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Diamondback Energy: Not A Free Pass After All by Fun Trading

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Summary

  • Diamondback Energy's recent quarterly earnings were not stellar and confirmed that the Permian Basin is showing signs of fatigue.

  • Two main issues for the company are the weak commodity prices environment and well spacing in the Permian.

  • I recommend a prudent approach with a dual investment with one-third long term and two-third trading short term depending on oil prices.

Courtesy: Diamondback CNBC

Investment Thesis

The Midland, TX-based Diamondback Energy (FANG) is a large-cap Permian pure-play E&P. It is for that reason that it is interesting to analyze how the company is faring financially in this environment of low commodity prices.

The investment thesis attached to this type of company is quite complicated. Of course, FANG offers a strong case of long-term potential, and a long-term investment could be logically considered viable.

However, many financial red-flags have been raised that are highlighting the risk involved in such a long-term decision. Hence, I believe FANG should be mostly traded short term (~60% potentially) with an accumulation long term representing a smaller part of your FANG holding.

Diamondback Energy owns over 342K net Midland and Delaware Basin acres in West Texas and New Mexico, with over 7,600 net horizontal locations across seven core development areas.

The Midland Basin with four locations:

  1. Midland/SW Martin
  2. NW Howard
  3. Spanish Trail North
  4. Glasscock

The Delaware Basin with three areas:

  1. Pecos
  2. ReWard
  3. Vermejo
...Read the Full Post On Seeking Alpha

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