Pipeline constraints in the oil-rich Permian Basin have not impacted Diamondback Energy Inc.’s production, but “pushing out more pipes” could help low natural gas prices in West Texas.
During a call to discuss first quarter results, CEO Travis Stice said, “we’re going to continue to need pipes being built about every 12-18 months in the Permian to accommodate the associated gas that goes along with the 6 million b/d that we produce out here.”
The next big gas takeaway project would be MPLX LP’s 2.5 Bcf/d Matterhorn Express Pipeline set to come online this year.
Permian producers have maintained strong oil output, which has led to a glut of associated gas. Natural gas prices at the region’s benchmark Waha hub fell below zero near the end of the quarter, NGI Daily Historical Data show.
“Natural gas right now is almost being treated like a waste product,” Stice said. Diamondback has faced egress issues, “not on the physical side, but certainly on the price side.”
Diamondback fetched an average realized natural gas price of 99 cents/Mcf in 1Q2024, down from $1.46 in the same period last year.
Diamondback has Waha basis hedged for the majority of its gas production estimated for this year at $1.18. In addition, the company is able to use Gulf Coast gas pricing for about one-third of production, “and we will continue to find ways to increase this percentage as our contracts allow,” Stice said.
President Kaes Van’t Hof, who joined Stice on the call, added that “long term, we want to be able to contribute to more pipes…With our size and scale and balance sheet, we should be taking a leadership position on these new pipes.”
Current projects in the works would “help debottleneck past the end of this year, but as we have the ability to control more gas flows on our side as contracts roll off, we’re going to keep pushing on more pipes and more markets out of this basin,” Hof said.
Outside of pipeline egress, subsidiary Cottonmouth Ventures LLC in February announced plans to use natural gas to produce 3,000 b/d of gasoline in a joint development agreement with Verde Clean Fuels Inc. The project, which has not yet been sanctioned, could provide offtake for about “35 MMcf/d of gas. And if it works, we’re going to build more of them,” Hof said.
Natural gas production in 1Q2024 was 556 MMcf/d, versus 526.5 in 1Q2023. Total production increased in the first quarter from a year ago to 461,100 from 425,000 boe/d.
Net profits were $768 million ($4.28/share) in 1Q2024, compared with net income of $712 million ($3.88) in the year-ago period. Revenue increased to $2.23 billion from $1.93 billion.
