Upstream and midstream companies have to work together to reduce natural gas flaring in the Permian Basin, according to Diamondback Energy Inc. CEO Travis Stice.
“Flaring in the Permian Basin is an issue that we as an industry have to address,” Stice told analysts Wednesday during the fourth quarter conference call. Voluntary flaring “should be eliminated as quickly as we can…”
A report issued earlier this month by Rystad Energy found that flared or vented gas at the wellhead tripled in the Permian between early 2017 and 4Q2018, and has since fluctuated between 550-750 MMcf/d. Another report issued by Commissioner Ryan Sitton of the Railroad Commission of Texas said a Diamondback subsidiary was the No. 2 flarer by volume among Permian exploration and production (E&P) companies.
“Companies have to put their balance sheets to work and make sure the gathering system is in place prior to bringing on wells,” Stice said. “Certainly at Diamondback, we follow that to the strictest letter.”
However, he said, “There is also a collaboration that we have to make with our gatherers. Even if we’re tied into systems, our gatherers have to make sure that they’ve got contracts in place that allow that gas to be custody transferred at the wellhead and…moved to market.”
The CEO said the onus is not only on E&Ps. “It’s really a holistic issue that needs to be addressed by everyone to try to eliminate, certainly, routine flaring out here in the Permian as quickly as we can.”
Diamondback executives also unveiled planned changes regarding environmental, social and governance (ESG) disclosure and performance, as well as approved and expected changes to the company’s compensation program. Under the ESG regime, compensation is to be tied to meeting or exceeding ESG metrics including flaring, greenhouse gas emissions, recycled water, fluid spill control and total recordable incident rate.
“Those are quantitative measures that we will incentivize better performance on,” said CFO Kaes Van’t Hof. “That’s one thing that we’ve proven at Diamondback. What gets rewarded gets done, and we intend to do that in our scorecard.”
The short-term incentive metrics would have a weighting of 10-15%, meaning that 10-15% of an individual’s compensation would be tied to the metrics.
Diamondback’s 4Q2019 production averaged 301,300 boe/d (195,00 b/d oil), up 5% sequentially and 65% year-over-year.
The Permian pure-play, with assets in the Midland and Delaware sub-basins, is maintaining 2020 guidance announced in November of total net production of 310,000-325,000 boe/d for Diamondback, and 27,000-30,000 boe/d for Viper Energy Partners LP. Diamondback owns and controls Viper’s general partner.
Capital spend for 2020 is forecast to be $2.8-3 billion, with $2.45-2.6 billion going toward horizontal drilling and well completions.
Diamondback reported a net loss of $487 million (minus $3.04/share) for the fourth quarter, versus net income of $307 million ($2.50) in the similar 2018 period. For full-year 2019, net income was $240 million ($1.47/share), down from $846 million ($8.06) in 2018.
Want to see more earnings? See the full list of NGI’s 4Q2019 earnings season coverage.
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