Endeavor Acquisition Synergies
Q: How will the Endeavor merger improve inventory and capital efficiency?
A: Management expects the Endeavor merger to enhance their inventory with about 12 years of sub-$40 breakeven inventory, positioning them as best-in-class in North American shale. They plan to apply Diamondback's drilling and completion strategies, such as simul-frac development and clear fluids drilling, to the Endeavor assets, reducing well costs by $1.5 to $2 million per well. This is projected to yield $550 million in cost synergies and improve capital efficiency in 2025.

Debt Reduction Plan
Q: What is the plan to reduce net debt to $10 billion?
A: The company aims to reduce net debt to $10 billion by mid-2025 through free cash flow generation and potential asset sales. They anticipate generating about $5 billion in free cash flow in 2024, with half used to reduce the cash portion of the Endeavor purchase price, bringing net debt down to around $12 billion at close. Ongoing free cash flow and selective asset sales will further reduce debt.

Capital Expenditure Outlook
Q: How will capital spending change post-merger with Endeavor?
A: Capital expenditures are expected to decrease by about $700 million from 2024 to 2025. This reduction comes from applying Diamondback's lower cost structure to Endeavor's operations, needing fewer wells due to shallower decline rates, and completing one-time environmental CapEx projects. Combined with cost synergies, this enhances capital efficiency in 2025.

Service Cost Environment
Q: Is there an opportunity to reduce service costs given lower activity in gas basins?
A: Management expects softening in the service market due to reduced gas-directed activity. While they don't set prices, they will seek market rates for services without existing commitments, potentially lowering costs on higher-spec equipment.

Hedging Strategy
Q: How will the hedging strategy evolve with the Endeavor merger?
A: The company plans to hedge about two-thirds to three-quarters of production between signing and closing to protect cash flows for reducing the purchase price. Long-term, they will continue hedging at 50% to 55% to protect the balance sheet and base dividend in a $55 to $60 WTI price environment.

Gas Market Outlook
Q: What is the outlook for the Permian gas market amid increased associated gas supply?
A: Management expects associated gas production in the Permian to continue exceeding expectations, even with oil discipline. They believe gas prices could go to zero without impacting well economics, as wells remain profitable on oil alone.

Revisiting Asset Sales
Q: Will the company consider selling minority interests in pipeline investments?
A: They are evaluating monetization of some minority pipeline interests to accelerate debt reduction. Some assets could be sold now, while others may be part of larger transactions. They emphasize not being forced sellers and will act thoughtfully post-closing.

Development in Wolfcamp D and Upper Sprayberry
Q: Are you allocating more capital to Wolfcamp D and Upper Sprayberry zones?
A: Yes, due to encouraging results, they are increasing development in the Wolfcamp D and Upper Sprayberry zones. Adding these zones extends inventory duration without impacting productivity.

Capital Discipline and Efficiencies
Q: How are you maintaining capital discipline in the current environment?
A: By focusing on multi-zone development, optimizing project sizes, and mitigating frac hits, they maintain efficiencies. They continue to improve conversion efficiency and develop durable inventory.

Long-Term Balance Sheet Philosophy
Q: What is the long-term leverage target post-merger?
A: They aim for net debt in the range of $6 to $8 billion, approximately half a turn at strip prices. This approach allows flexibility for capital allocation in down cycles and supports shareholder returns.