The Midland-based Diamondback Energy has been offsetting inflationary pressures with operational efficiencies while the costs of raw materials necessitate advance planning.
That’s according to Chairman-Chief Executive Officer Travis Stice, who says buying steel is a special concern.
“When we talk about deflation, it’s really raw materials,” Stice said during his company’s first quarter earnings call. “It’s diesel, it’s sand, it’s particularly steel because we’re buying our steel needs multiple quarters in advance.
“That steel cost is already down for future purposes to $20 to $25 a foot. We’re involved with a couple of rigs and that allows us to look at our entire rig fleet and the cost associated with those rigs and we see rig costs are coming down as well.”
Stice said Diamondback had recently replaced two spot frack crews with one simulfrac crew, “so we’re seeing $10 to $20 a foot efficiency gains there as well.
“Our commitment has always been to be the low-cost leader when it comes to prosecuting our development plan out here and we’ve got now almost a decade of demonstrating that,” he said.
President-Chief Financial Officer Kaes Vant Hof said unhedged realized gas prices were weaker in the quarter relative to expectations.
“A lot of that comprised a $15-million true-up payment between contracts that moved from selling at the wellhead to taking on our rights downstream,” Vant Hof said. “That’s kind of an intra-company issue, but I recognize it did hit gas presence for the quarter.
“From a hedging perspective and from a physical perspective to protect against future gas price loss in the Permian Basin, we think there’re going to be periodic points of weakness throughout this year and next. We’ve hedged all of our Waha exposure in the Basin, which is about two-thirds of our gas through the end of 2024.”
