Diamondback Energy, Inc.

Good day, ladies and gentlemen, and welcome to the Diamondback Energy second quarter 2020 earnings conference call. All lines have been placed in mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star then the number one on your telephone keypad. If you would like to withdraw your question, press the pound key. 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, Laura. Good morning, and welcome to Diamondback Energy's second quarter 2020 conference call. During our call today, we will reference an updated investor presentation, which can be found on our website. Representing Diamondback today are Travis Dye, CEO, and Case 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 gap 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 second quarter earnings call. Before we get started, I would like to take a minute to continue to extend our thoughts and prayers to all of those both directly and indirectly affected by the coronavirus pandemic. This year has brought unprecedented challenges, and I'm proud of how our organization responded given the obstacles presented. Our teams reacted quickly to the commodity price volatility and adjusted our operating and capital plans in real time. We are seeing the benefits of this work today with all-time low cash operating costs and capital costs per lateral foot at or below all-time lows in both basins. This is also accompanied by high-graded forward development plan weighted towards the Midland Basin, where we have high mineral ownership, lower midstream and infrastructure capital requirements, and higher returns due to the quality of our acreage, accompanied by industry-low drilling and completion costs. Turning to the second quarter, we dramatically reduced our operated rig count in the second quarter, from 20 rigs on March 31st to six rigs today. In response to historically low commodity prices experienced in the quarter, we made the decision to complete as few wells as possible in the second quarter, with zero wells turned to production in the month of June. We also curtailed 5 percent of our oil production during the second quarter. This curtailed production has been restored and is now receiving significantly higher realized prices than it would have received when the decision was made to curtail. We have three completion crews working today to stem production declines and to meet our fourth quarter production target of between 170 and 175,000 barrels of oil per day. Importantly, Diamondback decreased activity levels throughout the second quarter while not spending excessive dollars on early termination fees or other one-time expenses that are headwinds to cash generation. Looking ahead, Production is expected to continue to decline in the third quarter but rise to meet our fourth quarter guidance as we began completion operations in June with two crews and added a third completion crew in July. We expect to run between three and four completion crews for the rest of the year and are currently running six operated drilling rigs, which is our base case for the rest of the year. In 2021, Should a maintenance capital scenario become the base case, Diamondback can hold fourth quarter 2020 oil production flat while spending 25 to 35 percent less than 2020's capital budget, which is also expected to include lower midstream and infrastructure budgets. The second half of 2020 and 2021's capital programs will benefit from the drawdown of some of the duck billed from the first half of 2020 as we worked down our operated rig counts as contracts rolled off. We entered the second quarter with $1.9 billion of standalone liquidity and have only $191 million of our September 2021 notes outstanding after tendering for 55 percent of the original $400 million issuance during the second quarter. This is our only major term debt maturity before 2024. With our reduction in forward capital spending and expectation for true free cash flow generation at current commodity prices in the second half of 2020 and 2021, we will look to reduce both gross and net debt while continuing to return capital to our shareholders through our base dividends. This dividend remains our primary return of capital to our equity holders, and the Board of Directors has decided to maintain the dividend based on the current forward outlook. To finish, Diamondback has further adjusted downward our already low cost structure and is prepared to operate successfully in a lower for longer oil price environment. A lot of the efficiency and cost gains made during this downturn will become permanent. and will benefit Diamondback shareholders in a recovery. Low interest expense, low leverage, industry-leading low cash operating costs, downside hedge protection, strong midstream contracts, and the benefits of Viper and Rattler will allow Diamondback to operate effectively through an uncertain forward outlook. With these comments now complete, operator, please open the line for questions.