Analysis of Debt
Total Debt (Carrying Amount)
Diamondback Energy Inc., balance sheet: debt
US$ in millions
Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).
Total debt (carrying amount) exhibited a consistent upward trajectory between December 31, 2017, and December 31, 2021, reflecting a substantial increase in leverage over the five-year period.
- Aggregate Debt Growth
- Total debt rose from US$ 1,477 million in 2017 to US$ 6,687 million by the end of 2021. The most significant acceleration occurred between 2017 and 2018, during which obligations more than tripled, increasing by US$ 2,987 million. Subsequent years showed a steady climb, with total debt increasing by approximately US$ 856 million between 2020 and 2021.
- Long-Term Debt Profile
- Long-term debt, excluding current maturities, served as the primary driver of the overall debt increase. This figure grew from US$ 1,477 million in 2017 to US$ 6,642 million in 2021. The alignment between long-term debt and total debt in the early years indicates a financing strategy focused almost exclusively on long-term instruments.
- Current Maturity Volatility
- Current maturities of long-term debt were not reported until 2020, when they appeared at US$ 191 million. By December 31, 2021, this amount decreased significantly to US$ 45 million. This reduction suggests that the company successfully refinanced short-term obligations into longer-term debt or settled the maturing portions of its loans.
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Total Debt (Fair Value)
| Dec 31, 2021 | |
|---|---|
| Selected Financial Data (US$ in millions) | |
| Total debt (fair value) | 7,148) |
| Financial Ratio | |
| Debt, fair value to carrying amount ratio | 1.07 |
Based on: 10-K (reporting date: 2021-12-31).
Weighted-average Interest Rate on Debt
Weighted-average interest rate on debt: 3.77%
| Interest rate | Debt amount1 | Interest rate × Debt amount | Weighted-average interest rate2 |
|---|---|---|---|
| 5.38% | 25) | 1) | |
| 7.32% | 20) | 1) | |
| 5.25% | 10) | 1) | |
| 2.88% | 1,000) | 29) | |
| 4.75% | 500) | 24) | |
| 3.25% | 800) | 26) | |
| 5.63% | 14) | 1) | |
| 7.12% | 100) | 7) | |
| 3.50% | 1,200) | 42) | |
| 3.13% | 900) | 28) | |
| 4.40% | 650) | 29) | |
| 2.35% | 304) | 7) | |
| 5.38% | 480) | 26) | |
| 1.41% | 195) | 3) | |
| 5.63% | 500) | 28) | |
| Total | 6,698) | 252) | |
| 3.77% | |||
Based on: 10-K (reporting date: 2021-12-31).
1 US$ in millions
2 Weighted-average interest rate = 100 × 252 ÷ 6,698 = 3.77%
Interest Costs Incurred
Diamondback Energy Inc., interest costs incurred
US$ in millions
Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).
Analysis of interest costs reveals a significant upward trajectory in total interest obligations over the five-year period ending December 31, 2021.
- Total Interest Expense Trend
- Total interest expense grew consistently from US$ 61 million in 2017 to US$ 277 million in 2021. The most substantial increase occurred between 2018 and 2019, where expenses more than doubled from US$ 110 million to US$ 235 million, indicating a substantial expansion of the debt profile or a shift in financing terms.
- Interest Expensed in Operations
- Interest expense, less capitalized interest, showed a strong growth trend through 2020, rising from US$ 39 million in 2017 to a peak of US$ 195 million in 2020. A marginal decrease to US$ 189 million was observed in 2021, suggesting a stabilization of operational interest costs toward the end of the period.
- Capitalization Patterns
- Capitalized interest exhibited greater volatility than total expenses. After increasing from US$ 22 million in 2017 to US$ 66 million in 2019, the amount decreased to US$ 55 million in 2020 before surging to a period high of US$ 88 million in 2021. This pattern reflects fluctuations in the scale of capital projects requiring interest capitalization.
Overall, the aggregate interest burden increased by approximately 354% over the analyzed period. The growth was primarily driven by the rise in interest expensed directly in the income statement through 2020, followed by a renewed increase in capitalized interest in 2021.
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Adjusted Interest Coverage Ratio
Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).
2021 Calculations
1 Interest coverage ratio (without capitalized interest) = EBIT ÷ Interest expense, less capitalized interest
= 3,096 ÷ 189 = 16.38
2 Adjusted interest coverage ratio (with capitalized interest) = EBIT ÷ Interest expense
= 3,096 ÷ 277 = 11.18
The interest coverage metrics exhibit significant volatility between 2017 and 2021, characterized by an initial period of strength, a severe downturn, and a subsequent rapid recovery.
- Interest coverage ratio (without capitalized interest)
- This metric increased from 13.89 in 2017 to 15.38 in 2018, indicating a strong capacity to service interest obligations. A sharp contraction occurred in 2019, with the ratio falling to 3.14, followed by a critical collapse in 2020 to -28.62. This negative value signifies that operating earnings were insufficient to cover interest expenses during that fiscal year. A robust recovery was observed in 2021, as the ratio climbed to 16.38, the highest level in the analyzed period.
- Adjusted interest coverage ratio (with capitalized interest)
- The adjusted ratio followed a nearly identical trajectory, rising from 8.83 in 2017 to 10.80 in 2018. The ratio declined steeply to 2.26 in 2019 and reached a trough of -22.32 in 2020. By 2021, the ratio rebounded to 11.18, signaling a return to financial stability.
A consistent divergence is observed between the two ratios, with the adjusted ratio remaining systematically lower than the non-adjusted ratio across all years. This indicates that capitalized interest represents a substantial additional burden on the company's ability to cover its total interest obligations. The synchronized movement of both ratios underscores a period of extreme financial stress in 2020, followed by a comprehensive recovery of earnings relative to debt costs in 2021.
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