Q1 2024 Diamondback Energy Inc Earnings Call
Operator: Good day, and thank you for standing by. Welcome to the Diamondback Energy first quarter 2024 earnings conference call. At this time, all participants are in 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. You will then hear an automated message advising that your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to Adam Lawlis, VP of Investor Relations. Please go ahead.
Good day and thank you for standing by welcome to the Diamondback Energy first quarter 2024 earnings Conference call.
At this time, all participants are in listen only mode.
After the Speakers' presentation, there'll be a question and answer session.
Ask the question during the session you will need a press star one on your telephone.
And then here an automated message advising on hand is raised to withdraw your question. Please press star one again please.
Please be advised that today's conference is being recorded.
Now like to hand, the conference over to Adam Lawlis VP of Investor Relations. Please go ahead.
Adam T. Lawlis: Thank you, Jules. Good morning and welcome to Diamondback Energy's first quarter 2024 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, Case Mantoff, President and CFO, and Danny Wesson, COO.
Adam T. Lawlis: Joe Good morning, and welcome to Diamondback Energy's first quarter 2024 conference call.
Adam T. Lawlis: During our call today, we will reference an updated investor presentation that letter to stockholders, which can be found on <unk> website.
Presenting diamondback today are Travis Stice, chairman and CEO.
Speaker Change: <unk>, President and CFO and Danny Wilson.
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, future performance, and business. However, 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 filings with the SEC. In addition, we will make reference to certain non-GAAP measures. The right reconciliations with the appropriate GAAP measures can be found in our earnings release issued yesterday afternoon. I'll now turn the call over to Travis Stice.
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.
Speaker Change: 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.
Speaker Change: Information concerning these factors can be found in the company's filings with the SEC.
Speaker Change: 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.
Speaker Change: I'll now turn the call over to Travis Stice.
Travis D. Stice: Thank you, Adam. And I appreciate everyone joining again this morning. I hope you continue to find the stockholders letter that we issued last night an efficient way to communicate. We spent a lot of time putting that letter together, and there's a lot of material in that. So, operator, with that as a brief introduction, would you please open the line for questions?
Travis D. Stice: Thank you Adam and I appreciate everyone. Joining again this morning I Hope you continue to find the stockholders' letter that we issued last night and efficient way to communicate.
Travis D. Stice: We spent a lot of time could not leather together and theres a lot of material in that.
Travis D. Stice: So operator with that isn't a brief introduction would you. Please open the line for questions.
Speaker Change: Thank you.
Operator: At this time, we will conduct a question and answer session. As a reminder, to ask a question, you will need to press star 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Neil Mehta of Goldman Sachs. Your line is now open.
Speaker Change: At this time, we will conduct a question and answer session. As a reminder to ask a question you will need to press star one one on your telephone and wait for your name to be announced to withdraw your question. Please press star one again.
Speaker Change: Please standby, while we compile the Q&A roster.
Speaker Change: Our first question comes from the line of Neil Mehta of Goldman Sachs. Your line is now open.
Neil Singhvi Mehta: Yeah, good morning, Travis, Case, and team. A lot of good stuff in the letter. Two quick follow-ups. First, just on natural gas, you spent a lot of time talking about some of the steps you've taken to mitigate some of the softness that we're seeing in WAHA pricing. Can you spend more time on that? And as it relates to that, how do you think about the timing of de-bottlenecking
Neil Singhvi Mehta: Yes, good morning, Travis caisson team.
Neil Singhvi Mehta: A lot of good stuff in the letter two quick follow ups first just on natural gas you spent a lot of time talking about.
Neil Singhvi Mehta: Some of the steps you've taken to mitigate some of the softness that we're seeing in wahhab pricing can we spend more time on that.
Neil Singhvi Mehta: As it relates to that how do you think about the timing of Debottlenecking.
Neil Singhvi Mehta: Permian gas.
Unknown Executive: Well, from a macro perspective, I think we've been pretty clear that we're going to continue to need. Pipes being built about every 12 to 18 months out of the Permian to accommodate the associated gas, goes along with the six main barrels a day that we produce out here. You know, we've relinquished taking kind rights on other areas to commit to other pipes that were built, you know, as Travis said, we just need to do more, and I think, you know, with our size and scale and balance sheet, you know, we should be taking a leadership position on these new pipes, you know, we've talked to a lot of people that are working on them today, and it seems that there are projects in the works that will help the bottleneck past, you know, the end of this year.
Neil Singhvi Mehta: Well from a macro perspective, I think we've been pretty clear that we're going to continue to need.
Neil Singhvi Mehta: It's being built about every 12 to 18 months out of the Permian to accommodate the associated gas.
Neil Singhvi Mehta: It goes along with the 6 million barrels a day that we produce out here.
Neil Singhvi Mehta: Natural gas is right now.
Neil Singhvi Mehta: Like a waste product.
Speaker Change: Got it.
Speaker Change: Well no matter, where it comes on is this fall we will see some of that reverse but okay. If you want to give us some description of what we're doing the rest of the rest of the gas, yes, unless we monitor we wanted to be able to contribute to more pipes. We've done that in the last couple of years with commitments on Whistler in Matterhorn.
Speaker Change: We relinquished taken kind rights on other areas to commit to other pipes that were built.
Speaker Change: As Trevor said, we just need to do more and I think with our size and scale and balance sheet, we should be taken a leadership position on these new pipes, we've talked to a lot of people that are working on them today and it seems that there are projects in the works that that will help demos bottleneck past the end of this year.
Unknown Executive: But as we control, or have the ability to control more gas flows on our side, as contracts roll off, etc., you know, we're going to keep pushing on more pipes and more markets out of this basin.
Speaker Change: As we control or have the ability to control more gas flows on our side as contracts roll off et cetera, we're going to keep keep pushing on more types of more markets out of this basin.
Unknown Executive: Yeah, thanks, both. And then the second is capital efficiency. You talk about the 10% improvement that you're expecting per lateral foot. So just talk about what you're seeing real time in terms of deflation. And then also, what are the next steps in terms of driving your cost structure lower as we think about efficiency? Well, I think that the deflationary pressures we continue to see in the Permian are being
Speaker Change: Yes. Thanks, both and then the second is capital efficiency, you talked about the 10% improvement that you're expecting.
Speaker Change: Lateral so let's just talk about what youre seeing real time in terms of.
Speaker Change: In terms of.
Speaker Change: Deflation and then also what are the next steps in terms of driving your cost structure.
Speaker Change: Lower as we think about.
Unknown Executive: Well, I think the deflationary pressures we continue to see in the Permian are being driven by the decline in the rig count and the decline in the completion crew count. Those will be, you know, tailwinds for us as we look through the rest of this year. But also, without regard to those deflationary impacts, we continue to push the envelope on our D&C operations where we're getting, I think we averaged almost 13,000 feet for the quarter this year, and we're continuing to get these wells drilled faster.
Speaker Change: <unk> fleet.
Speaker Change: Well I think the deflationary pressures, we continue to see it in the Permian are being driven by the decline in the rig count.
Speaker Change: The decline in the completion crew count.
Speaker Change: Those will be tailwind for us as we look through the rest of this year, but also.
Speaker Change: Without regard to those deflationary impacts we continue to push the envelope on our D&C operations, where we are we're getting I think we averaged almost 13000 feet for the quarter. This year.
Speaker Change: And we're continuing to get these wells drilled faster and then our completion crews continue to push the envelope on the number of <unk>.
Unknown Executive: And then our completion crews continue to push the envelope on the number of lateral feet that are completed, you know, in a 24-hour period. So we're working on the numerator and the denominator of capital efficiency, and I really like the way the rest of the year sets up for us.
Speaker Change: <unk> feeds that are completed and a 24 hour period. So we're working on the numerator hand, the denominator of capital efficiency and really like the way the rest of the year sets up for us.
Speaker Change: Okay.
Speaker Change: Thanks Pat.
Pat: Thanks Neil.
Operator: Thank you. We stand by for our next question. Our next question comes from the line of Arun Jayaram of JP Morgan Securities LLC. Your line is now open.
Speaker Change: Thank you.
Speaker Change: Please standby for our next question.
Speaker Change: Our next question comes from the line of <unk> <unk>.
Speaker Change: Of Jpmorgan Securities LLC. Your line is now open.
Arun Jayaram: Yeah, good morning. Travis, you and the team had highlighted Up to 550 million of annualized synergy capture in the transaction in the Midland Basin, including a 150 foot decline in D, C, and E costs in the Midland Basin to that 600 to 650 range. Maybe a follow-up to Neil's question, but where are you seeing kind of the leading edge, you know, kind of cost today in the Midland Basin as you continue to push those lateral links a bit longer?
Speaker Change: Yes, good morning.
Speaker Change: <unk>.
Speaker Change: You and the team had highlighted.
Speaker Change: Up to $550 million of annualized synergy capture in the transaction.
Speaker Change: In the Midland basin, including a 150 foot.
Speaker Change: Decline in D C.
Speaker Change: <unk> costs in the Midland Basin.
Speaker Change: That 600 to 650 range, maybe a follow up to Neil's question, but where are you seeing kind of leading edge kind.
Speaker Change: Cost today in the Midland Basin as you continue to push those lateral links a bit longer.
Unknown Executive: Yeah, or in this case, you know, I think the combination of those longer laterals, you know, 12,000 plus. You know, with some efficiencies on the completion side that we probably weren't expecting going into the year, as well as, you know, some softening on the service side, makes us feel pretty good that we're in the lower half of that 600 to 650 feet in the Midland Basin. As you know, 90% of our capital is being allocated to that basin.
Speaker Change: Yes, Casey I think.
Speaker Change: The combination of those longer laterals.
Speaker Change: 12000, plus.
Speaker Change: With some efficiencies on the completion side that we probably weren't expecting going into the year as well as some softening on the service side. It makes us feel pretty good that were in the lower half of that 600 to 650, a foot in the Midland Basin.
Speaker Change: As you know 90% of our capital is being allocated to that basin. So with those costs trending in the right direction I think on a real time basis closer to 600, a foot we feel really really good about our plan this year as well as carrying that momentum into a Q4 close the endeavour deal on into 2025.
Unknown Executive: So, with those costs trending the right direction, I think, you know, on a real-time basis closer to 600 a foot, you know, we feel really, really good about our plan this year, as well as, you know, carrying that momentum into a Q4 close of the Endeavor deal and into 2025, you know, very clearly we laid out some strong synergy targets and a very strong capital efficient 2025 plan, and we still feel very, very confident in that plan.
Speaker Change: Clearly, we laid out some strong synergy targets in a very strong capital efficient 2025 plan and we still feel very very confident in that plan.
Unknown Executive: Great. Case, you know, looking at the quarter, you didn't really realize how much activity in terms of tills there was in the Delaware Basin. Can you give us some thoughts on the Delaware program? I know it's 10% of the program, but, you know, what are your thoughts on Delaware as we think about, you know, moving on into the back half of this year and into next year? Yeah, listen, there's still a place for the Delaware program. There are still some really good projects coming up in Q2. I think we have a project here.
Speaker Change: Great.
Speaker Change: Looking at the quarter, you Didnt really.
Speaker Change: How many activity in terms of tills in the Delaware Basin can you give us some thoughts on the Delaware program I know, it's 10% of the program but.
Speaker Change: What's your thoughts on the Delaware as we think about moving on.
Speaker Change: Into the back half of this year and into next year.
Unknown Executive: Yeah, listen, there's still a place for the Delaware program. There are still some really good projects coming up in Q2. I think we have a project in that Mermado area, northern Reeves County, that's going to be very good. You know, I think generally, with large pad development, you're going to see pockets of development in the Delaware rather than, you know, consistent development because we want to go over there and complete multiple wells, multiple pads in a row and keep that capital efficiency high, you know, versus the Midland Basin, where, you know, three or four simulfrac crews are going to be running at all times.
Speaker Change: Yes.
Speaker Change: Place for the Delaware program. There is still some really good projects coming up and in Q2, I think we have a project in <unk>.
Speaker Change: EMEA Io area, Northern Reeves County, that's going to be very good I think generally with large pad development youre going to see pockets of development in the Delaware rather than consistent development, because we want to go over there and complete multiple wells multiple pads in a row and keep that capital efficiency high versus the Midland Basin.
Speaker Change: <unk> three or four simultaneous crews are going to be running at all times.
Speaker Change: Great. Thanks, a lot.
Speaker Change: Thanks Sharon.
Speaker Change: Okay.
Speaker Change: Okay.
Operator: Our next question comes from the line of David Deckelbaum of TD Cohen. Your line is now open.
Speaker Change: Our next.
David Adam Deckelbaum: Comes from the line of David Deco bomb of TD Cowen. Your line is now open.
David Adam Deckelbaum: Morning, Travis. Case and team, thanks for your time today.
David Adam Deckelbaum: Good morning, Travis case and team thanks for your time today.
Unknown Executive: You're welcome, David. Good morning.
David Adam Deckelbaum: Okay, so maybe this question is for both of you guys, but considering the positioning a bit early with the debt that you raised earlier this month, and now the expectation that the deal will close at the end of the year with Endeavor, you talked about kind of the synergy expectations in the last series of questions. Can you give us an update on how you're thinking about that initial sort of non-core sale asset target and maybe some of the updated timing around those thoughts, you know, considering the markets have changed a bit, especially around the cash consideration portion?
David Adam Deckelbaum: David Good morning.
David Adam Deckelbaum: Maybe this question is for both of you guys, but considering the positioning a bit early with the debt that you raised earlier. This month now the expectation that the deal will close at the end of the year with endeavor.
Speaker Change: You talked about kind of the synergy expectations in the last series of questions can you give us an update on how youre thinking about that initial sort of noncore sale asset target.
David Adam Deckelbaum: And maybe some of the updated timing around those thoughts considering the market's changed a bit, especially around the cash consideration portion.
Unknown Executive: Yeah, I think what's changed is just timing, right? I think the projects we see as non-core asset sales or the asset sales to subsidiaries we have are still the same. Endeavor has a really good midstream business that would fit well with our midstream JV. They have a significant mineral business that I think is going to be a game changer for Viper if those two businesses are combined.
Speaker Change: Yes, I think what's changed is just timing right I think the <unk>.
Speaker Change: Rejects we see as noncore asset sales or <unk>.
Speaker Change: Asset sales to subsidiaries. We have is still the same endeavor has a really good midstream business that would fit well with our midstream JV. We have a significant mineral business that I think is going to be a game changer for Viper. If those two businesses are combined in our strategy to execute on those.
Unknown Executive: And our strategy to execute on those trades has not changed; it's just been pushed out to the right. So, you know, on top of that, there's an $8 billion cash consideration that continues to be worked down with free cash flow between sign and close. You know, I think that just means we have to pony up less cash at close in Q4. And, you know, we raised the money a couple weeks ago because we were preparing to potentially close the deal as early as today.
Speaker Change: <unk> has not changed it's just been pushed out to the right. So.
Speaker Change: On top of that it was an $8 billion cash consideration. That's continued continues to be worked down with free cash flow.
Speaker Change: Signing close I think that just means we have to pony up less cash at close in Q4.
Speaker Change: We raised the money a couple of weeks ago, because we were preparing to potentially close the deal as early as today. Unfortunately.
Unknown Executive: Unfortunately, you know, the deal's been pushed out due to regulatory review, but, you know, we had to be ready to fund the deal, and that's where we were. Fortunately, the bond deal was pretty well-timed. You know, we're actually earning very minimal negative carry on the cash that we have sitting at the banks today, and we'll be ready to use it when we close in a couple quarters.
Speaker Change: It's been pushed out due to regulatory review, but we have to be ready to to fund the deal and that's where we were Fortunately the bond deal was pretty well timed.
Speaker Change: We're actually earning very minimal negative carry on the cash that we have sitting at the banks today and we'll be ready to use it when we close in a couple of quarters.
David Adam Deckelbaum: Thanks for the thoughts there. Maybe just to follow up a little bit more on just the gas pipeline side, just for my own edification, just some clarity, just You know, you highlighted you didn't have any issues with egress, you have Matterhorn coming online in the third quarter, you know, is there, is there a point as you look forward where you anticipate egress issues? Or is this more appearing to be just more proactive to get involved with taking on firm capacity in future pipelines? Do you need to take a more active role beyond that? Yeah, well, I mean, we're facing them right now, egress issues.
Speaker Change: Thanks for your thoughts there, maybe just to follow up a little bit more on just the gas pipeline side just for my own edification, just some clarity just.
Speaker Change: You highlighted you didnt have any issues with egress, you have matterhorn coming online in the third quarter.
Speaker Change: Is there is there a point as you look forward, where you anticipate egress issues or is this more appearing to be just more proactive to get involved with taking on firm capacity and future pipelines do you need to take a more active role beyond that.
Unknown Executive: Yeah, well, I mean, we're facing it right now, egress issues, right? Not on the physical side, but certainly on the price side.
Speaker Change: Yes.
Speaker Change: Alright, now egress issues right now.
Speaker Change: On the physical side, but certainly on the price side. So I think I think if we can remove the pricing aspect of pricing molecules in la versus pricing.
Unknown Executive: So, you know, I think if we can remove the pricing aspect of pricing molecules and law versus pricing them, you know, further downstream and just paying a fixed fee on the pipe, you know, that that, to us, is a risk mitigation strategy that makes sense for Diamondback shareholders. So, I think, you know, I think we see the gas forecast continuing to increase. If you do, look back at the big public, the big public, you know, third-party services, and what they thought gas production was going to be in 2024.
Speaker Change: Further downstream and just paying a fixed fee on the pipe.
Speaker Change: That to us as a risk mitigation strategy that makes sense for us.
Speaker Change: <unk> shareholders. So I think I think we see gas forecast continuing to increase.
Speaker Change: If you do look backs.
Speaker Change: On the big publics the big public.
Speaker Change: Third party services and what they thought gas production was going to be in 2024. They are all been wrong. So it's always been more gas sooner and so for us we need to handle that physically where we can and with our balance sheet and size of scale. We can sign those 10 year deals because we know we're going to be around two <unk>.
Unknown Executive: They've all been wrong. So you know, it's always been more gas sooner. And so for us, you know, we need to handle that physically where we can, and with our balance sheet and size and scale, we can sign those 10 year deals because we know we're going to be around to produce for a very, very long time. Thanks.
Speaker Change: Produce for a very very long time.
Speaker Change: Thanks for your thoughts guys.
Speaker Change: Thanks, Steve.
Operator: Please stand by for our next question. Our next question comes from the line of Scott Hanold of RBC Capital Markets. Your line is now open.
Speaker Change: Please standby for our next question.
Speaker Change: Our next question comes from the line of Scott Hanold of RBC capital markets. Your line is now open.
Scott Michael Hanold: Hey guys, thanks. I'm just going to stick on the gas theme as well because it is very topical, but it sounds like, and just correct me if I'm wrong, you guys feel good about your development program on a Diamondback standalone basis as well as with Endeavor with gas capacity at least for the foreseeable future. And just confirm that's correct, and if you could also, you know, maybe opine on, you know, just
Scott Michael Hanold: Yeah, Hey, guys. Thanks.
Scott Michael Hanold: I'm, just going to stick on the gas steam as well because it is very topical but it sounds like and just correct me if I'm wrong.
Scott Michael Hanold: Feel good about your development program.
Scott Michael Hanold: The dam Diamondback standalone basis, as well as with endeavor with gas capacity at least for the foreseeable future and just confirm that's correct and if you could also.
Scott Michael Hanold: Maybe opine on just broader Permian in general do you expect.
Scott Michael Hanold: Other operators to see some physical constraints not being able to get their gas out in <unk>.
Scott Michael Hanold: Actual shut ins related to that.
Unknown Executive: Yeah, Scott. We're 100% confident in our plan.
Speaker Change: Yes, Scott, we're 100% confident in our plan.
Speaker Change: I think we have a lot of visibility.
Speaker Change: More and more physical space coming our way every molecule has moved to date.
Speaker Change: I don't like the speculation blame game in the Permian about who is going to be able to move or not I'm focused on diamondback and we're going to be in really good shape.
Unknown Executive: Okay, fair enough. And then my next question is on stock buybacks. You know, obviously, it sounds like it's going to be a little bit, you know, a little bit more tempered until the deal closes with Endeavor. But can you give us your thought process on buybacks post merger and how you think about the intrinsic value of the combined company and what mid-cycle price makes sense to underpin that?
Speaker Change: Okay Fair enough and then my next question is on stock buybacks.
Speaker Change: Obviously, it sounds like it's going to be a little bit a little bit more tempered until the deal closes with with endeavor, but can you give us your thought process.
Speaker Change: No.
Speaker Change: Buybacks post merger and how you think about the intrinsic value of the combined company.
Speaker Change: What mid cycle price makes sense to underpin that.
Unknown Executive: Yeah, you know, I think philosophically that part of the move back to 50% of free cash flow returned every quarter allows us to build more cash, pay down debt faster, but also make bigger bets on buybacks, right? In a single quarter, if you're having to distribute 75% of your free cash flow, you don't get to really make the big bet on the buyback at the right time. And so, you know, this flexibility will allow us to do that.
Speaker Change: Yes, I think philosophically part of the move back to 50% of free cash flow returned every quarter allows us to build more cash pay down debt faster, but also makes a bigger bets on buybacks right.
Speaker Change: <unk>.
Speaker Change: In a single quarter, if youre, having to distribute 75% of your free cash flow you don't get to really make the big bet on the buyback at the right time and so this flexibility will allow us to.
Speaker Change: To do that clearly we've been a little limited on buybacks since announcing the deal I would expect that.
Unknown Executive: You know, clearly, we've been a little limited on buybacks since announcing the deal. I would expect that to stay about the same here in the second and third quarters, depending upon the market. You know, if we see some weakness, we're going to step in and support the stock. But in the longer term, we want to make the nine-figure, 10-figure bets on buybacks at the right time. And that's the flexibility we want on capital return.
Speaker Change: Stay about the same here in the second and third quarters, depending upon the market. If we see some weakness were going to.
Speaker Change: Step in and support the stock but longer term, we want to make the nine figure 10 figure bets on buybacks at the right time and that's the flexibility we want on capital return.
Unknown Executive: You know, I think we still see a kind of mid-cycle in the 60 to $70 range. I think we were firmly at 60 for a long time. We're probably closer to 70, 20, and $2 or $3 gas. And, you know, in the combined business, you look at what we have with Endeavor, there's a significant amount of inventory and a lot of NAV accretion, so, and probably a lower combined cost of capital. So I think we feel like we can, you know, raise that buyback top a little bit, but we're probably going to be cautious until we close.
Speaker Change: I think we still see mid cycle in the 60 to $70 range. I think we were firmly 60 for a long time.
Speaker Change: Closer to 70% 22.
Speaker Change: Two or $3 gas in the.
Speaker Change: The combined business. If you look at what we have with endeavour theres a significant amount of inventory.
Speaker Change: A lot of NAV accretion, so probably a lower combined cost of capital. So I think we.
Speaker Change: Feel like we can.
Speaker Change: Raised our buyback up a little bit, but we're probably going to be cautious until we close.
Unknown Executive: Yeah, just to clarify a couple points. Just broadly speaking, how much accretion do you all feel Endeavor added? And can you give us a sense of, you know, when you think about the cost of capital, like, you know, what, you know, what, what did you think before when you did intrinsic value? Was it like a 10% kind of flat? Or do you get a little bit more scientific with that? Yeah, we've always been a little higher than 10. I think, you know, I think an after 10 would be good.
Speaker Change: Yes, just to clarify a couple of points just broadly speaking how much accretion do you all feel endeavor added in and can you give us a sense of like when you think about cost of capital.
Speaker Change: What.
Speaker Change: What were you kind of thinking before when you did intrinsic value or is it like a 10% kind of flat or do you get a little bit more scientific with that yes.
Unknown Executive: Yeah, we've always been a little higher than 10. I think, you know, an after-tax PV12 felt like, at a mid-cycle price, felt like a very conservative price to buy back shares. And that also makes sure we don't get trapped into a positive feedback loop of buying back shares all the way to the top. So I think an after-tax 12% rate of return in this business is a really good rate of return at a mid-cycle price, and that keeps you in a good spot, you know, through the cycle. Thanks for that!
Speaker Change: Higher than 10, I think I think an after tax PV 12 Salt Lake.
Speaker Change: At a mid cycle price felt like a very conservative.
Speaker Change: <unk> to buy back shares and that also make sure we don't get trapped into a positive feedback loop of buying back shares all the way at the top so I think an after tax 12% rate of return in this business is a really good rate of return at a mid cycle price.
Speaker Change: It keeps you in a good spot through the cycle.
Speaker Change: Thanks for that.
Operator: We stand by for our next question. Our next question comes from the line of Roger Read of Wells Fargo Securities. Your line is now open.
Speaker Change: Please standby for our next question.
Speaker Change: Okay.
Roger David Read: Our next question comes from the line of Roger read of Wells Fargo Securities. Your line is now open.
Roger David Read: Yeah, thank you. Good morning. I'd like to come back on the, let's call it efficiencies and lower costs. Obviously, some part of that, as you mentioned, was, you know, service competition, rig on rig, crew on crew, lowering costs. But if you looked at the underlying improvements you cite, you know, E-FRACs over a diesel FRAC, kind of where do you think we are in terms of running through continued efficiencies there as we, you know, let's say, alter the equipment, maybe alter the methods of doing some of the wells and with the danger of crossing the line here to, you know, post endeavor, kind of what you see as a, you know, maybe a year or two out in terms of continued efficiency gains.
Roger David Read: Yes, Thank you and good morning.
Roger David Read: I'd like to come back on the let's call it efficiencies and lower costs, obviously, some part of that as you mentioned was.
Roger David Read: Service competition rig on rig crew on crew lowering costs, but if you looked at the underlying improvements you cite E. Fracs over diesel Frac kind of where do you think we are in terms of running through continued efficiencies there as we let's say alter the equipment.
Roger David Read: <unk>, maybe alter the methods of.
Roger David Read: Doing some of the wells and with the danger of crossing the line here.
Host: Host endeavor kind of what you see is made.
Host: Maybe a year or two out in terms of continued efficiency gains.
Unknown Executive: Yeah, good question. You know, we are continuing to drive costs out of the business through our operational plan and execution. You know, on the completion side, a lot of that's going to come in the way of getting the E-fleets off of generated power and on to some form of grid power where we can recognize a lower, you know, energy source cost. We're continuing to try to drive days out of our execution.
Speaker Change: Yes, good question.
Speaker Change: We are continuing to drive cost out of the business.
Speaker Change: Through our operational plan and execution.
Speaker Change: <unk>.
Speaker Change: On the completion side.
Speaker Change: Out of that is going to come in the way of getting easily off of generated power and on to some form of grid power, where we can recognize a lower energy source cost.
Speaker Change: We will retain to try to drive days out of our execution and we're we're kind of on the asymptotic.
Unknown Executive: And, you know, we're kind of on the asymptotic slope of that efficiency game. But we're, you know, getting to a point where the fixed costs of the wells are a significant, significantly larger portion of the cost of the well than the variable cost. So, you know, we're getting to a point where the variable costs that we're going to impact are, you know, pennies and nickels and not as much, you know, dollars anymore. And, to get those large chunks, we're going to have to
Speaker Change: Slope of that.
Speaker Change: Got that.
Speaker Change: <unk>.
Speaker Change: James.
Speaker Change: Sure.
Speaker Change: And get to a point where the.
Speaker Change: The fixed cost of the wells are.
Speaker Change: A significant.
Speaker Change: Significantly larger portion of the cost of the well than the variable cost.
Speaker Change: Getting to a point, where the variable costs that we are going to impact our.
Speaker Change: Pennies and nickels and not as much.
Speaker Change: Anymore.
Speaker Change: And to get this large chunk. So we're going to have to think about doing things differently.
Unknown Executive: Douglas Leggate, Arun Jayaram, Douglas Leggate, Arun Jayaram, Roger, I joke with our guys a little bit on the drilling side because they're almost to the point where they're spending more time screwing pipe together and unscrewing pipe together than they are actual rotating hours in the lateral. Not quite, but they keep certainly pushing the envelope. And really, if you go back to what we said during the acquisition announcement or merger announcement with Endeavor, we talked about $150 a foot.
Speaker Change: As far as the.
Speaker Change: Physical plan for the wells in what we are going to consume as part of the fixed cost of the wells, Roger I'll give or give our guys. Some.
Speaker Change: Joke with them a little bit on the drilling side, because they're almost to the point, where they are spending more time.
Speaker Change: Current five together nonrecurring part together than they are actual rotating hours in the lateral not quiet.
Speaker Change: Certainly pushing the envelope and really if you go back to what we said during the day.
Speaker Change: Acquisition announcement with their merger announcement with within there we talked about $150 a foot.
Unknown Executive: $100 of that foot was from, you know, just simply going to a simulfrac, and the other $50 a foot was going to clear fluids. And really, that's what we're doing today. So we emphasized at the time that it was not a big stretch. It's just simply doing what we do today on a new set of assets.
Speaker Change: On a dollars of FERC was from just simply go into sawmill frac and the other $50 a foot was going to clear fluids and really that's what we're doing today. So we emphasized at a time that's not a big stretch its just simply doing what we're doing today on a new set of assets and in Dan's comments were spot on as well.
Unknown Executive: And then Danny's comments were spot on.
Unknown Executive: Yeah, we just need somebody to come up with the next better mousetrap out there for the step functions. I appreciate that. Yeah, I mean, listen, Roger, one other comment on that. I mean, the guys are so good on the drilling side. Now they're measuring how thick the threading is between the casing and on the drilling side to say, Can I screw that pipe together a half a second faster versus what I used to do? I mean, it is down to the absolute second on site to reduce those variable costs.
Speaker Change: Yes, so we just need somebody to come up with the.
Speaker Change: The next better mousetrap out there for the for the step functions I appreciate that.
Speaker Change: And one other comment on that I mean, the guys are so good on the drilling side now they're measuring how thick. The threading is between casing and on the drilling side to say can I screw that ties together have a second faster versus what I used to do I mean, it is down to the absolute second.
Speaker Change: On site to reduce those variable costs.
Roger David Read: I appreciate that for sure. Okay, well guys, that's kind of where I wanted to go with the questions.
Speaker Change: I appreciate that for sure Okay, well guys, that's kind of where I wanted to go with the questions. So I'll turn it back thank you.
Unknown Executive: Okay, well guys, that's kind of where I wanted to go with the questions, so I'll turn it back. Thank you.
Speaker Change: Thanks Roger.
Operator: Thank you. Please stand by for our next question. Our next question comes from the line of John Freeman of Raymond James. Your line is now open.
Speaker Change: Thank you.
Speaker Change: Standby for your next question.
John Christopher Freeman: Just following up on these efficiency drivers, obviously, in the quarter, the wells that y'all completed, the 101 wells, they were, you know, right in line with the lateral length of what your guidance was for the full year of around 11,500 feet, but obviously, you point out the 69 wells that y'all drilled in the Midland Basin that were, you know, significantly longer than that, over 13,000 feet. Obviously, this is a first class problem given the capital efficiency you're seeing on these longer laterals. But should we still use that four-year guide of 11,500 foot average for the year? Is that still applicable? Or should we consider that it is probably moving up relative to the original guide?
Speaker Change: Our next question comes from the line of John Freeman of Raymond James Your line is now open.
John Christopher Freeman: Good morning, guys.
John Christopher Freeman: Hey, John.
John Christopher Freeman: Just following up on me.
John Christopher Freeman: Efficiency drivers, obviously in the quarter.
John Christopher Freeman: The gel completed the 101 wells they were.
John Christopher Freeman: <unk> on the lateral length and what your guidance was for the full year of around that 11500 feet, but obviously.
John Christopher Freeman: Maybe I'll point out the 69 wells drilled in the Midland Basin.
John Christopher Freeman: Significantly longer than that over.
John Christopher Freeman: 13000 foot, obviously first class problem, given the capital efficiency, you're seeing on these longer laterals, but should we still use that full year guide of 11500 foot average for the year is that still applicable or should we consider that is probably moving moving up relative to the original guide.
Unknown Executive: Yeah, John, I think in the first quarter those longer laterals were really just a function of where we were completing the wells. That average lateral length of 11.5 is what we expect to see for the rest of the year.
Speaker Change: Yes, John I think in that in.
John Christopher Freeman: In the first quarter those longer laterals, we're really just a function of where we were completing the wells.
John Christopher Freeman: That average lateral length of 11, five is where we expect to stay for the rest of the year.
John Christopher Freeman: Okay, and then just shifting gears a little bit on the topic of trying to get a sense of like how much y'all are able to do sort of in advance of the Endeavor deal closing. And I know that, you know, the initial efficiencies that y'all lay out, things like maybe pricing the power supply chain, things like that weren't even necessarily priced into those initial synergies. So I'm trying to get a sense of, like, how much you can do in advance and in terms of like, negotiating with some of your service providers in anticipation of sort of the larger combined entity, you know, buying in bulk, things like that. Like, how much of that, if at all, can you do in advance? Or do you just kind of have to sit and kind of wait till the deal closes to kind of get going on those stuff? Yeah,
Speaker Change: Okay, and then just shifting gears a little bit on the topic of I'm trying to get a sense of like how much you're able to do is sort of.
John Christopher Freeman: In advance of <unk>.
John Christopher Freeman: <unk> deal closing and I know that.
John Christopher Freeman: And you all have initial.
John Christopher Freeman: Efficiencies that you all lay out.
John Christopher Freeman: Things like maybe pricing power supply chain.
John Christopher Freeman: Like that one even necessarily priced into those initial synergies so I'm trying to get a sense of like how much can you all data in advance in terms of spike.
John Christopher Freeman: Sharing with some of your service providers in anticipation of sort of the larger combined entity buying in bulk and things like that like how much of that if at all can you do an exam or are you just kind of have to sit and kind of wait till the deal closes to kind of get running on that stuff.
Unknown Executive: Yeah, John, we've got to operate as separate companies until the deal closes, and those things will all come to the benefit of the combined company, but certainly can't influence any outcomes until we're closed. Got it. Thanks.
Speaker Change: Yes, John we got operate as separate companies until the deal closes and those things will all come to the benefits of the combined company, but certainly cats.
Speaker Change: Can't influence in the outcomes until they were closed.
Unknown Executive: Got it. Thanks, guys. A solid quarter. Thanks, John.
Speaker Change: Got it thanks, guys solid quarter.
Speaker Change: Thanks, John.
Operator: Thank you. Please stand by for our next question. Our next question comes from the line of Neal Dingmann of Truist Securities. Your line is now open.
Speaker Change: Thank you. Please standby for your next question.
Speaker Change: Okay.
Speaker Change: Our next question comes from the line of Neal Dingmann of <unk> Securities. Your line is now open.
Neal David Dingmann: Good morning, guys. Travis, my question for you and Kay is just on the marketing side. I look, and not only from a capital efficiency perspective, but it seems like from a takeaway, you all continue to get better and better sort of realized margin. I'm just wondering, you know, now with the larger size, or I guess, you know, when that closes, what type of benefits, or will you continue to see the benefits on the back end that you've been seeing in the company? Because it seems like it's noticeable that a lot of your margins and all just on the marketing side continue to improve.
Neal David Dingmann: Good morning, guys. Travis My question for you in case, just on the marketing side, you're looking not only from a capital efficiency, but it seems like from a takeaway you'll continue to get better and better sort of realized margin I'm just wondering.
Speaker Change: Now with the larger size or I guess when that closes.
Speaker Change: What type of benefits. So will you continue to see the benefits on the backend.
Speaker Change: That you've been seeing on the company and it seems like noticeable that a lot of your debt.
Speaker Change: Your margins at all just on the on the margin side continue to improve.
Unknown Executive: Yeah, Neil, I mean, I don't think we're going to see much more improvement. I think it's for us, it's more about, you know, risk aversion, right, and having our barrels and molecules go to different bigger markets downstream. So we, you know, we have a lot of oil that goes to the Gulf Coast in Corpus and is exported. We now have a good amount of oil, you know, going to Houston to feed refineries there.
Speaker Change: Yes Neal.
Neal David Dingmann: I don't think youre going to see much more improvement I think it's for us it's more about risk aversion, Brian and having our barrels on molecules go too.
Neal David Dingmann: Different bigger markets downstream. So we have a lot of oil that goes to the Gulf coast and Corpus and is exported.
Neal David Dingmann: We now have a good amount of oil.
Neal David Dingmann: Going to Houston feed refineries there so.
Unknown Executive: So, you know, I think we've kind of grown up as a company in terms of marketing and, you know, very clearly. Mistakes were made five, six, seven years ago when the permeating got tight, and we're just not looking to make those mistakes again. So, you know, with our size and scale, we're going to be contributing to, you know, oil pipelines, contributing to new gas pipelines. We've made some investments in, you know, gathering and processing and many midstream investments throughout the years here that have, you know, one, made our shareholders money on the investment side, but two, protected us on the commercial side. So I'd expect that trend to continue as we get bigger.
Speaker Change: I think we've kind of grown up as a company in terms of marketing and very clearly.
Speaker Change: Mistakes were made 567 years ago in the Permian got tight.
Speaker Change: And we're just not looking to make those mistakes again.
Speaker Change: So with our size and scale, we're going to be contributing to.
Speaker Change: Well types contributing to new gas fives, we've made some investments in gatherers and processors in many midstream investments throughout the throughout the years here.
Speaker Change: One made our shareholders' money on the investment side, but to protect us on the commercial side. So I would expect that trend to continue as we get bigger.
Neal David Dingmann: Okay, you're saying you'll continue to sign more of those longer-term marketing contracts then?
Speaker Change: Youre, saying youll continue to contract more of those longer term.
Speaker Change: Marketing contracts then.
Unknown Executive: Yeah, I think our philosophy is to get our barrels to the most liquid, bigger market. And very clearly, you know, selling within Midland or in the Midlands market has not always been the most beneficial to our shareholders. You know, there are pockets of time when the Midland market is very loose, but there are also periods where it gets very, very tight. So the way we see this physical marketing protection is a, you know, a long-term insurance policy to make sure our barrels move to the right market.
Speaker Change: Yes, I think our philosophy is to get our barrels to the most liquid.
Speaker Change: Bigger market and very clearly selling within Midland or in the Midland market has not always been the most beneficial to our shareholders. There are pockets of timeline.
Speaker Change: Midland market is very loose, but there are also periods, where it gets very very tight so the way we see this physical marketing protection as a long term insurance policy to make sure our barrels move to the right market.
Neal David Dingmann: Okay, and then just quickly on project size, you all continue to do a fantastic job, not only that you have larger projects, let's call them on average six four-well pads, things of that nature, but you seem to have the flexibility that the larger ones oftentimes don't on those projects. Will that continue to be sort of the standard for you all going forward on these larger projects where you'll maintain that flexibility, or maybe you could just hit on that briefly?
Speaker Change: Call. It on average six four well pads things of that nature, but you seem to have the flexibility that the larger lots of time. The majors don't on those projects would that continue to be sort of the standard for you all going for around these larger projects were and youll maintain that flexibility or maybe you could just hit on that.
Speaker Change: Play.
Unknown Executive: Yeah, I mean, you can go on for hours about that. I mean, that's tied to culture, right?
Speaker Change: Yes.
Speaker Change: You can go on for hours about that that ties the culture right and our biggest our biggest benefit at Diamondback is that we are a small company dynamic culture with a large asset base. That's now growing larger so where youre going to have to make sure. We maintain that that pretty quick fast moving adaptive culture to a larger asset based on fully.
Unknown Executive: And our biggest benefit at Diamondback is that we have a small company dynamic culture with a large asset base that's now growing larger. So we're going to have to make sure we maintain that gritty, quick, fast moving, adaptive culture on a larger asset base. I'm fully confident that we have the executive team and employee base at both Diamondback and Endeavor to do that. And, you know, I think these big projects have a lot of capital being put in the ground before first oil, sometimes upwards of $250, $300 million.
Speaker Change: Confident that we have.
Speaker Change: The exact team and employee base of both the Diamondback and endeavor to do that and I think these big projects. There is a lot of capital being put in the ground before first oil sometimes upwards of $250 million to $300 million, but as long as you have the ability to.
Unknown Executive: But as long as you have the ability to, you know, move crews and rigs within a quarter within a year, you know, keep hitting numbers, you know, we're going to keep doing that at a larger scale. And, you know, Neil, as we built this company.
Speaker Change: Move crews and rigs within a quarter within a year you keep hitting numbers, we're going to keep doing that at a larger scale.
Unknown Executive: And you know, Neal, as we've built this company over the last 10 years, we've always maintained a couple of constants. One is the fact that we keep a really flat organization, and we keep a non-siloed organization as well. And the only way that you can grow an organization and maintain that effectively is to have an unreasonable level of trust. And as we encourage our Endeavor employees to come over, we're going to be demonstrating this high level of trust because it's going to be a very important part of our evolving culture as a much larger company. But those two things will stay the same: a flat organization.
Speaker Change: Neil as we built this company over the last 10 years, we've always maintained a couple of comments. One is the fact that we keep a real flat organization and we keep on non Siloed organization as well too and the only way that you can grow the organization and maintain that effectively is to have an unreasonable level of trust and.
Speaker Change: As we as we encourage our endeavor and poised to come over we're going to be demonstrating this high level of trust because it's going to be it's going to be a very important part of our.
Speaker Change: Our evolving culture as a much larger company, but those two things will stay the same.
Speaker Change: That organization.
Speaker Change: <unk>.
Neal David Dingmann: I look forward to the new assets, guys. Thanks so much.
Speaker Change: Look forward to the new assets guys. Thanks, so much.
Unknown Executive: Thanks, Jim. Thanks, Dave. Thank you.
Speaker Change: Thanks, Dan Thanks Neal.
Operator: Thank you. Please stand by for our next question. Our next question comes from the line of Derrick Whitfield of Stifle.
Speaker Change: Thank you please standby for our next question.
Speaker Change: Our next question comes from the line of Derrick Whitfield of Stifel.
Derrick Lee Whitfield: Your line is now open.
Derrick Lee Whitfield: Good morning, all. And congratulations on another stellar print. Thank you, Derrick. With my first question, I wanted to focus on the second request from the FTC at a high level. Our research indicates that most of the larger transactions have already received that. Is that consistent with how you're thinking about it?
Derrick Lee Whitfield: Thanks, Good morning, all and congrats on another solid print. Thank you Derrick.
Unknown Executive: Yes, that's consistent.
Derrick Lee Whitfield: That's my first question I wanted to focus on the second request from the FTC at a high level. Our research indicates that most of the larger transactions have received that is that consistent with how youre thinking about it.
Derrick Lee Whitfield: Yes, that's consistent.
Derrick Lee Whitfield: All right, terrific. And then, shifting over to operations, so during the quarter, you completed three additional upper sprayberry wells. Based on those results and some from last year, could you speak to how the interval competes in your portfolio and if it's likely to get added to your inventory charts on page 21?
Speaker Change: Alright terrific.
Speaker Change: Shifting over to so during the quarter you completed three additional upper Sprayberry wells.
Speaker Change: So on those results in some from last year could you speak to how the interval competes in your portfolio and if it's likely to get added to your inventory charts on page 21.
Speaker Change: Yes, Eric Matt.
Unknown Executive: We followed up this year in Q1 with three additional upper spray recompletions, kind of following up that success that we had in the North Martin area with that first test. And, you know, we really like the initial results from those wells. And, you know, I think that
Speaker Change: We followed up this year with <unk>.
Speaker Change: Q1, with three additional upper sprayberry completions kind of following up the success that we had in the north Martin area with that first test in.
Eric Matt: We really like the initial results from from those wells.
Speaker Change: I think that.
Unknown Executive: From a cost perspective, we're seeing those costs be pretty competitive.
Speaker Change: Yeah.
Speaker Change: From a cost perspective, we are seeing those cost.
Unknown Executive: I think we'll probably look at adding that development to subsequent developments in the future. You know, I think Phil's off to a good start on that, Derrick.
Speaker Change: Be pretty competitive.
Speaker Change: I think we'll probably look at adding that development too.
Speaker Change: Subsequent developments in the future.
Speaker Change: I think philosophically the top of that Eric if you start to add in zones like the upper Sprayberry Wolfcamp D. We've got some really good Wolfcamp D test in some of those same pads.
Unknown Executive: You know, if you start to add zones like the upper Sprayberry, WolfCam-D, we've got some really good WolfCam-D tests in some of those same pads. You know, if you start to add those in and you don't see degradation on a corporate basis in terms of, you know, the QM curves that everyone looks at so closely every year, you know, that's inventory extension, you know, in our And, you know, with the combination of us and Endeavor, adding zones like Upper Sprayberry Wolf Camp D and full-scale development only extends the duration of what we can do here in the Midland Basin.
Speaker Change: You start to add those in and you don't see degradation on a corporate basis in terms of the.
Speaker Change: Kim curves that everyone looks at so closely every year.
Speaker Change: Inventory extension.
Speaker Change: And our existing asset base.
Speaker Change: The combination of us and endeavor, adding in zoned likelihood for Sprayberry Wolfcamp D and the full scale development only extends the duration of what we can do here in the Midland Basin.
Derrick Lee Whitfield: I agree. Very helpful. Thanks for your time. Thanks, Terry.
Speaker Change: Great very helpful. Thanks for your time thanks.
Speaker Change: Thanks Terry.
Operator: Thank you. Please stand by for our next question. Our next question comes from the line of Paul Cheng of Scotiabank. Your line is now open.
Speaker Change: Thank you please standby for our next question.
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: Our next question comes from the line of Paul Cheng of Scotia Bank. Your line is now open.
Paul Cheng: Thank you. Good morning, guys. Good morning, Paul.
Paul Cheng: Alright. Thank you good morning, guys.
Paul Cheng: Morning, Paul.
Unknown Executive: Travis, in your presentation, you have an interesting statement on the ESG intent to eventually invest in income-generating projects that are expected to more directly offset remaining Scope 1 emissions. Can you elaborate a little bit more in terms of how big this kind of investment is? Are you expecting that to become a new division or a new business for you? Or is it really going to be pretty small-scale, and we shouldn't pay too much attention to that?
Paul Cheng: Chop is that in your presentation.
Paul Cheng: Have a interesting statements.
Paul Cheng: The ESG intend to eventually invest in income generating projects.
Paul Cheng: We expect to more directly offset remaining scope one emissions.
Paul Cheng: Can you <unk> in terms of.
Chop: Yes, the kind of investment.
Speaker Change: Are you expecting that become at Neal.
Speaker Change: A division or a new business for you what that is doing is going to be pretty small scale and we shouldnt.
Speaker Change: Pay too much attention on that that's the first question. The second question yes.
Unknown Executive: That's the first question. The second question is, interestingly, that the E&P producer, no one is really talking much about AI, but the service provider, like number J, they start to brag about, say, how AI is going to drive their revenue and is going to allow the improvement of EUR and well productivity. I'm just curious that, Diamondback, you guys have always done a lot with the technology. Have you tested the AI application, and whether you see that going to meaningfully change your EUR or your well productivity?
Speaker Change: Interestingly that.
Speaker Change: ANP produce that no one really talking much about AI, but their service provider nice number Jade I stopped to Brett I would say, how AI is going to drive their revenue.
Speaker Change: And he is going to allow to improvement.
Speaker Change: And post activities off the well productivity so just curious.
Speaker Change: Simon. Thank you guys has been always to unlock on the technology have you touched on the AI application.
Simon: With that that you see that going to be meaningfully changed your EUR on your well productivity.
Unknown Executive: Well, the first emphasis on AI has been not generative AI but using AI to process data a lot quicker, and so, look, we're really excited about the long-term implications of AI on our industry. Whether that translates to improvements in AUR or improvements in efficiencies, or hopefully both, I think is yet to be determined, but it's one of those things that we're trying to be fast followers on. This is an area of our industry that's moving incredibly fast.
Simon: Firstly, the first emphasis on has been not to generative, but using a.
Speaker Change: To process data information a lot quicker and so.
Speaker Change: Look we are we're really excited about the long term implications of AI on our industry, whether that translates to improvements in AUR or improvements.
Simon: <unk> or <unk>.
Speaker Change: Both I think is yet to be determined but it's one of those things that we're trying to be fast followers on this arena of our industry Thats moving incredibly fast. These electric frac fleets that were using right now actually are accumulating more information than we can process. So we're storing some of that information.
Unknown Executive: These electric frack fleets that we're using right now are actually accumulating more information than we can process, so we're storing some of that information and hoping to use, you know, smart algorithms or AI to help us process that information in a more usable and more real-time fashion.
Speaker Change: <unk> and hoping to use.
Speaker Change: Smart algorithms or to.
Speaker Change: To help us process that information in a more usable and more real time fashion.
Speaker Change: Okay.
Speaker Change: First question was on income generating tech to offset that.
Unknown Executive: In any case, his first question was about income generating tech to offset that. Yeah, I mean, you know, we have a subsidiary snake company called Cottonmouth Ventures that's kind of our new ventures snake, I'll call it, but, you know, it's not a huge business today. I think, you know, one of the more exciting projects we're working on is with, you know, our Verde Clean Fuels Partnership where, you know, we are in the scoping phase of building a plant, a gas-to-gasoline plant, in the basin that's going to be tapped into one of the pipelines that we are a participant in.
Speaker Change: We have we have a subsidiary Snake company called Cottonmouth ventures, Thats kind of our new ventures snake I'll call it but.
Speaker Change: It's not a huge business today I think a little more exciting projects. We're working on is with our very very clean fuels partnership where we are in the scoping phase of building a.
Speaker Change: Plant and the gas gasoline plant in the basin thats going to be tapped into one of the pipelines that we are a participant in.
Unknown Executive: You know, that plant will convert 35 million cubic feet of gas, natural gas, lean gas, into 3,000 barrels of gasoline daily. So that, I think, fits our motto of if we can contribute molecules and expertise to a project, not just capital, but the other things to drive value, we're going to look at it. I would say that project, you know, might FID by the end of this year and be up and running in a couple years, and that might be a good little offtake for, you know, 35 million gallons a day of gas, and if it works, we're going to build more of them.
Speaker Change: That plant will convert 35 million cubic feet, a day of gas natural gas lean gas into 3000 barrels a day of gasoline.
Speaker Change: That I think fits our motto of if we can contribute molecules and expertise to our project not just capital, but the other things to drive value, we're going to we're going to look at it I would say that project might.
Speaker Change: By the end of this year and be.
Speaker Change: Up and running in a couple of years and that might be a good little.
Speaker Change: Offtake for 35 million a day of gas and if it works, we're going to we're going to build Marvel.
Unknown Executive: Paul, when you look at a capital program, it's going to spend between four and four and $5 billion a year on a pro forma basis. But, the percent of that that we're going to allocate to, you know, income-generating projects is probably pretty small. And I did, you know, in, in, an individual sense, it'll probably have a larger impact, but I wouldn't expect it to move up to the, you know, noticeable level at a company that's spending between four and $5 billion a year.
Speaker Change: Paul when you look at our capital program is going to spend between four to four and $5 billion a year on a pro forma basis.
Speaker Change: Percent of that that we're going to allocate to.
Speaker Change: Two income generating projects is probably pretty small.
Speaker Change: And in individual centers.
Speaker Change: We have a larger impact, but I wouldn't expect it to move up to the.
Speaker Change: The noticeable level at a company that's spending between four and $5 billion a year.
Unknown Executive: Thank
Speaker Change: Thank you.
Speaker Change: Thanks, Paul.
Operator: Thank you. Please stand by for our next question. Our next question comes from the line of Leo Mariani of Ross MKM. Your line is now open.
Speaker Change: Thank you.
Speaker Change: Please standby for our next question.
Speaker Change: Our next question comes from the line of Leo Mariani of Roth and Ken Your line is now open.
Leo Paul Mariani: Hey, just wanted to touch base on sort of activity cadence this year. It looks like you guys had kind of 89, you know, first quarter completions all in the Midland, but that's a pretty healthy percentage, about 32% of your full year budget for completions. Is there some anticipation of maybe some slowdown, you know, as the year goes on and, you know, just seems like a quicker pace than I expected here in the first quarter?
Leo Paul Mariani: Hey, just wanted to touch base on sort of activity cadence. This year. It looks like you guys had kind of 89.
Leo Paul Mariani: First quarter completions.
Leo Paul Mariani: All the Midland, but that's a pretty healthy percentage about 32% of your full year budget on completions.
Leo Paul Mariani: Some anticipation that maybe some slowdown.
Leo Paul Mariani: The year goes in.
Leo Paul Mariani: It seemed like a quicker pace than I expected here in the first quarter.
Unknown Executive: Yeah, Leo, a couple things. I think we had a pretty good end to the year last year in Q4, and so we pushed some completions into Q1, so Q1 looks a little high relative. But I think, generally, you can think about that 70 to 80 overall completions of a quarter as the base case. Q2 might be a little towards the high end there, but, you know, because we're a little bit ahead of plan in terms of efficiencies and timing, we're probably going to, you know, reduce our frack crew count by one for a period of time over the summer, as well as kind of get down into that 12, 13 rigs on the drilling side to complete or drill the same number of wells.
Speaker Change: Yes, a couple of things I think we're having a pretty good ended the year last year into Q4, and so we are pushing <unk> completions into Q1, Q1 looks a little high relative.
Leo Paul Mariani: I think generally you can think about that 70 to 80 overall completions a quarter as the base case Q2 might be a little towards the high end there but.
Leo Paul Mariani: Because we're a little bit ahead of plan in terms of efficiencies and timing, we're probably going to reduce our frac crew count by one for a period of time over the summer as well as kind of get down into that 12 to 13 rigs.
Leo Paul Mariani: On the drilling side to complete or to drill the same number of wells. So we look at the plan.
Unknown Executive: So, you know, we look at the plan almost weekly with the planning team, and I think, you know, generally, the efficiencies have led to less overall activity, more capital efficiency, and set us up well for this potential close here in Q4 with Endeavor.
Leo Paul Mariani: Weekly with the planning team and I think generally the efficiencies have led to less overall activity more capital efficiency and.
Leo Paul Mariani: Setting us up well for this potential closed here in Q4 with endeavor.
Leo Paul Mariani: Okay, now that's helpful, Culler. And then just shifting over to asset sales, you obviously talked a little about sort of when the Endeavor deal closes, maybe moving some midstream assets into your deep blue, you know, JV, and also a drop down to Viper. Outside of some of the Endeavor-related asset sales, is there anything else that you guys are sort of working on? You talked about raising cash for, you know, just from free cash flow here over the next handful of months until the deal closes, but just trying to get a sense if you guys are looking at other asset sales in the interim.
Speaker Change: Okay No that's helpful color.
Speaker Change: And then just shifting over to asset sales, you, obviously talked a lot about sort of.
When the endeavor deal closes maybe moving some midstream assets into your deep Blue JV and also a dropdown to Viper outside of some of the endeavor related asset sales is there anything else that you guys are sort of.
Leo Paul Mariani: Working on you talked about raising cash for.
Leo Paul Mariani: Just from a free cash flow here over the next handful of months until the deal closes, but just trying to get a sense. If you guys are looking at other asset sales in the interim.
Unknown Executive: Yeah, not many, you know; we sold a piece of our Viper ownership in the first quarter, and that put another $450 million in cash on the balance sheet. I think it goes, I go back to when we structured this deal. We certainly did not want to put so much cash into the deal with Endeavor that we had to be a seller of assets. And that's exactly what we did. Now, I think we've had some price help here in the last couple months that, you know, has boosted free cash flow and reduced the cash portion of the transaction.
Yes.
Speaker Change: We sold a piece of our Viper ownership in the first quarter and that put in another $450 million of cash on the balance sheet.
Unknown Executive: I'll go back to when we structured this deal we certainly did not want to put so much cash into the deal with endeavor that we had to be a seller of assets and that's exactly what we've done now I think we've had some price help here the last couple of months.
Unknown Executive: Has boosted free cash flow and reduced the cash portion of the transaction.
Unknown Executive: You know, and listen, I think the price has got to be right for any asset sale, whether it's Deep Blue, Viper, or otherwise. And, you know, we're going to be patient. Post-close, I think I do think those assets make sense in other hands, but it's got to be the right value.
Unknown Executive: And listen I think.
Unknown Executive: He has got to be right for any asset sale or whether its the deep blue viper or otherwise and.
Leo Paul Mariani: We're going to be patient.
Leo Paul Mariani: I do think those assets make sense in other hands, but it's got to be the right value.
Unknown Executive: Douglas Goldstein, CFP®, is the director of Profile Investment Services and the host. Yeah, it was just higher than that before that, you know, a couple
Speaker Change: Okay. That's that's helpful and then just.
Speaker Change: I wanted to ask about your production kind of severance tax here you have been guiding to kind of 7% of revenue, it's kind of come in below that the last handful of quarters closer to 5% to 6% I just wanted to see what was kind of going on there maybe that was kind of anomalous in the last handful of quarters.
Unknown Executive: 7% the right number going forward.
Unknown Executive: Yeah, it was just higher than that before that, you know, a couple quarters before that, and we had to, you know, work out work off the accruals. That number has been 7% for 10 years. We had a consultant that told us it was going to be higher last year, and that consultant is no longer working for us, but it's going to be 7% on an annual basis on average.
Unknown Executive: Yes, it was just higher than that before that a couple of quarters before that and we had to work out work off the accruals that number is about 7% for 10 years.
Speaker Change: A consultant that told US there is going to be higher last year and that consultants no longer working for us, but it's going to be 7% on an annual basis on average.
Speaker Change: Okay. Thank you.
Speaker Change: Thanks Leah.
Speaker Change: Thank you.
Travis D. Stice: This concludes the question and answer session. I would now like to hand the call back over to Travis Stice.
Unknown Executive: This concludes the question and answer session I would like to hand, the call back over to Travis Stice.
Operator: Thank you again to everyone participating in today's call. If you've got any questions, please reach out to us using the contact information provided. Thank you, and have a great day.
Travis D. Stice: Thank you again to everyone participating in today's call if you've got any questions. Please reach out to us using the contact information provided thank you and have a great day.
Operator: Yeah.
Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Speaker Change: Thank you for your participation in today's conference. This does conclude the program you may now disconnect.
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