Diamondback Energy (FANG -0.26%) recently unveiled its capital plans for 2019. The Permian Basin-focused oil producer is tapping the brakes on its drilling machine to better match spending with cash flow after the recent plunge in oil prices. That restraint will enable the company to send more money back to shareholders, with it planning a 50% increase in its dividend, which it initiated earlier this year.
Drilling down into Diamondback Energy's capital plans
Diamondback Energy anticipates spending between $2.7 billion and $3.1 billion on capital projects in 2019, with up to $2.7 billion of that earmarked for drilling new wells and as much as $400 million allotted to midstream investments. That spending level will enable Diamondback to operate between 18 to 22 drilling rigs next year, which is a reduction from the 24 it ran this year. The company also plans to cut the number of well completion crews it has running from 10 to eight. Despite that reduction in activity, Diamondback believes it can increase its production 28% from last year's level.
By lowering its activity level, Diamondback Energy will be able to generate enough cash at the current oil price to fund capital spending as well as its dividend, which the company plans to boost 50% in 2019. Meanwhile, CEO Travis Stice stated that "if commodity prices continue to decline, we will further reduce activity to match our budget to expected annual operating cash flow." The company noted that it could cut its rig count down to 14 and exit 2019 at the same production rate it will end this year. If oil prices increase, on the other hand, it could ramp its activity level and return more cash to shareholders above its new dividend level.
In the longer term, Diamondback aims to continue growing production at an industry-leading rate while still generating enough excess cash to return money to shareholders through higher dividends and potentially share buybacks.
This trend continues to gain more followers
Diamondback Energy is joining a growing list of oil companies that are sending more money back to shareholders in the coming year. Permian Basin-focused peer Pioneer Natural Resources (PXD 0.43%), for example, recently launched a $2 billion share repurchase program. That's a big increase from the $100 million buyback Pioneer Natural Resources set for 2018, which was only enough money to offset the dilution of its annual employee stock award program. Its new plan, on the other hand, could retire as much as 8% of Pioneer's outstanding stock at the current share price.
Anadarko Petroleum (APC) is also lavishing more cash on its shareholders next year. The company, which is reducing its capital budget in 2019 due to the sale of its midstream assets, added $1 billion to its share repurchase authorization. The oil producer has already spent $3.5 billion to retire 10% of its outstanding stock since late 2017 and now expects to repurchase another $1.5 billion in shares by the middle of 2020. In addition to that increased buyback, Anadarko also raised its dividend 20% for next year -- the second increase it announced in 2018 -- which pushes its payout above where it was in 2015, when the company slashed it to conserve cash during the oil market downturn.
Oil giant ConocoPhillips (COP 0.94%) also plans to continue returning cash to shareholders next year. The company, like Anadarko, increased its dividend twice in 2018, bumping it up another 7.5% in October. Meanwhile, ConocoPhillips plans to keep capital spending flat in 2019, which will enable it to buy back another $3 billion in stock in the coming year. That's part of a multiyear, $15 billion authorization that could retire as much as 20% of the company's outstanding shares in the future.
Oil prices might be down, but cash returns to investors are heading higher in 2019
Oil prices have taken a nasty fall at the end of 2018, which is causing many oil producers to reset their expectations for 2019. As a result, they are pulling back the reins on capital spending, aiming to keep it well below the cash flow that they can produce at lower oil prices. That's freeing up money that they can send back to shareholders through higher dividends and stock buybacks, which could help give their stocks a boost in what might be another bumpy year for the oil market.