Diamondback (NASDAQ:FANG) Energy, Inc. (NASDAQ: FANG) discussed its first quarter 2024 results, highlighting strategies to mitigate natural gas pricing softness and improve capital efficiency. The company's executives also provided updates on synergy capture following a transaction in the Midland Basin and addressed the timing of non-core asset sales in light of market changes. During the call, forward-looking statements were made, and non-GAAP measures were referenced, with reconciliations available in the earnings release.
Key Takeaways
- Diamondback Energy is working on strategies to alleviate the impact of soft Waha natural gas pricing.
- The company expects a 10% improvement in capital efficiency per lateral foot due to deflationary pressures and operational advancements.
- There is a focus on contributing to the construction of more pipelines to debottleneck Permian gas.
- 90% of Diamondback's capital is allocated to the Midland Basin, where costs are trending towards the lower half of the $600 to $650 per foot range.
- The Delaware Basin represents 10% of the company's program, with selective high-quality projects planned.
- The Endeavor transaction is set to close in Q4 2024, with synergy targets and a capital-efficient plan for 2025 remaining strong.
- Asset sales considered non-core are still planned but have been delayed, with an $8 billion cash consideration to be reduced by free cash flow until the Endeavor deal closes.
Company Outlook
- Diamondback Energy is confident in maintaining strong synergy targets and a capital-efficient plan for 2025.
- The company is taking a leadership role in facilitating new pipeline projects to support gas production in the Permian Basin.
Bearish Highlights
- The company is facing challenges with soft natural gas pricing in the Waha market.
Bullish Highlights
- Diamondback Energy sees deflationary pressures as tailwinds for the year ahead.
- Operational efficiencies and longer lateral lengths are driving down costs in the Midland Basin.
Misses
- There were no specific "misses" mentioned in the provided context of the earnings call.
Q&A Highlights
- Discussions on the call included the timing of Permian gas debottlenecking and the impact of longer lateral lengths on capital efficiency.
- The company discussed the Delaware Basin's role in their portfolio and the anticipated closing of the Endeavor transaction.
Diamondback Energy's approach to navigating market challenges and its commitment to improving operational efficiencies and capital effectiveness were central themes in the Q1 2024 earnings call. The company remains focused on maintaining a strong position in the Midland Basin, while also managing its Delaware Basin assets selectively. The anticipated closing of the Endeavor transaction and subsequent synergy benefits are key components of Diamondback's strategic outlook for 2025.
InvestingPro Insights
Diamondback Energy, Inc. (NASDAQ: FANG) has been navigating through a volatile market, with its strategic focus on the Midland Basin and operational efficiencies. Here are some critical insights from InvestingPro that can provide additional context to the company's performance and future outlook:
InvestingPro Data:
- The company's market capitalization stands at $34.96 billion, reflecting its significant presence in the energy sector.
- Diamondback Energy's P/E ratio is currently 11.34, suggesting that the stock may be reasonably valued in relation to its earnings.
- With a dividend yield of 4.25%, the company has shown a commitment to returning value to shareholders, which is bolstered by its 7-year history of consistent dividend payments.
InvestingPro Tips:
- Analysts have a positive outlook on Diamondback Energy, with 12 analysts revising their earnings upwards for the upcoming period. This could indicate a favorable view of the company's future profitability.
- The stock has experienced a large price uptick over the last six months, with a 27.74% total return, demonstrating strong recent performance that investors may find encouraging.
For investors seeking a deeper dive into Diamondback Energy's financials and future prospects, InvestingPro offers a wealth of additional tips and insights. Subscribers can access these valuable resources to make more informed investment decisions. Use coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, and discover why Diamondback Energy is a company to watch in the energy sector. With a total of 13 additional InvestingPro Tips available, there's a comprehensive analysis waiting for those looking to explore beyond the surface-level metrics.
Full transcript - Diamondback Energy Inc (FANG) Q1 2024:
Operator: Good day, and thank you for standing by. Welcome to the Diamondback Energy First Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions]. Please be advised that today's conference is being recorded. I would now like to hand the conference over to Adam Lawlis, VP of Investor Relations. Please go ahead.
Adam Lawlis: Thank you, Jules. Good morning, and welcome to Diamondback Energy's first quarter 2024 conference call. During our call today, we will reference an updated investor presentation and Letter to Stockholders, which can be found on Diamondback's website. Representing Diamondback today are Travis Stice, Chairman and CEO; Kaes Van't Hof, President and CFO; and Danny Wesson, COO. During this conference call, the participants may make certain forward-looking statements relating to the company's financial condition, results of operations, plans, objectives, future performance and businesses. We caution you that actual results could differ materially from those that are indicated in these forward-looking statements due to a variety of factors. Information concerning these factors can be found in the company's filings with the SEC. In addition, we will make reference to certain non-GAAP measures. The reconciliations with the appropriate GAAP measures can be found in our earnings release issued yesterday afternoon. I'll now turn the call over to Travis Stice.
Travis Stice: Thank you, Adam, and I appreciate everyone joining again this morning. I hope you continue to find the stockholders letter that we issued last night an efficient way to communicate. We spent a lot of time putting that letter together, and there's a lot of material in that. So operator, with that as a brief introduction, would you please open the line for questions? So with that operator, would you please open the line for questions?
Operator: Thank you. At this time, we will conduct a question-and-answer session. [Operator Instructions]. Our first question comes from the line of Neil Mehta of Goldman Sachs. Your line is now open.
Neil Mehta: Yes. Good morning. Travis, Kaes and team. A lot of good stuff in the letter. Two quick follow ups. First, just on natural gas. You spent a lot of time talking about some steps you've taken to mitigate some of the softness that we're seeing in Waha pricing. Can you spend more time on that? And as it relates to that, how do you think about the timing of debottlenecking Permian gas?
Travis Stice: Well, from a macro perspective, I think we've been pretty clear that we're going to continue to need pipes being built about every 12 to 18 months out of the Permian to accommodate the associated gas that goes along with the 6 million barrels a day that we produce out here. Natural gas is right now being almost treated like a waste product and we've got this -- when Matterhorn comes on this fall, we'll see some of that reverse. But Kaes, you want to give them some description of what we're doing with the rest of the gas.
Kaes Van't Hof: Yes, Neil, long term, we want to be able to contribute to more pipes. We've done that in the last couple of years with commitments on Whistler and Matterhorn. We've relinquished taking chondrites in other areas to commit to other pipes that were built. As Travis said, we just need to do more. And I think with our size and scale and balance sheet, we should be taking a leadership position on these new pipes. We've talked to a lot of people that are working on them today. And it seems that there are projects in the works that will help debottleneck past the end of this year. But as we control or have the ability to control more gas flows on our side, as contracts roll off, et cetera, we're going to keep pushing on more pipes and more markets out of this basin.
Neil Mehta: Yes. Thanks, both. And then the second is capital efficiency. You talked about the 10% improvement that you're expecting per lateral foot. So just talk about what you're seeing in real time in terms of deflation and then also what are the next steps in terms of driving your cost structure lower as we think about efficiency of fleet?
Travis Stice: Well, I think the deflationary pressures we continue to see in the Permian are being driven by the decline in the rig count and the decline in the completion crew count. Those will be tailwinds for us as we look through the rest of this year. But also, without regards to those deflationary impacts, we continue to push the envelope on our D&C operations where we're getting -- I think we averaged almost 13,000 feet for the quarter this year. And we continue to get these wells drilled faster. And then our completion crews continue to push the envelope on the number of lateral feet that are completed in a 24-hour period. So we're working on the numerator and the denominator of capital efficiency and really like the way the rest of the year sets up for us.
Neil Mehta: Okay. Thanks, Travis.
Travis Stice: Thanks, Neil.
Operator: Thank you. Please stand by for our next question. Our next question comes from the line of Arun Jayaram of JPMorgan Securities LLC. Your line is now open.
Arun Jayaram: Yes. Good morning. Travis, you and the team had highlighted up to 550 million of annualized synergy capture in the transaction in the Midland Basin, including 150-foot decline in D&C and ECOS [ph] in the Midland Basin to that 600 to 650 range. Maybe a follow up to Neil's question, but were you seeing kind of leading edge kind of cost today in the Midland Basin as you continue to push those lateral links a bit longer?
Kaes Van't Hof: Arun, it's Kaes. I think the combination of those longer laterals, 12,000 plus, with some efficiencies on the completion side that we probably weren't expecting going into the year, as well as some softening on the service side, makes us feel pretty good that we're in the lower half of that 600 to 650 a foot in the Midland Basin. As you know, 90% of our capital is being allocated to that basin. So with those costs trending the right direction, I think on a real-time basis, closer to 600 a foot, we feel really, really good about our plan this year as well as carrying that momentum into a Q4 close of the Endeavor deal and into 2025. Very clearly, we laid out some strong synergy targets and a very strong capital efficient 2025 plan, and we still feel very, very confident in that plan.
Arun Jayaram: Great. Kaes, looking at the quarter, you didn't really -- how many activity in terms of tills in the Delaware Basin. Can you give us some thoughts on the Delaware program? I know it's 10% of the program, but what are your thoughts on the Delaware as we think about moving into the back half of this year and into next year?
Kaes Van't Hof: Yes, listen, there's still a place for the Delaware program. There's still some really good projects coming up in Q2. I think we have a project in that [indiscernible] area, Northern Ridge County that's going to be very good. I think generally, with large pad development, you're going to see pockets of development in the Delaware rather than consistent development because we want to go over there and complete multiple wells, multiple pads in a row, and keep that capital efficiency high versus the Midland Basin where three or four simul-frac crews are going to be running at all times.
Arun Jayaram: Great. Thanks a lot.
Kaes Van't Hof: Thanks, Arun.
Operator: Our next question comes from the line of David Deckelbaum of TD Cowen. Your line is now open.
David Deckelbaum: Good morning, Travis, Kaes and team. Thanks for your time today.
Travis Stice: You're welcome, David. Good morning.
David Deckelbaum: Maybe, this question is for both of you guys. But considering the positioning a bit early with the debt that you raised earlier this month, now the expectation that the deal will close at the end of the year with Endeavor. You talked about kind of the synergy expectations in the last series of questions. Can you give us an update on how you're thinking about that initial sort of non-core sale asset target and maybe some of the updated timing around those thoughts considering the markets changed a bit, especially around the cast consideration portion?
Kaes Van't Hof: Yes. I think what's changed is just timing, right? I think the projects we see as non-core asset sales or the asset sales to subsidiaries we have, it's still the same. Endeavor has a really good midstream business that would fit well with our midstream JV. They have a significant mineral business that I think is going to be a game changer for Viper, if those two businesses are combined. And our strategy to execute on those trades has not changed. It's just been pushed out to the right. So, on top of that, there's an $8 billion cash consideration. That continues to be worked down with free cash flow between sign and close.
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