Diamondback Energy Inc (FANG) — Q3 2021 Earnings Call Transcript

Good morning and welcome to Diamondback Energy Third Quarter 2021 Conference call. During our call today, we will reference an updated investor presentation, which can be found on Diamondback's website. Representing Diamondback today are Travis Stice, CEO, Kaes Van't Hof, CFO, and Daniel Wesson, EVP of Operations. During this conference call, the participants may make certain forward-looking statements relating to the Company's financial conditions, 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.

Thank you, Adam, and welcome to Diamondback's Third Quarter Earnings Call. The third quarter was an exceptional quarter for Diamondback. We were able to generate a record amount of free cash flow as we continue to demonstrate why we are an operational leader in the Permian Basin. Although we're seeing pricing pressure in many areas of our business, particularly with consumables and labor, we've been able to offset these inflationary items through efficiency gains, both in design and execution. On the drilling side, we've decreased the number of days it takes to drill from spud to total depth by nearly 30% this year alone. And we're now drilling 2-mile laterals in roughly 10 days in the Midland Basin. On the completion side of the business, we've seen a step change in efficiency as we've transitioned the majority of our completion crews to simultaneous operations and are now completing wells in the Midland Basin nearly 70% faster than when we were utilizing the traditional zipper frac design. These gains drove a significant beat on capital expenditures this quarter and were the primary driver of our second consecutive decrease in capex for the year. The efficiency gains this year will be permanent. And while inflation may impact service prices next year, Diamondback will be more insulated than our peers, given our control over the variable cost of well-designed days to total depth on the drilling side, and lateral feet completed per day on the completion side of the business. As a result of these efficiency gains, as well as timing associated with some of our ancillary capital spend, we have lowered our 2021 capital guidance for a second time and now expect to spend approximately $1.5 billion this year, a decrease of 10% when compared to our initial capex guidance range we published in April. This includes approximately $435 to $475 million of estimated capital spend in the fourth quarter. Moving to 2022, we are committed to holding our Permian oil production flat next year. We expect to be able to maintain this level of production by spending similar capital on an annualized basis to our fourth-quarter guidance. This guidance accounts for both the efficiencies we've gained this year, as well as the potential for service cost inflation in 2022 should activity levels increase in the Permian Basin and oil prices stabilize. The reason we're committed to keeping oil volumes flat in 2022 is that we believe our capital discipline, coupled with our plan to return 50% of anticipated free cash flow to shareholders, is the best near-term path to equity value creation. Diamondback is moving from a consumer of capital to a net distributor of capital, which will benefit long-term return on capital employed and value creation. In order to initiate a moderate growth plan, we would need to see material changes to global oil and gas fundamentals, along with shareholder support for such growth, and we do not see either of those things today. Until such time, we will continue to run our business for free cash flow generation, focusing internally and ensuring we maintain our best-in-class cost structure in the face of inflationary pressure. This will position us for success regardless of where we are in the cycle. At current commodity prices, this plan translates to significant free cash flow generation next year. In our investor deck, we have a slide that shows illustrative 2022 free cash flow at various commodity prices. At today's strip, 2022 free cash flow is well worth $3 billion. We plan to distribute 50% of this free cash flow using a combination of our sustainable and growing base dividend, share repurchases, and variable dividends. We would use repurchases and variable dividends interchangeably, depending on which presents the best return to our stockholders at that time. As a reminder, we plan to opportunistically repurchase shares of our common stock when we expect the return on that repurchase to be well in excess of our cost of capital at mid-cycle commodity prices, which was clearly the case at mid-September when our board approved a $2 billion share repurchase program. After that announcement, we repurchased over 268,000 shares at an average share price of $82 for a total cost of $22 million in the third quarter. If we do not repurchase enough shares in the quarter to equal at least 50% of free cash flow for that particular quarter, then we will make our investors whole by distributing the rest of that free cash flow via a variable dividend. This strategy gives us the ability to be flexible and opportunistic when distributing capital above and beyond our base dividend, but importantly, at least 50% of free cash flow will be returned. We do not set our budget, drill wells, or underwrite acquisitions based on a strip oil pricing when current strip pricing is significantly above the last 5-year average. Therefore, we will underwrite repurchasing shares, which we see as an acquisition under the same assumptions. Our base dividend continues to be our primary method of returning capital to our shareholders. We have grown our base dividend at a quarterly compounded growth rate of roughly 10% since initiation in 2019. This quarter we raised our dividend by 11% to $0.50 a share for $2 a share on an annualized basis. Due to our low cost of supply, our dividend is currently protected down to $35 a barrel. As we have said before, increases to our base dividend would occur simultaneously with absolute debt reduction, and this year was a great example of that. Year-to-date, we have used our $1.65 billion of internally generated free cash flow, as well as proceeds from divestitures, to reduce our gross debt by $1.3 billion and increase our dividend three times. Our balance sheet continues to strengthen, and we expect to end 2021 at just over a turn of leverage. Yesterday, we fully redeemed our $650 million of senior notes due in 2023. As a result, we no longer have any callable debt, and our next material maturity is late 2024. Because of this, we are now in a position to accelerate our returns program to the fourth quarter of 2021. This is a direct result of the combination of everything I've mentioned today: 1. Strong operational performance, 2. A supportive macro backdrop, and 3. Increasing financial strength. Yet none of this would be possible without safe and efficient field operations. We continue to build on our safety track record and did not have a recordable employee safety incident this quarter. We have also decreased our flared volumes on our legacy properties and continued to work with third parties to build out additional infrastructure to reduce flared volumes on our recently acquired assets. In addition, we expect to continue our efforts to reduce our flared volumes as we move into 2022 in conjunction with the completion of our Bakken divestiture. Yet, we're striving to be better and we recently announced our commitment to eliminate routine flaring by 2025, further reducing our emissions and moving us towards our commitment of reducing Scope 1 GHG intensity by at least 50%, and our methane intensity by at least 70% by 2024. The third quarter was a record quarter for Diamondback. We're proud to produce one of the cleanest and most cost-effective barrels in the industry and are thankful to operate in a pro-energy environment in the state of Texas. Our products fuel our local communities, our state, our country, and the world, and we continue to innovate, justifying our environmental license to operate in the communities where we and our families live, work, and play. We will continue to operate reliably and safely, and are uniquely positioned to take advantage of the current macro environment by exercising capital discipline, keeping oil volumes flat, and generating significant returns to our shareholders. With these comments complete, Operator, please open the line for questions.

Travis Stice, I wanted to get your preliminary thoughts on the 2022 outlook. In the deck, you highlighted an operating cash flow outlook of $4.8 billion at 70 and that $5.3+ billion at 80. You mentioned $3 billion to $3.5 billion of free cash flow under that range of oil price. This year, you're doing 270 gross sales. So my question is, what type of activity do you expect in 2022 that depends on a $1.8 million budget? And I would be interested to know what kind of cash tax rate you're assuming in that free cash flow guide?

Yes. Thanks, Arun. Good questions. From an activity perspective, not a lot's going to change. Still going to be 75% or 80% of our wells turned in line in the Midland Basin still at this kind of 65 to 75 a quarter run rig. The only difference in '22 versus 2021 is that, remember we have run a lot of rigs into the downturn in 2020 and decided to keep those rigs running to build docks. We drew down about 50 of those docks in 2021, and now are at a steady-state DUC levels. So we got a 50 DUC headwind in 2022 versus 2021, and then a little more infrastructure and midstream spend on the sale in order to reinitiate the field development there. Cash taxes. If the world stays where it is today, oil-price wise, we will have some cash taxes in 2022, in the low 9-figures, somewhere between $100 million to $200 million depending on where we are, which is a good problem to have. Hopefully, the commodity prices stay where they are.

Great. Thanks for that. And just my follow-up. I wanted to see that case maybe for you if you could provide a little bit more detail around the drilling efficiency gains that you're seeing. I think you highlighted on Slide 11, 10 days now for 2-mile lateral in the Midland Basin, then it also maybe describe where you're doing on the completion side and perhaps just the mix of the simul-frac in '22.

Yes, I'll start with simul-frac. We picked up our first simul-frac crews in the second half of 2020 and have been running those ever since. They've been extremely efficient, probably saving us about $25 or $30 a foot. But more importantly, in areas where you have offset production. You can get in, complete those wells, and get out and therefore limit your water out effects in large fields, which has been successful for us. So essentially, probably 90% of our wells next year will be done with the simul-frac crew. We've been running three simul-frac crews this year, plus a fourth spot crew here and there. And I anticipate that pace to be similar in 2022. And then on the drilling side, it's been pretty incredible putting the QEP drilling organization together with the Diamondback drilling organization and finding best practices. This is the first time we've kind of talked about this last quarter and the quarter before that, but now we've fully converted all of our Midland Basin rigs to the clear fluids drilling system that we're utilizing. And you can see an average of ten days spud to total depth has been a pretty large step change. As I said in my comments, we all use the same fixed costs in our wells, but days to total depth and the amount of lateral feet completed per day are variable costs that we think we certainly differentiate ourselves with. So that's been the driver of CapEx reductions this year. And in an inflationary environment which we're seeing, given the oil prices and activity levels, that inflation is mitigated by controlling the variable costs which our operations organization has been able to do.

And Arun, just to add to that point, when you look ahead in the future, it's always hard to see a step change in performance like we have seen this year, particularly on the drilling side. But just like I've said before, Diamondback has been an operational leader, and I expect us to maintain that position even going into the next several years.

Great. Thanks a lot.

Thank you, Arun.

Good morning, team. Travis, you made the comment on the last call that you thought this was more of a seller's market than a buyer's market. Can you provide an update on your latest thoughts around M&A, and if you still feel that's the appropriate strategy and then prioritize and buying back your stock?

The best way I can think about M&A right now is in share repurchases. I think to make some comments there about trying, we don't underwrite M&A or share repurchases at these high commodity prices. And look, right now it's not something that I've been spending any of my time on M&A. I spend most of my time on regulatory policy-related efforts and not on M&A. But yeah, as you said, the comment in the past, it's probably still true today that it still feels like a seller's market based on these smaller deals. But that's typically what you see with commodity prices like they've done this year.

Thanks, Travis. And then just to continue to flush out the cost point. There's a lot of talk about service cost inflation as we move into '22 and potentially some tightness in the pressure pumping market. Can you talk about how you're managing some of those inflation risks and confidence interval around being able to execute on the capital budget that you start to pencil out here?

I mean, the benefit we have is that while we've mentioned our efficiency gains, this year has seen an increase in raw material costs such as steel, diesel, and sand. It makes sense that, given the tight labor market, the service aspect might start to gain some momentum. However, it really depends on the direction of the rig count. In October, we added only eight rigs in the Permian. If we were to add a hundred rigs, the situation would become much tighter next year. On the other hand, if we maintain a steady state, it will be increasingly difficult for service providers to raise prices. Regardless, with our simul-frac crews and three crews operating, we plan to maintain that consistency, which allows our business partners to improve their margins now that they have steady work with Diamondback.

Thank you.

Thank you, Neil.

Good morning, everyone. Thanks for taking my questions. Guys, I wonder if I could ask, I guess it's kind of a housekeeping question on cost guidance. It looks to us that based on the guidance you've given for the fourth quarter, the Bakken looks like it had, on a number of levels, higher cash costs. Would that be the right interpretation? In which case, could you give us some idea of how you expect maybe just qualitatively that run rate to look in 2022? Are we looking at a step down because the Bakken is now no longer part of the portfolio?

Good question, Doug. I mean, primarily LOE probably comes down a couple of times from where it's been the last couple of quarters with the Bakken contributing. So I think generally moving towards the low $4s and $4 a BOE on the LOE side. We did keep the Bakken for a little longer than we liked, but that kind of impacted the transition employees on the G&A side. So G&A probably comes down a nickel or so, and then gathering transportation, certainly higher costs in the Bakken. So you probably see a step change down or step down in GP&T closer to that kind of $125 to $150 range on a go-forward basis. Given the asset that we when we bought it, when we bought QEP, we put up for sale right away. Unfortunately, the regulatory environment took a little longer to get it close, but generally, I think we're happy with the deal, and our cost structure comes down a little bit in Q4 and into 2022.

Okay. So I guess what I'm really getting at here is, at least, it looks like a bit of an inflation offset on the operating cost side rather than on the capital side. I just wanted to make sure I was interpreting that correctly. So it sounds like I'm on the right track there.

Yes.

Okay. Guys, I hate to be tough on the cash distribution policy as my second question, but I just want to get a little bit of clarification here. So let's assume that the current strip you're running at probably a $4 billion free cash number next year. So half of that goes back to shareholders and half of that goes to the balance sheet. That's pretty much what you are saying currently, right?

Yeah. At least half of that goes back to shareholders.

Okay. So when you think about the run rate, if you like for buybacks, the number could be pretty punchy, and I just wanted to get a handle as to how you guys are thinking about that because it sounds like you could be buying back a substantial amount of your stock. And I'm trying to think, do we run not a $2 billion buyback over what period? That's really what I'm trying to get at because it sounds like it will get reloaded at some point.

Yes, I mean, I think the key value that's up the buyback is going to be opportunistic, not problematic. As Charles said in his prepared remarks, you think about the buyback in terms of what is NAV at mid-cycle oil prices. Now we can have a long debate about where mid-cycle oil prices are going. But one quarter-end, we're not willing to underwrite mid-cycle oil prices higher than we've seen in the last five years. I think the key is that the buybacks are out there as a weapon for us at our disposal. But overall, 50% of cash flows, free cash flow is getting returned. And if we don't get through the buyback in the quarter, there are lots of ups and downs in this industry. We don't get through the buyback in one particular quarter; we're going to make our shareholders whole with a variable dividend the quarter following.

It seems we still have a long way to go before the stock reaches fair value. I wanted to understand how aggressive we should be regarding the buyback assumption, but I appreciate it.

Yeah. And that's a good problem to have. And considering where we were this summer when we had low 70's oil and the stock was 30%, 40% below where it is, I think we're in a great position right now and I think there are opportunities on the buyback side. And we look forward to not being blacked out in a day or two and getting back after.

I appreciate the answers, guys. Thank you.

Yes, Doug, just to add to that, it's all good. It's hard to think back just 12 months ago when the oil price was half of what it is today. And so we know that we're in a volatile industry, and we think being cautious and also providing our shareholders the maximum flexibility is still the prudent way to run the business, and I hope that the answers to the capital allocation question you just asked demonstrate that we are trying to be prudent in generating maximum shareholder returns.

All right. Thanks, Travis.

Good morning all. Congrats on your quarter end update.

Thank you, Derrick.

Perhaps for you, Travis or Kaes, early 2022 indications from the industry like yourself seems to suggest the sector is broadly remaining capital disciplined. In light of this discipline and the recovery in demand, the environment to us continues to look very constructive for the commodity, and the sectors' valuations certainly remain attractive relative to the market. What are the one to two potential developments for the sector that give you concern and could change the outlook to a less favorable one?

We need to closely monitor the discipline that public companies exhibit during their earnings calls, particularly in February. If a company begins to grow and gains market recognition for that growth, it may influence our board's decisions regarding capital allocation for growth. Considering the current macro conditions, post-pandemic, we need to reestablish demand at around 100 million barrels a day, and we are nearing that target. It's essential to absorb the surplus capacity from OPEC plus countries into the global energy market and to see the five-year average of global inventories return. While it's unlikely that all these factors will align perfectly, we should observe oil prices when these indicators are converging. A price of $70 or $80 per barrel under those circumstances suggests a healthy supply-demand balance. Conversely, if oil prices are significantly higher when those indicators align, it could signal increased demand for oil. However, our board remains committed to allocating capital in a way that maximizes returns for our shareholders. We have shifted from a capital-consuming growth strategy to one focused on capital distribution. Our aim is to maintain flat production while enhancing per-share metrics and strengthening our balance sheet, which we believe is a prudent approach to managing our business.

Great. As a follow-up, could you provide insight into your operational efficiencies, specifically regarding simul-frac operations? What percentage of your wells are currently utilizing 2-well versus 4-well simul-frac? Are there any practical limitations that might restrict the implementation of 4-well programs?

No, almost 100% of our Midland Basin pads are 4 wells or more. The benefit of simultaneous frac is you've got to have an even number of wells, given that you're running two crews at the same time. So less apparent in the Delaware. After the Delaware, we're probably 50% 2 wells or 4 wells plus, and 80% 2 wells plus, and the Midland, it's almost 100% 4 wells plus.

Great update and thanks again for your time.

Thank you, Derrick.

Thanks, Derrick.

Morning, Travis and Kaes. Thanks for your time this morning.

Good morning, David.

Just wanted to be a little bit more explicit around the well cost inflation. I just wanted to confirm, you all reached record points in the third quarter at $500 a foot in the Midland and $700 in the Delaware. Are you all modeling that now as sort of the trough period for costs? Is that already baked in at the higher level in the fourth-quarter guide?

Yes. I mean, we had a really good quarter in the third quarter efficiency-wise. No major issues on drilling, completion went off without a hitch, not a lot of weather. So we certainly don't model for the best-case scenario. But this is probably the base that we're going to build off of in terms of inflation going into '22. We went into 2021, got into 7% to 10% well cost inflation. We're able to go the other way. But like Travis said earlier in the call, we don't model in efficiency enhancements throughout the year in our budget. But certainly the organization on the upside is motivated to continue to push the limits. This feels like a pretty solid quarter in terms of costs that will be tough to replicate in this kind of inflationary environment.

I appreciate that, and for my follow-up, Travis, this might be for you or Kaes as well. You mentioned examining per-share metrics with the buyback. Earlier, you spoke about using a buyback when your expected return surpasses your cost of capital. Are you also considering your effective production growth per share when deciding to buy back shares versus possibly expanding if you see some early signals indicating an increase in demand for oil?

Yeah, that's a good point, part of that part of the buyback work that we did when we announced it was, we looked at how much capital does it take to grow the business 5% a year for the next 5 years or grow the business 10% a year for the next 5 years versus shrink the business by 5 or 10% a year in terms of share count over the next 5 years. The law of large numbers kept us up on the growth side, but on the buyback side, it started to get easier to grow per-share metrics year 2 and 3. Obviously, it's stock price dependent, but that was along the work that we did. We do our shareholders own more reserves per share, production per share, a longer inventory life per share with the buyback versus trying to just follow into the ground and oversupply a market that's already pretty fragile.

Got it. Thank you, guys.

Thank you, David.

Thanks. Good morning. If I can return back to these shareholder return plans. And I think you all said you're going to at least give 50% back to investors, and could you just give some color around that? Does that mean if there are not debt take-out opportunities, you'd potentially look at say, increasing the buyback or dividend above, sort of that 50% threshold? And also on, if you can give some color on the fixed dividend. Where could that go? Do you all get to a point where it just doesn't feel comfortable because of the sustainability at more of a mid-cycle price?

Yes. Scott, conversations with large shareholders have basically said, we want to make sure there's a dividend well-protected below $40. Our dividend breakeven for '22 is in the $35 range. We're buying puts at $50. So I think we're still very well protected. I think the dividend is going to continue to grow. The Board talks about it every quarter. We've had this 10% CAGR since introduction in 2018. That's probably a lofty goal to continue for multiple years, but certainly something we're talking about continuing the dividend growth on a steady basis. I think as long as that breakeven stays in the mid to high $30s, we feel pretty good about it.

Okay. And could you comment on the view on taken-out debt? And if you could focus a little bit more on variable dividends or buybacks, if there's not that take-down.

Yeah, that's right. Sorry about that. We still want to take down gross debt. We have a maturity in 2024. We also want to keep a larger cash balance than we've run in the past just for inflation. But yeah, we're kind of saying, hey, listen 50% of the free cash flow has got to go back to the shareholders. If we don't have anything else to do with it, I think it's logical that more will go back. I would like to have cash to take out the 2024s and be in a position to not have any material maturities until 2029. But like we've gone over the last 5 or 6 quarters, that's not mutually exclusive from our shareholders getting more money back.

Okay. And then as you look into 2022, how do you think? And I know you all are talking about flat oil production into next year. If you were to just outperform operationally, would you guys I guess reduce your well completions, say in the back half for the year to maintain flat production, or should we assume that you'll have that 65-70 well program next year? And if there's operational performance, maybe you do a little bit better than maintain flat production.

Well, I think generally right, got outperformed guidance on oil production, which we've done this year. But what we've said all year is that, if we are doing better than we thought, we're going to cut capital. And that's what we've done in 2021. I think that's essentially the goal for 2022, even in the face of some inflationary pressures.

Got it. Appreciate it.

Thank you, Scott.

Thank you. Good morning. Sorry, but I want to go back into the cash return. I think it makes a lot of sense with the volatility in the market that you put 50% of the excess cash into the balance sheet. But is there a number at some point on your net debt will be at a point that you may be able to raise the cash returns from 50% to 75% or higher? Is there some number that you might, that you guys are thinking, or that's not really is just that you will go with and saying that, okay, if I don't have any additional use because I no longer have any debt to pay off then I would just increase that percentage?

Yes, Paul. That's an excellent question. Right now, our focus is on committing to at least 50% as the industry evolves and companies make similar commitments. We don't want to reverse those commitments. There may be quarters where we return more than 50% of cash, but I don't want that to become a standard for the next few decades. Currently, our target is 50%, and while some quarters may exceed that, others may exactly meet it. However, 50% is our commitment.

Okay. And the second question just relates to your midstream operation letter with the dividend yield over 8%, much higher than the spend, the fang is selling. One will argue that your cost of capital is actually very high over there, and doesn't seem to me that really has good reason to have that as an independent trade. We have seen a lot of consolidation in the midstream business. One of your peers that their midstream asset just recently announced to merge with a private company. And that's where you're going to reduce their ownership so that they can deconsolidate. So just curious then how you're looking at that business and whether that you may want to do some alternative initiatives we need to the structure on that.

Good question. We've observed a couple of approaches, including some parent companies acquiring their subsidiaries and others divesting. For us, it makes more sense strategically to maintain the current cost structure. We can discuss this in more detail during our next call. However, if you examine our situation closely, you'll see that we've been emphasizing the Rattler story. Earlier this month, we signed a new contract that we believe will be very successful for us, especially with significant exposure to Diamondback. We plan to drop down the Rattler assets in about a month. The strategy as a subsidiary remains unchanged, and its significance to us has not diminished. I don't foresee pursuing a sale. We do evaluate costs, capital, and multiples, and if the stock isn't performing well, we have to consider our options. But for now, Rattler has had a solid year. While it may not have the same commodity exposure as Diamondback and Viper, which could make it seem like it's lagging a bit, it is still generating substantial free cash for unit holders, with Diamondback being the largest stakeholder.

Yeah, the only thing I would say is that, Diamondback have a good story and is probably one of the most attractive NPS names out there. And I think we will help that to even further simplified the CapEx structure so that when the investor looking at you, they don't have to look at so many different CapEx structures. Just my utmost feeling. Thank you.

Yeah, we heard that before Paul, and we've recognized it. Fortunately, the mothership has gotten very large, and so there's less leakage to the subsidiaries, but both have been important to us over the last half-decade.

Thank you.

Thanks, Paul.

Hey, guys. Just wanted to touch base a bit on third quarter production. It looks like it kind of outperformed here and just wanted to get a little bit of color behind that in terms of being a little bit ahead of the guidance was just pretty much just better well performance. You did mention kind of a pretty clean operational quarter with no weather issues.

We had a good quarter. We're very focused on hitting our numbers, and the benefit of slowing down and not trying to grow as fast as possible is that the operations organization has gotten better. You can see it on the well cost side. It's also happening on the production side. So good quarter all around. I think we feel really confident in the forward outlook and continuing to hit our numbers here.

Okay. Then, just in terms of '22 capex, I understand it's a loose guide that you folks targeted here. If I take the fourth-quarter capex range and annualize it, gives me $1.74 billion to $1.9 billion. So pretty wide there at the end of the day. Just wanted to get a sense, what you guys think perhaps the outcome could be on the inflation side there. I know it's still a moving target here, and we aren't 100% sure how this plays out. But any early indications of what the inflation can be, and is that what would target the top end of the $1.9 billion? Just trying to get a sense of what it was baked in there.

I believe I've mentioned that 2022 is not going to be similar to November 2nd, 2021. We are among the few companies discussing 2022. We'll see how things unfold in the coming weeks, but it looks like we have about 10% inflation factored in, along with some additional spending on infrastructure and midstream that we didn't have to account for this year. Overall, I think we can refine that guidance as we move into 2022 and have more information. If the rig count increases by a hundred rigs, that changes the scenario compared to a gradual rise of 5 to 10 rigs per month.

Okay. Thanks, guys.

Thank you.

Thanks, Leo.

Good morning, Travis and Kaes.

Hey, Charles.

Travis, I appreciate your comments; you covered many of the natural questions regarding your approach for '22. I have a question about the buyback. You announced it on the 15th, and looking at the average price you repurchased shares at alongside your share price chart, it seems like you took action for a few days and then completed it within about a week. Can we infer that the low $80s is the point where you decided buybacks were the preferred method for returning value to shareholders? Alternatively, Kaes, you mentioned a blackout earlier, which makes sense. Does this mean your legal team advised you to enter a blackout a few days prior to the end of the quarter?

Yeah. I think is just purely we get blacked out. We get blacked out 10 days before the quarter ends, and we're blacked out until a couple of days after earnings. So we'll assess where we are in a couple of days and be back after it.

That's helpful. Thanks, guys.

Thanks, Charles.

Hi, good morning, everyone. I'd like to explore the debt situation a bit further. As you mentioned, there's nothing callable at the moment, considering what has been borrowed this year, with the next maturity in 2024. My first question is, how do you plan to manage this? Are you considering tenders or make-wholes, which can be costly? On the other hand, holding a significant amount of cash on the balance sheet while waiting for the maturity at the end of 2024 may not be seen as appealing either. How are you approaching this in the next couple of years?

I think we're just going to keep following the prices of the bonds and try to get below the may call as we can. If not, the may call is not too restrictive on something like our '24s as you get in the late '22, but certainly not looking to take out anything past 2029.

Got it. Okay. And then on the cash balance, you mentioned wanting to have more of a buffer than in the past. What is that number for you?

I like $500 million as a minimum. We've kind of said that over the last couple of quarters. And I think that's a good starting point for us.

Okay, great. Thanks very much.

Thank you.

Thanks, Harry.

There was a report in the Wall Street Journal this morning stating that the FDA is planning to significantly increase methane emission limits. Can you explain what this means for your company and the industry? Additionally, I received a question from a major investor who mentioned that Diamondback has acknowledged multiyear flat volumes, not just for 2022. Is that accurate? Thank you.

Yes. The methane rules. I think we still have to see how the final document is written down if that continues as I've stated in my prepared remarks to focus on methane intensity. We're going to reduce that by 70% from 2019 levels by 2024. It depends on where the threshold is, but I've been very pleased with the progress we've made already on reducing methane intensity. In fact, we've got $20+ million allocated next year to continue those efforts to reduce methane intensity. If we do things right, hopefully, we will be below the threshold by which the methane intensity applies.

And then for our multi-year plans, we've always issued multi-year plans at Diamondback. We didn't buy into a multiyear growth plan in 2016, and we're not going to commit to multiple years at flat today. Now, certainly 2022 and 2021 will both be relatively flat production. We think it's worked and capital discipline has worked for this industry. I think this industry has tried a market share war with OpEx before, and it didn't work out. So why don't we let OpEx bring back their spare capacity and all stay flat, and we will see what the future holds in 2023 and beyond. But right now, we're committed to 2022 flat capital discipline as we roll over Diamondback. And as Travis mentioned, we're going to become a net return of capital rather than consumed capital.

And look, OpEx is going to do what OpEx is going to do. I've said we've transitioned in that Diamondback has transitioned very rapidly from consuming capital to returning capital. We're focused on the increase or the growth that we're seeing in per-share metrics. And I've outlined as the macro elements by which the world will be calling for more growth. Every quarter that we go through, Diamondback's board is demonstrating our commitment to maximizing shareholder returns. We're generating all this free cash flow this way. But free cash flow is coming to us, and our commitment to return at least 50% of that back to the shareholders.

Understood, guys. Thanks.

Thanks, Paul.

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