The operator introduces the Diamondback Energy Second Quarter 2024 Earnings Conference Call and informs participants that the call will be recorded. Adam Lawlis, VP of Investor Relations, introduces the speakers and cautions that forward-looking statements may differ from actual results. Travis Stice, Chairman and CEO, thanks everyone for joining and mentions the Stockholders Letter that was issued the previous night. The operator then opens the line for questions.

Travis Stice, CEO of Diamondback Energy, is pleased with the company's latest financial results and credits their success to their efficient operations. They have been able to achieve more with less by increasing the number of wells drilled per rig and completions per crew. Stice is confident that these efficiencies will continue even after the company acquires Endeavor's assets. This will allow them to apply Diamondback's lower D&C costs to a larger asset, resulting in significant synergy.

The speaker expresses confidence in the company's ability to deliver synergies and benefit shareholders. They mention their flexible return of capital program, which allows them to buy back shares or pay variable dividends depending on market conditions. They highlight their low break even point and strong free cash flow generation, which allows them to be aggressive in their capital allocation decisions.

Kaes Van't Hof and Travis Stice discuss their company's breakeven point and potential capital allocation decisions in a $40 crude scenario. They also touch on their plans to lower net debt levels post-merger, which may include asset sales and organic free cash flow generation. The company has already sold some assets, such as their Viper ownership and interest in WTG West Texas Gas, to generate cash.

The company has been working on reducing their cash outflow burden for the Endeavor deal through asset sales and free cash flow generation. They plan on managing gas price volatility by taking control of the molecule through marketing contracts and participating in new pipelines. They are also focused on keeping operated properties in the Permian due to their high value.

Kaes Van't Hof and Travis discuss the efficiency gains at Endeavor, including pushing for 26 wells per rig and 100 wells per frac fleet. They attribute these gains to a focus on every decision made and a culture of execution within the company. These improvements are not easily repeatable or a result of new technology, but rather a product of the company's values.

The company has made some design changes to increase efficiency and optimize equipment mobilization, leading to better execution and cash flow. These changes are expected to have a permanent positive impact and have allowed the company to revise their projections for 2025. However, the increase in completed footage does not directly correspond to the increase in oil production, as some wells have been moved to later years in the plan.

The speaker is confident that the company's recent efficiency gains and focus on execution will continue even after the acquisition of Endeavor. They believe that the two companies' cultures will complement each other and lead to further improvements.

The speaker, Travis Stice, discusses the benefits of longer lateral progression in their oil and gas operations. They have seen success with longer lateral lengths and plan to continue this trend in the future. They recently drilled a 20,000 foot lateral well in under eight days, showcasing their ability to drill even longer wells. While they cannot make any plans until after the Endeavor deal is finalized, they are focused on extending laterals in the coming years. Kaes Van't Hof adds that they plan to maintain an average lateral length of 12,000 feet for their current program of 300 wells, but are not afraid to drill up to 20,000 feet if the opportunity arises.

John Freeman asks about the return of capital framework and if the efficiency gains will lead to a larger base dividend. Travis Stice confirms that the efficiency gains will create room between the breakeven and $40 dividend breakeven, and that the company will still buy puts to protect against extreme downside scenarios. The free cash flow will continue to be split between equity and building a fortress balance sheet, with the potential for a higher percentage going to equity in times of stress.

The speaker discusses the company's commitment to a sustainable and growing dividend, as demonstrated by their track record of returning capital to shareholders. They also mention their focus on generating free cash flow over growth, and that there are currently no plans to accelerate production. The question then shifts to the company's operational efficiencies and their well performance over the past year.

The speaker, Travis Stice, discusses the performance gains and cost gains in the company's apple to apples basis. He also mentions significant inventory expansion in their portfolio. When asked about the efficiency of Endeavor, Stice states that there is still work to be done but they are confident in their ability to make it look easy. They plan to make decisions on using clear drilling fluids and implementing simul-frac operations. He also emphasizes the importance of understanding the Endeavor team's current practices.

The combined efforts of legacy Diamondback and new management from Endeavor have historically generated better results when they seek to understand and then pick the best path forward. Both leadership teams are expected to make the transition look easy, even though it will involve hard work behind the scenes. The pro forma business will initially run 21-22 rigs and is expected to average 18-19 combined by 2025. The company has been actively optimizing their fleet and sharing best practices to improve their operational efficiency, with no single standout rig driving the success.

Travis Stice discusses the healthy competition between internal and external teams at the company, with a focus on constantly improving efficiency and reducing nonproductive time. The team is constantly looking for ways to improve and collaborate across all departments.

Travis Stice emphasizes the collaborative aspect of their competition-based approach, where teams quickly share solutions and adopt external findings. In the second quarter, the company saw higher NGL and gas production, possibly due to efforts to strip more liquids out of the gas. They also curtailed some oil production to focus on generating more value for their gas production.

The focus on environmental performance has led to a decrease in burning gas in the field for energy consumption, resulting in more gas being put down the pipeline and reported as production. This has contributed to the increase in production across the basin. The company is aiming to improve drilling and completion efficiencies, with some rigs already drilling at a pace of 30+ wells per year. The focus is on reducing pad cycle times and sharing best practices among rigs to improve overall pad development. The company is also looking at different zones and lateral lengths to improve efficiency.

A question is asked about the percentage of three mile laterals compared to shorter ones. The speaker explains that it varies depending on the drilling and zones, but around 25% of their development this year was from 15,000 footers. The rig count is an output of getting 300 wells per year drilled, and they see it as hitting production guidance. Another question is asked about the potential for trimul-frac in their portfolio, and the speaker explains that they have looked into it but the infrastructure spend may not be worth the efficiency gains.

The speaker is discussing the company's plans to move towards trimul-frac and the potential cost benefits. They also mention their guidance and quarterly goals, and how the teams must be able to adapt and be flexible in order to achieve their goals.

The speaker discusses the company's unique harmony across all functions and the surprising improvements in drilling compared to completion. They mention that the biggest potential for productivity improvement in the next few years is in down-hole sensing technology. They also mention that in order to maintain flat production post-Endeavor, they will need around 500-550 wells and that Endeavor gas pricing is primarily in the Waha basin.

The company is focused on using downhill sensing to efficiently place frac energy and create the greatest stimulated rock volume. These sensing technologies are evolving rapidly and could potentially allow for drilling towards a target rather than drilling past it. The company plans to start with a low well count of around 500 per year, but as land efficiencies improve and decline rates slow, this number could potentially decrease. The company is also looking to reduce its exposure to Waha and is exploring opportunities to transport gas outside of the basin. The company is also considering a share buyback, but will wait until the deal is closed before making any decisions.

The company is considering executing a buyback due to the recent pullback in the stock and sector. There may be some restrictions due to the Endeavor deal, but they have flexibility during blackout periods. CapEx is expected to decrease in the third quarter and activity is also expected to drop, but they plan to bring back a frac crew in the fourth quarter.

The speaker discusses the growth and success of the Deep Blue team, which Diamondback acquired. They have seen a 20% growth in capacity and have made several third party wins. Diamondback is pleased with their progress and may potentially merge with their own water system, Endeavor, in the future. However, they are focused on the best outcome for Diamondback shareholders. The speaker is impressed with the team's ability to move large amounts of water at low cost and sees it as a long-term investment.

Travis Stice, CEO of Endeavor, reveals that the acquisition will likely add about two-thirds the size of the current business and will greatly expand their capacity in Western and Eastern Martin County. The company has also had success with their Upper Sprayberry well and plans to co-develop it with other zones in the North Martin area. They have also tested the Wolfcamp D in the same area and have not seen any communication with the Wolfcamp B, so they plan to develop it as a standalone or in a stack depending on above ground efficiencies.

Travis Stice, CEO, thanks everyone for participating in the call and invites them to reach out with any questions. The operator then concludes the call.

This summary was generated with AI and may contain some inaccuracies.