Jordan Blum, editorial director, Hart Energy: We are here at the SUPER DUG Conference in Fort Worth. I'm joined by Kaes Van’t Hof, the president and CFO of Diamondback Energy. Thank you so much for joining us. Really appreciate it.  

Kaes Van’t Hof, president and CFO, Diamondback Energy Inc.: It's great to be here.

JB: So y'all are in the midst of the massive $26 billion acquisition of Endeavor. How is that going to look on the other side once we get everything completed and become the top Permian pure play in the industry?

KVH: Yeah, I mean, listen, it's two strong companies coming together and making a stronger company. It's pretty, pretty unique that you can see a deal of that size be rewarded by investors as much as it has.

Clearly we've seen what's called multiple expansion in our business to say that a bigger, better Diamondback is something that investors want to own for a long time. And now the heavy lifting comes when you have to integrate and add a thousand people to a company that already has a thousand people.

But generally, I think we're excited about it. It's in our backyard. We know each other's businesses very, very well, and so I think it'll be a seamless transition and good for Diamondback shareholders, but also good for the city of Midland.

JB: Great. So I know the plan is to hit the ground running when this closes, hopefully in Q4, what is the strategy for longer laterals, more co-development with all this massive blocky Midland Basin acreage?

KVH: Yeah, listen, I think Endeavor and Diamondback had very similar operating philosophies, so there's not going to be a lot to change in terms of the philosophy of developing more zones, bigger pads. At the same time, I think we have a lot of adjoining acreage that will be extended because of the deal. So more 15,000 foot laterals, maybe even some 20,000 foot laterals at the most for now. But yeah, I think it just results in more capital efficiency and less capital being spent above ground, more capital being spent in the resource, and therefore a business that can generate a lot of free cash flow for a longer period of time.

JB: Very good. What are some of the goals for exploring different benches? I know the Upper Spraberry, Wolfcamp D.

KVH: Yeah, the Midland Basin continues to expand in terms of resource, and I think M&A helps that resource expansion story, but being able to test other zones—Upper Spraberry, as you mentioned in the northern Midland Basin, Wolfcamp D as you move south—those zones being put into primary development.

And if you do that and you don't see a degradation in terms of your cube curves, which is a closely watched item from the street, if you don't see that degradation, then you're extending the duration of your business.

And in my mind, that's a great thing for Diamondback and for the shale business in general, that we can continue to push the limits on new zones, more efficiencies. That's what's going to allow this business to be as relevant as it is today for a long period of time.

JB: Very good. Obviously, a lot of the focus is going to be on the Midland. What about the legacy Delaware Basin acreage and just what the future of that holds for Diamondback?

KVH: Yeah, it's a smaller position relative to the size of our Midland position. It provides a lot of good free cashflow, a lot of good oil production, a little lower decline rate because we haven't been drilling there as much as the Midland Basin, and I think the Delaware has a lot of resource that has yet to be explored.

I think if we can retain that upside without having to sell the asset to pay down debt, then I think that's a good thing. I think we can be patient and let other people explore these other zones that are starting to get more attention in the Delaware, and when the time comes, we might still have that resource there to develop it for the next decade.

JB: So I don't want to put words in your mouth, but having the optionality to sell or keep it, but it almost seems like in your heart of hearts you'd like to keep it.

KVH: I think our preference is probably to keep it, we will have to be a seller of an asset if it's the right price, but I think the base case right now is keep it and learn from offsets.

JB: Very good. Well, again, thank you so much for being here, kicking off the conference today at SUPER DUG. To read and watch more please visit online at hartenergy.com.

KVH: Thanks for having me.

Comments