A junked acquisition and revised production guidance propelled shares in Diamondback Energy Inc (NASDAQ:FANG) to a close of $105.21, (+11.1%), on Monday.
That was also a record high for the stock, and it was accompanied with an impressive daily volume of 3.58 million shares.
Analysts at Mizuho had been almost prophetic when, on October 6, they initiated coverage on Diamondback with a Buy rating and a price target of $105.
Diamondback is an independent oil and natural gas Company headquartered in Midland, Texas. It focuses on unconventional, onshore oil and natural gas reserves in the Permian Basin in West Texas.
Diamondback Energy Inc (NASDAQ:FANG) scraps proposed acquisition
The company put paid to an October 3 report in the Wall Street Journal that said it was close to acquiring Silver Hill Energy Partners in a deal that could value the latter at $2.5 billion.
Diamondback squashed deal buzz by saying: “We believe we are ideally positioned to pursue additional transactions provided they drive exceptional shareholder value while maintaining our disciplined approach to acquisitions. As has been rumored, we were engaged in discussions involving an acquisition but are not actively pursuing further negotiations at this time.”
Investors obviously liked that decision, given the enthusiastic buying seen in the stock yesterday. Clearly, oil prices are on the mend, but for how long? If OPEC is unable to implement its output cut oil prices may resume their slide.
In that event, the acquisition may prove to be a falling knife.
Diamondback Energy Inc (NASDAQ:FANG) to boost production
Investors were also impressed by Diamondback’s revised production guidance for 2016. It said it expects production in the range of 41.0 to 42.0 Mboe/d, up 6% from the midpoint of the July guidance range of 38.0 to 40.0 Mboe/d.
It based the new guidance on “continued strong well performance.”
What’s more, the additional production comes at no extra capex, which remains unchanged at $350 to $425 million.
“Our existing asset base allows us to drive production growth within cash flow into 2017 and beyond at the current forward strip prices,” said Travis Stice, Chief Executive Officer. “The ability to drive multi-year organic growth, within cash flow on our existing asset base represents the standard we have always sought to achieve.”