The paragraph is an introduction to the Diamondback Energy Third Quarter 2024 Earnings Conference Call. The operator opens the call, informing participants that they are in listen-only mode until the question-and-answer session. Adam Lawlis, VP of Investor Relations, welcomes participants and mentions that updated investor materials are available on the company's website. He introduces key company representatives: Travis Stice (Chairman and CEO), Kaes Van't Hof (President and CFO), and Danny Wesson (COO). The call will include forward-looking statements, with warnings about potential variances between projected and actual outcomes, and references to non-GAAP financial measures. Travis Stice takes over, encouraging participants to review relevant materials and starts the Q&A session with Neal Dingmann from Truist asking the first question.

In this paragraph, Neal Dingmann asks Travis about the company's capital efficiency and potential free cash flow per barrel for the next year, as well as its breakeven point. Kaes Van't Hof responds by emphasizing the company's focus on generating free cash flow rather than high capital expenditures (CapEx) and mentions improvements in their free cash flow margin and breakeven point due to integrating Endeavor assets. He highlights the company's efficiency in producing a high number of barrels per dollar of CapEx and notes progress from integrating the two companies. This integration is expected to benefit shareholders by providing more free cash flow over time. When prompted by Neal for a specific breakeven number, Kaes refers to a presentation slide for details.

The paragraph discusses a strategic asset trade involving Diamondback and TRP in the Permian Basin. Diamondback has reduced its breakeven oil price from $40 to $37 per barrel, enhancing its financial flexibility. The trade with TRP allows TRP to explore the Delaware Basin, while Diamondback acquires 18 drilled but uncompleted wells (DUCs) and 55 prime locations in the Midland Basin. This moves lower priority inventory to higher priority, boosting capital efficiency. The valuation of the trade was deemed favorable, with comparable values for proven developed producing (PDP) assets, despite differing production decline rates. Diamondback values the DUCs and top-tier locations in the Midland Basin highly.

In the paragraph, Arun Jayaram from JPMorgan Securities LLC questions Travis Stice about Diamondback's equity investments and potential value creation. Travis Stice explains that Diamondback is exploring creative ways to increase shareholder value, particularly by utilizing their abundant natural gas and surface acreage. One initiative includes developing a data center, leveraging their resources to generate more electricity and higher margins from their gas stream. Additionally, Diamondback's increased ownership in the EPIC crude pipeline reflects their anticipation of greater crude capacity needs in the Permian Basin.

The paragraph discusses the company's strategy for improving efficiency and reducing costs in its operations. By reducing the number of rigs from a previous estimate of 22-24 to 18, while maintaining the same amount of work, the company can control variable costs and increase returns for shareholders. They achieved this through enhanced operational efficiency and faster execution, with similar improvements on the fracturing side by increasing pump rates to complete wells more quickly.

The paragraph discusses the benefits and efficiencies gained from using simul-frac crews in reservoir operations, noting their cost-effectiveness compared to traditional rigs. It highlights the remarkable progress and efficiency improvements achieved, surpassing expectations. The synergies, originally planned for full delivery by 2025, have been realized earlier, by the fourth quarter of 2024, leading to cost reductions. The organization attributes success to collaboration and strategic approaches, with detailed synergy performance included in their investor deck on slides 6 and 7.

The paragraph is a discussion between David Deckelbaum and Kaes Van't Hof regarding the budget and projected oil production for the next year. Kaes acknowledges the possibility of achieving budget efficiencies sooner than expected and mentions they are targeting the lower end of the $4.1 to $4.4 billion range to maintain a production level of 480,000 barrels a day. They attribute potential savings to reduced well costs and improvements in various budget areas like infrastructure, midstream, and environmental. Additionally, the Q4 capital expenditure is guided to be between $950 million to $1.05 billion, but Kaes advises against using this as a straightforward projection for the 2025 budget.

The paragraph discusses the financial strategies and asset management plans of a company. The main focus is on the planned drop down of mineral interests to Viper, expected to be completed by early 2025, which is considered a major undertaking. There's also mention of ongoing midstream discussions with partners at Deep Blue, although this is seen as less significant. The company has various smaller assets, such as those in the Bakken and offshore in the Gulf of Mexico, which they aim to monetize at appropriate times. Additionally, they have about 15,000 acres in the Delaware Basin, including both operated and non-operated positions, which they are considering trading and monetizing in a favorable market, as they are not inclined to maintain non-operative business positions due to cost structures.

The paragraph features a conversation about the flexibility of Diamondback's 2025 base plan in response to the macroeconomic environment. Kaes Van't Hof emphasizes that while the plan can be adjusted easily, the current macro environment does not support aggressive growth. He mentions the company's focus on being adaptable, expecting oversupply in 2025. The conversation with Bob Brackett touches on how adjustments can be gradual, such as deferring wells or changing the number of rigs. Kaes also shares that Diamondback has already reduced from 15 to 10 rigs earlier in the year due to drilling more wells than anticipated. Danny Wesson joins the discussion at the end.

The paragraph discusses a company's flexible supply chain strategy that allows it to adapt to market conditions and focus on shareholder returns over growth or production output. Travis Stice highlights a cautious approach for 2025, citing macroeconomic uncertainties like surplus capacity in the oil market. The company prioritizes shareholder returns and free cash flow, maintaining flexibility to adjust its strategy as needed, but currently adopts a conservative stance due to market conditions, unlike some industry peers focusing on growth.

Kaes Van't Hof emphasizes the importance of focusing on per share cash flow and free cash flow, particularly in uncertain macroeconomic conditions, like those anticipated in 2025. He discusses the company's flexible capital allocation strategy, which alternates between share buybacks and dividends depending on market conditions. The emphasis is currently on share repurchases, especially given the company's enhanced value post-Endeavor merger. They plan to buy back more shares if market conditions worsen, demonstrating a countercyclical approach to capital allocation.

The paragraph discusses a conversation between executives about their company's financial strategies and opportunities in the Permian region. Travis Stice emphasizes the importance of maintaining flexibility between dividends, buybacks, and variable returns, reflecting on past experiences with oil price fluctuations. The focus is on learning from the past to avoid mistakes, especially in share repurchases. Betty Jiang from Barclays inquires about capturing revenue opportunities through surface acreage and water provision in the Permian. Kaes Van't Hof highlights their significant land and resource control, aiming to create local markets for their gas to protect shareholders and hedge against rising power prices in Texas over the next decade.

The paragraph discusses Diamondback's strategy to capitalize on West Texas resources by potentially developing power sources in the Permian Basin, which has abundant land, gas, and water production. The company sees this as a cost-effective opportunity for data center operators, benefiting Diamondback shareholders. Betty Jiang inquires about funding these investments, suggesting partnerships due to the capital-intensive nature of building gas power plants. Kaes Van't Hof responds by indicating Diamondback plans to follow successful previous strategies, partnering with experts in power while leveraging their own expertise in the region. This is part of their ongoing efforts to create shareholder value. The conversation concludes with thanks and a transition to the next question.

The paragraph discusses an exchange between Kevin McCurdy and Travis Stice about operational changes in oil drilling, specifically the use of clear fluids and simul-fracs for oil well completions in 2024. Stice confirms that all of Diamondback's wells use clear fluids and simul-fracs, with electric crews being involved. Later, John Freeman from Raymond James inquires about the long-term improvement of realized gas prices in the Permian. He notes that previous acquisitions involved marketing contracts that restricted control, unlike Endeavor's situation. Freeman is interested in how the increased scale after the acquisition can be leveraged to improve pricing, particularly in securing space on future pipelines.

Kaes Van't Hof discusses the company's strategic flexibility in managing residue gas and crude oil, highlighting an increased commitment to the EPIC pipeline and securing space on other pipelines like Whistler, Matterhorn, and the upcoming Blackcomb. They are exploring opportunities with partners like Energy Transfer to optimize gas distribution and are making decisions to diversify risk, particularly in light of increased gas production in the basin. John Freeman follows up with a question about the integration of best practices between two companies, inquiring about the practical process of testing and implementing these changes in the field to identify viable strategies.

In the paragraph, Travis Stice discusses the integration process following a merger or acquisition, highlighting the logistical efforts such as relocating over 650 offices and onboarding 1,000 employees within the first six days. The teams from both sides are collaborating to merge their practices effectively, focusing on learning from each other and combining their strengths. He emphasizes the organization’s positive response to the changes, particularly in adapting to the pace and requirements of operating as a public company. They have already delivered on significant promises made earlier in the year. John Freeman and Roger Read acknowledge these efforts, with Roger planning to revisit the topic of productivity and efficiency.

The paragraph discusses the continuous improvements in drilling and fracking operations due to mechanical advancements and the experiences of crews. Kaes Van't Hof highlights that their approach is to promptly implement effective mechanical changes across the portfolio rather than delaying them. He emphasizes the importance of consistency in their business model, not altering plans with oil price fluctuations, which allows for stable development. Long-term partnerships with vendors and the collaboration between teams on completion design work also contribute to future efficiencies and improved results. The conversation touches on resilience to potential oil price declines and oversupply situations in 2025.

The paragraph discusses how a consistent and efficient planning approach, including drilling and completing wells while minimizing non-productive time, is crucial for companies facing potential market pressures. Kaes Van't Hof emphasizes that during low points in the economic cycle, it might be beneficial to focus on building more ducts, leveraging balance sheet strength. This strategy could help avoid losing efficiencies, which they are confident about due to their experience and knowledge of the Midland basin. Travis Stice adds that maintaining productivity and leadership in operations is a central cultural element at Diamondback, stressing that it's their responsibility to uphold their progress and not lose ground in efficiency or operational effectiveness.

In the paragraph, Travis Stice and Kaes Van't Hof discuss the integration of two companies and the synergies being realized from their union. They highlight that while initially planned cost reductions were anticipated, the integration has revealed areas where the acquired company, Endeavor, excelled. Specifically, Endeavor's superior drilling techniques and completion designs are noted as areas where they perform better, leading to potential savings and improvements. The merger allows both companies to share and implement best practices, ultimately enhancing operations.

The paragraph discusses the benefits of data sharing between two companies, which is expected to lead to better well results and cost efficiency over time. The combined expertise of Diamondback and Endeavor in basin operations is highlighted as a key advantage. Although some improvements may take longer to develop, there is optimism about future efficiencies and economies of scale. The conversation shifts to financial strategies, addressing questions about balancing debt reduction with payout ratios given current share prices and free cash flow, with Kaes Van't Hof addressing the latter concern.

In the paragraph, the speaker discusses the impact of recent transactions on their company's free cash flow and stock buyback strategy. The effective date of a deal involving Endeavor was January 1st, but only 20 days of public numbers were accounted for, which understates the combined free cash flow. The Stevens family reduced their shareholding post-close, prompting a substantial stock buyback by the company. The company aims to maintain flexibility with its strong balance sheet, planning to reach $10 billion in net debt quickly. While the Stevens family's future intentions aren't clearly stated, it's noted they intend to reduce their voting rights to align with their ownership percentage. The following question emphasizes support for public shareholders and maintaining capacity for stock buybacks.

The paragraph addresses questions about operational expenses (OpEx) and unit cost guidance following Diamondback's combination with Endeavor. The midpoint of unit cost guidance has decreased, with Line Operating Expenses (LOE) down by $0.10 and Gathering, Processing, and Transportation (GP&T) by $0.20. Kaes Van't Hof explains that the changes are due to the recent business combination and emphasizes a conservative approach to OpEx guidance given only 20 days of combined operations. He mentions that Diamondback's higher LOE is partly because they outsourced water disposal, unlike Endeavor. This presents an opportunity to lower costs by consolidating this function, providing a $0.50 to $0.60 difference per Barrel of Oil Equivalent (BOE). Additionally, with more BOEs and not significantly higher General and Administrative (G&A) costs, there's potential for reduced G&A expenses. The company plans to refine their cost analysis with the upcoming Q4 report to better optimize for 2025.

The discussion focuses on the company's outlook for 2025 and beyond. They mention that current well costs are at the low end of the range and emphasize the need for a plan that maximizes free cash flow and produces a lot of oil at a low breakeven price. The integration of the TRP trade is expected to benefit shareholders. Leo Mariani from ROTH questions the conservative production forecast for next year, given the current strong performance, particularly in gas. Kaes Van't Hof responds by saying their base case aims for 480,000 barrels of oil per day next year, but decisions will be guided by the macroeconomic conditions closer to January. He acknowledges their conservative estimates and suggests actual production could be closer to 840 to 850 BOE compared to the forecasted 800 to 825.

The paragraph involves a discussion on oil guidance and financial strategies from company representatives, focusing on potential cash tax benefits and operating modes amidst fluctuating oil prices. While there is acknowledgment of potential growth, the emphasis is on maintaining a flexible business model and being cautious in response to oil price volatility and geopolitical factors. The speakers emphasize the importance of being the lowest-cost operator and avoiding past industry mistakes associated with over-reliance on predictive models.

The paragraph is part of a conversation about Diamondback's financial strategy and cost management in drilling operations. Scott Gruber highlights the company's focus on free cash flow over capital expenditures (CapEx) and inquires about the impact of deflation on their $600 per foot drilling cost. Kaes Van't Hof explains that the $600 figure is a real-time, market-verified number and discusses the factors affecting costs, including the addition of more expensive wells and longer laterals. He notes that there are few long-term contracts and implies stable service costs with no expected rise in rig count in the Permian. Kaes suggests that stable or falling costs could benefit shareholders. Kalei Akamine of Bank of America praises the company’s ability to maintain or lower these costs and seeks further insight into 2025 CapEx.

The paragraph discusses financial and operational strategies related to certain assets and investments around the year 2025. Kaes Van't Hof provides insights into cost assumptions for wells, highlighting a reduction from $625 to $600 with some potentially lower costs. He mentions plans for environmental capital expenditure of $50-$60 million for the Endeavor assets, which are considered essentially theirs above ground. The infrastructure budget is expected to be higher in 2025 compared to 2026, aiming for it to eventually be around 6-7% of total capital. There's a possible sale of midstream assets to a joint venture, which would alter the capital expenditure. Positive trends are noted in the combined acreage position, expected to lower future above-ground spending. Kalei Akamine asks about the structure of a deal involving Deep Blue and Endeavor, particularly whether it will involve cash or more equity, referencing a past deal where $500 million cash and 30% equity were involved.

In the paragraph, Kaes Van't Hof discusses the strategic objectives and financial dealings of Diamondback and its partnership with Deep Blue. The focus is on accelerating deleveraging targets through cash, without leveraging subsidiaries for parent company cash. He emphasizes the importance of the mineral drop-down deal to both Diamondback and Viper. Kalei Akamine highlights the significant EBITDA and deal multiples of the royalties, questioning whether they should be packaged or divided into smaller transactions. Van't Hof prefers executing the majority at once and stresses Viper's growth and strategic advantages, noting its interest in 11,000 horizontal wells, which benefits Diamondback shareholders.

The paragraph reflects the conclusion of a conference call where Travis Stice, the CEO, thanks participants for their questions and invites them to reach out with any further inquiries. The operator closes the session, indicating that the call has ended and participants can now disconnect.

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