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Diamondback Sells More After Hitting $1B Target
08/10/2023
Diamondback Energy sold more midstream assets in Q2 as part of a $1B plan to shed non-core assets, reducing debt in the Permian Basin.
In July, Texas-based Diamondback Energy Inc. sold a 43% stake in the OMOG crude oil system, revealing this in its Q2 earnings on July 31. OMOG JV LLC, running 400 miles of pipelines and 350,000 bbl of storage in Midland, Martin, Andrews, and Ector counties, was detailed in Diamondback's filings. The sale provided $225 million in gross proceeds. Diamondback has announced or completed $1.1 billion in non-core asset sales since initiating the program. Initially aimed at raising $500 million, the 2023 target was increased to $1 billion.
Deal Details
- Diamondback exceeded its $1 billion divestiture target by year-end, possibly eyeing more asset sales.
- As of July 31, TD Cowen analysts noted $742 million in assets held for sale at Q2's end, hinting at likely further cash reserves to favorably increase capital returns.
- This is up from the $143 million in assets held for sale reported after Q1 earnings in May.
- Diamondback's balance sheet also reflected $587 million in equity method investments at the close of the second quarter.
Managing Director Gabriele Sorbara of Siebert Williams Shank & Co. remarked in an Aug. 1 report that Diamondback hasn't increased its non-core asset sale target, yet it still holds considerable value in midstream assets and equity investments that might be monetized later.
Diamondback has utilized the proceeds from asset sales to reduce debt. The company's total debt decreased to roughly $6.7 billion in Q2, down from about $7 billion the prior quarter.
The ongoing plan for the company includes further debt reduction in Q3 through the generation of free cash flow, proceeds from pending divestitures, and a reduction in its income tax receivable.
Diamondback's Divestitures
During the quarter, Diamondback emphasized its divestments while also advancing its efforts in leasing negotiations, according to the company's President and CFO, Kaes Van’t Hof, who spoke about it on the Aug. 1 earnings call with analysts.
Diamondback invested $145 million in property acquisitions in the second quarter, in connection with leasing activities in the Permian Basin.
Van't Hof mentioned, “We've been exploring the leasing of some of the deeper rights within the Midland Basin across some of our holdings, and this is connected to some of those purchases reflected in the cash flow statement.”
Diamondback's business development team is actively extending offers for undeveloped interests and positions that the company does not own within its areas of operation.
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