The paragraph is an introduction to Diamondback Energy's first-quarter earnings call for 2024. Adam Lawlis, VP of Investor Relations, starts the call by noting that it will include forward-looking statements and non-GAAP measures, with reconciliations available in their earnings release. Representatives from Diamondback Energy, including Travis Stice (Chairman and CEO), Kaes Van't Hof (President), Danny Wesson (COO), and Jere Thompson (CFO), are present for the call. Travis Stice acknowledges a letter to stockholders that was released and opens the floor for questions. The first question comes from Neil Mehta of Goldman Sachs, who also congratulates Travis on his retirement and Kaes on his new role.

The paragraph discusses a company's strategic response to challenging oil market conditions, highlighted by OPEC's decision to increase oil production in an already oversupplied market. Travis Stice explains that the company reduced its capital expenditure by $400 million by cutting three drilling rigs and one frac spread, aiming to minimize the impact on production while maintaining flexibility for future adjustments. The focus is on maximizing value for shareholders amidst slowing global economies and changing supply-demand dynamics. Despite the reduction in spending, the company has enhanced its capital efficiency, with a relatively minor impact on production expected in 2025.

Travis Stice discusses the impact of changes in production activity, noting a significant decrease from peak to trough in Q2, amounting to a reduction of 20,000 net barrels of oil per day. While production was strong in April, a reduction in frac crews has led to a decline. Q2 production is projected around 495,000 net barrels per day, with a slight dip expected in Q3. This decline is attributed to tactical adjustments and is reflective of the broader trend of declining oil production in the Permian Basin. Scott Hanold from RBC Capital Markets acknowledges Travis’s achievements despite a challenging macroeconomic environment and inquires about his views on the broader oil market, noting Diamondback's proactive management and insights into U.S. oil production trends.

The paragraph discusses the challenges facing U.S. oil production, particularly in the Permian Basin. Travis Stice notes that the U.S. must compensate for a significant base decline in oil production, with a need to replace around 4.5 to 5 million barrels a day. As investment in the sector decreases, this decline is becoming more pronounced. The industry is in a mature stage, making it difficult to offset declines through efficiency gains alone. Kaes Hof adds that the industry, well-experienced in dealing with such declines, is delaying projects as a response, a practice seen several times over the past decade.

The paragraph discusses the impact of current drilling and oil price dynamics on future production plans. It highlights that small drilling projects are being postponed, affecting overall production trends. Travis Stice and Scott Hanold mention the challenges of maintaining production levels amid low oil prices, emphasizing the significant capital required to restore or grow production. Kaes Hof discusses Diamondback's strategy for 2026, noting that while they're preparing for potential difficulties, they currently plan to maintain operations with four crews but may adjust based on future oil prices. The conversation indicates a focus on moving forward despite current challenges, with an eye on maintaining investor returns.

The paragraph discusses Diamondback Energy's plans to stabilize oil production at 485,000 barrels per day in the fourth quarter and hints at potential production increases in 2026 if oil prices rise. Travis Stice emphasizes that the company's extensive inventory helps insulate it from market declines. David Deckelbaum from TD Security asks about Diamondback's DUC (Drilled but Uncompleted wells) strategy, noting the reduction in rig use and DUC building. The plan is to build 20 fewer DUCs this year compared to next year.

The paragraph discusses the strategy around maintaining and managing a backlog of DUCs (Drilled but Uncompleted wells) in the face of fluctuating drilling costs and market conditions. Danny Wesson explains that they currently have the largest DUC backlog in North America and are aiming to draw down less DUCs than initially planned. For operational efficiency, they aim to maintain a certain level of DUC inventory, equating to about 1.5 to 2 pads of DUCs per frac crew, with a comfortable backlog being around 8 to 12 wells per pad. Travis Stice adds that, although they would typically increase DUCs in the current economic environment, rising drilling and casing costs, influenced by tariffs, prompt them to reduce rig operations and prioritize stock buybacks over building new DUCs, expecting steel prices to eventually decrease as demand softens.

In the paragraph, Travis Stice discusses the strategic decisions regarding asset sales and operations in the current market environment. He highlights the planned sale of the Endeavor water system to Deep Blue, emphasizing the importance of integrating these businesses to enhance water handling capabilities in the Midland Basin. He also mentions the partial sale of the Bangle NGL pipeline to MPLX, expected to close in July, and references the slower process of selling the EPIC pipeline. Stice emphasizes patience in asset sales, relying on a strong balance sheet and the expectation of market recovery, rather than rushing to meet specific financial targets. Additionally, John Freeman from Raymond James commends Travis on his career and leadership, inquiring further about oil price thresholds that would lead to increased activity.

The paragraph discusses the company's strategic approach to its operations, particularly in the context of fluctuating oil prices and costs. Kaes Hof suggests patience in ramping up investments until oil prices reach around $70 per barrel, citing uncertainty in demand and supply dynamics. John Freeman mentions the impact of tariffs on steel-related products, noting a 12% increase in costs, but highlights the company's ability to lower costs per foot in the Midland Basin. Travis Stice and Danny Wesson acknowledge the efficiency gains in drilling operations and discuss cost offsets, despite the rising steel costs, through improvements in service efficiencies and reductions in rig and fracture costs.

The paragraph discusses insights shared by Kaes Hof and Arun Jayaram regarding oil production volumes and capital expenditures. They anticipate a decrease in basin activity, potentially leading to lower service pricing despite input cost volatility. Arun Jayaram asks about the capital expenditure required to maintain oil production at 485,000 barrels per day in 2026. Kaes Hof agrees that a $900 million per quarter run rate seems logical, considering service costs might decline and efficiency remains high. However, he hopes the market would recover, allowing for higher production targets. Additionally, Arun Jayaram mentions a company plan to allocate more free cash flow to repurchases amid ongoing market volatility, as highlighted in a shareholder letter.

In this paragraph, Travis Stice discusses the company's strategy for capital allocation, emphasizing the importance of share repurchases over reducing leverage. He mentions that about 25% to 30% of free cash flow will be allocated to debt reduction, taking advantage of repurchasing longer-dated notes at lower prices due to recent market developments. The remaining 70% to 75% of free cash flow is planned for share repurchases and base dividends, dismissing the idea of a variable dividend in the current market. Stice also hints at the benefits of share repurchases for improving per share metrics when the market rebounds. Lastly, Arun Jayaram expresses interest in a future book by Stice about the Endeavor deal, and Bob Brackett asks about the decision-making process involved in capital reductions and drilling locations.

The paragraph discusses the strategic decisions and priorities of a company regarding resource allocation and project selection. It highlights the company's focus on aligning resources on the service side, making commercial decisions with business partners, and prioritizing projects that benefit Viper. The company emphasizes its consistent approach to project execution and capital allocation, noting a strong inventory from which it can draw top-performing projects. Additionally, there's a mention of the company's ongoing share buyback program, with plans to review buyback authorizations after another quarter despite recent changes in the capital plan. The company's management and board see buybacks as favorable at the current levels.

In this discussion, Scott Gruber from Citigroup asks about the impact of geologic challenges compared to technological and process efficiency gains within the industry, suggesting that technology may be slowing while geological difficulties increase. Travis Stice responds that it's a typical trend in a maturing basin like the Permian, where the quality of resources declines over time, reducing efficiency improvements. This pattern has been observed in other basins like Eagle Ford and Bakken. Gruber then questions whether savings were realized when selecting rigs and frac crews, inquiring if service companies are accommodating with contract negotiations. Kaes Hof is about to provide a high-level response on the cost savings topic.

The paragraph discusses a company's strategy of maintaining short-term contracts with drilling and completion service providers to allow for flexible and ongoing negotiations. They have a strong partnership with Halliburton for completion services and emphasize maintaining open communication with all service providers to ensure quality and competitive pricing. The company is proactive in adjusting its activity levels based on market conditions and aims to secure the best value for shareholders. In response to a question, it is noted that during industry downturns, companies often optimize capital by focusing on higher quality acreage and more efficient drilling strategies.

The paragraph discusses the current state of the Permian Basin in the context of oil and gas shale development. It highlights that we are in the later stages of resource development, with the industry having focused on high-grading—prioritizing the best projects—over the past few years. Most companies have already targeted their top projects, making future high-grading opportunities limited. Unlike previous downturns, where capital cuts were made to protect balance sheets, today's healthier financial positions mean decisions are more focused on preserving limited inventory. There are some developments, like those in Dawson and Ector counties, but they do not compare to past resource additions.

In the paragraph, Phillip Jungwirth asks Travis Stice about the company's plans regarding gas pipeline projects out of the Permian and their impact on future Permian oil growth. Travis Stice indicates that they will continue to invest in firm transportation (FT) due to ongoing gas growth, with commitments reaching 750 million cubic feet per day by the end of 2026. They are also considering power generation opportunities in the basin. While exploring diverse marketing strategies, Stice expresses confidence in the long-term outlook for natural gas. Derrick Whitfield then asks about the company's activity levels concerning service costs, using a driving analogy from an investor letter. Stice explains that they consider activity levels in relation to oil prices, indicating that prices around $40 would be a reason to slow down ("red"), $50 as a caution point ("yellow"), and prices in the mid to high $60s could encourage acceleration ("green").

In the paragraph, Derrick Whitfield asks about potential reductions in non-drilling and completion (non-D&C) capital expenditures if faced with prolonged lower prices. Kaes Hof responds by explaining they've already reduced their non-D&C budget by about $50 million and could potentially further reduce it by merging their Midstream business into Deep Blue, saving an additional $50 to $60 million. Hof also mentions that some capital workovers included in the budget are beneficial, improving base decline, and are likely to remain. He anticipates that some one-time budget items from this year will not carry over into the next, suggesting further budget reduction possibilities in a stable environment. Kevin MacCurdy then asks about Diamondback's approach to mergers and acquisitions (M&A) amidst industry distress, inquiring whether it differs from past cycles. Hof acknowledges Diamondback's active M&A history, citing recent acquisitions of Endeavor and Double Eagle as strategic moves to secure premium assets that might not have been available in more volatile times.

The paragraph features a discussion between Charles Meade and Travis Stice regarding a shareholder letter authored by Travis. Charles inquires if the letter's audience extended beyond shareholders, possibly including communities like Midland, policymakers, or OPEC. Travis clarifies that the letter was primarily intended for shareholders, who own the company and make investment decisions. He acknowledges, however, that the public nature of the document means it likely reached a wider audience. Despite receiving feedback from various parties, Travis emphasizes that the primary goal was to communicate with stockholders. Charles then expresses interest in further exploring the topic.

The paragraph discusses the increasing challenges and changes in the efficiency and geological headwinds faced by the company. Travis Stice acknowledges that despite past efficiencies gained from drilling advancements, the ability to further reduce costs is limited. The company has focused on expanding its resource base and inventory, as much of the basin's inventory is already well defined, with current drilling operations achieving significant efficiencies. Paul Cheng from Scotiabank questions whether the company's traditional growth model, which relied on acquisitions and expansion within the Permian basin, needs to change now that most of the best assets have been consolidated. This prompts consideration of whether the company should explore opportunities outside the Permian or rethink its overall business strategy going forward.

Travis Stice discusses Diamondback Energy's focus on the Permian Basin, emphasizing their expertise and success in drilling wells there, which negates the need to explore other basins. The company has grown through acquisitions and prioritizes per share metrics, aiming for continued growth with existing assets. Stice foresees a future need for significant organic growth to address a potential gap in U.S. supply. Addressing a question from Paul Cheng, Stice explains that recent changes from fixed fee to percentage of proceeds contracts impacted NGL and natural gas production, but expects a rebound in the second quarter. Leo Mariano inquires about cost-related metrics, noting a decrease in LOE and a rise in transportation costs.

In the paragraph, Kaes Hof discusses adjustments related to gas and NGL, explaining that they've decided to take more molecules in kind on the gas side, which will increase GPT and improve gas realizations as a percent of NYMEX. Danny Wesson talks about the LOE (Lease Operating Expense), noting a temporary issue related to the Endeavor closure affecting water business, leading to conservative estimates. They expect LOE to rise from the first quarter, but still be lower than originally planned. Leo Mariano inquires about the buyback strategy, suggesting that it might decrease when oil prices are favorable (green light) and increase during unfavorable conditions (red light). Kaes Hof confirms this framework.

The paragraph discusses a company's business strategy and operational efficiency. The company focuses on generating high free cash flow, returning capital, and prioritizing share buybacks over drilling to reduce dividend obligations. They see dividends as a fixed obligation that decreases as shares are repurchased. In response to a question from Kalei Akamine of Bank of America, Danny Wesson highlights the efficiency of the company's completions team, noting improvements in frac efficiency, with crews potentially achieving 100 to 120 wells annually. The team is currently completing an average of mid-3,000 feet per day, sometimes exceeding 4,000 feet, demonstrating significant operational efficiency gains.

The paragraph discusses the company's operational strategies and capital efficiency in its oil production program. Kalei Akamine inquires about the lowered but broad capital range for 2025, specifically about reaching the lower end of $3.4 billion. Travis Stice explains that reaching this lower end would be akin to a "red light scenario," implying unfavorable macroeconomic conditions. He notes that the midpoint, at current service prices, would allow for stabilizing oil production at 485,000 barrels per day by Q3 and potentially increase it by re-adding a crew in Q4. Achieving a higher production rate of 500,000 barrels per day would require a price rebound. Doug Leggate of Wolf Research asks for clarification on the impact of capital efficiency, pointing out that $400 million in capital cuts have resulted in a loss of 5 million barrels for the year, and seeks to understand the trade-offs in potentially adding that capital back.

In the paragraph, Travis Stice discusses the impact of production levels on capital expenditures, explaining that sustaining production at 500,000 barrels of oil per day would require around $1 billion per quarter, while lower production levels (480,000-485,000 barrels per day) would need about $900 million per quarter, with further reductions in Q2 and Q3. He notes the fluctuating production rates and anticipates stabilization in Q4. Kalei Akamine then asks for an elaboration on Stice's comments about the U.S. shale oil production peak and insights into industry trends. Stice responds that his insights are based on industry anecdotes and relationships across the public and private sectors.

The paragraph discusses challenges faced by oil operators in the U.S. due to current oil prices, which are not favorable for drilling in higher breakeven acreage positions like the Barnett, Dean, and Delaware basins. As a result, production is slowing, and activities like frac operations and pipeline usage are declining. The Permian basin is similarly affected due to higher breakeven costs. The implication is that the marginal barrel of oil in the U.S. is not being produced currently. The segment concludes with Travis Stice, likely an executive, thanking participants and offering further assistance if needed.

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