Diamondback Energy, Inc.

Good day, ladies and gentlemen, and welcome to Diamondback Energy's fourth quarter 2019 earnings conference call. At this time, all participants are on a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you need to press star 1 on your telephone. If you require any further assistance, please press star then 0. As a reminder, this conference is being recorded. I would now like to introduce your host for this conference call, Mr. Adam Wallace, Vice President, Investor Relations. Sir, you may begin.

Thank you, Kevin. Good morning, and welcome to Diamondback Energy's fourth quarter 2019 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, and Kate Vantoff, 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 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 fourth quarter earnings call. Before I start with my remarks, I want to pause and recognize an individual who passed away last week, Clayton Williams, who was truly a larger-than-life West Texan and a man that paved the way for so many in our industry who came after him. He was a wildcatter, a patriarch, a philanthropist, and a Texas Aggie. Later today, we will lay him to rest and celebrate a life well-lived but I couldn't start without reflecting on what Clady has meant to so many people. Ms. Williams and family, our thoughts and prayers are with you today. Godspeed, Clayton Williams. You will be missed. Turning to the fourth quarter, Diamondback ended 2019 in a position of strength, achieving 5% oil production growth quarter over quarter, along with our highest oil realizations of the year. combined with our industry-leading cost structure, resulted in 18% quarter-over-quarter EBITDA growth and 31% quarter-over-quarter adjusted EPS growth. We repurchased 2.4 million shares in the quarter for approximately $199 million, utilizing free cash flow and a $43 million gain from an interest rate swap that was unround as part of our first investment-grade bond offering in November to repurchase shares at a depressed valuation. Further, Diamondback did not slow operations in the second half of 2019 and maintained continuous operations with eight completion crews running consistently through the end of the year, setting us up for continued growth and operational momentum in 2020. Taking a step back to review the full year, 2019 was a busy year for Diamondback. We successfully integrated our merger with Energen, doubling the size of our company while achieving greater cost synergies in a shorter period of time than originally promised at time of deal announcement. We grew pro forma oil production 26 percent year over year from a $2.9 billion capital budget increased our dividend by 50% and repurchased 6.4 million shares, or about 10% of the shares issued to complete the Energen merger. On the corporate development front, we sold non-core assets, dropped down mineral interest to Viper, and took our midstream business public. In November, we executed on the final piece of our Synergy scorecard and refinanced our 3.0 billion of the company's long-term debt following our upgrade to investment grade at an attractive interest rate. While I'm proud of what we accomplished in 2019, we don't spend any time looking backward at our tracks in the sand, but rather looking ahead and concentrating on the future. 2020 has already brought its own industry challenges, and we are focused on navigating these challenges by staying disciplined, improving our industry-leading cost structure, growing production, increasing environmental transparency, and returning more cash to stockholders. Our dividend remains our primary method of returning capital to stockholders, and as evidenced through our announcement today, we are strongly committed to continuing to grow this dividend, which sits at a 2% yield at today's stock price. We will continue to be opportunistic with our share repurchase program and outright debt reduction to maintain balance sheet strength, but our dividend is considered first dollar out when it comes to capital allocation at Diamondbacks. Looking to the year ahead of us, Diamondbacks expects to grow oil production in the first quarter of 2020 on the back of our strong fourth quarter production en route to our 10 to 15% year-over-year expected oil production growth in 2020. We expect to execute this plan within the same capital budget framework as 2019, while completing 7% more lateral footage with the same amount of capital. Our oil realizations are expected to improve to nearly 100% of WTI in the first quarter of 2020, which will be a nice tailwind for per share metrics. Full-service startup of the Epic and Gray Oak pipelines in the second quarter will increase our exposure to the export and Gulf Coast markets, as well as increase cash flow through our 10% ownership of each pipeline at Rattler. We will also continue to work to drive down cash operating costs through the year, with LOE expected to decline relative to 2019 numbers. We believe this capital and operating plan reflects the optimal capital efficiency for achieving a peer-leading combination of growth and free cash flow in 2020. Should commodity prices decline further from current levels, we will be prepared to act responsibly and cut capital further, just like we've done multiple times in the past. If commodity prices rally, we plan to use excess free cash flow to accelerate our capital return program and reduce debt. With these comments now complete, operator, please open the line for questions.