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Diamondback Energy (FANG) Q4 2023 Earnings Call Transcript

Motley Fool - Wed Feb 21, 12:15PM CST
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Diamondback Energy(NASDAQ: FANG)
Q4 2023 Earnings Call
Feb 21, 2024, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Good day and thank you for standing by. Welcome to the Diamondback Energy fourth quarter 2023 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. I would not like to hand the conference over to your speaker today, Adam Lawlis, VP, investor relations. Please go ahead.

Adam Lawlis -- Vice President, Investor Relations

Thank you, Daniel. Good morning and welcome to Diamondback Energy's fourth quarter 2023 conference call. During our call today, we will reference an updated investor presentation and letter to stockholders, which can be found on Diamondback's website. Representing Diamondback today are Travis Stice, chairman and CEO; Kaes Van't Hof, president and CFO; and Danny Wesson, COO.

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.

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

Travis Stice -- Chairman and Chief Executive Officer

Thank you, Adam, and I appreciate everyone joining this morning. I hope you continue to find the stockholders letter that we issued last night an efficient way to communicate. So, obviously, a lot of the material is in that stockholders letter. So, with that, operator, would you please open the line for questions?

Questions & Answers:


Operator

[Operator instructions] Our first question comes from Neal Dingmann with Truist Securities. Your line is now open.

Neal Dingmann -- Truist Securities -- Analyst

Good morning, Travis and team. Thanks for the time. Guys, my first question is on Endeavor, specifically. I just want to go back to this.

You all highlighted about 344,000 acres with about 2,300 locations. You know, that compares to 494,000 3,800 for you all. And I'm just wondering, does this slightly smaller current core footprint provide a material amount of immediate incremental locations, Travis, and I'm just wondering -- or potential upside, and I'm wondering how you would be thinking about -- I know it's still a while until this thing likely closes, but how you will attack these assets.

Kaes Van't Hof -- President and Chief Financial Officer

Yeah, Neal. I mean, listen, we wanted to be conservative in how we laid out the inventory counts for both us and them, you know, sub-40. I mean, I think there's been a lot of aggressive inventory counts put in deals lately, and, you know, I think the -- for us to be able to say that, combined, we have about 12 years of sub-40 break-even inventory, it's truly a best-in-class number in North American shale. And, you know, that's kind of why we put it there.

I mean, I think, generally, as with Diamondback's position, there's a lot of inventory that breaks even well above those numbers. I think there's a lot of testing going on throughout the basin. There's probably some zones like the Upper Spraberry that we'd probably call a sub-40 break-even zone today. But I don't think we're ready to, you know, fully put it into the location count.

So, you know, I think it's just conservatism. And I think, on a relative basis, you know, not all locations are created equal, and within, you know, that combined 6,000 location count, you know, there's some that break even below 30, right? I mean, it's all about what we're developing today and saving the upside for later, and we know that that upside is going to accrue to us with the size of the acreage position pro forma.

Travis Stice -- Chairman and Chief Executive Officer

You know, Neal, just to add to that point, if you think about a company's, you know, future, two things are really important for the oil and gas sector. One is, you know, kind of this durable inventory, and Kaes just walked you through some numbers there, but it's also the conversion efficiency of that inventory. And I think, now, with the announcement of this Endeavor, you know, merger, we're in control of both the numerator and denominator of that ratio. So, our durable inventory, you know, greatly extends, and then our conversion, you know, efficiency that we've been known for a long time actually gets to come to bear on a larger asset base.

And I think to give you a little bit more color and comfort, we didn't put our thumb on the scale, you know, as we looked across the barbed wire fence. And what I mean by that is we simply applied what Diamondback is doing today on drilling and completion and operating wells. And then physically adjacent to this, Kaes was just explaining -- you know, made the assumption that that can be applied across the barbed wire fence. So, I wanted to give you a little bit more color there, Neal, but thanks for your question.

Neal Dingmann -- Truist Securities -- Analyst

No, I appreciate from both, and I definitely appreciate the conservatism. I think you're right, Kaes. There's been a lot of something inflated. And my second question is on your current Slide 11 of today on the multizone development strategy.

Specifically, I really like that you all, you know, for '24 had -- or I'm sorry, for '23 had the average project size of around 24 wells. And I'm just wondering, will that be approximately the same this year? And I'm just wondering, with that, how do you all continue to mitigate the frac hits that seem to plague other operators so much when they do these larger projects?

Kaes Van't Hof -- President and Chief Financial Officer

Yeah, I mean, I think generally, Neal, you know, the project size is up. I mean, 25 is not an exact number. It's going to be different in different counties where you have different spacing within different zones. You know, we're not -- we don't use a cookie-cutter strategy to develop the asset.

We use a unique development strategy for each area. You know, I think, you know, we've had a lot of experience with frac hits, you know, over the years. I think we've learned, and our planning group has gotten significantly better at looking around the corner and seeing what issues might arise. You know, and certainly, there's a benefit of size and scale, right? If we had one of these 24 projects coming on every quarter, well, there's a lot of risk in that one particular project.

But here we have, you know, four, five, six of these coming on every quarter, and that allows us, you know, operational flexibility to move around and plan our business. And that's just one of the other benefits of size and scale that will only be magnified, you know, with the potential from the Endeavor merger.

Travis Stice -- Chairman and Chief Executive Officer

And, Neal, when you look at our 2024 budget, you kind of see that -- you know, the capital efficiency shining through because, you know, we're essentially, you know, maintaining the volumes profile that we had in the fourth quarter, but we're doing so with 10% less capex. And, you know, as Kaes was just talking to, our development strategy yields, you know, the same well performance. So, you know, I think as we look across the industry universe, capital efficiency for this year is going to be very, very important, and I like the way that our budget execution is shaping up in terms of that capital efficiency.

Neal Dingmann -- Truist Securities -- Analyst

Agreed, Travis, and seems even better next year. Thank you, all.

Travis Stice -- Chairman and Chief Executive Officer

Thank you, Neal.

Operator

Thank you, and one moment for our next question. Our next question comes from David Deckelbaum with TD Cowen. Your line is now open.

David Deckelbaum -- TD Cowen -- Analyst

Thanks for taking my questions, Travis, Kaes, and team. I appreciate the time.

Travis Stice -- Chairman and Chief Executive Officer

Thank you, David.

David Deckelbaum -- TD Cowen -- Analyst

I was just curious, Travis, if you could provide an outlook. I know when you announced the Endeavor deal, I think you said that you weren't going to sell anything, obviously, until the deal closes, which makes plenty of prudent sense. But I'm interested just with all of the minority interests that you have in various pipeline investments, you know, how should we think about just where that pipeline cycle is right now relative to investing versus harvesting? Is that something that we might see, you know, if we think about the risk or probability around '24 seeing some of those investments being harvested? You know, is the market kind of ripe for that right now or do you kind of expect these to be more long-term investment harvesting Endeavor?

Kaes Van't Hof -- President and Chief Financial Officer

Yeah, David. I mean, some are able to be harvested today, some are probably, you know, further down the line. I mean, we've done a pretty good job selling some of these noncore, I'll call it noncore, but equity method investments. Over the last, you know, 12 months, we sold, you know, the Gray Oak pipeline interest.

We sold our interest in the OMOG oil gathering JV. You know, I think it's logical that, you know, some of our assets that we can control the sale of, we'll likely, you know, pursue a sale. But there's others that, you know, we're probably someone who would tag along with a bigger sale, and, you know, I can't control when those happen. But it's certainly an asset that we -- or assets that we, you know, have on our side of the ledger that will be used to reduce debt quickly, you know, on a stand-alone basis or through the Endeavor merger.

So, I think that's certainly on the table. You know, I think Travis's point on not having to sell significant assets is important, right? When we structured the cash stock mix of the deal, we didn't want to be a forced seller of assets to pay down debt. And I think we've done that with the mix we presented last week.

Travis Stice -- Chairman and Chief Executive Officer

Yeah, I can't emphasize that a point -- that point enough, David, that, you know, we're not going to be forced sellers of any of our assets. We're going to be very thoughtful, you know, as we move forward post-close in looking at monetization strategy for these minority interests, particularly in relation to debt reduction. So, we'll be very thoughtful and do the right thing.

David Deckelbaum -- TD Cowen -- Analyst

Appreciate that. And then just, you know, maybe a little bit in the weeds on this one, but, you know, the '24 plan when you lay out the Midland Basin development, you know, this year, maybe coincidentally or not, there's more -- a little bit more on the margin going to Wolfcamp D and some of the other zones. Is that just more coincidence of geography where you're developing this year and then presumably years beyond or are there some things that you saw in '23 that are sort of increasing your confidence of wanting to allocate more capital there? And if there is any color you could provide?

Kaes Van't Hof -- President and Chief Financial Officer

Yeah. I mean, I think both from our drill bit and from others drill bit, you know, we've seen really good results in the Wolfcamp D. You know, I think it makes sense to put it into the stack today, maybe not in every situation, but in more and more situations, so more Wolfcamp D in the plan. And then, you know, on the other bucket, we have more Upper Spraberry in the plan.

So, you know, I think, generally, if we're able to add these zones to our, you know, development plan and see similar productivity per foot, you know, that only extends the inventory duration that we have, both on a stand-alone basis and pro forma, with Endeavor. You know, they've been developing a lot more Wolfcamp D than us, and we talked a little bit about that last week. But I think it just shows the beneficial nature of the Midland Basin stack pay that, you know, we're adding zones like the Upper Spraberry and the Wolfcamp D that we didn't talk about, you know, three, four, five years ago and now becoming, you know, core development targets.

David Deckelbaum -- TD Cowen -- Analyst

Thank you, guys.

Operator

Thank you. One moment for our next question. Our next question comes from Neil Mehta with Goldman Sachs. Your line is now open.

Neil Mehta -- Goldman Sachs -- Analyst

Yeah. Good morning, team. Thanks for doing this. I guess I have a couple of pricing-related questions, and the first is I would love your perspective on just hedging as stand-alone and then also pro forma once you roll in the Endeavor assets.

Historically, you talked about trying to maximize upside exposure while protecting extreme downside. Just curious what that means for you as you think about hedging in 2024.

Kaes Van't Hof -- President and Chief Financial Officer

You know, Neil, I mean, I think we need to protect our side of the ledger, you know, through the period between signing and closing, so we can, you know, generate free cash that reduces the cash portion of the purchase price. You know, I think we've done that. You know, we've historically bought puts in the kind of $55 WTI range. You know, we've now kind of stepped it up to kind of that $60 range.

And we'll probably be a little more hedged on our side between sign and close than we have been in the past. You know, closer to, I don't know, two-thirds, three-quarters hedge so that we can make sure that that cash is there to reduce the cash portion of the purchase price. I think, you know, longer term, it all depends on the strength of the balance sheet and the, you know, the breakeven that we have with our base dividend. You know, we've always kind of tried to buy hedges at kind of 50 to 55, and that protects, you know, free cash flow.

The balance sheet doesn't blow out and the dividend is well protected, you know, in that extreme downside scenario. So, I don't expect us to move to a nonhedging company because we just believe that, you know, it's prudent to protect the balance sheet and our base dividend, which we see like debt.

Neil Mehta -- Goldman Sachs -- Analyst

OK. That's helpful. And then the follow-up is just on natural gas. I know it's a smaller part of your economics, but, you know, gas prices have been under a lot of pressure, and in the Permian, we've been surprised to see associated gas supply up as much as it is to be year over year.

So, just your perspective on how the gas market rebalances and the Permian, in particular, do you see this as a structural challenge of continued associated supply or as we move toward more oil discipline, gas markets can calibrate with it?

Kaes Van't Hof -- President and Chief Financial Officer

I think, generally, regardless of oil discipline, you know, gas -- the gas curves in the Permian Basin always exceed expectations. I think we're always pretty conservative on the gas side, and that almost universally beats expectations, which is why you're seeing, on a basin level, you know, more growth than we all expect, you know, almost on an annual basis. So, I think that's going to continue. And, Neil, you know, we don't -- you know, we could run the gas price to zero in the Permian and still make great returns on oil wells.

You know, for us, personally, we try to protect our gas price by -- through hedging, as well as, you know, through some pipeline commitments to get our gas to bigger markets, as well as protecting, you know, our bases exposure. But, you know, generally, I think the Permian, you know, even if you stay disciplined on oil, eventually, you're going to have to move to gassier zones, and there's a lot of gas and associated gas left to be produced in the Permian.

Neil Mehta -- Goldman Sachs -- Analyst

That makes sense. Thanks again.

Kaes Van't Hof -- President and Chief Financial Officer

Thanks, Neil.

Operator

Thank you. One moment for our next question. Our next question comes from Arun Jayaram with J.P. Morgan Securities.

Your line is now open.

Arun Jayaram -- JPMorgan Chase and Company -- Analyst

Good morning, gentlemen. Travis, Kaes, I'd like to know if maybe you could walk us through kind of the path to get to the $10 billion net debt target in terms of timing and how do asset sales would influence, you know, timing of reaching that target.

Kaes Van't Hof -- President and Chief Financial Officer

Yeah, Arun. I think we kind of laid out, you know, in a $75 world, you know, generally, the two businesses throughout the course of this year will combine to generate about $5 billion of free cash flow. And, you know, if we're looking at a late 2024 close, you know, just high level, half that number, 2 billion to 2.5 billion, will be used to reduce the cash portion of the purchase price. You know, that kind of puts you in the kind of 12 billion of total net debt at close.

And, you know, with the business continuing to generate more free cash in 2025, you know, with the numbers we laid out, you know, you could see that $10 billion number by middle of '25. Now, that excludes any asset sales or acceleration. And, you know, I think we try to be an underpromise overdeliver company, and there's a lot of things that we can do to accelerate that outside commodity price because I don't think we want to put the entire bets based on commodity prices. So, we're looking at what's available to sell down in the next, you know, a couple of months here and beat that target.

Arun Jayaram -- JPMorgan Chase and Company -- Analyst

Got it. And just maybe a follow-up, if you do, you know, plan to do something in the Delaware Basin, would you wait until kind of, you know, reaching close on the transaction, or talk us through maybe the timing when you would contemplate, you know, doing asset sales.

Kaes Van't Hof -- President and Chief Financial Officer

Yeah. I think we're highly focused on deal certainty and getting the deal closed, and we're not going to do anything that derails that process. So, you know, I think the Delaware Basin is a great cash flow for us, great free cash flow, and a very low decline rate. And we've reduced our capital commitments there and necessary, you know, wells we need to drill for lease holding purposes.

So, I think it's just -- you know, it's a good asset to have, you know, for the time being and it's a good option value over the long run, but certainly not looking to do anything in the near term.

Arun Jayaram -- JPMorgan Chase and Company -- Analyst

Great. Thanks a lot.

Kaes Van't Hof -- President and Chief Financial Officer

Thanks, Arun.

Travis Stice -- Chairman and Chief Executive Officer

Thanks, Arun.

Operator

Thank you. One moment for our next question. Our next question comes from Derrick Whitfield with Stifel. Your line is now open.

Derrick Whitfield -- Stifel Financial Corp. -- Analyst

Good morning, all. I wanted to start by commending --

Travis Stice -- Chairman and Chief Executive Officer

Good morning, Derrick.

Derrick Whitfield -- Stifel Financial Corp. -- Analyst

Wanted to start by really commending you guys for the leadership you're demonstrating on capital discipline as many of your peers are treating the environment as if it were naturally balanced today.

Travis Stice -- Chairman and Chief Executive Officer

Thank you, Derrick.

Derrick Whitfield -- Stifel Financial Corp. -- Analyst

With my first question, I wanted to focus on the service environment. In light of the collapse in gas-directed activity that is underway now and the preexisting lower utilization rates the service industry experienced last year, is there an opportunity to revisit service prices on some of the higher-spec equipment?

Danny Wesson -- Chief Operating Officer

Yeah, Derrick. Good question. You know, I think, you know, we expect that we'll see some softening in the service market this year if the gas basins do, you know, kind of remain muted in their activity levels. You know, we're not -- you know, we don't set the price of the service market, we're price takers, but we'll certainly continue to push, you know, on our end on, you know, finding the market prices for all of our service lines where we don't have, you know, existing commitments in place.

Derrick Whitfield -- Stifel Financial Corp. -- Analyst

Terrific. And as my follow-up, I wanted to touch on Endeavor. Since you guys have been out meeting with investors since the deal was announced, are there any aspects of the transaction that are underappreciated in your view?

Travis Stice -- Chairman and Chief Executive Officer

I think the first question that came up was, you know, on the synergies -- the $3 billion worth of synergies, most of those underpinned by our existing cost structure applied to the Endeavor assets. And so, the -- those are usually the entry questions. But once, you know, we explained that the cost assumptions that we embedded are the same cost assumptions we're currently doing today, a lot of comfort was gained. And then we went to the more, you know, kind of strategic questions with the shareholders.

So, I think probably the cost efficiencies were the first and then secondarily were the -- some of the debt retirement strategies that Kaes just went through were probably the two most topical questions that we dealt with.

Derrick Whitfield -- Stifel Financial Corp. -- Analyst

Terrific. Thanks. Great quarter and update.

Danny Wesson -- Chief Operating Officer

Thanks, Derrick.

Travis Stice -- Chairman and Chief Executive Officer

Thanks, Derrick.

Operator

Thank you. One moment for our next question. Our next question comes from Roger Read with Wells Fargo. Your line is now open.

Roger Read -- Wells Fargo Securities -- Analyst

Yeah. Thank you and good morning.

Kaes Van't Hof -- President and Chief Financial Officer

Good morning, Roger.

Roger Read -- Wells Fargo Securities -- Analyst

Hey, I just wanted to come back, you talked earlier about some of these other benches that might work, and it's, you know, a question of whether they'll be as productive and efficient or the productivity and efficiency on those benches. Can you give us an idea of maybe some of the, let's call it, you know, science or just applied efforts that you're seeing that could open up some of these other benches, you know, and I'm thinking within your footprint, as well as what will be an expanded footprint here before year-end?

Kaes Van't Hof -- President and Chief Financial Officer

Yeah, Roger. I mean, I think, you know, for zones like the Wolfcamp D, we've had some testing on our assets, but also, you know, seen a lot of results across the fence line, you know, Diamondback doesn't spend a lot of time. When we spent a lot of time looking at ourselves, we also spent a lot of time looking across the fence on what other people are doing, either through M&A process or just general competitor analysis. And we've seen that the Wolfcamp D has been very competitive, you know, particularly in that kind of Midland Glasscock County line area and also as you get into southern Martin County.

So, that's getting more attention. You know, I would say the Upper Spraberry, we've done a lot of work on ourselves. It's actually an old Energen well, was drilled in the Upper Spraberry in 2016 or '17, and we revisited that zone recently last year. And some of the Upper Spraberry wells that we've completed, one, in particular, is probably one of the best, you know, wells in our portfolio.

So, I'm not ready to say that the Upper Spraberry exists across our entire acreage position, but, you know, certainly getting more capital and attention this year and, you know, particularly with the co-development strategy. And the fact that these zones, you know, talk to each other in some form or fashion means we've got to get it now. And so, we've added the Upper Spraberry into our kind of northern Martin County development plan, and I think the results speak for themselves because you haven't seen a degradation in productivity. I think that's the key to this, you know, exploration, resource expansion story is if you can expand your resource without impacting productivity, that's a win for our shareholders.

Travis Stice -- Chairman and Chief Executive Officer

Roger, I'll just add a comment from a high level on what Kaes just mentioned. You know, in my experience, as companies get bigger, the more inwardly focused they become. So, they focus more on their own results and less on what others are doing around them. And it's been a hallmark of Diamondback since the very beginning.

One, it was out of necessity when we first started, but it's been a hallmark of ours to really pay attention to what goes on around us. And so, right now, it's culturally ingrained not only to rigorously examine our own internal results but also spend intellectual capital on looking across the barbed wire fence at what others are doing. And as we move into a much larger position post-close, I promise you, that culture will stay intact. We will continue to look, you know, and find what others are doing potentially better than we are and adapt accordingly.

Roger Read -- Wells Fargo Securities -- Analyst

I appreciate that clarification. That's a -- that's my only question. Thank you.

Kaes Van't Hof -- President and Chief Financial Officer

Thanks, Roger.

Travis Stice -- Chairman and Chief Executive Officer

Thanks, Roger.

Operator

Thank you. One moment for our next question. Our next question comes from Jeoffrey Lambujon with TPH and Co. Your line is now open.

Jeoffrey Lambujon -- Tudor, Pickering, Holt and Company -- Analyst

Good morning, everyone. I appreciate the time.

Kaes Van't Hof -- President and Chief Financial Officer

Hey, Jeoff.

Jeoffrey Lambujon -- Tudor, Pickering, Holt and Company -- Analyst

My first question -- hey. My first question is on the step change in capital efficiency you all are looking forward to into 2025. If you could talk more about the pathway there. I know you're already there for the legacy portfolio and well costs, as you mentioned, Travis, but can you comment maybe on the larger buckets or moving pieces you'll be focusing on for the Endeavor side, both in terms of that well cost reduction and in terms of the non-D&C line items that you think about as we shift from this year into next?

Kaes Van't Hof -- President and Chief Financial Officer

Yeah, Jeoff. You know, I think, generally, there's two big buckets on the D&C side that we see across the fence Endeavor that we'll probably, you know, look to put in place with the team there as we start to integrate. You know, on the completion side, it's really the simulfrac development plan, as well as, you know, probably half of that plan being a simulfrac e-fleet, which, you know, only reduces the cost of the completion side of the business. You know, I don't even think we've modeled the benefits of a much larger supply chain to these numbers.

This is just, you know, us getting their costs down to our costs on the capital side. So, there's probably some upside there at some point. And then on the drilling side, you know, we've been a big proponent of clear fluids, not using oil-based mud to drill these wells. You know, it saves time and money.

That was something we put in place and learned from the QEP team three or four years ago. And so, I think, you know, that's just a decision to make that saves significant dollars. And, you know, what I'm excited about is to get under the tent with the Endeavor team and learn what they're doing that we can do better, right? I think that's not modeled in this pro forma business, and we've learned something from, you know, both Energen and QEP, our two large, you know, mergers that we've done to date. So, I think there's some upside there.

But really, all we're doing is looking to put in place what we're doing today on a larger asset base.

Travis Stice -- Chairman and Chief Executive Officer

And, Jeoff, since, you know, I've spoken just a second ago on some of the cultural elements of Diamondback, one another cultural element is, you know, when we combine assets, you know, in our history, we've done a really good job of checking our egos at the door and finding out what's really working. And it's a culture of seeking first to understand as opposed to being understood. And as Kaes just mentioned, when we put the two companies together, we're really excited about understanding, you know, what they do, why they do it, and making -- you know, collectively making improvements, both on our side and on the income and asset side.

Jeoffrey Lambujon -- Tudor, Pickering, Holt and Company -- Analyst

Perfect. And then for my follow-up, I wonder if you could just speak to how the philosophy around the balance sheet longer term will evolve, if at all, once the deal closes. You know, we appreciate the commentary on the path to get to the $10 billion net debt level, but we're just thinking about how the pro forma math continues to push Diamondback to new levels in terms of weight class within the space.

Kaes Van't Hof -- President and Chief Financial Officer

Yeah, you know, that's the question we got on the road a lot last year is kind of, you know, from investors saying, hey, listen, you're in a different weight class now and you probably need to reassess your long-term leverage profile. And I think, you know, that resonated with us and fits with what we're trying to do. I think we eventually want to get to, you know, kind of a $6 billion to $8 billion net debt number, you know, keep real cash on the balance sheet. And I think the concern that Diamondback is going to go do every deal and use all its cash to do deals is probably going to be removed with this merger.

And in my mind, that leaves us flexibility in terms of capital allocation to, you know, lean into a buyback in a down cycle or, you know, lean into an acquisition in the down cycle and be -- or not be procyclical in how we look at, you know, allocating capital on the repurchase side or the deal side. So, long term, you know, 6 billion to 8 billion would be a good number. You know, if it gets to zero, that'd be great. But, you know, I think generally, you know, running in that half a turn at strip is a pretty good place to be.

Jeoffrey Lambujon -- Tudor, Pickering, Holt and Company -- Analyst

Great. Appreciate the time, guys. I'll turn it back.

Travis Stice -- Chairman and Chief Executive Officer

Thanks, Jeoff.

Kaes Van't Hof -- President and Chief Financial Officer

Thanks, Jeoff.

Operator

Thank you. [Operator instructions] Our next question comes from Paul Cheng with Scotiabank. Your line is now open.

Paul Cheng -- Scotiabank -- Analyst

Thank you. Good morning, guys.

Travis Stice -- Chairman and Chief Executive Officer

Good morning.

Paul Cheng -- Scotiabank -- Analyst

Travis and Kaes, last week, when you announced the deal, you gave the 2024 and '25 capex pro forma and also the production [Technical difficulty] 2005, the pro forma comparing to 2004 will be about, let's say, call it, round number, $700 million lower. Can you break down that, how much is related to it because do you think the [Inaudible] will be lower for that asset because you're not going to grow as fast and how much is [Technical difficulty]

Kaes Van't Hof -- President and Chief Financial Officer

Yeah. Sure, Paul. You got cut out a little bit, but I think I get your question. You know, your question is how we bridged the gap between the combined 2024 capex guide with us and Endeavor separately and the combined business in '25, you know, which is down, you know, 700 million.

You know, I would say most of it is, you know, running our cost structure on the Endeavor, you know, D&C. And so, that's, you know, basically 175 wells that's $1.5 million, $2 million cheaper. You know, it gets you to about $300 million. I think the combined business, you know, is not going to need as many wells to hit the production number.

You know, Endeavor was growing. Last year, they started slowing down midyear, but their decline rate is swallowing, so that'll help. Our decline rate continues to shallow. That'll help you.

I think we're going to allocate capital the best combined resource probably in North America, which will help. And so, that kind of gets you to, you know, needing probably 50 less wells at, you know, 6 million, 6.5 million a pop. That's about another $300 million. And then, you know, I think, generally, we're spending some dollars this year, probably about $50 million, on environmental capex that, you know, is kind of one-time in nature and will be reduced on our side as well.

So, you put all that together and that's, you know, very, very capital efficient business in 2025, you know, assuming existing well costs, and that can move around, but that's how we're thinking about '25. We might have lost Paul, so we'll go to the next question.

Operator

Thank you. One moment for our next question. Our next question comes from Leo Mariani with ROTH MKM. The line is now open.

Leo Mariani -- ROTH MKM -- Analyst

Hi, guys. Wanted to just ask about the Endeavor-FANG combination here. Do you guys see any tax benefit for the combined entity where you might be able to defer some of the cash tax payments as a result of combining these two companies? Have you had any preliminary look at that?

Kaes Van't Hof -- President and Chief Financial Officer

I mean, there'll obviously be some benefit with the, you know, the cash portion of the transaction and the, you know, associated interest expense. But, you know, we're continuing to do our combination work. I mean, you know, we're a full cash taxpayer. Essentially, I mean, they're pretty close as well.

So, I don't think there's going to be too much to do there, Leo. But certainly, the cash piece is going to shield a little bit of taxes on our side.

Leo Mariani -- ROTH MKM -- Analyst

OK. That's helpful. And then just jumping back over to M&A, obviously, you guys got the big prize in the Permian, and the market has clearly rewarded, you know, the Diamondback shareholders here. As you look at kind of the remaining landscape, do you think there's anything out there left to do that's kind of chunky that would be of interest to FANG or is it maybe just kind of more a little stuff over the years to kind of tie everything together?

Kaes Van't Hof -- President and Chief Financial Officer

Yeah, listen, Leo, you know, we're on the sidelines here. We're fully focused on getting this deal, you know, closed as soon as possible, and we can assess the landscape when that happens. I mean, I am confident that the landscape will look different whenever that time does come.

Leo Mariani -- ROTH MKM -- Analyst

OK. Thanks.

Kaes Van't Hof -- President and Chief Financial Officer

Thanks, Leo.

Operator

Thank you. One moment for our next question. Our next question comes from Doug Leggate with Bank of America. Your line is now open.

John Abbott -- Bank of America Merrill Lynch -- Analyst

My question is does that have any impact on integration planning or does that go ahead anyway?

Kaes Van't Hof -- President and Chief Financial Officer

Hey, Doug, you have to speak up.

John Abbott -- Bank of America Merrill Lynch -- Analyst

This is John Abbott on for Doug Leggate. Apologies, I was on mute. Just one more -- one -- just one question, going back to Paul's question on the difference in capex between 2024 and 2025. Now, that's about 725 mil.

And then you talked about the 550 million in synergies. So, when we think about that $725 million, is there an addition on top of that as we sort of think into 2025, just sort of trying to reconcile the two numbers?

Kaes Van't Hof -- President and Chief Financial Officer

Yeah, I think the difference between the two numbers is really activity between the 550 and 725, right? The combined business has less activity in '25 versus '24, which is helping, but we kind of see the 550 as more of a longer-term run rate, John.

John Abbott -- Bank of America Merrill Lynch -- Analyst

Appreciate it. And that's really it at this point in time, but thank you very much for taking our questions.

Travis Stice -- Chairman and Chief Executive Officer

Thanks, John.

Operator

Thank you. I'm showing no further questions at this time. I would now like to turn it back to Travis Stice, CEO, for closing remarks.

Travis Stice -- Chairman and Chief Executive Officer

Great. Thank you and I really appreciate everyone listening in this morning and asking questions. And if there's any follow-up, just reach out to us and we'll address them then. Thank you and you all have a great day.

Operator

[Operator signoff]

Duration: 0 minutes

Call participants:

Adam Lawlis -- Vice President, Investor Relations

Travis Stice -- Chairman and Chief Executive Officer

Neal Dingmann -- Truist Securities -- Analyst

Kaes Van't Hof -- President and Chief Financial Officer

David Deckelbaum -- TD Cowen -- Analyst

Neil Mehta -- Goldman Sachs -- Analyst

Arun Jayaram -- JPMorgan Chase and Company -- Analyst

Derrick Whitfield -- Stifel Financial Corp. -- Analyst

Danny Wesson -- Chief Operating Officer

Roger Read -- Wells Fargo Securities -- Analyst

Jeoffrey Lambujon -- Tudor, Pickering, Holt and Company -- Analyst

Paul Cheng -- Scotiabank -- Analyst

Leo Mariani -- ROTH MKM -- Analyst

John Abbott -- Bank of America Merrill Lynch -- Analyst

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