Diamondback Energy (NASDAQ:FANG)

Diamondback Energy, the third largest oil and gas producer in the prolific Permian Basin in Western Texas and Nevada. In 2007, it had about 4,000 acres in the Permian. Today, it has approximately 604,367 gross acres there, including 231,100 acres in the Midland Basin and approximately 232,143 acres in the Delaware Basin. Using horizontal drilling, Diamondback Energy is producing increasingly more oil and gas at attractive yields. It completed its first horizontal wells in 2012 and now, it operates nearly 1,200 horizontal wells. Diamondback's Permian Basin net production was 47,610 MBOE in 2018, comprising 72% oil, 16% natural gas liquids, and 12% natural gas. It drilled 189 gross wells in 2018 and in 2019, it expects to complete at least 290 horizontal wells. Revenue was $2.2 billion in 2018, up from $527 million in 2016, and given estimated proved oil and natural gas reserves of 992,001 MBOE, Diamondback could be one of the best oil stocks for long-term investors to own.

Diamondback Energy, Inc. (NASDAQ GS: FANG)

Continuing a "crude oil prices hold at about $60" thesis with this independent oil & gas driller operating in the West Texas Permian Basin. This thesis is that OPEC and cooperating countries have sought to reduce global crude oil inventories to their five-year average, and for the time being will continue to support the market with internal production quotas. Meanwhile, worldwide demand continues to grow and US oil companies benefit by higher production at higher prices. Risks include break-away countries seeking to benefit by cheating on their OPEC agreements, and US oil shale producers expanding too fast.

Crude oil pricing bottomed in early 2016 and has more than doubled since that time. From 2016 to 2017, FANG's average production increased from 43k to 79k of Barrel of Oil Equivalent per day (BOE/d). At the same time, the realized (hedged) average price for them improved from $33.54 to $41.26 BOE. Crude oil pricing spent 2017 between $42 and $58 Bbl. So far in 2018, it has been $58 to $66 Bbl.

This company's position in the Permian Basin is 206,660 net acres with estimated proved oil and natural gas reserves of 335,352 MBOE. They are operating ten rigs now and currently intend to operate between ten and twelve rigs in 2018, depending on market conditions. They have the option to drop eight rigs if oil prices were to plummet.

As of February 7, 2018, 98,167,289 shares of the common stock were outstanding, with $4.95 per share in 2017 earnings. Average estimated 2018 earnings are $6.85.

This pick increases this portfolio's allocation to the oil & gas sector to 6.6%. The picks range from stable mid-level drillers to companies that have bordered on bankruptcy with the previous cycle-low oil prices. So far in 2018, the companies with better balance sheets are performing better in stock price appreciation.

Price: $126.68 . | . Annualized Dividend: $0.00 . | . Dividend Yield: 0.00%