Diamondback Energy, Inc.

Good day, ladies and gentlemen, and welcome to the Diamondback Energy second quarter 2019 earnings conference call. As a reminder, this conference is being recorded. I would now like to introduce your host for today's conference, Adam Lawless, Vice President, Investor Relations. Sir, you may begin.

Thank you, Josh. Good morning, and welcome to Diamondback Energy's second quarter 2019 conference call. During our call today, we will reference an updated investor presentation, which can be found on Diamondback's website. Representing down and back today are Travis Sky, CEO, Mike Hollis, President and COO, and Kay Stanhoff, 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 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 Suss.

Thank you, Adam. Welcome, everyone, and thank you for listening to Diamondback's second quarter 2019 conference call. Diamondback continued to execute in the second quarter of 2019. we produced record EBITDA per share from 7% quarter over quarter production growth while lowering the midpoint of our capital cost guidance and increasing the midpoints of both our full year production guidance and estimated completed well count for the year. Diamondback has now grown earnings per share at 11% quarterly CAGR and EBITDA per share by 9% quarterly since our IPO in late 2012. Based on second quarter numbers, Diamondback now generates more annualized EBITDA per share than our IPO price seven years ago. Diamondback continues to focus on per share metrics, with shareholders now owning more production, cash flow, and earnings per share than prior to our acquisition of Energen a year ago, even in the face of a lower commodity price environment. Diamondbacks per lateral foot well costs, which include every dollar spent bringing our operated wells to production and the first six months of production-related costs thereafter, are down 7% year-over-year in the Midland Basin and 16% year-over-year in the Delaware Basin. As a result, we are narrowing the midpoint of our 2019 capital budget and increasing the midpoint of our operated completions. which implies over $110 of improved capital efficiency per completed lateral foot versus our initial budget presented in December. Our operations organization continues to drive material costs out of the business with expectations for continued tailwinds due to improved efficiencies and service cost deflation. With respect to the Energen acquisition and subsequent integration, Diamondback has now completed every major strategic objective and exceeded our stated synergies presented one year ago when we announced the deal. In the second quarter, we completed the IPO of our midstream business, Rattler, raising over $720 million net to Diamondback. We also recently announced the drop down of over 5,000 net loyalty acres to Viper for $700 million of gross proceeds. including $150 million in cash. Lastly, we recently completed the sale of the conventional Central Basin platform assets acquired via the Inogen acquisition. As a result of completing these objectives, Diamondback immediately commenced our stock repurchase program by repurchasing $104 million of stock in the second quarter after reducing our consolidated net debt by $400 million quarter over quarter. We intend to use the majority of the remainder of these proceeds, along with increasing free cash flow from operations, to continue our stock repurchase program. Our balance sheet is strong, with both absolute debt levels and leverage metrics low, and we will continue to return capital to shareholders via our share repurchase program and dividend. At current valuations, we continue to feel the best use of our free capital at Diamondback is buying back our own stock. With respect to oil realizations, we believe the worst of our widest basis differential quarters are behind us. And we now expect to realize greater than 95% of WTI pricing for the second half of 2019. By early next year, we expect to realize oil prices at parity with or greater than WTI as our existing commitments convert to the gray oak and epic pipelines and receive Brent or coastal pricing. With our recently announced commitment to the Wink to Webster pipeline, we will have full exposure to the Houston and Corpus Christi local refining and export markets by 2021, removing invading pricing risk from our future business model. In closing, Diamondback continues to execute on the promises presented at the time of the energy and acquisition in our business is nearing a significant free cash flow inflection point in the second half of 2019 and into 2020. We may no longer be maximizing growth within cash flow, but we are not sacrificing growth in 2020 as we expect to grow at industry-leading rates for large cap E&P and deliver over $750 million of free cash flow at $55 oil due to our best-in-class cost structure, asset quality, and operating metrics. With these comments now complete, operator, please open the line for questions.