Diamondback Energy(FANG) - 2025 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reduced its cash capital expenditure (CapEx) by $400 million, which is expected to have a minimal impact on production for 2025 [9][11][12] - The production guidance for Q2 is approximately 495,000 barrels per day, with a decline to about 485,000 barrels per day in Q3 [14][28] - The company anticipates a flat production program, despite a reduction in frac crews, which will impact gross production [15][30] Business Line Data and Key Metrics Changes - The company is currently operating with four frac crews, down from five, which is expected to result in a 30,000 barrel per day impact in production [15][30] - The company has a significant backlog of drilled but uncompleted (DUC) wells, with plans to maintain flexibility for future production increases [30][39] Market Data and Key Metrics Changes - The company noted that U.S. oil production is facing a base decline of approximately 2.5 million barrels per day, which will be exacerbated by reduced capital investment [21][22] - The overall sentiment in the Permian Basin indicates a slowdown in drilling activity, with operators deferring smaller well programs [25][88] Company Strategy and Development Direction - The company is focused on maximizing capital efficiency and shareholder returns, with a strategy to repurchase shares rather than aggressively pursue new drilling [9][60] - The management emphasized the importance of maintaining a strong inventory of high-quality assets in the Permian Basin, which positions the company favorably for future growth [32][118] Management's Comments on Operating Environment and Future Outlook - The management expressed concerns about the current macroeconomic environment, particularly with OPEC's decision to increase oil supply amidst slowing global economies [9][10] - The company is prepared to adjust its capital allocation based on market conditions, with a focus on maintaining flexibility in operations [9][30] Other Important Information - The company is integrating its water handling business with Deep Blue, which is expected to enhance its operational capabilities in the Midland Basin [41][42] - The management highlighted the importance of being patient with asset sales and capital allocation decisions, given the current market volatility [43][60] Q&A Session Summary Question: Can you discuss the thought process behind the recent changes in activity plans? - The company aimed to allocate capital for maximum profit, responding to challenging macro conditions by reducing CapEx while minimizing production impact [9][10] Question: What is the outlook for U.S. oil production? - The management indicated that U.S. oil production is likely to decline due to base declines and reduced capital investment, with a focus on preserving inventory [21][22][88] Question: How does the company view its DUC inventory? - The company has a large DUC backlog and plans to maintain flexibility for future production increases, depending on market conditions [30][39] Question: What is the company's approach to share repurchases versus debt reduction? - The management plans to allocate a significant portion of free cash flow to share repurchases while also focusing on improving the balance sheet [60][61] Question: How does the company assess its operational efficiencies? - The management noted that while efficiencies have improved, geological headwinds are becoming more pronounced, impacting overall production capabilities [72][110]