Diamondback Energy Inc. (NASDAQ: FANG) announced Jan. 13 that is has cut its 2015 capex by 40%.

However, analysts remain positive towards the Permian Basin-focused Diamondback.

Diamondback's capex plans speak to the company's asset strength and flexibility, said, Gabriele Sorbara, vice president, E&P, Topeka Capital Markets, in a Jan. 14 report.

"Further, FANG is well positioned to weather the downturn, given its strong balance sheet and solid hedge position. FANG remains a top pick in this challenged commodity price environment," he said.

Sorbara said Diamondback is also in a position to be opportunistic on the M&A front.

Full-Year 2015 Guidance

Diamondback, based in Midland, Texas, forecasts 2015 production to average between 26-28 thousand barrels of oil equivalent per day (Mboe/d), of which 4.2-4.5 Mboe/d is attributable to Viper Energy Partners LP (NASDAQ: VNOM). The 2015 production guidance range for Diamondback represents about 40% growth at the midpoint as compared to 2014 production.

Consistent with comments on the third quarter 2014 earnings call, the company plans to defer acceleration and run three horizontal rigs starting in February when the company releases two of its horizontal rigs and its remaining vertical rig. Two of the remaining rigs will operate at Spanish Trail, where Viper owns the underlying minerals.

The company intends to drill and complete 50-60 gross horizontal wells in 2015, which represents more than a 30% reduction from 80 gross wells drilled in 2014 at the midpoint.

The company anticipates that service costs will recalibrate to the current commodity environment and expects costs for a 7,500-foot lateral horizontal well to range from $6.2-6.7 million.

Consistent with a slower drilling program, Diamondback's board has approved a 2015 capital expenditures budget for drilling, completion and infrastructure in an estimated range of $400-450 million, which represents more than a 40% reduction from the initial plan to run eight rigs.

"Following a successful 2014 acquisition campaign in which we increased acreage nearly 30%, we initially anticipated running eight rigs. Given the current commodity situation, we now intend to operate less than half of that in 2015, consistent with our commitment to capital discipline and prudent allocation of resources," said Travis Stice, Diamondback CEO, in a statement.

Stice said the company is aggressively pursuing cost reductions and anticipate an overall reduction of at least 20%. Currently, it have seen about 10% in reductions but frac spreads have been slow to respond due to the backlog of completions.

"Assuming that WTI stays flat at $50 this year, we continue to expect to become cash flow positive in the second half of 2015 with total outstanding borrowings under our credit facility of under $300 million," he said.

Diamondback's focus this year is on capital discipline, stockholder returns, and maintaining a strong balance sheet, he said. With its focus on returns, the company will continue to drill where returns are the highest.

"Diamondback remains committed to looking for opportunities to expand its business through accretive transactions, not only through acquisitions but also through 'drill to earn' and other joint venture opportunities. However, we will not do a dilutive deal simply to get larger," he said.

"I believe that Diamondback remains an attractive investment as a low cost producer in the highest return basin," he added.

Production

Diamondback's fourth-quarter 2014 production increased 25% to 25.7 Mboe/d, from 20.6 Mboe/d in third-quarter 2014. Full-year 2014 production increased 166% over full-year 2013 to 19.5 Mboe/d, above the 2014 guidance range of 17-19 Mboe/d.

"2014 was another outstanding year as we continued best in class execution, continued to drive costs lower, and demonstrated the tremendous potential for Lower Spraberry development across our acreage. Diamondback's production grew 166% in 2014 as compared to 2013, surpassing the approximately 150% growth experienced in 2013 and the high end of 2014 guidance, which we had revised upward twice," Stice said.

Production attributable to Viper's interests during fourth-quarter 2014 was 4.2 Mboe/d, an increase of 24% from 3.4 Mboe/d in third-quarter 2014. Full-year 2014 production was 3.04 Mboe/d, which was above the high end of 2014 guidance of 2.5-3 Mboe/d.

Severe winter weather in late December and early January caused substantial production interruptions throughout the Permian Basin for area operators, including Diamondback. While the impact was minimal in 2014, the company is still quantifying the 2015 volumes that were shut-in due to a lack of oil marketing or power.

Operations

The company said it continues to see strong Lower Spraberry results.

The UL Tawny 812 Unit 1LS, the company's first Lower Spraberry well in Andrews County, Texas, has a 7,585-foot lateral, completed with 33 stages. It achieved an average peak 30-day two-stream initial production (IP) rate of 1,239 boe/d, 92% oil, on electric submersible pump (ESP), or about 163 boe/d per 1,000 feet of lateral.

The company anticipates that the UL Tawny well, combined with the Mabee Breedlove 2301LS in northwest Martin County, Texas, derisks the Lower Spraberry in a large portion of northwest Martin County and northeast Andrews County.

The Estes B Unit 1602LS, the company's first Lower Spraberry well in Dawson County, Texas, just started producing oil prior to encountering electricity issues related to the recent severe weather in the Permian Basin. The company expects to have results on its fourth-quarter 2014 earnings call.

The Gridiron S002LS, which targeted the Lower Spraberry and was part of the company's first operated stacked lateral test with the Gridiron S001WB, continues to show strong production, achieving an average peak 30-day two-stream IP rate of 1,517 boe/d, 88% oil, on ESP and an average peak 60-day two-stream IP rate of 1,472 boe/d, 87% oil.

The company brought on six additional Lower Spraberry completions in Spanish Trail late in the fourth-quarter of 2014. Early results from the six wells indicate an average 24-hour IP rate of 1,326 boe/d, 93% oil, per well from an average lateral length of 5,939 feet. Viper owns the minerals underlying Diamondback's Spanish Trail acreage.

The Gridiron S001WB, which targeted the Wolfcamp B, also continues to show encouraging results. The well achieved an average peak 30-day two-stream IP rate of 1,373 boe/d, 87% oil.

The company has brought on its first two Wolfcamp B wells on its Martin County acreage that was acquired in February 2014. Early results indicate performance similar to the Wolfcamp B in Spanish Trail.

Horizontal Drilling

The company is currently running five horizontal rigs and one vertical rig. The company will release two of its horizontal rigs and its remaining vertical rig in February.

Nineteen wells were completed in the fourth quarter of 2014, bringing the year-to-date total to 65 wells. Fourth-quarter 2014 completions consisted of 10 Lower Spraberry wells and nine Wolfcamp B wells.