Q4 2023 Diamondback Energy Inc Earnings Call
Okay.
Operator: Good day, and thank you for standing by. Welcome to the Diamondback Energy fourth quarter 2023 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1-1 on your telephone.
Good day, and thank you for standing by.
Speaker Change: Welcome to the Diamondback energy fourth quarter 2023 earnings conference call.
Speaker Change: At this time all participants are in a listen only mode.
Speaker Change: After the speaker's presentation, there will be a question and answer session.
Speaker Change: Twice a question during the session you will need to press star one one on your telephone.
Operator: You will then hear an automated message advising your hand is free. To withdraw your question, please press star 1 1 again. In the interest of time, we ask that you please limit yourselves to one question and one follow-up. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Adam Lawlis, VP, Investor Relations. Please go ahead.
Speaker Change: You will not hear an automated message advising your hand is raised.
Speaker Change: Withdraw your question. Please press star one one again.
Speaker Change: In the interest of time, we ask that you. Please limit yourself to one question and one follow up.
Please be advised that today's conference is being recorded.
Speaker Change: I would now like to hand, the conference over to your Speaker today, Adam Lawlis VP Investor Relations. Please go ahead.
Adam T. Lawlis: Thank you Danielle good morning, and welcome to Diamondback Energy's fourth quarter 2023 conference call. During our call today, we will reference an updated investor presentation that letter to stockholders, which can be found in that index website.
Adam T. Lawlis: Thank you, Daniel. Good morning and welcome to Diamondback Energy's fourth quarter 2023 conference call. During our call today, we will reference an updated investor presentation and letter to stockholders, which can be found on Diamondback's website. Representing Diamondback today are Travis Stice, Chairman and CEO, Kaes Van't Hoff, President and CFO, and Danny Wesson, COO.
Representing Diamondback today are Travis Stice, chairman and CEO.
Adam T. Lawlis: Our president and CFO, Danny Wilson 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.
Adam T. Lawlis: We caution you that actual results could differ materially from those that are indicated in these forward looking statements due to a variety of factors.
Adam T. Lawlis: Formation concerning these factors can be found in the company's filings with SEC.
Adam T. Lawlis: In addition, we will make reference to certain non-GAAP measures the reconciliations with the appropriate GAAP measures can be found in our earnings release issued yesterday afternoon.
Adam T. Lawlis: Now I'll turn the call over to Travis Stice.
Travis D. Stice: Thank you Adam and I appreciate everyone. Joining us. This morning, I Hope you continue to find the stockholder letter that we issued last night and efficient way to communicate so.
Travis D. Stice: Obviously, a lot of the material is in that stockholders letter so with that operator would you. Please open the line.
Travis D. Stice: Questions.
Travis D. Stice: As a reminder to ask a question. Please press star one one on your telephone and wait for your name to be announced.
Adam T. Lawlis: During this conference call, the participants may make certain forward-looking statements relating to the company's financial condition, results of operations, plans, objectives, and future performance. We caution you 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 in the company's file as well.
To withdraw your question. Please press star one again.
Travis D. Stice: Again in the interest of time, we ask that you. Please limit yourself to one question and one follow up please.
Travis D. Stice: Please standby, while we compile the Q&A roster.
Speaker Change: Our first question comes from.
Speaker Change: Neal Dingmann with Truth Securities. Your line is now open.
Neal Dingmann: Good morning, Travis Thanks for the time guys. My first question is on Endeavour specifically.
Neal Dingmann: Just wanted to go back to this you all highlighted about 344000 acres, what about 2300 locations that compares to 494000 3800 for you all and I'm. Just wondering does this slightly smaller current core footprint provide a material amount of immediate incremental locations Travis and I'm just wondering or.
Adam T. Lawlis: In addition, we will make reference to certain non-GAAP measures. The reconciliations with the appropriate gap measures can be found at our earlier... Yesterday. Now I'll turn the call over to Travis.
Neal Dingmann: Upside and I'm wondering how you would thinking about I know, it's still a while until this thing likely closes, but how youll attack these assets.
Travis D. Stice: Thank you, Adam. And I appreciate everyone joining us this morning. I hope you continue to find the stockholders letter that we issued, you know, last night, an efficient way to communicate. So obviously, a lot of the material is in that stockholders letter. So with that, operator, would you please open the line? Of course. As a reminder, to ask a question, please press star 1 on your telephone and wait for your name to be known. To withdraw your question, please press star 11 again.
Neal Dingmann: Yes.
Neal Dingmann: And we wanted to be conservative in how we laid out.
Neal Dingmann: Inventory counts for both us and them sub 40, I mean, I think there's been a lot.
Neal Dingmann: Aggressive inventory counts putting deals lately.
Neal Dingmann: I think for us to be able to say that combined we have about 12 years of sub 40 breakeven inventory is truly a best in class number in North American shale and that's kind of why we put out there I mean I think generally.
Neal Dingmann: As with Diamondback position, there's a lot of inventory that breakeven well above those numbers I think there is a lot of testing going on throughout the basin based on there is probably some jobs like the upper scribe area that we would probably call a sub 40 breakeven zone today, but I don't think we're ready to.
Operator: Again, in the interest of time, we ask that you please limit yourself to one question and one follow-up. Please stand by while we compile the Q&A roster. Our first question comes from Neal Dingmann with Truist Securities. Your line is now open. Good morning, Travis and team.
Neal Dingmann: Fully put it in.
The location count so.
Neal Dingmann: I think it's just conservatism and I think on a relative basis no not all not all locations are created equal and within that combined 6000 locations now.
Neal Dingmann: There is some that breakeven below 30 right.
Neal Dingmann: Thanks for the time. Guys, my first question is on Endeavor. Specifically, I just want to go back to this.
Neal Dingmann: <unk>.
Neal Dingmann: It's all about what we're developing today and saving the upside for later and we know that that upside is going to accrue to us with the size of the acreage position pro forma.
Neal Dingmann: You all highlighted about 344,000 acres with about 2,300 locations. You know, that compares to 494,000 and 3,800 for you all. And I'm just wondering, does this slightly smaller current core footprint provide a material amount of immediate incremental locations, Travis? I'm just wondering, or potential upside, and I'm wondering how you would think about, I know it's still a while until this thing likely closes, but how you all attach these assets. Yeah, Neil, listen, we wanted to be conservative in how we laid out the inventory counts for both us and them, you know, under 40. I mean, I think there's been a lot of aggressive inventory counts put in deals lately.
Neal Dingmann: Neil just to add to that point, if you'd think about.
Neal Dingmann: Our company's future.
Neil: Two things are really important for the oil and gas sector. One is kind of this durable inventory in case, just walk you through some numbers there, but it's also the conversion efficiency of that inventory and I think now with the announcement of this endeavor.
Neil: Merger.
Neil: And control of both the numerator and denominator of that ratio so our durable inventory greatly expands.
Neil: Then our conversion efficiency, we've been known for for a long time actually gets to come to bear on a larger asset base.
Neil: And I think to give you a little bit more.
Neil: Color and comfort, we didn't put our thumb on the scale.
Neil: As we look as we looked across the board what fits and what I mean by that is we simply applied what diamondback is doing today on drilling completion and operating wells.
Speaker Change: Physically adjacent to this case was just explaining maybe assumption that that that can be applied across the board. So I wanted to give you a little bit more color there Neil Thanks for your question and I appreciate from both I definitely appreciate the conservatism. Thank you rate case theres been a lot of sort of something inflated and my second question is on your current slide 11.
Speaker Change: Today on the multi zone development strategies specifically.
Travis D. Stice: And, you know, I think for us to be able to say that combined, we have about 12 years of sub-40 breakeven inventory is truly a best-in-class number in North American shale. And, you know, that's kind of why we put it there. I mean, I think generally, as with Diamondback's position, there's a lot of inventory that breaks even well above those numbers.
Speaker Change: Really like that you all for 24 had our appetite for 'twenty three had the average project size of around 24 wells and I'm. Just wondering will that be approximately the same this year and I'm just wondering with that how do you all continue to mitigate the frac hits it seem that plagued other operators so much when they do these larger projects.
Speaker Change: Yes.
I think generally Neal the project size is up 25% on an exact number it's going to be different in different counties, where we have different spacing within different zones. We're not.
Travis D. Stice: I think there's a lot of testing going on throughout the basin. There's probably some zones, like the upper Sprayberry, that we'd probably call a sub-40 break-even zone today, but I don't think we're ready to, you know, fully put it in the location count. So, you know, I think it's just conservatism, and I think, on a relative basis, not all locations are created equal, and within, you know, that combined 6,000 location count, there's... Some that break even below 30, right?
Speaker Change: We don't use a cookie cutter strategy to develop the asset we use a unique development strategy for each.
Speaker Change: Each area.
Speaker Change: I think.
Speaker Change: We've done a lot of experience with Frac hits over the years I think we've learned and our planning group has gotten significantly better looking around the corner and seeing what.
Speaker Change: Issues might arise.
Certainly there is a benefit of size and scale right. If we had one of these 24 projects coming on every quarter, while theres a lot of risk in that one particular project, but here we have.
Travis D. Stice: I mean, it's all about what we're developing today and saving the upside for later. And we know that that upside is gonna accrue to us with the size of the acreage position program. You know, Neil, just to add to that point, if you think about companies, you know, the future, 2 things are really important for the oil and gas sector. One is, you know, kind of this durable inventory, in case I just walk you through some numbers there, but it's also the conversion efficiency of that inventory.
Speaker Change: 456 of these coming on every quarter and that allows us operational flexibility to move around and plan our business.
Speaker Change: And that's just one of the other benefits of size and scale that will only be magnified.
Speaker Change: The potential endeavor merger EMEA when you look at our 2020 for budget and you kind of see that.
Speaker Change: The capital efficiency shine through because we're essentially.
Speaker Change: Maintaining the volumes profile than we had in the fourth quarter, but were doing so with 10% less capex in <unk>.
Speaker Change: Case with just talking through our development strategy yields the same oil performance. So.
Speaker Change: I think as we.
Speaker Change: Across.
Speaker Change: The industry universe capital efficiency for this year is going to be very very important.
Travis D. Stice: And I think... Now with the announcement of this endeavor, you know, merger, we're in control of both the numerator and denominator of that ratio. So our durable inventory, you know, greatly extends. And then the conversion efficiency that we've been known for for a long time actually gets to come to bear on a larger asset base. And I think to give you a little bit more... We did not put our thumb on the scale as we looked across the barbed wire fence. What I mean by that is, we simply applied what Diamondback is doing today on drilling, completion, and operating wells, and then physically adjacent. This case was just explaining and made the assumption that that could be applied across the barbed wire fence.
Speaker Change: The way that that our our budget execution shaping up in terms of that capital efficiency.
Speaker Change: Great travel seems even better next year. Thank you all.
Speaker Change: Okay.
Speaker Change: Thanks Neil.
Speaker Change: Thank you and one moment for our next question.
Speaker Change: Our next question comes from David Decal Bong with TD Cowen. Your line is now open.
Speaker Change: Thanks for taking my question as Travis Caisson team I appreciate the time.
Speaker Change: Thank you David.
Speaker Change: Just curious Travis if you can provide an outlook I know.
Speaker Change: When you when you announced the endeavor deal. Thank you said that you weren't going to sell anything obviously until the deal closes which makes plenty of prudence.
Speaker Change: But I am interested just with with all of the minority interest that you have in various pipeline <unk>.
Speaker Change: <unk>.
Speaker Change: How should we think about just where that pipeline cycle is right now relative to investing versus harvesting is that something that we might see.
Neal Dingmann: I wanted to give you a little bit more color there, Neil, but thanks for your question. I appreciate it from both. I definitely appreciate the conservatism. I think you're right, Kaes.
Speaker Change: If we think about the risk for probability around 20 for seeing some of those investments being harvested.
Speaker Change: As the market kind of right for that right now or are you kind of expect these to be more long term investment harvesting endeavors.
Neal Dingmann: There's been a lot of something inflated. My second question is on your current slide 11 today on the multi-zone development strategy. Specifically, I really like that you all, for 24, or, I'm sorry, for 23, had the average project size of around 24 wells. I'm just wondering, will that be approximately the same this year?
Speaker Change: Yes.
Speaker Change: Some are able to be harvested today, it's somewhere probably.
Speaker Change: Further down the line I mean, we've done a pretty good job selling some of these noncore.
Speaker Change: Non corporate equity method investments over the last.
Speaker Change: 12 months result, the Gray Oak pipeline interest we sold our interest in the Oman oil gathering JV I think its logical that.
Speaker Change: Some of our.
Speaker Change: Assets that we can control the sale will likely pursue a sale, but theres others that.
Travis D. Stice: I'm just wondering, with that, how do you all continue to mitigate the frack hits that seem to plague other operators so much when they do these larger projects? Yeah, I mean, generally, Neil, you know, the project size is up. I mean, 25 is not an exact number.
Speaker Change: We're probably someone who would tag along with a bigger sale I can't control when those happen, but it's certainly an asset that we are assets that we.
Speaker Change: Hal on our side of the ledger that will be used.
Speaker Change: Reduce debt quickly.
Speaker Change: On a standalone basis or accurately.
Speaker Change: <unk> depot merger, so I think Thats certainly on the table I think <unk> point on not having to sell significant assets is important right. When we structured the cash stock mix of the deal we didn't want to be a forced seller of assets to pay down debt and I think we've we've done that with the mix we presented last week.
Travis D. Stice: It's going to be different in different counties where you have different spacing within different zones. You know, we don't use a cookie-cutter strategy to develop the asset. We use a unique development strategy for each, each area, you know. I think we've had a lot of experience with brackets, you know. Over the years, I think we've learned, and our planning group has gotten significantly better at looking around the corner and seeing what issues might arise, you know, and certainly there's a benefit of size and scale, right? If we have one of these 24 projects coming on every quarter, well, there's a lot of risk in that one particular project, but here we have, you know, four, five, six of these coming on every quarter.
Speaker Change: Yes, Ken emphasized that at.
Speaker Change: That point enough data that we're not going to be for sellers of any of our assets, we're going to be very thoughtful.
Speaker Change: As we as we move forward.
Speaker Change: Post close.
Speaker Change: When looking at monetization strategy for these minority interest.
Speaker Change: Particularly in relation to debt reduction so we'll be very thoughtful.
Speaker Change: And do the right thing.
Speaker Change: I appreciate that and then just maybe a little bit in the weeds on this one but.
Speaker Change: The 24 plan when you lay out the Midland Basin development. This year, maybe coincidentally or not there is more a little bit more on the margin going the wolfcamp D and some of the other zones.
Speaker Change: Is that just more coincident of geography, where you are developing this year and then presumably years beyond or are there. Some things that you saw in 2003 that are sort of increasing your confidence of wanting to allocate more capital there if theres any color you could provide.
Travis D. Stice: And that allows us, you know, operational flexibility to move around and plan our business. And that's just one of the other benefits of size and scale that will only be magnified with the potential or with the Endeavor merger. And Neil, when you look at our 2024 budget, you kind of see that, you know, the capital efficiency shining through because, you know, we're essentially maintaining the volumes profile that we had in the fourth quarter, but we're doing so with 10% less capex. And, you know, in this case, we're just talking about how our development strategy yields the same oil performance. So, you know, I think, as we look across the industry universe, capital efficiency for this year is going to be very, very important. And I like the way that our budget execution is shaping up in terms of that capital efficiency. Great, Travis. It seems even better next year.
Yes, I mean, I think I think both from our drill bit and from others drill bit <unk>.
Speaker Change: We've seen really good results in the Wolfcamp B and I think it makes sense to put it into the stack today.
Speaker Change: Maybe not in every situation, but in more and more situations. So.
Speaker Change: More wolfcamp D and the plan and then the other bucket we have more upper sprayberry in the plan. So.
Speaker Change: I think generally if we're able to add the zones to our.
Speaker Change: Government plan and see similar productivity per foot.
Speaker Change: Only extends the inventory duration that we have.
Speaker Change: Both on a standalone basis.
Speaker Change: Pro forma with endeavour, they've been they've been developing a lot more wolfcamp D than us and you talked a little bit about that last week, but I think it just shows the beneficial nature of the Midland Basin and stack pay that we're adding zones like like the upper <unk> and the Wolfcamp D that we didn't talk about 345 years ago, and now becoming cortisol.
<unk> targets.
Speaker Change: Thank you guys.
Speaker Change: Thank you.
David Adam Deckelbaum: Thank you all. Thank you. Thank you, and one moment for our next question. Our next question comes from David Deckelbaum with TD Cowen. Your line is now open. Thanks for taking my questions, Travis.
Speaker Change: One moment for our next question.
Speaker Change: Our next question comes from Neil Mehta with Goldman Sachs. Your line is now open.
Neil Singhvi Mehta: Yes, good morning team thanks for doing this.
Neil Singhvi Mehta: I guess I have a couple of pricing related questions.
Travis D. Stice: Thank you. Thank you, David. I was just curious, Travis, if you could provide an outlook. I know, you know, when you announced the Endeavor deal, I think you said that you weren't going to sell anything, obviously, until the deal closes, which makes plenty of prudent sense. But I'm interested just in all of the minority interests that you have in various pipeline investments. How should we think about just where that pipeline cycle is right now relative to investing versus harvesting? Is that something that we might see? You know, if we think about the risk for probability around 24, seeing some of those investments being harvested? Is the market kind of ripe for that right now? Or do you kind of expect these to be more of a long term investment harvesting endeavor? Yeah, dude, I mean, some are, you know, some are able to be harvested today.
Neil Singhvi Mehta: Would love your perspective on just hedging as Standalone and then also pro forma once you roll in the Endeavour assets. Historically, you talk about trying to maximize upside exposure, while protecting extreme downside.
Neil Singhvi Mehta: Curious what that means for you as you think about hedging in 2024.
Neil Singhvi Mehta: Yes.
Speaker Change: I think we need to protect our side of the law.
Speaker Change: Sure.
Speaker Change: Through the period between signing and closing so we can generate free cash that reduces the cash portion of the purchase price I think we've done that we've historically bought Hudson kind of $55 <unk> range. We've now kind of stepped it up to kind of that $60 range and we will probably be a little more hedged on our side.
Between signing close than we have been in the past calls.
Speaker Change: I don't know two thirds three quarters hedged so that we can make sure that that that cash is there to reduce the cash portion of the purchase price.
Speaker Change: Longer term it all depends on the strengthened balance sheet and the.
Travis D. Stice: Some are probably, you know, further down the line. I mean, we've done a pretty good job selling some of these non-core, I won't call them non-core, but equity method investments over the last, you know, 12 months. We sold, you know, the Grey Oak pipeline interest; we sold our interest in the OMAG oil gathering JV. You know, I think it's logical that, you know, some of our assets that we can control the sale of will likely pursue a sale, but there's others that, you know, we're probably someone who would tag along with a bigger sale, and I can't control when those happen, but it's certainly an asset So, I think that's certainly on the table. You know, I think Travis's point on not having to sell significant assets is important, right?
Speaker Change: The breakeven that we have with our with our base dividend, we've always kind of tried to buy hedges at kind of $50 to 55 and that pretax free cash flow balance sheet and the blowout in the dividends well protected given that extreme downside scenarios. So I don't expect us to move to a <unk>.
Speaker Change: Non hedging company because we just believe that it's prudent to protect the balance sheet and our base dividend, which you see like that.
Speaker Change: Okay. That's helpful. And then the follow up is just on natural gas I know, it's a smaller part of your economics.
Speaker Change: As gas prices have been under a lot of pressure.
Speaker Change: And in the Permian, we've been surprised to see associated gas supply up as much as it is to piece year over year is that just your perspective on how the gas market rebalancing in the Permian in particular do you see.
Speaker Change: This is a structural.
Speaker Change: Challenge, if continued associated supply or as we move towards more oil discipline.
Speaker Change: Gas markets can calibrate with it.
Speaker Change: I think generally regardless of oil disciplined gas that the.
Speaker Change: The gas curves in the Permian basin always exceeded expectations I think were always pretty conservative on the gas side and that that almost universally beats expectations, which is why youre seeing a basin level more growth than we all expect almost on an annual basis.
Travis D. Stice: When we structured the cash and soft mix of the deal, we didn't want to be a forced seller of assets to pay down debt, and I think we've done that with the mix we presented last week. Yeah, I can't emphasize that point enough, David, that, you know, we're not going to be sellers of any of our assets; we're going to be very thoughtful, you know, as we, as we move forward, post, post-closed, in looking at modernization strategies for these minority interests, particularly in relation to debt reduction. So we'll be very thoughtful and do the right thing. Thank you; I appreciate that. And just, you know, maybe a little bit in the weeds on this one, but the 24 plan, when you lay out the Midland Basin development this year, maybe coincidentally or not, there's more, a little bit more on the margin going to Wolf Camp and some of the other zones. Is that just more coincident with geography where you're developing this year and then presumably years beyond?
Speaker Change: I think thats going to continue to Aneel.
Speaker Change: We could run the gas prices zero in the Permian and still make great returns on an oil wells for US personally we try to protect our gas price by through hedging as well as through some pipeline commitments to get our gas to bigger markets.
Speaker Change: As well as protecting our basis exposure, but.
Speaker Change: Generally I think the Permian.
Speaker Change: Even if you stay disciplined on oil eventually you're going to have to move to gasior zones, and there's a lot of gas and associated gas left to be produced in the Permian.
Speaker Change: That makes sense. Thanks, thanks again.
Speaker Change: Thanks Neil.
Speaker Change: Thank you one moment for our next question.
Speaker Change: Our next question comes from Arun <unk> with Jpmorgan Securities. Your line is now open.
Good morning, gentlemen.
Travis So I'd like to know if maybe you could walk us through kind of the path.
Arun: To get to that to the $10 billion net debt target in terms of timing.
Arun: And how do asset sales would that influence the timing of reaching that target.
Speaker Change: Yes, I think we kind of laid out.
Speaker Change: On a $75 world.
Speaker Change: Generally the two businesses throughout.
Travis D. Stice: Or are there some things that you saw in 23 that are sort of increasing your confidence of wanting to allocate more capital there, and if there's any color you could provide? Yeah, I mean, I think both from our drill bit and from others' drill bits, you know, we've seen really good results in the Wolf Camp D, you know, I think it makes sense to put it into the stack today. Maybe not in every situation, but in more and more situations, so more Wolf Camp D in the plan.
Speaker Change: Over the course of this year, we will combine to generate about $5 billion of free cash flow and if we're looking at a late late 2020 for clothes.
Speaker Change: High level of half that number two to $2 5 billion will be.
Used to reduce the cash portion of the purchase price.
Speaker Change: That kind of puts you in the kind of $12 billion total net debt at close.
The business continued to generate more free cash in 2025 with the numbers. We laid out you could see that $10 billion number by by middle of 'twenty five now.
Travis D. Stice: And then, you know, in the other bucket, we have more Upper Sprayberry in the plan. So, you know, I think generally, if we're able to add these zones to our development plan and see similar productivity per foot, that only extends the inventory duration that we have, both on a stand-alone basis and pro forma with Endeavor. You know, they've been developing a lot more Wolf Camp D than us, and we talked a little bit about that last week, but I think it just shows the beneficial nature of the Midland Basin and stacked pay that, you know, we're adding zones like the Upper Spray Brain and Wolf Camp D that we didn't talk about three, four, five years ago and are now becoming, you know, core development targets. Thank you.
Speaker Change: That excludes any asset sales acceleration and I think we try to be an under promise over deliver company and Theres a lot of things that we can do to.
Speaker Change: Accelerated data outside of commodity price because I don't think we want to put the entire bet based on commodity prices. So we're we're.
Speaker Change: We're looking at what's available to sell down.
Speaker Change: The next couple of months here.
Speaker Change: It beat that target.
Speaker Change: Got it and just maybe a follow up.
Speaker Change: If you do plan to do something in the Delaware Basin would you wait until kind of.
Speaker Change: Reaching close on the transaction or talk us through maybe the timing when you would contemplate doing asset sales.
Speaker Change: Yes, I think we are highly focused on deal certainty in getting the deal closed and we're not going to do anything that that derail that that process. So.
Neil Singhvi Mehta: One moment for our next question. Our next question comes from Neil Mehta with Goldman Sachs. Your line is now open.
Speaker Change: I think the dollar basin has great cash flow for us great free cash flow in a very low decline rate and we've reduced our capital commitments there and necessary.
Neil Singhvi Mehta: Yeah. Good morning, team. Thanks for doing this. I guess I have a couple of pricing-related questions, and the first would love your perspective on just hedging, standalone and then also Proforma once you roll in the Endeavor assets.
Speaker Change: Well as we need to drill for lease holding purposes. So I think it's just it's a good asset to have for the time being and its good option value over the long run, but certainly not looking to do anything in the near term.
Speaker Change: Great. Thanks, a lot.
Speaker Change: Thanks Ryan.
Travis D. Stice: Historically, you talk about trying to maximize upside exposure while protecting extreme downside. I'm just curious what that means for you as you think about hedging. You know, I mean, I think we need to protect our side of the ledger, you know, through the period between signing and closing so we can, you know, generate free cash that reduces the cash portion of the purchase price. You know, I think we've done that, you know, we've historically bought puts in the kind of $55 WTI range, you know, we've now kind of stepped it up to kind of that $60 range, and we'll probably be a little more hedged on our side between sign and close than we have been in the past, you know, closer to, I don't know, two-thirds, three-quarters hedge, so that we can make sure that that cash is there to reduce the cash portion of the purchase price.
Speaker Change: Thank you.
Speaker Change: One moment for our next question.
Speaker Change: Our next question comes from Derrick Whitfield with Stifel. Your line is now open.
Derrick Whitfield: Yeah. Good morning wanted to start by committee.
Derrick Whitfield: Wanted to start by I really commend you guys for the leadership Youre demonstrating capital discipline.
Derrick Whitfield: Many of your peers are trading environment as it would naturally balance today.
Speaker Change: Thank you Derek.
Derrick Whitfield: With my first question I wanted to focus on the service environment in light of the collapse in gas directed activity that is underway now and the preexisting lower utilization rates. The service industry experienced last year is there an opportunity to revisit service prices on some of the higher spec equipment.
Speaker Change: Yes, good question.
Speaker Change: I think.
Speaker Change: We expect that we will see some softening in the service market this year.
Speaker Change: If the gas basins do kind of remain muted in their activity levels.
Speaker Change: We're not.
Speaker Change: We don't set the price of the service market, we're price takers, but.
Speaker Change: We will certainly continue to push.
Speaker Change: On our end.
Speaker Change: Finding the market prices for deferral of our service lines, where we don't have existing commitments in place.
Travis D. Stice: I think, you know, longer term, it all depends on the strength of the balance sheet and the, you know, the break-even that we have with our base dividends. You know, we've always kind of tried to buy hedges at kind of 50 to 55, and that protects, you know, free cash flow. The balance sheet doesn't blow out, and the dividend's well-protected, you know, in that extreme downside scenario. So I don't expect us to move to a non-hedging company because we just believe that, you know, it's prudent to protect the balance sheet and our base dividend, which we see like this. Okay, that's helpful.
Speaker Change: Terrific and as my follow up I wanted to touch on endeavor. Since you guys have been out meeting with investors. Since the deal was announced are there any aspects of the transaction that are under appreciated in your view.
Speaker Change: I think the first question that came up was the synergies.
Speaker Change: Billion dollars' worth of synergies most of those underpinned by our existing cost structure applied to the endeavor assets and so.
Speaker Change: Those are usually the entry questions, but but once we explained that the cost assumptions that we embedded or the same cost assumptions. We're currently doing today a lot of comfort was gains then.
Speaker Change: Then we went to the more kind of strategic questions with the shareholders. So I think probably the problem.
Speaker Change: Probably the.
Speaker Change: Cost efficiencies were the first and then secondarily were.
Speaker Change: Some of the debt retirement strategy that case, just went through probably the two most topical questions that we dealt with.
Speaker Change: Terrific, thanks, great quarter and update.
Travis D. Stice: And then the follow-up is just on natural gas. I know it's a smaller part of your economy, but, you know, gas prices have been under a lot of pressure. And in the Permian, we've been surprised to see associated gas supply up as much as it is 2 P's year over year. So just your perspective on how the gas market rebalances and the Permian in particular, do you see this as a structural challenge of continued associated supply or as we move towards more oil-disciplined gas markets? Calibrate it.
Speaker Change: Thanks, Eric Thanks, Terry.
Speaker Change: Thank you one moment for our next question.
Roger Read: Our next question comes from Roger read with Wells Fargo. Your line is now open.
Roger Read: Yes, Thank you and good morning.
Roger Read: Morning, Roger.
Roger Read: I just wanted to come back you talked earlier about some of these other benches that might work in it.
Roger Read: On whether there'll be as productive and efficient our productivity and efficiency in those benches give us an idea of maybe some of the.
Roger Read: Oh, let's call it science or or just applied apply.
Travis D. Stice: I think generally, regardless of oil discipline, the gas curves in the Permian Basin always exceed expectations. I think we're always pretty conservative on the gas side, and that almost universally beats expectations, which is why you're seeing at a basin level more growth than we all expect almost on an annual basis. So I think that's going to continue, Neal. We could run the gas price at zero in the Permian and still make great returns on oil wells. For us personally, we try to protect our gas price through hedging as well as through some pipeline commitments to get our gas to bigger markets, as well as protect our basis exposure.
Roger Read: Applied efforts that youre seeing that.
Roger Read: Often up some of these other benches and I'm thinking within your footprint as well as what will be an expanded footprint here before year end.
Speaker Change: Yeah, Ross I mean, I think for zones like the Wolfcamp D. Well, we've got some testing on our assets, but also <unk> seen a lot of results across the fence line Diamondback doesn't spend a lot of time and we spent a lot of time looking at ourselves. We also spent a lot of time looking across the fence line and what other people are doing.
Speaker Change: Either through M&A process or just general.
Speaker Change: Competitor analysis, and we've seen that the Wolfcamp D has been very competitive, particularly in that kind of Midland Glasscock County line area and also as you get into Southern Martin County, So that's that's getting more.
Speaker Change: Attention I would say the upper sprayberry, we've done a lot of work on ourselves as actually an old energen wells drilled in the upper stay very in 2016 or 17, we revisited that zone recently last year and some of the upper Sprayberry wells that we've completed one in particular is probably one of the best wells in our portfolio.
Travis D. Stice: But generally, I think the Permian, even if you stay disciplined on oil, eventually you're going to have to move the gas to your zones, and there's a lot of gas and associated gas left to be produced in the Permian. Thanks again. Thanks, everyone. One moment for our next question. Our next question comes from Arun Jayaram with JPMorgan Securities. Your line is now open.
Speaker Change: So I'm not ready to say that the upper sprayberry exists across our entire acreage position, but.
Speaker Change: Certainly getting more capital on intention this year and particularly with the co development strategy and the fact that these zones talk to each other in some form or fashion means we got to get it now and so we've added the upper February into our kind of Northern Martin County development plan and I think the results speak for himself.
Arun Jayaram: Good morning, gentlemen. Travis Kaesa, I'd like to know if maybe you could walk us through kind of the path to get to the $10 billion net debt target in terms of timing, and how do asset sales with that influence the timing of reaching that target? Yeah, I think we kind of laid that out.
Speaker Change: Because you haven't seen a degradation in productivity I think that's the key to this exploration resource expansion story is if you can expand your resource without impacting productivity, that's a win for our shareholders.
Speaker Change: Drove this to add a comment from a high level what case just mentioned in my experience as companies get bigger.
Speaker Change: The more inwardly focused they become so they focus more on their own results and less on what others are doing around them and it's been a hallmark of diamondback since the very beginning.
Travis D. Stice: You know, in a $75 world, you know, generally, the two businesses throughout the course of this year will combine to generate about $5 billion of free cash flow. And you know, if we're looking at a late 2024 close, you know, just a high level, half that number, $2 to $2.5 billion will be used to reduce the cash portion of the purchase price. You know, that kind of puts you in the kind of $12 billion of total net debt at close.
Speaker Change: One out of necessity when we first started but it's been a hallmark of ours to really pay attention to what goes on around us and so right now it's culturally ingrained, but only to rigorously examine our own internal results, but also spend intellectual capital or looking across the border fence at what.
Speaker Change: Others are doing.
Speaker Change: As we move into a much larger position post close.
Speaker Change: Promise you got culture will stay intact, we will we will continue to look.
Speaker Change: What others are doing potentially better than we are and adapt accordingly.
Travis D. Stice: And you know, with the business continuing to generate more free cash in 2025, you know, with the numbers we laid out, you could see that $10 billion number by the middle of 2025. Now, that excludes any asset sales or acceleration, and I think we try to be an underpromised, over-delivered company, and there's a lot of things that we can do to... Accelerated Debt Outside of Commodity Prices.
Speaker Change: I appreciate that clarification.
Speaker Change: All my question. Thank you.
Speaker Change: Roger Thanks Roger.
Speaker Change: Yes.
Speaker Change: Thank you one moment for our next question.
Speaker Change: Our next question comes from Jeffrey.
Jeffrey: Well Amazon with Tpa Shankar Your line is now open.
Jeffrey: Good morning, everyone I appreciate the time.
Jeffrey: Hey, Jeff My first question.
Jeffrey: My first question is on the step change in capital efficiency are looking forward to into 2025, if you could talk more about the pathway. There I know you're already there for the legacy portfolio of milk cost as you mentioned travel, but can you comment maybe on the larger buckets are moving pieces, you'll be focusing on the endeavour side, both in terms of that well cost reduction and in terms of the non D&C line.
Travis D. Stice: I don't think we want to put the entire bet based on commodity prices, so we're looking at what's available to sell down in the next couple months here and beat that target. Got it. And just maybe a follow-up.
Jeffrey: So if you think about as we shift from this year into next.
Speaker Change: Yes, Jeff I think generally there's two big buckets.
Speaker Change: On the on the D&C side.
Speaker Change: And that we see across expensive endeavor that will.
Speaker Change: Look to put in place with the team there as we start to integrate on the completion side, it's really the subtle frac.
Travis D. Stice: If you do, you know, plan to do something in the Delaware Basin, would you wait until kind of reaching close on the transaction or talk us through maybe the timing when you would contemplate, you know, doing, you know, asset sales? Yeah, I think we're highly focused on deal certainty and getting the deal closed. And we're not going to do anything that derails that process.
Speaker Change: Development plan as well probably half of that plan being a formal breath easily which.
Speaker Change: Only reduces the cost of the completion side of the business.
Speaker Change: I don't even think we've modeled the benefits of a much larger supply chain.
Speaker Change: <unk>.
Speaker Change: To these numbers. This is just us getting getting their cost down to our.
Speaker Change: Our costs on the capital side. So there is probably some upside there at some point.
Speaker Change: And then on the on the drilling side, we've been a big proponent of clear fluids.
Speaker Change: Not using oil based mud to drill these wells, you'll saves time and money.
Travis D. Stice: So, you know, I think the Dollar Basin is a great cash flow for us, great free cash flow, and a very low decline rate. And we've, you know, we've reduced our capital commitments there and necessary wells we need to drill for leaseholding purposes. So I think it's just, you know, it's a good asset to have for the time being, and it's good option value over the long run, but certainly not looking to do anything in the near term. Great, thanks a lot.
Speaker Change: We put in place and learned from the <unk> three or four years ago, and so I think that's just.
Speaker Change: Decision to make that saves save significant dollars.
Speaker Change: What I'm excited about is to get under the tent with the endeavor team in.
Speaker Change: And learn what they're doing that we can do better right I think that's not modeled in this in this pro forma business and we've learned something from both energen and QEP are two large mergers that we've done to date. So I think there's some upside there, but really all we're doing is looking to put in place what we're doing today on a large.
Speaker Change: Your asset base.
Speaker Change: Yes.
Speaker Change: Spoke just a second ago on some of the cultural elements of Diamondback. Another cultural element is when we when we combined assets at our history. We've done a really good job of chicken, our egos at the door and finding finding out what what's really working and it's a culture seeking first to understand as opposed to.
Derrick Whitfield: Thanks, everyone. Thanks, everyone. Thank you. One moment for our next question. Our next question comes from Derrick Whitfield with SeaFood. Your lines are now open. Good morning, all.
Speaker Change: Being understood as Keith just mentioned when we put the two companies together, we're really excited about understanding.
Speaker Change: What they do why they do it.
Speaker Change: <unk> and <unk>.
Speaker Change: <unk> and improvements both on our side and on the other income and asset side.
Derrick Whitfield: I wanted to start my committee. I wanted to start by really commending you guys for the leadership you're demonstrating on capital discipline, as many of your peers are treating the environment as if it were naturally balanced today. Thank you, Derrick. With my first question, I wanted to focus on the service environment in light of the collapse in gas-directed activity that is underway now and the pre-existing lower equalization rates the service industry experienced last year. Is there an opportunity to revisit service prices on some of the higher-spec equipment? Yeah, a very good question.
Speaker Change: Perfect and then for my follow up I Wonder if you could just speak tablet philosophy around the balance sheet longer term will evolve if at all once the deal closes. We appreciate the commentary on the path to get to the $10 billion net debt level, but we're just thinking about how the pro forma math continues to push time and back to new levels in terms of weight class within the space.
Speaker Change: Yes. That's a question we got on the road a lot last year, it's kind of.
From investors, saying, Hey, listen we are in a different way class now and you probably need to reassess.
Speaker Change: Long term leverage profile and I think that resonated with us.
Speaker Change: <unk> fits with what we're trying to do I think we eventually want to get too.
Speaker Change: Kind of a $6 billion to $8 billion net debt number.
Speaker Change: Keep keep real cash on the balance sheet I think the concern that diamondback is going to go do every deal and use of cash to do deals is probably going to remove with this with this merger and in my mind that leaves us flexibility in terms of capital allocation too.
Travis D. Stice: You know, I think, we expect that we'll see some softening in the service market this year. If the gas basins do, you know, kind of remain muted in their activity levels, you know, we're not, you know, we don't set the price of the service market; we're price takers, but we'll certainly continue to push on our end on, you know, finding the market prices for all of our service lines where we don't have, you know, existing commitments in place. Terrific. And as a follow-up, I wanted to touch on Endeavor. Since you guys have been meeting with investors since the deal was announced, are there any aspects of the transaction that are underappreciated in your view?
Speaker Change: Lean into a buyback in a down cycle or lean into an acquisition in the down cycle and B b prostate.
Speaker Change: Pro cyclical not be pro cyclical and how we look at allocating capital on the on the repurchase side or the or the deal size. So long term six 8 billion would be a good number.
Speaker Change: It gets to zero that'd be great, but I think generally running in that half a turn.
Speaker Change: Strip is a pretty good place to be.
Speaker Change: Great appreciate the time guys I'll turn it back.
Speaker Change: Thanks, Jeff Thanks, Jeff.
Speaker Change: Thank you as a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced to withdraw your question. Please press star one again.
Speaker Change: One moment for our next question.
Speaker Change: Our next question comes from Paul Cheng with Scotiabank. Your line is now open.
Travis D. Stice: I think the first question that came up was, you know, the synergies, the $3 billion worth of synergies, most of those underpinned by our existing cost structure applied to the Endeavor assets. And so those are usually the entry questions, but once, you know, we explained that the cost assumptions that we embedded are the same cost assumptions we're currently doing today, a lot of comfort was gained, and then we went to the more, you know, kind of strategic questions with the shareholders. I think probably the cost efficiencies were the first, and then secondarily some of the debt retirement strategies that Kaes just went through were probably the two most topical questions that we dealt with.
Paul Cheng: Alright, thank you.
Paul Cheng: Good morning, guys.
Paul Cheng: And in case.
Last week, when you announced the deal.
Paul Cheng: You gave the 2024 and 25 Capex.
Paul Cheng: Our pro forma and also.
Paul Cheng: Thanks.
Paul Cheng: Yes.
Paul Cheng: Okay.
Paul Cheng: 2005, the pro forma comparing to 2004, we'd be about let's say coordinate one numbers and commitments are lower.
Speaker Change: Can you breakdown that.
Speaker Change: Because.
Speaker Change: And typically it would be lower.
Speaker Change: Because youre not going to grow at Bolivar and <unk>.
Speaker Change: To the.
Speaker Change: Yes, sure Paul you've got to cut out a little bit, but I think I think I get your question.
Speaker Change: Any questions.
Paul Cheng: How do we bridge the gap between the combined 2020 for Capex guide with Us.
Paul Cheng: Endeavour separately in the combined the business and 25%, which is down $700 million.
Travis D. Stice: Terrific. Thanks. Great quarter and update. Thanks, Jerry.
Paul Cheng: I would say most of it is.
Paul Cheng: Running our cost structure on the endeavor.
Paul Cheng: D&C and so thats basically a 175 wells.
Roger Reed: Thank you. One moment for our next question. Our next question comes from Roger Reed with Wells Fargo. Your line is now open. Yeah, thank you. Good morning, and Roger. Hey, I just wanted to come back.
Paul Cheng: The $1 five $2 million cheaper, yes. It gets you to about $300 million I think the combined business.
Paul Cheng: Going to need as many wells to hit the production number.
<unk> was growing.
Paul Cheng: Last year, they started slowing down mid year, but decline rate shallow so that'll help our decline rate continues to shallow that'll help and I think <unk>.
Roger Reed: You talked earlier about some of these other benches that might work, and it's, you know, a question of whether they'll be as productive and efficient, or the productivity and efficiency in those benches. Give us an idea of maybe some of the, Oh, let's call it, you know, science or or just applied, you know, applied efforts that you're seeing that could open up some of these other benches, you know, and I'm thinking within your footprint as well as what will be an expanded footprint here before you're in. Yeah, Roger, I mean, I think, you know, for zones like the Wolf Camp D, we've had some testing on our assets, but also, you know, seen a lot of results across the fence line, you know, Diamondback doesn't spend a lot of time, well, we spend a lot of time looking at ourselves, we also spend a lot of time looking across the fence line at what other people are doing, either through M&A process or just general competitor analysis, and we've seen that the Wolf Camp D has been very competitive, you know, particularly in that kind of mid-level and Glasgow County line area, and also as you get into Southern Martin County, so that's getting more attention.
Paul Cheng: Allocate capital to the best combined resource probably in North America, which will help and so that kind of gets you to meeting probably 50 less wells at 60.
Paul Cheng: <unk> $6 5 million a pop.
Paul Cheng: That's about another $300 million.
Paul Cheng: And then I think generally we're spending some dollars this year, probably about $50 million on environmental Capex that kind of onetime in nature and will be reduced on our side as well. So you put all that together and thats very very capital efficient business and in 2025, assuming existing well costs and that can move around but thats.
Paul Cheng: How we're thinking about 25.
Speaker Change: We might have lost Paul So we'll go to the next question.
Speaker Change: Thank you.
Speaker Change: Well known for our next question.
Speaker Change: Our next question comes from Leo Mariani with Roth.
Leo Mariani: Your line is now open.
Leo Mariani: Okay.
Leo Mariani: Hi, guys wanted to just ask about the the endeavor fan combination here do you guys see any tax benefit for the combined entity, where you might be able to defer some of the cash tax payments as a result of combining these two companies have you had any preliminary look at that.
I mean that.
Speaker Change: Obviously be some benefit with the cash portion of the transaction and the associated interest expense, but.
Speaker Change: We're continuing to do our combination work I mean, we're a full cash taxpayer essentially I mean, they're pretty close as well. So I don't think theres going to be too much to do there Leo but certainly the cash piece is going to shift a little bit of taxes on our side.
Roger Reed: You know, I would say the Upper Sprayberry, we've done a lot of work on ourselves, it's actually an old Energen well, it was drilled in the Upper Sprayberry in 2016 or 17, and we revisited that zone recently last year, and some of the Upper Sprayberry wells that we've completed, one in particular is probably one of the best, you know, wells in our portfolio, so I'm not ready to say that the Upper Sprayberry exists across our entire acreage position, but, you know, certainly getting more capital and attention this year, and, you know, particularly with the co-development strategy and the fact that these zones, you know, talk to each other in some form or fashion means we've got to get it now, and so we've added the Upper Sprayberry into our kind of Northern Martin County development plan, and I think the results speak for themselves, because you haven't seen a degradation in productivity, I think that's the key to this, you know, exploration, resource expansion story is, if you can expand your resource without impacting productivity, that's a win for our shareholders. Roger, I'll just add a comment from a high level on what Case just mentioned, you know, in my experience, as companies get bigger, The more inwardly focused they become, so they focus more on their own results and less on what others are doing around them, and it's been a hallmark of Diamondback since the very beginning.
Leo Mariani: Okay. That's helpful.
Leo Mariani: And then just jumping back over to M&A, obviously, you guys got that.
Leo Mariani: Big Prize in the Permian and the market has clearly rewarded.
Leo Mariani: Diamondback shareholders here as you look at kind of the remaining landscape do you think there is anything out there left to do that's kind of chunky that would be of interest to Fang or is it maybe just kind of more a little staff over the years to kind of tie everything together.
Leo Mariani: Yes.
Speaker Change: We're on the sideline here, we are fully focused on getting this deal.
Speaker Change: Closed as soon as possible.
Speaker Change: And we can assess the landscape.
Speaker Change: That happens.
Speaker Change: Im confident that the landscape will look different whenever that time does come.
Speaker Change: Okay. Thanks.
Speaker Change: Thanks Neil.
Speaker Change: Thank you one moment for our next question.
Speaker Change: Okay.
Speaker Change: Our next question comes from Doug Leggate with Bank of America. Your line is now open.
Doug Leggate: My question is does that.
Doug Leggate: Any impacts on integration planning or does that go ahead.
Speaker Change: Hey, Doug just to speak up.
This is John Abbott on for Doug Leggate apologies I was on mute.
John Nelson: Just one more I want just one question going back to Paul's question on the difference in Capex between 2024 and 2025.
John Nelson: That's about 725 mill.
John Nelson: And then you talk about the $550 million in synergies.
John Nelson: And when you think about that $725 million is there. An addition on top of that as sort of we sort of think into 2025, just trying to reconcile the two numbers.
Speaker Change: Yeah, I think the difference between the two numbers is really activity between the $5 $50, 7% fall at the combined business has less activity in 25 versus 24, which is helping but we kind of see the $5 50 is more of a longer term run rate John.
Roger Reed: One, you could say out of necessity when we first started, but it's been a hallmark of ours to really pay attention to what goes on around us, and so right now, it's culturally ingrained not only to rigorously examine our own internal results but also to spend intellectual capital on looking across the barbed wire fence at what others are doing, and as we move into a much larger position post-closed.
Speaker Change: I appreciate it and Thats really it at this point in time, but thank you very much for taking our questions.
Speaker Change: John.
Speaker Change: Okay.
Speaker Change: Thank you I'm showing no further questions at this time.
Travis D. Stice: I promise you that the culture will stay intact. We will continue to look, you know, and find what others are doing potentially better than we are and adopt the coordination. I appreciate that clarification. That's my only question.
I would now like to turn it back.
Speaker Change: Travis Stice CEO for closing remarks.
Travis D. Stice: Great. Thank you.
I really appreciate everyone listening in this morning, and asking questions and if there's any follow up just reach out to us and we'll address them. Then thank you and you all have a great day.
Roger Reed: Thank you. Thanks, Roger. Thank you. One moment for our next question. Our next question comes from Jeoffrey Lambujon with TPH and Co.
Travis D. Stice: This.
Travis D. Stice: Today's conference call.
Speaker Change: Thank you for participating you may now disconnect.
Speaker Change: [music].
Speaker Change: Okay.
Jeoffrey Restituto Lambujon: Your line is now open. Morning, everyone. I appreciate the time. My first question... My first question is on the step change in capital efficiency. I'm looking forward to into 2025. If you could talk more about the pathway there,
Speaker Change: Yes.
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Jeoffrey Restituto Lambujon: I know you're already there for the legacy portfolio and well costs, as you mentioned, Travis. But can you comment maybe on the larger buckets or moving pieces you'll be focusing on the Endeavor side, both in terms of that well-cost reduction and in terms of the non-DNC line items that you think about as we shift from this year into next? Yeah, Jeff, I think generally there's two big buckets on the DMC side that we see across Fence's endeavor that will probably, you know, look to put in place with the team there as we start to integrate. On the completion side, it's really the simulfract Development plan as well as, you know, probably half of that plan being a simulcraft e-fleet, which, you know, only reduces the You know, I don't even think we've modeled the benefits of a much larger supply chain on these numbers.
Speaker Change: Yeah.
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Travis D. Stice: This is just us getting their costs down to our costs on the capital side. So there's probably some upside there at some point. And then on the drilling side, we've been a big proponent of clear fluids, not using oil-based mud to drill these wells. It saves time and money.
Travis D. Stice: That was something we put in place and learned from the QEP team three or four years ago. And so I think that's just a decision to make that saves significant dollars. And what I'm excited about is getting under the tent with the Endeavor team and learn what they're doing that we can do better. I think that's not modeled in this pro forma business.
Travis D. Stice: And we've learned something from both EnerGen and QEP, our two large mergers that we've done to date. So I think there's some upside there. But really, all we're doing is looking to put in place what we're doing today on a larger asset base. Since I spoke just a second ago about some of the cultural elements of Diamondback, another cultural element is that when we combine assets from our history, we've done a really good job of checking our egos at the door and finding out what's really working. And it's a culture of seeking first to understand, as opposed to being understood.
Speaker Change: Okay.
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Travis D. Stice: And as Kaes just mentioned, when we put the two companies together, we're really excited about understanding what they do, why they do it, and collectively making improvements, both on our side and on the incoming asset. And then for my follow-up, I wonder if you could just speak to how the philosophy around the balance sheet longer term will evolve, if at all, once the deal closes. We appreciate the commentary on the path to get to the $10 billion net debt level, but we're just thinking about how the pro forma math continues to push time and back to new levels in terms of weight class within the space.
Speaker Change: Okay.
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Speaker Change: Okay.
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Jeoffrey Restituto Lambujon: Yeah, you know, that's a question we got on the road a lot last year, kind of, you know, from investors saying, hey, listen, you're in a different weight class now, and you probably need to reassess your long-term leverage profile. And I think, you know, that resonated with us and fits with what we're trying to do. I think we eventually want to get to, you know, kind of a $6 to $8 billion net debt number, and keep real cash on the balance sheet. I think the concern that Diamondback's going to go do every deal and use all its cash to do deals has probably been removed with this merger. And in my mind, that leaves us flexibility in terms of capital allocation to, you know, lean into a buyback in a down cycle or, you know, lean into an acquisition in a down cycle and be, you know, pro-cyclic or not pro-cyclical in how we look at allocating capital on the repurchase side or the deal side.
Speaker Change: Yes.
Speaker Change: Yes.
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Travis D. Stice: So long-term, you know, $6 to $8 billion would be a good number. You know, if it gets to zero, that'd be great. But, you know, I think, generally, running in that half a turn at Strip is a pretty good place to be.
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: [music].
Jeoffrey Restituto Lambujon: Great. Appreciate the time you guys will turn it back. Thanks, Jeff. Thank you. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 1 again.
Operator: One moment for our next question. Our next question comes from Paul Cheng with Scotiabank. Your line is now open.
Paul Cheng: Thank you. Good morning, guys. In case last week, when you announced the deal, you gave the 2024 and 2025 CapEx pro forma, and also the production is what's... 2005, the performer, compared to 2004, would be about, I would say, call it a round number, 700 minutes or lower. Can you break down that? How much is really true? Because you think the activity would be lower, or that asset, because you're not going to grow as fast, and how much is it really?
Speaker Change: Yeah.
Speaker Change: Okay.
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Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: Thanks.
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Travis D. Stice: Yeah, sure, Paul, you kind of cut out a little bit, but I think I think I understand your question. Any questions? How do we bridge the gap between the combined 2024 CapEx guide with us and Endeavor separately and the business in 2025, which is down $700-ish million? I would say most of it is... running our cost structure on the Endeavor, you know, DNC. And so that's, you know, basically 175 wells at a million and a half, $2 million cheaper. It gets you to about $300 million.
Speaker Change: Okay.
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Speaker Change: Thanks.
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Travis D. Stice: I think the combined business, you know, is not going to need as many wells to hit production numbers. You know, Endeavor was growing last year, but they started slowing down mid-year, but their decline rate's shallowing, so that'll help.
Travis D. Stice: Our decline rate continues to shallow, that'll help. I think we're going to allocate capital, the best combined resource probably in North America, which will help. And so that kind of gets you to, you know, needing probably 50 less wells at, you know, six, six and a half million a pop.
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Travis D. Stice: That's about another $300 million. And then, you know, I think generally we're spending some dollars this year, probably about $50 million on environmental CapEx that, you know, it's kind of one-time in nature and will be reduced on our side as well. So you put all that together, and that's, you know, a very, very capital efficient business in 2025, you know, assuming existing well costs. And that can move around, but that's how we're thinking about 2025. We might have lost Paul, so we'll go to the next question. Thank you. One moment for our next question. The next question comes from Leo Mariani with Roth MKM, Alliance Nova. Hi guys, I wanted to just ask about the Endeavor-FANG combination. Do you guys see any tax benefit for the combined entity where you might be able to defer some of the cash tax payments as a result of combining these two companies?
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Leo Mariani: Have you had any preliminary look at that? Uh, I mean, there will obviously be some benefit with the, you know, the cash portion of the transaction and the, you know, associated interest expense, but, you know, we're continuing to do our combination work. I mean, we're a full cash taxpayer, essentially, and they're pretty close as well, so I don't think there's going to be too much to do there, Leo, but certainly, the cash piece Okay, that's helpful. And then just jumping back over to M&A, obviously, you guys got the big prize, and the Permian, and the market have clearly rewarded, you know, Diamondback shareholders here. As you look at kind of the remaining landscape, do you think there's anything out there left to do that's kind of chunky that would be of interest to FAANG? Or is it maybe just kind of more little things over the years to kind of tie everything together?
Thanks.
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Travis D. Stice: Yeah, listen, Leo, we're on the sidelines here. We're fully focused on getting this deal closed as soon as possible, and we can assess the landscape when that happens. I mean, I am confident that the landscape will look different whenever that time does come.
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Leo Mariani: Okay, thanks... Thank you. One moment for our next question. Our next question comes from Doug Luggett with Bank of America. Your line is now open.
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Doug Luggett: My question is, does that... Hey Doug, you have to speak up. This is John Abaddon on behalf of Doug Leggett. Apologies, I was on mute. Just one more question, going back to Paul's question on the difference in CapEx between 2024 and 2025. Now that's about 725 million. And then you talk about the 550 million in Synergy. So when we think about that $725 million, is there an addition on top of that? It's where we sort of think into 2025, just sort of trying to reconcile the two numbers. Yeah, I think the difference between the two numbers is really activity between the 550 and 725, right?
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Travis D. Stice: The combined business has less activity in 25 versus 24, which is helping, but we kind of see the 550 as more of a longer-term run rate, John. I appreciate it. And that's really it at this point in time, but thank you very much for taking our question. Thanks y'all. Thank you. I'm showing no further questions at this time. I would now like to turn it back to Travis Stice, CEO, for closing remarks. Great, thank you. And I really appreciate everyone listening in this morning and asking questions. And if there's any follow-up, just reach out to us, and we'll address them then.
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Travis D. Stice: Thank you and y'all have a great day. This concludes today's conference call. Thank you for participating. You may now dis- ,. .. .. .. .. .. .. .. .. .. .. .. .. ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ?.
Operator: ......
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