Ladies and gentlemen, thank you for standing by, and welcome to the Diamondback Energy conference call. At this time, all participants lines are in a listen-only mode. After the speakers' presentation, there'll be a question and answer session. To ask a question during this session, you'll need to press star one on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, press star zero. I would now like to hand the conference over to your speaker today, Mr. Adam Lawlis, Vice President of Investor Relations. Please go ahead, sir.
Thank you, Catherine. Good morning, and welcome to Diamondback Energy's conference call to discuss the two Midland Basin transactions announced this morning. 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, and Kaes Van't Hof, 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 business deals. 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 and are also posted on page two of the investor presentation posted to our website this morning. I'll now turn the call over to Travis Stice.
Thank you, Adam, and good morning, everyone, and thank you for joining the call. I'm really excited to share with you that Diamondback has announced two strategic, highly accretive acquisitions in the Northern Midland Basin. The acquisition of all the leasehold interests and related assets of Guidon Operating and the acquisition of QEP Resources. These acquisitions check every box when it comes to Diamondback's corporate development strategy. One, they're accretive. These deals are, both together and individually, accretive on all relevant 2021 financial metrics, including free cash flow per share, cash flow per share, and leverage, even before accounting for synergies. This accretion only increases over time as the pro forma high-graded development plan will result in more free cash flow, and therefore return of capital per share than the already strong standalone plan. Two, the assets compete for capital.
These deals add Tier 1 resource that competes for capital right away in Diamondback's current portfolio. Upon closing, we will reallocate capital from our existing assets to high-grade development and accelerate activity on these assets, which is the definition of good capital allocation. Three, these deals improve our capital efficiency. We will now be able to allocate more of our capital to the high-returning Midland Basin, where our cost structure and asset base remains differentiated. These deals improve 2021 capital efficiency, lower our near and long-term investment ratio, and lower our 2021 break even because of the quality of the acreage we are integrating into our portfolio. Four, these deals are leverage accretive. Pro forma for these transactions, Diamondback is expected to maintain its investment-grade status, ensuring access to capital.
Over a multi-year time period, Diamondback will be able to retire pro forma debt faster than the standalone plan as a result of these transactions. Fifth, the deals offer tangible, visible synergies. We estimate we can drive at least $60 million-$80 million of annual synergies, primarily through a combination of G&A and cost of capital synergies, with secondary synergies that include improved capital efficiency from high-graded development and physical adjacencies that will increase our pro forma lateral lengths. QEP has done a great job building out their midstream infrastructure in the Permian, and there will be opportunities to consolidate that infrastructure with both Diamondback's and Rattler's existing systems in the future, allowing for more efficient development of midstream and infrastructure capital. All of QEP's oil production is dedicated to Rattler's joint venture gathering system with Oryx Midstream, of which Rattler owns 60% of the JV.
Lastly, the sixth point, there's minimal integration risk. These assets are simply in our backyard, the Northern Midland Basin. Integrating these assets will present more opportunities and challenges due to the physical adjacencies to our existing position. The blocking nature of the pro forma position will provide for the most capital-efficient development as possible. As stated in past public commentary, Diamondback does not need to participate in industry consolidation simply to get better. We participate in corporate development opportunities that we firmly believe will increase the long-term value of our stockholders' investment. These deals help cement Diamondback's leadership position in the Northern Midland Basin, which is why we're excited to discuss these two deals with you today. With that, operator, please open the line for questions.
Thank you. As a reminder, to ask a question, you'll need to press star one on your telephone. To withdraw your question, press the pound key. Our first question comes from Neal Dingmann with Truist Securities. Your line is open.
Good morning. Travis, congrats. Travis, I'm just wondering, how important was having a large equity component for these deals? Can you talk about how you talked about this a little bit in prepared remarks, but just again, if you could go over a little bit again on your thoughts on leverage post these deals.
Yeah. Listen, Neal, as I highlighted, our ability Well, first off, leverage comes down upon closing of these transactions. Even more importantly, the rate at which that leverage ratio continues to decrease is accelerating. It's a win. It's a win across the board when it comes to leverage.
Got it. How do you think on these deals on just could you talk a little bit about how you guys assign maybe for a little bit on just the Bakken, and then I'm just trying to think on what you guys are looking at on kind of a per acre basis and what that ascribes to the, does that include what on the PDPs, and then what does that back out for the synergies?
Yeah. Let me first address your question on the Bakken. Diamondback is a pure play, we've got no intention in diversifying away from what we think is the best remaining development opportunity in the northern basin, which of course, is right here in the Permian Basin. If you think about the Bakken assets, it's very similar to when we announced the Energen acquisition, we had those assets on the central basin platform that we just simply held for sale. That's what we intend to do here once the deal closes and we get a chance to do some value propositions. The second thing is that you were talking about the quality of the acreage and what it was costing. This acreage, Neal, we actually bid on back in 2015 and 2016. We know the acreage very well. We didn't get it back then.
It went for $50,000 or $60,000 an acre back in the day. If you do the math on these with $20,000 or $25,000 per flowing barrel, you'll see that these per acreage acquisition costs are among the lowest that Diamondback has ever done. In fact, these acquisitions probably rival when we bought Spanish Trails back in 2009.
Great. Thanks for the details.
Thank you. Our next question comes from Gail Nicholson with Stephens. Your line is open.
Good morning, everybody, and happy holidays. When you guys are looking at the $60 million-$80 million per year of synergies, can you just break that out between how you're looking at that via CapEx synergies, expense synergies on the G&A side, and maybe potentially LOE as well as interest reduction synergies as you guys are investment grade and QEP is not?
Yeah. Gail, I'd say the majority of the synergies come on the G&A side. I think we are well-staffed at Diamondback and have been patient throughout this year to add assets opportunistically and do so in a way where we don't have to add a lot of people or expense to that. That's probably the majority of the synergies. Obviously, interest cost savings will be important. Retaining investment grade status was vital to us and to our board. That ensures a lower cost of capital. I think overall, we still want to be reducing net debt versus extending maturities, but we do have a lot of opportunities now to do both. On top of that, LOE, QEP is a great operator. They have a very low cost structure.
They think about the business in a similar way to us, and therefore have had a lot of infield infrastructure built. I think as you can see in the map, the physical adjacencies is going to allow for us to merge our systems together and utilize capacity effectively. I think long term, that drives LOE savings and certainly capital on the midstream and infrastructure side, but the most tangible synergies are on the G&A and the interest side.
Yeah. Gail, I know you've studied Diamondback for a long time, and you know that we operate a lean organization, and we're proud of that. Listen, even in the fact of the global apocalypse we've endured through this catastrophic downturn, we've been able to avoid any layoffs, and we've retained the organizational capacity that we had prior to our downturn. Look, that G&A per barrel at around $0.50 a barrel, was then, and is still now peer leading. With the combination of these deals, that cost per barrel on G&A actually goes down. The LOE side is the field organization will stay in place, but that goes to LOE, not G&A. We've shown in the past that we've got expertise in integrating new entities, and on a large scale, most recently with the Energen acquisition.
As we think about this is more of a tuck-in operationally to our existing organization than really an entity integration. Very confident that the conservatively models synergies and certainly we'll continue to maintain our leadership position.
Great. You've mentioned the idea of capital reallocation to these assets once they're put into the portfolio. Can you talk about where that reallocation occurs from? Also in the presentation, you mentioned that this is going to be reducing your 2021 breakeven. Can you talk about where breakeven was in 2021 and where breakeven will be because of the acquisition? Thank you.
Yeah. Gail, we've got to make sure these deals close, we come out with full formal guidance. The way we're thinking about it in general is that both QEP and Guidon have assets that compete in the top of our portfolio. I think our base plan with Guidon was to reduce a rig or a rig and a half at Diamondback and allocate two to Guidon. When you add QEP on top of that, you run their two rig cadence. I think you can also reallocate some of our existing rigs to an area like Robertson Ranch, which is in the dead center of Martin County, hasn't been getting capital from QEP yet to date. I think just overall pushing more of our capital, a higher percentage of our capital to the Northern Midland Basin lowers that reinvestment ratio and the break-even.
I think overall, our plan is to basically hold pro forma Q4 2020 production flat. I think we're going to be able to do that with less dollars per BO added or BO maintained than we were prior.
Great. Thank you. I appreciate the responses. I have more questions, but I'll turn it over to everybody else. Merry Christmas.
Thank you, Gail.
Thank you. Our next question comes from Arun Jayaram with JPMorgan Chase. Your line is open.
Okay. Good morning, gentlemen. Kaes, I wanted to see if you could talk about any plans that you have to leverage Diamondback's IG credit rating and lower cost of capital. As you know, QEP has about $1.1 billion of debt due before May 2023. Where is your head in terms of thinking about those bond maturities in 2022 and 2023?
Yeah, Arun. That was an important part of this trade, and I think overall, we modeled the business where we could pay those off with cash and free cash flow between now and that time period. I don't think that's going to be the case. I think we'll probably do some form of liability management that involves the FANG 2021s and the QEP 2022s and 2023s and also the FANG 2025s that are callable. I think we kept that bond out there for an opportunity to refinance, and we have a lot of options at our disposal here. I think overall, some combination of extending maturities but also paying down gross debt is our game plan.
Great. Secondly, pardon me. Travis, it seems like high grading here is one of the deal motivations here or deal rationale. Can you talk about, from a productivity basis, how the Guidon and QEP assets in the Northern Midland Basin compete to FANG's existing asset base in the Midland Basin?
Yeah. I think they compete in the top quartile of our existing Northern Midland Basin acreage position. I think as Travis said, we've made public comments in the past that we don't need to get bigger just to get bigger. We have to get better. Capital allocation and NAV, while they're not hot topics today in oil and gas, our ability to drill better wells for the next five, 10 years versus our original plan is very important to our shareholders and very important to long-term value creation. Travis, you want to add anything to that?
Yes. Listen, Arun, the way that we're thinking about it is that the addition of these locations, this inventory that immediately competes for capital, has now extended Diamondback's runway of Tier 1 inventory projects for more than a decade. Tier 1 being some kind of 30% or so rate of return at the current strip. A lot of the questions we've heard in the past is, "Hey, Diamondback is a great operator. They've got the best cost structure in the business, but their Tier 1 inventory is short." We never have agreed with that proposition. Certainly, with the addition of these two acquisitions, we've extended that runway significantly.
Great. Thanks a lot.
Thanks, Arun.
Thank you. Our next question comes from Derrick Whitfield with Stifel. Your line is open.
Good morning, all. Congrats on the acquisition.
Thank you, Derrick.
Perhaps for Travis or Kaes, could you speak to the synergy opportunities from a Viper or Rattler perspective? I know you guys have focused on the G&A side of the equation, but seemingly, there's a lot of opportunities on the midstream side as well.
Yeah, Derrick, we obviously looked at that in detail. QEP, like I said earlier in the call, has really thought about their development in a similar fashion to Diamondback, and that's controlling more midstream and also keeping those costs in-house. I do think there's a good amount of midstream value on the QEP side that Rattler will have a chance to take a look at. On top of that, like Travis said, all of QEP's oil production flows through the former Reliance Gathering system, which now is called the OMOG JV, that Rattler owns 60% and Oryx owns 40%. Part of the reason why we bought that deal back in the day was understanding the underlying quality of the acreage that's on that system.
That's proven out to be a good investment that's now going to look a little better with more capital being allocated to pro forma OMOG acreage. On the Viper side, we actually don't own a lot of minerals underneath QEP or Guidon today. I think that opens up a new sandbox for our Viper team to increase mineral ownership under Diamondback properties. There's some significant ranches and mineral owners under both, and I think we look forward to having those conversations on the Viper side.
Great. Perhaps for Travis, as you compare and contrast your operations with QEP, what's your early assessment on QEP's development approach via tank style development?
Yeah, Derrick, that's a great question. We're going to be widening that development spacing. That's what we have in our go-forward development plan. Fewer wells but greater productivity per well.
Yeah, we agree with the tank style, right? It's just a matter of spacing. I think when we looked at both of these deals, we were very conservative on spacing, and we were also very conservative on development pace. Gone are the days of acquire, exploit, and accelerate. I think we're now talking acquire, exploit, high grade, and distribute cash. That means you're not ramping the rig count on your acquisitions like deals of the past.
Yeah, listen, high grading, we've had several questions now on the high grading of these assets. That is important. The primary reason that we did these deals, as I highlighted in my opening comments, is that we are now improving cash flow, earnings efficiency, and our leverage targets, all of those things with the announcements of these deals. It's our responsibility to work the development plans upon close in a way that drives the most return and greatest net present value.
Thanks, guys, and congrats again on two very solid deals.
Thank you, Derrick.
Thank you. Our next question comes from David Deckelbaum with Cowen. Your line is open.
Morning, guys. Just curious why the third deal didn't get across the finish line this morning?
Well, listen, David, I'll tell you that we can't determine the circumstances or the timing at which we find opportunities, one, two, or three in your question. We just simply have to evaluate them as they unfold. In my experience of doing this for over 35 years now, it's not uncommon to find extraordinary opportunities in times of tremendous pressure such as we have now. You've got to be ready for them, right? Organizationally, you have to be ready for them. The simple fact is that we believe each of these opportunities adds value individually to our shareholders. That they happen at the same time, that's just coincidence. We're fortunate enough, even though there's some tired eyes around the conference table in here, to have the organizational capacity to do that heavy lifting in evaluating these opportunities.
Also, we've got the bandwidth to integrate them both. The fact that it's two, not three, is just a function of coincidence.
I appreciate that. My first question just is on well costs. If we're looking at QEP's stated well cost per lateral foot in the 400s now, and Diamondback's in Midland, obviously at a bit above that. If we're comparing them apples to apples, is that more due to QEP's infrastructure in place, or do you feel like there's some headway to be made? Should we see those costs kind of fit more to the Diamondback completion style?
Yeah, David, like I said a couple questions ago, QEP is a very good operator, and we've learned a lot from their development in Martin County. We use now simul-frac crews on all of our Midland Basin development, and they were an early adopter of that. I will say, from a D&C perspective, we're very close. I think their stated number was 430 a foot last quarter, and ours was about 450. We include the equip in ours, so that puts our Midland Basin well cost at 530 a foot. I'd say overall, both companies are low-cost operators. We tend to do a little bit bigger frac job, which is probably a little bit of a difference in well costs and therefore, a little wider spacing with a little higher, bigger frac job is probably going to result in a little more productivity per well completed.
Appreciate that. Just the last one from me. I know there isn't formal guidance out there yet, but should we still be generally thinking about that sort of 30% reduction in total spend versus 2020 next year to keep that fourth quarter number flat?
No, that's going to be tough to do when you're adding 60,000 barrels a day that are going to decline. We're going to have to spend more than what the original plan was for Diamondback standalone. I think overall, it's going to look more capital efficient than if you stacked the three businesses on top of each other. We're going to pull that information together and update the market as quickly as we can.
Thank you, guys. Congrats.
Thank you, David.
Thank you. Our next question comes from Asit Sen with Bank of America. Your line is open.
Thanks. Good morning. Expectations for 2021 production remains unchanged, which is great, Travis, and congratulations, and true to what you have said in the past. My question is: What could prompt any change on that guidance in 2021, and how should we think conceptually about production growth into 2022?
Well, certainly, Asit, there are no indications today that the market needs more oil. There should be no growth in our sector at all, full stop. We've got a world that's still 6 billion-7 billion barrels a day oversupplied. We've got a world that's still mightily struggling with what the economies are going to look like post-COVID. There's just no reason, nor call, for production growth in 2021. I think most experts, of which I am not, are more optimistic about the back half of 2021. Look, the future plan for Diamondback, which we're certainly not issuing multi-year guidance, but should the market again call for a small growth rate in the future, 2022 or beyond, Diamondback's ability to do so now more efficiently has been increased with the addition of these high-quality assets.
Great, Travis, thanks. In your opening commentary, again, similar theme, you mentioned transaction lowers 2021 reinvestment ratio. Could you speak to directionally how much? When you think broadly about the business looking into 2022, how are you thinking about reinvestment rates?
Yeah. I think, just generally, about strip, which today is probably going to be a little lower, but strip as of Friday, we're talking about a sub 60%-ish reinvestment ratio in 2021. I don't think we'll be able to retain that forever. I do think we have a business that can generate consistent free cash flow and distribute that free cash flow to shareholders in an investment-grade balance sheet for a much longer period of time now.
Thanks a lot.
Yeah, just to add to that, QEP has a few DUCs, or a good amount of DUCs, as does Diamondback. I think that's going to help 2021 from a capital efficiency perspective. I think when we get our hands on development at both assets and drill some good wells with a little wider spacing, you will have less wells completed in 2022 to require the same amount of production stability.
Appreciate it, guys. Thank you.
Thanks, Asit.
Thank you. Our next question comes from Nitin Kumar with Wells Fargo. Your line is open.
Good morning, guys. Thanks for taking my questions. Maybe just kind of following up on that high grading concept, Travis. For the last quarter, you had reported up to 3,300 locations in the Midland breakeven below $35. QEP, as you mentioned earlier, had gone through a slightly tighter spacing and a different development strategy. As a percentage or directionally, how much more inventory should we be thinking about from this deal?
It's probably somewhere about a third of that's highly economic and competes in the top quartile of our pro forma portfolio.
Okay. Is that when you say a third, that's a third of 3,300?
Yeah, that's correct.
Okay. Do you have a sense of what the decline rate was for both Guidon and QEP in the Permian compared to yours?
QEP is very similar to ours. They've been around developing for a while, similar production bases. I think their corporate decline was a little lighter than ours because of the Bakken. Guidon probably has a little higher corporate decline, but the total production that you're contributing on the Guidon side is less than the QEP side. I'd say, Guidon, a ton of economic inventory ahead of it with early in its production life cycle, and QEP obviously has been public, so everyone knows what their production's been for a long time. There's a lot of completely undeveloped rock at both companies.
If I could just need one more in. QEP had some DUCs in the Bakken. You've classified those assets as more of a non-core asset. Does that mean that you wouldn't be pursuing those opportunities at all, or how should we think about those?
Yeah, that's correct. Those will sit there, but they have some value.
Great. Thank you.
Thank you. Our next question comes from Harry Mateer with Barclays.
Hi, good morning. I appreciate the comments earlier about how you're thinking about pro forma cap structure, combo liability management, and then still with some gross debt reduction. I am curious, how do you plan to treat the QEP bonds in the pro forma structure? Are you guys going to allow for some structural subordination, or is the preference to have it more be clean pari passu, potential cross guarantees, or some kind of like-kind exchange into FANG notes?
Yeah, there's going to be no guarantee. We did the same strategy with the Energen bonds, so they're going to sit. The QEP bonds will sit in the merger sub and will not be guaranteed by the guarantor group. Most likely, we're going to be focused on the 2022s and 2023s, so that probably leaves the 2026s sitting in that group for a longer period of time. I think overall, like we said at the beginning of the call, we do have a lot of flexibility with Diamondback 2025 bond that's callable, and the 2022s and 2023s as kind of our chess pieces for liability management.
Okay. Thank you.
Thank you.
Thank you. Our next question comes from Charles Meade with Johnson Rice. Your line is open.
Good morning, Travis, and Kaes, and to the rest of your team there. Travis, I want to go back to your earlier comments, I think it's good that I guess your opening comments, where you really focused on leverage, frankly, as you can guess, I have to do more work to put these pieces together and see how it flows. It looks to me like on our numbers, you guys were going to be approaching 2x at year-end 2021 on a net debt to EBITDA basis. It looks to me that obviously, the guide on stuff is coming, the cash consideration, that's going to be below 2x. The QEP was coming in, looks like something north of three times. I want to just make sure I'm understanding what you were saying.
It looks to me with just our cursory look that you guys are going to be more levered than you otherwise would have been at year-end 2021. I just want to go back and in both cases, you will be de-levering over time. I just wanted to check and make sure I understood your pieces there.
Yeah, that's completely incorrect, Charles. We're going to be below on a pro forma basis where we were standalone. I think, immediately Q2 2021, you put these two businesses together or three businesses together, you're 4% or 5% below the standalone plan, and that's run at the same strip. Then you accelerate that de-leveraging faster in the pro forma business than standalone. I think, overall, it's not a huge number, but we're still anticipating being close to two times at strip with both businesses integrated.
Okay. Thanks for that, Kaes. Just to be clear, when you say whatever, 4% or 5% low, you're talking on a metric or a multiple basis, not on a absolute basis.
That's correct. I mean, the size of the enterprise value just got significantly higher.
Right. Yeah. That makes sense. I just want to be clear, and thank you for that. The question I had going back to these assets you picked up in Southeast Martin. To me, that looks like that new or the additions in that Southeast Martin is probably going to be up some of that top quartile stuff. Can you give us a sense for the new acreage you brought in? What percent developed is that in that Southeast Martin quadrant?
Yeah. On the QEP side in Southeast Martin, that's the Robertson Ranch. They have not developed that at all. I think that's going to be a very exciting development area for us. Guidon has a couple wells offset that to the southwest. I would say that block is less than 10% developed. That's going to be a very important area for us from an oil production perspective and a capital efficiency perspective.
Great. That's it for me. Thanks, guys.
Thanks, Charles.
Thank you. Our next question comes from Brian Singer with Goldman Sachs. Your line is open.
Thank you. Good morning.
Hi, Brian.
Want to follow up first on the capital allocation. You've maintained your dividend despite the volatility in the markets this year. You've highlighted the pro forma leverage coming down and maintaining investment grade. Can you talk to what you'd be looking for leverage-wise to allocate more capital to shareholders via dividend or repurchase, or how is it all the transactions that you're announcing today changes your strategy there?
Well, we're not changing our strategy with these acquisitions. I mean, I've talked about how both of these trades are accretive across all fronts. In fact, our development strategy hasn't changed. It's just gotten better. We've always thought it's not an either/or about debt reduction and a dividend increase. It's an and. There's beauty in that as well because we believe that with the addition of these assets, we can both continue to lean into the dividend, and as Kaes has been talking about, the monster to really lower our leverage ratio.
Are there certain points at which, and I realize that you say it's an and and not an or, but is there a certain point, sub 2 or sub 1.7 or sub 1.5, kind of where you want to take this?
It really just depends on the outlook, Brian. I think there's still a lot of uncertainty in the market, particularly in the first half of next year. Our board has traditionally looked at the dividend in the first quarter to address it. This year we stayed patient and held it flat after doubling it a month before the Saudi price war and COVID breakout. Overall, I think we can take a look at it by kind of the middle of next year because overall, the amount of free cash flow, a dividend increase on the amount of free cash flow that we're talking about does not impact our ability to generate free cash and reduce the enterprise value through a combination of debt reduction and then continuing the shareholder return on the dividend side.
Great. Thanks. My final question is with regards to the capital reallocation. We spent a lot of time here talking understandably about the attractive assets in the Northern Midland Basin, and treating the Bakken and the Williston Basin assets as non-core and potentially candidates for asset sales. Can you talk a little bit about the implications for the Delaware Basin? It seems like there's a capital allocation potentially away from the Delaware, and just how you think about the strategic role of the Delaware assets in a pro forma portfolio.
Yeah. Certainly the Delaware is still important to us, and there are locations there that compete for capital in the portfolio. I think overall, we're excited that we can allocate a higher percentage of our capital to the Midland Basin. I would just say that the well results generally tend to be better on a returns basis, but also our cost structure is better overall as well. There's still a lot of Delaware acreage that competes for capital in our existing portfolio. I would just say, it's become less important to the overall company than the Midland Basin, which is kind of our home and where we got started.
Yeah. Listen, Brian, look, I completely agree with what Kaes is saying. I just want to make sure you understand how proud that I am of our organization's ability to continue to improve results in the Delaware Basin since we acquired that back in 2016. In terms of rate of change of improvement, the Delaware Basin has been a remarkable success story for Diamondback. As Kaes pointed out, as commodity prices got lower, and increased focus on total rate of return, it forced us as good capital allocators to allocate towards higher rate of return. In no way, shape, form, or fashion, do we need to imply that the Delaware Basin is not as important to us, nor the organization that's running that Delaware Basin hasn't done a good job because it's quite the opposite.
Great. Thank you so much.
Thanks, Brian.
Thank you. Our next question comes from David Heikkinen with Heikkinen Energy. Your line is open.
Good morning. Thanks for taking my question. We know a lot about your assets and QEP. Can you talk a little bit about the history of Guidon, just what their pace of development has been? You hit a little bit of their decline rates. They're a little steeper. They have the eight DUCs that you had in the press releases. Can you talk just a little bit about where Guidon was, what their activity level had been pre maybe first quarter level before everything became a glass half empty kind of world? I just have one follow-up.
Yeah. Well, today's the day we're going to start with the glass half full commentary. 2020 is almost in the rearview, 10 days left. Overall, listen, they've been around for a while. They acquired their assets from Endeavor in 2016, in a great timely purchase. They've been a pretty active developer with one or two rigs for the last couple of years. Obviously, things slowed down a little bit with the glass half empty portion of the year. Now, I think they've been running one rig pretty consistently for the last six months or so and completing pretty large pads. We got some nice looking pads on the schedule on the first half of the year, and we're looking forward to adding kind of another rig to that development plan to keep things moving, particularly in the Southeast Martin County portion.
Do they have any hedges, by chance?
We're not taking on any hedges. It's an asset deal.
Okay.
We will take on all the QEP hedges.
Helpful. On the half full side, I couldn't agree more, and hopefully our note was a little more half empty than I intended on rereading it. Look to creative us on deals and have a Merry Christmas and a Happy New Year, and look forward to actually seeing people again, hopefully in 2021. Have a great holiday season.
Yeah. You bet.
Yeah. Thanks, David. Appreciate it.
Thank you. Our next question comes from Jeoffrey Lambujon with Tudor, Pickering, Holt. Your line is open.
Good morning. Thanks for taking my question. Y'all talked before about the scale of the legacy Diamondback portfolio, you know, being sufficient to compete for these deals. These transactions, obviously, only build on that. As you look at the pro forma position on acreage and production and also what the opportunity set still is across the Midland and the Delaware today, how are you thinking about treating other opportunities from here? I apologize if I missed this earlier, maybe you can just speak to how these transactions came together and how Diamondback's activity in the market will change, if at all, as these deals close.
Yeah, Jeoffrey. I saw your note this morning, too. I think our commentary is firmly that when we get bigger, we have to get better. This acreage makes us better. It competes for capital right away. I think we've belabored that point enough. Overall, going into this year, our BD team has done an incredible job. We've had basically NAVs built for almost every target that we're interested in, both private and public. It's just a matter of timing. Fortunately for us, the rally of the last couple of months has allowed us to have real conversations and get a deal done. Or two deals done. We didn't want them to happen at the same time. I think overall, these were our two top targets from a acreage quality perspective going into the year.
The year took a much different path than we all expected, but we ended up acquiring the two targets that we had highest on our list.
Yeah. Jeoffrey, just let me emphasize the point that I made earlier about we can't control the timing of opportunity nor the circumstances. What we can control is our ability organizationally to be prepared. While 2020 certainly will be marked by the wailing and gnashing of teeth and wringing of hands, as Kaes pointed out, our business development team doubled down and tripled down on their efforts to provide us a full economic workup on all of the assets that we were interested in, even though we knew that for much of 2020, we were going to be unable to execute on those. Again, as I mentioned, these trying times.
Can present great opportunities for companies that are prepared. We're giving you a great example of a company that was prepared this morning.
Great. Thank you very much. Appreciate the detail, and happy holidays.
Thanks, Jeof.
Thank you. Our next question comes from Leo Mariani with KeyBanc. Your line is open.
Hey, guys. Just wanted to touch base a bit on sort of the liability management side, which you guys mentioned here. Obviously, you all are taking on more absolute debt as we roll into 2021 here. When you guys mentioned that, you think it's still a bit of an uncertain outlook out there, at least for portions of 2021. Would you plan on kind of hedging more portions of these volumes maybe in 2021 to try to lock in some of the cash flows on these deals? Is that something else that you think you'll be working on here as these deals start to look like they're going to close?
Yeah, Leo, that's a good question. I think hedging needs to become a bigger part of our strategy, irrespective of our debt levels. I think investors want returns on capital and guaranteed return of capital. In our business, the only way to protect that is to protect your revenue stream. We are almost 80% hedged in Q1, and then you roll in these two deals, in Q2, we're about two-thirds hedged, and that tails off a little bit in the back half of the year. Basically, we're putting in place a business that can lock in returns and also lock in a combination of debt reduction plus the dividend. The way we modeled it, kind of at $45 flat, which is where the curve has been recently, we're able to handle every note at par when they come due.
Again, I don't think that's what we're planning on doing, but that did give us and our board a lot of sense of security that we have protection.
Okay. That's helpful for sure. Just kind of looking at the value propositions in terms of kind of purchase price for these two assets, it certainly looked like you guys paid a little bit more in terms of, I guess, production value per BOE for Guidon versus QEP here. I just wanted to see if there's anything that we should be kind of reading into that. If we need to see the Guidon assets maybe as a little bit better, and obviously with QEP having Bakken, I guess, a lot more debt. Was it maybe more just difference with more just the capital structure with a lot of additional debt coming from the QEP side? Just want to get a sense of any kind of value proposition differences that you looked at for these two deals.
Yeah. Well, they're completely different deals, right? On the private side, you look at your NAV and drill out with a couple of rigs for all the inventory on Guidon and present value those cash flows. Coincidentally, that's the number that we were comfortable paying on a multiple basis in the near term. It's quite the opposite on the QEP side, because you do have a public currency, and so relative valuation and looking at where they're trading and what their enterprise value versus what we could pay for it. Those are two different scenarios. I think dollar per flowing is an output, not an input. Overall, I think our internal NAV with and without synergies for QEP was well above the market price as of Friday.
On the Guidon side, I think the counterparty sees a lot of value in Diamondback stock, and therefore was happy taking a good amount of stock in the trade.
Okay. Thanks for the call.
Thank you. Our next question comes from Jeanine Wai with Barclays. Your line is open.
Hi. Good morning, everyone. Thanks for taking my questions.
Jeanine.
Hi. Good morning. Happy holidays. My first question is just a follow-up on Brian's question on the Delaware. I know you said that the basin will remain important to FANG, but are there parts of that acreage that may qualify as a potential divestiture candidate, maybe a little bit down the line?
I wouldn't say the Delaware sits in the divestiture candidate box today. I mean, maybe some non-op stuff in the Delaware, in New Mexico in particular, because we're just not a big operator there. I think overall, our job is going to be looking at our whole asset base, and I think we do have some acreage that makes sense to sell. Travis mentioned the Bakken, and also maybe some stuff in the Southern Midland Basin where you just have kind of PDP value. Our strategy throughout this year has been if cash flow's cheap, we can't sell cash flow when it's cheapest. I think there will be sale candidates strictly as we get a more supportive strip. There's a lot of PDP buyers out there. I know that. That seems to be a very common private equity strategy this year.
I think there's going to be a competitive process for some of these assets.
Okay, great. That's very helpful. Thank you. My second question is just on integration. In terms of just generally managing integration risk, are there any lessons learned from the Energen deal that maybe you can apply to these two deals? Thank you.
Yeah. You always want to learn from your prior experiences. Jeanine, I don't want to overplay the integration issue. These are simply tuck-ins for us. The field organization is going to largely stay in place, integrate inside Diamondback's field organization, which is, as you can see on the map, it's contiguous. This is just simply, Jeanine, what it is that we do. We integrate assets, and this one is no different than any other of the ones that we've demonstrated in the past that we're capable of doing.
Great. Thank you very much.
Thank you. I'm showing no further questions. I'd like to turn the call back to Travis Stice, CEO, for any closing remarks.
Thank you. Just as we kind of close this out, I want to reiterate that every time that Diamondback Energy completes a trade, it's objectively obvious that the shareholders are better off after the trade than before. If that isn't the case, then we simply don't do the trade. Both of the trades that we talked about this morning, Diamondback Energy shareholders are better off. They're better off because on every relevant financial measure, you see significant accretion, and in some cases, double-digit accretion. These are certainly extraordinary times, but also times that create extraordinary opportunities for those, as I've mentioned before, that are prepared, and we are, and we couldn't be more excited to bring these opportunities to our shareholders. Happy holidays. Merry Christmas to everyone out there. Stay well, and God bless.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect. Everyone, have a great day.