Diamondback Energy, Inc.

Good day and thank you for standing by. Welcome to the Diamondback Energy fourth quarter 2022 earnings conference call. At this time, all participants are in 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'll need to press star one one on your telephone. That's star one one. And then you'll hear an automated message advising that your hand is raised. To withdraw your question, press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Adam Lawless, VP of Investor Relations. Adam, go ahead.

Thank you, Eric. Good morning, and welcome to Diamondback Energy's fourth quarter 2022 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 Dice, Chairman and CEO, Kate Stankoff, President and CFO, and Danny Wesson, COO. 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 action 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 non-GAAP measures. Reconciliations with the appropriate GAAP measures can be found on our earnings release issued yesterday afternoon. I'll now turn the call over to Travis Suss.

Thank you, Adam, and welcome to Diamondback's fourth quarter earnings call. 2022 was another great year for Diamondback. We successfully executed on our capital program, accelerated our return of capital plan, and generated record cash flows. I'm very proud of all that we were able to accomplish and look forward to what I believe will be another strong year for the company. Looking back at last year, we produced over 223,000 barrels of oil per day, exceeding our production expectations. This is primarily the result of our well performance, which continues to trend in the right direction as our normalized oil production in the Midland Basin improved by 6% year over year and nearly 20% when compared to 2020. We continue to optimize our multi-zone co-development strategy, which we pivoted to prior to the pandemic by tweaking our frack designs, spacing assumptions, and landing zones to maximize our returns. On the operations side, we've also built out substantial water infrastructure, which allows us to implement simul-frack completions across our position. This type of completion is consistently more efficient than a traditional zip-a-frack design because we can complete approximately 80 wells per year with just one crew. When you add in the additional efficiencies we're seeing from our Halliburton E-Fleet, our completion savings are approximately $50 a foot. Last year was not without its challenges from significant inflationary pressures, particularly with casing, equipment availability, and weather-related downtime. However, through it all, our operational team did what it always does, deliver best-in-class execution. Our ability to hold our capital budget flat and stay within our original guidance range while also exceeding our production target is something you should expect from Diamondback as we push to deliver differentiated results quarter after quarter. Financially, we generated over $7 billion in EBITDA and $4.6 billion in free cash flow, or nearly $26 per share, both records for the company. We made significant progress on our return of capital plan, increasing our cash return commitment in the middle of the year to return at least 75% of free cash flow to stockholders. In total, we returned 68% of our free cash flow in 2022, which equates to $3.1 billion through a combination of our base and variable dividend and share repurchase program, buying back nearly 8.7 million shares at an average price of $126 per share, per total of $1.1 billion. This represents 5% of our shares outstanding when we announced our program in September of 2021. An additional $2 billion was returned through our base and variable dividends, with a total dividend growth of nearly five times when compared to 2021. In total, we returned $11.31 per share in dividends. In the fourth quarter alone, we returned over $860 million, or $5.65 per share, with a total dividend yield of nearly 9%. This included an increase to our annual base dividend of 20 cents, now $3.20 per share. per share annually, or $0.80 per quarter, representing 54% year-over-year growth. We also announced multiple strategic transactions in the fourth quarter that better position us for the long term. We made two Middle Basin acquisitions, Lario and Firebird, both of which are now closed and seamlessly integrated that added over 500 high-quality opportunities and 83,000 net acres to our portfolio. This additional inventory, along with the associated production and cash flow, has solidified our size and scale in the Midland Basin, giving us a strategic advantage as we execute on our capital programs for the decades to come. Last summer, we bought in all the outstanding units of Rattler, which gives us additional flexibility to think strategically about our existing midstream portfolios. We now have the ability to monetize assets that traded a higher multiple than our upstream business and use the proceeds to strengthen our balance sheet or acquire additional upstream assets. The first example of this was the sale of our 10% interest in the Gray Oak crude oil pipeline to Enbridge. We achieved a 1.75 multiple in our invested capital and used the proceeds to partially fund the cash portion of the Lario acquisitions. As we evaluate both our Rattler-operated assets and equity method investments, we've also monetized multiple non-core upstream positions. We have now divested nearly $600 million in upstream assets since the third quarter of last year, which includes two recent deals in southeast Glasscock and Ward in Winkler counties. These assets simply did not compete for immediate capital within our portfolios. We have now increased our non-core asset target sale from $500 million to at least a billion by the end of this year. Last year, we improved our leverage ratio, now below one times, and also pushed the tenor of nearly 90% of our debt past five years, with over $2 billion due in the 2050s at an average coupon of below 5%. We will continue to use free cash flow and proceeds from our non-core asset sales to lower our overall debt profile. continually improving our financial position. As we move into 2023, we expect to deliver relatively flat proforma production year over year. When you account for the 11 months of Lario and a full year of Firebird production contribution, our guidance reflects 260,000 barrels of oil a day and 2.6 billion in CapEx while running 15 rigs and four simulfrac crews. In closing, 2022 was an outstanding year for the company. We generated record-free cash flow and distributed nearly 70% of it to our shareholders, strengthened our balance sheet, extended our inventory runway, and continued to produce one of the highest margin barrels in the industry. Looking ahead, our business model is working, and we are confident in our 2023 outlook and our ongoing ability to continue generating peer-leading returns for our stockholders. With these comments now complete, operator, please open the line for questions.