Good day and thank you for standing by. Welcome to the Diamondback Energy Third Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers presentation, there will be a question-and-answer session. [Operator Instructions]. Please be advised that today's conference is being recorded.

[Operator Instructions] I would now like to hand the conference over to your speaker today. Adam Lawlis, Vice President of Investor Relations. Please go ahead..

Good morning and welcome to Diamondback Energy Third Quarter 2021 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 Stice CEO, Kaes Van't Hof CFO and Daniel Wesson EVP of Operations.

During this conference call, the participants may make certain forward-looking statements relating to the Company's financial conditions, 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 forward-looking statements due to 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 certain non-GAAP measures.

The reconciliations with the appropriate GAAP measures can be found in our earnings release issued yesterday afternoon. I'll now turn the call over to Travis Stice..

1. Strong operational performance, 2. A supportive macro backdrop, and 3. Increasing financial strength. Yet none of this would be possible without safe and efficient field operations. We continue to build on our safety track record and did not have a recordable employee safety incident this quarter.

We have also decreased our flared volumes on our legacy properties and continued to work with third-parties to build out additional infrastructure to reduce flared volumes on our recently acquired assets.

In addition, we expect to continue our reduced -- continue to reduce our flared volumes as we move into 2022 in conjunction with the completion of our Bakken divestiture.

Yet, we're striving to be better and we recently announced our commitment and routine flaring by 2025, further reducing our emissions and moving us towards our commitment of reducing Scope 1 GHG intensity by at least 50%, and our methane intensity by at least 70% by 2024. The third quarter was a record quarter for Diamondback.

We're proud to produce one of the cleanest and most cost-effective barrels in industry. And are thankful to operate in a pro-energy environment in the state of Texas. Our products, fuel, our local communities, our state, our country, and the world, we continue to innovate.

Justifying our environmental license to operate in the communities where we and our families live, work, and play.

We will continue to operate reliably and safely and are uniquely positioned to take advantage of the current macro environment by exercising capital discipline, keeping oil volumes flat, and generating significant returns to our shareholders. With these comments complete, Operator, please open the line for questions..

[Operator Instructions] Please stand by while we compile the Q& A roster. Our first question comes from the line of Arun Jayaram from JPMorgan. Your line is now open..

Preliminary -- I can't hear you.

Can you hear me now?.

Yeah, got you now, Arun..

Sorry about that. Travis Stice, I wanted to get your preliminary thoughts on the 2022 outlook. In the deck, you highlighted an operating cash flow outlook of $4.8 billion at 70 and that $5.3+ billion at 80. You mentioned $3 billion to $3.5 billion of free cash flow under that range of oil price. This year, you're doing 270 gross sales.

So my question is, what type of activity do you expect in 2022 that depends at $1.8 million budget? And I would be interested to know what kind of cash tax rate you're assuming in that free cash flow guide?.

Yes. Thanks, Arun. Good questions. From an activity perspective, not a lot's going to change. Still going to be 75% or 80% of our wells turned in line in the Midland Basin still at this kind of 65 to 75 a quarter run rig.

The only difference in '22 versus 2021 is that, remember we have -- we run a lot of rigs into the downturn in 2020 and decided to keep those rigs running to build docks. We drew down about 50 of those docks in 2021, and now are at a steady-state DUC levels.

So we got a 50 DUC headwind in 2022 versus 2021, and then a little more infrastructure and midstream spend on the sale. in order to Robert reinitiate that we acquired from GEP and guide on as we get in before field development, there. cash taxes.

If the world stays where it is today, oil-price wise, we will have some cash taxes in 2022, in the low 9-figures, hundred-ish to 200 million depending where we are, which is a good problem to have. Hopefully, the commodity prices stay where they are..

Great. Thanks for that. And just my follow-up. I wanted to see that case maybe for you if you could provide a little bit more detail around the drilling efficiency gains that you're seeing.

I think you highlighted on Slide 11, 10 days now for 2 model lateral in the Midland Basin, then it also maybe describe where you're doing on the completion side and perhaps just the mix of [Indiscernible] frac in '22..

Yes, I'll start with tunnel frac. We picked up our first tunnel frac crews in the second half of 2020 and have been running those ever since. They've been extremely efficient, probably saves us about $25 or $30 a foot. But more importantly, in areas where you have offset production.

You can get in, complete those wells, and get out and, therefore, limit your water out effect in large fields, which has been successful for us. So essentially, probably 90% of our wells next year, we'll be done with the tunnel frac crew. We've been running 3 tunnel frac crews this year, plus a fourth spot crew here and there.

And I anticipate that can pace to be similar in 2022. And then on the drilling side has been pretty incredible putting the QEP drilling organization together with the Diamondback drilling organization and finding best practices.

And this is the first -- and we kind of talked about this last quarter and the quarter before that, but now we've fully converted all of our Midland Basin rigs to the clear fluids drilling system that we're utilizing. And you can see average of ten days spud to TD has been a pretty large step change.

And as Travis said in his comments, we all use the same fixed costs in our wells, but.

days to TD and amount of lateral fee completed per day are variable costs that we think we certainly differentiate ourselves with. So that's been the driver of CapEx reductions this year.

And in an inflationary environment which we're seeing, given the oil prices and activity levels, that inflation is mitigated by controlling the variable costs which are our operations organization has been able to do..

And Arun, just to add to that point, when you look ahead in the future, it's always hard to see a step change in performance like we have seen this year, particularly on the drilling side. But just like I've said before, that Diamondback has been an operational leader and I expect us to maintain that position even going into the next several years..

Great. Thanks a lot..

Thank you, Arun..

Our next question comes from the line of Neil Mehta from Goldman Sachs. Your line is now open..

Good morning, team. Travis you made the comment on the last call that you thought this was more of a seller's market than a buyer's market. Can you provide an update on your latest thoughts around M&A, and if you still feel that's the appropriate strategy and then prioritize and buying back your stock. Or returning capital makes sense relative to M&A..

The best way I can think about M&A right now is in share repurchases. I think to make some comments there about try and we don't underwrite M&A or share repurchases at these high commodity prices. And look, right now it's not something that I've been spending any of my time on M&A.

I spend most of my time on seemed like regulatory policy related efforts and not the M&A. But, yeah, as you said the comment in the past, it's probably still true today that it's still feels based on these smaller deals rocking seller's market. But that's typically what you see with commodity prices like they've done this year..

Thanks, Travis. And then just to continue to flush out the cost point. There's a lot of talk about service cost inflation as we move into ' 22. And potentially some tightness in the pressure pumping market.

Can you talk about how you're managing some of those inflation risks and confidence interval around being able to execute on the capital budget that you start to pencil out here..

Yeah. I mean, what's -- the benefit we have. We've talked about the efficiency gains, but this year it's kind of been the year of raw materials going up on well costs, steel, diesel, sand, but it's logical that the service piece given labor tightness start to get a little traction. Now, it's really going to be dependent on where the rig count goes.

We only added 8 rigs in the Permian in October. If we add a 100 rigs and it's going to be a lot tighter next year from here. But if we kind of find a steady-state then it's getting tougher for the service guys to push price.

But either way, with the tunnel frac crews running with 3 crews running, we have no intention of dropping any of those, that kind of consistency for our business partners allows them to boost their margin profile and now that they have consistent work with Diamondback..

Thank you..

Thank you, Neil..

Our next question comes from the line of Doug Leggett from Bank of America. Your line is now open..

Good morning, everyone. Thanks for taking my questions. Guys, I wonder if I could ask, I guess it's kind of a housekeeping question on cost guidance. It looks to us that based on the guidance you've given for the fourth quarter, the Bakken or the [Indiscernible] looks like it had, on a number of levels, higher cash cost [Indiscernible], and so on.

Would that be the right interpretation? In which case, could you give us some idea of how you expect maybe just qualitatively that run rate to look in 2022? Are we looking at a step down because the [Indiscernible] is now no longer part of the portfolio?.

Good question, Doug, I mean, primarily LOE probably comes down a couple of times from where it's been the last couple of quarters with the Bakken contributing. So I think generally moving towards the low 4s and $4 a BOE and on the LOE side.

We did keep the Bakken for a little longer than we liked but that kind of impacted the transition employees on the G&A side. So G&A probably comes down a nickel or so and then gathering transportation, certainly higher costs in the Bakken.

So you probably see a step change down or step-down and GP&T closer to that kind of 125 to 150 range on a go-forward basis. So given an asset that we when we bought it, when we bought QEP, we've put up for sale right away.

Unfortunately, the regulatory environment took a little longer to get it close, but generally, I think we're happy with the deal, is happy with the deal and our cost structure comes down a little bit in Q4 and into 2022..

Okay. So I guess what I'm really getting at here is at least, it looks like a bit of an inflation offset on the operating cost side rather than on the capital side. I just wanted to make sure I was interpreting that correctly. So it sounds like I'm on the right track there..

Yes..

Okay. Guys, I hate to be tough on the cash distribution policy as my second question, but I just want to get a little bit of clarification here. So let's assume that the current strip you're running at probably a $4 billion free cash number next year. So half of that goes back to shareholders and half of that goes to the balance sheet.

That's pretty much what you are saying currently, right?.

Yeah. At least half of that goes back to shareholders..

Okay. So when you -- when we think about the rate -- the run rate, if you like for buybacks, the number could be pretty punchy and I just wanted to get a handle as to how you guys are thinking about that, because one on numbers you could be buying back a substantial amount of your stock.

And I'm trying to think, do we run not $2 billion buyback over what period? That's really what I'm trying to get out because it sounds like it will get reloaded at some point..

Yes, I mean, I think the key value that's up the buyback is going to be opportunistic, not problematic. And as Charles said in his prepared remarks, you think about the buyback in terms of what is NAV at mid-cycle oil prices. Now we can have a long debate about where mid-cycle oil prices are going.

But one quarter end, we're not willing to underwrite mid-cycle oil prices higher than we've seen in the last 5 years. I think the key is that the buybacks out there as a weapon for us at our disposal. But overall 50% of cash flows, free cash flow is getting returns.

And if we don't get through the buyback in the quarter, there are lots of ups and downs in this industry. We don't get through the buyback in one particular quarter we're going to make our shareholders hold with a variable dividend, the quarter following..

Well, this is a [Indiscernible] noise. $70-oil, it seems to actually got a long way to go before the stock is fairly valued. So I just wanted to understand how aggressive we should be on the buyback assumption, but I appreciate --.

Yeah. And that's a good problem to have. And considering where were this summer when we had low 70's oil and the stock was 30%, 40% below where it is. I think we're in a great position right now and I think there are opportunities on the buyback side. And we look forward to not being blacked out in a day or two and getting back after..

I appreciate the answers, guys. Thank you..

Yes, Doug, just to add to that, it's all good. It's hard to think back just 12 months ago when oil price was half of what it is today.

And so we know that we're in a volatile industry and we think being cautious and also providing our shareholders the maximum flexibility is still the prudent way to run the business and I hope that the answers to the capital allocation question you just asked demonstrate that they were trying to be prudent in generating maximum shareholder returns..

All right. Thanks Travis..

Our next question comes from the line of Derrick Whitfield from Stifel. Your line is now open..

Good morning all. Congrats on your quarter end update..

Thank you, Derrick..

Perhaps for you, Travis or Kaes, early 2022 indications from industry like yourself seemed to suggest the sectors broadly remaining capital discipline.

In light of this discipline and the recovery in demand, the environment to us continues to look very constructive for the commodity, and the sectors valuations certainly remain attractive relative to the market.

What are the 1 to 2 potential developments for the sector that gives you concern and could change the outlook to a less favorable one?.

Well there is one thing that I think we have to watch very carefully and that's the discipline that the public Companies demonstrate in their earnings call now and again in February. Because it's really -- if a Company comes out there and starts growing, even though I've been very demonstrative that the world doesn't need that growth right now.

But if a Company comes out of starts growing and gets recognized in the stock market for that growth, then that's going to change the calculus for our board and how we allocate capital towards growth. Again, I think if you look at the macro conditions, post-pandemic, we need 100 million barrels a day of demand reestablished.

We're probably getting close there. More importantly, we need to see the surplus capacity, whatever that number is and the OpEx plus countries being absorbed in the world's energy equation. And then third lead, you need to see kind of the 5-year average of global inventories return.

And it's unlikely you will see all 3 of those triangulate precisely, but I think you need to look at the price of oil when those indicators are all pointing at each other. And if the price of world is $70 or $80 a barrel, when those things are pointed each other, that probably means we're in good shape in terms of supply and demand.

If on the other hand, oil price is significantly higher than those indicators pointing at each other. Then that's probably our first sign that the world is calling for more -- for more oil. But even having said that, our board is dedicated to making sure that we're allocating capital that's going to generate the greatest return to our stockholders.

And as I've said in my prepared remarks, we've rapidly transitioned from a Company that consumes capital for growth to now one that is distributing capital. And we're looking at holding production flat and we're looking at growing per-share measures while continuing to strengthen our balance sheet.

And we think that's a prudent way to run our business..

Great. And as my follow-up, perhaps digging into your operational efficiencies and really following up on Ellen's ( ph ) earlier question on Sanyal frac ops.

Do you have a sense -- I'm sure you, but what percent of your wells today are seeing 2-well versus 4-wells Sanyal frac? And are the practical limitations that will limit 4-well implementation program line?.

No. Almost a 100% of our Midland Basin pads or 4 wells or more. And the benefit of simul - frac, you've got to have an even number of wells, given that you're running 2, basically 2 careers at the same time. So less apparent in the Delaware.

After Delaware, we're probably 50% 2 well or 4 well plus, and 80% 2 well plus, and the Midland, it's almost a 100% 4 well plus..

Great update and thanks again for your time..

Thank you, Derrick..

Thanks, Derrick..

Our next question comes from the line of David Deckelbaum from Cowen and Company. Your line is now open..

Morning, Travis and Kaes. Thanks for your time this morning..

Good morning, David..

Just wanted to be a little bit more explicit around the well cost inflation. I just wanted to confirm, you all reached record points in the third quarter at $500 a foot in the Midland and 700 in the Delaware.

Are you all modeling that now as sort of the trough period for costs? Is that already baked in at the higher level in the fourth quarter guide?.

Yes. I mean, we had a really good quarter in the third quarter efficiency-wise. No major issues on drilling, completion went off without a hitch, not a lot of weather. So we certainly don't model for the best case scenario. But this is probably the base that we're going to build off of in terms of inflation going into '22.

We went into 2021, got into 7% to 10% well cost inflation. Been able to go the other way. But like Travis said earlier in the call, we don't model in efficiency enhancements throughout the year in our budget. But certainly the organization on the upside is motivated to continue to push the limits.

But this feels like a pretty solid quarter in terms of costs that will be tough to replicate in this kind of inflationary environment..

I appreciate that and just for my follow-up,. Travis, perhaps for you or, in case, Kaes as well, but you referenced looking at per share metrics with the buyback. Before you talked about -- looking at using a buyback on your expected return exceed your cost of capital.

Are you also looking at what your effective production growth per share looks like when you're considering buying back shares versus perhaps growing in the event that you see some of those early indicators coming back with the world calling for more oil?.

Yeah, that's good.

That's a good point, part of that part of the buyback work that we did when we announced it was, we looked at how much capital does it take to grow the business 5% a year for the next 5 years or grow the business 10% a year for the next 5 years versus shrink the business by 5 or 10% a year in terms of share count over the next 5 years.

And the law of large numbers kept us up to on the growth side, but on the buyback side of the shrink side, it started to get easier to grow per-share metrics year 2 and 3. And obviously it's stock price dependent, but that was along the work that we did.

We do our shareholders own more reserves per share, production per share, a longer inventory life per share. With the buyback versus trying to just follow into the ground and oversupply market that's already pretty fragile..

Got it. Thank you, guys..

Thank you, David..

Our next question comes from the line of Scott Hanold from RBC Capital Markets. Your line is now open..

Thanks. Good morning. If I can return back to these shareholder return plan.

And I think you all said, you're going to at least give 50% back to investors, and could you just give some color around that? Does that mean, if they're not debt take-out opportunities, you'd potentially look at say, increasing the buyback or dividend above, sort of that 50% threshold. And also on, if you can give some color on the fixed dividend.

Where could that go? You all get to a point where it just doesn't feel comfortable because of the sustainability at more of a mid-cycle price..

Yes. Scott, conversations with large shareholders have basically said, we want to make sure there's dividends well-protected below 40. Our dividend breakeven for '22 is in the $35-oil range. And we're buying puts at $50-oil. So I think we're still very well protected. I think the dividend is going to continue to grow.

The Board talked about it every quarter. We've hit this 10% CAGR since introduction in 2018. That's probably a lofty goal to continue for multiple years, but certainly something we're talking about continuing the dividend growth on a steady basis aggressively.

And I think as long as that breakeven stays in the mid to high 30s, we feel pretty good about it..

Okay. And could you comment on the view on taken out debt? And if you would, focus a little bit more on variable dividends or buybacks, if there's not that take down..

Yeah, that's right. Sorry about that. We still want to take down gross debt. We have a maturity in 2024. We also want to keep a larger cash balance and we've run in the past just for inflation. But yeah, we're kind of saying, hey, listen at least 50% of the free cash flow has got to go back to the shareholders.

And if we don't have anything else to do with it, and I think it's logical that more will go back, so I would like to have cash to take up the 24s and be in a position to not have any material maturities until 2029. But like we've gone over the last 5 or 6 quarters, that's not mutually exclusive from our shareholders getting more money back..

Okay. And then as you look into 2022, how do you think? And I know you all are talking about flat oil production into next year.

If you were to just outperform operationally, would you guys I guess, reduce your well completions, say in the back half for the year to maintain flat production, or should we assume that you'll have that 65-70 well program next year? And if there's operational performance, maybe you do a little bit better than maintain a flat production..

Well, I think generally right, got outperformed guidance on oil production, which we've done this year. But what we've said all year is that, if we are doing better than we thought, we're going to cut capital. And that's what we've done in 2021. And I think that's essentially the goal for 2022, even in the face of some inflationary pressures..

Got it. Appreciate it..

Thank you, Scott..

Our next question comes from the line of Paul Cheng from Scotia Bank. Your line is now open..

Thank you. Good morning. Sorry, but I want to go back into the cash return. I think it make a lot sense with the volatility in the market that you put 50% of the excess cash go into the balance sheet.

But is there a number at some point on your net debt will be at a point that you may be able to raise the cash returns from 50% to 75% or higher? Is that some number that you might, that you guys are thinking, or that's not really is just that you will go with and saying that, okay, if I don't have any additional use because that I no longer have any debt to you right away then I would just increasing that percentage?.

Yeah, Paul. That's a great question. I think what we're focused on is committing to the -- at least 50% right now, as this industry evolves and you see companies make these types of commitments.

You don't want to walk them back, right? So there will be quarters where we distribute more cash than 50%, but also, I don't want that to become a baseline for the next couple of decades. I think we're focused on 50% right now and some quarters will do better and some quarters will hit it that at 50%, but the 50s are for guarantee..

Okay. And the second question just relates to your midstream operation letter with the dividend yield over 8%, much higher than the spend the fang is sell. One will argue that your cost of capital is actually very high over there. And doesn't seems to me that really have good reason to have that as an independent trade.

We have seen a lot of consolidation in the midstream business. One of your peers that their midstream asset just recently announced to merge with a private Company. And that's where you're going to reduce their ownership so that they can deconsolidate.

So just curious then, how you're looking at that business and whether that you may want to do some alternative initiative we need to the structure on that..

Yeah. Good question. And we've seen a couple routes. We've seen some parent Companies buy in their subsidiaries and some sell down. You know, I think for us, it's more strategic just to keep it -- to keep that cost structure. And we can address it more on the [Indiscernible] call.

But I think if you look under the hood, we've been really trying to highlight the Rattler story. We signed a new [Indiscernible] earlier this year or this month, that's going to be highly successful for us, with a lot of Diamondback exposure. We've got the Rattler assets dropped down about in another month.

So certainly the strategy as a subsidiary hasn't changed and the importance of it to us hasn't changed. I certainly don't think we'd go down the cell route. But we look at costs capital, we look at multiples, and we've got -- if the stock is not working, we've got to think about what to do. But right now, it seems like it's -- Rattlers had a good year.

It doesn't have the commodity exposure that Diamondback and Viper, perhaps it's probably under performed a little bit, but it's still generating a lot of free cash to Unit holders of which Diamondback's the largest..

Yeah, the only thing I would say is that, Diamondback have a good story and is probably one of the most attractive NPS names out there. And I think we will help that to even further simplified the CapEx structure so that when the investor looking at you, they you don't have to look at so many different CapEx structures. Just my utmost feeling.

Thank you..

Yeah we heard that before Paul and we've recognized it. Fortunately, the mother ship has gotten very large and so there's less leakage to the subsidiaries, but both have been important to us over the last -- for the last half decade..

Thank you..

Thanks, Paul..

Our next question comes from the line of Leo Mariani from KeyBanc. Your line is now open..

Hey, guys. Just wanted to touch base a bit on third quarter production. It looks like it kind of outperformed here and just wanted to get a little bit of color behind that in terms of being a little bit ahead of the guidance was just pretty much just better well performance.

You did mention kind of a pretty claim operational quarter with no weather issues..

We had a good quarter. We're very focused on hitting our numbers and the benefit of slowing down and not trying to grow as fast as possible is that the operations organization has gotten better. You can see it on the well cost side. It's also happening on the production side. So good quarter all around.

I think we feel really confident in the forward outlook and continuing to hit our numbers here..

Okay. Then, just in terms of '22 capex, I understand it's a loose guide that you folks targeted here. If I take the fourth-quarter capex range and annualize it, gives me 1.74 billion to 1.9. So pretty wide there at the end of the day. Just wanted to get a sense, what you guys think perhaps the outcome could be on the inflation side there.

And I know it's still moving target here and we weren't on 100% know how this plays out. But any early indications of what the inflation can be and is that what would target the top end of the 1.9? Just trying to get a sense of what it was baked in there..

I think I've said this, 2022 is not going to be long on November second of 2021. We are one of the few companies talking about 2022, we'll see what happens over the next couple of weeks, but probably have about 10% inflation built into there with a little bit more infrastructure and midstream spend, that we didn't need to go through this year.

But generally, I think we can narrow that guidance as we get into 2022 and have more evidence. I think the comment earlier, if the rig count goes up a 100 rigs from here, it's a different story. Than if the rig count keeps creeping up 5 to 10 rigs a month..

Okay. Thanks, guys..

Thank you..

Thanks, Leo..

Our next question comes from the line of Charles Meade from Johnson Rice. Your line is now open..

Good morning, Travis and Kaes..

Hey, Charles..

Travis, I want to thank you for your prepared comments, you really addressed a lot of the natural questions, on why you've adopted the stance you have for ' 22. But just one question for me, is around the buyback.

When we look at the -- you guys announced it on the 15th, and if we look at the average price you bought back in the and the chart of your share price, it looks like you guys got after it for a few days and then wrapped it up probably in about a week.

And I'm curious, is the right inference to make is that low 80s is where you guys -- where the scale tips to buybacks as far as the preferred way to return, I guess increase returns to shareholders or alternatively is it that -- Kaes, you mentioned a blackout earlier and obviously that makes sense.

That -- is that a function of your legal team putting you a blackout a few days before the end of the quarter?.

Yeah. I think is just purely we get blacked out. We get blacked out 10 days before the quarter ends and were blacked out until a couple of days after earnings. So we'll assess where we are in a couple of days and be back after it..

That's helpful. Thanks, guys..

Thanks, Charles..

Our next question comes from the line of Harry Mateer from Barkley. Your line is now open..

Hi. Good morning, guys. I want to dig in maybe a little bit more on the debt piece of it you guys talked around it. But as you noted, nothing callable at this point given what you've taken out so far this year, next maturity in 2024.

First question is, how do you navigate that? Because -- are you thinking about tenders, make holes that gets expensive, but then at the same time sitting with a bunch of cash in the balance sheet, waiting for the maturity at the end of '24 might not be viewed as attractive either.

So, how are you thinking about approaching that in the next couple of years?.

I think we're just going to keep following the prices of the bonds and try to get below may call as we can. If not, the may call is not too restrictive on something like our '24s as you get in the late ' 22, but certainly not looking to take out anything past 2029..

Got it. Okay. And then on the cash balance, what -- you mentioned one to run with more of a buffer than you had in the past.

What is that number for you?.

I like 500 as a minimum, we kind of said that over the last couple of quarters. And I think that's a good starting point for us..

Okay, great. Thanks very much..

Thank you..

Thanks Harry..

Our next question comes from the line of Paul Sankey from Sankey Research. Your line is now open..

Guys, this reporting the Wall Street Journal this morning that the FDA is going to massively increase methane emission limits.

Can you just talk a little bit about what that means for you and for the industry? And then I had a question from a major investor who asked me to -- I heard from Diamondback that multiyear flat volumes are now embraced by you and not just for 2022, is that what I'm hearing? Thanks..

Yes. The methane rules. I think we still have to see how the final document is written down if that continues as I've stated in my prepared remarks to focus on methane intensity. We're going to reduce that by 70% from 2019 levels by 2024.

So depends on where the threshold is, but I've been very pleased with the progress we've made already on reducing methane intensity. And in fact, we've got 20+ million dollars allocated next year to continue those efforts to reduce methane intensity.

And if we do things right, hopefully we will be below the threshold, by which the methane intensity applies..

And then for our multi-year plans, we've always issued multi-year plans at Diamondback. We didn't buy into a multiyear growth plan in 2016 and we're not going to commit to multiple years at flat today. Now, certainly 2022 and 2021 will both be relatively flat production. We think it's worked and capital discipline has worked for this industry.

I think this industry has tried a market share war with OpEx before and it didn't work out. So why don't we let OpEx bring back their spare capacity and all stay flat, and we will see what the future holds in 2023 and beyond. But right now we're committed to 2022 flat capital discipline as rollover Diamondback.

And as Travis mentioned, we're going to become a net return of capital rather than consumer of capital..

And look OpEx is going to do what OpEx is going to do. I've said we've transitioned in it that Virbac transition very rapidly from consuming capital, returning capital. And focused on the increase or the growth that we're seeing in per-share metrics. And I've outlined as the macro elements by which the world will be calling on more growth.

And I think every quarter that we go through, Diamondback, it's board is demonstrating our commitment to maximizing shareholder returns. And we're doing that right now about generating all this free cash flow this way. But free cash flow is coming to us and our commitment to return at least 50% of that back to the shareholders..

Understood, guys. Thanks..

Thanks, Paul..

I'm showing no further questions at this time. I would now like to turn the conference back to CEO, Travis Stice. You may proceed..

Thank you again to everyone for participating in today's call. If you got any questions, please contact us using the information provided..

This concludes today's conference call. [Operator Instructions].