Diamondback Energy Inc

NASDAQ:FANG

Earnings Call Analysis

Diamondback's Strategic Mergers and Fiscal Goals

Diamondback Energy discussed the integration with Endeavor, highlighting efficiencies such as reduced drilling costs and learnings from past mergers with Energen and QEP to optimize synergy. An emphasis was placed on adopting superior practices from the Endeavor team post-merger. A targeted long-term net debt range of $6-$8 billion was outlined, with an operational preference for maintaining substantial cash reserves and a balanced approach to capital allocation. Capital expenditure (CapEx) for 2025 is projected to be $700 million lower than 2024 due to cost savings on drilling and completion (D&C), slower growth needs for new wells, and one-off environmental CapEx reductions from the combined entity.

Cost Savings and Efficiency Gains from Mergers

The executives highlight cost savings and efficiency improvements post-merger, especially concerning capital side costs. These savings are achieved by adopting better practices such as using simul-frac E fleets and clear fluids instead of oil-based mud in drilling, a technique learned from QEP, that saves both time and money. While the benefits of a large supply chain aren't yet factored into their model, there's an anticipation of further upside. The company has a track record of effective integration post-mergers, prioritizing learning and adopting efficient practices from acquired entities.

Cultural Synergy and Balance Sheet Philosophy

The CEO emphasizes culture, stating that the company aims to understand and integrate what works from merged entities, a strategy that has served them well historically. When discussing the balance sheet, the executives expressed an intention to achieve a long-term net debt target of $6 billion to $8 billion, to maintain flexibility. This conservative approach allows for potential share buybacks or acquisitions during down cycles without being procyclical.

Future Capital Expenditures and Production Outlook

For 2025, the company forecasts a reduction in capital expenditures by approximately $700 million, attributed to lower costs per well and a reduced need for new wells, thanks to a more efficient combined operation with Endeavor. These reductions are due to drilling wells cheaper by $1.5 to $2 million each and by expecting to drill around 50 fewer wells, alongside a one-time reduction in environmental CapEx.

Inferences from the Merger and Future M&A Activity

From the merger, the company expected limited tax advantages, primarily due to them already being a full cash taxpayer. As for future mergers and acquisitions (M&A), the executives suggest a focus on integration and see themselves on the sidelines for additional sizable deals until after the current merger is fully integrated, indicating a period of consolidation and potential for operational improvements within the existing portfolio.

Earnings Call Transcript 2023-Q4

[Operator]

Good day, and thank you for standing by. Welcome to the Diamondback Energy Fourth Quarter 2023 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Adam Lawlis, VP, Investor Relations.

[Adam Lawlis, executive]

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. 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, executive]

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?

[Operator]

[Operator Instructions] Our first question comes from Neal Dingmann with Truist Securities.

[Neal Dingmann, analyst]

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. That compares to 494,000 and 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, executive]

Yes, Neal, I mean, listen, we wanted to be conservative in how we laid out the inventory counts for both us and them. It's sub-40. I mean, I think there's been a lot of aggressive inventory counts put in deals lately and I think for us to be able to say that combined, we have about 12 years of sub-40 breakeven inventory is truly a best-in-class number in North American shale. And 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 Sprayberry that we'd probably call a sub-40 breakeven zone today, but I don't think we're ready to fully put it in the location count.

So I think it's just conservatism. And I think on a relative basis, not all locations are created equal and within that combined 6,000 location count, there's some that breakeven 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, executive]

Neal, just to add to that point, if you think about a company's future, two things are really important for the oil and gas sector. One is 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 merger, we're in control of both the numerator and denominator of that ratio. So our durable inventory greatly extends and then our conversion efficiency that we've been known for, 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 as we looked across above our 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 physical adjacent, this case was just explaining, made the assumption that, that can be applied across above our fence. So I want to give you a little bit more color there, Neal. Thanks for your question.

[Neal Dingmann, analyst]

No, I appreciate from both. I definitely appreciate the conservatism. I think you're right, Kaes, There has been a lot of -- something inflated. And my second question is on your current Slide 11 of today on the multi-zone development strategy. Specifically, really like that you all -- 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, executive]

Yes. Look, I mean, I think generally, Neal, the project size is up. I mean 25 is not an exact number. It's going to be different in different counties where we have different spacing within different zones. We're not -- we don't use a cookie cutter strategy to develop the asset. We use a unique development strategy for each -- each area. I think with a lot of experience with frac hits over the years, I think we've learned in our planning group has gotten significantly better at looking around the core and seeing what issues might arise.

And certainly, there's a benefit of size and scale, right? If we have 1 of these 24 projects coming on every quarter, well, there's a lot of risk in that 1 tubular project. But here, we have 4, 5, 6 of these coming on every quarter, and that allows us 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 with the potential and with the Endeavor merger.

[Travis Stice, executive]

And Neal, when you look at our 2024 budget, you kind of see that the capital efficiency shining through because we're essentially maintaining the volumes profile that we had in the fourth quarter but we're doing so with 10% less CapEx. And as Kaes was just talking to, our development strategy yields the same well performance. So 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 and execution is shaping up in terms of that capital efficiency.

[Operator]

Our next question comes from David Deckelbaum with TD Cowen.

[David Deckelbaum, 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 interest that you have in various pipeline investments. 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 -- if we think about the risk for -- or probability around '24, seeing some of those investments being harvested, is the market kind of ripe for that right now? Or do you kind of expect these to be more long-term investment harvesting Endeavors?

[Kaes Van't Hof, executive]

Yes, David, I mean some are able to be harvested today. Some are probably further down the line. I mean we've done a pretty good job selling some of these noncore, I won't call them noncore, but equity method investments over the last 12 months. We sold the Gray Oak pipeline interest. We sold our interest in the OMA oil gathering JV. I think it's logical that some of our assets that we can control the sale of will likely pursue at sale, but there's others that we're probably some of would tag along with a bigger sale, and I can't control when those happen. But it's certainly an asset that we -- or assets that we have on our side of the ledger that will be used to reduce debt quickly on a stand-alone basis or through the Endeavor merger.

So I think that's certainly on the table. I think Travis' point on not having to sell significant assets is important, right, when we structured the cash stock mix of the deal, we don'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, executive]

Yes. I can't emphasize that point enough, David, that we're not going to be forced sellers of any of our assets. We're going to be very thoughtful 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, analyst]

Appreciate that. And then just maybe a little bit in the weeds on this one, but the '24 plan when you lay out the Midland Basin development and this year, maybe coincidentally or not, there's more -- a little bit more on the margin going to Wolfcamp and some of the other zones. Is that just more coincident 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's any color you could provide.

[Kaes Van't Hof, executive]

Yes. I mean I think both from our drill bit and from others drill bit, we've seen really good results in the Wolfcamp D. 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 on the other bucket, we have more Upper Sprayberry in the plan. So I think generally, if we're able to add these zones to our development plan and see similar productivity per foot, that only extends the inventory duration that we have, both on a stand-alone basis and pro forma with endeavor. 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 stacked pay that we're adding zones like the Upper Sprayberry and the Wolfcamp D that we didn't talk about 3, 4, 5 years ago and now becoming core development targets.

[Operator]

Our next question comes from Neil Mehta with Goldman Sachs.

[Neil Mehta, analyst]

Yes. I guess I have a couple of pricing-related questions. And the first, 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 talk 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, executive]

Yes, Neil, I mean, I think we need to protect our side of the ledger through the period between signing and closing, so we can generate free cash that reduces the cash portion of the purchase price. I think we've done that. We've historically bought first in the kind of $55 WTI range. We 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, closer to, I don't know, 2/3, 3/4 hedged so that we can make sure that, that cash is there to reduce the cash portion of the purchase price.

I think longer term, it all depends on the strength of the balance sheet and the breakeven that we have with our base dividend. We've always kind of tried to buy hedges at kind of 50% to 55%, and that protects free cash flow, balance sheet doesn't blow out and the dividend is well protected in that extreme downside scenario. So I don't expect us to move to an non hedging company because we just believe that it's prudent to protect the balance sheet and our base dividend, which we see like debt.

[Neil Mehta, analyst]

Okay. That's helpful. And then the follow-up is just on natural gas. I know it's a smaller part of your economics. But as 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 2Ps year-over-year. So just your perspective on how the gas market rebalances in the Permian, in particular, do you see this as a structural challenge of continued associated supply or as we move towards more oil discipline gas markets can calibrate with it.

[Kaes Van't Hof, executive]

I think generally, regardless of oil discipline, 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 in a basin level more growth than we all expect almost on annual basis. So I think that's going to continue, Neil. We don't -- we could run the gas price at 0 in the Permian and still make great returns on oil wells.

For us, personally, we try to protect our gas price by -- through hedging as well as through some pipeline commitments to get our gas to bigger markets as well as protecting our basis exposure. But generally, I think the Permian, 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.

[Operator]

Our next question comes from Arun Jayaram with JPMorgan Securities.

[Arun Jayaram, analyst]

Travis, Kaes, I'd like to know if you -- maybe you could walk us through kind of the past to get to the $10 billion net debt target in terms of timing? And how do asset sales, would that influence the timing of reaching that target?

[Kaes Van't Hof, executive]

Yes, Arun, I think we kind of laid out in a $75 world, generally, the 2 businesses throughout the course of this year will combine to generate about $5 billion of free cash flow. And if we're looking at a late 2024 close, just high level, half that number, $2 billion to $2.5 billion will be used to reduce the cash portion of purchase price. That kind of puts you in the kind of $12 billion of full net debt at close. And with the business continuing to generate more free cash in 2025 with the numbers we laid out, you could see that $10 billion number by middle of '25. Now that excludes any asset sales or acceleration. And I think we try to be an under-promised, overdelivered 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 bet based on commodity price. So we're looking at what's available to sell down in the next couple of months here and beat that target.

[Arun Jayaram, analyst]

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

[Kaes Van't Hof, executive]

Yes. I mean, 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 I think the Delaware Basin is 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 wells we need to drill for lease holding purposes. So I think it's just -- it's a good asset to have for the time being and it's good option value over the long run, but certainly not looking to do anything in the near term.

[Operator]

Our next question comes from Derrick Whitfield with Stifel.

[Derrick Whitfield, analyst]

I wanted to start by committing -- wanted to start by really committing you guys for the leadership you've demonstrated on capital discipline as many of your peers are treating the environment as it were naturally balanced today.

[Travis Stice, executive]

Thank you, Derrick.

[Derrick Whitfield, 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?

[Daniel Wesson, executive]

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

[Derrick Whitfield, 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, executive]

I think the first question that came up was on the synergies of 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 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 kind of strategic questions with the shareholders. So I think probably the cost efficiencies were the first and then secondarily, were some of the debt retirement strategies that Kaes just went through were probably the 2 most topical questions that we dealt with.

[Operator]

Our next question comes from Roger Read with Wells Fargo.

[Roger Read, analyst]

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

[Kaes Van't Hof, executive]

Yes, Roger, I mean I think for the zones like the Wolfcamp D, we've got some testing on our assets, but also seen a lot of results across the fence line. Diamondback doesn't spend a lot of time -- we spent a lot of time looking at ourselves. We also spend a lot of time looking across the fence line and 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, particularly in that kind of Midland Glasscock County line area. And also as you get into Southern Martin County. So that's -- that's getting more attention.

I would say the Upper Sprayberry, we've done a lot of work on ourselves. It's actually an old Energen well, it was drilled in the Upper Sprayberry in 2016 or '17, and we revisited that zone recently last year and some of the offer Sprayberry wells that we've completed, one in particular, is probably one of the best wells in our portfolio. So I'm not ready to say that the Upper Sprayberry exists across our entire acreage position, but certainly getting more capital and attention this year and particularly with the co-development strategy and the fact that these zones talk to each other in some form or fashion, means we got to get it now. And so we've added the Upper Sprayberry 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 exploration, resource expansion story is if you can expand your resource without impacting productivity, that's a win for our shareholders.

[Travis Stice, executive]

Roger, I'll just add a comment from a high level what Kaes just mentioned. 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, you -- 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 above our 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 and find what others are doing, potentially better than we are and adopt accordingly.

[Operator]

Our next question comes from Jeoffrey Lambujon with TPH & Co.

[Jeoffrey Lambujon, analyst]

My first question -- my first question is on the step change in capital efficiency you 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 which you think about as we shift from this year into next?

[Kaes Van't Hof, executive]

Yes, Jeff, I think generally, there's two big buckets on the D&C side that we see across the fence of Endeavor that we'll probably look to put in place with the team there as we start to integrate on the completion side, it's really the simul-frac development plan as well as probably half of that plan being a simul-frac E fleet, which only reduces the cost of the completion side of the business. I don't think we've modeled the benefits of a much larger supply chain to these numbers. This is just 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, we've been a big proponent of clear fluids, not using oil-based mud to drill these wells. It saves time and money. That was something we put in place and learned from the QEP team 3 or 4 years ago. .

And so I think that's just a decision to make that save significant dollars. And 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 both Energen and QEP are two large 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, executive]

And Jeff, since I spoke just a second ago on some of the cultural elements of Diamondback. One another cultural element is when we combine assets 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 what they do, why they do it and making -- collectively making improvements, both on our side and on the income and asset side.

[Jeoffrey Lambujon, 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 at all once the deal closes, 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 timing back to new levels in terms of weight class kind of space.

[Kaes Van't Hof, executive]

Yes. That's a question we got on the road a lot last year is kind of 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 that resonated with us and fits with what we're trying to do. I think we eventually want to get to kind of a $6 billion to $8 billion net debt number, keep real cash on the balance sheet. I think the concern that Diamondback is going to go do every deal and use all the cash to do deals has probably been removed with this merger. And in my mind, that leaves us flexibility in terms of capital allocation to lean into a buyback in a down cycle or lean into an acquisition in the down cycle and be -- or not be procyclical in how we look at allocating capital on the repurchase side or the deal size. So long term, $6 billion to $8 billion would be a good number. if it gets to 0, that would be great. But I think generally running in that half a turn at strip is a pretty good place to be.

[Operator]

[Operator Instructions] Our next question comes from Paul Cheng with Scotiabank.

[Paul Cheng, analyst]

Kaes, last week, when you announced the deal, you gave the 2024 and '25, CapEx profile and also the production. It was [ 2025 ], the pro forma comparing to [ 2024 ], will be about, say, [indiscernible] Number $700 million lower. Can you break down that how much is related to because you think the antipathy will be lower on that asset because you're not going to grow as fast? And how much is truly is testing?

[Kaes Van't Hof, executive]

Yes. Sure, Paul. You kind of cut out a little bit, but I think I get your question. The question was how we bridge the gap between the combined 2024 CapEx guide with us and Endeavor separately and the combined -- the business in '25, which is down $700 million. I would say most of it is running our cost structure on the Endeavor D&C. And so that's basically 175 wells at $1.5 million to $2 million cheaper, gets you to about $300 million. I think the combined business is not going to need as many wells to hit the production number. Endeavor was growing last year that started slowing down midyear, but their decline rate shallowing, so that will help.

Our decline rate continues to shallow that will help. And I think we're going to allocate capital to the best combined resource probably in North America, which will help. And so that kind of gets you to needing probably 50 less wells at $6 million, $6.5 million of pop. That's about another $300 million. And -- and then I think generally, we're spending some dollars this year, probably about $50 million on environmental CapEx that is kind of onetime in nature and will be reduced on our side as well. So you put all that together, and that's a very, very capital-efficient business in 2025, assuming existing well costs, and that can move around, but that's how we're thinking about '25.

[Operator]

Our next question comes from Leo Mariani with ROTH MKM.

[Leo Mariani, analyst]

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, if you had any preliminary look at that?

[Kaes Van't Hof, executive]

I mean there will obviously be some benefit with the cash portion of the transaction and the associated interest expense. But we're continuing to do our combination work. I mean 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, analyst]

Okay. That's helpful. And then just jumping back over to M&A. Obviously, you guys got the -- the big prize in the Permian and the market has clearly rewarded 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 little stuff over the years to kind of tie everything together?

[Kaes Van't Hof, executive]

Yes. Listen, Leo, we're on the sidelines here. We're fully focused on getting this deal 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.

[Operator]

Our next question comes from Doug Leggate with Bank of America.

[Douglas Leggate, analyst]

My question is, does that have any impact on integration plan? Or does that go ahead anyway?

[Kaes Van't Hof, executive]

Doug, you have to speak up.

[John Abbott, analyst]

This is John Abbott on for Doug Leggate, apologies, I was on mute. Just one more on just one question going back to Paul's question on the difference in CapEx between 2024 and 2025. That's about $725 million. And then you talk about the $550 million in synergies. So when you think about that $725 million, is there an addition on top of that as sort of we sort of think into 2025, just sort of we're trying to reconcile the 2 numbers?

[Kaes Van't Hof, executive]

Yes. I think the difference between the 2 numbers is really activity between the $550 million and $725 million. But as the combined business has less activity in '25 versus '24, which is helping, but we kind of see the $550 million as more of a longer-term run rate, John.

[Operator]

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, executive]

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 good day.

[Operator]

This concludes today's conference call. Thank you for participating. You may now disconnect.