Diamondback Energy: With this WTI price, it is not profitable to invest

Diamondback has not walked around and has accompanied its financial statement with a written warning that confirms what many analysts suspect for years: in a nutshell, which despite the advances of new drilling technologies, the production of black gold is not profitable at these barrel prices, the lowest in twenty years if they fit inflation.

Trump’s famous “Drill, Baby Drill” is nothing more than an empty message. The perforations of new wells are decreasing and has already fired a fifth of the contractors who worked in the different production plants since the beginning of the year. At the same time, Diamondback confesses that the best reserves, the most profitable, have already been exhausted, so it is to fear an increase in development and production costs.

In this context, the group reduces its investments and announces that it will reorient its cash flow towards shares and debt amortization. Specifically, the latter is presented as an urgent obligation, since its leverage reaches the USD 15,000 million, that is, between four and five years of operational benefits at the current levels of oil prices and natural gas in North America.

Diamondback is one of the most spectacular business successes in the United States in the energy sector. Located in the prolific Texana Basin of the Permian, it produced 3,000 barrels and equivalent to the day when it went to theok in 2012. It now produces 850,000 a day. However, this spectacular expansion has not yet translated into tangible benefits for its shareholders.

Its general director, Travis Stice, ensures that a new era has begun, that of maturity and profitability for shareholders, after the expansion and consolidation of forced marches in the Texana basin. On paper, Diamondback is one of the producers with lower costs of North America, capable of covering their maintenance investments and the distribution of dividends even with a barrel at $ 50.

The analysts of MarketScreener They ask for results. In the end, at this time, the group’s assessment seems to take into account a rebound in the WTI price towards the threshold of 70 dollars. A priori, this allowed Diamondback to generate between 5,000 and 6,000 million USD of free cash flow: the current value of the company, of USD 55,000 million, would thus represent a multiple of eleven times this potential benefit … unless the WTI will not rebound, in which case the free cash flow in 2025 would be much lower than these forecasts.

Once is also the number of years of proven reserves – half oil and the other half of gas – diamondback if it maintains a constant production.