Diamondback Energy, Inc. Q3 FY2024 earnings call

Key Managerial Messages

• Capital Efficiency and Free Cash Flow: Focus on free cash flow generation, with Endeavor assets improving free cash flow margin and reinvestment rate. Corporate breakeven has decreased by 2-3 dollars per barrel.
• TRP Asset Trade: Diamondback acquired 18 DUCs in the Midland Basin, current production, and 55 top quartile locations, moving lower quartile inventory to higher, while benefiting from capital efficiency.
• Synergy Deliveries: Combined efforts of Diamondback and Endeavor have led to efficiency gains in drilling, fracturing, and completion designs, with synergies delivered ahead of schedule.
• Asset Monetization: Plans to monetize assets include Viper mineral drop-down in early 2025, midstream discussions with Deep Blue, and monetizing smaller assets like those in the Bakken and Gulf of Mexico.
• Surface Acreage and Gas for Power: Opportunities with surface acreage and gas to create new revenue streams, benefiting shareholders by finding local markets for gas and insulating from power price increases.

No specific segment performance data on absolute financials and revenue contribution percentages provided in the transcript.

Forward-Looking Guidance

• 2025 base plan targets 4.1 to 4.4 billion in CapEx to maintain 480,000 barrels per day oil production, near the lower end of the range.
• Flexibility to refine the plan based on macro environment, with focus on free cash flow generation.
• Expect BOEs to be closer to 850 vs. prior guidance of 800-825.
• Goal for Viper mineral drop-down in early 2025.

No specific risk discussion detailed; general macroeconomic uncertainties affecting oil prices and market oversupply are implied.

Q: Morning guys. Nice update last night, Travis. Guys, I'll save all my AI and data center questions this morning for your year-end call and I'll jump into my first question this morning on capital efficiency which again, I think by my calculation you all continue to have better than any other E&P. And so specifically, could you all for your Travis, maybe speak to what you all believe could be your realistic free cash flow per barrel next year or actually looking at, just looking at what your breakeven would be assuming cost operations and well results continue to trend as they've been year-to-date.

A: Yes, Neal, we've really focused on free cash flow generation over, CapEx spend in recent years and I expect that trend to continue. I think, with the Endeavor assets under the under the hood, that only improves our free cash flow margin, our reinvestment rate goes lower. Our corporate breakeven, we highlighted went down by two or three dollars a barrel. And I think in a world of a tenuous macro, the lowest break even and the longest duration of inventory is going to pay dividends. There's two things we really look at free cash flow margin, which is the output of the reinvestment rate but also how much CapEx are we spending per barrel of oil produced? And we like to say that we have the highest amount of barrels produced per dollar of CapEx in the business and you expect that trend to continue. So a lot of times a lot of work has been done here integrating two companies very, very quickly. I'm ecstatic about the progress that's been made. We've already learned some things from the Endeavor side and vice versa. And I think that's all going to accrue to the benefit of our shareholders through more free cash flow over a longer period of time.

Q: Morning guys. Nice update last night, Travis. Guys, I'll save all my AI and data center questions this morning for your year-end call and I'll jump into my first question this morning on capital efficiency which again, I think by my calculation you all continue to have better than any other E&P. And so specifically, could you all for your Travis, maybe speak to what you all believe could be your realistic free cash flow per barrel next year or actually looking at, just looking at what your breakeven would be assuming cost operations and well results continue to trend as they've been year-to-date.

A: Yes, Neal, we've really focused on free cash flow generation over, CapEx spend in recent years and I expect that trend to continue. I think, with the Endeavor assets under the under the hood, that only improves our free cash flow margin, our reinvestment rate goes lower. Our corporate breakeven, we highlighted went down by two or three dollars a barrel. And I think in a world of a tenuous macro, the lowest break even and the longest duration of inventory is going to pay dividends. There's two things we really look at free cash flow margin, which is the output of the reinvestment rate but also how much CapEx are we spending per barrel of oil produced? And we like to say that we have the highest amount of barrels produced per dollar of CapEx in the business and you expect that trend to continue. So a lot of times a lot of work has been done here integrating two companies very, very quickly. I'm ecstatic about the progress that's been made. We've already learned some things from the Endeavor side and vice versa. And I think that's all going to accrue to the benefit of our shareholders through more free cash flow over a longer period of time.

Q: Good morning, team. Travis, you have -- from a Diamondback perspective, it feels like the company has your hands in terms of several cookie jars. In terms of your equity investments, I was wondering if you could help us frame kind of the value creation potential or embedded maybe asset value that we may not be giving you credit for as we think about investments in the epic crude line Deep Blue, and obviously maybe I don't know if I like Neal, I can wait until you're in. I wanted to get your thoughts on this data center kind of opportunity with the surface acres because investors have noted how one of a company who's developing a data center, Reeves county, has a pretty punchy evaluation in the equity market.

A: Sure, lots of questions there, Arun, but thanks for your time this morning. Listen on, on this whole data center deal, we've been listening to our shareholders to try to figure out a way to respond to their questions about can we create more value from our gas stream. And when you look at what we have as a total company, we've got abundant natural gas, we've got abundant surface acreage, over 65,000 acres on a pro forma basis, and there's a need for greater electricity. So rather than continuing to, get low margins on our gas and full boat on electricity, we're trying to figure out a way to be creative. Creative on ways to turn some of that natural gas into more value for our shareholders. The EPIC pipeline was a move that allowed us to increase our ownership almost to a full third, trying to recognize that there's ultimately going to be a need out of the Permian Basin for increased crude capacity. And so, while it's probably not a long-term investment, we think like a lot of our other equity investment methods, we'll be able to turn that into a very nice, very nice return for our shareholders. And in Deep Blue, we just continued to evaluate, the sustainability of the efficiency of that business model and recognize that there's some Endeavor assets that could potentially fit into that as well as we continue to unpack value creation from the pro forma companies.