Q1 2025 Diamondback Energy Inc Earnings Call
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I would now like to hand, the conference over to your first speaker today, Adam Lawlis VP of Investor Relations. Please go ahead.
Thank you.
Speaker Change: Welcome to Diamondback energy.
Speaker Change: First quarter 2020 conference call.
Speaker Change: Today, we will reference an updated investor presentation.
Speaker Change: Other stockholders, which can be found on diamondback.
Speaker Change: Representing Diamondback today are Travis Stice, chairman and CEO.
Danny Wilson: President Danny Wilson.
Gary Thompson: Gary Thompson CFO.
Danny Wilson: During this conference call.
Danny Wilson: Certain forward looking statements relating to the company's financial condition results of operations plans objectives.
Danny Wilson: Performance of business.
Danny Wilson: Caution you that actual results could differ materially from those that are indicated in these forward looking statements due to a variety of factors.
Danny Wilson: Formation concerning these factors can be found in the company's filings.
Danny Wilson: 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.
Travis Stice: I will turn the call over to Travis Stice.
Travis Stice: Hello, everyone.
Speaker Change: Everyone's had a chance to review our stockholder letter that was released last night most of our commentary today will be found inside that that letter.
Travis Stice: Would you 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 one one on your telephone and wait for your name to be announced to withdraw your question. Please press star one again.
Travis Stice: One moment, while we compile the Q&A roster.
Speaker Change: Our first question comes from the line of Neil Mehta with Goldman Sachs and co. Your line is now open.
Neil Mehta: Yeah, Good morning, Travis case.
Speaker Change: Travis congratulations.
Gary Thompson: Your position for retirement in case, congratulations again I'm, taking on the new role.
Speaker Change: So I think some important.
Speaker Change: Use this morning around changes in the activity plans and in response.
Speaker Change: <unk> is a tougher oil macro so perhaps Keith can you spend some time talking about the thought process that went into the decision.
Speaker Change: How youre thinking about it.
Speaker Change: The approach from here.
Speaker Change: Sure.
Speaker Change: Job is to allocate capital we allocate capital for the most profit we can for the shareholders who own the company.
Speaker Change: One of our rules, we have to have a view of the macro as we allocate capital and the current view of the macro is certainly is certainly challenging at best over the weekend OPEC made the decision to put an extra 1 million barrels a day.
Speaker Change: On the market and what is already an oversupplied world and we're still you know.
Speaker Change: We're looking at headwinds with what we're seeing is.
Speaker Change: Slowing economies around the world, which obviously has read through.
Speaker Change: Through demand so what we tried to put together was a response to those kind of macro conditions.
Speaker Change: Which by taken.
Speaker Change: $400 million out of our capital budget, and three drilling rigs and one frac spread allowed us to maximize the capex reduction, while minimizing volume impact and at the same token provides.
Speaker Change: Us.
Speaker Change: Runway for maximum flexibility to respond in either direction in the future quarters as this evolving the supply demand imbalance works its way through the system. So that's sort of the background of what we talked to the board about well before saturday's decision by OPEC and again its Sam.
Speaker Change: Can we create the most value when we allocate capital.
Speaker Change: When you look at what we've done with this announcement, we've actually made our program more capital efficient by spending less dollars. This year.
Travis Stice: Yes Travis.
Travis Stice: The follow up on that as it is.
Travis Stice: Certainly reduced the cash capex by $400 million the impact on production.
Travis Stice: Not that significant at least for 2025, and so is that a function of.
Travis Stice: The delay between changes in activity and.
Travis Stice: And production or is that you guys were just really tracking well in terms of <unk>.
Travis Stice: That activity to start the year.
Travis Stice: Yes, let me let me give you some color on that because I think it's important on the outside it looks like a 1% hit to production, but if you just look at Q2 peak to trough, we're going to probably be down 20000 net barrels of oil a day.
Travis Stice: <unk> on a gross basis is close to 30. So we had a great April things were humming along here.
Travis Stice: With over 500000 net barrels of oil a day, obviously now hitting the brakes, a little bit with the reduction in the Frac crews and so if you think about it.
Travis Stice: 475000 barrels a day net Q1.
Travis Stice: Q2 guide round numbers is about $4 95, and then we're going to decline off a bit into Q3 down to about $4 85 and at that point in today's market hold that flat. So no on the outside it looks like.
Travis Stice: The flattish program, but and this is why we've kind of been saying that we think gross well production is coming down in the Permian and the U S. You just look at ours. For example gone from five Frac crews down to four is going to be a 30000 barrel a day impact in just a quarter.
Speaker Change: Thank you okay. Thanks, guys.
Travis Stice: Thank you thanks Neal.
Travis Stice: Thank you.
Travis Stice: Our next question comes from the line of Scott Hanold with RBC capital markets. Your line is now open.
Speaker Change: Yes, yes, thanks, and Travis again, congrats too on.
Speaker Change: Your next stage and look I would say it's unfortunate it has to be on a bad macro note, but I think it's.
Speaker Change: A testament to what you've created the Diamondback table do kind of manage through this pretty well.
Speaker Change: My first question is you.
Speaker Change: My first question is just your broad view of the oil macro I thought it was pretty interesting in your investor letter.
Speaker Change: The U S oil production was ready rollover and obviously you all have some pretty good eyes and feelers out on the ground can you give us a sense of what youre seeing.
Speaker Change: <unk> time.
Speaker Change: The Permian Basin and other places in your view on maybe where oil production goes from here.
Speaker Change: It's more of a U S perspective versus you know diamondback one.
Speaker Change: Sure well certainly as the Permian Basin goes U S production is going to follow that and you know at roughly 6 million barrels of oil a day, we've got a base decline that we have to offset every year of about two and a half million barrels a day and it doesn't take much capital to come out of the equation for that base decline to really be.
Speaker Change: Seen in production and so you can apply that also.
Speaker Change: Of the 13 million barrels a day that the U S is producing thats roughly four five for 5 million barrels a day of production and has to be replaced so I think as capital continues to come out of.
Speaker Change: The investment equation.
Speaker Change: This this decline that we're on is going to be it's really going to be magnified and because we are in the more mature stage of the development. This is not one of those types of declines that can be offset.
Speaker Change: By improved efficiencies, although we highlighted continued efficiency gains at the door.
Speaker Change: Out of that level and in our quarterly results, but we're picking pennies up now and.
Speaker Change: When we were going through this earlier in our history, you know probably at most recently 2014 and early 15, we were able to pick up you know.
Speaker Change: Dimes and quarters back then and it's just it's just where we are in the maturation cycle of.
Speaker Change: Uh huh.
Speaker Change: Leading these resources that I think youre going to see you know a really remarkable response.
Speaker Change: On this base decline this part of the equation.
Speaker Change: Scott.
Speaker Change: Kind of a well trained and shale right. This is the fourth time, we tried to do this.
Speaker Change: And 10 years.
Speaker Change: The worst being five years ago, and you saw quickly shell responded yes.
Speaker Change: The only thing I would add to <unk> comments as you know.
Speaker Change: The operators that we talked to you in the field that live and work in Midland are right now pushing everything to the right right every little five to eight well program that was going to get drilled is now going to get drilled and probably not completed or drilled later and so all of those little anecdote start to add up and.
Speaker Change: You add that into what the companies like Diamondback are doing and that starts to add up pretty quickly. So I think for us.
Speaker Change: Let's get this over with.
Speaker Change: And move forward because the other side of this is going to be going to be great. For those that are that are left is going to be a great day for diamondback shareholders.
Speaker Change: The comment I made Scott on the tipping point you know when you guys production. It just depends on how low and how low oil price goes and how long it lasts but the scenario is with this with this base decline.
Speaker Change: Extreme is that the amount of capital required to get back to you know 13 million barrels a day or 6 million barrels a day in the Permian.
Speaker Change: <unk> might be an untenable lift for the.
Speaker Change: The cap the business model that we've put in place where we're returning so much back to our investors that own the company. So that's sort of that's sort of the final analysis is how low do we get and then what is the reinvestment rate going to be required.
Freeman Rick, Frank Spritt, allowed us to maximize the capex reduction while minimizing volume impact and at the same token provides.
us a runway for maximum flexibility to respond in either direction in the future quarters as this evolving supply-demand imbalance works its way through the system.
Speaker Change: To get production back up or to get to start growing again.
Speaker Change: Yeah.
Speaker Change: Yes, I appreciate the commentary definitely it feels like it's a have and have not situation.
So, that's sort of the background of what we talked to the board about, you know, well before Saturday's decision by OPEC, and again, it stems with how can we create the most value when we allocate capital?
Speaker Change: Look you gave a little bit of color on on two H. This year and you kind of mentioned in your brief comments there should be just a while ago.
Speaker Change: It's time to get over this and move forward.
And when you look at what we've done with this announcement, we've actually made our program more capital efficient by spending less dollars this year.
Speaker Change: Is it done back thinks about like moving forward in 2026.
Speaker Change: What is it going to take.
Speaker Change: For you guys too.
Maintenance mode in and can you just give a little color on the set up for 2026, considering you know obviously were declining and flattening out in the back half of the year.
Travis, the follow-up on that is we've certainly reduced your cash cap back by $400 million to impact some production.
Speaker Change: That's a good question Scott I think the key point for US is that we're not sacrificing anything in 2026 today.
Travis: is not that significant, at least for 2025. And so is that a function of the delay between changes in activity and production? Or is that you guys were just really tracking well in terms of your productivity to start the year? [inaudible]
Speaker Change: No.
Speaker Change: Expect to run four crews here for probably the next three months, depending on where prices go up things get worse, we could we could go lower but.
Speaker Change: Basically the plan points to us, bringing back a fifth crew.
Travis: Let me give you some color on that, because I think it's important, right? You know, on the outside, it looks like a 1% hit to production, but if you just look it
Speaker Change: And Levelling off the 45000 barrels of oil a day in Q4.
Speaker Change: We will still end the year with more data than we've ever had and more flexibility than we've ever had to increase production in 2026.
Q2, you know, peak to trough.
Travis: We're gonna probably, you know, be down 20,000 net barrels of oil a day [inaudible]
Travis: You know, which on a gross basis has close to 30. So, you know, we had a great April thing for Hanolong here.
Speaker Change: Should prices respond and you know in my mind, that's a $65 $70 plus world, where you know OPEC spare capacity is lower end and we have a healthier healthier macro so I'm, hoping for that day.
Travis: Well over 500,000 net barrels of oil a day. Obviously now, you know, hitting the brakes a little bit with the reduction in the crack crews.
And so if you think about it...
Speaker Change: We'd like to get back to that five.
We're about 475,000 barrels a day, and that's Q1.
Speaker Change: 500000 barrels of oil a day net plus.
Q2 guys, round numbers is about 495.
Speaker Change: Plant, but.
Speaker Change: It seems like it's a long way away today with the next couple of quarters. We have yeah, I think Scott just to finish this commentary I think our shareholders are lucky that the diamondback has such a long inventory because you know while this base declines that I've talked about the macro will present itself for diabetic as well in case gave you some very specific numbers to that.
Travis: and then we're going to decline off a bit into Q3 down to about 485 and that point in today's market hold that flat. So on the outside it looks like a flatish program but this is why we've kind of been saying that...
Travis: We think, you know, gross well production is coming down in the Permian in the US. You just look at ours, for example, you know, going from Brackett crews down to four is going to be a 30,000 barrel a day impact in just a quart. [inaudible]
Speaker Change: The breadth and depth of our inventory allows us to be more insulated from that than other investment opportunities, where the inventories a lot shorter or shorter and less quality. So I hope that makes sense, but that's kind of how we think about it.
Thank you, Kate. Thanks, Trev.
Thank you. Thank you.
Speaker Change: 2026 and 2027.
Thank you [inaudible]
I appreciate the comments and again drivers congrats.
Travis: Our next question comes from the line of Scott Hanold with RBC Capital Market. Your line is now open.
Scott: Thank you Scott.
Scott Hanold: Yeah, thanks. And Travis, again, congrats to on your next stage. And look, I would say it's unfortunate to have to be on on a bad macro note, but I think it's
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of David <unk> with TD Securities. Your line is now open.
Speaker Change: Thanks for the time, guys and Travis things you cannot thoughts no later than <unk>.
Scott Hanold: You know a testament to what you've created that I'm back to able to kind of manage to this you know pretty well [inaudible]
Speaker Change: To everyone on the roles ahead.
Speaker Change: Hi.
Speaker Change: Maybe you could just follow up a bedroom or anyone perhaps Danny just talking about sort of the optimal DUC load obviously you.
My first question is...
Speaker Change: You're welcome. My first question is just your broad view of the oil macro. I thought it was pretty interesting in your investor letter.
<unk> elected to drop the rigs and not builds further depths with one frac crew coming down it sounds like net net plans, you're drawing down perhaps for building 20 fewer deaths. This year going into next year, how do we think about it.
Speaker Change: How you thought the, you know, US oil production is ready to roll over and...
Speaker Change: I would see all of some pretty good eyes and you know, feelers out on the ground. Can you give us a sense of what you're seeing?
Speaker Change: You know, real time, you know, in the Permian Basin and other places and you know, your view on, you know, maybe where oil production goes, you know, from here and it's more a US perspective versus, you know, a damn back one.
Speaker Change: The variables for maybe keeping those rigs and building a DUC backlog in the context of what the right amount of DUC inventory level is for you going into the next couple of years.
Speaker Change: Sure, well, certainly as the firming basin goes, US production is going to follow that. And you know, at roughly 6 million barrels of wool a day, we've got a basic line that we have to offset every year of about 2.5 million barrels a day.
Speaker Change: Is it more of a function of where you expect drilling.
Speaker Change: Drilling rig rates coming down in the ensuing quarters.
Speaker Change: Yes, I mean look we.
Speaker Change: We're carrying probably the largest DUC backlog in North America, right now and so you know theres not a world where we're we're looking at.
Speaker Change: Building ducks.
Speaker Change: Gross docs.
Speaker Change: Top line level, so the new plan, where we're drawing down less ducks than we were in the original plan I think you know.
Speaker Change: of production and has to be replaced. So, I think as Capable continues to come out.
of the, you know, the investment equation.
Speaker Change: Probably a rule of thumb is for every Frac crew you have running you need one and a half that you've had this DUC inventory behind.
Speaker Change: Ahead of those pads.
Speaker Change: Ahead of this cruise if we're going to run five crews you got have pin pad ish worth does backlog it call. It eight to 12 wells a pad.
Speaker Change: That kind of gets you to a you know.
Speaker Change: Comfortable DUC backlog inventory for a run rate.
Speaker Change: When we were going through this earlier in our history, probably most recently 2014 and our early 15, we were able to pick up.
We're probably sitting at the end of this year. Another 100 wells above that then that.
Speaker Change: Dimes and quarters back then, and it's just where we are in the maturation cycle of depleting these resources that I think you're going to see a really remarkable response.
Speaker Change: That number depending on what prices do in the back half of this year, yes, David we've put the comment in our in our.
Speaker Change: A letter that traditionally we would build more docs in this environment, but our largest input cost on drilling wells. So, let's just say that drilling a well cost $200 a foot about $2 million the cost of casing is $650000 of a while now and that.
Speaker Change: on this place decline, that's part of the equation. Yeah, Scott, you know, we've been kind of well trained in Shell, right? This is the part time we've had to do this in 10 years, you know, the worst being five years ago and you saw a quickly Shell responded. I think the only thing I would add to Travis's comments is, you know,
Speaker Change: That is up 12% quarter over quarter due to tariff impacts so.
Speaker Change: We think that the demand side.
Speaker Change: As the rig count reduces.
Speaker Change: The operators that we talked to in the field that live in work in Midland are right now pushing everything to the right, right? Every little five to eight well program that was going to get...
Speaker Change: Steel prices come back down and we can look at logically bringing.
Speaker Change: Bringing some rigs back to to build ducks, if if if costs are cheap, but you know that capital allocation decision today tells us drop the rigs buy back stock.
Speaker Change: Drilled is now, you know, going to get drilled and probably not completed or drilled later and so all those little anecdotes start to add up and you know you add that into what the companies like Diamondback are doing and and that starts to add up pretty quickly so you know I think for us
Speaker Change: I appreciate the color.
Speaker Change: And then maybe just as a follow up just given the environment. We're in now have your expectations changed with the ability to execute on some of the non.
Speaker Change: Let's get this over with and move forward because the other side of this is going to be great for those that are left and can be great day for Diamondback shareholders.
Speaker Change: Operated or non core sales or the anticipated water infrastructure sale to deep blue.
Speaker Change: Yes, listen deep Blue, obviously as a subsidy on essentially a subsidiary of ours, we owned 30% of it we think the Etfs.
Speaker Change: And you know the comment I made, Scott on the tipping point, you know, in U.S. production, it just depends on how low and how low world price goes and how long it lasts [inaudible]
Speaker Change: Which is the endeavor water system logically belongs in deep blue would make that business the largest water handle or in the in the Midland Basin and it seems that water is starting to get a lot more attention in the in the public market. So I don't see that.
Speaker Change: But the scenario is with this basic line that's so extreme.
Speaker Change: is that the amount of capital required to get back to 13 million barrels a day or 6 million barrels a day in the premium.
You know, might be an untenable list for...
Speaker Change: [laughter] sale or deal being pushed too far to the right just because we wanted to get those two businesses.
I'll do it.
Speaker Change: The business model that we put in place, where we're returning so much back to our investors at own the company, so...
Speaker Change: Integrated and ready for what's next.
That's sort of the, uh, that's sort of the, the...
Speaker Change: Outside of that.
Speaker Change: The final analysis is, you know, how low do we get? And then what is the reinvest of the rate going to be required to, you know, to get production back up or to get it start growing again?
Speaker Change: We obviously participated a little bit in the sale of bangle, the NGL pipeline to MPLX that should closing in July and the last big piece of our.
Bye.
Speaker Change: Equity method investments as the epic pipeline.
Speaker Change: Yeah, appreciate the commentary. Definitely feels like it's a haven't have not the situation and
Speaker Change: Which we owned 27, 5% of.
Speaker Change: That probably is a slower process today than it was three months ago, but you know I think lessons learned from past down cycles is that we don't have to force asset sales, we can be patient.
Speaker Change: You know, Kays, you know, look, he gave a little bit of color on, on, you know, 2-H this year and you kind of mentioned, you know, in your brief comments or just a while ago, you know, you, it's time to get over this and move forward. Like as it's down back things about like moving forward in 2026.
Speaker Change: I think we're going to get a couple of wins on the board, but we don't have to hit a specific number by a specific period of time because.
Speaker Change: You know, what what is it going to take, you know, for you guys to you
Speaker Change: Because we you know we think the market is going to recover and and you.
Speaker Change: Maintenance Mode in. And can you just give a little color on the set up for 2026, considering, you know, obviously we're declining and planning out in the back half of the year?
Speaker Change: You know the balance sheet strong and we can be patient.
Speaker Change: I appreciate it guys.
David: Thanks, David.
Speaker Change: Thank you.
Speaker Change: Yeah, that's a good question, Scott. I mean, I think the key point for us is that we're not sacrificing anything in 2026 today.
John Freeman: Our next question comes from the line of John Freeman with Raymond James Your line is now open.
You know, we...
John Freeman: Good morning, Congratulations again, Travis on a fantastic career.
Expect to run for Prusier.
Speaker Change: Probably the next three months, depending on where prices go, things get worse, we could go lower, but...
John Freeman: I want to follow up on some of the prior commentary and again really appreciate the leadership shown with this meaningful reduction in activity both.
Speaker Change: You know, basically the plan, you know, points to us bringing back a fifth crew.
and leveling off at 45,000 barrels of oil a day.
John Freeman: Both on the shareholder letter and then anything else.
John Freeman: Comments here earlier in the call you talked about kind of that 65, $70 kind of oil price.
Speaker Change: Would love to meet you put your foot back on the accelerator and I just wanted to kind of dig a little bit more so should we think of it and even if your cost structure to continue to move lower due to service cost efficiencies or whatever.
Adam Lawlis
Speaker Change: And returns continue to improve you all would still.
Speaker Change: Probably wait until you're running $65 $70 world.
Speaker Change: 500,000 barrels of oil a day, net plus plant, but it seems like it's a long way away today with the next couple of quarters we have. I think Scott just to finish this commentary, I think our shareholders are lucky that Adam back has such a long inventory.
Speaker Change: Before you'd want to put your foot on the accelerator.
Speaker Change: Think about that right.
John Freeman: Yeah, that's right John I, just think we want to be patient.
Speaker Change: I think.
Speaker Change: There's a lot of uncertainty on both the demand and the supply side.
Speaker Change: Our mind the supply side is going to figure itself out pretty quickly here, but but demand obviously is something I'm not an expert in right. We're an expert we're experts in U S shale and U S supply and what we're seeing in the field and in my mind.
Speaker Change: You know, while this basic climate I talked about at the macro will present itself with Diamondback as well in case gave you some very specific numbers for that
Speaker Change: The breadth and depth of our inventory allows us to be more insulated from that than other investment opportunities where the inventory is a lot shorter, or shorter and less quality. So I hope that makes sense, but that's kind of how we think about 2026 and 2027.
Speaker Change: $70, plus crude environment as a relatively healthy environment and that would be an appropriate time to bring some some capital back into the equation.
Speaker Change: Got it and then.
Appreciate the comments and again, Travis congrats
Speaker Change: I did highlight.
Speaker Change: In terms of the impact on kind of your steel related.
Thank you, Scott.
Thank you.
That's what the tariffs on casing being up 12% since last quarter, but were able to lower your Midland basin cost per foot guidance, yet again.
Speaker Change: Our next question comes from the line of David Deckelbaum with PD Security. Your line is now open.
David Dekelbaum: Thanks for the time guys and Travis, thanks for your candid thoughts and a letter, good luck to everyone in the role of the head
Speaker Change: Just hoping you could maybe speak to kind of the puts and takes that are allowing you to kind of offset what you're seeing on the pacing side.
Speaker Change: Yeah, I mean first of all the teams had an incredible first quarter I mean, we put through some highlights in the deck.
Speaker Change: You know eight eight under eight eight days average per well.
David Dekelbaum: Elected to drop the rigs and not build further ducks with the one-fract crew coming down. Sounds like net net this plan. You're drawing down perhaps for building 20 fewer ducks this year going into next year. How do we think about?
Speaker Change: 120, plus wells is a pretty impressive feat so.
Speaker Change: Anywhere where we're on the lower end of our efficiencies.
Speaker Change: Efficiencies, which is a which is good.
Speaker Change: I think unfortunately, the rest of that reduction.
Speaker Change: Reduction is likely to come from the service environment here with with rigs coming down in and Frac crews coming down, but I'll, let I'll, let Danny opined on what he's seeing real time.
David Dekelbaum: the variables for maybe keeping those rigs and building a duck backlog in the context of what the right amount of duck inventory level is for you going into the next couple years, or is it more of a function of where you expect drilling rig rates to be coming down in the ensuing quarters?
Speaker Change: I think we put some details out there around casing in it.
Speaker Change: The 10% increase or is about $6 a foot or so on the drilling portion of the well. So it's really not a huge number and in my case said the execution from the drilling and completion teams is is really driving the coffee and I.
David Dekelbaum: Yeah, I mean, look, we're carrying probably the largest duck backlog in North America right now and so we, you know, there's not a world where we're looking at, you know, building ducks, you know, gross ducks.
Speaker Change: I think we anticipate that.
Speaker Change: There is gonna be lower activity in the basin.
David Dekelbaum: The top line level. So, you know, the new plan, we're drawing down less ducts than we were in the original plan. I think, you know,
Speaker Change: Which usually leads to lower service pricing.
Speaker Change: There's a lot of volatility out there right now with input costs and tariffs, but we do expect that that activity is going to come out of this basin in a meaningful way and that should have a trickle down effects of pricing.
David Dekelbaum: Probably a rule of thumb is for every Bracker you have running, you need one and a half to two pads with duck inventory behind.
You know, ahead of those pads, so.
David Dekelbaum: If we're going to run five crews, you know, you got to have, you know, 10 pad-ish worth of backlog.
Speaker Change: Thanks, guys appreciate it.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Arun Jairam with J P. Morgan Securities LLC. Your line is now open.
David Dekelbaum: Colin, you know, eight to twelve wells of past, so...
You know, that kind of gets you to a...
Speaker Change: Yeah, good morning, gentlemen.
You know, comfortable duck backlog inventory for a run rate.
Speaker Change: Travis case, you highlighted how the trajectory of oil volumes could trend call. It two to 485 in the second half of 'twenty five that.
David Dekelbaum: You know, we're probably sitting at the end of this year and other hundred wells above that number, depending on what prices do in the back half of this year. Again, David, you know, we put the comments in our letter that traditionally we would...
Speaker Change: Danny mentioned, you're you have you'll have kind of a really high DUC backlog.
Speaker Change: Kind of going into this period.
David Dekelbaum: Bill Mordox in this environment, but in our large input cause.
Speaker Change: I was just wondering if you could help us think about 2026 capex to keep that 45 flat all else being equal would a $900 million per quarter run rate seem reasonable based on what we know today.
David Dekelbaum: The cost of casing is $650,000 a well now, and that is up 12% quarter of a quarter due to tariff impacts, so we think that demand side...
Speaker Change: Yeah, right I mean I think.
Speaker Change: Thats reasonable I hope, that's not doesn't end up being the plan but.
David Dekelbaum: as the rate count reduces, steel prices come back down, and we can look at logically bringing some rigs back to build ducts if costs are cheap, but that capital allocation decision today tells us drop the rigs by back stock.
Speaker Change: Clearly with service costs coming down efficiencies high.
Speaker Change: A little lower production base, you know I think that's logical you know we also had a few more one time items in the in the budget. This year that will be reduced next year. So I think thats I think thats a logical baseline.
David Dekelbaum: I appreciate the color. And then maybe just as a follow-up, just given the environment we're in now, have your expectations changed with the ability to execute on some of the non-operated or non-core sales or the anticipated water infrastructure sale to deep blue.
Speaker Change: I'm kind of hoping that.
Speaker Change: The market recovers quickly here and we can be talking about 500, plus thousand barrels of oil a day next year, but I think we got to wait a few months here to see where things settle out.
Understood. That's helpful and maybe my follow up is in the shareholder letter Travis you mentioned, how diamondback will allocate a higher mix of free cash flow.
David Dekelbaum: Yeah, you know what's the deep blue, obviously it's a city, essentially it's a city of your horse, we own 30% of it, you know, we think the EDS, which is the endeavor, water system logically belongs in deep blue, would make that business the...
Speaker Change: To repurchases if if the volatility continues I was wondering how you wouldn't case think about kind of balancing you know.
David Dekelbaum: Largest water handler in the middle of basin and it seems that water has started to get a lot more attention in the public market so I don't see that
Speaker Change: Leverage reducing leverage versus versus buybacks in and perhaps tell us how you'd think about.
Speaker Change: Give us a sense of what type of mix could we see towards the return to free cash flow to shareholders versus is it 50 50.
David Dekelbaum: Sale or deal being pushed too far to the right just because we want to get those two businesses.
David Dekelbaum: Integrated and ready for what's next. You know, I'll say that we obviously participated a little bit in the sale of Bangal, the NGL51 to MPLX. You know, that should close in.
Speaker Change: Kind of overall.
Speaker Change: Guidance.
Speaker Change: Yeah listen I think obviously, improving the balance sheet is important.
Speaker Change: But I think thats the best the smartest capital allocation decision today is to repurchase shares.
David Dekelbaum: in July and, you know, the last big piece of our...
David Dekelbaum: Equity Method Investments is the epic pipeline, you know, which we are on 27.5% of.
Speaker Change: I think generally around round numbers, probably allocate 25% to 30% of free cash flow too.
David Dekelbaum: You know, I think that probably is a slower process today than it was.
David Dekelbaum: Three months ago, but you know, I think lessons learned from
Speaker Change: Paying down debt you saw that we repurchased some of our longer dated notes at well below par.
David Dekelbaum: past down cycles is that, you know, we don't have to force...
David Dekelbaum: Asset Sales, we can be patient. I think we're going to get a couple of wins on the board, but we don't have to hit a specific number by a specific period of time because we think the market's going to recover and balance sheets strong and we can be patient. Thank you.
Speaker Change: Those notes at.
Speaker Change: Come down in price due to the 30 year Treasury blowing out. So we took advantage of that I think you can expect to see more things like that on the debt side.
Speaker Change: I think some of our noncore asset sales coming in should reduce our term loan we put in place for a two year term loan that we put in place for the double Eagle closing.
Appreciate it guys.
Thanks, David.
Thank you [inaudible]
Speaker Change: Our next question comes from the line of John Freeman with Raymond James. Your line is now open.
Speaker Change: And then you get to the other 75% of free cash flow or 70% of free cash flow and in our minds that needs to be allocated to 100% repurchases.
Good morning, and congratulations again, Travis, on a fantastic career.
Speaker Change: The base dividend.
Speaker Change: I want to follow up on some of the prior commentary, and again, really appreciate the leadership that y'all are showing with this meaningful reduction in activity. Both of the shareholder letter and then, you know,
Speaker Change: I think obviously the variable dividends out the window at these at these prices.
Speaker Change: Repurchasing shares grows.
Speaker Change: Sure well volumes in per share cash flow and free cash flow when the when the market recovers.
Speaker Change: comments here earlier in the call. You talked about kind of that $65, $70 kind of oil price world where you'd look to maybe put your foot back on the accelerator and I just want to kind of dig in a little bit more. So should we think of it as even if...
Speaker Change: Great Travis best wishes to you if you do write the book I look forward to the chapter on how you got the endeavor deal with case to the finish line.
Speaker Change: It was all Travis.
Speaker Change: Yes.
Speaker Change: Your cost structure will continue to move lower due to service cost, efficiencies, whatever, and return to continue to improve.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Bob Brackett with Bernstein Research. Your line is now open.
Bob Brackett: Hi, Good morning, if I think about the capital reductions you guys get to choose which crews you keep and you guys get to choose which locations you drill to what degree are those real levers, where you're making choices or are those you know most of the crews are about the same but most of the locations are about the same.
Y'all would still
Speaker Change: Probably wait until you rent a $65.70 world before you'd want to put your foot on the accelerator. Am I thinking about that, right? Yeah, that's right, John . I just think we want to be patient. You know, I think. Let's go.
Speaker Change: There's a lot of uncertainty on both the demand and the supply side.
Speaker Change: Yeah.
Speaker Change: Yes, I mean, I think from an execution standpoint, most of our resources on the service side or are you know pretty well in line with each other.
Speaker Change: In our mind, the splice size is going to figure itself out pretty quickly here, but demand obviously is something.
Speaker Change: I'm not an expert in it, right? We're an expert, we're experts in U.S. Shale and U.S. Supply and-
Speaker Change: And so it's.
Speaker Change: There's not a lot of high grading to occur in a slowing down the activity. It really becomes a commercial decision and discussions with our business partners on you know who is going to work with us as activity comes down.
Speaker Change: What we're seeing in the field and in my mind, you know, a $70 plus crew environment is a relatively healthy environment and that would be an appropriate time to bring some capital back in with the equation. So let's see what we're seeing in the field.
Speaker Change: Guy, and then, you know, y'all did highlight, you know, what you've seen in terms of the impact on Kair Steel related.
Speaker Change: On the on the project side of things and our job is to always try to allocate capital to the best projects in.
Speaker Change: Products with a tariffs on uncaicing, you know, being up 12% from the last quarter, but yeah, we're able to lower your middle and base and cost for footguided and shed again and just hoping you could maybe speak to kind of the puts and takes that are allowing you kind of off foot where you're seeing on the casing side.
Speaker Change: I think if you look at the consistency of our program over the past few years.
Speaker Change: It kind of speaks to the consistency of the projects. We're doing so again, there's not a whole lot of high grading to be gone in the projects themselves.
Speaker Change: Thank you will see us probably prioritize.
Speaker Change: Yeah, I mean, first of all, the team is at an incredible first quarter. I mean, you know, we put some highlights in the deck.
Speaker Change: The projects, where Viper has interests that we can continue to support Viper and in that regard, but I don't think there's a material hydrating to be done in the pads are a our resource.
Eight other eight days average per well. David Deckelbaum, David Deckelbaum, David Deckelbaum,
on 120 plus walls, a pretty impressive feed, so...
Speaker Change: Allocation.
Meade, we're on the lower end of our...
Speaker Change: Bob that's a blessing of having an outstanding inventory as well too.
Speaker Change: Efficiency, which is good, and I think unfortunately the rest of that reduction is likely to come from the service environment here with rates coming down and fractures coming down but I'll let Daniel find out what he's seeing real time. [inaudible]
Speaker Change: We're still allocating wells with very small range of outcomes because they're too.
Speaker Change: The top quartile of our inventory and as Danny pointed out we've been doing that for several years now so again durability of them toward matters. When you go into one of these cycles and that's what our shareholders are lucky to have with Diamondback.
Speaker Change: Yeah, you know, I think we put some details out there around casing and you know, the in-percent increase is about six dollars of foot or so on the drilling portion of the well. So it's really not a huge number in my case at the execution from the Drill and a Completion team.
Speaker Change: Yeah, that's very clear quick follow up at your run rate Youre going to get through the remainder of your share buyback authorization, that's a trivial exercise to top that up when you need to.
Speaker Change: Yeah, we thought about looking at it this quarter, but felt that we want to get through another quarter Theres probably enough noise with.
Speaker Change: is really driving the cost fee and, you know, I think...
Speaker Change: We anticipate that there's going to be lower activity in the basin, which usually leads to lower service pricing.
Speaker Change: All the changes in the capital plan this quarter and will discuss it with the board, but I think the board is certainly behind management and believing that buybacks are the right thing at this at these levels and we expect to increase it when we get closer to the to the authorization.
Speaker Change: You know, there's a lot of volatility out there right now with input costs and tariffs, but you know, we do expect that, but activity is going to come out of this base and in a meaningful way and that should have a trickled out effect, the pricing. Thank you.
Speaker Change: Very good thanks and congrats thank.
Speaker Change: Thank you Bob.
Speaker Change: Thank you.
Speaker Change: Our next question.
Thanks guys, appreciate it.
Scott Gruber: Your line of Scott Gruber with Citigroup. Your line is now open.
Thanks, y'all.
Thank you [inaudible]
Scott Gruber: Yes, good morning.
Speaker Change: Our next question comes from the line of Arun Jayaram with JP Morgan Securities LLC, where line is now open.
Speaker Change: It sounds to me the comment in the shareholder letter about geologic headwinds outpacing technology and process efficiency gains are interesting I assume that's a broader industry comment.
Speaker Change: Yeah, good morning, gentlemen. Travis Case, you highlighted how the trajectory of oil volumes
Speaker Change: So I'm curious to know do you see the technology and process efficiency gains slowing from here or the geologic headwinds becoming more severe just some more color.
in the second half of 25.
Speaker Change: Danny mentioned you have what kind of a really high duck backlog in a kind of going into this period. I was just wondering if he could help us think about 2026.
Speaker Change: Behind that comment and kind of what's changing on the margin.
Speaker Change: I think that's a natural evolution.
Speaker Change: Maturing basin I mean, we've been now exploiting this.
Speaker Change: CapEx to keep that 45 flat, all else being equal with a 900 million per quarter run rate same reasonable, you know, based on what we know today.
Speaker Change: Shale resource in the Permian Basin for 15 years, and we still expect you know some some R&D and some you know some really innovative breakthroughs coming but in a general sense as dollars get allocated to lower and lower quality inventory.
Speaker Change: I think that's reasonable. I hope that's not going to end up being a plan, but...
Speaker Change: Clearly, with service costs coming down, efficiency is high, a little lower production base, I think that's logical, we also had a few more one-time items in the budget this year that will be reduced.
Speaker Change: And the longer you're in the game if you're focused on.
Speaker Change: Excellence in execution, you know your your natural decline will be impacted.
Speaker Change: Impact of where you're making less improvements.
Speaker Change: And you did early on.
Speaker Change: Next year, so I think that's a logical baseline. Again, I'm kind of hoping that the market recovers quickly here and we can be talking about 500 plus thousand barrels of oil a day next year, but I think we gotta wait a few months here to see where things settle out.
Speaker Change: And the development of that asset so it's more of a general comment that you know from my experience we've seen play out in the Eagle Ford the Bakken if some of these other than the Barnett shale in the early days as you continue to deplete these reservoirs.
Got it.
Speaker Change: Understood, that's helpful. Maybe my follow-up is in the shareholder letter, Travis, you mentioned how Diamondback...
Speaker Change: And then coming back to.
Speaker Change: The cost savings side of things as you selected which rigs and Frac crews were retained were you able to capture some immediate savings from those that the crews that you retained or are you seeing service companies more willing to do a blend and extends with any contracts in place I'm just curious about.
will allocate a higher mix of free cash flow.
to repurchase this if the volatility continues.
Speaker Change: I was wondering how you would in case think about kind of balancing…
Speaker Change: You know, leverage, you know, reducing leverage versus buybacks and and perhaps
Speaker Change: Kind of how quickly you were able to secure some statements from your service providers.
Speaker Change: Tell us how you think about, you know, give us a sense of what what type of mix could we see towards the return of free cash flow to shareholders versus the 50-50, you know, kind of overall guidance.
Speaker Change: I'll give a high level comment and I think for US. We've always tried to have very short term contracts. So that we can have these conversations quickly.
Speaker Change: Yeah, listen, I think obviously improving the balance sheet is important [inaudible]
Speaker Change: Both on the completion side.
Speaker Change: The drilling side, you know I think it's kind of a different story on both sides on the on the drilling side, we use a multitude of contractors and those conversations are probably more fluid on the completion side. We've obviously been big fans of the Halliburton Zeus E fleets, we run for those today and so I think.
Speaker Change: But I think that's the best, the smartest capital allocation decision today is to repurpare your purchase shares, you know, I think generally around numbers.
Speaker Change: Probably allocating 25% to 30% of pre-cash flow too
To pay him down to that, you saw the weed.
Speaker Change: Truly think that that relationship is more of a business partner type relationship, where we're going to get through it together, but I'll, let Danny give some some details yeah. I think you know it takes kind of.
Speaker Change: Repurchase some of our longer-dated notes at Buffalo Par, you know, those notes that come down priced due to the 30-year treasury.
Speaker Change: Blowing out, so we took advantage of that. You know, I think you can expect to see more things like that on the death side.
Danny Wilson: Kind of hit the nail on the head.
Danny Wilson: Are constantly in commercial negotiations with our service providers based on market conditions, and what we're seeing in the pricing market and you know what kind of service quality, where we're receiving from them.
Speaker Change: I think some of our non-core asset sales coming in should reduce our term loan we put in place to your term loan that we put in place for the double legal closing
Danny Wilson: So when we when we lower activity internally is the discussion with all of them on you know who's as well, it's gonna be willing to work with us and.
Speaker Change: And then you get to the other 75% of free cash flow or 70% of free cash flow and in our minds you know that needs to be allocated to 100% you know repurchases and the base dividend, you know I think obviously the variable dividends out the window at these prices and you know repurchasing shares grows. [inaudible]
Danny Wilson: As the market softens broke more broadly we'll continue to have those conversations.
Danny Wilson: I think cases that before every day as our a few days on and back end. We continue to just keep our ear to the ground on where the service market is in and want to recognize the best commercial value for our shareholders and.
Speaker Change: Per Sherwell, Williams, and Per Sher, Cashlow, and Free Cashlow, when the market recovers.
Speaker Change: Great, Travis best of wishes to you. If you do write the book, I look forward to the chapter on how you got the Endeavor deal with case to the finish line. Thank you. It was all Travis. And thank you.
Danny Wilson: Discussions around our procurement process.
Danny Wilson: Great I appreciate the color.
Speaker Change: Thanks Scott.
Danny Wilson: Thank you.
Speaker Change: Our next question comes from the line of Phillip Jungwirth with BMO. Your line is now open.
Thank you [inaudible]
Speaker Change: Our next question comes from the line of Bob Brackett with Bernstein Research. Your line is now open.
Danny Wilson: Yeah.
Speaker Change: Thanks, Good morning, guys.
Morning.
Bob Brackett: Good morning, if I think about the capital reductions, you guys get to choose which crews you keep and you guys get to choose which locations you drill.
Speaker Change: On the macro commentary around U S oil production.
Speaker Change: I think thats analysts often underappreciated in a downturn is just the industry's ability to high grade capital and Thats going to include coring out the more tier one or two acreage.
Speaker Change: To what degree are those real levers where you're making choices? Or are those, most of the crews are about the same and most of the locations are about the same?
Speaker Change: Private activity getting cut at a faster rate or just targeting more primary dawn zier upstaging. So wondering how you see that high grading ability today for the Permian more broadly.
Speaker Change: Yeah, I mean, I think from an execution standpoint, most of our resources, you know, on the service side are, you know, pretty well in line with each other, you know, and so it's
Speaker Change: And is there any reason at scale is more mature to think that this could be less upside to capital efficiency for the industry than we've seen in prior downturns.
Speaker Change: There's not a lot of hydrating to occur and, you know, slowing down the activity. It really becomes, you know, a commercial decision and discussions with our business partners on, you know, who's going to work with us as activity comes down and
Speaker Change: Yeah kind of relative to my prior comment about where we are in the later stage of development of these resources.
Speaker Change: We'd argue that most of the high grade and it's been occurring over the last three to four years as all of these zones, particularly the Permian have been well defined and the focus has been on efficient execution. So if someone is somewhat hasnt been allocating capital to their very very best projects. Well then I guess they can take this opportunity to do that but <unk>.
Speaker Change: You know, on the project side of things, our job is to always try to allocate capital to the best projects in action.
Speaker Change: You know, I think if you look at the consistency of our program over the past few years, it kind of speaks to the consistency of the projects we're doing. So again, there's not a whole lot of hydrating to be done in the projects themselves.
Speaker Change: And monitor the industry says that you know everyone's trying to drill the best stuff first and that's the way we think it's going to play out in the future. Yeah. I think if you look at this the market today generally balance sheets are healthier free cash flow is being generated and so we're trying to say I think in the past the decision.
Speaker Change: I think you will see as probably prioritize the projects where Viper has interest so we can continue to support Viper in that regard but I all think there's material hydrating to be done in the path or resource allocation.
Speaker Change: To cut capital was to protect the balance sheet for a lot of particularly when there's a multiple.
Speaker Change: A multitude of smid caps and mid caps that are no longer here and now today I think I think decisions are being made to preserve precious inventory inventory scarce I think the players are well defined there hasn't been you know there's little things going on around the basin like the game play in Dawson County, Middle Sprayberry down in Ector County things that.
Speaker Change: We're still allocating wells with very, very small range of outcomes because there's a top court caliber inventory and as Danny pointed out we've been doing that for several years now. So again durability of inventory matters when you go into one of these cycles and that's what our shareholders look at every time we're back.
We're adding resource, but not nearly to the level of what we saw in the past down cycles. So I think decisions to cut capital and defer turn in lines are deferred inventory is being made.
Speaker Change: That's very clear. Quick follow-up. At your run rate, you're going to get through the remainder of your share by-back authorization that has to trivial exercise to top up when you need to.
Speaker Change: To preserve inventory life, rather than you know protect balance sheet.
Speaker Change: Yeah, you know, we thought about looking at it as this quarter, but you know, felt that we want to get through another quarter. There's probably enough noise with um...
Speaker Change: Great. Thanks, and then.
Speaker Change: Theres been a number of pipeline projects that have reached out to move gas out of the Permian and even further along the Gulf coast.
Speaker Change: All the changes in the capital plan this quarter, and we'll discuss it with the board, but I think the board is certainly behind management in believing that five acts are the right thing at these levels, and we expect to increase it when we get closer to the authorization.
Speaker Change: What's your appetite currently for incremental ft on gas it looks like Loja tightened materially in 2027, and you also have power opportunities.
Speaker Change: And how is that influenced by any expectations around future Permian oil growth.
Very quick. Thanks and congrats. Thank you, Bob.
Speaker Change: Yes, sadly the gas gas growth is going to continue out of the basin.
Thank you.
Speaker Change: In our in our models.
Scott Gruber: Our next question comes to the line of Scott Gruber with City Group. Your line is now open.
Speaker Change: We're going to keep putting more FTE on the balance sheet I think we have a lot of confidence in what we've committed to and we have about 750 million a day.
Yes, good morning.
Speaker Change: with some of the the comment the shareholder letter about geologic
Speaker Change: Total commitments that'll be in place by the end of 'twenty six.
Speaker Change: Edwin Doutpatient Technology and Process Efficiency Games, interesting. I assume that's a broader industry comment.
Speaker Change: We are reserving some space for power generation should that come to fruition in the basin, but in general I think you can expect us to continue to support.
Speaker Change: So I'm curious Neil, do you see the technology and process efficiency gains slowing from here or the geologic headwind becoming more severe, just a more color behind that comment and kind of what's changing on the margin.
Speaker Change: New pipelines out of the basin, you're even there's even some talk of pipelines going west.
Speaker Change: We'll see if that happens but.
Speaker Change: We want to have a diverse.
Speaker Change: I think that's a natural evolution of a maturing basin. I mean, we've been now exploiting this
Speaker Change: A diverse set of marketing arrangements on the gas side.
Speaker Change: I think we generally believe in the long term gas thesis and so therefore should.
Speaker Change: Shell Resource in the Birmingham Basin for 15 years and we still expect some R.D. and some
Speaker Change: It makes more money off of our guests.
Speaker Change: Thanks, guys.
Adam Stice, Adam Lawlis
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Derrick Whitfield with Texas Capital. Your line is now open.
Speaker Change: Good morning, all I can everyone's congrats and also appreciate your capital discipline leadership as well.
Speaker Change: You know, excellence in execution, you know, your natural decline will be impacted where you're making less improvements.
Speaker Change: Thank you Derek.
Speaker Change: With my first question I'd like to use your drawing the analogy from the Investor letter and ask what price do you see as the next natural tipping point in activity at the point, where you'd firmly press on the brakes, assuming current service cost.
Speaker Change: than you did early on in the development of that asset. So it's more of a general comment that, you know, from my experience, we've seen play out in the Eagle Fruit, the Bakken, and some of these other, in the Barnett Shale in the early days as you continue to deplete these reservoirs.
Speaker Change: Yes, we like that analogy too but I.
Speaker Change: I think I think rate is probably something with a four in front of it.
I got it. And then coming back to
Speaker Change: I would say yellow something with a five in front of it.
Speaker Change: And green needs to be you know somewhere in the mid to high <unk> for the.
Speaker Change: The cost saving side of things. You know, as you selected which rates and fractures were retained, were you able?
Speaker Change: Path to 70 to accelerate through that that Green light.
to capture some of immediate savings. [inaudible]
Speaker Change: you know, from those that the crews that you retained, or are you seeing service companies, you know, more willing to do
Speaker Change: And then thinking about your D&C activity or non D&C activity.
Could you offer some perspective on the amount of non D&C capital you can take out of the business. If we were to assume a more protracted period of lower prices.
Speaker Change: Blendon extends with any contracts in place. I'm just curious about kind of how quickly you're able to secure some statements from your service providers. Lawlis, I'll give a high low comment. I think for us, we've always tried to have very short-term contracts so that we can have these conversations.
Speaker Change: Yeah.
Speaker Change: Our non D&C.
Speaker Change: Budget by about $50 million at the midpoint.
Speaker Change: We do think if we ever.
Speaker Change: Our midstream business merge into deep blue that would take another $50 million to $60 million out of our non D&C budget.
Speaker Change: But there are some pretty interesting things we're doing on the on the non D&C side, you know somebody's capital Workovers that.
Speaker Change: You know, those conversations are probably more fluid, you know, on the completion side, you know, we've always been big fans of the Hal Burton.
Speaker Change: We've put in the budget are starting to pay dividends and help improve the base decline. So I think those projects stay in there but.
Speaker Change: Zoos Evely, we run four of those today. So I think I truly think that relationship is more of a business partner type relationship where we're going to get through it together, but I'll let Danny give some details. Yeah, I think you know case kind of kind of hit the nail in the head. We we
Speaker Change: The total amount of wells turned in line goes down.
Speaker Change: Associated infrastructure also goes down or it gets pushed to the right. So I think we had a good cut from what we what we said today, but.
Speaker Change: Carcostally and commercial negotiations with our service providers based on market conditions and
Speaker Change: I mentioned earlier in the call that there are some one time things in the budget. This year that are probably coming out next year as well. So we always try to get that non D&C budget number down and I think it's I think it's headed that way even in a flat environment next year.
Speaker Change: You know, what we're seeing in the pricing market and you know, what kind of service quality we're receiving from them.
Speaker Change: You know, so when we lower activity internally, it pays the discussion with all of them on, you know, who's, who's, who's going to be willing to work with us and, you know, as the market can soften more broadly, we'll continue to have those conversations, you know, I think cases that before every day is our few days, I'm in back it.
Speaker Change: That's great. Thanks for your time.
Speaker Change: Thanks Derek.
Speaker Change: Thank you. Our next question comes on line of kind of a maturity with Pickering Energy partners. Your line is now open.
Speaker Change: We continue to keep our ear to the ground on where the service market is and want to recognize the best commercial value for our shareholders in the discussion around our procurement process.
Travis Stice: And good morning, good morning Travis.
Speaker Change: In past cycles Diamondback has been a consolidator in its taken advantage of M&A opportunities you know thinking back to two years.
Speaker Change: Is that different at this time I I know the double Eagle was Alaska coveted undeveloped position in the Midland Basin, but are there other ways that you guys are kind of thinking about taking advantage of indices industry distress on the M&A front.
Great, appreciate the color.
Thanks Scott
Thank you [inaudible]
Speaker Change: Our next question comes from the line of Philip J. Jungworth with BMO. Your line is now open.
Speaker Change: Yeah, Kevin I mean, that's a good question, we've obviously been very busy over the last over the last year and a half with endeavour and double Eagle those are two premier premier assets that in our mind, you know wouldn't be available in a in a more volatile environment. So we're fortunate that we took advantage in <unk>.
Thanks, good morning guys.
Good morning.
Speaker Change: On the macro commentary around US oil production, one of the things this analyst often under appreciated in a downturn is just the industry's ability to high grade capital, and this could include pouring out the more tier one or two rate grids.
Speaker Change: Private Act Area to get in cut at a faster rate or just targeting more primary zone, they're up spacing. So, wondering how you see that high-grating ability today for the Permian more broadly, and is there any reason that shale's more mature to think that this could be less upside to capital efficiency for the industry than we've seen in prior downturn?
Speaker Change: And consolidated those two when we could I think I think we're in a period right now where there's so much noise and volatility that not a lot gets done I.
Speaker Change: I think we have to be very patient on our side I think we're very focused on reducing our share count and getting you know getting our debt paid down a little bit. So anything that we would look at would have to be extremely extremely cheap and I. Just don't think we're there yet today.
Speaker Change: Yeah, kind of relative to my prior comment about, you know, we're in the later stage of development of these resources [inaudible]
Speaker Change: I appreciate that just just one question for me.
Speaker Change: You know, I would argue that most of the hydrating has been occurring over the last three to four years as all of these zones predicted by me and have been well defined . . .
Speaker Change: Thanks, Kevin Thanks, Kevin.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Charles Meade with Johnson Rice. Your line is now open.
Speaker Change: and the focus has been on the Fish and Execution. So if someone is-
Speaker Change: Someone hasn't been allocating capital to their very, very best project, I guess they can take this opportunity to do that but our reconnaissance and monitoring of the industry centers that everyone's trying to drill the best stuff first and that's the way we think it's going to play out in the future [inaudible]
Speaker Change: Good morning, Travis case and Danny.
Speaker Change: Travis you mean are you made up I'm not sure what you intended to but you I think you've made a big splash with your your shareholder letter.
Speaker Change: And I'm curious you, it's titled letter to shareholders, but but are there. Other audiences you had in mind as you as you pin that letter.
Speaker Change: Yeah, I think, you know, if you look at this, the market today, just generally, you know, balance sheets are healthier, pre-catchable is being generated . . .
Speaker Change: You don't think it could be the the Midland community more broadly are there in the Permian Basin community.
Speaker Change: And so we're trying to say is, I think in the past. [inaudible]
Speaker Change: Washington, policymakers policymakers or even OPEC, perhaps.
Speaker Change: The decision to cut capital was to protect the balance sheet for a lot of particularly when there's a...
Speaker Change: Yes.
Speaker Change: Charles the antenna that letters for our stockholders and they're the ones that own the company and or make future investment decisions based on the way management allocates capital. So we always focus that letter on as if they are are only audience.
Speaker Change: But we also recognize that this is a public document and based on some of the feedback we've seen overnight.
Speaker Change: Like a Dean playing Dawson County, Middle Spray Breed on an extra county, things that...
Speaker Change: Our adding resource, but not nearly to the level of what we saw in the past down cycles. So I think decisions to cut capital in deferred.
Speaker Change: Reasonable to expect others have read that letter. Besides just our just our stockholders. So we wouldn't necessarily intimate that there was any other you know effort out there besides communicated our stockholders, but we werent.
Speaker Change: Turnlines are the front inventory is being made to preserve inventory life rather than you know protect balance sheet. [inaudible]
Speaker Change: We're at least aware that you know that this was a message it was gonna be rip up by more than just our stockholders.
Speaker Change: Great, thanks. And there's been a number of gas pipeline projects that have reached FID to move gas out of the Permian and even further along the Gulf Coast.
Travis: Yeah that sounds like have you seen a lot of messages already this morning Travis.
Speaker Change: Travis I wanted to go back to Scott.
Speaker Change: What's your appetite currently for incremental FT on Gats, what it looks like Waha, Titans, materially in 2027, they also have power opportunities, and how's that influenced by any expectations around future permeant holograph? [inaudible]
Speaker Change: Scott Gruber as question you just push a little bit further on the on the rate of change you talked about the headwinds the geological head winds in the the tail winds of of of.
Speaker Change: No more efficiencies you talked about the rate of change on the efficiency that you said you know it used to be picking up you know quarters Dimes nickels and now were picking up pennies on the on the efficiency side.
Speaker Change: Yeah, sadly the gas growth is going to continue out of the basin in our models, so we're going to keep putting more FT on the balance sheet.
Speaker Change: What is the rate of change be like on the geologic headwind side is it kind of a persistent headwind. That's just now you know bound kind of balanced out versus the pennies or is it picking up.
Speaker Change: I think we have a lot of confidence in what we've committed to.
Speaker Change: And we have about a 750 million a day total commitments that will be in place by the end of 26.
Speaker Change: Yeah, I mean, I think we think it's picking up.
Speaker Change: We are reserving some space for power generation, should that come to fruition in the basin, but in general I think you can expect us to continue to support new pipeline out of the basin, there's even some talk of pipelines going west [inaudible]
Speaker Change: These plays are very worthwhile to find that right I mean, I think if.
Speaker Change: If you look at past down cycles, we've always learned something in the down cycle, whether it's a new completion design.
Speaker Change: Co development spacing studies, so we're certainly not going to let this slowdown and go to waste and we're going to learn something coming out of it I don't know what it is today.
Speaker Change: We'll see if that happens but we want to have a diverse set of marketing arrangements on the gas side and I think we generally believe in the long-term gas thesis and so therefore should make some more money out of our gas.
But you know that the basin has been well tested by 300, plus rigs used to be 600 plus rigs.
Speaker Change: The last 10 years, so I think what we're trying to say is you know.
Thanks, guys.
Speaker Change: We're drilling average wells averaged 10000 foot wells and eight days, there's not you know three or four more days to come out of those on average and therefore the cost side of the equation is going to be harder to get down by 10 or 20% and this is why we've been so aggressive on building our resource base in our inventory because we we feel.
Thank you.
Speaker Change: Our next question comes from the line of Derek, what field of Texas capital your line is now open?
Speaker Change: Good morning all, I echo everyone's congrats and also appreciate your capital discipline leadership as well.
Thank you, Derek.
Speaker Change: With my first question, I'd like to use your driving analogy from the investor letter and ask, what price do you see as a next natural tipping point and activity or the point where you firmly press on the brakes assuming current service costs?
Speaker Change: Like you know from a from a scale perspective, the vast majority of the inventory in the basin has been qualified.
Speaker Change: Got it that is helpful color I appreciate it.
Speaker Change: Yeah, we like that analogy too, but you know, I think I think read is probably something with a four in front of it and I would say yellow is something with a five in front of it and in green needs to be somewhere in the mid to high 60s with a you know path to 70 to accelerate through that green light. [inaudible]
Speaker Change: Yeah.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Paul Cheng with Scotiabank. Your line is now.
Paul Cheng: Alright, Thank you Hey, good morning, guys.
Speaker Change: Paul.
Speaker Change: Casey I, just curious then I mean basal and you'll come in.
Speaker Change: Is the business model needs to be changed I mean, historically that the company's global acquisition and have a grille.
Speaker Change: And then thinking about your DNC activity or non-DNC activity, could you offer some perspective on the amount of non-DNC capital you could take out of the business if we were to assume a more protracted period of lower prices?
Speaker Change: Yes.
Speaker Change: The you already consumer they most often.
Speaker Change: That's all I'm, saying is that means that you have to go outside the Permian.
You know, we lowered our non-DNC
Speaker Change: And.
Wrong!
Speaker Change: Business model, perhaps that need to be changed going forward.
Speaker Change: You know, budget by about 50 million is the midpoint, you know, we do think.
Speaker Change: Yeah, Paul I don't think there is a need to go outside the Permian because I don't see any other basin in certainly in the U S. It has.
Speaker Change: If we ever get our midstream business, you know, merging to deep blue, that would take another 50 to 60 million out of our non-DNC budget
Speaker Change: As the inventory quality and depth of the Permian, we have a big we have a big motto internally and it's no you don't know and we're really really good as the Permian basin are really really good at drilling wells in the Permian Basin and that's our that's our expertise. So I don't I don't think we need to go outside the basin on the business model comment, Yes, I think we've.
Speaker Change: Yeah, but there's some pretty interesting things we're doing on the on the non DNC side, you know, some of these capital workovers.
Speaker Change: that we've put in the budget are starting to pay dividends and help improve the base decline, so I think those projects...
Speaker Change: <unk> grown the business through acquisition, we're obviously extremely large now we've always focused on per share metrics I think theres still a world, where we grow per share metrics significantly with our current asset base and.
Speaker Change: I mentioned earlier in the call that there are some one-time things in the budget this year that are probably coming out next year as well so we always try to get that non-D&C budget number down and I think it's headed that way even in a flat environment next year.
Speaker Change: Well, that's a long way off from today I do think theres going to be a time period, where significant organic growth is going to be required from someone like diamondback to fill the gap and U S supply that probably probably struggle over the next five to 10 years and that in our mind is what we've been positioning the company.
That's great. Thanks for your time.
Thanks, Derek. Good luck, sir.
Speaker Change: Thank you. Our next question comes in line with Kevin MacCurdy with Pickering Energy Partners. Your line is now open.
Speaker Change: For long term you know for that proverbial pot of gold on the end of the Rainbow.
Speaker Change: Where last man standing in the basin drilling high return wells at higher oil prices.
Good morning, good morning, Travis Stice [inaudible]
Speaker Change: In past cycles, Diamondback has been a consolidator and has taken advantage of M&A opportunities, taking back to the COVID years .
Speaker Change: Thanks.
Speaker Change: The second question is that just curious if that's something happened in the first quarter.
Speaker Change: Is that different this time? I know that Double Eagle was the last coveted undeveloped position in the Midland Basin, but are there other ways that you guys are kind of thinking about taking advantage of industry to stress on the M&A front?
Speaker Change: And natural gas production seems like jumping far more than that type curve would have suggested.
Speaker Change: Yeah, we had some adjustments that we made to some contracts that went from fixed fee to PLP our percent of proceeds and we think that that reverses a bit in Q2. So I think you can run essentially 55% oil as your baseline for us going forward.
Speaker Change: Kevin, I mean that's a good question. We've obviously been very busy over the last year and a half with Endeavour and double legal. Those are two premier assets that in our mind wouldn't be available in a more volatile environment. So we're fortunate that we took advantage in...
Speaker Change: Okay.
Speaker Change: Thanks, Paul.
Speaker Change: Thank you.
Speaker Change: and Consolidated those two when we could. I think we're in the period right now where there's so much noise and volatility that not a lot. [inaudible]
Speaker Change: Our next question comes from the line of Leo Mariani with Ross. Your line is now open.
Speaker Change: I just wanted to.
gets done, I think we have to be very patient.
Asked about a couple of these cost items certainly in your guidance. It looks like LOE came down a little bit, but transportation rose a little bit not sure. If that's related to perhaps some of the adjustments I just talked about on the gas and NGL side, but just looking for a little bit of color there.
Danny Wilson: Yes, I'll take GPT quickly and gives elevated Danny.
Joe: Appreciate that. Just just one question for me. Thanks. Thanks, Joe. Thanks, Joe.
Danny Wilson: <unk> basically we decided to take more molecules in kind on the gas side. So.
Thank you.
Danny Wilson: So GPT goes up but our gas realizations as a percent of Nymex should go up a little bit. So that's the shifting there and.
Speaker Change: Our next question comes from the line of Charles Meade with Johnson Race. Your line is now open.
Good morning, Travis Case and Danny
Danny Wilson: I'll, let Danny talk about the decrease in LOE.
Speaker Change: Travis, I'm not sure how much you intended to, but I think you made a big splash with your shareholder letter.
Danny Wilson: Yeah on the lease.
Danny Wilson: Side really we had a little bit of a one time issue or a noise around the <unk>.
Uh...
Danny Wilson: Endeavour close with regards to some of the water business.
Adam Lawlis: And I'm curious, you know, it's titled letter to shareholders, but, but are there other audiences you had in mind as you as you pin that letter in?
Danny Wilson: We anticipate that.
Danny Wilson: There's a little conservatism baked around the close and we anticipate that how are we what will come out from the <unk> number but you know we.
You don't think it could be the...
Adam Lawlis: The Midland community, more broadly, or the Permian-based community, Washington policymakers or even OPEC perhaps.
Danny Wilson: We do like a little little lower number than we had originally planned for the year and so you know we have we like our forward guide for low and know that it's going to come out from <unk>, but but you know will be lower than we originally planned.
Adam Lawlis: Yeah, you know, Charles, the intent of that letter is for our stockholders and they're the ones that own the company and are making future investment decisions based on [inaudible]
Louis Management Elementary Kids Cable, so...
Danny Wilson: That's helpful.
Adam Lawlis: You know, we always focus that letter on as if they are our only audience, but we also recognize that this is a public document and based on some of the feedback we've seen overnight.
Danny Wilson: Wanted to just ask a little bit more kind of around the buyback here. So you guys were kind of good enough to kind of articulate your sort of red light yellow light kind of green light are you now sort of activity levels.
Adam Lawlis: It's reasonable to expect the others that read that letter but it's just our stockholders so...
Danny Wilson: With some good oil price kind of commentary there should be really kind of think about the.
Adam Lawlis: I wouldn't necessarily intimate that there was any other effort out there besides communicating to our stockholders, but we weren't, we're at least aware that this was a message that's going to be read by more than just our stockholders
Danny Wilson: The buyback kind of being you know sort of in the opposite direction. So when you guys are kind of green lighting, where 65, plus you know oil approaching 70 should we just naturally assume that the buyback comes down a little bit more obviously in the red light situations, where you guys kind of pushed the pedal a little bit more that generally how you're kind of thinking about the framework, yes, that's right.
Speaker Change: Got it, sounds like you've seen a lot of messages already, it's morning. Travis, I want to go back to Scott Gruber's question, just push a little bit.
Speaker Change: Further on the rate of change, you talk about the headwinds, the geological headwinds and the tailwinds of more efficiencies, you talked about the rate of change on the efficiencies, you said, you know, you used to be picking up, you know [inaudible]
Danny Wilson: I think that's a great way to think about it and it's as we said in the letter.
Danny Wilson: In our minds the first test.
Danny Wilson: Of our new business model of.
Speaker Change: Hi, free cash generation.
Speaker Change: Quarters, Dimes, and Nichols, and now we're picking up pennies on the efficiency side. What is the rate of change feel like on the geologic headwind side? Is it kind of a persistence headwind that's just now bound kind of balanced out versus the pennies or is it picking up?
Speaker Change: The return on capital and making the right decision to cut drilling capex and exchanged for buying back shares at these levels. So.
Speaker Change: Again, I think in today's environment. It makes sense to pay down continue to pay down some debt, but allocate more capital to the buyback.
Speaker Change: Yeah, I think we think it's picking up, you know, these plays are very worthwhile to find out, right? I mean, I think um...
Speaker Change: Again, we see our dividend as a fixed obligation.
Speaker Change: Every million shares we get rid of in the market as a $4 million deduct $4 million reduction annually to our dividend payments so that that in our mind translates to about a three 5% to 4% dividend yield depending on the depending on the day and.
Speaker Change: If you look at past down cycles, we've always learned something in the down cycle, whether it's a new completion design.
you know, co-development, spacing.
studies, so we're certainly not going to let
Speaker Change: This slowed down, go to waste and we're going to learn something coming out of it. I don't know what it is today.
Speaker Change: That's a fixed obligation that goes away.
Speaker Change: But, you know, the basin has been well tested by, you know, 300 plus rigs, used to be 600 plus rigs.
Speaker Change: Thank you.
Speaker Change: Thanks Leo.
Speaker Change: Thank you.
Speaker Change: You know, over the last 10 years. So I think what we're trying to say is...
Speaker Change: Okay.
Kelly: Comes from the line of Kelly at the mine with Bank of America. Your line is now open.
You know we're
Speaker Change: We're drilling average wells, average 10,000 foot wells in eight days. There's not three, four more days to come out of those on average and therefore the cost side of the equation.
Speaker Change: Hey, Good morning, guys I've got a couple here maybe first can you talk about frac efficiency I think on the prior call. You guys mentioned that you were doing 100 per year kind of up from Geely and you've highlighted visibility on call. It $1 20 now all four fleets are doing 120, then I think you're replacing a good chunk of one fleet. So can you just update us on where the.
Speaker Change: is going to be harder to get down by 10 or 20%. And this is why we've been so aggressive on building our resource base and our inventory because we feel like, you know, from a scale perspective, the vast majority of the inventory and the basin has been lullified.
Speaker Change: Progress with respect to that goal and if you kind of get these efficiencies before oil gets back to 65, I guess, there wouldn't be much add back.
Got it. That is helpful color. Appreciate it.
Speaker Change: Yes.
David Deckelbaum, David Deckelbaum,
Thank you.
Speaker Change: Well, we always look at what is the well count required to U S.
Speaker Change: Our next question comes from the line of Paul Cheng with Scotiabank. Your line is not okay Thank you. Hey, good morning, guys. Um, Paul, Charles is a little lazy. I just care with Stan. I mean, based on your comment.
Speaker Change: Cute our plan.
Speaker Change: Right.
Speaker Change: I certainly think the completions team has done a fantastic job of driving execution inefficiencies.
Speaker Change: Is the business model need to be changed? I mean, historically that the company is grateful acquisition and have a growth.
Speaker Change: I think we highlighted in the release that you know they are completing a mid three thousands feet per day on average, but we've certainly seen them touch well above 4000 feet per day on a pad and so we know that's possible.
Speaker Change: But if you're already concerned, the most of the best are said, that means that you have to go outside the permit or that the end time business model perhaps that need to be changed, going forward.
Speaker Change: And we know that that number 100 120 wells a year per crew is certainly achievable. It's just doing the things we need to do from a wellbore construction from a pad.
Speaker Change: Yeah, Paul, I don't think there's a need to go out to the Permian because I don't see any other Basin in certainly in the US that has the inventory quality and depth of the Permian. You know, we have a big, we have a big motto internally and it's no you don't know and we're really really good at the Permian Basin.
Speaker Change: Configuration and in water infrastructure standpoint to be able to.
Speaker Change: Execute to that level on a programmatic basis and I don't I don't think we're that far away from from being able to achieve that and certainly once we do you know what we're just mean less fleets to achieve our our total well count.
Speaker Change: We're really, really good at drilling wells in the Permian Basin.
Speaker Change: And that's our expertise. So I don't think we need to go outside the basin, you know, on the business model comment.
Speaker Change: For the program.
Speaker Change: Thanks for that and then the second one is on the 25 capital range, it's kind of been lowered here, but it's not been narrowed it's still a $400 million spread between the low and the high end can you help us understand the path to the lower number 3.4, I E. What needs to go right to hit that number.
Speaker Change: Yeah, I don't think its going to be.
You know, while it's a long way off from today
Speaker Change: It wouldn't necessarily be a positive thing for the macro if we got to the low end right at three or four that's kind of the use the analogy of the Red light scenario sub 50, you'll probably dropping another crew.
Speaker Change: I do think there's going to be a time period where... [inaudible]
Speaker Change: Significant Organic Grove is going to be required from someone like Donald Beck [inaudible]
Speaker Change: You know, probably struggles over the next five to ten years and that in our mind is what we've been positioning the company for long term, you know, for that proverbial pot of gold on the end of the rainbow and, you know, we're last meeting standing in the basin, drilling high return wells at high low prices. [inaudible]
Speaker Change: I do think you know the midpoint at today's service prices.
Speaker Change: <unk> is kind of the world, where we level off at 485000 barrels of oil a day in Q3 and bring back a fifth crew.
Speaker Change: Stay there in Q4, so that's kind of midpoint high end it feels far.
Speaker Change: <unk> today, but there is a world where prices do step back and we want to get back to our 500000 barrels of oil a day run rate and well that seems far away today it would be a good problem to have.
Speaker Change: Excellent. The second question is that just curious, is that something happened in the first quarter in the NGO and natural gas production seems like dropping far more than the type curve we have suggest?
Speaker Change: Thanks, guys.
Speaker Change: Thank you.
Speaker Change: Yeah, we had some adjustments that we made to some contracts that went from fixed fee to POP percent of proceeds and we think that reverses a bit in Q2, so I think you can run essentially 55 percent of oil as your baseline for us going forward.
Speaker Change: Thank you.
Speaker Change: A reminder to ask a question. Please press star one one on your telephone.
Speaker Change: Our next question comes from the line of Doug Leggate with Wolfe Research. Your line is now open.
Doug Leggate: Hey, guys. Thanks for getting me on.
Speaker Change: Case in Travis again, I'll add my congrats to both of you guys and I look forward to see that.
Okay, we do. Thank you. Thanks for
Doug Leggate: Sure.
Doug Leggate: I I wanted to ask a question about the capital efficiency, because you made quite a big deal about that in your in your presentation deck and our catalog will walk you through the months very quickly you've called $400 million of capital.
Speaker Change: Thank you. Our next question comes from the line of Leo Mariani with Roth. Your line is now open
Leo Mariani: I just wanted to ask about a couple of these cost items. Certainly, your guidance looks like
Doug Leggate: Loss, five 5 million barrels for the year, So I'm trying to understand what's the tradeoff to decide to odd thought capital back because it seems to me that you get higher free cash flow in the current plan than you would if you added 400 million Bucks to get 5 million barrels. So how do you think about sustaining cap.
Speaker Change: Rotation, Rose a little bit. Not sure if that's related to perhaps some of the adjustments you just talked about on the gas and the GL slide but just looking for a little bit of color there.
Speaker Change: Yeah, I'll take GPT, you know, quickly and here's L.A. to Danny, but GPT basically we decided to take more molecules and kind on the gas side. So GPT goes up, but our gas realizations is a percent of, you know, my next [inaudible]
Doug Leggate: And what's your optimization decision to run down.
Speaker Change: Quick follow up please.
Speaker Change: Yeah, I think Doug I think the nuance there is the path of the.
Speaker Change: should go up a little bit, so that's the shift there, and I'll let Danny talk about the decrease in Halloween.
Speaker Change: Production throughout the year right, we were well above 500000 barrels of oil with a net in April.
Danny: Yeah, we thought really we had a little bit of one-time issue or noise around the endeavor close with regards to some of the water business and you know we had to space it
Speaker Change: Signing off until you put this big gap.
Speaker Change: Activity in the middle of the year, that's really not a full year run rate number. So you know I think it comes down to you know what what what level of production you sustaining and how much capital does it take and I still think it.
Danny: You know, the local services are based around the close and we anticipate that L.O.E. will come up from the 1Q number, but, you know, we...
Danny: We do a little lower number than we had originally planned for the year and so we like our forward guide for L.O.E. and know that it's going to come up from one cue but you know we'll be lower than we originally planned.
Speaker Change: If we were at 500000 barrels of oil a day run rate, we're closer to $1 billion a quarter of Capex, but down to 45 480, it's closer to this 900 a quarter with two quarters below 900 in Q2 and Q3. So I think there's just a little nuance.
which is amazing. That's awesome.
Adam Lawlis
Speaker Change: Why don't you just ask a little bit more kind of around the buyback here? Or so?
Speaker Change: Here with how quickly things are changing and how quickly production is heading down for a couple of quarters, well then stabilizing in Q4.
Danny: You guys were kind of good enough to kind of articulate your sort of red light, yellow light, kind of green light, you know sort of activity levels you know with some good oil price kind of commentary there.
Speaker Change: Got it that's really helpful. My follow up is I think youre moving the oil market today frankly.
Speaker Change: I wondered if you could share.
Danny: So we really kind of think about the buyback kind of being sort of in the opposite direction so when you guys are kind of green light and we're 65 plus you know oil approaching 70
Speaker Change: Tavis I'll ask you to elaborate a little bit some of the comments you made you basically called the pulp on U S oil production feel anyway.
Speaker Change: What is your non operated in sight.
Speaker Change: What others are doing and I'm just curious if you could maybe put some numbers as to how you see that.
Danny: Should we just naturally assume that the buyback comes down a little bit or obviously in the red light situation is where you guys kind of push the pedal a little bit more that generally how you're kind of thinking about the framework? Yeah, that's right, you know, I think that's a great way to think about it and it's, you know, as we said in the letter.
Speaker Change: <unk> yeah.
Speaker Change: Our rig declined relative to the rule Woolworths production any color you can add from the work you've done would be helpful.
Yes, it does.
Speaker Change: I think I think we really focus on anecdotes right. We know a lot of people in the business, we know a lot of people.
in our line for the first test.
Danny: of our new business model, you know, high pre-catch generation.
Speaker Change: On both the public and the private side in Midland.
High Returning Capital
Danny: And, you know, making the right decision to, you know, cut drilling catbacks and exchange for buying back shares at these levels. So...
Speaker Change: Well, we're a large public company based in Midland, We know everybody that's picking up a rig to go drill.
Speaker Change: Three of our net wells or three Dean wells or this.
Danny: You know, again, I think, I think in today's environment it makes sense to pay down [inaudible]
Speaker Change: This unit they picked up in the Delaware Basin and every single conversation I've had with those types of operators is that this oil price doesn't work and theyre going to be very very good and then traditionally those are the acreage positions that have higher breakeven right. So all of that is getting pushed to the right.
Danny: Continue to pay down some debt, but allocate more capital to the buyback. Again, we see our dividend as a fixed obligation, and every million shares we get rid of in the market is a $4 million reduction.
Adam Stice, Adam Lawlis
Speaker Change: Clearly other basins that don't have sub 40 breakeven inventory like the Permian are having the same discussions and so our archive commentary is that the marginal barrel and the U S is just not being produced today and we're seeing it already in terms of Frac activity Frac count even some pipeline scrapes.
That's a fixed obligation that goes away.
Thank you. Thanks, Leo
Speaker Change: Thank you. When your question comes from the line of Kale Akamine with Bank of America, your line is now open.
Speaker Change: Or down you look at.
Speaker Change: Midland Houston spreads.
Speaker Change: Hey, good morning guys. I've got a couple here. Maybe first, can you talk about track efficiency? I think on a prior call, you guys mentioned that you were doing 100 per year, kind of up from 80, and you've highlighted visibility on call it 120. Now if all four fleets are doing 120, then I think you're replacing a good chunk of one fleet.
Those have narrowed.
Speaker Change: So I just think the marginal barrel is is being pushed to the right.
Speaker Change: Again, we don't have a crystal ball and the rest of the world, but we have a very good view of what the U S looks like and right now that's a business that's slowing dramatically and likely declining in terms of production.
Speaker Change: So, can you just update us on where the progress is with respect to that goal? And if you kind of get these efficiency before oil gets back to 65, I guess there wouldn't be much add back to it.
Speaker Change: Terrific guys. Good luck and thanks for the answers.
Speaker Change: Thanks, Doug.
Speaker Change: Yeah.
Speaker Change: Thank you.
Speaker Change: I'm showing no further questions at this time I would now like to turn it back to Travis Stice for closing remarks.
Speaker Change: Yeah, I mean, we always look at, you know, what is the will count required to, you know, execute our plan, but...
Travis Stice: Thank you guys for listening in today and for your questions.
Speaker Change: I certainly think the completion team has done a fantastic job of driving execution efficiencies.
Travis Stice: Thanks for your support over this last drop in 15 years as well.
Travis Stice: You all have any questions you know how to get a hold of us.
Speaker Change: I think we highlight in the release that they're completing mid-3000s, week per day on average but
Travis Stice: Have a great day goodbye.
Travis Stice: Thank you for your participation in today's conference. This does conclude the program you may now disconnect.
Speaker Change: We're certainly seeing them touch well about 4,000 feet per day on a pad.
Speaker Change: And so, you know, we know that's possible and we know that, you know, that number, 120 wells a year for crew is certainly achievable.
Speaker Change: You know, execute to that level on a programmatic basis. And I don't think we're that far away from being able to achieve that. And certainly, once we do, you know, it just means less fleets to achieve our total will count for the program.
Speaker Change: The second one is on the 25 capital range. It's kind of been lowered here, but it's not been narrowed. It's still a $400 million spread between the low and the high end. Can you help us understand the path to the lower number at 3.4? IE, what needs to go right to hit that number? IE, IE, IE, IE, IE, IE, IE, IE,
Speaker Change: Yeah, I don't think it's going to be a positive thing for the macro if we got to the low end, right? At 3-4.
Speaker Change: That's kind of how to use the analogy, the red light scenario, sub-50 B.
Adam Lawlis
Speaker Change: is kind of the world where we level off at 485,000 barrels of oil a day in Q3 and bring back a fifth crew to stay there in Q4. So that's kind of midpoint, you know, high-end fields.
Adam Stice, Adam Lawlis
Thanks, Keshe
Thank you.
Speaker Change: Thank you. As a reminder, to ask a question, please press star 11 on your telephone.
Speaker Change: Our next question comes from the line of Doug Leggett with Wolf Research. Your line is now open.
Doug Leggett: Hey guys, thanks for getting me on. Case in Travis again, I'll add my congrats to both you guys and I look forward to seeing what's going to be there.
Doug Leggett: I want to ask a question about the capital efficiency because you read quite a big deal about that in your presentation deck and I kind of want to walk you through the market very quickly. You've cut 400 million dollars off your capital and you've lost five, five million dollars for the year.
Doug Leggett: It seems to me that you get higher free cash flow in the current plan than you would if you added 400 million back to get 5 million miles. So how do you think about sustaining capital and what's your optimization decision around that? I've got a quick follow up, please.
Doug Leggett: Yeah, I think the nuance there is the path of the...
Doug Leggett: Productions throughout the year, right? You know, we were well about 500,000 people over the net in April declining off. And so you put this big gap in activity in the middle of the year. You know, it's really not a full year run rate number. So, you know, I think. [inaudible]
Doug Leggett: It comes down to what level of production you're sustaining and how much capital does it take.
I still think that...
If we were at 500,000 barrels of oil a day...
Doug Leggett: run rate, you know, we're closer to a billion dollars a quarter.
Doug Leggett: of CapEx, you know, put down to 45, 480, you know, it's closer to this 900.
A quarter with two quarters below 900. [inaudible]
Doug Leggett: in Q2 and Q3. So I think there's just a little nuance here with how quickly things are changing and how quickly production is heading down for a couple quarters while then stabilizing in Q4.
Speaker Change: Got it. That's really helpful. My follow-up is that I think you're moving the oil market today, frankly, and I wondered if you could share, maybe, Travis, you'll elaborate a little bit from the comments you made. You basically called the top on US oil production of fuel anyway.
Speaker Change: What are your non-operated insight to what others are doing? And I'm just curious if you could maybe put some numbers as to how you see the sensitivity of rigged, declined relative to the rollover in production. Any color you can add from the work you've done would be helpful.
Speaker Change: Yeah, I think we really focus on anecdotes, we know a lot of people in the business, we know a lot of people.
Speaker Change: Well, we're a large public company based in Midland. We know everybody that's picking up a rig to go through all
You know, three bar net wells or threeteen wells or...
Speaker Change: You know, this unit they picked up in the Delaware Basin and
Speaker Change: Every single conversation I've had with those types of operators is that this oil price doesn't work and they're going to be...
Very, very, and then traditionally, you know, those are...
Speaker Change: Anchorage positions that have higher break evens, right? So, you know, all of that is getting pushed to the right, you know, very clearly other basins that don't have sub 40 break even inventory like the Permian are having the same discussions and so are kind of. [inaudible]
Commentary,
Speaker Change: is that the mortal barrel in the US is just not being produced today, and we're seeing it already in terms of frack activity, frack tale, even some pipeline scrapes are down, you look at it.
Midland Houston Spreads
Speaker Change: You know, those have narrowed. So, you know, I just think the marginal barrel is being pushed to the right.
Speaker Change: Again, we don't have a crystal ball in the rest of the world but we have a very good view of
Speaker Change: What the US looks like, and right now that's a business that's slowing dramatically and likely declining in terms of production.
Terrific guys, good luck and thanks for your answers [inaudible]
Thanks, sir, thanks, sir [inaudible]
Speaker Change: Thank you. I'm showing no further questions at this time. I would now like to turn it back to Travis Stice for closing remarks.
Travis Dice: Thank you guys for listening today and for your questions and thanks for your support of these last
Travis Dice: You don't have any questions, you know how to get a hold of this, y'all have a great day, God bless you.
Travis Dice: Thank you for your participation in today's conference. This does conclude the program, you may now disconnect.