K , File No. 001-35700, filed by the Company with the SEC on November 2, 2016). |
4.5 | Registration Rights Agreement,Indenture, dated as of October 28,December 20, 2016, among Diamondback Energy, Inc., the guarantors party thereto and J.P. Morgan Securities LLCWells Fargo Bank, National Association, as trustee (including the form of Diamondback Energy, Inc.’s 5.375% Senior Notes due 2025) (incorporated by reference to Exhibit 4.24.1 to the Form 8-K, , File No. 001-35700, filed by the Company with the SEC on November 2,December 21, 2016). |
4.6 | First Supplemental Indenture, dated as of January 29, 2018, among Diamondback Energy, Inc., the guarantors party thereto and Wells Fargo Bank, National Association, as trustee (incorporated by reference to Exhibit 4.3 to the Form 8-K, File No. 001-35700, filed by the Company with the SEC on January 30, 2018). |
4.7 | |
4.8 | Registration Rights Agreement, dated as of February 28, 2017, by and among Diamondback Energy, Inc., Brigham Resources, LLC, Brigham Resources Operating, LLC and Brigham Resources Upstream Holdings, LP (incorporated by reference to Exhibit 4.1 to the Form 8-K, File No. 001-35700, filed by the Company with the SEC on March 6, 2017). |
31.1* | |
31.2* | |
32.1** | |
32.2** | |
101.INS* | XBRL Instance Document. |
101.SCH* | XBRL Taxonomy Extension Schema Document. |
101.CAL* | XBRL Taxonomy Extension Calculation Linkbase. |
101.DEF* | XBRL Taxonomy Extension Definition Linkbase Document. |
101.LAB* | XBRL Taxonomy Extension Labels Linkbase Document. |
101.PRE* | XBRL Taxonomy Extension Presentation Linkbase Document. |
______________
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* | Filed herewith. |
** | The certifications attached as Exhibit 32.1 and Exhibit 32.2 accompany this Annual Report on Form 10-K pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, and shall not be deemed “filed” by the Registrant for purposes of Section 18 of the Securities Exchange Act of 1934, as amended. |
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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| | DIAMONDBACK ENERGY, INC. |
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Date: | August 2, 2017May 10, 2018 | /s/ Travis D. Stice |
| | Travis D. Stice |
| | Chief Executive Officer |
| | (Principal Executive Officer) |
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Date: | August 2, 2017May 10, 2018 | /s/ Teresa L. Dick |
| | Teresa L. Dick |
| | Chief Financial Officer |
| | (Principal Financial and Accounting Officer) |