Q3 2024 Diamondback Energy Inc Earnings Call
The
Speaker Change: Good day and thank you for standing by. Welcome to the Diamondback Energy Third Quarter, 2024 earnings conference call.
Speaker Change: At this time, all participants are in a list and only mode. After the speaker's presentation, there will be a question and an answer session. To ask a question during the session, you'll need to press star 1 on your telephone. You'll then hear automated message advising your hand is raised.
To withdraw your questions, please press star 1-1 again. Please be advised if the date conference is being recorded.
Speaker Change: I would now like to hand the conference over to Adam Lawlis, VP of Investor Relations. Please go ahead.
Adam Lawlis: Thank you, Julia. Good morning and welcome to Diamond Back Energy's third quarter, 2024 conference call. During our call today, we will reference an updated investor presentation in Leonard Stockholders.
Speaker Change: which can be found on Diamondback's website.
Speaker Change: Chairman and CEO, Case Man Hall of Presidency, FO, and Danny Weston, CEO. During this call, it's called a participants may make certain forward-looking statements relating to the company's financial condition. Results of operations, plans of objectives, future performance and businesses.
Speaker Change: We caution you that actual results could differ from it's early from those that are indicated in these four-looking statements due to a variety of factors.
Speaker Change: Information concerning these factors can be found in the company's followers with the SEC.
Speaker Change: In addition, we'll make reference to certain non-gap measures. The reconciliation with the appropriate gap measures can be found in our earnings release if you guessed today afternoon. I'm out to in the Call of the Ritter Charleslide.
Speaker Change: Thank you Adam, welcome everyone and thank you for joining our call this morning. I hope you've had a chance to review both of the shareholder letter that we now last night as well as the investor deck will be covering a lot of that material in today's question session. Operator, please open the line for questions.
Speaker Change: Thank you. At this time we will conduct the question and answer session. As a reminder to ask a question, you will need to press star 1 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 1 again.
Speaker Change: Please stand by, we can file the Q&A roster.
Speaker Change: A first question comes from the line of new thing then up to it. Your line is now open.
Speaker Change: I'm one of the guys and I subject last night, Travis, guys I'll save all my AI and data center questions this morning for your year-end call and all
Speaker Change: Jumping my first question this morning on capital efficiency, which again I think by my calculation you'll continue to have better than any other D&P and so specifically could you all, you know, the case for you Travis, maybe speak.
Speaker Change: To what you all believe could be your realistic free cash flow, per barrel next year, or actually looking at what your break even would be assuming cost operations and well results continue to trend as they've been here today.
Speaker Change: Yeah, and we really focused on pre-casual generation over, you know, cat-back spend in recent years and I expect that trend to continue, I think, you know, with the endeavor assets.
Speaker Change: Under the hood, you know, that only improves our free cash flow margin, our reinvestment rate goes along our corporate break even. You know, we highlighted one down by two or three dollars a barrel.
Speaker Change: and I think in a world of attenuous macro, the lowest break even in the longest duration of inventory is going to.
Speaker Change: to pay dividends. There's two things we really look at.
Speaker Change: and the pre-castle margin, you know, which is the output of the reinvestorate, but also, you know, how much capback to respending per barrel oil produced? And, you know, we like to say that we have the highest amount of barrels produced per dollar capbacks in the business and, you know, expect that trend to continue.
Speaker Change: Lawlis, a lot of time, a lot of work has been done here, integrating.
Speaker Change: Two companies very, very quickly. I'm ecstatic about the progress that's been made. We've already learned some things from the end of our side and vice versa. I think that's all going to occur to the benefit of our shareholders through more free cash flow over a longer period of time.
Speaker Change: Yeah, I mean, I think we laid it out on slide 9, you know, the post-dividend break-even has gone from $40 a barrel to $37 a barrel.
Speaker Change: by our math, you know, I think we've always tried to say that we'd like our base dividend to break even at $40 a barrel. So, you know, either our break even has gone down or we have more implied capacity to look at the base dividend, you know, which we expect to do early in 2025.
Speaker Change: Looking at the Midland side is that based on a per location or you know maybe tell me what else I'm missing when when you're all thinking about that swap? Yes, I'll give you a high level.
Speaker Change: The operated acreage in the Permian is very, very valuable and, you know, since we did the Endeavor deal, we've been pretty vocal that we're not a seller of the Delaware Basin. I think this trade was pretty unique in that...
Speaker Change: But the Ironback gets
Speaker Change: 18 ducks in the Midland Basin, a little more current production, and 55 locations that compete for capital right away. So we're basically moving...
Speaker Change: From a valuation perspective,
Speaker Change: We're getting more current production at a higher decline rate, but we're also paying for ducks and these 55 top quartile locations, which are worth a lot these days in the Midland Basin.
Speaker Change: Thanks Neal. Thank you.
Speaker Change: Our next question comes from the line of Aaron Jairam of JPMorgan Securities LLC. The line is now open.
Aaron Jairam: Good morning team.
Aaron Jairam: Travis, you have, you know, from a Diamondback perspective, it feels like the company has your hands in terms of several cookie jars.
Aaron Jairam: giving you credit for as we think about investments in the EPIC crude line.
Aaron Jairam: Deep Blue, and obviously maybe, I don't know if I, like Neil, I can wait until you're in, I wanted to get your thoughts on this data center, you know, kind of opportunity with the surface acres, because...
Aaron Jairam: And there's a need for greater electricity, so rather than continuing to, you know, get low margins on our gas and full boat on electricity, we're trying to figure out a way to be creative.
Aaron Jairam: Creative on ways to turn some of that natural gas into more value for our shareholders.
Aaron Jairam: Okay.
Aaron Jairam: Great.
Speaker Change: My follow-up is I just wanted to, you know, maybe understand on the efficiency gain side of the equation. In your prepared remarks, you commented how you think you can kind of execute
Speaker Change: your 2025 program with 18 rigs versus it may be a previous expectation of 22 to 24, you know, maybe four frack leads versus five previously
Speaker Change: Yeah, I mean, you know, we set out when we announced the Endeavor deal thinking that 2025...
Aaron Jairam: throughout the year and that 18-rig number is still gonna accomplish the same.
Aaron Jairam: Page PAGE of NUMPAGES www.verbalink.com
Aaron Jairam: Similar story on the FRAC side, you know, we think on the FRAC side...
Aaron Jairam: You know, that allows us to, one, complete wells faster. You know, there could be some benefits to the reservoir that we're studying very, very closely.
Aaron Jairam: Overall, that also reduces the variable costs needed to run track crews, which are much more expensive than a rig on a day-to-day basis.
Aaron Jairam: You know, I think there will be periods of time where we need to run five thymophrac crews next year. You know, high level, we can see the thymophrac crews completing a little over 100 wells per year per crew.
Speaker Change: was that all of the things the case just outlined...
Aaron Jairam: really described delivery of synergies not only ahead of time, which we had originally contemplated, you know, through the year of 2025. We've effectively got all of the synergies delivered now.
Aaron Jairam: In the fourth quarter of 2024 and and it's and it's so it's faster and it's lower You know, we put a note in there that we're you know on Middle Basin wells. We're now at $600 a foot
Aaron Jairam: from both perspectives, and what we're seeing early on is some significant synergy deliveries.
Aaron Jairam: I know you've already seen these, but I want to just mention it that, like we've done in the past, we've put our Synergy scorecard in our investor deck.
Aaron Jairam: with some details behind it. So if you'll just look at slides six and seven, you'll see a lot of the details that Case was just highlighting and then also some of the high level comments that I made.
Speaker Change: Thanks, Travis.
Travis: Thank you.
Aaron Jairam: Thanks, guys.
Speaker Change: Travis, in case, I just wanted to ask just in the context of some of the Synergy scorecard, you know, being achieved perhaps a little bit earlier than anticipated and obviously announcing some of the incremental savings.
Speaker Change: Are we at the point now, I guess, what sort of activity does that envision and just given some of the incremental cost savings that we're seeing, are we trending now to be all the way at the lower end or is there kind of a cushion built in there for some flexibility going into 26?
Speaker Change: Yeah, good question, David. You know, we always like a little flexibility, you know, I think given, you know, the macro environment, as Travis said in his letter, there's some things we're thinking about for next year. Again, always.
Aaron Jairam: Thinking about free cash flow generation over overspending CapEx dollars But yeah, I think we're certainly near the lower end of that original range for one to four four to get to 480,000 barrels of oil a day next year that includes the 5,000 barrels a day that Viper guided to in our tumbleweed acquisition
Aaron Jairam: You know, I think generally if you see well costs down $25 a lateral foot, we're completing about 5 million lateral feet a year. That's $125 million. So that's certainly going to be taken out of the budget. I do think there's still some
Aaron Jairam: of the ancillary spend items that we're refining, you know, combined infrastructure budget, midstream budget.
Speaker Change: You know, I wouldn't want to multiply the lower end of that number by four to get to your 2025 budget, but I'd certainly look at the midpoint or the or the high end.
Speaker Change: I appreciate all that color. It makes sense. Perhaps you can just add a little bit of color just on some of the... I know some others talked about some of the other assets midstream. You guys have highlighted, obviously, the royalty drop-down.
Speaker Change: It seems like in the deck there's some expectation that some monetization is coming in 2025. Can you kind of give a little bit of color on where those processes stand now and when you'd be expecting to see some inflows from there?
Speaker Change: Yeah, so you know, the big item is the drop down of mineral interest to Viper, you know, that's actively ongoing. We've been pretty vocal that early 2025 is our goal there. I don't see anything that's
Speaker Change: you know taking us off off that track. You know second is the midstream discussion with our partners at Deep Blue. I think that's a little less important than the the Viper drop down at the moment.
Speaker Change: And then, you know, it's been interesting closing this deal, Mr. Stevens.
was notorious for having a lot, you know, owning a lot of assets throughout the
Speaker Change: Thank you, guys.
Speaker Change: Thanks, David. Thank you.
Speaker Change: Our next question comes from the line of Bob Brackett of Bernstein Research. The line is now open.
Bob Brackett: Good morning. Your 2025 base plan is clear and you mentioned the ability to refine that plan based on the macro environment. Can you talk about how dial-able that plan is before dis-efficiencies kick in?
Speaker Change: I think we've got a lot of flexibility. I don't think it's the tool, it's the toolman, right? So we can dial things up and back very, very easily.
Speaker Change: This is not a strong macro environment, so I don't know why the discussion of growth or multi-year growth needs to be in the equation. I think Dimeback has learned that...
Speaker Change: Our growth profile impacts the macro, and we're very focused on the macro here where, you know, almost universally the street is calling for over supply in 2025. So, I think we're building in flexibility to.
Speaker Change: But can it be gradual? Can it be like deferring some wells or does it have to be dropping a rig line or dropping a frack spread? What's the, can you tweak things around the edge I guess?
Speaker Change: Oh, yeah. I mean, we already do that, Bob. You know, we went into the year running 15 rigs, Endeavor was running 10, our team was 12. Our team was ahead of schedule. We dropped to 10 rigs mid-year because we had drilled more wells than we expected in the first six months of the year. So...
Speaker Change: you know, dropping rigs, adding rigs, dropping a crew, swapping a crew, that's just what you expect us to do. And Bob, this is Danny, we, we, our supply chain setups...
Speaker Change: Page PAGE of NUMPAGES www.verbalink.com Page PAGE of NUMPAGES
Speaker Change: Very clear, thanks.
Speaker Change: Thanks, Bob.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Neal Mehta of Goldman Sachs. Your line is now open.
Neal Mehta: Yeah, good morning team. I just love your perspective on the macro, I think.
Neal Mehta: Travis, in your letter and in these comments, you've kind of shared a more cautious view for 2025.
Speaker Change: Well, you know, as Kay's outlined, our strategy really is for flexibility. And when you look at the macro right now,
Speaker Change: It's kind of hard to look at a world that has four to six million barrels a day of
Speaker Change: Transcripts provided by Transcription Outsourcing, LLC.
Speaker Change: And there may be a call for growth at some point in the future, and I expect our shareholders would look to us to respond to that call, but it's certainly nothing that we hear or see today.
Speaker Change: But with this macro view, we're going to just stay conservative and let volume be the output of cash flow generation. And most importantly, we're focused on per share cash flow and pre-cash flow, right? So, if the macro is.
Speaker Change: tenuous in 2025 while per share metrics...
Speaker Change: Page PAGE of NUMPAGES www.verbalink.com
Speaker Change: We have a slide in our deck that shows that growth over time, so that's not going to stop. I just think, you know, being cognizant of...
Speaker Change: Your impact to the global market is is important and it's a lesson that Dimeback learned through 2020 and we hope the industry also learns that lesson
Speaker Change: Yeah.
Speaker Change: Thanks, Case, and thanks, Travis. That's the follow-up, which is just around shared buybacks. At different points in the cycle, you...
Speaker Change: you've elected towards the variable or dividend oriented strategy versus the buyback but it was it's notable that you're you're really leaning back into the share repurchase program so can you get to talk about that evolution maybe it's the reflection of your thoughts on valuation and maybe being
Speaker Change: You know been able to flex between a buyback and a variable dividend. I would say, you know
Speaker Change: Post-Endeavor, we certainly have a business that's worth more combined than Diamondback stand-alone per share and so that's increased kind of our tolerance for buying back shares at these levels. I mean, I think
Speaker Change: Should things get improved from here, we buy back less. Should things get significantly worse from here, we lean in and use more of our free cash flow to buy back shares. You know, that's what you'd expect us to do. I think the only thing that's really...
Speaker Change: You know, it's going to be steady as base dividend and base dividend growth, but you should expect us to maintain that flexibility between buyback and variable, you know, despite our larger size. And I think, Neal, the countercyclicality of share repurchases...
Speaker Change: has proven to be the right strategy in a commodity-based business. Our industry, over the last 10 years, probably has many instances where oil price was high, free cash flow was high, and share repurchases were high.
Speaker Change: and then all price cycles down and you end up either issuing shares at the bottom or...
Speaker Change: Transcripts provided by Transcription Outsourcing, LLC.
Speaker Change: Foundational to our Shared Repurchase Program.
Speaker Change: Makes a lot of sense. Thanks, guys. Thanks, Leo.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Betty Jiang of Barclays. Your line is now open.
Betty Jiang: Good morning. So I was wondering if you guys can talk a bit more about the opportunities with the surface acreage and the water.
Speaker Change: but being a provider of water in the Permian.
Speaker Change: I mean...
Speaker Change: These are recurring revenue streams that's clearly getting a fairly high multiple in the market. So what does it take for you to capture these type of new revenue streams and how meaningful could it be?
Speaker Change: Yeah, Betty, you know, I think, um...
Speaker Change: There's a lot of land out here in West Texas, a lot of surface.
Speaker Change: We also control a lot of molecules, you know, so I think...
Speaker Change: will be believed to be an increasing power price in Texas over the next 10 years. So, if we can cut off that cycle and benefit Dimeback shareholders, we're going to do it. You know, I think the message we kind of put out there is that West Texas...
Speaker Change: You know develop power and the data center operators
Speaker Change: have not been focused on the Permian yet. You know, there's certainly some conversations that are happening. And we're kind of putting the flag out there that this is a very cheap way to execute their business model while benefiting Diamondback shareholders. So, more to come on that. We're getting started, but we put a little teaser in the presentation this quarter.
Speaker Change: Yeah, no, I appreciate that. Maybe my follow-up is just how you're thinking about funding these type of investments. Would it be a JV partner with an infrastructure provider, infrastructure sponsor or, yeah, because these, the gas power plants are pretty capital intensive to build.
Speaker Change: For our shareholders, it was based on midstream and pipelines getting out of the basin. And we think this can be a similar route. I think it's still early, but I think you'd expect us to lean on the experts as our partners. I think we provide a lot of expertise.
Speaker Change: Makes sense. Thank you for that.
Speaker Change: Thanks, Bay.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Kevin McCurdy of Pickering Energy Partners. Your line is now open.
Kevin McCurdy: Hey, good morning. First, congratulations on closing the deal. I know you've been working on that for a long time.
Kevin McCurdy: In your shareholder letter, you highlight the two big operational changes of using clear fluids in drilling and using samulfrax for completions of all wells. I wondered if you could expand on that a little bit. Were those faying practices that you're bringing to Endeavor Acreage, and do you have a rough estimate of what percentage of your wells used those techniques in 2024?
Speaker Change: Today, all the rigs that we're running are using clear fluid drilling system. And yes, that's a definite bring over from the diamondback side. Simulfrac, all the wells we completed on a stand-alone basis.
Kevin McCurdy: Besides the occasional spot crew, in 2024 we're using Simulfrac. And as of today, on a pro forma company, we're using all Simulfrac operations. Four rigs, or four crews, and three of those are electric.
Speaker Change: Great, thanks for the detail. That's all for me.
Speaker Change: Thanks, Phyllis.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of John Freeman of Raymond James. Your line is now open.
John Freeman: Good morning, guys. Hey, John.
John Freeman: The first question I had, just when we sort of think about, like, long-term about trying to improve the realized gas price in the Permian,
John Freeman: I believe in the past when y'all have done acquisitions, a lot of those came with
John Freeman: Transcription by CastingWords
John Freeman: and Debra didn't really have any kind of binding.
Speaker Change: Yeah, good question, John. You know, we do have certainly some flexibility, particularly on the residue gas, natural gas side, as well as the crude side. You know, you've seen us make some moves already.
Kevin McCurdy: On the crude side, with a little bit of an increased commitment to the EPIC pipeline, as well as, you know, increased ownership. So, you know, that fits with our prior strategy of driving value through midstream, but protecting ourselves commercially.
Kevin McCurdy: You know, I think on the gas side, you know, we're
Kevin McCurdy: On those pipes, you know, those were decisions made a couple years ago. We expect to have a good amount of space, about 10% of the pipe, on Blackcomb, which is the next pipe from the Whitewater crew that's coming out in a couple years.
Kevin McCurdy: And that leaves some gaps for other opportunities. You know, our friends at Energy Transfer who bought WTG, we're talking to them about some things about getting our gas out of the basin.
Kevin McCurdy: And that, you know, kind of leaves a little bit of gaps for us to make some of these capital allocation decisions in the base and related to power, also related to our
Kevin McCurdy: you know, Varaday Clean Fuels investment. So, you know, we heard our investors loud and clear, it's time to stop selling gas at zero and diversify our risk, and that's what we're gonna do, particularly as more and more gas gets produced in this basin.
Speaker Change: That's great. And then just my follow-up question, in the prepared comments, you'll talk about
Speaker Change: you know, point out sort of the opportunity to implement these kind of shared best practices, if you will, of the two companies, and you're closely studying kind of various completion designs. Just in how does that kind of work in practice? Do you all just sort of start to
Kevin McCurdy: I guess, quite frankly, testes in the field or kind of what's the process for maybe implementing some of these changes to see if there is something that sort of has legs that y'all could implement across the board.
Speaker Change: Well, the first thing we did was we had over 650 office moves in the first six days post-close.
Speaker Change: on-boarded 1,000 employees, and so we physically located a lot of the GGRE teams together. And then we, since the physical integration, we've started the team integration as well, too, where teams are getting together, actually having conversations.
Kevin McCurdy: about, okay, here's...
Kevin McCurdy: Here's what we were doing, here's what you were doing, now let's try to figure out how we can put those things together in the best way to go forward.
Kevin McCurdy: and I'm real proud of the organization. As I mentioned earlier, they've kind of just checked their egos at the door and we're really trying to learn the best from both sides. Obviously, some of the pace and requirements for a public company and the 90-day scorecards is a little different than working for a private company, but all things considered.
Kevin McCurdy: I couldn't be more proud of the way the organization is responding to...
Speaker Change: Thanks, I appreciate it.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Roger Reed of Wells Fargo Securities. Your line is now open.
Roger Reed: Hey, thanks. Good morning. A lot of it's been hit, but I thought I'd come back on the productivity and efficiency side of things.
Roger Reed: Maybe just a quick look back for a look forward, but as you think about the improvements both in terms of
Roger Reed: You know, drilling speeds, drilling capabilities, lower drilling costs, and then a similar kind of approach on the frac side. How much of it do you think is, you know, call it mechanical changes, meaning going to, you know, electric fracs, or, you know, the higher spec drilling rigs?
Roger Reed: relative to
Speaker Change: you know, experience and learning curves, you know, the crews themselves, you know, and the reason I'm asking is I'm trying to think about if it's mostly mechanical, that kind of runs its course. But if it's a combination of factors, then that would, you know, indicate we do have further to go in terms of more cost reductions.
Speaker Change: I think it's a combination, but it's also a mentality that when we see something mechanical that works, it gets implemented right away across the whole portfolio.
Speaker Change: So, you know, I would say also the consistency of the business model, you know, not having to change the plan.
Speaker Change: with a lot of crews having worked for us for a long time.
Speaker Change: 3 or 4 years now on the Halliburton side and on the rig side we have some preferred vendors that have worked with us for a long time.
Speaker Change: I think there's certainly more to come. We're not going to give any of these efficiencies back. And I think, you know, on top of that, the completion design work that's going on between the two teams.
Speaker Change: is what is probably most exciting to me personally eight weeks in on what can be done to improve all results going forward.
Speaker Change: That makes sense. And this probably comes back a little bit towards Bob's question earlier about, you know, what you would do if, you know, oil prices were to fall, you know, we were to get an oversupply in 25.
Speaker Change: When you think about productivity and efficiency, it's clear, you know, as we've heard from you and other companies, right, a consistent plan that, you know, allows you to drill and complete wells and minimize, you know, your non-productive time and all that. So as you think about making tweaks along the edge, you know,
Speaker Change: Giving up those productivity and efficiency trends could be, you know, counterproductive to actually saving money in the very near term. What's the right way for us to think about how you'll weigh those decisions if they do, you know, market does force that upon you next year?
Speaker Change: Yeah, Roger, you know, I think it goes back to what Travis said about lessons learned, right? And I think we have the size scale and balance sheet.
Speaker Change: to be able to withstand.
Speaker Change: you know, a cycle, should it happen? I think the only thing that we would probably change is that, you know, at the low point of the cycle, you're going to be putting pipe in the ground cheaper than any point, you know, across that entire cycle. So, you know, I think we'd probably prefer to.
Speaker Change: I don't really buy into the losing efficiencies argument.
Speaker Change: When we're based in Midland, we know this basin as well as anybody, and we've done this before. Yeah, Roger, that's a cultural element that you'll see throughout Diamondback, and what I'm speaking to specifically is we don't ever cede ground once we've taken it.
Speaker Change: Supervising and leading those functions to bring back to the table the ground that we had taken so that it isn't lost. And that's a very, very important cultural element to maintaining our best-in-class execution and low-cost operations. And I hope that makes sense.
Roger Reed: It does. I appreciate the clarity. Thanks, guys.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Paul Chang of Sociabank. The line is now open.
Paul Chang: Thank you. Good morning, guys.
Paul Chang: Good morning, Shardha and the team, when we put the two companies together initially you coming up with a
Paul Chang: Synergy target, but that's basically saying that okay, you know INDIVA and the DNC course is higher than you so you can bring it down But of course and INDIVA also probably doing something Better than you guys as you saying that you not going to have the big ego
Speaker Change: So over the past three months, can you identify a couple of the biggest, maybe that what you found that they have done substantially better than you? And can you quantify that? What is the potential saving from those?
Speaker Change: Yeah, I'll let Case talk about the specific savings, but, you know, we're eight weeks into this and we got our operations reviewed.
Speaker Change: A couple of weeks ago, we're immediately seeing some of the benefits of the Endeavor, you know, experience on drill outs, particularly where they've got a better drill out. It costs a little bit more money, but it's done quicker. And then the other one is on
Speaker Change: We've looked across the fence line at what Endeavor was doing for the last five years and then vice versa and think about it, now we get to answer the questions that could not be answered a couple years ago, right?
Speaker Change: If they're drilling better, you know, in 2022, they were drilling better gel mill, metal spray, very well. So we we had a big study on, hey, what's Endeavor doing? And I'm sure you know, they did similar things.
Speaker Change: Travis Stice, M.D.: Looking at us. So again, it goes back to that comment that Travis putting his letter.
Speaker Change: You can't model those benefits in an Excel spreadsheet, but I can guarantee you that there will be long-term benefits to the amount of data that's being shared between the two companies, and that.
Speaker Change: you know, is kind of the holy grail of better combined well results. So, better combined well results with...
Speaker Change: Pretty impressive combination over the over the coming years, you know, I think the other thing
Speaker Change: That we looked at
Speaker Change: You know, we have a huge production base.
Speaker Change: you know, almost 600,000 gross barrels of oil a day. I think there's a lot of work to be done between the two teams on efficiencies and economies of scale on the production operations.
Speaker Change: Page PAGE of NUMPAGES www.verbalink.com
Speaker Change: As Casey just alluded to, it may be hard to articulate today, but you're going to see it over time.
Speaker Change: As we continue to, you know, to pick up the quarters and dimes and nickels as we put these two companies together and the basin experts are trying to solve the same problem.
Speaker Change: Thank you. The second question is that on the payout, in the third quarter you did 78 percent and of course you've been saying about 50 percent on the free cash flow. If we're looking out over the next couple quarters and if the share price the
Speaker Change: Relatively close to where we are, how do you balance between your desire to quickly get down to 10 billion net debt and the payout ratio?
Speaker Change: pretty cash flow for the quarter, right? One, we only had Endeavor account for 20 days out of the quarter, so even though the effective date of the deal was January 1st, the public numbers only account for 20 days, or 21 days of Endeavor, so.
Speaker Change: you know, really the combined pre-cash flow of the business was a lot higher than that.
Speaker Change: But second...
Speaker Change: You know, post close and, and we've been pretty vocal with our shareholders that those are opportunities for us to commit to a large buyback at one time. And, and that's what we did with
Speaker Change: You know, two million shares.
Speaker Change: Transcripts provided by Transcription Outsourcing, LLC.
Speaker Change: Thank you. Can I sneak a quick follow-up? Sure. Any idea what the family intention about their share? They sold 14.4. Are they done, or did they indicate what's their intention?
Speaker Change: Yeah, you know, I don't have an answer to that, Paul, but I do know that we have a lot of flexibility and a lot of capacity to participate and support, you know, our shareholders, our public shareholders.
Speaker Change: on a consistent basis. I think the only thing that we've said publicly about.
Speaker Change: Stephen's Family Stockholders is that, you know, over time, they'd like to get down to where their voting rights equal their ownership, which is, you know, 25% of the of the business from about, you know, 35% today.
Speaker Change: Thank you.
Speaker Change: Thank you. Our next question comes from the line of Charles Mead of Johnson Rice. Your line is now open.
Charles Mead: Good morning Travis, Case, and Danny. I just have one question and I don't think it's been covered. You've covered a lot in your Q&A here, but it's really on OPEX.
Charles Mead: And I noticed that you've moved down the midpoints of your unit guidance.
Charles Mead: I think it was $0.10 on LOE and $0.20 on GP&T. And I'm wondering if you could give some, maybe kind of portion that up. How much of that is maybe?
Charles Mead: The Diamondback Legacy asset is doing better. How much of it is actually the contribution from the Endeavor asset base? In that case, it would suggest that the Endeavor assets are lower cost than Legacy.
Charles Mead: Diamondback, or also maybe it's just early...
Charles Mead: early realization of OPEC synergies and if you kind of give us a sense for that and then
Charles Mead: Travis, going back to a point you made in your shareholder letter, you guys are still really optimizing, really analyzing and optimizing for 25, and if your cost basis has already gotten better.
Charles Mead: For 4Q, what does that suggest for 25 in your minds?
Speaker Change: Yeah, I'll take the off-base question first, you know, I think, um...
Speaker Change: You know, some things have moved down as a result of accommodation. I think we're going to be pretty conservative on on, you know, guiding the effects of only having, you know, 20 days of a combined business. So, you know, we're going to do a lot of work for finding that over the next three months. I'm confident that, you know, we'll find some things that combined will come down on the LOE side.
Charles Mead: I would say the big difference between Diamondback's cost structure and Endeavor's on LOE is that
Charles Mead: a third-party fee for water disposal and handling.
Charles Mead: versus Endeavor, you know, consolidating that internally. So that's, you know, that's a 50, 60 cent delta per BOE.
Charles Mead: By our estimations, it's going to help us combine.
Charles Mead: On the G&A side, we have a lot more BOEs and not a lot more G&A, so I'd expect that to come down a little bit. But all these things I think we'll get to refine here with Q4 reporting after we see three months of the combined business.
Charles Mead: You know, what we need to do is focus on a plan that maximizes free cash flow.
Charles Mead: produces a lot of a lot of oil.
Charles Mead: That work is ongoing, I think things like the TRP trade getting worked into the plan are going to be free cash to our stockholders.
Speaker Change: Thanks for that detailed case. Thanks, Charles.
Charles Mead: Thank you.
Speaker Change: Our next question comes from the line of Leo Mariani of Roth. Your line is now open.
Leo Mariani: So just kind of looking at where you are, you know, for fourth quarter on production at 840 to 850, and you're basically saying we're reaffirming.
Charles Mead: 800-825, you know, for next year, kind of.
Charles Mead: Outperforming, you know, a bit here and then also just done on 25. I think kind of the pro forma plan has always been to be
Charles Mead: You know, verify that as, you know, if it is a bad macro, do you see kind of a small decline and a pullback, or would you be willing to have a more meaningful decline if oil prices are a disaster next year?
Speaker Change: Still hit 480,000 barrels of oil a day. We got it Q4 to 470 to 475 Thousand barrels of oil a day. So base case still hit 480 next year for you know low fours of capex. I think
Speaker Change: You know, the macro is going to dictate the decision, you know, closer to January on what ends up happening. But, you know, and your comment about the BOEs, yeah, you're probably right. We're very conservative on the BOE number. I think you can certainly assume closer to 840 to 850 BOEs.
Charles Mead: versus that 800-825. At the end of the day, the oil drives the decision here, so we're very, very focused on oil guidance, but BOEs probably will end up being closer to 850 versus that 800-825.
Speaker Change: Okay, and just on the tax side, I wanted to see if there's any incremental cash tax benefit at all.
Speaker Change: from Endeavor. Your cash taxes came in, I think, below what you guys got it to in 3Q. I know it was only 21 days or so of Endeavor, but do you expect any kind of incremental benefit at all there, or is it going to be roughly the same rate going forward?
Speaker Change: Yeah, I don't think it will be material, you know, we'll still be in the kind of high teens, you know, mid to high teens cash tax rate.
Speaker Change: Okay, thank you
Speaker Change: Thanks, Leo.
Charles Mead: Thank you.
Speaker Change: Our next question comes from the line of Scott Gruber of Citigroup. Your line is now open.
Scott Gruber: Yes, good morning. I wanted to come back to being flexible with the 25 plan. A lot of questions on the how, but I didn't hear about when unless I missed it. But just given your low break-even, at what oil price do you think about shifting out of maintenance mode? You know, when do you start turning the dial?
Speaker Change: Well, I mean, high-level is really not in maintenance mode, right? We're at 470 to 475 oil today. We got it at 480 next year. Well, that's, you know, 2% growth. It is something. So, you know, that's kind of the first goalpost.
Speaker Change: I think the key point is not necessarily how or when, it's that Diamondback is cognizant of this new business model and cognizant of the macro.
Speaker Change: If we're not, we're not doing our jobs. So, you know, I think I think being being cautious when things are, you know, when oil is in the high 60s, and you have pockets of geopolitical premium coming in and out is a prudent thing to do so.
Speaker Change: You know, at the end of the day, the lowest cost operator should be producing the last barrel in the basin, but I think, you know, that that that spreadsheet math is what's gotten this industry in trouble in the past and feels like we're getting ourselves in trouble again. So.
Speaker Change: I think, you know, again, I can't hammer it up, but free cash flow trumps capex at Diamondback these days.
Speaker Change: I got it. I appreciate it. And then a quick one on...
Speaker Change: You know, just the trend you're seeing in the marketplace. It's really nice to see you guys hitting that 600 a foot so quickly.
Speaker Change: and he mentioned some additional, you know, deal synergy caps, but curious, because we have a background here of deflation and service costs and tangible item costs, so just...
Charles Mead: How much of that kind of background deflation is baked into that $600 number, or could that number, you know, still continue to trend down, you know, above and beyond any additional, you know, efficiency and deal synergy captured just from
Charles Mead: deflation. You know, if you mark the market your service contracts today, kind of where would, where do you think you'd, you could see that $600 number go?
Speaker Change: We're pretty mark-to-market. That 600 is a real-time number. Certainly there are wells that are below that number, but we're adding more.
Charles Mead: Wolf Camp D to the plan, you know, that's a more expensive well to drill. There's a couple Barnett Woodford wells throughout the portfolio. Yeah, I think I think in general, the core wolfberry developments probably below that longer laterals also help that but
Charles Mead: You know that's a pretty real-time look, you know, we don't as Danny mentioned earlier. We don't have a lot of
Charles Mead: Long-term contracts, we recontract a lot, we get a lot of market intelligence.
Charles Mead: on the service cost side and...
Charles Mead: You know, I'd say above that, Scott, you know, I don't see a recount that's going up in the Permian over the next quarter or so, and so that should continue to deflate prices, which should accrue to our shareholders' benefits.
Scott Gruber: Thanks, I'll turn it back over to you.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Kalei Ackermine of Bank of America. Your line is now open.
Kalei Ackermine: Hey, good morning guys. Thanks for getting me on. I'm going to take another shot at 25 CapEx. First on the $600 per foot. It's a solid update and I think it shows it challenges your team to drive that low number even lower.
Speaker Change: But I'm wondering if you can help ground us, so I'm looking for a couple of pieces.
Speaker Change: First, can you remind us what's in the original 2025 guide?
Speaker Change: and then talk about the non-DNC piece embedded in that guide.
Speaker Change: And then whatever that piece is, does that roll in 26?
Speaker Change: Yeah, I mean listen, I'll answer it again, I think 625 was kind of our...
Speaker Change: are assumed low cost for $25.
Speaker Change: You know, we also like to guide fairly conservatively.
Speaker Change: You know, the combined infrastructure budget will probably be a little higher in 2025 than it will in 2026. You know, we like to think that the infrastructure budget eventually moves closer to 6-7% of total capital.
Speaker Change: Awesome, I appreciate the color. Second question is going to go to Deep Blue. Here you're targeting, maybe if you've ever dropped in the first half of 25 it sounds like.
Speaker Change: In the first deal, you took back $500 of cash, 30% equity.
Speaker Change: Kind of wondering about deal structure. What should we expect for the upcoming drop?
Speaker Change: Yeah, I mean it's a lot of we'll see. I think our preference is cash and more cash to accelerate deleveraging targets.
Speaker Change: But we recognize we have a partnership with Deep Blue and and they should recognize the same that we are going to work on this business to grow value together and You know, that doesn't mean that means we're not you know, we've never been in the business of
Speaker Change: you know, a good amount of value already in a year. So a lot of work to do. I'd say that's less of a, less of a near term objective than the drop down. We have a lot of people working very hard on the mineral drop down, which is, you know, a very significant
Speaker Change: Deal for both Diamondback and Viper.
Speaker Change: and maybe to the third one just on the royalty drop. It's a really big chunk when you think about the amount of EBITDA associated with that asset and 8 to 10x you get to really big numbers real fast.
Speaker Change: I think our preference is to do most of it at once. You know, I think Viper has a lot of strategic objectives that we'll talk about in about an hour on its call.
Speaker Change: You know, I think getting the drop-down...
Speaker Change: behind us and showing the size and scale.
Speaker Change: of that business on a combined basis is going to be important to...
Speaker Change: Future opportunities at Viper, you know, I think it's amazing Viper
Speaker Change: today has an interest in 11,000 horizontal wells across the basin, and that's a...
Speaker Change: Great, thanks guys.
Speaker Change: Thank you.
Speaker Change: This concludes the question-and-answer session. I would now like to turn it back to Travis Stice, CEO, for closing remarks.
Travis Stice: Thanks again for everyone listening in today and for the good questions. If there's any follow-up questions that you have, just reach out with using the numbers provided. Thanks and y'all have a great day.
Speaker Change: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Speaker Change: Don't call me
Speaker Change: [music]
Speaker Change: Thanks for watching!
Speaker Change: Thanks for watching!
Speaker Change: Music Music Music Music Music Music Music Music Music Music
Speaker Change: [music]
Speaker Change: Trippie Redd, The Cure Lyrics by Trippie Redd Music by Trippie Redd Art by Trippie Redd Filmed by Trippie Redd Produced by Trippie Redd Music by Trippie Redd Visit us at www.trippieredd.com Subscribe to Trippie Redd for more!
Speaker Change: Music by Kevin MacLeod Music by Kevin MacLeod Music by Kevin MacLeod Music by Kevin MacLeod Music by Kevin MacLeod
Speaker Change: I hope the movie was helpful, and that you were having a good time watching it. See you next time.
Speaker Change: Thanks for watching!
Speaker Change: Who's your favorite actor? Comment below and leave a comment SUBSCRIBE LIKE SHARE COMMENT COMMENT SHARE COMMENT COMMENT COMMENT COMMENT COMMENT COMMENT
Speaker Change: Good day and thank you for standing by. Welcome to the Diamondback Energy 3rd Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode.
Speaker Change: After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star-one-one on your telephone. You will then hear an automated message advising your hand is raised.
Speaker Change: To withdraw your question, please press star 1 1 again. Please be advised that today's conference is being recorded.
Speaker Change: I would now like to hand the conference over to Adam Lawlis, VP of Investor Relations. Please go ahead.
Adam Lawlis: Thank you, Julia. Good morning and welcome to Diamondback Energy's third quarter 2024 conference call. During our call today, we will reference an updated investor presentation and letter to stockholders.
Adam Lawlis: which can be found on Diamondback's website.
Adam Lawlis: Information concerning these factors can be found in the company's filings with the SEC.
Adam Lawlis: In addition, we will make reference to certain non-GAAP measures. The reconciliations with the appropriate GAAP measures can be found in our earnings release issued yesterday afternoon. I will now turn the call over to Travis Stice.
Travis Stice: Thank you, Adam. Welcome, everyone, and thank you for joining our call this morning. I hope you've had a chance to review both the shareholder letter that went out last night as well as the investor deck. We'll be covering a lot of that material in today's question session. Operator, please open the line for questions.
Speaker Change: Thank you. At this time, we will conduct a question and answer session. As a reminder, to ask a question, you will need to press star 11 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.
Speaker Change: Our first question comes from the line of Neil Dingman of Truist. Your line is now open.
Neil Dingman: Morning guys, nice update last night. Travis, guys I'll save all my AI and data center questions this morning for your year-end call and I'll...
Adam Lawlis: Jump into my first question this morning on capital efficiency, which again, I think by my calculation, you'll continue to have better than any other E&P. And so specifically, could you all, you know, if it's okay for you, Travis, maybe speak.
Adam Lawlis: under the under the hood you know that that only improves our
Adam Lawlis: to pay dividends, you know, there's two things we really look at.
Adam Lawlis: A lot of time, a lot of work has been done here integrating
Adam Lawlis: Two companies very, very quickly, ecstatic about the progress that's been made. We've already learned some things from the Endeavor side and vice versa. And I think that's all going to accrue to the benefit of our shareholders through, you know, more free cash flow over a longer period of time.
Speaker Change: Are you willing to put a number on where you see breakeven going at some point next year?
Speaker Change: Yeah, I mean, I think we laid it out on slide 9, you know, the post-dividend break-even has gone from $40 a barrel to $37 a barrel.
Adam Lawlis: By our math, you know, I think we've always tried to say that we'd like our base dividend to break even at $40 a barrel. So, you know, either our break even has gone down or we have more implied capacity to look at the base dividend, you know, which we expect to do early in 2025.
Speaker Change: Looking at the Midland side is that based on a per location or you know Maybe tell me what else I'm missing when when you're all thinking about that swap
Speaker Change: The operated acreage in the Permian is very, very valuable. And you know, since we did the Endeavor deal, we've been pretty vocal that we're not a seller of the Delaware Basin. I think this trade was pretty unique in that
Speaker Change: TRP gets to move into the Delaware Basin and test some things in secondary zones.
Speaker Change: But the Ironback gets 18 ducks in the Midland Basin, a little more current production, and 55 locations that compete for capital right away. So we're basically moving...
Speaker Change: From a valuation perspective,
Speaker Change: I'd say the high level PDP values were pretty similar. I would say we have a lower decline rate that we're selling. We're getting more current production at a higher decline rate, but we're also paying for ducks and these 55 top quartile locations, which are...
Speaker Change: You know, worth a lot these days in the Midland Basin.
Speaker Change: Great, great details. Thanks guys.
Speaker Change: Thanks, Neil.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Aaron Jairam of JPMorgan Securities LLC. The line is now open.
Aaron Jairam: Good morning team.
Speaker Change: giving you credit for as we think about investments in the EPIC crude line.
Aaron Jairam: Deep Blue, and obviously maybe, I don't know if I, like Neil, I can wait until you're in, I wanted to get your thoughts on this data center, you know, kind of opportunity with the surface acres, because
Speaker Change: You know, investors have noted how one of, you know, a company who's developing a data center in Reese County has a pretty punchy evaluation in the equity market.
Speaker Change: And there's a need for greater electricity, so rather than continuing to, you know, get low margins on our gas and full boat on electricity, we're trying to figure out a way to be creative.
Speaker Change: Great.
Speaker Change: My follow-up is I just wanted to you know, maybe understand on on the efficiency gain side of the equation In your prepared remarks you commented how you think you can kind of execute
Speaker Change: your 2025 program with 18 rigs versus it may be a previous expectation of 22 to 24, you know, maybe four frack leads versus five previously
Speaker Change: Yeah, I mean, you know, we set out when we announced the Endeavor deal thinking that 2025...
Speaker Change: throughout the year and that 18-rig number is still gonna accomplish the same.
Speaker Change: Page PAGE of NUMPAGES www.verbalink.com Page PAGE of NUMPAGES