Diamondback Energy(FANG) - 2023 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company has guided for lower capital expenditures (CapEx) in the second half of the year, which is now being realized [5][19] - The drilling complete and equipped costs in the Midland Basin are expected to decrease from the low $700s per foot at the beginning of the year to the low $600s by year-end [14][36] - The company reported a record number of wells drilled in Q2, totaling 98, which implies an annual drilling rate of almost 400 wells, exceeding the previous guidance of 340 [15][54] Business Line Data and Key Metrics Changes - The company is focusing on capital efficiency and profitability rather than volume growth, with a plan to run four simul-frac crews efficiently, completing about 80 wells a year [47][49] - The company has seen improvements in well productivity, with a focus on reducing cycle times and increasing gross well counts [56][81] Market Data and Key Metrics Changes - The company noted a softening in service costs due to a declining rig count in the Permian Basin, which is expected to continue [29][41] - The oil cut is projected to remain around 59% to 60% for the next few years, with a slight decline expected as production stabilizes [67] Company Strategy and Development Direction - The company aims to maintain a leverage ratio of less than one, which is deemed appropriate for its size, while also building cash reserves for opportunistic share repurchases [42] - The management emphasizes the importance of making capital-efficient decisions and focusing on profitability rather than merely increasing production [89] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the long-term quality of the company's inventory, which supports the ability to increase the base dividend [77] - The company is focused on generating free cash flow and returning it to shareholders, with a commitment to return 75% of free cash flow [84] Other Important Information - The company has been actively involved in asset sales, primarily in non-core midstream assets, while also exploring leasing opportunities in the Midland Basin [68][87] - The management highlighted the importance of continuous improvement in operational efficiencies, which contributes to cost control and competitive advantage [79] Q&A Session All Questions and Answers Question: On service cost and rig rates - Management noted that service partners are responsive to changes in rig counts, and a decline in the Permian Basin rig count is expected to lead to a softening in service costs [29] Question: On capital expenditures and guidance - The company is guiding for a decline in CapEx in Q4 compared to Q3, driven by lower activity and costs [36] Question: On M&A landscape in the Permian - The management indicated that opportunities for consolidation in the basin are limited compared to previous quarters, with a focus on making disciplined acquisitions [17][41] Question: On well productivity and future outlook - Management highlighted that the current focus is on maintaining a capital-efficient plan, with expectations for stable productivity levels moving forward [56][77] Question: On share buybacks versus note buybacks - The primary form of shareholder return is through a sustainable and growing base dividend, with share buybacks considered based on future cash flow expectations [84]