Diamondback Energy Q1 2025 Earnings Call Transcript

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Provided by Quartr
May 6, 2025
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Operator

Good day, and thank you for standing by. Welcome to the Diamondback Energy First Quarter twenty twenty five 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. To ask a question during the session, you will need to press 11 on your telephone.

Operator

You will then hear an automated message advising your hand is raised. To withdraw your question, please press 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Adam Lawless, VP of Investor Relations. Please go ahead.

Adam Lawlis
Adam Lawlis
VP, IR at Diamondback Energy

Thank you, Lauren. Good morning,

Adam Lawlis
Adam Lawlis
VP, IR at Diamondback Energy

and welcome to Diamondback Energy's first quarter twenty twenty five 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 Kate Van Toss, President Danny Wesson, COO and Jerry Thompson, CFO. During this conference call, 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.

Adam Lawlis
Adam Lawlis
VP, IR at Diamondback Energy

Information concerning these factors can be found in the company's filings with

Adam Lawlis
Adam Lawlis
VP, IR at Diamondback Energy

the SEC. In addition, we

Adam Lawlis
Adam Lawlis
VP, IR at Diamondback Energy

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
Travis Stice
Chairman and CEO at Diamondback Energy

Thank you, Adam. I hope everyone has had a chance to review our stockholder letter that was released last night. Most of our commentary today will be found inside that letter. Operator, would you please open the line for questions?

Operator

Thank you. At this time, we will conduct a question and answer session. As a reminder, to ask a question, you will need to press 11 on your telephone and wait for your name to be announced. Our first question comes from the line of Neil Mehta with Goldman Sachs and Co. Your line is now open.

Neil Mehta
Neil Mehta
Head of Americas Natural Resources Equity Research at Goldman Sachs

Yeah, good morning, Travis, Case. And Travis, congratulations as you position for retirement. And Case, congratulations again on taking on the new role. I think some important news this morning around changes in the activity plans and in response to obviously what is a tougher oil macro. So, Travis, can you spend some time talking about the thought process that went into the decision and how you're thinking about the approach from here.

Travis Stice
Travis Stice
Chairman and CEO at Diamondback Energy

Sure, Neil. Our job is to allocate capital and allocate capital for the most profit we can for the shareholders who own the company. Part of our role is we have to have a view of the macro as we allocate capital, and the current view of the macro is certainly challenging at best. Over the weekend, OPEC made the decision to put an extra million barrels a day on the market in what's already an oversupplied world, we still are looking at headwinds with what we're seeing as slowing economies around the world, which obviously has a read through to demand. So what we tried to put together was a response to those kind of macro conditions, which by taking $400,000,000 out of our capital budget and three drilling rigs and one frac spread allowed us to maximize the CapEx reduction while minimizing volume impact and at the same token provide us a runway for maximum flexibilities to respond in either direction in the future quarters as this evolving supplydemand imbalance works its way through the system.

Travis Stice
Travis Stice
Chairman and CEO at Diamondback Energy

So that's sort of the background of what we talked to the board about well before Saturday's decision by OPEC. And again, it stems with how can we create the most value when we allocate capital. And when you look at what we've done with this announcement, we've actually made our program more capital efficient by spending less dollars this year.

Neil Mehta
Neil Mehta
Head of Americas Natural Resources Equity Research at Goldman Sachs

Travis. The follow-up on that is we certainly reduced your cash CapEx by $400,000,000 The impact on production is not that significant at least for 2025. And so is that a function of the delay between changes in activity and production? Or is that you guys were just really tracking well in terms of your productivity to start the year?

Kaes Van't Hof
Kaes Van't Hof
President at Diamondback Energy

Yes, Neal. Let give you some color on that because I think it's important, right? On the outside, it looks like a 1% hit to production. But if you just look at Q2 peak to trough, we're going to probably be down 20,000 net barrels of oil a day, which on a gross basis is close to 30,000. So we had a great April, things were humming along, we were well over 500,000 net barrels of oil a day.

Kaes Van't Hof
Kaes Van't Hof
President at Diamondback Energy

Obviously now hitting the brakes a little bit with the reduction in the frac crews. And so if you think about it, we're about 475,000 barrels a

Kaes Van't Hof
Kaes Van't Hof
President at Diamondback Energy

day net

Kaes Van't Hof
Kaes Van't Hof
President at Diamondback Energy

Q1.

Travis Stice
Travis Stice
Chairman and CEO at Diamondback Energy

Q2 guide round numbers is about 495,000 and then we're going to decline off a bit into Q3 down to about four eighty five dollars and at that point in today's market hold that flat.

Kaes Van't Hof
Kaes Van't Hof
President at Diamondback Energy

So on the outside, it looks like a flattish program, but this is why we've kind of been saying that we think gross well production is coming down in the Permian and The U. S. You just look at ours, for example, going from five frac crews down to four is going to be a 30,000 barrel a day impact in just a quarter.

Scott Hanold
Scott Hanold
Managing Director - Energy Research at RBC Capital Markets

Thank you, Casey. Thanks, Travis.

Travis Stice
Travis Stice
Chairman and CEO at Diamondback Energy

Thank you.

Kaes Van't Hof
Kaes Van't Hof
President at Diamondback Energy

Thanks, Neal.

Operator

Thank you. Our next question comes from the line of Scott Hanold with RBC Capital Markets. Your line is now open.

Scott Hanold
Scott Hanold
Managing Director - Energy Research at RBC Capital Markets

Yes, thanks. And Travis, again, congrats too on your next stage. Look, would say it's unfortunate it has to be on a bad macro note, but I think it's a testament to what you've created that Diamondback's able to kind of manage through this pretty well. My first question is you're welcome. My first question is just your broad view of the oil macro.

Scott Hanold
Scott Hanold
Managing Director - Energy Research at RBC Capital Markets

I thought it was pretty interesting in your investor letter, how you thought The U. S. Oil production was ready to roll over. And obviously, you all have some pretty good eyes and feelers out on the ground. Can you give us a sense of what you're seeing real time in the Permian Basin and other places and your view on maybe where oil production goes from here and it's more of a U.

Scott Hanold
Scott Hanold
Managing Director - Energy Research at RBC Capital Markets

S. Perspective versus Diamondback 1?

Travis Stice
Travis Stice
Chairman and CEO at Diamondback Energy

Sure. Well, certainly as Permian Basin goes, S. Production And you know at roughly 6,000,000 barrels of oil a day, we've got a base decline that we have to offset every year of about 2,500,000 barrels a day. And it doesn't take much capital to come out of the equation for that base decline to really be seen in production.

Travis Stice
Travis Stice
Chairman and CEO at Diamondback Energy

And so you can apply that also to the 13,000,000 barrels a day that The U. S. Is producing. That's roughly 4,500,000 or 5,000,000 barrels a day of production and has to be replaced. So I think as capital continues to come out of the investment equation, this decline that we're on is really going to be magnified.

Travis Stice
Travis Stice
Chairman and CEO at Diamondback Energy

And because we are in the more mature stage of the development, this is not one of the types of declines that can be offset by improved efficiencies, although we highlighted continued efficiency gains at the Diamondback level in the quarterly results. But we're picking pennies up now. And when we were going through this earlier in our history, probably most recently 2014 and early 'fifteen, we were able to pick up dimes and quarters back then. And it's just where we are in the maturation cycle of depleting these resources that I think you're going to see a really remarkable response on this base decline that's part of the equation.

Kaes Van't Hof
Kaes Van't Hof
President at Diamondback Energy

Yeah, Scott, we've been kind of well trained in shale, right?

Kaes Van't Hof
Kaes Van't Hof
President at Diamondback Energy

This is the fourth time we've had to do this in ten years, the worst being five years ago, and you saw how quickly shale responded. I think the only thing I would add to Travis's comments is the operators that we talked to in the field that live and work in Midland are right now pushing everything to the right, right? Every little five to eight well program that was going to get drilled is now going to get drilled and probably not completed or drilled later. And so all those little anecdotes start to add up and you add that into what the companies like Diamondback are doing and that starts to add up pretty quickly. So I think for us, let's get this over with and move forward.

Kaes Van't Hof
Kaes Van't Hof
President at Diamondback Energy

Because the other side of this is going to be great for those that are left, and it's going to be a great day for Diamondback shareholders.

Travis Stice
Travis Stice
Chairman and CEO at Diamondback Energy

And the comment I made, Scott, on the tipping point in U. S. Production, it just depends on how low oil price goes and how long it lasts. But the scenario is with this base decline that's so extreme is that the amount of capital required to get back to 13,000,000 barrels a day or 6,000,000 barrels a day in the Permian might be an untenable lift for the business model that we put in place where we're returning so much back to our investors that own the company.

Travis Stice
Travis Stice
Chairman and CEO at Diamondback Energy

So that's sort of the final analysis is how low do we get and then what is the reinvestment rate going to be required to get production back up or to get it start growing again.

Scott Hanold
Scott Hanold
Managing Director - Energy Research at RBC Capital Markets

Yeah, appreciate the commentary. Definitely feels like it's a have and have not situation. Know, Kase, look, you gave a little bit of color on 2H this year and you kind of mentioned in your brief comments just a while ago, it's time to get over this and move forward. Like as Diamondback thinks about like moving forward in 2026, what is it going to take for you guys to move maintenance mode in? And can you just give a little color on the setup for 2026 considering obviously we're declining and flattening out in the back half

Scott Hanold
Scott Hanold
Managing Director - Energy Research at RBC Capital Markets

of the year?

Kaes Van't Hof
Kaes Van't Hof
President at Diamondback Energy

Yes, that's a good question, Scott. I mean, I think the key point for us is that we're not sacrificing anything in 2026 today. We expect to run four crews here for probably the next three months depending on where prices go. If things get worse, we could go lower. But basically the plan points to us bringing back a fifth crew and leveling off at 485,000 barrels of oil a day in Q4, we'll still end the year with more DUCs than we've ever had and more flexibility than we've ever had to increase production in 2026 should prices respond.

Kaes Van't Hof
Kaes Van't Hof
President at Diamondback Energy

And in my mind, that's a $65.70 dollars plus world where OPEC's spare capacity is lower and we have a healthier macro. So I'm hoping for that day. We'd like to get back to that 500,000 barrels of oil a day net plus plant, but it seems like it's a long way away today with the next couple of quarters we have.

Travis Stice
Travis Stice
Chairman and CEO at Diamondback Energy

And I think, Scott, just to finish this commentary, I think our shareholders are lucky that Diamondback has such a long inventory because while this base decline that I talked about at the macro will present itself for Diamondback as well and Kaes gave you some very specific numbers for that, the breadth and depth of our inventory allows us to be more insulated from that than other investment opportunities where the inventory is a lot shorter or shorter and of less quality. So I hope that makes sense, but that's kind of how we think about 2026 and 2027.

Scott Hanold
Scott Hanold
Managing Director - Energy Research at RBC Capital Markets

Appreciate the comments. Again, Travis, congrats.

Travis Stice
Travis Stice
Chairman and CEO at Diamondback Energy

Thank you, Scott.

Operator

Thank you. Our next question comes from the line of David Deckelbaum with TD Securities. Your line is now open.

David Deckelbaum
Managing Director: Sustainability & Energy Transition at TD Cowen

Thanks for the time, guys. And Travis, thanks for your candid thoughts in the letter. Good luck to everyone in the roles ahead.

David Deckelbaum
Managing Director: Sustainability & Energy Transition at TD Cowen

Maybe,

David Deckelbaum
Managing Director: Sustainability & Energy Transition at TD Cowen

Kaes, you could follow-up a bit or anyone, perhaps Danny, talking about sort of the optimal duct load. Obviously, you elected to drop the rigs and not build further ducts with the one frac crew coming down. It sounds like net net this plan you're drawing down perhaps or building 20 fewer DUCs this year going into next year. How do we think about the variables for maybe keeping those rigs and building a DUC backlog in the context of what the right amount of DUC inventory level is for you going into the next couple of years? Or is it more of a function of where you expect drilling rig rates to be coming down in the ensuing quarters?

Danny Wesson
Danny Wesson
COO at Diamondback Energy

Yeah, I mean, look, we were carrying probably the largest DUC backlog in North America right now. And so we you know, there's not a world where we're looking at, you know, building ducks, you know, gross ducks, the top line level. So, you know, in the new plan, we're drawing down less ducks than we were in the original plan. I think probably a rule of thumb is for every frac crew you have running unique one and a half to two pads of duck inventory behind ahead of those pads. So our head of those crews, we're going to run five crews, you got to have 10 pads ish worth of dug backlog at, call it, eight to 12 wells a pad.

Danny Wesson
Danny Wesson
COO at Diamondback Energy

So, that kind of gets you to a comfortable DUC backlog inventory for a run rate. We're probably sitting at the end of this year another 100 wells above that number depending on what prices do in the back half of this year.

Kaes Van't Hof
Kaes Van't Hof
President at Diamondback Energy

David, we put the comment in our letter that traditionally we would build more DUCs in this environment, but our largest input costs on drilling wells. So let's just say that drilling a well costs $200 a foot, about $2,000,000 The cost of casing is $650,000 a well now and that is up 12% quarter over quarter due to tariff impacts. So we think that the demand side, as the rig count reduces, steel prices come back down, and we can look at logically bringing some rigs back to build DUCs if costs are cheap.

Kaes Van't Hof
Kaes Van't Hof
President at Diamondback Energy

But that capital allocation decision today tells us drop the rigs, buy back stock.

David Deckelbaum
Managing Director: Sustainability & Energy Transition at TD Cowen

Appreciate the color. And then maybe just as a follow-up, just given the environment we're in now, have your expectations changed with the ability to execute on some of the non operated or non core sales or the anticipated water infrastructure sale to Deep Blue?

Kaes Van't Hof
Kaes Van't Hof
President at Diamondback Energy

Yeah, listen, Deep Blue obviously is essentially a subsidiary of ours. We own 30% of it. We think the EDS, which is the Endeavor Water System, logically belongs in Deep Blue, would make that business the largest water handler in the Midland Basin. It seems that water has started to get a lot more attention in the public market. So I don't see that sale or deal being pushed too far to the right just because we want to get those two businesses integrated and ready for what's next.

Kaes Van't Hof
Kaes Van't Hof
President at Diamondback Energy

Outside of that, we obviously participated a little bit in the sale of BANGL, the NGL pipeline, to MPLX. That should close in July. And the last big piece of our equity method investments is the EPIC pipeline, which we own 27.5% of. I think that probably is a slower process today than it was three months ago. But I think lessons learned from past down cycles is that we don't have to force asset sales.

Kaes Van't Hof
Kaes Van't Hof
President at Diamondback Energy

We can be patient. I think we're going to get a couple of wins on the board, but we don't have to hit a specific number by a specific period of time because we think the market's going to recover and the balance sheet's strong and we can be patient.

David Deckelbaum
Managing Director: Sustainability & Energy Transition at TD Cowen

Appreciate it, guys.

Travis Stice
Travis Stice
Chairman and CEO at Diamondback Energy

Thanks, David.

Operator

Thank you. Our next question comes from the line of John Freeman with Raymond James. Your line is now open.

John Freeman
John Freeman
Managing Director at Raymond James Financial

Good morning, and congratulations again, Travis, on a fantastic career. I want to follow-up on some of the prior commentary. And again, really appreciate the leadership that you all are showing with this meaningful reduction in activity, both in the shareholder letter and then in those comments earlier in the call, talked about kind of that $65 70 dollars kind of oil price world where you'd look to maybe put your foot back on the accelerator. And I just want to kind of dig it out a little bit more. So should we think of it as even if your cost structure was to continue to move lower due to service costs, efficiencies, whatever, and returns continue to improve, you all would still probably wait until you're in a $65.70 dollars world before you'd want to put your foot on the accelerator.

John Freeman
John Freeman
Managing Director at Raymond James Financial

I thinking about that right?

Kaes Van't Hof
Kaes Van't Hof
President at Diamondback Energy

Yeah, that's right, John. I just think we want to be patient. I think there's a lot of uncertainty on both the demand and the supply side. In our mind, the supply side is going to figure itself out pretty quickly here, but demand obviously is something I'm not an expert in. We're experts in US shale and US supply and what we're seeing in the field.

Kaes Van't Hof
Kaes Van't Hof
President at Diamondback Energy

In my mind, a 70 plus crude environment is relatively healthy environment and that would be an appropriate time to bring some capital back into the equation.

John Freeman
John Freeman
Managing Director at Raymond James Financial

Got it. And then you all did highlight what you've seen in terms of the impact on kind your steel related products with the tariffs on casing being up 12% since last quarter. But we're able to lower your Midland Basin cost per foot guidance yet again. And I just hope when you could maybe speak to kind of the puts and takes that are allowing you kind of offset what you're seeing on the casing side.

Kaes Van't Hof
Kaes Van't Hof
President at Diamondback Energy

Yeah, mean, first of all, the teams had an incredible first quarter. Mean, we put some highlights in the deck. Under eight days average per well on one and twenty plus wells is a pretty impressive feat. So I think we're on the lower end of our efficiencies, which is good. And I think unfortunately the rest of that reduction is likely to come from the service environment here with rigs coming down frac crews coming down.

Kaes Van't Hof
Kaes Van't Hof
President at Diamondback Energy

But I'll let Danny opine on what he's seeing in real time.

Danny Wesson
Danny Wesson
COO at Diamondback Energy

Yeah, I think we put some details out there around casing and the 10% increase is about $6 a foot or so on the drilling portion of the well. So it's really not a huge number. And like Kay said, the execution from the drilling and completions teams is really driving the cost beat. And I think we anticipate that there's going be lower activity in the basin, which usually leads to lower service pricing.

Danny Wesson
Danny Wesson
COO at Diamondback Energy

There's a lot of volatility out there right now with input costs and tariffs, but we do expect that activity is going to come out of this basin in a meaningful way and that should have a trickle down effect to pricing.

John Freeman
John Freeman
Managing Director at Raymond James Financial

Thanks, guys. Appreciate it. Thanks,

Operator

Thank you. Our next question comes from the line of Arun Jayaram with JPMorgan Securities LLC. Your line is now open.

Arun Jayaram
Analyst at J.P. Morgan Securities LLC

Yeah. Good morning, gentlemen. Travis Case, you highlighted how the trajectory of oil volumes could trend, call it, to four eighty five in the second half of twenty twenty five. Danny mentioned you'll have kind of a really high DUC backlog kind of going into this period. I was just wondering if you could help us think about 2026 CapEx to keep that $485,000,000 flat.

Arun Jayaram
Analyst at J.P. Morgan Securities LLC

All else being equal, would a $900,000,000 per quarter run rate seem reasonable based on what we know today?

Travis Stice
Travis Stice
Chairman and CEO at Diamondback Energy

Yes, Arun, I mean, I think that's reasonable. I hope that doesn't end up being the plan. But clearly with service costs coming down, efficiency is high, little lower production base, I think that's logical. Also had few more one time items in the budget this year that will be reduced next year. So I think that's a logical baseline.

Travis Stice
Travis Stice
Chairman and CEO at Diamondback Energy

Again, I'm kind of hoping that the market recovers quickly here and we can be talking about 500,000 plus barrels of oil a day next year, but I think we've to wait a few months here to see where things settle out.

Arun Jayaram
Analyst at J.P. Morgan Securities LLC

Understood. That's helpful. And maybe my follow-up is in the shareholder letter, Travis, you mentioned how Diamondback will allocate a higher mix of free cash flow to repurchases if the volatility continues. I was wondering how you and Kaes think about kind of balancing leverage reducing leverage versus buybacks? Perhaps tell us how you think about give us a sense of what type of mix could we see towards the return of free cash flow to shareholders versus the fifty-fifty kind of overall guidance?

Travis Stice
Travis Stice
Chairman and CEO at Diamondback Energy

Yes. Listen, I think obviously improving the balance sheet is important, but I think the best the smartest capital allocation decision today is to repurchase shares. I think generally, Arun, round numbers probably allocate 25 to 30% of free cash flow to paying down debt. You saw that we repurchased some of our longer dated notes at well below par. Those notes had come down in price due to the thirty year treasury blowing out, so we took advantage of that.

Travis Stice
Travis Stice
Chairman and CEO at Diamondback Energy

I think you can expect to see more things like that on the debt side. I think some of our non core asset sales coming in should reduce our term loan we put in place for a two year term loan that we put in place for the Double Eagle closing. And then you get to the other 75% of free cash flow or 70% of free cash flow and in our minds that needs to be allocated to 100% repurchases and the base dividend. I think obviously the variable dividend is out the window at these prices and repurchasing shares grows per share oil volumes and per share cash flow and free cash flow when the market recovers.

Arun Jayaram
Analyst at J.P. Morgan Securities LLC

Great. Travis, best of wishes to you. If you do write the book, I look forward to the chapter on how you got the Endeavor deal with Case to the finish line.

Travis Stice
Travis Stice
Chairman and CEO at Diamondback Energy

All right. Thank you, Eric.

Kaes Van't Hof
Kaes Van't Hof
President at Diamondback Energy

It was all Travis. Thank you, Eric.

Operator

Thank you. Our next question comes from the line of Bob Brackett with Bernstein Research. Your line is now open.

Bob Brackett
Head - Research Division at Sanford C Bernstein & Co LLC

Hi. Good morning. If I think about the capital reductions, you guys get to choose which crews you keep, and you guys get to choose which locations you drill. To what degree are those real levers where you're making choices, Or are those most of the crews are about the same and most of the locations are about the same?

Danny Wesson
Danny Wesson
COO at Diamondback Energy

Yeah, I mean, I think from an execution standpoint, most of our resources on the service side are pretty well in line with each other. And so there's not a lot of high grading that occur and slowing down the activity. It really becomes commercial decision and discussions with our business partners who is going to work with us as activity comes down. And on the project side of things, our job is to always try to allocate capital to the best projects. And I think if you look at the consistency of our program over the past few years, it kind of speaks to the consistency of the projects we're doing.

Danny Wesson
Danny Wesson
COO at Diamondback Energy

So again, there's not a whole lot of high grading to be done in the projects themselves. I think you you will see us probably prioritize the projects where Viper has interest so we can continue to support Viper in that regard. But you know I don't think there's material high grading to be done in the pads or resource allocation.

Travis Stice
Travis Stice
Chairman and CEO at Diamondback Energy

And Bob, that's a blessing of having an outstanding inventory as well too. We're still allocating wells with very small range of outcomes because they're the top quartile of our inventory.

Travis Stice
Travis Stice
Chairman and CEO at Diamondback Energy

As Danny pointed out, we've been doing that for several years now. So again, durability of inventory matters when you go into one of these cycles and that's what our shareholders are lucky to have with Diamondback.

Bob Brackett
Head - Research Division at Sanford C Bernstein & Co LLC

That's very clear. Quick follow-up. At your run rate, you're going to get through the remainder of your share buyback authorization. That's a trivial exercise to top that up when you need to?

Travis Stice
Travis Stice
Chairman and CEO at Diamondback Energy

Yes. We thought about looking at it this quarter, but felt that we want to get through another quarter. There's probably enough noise with all the changes in the capital plan this quarter and we'll discuss it with the Board. But I think the Board is certainly behind management in believing that buybacks are the right thing at these levels, and we expect to increase it when we get closer to the authorization.

Bob Brackett
Head - Research Division at Sanford C Bernstein & Co LLC

Very good. Thanks and congrats.

Travis Stice
Travis Stice
Chairman and CEO at Diamondback Energy

Thank you, Bob.

Operator

Thank you. Our next question comes from the line of Scott Gruber with Citigroup. Your line is now open.

Scott Gruber
Scott Gruber
Director - Oilfield Services & Equipment Research at Citi

Yes, good morning. I found the comment in the shareholder letter about geologic headwinds outpacing technology and process efficiency gains interesting. I assume that's a broader industry comment. So I'm curious, do you see the technology and process efficiency gains slowing from here or are the geologic headwinds becoming more severe? Just some more color behind that comment and kind of what's changing on the margin.

Travis Stice
Travis Stice
Chairman and CEO at Diamondback Energy

Yeah, I think that's a natural evolution of a maturing basin. I mean, we've been now exploiting this shale resource in the Permian Basin for fifteen years. And we still expect some R and D and some really innovative breakthroughs coming. But in a general sense, as dollars get allocated to lower and lower quality inventory and the longer you're in the game, if you're focused excellence and execution, your natural decline will be impacted where you're making less improvements than you did early on in the development of that asset. So it's more of a general comment that from my experience we've seen play out in the Eagle Ford, the Bakken and some of these other in the Barnett Shale in the early days as you continue to deplete these reservoirs.

Scott Gruber
Scott Gruber
Director - Oilfield Services & Equipment Research at Citi

Got it. Then coming back to the cost savings side of things, as you selected which rigs and frac crews were retained, were you able to capture some immediate savings from those that the crews that you retained? Or are you seeing service companies more willing to do blend and extend with any contracts in place? I'm just curious about kind of how quickly you're able to secure some statements from your service providers.

Kaes Van't Hof
Kaes Van't Hof
President at Diamondback Energy

Well, I'll give a high level comment. Think for us, we've always tried to have very short term contracts so that we can have these conversations quickly both on the completion side and the drilling side. I think it's kind of a different story on both sides. On the drilling side, we use a multitude of contractors and those conversations are probably more fluid. On the completion side, we've obviously been big fans of the Halliburton, Zeus e fleets.

Kaes Van't Hof
Kaes Van't Hof
President at Diamondback Energy

We run four of those today. And so I think I truly think that that relationship is more of a business partner type relationship where we're going to get through it together.

Danny Wesson
Danny Wesson
COO at Diamondback Energy

But I'll let Danny give some details. Yeah, I think, you know, case kind of hit the nail on the head. We are constantly in commercial negotiations with our service providers based on market conditions and, you know, what we're seeing in the pricing market and, you know, what kind of service quality we're receiving from them.

Danny Wesson
Danny Wesson
COO at Diamondback Energy

So when we lower activity internally, it's a discussion with all of them on who's going to be willing to work with us. And as the market can softens more broadly, we'll continue to have those conversations. I think Kate has said before, every day is RFQ Day at Diamondback. Continue to just keep our ear to the ground on where the service market is and want to recognize the best commercial value our shareholders and the discussions around our procurement process.

Scott Gruber
Scott Gruber
Director - Oilfield Services & Equipment Research at Citi

Great. Appreciate the color.

Travis Stice
Travis Stice
Chairman and CEO at Diamondback Energy

Thanks, Scott.

Operator

Thank you. Our next question comes from the line of Philip J. Jungworth with BMO. Your line is now open.

Phillip Jungwirth
Phillip Jungwirth
Energy Analyst at BMO Capital Markets

Thanks. Good morning, guys.

Travis Stice
Travis Stice
Chairman and CEO at Diamondback Energy

Good morning.

Phillip Jungwirth
Phillip Jungwirth
Energy Analyst at BMO Capital Markets

On the macro commentary around U. Oil production, one of the things that analysts often underappreciated in a downturn is just the industry's ability to high grade capital. And this could include coring up to more Tier one or Tier two acreage, private activity getting cut at a faster rate or just targeting more primary zones or up spacing. So wondering how you see that high grading ability today for the Permian more broadly. And is there any reason as shale is more mature to think that this could be less upside to capital efficiency for industry than we've seen in prior downturns?

Travis Stice
Travis Stice
Chairman and CEO at Diamondback Energy

Yeah, kind of relative to my prior comment about we're in the later stage of development of these resources. I would argue that most of the high grading has been occurring over the last three to four years as all of these zones, particularly in the Permian, have been well defined and the focus has been on efficient execution. So if someone hasn't been allocating capital to their very, very best projects, well then I guess they can take this opportunity to do that. But our reconnaissance and monitoring of the industry says that everyone's trying to drill the best stuff first, and that's the way we think it's going to play out in the future. Yeah, I think if you look at this, the market today, just generally, balance sheets are healthier, free cash flow is being generated.

Travis Stice
Travis Stice
Chairman and CEO at Diamondback Energy

And so what we're trying to say is I think in the past the decision to cut capital was to protect the balance sheet a lot of particularly when there's a multitude of SMID caps and mid caps that are no longer here. And now today I think decisions are being made to preserve precious inventory because inventory is scarce. I think the plays are well defined. There's little things going on around the basin like the Dean Play in Dawson County, Middle Spraberry down in Hector County, things that are adding resource but not nearly to the level of what we saw in the past down cycles. So I think decisions to cut capital and defer turn lines or defer inventory is being made to preserve inventory life rather than protect balance sheet.

Phillip Jungwirth
Phillip Jungwirth
Energy Analyst at BMO Capital Markets

Great, thanks. Then there's been a number of gas pipeline projects that have reached FID to move gas out of the Permian and even further along the Gulf Coast. What's your appetite currently for incremental Feet on gas? It looks like Waha tightens materially in 2027. You also have power opportunities.

Phillip Jungwirth
Phillip Jungwirth
Energy Analyst at BMO Capital Markets

And how is that influenced by any expectations around future Permian oil growth?

Travis Stice
Travis Stice
Chairman and CEO at Diamondback Energy

Yes, sadly, gas growth is going continue out of the basin in our models. So we're going to keep putting more FTE on the balance sheet. I think we have a lot of confidence in what we've committed to. We have about a $750,000,000 a day total commitments that will be in place by the end of twenty twenty six. We are reserving some space for power generation should that come to fruition in the basin.

Travis Stice
Travis Stice
Chairman and CEO at Diamondback Energy

But in general, I think you can expect us to continue to support new pipelines out of the basin. There's even some talk of pipelines going west. We'll see if that happens. But we want have a diverse set of marketing arrangements on the gas side. I think we generally believe in the long term gas thesis and so therefore should make some more money off of our gas.

Phillip Jungwirth
Phillip Jungwirth
Energy Analyst at BMO Capital Markets

Thanks, guys. Thank Our

Operator

next question comes from the line of Derrick Whitfield with Texas Capital. Your line is now open.

Derrick Whitfield
Derrick Whitfield
Managing Director at Texas Capital

Good morning, I echo everyone's congrats and also appreciate your capital discipline leadership as well.

Travis Stice
Travis Stice
Chairman and CEO at Diamondback Energy

Thank you, Derrick.

Derrick Whitfield
Derrick Whitfield
Managing Director at Texas Capital

With my, first question, I'd like to use your driving analogy from the investor letter and ask what price do you see as the next natural tipping point in activity or the point where you firmly press on the brakes assuming current service costs?

Travis Stice
Travis Stice
Chairman and CEO at Diamondback Energy

Yes, we like that analogy too. But I think red is probably something with a four in front of it. I would say yellow is something with a five in front of it. Green needs to be somewhere in the mid to high 60s with a path to 70 to accelerate through that green light.

Derrick Whitfield
Derrick Whitfield
Managing Director at Texas Capital

And then thinking about your D and C activity or non D and C activity, could you offer some perspective on the amount of non D and C capital you could take out of the business if we were to assume a more protracted period of lower prices?

Travis Stice
Travis Stice
Chairman and CEO at Diamondback Energy

We lowered our non D and C budget by about $50,000,000 at the midpoint. We do think if we ever get our midstream business merged into Deep Blue, that would take another 50,000,000 to $60,000,000 out of our non D and C budget. But there's some pretty interesting things we're doing on the non D and C side. Some of these capital workovers that we've put in the budget are starting to pay dividends and help improve the base decline. So I think those projects stay in there.

Travis Stice
Travis Stice
Chairman and CEO at Diamondback Energy

But as the total amount of wells turned in line goes down, the associated infrastructure also goes down or gets pushed to the right. So I think we had a good cut for what we said today, but I mentioned earlier in the call that there are some one time things in the budget this year that are probably coming out next year as well. So we always try to get that non D and C budget number down. And I think it's headed that way even in a flat environment next year.

Derrick Whitfield
Derrick Whitfield
Managing Director at Texas Capital

That's great. Thanks for your time.

Travis Stice
Travis Stice
Chairman and CEO at Diamondback Energy

Thanks, Derek.

Kaes Van't Hof
Kaes Van't Hof
President at Diamondback Energy

Thanks, Derek.

Operator

Thank you. Our next question comes from the line of Kevin McCurdy with Pickering Energy Partners. Your line is now open.

Kevin MacCurdy
Managing Director at Pickering Energy Partners

Hi. Good morning. Good morning, Travis and Dave. In past cycles, Diamondback has been a consolidator and has taken advantage of M and A opportunities, taken back to the COVID years. Is that different this time?

Kevin MacCurdy
Managing Director at Pickering Energy Partners

I know that Double Eagle was the last coveted undeveloped position in the Midland Basin, but are there other ways that you guys are kind of thinking about taking advantage of industry distress on the M and A front?

Travis Stice
Travis Stice
Chairman and CEO at Diamondback Energy

Yes, Kevin, I mean, that's a good question. We've obviously been very busy over the last year and a half with Endeavor and Double Eagle. Those are two premier assets that in our mind wouldn't be available in a more volatile environment. So we're fortunate that we took advantage and consolidated those two when we could.

Travis Stice
Travis Stice
Chairman and CEO at Diamondback Energy

I think we're in the period right now where there's so much noise and volatility that not a lot gets done. I think we have to be very patient on our side. I think we're very focused on reducing our share count and getting our debt paid down a little bit. So anything that we would look at would have to be extremely, extremely cheap, and I just don't think we're there yet today. Appreciate that.

Kevin MacCurdy
Managing Director at Pickering Energy Partners

Just one question for me. Thanks.

Travis Stice
Travis Stice
Chairman and CEO at Diamondback Energy

Thanks, Kevin.

Kaes Van't Hof
Kaes Van't Hof
President at Diamondback Energy

Thanks, Kevin.

Operator

Thank you. Our next question comes from the line of Charles Meade with Johnson Rice. Your line is now open.

Charles Meade
Research Analyst at Johnson Rice & Company L.L.C.

Good morning, Travis, Case and Danny. Travis, you made up I'm not sure how much you intended to, but you I think you made a big splash with your shareholder letter. And I'm curious, it's titled Letter to Shareholders, but are there other audiences you had in mind as you penned that letter? And I'm thinking it could be the Midland community more broadly or the Permian based community, Washington policymakers, or even OPEC perhaps?

Travis Stice
Travis Stice
Chairman and CEO at Diamondback Energy

Yeah, Charles, the intent of that letter is for our stockholders, and they're the ones that own the company and will make future investment decisions based on the way management allocates capital. So we always focus that letter on as if they are our only audience, but we also recognize that this is a public document. And based on some of the feedback we've seen overnight, it's reasonable to expect others have read that letter besides just our stockholders. So I wouldn't necessarily intimate that there was any other effort out there besides communicating to our stockholders, but we weren't we're at least aware that this was a message that was going to be read by more than just our stockholders.

Charles Meade
Research Analyst at Johnson Rice & Company L.L.C.

Yeah, it like you've seen a lot of messages already this morning. Travis, I want to go back to Scott Gruber's question and just push a little bit further on the rate of change. You talked about the headwinds, the geological headwinds and the tailwinds of more efficiencies. You talked about the rate of change on the efficiencies. You said, know, it used to be picking up, you know, quarters, dimes and nickels and now we're picking up pennies on the efficiency side.

Charles Meade
Research Analyst at Johnson Rice & Company L.L.C.

What is the rate of change feel like on the geologic headwind side? Is it kind of a persistent headwind that is just now kind of balanced out versus the pennies or is it picking up?

Travis Stice
Travis Stice
Chairman and CEO at Diamondback Energy

Yes, I mean, I think we think it's picking up. These plays are very well defined now, right? I mean, think if you look at past down cycles, we've always learned something in the down cycle, whether it's a new completion design, co development, spacing studies. So we're certainly not going to let this slowdown go to waste and we're going to learn something coming out of it. I don't know what it is today.

Travis Stice
Travis Stice
Chairman and CEO at Diamondback Energy

But the basin has been well tested by 300 plus rigs, used to be 600 plus rigs over the last ten years. So I think what we're trying to say is we're drilling average 10,000 foot wells in eight days. There's not three or four more days to come out of those on average. Therefore, the cost side of the equation is going to be harder to get down by 10% or 20%. And this is why we've been so aggressive on building our resource base and our inventory because we feel like from a scale perspective, the vast majority of the inventory in the basin has been well defined.

Charles Meade
Research Analyst at Johnson Rice & Company L.L.C.

Got it. That is helpful color. Appreciate it.

Operator

Thank you. Our next question comes from the line of Paul Cheng with Scotiabank. Your line is now open.

Paul Cheng
Analyst at Scotiabank

Thank you. Hey. Good morning, guys.

Travis Stice
Travis Stice
Chairman and CEO at Diamondback Energy

Paul.

Paul Cheng
Analyst at Scotiabank

Charles or Casey, I'm just curious then. I mean, based on your comment, is the business model need to be changed? I mean, historically, that the company is growth for acquisition and have a growth bias. But if you already consolidate most of the best asset, does that mean that you have to go outside the Permian or that the entire business model perhaps that need to be changed going forward?

Kaes Van't Hof
Kaes Van't Hof
President at Diamondback Energy

Yes, Paul, I don't think there's a need to go out to the Permian because I don't see any other basin and certainly in The U. S. That has the inventory quality and depth of the Permian. We have a big motto internally and know what you don't know. And we're really, really good at the Permian Basin.

Kaes Van't Hof
Kaes Van't Hof
President at Diamondback Energy

We're really, really good at drilling wells in the Permian Basin and that's our expertise. So I don't think we need to go outside the basin. On the business model comment, I think we've grown the business through acquisition. We're obviously extremely large now. We've always focused on per share metrics.

Kaes Van't Hof
Kaes Van't Hof
President at Diamondback Energy

I think there's still a world where we grow per share metrics significantly with our current asset base. And while it's a long way off from today, I do think there's going to be a time period where significant organic growth is going to be required from someone like Diamondback to fill the gap in U. S. Supply that probably struggles over the next five to ten years. And that, in our mind, is what we've been positioning the company for long term for that proverbial pot of gold on the end of the rainbow when we're last man standing in the basin drilling high return wells at high oil prices.

Paul Cheng
Analyst at Scotiabank

Excellent. The second question is that just curious, is that something happened in the first quarter in the NGL and natural gas production? Seems like dropping far more than that type curve we have suggest.

Travis Stice
Travis Stice
Chairman and CEO at Diamondback Energy

Yeah, we had some adjustments that we made to some contracts that went from fixed fee to POP percent of proceeds. And we think that reverses a bit in Q2. So I think you can run essentially 55% oil as your baseline for us going forward.

Paul Cheng
Analyst at Scotiabank

Okay, we do. Thank you.

Charles Meade
Research Analyst at Johnson Rice & Company L.L.C.

Thanks,

Operator

Paul. Thank you. Our next question comes from the line of Leo Mariani with ROTH. Your line is now open.

Leo Mariani
Managing Director, Senior Research Analyst at Roth Capital Partners, LLC

I just wanted to ask about a couple of these cost items. Certainly, in your guidance, looks like LOE came down a little bit, but transportation rose a little bit. Not sure if that's related to perhaps some of the adjustments you just talked about on the gas and NGL side,

Leo Mariani
Managing Director, Senior Research Analyst at Roth Capital Partners, LLC

but just looking for a little bit of color there.

Travis Stice
Travis Stice
Chairman and CEO at Diamondback Energy

Yes, I'll take GPT quickly and give LOE to Danny. With GPT, basically we decided to take more molecules in kind on the gas side. So GPT goes up, but our gas realizations as a percent of NYMEX should go up a little bit. So that's the shift there. And I'll let Danny talk about the decrease in LOE.

Danny Wesson
Danny Wesson
COO at Diamondback Energy

Yes, on the LOE side, really we had a little bit of one time issue or noise around the Endeavor close with regards to some of the water business. And we anticipate that the local conservatism baked around the close and we anticipate that LOE will come up from the 1Q number, but we do like a little lower number than we had originally planned for the year. And so we like our forward guide for LOE and know that it's going to come up from 1Q, will be lower than we originally planned.

Leo Mariani
Managing Director, Senior Research Analyst at Roth Capital Partners, LLC

Okay. That's helpful.

Leo Mariani
Managing Director, Senior Research Analyst at Roth Capital Partners, LLC

Why don't you just ask a little bit more kind of around the buyback here. So you guys were kind of good enough to kind of articulate your sort of red light, yellow light, kind of green light sort of activity levels with some good oil price kind of commentary there. So we really kind of think about the buyback kind of being sort of in the opposite direction. So when you guys are kind of green light and we're 65 plus oil approaching 70, should we just naturally assume that the buyback comes down a little bit? We're obviously in the red light situation, it's where you guys kind of push the pedal a little bit more.

Leo Mariani
Managing Director, Senior Research Analyst at Roth Capital Partners, LLC

Is that generally how you're kind of thinking about the framework?

Travis Stice
Travis Stice
Chairman and CEO at Diamondback Energy

Yes, that's right. I think that's a great way to think about it. It's, as we said in the letter, in our minds, the first test of our new business model, high free cash generation, high return of capital and making the right decision to cut drilling CapEx in exchange for buying back shares at these levels. So again, I think in today's environment, it makes sense to pay down continue to pay down some debt, but allocate more capital to the buyback. Again, we see our dividend as a fixed obligation and every million shares we get rid of in the market is a four million reduction annually to our dividend payment.

Travis Stice
Travis Stice
Chairman and CEO at Diamondback Energy

So that in our mind translates to about a 3.5% to 4% dividend yield depending on the day. And that's a fixed obligation that goes away.

Leo Mariani
Managing Director, Senior Research Analyst at Roth Capital Partners, LLC

Thank you.

Travis Stice
Travis Stice
Chairman and CEO at Diamondback Energy

Thanks, Leo.

Operator

Thank you. Our next question comes from the line of Kalei Akamai with Bank of America. Your line is now open.

Kalei Akamine
Kalei Akamine
Analyst at Bank of America

Hey. Good morning, guys. I've got a couple here. Maybe first, can you talk about frac efficiency? I think on a prior call, you guys mentioned that you were doing 100 per year, kind of up from 80, and you've highlighted visibility on, call it, 120.

Kalei Akamine
Kalei Akamine
Analyst at Bank of America

Now if all four fleets are doing 120, then I think you're replacing a good chunk of one fleet. So can you just update us on where the progress is with respect to that goal? And if you kind of get these efficiencies before oil gets back to 65, I guess there wouldn't be much add back?

Travis Stice
Travis Stice
Chairman and CEO at Diamondback Energy

Yes. I mean, look, we always look at what is the well count required to execute our plan. But I certainly think the completions team has done a fantastic job of driving execution and efficiencies. I think we highlighted in the release that they're completing mid 3,000 feet per day on average, but we've certainly seen them touch well above 4,000 feet per day on a pad. And so we know that's possible and we know that number 100 to 120 wells a year per crew is certainly achievable.

Travis Stice
Travis Stice
Chairman and CEO at Diamondback Energy

It's just doing the things we need to do from a wellbore construction, from a pad configuration and water infrastructure standpoint to be able to execute to that level on programmatic basis. And I don't think we're that far away from being able to achieve that. And certainly once we it just means less fleets to achieve our total well count program.

Kalei Akamine
Kalei Akamine
Analyst at Bank of America

Thanks, Riyadh. The second one is on the 25 capital range. It's kind of been lowered here, but it's not been narrowed. It's still a $400,000,000 spread between the low and the high end. Can you help us understand the path to the lower number, the 3.4, I.

Kalei Akamine
Kalei Akamine
Analyst at Bank of America

E, what needs to go right to hit that number?

Travis Stice
Travis Stice
Chairman and CEO at Diamondback Energy

I don't think it's going to be it wouldn't necessarily be a positive thing for the macro if we got to the low end, right? At 3.4%, that's kind of the use of the analogy, the red light scenario, sub-fifty percent, probably dropping another crew. I do think the midpoint at today's service prices is kind of the world where we level off at 485,000 barrels of oil a day in Q3 and bring back a fifth crew to stay there in Q4. So that's kind of midpoint. High end feels far away today, but there is a world where prices do snap back and we want to get back to our 500,000 barrels of oil a day run rate.

Travis Stice
Travis Stice
Chairman and CEO at Diamondback Energy

While that seems far away today, it would be a good problem to have.

Kalei Akamine
Kalei Akamine
Analyst at Bank of America

Thanks, guys.

Travis Stice
Travis Stice
Chairman and CEO at Diamondback Energy

Thank you.

Operator

Thank you. Our next question comes from the line of Doug Leggate with Wolfe Research. Your line is now open.

Doug Leggate
Managing Director - Senior Research Analyst at Wolfe Research

Hey, guys. Thanks for for getting me on. Case and Travis, again, I'll add my congrats to both of you guys, and I look forward to see what's next from you both. I I wanna ask a question about the capital efficiency because you you made quite a big deal about that in your presentation deck. I kind of want to walk you through the matter quickly.

Doug Leggate
Managing Director - Senior Research Analyst at Wolfe Research

You've cut $400,000,000 off your capital and you've lost 5,000,000 barrels for the year. So I'm trying to understand what's the trade off to decide to add that capital back? Because it seems to me that you get higher free cash flow in the current plan than you would if you added 400,000,000 back to get 5,000,000 barrels. So how do you think about sustaining capital and what's your optimization decision around that? I've got a quick follow-up, please.

Travis Stice
Travis Stice
Chairman and CEO at Diamondback Energy

Yes. Think, Doug, I think the nuance there is the path of the production throughout the year, right? We were well above 500,000 barrels per day net in April declining off. And so you put this big gap in activity in the middle of the year, it's really not a full year run rate number. So I think it comes down to what level of production are you sustaining and how much capital does it take.

Travis Stice
Travis Stice
Chairman and CEO at Diamondback Energy

I still think that if we were at 500,000 barrels of oil a day run rate, we're closer to $1,000,000,000 a quarter of CapEx, but down to $485 4 80 dollars it's closer to this $900 a quarter with two quarters below $900 in Q2 and Q3. So I think there's just a little nuance here with how quickly things are changing and how quickly production is heading down for a couple of quarters while then stabilizing in Q4.

Doug Leggate
Managing Director - Senior Research Analyst at Wolfe Research

Got it. That's really help. My follow-up is I think you're moving the oil market today, frankly. And I wondered if you could share maybe Travis asked you to elaborate a little bit on some of the comments you made. You basically called a top on U.

Doug Leggate
Managing Director - Senior Research Analyst at Wolfe Research

Oil production of shale anyway. What is your non operated insight to what others are doing? And I'm just curious if you could maybe put some numbers as to how you see the sensitivity of rig decline relative to the rollover in production? Any color you can add from the work you've done would be helpful.

Travis Stice
Travis Stice
Chairman and CEO at Diamondback Energy

Yes, Doug. I think we really focus on anecdotes. We know a lot of people in the business. We know a lot of people on both the public and the private side. And Midland is a well, we're a large public company based in Midland.

Travis Stice
Travis Stice
Chairman and CEO at Diamondback Energy

We know everybody that's picking up a rig to go drill three Barnett wells or three Dean wells or this unit they picked up in the Delaware Basin. Every single conversation I've had with those types of operators is that this oil price doesn't work. And they're going to be very, very and then traditionally those are acreage positions that have higher breakevens, right. So all of that is getting pushed to the right. Very clearly other basins that don't have sub-forty breakeven inventory like the Permian are having these same discussions.

Travis Stice
Travis Stice
Chairman and CEO at Diamondback Energy

And so our kind of commentary is that the marginal barrel in The U. S. Is just not being produced today and we're seeing it already in terms of frac activity, frac count, even some pipeline scrapes are down. You look at Midland Houston spreads, those have narrowed. So I just think the marginal barrel is being pushed to the right.

Travis Stice
Travis Stice
Chairman and CEO at Diamondback Energy

Again, we don't have a crystal ball on the rest of the world, but we have a very good view of what The US looks like. And right now that's a business that's slowing dramatically and likely declining in terms of production.

Doug Leggate
Managing Director - Senior Research Analyst at Wolfe Research

Terrific, guys. Good luck and thanks for your answers.

Travis Stice
Travis Stice
Chairman and CEO at Diamondback Energy

Thanks, Doug.

Kaes Van't Hof
Kaes Van't Hof
President at Diamondback Energy

Thanks, Doug.

Operator

Thank you. I'm showing no further questions at this time. I would now like to turn it back to Travis Dice for closing remarks.

Travis Stice
Travis Stice
Chairman and CEO at Diamondback Energy

Thank you, guys, for listening in today and for your questions, and thanks for your support over these last fifteen years as well. If you all have any questions, you know how to get ahold of us. You all have a great day. God bless you.

Operator

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.

Executives
    • Adam Lawlis
      Adam Lawlis
      VP, IR
    • Travis Stice
      Travis Stice
      Chairman and CEO
    • Kaes Van't Hof
      Kaes Van't Hof
      President
    • Danny Wesson
      Danny Wesson
      COO
Analysts
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Key Takeaways

  • Diamondback cut $400 million from its 2025 capital budget by idling three drilling rigs and one frac spread to enhance capital efficiency while limiting full-year production decline to about 1%.
  • Production is forecast to average ~495,000 bopd in Q2 before easing to ~485,000 bopd in Q3–Q4, supported by a record DUC backlog that preserves optionality to ramp activity when prices recover to $65–$70 WTI.
  • The company will allocate the majority of free cash flow to share buybacks and its base dividend (suspending the variable dividend) and modestly pay down debt via opportunistic bond repurchases.
  • Management highlights a looming rollover in U.S. shale supply as steep base declines (~2.5 MM bopd in the Permian) accelerate when industry capex retreats, setting up a sharp response once oil prices climb.
  • Operating cost efficiencies persist (e.g., sub-8-day drilling cycles), but geological headwinds intensify in the mature Permian; casing costs are up 12% on tariffs, partially offset by lower service pricing.
AI Generated. May Contain Errors.
Earnings Conference Call
Diamondback Energy Q1 2025
00:00 / 00:00

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