Q1 2021 Diamondback Energy Inc Earnings Call
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Ladies and gentlemen, thank you for standing by and welcome to the Diamondback Energy first quarter 2021 earnings conference call. At this time all participants lines are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question during this session.
And you will need to press star one on your telephone. Please be advised that today's conference is being recorded if you require any further assistance. Please press star zero and I would now like to hand, the conference over to your Speaker, Adam Lawlis, Vice President of Investor Relations. Please go ahead.
Thank you Phil Good morning, and welcome to Diamondback Energy's first quarter 2021 conference call. During our call today, we will reference an updated investor presentation, which can be found on diamondback to website.
Representing Diamondback today are Travis Stice, CEO and case Bancroft CFO.
During this conference call. The participants may make certain forward looking statements relating to the company's financial condition results of operations plans objectives future performance and businesses.
Caution you and that actual results could differ materially from those that are indicated in these forward looking statements due to a variety of factors information concerning these factors can be found on the company's filings with the FCC.
In addition, we will make reference to certain non-GAAP measures. The reconciliations with the appropriate GAAP measures can be found on our earnings release issued yesterday afternoon, and now I'll turn the call over to Travis Stice.
Thank you Adam and welcome to Diamondback, 's first quarter earnings call.
Diamondback and a successful first quarter continuing to build off the momentum generated in the back half of 2020.
Operationally, we are hitting on all cylinders.
We were able to effectively navigate a once in a generation winter storm, while keeping well costs and cash operating costs near all time lows.
We closed both the guide down and <unk> acquisitions, and the first quarter and are very pleased with how the integration efforts are progressing.
We are achieving our synergy targets ahead of schedule and in excess of the $60 million to $80 million of annual cost savings, we highlighted when the deals were announced yet.
Yesterday, we also announced three non core asset divestitures for gross expected proceeds of $832 million.
By selling these noncore acreage positions and such a timely and opportunistic manner.
We were able to take advantage of a strong A&D market and generate attractive cash returns for diamondback shareholders.
We anticipate using the combined proceeds from these noncore asset sales to accelerate debt reduction.
As we discussed last quarter, even though oil demand has shown signs of recovery from the depths of the global pandemic oil supply is still purposefully being withheld from the market primarily through the actions of OPEC plus.
And as a result, we continue to believe we do not need production growth and we will hold our pro forma fourth quarter 2020 oil production flat through 2021.
Due to the complexity, resulting from the timing and hope to QEP and guidance on acquisitions as well as the announced divestitures, we have instituted quarterly production and capital guidance from the first time for the second quarter, we anticipate spending $350 million to $400 million and capital and producing 230.
And two to 236000 barrels of oil a day.
This production range accounts for a full quarter of contribution from Qep's Williston assets and approximately two months of production from the announced noncore Permian asset sales.
Looking at the full year of 2021, our free cash flow profile continues to improve.
And the first quarter, we generated approximately $330 million of free cash flow, marking the third consecutive quarter of significant free cash generation.
At current strip pricing and accounting for the Williston divestiture, we expect to generate approximately $1 4 billion and pre dividend free cash flow this year and a reinvestment ratio of below 55%.
And March we executed a successful tender offer and refinancing of all of QEP bonds and one of diamondback existing bombs.
This refinancing and equates to $40 million of annual interest expense savings and extended our average debt maturity by three years.
Today, we have three debt maturities that are callable before the end of this year.
$191 million due later this year $650 million due in 2023.
And $432 million due in 2025.
We expect to use cash on hand from internally generated cash flow as.
And as well as proceeds from our asset sales to retire these three tranches of bonds and reducing our absolute debt load and further strengthening our balance sheet.
Now turning to ESG.
We recognize the importance of operating with the highest level of environmental responsibility and continue to make progress on our ESG initiatives, we flared zero point, 75% of our gross gas production and the first quarter.
A decrease of over 85% from 2019.
Flaring is the biggest driver of our Seo to emissions and while we are happy with our progress on our legacy acreage and we still have significant work to do on our recently acquired positions as we move to reduce our scope, one and <unk> intensity by at least 50% from 2019 levels by 2020.
And before.
We are also committed to reducing our methane intensity by 70% over the same timeframe.
And the first quarter, we continued spending capital and retrofit of older tank batteries with air and nomadic devices.
And as gas and pneumatics accounts for 50% of our methane emissions.
We also signed a contract to conduct quarterly fly overs of all of our tank batteries to more frequently check for equipment leaks improving on our maintenance practices.
Our net zero now initiative is also underway, which means every hydrocarbon molecule produced by Diamondback is anticipated to have zero net scope on carbon emissions from January one 2021 forward.
While we recognize we still have a carbon footprint.
We have already purchased carbon credits to offset and remaining emissions and ultimately plan to be a fast follower and.
And investing and income generating projects here in the United States that will more directly offset these remaining scope one emissions.
To finish the first quarter was busy and productive we generated substantial free cash flow.
Kipp, our capital and operating costs down extended debt maturities added tier one inventory and divested non core assets.
All the while our strategy remains the same.
Operating a prudent and sustainable manner spend maintenance capital to hold production flat.
And use of future free cash flow to return cash to shareholders and reduce debt.
With these comments complete operator, please open the line for questions.
At this time, if you would like to ask a question. Please press Star then the number one on your telephone keypad.
Your first question comes from the line of Neal Dingmann with true its securities.
Quite you and the team have been emphatic about what I would call macro speaking.
Well it really does not need any more oil growth on anytime soon and so my question is really pertaining to dose do you. All believe your operational program is it's op little optimal at this lesser pace than <unk>.
You had a.
And more multi rig larger strat plan and several other areas and what it does has had much impact on your cash cost.
Sure I think if you look Neil just at our cash cost that we printed this quarter you would say that theres not been any leakage or any cost pressure that we are that is translated into execution slippage associated with the lower <unk>.
Lower activity right I mean.
Neil if you look at.
Rolling into 2020 before before the global pandemic hit we run and 23 drilling rigs and I don't know eight or nine frac spreads that was a pretty that was a pretty quick pace and I've actually been really pleased with.
As that pace was reduced and in some cases dramatically last year, even as we've entered into this year, we really seem to be at a pretty efficient frontier and both rig activity and and Frac spreads with 11 revenue of 11 rigs and three to four frac spreads. So I think if you just keep watching our number.
And that we print I think that'll be a good indicator of whether or not we're being efficient and.
Certainly for the first quarter and the fourth quarter also the numbers really look really looks strong.
No I agree and we agree Okay and then now that guide on the Q appear on the books I'm. Just wondering could you a case comment anything you all see that deferred or surprised you from the assets, maybe specifically you all still believe theres as many quality locations and how do you sort of rank that inventory versus existing.
Yes, certainly that narrative hasnt changed at all in fact, it's probably gotten a little bit better and I will tell you I was very complimentary of the QEP team and acquisition announcement time, and again and during our February call and our April update operational and they were doing some really really well.
Really efficient things and just looking at the drilling and report this morning.
QEP has always used water base mud and Diamondback now we've adopted and were on a first or second well with with water based water based drilling fluids.
And I was like QEP is helping us with and so far really really impressed with the with.
With the improved deficiency use and water based mud. So that's that's that's been a nice add to what I thought was already a really efficient diamondback legacy operations team. This one it looks to be a little bit of a stair step and the right direction.
Good day and look forward to all the activity. Thanks Travis.
You bet. Thank you.
Your next question comes from the line of Arun <unk> with J P. Morgan.
Yes, good morning <unk>.
I guess the shoe is on the other foot this time with diamond and back on the other side of marketing assets.
I wanted to get your thoughts obviously.
You guys had the data room for the Bakken sale, you sold some non core Permian assets as well.
What is your sense of the A&D market today, and we've seen a couple of very large Permian trades double point, and VTOL and I guess I wanted to get your sense of do you see more of these private to public and Trey.
AIDS occurring this year and and what criteria that diamondback will use to evaluate.
A&D activity.
Certainly we were really pleased with the.
With the interest and the the Bakken divestiture process.
Process now granted we were the beneficiaries of commodity price run up and.
And some previously announced deals and the Bakken that I think put some wind winded wind at our backs.
And so I.
I think that piece of the A&D still seems to be pretty frothy, and particularly on the PDP focused type of divestiture was a lot of a lot of interest and that.
Specific to what Diamondback is looking for on the go on a go forward basis.
We still remain very resolute and our.
Our strategy that it's got to meet internal objectives like free cash flow and it's got to be return accretive on a on a per share basis and when you look at the the.
<unk> and we've got to accelerate return of free cash flow.
The larger trades that particular ones that you referenced.
It's the quality of assets that fit for capital and Diamondback is top quartile.
And we'll probably fewer than greater.
And and the prices that were recently announced and on some of those trades.
Might have coil some of the activity for a little while anyway, but.
I think as long as we can demonstrate.
Before that.
And being an accretive.
On a per share basis, and that we're accelerating return of free cash flow.
We're going to continue.
To look and the Permian basin, but the opportunity sits pretty pretty narrow right now, but most importantly, there has to be inventory that competes for capital right away right.
And this industry has moved towards financial metrics that can't be the only.
Only numbers that we look at when we think about.
What makes sense in terms of and acquisition and sticking inventory and the bottom quartile or bottom half of our existing inventory just doesn't make sense to us from a returns perspective.
And it makes sense.
So I'd love to get your.
Your thoughts on the updated inventory disclosure.
Quite a few changes.
And here it looks like in terms of focusing on on the Midland Basin you increased your.
Your inventory count by just over 150 net locations I know the lateral lengths increased a little bit and perhaps the Delaware declines just reflect some of the A&D activity, but give us some thoughts on the updated inventory.
Kind of snapshots kind of the key takeaways and and I do sense that perhaps are using a little bit wider spacing for some of the acquired assets from QEP and guide on.
Yes, that's right we haven't we haven't posted a full inventory update since the beginning of 2020.
This was the first update post the two deals you know I'd say generally.
And we spent a lot of time looking at our our development as well as offset development, particularly in the Midland Basin and.
I think our focus is the best zones can still handle kind of 660 foot spacing, which is as tight as we've kind of ever gotten but.
But we kind of realized that maybe the secondary zones should be spaced a bit wider and so that's reflected in that inventory.
The numbers, we've put out so the secondary zones that are getting co developed.
And with the primary zelle, and which we still think is the right thing to do are getting space.
At 5% to seven wells per section rather than cash.
And a seven to eight which is the best selves.
Okay, great. Thanks, a lot.
Your next question comes from the line on <unk>.
Neil Mehta with Goldman Sachs.
Good morning team.
Taking a look at the slides here you show at a $60 W. Ti pricing referenced this driver.
On your script.
And of North of $1 $4 billion of free cash flow before the dividend this year, but at this day this.
This year you are burdened by by hedges I was curious if you could provide some perspective around what open EBITDA would look like and and that type of environment and then and.
And also your perspective on use of proceeds of all the free cash flow and the asset sales your framework around and.
Turning some of this excess capital to shareholders.
Yes, that's a good question, Neil and we're probably sitting on.
About 450 or $500 million of hedge losses for the rest of the year at strip today.
For the balance sheet. So that's the drag on free cash this year.
It's fortunate that we are losing money on hedges compared to where we were a year ago, but unfortunate that we do have to write the checks, but overall I think if you if you add that number back to you now.
And to the free cash number you can get a pretty clean look at what the future by hold on and on hedge basis.
That's great and that ties into the follow up around capital returns and talk about how quickly you can get to the leverage levels that you're targeting and then there are a lot of different options at that point range. You could think about a buyback you can think about a variable dividend recognizing it's too early to commit to that until you hit your debt.
Target just walk us through your framework about the different options that are at your disposal.
Sure Neal I think it's I think it's good for our industry that we continue to talk about.
Investors Recouping, a return for the money that they've asked us to deploy I think thats good for our industry.
And youre right about reach and certain debt targets and these announcements that we laid out yesterday simply accelerate the timeframe at which we can hit those debt targets.
The callable debt reduction of $1 $2 billion or more by the end of this year is going to put us on a favorable position to start talking about what the next step is I also think that.
Our industry is seeing a lot of interest in laying out a formula for how capital allocation is going on is going to go or capital allocation and returns to shareholders is going to go.
And I wish I wish that that are and our industry wasn't simple that you can put a formula in place and and formulas work as long as the world doesn't change, but and our business and a commodity based business. We know that our world does change from I'm always a little leery of of trying to to promise delivery on a formula when we know the work.
And it's going to change.
But the options are very clear the strategy the strategy around the variable dividend is part of the future discussions at the board level as is share buybacks and most importantly, like we've always committed to continue to lean into our base dividend.
So we're very pleased that we're able to accelerate our debt reduction targets with kind of a very positive divestiture number and where.
Going to continue to deliver on on.
Through our performance and try to avoid making promises multiple quarters in front of us.
Travis.
Thank you. Your next question comes from the line and Doug Leggate with Bank of America.
Thanks, Scott and good morning, everyone.
After the <unk>.
QEP deal you suggested that your.
Greek evens and sustain your production what would potentially move more and just wondering if you could give an update.
In light of your comments are on synergies last night as to where you see that settling out.
Well certainly the synergies that were in excess of what we promise stemmed from the refinancing of the <unk>.
And the long Qep's debt and I think we talked $40 million, we didn't even describe that as a as a synergy and acquisition announcement time.
The specifics around.
Lower and the breakeven cost has to do with our capital allocation of moving moving rigs into this newly acquired acreage both both guide on and QEP and.
And.
While I can't formulaic and would give you $1 and and how much our breakeven cost has come down we do know that doing higher cash flow generating projects at higher rate of return going to translate to a low breakeven cost.
Okay.
And it seems to us.
One by about a buck or so, but we'll take that offline.
And my follow up is also related to.
And I guess from my comments at this time with QEP deal related to infrastructure and <unk>.
Maybe the opportunity to drop or look at dropping down some assets and rottler and maybe some royalty opportunities for Viper and I'm. Just wondering if you've got any update you can share as to how youre thinking about that.
Yes, Doug there's not a lot on the on the Viper side to dropdown list of Diamondback today.
Three P and guide on.
And different ways QEP.
A lot of large landowners and the Permian that had been around for a long time and not looking to sell their minerals and <unk>.
And guide on and had a sister company and like the Viper that that was buying minerals. So on.
And on the Viper side.
And certainly sourcing minerals at the Viper level under under QEP and got on acreage, but there won't be a dropdown and then on the router side QEP, we've been pretty vocal that QEP did a really good job on infrastructure I think we've learned a lot on the recycling side from them.
Boost is going to boost our Midland based on recycling program significantly and eventually those assets should probably be belong and rattler, but I think it is going to take on.
A few more quarters for us to get that all of that worked on it and then eventually drop it down.
Okay, great. Thanks, guys. Thanks.
Thanks, Doug.
Your next question comes from the line of Gail Nicholson with Stephens.
Good morning, and every quarter efficiency gains are achieved where do you think you are on that learning curve and are you trying any new technologies that could prove to be beneficial for future improvement.
Yes.
And I think net Travis kind of said it earlier on the call, but bringing the QEP team and the fold just like when we brought energy and in the fall.
We don't need to be.
The best we just want to learn from from the people that we add to the team and and we learned a lot from energen and and then we recently just learned a lot from QEP. So yes, Travis was mentioning water based mud on the on the drilling side.
And some drill out techniques on larger pads that are saving up some time.
On the cementing side and I think we've learned that we can batch drilling investment, let's saves us time, and it's all all reduces time on location and increases the efficiencies.
Which is why you know Danny team and on the drilling side is getting kind of ahead of ahead of the 2021 program early in the year, which I think is positive.
Back to energy and announcement time, I think I used I used the phrase that we check our egos at the door. When we brought the energy team on board and <unk>.
This is just really as case highlighted this is another example of checking your egos at the door and let's just try to figure out what's the best best way to do this for our shareholders and and really proud of the operations organization and once again, they've they've done so and we've not really had the QEP team.
And inside the full for very long before they're already making a very positive influence.
And then going back to the inventory with the improvement and oil prices and did a secondary zone and the potential uptick and capital allocation and 22 forward RGB there'll be.
And that the primary zones are the targets for the foreseeable future.
I think I think just generally.
We're very focused on on co development between zones, particularly in the Midland Basin and the secondary zones get spaced a little wider I think Gil we we did a lot of work at various oil prices.
On inventory and spacing and and EUR per foot and we've kind of found that the benefit to IRR outweighs any benefit to NPV from from going tighter. So no. One no one no one got mad at you for drilling wells that were too good and so I think we're going to stick with that strategy, particularly with how much undeveloped acreage and we got with the <unk>.
QEP and got on deals.
Great. Thank you.
Thank you Gil.
Your next question comes from the line of David Depomed with Cowen.
Good morning, guys. Thanks for taking the questions.
Sure David.
Just curious now that the deal was with QEP only closed I guess about seven weeks ago now.
As we think about your development plans on those assets.
One would be like a decision point and where we are we might see a shift of activity either more towards county line or some other areas that youre learning from.
That might have surprised you with what youre seeing today versus pre deal.
So we could start thinking about how 'twenty two looks.
Yes, David I think you're starting to see that in terms of the wells that we're going to be drilling now, but you won't see it in terms of production until kind of Q4, 'twenty, one and early 'twenty two.
Think we're trying to get as many rigs as we can and the Robertson Ranch Slash sale ranch area in South and South Central Martin County.
And some big pads, and and efficient development going to be headed that direction rigs are there right now I think when it comes to kind of county line and the northern part of Martin County, We've we've done a lot of technical review with the QEP team and our team and and they've done some things and the shallower zones that that we like.
And some targets that we like and the County line area. So I think youll see.
More of the Wolfcamp, a middle Sprayberry Dean.
Work and the and the County line area, and then more of the deeper Wolfcamp and lower sprayberry and the and the Robertson Ranch area.
I appreciate that.
And if I could just ask one on just the capital program this year.
And just curious like relative to your guidance on footage cost of $5 20 to $5 80, and the Midland and 700000 to 800 and and the Dell where you guys are today, because as I look at the rest of the year.
Seems to certainly be implying like a back half weighted program.
Does that does that stair step up.
Each quarter now going into the end of the year, because I guess, we're thinking about sort of like the sustaining quarterly run rate that we should expect going into next year.
Yeah, that's a good question as well.
I'll take the well costs first we've put a lot of look at well costs on the deck Midland Basin was around $5 30, a foot and Delaware was actually below the low end of the guide, which I think was.
Just a really good quarter operationally.
Low lower sample size as well.
But as you think we did put out Q1, capex of 300, and Q2 and fly and $3 75 at the midpoint. So that would imply we're going to spend $1 billion and the back half of the year and and I would say there is certainly some conservatism on our side, we've been very vocal that we will cut capex.
X to keep production flat rather than grow production and spend more dollars.
But the ancillary stuff environmental and infrastructure midstream non op and it was going to pick up a bit and the and the middle of the second half of the year and that on top of the.
A couple of quarters of true pro forma QEP and guide on <unk> and Diamondback activity will result, and capital coming up slightly.
The year, but.
But yes, and we're off to a pretty good start and the first half.
I appreciate the color on that thanks, guys.
Your next question comes from the line of Derrick Whitfield with Stifel.
Okay.
And I'll congrats on your transactions.
Derek.
Perhaps for Travis or case following up on the earlier A&D question, but taking it a slightly different direction.
And your view did that larger transaction until the environment to a seller's market and if so would it make sense to pursue smaller divestitures to further improve your balance sheet.
No. That's a good question certainly.
The market has improved dramatically and that's why we kicked off that the Upton county process and the non op, new Mexico process that we thought the back of our minds, where sale candidates for years, but.
Last 12 months have not been conducive to selling cash flow I think the trend Derek is that.
On a lot of private capital has moved towards buying PDP heavy assets and distributing that cash flow to their lps or to their shareholders and when everyone's doing that you have a lot of competitive tension and a process and so that allowed us to get pretty competitive bids.
On on all three assets and.
And we're pretty happy but.
For US you know.
Anything else, that's a sale candidate and the Permian.
It has real undeveloped value and and that's not something where we're looking to sell right now because I think the market for that is less.
Competitive than a PDP heavy market.
That makes sense and and Travis for my follow up I'd like to pick up on a comment from my discussion yesterday as as you guys progress your plans to invest and income generating projects that will more directly offset stope on emissions could you speak to and and nature of your industry discussion since Q4.
And how that plan might take shape longer term at diamondback.
Yes, specifically for Diamondback, we've talked about this a U S technology and emerging new emerging trends with that I think a good analogy for our diamondback shareholders would be to see how rattler participated alongside.
Subject matter experts on long haul pipe.
We don't expect to become subject matter experts and income generating projects <unk> type projects.
But we do anticipate.
Aligning ourselves with those that are those experts and try to do and try to do those those technology that is those emerging technologies are not months or quarters their quarters away and.
And there are things that there's new technology emerging and we're trying to stay abreast of it and when I talk to my industry peers, it's very similar.
Very similar.
And <unk> that they are taken as well too is to try to be extremely fast followers and figure out what what emerging technology needs and you need to lean into the soonest, but I think it's an industry, it's an industry trend for sure.
Great Great update guys and thanks again for your time.
Thank you Derek.
Your next question comes from the line of David Heikkinen with Heikkinen Energy Advisors.
Good morning, any thoughts on a dropdown of your QEP midstream assets, formerly QEP assets and two.
And our Adler and timing of that.
Yes, David.
Certainly on on the schedule.
The other activities getting Bakken sold and getting the refinancing done took priority, but the team is doing their work I think you know I think as you think about the dropdown you know we're going to have a very large block across half of Martin County, and so we want to get the engineering right and and also build out our recycling and.
Restructure across that block to be able to store produced water and reuse it and the Midland Basin. So I think it's a couple of quarters away, but certainly it's all on the docket.
Okay. Thanks.
Your next question comes from the line of Leo Mariani with Keybanc.
Hey, guys I wanted to follow up a little bit on your comments around synergies.
Guys talk about that.
And and expectations of the 60 to 80 million and clearly you pointed out the debt refinance, but perhaps maybe you could talk a little bit more and kind of the G&A and the operational synergies and we can start to see those numbers show up as soon as second quarter earnings when you report Tvs come more in the <unk>.
Half of the year and can you maybe provide a little bit of color just on the operational synergies and specifically where those will come from.
Yes.
I think we predicated on the deal primarily on on G&A and interest.
<unk> was a.
Low cost operator, just like Diamondback, so unlike unlike energy and you know we didn't come out and say hey, we're going to drill.
2000 wells $200 a foot cheaper but.
The G&A stuff will start to start to show in Q3 and Q4.
And and obviously the interest has happened today I think there's probably some upside on the operational front when when and if.
And why not a dropdown happens at rattler and being able to connect all of our midstream systems without spending extra capital to add that capacity could be and upside surprise and also Leo just operational and we talked to already on this call about the water based mud and using big rigs for drill out.
Some of the other you'll see many practices that diamondback has now adopting from.
From QEP learnings and those all translate directly to lower dollars per foot and that's those are those are direct synergies as well.
Okay. That's helpful and I guess just on the low side you guys certainly spoke to just.
Great cost control and the first quarter, certainly couldn't help but and noticed that your first quarter low.
It was below your full year guidance. Despite the fact that we had.
Ill call. It a 100 year storm and the first quarter. So certainly guidance looks like you guys are doing a good job executing and the field do you guys feel like you maybe.
Set up to come and a little bit below and low guidance for the year, Oregon and see an uptick once the QEP and guide on assets kind of take.
Full pulled back here and the second quarter.
And we are today.
And any.
The low and the first quarter, we certainly.
And so some surprise and benefits throughout the year, the first quarter from <unk>.
From electrical contract and other things throughout the storm.
And do expect that we will see a little bit.
Increase from that number from.
From the guide on and QEP assets, mostly got on assets and a little bit higher lifting cost than what we've traditionally seen and diamondback.
But we like the low end of that guide right now and as we learn.
And more about the assets and where they are lifting cost is going to settle as we get on integrated we'll we'll update the market.
Alright, thanks, guys.
Thank you Leah.
Your next question comes from the line of Richard Tullis with capital one Securities.
Hey, Good morning, just one question from me kind of following up on the earlier ESG discussion and.
And you mentioned Travis and your opening comments about being fast followers and the investment side.
And so you are generating strong free cash flow and and it certainly looks like that continue given where commodity prices are high.
A large part of the story could investment and renewables.
<unk> type projects or entities develop into say over the next two to three years.
Yes, that's a fair question Richard.
But I just don't know what that number is going to look like yet theres too much that's still emerging in the form of new technology development and.
And.
And and I know it's important.
But in terms of what percentage of our capital.
Is going to be allocated towards that.
Comfortable communicated net yet because quite honestly, we don't know what that answer is yes, I think what's most important Richard as if if our scope one emissions go down you have less incentive or need to invest on the other side to offset it right. So today $15 million a year is going into.
Tank battery side, I think we've put out some new numbers that we're going to replace 200 generators and the field this year and and move that to line power.
And then moving towards a scope too.
You know emissions number on how we're going to get that down through <unk>.
Sourcing electricity through renewable sources, so while Travis says, we're gonna be a fast follower on the investment side, we're certainly going to be a leader in terms of spending dollars in the field to clean up and reduce our intensity on on what we can control.
That's helpful. Thanks, a bunch that's all from me.
Thanks Richard.
Your next question comes from the line of Charles Meade with Johnson Rice.
Good morning, everyone there.
Quick one from me and then maybe a maybe a more open ended one.
You guys, you have sold or agreed to sell closer to a $1 billion worth of assets, but.
But your Capex guidance.
Unchanged does that does that mean that.
You essentially had de Minimis capex on those assets that you're divesting or is there some reallocation going on.
It just means they were noncore Charles it you know the Kita and asset sales does that asset compete for capital with the rest of your assets and these three assets did not and I'd say some of the new Mexico acreage was really good acreage, but we're not on non op producers. So we sold stuff that sits lower on the inventory.
Ranking and you know we're going to reinvest it.
At this time to pay down debt and generate free cash to return to shareholders.
Got it. Thank you for that case, and then try and sorry, if I could go back to two comments and your prepared remarks.
And you are you've mentioned before how oil inventories global oil and food.
Global oil inventories and also U S inventories are looking at and looking better but we're still we're.
And we're still looking at some supply artificially being withheld from the market by OPEC plus.
I wonder.
And a little bit more of your thinking because it and in my and my way of looking at things if you wait too.
And if you wait till OPEC plus has zero barrels offline at that point, you, probably we're probably in a and a spike scenario and and I don't think you maybe need to wait that long and so maybe.
Maybe it's not a buying everything that you have to wait until till OPEC spare supply zero, but but.
Can you tell me about how.
And how it looks from from your point of view and what you know what any threshold or series of thresholds would be yes.
Yes, certainly I wished I wished most of the decisions that I had to answer where binary yes or no type question and this is not one of those.
Just from a macro perspective, you know that OPEC pluses is effectively controlling the market right now and its and its have and it's having the and outcome of reduced inventories and.
Against the backdrop of still a fledgling oil demand recovery, which quite honestly might be on a net.
And really impacted by the unfortunate and outbreak and India.
Still in our opinion, it's still that's still too early to be to be talking about growth. There's no clear signal now do we need to get to zero.
Zero with OPEC, plus being withheld I don't know that Thats. The right answer either we still got to assimilate millions and millions and half barrels a day of Iran production and likely coming back on.
So it's an evolving question, but as it pertains to Diamondback Theres no clear signal for us to grow volumes and it's unlikely that you'd seen and those signals this year.
Thanks for that elaboration and Travis.
Thanks Charles.
Again to ask a question. Please press Star then the number one on your telephone keypad. Your next question comes from the line of Paul Cheng with Scotiabank.
Hi, good morning.
And sharpen that just curious that you just talked about the near term.
Net reduction, but they see a $1 2 billion and then.
Longer term, what the what would be the right capital structure and all that that level for full time and back.
Yes, I think thats, certainly and evolving question as well, but on a revolving answer as well, but certainly we wanted to.
And to get our absolute debt reduced to where we were before the QEP and and the guide on acquisitions, which were almost there I think in terms of leverage target of course, leverages a function of EBITDA function of oil price, but leverage targets and the board mandate as head is below two times and since the IPO and we will be there now sooner.
And later.
I think the longer term run rate before.
For leverage is probably one or below.
And it's going to take multiple quarters for us to get there, but certainly encouraged with the way our our forward outlook plan looks and <unk> and our debt retirement strategy.
And just curious is that because I think that's the one school of thought and haniwa total sector oil and gas.
And the best hatches Natura and not.
Paper market and hedging program, but are you seeing a fortress like balance and so on that basis that way with diamondback.
The interest that all can see the two.
And to drive the net debt down to a really low level so that.
You can't get away from the hedging program and telephony and also position yourself to be much stronger and a far more flexibility and opportunity when you get to the next downturn.
Yes, Paul and I don't know, if that's an either or answer right I think if any and answer and.
Travis was saying I think something like a turn of permanent leverage at at <unk>.
High Forty's W. Ti is a pretty good hedge natural hedge for the next downturn, but I think you also need.
Now some sort of put protection or.
Big insurance policy that if things go really south like they did in 2020.
You know you are still protected so I think it's I think it's a combination I think hedges will still be a part of our story, particularly you know with a growing dividend and investors demanding capital will be returned to them.
And you have to protect that.
And that cash flow the only way you can and in the paper market you might do a wider color or buy puts that or.
Pretty cheap, but but I think again, it's kind of and and discussion.
And.
With your structure.
Structure and retina.
And with more than 7% dividend yield there.
She's a coating that does it we need half the benefit for you to keep it.
And they independent entity and jumped on and off at their I mean does it really gain anything from <unk>.
Capital efficiency standpoint.
While we sold we sold everything we had in that business for 29% of the business. So I think for Diamondback shareholders.
IPO route and there was certainly a win.
We have to look at the subsidiaries.
Consistently and the lens of.
And what's the best thing for Diamondback shareholders and what's the best thing for the shareholders of the subsidiaries. Fortunately we've created these vehicles without major conflicts of interest and.
And traditionally they trade at higher multiples than the parents so they have been.
Say successful investments, but.
But yeah, we got to think about what those what value those AD I think and then acquisitive environment they've added value and.
I guess, if we're if we're acquiring less we'll have to reassess that but right now there is still a strategic and you know we have a lot of value for diamondback shareholders sitting in the stock of those two companies.
Okay and final question from me can you discuss that.
Paul says when you say with the Bakken and the Asa.
We are wrong, but it's going to be looking at the future strip.
That's for the next 12 months the Bakken oil set that you should be able to generate a EBITDA above $2 52 and 300.
So, yes look like yourself for two and a half to three times on that seems a bit low so just trying to understand the process.
Well I think that the process was very competitive.
This was an asset that wasn't going to be.
Getting capital from Us So I think Paul we were very vocal that the Bakken was gonna be held for sale.
Personally very pleased with the price we received it.
It seems like in the fall everyone was saying Oh, you can't sell anything for better than PDP, PV 15, and like I said earlier on the call I think.
This industry cant move towards only looking at financial metrics NPV and NAV.
Still matter.
They're probably play a lower role than they did in the past but.
Financial metrics alone.
Isn't going to be the reason why we sell and asset we deemed noncore when we when we did an acquisition a couple of months ago Alright.
Alright, thank you.
At this time there are no further questions.
I'd now like to turn the call back over to Travis Stice CEO for closing remarks.
Thank you again, everyone for participating on today's call. If you have any questions. Please contact us using the information provided.
Thank you that does conclude today's conference. We thank you for participating and you may now disconnect.
And as the energy.
And with me.
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And.
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And growth.
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