Diamondback Energy produced $239 million, or $1.47 per share, of adjusted net income during the third quarter, which fell $0.24 per share short of the analysts' consensus. Driving that miss was a decline in the company's oil production from the second quarter. Not only did the company sell its former Central Basin Platform assets, it also completed gassier wells during the quarter. With gas prices very weak due in part to infrastructure constraints in the Permian, Diamondback didn't make much money on this incremental output.
Diamondback Energy also unveiled its preliminary plans for 2020. The company expects to invest between $2.8 billion and $3 billion on drilling wells and building out infrastructure to support its operations. That's roughly on par with its updated 2019 spending range of $2.85 billion to $2.9 billion. That budget will give Diamondback Energy the money to grow its output 10% to 15% next year. Further, at that spending level, it can still generate free cash flow after paying its dividend as long as oil prices are above $45 a barrel. That will give it the funds to buy back more of its stock.
While Diamondback Energy plans to continue growing next year, it's prepared to reduce spending if oil and gas prices weaken further. The company noted that it could slash its budget to $1.7 billion, which would provide it with enough money to keep its output roughly flat. That would also enable it to generate more free cash that it could use to accelerate its share repurchase program.
Given the continued weakness in oil and gas prices, investors would have preferred it if Diamondback Energy were planning to be more conservative in 2020. That's what most of its peers are doing, which will allow them to produce more free cash that many aim to return to their shareholders. Given the sell-off in the company's stock today, it's possible that it might rethink its growth-focused strategy for 2020.