Diamondback Energy Q4 2023 Earnings Call Transcript

Presentation

[Operator]

Good day, and thank you for standing by. Welcome to the Diamondback Energy Fourth Quarter 2023 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded.

I would now like to hand the conference over to your speaker today, Adam Lawlis, VP, Investor relations. Please go ahead.

[Adam Lawlis, Vice President, Investor Relations at Diamondback Energy]

Thank you, Daniel Good morning, and welcome to Diamondback Energy's fourth quarter 2023 conference call. During our call today, we will reference an updated investor presentation and letter to stockholders, which can be found on Diamondback's website. Representing Diamondback today are Travis Stice, Chairman and CEO; Kaes Van't Hof, 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 actual results could differ materially from those that are indicated in these forwarlooking statements due to a variety of factors. Information concerning these factors can be found in the company's filings with 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.

Now, I'll turn the call over to Travis Stice.

[Travis D. Stice, Chairman of the Board and Chief Executive Officer at Diamondback Energy]

Thank you Adam, and I appreciate everyone joining this morning. I hope you continue to find the stockholders letter that we issued last night, an efficient way to communicate. So, obviously a lot of the material is in that stockholder's letter.

So with that operator, would you please open the line for questions?

Questions and Answers

[Operator]

[Operator Instructions] Please stand by while we compile the Q&A roster. Our first question comes from Neal Dingmann with Truist Securities. Your line is now open.

[Neal Dingmann, Analyst at Truist Securities]

Good morning Travis and team. Thanks for the time guys. My first question is on Endeavor specifically. Just want to go back to this. You all highlighted about 344,000 acres with about 2,300 locations. That compares to 494,380 Phonetic] for you all. And I'm just wondering does this slightly smaller current core footprint provide a material amount of immediate incremental locations, Travis? And I'm just wondering -- or potential upside and I'm wondering how you would thinking about. I know it's still a while until this thing likely closes, but how you'll attack these assets?

[Kaes Van't Hof, President and Chief Financial Officer at Diamondback Energy]

Yeah Neal, I mean listen, we wanted to be conservative in how we laid out the inventory counts for both us and them, sub 40. And I think there's been a lot of aggressive inventory counts put in deals lately, and I think for us to be able to say that combined we have about twelve years of sub 40 breakeven inventory is truly a best-in-class number in North American shale, and that's kind of why we put it there. I think generally as with Diamondback's position, there's a lot of inventory that breaks even well above those numbers. I think there's a lot of testing going on throughout the basin. There's probably some zones like the upper Spraberry that we probably call a sub 40 breakeven zone today, but I don't think we're ready to fully put it in the location count.

So I think it's just conservatism. And I think on a relative basis not all locations are created equal. And within that combined 6,000 location count there's some that breakeven below 30, right? I mean, it's all about what we're developing today and saving the upside for later. And we know that that upside is going to accrue to us with the size of the acreage position pro forma.

[Travis D. Stice, Chairman of the Board and Chief Executive Officer at Diamondback Energy]

Neal, just to add to that point. If you think about a company's future, two things are really important for the oil and gas sector. One is kind of this durable inventory, and Kaes just walked you through some numbers there, but it's also the conversion efficiency of that inventory. And I think now with the announcement of this Endeavor merger, we're in control of both the numerator and denominator of that ratio. So our durable inventory greatly extends, and then our conversion efficiency that we've been known for for a long time actually gets to come to bear on a larger asset base.

And I think to give you a little bit more color and comfort, we didn't put our thumb on the scale as we looked across the barbed wire fence. And what I mean by that is, we simply applied what Diamondback is doing today on drilling and completion and operating wells and then physically adjacent. This case was just explaining, made the assumption that, that can be applied across the barbed wire fence. So I wanted to give you a little bit more color there, Neal. But thanks for your question.

[Neal Dingmann, Analyst at Truist Securities]

No, I appreciate from both, and I definitely appreciate the conservatives. I think you're right, Kaes. There's been a lot of something inflated. My second question is on your current Slide 11 of today on the multi zone development strategy specifically. Really like that you all for '23 had the average project size of around 24 wells. And I'm just wondering, will that be approximately the same this year? And I'm just wondering with that, how do you all continue to mitigate the frack hits that seem to plague other operators so much when they do these larger projects?

[Kaes Van't Hof, President and Chief Financial Officer at Diamondback Energy]

Yeah, I think generally, Neil, the project size is up. I mean, 25 is not an exact number. It's going to be different in different counties where you have different spacing within different zones. We don't use a cookie cutter strategy to develop the asset. We use a unique development strategy for each area. I think we've had a lot of experience with brackets over the years. I think we've learned and our planning group has gotten significantly better at looking around the corner and seeing what issues might arise. And certainly there's a benefit of size and scale, right? If we have one of these 24 projects coming on every quarter, well, there's a lot of risk in that one particular project. But here we have four, five, six of these coming on every quarter, and that allows us operational flexibility to move around and plan our business. And that's just one of the other benefits of size and scale that will only be magnified with the potential or with the Endeavor merger.

[Travis D. Stice, Chairman of the Board and Chief Executive Officer at Diamondback Energy]

And Neal, when you look at our 2024 budget, you kind of see that the capital efficiency shining through because we're essentially maintaining the volumes profile that we had in the fourth quarter, but we're doing so with 10% less capex. And as Kaes was just talking to, our development strategy yields the same well performance. So, I think. I think as we look across the industry universe, capital efficiency for this year is going to be very, very important. And I like the way that our budget execution is shaping up in terms of that capital efficiency.

[Neal Dingmann, Analyst at Truist Securities]

Agreed., Travis. It seems even better next year. Thank you all.

[Travis D. Stice, Chairman of the Board and Chief Executive Officer at Diamondback Energy]

Thank you.

[Operator]

Thank you. And one moment for our next question. Our next question comes from David Deckelbaum with TD Cowan. Your line's now open.

[David Deckelbaum, Analyst at TD Cowen]

Thanks for taking my question, Travis, Kaes and team. I appreciate the time.

[Travis D. Stice, Chairman of the Board and Chief Executive Officer at Diamondback Energy]

Thank you, David.

[David Deckelbaum, Analyst at TD Cowen]

I was just curious, Travis, if you could provide an outlook. I know when you announced the Endeavor deal, I think you said that you weren't going to sell anything, obviousl, until the deal closes, which makes plenty of prudent sense. But I'm interested just with all of the minority interest that you have and various pipeline investments, how should we think about just where that pipeline cycle is right now relative to investing versus harvesting? Is that something that we might see if we think about the risk for probability around '24, seeing some of those investments being harvested? Is the market kind of ripe for that right now or you kind of expect these to be more long term investment harvesting Endeavor?

[Kaes Van't Hof, President and Chief Financial Officer at Diamondback Energy]

Yeah, I mean, some are able to be harvested today, some are probably further down the line. I mean, we've done a pretty good job selling some of these non core -- non core, but equity method investments over the last 12 months. We sold the Gray Oak pipeline interest. We sold our interest in the OMOG oil gathering JV. I think it's logical that some of our assets that we can control the sale of will likely pursue a sale. But there's others that we're probably someone who would tag along with a bigger sale, and I can't control when those happen. But it's certainly an asset that we -- or assets that we have on our side of the ledger that will be used to reduce debt quickly on a standalone basis or through the indefinite merger. So I think that's certainly on the know.

I think Travis's point on not having to sell significant assets is important, right? When we structured the cash stock mix of the deal, we didn't want to be a forced seller of assets to pay down debt. And I think we've done that with the mix we presented last week.

[Travis D. Stice, Chairman of the Board and Chief Executive Officer at Diamondback Energy]

Yeah, I can't emphasize that point enough, David, that we're not going to be forced sellers of any of our assets. We're going to be very thoughtful as we move forward post close in looking at monetization strategy for these minority interests, particularly in relation to debt reduction. So we'll be very thoughtful and do the right thing.

[David Deckelbaum, Analyst at TD Cowen]

Appreciate that and just maybe a little bit in the weeds on this one. But the '24 plan, when you lay out the Midland Basin development this year, maybe coincidentally or not, there's a little bit more on the margin going to Wolfcamp D some of the other zones. Is that just more coincidence of geography where you're developing this year and then presumably years beyond? Or are there some things that you saw in '23 that are sort of increasing your confidence of wanting to allocate more capital there, and if there's any color you could provide?

[Kaes Van't Hof, President and Chief Financial Officer at Diamondback Energy]

Yeah, I think both from our drill bit and from others drill bit, we've seen really good results in the Wolfcamp D. Think it makes sense to put it into the stack today, maybe not in every situation, but in more and more situations. So more Wolfcamp D in the plan, and then in the other bucket we have more upper Spraberry in the plan.

So I think generally if we're able to add these zones to our development plan and see similar productivity per foot, that only extends the inventory duration that we have both on a standalone basis and pro forma with Endeavor. They've been developing a lot more Wolfcamp D than us, and we talked a little bit about that last week, but I think it just shows the beneficial nature of the Midland Basin and stacked pay that we're adding zones like the upper Spraberry and the Wolfcamp D that we didn't talk about three, four, five years ago and now becoming core development targets.

[David Deckelbaum, Analyst at TD Cowen]

Thank you, guys.

[Operator]

Hank you. One moment for our next question. Our next question comes from Neil Metta with Goldman Sachs. Your line's now open.

[Neil Mehta, Analyst at The Goldman Sachs Group]

Yeah. Good morning, team. Thanks for doing this. I guess I have a couple pricing related questions. And the first, would love your perspective on just hedging as standalone and then also pro forma once you roll in the Endeavor assets. Historically, you talk about trying to maximize upside exposure while protecting extreme downside. Just curious what that means for you as you think about hedging in 2024?

[Kaes Van't Hof, President and Chief Financial Officer at Diamondback Energy]

I think we need to protect our side of the ledger through the period between signing and closing so we can generate free cash that reduces the cash portion of the purchase price. I think we've done that. We've historically bought puts in the kind of $55 WTI range. We now kind of stepped it up to kind of that $60 range. And we'll probably be a little more hedged on our side between sign and close than we have been in the past, closer to, I don't know, two thirds, three quarters hedged, so that we can make sure that that cash is there to reduce the cash portion of the purchase price.

I think longer term it all depends on the strength of the balance sheet and the breakeven that we have with our base dividend. We've always kind of tried to buy hedges at kind of $50 to $55 [Phonetic] and that protects cash flow. Balance sheet doesn't blow out, and the dividend is well protected in that extreme downside scenario. So I don't expect us to move to a non-hedging company because we just believe that it's prudent to protect the balance sheet and our base dividend, which we see like debt.

[Neil Mehta, Analyst at The Goldman Sachs Group]

Okay, that's helpful. And then the follow up is just on natural gas. I know it's a smaller part of your economics, but gas prices have been under a lot of pressure and in the Permian we've been surprised to see associated gas supply up as much as it is two P's year-over-year. So just your perspective on how the gas market rebalances and the Permian in particular? Do you see this as a structural challenge of continued associated supply or as we move towards more oil discipline gas markets can calibrate with it?

[Kaes Van't Hof, President and Chief Financial Officer at Diamondback Energy]

I think generally regardless of oil discipline, the gas curves in the Permian basin always exceed expectations. I think we're always pretty conservative on the gas side. And that almost universally beats expectations, which is why you're seeing on a basin level more growth than we all expect almost on an annual basis. So I think that's going to continue, Neil. We could run the gas price at zero in the Permian and still make great returns on oil wells. For us personally, we try to protect our gas price through hedging as well as through some pipeline commitments to get our gas to bigger markets as well as protecting our basis exposure. But generally I think the Permian, even if you stay disciplined on oil, eventually you're going to have to move to gasier zones and there's a lot of gas and associated gas left to be produced in the Permian.

[Neil Mehta, Analyst at The Goldman Sachs Group]

That makes sense. Thanks again.

[Kaes Van't Hof, President and Chief Financial Officer at Diamondback Energy]

Thanks, Neil.

[Operator]

Thank you. One moment for our next question. Our next question comes from Arun Jayaram With J. P. Morgan Securities. Your line's now open.

[Arun Jayaram, Analyst at J. P. Morgan Securities]

Good morning, gentlemen. Travis, Kaes, I'd like to know if maybe you could walk us through kind of the path to get to the $10 billion net debt target in terms of timing and how do asset sales, would that influence timing of reaching that target?

[Kaes Van't Hof, President and Chief Financial Officer at Diamondback Energy]

Yeah, Arun. I think we kind of laid out in a $75 world. Generally, the two businesses throughout the course of this year will combine to generate about $5 billion of free cash flow. And if we're looking at a late 2024 close, just high level, half that number, $2 billion to $2.5 billion will be used to reduce the cash portion of the purchase price. That kind of puts you in the kind of $12 billion of total net debt at close. And with the business continuing generating more free cash in 2025, with the numbers we laid out, you could see that $10 billion number by middle of '25. Now that excludes any asset sales or acceleration. And I think we try to be an under promise, over delivered company. And there's a lot of things that we can do to accelerate that outside of commodity price, because I don't think we want to put the entire bet based on commodity price. So we're looking at what's available to sell down in the next couple of months here and beat that target.

[Arun Jayaram, Analyst at J. P. Morgan Securities]

Got it. And just maybe a follow up. If you do plan to do something in the Delaware basin, would you wait until kind of reaching close on the transaction? Or talk us through maybe the timing of when you would contemplate doing asset sales?

[Kaes Van't Hof, President and Chief Financial Officer at Diamondback Energy]

Yeah, I think we're highly focused on deal certainty and getting the deal closed, and we're not going to do anything that derails that process. So I think the Delaware basin is great cash flow for us, great free cash flow, and a very low decline rate. And we've reduced our capital commitments there and necessary wells we need to drill for lease holding purposes. So I think it's a good asset to have for the time being and it's good option value over the long run, but certainly not looking to do anything in the near term.

[Arun Jayaram, Analyst at J. P. Morgan Securities]

Great. Thanks a lot.

[Kaes Van't Hof, President and Chief Financial Officer at Diamondback Energy]

Thanks, Arun.

[Travis D. Stice, Chairman of the Board and Chief Executive Officer at Diamondback Energy]

Thanks, Arun.

[Operator]

Thank you. One moment for our next question. Our next question comes from Derrick Whitfield with Stifel. Your line is now open.

[Derrick Whitfield, Analyst at Stifel Nicolaus]

Good morning, all.

[Travis D. Stice, Chairman of the Board and Chief Executive Officer at Diamondback Energy]

Good morning, Derrick.

[Derrick Whitfield, Analyst at Stifel Nicolaus]

Wanted to start by really commending you guys for the leadership you've demonstrating on capital discipline as many of your peers are treating the environment as if it were naturally balanced today.

[Kaes Van't Hof, President and Chief Financial Officer at Diamondback Energy]

Thank you, Derrick.

[Derrick Whitfield, Analyst at Stifel Nicolaus]

With my first question, I wanted to focus on the service environment in light of the collapse in gas directed activity that is underway now and the pre existing lower utilization rates the service industry experienced last year. Is there an opportunity to revisit service prices on some of the higher spec equipment?

[Travis D. Stice, Chairman of the Board and Chief Executive Officer at Diamondback Energy]

Yeah, Derrick, good question. I think we expect that we'll see some softening in the service market this year if the gas basins do kind of remain muted in their activity levels. We don't set the price of the service market. We're price takers. But we'll certainly continue to push on our end on finding the market prices for all of our service lines where we don't have existing commitments in place.

[Derrick Whitfield, Analyst at Stifel Nicolaus]

Terrific. And as my follow up. I wanted to touch on Endeavor, since you guys have been out meeting with investors since the deal was announced. Are there any aspects of the transaction that are underappreciated in your view?

[Travis D. Stice, Chairman of the Board and Chief Executive Officer at Diamondback Energy]

I think the first question that came up was on the synergies of the $3 billion worth of synergies, most of those underpinned by our existing cost structure applied to the Endeavor assets. And so those are usually the entry questions. But once we explained that the cost assumptions that we embedded are the same cost assumptions we're currently doing today, a lot of comfort was gained and then we went to the more kind of strategic questions with the shareholders. So I think probably the cost efficiencies were the first, and then secondarily were some of the debt retirement strategies that Kaes just went through were probably the two most topical questions that we dealt with.

[Derrick Whitfield, Analyst at Stifel Nicolaus]

Terrific. Thanks. Great quarter and update.

[Travis D. Stice, Chairman of the Board and Chief Executive Officer at Diamondback Energy]

Thanks, Derrick.

[Kaes Van't Hof, President and Chief Financial Officer at Diamondback Energy]

Thanks, Derrick.

[Operator]

Thank you. One moment for our next question. Our next question comes from Roger Reed with Wells Fargo. Your line is now open.

[Roger Read, Analyst at Wells Fargo & Company]

Yeah. Thank you. Good morning.

[Travis D. Stice, Chairman of the Board and Chief Executive Officer at Diamondback Energy]

Good morning, Roger.

[Roger Read, Analyst at Wells Fargo & Company]

Hey, I just wanted to come back -- you talked earlier about some of these other benches that might work, and it's a question of whether they'll be as productive and efficient or the productivity and efficiency in those benches. Give us an idea of maybe some of the, let's call, science or just applied efforts that you're seeing that could open up some of these other benches, and I'm thinking within your footprint, as well as what will be an expanded footprint here before you're in?

[Kaes Van't Hof, President and Chief Financial Officer at Diamondback Energy]

Roger, I think for zones like the Wolfcamp D, we've had some testing on our assets, but also seen a lot of results across the fence line. Diamondback doesn't spend a lot of time. We spend a lot of time looking ourselves. We also spend a lot of time looking across the fence line at what other people are doing, either through M&A process, or just general competitor analysis. And we've seen that the Wolfcamp D has been very competitive, particularly in that kind of Midland Glasscock county line area. And also, as you get into Southern Martin county, so that's getting more attention.

I would say the upper Spraberry, we've done a lot of work on ourselves, actually an old Energen well, was drilled in the upper Spraberry in 2016 or '17, and we revisited that zone recently last year. And some of the upper Spraberry wells that we've completed, one in particular, is probably one of the best wells in our portfolio. So I'm not ready to say that the upper Spraberry exists across our entire acreage position, but it's certainly getting more capital and attention this year, and particularly with the co-development strategy and the fact that these zones talk to each other in some form or fashion, means we got to get it now. And so we've added the upper Spraberry into our kind of Northern Martin county development plan. And I think the results speak for themselves because you haven't seen a degradation in productivity. I think that's the key to this exploration, resource expansion story is, if you can expand your resource without impacting productivity, that's a win for our shareholders.

[Travis D. Stice, Chairman of the Board and Chief Executive Officer at Diamondback Energy]

Roger, I'll just add a comment from a high level on what Kaes just mentioned. In my experience, as companies get bigger, the more inwardly focused they become, so they focus more on their own results and less on what others are doing around them. And it's been a hallmark of Diamondback since the very beginning. One, you said out of necessity when we first started. But it's been a hallmark of ours to really pay attention to what goes on around us. And so right now it's culturally ingrained not only to rigorously examine our own internal results, but also spend intellectual capital on looking across the barb wire fence at what others are doing. And as we move into a much larger position post close, I promise you that culture will stay intact. We will continue to look and find what others are doing potentially better than we are and adopt accordingly.

[Roger Read, Analyst at Wells Fargo & Company]

I appreciate that clarification. That's my only question. Thank you.

[Travis D. Stice, Chairman of the Board and Chief Executive Officer at Diamondback Energy]

Thanks, Roger.

[Kaes Van't Hof, President and Chief Financial Officer at Diamondback Energy]

Thanks, Roger.

[Operator]

Thank you. One moment for our next question. Our next question comes from Jeoffrey Lambujon with TPH and Co. Your line is now open.

[Jeoffrey Lambujon, Analyst at Tudor, Pickering, Holt and Company]

Good morning, everyone. Appreciate the time.

[Kaes Van't Hof, President and Chief Financial Officer at Diamondback Energy]

Hey, Jeff.

[Jeoffrey Lambujon, Analyst at Tudor, Pickering, Holt and Company]

My first question. Hey, my first question is on the step change in capital efficiency you are looking forward to into 2025. If you could talk more about the pathway there? I know you're already there for the legacy portfolio and well, cost as you mentioned, Travis. But can you comment maybe on the larger buckets or moving pieces you'll be focusing on the Endeavor side, both in terms of that well cost reduction and in terms of the non DMC line items that you think about as we shift from this year into next?

[Kaes Van't Hof, President and Chief Financial Officer at Diamondback Energy]

Yeah, Jeff, I think generally there's two big buckets on the DMC side that we see across the fence with Endeavor that we'll probably look to put in place with the team there as we start to integrate on the completion side. It's really the SimulFRAC development plan, as well as probably half of that plan being a SimulFRAC e-fleet, which only reduces the cost of the completion side of the business. I don't even think we've modeled the benefits of a much larger supply chain to these numbers. This is just us getting their cost down to our costs on the capital side. So there's probably some upside there at some point.

And then on the drilling side, we've been a big proponent of clear fluids and not using oil based mud to drill these wells. It saves time and money. That was something we put in place and learned from the QEP team three or four years ago. And so I think that's just a decision to make that saves significant dollars. And what I'm excited about is to get under the tent with the Endeavor team and learn what they're doing that we can do better, right? I think that's not modeled in this pro forma business. And we've learned something from both Energen and QEP are two large mergers that we've done to date. So I think there's some upside there. But really all we're doing is looking to put in place what we're doing today on a larger asset base.

[Travis D. Stice, Chairman of the Board and Chief Executive Officer at Diamondback Energy]

And, Jeff, since I spoke just a second ago on some of the cultural elements of Diamondback, another cultural element is when we combine assets in our history, we've done a really good job of checking our egos at the door and finding out what's really working. And it's a culture of seeking first to understand as opposed to being understood. And as Kaes ust mentioned, when we put the two companies together, we're really excited about understanding what they do, why they do it, and collectively making improvements both on our side and on the incoming asset side.

[Jeoffrey Lambujon, Analyst at Tudor, Pickering, Holt and Company]

Perfect. And then for my follow up, I wonder if you could just speak to how the philosophy around the balance sheet longer term will evolve, if at all, once the deal closes? We appreciate the commentary on the path to get to the $10 billion net debt level, but we're just thinking about how the pro forma math continues to push Diamondback to new levels in terms of weight class within the space?

[Kaes Van't Hof, President and Chief Financial Officer at Diamondback Energy]

Yeah, that's the question we got on the road a lot last year from investors saying, hey, listen, you're in a different weight class now and you probably need to reassess your long term leverage profile, and I think that resonated with us and fits with what we're trying to do. I think we eventually want to get to kind of a $6 billion to $8 billion net debt number, keep real cash on the balance sheet.

And I think the concern that Diamondback is going to go do every deal and use all its cash to do deals has probably been removed with this merger. And in my mind that leaves us flexibility in terms of capital allocation to lean into a buyback in a down cycle or lean into an acquisition in a down cycle and not be procyclical in how we look at allocating capital on the repurchase side or the deal side. So long term, $6 billion to $8 billion would be a good number. If it gets to zero, that'd be great. But I think generally running in that half a turn at strip is a pretty good place to be.

[Jeoffrey Lambujon, Analyst at Tudor, Pickering, Holt and Company]

Great. I appreciate the time. You have to turn it back.

[Kaes Van't Hof, President and Chief Financial Officer at Diamondback Energy]

Thanks, Jeff.

[Travis D. Stice, Chairman of the Board and Chief Executive Officer at Diamondback Energy]

Thanks, Jeff.

[Operator]

Thank you. [Operator Instructions] One moment for our next question. Our next question comes from Paul Cheng with Scotiabank. Your line is now open.

[Paul Cheng, Analyst at Scotiabank]

Thank you. Good morning, guys.

[Travis D. Stice, Chairman of the Board and Chief Executive Officer at Diamondback Energy]

Good morning, Paul.

[Paul Cheng, Analyst at Scotiabank]

Travis and Kaes, last week when you announced the deal, you gave the 2024 and '25 capex pro forma and also the production, it was 2005. The pro forma comparing to 2004 will be about, say, call it round number, $700 million or lower. Can you break down that? How much is related because you think the antivity will be lower or that asset because you're not going to grow as fast, and how truly is [Technical Issues]

[Kaes Van't Hof, President and Chief Financial Officer at Diamondback Energy]

Yeah, sure, Paul. You kind of cut it out a little bit, but I think I get your question. Question is, how do we bridge the gap between the combined 2024 capex guide with us and Endeavor separately and the business in '25, which is down $700-ish million. I would say most of it is running our cost structure on the Endeavor DNC. And so that's basically 175 wells at $1.5 million, $2 million cheaper. That gets you to about $300 million.

I think the combined business is not going to need as many wells to hit the production number. Endeavor was growing last year. They started slowing down mid year, but their decline rate is shallowing. So that'll help. Our decline rate continues to shallow. That'll help. I think we're going to allocate capital, the best combined resource probably in North America, which will help. And so that kind of gets you to needing probably 50 less wells at $6 million, $6.5 million a pop. That's about another $300 million.

And then I think generally we're spending some dollars this year, probably about $50 million on environmental capex. That is kind of one-time in nature and will be reduced on our side as well. So you put all that together, and that's a very, very capital efficient business in 2025, assuming existing well costs, and that can move around. But that's how we're thinking about '25. We might have lost Paul, so we'll go to the next question.

[Operator]

Thank you. One moment for our next question. Our next question comes from Leo Mariani with Roth MKM. Your line is now open.

[Leo Mariani, Analyst at Roth Mkm]

Hi, guys. Wanted to just ask about the Endeavor FANG combination here. Do you guys see any tax benefit for the combined entity where you might be able to defer some of the cash tax payments as a result of combining these two companies? Have you had any preliminary look at that?

[Kaes Van't Hof, President and Chief Financial Officer at Diamondback Energy]

I mean, there will obviously be some benefit with the cash portion of the transaction and the associated interest expense, but we're continuing to do our combination work. We're a full cash taxpayer, essentially. They're pretty close as well. So I don't think there's going to be too much to do there, Leo. But certainly the cash piece is going to shield a little bit of taxes on our side.

[Leo Mariani, Analyst at Roth Mkm]

Okay. That's helpful. And then just jumping back over to M&A. Obviously, you guys got the big prize in the Permian, and the market has clearly rewarded the Diamondback shareholders here. As you look at kind of the remaining landscape, do you think there's anything out there left to do that's kind of chunky that would be of interest to FANG? Or is it maybe just kind of more little stuff over the years to kind of tie everything together?

[Kaes Van't Hof, President and Chief Financial Officer at Diamondback Energy]

Yeah. Listen, Leo, you know, we're on the sidelines here. We're fully focused on getting this deal closed as soon as possible and we can assess the landscape when that happens. I am confident that the landscape will look different whenever that time does come.

[Leo Mariani, Analyst at Roth Mkm]

Okay, thanks.

[Travis D. Stice, Chairman of the Board and Chief Executive Officer at Diamondback Energy]

Thanks, Leo.

[Operator]

Thank you. One moment for our next question. Our next question comes from Doug Leggate with Bank of America. Your line is now open.

[Kaes Van't Hof, President and Chief Financial Officer at Diamondback Energy]

Hey, Doug, you have to speak up.

[John Avedon, Analyst at Bank of America]

This is John Avedon for Doug Leggate. Apologies. I was on mute. Just one more. Just one question. Going back to Paul's question on the difference in capex between 2024 and 2025, that's about $725 million. And then you talk about the $550 million in synergies. So when we think about that $725 million, is there an addition on top of that as where we sort of think into 2025? Just so they were trying to reconcile the two numbers.

[Kaes Van't Hof, President and Chief Financial Officer at Diamondback Energy]

Yeah, I think the difference between the two numbers is really activity between the $550 million and $725 million, right? The combined business has less activity in '25 versus '24, which is helping, but we kind of see the $550 million as more of a longer term run rate, John.

[John Avedon, Analyst at Bank of America]

I appreciate it. And that's really it at this point in time. But thank you very much for taking our questions.

[Kaes Van't Hof, President and Chief Financial Officer at Diamondback Energy]

Thanks, John.

[Operator]

Thank you. I'm showing no further questions at this time. Now, I'd like to turn it back to Travis Stice, CEO, for closing remarks.

[Travis D. Stice, Chairman of the Board and Chief Executive Officer at Diamondback Energy]

Great. Thank you. And I really appreciate everyone listening in this morning and asking questions. And if there's any follow up, just reach out to us and we'll address them then. Thank you. And you all have a great day.

[Operator]

[Operator Closing Remarks]

Participants

Corporate Executives

• Adam Lawlis, Vice President, Investor Relations
• Travis D. Stice, Chairman of the Board and Chief Executive Officer
• Kaes Van't Hof, President and Chief Financial Officer

Analysts

• Neal Dingmann, Truist Securities
• David Deckelbaum, TD Cowen
• Neil Mehta, The Goldman Sachs Group, Inc.
• Arun Jayaram, J. P. Morgan Securities
• Derrick Whitfield, Stifel Nicolaus
• Roger Read, Wells Fargo & Company
• Jeoffrey Lambujon, Tudor, Pickering, Holt and Company
• Paul Cheng, Scotiabank
• Leo Mariani, Roth Mkm
• John Avedon, Bank of America Co.