Diamondback Energy, Inc.

Good day, ladies and gentlemen, and welcome to the Diamondback Energy First Quarter 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will be given at that time. If anyone should require operator assistance during today's conference, please press star, then zero on your telephone keypad. As a reminder, today's conference is being recorded. I would now like to introduce your host for today's conference, Adam Lawless, Vice President of Investor Relations. Sir, you may begin.

Thank you, Sydney. Good morning, and welcome to Diamondback Energy's first quarter 2019 conference call. Representing Diamondback today are Travis Dye, CEO, Mike Hollis, President and COO, and Case Van Hoff, CFO. During this conference call, the participants may make certain forward-looking statements relating to the company's financial condition, results of operations, plans, objectives, future performance, and businesses. We caution you that actual results could differ materially from those that are indicated in these forward-looking statements due to a variety of factors. Information concerning these factors can be found in the company's filings with the SEC. In addition, we'll make reference to certain non-GAAP measures. 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. Welcome, everyone, and thank you for listening to Diamondback's first quarter 2019 conference call. After closing the Energen acquisition in the fourth quarter of 2018, we ensured that Diamondback got off to a fast start in 2019 and showcased the strength of our operations organization and the low cost structure on a larger scale. We navigated the $30 drop in fourth quarter oil prices by immediately cutting activity to start 2019 while still growing production 5 percent from our December 2018 exit rate of 250,000 barrels a day, all while integrating our $9 billion acquisition of Energen and the addition of over 300 employees to the Diamondback family. I'm going to pause and take a minute to give credit to all of the employees within Diamondback for working together with the new, significantly larger group of colleagues in executing on this plan seamlessly. Both the Diamondback and former Energen employees have learned best practices from each other, and the results have shown through in the capital and operating costs presented in our first full quarter as a combined company. Our first quarter results and revised expectations for capital costs reflect the execution of the synergies presented in the merger presentation with Energen last August. Diamondback is on pace to exceed our previously disclosed synergy targets earlier than expected, and we will look to continue to push efficiency and drive down cash operating costs. Diamondback spent $627 million on CapEx in the first quarter and generated $675 million of EBITDA with $8 per barrel cash operating costs, including $0.55 per barrel G&A. We completed 82 wells in the quarter and are maintaining our expectations to bring on between 290 and 320 wells this year from a $2.7 to $3 billion capital budget. Capital discipline is important to Diamondback and we have no intention to exceed this budget or well count in 2019 regardless of commodity price. From a corporate development perspective, we executed on our grow and prune strategy by signing definitive agreements to divest the conventional assets acquired from Imogen, as well as non-core acreage in Crockett and Reagan counties. These transactions are expected to close by July 1st, and as a result, we have lowered our full year production guidance to account for the production expected to be lost from these properties in the back half of the year. We also lowered our full-year LOE guidance by 25 cents a barrel to account for the higher operating cost structure of these assets. Secondly, we also contributed the oil gathering and salt water disposal assets acquired in the Energen acquisition into our midstream subsidiary, Rattler Midstream, with market-based contracts in place. we are actively working on dropping down the remaining mineral and royalty assets held at the Diamondback level to VIPER and expect to do so at some point in 2019. Most importantly this quarter, our Board of Directors has authorized up to a $2 billion capital return program to be executed in the form of a stock repurchase program through the end of year 2020. This program is a direct reflection of the confidence we have in our business plan and free cash flow outlook given the improvement in commodity prices from our original 2019 budgeting process, our capital budget control, and the expected improvement in our oil realizations as legacy fixed differential contracts have rolled off and we move more of our barrels to the Gulf Coast. With this announcement, We have set a clear use of proceeds for this free cash flow and expect to generate over $750 million of free cash flow from operations in 2020 at $55 WTI. Over the long term, the consistent growth of our dividend will remain our primary return of capital objective, but this repurchase program represents the next step in our total return strategy and the evolution into a large cap pure play. At a higher level, our capital allocation philosophy is grounded on achieving peer-leading year-over-year growth, supporting a growing dividend, reducing debt consistently, and continuing to replace and maintain a deep inventory of Tier 1 acreage. Excess free cash flow above this will be returned to stockholders. Diamondback will not spend every dollar of free cash flow on growth or acquisitions. Could simply, we feel buying back our stock is the best acquisition opportunity we see today, given our outlook and multiple visible catalysts ahead. With these comments now complete, operator, please open the line for questions.