Ladies and gentlemen, thank you for standing by, and welcome to the Diamondback Energy First Quarter 2021 Earnings Conference Call. At this time, all participants' lines are in a listen only mode. After the speakers' presentation, There Will Be A Question and Answer Session. Conference Call. Please be advised that today's conference is being recorded.
I would now like to hand the conference over to your speaker, Adam Lawlis, Vice President of Investor Relations. Please go ahead.
Thank you, Phyllis. Good morning, and welcome to Diamondback Energy's Q1 2021 conference call. 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 Dye, CEO and Case Fantall's CFO.
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 forward looking statements due to a
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.
Success.
Thank you, Adam, and welcome to Diamondback's 1st quarter earnings call. Diamondback had a successful first continuing to build off the momentum generated in the back half of twenty twenty. Operationally, we are hitting on all cylinders. We were able to effectively navigate a once in a generation winter storm while keeping well costs and cash operating costs near all time lows. We closed both the Guidon and QEP acquisitions in the Q1 and are very pleased with how the integration efforts are progressing.
We are achieving our synergy targets ahead of schedule and in excess of the $60,000,000 to $80,000,000 of annual cost savings we highlighted when the deals were announced. Yesterday, we also announced 3 non core asset divestitures for gross expected proceeds of 832,000,000 and generate attractive cash returns for Diamondback shareholders. We anticipate using the combined proceeds from these non core asset sales to accelerate debt reduction. As we discussed last quarter, even though oil demand has shown signs of recovery from the depths of the global pandemic, oil supply is still purposefully being withheld from the market primarily through the actions of OPEC Plus. As a result, we continue to believe we do not need production growth and will hold our pro form a 4th quarter 2020 oil production flat through 2021.
Due to the complexity resulting from the timing of the QEP and Guidon acquisitions as well as the announced divestitures, and producing 232,000 to 236,000 barrels of oil a day. This production range accounts for a full quarter of contribution from QEP's Williston asset and approximately 2 months of production from the announced non core Permian asset sales. Looking at the full year of 2021, Our free cash flow profile continues to improve. In the Q1, we generated approximately $330,000,000 of free cash flow, marking the 3rd consecutive quarter of significant free cash generation. At current strip Pricing and accounting for the Williston divestiture, we expect to generate approximately $1,400,000,000 in pre dividend free cash flow this year at a reinvestment ratio of below 55%.
In March, we executed successful tender offer and refinancing of all of QEP bonds and one of Diamondback's existing bonds. This refinancing equates $40,000,000 of annual interest expense savings and extended our average debt maturity by 3 years. Today, we have 3 debt maturities that are callable before the end of this year, dollars 191,000 due later this year, $650,000,000 due in 2023 $432,000,000 due in 2025. Reducing our absolute debt load and further strengthening our balance sheet. Now turning to ESG, We flared 0.75 percent of our gross gas production in the Q1, a decrease of over 85 percent from 2019.
Flaring is the biggest driver of our CO2 emissions. And while we are happy with our progress on our legacy acreage, We still have significant work to do on our recently acquired positions as we move to reduce our Scope 1 GHG intensity by at least 50% from 2019 levels by 2024. We've also committed to reducing our methane Filter over tank batteries with air pneumatic devices as gas pneumatics account for 50% of our methane emissions. We also signed a contract to conduct quarterly flyovers of all of our tank batteries to more frequently check for equipment leaks, Improving Our Maintenance Practices. Our Net 0 Now initiative is also underway, which means every hydrocarbon molecule produced by Diamondback is anticipated to have 0 net scope on carbon emissions from January 1, 2021, forward.
Segment. While we recognize we still have a carbon footprint, we have already purchased carbon credits to offset remaining emissions and ultimately plan to be a fast follower in investing in income generating projects here in the United States that will more directly offset these remaining Scope 1 emissions. To finish, the Q1 was busy and productive. We generated substantial free cash flow, kept our capital and operating costs down, extended debt maturities, added Tier 1 inventory in divested non core assets. All the while, our strategy remains the same, and use future free cash flow to return cash to shareholders and reduce debt.
With these comments complete, Operator, please open the line for questions.
Your first question comes from the line of Neal Dingmann with Truist Securities.
Quite you and the team have been emphatic about what I would call macro speaking that the world really does not need any more oil growth anytime soon. So my question is really pertaining to this. Do you all believe Your operational program is as optimal at this lesser pace than if you had a more multi rig larger frac plan and several of your areas and what our business have much impact on your cash costs.
Sure. I think if you look, Neil, just at our cash costs that we printed this quarter, you would There's not been any leakage or any cost pressure that has translated into execution slippage associated with the Lower Activity Rate. I mean, Neil, if you look at rolling into 2020 before the global pandemic hit, we were running 23 drilling rigs and I don't know, 8 or 9 frac spreads. That was a pretty quick pace. And I've actually been Really pleased with as that pace was reduced in some cases dramatically last year, even as we've entered into this year, We really seem to be at a pretty efficient frontier in both rig activity and frac spreads with 11 rigs and 3 to 4 fracs per inch.
So I think if you just keep watching our numbers that we print, I think that will be a good indicator of whether or not we're being efficient. And Certainly for the Q1 and the Q4 also, the numbers really look strong.
No, agree, agree. Okay. And then now that guidance that you appear in the books. I'm just wondering could you or Kees comment anything you all see that's different or surprised you from the assets? Maybe specifically, You all still believe there's as many quality locations and how do you sort of rank that inventory versus existing?
Yes, certainly that narrative hasn't changed at all. In fact, it's probably gotten a little bit better. And I'll tell you, I was very complimentary of the QEP team At acquisition announcement time and again during our February call and our April update, the operation, they were doing some really, Really efficient things and just looking at the drilling report this morning, QEP has always used water based mud and Diamondback now, we've adopted it and we're on our 1st or second well with water based drilling Fluids that quite honestly QEP is helping us with. And so far, really, really impressed with Operations team. This looks to be
a little bit of a
stair step in the right direction.
Good, good. Look forward to all the activity. Thanks, Travis.
You bet. Thank you, Neil. Your next question comes from the line of Arun Jayaram with JPMorgan.
Yes, good morning. Travis, I guess the shoe is on the other foot this time with Diamondback on the other side of marketing assets. Wanted to get your thoughts, obviously, you guys have the data room for the Bakken sale, you sold some non core Permian assets as well. What is your sense of the A and D market today? We've seen a couple of very large Permian trades, Double Point and Vitol.
And I guess I wanted to get your sense of do you see more of these private to public trades occurring this year and what criteria that Diamondback will use to evaluate A and D activity.
Certainly. We were really pleased with the interest in the Bakken divestiture Process. Now granted we were the beneficiaries of commodity price run up and some previously announced deals in the Bakken that I think put some wind Wind at our backs. So that I think that piece of the A and D still seems to be pretty frothy, particularly on the PDP focused type of divestiture. There's a lot of interest in that.
But specific to what Diamondback I was looking for on a go forward basis. We still remain very resolute 2019. Our strategy that it's got to meet internal objectives like free cash flow and it's got to be return accretive on a per share basis. And when you look at The combination, we've got to accelerate return of free cash flow. The larger trades that particularly the ones that you referenced, The quality of assets that fit for capital in Diamondback's top quartile Probably fewer than greater.
And the prices that were recently announced on some of those trades Might have quelled some of the activity for a little while anyway. But I think as long as we can demonstrate That we're being accretive on a per share basis and that we're accelerating return of free cash flow. We're going to continue to look in the Permian Basin, but the opportunity set is pretty narrow right now.
Most importantly, there has to be inventory that competes for capital right away, right? We while this industry has moved towards financial metrics, that can't be The only numbers that we look at when we think about what makes sense in terms of an acquisition and sticking inventory in the bottom quarter, bottom half of our existing inventory just doesn't make sense to us from a returns perspective.
Makes sense. Q1. Kees, I'd love to get your thoughts on the updated inventory disclosure, quite a few changes here. It looks like in terms of focusing on the Midland Basin, you increased your inventory count by just over 150 net locations. I know that the lateral lengths increased a little bit, perhaps the Delaware declines just reflect some of the A and D activity.
But Give us some thoughts on the updated inventory, kind of snapshots, kind of the key takeaways. And I do sense that you perhaps are using A little bit wider spacing for some of the acquired assets from QEP and Guidon.
Yes, that's right. We hadn't posted a full inventory update The beginning of 2020. So this was the first update post the two deals. I'd say generally, We spent a lot of time looking at our development as well as offset development, particularly in the Midland Basin. And I mean, I think our focus is the best zones can still handle kind of 6 60 foot spacing, which is as tight as we've kind of ever gotten, but we kind of realized that maybe the secondary zone should be spaced a bit wider.
And so that's reflected in that inventory numbers we put out. So secondary zones that are getting co developed with the primary zone, which we still think is the right thing to do,
Okay, great. Thanks a lot.
Your next question comes from the line of Neil Mehta with Goldman Sachs.
Good morning, team. Taking a look at the slides here, you show at a $60 WTI pricing reference to this, Travis, in your script of North of $1,400,000,000 of free cash flow before the dividend this year. But this year, you are burdened by Hedges. I was curious if you could provide some perspective around what open EBITDA would look like in that type of environment. And then and also your perspective on use of proceeds of all this free cash flow and the asset sales, your framework around returning some of this excess capital to shareholders.
Yes, that's a good question, Neil. And we're probably sitting on about $450,000,000 or $500,000,000 of hedge losses for the rest of the year at strip today, for the balance sheet. So that's the drag on free cash this year. I think it's fortunate that we are losing money on hedges compared to where we were a year ago, but unfortunate that we do have to write the checks. But Overall, I think if you add that number back to the free cash number, you can get a pretty clean look at what The future might hold on an unhedged basis.
That's great. And that ties into the follow-up around capital returns. Talk about how quickly you can get to the leverage levels that you're targeting. And then there are a lot of different options at that point, right? You can think about a buyback, you You can think about a variable dividend, recognizing it's too early to commit to that until you hit your debt target.
Just walk us through your framework about the different options that are at your
Disposal. Yes, sure, Neal. I think it's good for our industry that we continue to talk about investors recouping return for the money that they've asked us to deploy. I think that's good for our industry. And You're right about reaching certain debt targets and these announcements that we laid out yesterday to simply accelerate the timeframe at which we can hit those debt targets.
I think the callable debt reduction of $1,200,000,000 or more by the end of this year is going to put us in a favorable position to start talking about what the next step is. I also think that our industry has seen a lot of interest in laying out a formula Our industry was as simple as you could put a formula in place and formulas work as long as the world doesn't change. But in our business and Commodity Based Business. We know that our world does change. So, I'm always a little leery of trying to promise delivery on a formula We know the world is going to change.
But the options are very clear. The strategy around the variable dividend is part of the future discussions at the Board level as is share buybacks and most importantly, like we've always committed to, continue to lean into our base dividend. So we're very pleased that we're able to accelerate our debt reduction targets with kind of A very positive divestiture number, and we're going to continue to deliver on through our performance And try to avoid making promises multiple quarters in front of us.
Sure.
Thank you. Your next question comes from the line of Doug Leggate with Bank of America.
Thanks. Good morning, everyone. Travis, after the QEP deal, you suggested that your breakeven to sustain your production We'll just wonder if you could give an update, in light of your comments around synergies last night as to where you see that settling out.
Well, certainly the synergies that were in excess of what we promised stem from the refinancing of The long QEP's debt, and I think we talked $40,000,000 We didn't even describe that as a synergy at acquisition announcement time. The specifics around lowering the breakeven cost has to do with our capital allocation of moving rigs into this newly acquired acreage, both Guidon and QEP. And while I I can't formulaically give you dollars and cents how much our breakeven cost has come down. We do know that doing higher cash flow generating projects at higher rate of return going to translate to a lower breakeven cost.
Okay. It seems to us you've won by about a buck or 2, but We'll take that offline. My follow-up is also related to, I guess, some of the comments at the time the QEP deal related to infrastructure And maybe the opportunity to drop or look at dropping down some assets to Rattler and maybe some royalty opportunities for Viper. I'm just wondering if you've got any that you can share as to how you're thinking about that.
Yes, Doug, there's not a lot on the Viper side to drop down at the Diamondback today. QEP and GuideOn, they in different ways, QEP It was on a lot of large landowners in the Permian that have been around for a long time and not looking to sell their minerals and Guidon had a company like a Viper that was buying minerals. So on the Viper side, we're certainly sourcing minerals at the Viper level under QEP and guide on acreage, but there won't be a drop down. And then on the Rattler side, QEP, we've been pretty vocal that QEP Did a really good job on infrastructure. I think we've learned a lot on the recycling side from them, boost going to boost Midland Basin recycling program significantly and eventually those assets should probably be long in Rattler, but I think it's going to take A few more quarters for us to get that all that worked on and then eventually drop it down.
Okay, great stuff. Thanks guys.
Thanks, Doug.
Your next question comes from the line of Gail Nicholson with Stephens.
Good morning. Every quarter efficiency gains are achieved. Where do you think you are in that learning curve? And are you trying any new technologies that could prove to be beneficial for future improvements?
Yes, Gail, I mean, I think Travis kind of said it earlier in the call, but bringing the QEP team in the fold, just like when we brought Energen in the fold, We don't need to be the best. We just want to learn from the people that we add to the team. And we learned a lot from Energen, and We recently just learned a lot from QEP. So as Travis was mentioning, water based mud on the drilling side, Some drill out techniques on larger pads that are saving us some time. On the cementing side, I think we've learned that We can batch drill and batch cement, which saves us time, and it's all reduces time on location and increases the efficiencies, which is why Danny's team on the drilling side is getting kind of ahead of the 2021 program early in the year, which I think is positive.
Gail,
back at the Energen announcement time, I think I used the phrase that we checked our egos at the door when we brought the Energen team on board. This is just really as Kees highlighted, this is another example of checking your egos at the door and let's just try to figure out what's the Best way to do this for our shareholders and really proud of the operations organization. Once again, they've done so and we've not really had the QEP team Inside the fold for very long, but yet they're already making a very positive influence.
And then circling back to the inventory, with the improvement in oil prices, and the foreseeable future.
I think just generally, we're very focused on co development between zones, particularly in the Midland Basin and the secondary zones get spaced a little wider. I think, Gail, we did a lot of work at various oil prices on inventory and spacing and EUR per foot. And we kind of found that the benefit to IRR outweighs Any benefit to NPV from going tighter. So no one got mad at you for drilling wells that were too good. And so I think we're going to stick with that strategy, particularly with how much undeveloped acreage we got with the QEP and guide on deals.
Great. Thank you.
Thank you, Gail.
Your next question comes from the line of David Deckelman with Cowen.
Good morning, guys. Thanks for taking the questions.
Sure, David.
Just curious, the deal with QEP only closed, I guess, about 7 weeks ago now. As we think about your development plans on those assets, when would be like a decision point where we might see a shift of activity either more
Yes, David, I think you start to see that in terms of the wells that we're going to be drilling now, But you won't see it in terms of production until kind of Q4 'twenty one, early 'twenty two. I think We're trying to get as many rigs as we can in the Robertson RanchSail Ranch area in South Central Martin County, some big pads and efficient development going to be headed that direction. Rigs are there right now. I think when it comes to kind of county line in the northern part of Martin County, we've done a lot of technical review with the QEP team and our team And they've done some things in the shower zones that we like, some targets that we like in the County Line area. So I think you'll see More of the Wolfcamp A, Middle Spraberry, Dean, LS work in the County Line area and then more of the deeper Wolfcamp and Lower Spraberry in the Robertson Ranch area.
Appreciate that. And if I could just ask one on just Capital Program this year. Just curious like relative to your guidance on footage cost $520,000,000 to $580,000,000 in the Midland and $720,000,000 to $800,000,000 in the Dell. Where you guys are today? Because as I look at The rest of the year seems to certainly be implying like a back half weighted program.
Does that stair step up Each quarter now going into the end of the year because I guess we're thinking about sort of like the sustaining quarterly run rate that we should expect going into next year.
Yes, that's a good question as well. I think I'll take the well cost first. We put a live look at well cost in the deck. Midland Basin was around 5.30 a foot and Delaware was actually below the low end of the guide, which I think was Just a really good quarter operationally, a little lower sample size as well. But as you think, we did put out Q1 CapEx of $300,000,000 and Q2 implying $375,000,000 at the midpoint.
So that would imply we're going to spend $1,000,000,000 in the back half of the year. And I would say there's certainly some conservatism on our side. We've been very vocal that We will cut CapEx to keep production flat rather than grow production and spend more dollars. But the ancillary stuff, Environmental Infrastructure, Midstream, non op is going to pick up a bit in the middle of the second half of the year. And that on top of the couple of quarters of true pro form a QEP and Guidon and Diamondback activity will result in capital coming up slightly throughout the year.
But yes, we're off to a pretty good start in the first half.
Appreciate the color on that. Thanks guys.
Your next question comes from the line of Derrick Whitfield with
Stifel. Good morning all. Congrats on your transactions.
Thanks, Derek.
Perhaps for Travis or Kaes, following up on the earlier A and D question, but taking it a slightly different direction. In your view, did that larger transaction tilt the environment to a seller's market? And if so, would it make sense to pursue smaller divestitures
That's a good question. Certainly, The market has improved dramatically and that's why we kicked off that the Upton County process and the non op New Mexico process that We thought at the back of our minds were sale candidates for years, but the last 12 months have not been conducive to selling cash flow. I think the trend, Derek, is that A lot of private capital has moved towards buying PDP heavy assets and distributing that cash flow to their LPs or to their shareholders. And when everyone's doing that, you have a lot of competitive tension in the process. So that allowed us to get pretty competitive bids on all three assets, and we're pretty happy.
But I think for us, Anything else that's a sale candidate in the Permian has real undeveloped value, and that's not something We're looking to sell right now because I think the market for that is less competitive than a PDP heavy market.
That makes sense. And Travis, for my follow-up, I'd like to pick up on a comment from our discussion yesterday. As you guys progress your plans to invest in income generating projects that will more directly offset scope on emissions, Could you speak to the nature of your industry discussions since Q4 and how that plan might take shape longer term at Diamondback?
Yes, specifically for Diamondback, we talked about CCUS Technology and emerging trends with that. I think a good analogy We don't expect to become subject matter experts in income generating projects, CCUS type projects, But we do anticipate aligning ourselves with those that are those experts and try to do those technology. That is those emerging technologies are not months or quarters they're quarters away. And there are things that there's new technology emerging and we're trying to stay abreast of it. And when I talk to my industry peers, It's a very similar tact that they're taking as well too is to try to be extremely fast followers and figure out what emerging technology needs you need to lean into the soonest.
But I think it's an industry trend for sure.
Your next question comes from the line of David Heikkinen with Heikkinen Energy Advisors.
Good morning. Any thoughts on a dropdown of your QEP Midstream assets or formerly QEP assets into Radler and timing of that?
Yes, David, it's certainly on the schedule. The other activities getting Bakken sold and getting the refinancing Took priority, but the team is doing their work. I think as you think about the drop down, we're going to have a very large block across half of Martin County, and so we want to get the engineering right and also build out recycling infrastructure across that block to be able to store, produce water and reuse it in the Midland Basin. So I I think it's a couple of quarters away, but certainly it's on the docket.
Okay. Thanks.
Your next question Earnings Conference
Call. Hey, guys. I wanted to
follow-up a little bit on your comments around synergies. You guys talked about that you're ahead of expectations of the $60,000,000 to $80,000,000 Chloe, you pointed out the debt refinance, but Perhaps maybe you could talk a little bit more to kind of the G and A and the operational synergies. Are we going to start to see those numbers show up as soon as the 2nd quarter earnings when you report. Do these come more in the second half of the year? And can you maybe provide a little bit of color just on the operational synergies and specifically where those will come from?
Yes, Leo, I think we predicated the deal primarily on G and A and interest. QEP was A low cost operator just like Diamondback. So unlike Energen, we didn't come out and say, hey, we're going to drill 2,000 wells, $200 a foot cheaper, but the G and A stuff will start to show in Q3 and Q4. And obviously the interest has happened today. I think there's probably some upside on the operational front Capital to add that capacity could be an upside surprise.
And also, Leo, just operational, we talked already on this call about the water based mud using big rigs for drill out, some of the other cementing practices that Diamondback is now adopting From QEP learnings, those all translate directly to lower dollars per foot and that's those are direct synergies as well.
Okay, that's helpful.
And I
guess just on the LOE side, you guys certainly spoke to just great cost control in the Q1. Certainly couldn't help but to notice that your Q1 LOE was below your full year guidance despite the fact that we had, Call it 100 year storm in the Q1. So certainly guys, it looks like you guys are doing a good job executing in the field. Do you guys feel like you may be Set up to come in a little bit below that LOE guidance for the year or are you going to see an uptick once the QEP and guided assets kind of take full effect here in the Q2.
Hey, Leo, it's Danny. The LOE
in the Q1, we certainly saw some surprising benefits Throughout the year, through the Q1 from some electrical contracts and other things throughout the storm. We do expect that we'll see a little bit The increase from that number from the guide on and 3P assets, mostly the guide on assets Had a little bit higher lifting cost than what we've traditionally seen at Diamondback. But we like the low end of that guide right now. And as we learn kind of More about the assets and where their lifting cost is going
to settle as we get
them integrated, we'll update the market.
All right. Thanks guys.
Thank you, Leo.
Your next question comes from the line of Richard Tullis with Capital One Securities.
Hey, good morning. Just one question for me, kind of following up on the earlier ESG discussion. And you mentioned, Travis, in your opening comments about being the fast follower in the investment side. So you're generating strong free cash flow and it certainly looks like that continue given where commodity prices are. How large of a part of the FANG story, could investment in renewables or CCUS type projects or entities develop into, say, over the next 2, 3 years.
Yes, that's a fair question, Richard. But I just I don't know what that number is going to look like yet. There's Too much that's still emerging in the form of new technology development. And I know it's important, But in terms of what percentage of our capital is going to be allocated towards that, I'm not comfortable Communicating that yet because quite honestly, we don't know what that answer is.
Yes. I mean, I think what's most important, Richard, is if our scope on emissions go down, you have less incentive or need to invest on the other side to offset it, right? So today, $15,000,000 a year is going into the tank battery side. I think we put out some new numbers that we're going to replace 200 Generators in the field this year and move that to line power. We're then moving towards Scope 2 emissions number and how we're going to get that down through sourcing electricity through renewable sources.
So While Travis says we're going to be a fast follower on the investment side, we're certainly going to be a leader in terms of spending dollars in the field to clean up and reduce our intensity on what we can control.
That's helpful. Thanks a bunch. That's all from me.
Thanks, Richard.
Your next question comes from the line of Charles Meade with Johnson Rice.
Good morning, everyone there. A quick one for me and then maybe a more open ended one. You guys, you've sold or agreed to sell close to $1,000,000,000 worth of assets, but your CapEx guidance is You're divesting or is there some reallocation going on?
No, it just means they were noncore, Charles. The key to an asset sale is does that Asset compete for capital with the rest of your assets and these three assets did not. I'd say that some of the New Mexico acreage was really good acreage, but We're not an on off producer. So we sold stuff that sits lower in the inventory ranking, and we're going to reinvest it At this time to pay down debt and generate free cash to return to shareholders.
Got it. Thank you for that case. And then Travis, if I could go back to comments in your prepared remarks. You've mentioned before how oil inventories, Global Oil Inventories and also U. S.
Inventories are looking better, but we're still looking at Some supply artificially being withheld from the market by OPEC plus I want to Understand a little bit more of your thinking because in my way of looking at things, if you wait till OPEC Plus has 0 barrels offline. At that point, you're probably we're probably in a spike scenario. And I don't think you maybe need to wait that long. And so maybe it's not a binary thing that you have to wait till OpEx spare supply is 0. But Can you tell me about how it looks from your point of view and what any threshold or series of thresholds would be?
Yes, certainly. I wish most of the decisions that I had to answer were binary, yes or no type questions. And this is not one of those. Just from a macro perspective, you know that OPEC Plus is effectively controlling the market right now and It's having an outcome of reduced inventories. And against the backdrop of still a fledgling oil demand recovery, which Quite honestly, might be negatively impacted by the unfortunate outbreak in India.
It's just still in our opinion, It's still too early to be talking about growth. There's no clear signal. Now, do we need to get to 0 with OPEC plus being withheld. I don't know that that's the right answer either. We still got to assimilate 1,000,000 or 1,500,000 barrels a day of our So it's an evolving question.
But as As it pertains to Diamondback, there's no clear signal for us to grow volumes, and it's unlikely that you'd see any of those signals this year.
Thank you for that elaboration, Travis.
Thanks, Charles.
Start and the number one on your telephone keypad. Your next question comes from the line of Paul Cheng with Scotiabank.
Hi, good morning. Sharva, just curious that you just talked about the near term Debt reduction for this year, dollars 1,200,000,000 Longer term, what will be the right capital structure or the debt level for Diamondback.
Yes, I think that's certainly an evolving question as well or evolving answer as well. But certainly, we wanted To get our absolute debt reduced to where we were before the QEP and the Gaidon acquisitions, which were almost there. I think in terms of leverage target, of course, leverage is a function of EBITDA, a function of oil price, but leverage targets, the Board mandate has had us below 2 times Since the IPO and we'll be there now sooner rather than later. I think the longer term run rate for leverage It's probably 1 or below, and it's going to take multiple quarters for us to get there, but certainly encouraged with the way Our forward outlook plan looks in our debt retirement strategy.
Just curious that because I think There's one screw of thought. In a Honeywell Tow sector like oil and gas, the best hedge is actually not Through the paper market hedging program, but using a fortress light balance sheet. So on that basis that will Diamondback be interested or consider to drive the net debt down to a really low level so that you can get away from the hedging program totally And also position yourself to be much stronger and have far more flexibility and opportunity when you get to the next downturn.
Yes, Paul, I mean, I don't know if that's an either or answer, right? I think it's an and answer. And like Travis Just saying, I think something like a turn of permanent leverage at high 40s WTI is a pretty good hedge, Natural Hedge for the next downturn, but I think you also need some sort of foot protection or Big insurance policy that if things go really south like they did in 2020, you're still protected. So I think it's a combination. I think hedges will still be a part of our story, particularly with the growing dividend and investors demanding Capital be returned to them.
You have to protect that cash flow the only way you can in the paper market. You might do a wire collar or buy puts that are pretty cheap, but I think, again, it's kind of an and discussion.
And that with your structure in Radnor, with more than 7% dividend yield there, So strategically, does it really have the benefit for you to keep it as an independent entity and drop down asset there. I mean, does it really gain anything from a capital efficiency standpoint?
Well, we sold everything we had in that business for 29% of the business. So I think for Diamondback shareholders, the IPO of Rattler was certainly a I think we have to look at the subsidiaries consistently in the lens of What's the best thing for Diamondback shareholders and what's the best thing for the shareholders of the subsidiaries? Fortunately, We've created these vehicles without major conflicts of interest. And traditionally, they've traded at higher multiples than the parent. So they've been, I'd say successful investments, but yes, we got to think about what those what value those add.
I think in an acquisitive environment, they've added value. And I guess if we're acquiring less, we'll have to We assess that, but right now they're still strategic and we have a lot of value for Diamondback shareholders sitting in the stock of those two companies.
Okay. Final question for me. Can you discuss The process when you sell the Bakken asset, maybe we are wrong, but when we're looking at the future script, that for the next 12 The Bakken asset that you sold should be able to generate EBITDA about 250 to 300. So yes, look like you sell for 2.5x to 3x turn. That seems a bit low.
So just trying to understand the process.
I think the process was very competitive. This was an asset that wasn't going to be getting capital from us. So I think, Paul, we were very vocal that the Bakken was going to be held for sale. I'm personally very pleased with the price we received. It seems like in the fall, everyone was saying, you can't sell anything for better than PDP, PV-fifteen.
And like I said earlier in the call, I think this industry can't move towards only looking at financial metrics. NPV and NAV Still matter. They probably play a lower role than they did in the past, but financial metrics alone
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