Diamondback Energy will cut its rig count by more than 60% by the third quarter and could cut its gross operating production by as much as 15% this month in response to weak oil prices, CEO Travis Stice said Tuesday.
Speaking during the company's first-quarter earnings call, Stice said Diamondback took "immediate action" when oil prices cratered in March and is reducing its rig count as quickly as possible without paying early termination fees. Stice said the rig count, now at 14, will be down to 10 by the end of May and eight by the end of the second quarter.
"[That number is] down over 60% from the beginning of the year. We also plan to enter the fourth quarter running seven rigs with the ability to reduce further into 2021," the CEO said. Stice said the company will leave 2020 with more than 150 wells drilled but uncompleted in the Permian Basin.
Stice said Diamondback is curtailing its gross operating production by 10% to 15%, or roughly 28,000 boe/d, in May due to the uncertainty in forward oil price contracts and low unhedged oil prices.
"With differentials enrolled already set heading into the month at over $10 off [West Texas Intermediate crude], the risk of WTI prices declining further outweighs the benefit of producing as much as possible into extremely low unhedged realized prices," Stice said. "We will continue to monitor future prices as we prepare to nominate production for June and the months ahead. And should meaningful curtailment continue to persist or accelerate, we will plan to update our investors accordingly."
Diamondback had lowered its 2020 capital spending plan by 41% to $1.7 billion at the midpoint. Stice said cuts to the capital budget will become evident at the end of the second quarter and into the second half. The company spent about $790 million during the first quarter.
"Looking ahead, due to the volatility in commodity prices, there is significant uncertainty in our forward business plan," the CEO said. "In the interim, we will continue to focus on what we can control, which is our cost structure, and preserve as much liquidity as possible."
Even with the cuts to the budget and rig count, Stice said Diamondback was determined not to reduce its dividend and would continue to emphasize shareholder returns.
"Paying our interest expense, retaining our people, and paying our dividend remain our priorities through these uncertain times," Stice said. "Diamondback is prepared to operate in a lower-for-longer oil price environment, and our cost structure will prove to be a differentiator through this downturn."
