Diamondback Energy, Inc. Price & Performance (FANG)

I'll now turn the call over to Travis Dice. Thank you, Adam, and welcome, everyone. And appreciate you joining this morning. I hope you find the shareholder letter a meaningful way to communicate. And also as Adam pointed out, we've got an updated investor deck out there that we can reference during our questions this morning. Operator, if you'll please open the line for questions.

Thank you. Our first question comes from the line of Neil Dingmann with Truist Securities. Your line is open.

Good morning and Travis, congratulations on it to you, but the case, Jerry, but especially fantastic career. Look forward to seeing you soon. My first question, maybe just around again another great quarter. My first question is really around the free cash flow sensitivity that you all show on Slide 13. And Specifically, when looking at that, I'm just wondering you put a comment I'd noticed on the bottom of the slide. Suggesting now around $67 a barrel produced the same free cash flow at 76 last year. I'm just wondering, is this continued achieved through the larger scale? Is this a lot of the completion drive? I'm just wondering maybe if you could talk and discuss the drivers behind all this.

Yes, Neal. It's a new number that we're going to start to look at here. I kind of equate that number to your the same thing as a dividend breakeven. It's basically what oil price gets you the same free cash flow share as the prior year and if that number is going down, capital efficiency is improving or you've done an accretive deal. And when we announced the Endeavor deal a little over a year ago, we said we'd have 10% plus free cash flow per share accretion. And here you are a year later showing that free cash flow per share is going down by $9 a barrel to equal the same number as last year. So it's going to be tough to keep moving that number down. $9 a barrel every year, but I think through a lower share count, lower cost structure, and quality inventory that's certainly going to be the goal.

No, great direction. I think it just keeps dropping. And then my second question, maybe on your D and C plans, I was wondering, can you talk about maybe I don't know, Casey, do you look at it completions per Semifrac crew or maybe talk, I'm just noticing the amount of completed wells and you all talk about sort of four to five of these simul fracs. And then secondly, noticed you all continue to complete several more wells than you drill like you did last year, maybe just discuss that.

Yes. So on the DUC drawdown, we're drilling less wells and we're a combination of things we were ahead of plan last year, so we drilled more wells than we expected. And then we also acquired a lot of ducks with the Endeavor deal and a smaller amount with the the TRP deal that closed earlier this year.

So So there's a pretty significant DUC drawdown planned in the in the CapEx budget. I would just say if we're ahead of schedule, and CapEx is looking good for the year, We'll probably reduce that drawdown and drill a few more wells particularly right now given that putting pipe in the ground on the drilling side is almost as cheap as it's been in the last five or six years. So I think we have flexibility in the plan, but really seeing the efficiencies come through here, right, with drilling over 400 wells with 15 or 16 rigs this year versus last year Going into the year, we thought we're going to drill two eighty wells Diamondback stand alone with 15 or 16 rigs.

And then on the frac side, basically the Sinal brac fleets are getting about 100 wells per fleet per year. That's kind of up from 80 a year ago. Just continued efficiencies in the field and that's partly due to the higher pump rate that we've implemented from some of the learnings from Endeavor and I think we're still looking at ways to push that even higher. We're trying some things that might get us closer to 110, 120 wells per year. Not in the plan today, but but that's some upside that we could accrue to our shareholders.

Perfect. Thanks. Look forward to seeing you all. Thanks, Neil.

Please stand by for our next question. Our next question comes from the line of Neil Mehta with line is open. [indiscernible] [indiscernible] I think one of the the takeaways it seems from the deck is post the Double Eagle acquisition is that there might be a pause as it relates to M And A Given That Feels Like You've Consolidated A Lot Of The Quality Positions In The Permian. So Kastraves, just love your perspective on that. And if that's the case, how do you think about leaning into the share repurchase program at these valuation levels.

Good morning, Neil. Thank you for your comments as well too. We tried to articulate during the announcement of the Double Eagle's rate that this was really the last Last opportunity in the core of The Middle East And if it in fact is the last opportunity, then then there's really not much left on a go forward basis [indiscernible] that's our strategy is to we took advantage of probably what was the among the last meaningful assets in the Midland Basin Yes, Neal, not saying we're never going to do another deal again, but need to digest here the quality of the inventory that we have. Puts us in a really good position to move more towards the other side of the capital allocation discussion, which is the share repurchases. And reducing the enterprise value. And I think at these levels, it's very obvious that share repurchases is a great use of capital At $70 oil, this business generates $20 a share of free cash flow in 2025. Current prices that's essentially a 12.5%, 13% yield. So for us, that's cheap. And our goal is to continue to make our stock look cheap by improving per share metrics and I think that's what we've laid out here with the 2025 plan.

Yes. And, Casey, on that buyback program, you have a very concentrated shareholder coming out of the Endeavor transaction. How do you think about maintaining the dry powder for potential sell downs there? And how should the market be thinking about your largest shareholder in general? Yes. I mean, I think the market should realize that we have a long a long term patient shareholder and the Stephens family that has known this basin for forty five years and is very, very comfortable with the decision they made in merging with Diamondback. This isn't a private equity investment that has to monetize for fund life. There's a lot of patients from their side and we had conversations with them just like all of our other shareholders. And they like our other shareholders. You can see on Page one of our roster encouraging us to lean into our buyback right now because stock is cheap and the best use of capital to buy back our shares. So So lastly, I'd probably say that I think the market's got a little ahead of this This lock up expirations over the coming months and in my mind, there's a lot of other ways to reduce ownership that aren't well telegraphed marketed deals.

And that stuff that we're thinking about. I think we have the the balance sheet capacity and the free cash flow generation most importantly to get creative on that front while still buying back shares in the open market. Thanks, Casey. Thanks for that.

Thank you. Please standby for our next question.

Our next question comes from the line of John Freeman with Raymond James, your line is open.

Yes. Good morning. And you have remarkable career, Travis and congratulations, Casey, on the well deserved promotions.

I just want to start on looking at the mid budget, the roughly $415,000,000 on the midstream infrastructure budget. Is there anything that sort of on a one time in nature related to either Double Eagle or Endeavor transactions where you kind of either to put in some infrastructure, facility upgrades, anything like that that we should be aware of?

Yes, John, I think one thing we highlighted is that there is $60,000,000 of dollars of midstream CapEx in there, traditional midstream CapEx from the Endeavor water business, EDS. If that business were to monetize likely into our Deep Blue JV, that would reduce our CapEx burden depending on the timing of that that deal. And I think second to that, we have some kind of accelerated environmental CapEx this year and probably a little bit next, but that's to the tune of I'd say in general, we'd like to get that midstream sorry, that infrastructure and other budget down to kind of 5% to 7% of total capital from where it is today. And the teams, we've put it in Travis's letter The teams who have already worked on it, best in class combined facility design that we expect will save us $1,500,000 or 10% or so per facility And that will add up over the years as we develop the asset base. That's great. And then just a follow-up on Neil's earlier question on the docs Can you just remind us just rough numbers where you all sort of stood on DUCs kind of pro form a for the Double Eagle transaction [indiscernible] just a little over 200 DUCs total two fifty DUCs total.

Pro form a the Double Eagle transaction and Double Eagle is coming over with with about 50 what you would add to that number that we call work in place wells that We don't We don't expect that we'll be dug, so they'll be brought online kind of sometime between now and close.

That's great. Thanks guys. Appreciate it. Thank you. Our next question comes from the line of David Deckelbaum with TD Cohen.

Your line is open. Thanks for taking my questions guys and just to echo everyone's congrats to you, Travis, Casey and Jerry. I was hoping just to step back a second just to revisit. I mean, obviously, in case you made some comments about the attractiveness of valuation shares right now. In the context of Stephen's family as well, You guys have this $1,500,000,000 commitment on asset sales and I think you bridge that with free cash down to almost $10,000,000,000 of net debt by the end of the year. I guess how do you think about the flexibility of getting above that 50% return of capital this year when you appreciate where your shares are now relative to how you see valuation or should we be looking for that net debt trigger before kind of getting away from the 50% at least 50% commitment?

Yes. I mean, David, I think that at least 50% commitment is going to remain regardless of the situation. Now the execution of that whether it's above 50% or not, I think will depend on on the market conditions. And I think we in Q4, for instance, we leaned in a little bit. I think free cash flow beat even our internal expectations with we were fully prepared to go over 50% free cash return in Q4 given the volatility we saw in in December. I'd probably lean against going to 75 or 100 in these market conditions. I don't think we're there. I think we got to get these non core asset sales Don and debt down, but we have a lot of levers to pull and I think we saw more volatility than we're seeing right now. We'd be leaning in.

I appreciate that. And then just to follow-up on the infrastructure spend, obviously, a trajectory coming down with some of the synergies of facility design. You talked about the potential with the sale to Deep Blue. But just also wanted to bring up like the slide around surface acreage and power generation. How do you feel or how do you think about sort of financing your own internal power needs imminent are these needs in terms of spends to expand what you would need just to to service your own wells And when do you think we would expect to hear announcements around some of those solutions, whether it includes third party commercial opportunities or just incremental spend to build out for your own operations?

Yes. I think internally, we've spent probably on average $70,000,000 to $100,000,000 a year on power over the last five or six years. So think there's $70,000,000 or $75,000,000 in the budget this year for our power needs that's just holes and wires in the field I try to separate that from our Power JV we're looking at and I think there's been a lot of a lot of discussions around power in the basin. We obviously were short power in the basin. I think what we're trying to A large IPP is can we build a large behind the meter gas plant, gas power plant in the basin using Diamondback gas but also having Diamondback receive some of that power back with hyperscale or data center operator taking on the lion's share of that of that power. So that's in the works. We're still confidentially discussing it with the hyperscalers, getting feedback and I think what separates Diamondback from others in this Space is our flexibility and how nimble we are and how quickly we can move to get get something done, let alone how much gas we have that needs a better market. So two separate things, but we'll continue to build out power in the field because it increases uptime as well as reduces LOE.

Appreciate the color guys.

Thank you.

Next question comes from the line of Arun Jayaram with JPMorgan Securities. Line is open.

Good morning.

My first question, Travis and Casey, I was wondering if you could talk about The asset sale divestiture program we anticipate to execute on In terms of the Double Eagle transaction, are these going to represent primarily midstream assets, but give us a sense of what you're what your plans are in terms of monetizations Yes, Arun, I think what we've been doing market is that we think we can get these non core asset sales done without selling operated acreage and I think the lion's share of the value will come from a couple of our equity method investments that we list in our deck. That kind of been built out in our near monetization. And on top of that, our midstream business that we acquired from Endeavor, the EDS Water business likely has some synergies to merge into our Deep Blue JV, which is doing very, very well and winning a lot of third party business in the basin. I think most of that gets you most of the way there. We've started to uncover a lot of assets from Endeavor that we acquired that are all over the country. But the biggest one is probably a sizable mono position in the Delaware Basin and that's likely your last kind of monetization candidate to get to that 1,500,000,000.0 Great.

And maybe the follow-up Your overall top down capital efficiency screens quite well relative to our model in the street's expectation. In terms of the the CapEx, unit of oil output that metric you mentioned in the shareholder letter, One kind of question is that the CapEx number is accompanied by more kind of gross tilts and did feel a few questions around what are some of the implications for well productivity as we think about the 25 program versus last year? Yes. I think overall well productivity is going to be as good as any year. This year. We've had a pretty a couple of pretty banner years the last few years. I think a still number while a lot of other peers don't don't even give that number, we put it out there for transparency purposes, but there's a lot of things that can move around at a till number, right? If one twenty well pad is completed on on December thirty, of last year, is accounted for last year or this year. So there's some noise in that in that number. I think a true run rate we kind of got into the street to 500 wells a year.

Ish before Double Eagle, Double Eagle has about 30 wells a year of development I think somewhere in that $525,000,000 to five forty wells per year, assuming flat capital efficiency is is kind of an apples to apples number. And I think the other question on on capital efficiency we have posted this dollars of CapEx per BO produced and I think that's a number that we want to hold ourselves to in the future. It's going to be tough to replicate the efficiency of 2025 given the dropdown, but that's that's the mission to the team. I think there's a lot of ancillary CapEx that's going to come down to replace that and capital efficiency is going to remain strong as particularly on a relative basis to where the market is today. Great. Thanks a lot.

Thank you. Our next question comes from the line of Derrick Whitfield with Texas Capital. Your line is open.

Good morning, all and echo everyone's congrats as well. Thank you, Derek.

With regard to the Double Eagle transaction, how should we think about the capital and production impacts from your agreement with Double Eagle to accelerate non core Southern Midland Basin development And when would that start to or could that start to meaningfully impact your financials?

Yes, Derek, on the capital side, there's zero capital. We're getting a So no impact to us. Further rationale for that for that part of the deal is we were going to have to move a few rigs down south to secure some leasehold that lower working interest and needed some horizontal wells to maintain the leasehold and we obviously have a good relationship with the Double Eagle guys and They needed a place for their couple of rigs to go and so they're going to accelerate some development down there. I think the color we've given the market is that it's about $100,000,000 of free cash flow on a consolidated basis and in 2026 I'd probably say that 50% of that is for Viper. We'll talk about it on the Viper call, but the Reagan County piece was the second largest from an acreage perspective piece of the drop down. And so this is kind of an un modeled upside for the drop down that in turn benefits Diamondback through Viper's outperformance. That's great. And then regarding your commentary on un modeled synergies, where do you see the greatest remaining opportunities now that your organizations are fully integrated? I think we've really talked a lot about synergies around the drill bit and completions and the capital synergies.

I think there's some longer dated synergies in the in the field, in the production world as we get teams integrated. And continue to share learnings and best practices from the operating teams in the field and on the production [indiscernible] Where can we see improvements shared resources, Those things take a little longer than just converting a drilling rig or completion crew over to a program. So So we're still in the middle of all that and the integration of the field organization really is going to going to be hot and heavy this year and we're excited to it'll be smaller things that are hard to measure, but it'll be a lot of a lot of things that will accrue hopefully to our LOE and OpEx budgets in future years.

Thanks. That's great.

Thank you. Please standby for our next question.

Our next question comes from the line of Kevin Pickering Energy Partners. Your line is open.

Hey, good morning. You have a breakdown of the 2025 CapEx plan for the legacy assets versus the CapEx for Double Eagle? Just trying to get a feel for how much lower the new legacy guide is compared to the prior commentary? [indiscernible] hundred million dollars of CapEx for Q2 to Q4 for 27,000 barrels a day of oil their assets a little earlier, so it's somewhere in 40 something like that, 1,000 BOEs a day. So if you look at our 3.8 to 4.2, you take 200% off down each side, you're at 3.6% to 4%. Billion dollars and that kind of ties $3,600,000,000 to $4,000,000,000 for the full year. It kind of ties to where we guided Q1 of twenty twenty five is $900,000,000 to $1,000,000,000 for four seventy oil to four seventy five oil. We're talking about ironically looks a lot like Q4 of twenty twenty four. So we're kind of moving towards given the volatility we've seen over the last quarter last year and certainly some more headlines and volatility this year to kick things off. We figured cutting capital and growing less or growing zero prior to the Double Eagle deal made a lot of sense.

And so Q1 is a pretty good look at what we were planning to do prior to DE and we certainly had to change our plans pretty quickly as that deal move quickly. But I think in general, you're seeing a more capital efficient plan than expectations. Great. Appreciate that detail. And as a follow-up, is there any CapEx associated with the assets that you might sell this year, both on the the JV and the non op I think the only thing we highlighted this midstream CapEx number. Which is $60,000,000 or so, There's certainly some CapEx associated with the non op In the Delaware, but it's not a meaningful overall number. Appreciate it. Thank you.

Thank you. Please stand by for our next question. Our next question comes from the line of Paul Chan with Scotiabank. Your line is open. Thank you. Good morning. And first, congratulations to Travis and [indiscernible] Maybe that's a case. Can you tell us that with the drawdown in U. S, how much you estimate is the saving in Yes, Paul, basically on a gross basis, drilling right now is about $220 a foot. So on a net basis, average working interest about $200 a foot. So you're basically at $2,200,000 to $2,400,000 a well. So I'd say overall, it's probably about a $200,000,000 savings this year. And I think as I mentioned earlier in the call, goal of the team is going to be how can we offset that in 2026, but reduce CapEx elsewhere?

Okay. And just curious that the cadence of the program, I mean, if we put Double Eagle sign, should we assume that it's roughly about four because when we're looking at the number of wells that you expect to bring, one would have think given your strong productivity that production will be somewhat higher than what you guide. So just curious that is there anything we should be aware in terms of the timing of the wells or anything?

No, I think we kind of said that 20 wells were brought into this year from last year Who really knows what's going to happen at the end of this year? But I think this kind of low 500 before Double Eagle 12 per year run rate is a pretty good number. With 30 added wells from Double Eagle, but with the program of 500 wells a year, wells moving forward or backward across the calendar lines is not something we actively think about.

I see.

All right. Will do. Thank you. Thanks Paul. Thanks Paul.

Please stand by for our next question. Our next question comes from the line of Leo Mariano with ROTH. Your line is open. Got it. I was hoping to dig a little bit more into the Double Eagle deal here in the synergies.

You guys obviously spoke about a little bit on the call and kind of alluded to some of this in the press release.

But clearly, FANG is a low cost operator in terms of being able to drilling complete wells nicely under $600 per foot. In the Midland, you kind of have a number for those guys in terms of what their kind of run rate was? Just trying to get a sense of the well cost savings over time here and also going to probably assume that maybe your LOE is also a bit lower than there. So I was hoping maybe you could kind of quantify the D and C and LOE numbers there to give sense of maybe some Yes, for a group known for their land products, those guys are actually pretty good operators over there at Double Eagle. They're doing a pretty good job. They were probably in the $625,000,000 $650,000,000 range But on a private deal, we're going to model it with our cost structure and we put that new kind of well cost out last year when when we announced the trade. So that's probably the biggest number we put out. I think second to that, because of the adjacencies, we're not going to have to build as much infrastructure to service those assets. And yes, I mean, I think from a timing perspective, those guys had been running five or six rigs and they ran it them all in the southern portion of their asset, and we're about to move four or five rigs up to the north and choose through that inventory very, very quickly.

And so we decided to move on the deal because so often in this business you've seen companies buy deals that have high decline curves and have to chase that decline curve with too much too much capital and too many rigs and the outcome of that is inventory duration being shortened rather than lengthened. So we timed it well where we didn't acquire too much production and instead acquired a lot of upside that fits in well with our plan over the next ten years.

Okay. That's helpful. I just want to take my on the capital side here.

So certainly noticed that your capitalized interest has kind of been going up. The last few quarters. I'm sure a lot of that's related to the Endeavor deal. But just wanted to kind of check-in on that. Is the capitalized interest included when you lay out the budget for 2025 here on the capital side?

Yes, no. So capitalized interest seems to be the hot topic. I don't know if we've gone down to capitalized interest is something that's interesting in this business, but at the end of the day, we don't make the accounting rules When you do a deal with a lot of undeveloped acreage, if you raise debt dollars to pay for it, Those go in the capitalized section For us that runs through [indiscernible] Which is not in our CapEx budget. We're going to put our CapEx budget as what it takes to run the business. But our shareholder commitments and return commitments and all the math we do on our side does include that. But from a free cash flow definition perspective, we exclude it. And I think over the coming couple of years as we pay down a significant amount of that debt, that issue will be put to rest.

Thank you.

Thank you. Our next question comes from the line [indiscernible] With Wolfe Research. Line is open.

Hey, gentlemen. Good morning. This is actually Carlos in for Doug.

And he most definitely expresses congratulations to you [indiscernible] and Kate.

Look, guys, what we're trying to figure out is, you talk about a decade of inventory at the current pace, and that's presumably associated to your highest return screen. What would that look like if we applied the current strip to screen returns? Would that number change? And how much so?

Thanks.

Yes. I think the gold standard in the industry right now is sub-forty breakeven and that's what we've been focused on and saying the decade [indiscernible] expands significantly as commodity prices go up. I think for us that number is put in our in our deck on Slide 12, we show kind of the $50 breakeven. Now that's 10% rate of return at $50 a barrel, right? We're not going to be wanting to drill that many wells in that situation. Instead, we'd like to have the balance sheet strength to be buying back shares in that situation. But I think from an overall strategy perspective, the inventory is there. It's just about at what time do you have to prosecute that inventory and we've tried to position ourselves to be the last person to have to drill the lower returning inventory but also have the lowest cost structure to be able to do it.

Got you. That's very helpful. And not to beat the dead horse here, but in terms of your DUCs, and the capital associated with that, how much of that capital benefit Or at what rate do you expect that capital to come back throughout 2026? What's the cadence associated with the capital benefit we're running back to normal levels.

It's pretty level loaded. We have a very good forward visibility into what we're completing and what we're drilling I think we also went into this year running 18 or 19 rigs and realized that we were going to have a pretty sizable duck balance we could draw down. So we're going to be down at kind of 15 rates here in the next couple of weeks and we'll probably keep that that pace for most of the year. I think as mentioned earlier, if things are going well on the year and we're towards the lower half of guidance, we'll probably drill 30 to 50 more wells and and keep a relatively high DUC balance. We really like that because it gives us operational flexibility, particularly with the size of these pads and the size of the development. So it's good to have somewhere to go when things go go south and that Doug balance allows us to do that.

Awesome. Thank you guys and congrats again. [indiscernible] Please Diamondback for our next question. Comes from the line of Kaley Ikedamay with Bank of America.

Your line is open.

Hey, good morning guys. On Slide 28, you're breaking out surface acres in the Permian for the first time. Kind of suggest that you're getting close to securing maybe the Permian's first data center deal.

How should we think about how the financial benefits are going to flow back I'm thinking in terms of land sale revenues, will there be maybe a fixed price for gas Could you even be paid in kind or through discounted power prices?

Yes, good questions. I think the land payment in my mind is the least Important of all the payments given the size of the the land needed, it's not a huge piece of property. But it's about 1,000 acres and you can buy a lot of surface out here. In the Permian cheap. And fortunately, we have a lot of it. But I think the benefits to us would be participation from an equity perspective in the plants and on the power side, but also and also contributing all of the gas needed for the plant And the debate is on between us and our partners on how we want to structure that. You could look at things on a fixed price basis. You could look at a collar, you could look at an index. And I think what we're trying to do is kind of be more flexible than most here. Because in our situation, we're looking to take back a good amount of power ourselves, which I think will maintain best in class LOE structure particularly as power gets more scarce in the basin. So a lot of moving parts, but we're very actively working on it today.

And I think it could be exciting for the Permian and exciting for for Dynabas shareholders.

I appreciate that color. For my next question, I'm thinking about the Endeavor share overhang. Kind of going back to Neil's question, post dropdown, you guys are a lot longer than I'm stock.

Do you think there's any opportunities to maybe creatively swap Venom shares for the seller shares in Fang?

Yes, probably that's something I can comment on. But I think Diamondback from Diamondback's perspective is happy with our ownership in VEM. I think the stock's had a good run. I think the world's kind of waking up to the value of minerals. And Diamondback has now $7,500,000,000 $8,000,000,000 stake in in Venom that I think is truly unique we structured that deal because we with as much equity as we did because we Look at debt on a net debt on a consolidated basis and in our mind, it didn't make sense to lever up Viper in exchange for after tax debt dollars as a parent. So we did a highly equitized trade, but I think from the Diamondback side, gives us back over 50% ownership of Viper and and leaves Viper under lever to continue to consolidate its market because I think that mineral consolidation will pretty significant over the coming years relative to upstream.

Thanks, Gays. Travis, Gays, congrats to you guys both.

Thank you.

Thank you. Ladies and gentlemen, I'm showing no further questions in the queue.

I would now like to turn the call back over to CEO, Travis Stice for closing remarks.

Thanks everyone for listening in this morning. I appreciate the attention. If you've got any follow-up questions, please reach out to the numbers provided. Thanks again, you all have a great day.

Ladies and gentlemen, that concludes today's conference call. You for your participation. You may now disconnect.