Permian Basin pure play Diamondback Energy is ratcheting up its multifaceted approach to returning value to shareholders.
“This is a natural progression of our shareholder returns program that began with the initiation of our base dividend in 2018, which has been increased 500% since then and continues to deliver significant value to our stockholders,” said CEO Travis Stice in a statement.
“We have continued to use cash on hand to pay down debt and believe that we now have a strong balance sheet that can withstand another down cycle.”—Travis D. Stice, Chairman of the Board and CEO, Diamondback Energy Inc.
Diamondback announced on June 21 a board of directors’ decision to increase its current commitment to return at least 50% of its free cash flow (FCF). The net effect will return 75% of the Midland, Texas-based oil and gas producer’s FCF during the second half of the year.
“We have continued to use cash on hand to pay down debt and believe that we now have a strong balance sheet that can withstand another down cycle,” Stice added.
The boost will come in the form of a second-quarter base dividend increase to 75-cents/share per quarter from 70-cents/share, implying a 2.5% annualized yield. Diamondback’s base dividend will remain its primary mechanism for returning capital to stockholders, with additional return of capital expected to come in the form of variable dividends and opportunistic share repurchases.
Since implementing its $2 billion share repurchase program in September 2021, Diamondback has repurchased $690 million of its stock at an average purchase price of $112.20/share, according to Raymond James analyst John Freeman.
“We are excited by the enhanced capital return program, as it further emphasizes Diamondback’s commitment to shareholder returns and should be rewarded by the market,” Freeman wrote in a note to investors.
Operators are increasingly relying on a mix of base dividend increases, plus special dividends and share buybacks to return cash to shareholders. But it’s a relatively new habit designed to appease shareholders and investors who grew angry and fled the space after years of so-called capital destruction.
RELATED:
How Shale Producers Can Win Over Skittish Investors
In more recent years, E&P companies have worked toward—and more often, are achieving—debt reduction and slower growth to appease investors. Devon Energy Corp., ConocoPhillips Co. and Pioneer Natural Resources Co. are among the others companies to integrate a variable distribution.
In December, ConocoPhillips committed to returning 30% of its FCF to investors. Both Pioneer and Chesapeake Energy Corp. have targeted a 50% FCF return.
Diamondback will maintain its first-quarter 2022 base-plus-variable dividend payout of $3.05/share, implying 10% annualized yield based on the June 17 closing share price of $122.29. The company has also repurchased about 2 million shares of its common stock for approximately $253 million to date during the second quarter at a weighted average price of roughly $128.42 per share.
Diamondback expects the combination of these stock repurchases together with its expected base-plus-variable dividends for the quarter will amount to a return of capital to stockholders in excess of 50% of the company’s FCF for the period.
Recommended Reading
Powder in the Hole: Devon May Fire up its PRB in Coming Years
2024-08-23 - Devon Energy is perfecting its spacing and completion recipe in Wyoming’s Powder River Basin play to possibly unleash full-field development later this decade.
Comstock, Aethon’s 17 Western Haynesville Wildcats Make 112 Bcf to Date
2024-08-01 - Comstock Resources and Aethon Energy each added one well to Texas state production data on the new western Haynesville play, dubbed ‘The Waynesville.’ The oldest has surfaced 2.1 Bcf per 1,000 lateral ft to date.
Crackin’ It at Kraken: Inside the Bakken’s Ramped-up Private E&P
2024-07-24 - Kayne Anderson-backed Kraken Resources is producing more than 80,000 boe/d today and has a new Fitch Ratings credit score to take to the M&A bank.
Private Equity Looks for Minerals Exit
2024-07-26 - Private equity firms have become adroit at finding the best mineral and royalties acreage; the trick is to get public markets to pay more attention.
Avant Natural Resources Steps Out with North Delaware Avalon Tests
2024-08-21 - With the core of the Delaware Basin in full manufacturing mode, Avant Natural Resources is pushing an operated portfolio into the northern reaches of the New Mexico Delaware.
Comments
Add new comment
This conversation is moderated according to Hart Energy community rules. Please read the rules before joining the discussion. If you’re experiencing any technical problems, please contact our customer care team.