Q2 2024 Diamondback Energy Inc Earnings Call
Good day and thank you for standing by. Welcome to the Diamondback Energy second quarter 2024 earnings conference call. At this time, all participants are in a listen-only mode.
Operator: 2nd Quarter 2024 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 11 on your telephone. You will then hear an automated message advising 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 our first speaker today, Adam Lawlis, VP of Investor Relations. Please go ahead.
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 your hand is raised. To withdraw your question, please press star 1 1 again.
Please be advised that today's conference is being recorded. I would now like to hand the conference over to our first speaker today, Adam Lawlis, VP of Investor Relations. Please go ahead.
Adam Lawlis: Thank you, Stephen. Good morning, and welcome to Diamondback's second 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 Vantoff, President and CFO, and Danny Wesson, COO.
Adam Lawlis: Thank you, Stephen. Good morning, and welcome to Diamondback's second quarter 2024 conference call.
Speaker Change: During our call today, we will reference an updated investor presentation and letter to stockholders.
Speaker Change: which can be found on Diamondback's website. Representing Diamondback today are Travis Stice, Chairman and CEO , Case Vant Hoff, President and CFO .
Adam 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. 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 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.
Speaker Change: and Danny Wesson, COO. 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 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. Information concerning these factors can be found in the company's filings with the SEC.
Travis Stice: In addition, we will make reference to certain non-GAAP measures. The reconciliations with the appropriate GAAP measures can be found in our earnings released yesterday afternoon. I will now turn the call over to Travis Stice.
Travis Stice: Thank you, Adam, and I appreciate everyone joining us 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 contained in the text. Operator, would you please open the line for questions?
Travis Stice: Thank you, Adam, and I appreciate everyone joining 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 contained in the text.
Speaker Change: Operator, would you please open the line for questions?
Operator: Yeah, thank you. At this time, we will conduct the question and answer session. Once again, as a reminder, to ask a question, please press star 101. To withdraw your question, please press star one again. Please stand by while we compile the Q&A list. Our first question comes from the line of Neal Dingmann of Truist. Your line is now open.
Speaker Change: Yeah, thank you. At this time, we will conduct the question and answer session. Once again, as a reminder, to ask a question, please press star 1 1. To withdraw your question, please press star 1 1 again.
Speaker Change: Please stand by, we'll look at all the Q&A roster.
Speaker Change: Our first question comes from the line of Neal Dingmann of Truist. Your line is now open.
Neal Dingmann: Morning Travis, some nice results. Travis, my first question is on sort of the leading capital efficiencies you all continue to highlight. Specifically, you talked about the latest announcement, I think you guys talked about dropping to 10 to 12 rigs, and I think what that's even versus 14 a few months ago, and I'm just wondering, are the drilling efficiencies so good that you're able to maintain the pace, you know, with nearly 30% rigs than just a few months ago, and you know, just wondering how you anticipate, or if you anticipate the same type of efficiencies, you know, once you take over the Endeavor assets.
Neil Dingman: Morning, Travis. Some nice results. Travis, my first question is on...
Speaker Change: Transcribed by https://otter.ai
Neil Dingman: with nearly 30% rigs than just a few months ago and just wondering how you anticipate or if you anticipate the same type of efficiencies once you take over the Endeavor assets.
Travis Stice: Sure. A good question, Neil.
Speaker Change: Sure. Good question, Neil. The first half of the year was really typified by us doing more with less, and you gave some numbers there, but just to repeat some of those, you know, in January of this year, we estimated that we could get 24 wells, you know, per rig per year.
Speaker Change: And now we're up to 26 wells per year for the rest of the year, and you see a similar efficiency gain on the completions, where we previously signaled 80 completions.
Travis Stice: The first half of the year was really typified by us doing more with less, and you gave some numbers there, but just to repeat some of those, you know, in January of this year, we estimated that we could get 24 wells per rig per year, and now we're up to 26 wells per year for the rest of the year. And you see a similar efficiency gain on completions, where we previously reported 80 completions per year per crew, and now we're up to over 100 completions per crew per year. Those are simulfrac crews.
Speaker Change: per year, per crew, and now we're up to over 100 completions per crew, per year. Those are simulfrac crews. And look, as we look into the future, one of the things that that I get excited about is is that
Travis Stice: And look, as we look into the future, one of the things that I get excited about is that... These efficiencies are things that we don't give back. And so as we incorporate, after close, the new assets from Endeavor, I fully anticipate our operations organization, combined with Endeavor's operations organization, will be able to continue these results. And what's significant about that is when we talked to the market, you know, on February 12th, announcing this deal, one of the biggest synergies that we talked about was being able to apply Diamondback's current D&C cost on a larger asset.
Speaker Change: These efficiencies are things that we don't give back. And so as we incorporate, after close, the new assets from Endeavor, I fully anticipate our operations organization, combined with Endeavor's operations organization, will be able to continue these results.
Speaker Change: And what's significant about that is when we talked to the market, you know, on February 12th, announcing this deal, one of the biggest, the biggest synergy that we talked about was being able to apply Diamondback's current D&C cost on a larger asset.
Travis Stice: And I'm pleased to say today that we're significantly below where we were in February. So that just accrues the benefit to our shareholders and really supercharges the delivery of the synergies that we were talking about. So yes, Neil, I'm very confident that we'll be able to continue this leading-edge capital efficiency on a larger asset base.
Speaker Change: And I'm pleased to say, today, we're significantly below.
Speaker Change: where we were in February . So that just accrues the benefit to our shareholders and it really supercharges the delivery of the synergies that we were talking about. So yes, Neil, I'm very confident that we'll be able to continue this leading edge capital efficiency on a larger asset base.
Neal Dingmann: Great to hear that. I want to ask just quickly about shareholder return plans, maybe just in sort of broad strokes, specifically, how would your plan differ? I mean, obviously, oil prices are jumping around, could be anywhere from, you know, $90 to $70. I'm just wondering, given your market, you know, sort of leading costs that we see on slide nine, is that just a matter of having more free cash for buybacks and variable dividends? Or would there be any other changes we see in a high oil price environment versus a low oil price environment?
Neil Dingman: Great to hear that. I want to ask just quickly on shareholder return plans.
Speaker Change: Maybe just on sort of broad strokes, specifically, how would your plan vary? I mean, obviously, oil prices are jumping around, could be anywhere from, you know, from $90 to $70 environment, and just wondering, given your market, you know, sort of leading cost that we see on slide nine, you know, I'm just wondering.
Speaker Change: depending on where oil prices go, is that just a matter of having more free cash for buybacks and variable dividends? Or would there be any other changes we see in a high oil price environment versus a low oil price environment?
Travis Stice: Yeah, Neil, I mean, you know, I think the key point here is, you know, we've always had a very flexible return on capital program. Since the very beginning, when we put this in place, in 2021, we said, we'd like to be able to flex between buying back shares and paying a variable dividend. And, you know, we take that capital allocation decision very, very seriously.
Speaker Change: Yeah, Neil, I mean, you know, I think I think the key point here is, you know, we've always had a very flexible return of capital program, you know, since the very beginning, when we put this in place.
Speaker Change: In 2021, we've said we'd like to be able to flex between buying back shares and paying a variable dividend. And, you know, we take that capital allocation decision very, very seriously.
Speaker Change: Transcribed by https://otter.ai
Travis Stice: So, you know, we're set up in a way where if you have periods of weakness, like we've seen over the last, you know, week or two, you know, that's when the buyback kicks in, and if, you know, if it continues to be weak, you know, we'll continue to buy back more shares, you know, that's the benefit of having a low break even on, on your capital program, low break even on your base dividend and continuing to generate free cash flow, you know, down to much lower numbers than, you know, than peers or than what, you know, the market's used to. So I think we're excited, you know, if things do stay weak, we'll flex that buyback and, and be aggressive there.
Speaker Change: Transcripts provided by Transcription Outsourcing, LLC.
Speaker Change: You know, than peers or than what the market's used to. So I think we're excited, you know, if things do...
Speaker Change: Transcribed by https://otter.ai
Travis Stice: And if things, you know, improve, and we have a good quarter in the 80s or 90s on crude, then we'll pay a big variable dividend. But, you know, I think that flexibility has been very, very advantageous to our shareholders over the last three years.
Speaker Change: a good quarter in the 80s or 90s on crude, then we'll pay a big variable dividend. But you know, I think that flexibility has been very, very advantageous to our shareholders over the last three years. Transcribed by https://otter.ai
Travis Stice: Occasionally, how low has that break even gotten down? You know, listen. We were very focused on looking at
Speaker Change: Okay, so how low has that break even gotten down to?
Travis Stice: You know, listen, we were very focused on looking at our base dividend break even at $40 crude. So, you know, mid cycle capital costs at $40 crude; we could keep production flat. You know, I don't think in a $40 crude scenario, we would do that. I think the lessons learned from what we've seen through the cycles over the years is that it's okay to let production decline if we are in a very, very weak commodity price scenario.
Speaker Change: You know, listen, we were very focused on looking at our base dividend breakeven at $40 crude. So, you know, mid-cycle capital costs.
Speaker Change: $40 per crew, we could keep production flat, you know, I don't think.
Speaker Change: In a $40 recruit scenario, we would do that. I think kind of lessons learned from
Speaker Change: Transcribed by https://otter.ai
Travis Stice: But in that scenario, we should be allocating 100% of our free cash flow or even more to buying back shares because, in that situation, your share price is likely to be very weak. So we're really trying to move the capital allocation decision from the field, you know, and the assets to, you know, what do you do with your free cash flow? And that's why I think it is a good a good place to be.
Speaker Change: Transcripts provided by Transcription Outsourcing, LLC.
Speaker Change: Thank you so much.
Operator: Our next question comes from the line of Neil Mehta of Goldman Sachs. Their line is now open.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Neil Mehta of Goldman Sachs, their line is now open.
Neil Mehta: Yeah, good morning, and congratulations again on very strong execution here. You know, you've talked about getting that net debt level lower post-transaction case. And Travis, how do you see yourself doing that? Is it through asset sales or through organic, free cash flow generation? Just your perspective on the asset sale market, recognizing that you did it, did some small deals here in the quarter.
Neil Mittal: Yeah, good morning and congrats again on a very strong execution here.
Speaker Change: You know, you've talked about getting that net debt level lower post-transaction.
Neil Mittal: Yeah, Casey and Travis, how do you see yourself doing that? Is it through asset sales or through organic, organic free cash flow generation? Just your perspective on the asset sale market, recognizing you did it, did some small deals here in the quarter.
Travis Stice: Yeah, Neil, I mean, when we announced the deal, you know, we were very conscious of the cash and stock mix that we put in place for the Endeavor merger. You know, I don't think we put so much cash in the deal that we had to be a seller of assets. But what you've seen us do is, you know, sell multiple things now over the last, you know, couple quarters that start that up, right? We sold a little bit of our biker ownership to take some risk off the table and get some cash in the door. We sold our interest in WTG West Texas Gas to energy transfer. I'll get some cash in the door.
Speaker Change: Yeah, Neil, I mean, I think when we announced the deal, you know, we were very conscious of the cash stock mix that we put in place for the Endeavor merger. You know, I don't think we put it, we didn't put so much cash in the deal that we had to be a seller of assets.
Speaker Change: But what you've what you've seen us do is, you know, sell multiple things now over the last, you know, couple quarters.
Speaker Change: Let's start that up. We sold a little bit of our biker ownership to take some risk off the table and get some cash in the door. We sold our interest in WTG, West Texas Gas, to Energy Transfer.
Travis Stice: And then little things like our little monop sale that we did last quarter, you know, all that kind of almost adds up to a billion dollars, which on top of free cash flow generation between January 1, and today is going to reduce the cash outflow burden for the endeavor deal. So I think we planned on looking at the deal as a de-levering process through free cash flow, but the asset sales are a kicker that accelerates that.
Speaker Change: I don't get some cash in the door and then little things like like our little monophile that we did
Speaker Change: Last quarter...
Speaker Change: You know, all that kind of almost adds up to a billion dollars, which on top of free cash flow generation between January 1st and today is going to reduce the...
Speaker Change: Transcribed by https://otter.ai
Travis Stice: And I think we're highly focused on getting to 10 billion as quickly as possible, and then I think, you know, things can slow down from there. But yeah, I don't think you'll see us be a foreseller of assets post deal close. And I think we're going to be very, very stingy on keeping operated properties in the Permian because they're kind of worth their weight in gold right now.
Speaker Change: Transcripts provided by Transcription Outsourcing, LLC.
Speaker Change: Yeah, I don't think you'll see us be a foreseller of assets post-deal close, and I think we're going to be very, very stingy on keeping operated properties in the Permian because they're kind of worth their weight in gold right now.
Travis Stice: Yeah, makes kind of sense. And then, yeah, just your perspective on managing gas price volatility. First of all, what are your latest thoughts on Matterhorn? And when will that come in? And then, secondly, how do you mitigate some of the risks around gas prices, so you can really earn the margin that you deserve on the oil side of the equation? Yeah, you know, that's been a big topic lately. And, you know, obviously, we
Speaker Change: Yeah, makes kind of sense. And then, you know, just your perspective on on managing gas price volatility, first of all, what are your latest thoughts on Matterhorn and what
Speaker Change: Douglas Goldstein, CFP®, is the director of Profile Investment Services and the host
Travis Stice: Yeah, you know, that's been a big topic lately. And, you know, obviously, we need to start making more money on our gas and the Permian and Diamondback specifically. You know, if you look back on the history of Diamondback, we've grown through acquisition; a lot of the deals that we've done have come with, you know, marketing contracts where we don't control the molecule much further than the wellhead. And so what we've been doing over the last, you know, I'll call it five years, is that as contracts roll off, we've been taking advantage of that and acquiring taking kind rights on that molecule.
Speaker Change: Yeah, you know, that's been a big topic lately, you know, obviously we need to start making more money on our gas and the Permian and Diamondback specifically.
Speaker Change: If you look back to the history of Diamondback, we've grown through acquisition. A lot of the deals that we've done have come with marketing contracts where we don't control the molecule much further than the wellhead. And so what we've been doing over the last, I'll call it five years, is that as contracts roll off, we've been taking...
Travis Stice: You know, we started with our commitment to Whistler and have grown that. You know, that combined with Matterhorn, we'll have a little bit of gas on both of those. And then I think you saw the press release last week that we're going to be a participant in the next pipeline from those guys, the Blackcomb pipeline. And, you know, I just think that fits the strategy of, let's take control of our molecules and see what we can do with them.
Speaker Change: taking advantage of that and getting taking kind rights on that.
Speaker Change: On that molecule, you know, we started with our
Speaker Change: Commitment to Whistler, and I've grown that.
Speaker Change: Bye!
Speaker Change: And I just think that fits the strategy of let's take control of our molecules and see what we can do with them.
Travis Stice: And I don't think that stops at pipeline commitments. You know, we're really looking at power needs in the basin, things like our Verde gas-to-gasoline plant and trying to find ways to create a local market here in the Permian because, you know, it's a shame that we continue to sell gas near zero or below zero. So it's on us to continue to improve that portfolio. And I think with size and scale, and time, we'll be able to do that.
Speaker Change: And I don't think that stops a pipeline.
Speaker Change: Commitments, you know, we're really looking at
Speaker Change: Power Needs in the Basin, things like our Verde gas-to-gasoline plant.
Speaker Change: and trying to find ways to create a local market here in the Permian because, you know, it's a shame that, you know, we continue to sell gas near zero or below zero, so it's on us to continue to improve that portfolio and I think with size and scale and time we'll be able to do that.
Speaker Change: Thank you.
Speaker Change: Great deal.
Operator: Our next question comes from the line of Arun Jayaram of JP Morgan Securities. Your line is now open.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Arun Jayaram of J.P. Morgan Securities. Your line is now open.
Arun Jayaram: Yeah, my first question is just on the efficiency gains you highlighted in the letter. Looks like you're pushing drilling cycle times to 26 wells per rig and on the completion side pushing 100 wells per frac fleet, simul frac fleet. I was wondering, Case and Travis, if you could describe what the drivers of that efficiency gains are and perhaps help us think about what's underwritten in the pro forma, you know, 4.1 to 4.4 billion-dollar guide for Endeavor for calendar 25.
Arun Jayaram: Yeah, my first question is just on the efficiency gains you highlighted in the letter, it looks like you're pushing...
Arun Jayaram: You're drilling cycle times to 26 wells per rig and on the completion side pushing a hundred wells per frac fleet, simul frac fleet. I was wondering, Case and Travis, if you could describe what the drivers of that
Speaker Change: Those efficiency gains are and perhaps help us think about what's underwritten in the Proforma, you know, 4.1 to 4.4 billion dollar guide for Endeavor for Calendar 25.
Travis Stice: On the rig side, we specifically talked about bit and bottom hole assembly improvements. And again, that's not necessarily the adoption of some new emerging technology.
Speaker Change: Sure, on the rig side, you know, we specifically talked about bit and bottom hole assembly improvements. And again, that's not necessarily the adoption of some new emerging technology. I think it's really...
Travis Stice: I think it's really another example of what our guys do really, really well, which is a laser-like focus on every decision that's made. They measure almost every attribute of drilling a well, and they seek improvement. And they compete against one another, and we pay bonuses to the crews out there when they execute in a stellar fashion. So it's not something that's easily repeatable, and it's not a shelf item that someone can go take, but it's a culture of execution that's always been part of this business. On the completion side, you know, there's been some design changes where we've increased the rate, but we've also continued to try to optimize, you know, the exact way that we would mobilize equipment.
Speaker Change: Another example of what our guys do really, really good, which is a laser-like focus on every decision that's made. They measure almost every attribute of drilling a well, and they seek for improvement.
Speaker Change: And they compete against one will versus the other, and we pay bonuses to the crews out there when they execute in a stellar fashion.
Speaker Change: It's not something, again, that's easily repeatable and it's not a shelf item that someone can go take, but it's a culture of execution that's always been part of this business.
Speaker Change: On the completion side, you know, there's been some design changes where we've increased rate.
Speaker Change: But we've also continued to try to optimize, you know, the exact way that we would mobilize equipment. We've done some changes on some pipe downhaul that allows a greater rate with less friction loss.
Speaker Change: So, again, it's nothing, you know, that's a marquee item, but it's just intense focus on doing what it is that we do, which is really, really execute well when we convert rock into cash flow.
Travis Stice: Yeah, I'm listening, Arun. I mean, you know, I'll...
Travis Stice: Yeah, listen, Arun, I mean, you know, all these things certainly have accrued to us since we announced the Endeavor merger in February . You know, I think, as Travis mentioned earlier in the call, these are permanent items that aren't going to go away from service cost inflation or deflation. So, you know, as we work through the pro-forma model, these...
Speaker Change: You know, we're probably thinking that we're...
Travis Stice: going to run, you know, closer to 18 to 20 rigged next year versus 22 to 24.
Speaker Change: You know, a while back and, you know, closer to four to five Sommelcraft crews versus five-plus. So, you know, we're certainly modeling these things, accruing for the good guys and, you know, it'll only give us a head start on the promises we made on 2025 numbers.
Arun Jayaram: Great My follow-up is just on the raised production guide. You raised your oil guide at the high end by, you know, close to one and a half percent, just under that, and then you took up CapEx. Case, one thing that wasn't quite intuitive is that you're completing 7% more feet on a net basis, and so one of the questions that've come in is, with thought, maybe the oil increase would have been a little bit higher based on that level of completed footage, but maybe you could help reconcile that for us this morning.
Speaker Change: Great. My follow-up is just on the raised production guide. You raised your oil guide at the high end by...
Speaker Change: you know, close to one and a half percent just under that, and then you took up CapEx.
Speaker Change: A case, one thing that wasn't quite intuitive is that you're completing 7% more feet on a net basis.
Speaker Change: And so one of the questions that's come in is with a thought maybe the oil increase would have been a little bit higher based on that level of completed footage, but maybe you could help reconcile that for us this morning.
Travis Stice: Yeah, I mean, you know, I think... You know, I don't think wells are completed like they look to be completed in the spreadsheet, right? I mean, in 2022, well pads, you move one pad from 2023 into 2024, and you get 22 extra wells. So, you know, we kind of moved almost, I think, 30 wells from 2023 into 2024. So our well counts are a little bit higher than maybe, you know, a true level loaded run rate would be.
Speaker Change: Yeah, I mean, you know, I think, um...
Speaker Change: You know, I don't think wells are completed like they...
Travis Stice: But, you know, I think we're also just preparing a room for a major acquisition to close. And, and I think we're doing everything we can on our side to be prepared to hit the ground running and hit numbers right away and do exactly what you would expect us to do. So I think more importantly, it's the more drilled lateral footage, you know, for less CapEx that gives us a lot of flexibility in the second half of the year and gives us that momentum into 2025.
Speaker Change: Look to be completed in the spreadsheet rather than 20-22 well past
Speaker Change: You know, you move one pad from 2023 into 2024, and you got...
Speaker Change: 22ExtraWell. So, you know, we kind of moved...
Speaker Change: Almost, I think, 30 wells from 2023 into 2024, so our well count's a little bit higher.
Speaker Change: and maybe, you know, a true...
Speaker Change: level loaded run rate would be.
Speaker Change: But, you know, I think we're also just preparing a room for a...
Speaker Change: A major acquisition to close and
Speaker Change: And I think we're doing everything we can on our side to be prepared to hit the ground running and hit numbers right away and do exactly what you would expect us to do. So, I think more importantly, it's the more drilled lateral footage.
Speaker Change: You know, for less CapEx, that gives us a lot of flexibility in the second half of the year and carry that momentum into 2025.
Travis Stice: Makes total sense. Thanks, Travis.
Operator: You bet. Thanks, Arun.
Speaker Change: Makes total sense. Thanks, Travis. You bet. Thanks, Arun.
David Deckelbaum: Our next question comes from the line of David Deckelbaum of TD Cowen. Your line is now open.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of David Deckelbaum of TD Cowen. Your line is now open.
David Deckelbaum: Hey Travis, Kase, Danny, and team. Thanks for taking my questions. Now, I wanted to follow up on some of the earlier questions. You've obviously seen a lot of field efficiencies, particularly on the drilling side. You've lowered the midland footage cost down, you know, I guess. $20 million at the midpoint, but curious, like, as you approach this 3Q, potentially 3Q or 4Q endeavor closing, are there any parts of the efficiencies that you're seeing that you don't think that you could accomplish with, as a synergy here, because it would seem like that $300 million or so of synergies that you apportioned to just CapEx savings is increasing by the day.
David Deckelbaum: Hey Travis, Kase, Danny, and team. Thanks for taking my questions.
David Deckelbaum: I wanted to follow up on some of the earlier questions. You've obviously seen a lot of field efficiencies, particularly on the drilling side. You've lowered the midland footage cost down, you know, I guess,
Speaker Change: Unknown Speaker $20 some dollars at the midpoint, but
Speaker Change: Curious, like, as you approach this 3Q, you know, potentially 3Q or 4Q endeavor closing, you know, are there any parts of the efficiencies that you're seeing that you don't think that you could accomplish with, as a synergy here? Because it would seem like...
Speaker Change: that 300 million or so of synergies that you apportion to just CapEx savings is increasing by the day.
Travis Stice: Well, that's why I highlighted, David, that where we are today is much better in performance and execution than where we were in February when we talked to you about this deal. These are cultural elements, this attention to detail, this focus. It's laser-like attention to execution, and we look forward to bringing on our new friends from Endeavor. And from what we hear from them anecdotally, they're seeing similar efficiency gains as well, too. So when we put the two cultures together, I expect it to be an adder, not a detractor, when we put the two companies together here before too much longer.
Speaker Change: Well that's why I highlighted, David, that where we are today is much better in performance and execution than where we were in February when we talked to you about this deal. These are cultural elements, this attention to detail, this focus, this
Speaker Change: This laser-like attention to execution, and...
Speaker Change: We look forward to bringing on our, you know, our new friends from Endeavor and look, they're, you know, from what we hear from them anecdotally, they're seeing similar efficiency gains as well, too.
Speaker Change: When we put the two cultures together, I expect it to be an adder, not a detractor, when we actually put the two companies together here before too much longer.
David Deckelbaum: I appreciate that. And then, just a follow up to that. You've also seen the benefits of longer lateral progression, you know, I guess, relative to your original plan this year. I know one of the things you highlighted with the Endeavor deal was the potential increase in lateral lengths to 15,000 feathers and beyond on a given 100,000 plus number of acres. How do you see the progression, I guess, into next year and then 2016?
Speaker Change: Appreciate that. And then just a follow-up to that, you've also seen the benefits of longer lateral progression.
Speaker Change: I guess relative to your original plan this year, I know one of the things you highlighted with the Endeavor deal was the potential increase of lateral lengths to 15,000 feathers and beyond on a given 100,000 plus number of acres.
Speaker Change: How do you see the progression, I guess, into next year and then 26 in terms of lateral length relative to where we're at today? Or is this something that's a longer term endeavor?
Travis Stice: Well, first, we're going to have to get the two assets put together, which we obviously can't do currently. I'll let Case answer the synergy question specifically, but I wanted to highlight something that we talked about in our earnings release and our stockholder letter was that, you know, we drilled a 20,000-foot lateral well with in under under eight days, under nine days, seven, eight days. And longer is not going to be a problem. You know, it's just, it's
Speaker Change: Well, first we're going to have to get the two assets put together, which we obviously can't do that.
Speaker Change: Currently
Case: I'll let Kase answer the synergy question specifically, but I wanted to highlight something that we talked about in our earnings release in our stockholder letter was that, you know, we drilled a 20,000-foot
Case: And longer is not going to be a problem, you know, it's just we need to make sure we have the least geometry to be able to drill even longer wells.
Travis Stice: I think, David, on the plan, we can't put anything together until post-close, but I think the priority for the teams right now is what does the plan look like at the end of 24 and the end of 25 post-close, and then what do the projects look like starting to back out of 25 and into 26 that start to extend laterals. I think holding the level that we have this year, almost 12,000 feet on average for 300 wells, is a pretty stellar number that we should probably look to maintain.
Speaker Change: Yeah, I mean, I think, David, on the plan, you know, we can't put anything together until post-close, but, you know, I think the priority for the teams right now is, you know, what does the plan look like?
Speaker Change: End of 24 and end of 25 post-close and then what one of the projects look like.
Speaker Change: You know, starting to back out at 25 and then to 26.
Speaker Change: Start to extend laterals. I mean, I think
Speaker Change: You know, I think holding the level that we have this year, you know, almost 12,000 feet on average for 300 wells is a pretty stellar number that we should probably...
Travis Stice: I think going much further than that for a full program of 500 plus wells a year is going to be tough to do, but I don't think the guys are scared of drilling to 20,000 feet, and if we have those opportunities, we'll take advantage of them.
Speaker Change: You know, look to maintain. I think going much further than that for a full program of...
Speaker Change: Appreciate the cover guys.
Dave: Thanks, Dave.
Operator: Our next question comes from the line of John Freeman. Freeman James, your line is now open.
Dave: Thank you.
Dave: Our next question comes from the line of John Freeman, Freeman James, your line is now open.
John Freeman: Good morning, guys. The first topic I just want to follow up on is the return of capital framework. And when you look at slide six and just sort of think about, again, the efficiency gains that are really impressive, and as over time as that sort of drives that maintenance capex or reinvest rate lower, should we think of maybe the first kind of evolution of that return of capital framework just being that creates a bigger, I guess, for lack of a better word, wedge, that can go to that base dividend? Is that more likely to be the kind of way it would evolve as opposed to maybe increasing that 50% plus that's going to shareholders overall?
John Freeman: Good morning, guys.
John Freeman: First topic I just want to follow up on is on the Return of Capital Framework.
Speaker Change: When you look at slide six and just sort of think about, again, the efficiency gains that are really impressive, and as over time as that sort of drives that maintenance top X,
Travis Stice: Yeah, John, I mean, I think those are two separate decisions, but I think you hit the nail on the head on, you know, as efficiencies accrue and, you know, our decline rate shallows over time and your balance sheet shrinks over time, that should create room there between your breakeven and your $40 dividend breakeven. So, I think that's how we're still going to look at it. And when things are going well, you know, the number should be closer to 50, and we'll continue to build a fortress balance sheet.
John Freeman: and your balance sheet shrinks over time, that should create...
Travis Stice: You know, I've been very pleased with the response from our large shareholders on cutting back the 50% of free cash going to equity because they want us to have a more fortuitous balance sheet than we even thought going into the deal. So I think that's been a pleasant relief, and it allows us to build a lot more cash and be ready for the inevitable down cycle in this sector.
John Freeman: You know, pleased with the response from our large shareholders on
Travis Stice: And John, I think a good way to demonstrate or a good way to visualize the board's commitment to this. Sustainable.
Travis Stice: Sustainable and Growing Dividend is on slide seven. Go all the way back to 2018, when we initiated the, you know, dividend, and you can see on that slide the growth rate. And on the bottom half of that slide, you can see that our commitment has translated into almost $8 billion of capital returned to our shareholders. It is a meaningful lever that we have as a company and the board's commitment to continue that sustainable and growing dividend.
Speaker Change: Transcripts provided by Transcription Outsourcing, LLC.
John Freeman: That's great. And then just my follow-up question when we take these efficiency gains that have allowed you to basically pump the brakes on rigs and frack crews in the second half of the year without, you know, missing a beat on the original production plan. Is there any environment where, you know, you would choose to basically just sort of plow ahead at the run rate you are on in the first half of the year and just sort of allow production growth to accelerate? Is there any sort of an environment where you would foresee that ever kind of occurring?
Speaker Change: When we take these efficiency gains that have allowed y'all to basically pump the brakes on rigs and frack crews in the second half of the year without missing a beat on the original production plan.
Travis Stice: Yeah, just where we sit right now, John, that's not a logical scenario that we see playing out in the next, you know, six months, three, four quarters. Yeah, I mean, historically, we've tried to, you know, post COVID, favor free cash.
Travis Stice: Yeah, I mean, historically, we've tried to, you know, post COVID, favor free cash flow generation over growth. And I think you're seeing that trend continue here with what we do in 2024.
Speaker Change: I think you've seen that trend continue here with what we're doing in 2024.
Operator: Our next question comes from the line of Scott Hanold of RBC Capital Markets. Your line is now open.
Scott Hanold: Yeah, thank you. You know, there's been a lot of talk about good operational efficiencies. Could you maybe pivot and talk about what you're seeing in terms of good productivity? You know, over the last year, is it pretty much status quo on a apples-to-apples basis? Are you seeing some gains there as well?
Speaker Change: Yeah, thank you. You know, there's been a lot of talk of good operational efficiencies. Could you maybe pivot and talk about what you're seeing in terms of well-performance of productivity, you know, over the last year? Is it pretty much status quo on a apples-to-apples basis, or are you seeing some gains there as well?
Travis Stice: You know I would say generally on a yearly average basis we see this year it's kind of going to be flat to last year but I think what's unique is that you know we're adding a lot of Wolf Camp D, a lot of Upper Sprayberry, more Joe Mill, you know we're adding adding more zones to our Midland development plan and getting the same output in terms of productivity and so you know that the resource expansion story probably goes sometimes unnoticed in the Permian but you know talking about a zone like the Upper Sprayberry where we haven't you know hadn't drilled a well until two years ago outside of one Energon well in 2018 now becoming part of the you know stack of co-development without a degradation in well performance is is truly you know what makes the the Midland Basin unique so I think you know we've got a few really really good years of well performance we're always trying to keep pushing the performance side but I think this year has been a year of cost gains versus well performance gains but that doesn't mean there's not significant inventory expansion going on across our portfolio.
Speaker Change: You know, I would say generally, on a yearly average basis, we see this year as kind of going to be flat to last year.
Speaker Change: But I think what's unique is that, you know, we're adding a lot of Wolf Camp D, a lot of Upper Sprayberry, more Joe Mill, you know, we're adding more zones.
John Freeman: to our Midland development plan and getting the same output in terms of productivity. And so you know that the resource expansion story probably goes sometimes unnoticed in the Permian, but
Speaker Change: You know, talking about a zone like the Upper Spray Barrier where we haven't...
John Freeman: You know, I hadn't drilled a well until two years ago, outside of one energy well in 2018. Now becoming part of the, you know, stack of co-development without a degradation in well performance is...
John Freeman: is truly, you know, what makes the Midland Basin unique. So I think, you know, we've got a few really, really good years of well performance, we're always trying to keep pushing the performance side, but I think this year has been a
John Freeman: A year of cost gains versus well performance gains, but that doesn't mean there's not a significant inventory expansion going on across our portfolio.
Scott Hanold: Thanks for that. And then my follow-up question is, you kind of highlighted, obviously, all the drilling efficiencies again, and I think you made a comment that, from what you understand, the Endeavor folks are seeing some similar stuff, but can you give us some context, like, you know, based on what you can see from your understanding at this point, where is Endeavor relative to where Diamondback is? So just trying to get a sense of, you know, should we expect once a merged company comes together, there's still some work to do to get it back to, to get it all toward where Diamondback is right now, or is it going to be pretty much just, you know, hitting the ground running?
Speaker Change: Thanks for that. And then my follow-up question is, you kind of highlighted, obviously, all the drilling efficiencies again, and
Speaker Change: I think you made a comment that, you know, from what you understand, the Endeavor folks are seeing some similar stuff, but can you give us some context, like, you know, based on what you can see from your understanding at this point, you know, where is Endeavor relative to where Diamondback is? So just trying to get a sense of... ... ... ... ... ... ... ...
Speaker Change: You know, should we expect, you know, once a merged company comes together, you know, there's still some work to do to get it back, to get it all toward where Diamondback is right now, or is it going to be pretty much just, you know, hitting the ground running?
Travis Stice: Well, it's going to be hard work for sure, but it's our job to do that hard work and make it look easy for you guys.
Travis Stice: You know, there are some decisions that we'll make pretty soon after we combine the two companies. One would be the use of clear drilling fluids, and the second would be to put more of the frack operations on Simulfrac. So those are the two biggest levers that have the quickest change.
Travis Stice: But look, we're also going to, like we've always done, check our egos at the door and make sure we seek to understand, you know, what the Endeavor team's already doing. And historically, that generates better results when we seek first to understand and then pick the best path forward with the combined inputs from Legacy, Diamondback, and the new asset, new management from Endeavor. So we're going to make it look easy. But it's, you know, there's going to be, it's always, it's hard work behind the scenes.
Speaker Change: Seek to understand, you know, what the Endeavor team's already doing, and historically, that's generated better results, you know, when we...
Speaker Change: We seek first to understand and then pick the best path forward.
Speaker Change: with the combined inputs from Legacy Diamondback and
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Travis Stice: Yeah, I mean, from a numbers perspective, the way we're thinking about it is the pro forma business will be running basically kind of 21, 22 rigs off the start. And then, you know, by 2025, we'll probably be averaging closer to 18 to 19 combined.
Speaker Change: Pull this off and make it look good. Yeah, I mean, I think from a numbers perspective, the way we're thinking about it is the proforma business will be running basically kind of 21, 22 rigs off the start, and then, you know, by 2025, we'll probably be averaging closer to 18 to 19 combined.
Operator: That's a good color, thank you. Thank you. Our next question comes from the line of Bob Brackett of Bernstein Research. Your line is now open.
Speaker Change: It's a good color. Thank you.
John Freeman: Thank you.
Speaker Change: Our next question comes from the line of Bob Brackett of Bernstein Research. Your line is now open.
Bob Brackett: Good morning. Following up on those intriguing operational efficiencies, you mentioned the average of 26 wells per rig year and 100 wells per crew. What does the pace setting rig or crew look like? Is it significantly ahead of that? Is there a big opportunity to grab?
Danny Wesson: Hey, Bob, it's Danny. Yeah, I mean, I think there are crews on the rigs or they're pretty well, you know, all within a margin of error of each other.
John Freeman: Hey Bob, it's Danny. Yeah, I mean I think there's the crews and the rigs are they're pretty well you know all within a margin of error of each other and their performance you know we've been
unknown: Page PAGE of NUMPAGES www.verbalink.com Page PAGE of NUMPAGES
unknown: Really pretty, you know, active in fleet management.
unknown: Douglas Leggate, Arun Jayaram, Douglas Leggate, Arun Jayaram, Douglas Leggate, Arun Jayaram, You know, the best thing about our operation is the, you know, the collaboration we have between the teams on sharing, you know, best practices on on, you know, best in class rigs. So when we look at the rigs across the board, you know, there's always one that stands out.
Speaker Change: You know, the collaboration we have between the teams on sharing.
Speaker Change: you know, best practices on, you know, best-in-class rates. So...
John Freeman: When we look at the rigs across the board, there's always one pace-setting rig, but that tends to move around as we share best practices.
John Freeman: and the other rigs catch up and then another one will pass that rig. So, not one, you know, unique standout that's driving that number. It's pretty, you know, pretty well across the board, you know, at that same level of efficiency.
Danny Wesson: We do have a pretty healthy competition between internally and then we also, every quarter we look externally and there's a pretty healthy competition and you know that's why in our stockholders letter you know I talked about in this quarter in the Midland Basin the drilling team got over 20,000 feet with a single bit run and that represents a record in the Midland Basin so I'm sure that record will fall but it's just part of the culture of evaluate you know internally and externally and compete to win and that's what our organization does.
John Freeman: We do have a pretty healthy competition between internally, and then we also, every quarter we look externally, and there's a pretty healthy competition, and you know, that's why in our stockholders letter, you know, I talked about in this quarter in the Midland Basin,
John Freeman: The drilling team got over 20,000 feet with a single bit run, and that represents a record in the Midland Basin. So I'm sure that record will fall, but it's just part of the culture of evaluate internally and externally and compete to win. And that's what our organization does.
Bob Brackett: Yeah, very clear. Quick follow-up along that line. How do we think about the relative prize between pulling on that ROP lever versus reducing non-productive time or even reducing demob time? Are they equal-sized prizes, or is one the more obvious of the three?
Speaker Change: Yeah, very clear. Good. Quick follow-up along that line.
Speaker Change: How do we think about the relative prize between pulling on that ROP lever versus reducing non-productive time or even reducing demobe time? Are they equal sized prizes or is one the more obvious of the three?
unknown: You know, I think it kind of moves, but you know, you're getting to the point in time where you have to
Speaker Change: You know, I think it kind of moves, but you know, you're getting to the point in time where, you know, there's, there's
unknown: You know, there are the little things we're focusing on now are the efficiency drivers. You know, we talked in the last call about the guys, you know, focusing on pipe makeup speed because that was where they saw the most MDT time on a well was just how long it takes them to break and make up pipe. And, you know, we're content; we're constantly looking at where that dead space is in these jobs and trying to attack it. And we don't just attack one dead space; we attack them all at the same time.
Speaker Change: The little things we're focusing on now, or the efficiency drivers, you know, we talked in the last call about the guys, you know, focusing on pipe make-up speed, because that was, you know, where they saw the most NPT time on a well, was just how long it takes them to break and make up pipe.
unknown: Timing. And I think, you know, NBT time has been a focus of
John Freeman: And I think, you know, NBT time has been a focus of, you know, coming out of the really aggressive, you know, activity levels we saw in 23.
unknown: You know, coming out of the really aggressive phase.
unknown: activity levels we saw at 23. And, you know, we've really, you know, done a good job of reducing NPT time, but there's certainly always, always things we can focus on there to continue to drive uptime and drive, you know, constant performance and not waiting on the sidelines for something to be fixed. And when we look at those details, we do it every quarter.
John Freeman: And, you know, we've really, you know, done a good job of reducing NPT time, but there's certainly always, always things we can focus on there to continue to drive, you know, uptime and drive, you know, constant performance and not waiting on the sidelines for something to be fixed.
unknown: And when we look at those details, we do it every quarter, for sure. But what Danny's talking about requires a great deal of collaboration across all the teams. And, you know, even though I emphasize the competition aspect of what it is that we do, the collaborative aspect is really where this sits home because when one team finds a solution, it's quickly shared with all the other teams internally. And in a similar fashion, if we find something externally, we quickly adopt that as well, too.
Speaker Change: And when we look at those details, we do it every quarter, for sure.
Danny Wesson: What Danny is talking about requires a great deal of collaboration across all the teams.
Speaker Change: You know, even though I emphasize the competition aspect of what it is that we do, the collaborative aspect is really where this...
CastingWords: Transcription by CastingWords
Speaker Change: Very clear. Thanks.
Operator: Our next question comes from the line of Roger Read, Wells Fargo Securities. Your line is now open.
Speaker Change: Thank you.
John Freeman: Our next question comes from the line of Roger Read, Wells Fargo Securities. Your line is now open.
Roger Read: Yeah, thank you. Good morning. Hey Roger. Hey Roger.
Roger Read: Congrats on another solid quarter, guys. Just a couple of questions about operating focused here. One, if we look at the production beat here in the second quarter, you got it on NGL and gas. We were just sort of curious. We kind of figured maybe you could strip more liquids out of the gas, but then you would have lower gas production. So maybe a little bit of insight and to, you know, kind of what's left on the NGL side and keeping gas production up.
Roger Reed: Yeah, thank you. Good morning.
Roger Reed: Congrats on another solid quarter, guys. Just a couple of questions, kind of operating focused here.
Roger Reed: One, if we look at the, you know, production beat here in the second quarter, you got it on NGL and gas. We were just sort of curious.
Speaker Change: You know, we kind of figured maybe you strip more liquids out of the gas, but then you would have lower gas production. So maybe a little bit of insights and to, you know, kind of what's lifting the NGL side and keeping the gas production up.
Travis Stice: Yeah, I think on the NGL side, you know, trying to put as much ethane as you can into the NGLs to get them out of the basin. You know, we even probably, throughout the second quarter, we saw obviously a lot of gas price weakness. So we did take, you know, a couple of our highest GOR wells down for a month or two to ease that pressure. But I think even in the face of that, the gas curve continues to outperform expectations.
Speaker Change: Yeah, I think on the NGL side, you know, try to put as much ethane as you can into the NGLs to get them out of the basin. You know, we even probably...
Speaker Change: Throughout the second quarter, we saw obviously a lot of gas price weakness.
Speaker Change: So we did take, you know, a couple of our highest GOR wells down, you know, for a month or two to ease that pressure. So, I think even in the face of that, you know, the gas...
Travis Stice: But, you know, we kind of even curtailed a little bit of oil to make sure our gas production was a little bit lower in the quarter, which we kind of continued in the third. So, you know, we just had a lot of gas production out of this basin. And that's kind of why, you know, we have such a focus now on trying to generate more value for the gas that we're producing, whether that be in the basin or out of the basin.
Speaker Change: Curve continues to outperform expectations, but, you know, we kind of even curtailed a little bit of oil to make sure our gas production was...
Speaker Change: a little bit lower in the quarter, which we kind of continued in the third. So
Speaker Change: You know, we just have a lot of gas production out of this basin, and that's kind of why
Speaker Change: You know we have such a focus now on
Speaker Change: I'm trying to generate more value for the gas that we're producing, whether that be in-basin or out-of-basin.
Travis Stice: Yeah, and just to add to that, you know, the focus on around, you know.
Speaker Change: Yeah, and just to add to that, you know, the focus on, around, you know, environmental performance has driven a lot of decisions to not burn gas in the field for energy consumption and
Travis Stice: Environmental performance has driven a lot of decisions to not burn gas in the field for energy consumption and instead, you know, convert that energy demand into electrical demand. And so you're seeing a lot of gas that would have otherwise been burnt in the field to run our operation being put down the pipeline.
Speaker Change: Transcribed by https://otter.ai
unknown: Douglas Leggate, Arun Jayaram, Douglas Leggate, Arun Jayaram, Douglas Leggate, Arun Jayaram
unknown: Producing flaring, those are all things that send gas to sales and get reported as a production number that's driving some of that increase you're seeing across the base.
Speaker Change: And then on top of that the, you know, focus on reducing flaring, you know, those are all things that send gas to sales and get reported as a production number that's driving some of that increase you're seeing across the basin.
Roger Read: Okay, that's helpful. Thanks. And then just coming back to the drilling efficiencies and the completion efficiencies going from 24 to 26 wells, 100 completions, can you give us an idea of maybe where the upper 10% or upper quartile is? In other words, I'm trying to think of if 24 went to 26 is the best 30, you know, and that's where you can ultimately go, or it's a much tighter dispersion, you know, so it's I'm just trying to get a feel for for further improvements, kind of the same idea on the completion side.
Speaker Change: Okay, that's helpful, thanks. And then just coming back to the drilling efficiencies and the completion efficiencies going from 24 to 26 wells, 100 completions, can you give us an idea of maybe where the
Speaker Change: you know kind of upper 10 percent or upper quartile is in other words I'm trying to think of if 24 went to 26 is the best 30 you know and that's where you can ultimately go or it's a much tighter dispersion you know so it's
Speaker Change: 26 the average best 28 maybe worse is 24 I'm just trying to get a feel for for the further improvements kind of the same idea on the completion side
unknown: I think you know it's a good question; it just depends, but you know we certainly have some rigs that are drilling at a pace of 30.
Speaker Change: I think, you know, that's a good question. It just depends, but, you know, we certainly have some rigs that are drilling at a pace of 30-plus wells a year. It just depends on which zones and lateral lengths and all that kind of stuff.
Speaker Change: You know, we're really focused on pad cycle times and how to reduce the full pad cycle time. These are large pads.
Speaker Change: And, you know, driving flexibility in the plan by reducing that cycle time on the pads is really what's important to us. And so, you know, if we have one rig that's outperforming the others in one zone, we want to look at that zone and what that rig's doing and kind of share it with the other rigs so that we can...
Speaker Change: We can accrue that benefit to all the pad development across our portfolio.
Roger Read: Gotcha. And maybe I could just clarify on that three mile lateral versus something less than that, as a percentage of
Speaker Change: Gotcha and maybe if I could just clarify on that three mile laterals versus something less than that as a percentage of total.
Roger Read: I'm sorry, just to rephrase your question, are you asking what the percentage of three-mile laterals to... Yeah, you said it depends on what you're drilling and which zones. I was just curious, is there, obviously, it would take less time to drill a lesser-length lateral, but I was just, you know, is there a percentage that you offer of the much longer lateral weld?
Speaker Change: I'm sorry, just to rephrase your question, are you asking what's the percentage of three-mile laterals to... Yeah, you said, you know, it depends on what you're drilling and which zones. I was just curious, is there, you know, obviously it would take not as long to drill a lesser-length lateral, but I was just...
Speaker Change: You know, is there a percentage that you offer of, you know, the much longer lateral wells?
unknown: Like, I think our 15,000 footers this year, we're like at 25 ish percent of our development. Yeah, you know, listen, the rig per year number is an output of getting 300 wells per year drilled, right? So it's really about net lateral footage or gross lateral footage drilled per year per rig. You know, I think, you know, Danny's talking about 30 wells per rig. Well, you know, I think if we're drilling more Wolf Camp D with a particular rig, that rig is going to be a little slower.
Speaker Change: I think our 15,000 footers this year, we're like at 25-ish percent of our development.
Speaker Change: Yeah, you know, listen, the rigged per year number is an output of...
Speaker Change: getting 300 wells per year drilled, right? So it's really about
Speaker Change: net lateral footage or gross lateral footage drilled per year per rig. You know, I think, I think, you know, Danny's talking about 30 wells per rig. Well, you know, I think if we're drilling more Wolf Camp D with a particular rig, that rig is going to be a little slower. But you know, I think the general
unknown: You know, I think the general standard Wolfberry development is pushing that upper, upper echelon, but we really see the rig count as the output of what we need to do from a drilling perspective to hit production guidance. All right. Thanks.
Speaker Change: Standard Wolfberry development is pushing that upper echelon, but we really see the rig count as the output of what we need to do from a drilling perspective on hitting production guidance.
Roger Read: All right, thanks for indulging me with the extra question guys. No, no problem. Thanks, Roger. Thank you.
Speaker Change: All right, thanks for indulging me the extra question, guys. No, no problem. Thanks, Roger.
Operator: Our next question comes from the line of Jeff Jay of Daniel Energy Partners. Your line is now open.
Speaker Change: Thank you. Our next question comes from the line of Jeff Jay of Daniel Energy Partners. Your line is now open.
Speaker Change: Hey guys, just one quick one for me. I'm just kind of curious how you think about the potential for trimal frack in your portfolio, kind of especially after Endeavor closes.
Jeff Jay: Yeah, I mean, we've looked a lot at Trimalfrac, and, you know, the struggle for us is the infrastructure spend we'd have to implement to get to Trimalfrac across our portfolio. And does that additional infrastructure spend, do we recognize the return on that from the efficiency gains from moving from Simulfrac to Trimalfrac?
Speaker Change: Yeah, I mean, we've looked a lot at Trial and Fracture, and...
Speaker Change: So, you know, the struggle for us is the infrastructure spend we'd have to implement to get to Trimulfrac across our portfolio. And does that additional infrastructure spend, do we recognize the return on that from the efficiency gains from moving from Simulfrac to Trimulfrac?
unknown: We think the
unknown: The cost benefits somewhere in the $10 to $15 a foot to move from silo frack to trommel frack are certainly something we would pursue in areas where we have the infrastructure in place to do so. And if we have, you know, enough development in that area to dedicate a trommel frack crew, we would, you would see us move that direction very quickly.
Speaker Change: We think the cost benefits somewhere in the $10 to $15 a foot to move from silo frac to trimo frac.
Speaker Change: Certainly something we would pursue in areas where we have the infrastructure in place to do so. And if we have, you know, available enough development in that area, in those areas, to dedicate a trauma frack crew, we would, you would see us move that direction very quickly.
Speaker Change: Excellent, thank you.
Operator: Our next question comes from the line of Charles Meade of Johnson Rice. Your line is now open.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Charles Meade of Johnson Rice. Your line is now open.
Charles Meade: Good morning, Travis Case and the rest of the Diamondback team here. Hey, Charles. Travis.
Charles Meade: Good morning, Travis Case and the rest of the Diamondback team there. Hey, Charles. Travis, yeah, thank you. I want to, I think you really tantalized a lot of people with that metric. I really appreciated it, you know, with that.
Charles Meade: Yeah. Thank you. I want to, I think you really tantalized a lot of people with that, with that metric. I really appreciated it, you know, with that 24 wells a year, 26 wells a year. But I thought Case's comment was, was really, really interesting in that context. I've been focused on that. I think other callers have been, but really, that's the output rather than the, you know, it's kind of, it's kind of a manifestation or an indicator rather than a driver, if I understand it correctly.
Speaker Change: 24 wells a year, 26 wells a year. But I thought Casey's comment was really interesting in that.
Speaker Change: I've been focused on that. I think other callers have been, but really that's the output rather than the, you know, it's kind of, it's kind of a, it's a manifestation or an indicator rather than a driver, if I understand case correctly.
Charles Meade: And so, if that's the right way of looking at it, when I look at the other pieces of your guidance, you've actually increased the lateral length a little bit, and you've increased the well count a little bit. And so is the delta on the drilling side actually a little bit, a little bit bigger, the delta, the improvement you've seen since the, since your initial plan, than that 24 over, or 26 over 24, would indicate?
Speaker Change: To, if that's the right way of looking at it, when I look at the other pieces of your guidance.
Speaker Change: you've actually increased the lateral length a little bit and you've increased the well count a little bit and so
Speaker Change: Is the delta on the drilling side actually a little bit bigger? The delta, the improvement you've seen since your initial plan, than that 26 over 24 would indicate?
Travis Stice: Yeah, I think I mean it. I think so. I think the point I was trying to make is that, you know, as a public company that has public guidance and quarterly guidance, you know, we really work from guidance backwards, and we make what looks like an easy output on the surface, you know, is very difficult below the surface. There's a lot going on in terms of the teams, being able to move things around and add rigs here and drop rigs there.
Speaker Change: Yeah, I think, I mean, I think so, Charles. I think the point I was trying to make is that...
Speaker Change: from guidance backwards. And we make what looks like an easy output on the surface, you know, is very difficult below the surface. There's a lot going on in terms of the team's
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Travis Stice: And, you know, the plan isn't always the plan; we got to be nimble and, and work together as a group. And I think that that harmony we have across all of our functions is what makes us pretty unique, particularly, you know, also given that we're in one basin. So I would say the drilling, the drilling improvements this year have been more surprising than the completion improvements, because we always kind of thought that drilling was already near the asymptotic curve of what they're able to do. So, you know, not to knock the frack guys, but the drilling, the drilling improvements probably supersede the frack improvements here today.
Speaker Change: already near the asymptotic curve of what they've been able to do. So, you know, not to knock the frack guys, but the drilling improvements probably supersede the frack improvements here today.
Travis Stice: Thank you for those comments, Keith. That's all for me. That's a little test for the frat guys to step it up next quarter. Glad to put the ball in the tee for you there. Have a great day.
Operator: Our next question comes from the line of Paul Cheng of Scotiabank. Your line is now open.
Speaker Change: Our next question comes from the line of Paul Cheng of Scotiabank. Your line is now open.
Paul Cheng: Thank you. Good morning, guys.
Travis Stice: I don't know, Chopra and Casey, that, um... We appreciate the great improvement in your result. But just curious that, over the next two or three years, if we're looking at productivity improvement in tuning and competition, is that one or two areas you see as the biggest potential for you? And will you also quantify that? And the second question is that, if we look at a performer over the next couple of years, I mean, in order to maintain a fat production post-Andiva, I mean, how many wells do we need? Is it 500, 520, 550? Any kind of rough idea? And also, do you have what Andiva gas pricing right now? Are they all in the one-hot basin, or are they also spread? Thank you.
Speaker Change: Over the next two or three years,
Speaker Change: If we're looking at the productivity improvement in drilling and competition, is that one or two areas you see as the biggest potential for you? And will you be able to also quantify on that?
Speaker Change: And the second question is that...
Speaker Change: POST and DIVA. I mean how many wells that we need is it?
Speaker Change: and also that do you have...
Speaker Change: What and if a gas pricing right now are they all in?
Travis Stice: Well, I'll talk specifically about your look ahead for two to three years. And I think if you put it all in one bucket, it would be the downhole sensing technology that allows the bit to stay in the best rock the highest percentage of time. And then on the completion side, understanding using downhole sensing where you can place the most frack energy in the most efficient way that creates the greatest stimulated rock volume.
Speaker Change: Well, I'll talk specifically about your look ahead for two to three years, and I think if you put it in one bucket, it would be in the downhole sensing technology that allows the bit to stay in the best rock the highest percentage of time.
Speaker Change: And then on the completion side, understanding using downhole sensing.
Speaker Change: where you can place the most frack energy in the most efficient way that creates the greatest stimulated rock volume.
Travis Stice: And these sensing technologies are evolving very, very rapidly. You know, I think before too long, we'll be able to actually sense in front of the drill bit and drill towards the target rather than drilling past it and making adjustments. And that sounds like a small change, but I think the sensing technology that we're right on the cusp of having some of those problems solved is going to be a real game changer for our industry.
Travis Stice: You know, Paul, on your well count question, I think kind of a low 500 is a good place to start and, you know, as low as 500 dwellings per year, but as, you know, the land efficiencies accrue to us and laterals extend and, you know, the decline rate shallows a bit, you probably start to get below that 500 number should production stay flat now. You know, things are things are a market that's conducive to growth, and that probably changes, but on a flat basis, it's, you know, more capital efficiency, less capex, and fewer wells to hit the same numbers longer term.
Speaker Change: On your well count question, I think low 500s is a good place to start, as low 500s wells per year.
Speaker Change: Now, if things are a market that's conducive to growth, then that probably changes, but on a flat basis, it's more capital efficiency, less capex, less wells to hit the same numbers longer term.
Travis Stice: Greg, and Casey, do you have an idea what NDEFA gets exposure on WAHA? Yeah, so listen, you know; we
Travis Stice: Yeah, so listen, you know, we've seen what exposure Endeavor has. I do think there's going to be a lot of opportunities for both of us combined to get gas out of the basin. But we got to close the deal first, and then we can start making decisions. But I think we're both both companies are aligned that, you know, more gas needs to get out of the basin and less exposure to water.
Speaker Change: for both of us combined to get gas out of the basin. You know, we got to close the deal first and then we can start making decisions, but I think we're both, both companies are aligned that, you know, more gas needs to get out of the basin and less exposure to WAHA.
Paul: Thanks, Paul.
Operator: Our next question comes from the line of Leo Mariani. Mr. Overrath, your line is now open.
Leo Mariani: I wanted to follow up on some of the comments you made around the share buyback. Obviously, you guys had leaned more on the variable dividend in the past quarter, but you certainly kind of indicated from some of your comments here on the call that given the recent pullback in the stock and the sector, the buyback was looking more palatable. Just trying to get a sense if you guys are able to start executing on the buyback here. Post-quarter, are there some restrictions in place with respect to the Endeavor deal that would prevent some of that over the next couple of months until the...
Speaker Change: Obviously, you guys have leaned more on the variable dividend in the past quarter.
Travis Stice: Yeah, Leo, there's no, I don't think there's any more, uh, endeavor-specific restrictions. Obviously, we're now, you know, we're reporting earnings today, so we're in a blackout day, but, um... I think, you know, these periods of weakness allow us to step in, and we prewire the buyback for every, you know, every blackout period. And, you know, I think if we continue to see weakness here, we'll get opportunities; we just have a little more flexibility if the windows are open versus closed.
Speaker Change: Yeah, Leo, there's no, I don't think there's any more endeavor-specific restrictions. Obviously, we're now, you know, we're reporting earnings today, so we're in a blackout day, but, um...
Speaker Change: I think these periods of weakness allow us to step in and we free-wire the buyback for every blackout period. I think if we continue to see weakness here, we'll get opportunities. We just have a little more flexibility if the window is open versus closed.
Leo Mariani: Okay, appreciate that. And then, just in your comments here and your guidance for the rest of the year, it looks like third quarter CapEx is coming down some, you know, versus QQ. It certainly sounds like activities falling a little bit in the second half of the year and some of the, you know, the OFS cost reductions are kind of rolling through as well. I mean, do you see, standalone without Endeavor, CapEx continuing to kind of drop a little bit and activity kind of dropping a little bit in 4Q as well, just trying to get a sense that that's kind of a low point for spend and activity.
Leo: Okay. Appreciate that.
Speaker Change: The OFS cost reductions are kind of rolling through as well.
Speaker Change: And 4Q as well, just trying to get a sense that that's kind of the low point for spend and activity, you know, on a stand-alone basis here.
Travis Stice: Yeah, you know, I think it'll be the low point for spend because we're a cash capex reporter. I think the low point for activity will be this quarter. So I think we'll probably bring back our fourth simulfrac crew this quarter and into the beginning of next quarter. That's all on a standalone basis and probably bring back a rig or two, but not much more than that. So I would say Q3 is the low for activity, and Q4 is the low for, you know, CapEx.
Speaker Change: Yeah, you know, I think it'll be the low point for spend because we're a cash capex reporter. I think the low point for activity will be this quarter. So I think we'll probably...
Speaker Change: Bring back our fourth SimulFract crew, you know, end of this quarter into the beginning of next quarter. That's all on a standalone basis and probably bring back a rig or two, but not much more than that. So I would say Q3 is the low for activity, Q4 is the low for...
Speaker Change: You know, for CapEx.
Speaker Change: Okay, thanks.
Operator: Our next question comes from the line of Kalei Akamine of Bank of America. Your line is now open.
Speaker Change: All right, thank you.
Speaker Change: Our next question comes from the line of Kalei Akamine of Bank of America. Your line is now open.
Kalei Akamine: Hey, good morning, guys. Thanks for taking my questions. There is a lot of focus on field efficiency, so I'll leave that alone. I want to ask you guys about Deep Blue. The team over there continues to be very acquisitive. It looks like that business has grown about 20%, plus or minus, over the past year in terms of capacity. Can you talk a little bit about the growth outlook for that potential business endeavor drop-down box included?
Kalei Akamai: Hey, good morning, guys. Thanks for taking my questions.
Speaker Change: A lot of focus on field efficiency. So I'll leave that alone. I want to ask you guys about Deep Blue. The team over there continues to be very acquisitive. It looks like that business has grown about maybe 10-20% plus or minus over the past year in terms of capacity.
Speaker Change: Can you talk a little bit about the growth outlook for that business?
Speaker Change: Potential Endeavor drop down included, and maybe help us understand what the scale of the business could be once it matures.
Travis Stice: Yeah, listen, you know, I think we're very pleased with what the Deep Blue team has done in a short period of time. It's kind of exactly why we did the deal with them, right? They've gotten a lot of third-party wins, you know, wins that Diamondback wouldn't get if Diamondback was trying to gather someone else's water.
Speaker Change: Yeah, listen, you know, I think we're very pleased with what the Deep Blue team has done in a short period of time. That's kind of exactly why we...
Speaker Change: We did the deal with them, right? They've gotten a lot of third-party wins, you know, wins that Diamondback wouldn't get if Diamondback was trying to gather someone else's water. And on top of that, you know, a little bit of...
Travis Stice: And on top of that, you know, a little bit of M&A to boost capacity and reduce costs there. So, you know, we're really excited about what they're doing. You know, Endeavor has a very impressive water system that could be a candidate to merge with Deep Blue. But, you know, I think that the price has got to be right for Diamondback shareholders, and that's what we're focused on first. But yeah, listen, they're doing a really good job building a sizable business on the water.
Speaker Change: M&A to boost capacity and reduce costs there. So, you know, we're really excited with with what they're what they're doing, you know, Endeavor has a very impressive water system, you know, that could be a candidate to
Speaker Change: to merge with Deep Blue. But you know, I think that the price has got to be right for Diamondback shareholders. And that's what we're focused on first. But yeah, listen, they're doing a really good job.
Travis Stice: And, you know, with the amount of water that it takes to run multiple Simulfrac crews at the same time, you're moving hundreds of thousands of barrels of water a day at a low cost. So, very, very impressed with what they're doing. But I don't think they're ready to...
Speaker Change: Building a sizable business on the water side and you know with the amount of
Speaker Change: At the same time, you know, you're moving hundreds of thousands of barrels of water a day and at low cost. So, very, very impressed with what they're doing. I don't think they're ready to monetize yet. It's a longer term investment for us and we look forward to continuing to support that business.
Kalei Akamine: From numbers, given the size of the endeavor, does it potentially double the size of that business?
Travis Stice: It's probably a little less than double, you know, probably about two-thirds the size of the business today. But it has a lot of capacity and really moves into that western Martin or eastern Martin County area and connects the system nicely.
Kalei Akamine: Thanks for that. And then maybe following up on your comments about Wolf D and Upper Sprayberry, can you talk a little bit about that program for this year? Talk about how you're layering those zones into your development plans, whether they're co-developed with other zones, for example, and if there's any learning to take away from this 24 program?
Travis Stice: Yeah, I think so we added the Hover Sprayberry as a test, well, kind of in the North Martin area, like Kate mentioned a couple of years ago. Really pleased with the performance of that. Well, this year, we tested it in a co-developed fashion. And like Kate said, we're not seeing any real degradation there. And so what we plan to do going forward is to add that to the
Speaker Change: And like Kate said, we're not seeing any real degradation there, and so what we plan to do going forward is to add that to the development zones for the North Martin area.
Travis Stice: Wolf Camp D, you know, I think we have some tests that are co-developed and some tests that are standalone. You know, there are certain areas where Wolf Camp D is significantly deeper than Wolf Camp B, and we're not seeing communication. And there are some areas where it probably just makes sense to develop it with the stack because of, you know, above ground efficiencies.
Speaker Change: You know, there are certain areas where the Wolf Camp D is significantly deeper than the Wolf Camp B, and we're not seeing communication, and there are some areas where it probably just makes sense to develop it, you know, with the stack because of, you know, above ground efficiencies.
Travis Stice: Yeah, I think that's right. We tested the Wolf Camp D kind of in that same North Martin area and, you know, really not seeing any communication with Wolf Camp B. So we think it's a zone that we can come back to get or where it competes for capital, we'll add it to the stack.
Kalei Akamine: That's awesome. I appreciate that, guys.
Speaker Change: That's awesome. I appreciate that, guys.
Operator: All right, thank you. I am showing no further questions at this time. I would now like to turn it back to Travis Stice, CEO, for closing remarks.
Speaker Change: All right, thank you. I am showing no further questions at this time. I would now like to turn it back to Travis Stice, CEO , for closing remarks.
Travis Stice: Thank you again for everyone participating in today's call. If you've got any questions, please reach out to us using the contact information we've previously provided. Thank you, and have a great day.
Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Speaker Change: Thanks for watching!