Diamondback Energy (FANG 0.17%)
Q3 2023 Earnings Call
Nov 07, 2023, 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 third 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 now like to hand the conference over to your first speaker today, Adam Lawlis, VP of investor relations. Please go ahead.
Adam Lawlis -- Vice President, Investor Relations
Thank you, Stephen. Good morning, and welcome to Diamondback Energy's third 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. I'll now turn the call over to Travis Stice.
Travis Stice -- Chairman and Chief Executive Officer
Thank you, Adam, and good morning to everyone. As Adam mentioned, we released a shareholder letter last night that contains much of the narrative we hope to cover again this morning. So, with that, we'll just open the lines up for questions. Operator?
Questions & Answers:
Operator
[Operator instructions] Our first question comes from the line of Neal Dingmann of Truist Securities. Please go ahead.
Neal Dingmann -- Truist Securities -- Analyst
Good morning, Travis and team, thanks for the time and another nice quarter. Travis, my first question is on capital allocation. Specifically, several quarters ago, you suggested you all would return to more of a production growth type model, I'd call it. And I think you mentioned, you know, when the macro fundamental supported.
I'm just wondering, do you believe we're close to that scenario and wondering, you know, why do you believe the continued high free cash flow payout is warranted.
Travis Stice -- Chairman and Chief Executive Officer
Yes, Neal, that's a good question. Look, the world is certainly in a mess right now across any number of fronts, all of which could potentially, you know, move the markets both positively and negatively, both with a supply disruption or even a demand destruction as well, too. So, obviously, we can't control any of those items. Again, we simply respond to our shareholders that own our company that, right now, you know, return to shareholder model versus a growth model.
As we've intimated our plans as we look forward into next year, you know, again, look for real efficient capital allocation. And as an output of that capital allocation, we expect, you know, low single-digit type volume growth. Again, not as an input, but what results from an efficient capital allocation program.
Neal Dingmann -- Truist Securities -- Analyst
Got it. That makes sense in this environment. And then, secondly, on your development, couldn't help but notice the new slides on -- Slides 10 and 11 highlighting the efficient execution and the differentiated development. My question is, does most of your remaining Midland inventory lend to the 24 average wells per project size that you mentioned? And then, I'm just wondering, could you speak to where the largest cost efficiencies continue to come from on these projects?
Travis Stice -- Chairman and Chief Executive Officer
Sure. On the development strategy, over time slide, which is Slide 11, for those of you that are looking at it online, you know we tried to demonstrate our evolution from 2015 to today. And we said average wells per project is about 24 wells. I think, generally, that's a -- that applies across our Midland basin.
However, not all deposits are equal in terms of the way the shales were laid down across the Midland Basin. So, there will be areas where we can do slightly more than 24 wells and in areas also where we'll do slightly less than 24 wells, which usually translates to one or two wells less per shale interval. So, again, it's a general representation showing the development over time. But that's a good summary.
And then, let's see, what was your second question --
Neal Dingmann -- Truist Securities -- Analyst
Just on the cost. I know Kaes and I have talked about it. I mean, is it just on -- you know, I know you have lower casing and just different, you know, sort of raw material costs. But is there other, you know, areas in that larger projects that are causing these -- you know, when you see that that well productivity chart on the right, you know, sort of what's driving the lower cost efficiencies there?
Travis Stice -- Chairman and Chief Executive Officer
Yeah, certainly. Again, referencing back to Slide 10, we've laid out the biggest elements of cost savings, cost components, and the reductions over time. And as again, as you pointed out, it's casing, which is down, you know, 20% or so. You know, it's really -- as you look into look into next year, we feel more of a kind of a steady state run rate on our cost.
There'll be some puts and takes on both sides of the equation. Kaes, do you want to add anything to this?
Kaes Van't Hof -- President and Chief Financial Officer
I mean, I think the biggest. Benefit to the large-scale development, Neal, is, you know, the consistency of running the rigs, you know, in the same spot for a long period of time. But, you know, on the frac side is where we save the most money from a capital efficiency perspective because we're doing, you know, in some cases, two simple frac crews on the same site at the same time. So, you're saving essentially, you know, $250,000; $300,000 a well from SimulFRAC.
And now, we have two of those fleets o÷r e-fleets that run off lean gas that save kind of another, you know, $200,000; $250,000 of oil. So, this large-scale development, you know, kind of ties to the longer-cycle nature of our business. And that also means, you know, we don't want to change the plan, you know, every move and oil price. And so we've had a consistent plan here for a few years now, and the output of that is, you know, consistent results on the well productivity per foot.
Neal Dingmann -- Truist Securities -- Analyst
Thank you both.
Travis Stice -- Chairman and Chief Executive Officer
Thanks, Neal.
Operator
Thank you. One moment for our next question. Our next question comes from the line of Neil Mehta of Goldman Sachs and Company. Your line is open.
Neil Mehta -- Goldman Sachs -- Analyst
Yeah, thanks, guys, and appreciate the helpful letter and the time today. Travis, why don't we start on return of capital as a topic. You talked about this in the letter, you wanting to err on the side of caution as it relates to buying back stock to avoid repurchasing cyclically and, as a result, leaned into the variable dividend in the last quarter. Can you talk about the way that you're approaching this and how that should inform the way we think about, you know, the split between buybacks and dividends going forward?
Travis Stice -- Chairman and Chief Executive Officer
Certainly, Neil. Our main focus remains a sustainable and growing base dividend that we think represents the most efficient way for our shareholders to understand, you know, what our shareholder return program looks like. Following that is the share repurchase program, which we laid out what we've done in the third quarter and so far in the fourth quarter. And then, we honor our commitment to return at least 75% of our free cash flow by making our shareholders hold in the form of variable, which we've seen we did this year.
I think the most important thing is, when you talk about share repurchases is that you need to have some discipline around that because, in my experience, lack of discipline leads to chasing stock repurchases all the way to the top of the cycle. So, we, like most of our capital allocation decisions -- actually like all of our capital allocation decisions, we hold ourselves accountable to some form of rigorous analytics. And in this case, you know, we continue to run nav value at mid-cycle oil prices, which is $60 oil, and calculate oil price -- or calculate stock price. And depending on where our stock is trading relative to that calculation, we either buy more of.
And the further dislocation we get from that, we buy -- you know, we increase or, if not, then we pivot to to share repurchase or to a variable dividend like we did this time around. So, again, it's just -- it's base dividend. It's share repurchases with a degree of caution in pro-cyclical environment, and then honoring our commitment to the form of a variable dividend.
Neil Mehta -- Goldman Sachs -- Analyst
OK, that's really helpful. And the follow-up is just on noncore asset sales. You've done a good job of exceeding your target. Can you talk a little bit about the Deep Blue Midland Basin JV and not only in terms of the proceeds.
But what does it mean for your go-forward cost structure as we think about modeling the impacts through 2024?
Kaes Van't Hof -- President and Chief Financial Officer
Yeah, good, good question, Neil. You know the Deep Blue JV was a very big deal for us. It took a long time to pull together. We had built a significant amount of in-stream infrastructure over the years and spent a lot of capital doing it.
And, you know, we felt it was an opportune time to, you know, monetize that in the hands of who we see as operational experts in Deep Blue and the Five Point team. You know, I think they have already proven to have commercial success with third parties where, you know, maybe if you have a Diamondback business card, you weren't going to have the same type of commercial success. You know, I think that that sector is certainly ripe for consolidation as well, and I think they're the experts that can get that done. So, that's kind of why we retained the 30% equity interest in the business.
We're very confident that they're going to be able to grow the business and generate a good return for our shareholders. You know, outside of the $500 million of proceeds, you know, we got in, which is the big -- the big winner, there will be some impacts to our cost structure. I would say, generally, LOE is going to be up about 8% to 10% versus prior as a company. And then, you know, we'll have a lot less midstream capex because we don't have very many operated midstream assets.
And that'll be kind of canceled out by slightly higher well costs, you know, $10 to $20 a foot, depending on the area, as we buy water from the JV. So, all in all, we sold the business for a much higher multiple than we trade, and we're excited to see what they can do in terms of creating value for the 30% that we're retaining.
Neil Mehta -- Goldman Sachs -- Analyst
Thanks, team.
Travis Stice -- Chairman and Chief Executive Officer
Thanks, Neil.
Operator
Great, thank you. One moment for our next question. The next question comes from the line of David Deckelbaum of TD Cowen. Your line is now open.
David Deckelbaum -- TD Cowen -- Analyst
Good morning, Travis and Kaes and team, Danny. Thanks for taking my questions. Travis, I was curious if you could talk a little bit more about the remarks in the shareholder letter on being an acquirer and exploiter and just maybe putting in context sort of how robust you think that opportunity set is right now, just given the cycles in the business and some of the PE cycles that have gone through the Permian right now?
Travis Stice -- Chairman and Chief Executive Officer
Yeah, David, I appreciate you referencing the shareholder letter. I tried to address that head on. I think just, you know, in a more macro sense, we'll always do what's right for our shareholders. I mean, we've got now over a decade of what I think is demonstrating doing the right thing for our shareholders.
But we remain laser-focused on delivering on our business plan. And you're right, we have built this company through an acquire-and-export strategy. But I think, you know, as investors are really starting to understand, we have such a high-quality inventory right now that the bar is pretty high for additional opportunities to add to our inventory that meets those -- the criteria that we laid out in our shareholder letter with sound industrial logic and being able -- or logic and being able to compete for capital right away and then being accretive on those financial measures that are so important to all of us. So, you know, there has been a lot of private equity roll through.
And I think based on lack of our name on those, it just tells you where we view those assets relative to our inventory. Like I said, I'm really pleased of the quality of our inventory, and I think we're executing on that in a flawless manner.
David Deckelbaum -- TD Cowen -- Analyst
Appreciate that. You know, maybe just for Kaes, just the DUC backlog is built, I guess, up to 150 by the end of the year. Thank you guys talked about low single-digit organic oil growth for next year. One, I just wanted to confirm, I guess, if that oil growth is reflecting the benefit of the increased royalty interest through the VNOM acquisition -- or Viper acquisition, rather, or if that's how we should be thinking about that growth rate? And then, just in concert with the DUC backlog, you know, is it -- should we think about that flexibility, especially in this pricing environment, just based on frac crew availability, or is that really just like a capital allocation decision?
Kaes Van't Hof -- President and Chief Financial Officer
Yeah, I'll have to -- I'll hit the organic growth comment first. You know, certainly, we -- excluding the Viper deal, we expect it to grow organically in -- we expect to grow organically in 2024. I think, you know, the Viper deal provides a little bit of a jump start here in Q4, but I think the team is expecting to grow off that number, you know, to steady state throughout the next year just due to the quality of what we've got in front of us. You know, on the DUC side, we were kind of operating pretty close to the rigs on the completion crews and really needed some flexibility here.
And the drilling team's done a really good job this year getting ahead of plan, drilling more wells than expected sooner. You know, with these large pads and large projects, you really want to have the flexibility to be able to go somewhere if, you know, something that happens. And that DUC backlog allows that. So, I think you know, 150, plus or minus 10 or 20 wells, either way is a pretty good number for our run rate.
And we've kind of set the stage for a world where we run, you know, four of these SimulFRAC consistently throughout the year. They each do about 80 wells a year. And, you know, in our minds, that's kind of the most capital efficient development plan we can imagine here. So, that DUC backlog just lets Danny sleep a little better at night and, you know, allows for some flexibility heading into next year.
David Deckelbaum -- TD Cowen -- Analyst
Goo deal. Thanks for the responses.
Travis Stice -- Chairman and Chief Executive Officer
Thanks, David.
Operator
All right. Thank you. One moment for our next question. Next question comes from the line of Scott Hanold of RBC Capital Markets.
Your line is now open.
Scott Hanold -- RBC Capital Markets -- Analyst
Yes, thanks. If I could go back to the M&A topic a little bit differently. When -- you know, Kaes, Travis, when you step back and think about like where Diamondback's inventory depth is and to be a long-term successful large-scale play in the Midland, like, do you think that more large-scale M&A is necessary over time? And just remind us like, you know, where you think your inventory life is and where ideally would you like it to be?
Kaes Van't Hof -- President and Chief Financial Officer
Yes. I mean, I don't think it's necessary, Scott. I think we've positioned the business through both large scale and small scale M&A. It's just kind of been in our DNA for the last 10 years.
I'd kind of go back to thinking about what positions in North American shale or in the Midland Basin would be envy, and there are very few, particularly with where we sit today and the amount of deals we've done over the years. So, I think it's a fortunate spot to be in with the inventory duration and depth that we have relative to what's out there. I just think, you know, Travis' comment is really about knowing who you are. And this company has been an acquire-and-exploit company that's been able to execute on acquiring and exploiting assets through our low cost structure.
And, generally, we have had a philosophy that the low cost operator in a commodity-based business wins. And our cost structure is what has created this business to be as big as it is today. Travis, do you want to add anything to that?
Travis Stice -- Chairman and Chief Executive Officer
I think that makes sense. You know, we've talked about the high bar for entry into the Diamondback portfolio. And, there's just -- that's just how we view it. And, you know, we're very proud of the inventory we have.
And I think what goes along with that durable inventory is how we convert that inventory into cash flow. And again, you see this quarter flawless execution from our teams in converting rock into cash flow. And that's -- you know, our cost structure is enviable, our execution prowess is unmatched. And that makes that makes a big difference when you talk about a profitable oil and gas company like Diamondback.
Scott Hanold -- RBC Capital Markets -- Analyst
Yeah. And then, just as part of that, was the inventory life kind of conversation more of like where you think you're at now and what do you think is ideal?
Kaes Van't Hof -- President and Chief Financial Officer
Yeah. I mean, I think I kind of said this that we put our next five years up with anybody in North America, and I still stand by that. I think we have another solid five or 10 years beyond that. It's very logical that, at some point, you're going to have to move down the quality of your inventory.
We don't see that in the forward plan today. But if we retain our cost structure and our ability to drill wells $1 million or $1.5 million or $2 million cheaper, well, as the shale cost curve goes up, we continue to stay at the low end of that cost curve. It's kind of been our mantra for 10 years now. And we started with 50,000 acres an hour at 550.
And, you know, that culture and mantra has not changed, and I think that sets us up well for a world where assets are getting more and more sparse.
Scott Hanold -- RBC Capital Markets -- Analyst
Got it. Understood. And if I could follow-up on our conversation we had last night, just on the shareholder returns and, you know, stock buybacks. And I thought it was a conversation we had on, you know, just where it FANG's intrinsic value is now and, you know, the opportunity to grow that over time.
And so, like when you step back and, you know, think about the current oil market. Obviously, we're in a little bit more heightened oil price versus your intrinsic point. But like as you see yourself progressing over the next years, I mean, does it seem to make sense that, you know, buying back stock at higher prices in this heightened market, you know, relative to what you did in the past still make sense, you know, from a value return standpoint?
Kaes Van't Hof -- President and Chief Financial Officer
Yeah, it's really all about value, like we talked about last night, if you run your business conservatively from an oil price perspective and accrete value quarterly, you know, at $75 to $80, $85 crude, you're actually building equity value on a conservative basis, right? I kind of said last night to you that, I think, generally, if you run a quarter like last quarter versus the $60 base case, you know, you're basically building $3, $4 a share of extra intrinsic value. And I think that's what we've done here over the last couple of years in this, you know, up-cycle. And, as Travis mentioned, you know, we want to be conservative when buying back stock. We think capital is precious.
And capital discipline not just applies in the field, but it applies to returning capital to shareholders. And that's why we've had this flexible return of capital program since we put it in place, you know, two and a half years ago.
Scott Hanold -- RBC Capital Markets -- Analyst
Thank you.
Travis Stice -- Chairman and Chief Executive Officer
Thanks, Scott.
Operator
All right. Thank you for your question. One moment for our next. Next question comes from the line of Roger Read of Wells Fargo Securities.
Your line is now open.
Roger Read -- Wells Fargo Securities -- Analyst
Yeah. Thanks. Good morning. I think I'll skip the obligatory share repo versus a variable dividend question for a moment, and just go back to the operational aspects.
So, can you give us an idea, as you mentioned, the sort of accreting value into the shares through operations, what we should be looking at over the next, say, 24 to 36 months for what else you can do operationally that'll accrete value and thinking that we're not going to have, you know, some of the asset sales that have been going on that have certainly helped on the sort of cash flow generation assets?
Kaes Van't Hof -- President and Chief Financial Officer
Yeah. That's a good question, Roger. You know, I think it's interesting, we put it to slide in Slide 10 about operational track record in prowess and I think we sat in this room two or three years ago saying, "Hey, the drilling guys, they're near the asymptotic curve of drilling these wells." Well, if you look at the top left of that chart, you know, they're still picking days out of the average well on a much bigger program, right? These guys are drilling 280 wells in the Midland Basin, two, three, four days faster than they were even two years ago. And, you know, the culture that we built accretes that value to our shareholders.
It's not something we model, but it certainly comes our way. So, in the field, I think that's part of what is coming our way. I also think, you know, generally, we've tested some other zones in the Midland Basin that looked very, very good. We got a couple Upper Spraberry tests in the Northern Midland Basin that looked very good relative to, you know, our Middle Sprague Road, Jo Mill development.
So, we're excited about that. I think the Wolfcamp D in the Midland Basin is starting to become a primary development zone in some of the basin. And certainly, there's a lot of excitement about deeper zones, you know, in the Midland Basin, as well the Barnett and the Woodford that were, you know, on the testing. So, I think, you know, the Midland Basin, the [Inaudible] and the amount of oil in place just provides a lot of opportunity for future value to accrete to our shareholders that they don't know about today.
Travis, do you want anything to add?
Travis Stice -- Chairman and Chief Executive Officer
Yeah, you know, Roger, if you back cast 10 years ago, when we first started this, we're still drilling a few, you know, vertical wells. And, you know, I put in the letter that we released last night, just a couple of data points on a 7,500-foot lateral well, which has a total depth, total major depth of about what we were drilling vertically when we started. But drilling, we drill those 7,500-foot lateral wells in under four days. And when we started, we were drilling it, sometimes it'd take us over 24, 25 days to get down to that same measured depth vertically.
And so, you know, probably the most repeated question that we get is what is the secret sauce, what is the magic that Diamondback does that allows execution quarter over quarter to just far exceed the competition. It's essentially, you know, the same rock and the same tools, but the culture that we built here at this company with that laser focus on the conversion process of rock into cash flow is felt by every employee in the company. And when you have everyone leaning in the same direction on cost and efficiency, as long as we can continue to give them good rock, we're going to generate the outstanding results that we're known for. So, I know that's a little bit of motherhood and apple pie, but it's -- you know, I'm really proud of the organization for -- you know, through all the cycles we've been through over the last 10 years.
What hasn't changed is an unrelenting focus on delivering, you know, best-in-class execution, highest-margin barrels at the lowest cost.
Roger Read -- Wells Fargo Securities -- Analyst
I appreciate that. I'm not going to be in between motherhood and apple pie here in the U.S. So, I'll turn it back. Thanks.
Travis Stice -- Chairman and Chief Executive Officer
Thanks, Roger.
Operator
Thank you. One moment for our next question. All right, our next question comes from the line of Derrick Whitfield of Stifel. Please go ahead.
Derrick Whitfield -- Stifel Financial Corp. -- Analyst
Good morning all and thanks for all the incremental disclosures this quarter.
Travis Stice -- Chairman and Chief Executive Officer
Thanks, Derrick.
Kaes Van't Hof -- President and Chief Financial Officer
Thanks, Derrick.
Derrick Whitfield -- Stifel Financial Corp. -- Analyst
Building on an earlier question, how should we think about 2024 maintenance capital run rate, assuming the benefit of deflation and your current operational efficiencies?
Kaes Van't Hof -- President and Chief Financial Officer
That's a good question, Derrick. And I'd probably say that maintenance capex would be, you know, $100 million to $200 million cheaper, you know, 30 wells maybe, Danny.
Danny Wesson -- Chief Operating Officer
Yeah. I think, we're kind of looking at it, like, our maintenance -- our case for 2024 is kind of a maintenance activity case. So, flat activity output a little bit of a growth. But, you know, if we were to try and maintain a flat production profile, you'd probably be in the line of 20 to 30 less wells in the year.
Travis Stice -- Chairman and Chief Executive Officer
You know, Derrick, while you're on that topic of maintenance capex, I might just point you to Slide 7, we've had that slide in there a couple of times. But it shows maintenance capex, which Danny just defined, is kind of holding. You know, the fourth quarter production flat for next year. And I just want to show you what our breakeven prices are on that slide, $32 a barrel to cover maintenance capex, you know, $40 barrel to cover our base dividend.
So, that kind of goes back to my cost and execution comments that ultimately translate into a very protected business model even at low commodity prices.
Derrick Whitfield -- Stifel Financial Corp. -- Analyst
That's great. And as my follow-up, with respect to your noncore asset sales, how should we think about the market value of what's being retained by Diamondback and how that will be realized over time now that you've exceeded your disposal target?
Kaes Van't Hof -- President and Chief Financial Officer
Yeah. Good question, Derrick. We do lay out some of our remaining JVs that we have on Slide 26. Yes, I think some of those logically are monetized at some point in the coming years.
I don't think we're in a huge rush to do so, but, in most cases, you know, we're kind of a non op partner to these JVs that do have a ton of value, just not something that we can, you know, commit to monetizing today.
Derrick Whitfield -- Stifel Financial Corp. -- Analyst
All done, guys. Thanks for your time.
Kaes Van't Hof -- President and Chief Financial Officer
Thanks, Derrick.
Travis Stice -- Chairman and Chief Executive Officer
Thanks, Derrick.
Operator
All right. Thank you. One moment for our next question. Next question comes from the line of Kevin MacCurdy of Pickering Energy Partners.
Your line is now open.
Kevin MacCurdy -- Pickering Energy Partners -- Analyst
Hey, good morning. I appreciate the commentary on industry consolidation. Digging into your cost structure comments a little bit. Now that you've had FireBird and Lario in house for almost a year, can you comment on the level of cost synergies you've created in those transactions, or maybe just share with us your analysis of Diamondback costs versus peers? I'm just trying to get a sense of what kind of uplift assets get when they're incorporating it to Diamondback in your cost structure?
Kaes Van't Hof -- President and Chief Financial Officer
Yeah. I mean, that's a good question, Kevin. I hate to say it, but we didn't win those deals because we were buddies and bid left in other people. So, I think we bid the most, but we bid the most because we could underwrite it with the lowest cost, right? At the time, you know, I think some Lario well costs were near $8.5 million, $9.5 million for 10,000 foot lateral, and we were drilling them at 6.5 to 7.
And so, that's kind of been our mantra for a long time. I would just say, generally, if you split the two deals out, Lario was an execution deal because we knew we could drill those units cheaper and execute on, you know, large-scale development. I would say, you know, FireBird is more of a technical deal. And, you know, we had a technical view of that particular area that the basin could move further west.
Particularly in the northern top portion, there'd be some multi-zone development that looks really good. I think we're conservative on the multi-zone potential of the central block and now feel a little more confident about the Wolfcamp A and Lower Spraberry and maybe being wind wrapped in that area. And also, you know, with the benefit of that block being so contiguous, we're able to bring a 15,000 foot lateral manufacturing process to that area. So, now we underwrite these deals at our cost structure, which, you know, if you look at our cost structure versus others, that means we should get more of those properties at the same rate of return because of our ability to execute.
Kevin MacCurdy -- Pickering Energy Partners -- Analyst
Great. That's only one for me. Appreciate taking my question.
Travis Stice -- Chairman and Chief Executive Officer
Good question, Kevin.
Operator
All right. Thank you. One moment for our next question. Next question comes from the line of Jeoffrey Lambujon of TPH and Company.
Your line is now open.
Jeoffrey Lambujon -- Tudor, Pickering, Holt and Company -- Analyst
Good morning, everyone, and thanks for taking my questions.
Travis Stice -- Chairman and Chief Executive Officer
Thanks, Jeoff.
Jeoffrey Lambujon -- Tudor, Pickering, Holt and Company -- Analyst
First, one is on the ops and capital allocation side. If you can just speak to any more detail on next year's plan in terms of where you might focus within the Midland Basin, both in terms of geography, but also maybe just less active zones in terms of industry activity that you may be testing more. And if you could speak maybe a bit more onto some of that laterally in the commentary in terms of how that might evolve over the near-term program, that would be helpful as well.
Kaes Van't Hof -- President and Chief Financial Officer
Yeah. You know, Jeff, with these longer-cycle projects, we have a pretty good view of what the projects look like coming up here in 2024. You know, I'd say generally we're going to be in the range of 11,000 feet average lateral length, probably maybe even a little bit more than that. I would say, you know, it's also a very heavy, Martin County development year for us, which is great, large-scale, multi-zone development, and some of the best undeveloped resource, you know, remaining in the Midland Basin.
I'd say, you know, from a testing perspective, some more wells can be probably making it into the plan and a lot more Upper Spraberry making it into the plan. We kind of have a couple really good tests. And, you know, part of our culture is when something works, we implement it very, very quickly. And that's how we kind of see the shallower development, you know, picking up the pace in the Northern Midland Basin, particularly that Northwest Martin County area that we feel really good about for adding a new zone.
Jeoffrey Lambujon -- Tudor, Pickering, Holt and Company -- Analyst
OK, great. And then, maybe just a housekeeping type question on the noncore asset sales side, particularly on the upstream. I think a few people noted now just how you're exceeding or you've already exceeded the target before year-end here. And it makes sense that there's no need to go out and do more right away.
But just wondering if you could speak to potential opportunities maybe in terms of longer-dated inventory that someone else might find more valuable than theirs? How do you think about opportunities [Inaudible]
Kaes Van't Hof -- President and Chief Financial Officer
Yes. A good question. That ties to something that I didn't answer in your last question. The number of wells in the Midland Basin will be kind of 85%, 90% of total capital.
So, the Delaware Basin still be a small percentage of total capital. I think, you know, if I'm getting all your -- question is, ism you know, what -- where does the Delaware Basin sit in the portfolio. I think, for us, you know, certainly, we start that area of capital a little bit here in the last few years. I think it provides a lot of cash flow and a lot of production, which is, you know, beneficial to us today.
But, you know, as you've seen over the course of the year, it certainly seems like inventory is coming in a premium. And, you know, there may come a time where someone really, really wants that Delaware position of ours or portions of it. But we're not going to sell it for, you know, [Inaudible] right, PDP. So, I think we're going to hold it for now.
And if someone wants to pay for upside in a reasonable, number versus where we trade, we'll take a look at it.
Jeoffrey Lambujon -- Tudor, Pickering, Holt and Company -- Analyst
Perfect. Thank you.
Travis Stice -- Chairman and Chief Executive Officer
Thanks, Jeff.
Operator
Thank you. One moment for our next question. Our next question comes from the line of Nitin Kumar of Mizuho. Your line is now open.
Nitin Kumar -- Mizuho Securities -- Analyst
Hi, good morning, guys, and thanks for taking my question. Travis, I want to start on Slide 11. Now, you've been espousing the co-development approach for some time, and you show pretty solid results and consistent results since 2020. Just curious, one of your, I guess, peers in the Basin talked about increasing recoveries by 20% through the use of technology.
You know, you guys are at the cutting edge yourself, so I'm curious are you seeing anything out there that can improve recovery factors by that kind of magnitude?
Travis Stice -- Chairman and Chief Executive Officer
Nitin, we keep our figure on the pulse of a lot of emerging technologies. We focus our internal expertise on improving recovery. That's not something that's on our radar screen that we're aware of today, but that's not to say that the potential is not there as you look forward in the future. There's a lot of smart guys in our industry.
We have a ton of smart guys inside Diamondback. And whether that technology is developed internally or externally, it's widely communicated and quickly followed, particularly that kind of result. So, you know, we're focused on improving recovery, and I know our peers are doing the same. That's not a today number for sure, though.
Nitin Kumar -- Mizuho Securities -- Analyst
I guess my follow-up would be, you know, if you are a fast follower, you've talked about how volume is an output of your program, your capital allocation framework. In an event that you could improve recoveries that way, would you allow -- would you keep activity flat, or do you expect to reduce capex and just maintain that volume growth to be in the low single digits?
Kaes Van't Hof -- President and Chief Financial Officer
Yeah. I mean, I think, generally, that would be a great problem to have. It really ties to this, you know, can you run a SimulFRAC program consistently on that position and those projects and those paths. Kind of goes all those back to this longer cycle nature of the shale business model.
And, you know, I think, you know, we feel really good about four SimulFRAC crews running consistently right now, Nitin, and have the infrastructure to do that. And, you know, if growth exceeded expectations, that'll be a good problem to have.
Nitin Kumar -- Mizuho Securities -- Analyst
Great. Thanks. That's it for me, guys.
Operator
All right. Thank you. One moment for our next question. Next question comes from the line of Charles Meade of Johnson Rice.
Your line is now open.
Charles Meade -- Johnson Rice and Company -- Analyst
Good morning, Travis, Kaes, and Danny. I want to ask one more question, but maybe from a different angle on the on the A&D outlook. Kaes, I think it was -- I think I wrote down what you said that, in your prepared comments or maybe earlier Q&A, that there's very few positions out there that you envy. And so, that makes sense that you guys -- your bar is high.
But from my seat, it also looks like, if you look at the other side of the equation, it looks like, there not a lot of positions you want to buy, but there's also fewer possible -- fewer potential buyers out there, particularly for some of these large, large private positions. So, how does the -- I guess do you agree that there's fewer credible buyers for some of these big packages that may still be out there. And more broadly, how's the kind of the lineup shifting? Is your active in data rooms and in processes, you know, buyers versus sellers?
Kaes Van't Hof -- President and Chief Financial Officer
Yeah. That's an interesting observation, Charles, and it's certainly not lost on us. You know, you've had a couple very large buyers do a couple of deals in the basin and out of the basin. They could kind of do whatever they want, it seems like, but, I would just say, generally, industry consolidation has happened, is continuing to happen.
I think, you know, a lot of the privates are gone, as you mentioned, to logical acquirers. I would just say that there may be less buyers of assets, but they're all very well-funded, you know, good operators, big balance sheets, and competitors. So, you know, I think we just have to stick to our zones and our underwriting philosophy, which is, you know, our cost structure, our rates return internally, you know, our hurdles for commodity price. And usually, that has resulted in, you know, more assets coming to Diamondback because you can underwrite, you know, wells, drills at $1 million or $2 million cheaper.
We can run LOE above cheaper. That's the kind of stuff that accretes to our shareholders.
Charles Meade -- Johnson Rice and Company -- Analyst
Got it. Thanks for that. That's it for me.
Kaes Van't Hof -- President and Chief Financial Officer
Thanks, Charles.
Travis Stice -- Chairman and Chief Executive Officer
Thanks, Charles.
Operator
Thank you. One moment for our next question. Our next question comes from the line of Arun Jayaram of JPMorgan Securities. Your line is now open.
Arun Jayaram -- JPMorgan Chase and Company -- Analyst
Yes. Good morning, gentlemen. I wanted to keep on the A&D theme. You know, when we are assessing the potential of a large private or one of these unicorns to potentially consolidate, does it just come back to price, or is there something do you think that they think about in terms of the independent versus major oil business model that could be advantageous to a company with like Diamondback who's in Midland and, again, the lowest cost structures in the industry?
Kaes Van't Hof -- President and Chief Financial Officer
Yeah. Arun, we don't spend a lot of time thinking about what sellers think. We just think about what is the best opportunity available for our shareholders and creating shareholder value for our shareholders. And, you know, at the end of the day, I think Diamondback, you know, hand on heart as one of the best positions remaining in North America and the best cost structure.
And that should be a very winning combination for our shareholders for a long time here.
Arun Jayaram -- JPMorgan Chase and Company -- Analyst
Understood. I want to maybe switch gears and just talk about the D&C efficiency gains, really surprised to see this year. The drilling efficiency gains -- seems like the drilling efficiency gains are outpacing maybe what we're seeing on the completion side. Are you guys recalibrating, call it, the rig to frac crew ratio? But give us a sense of maybe what you're doing on the drilling side for these efficiency gains and maybe help us recalibrate what that drilling the SimulFRAC crew ratio looks like today.
Kaes Van't Hof -- President and Chief Financial Officer
Yeah. It's interesting. We really haven't thought about the rig-to-crew ratio in a long time because just changed so much. I think we've moved to a world where we know how many wells we need to drill and how many wells we need to complete in a year to hit numbers.
And the drilling side, maybe a year ago that was 15 to 16 rigs for a full year. And now this year, in upcoming, it looks more like 14 to 15. So, the amount of work that our planning team does on the plan and how we're doing relative to plan is pretty astounding and how far ahead they are on these paths. And when we need to pick up a rig and when we need to drop it, you're really kind of just targeting, can we keep those SimulFRAC crews busy consistently? And, you know, I guess the number is kind of in that high threes, almost four rigs to one SimulFRAC through today.
Danny Wesson -- Chief Operating Officer
Yeah. Arun, I think, you know, like Kaes said, our goal is to keep the drilling program ahead of the SimulFRAC fleet and just keep the SimulFRAC fleet moving in efficient just like we want to keep rigs moving from pad to pad without waiting on pack instruction or whatever. So, we kind of see them as two different, you know, programs altogether, knowing that they're very dependent on each other. But I think the drilling and completion teams both this year have really done an excellent job of leaning in and, you know, pushing the machine to the limits and finding the little pieces of efficiency gains that can pick up.
And we continue, as we've always done, to tinker and find better ways to execute our development strategy and build a better mousetrap. And when we find different ways to design these wells and execute that, we'll lean into it and continue to chase that the efficiency line.
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
Next question comes from the line of Scott Gruber of Citigroup. Your line is now open.
Scott Gruber -- Citi -- Analyst
Yes. Good morning and congrats on another good quarter. I want to follow up on Arun's question, just on the activity set in the next year. And get some more clarity on the plan for the DUCs.
And so, it sounds like you could be running, you know, the 14 or 15 rigs. Will you end up drilling, 330 or so wells by running 14 or 15 rigs, or will the base plan for next year contemplate a drawdown of some of those excess DUCs?
Kaes Van't Hof -- President and Chief Financial Officer
I don't think we're planning on drawing any down, absent any in the field issues. I think generally, we feel a lot better at this level of DUCs for the size of projects that we have ahead of us. Earlier this year, we were getting pretty close, that the rigs -- or the frackers were getting pretty close to the rigs getting off location and 20 well pad or 24 well pad or however you want to break it up, you know, you have to have all 24 wells done before you can bring on the drilling side, before you can bring the fracker in. At least that's how we do it.
And, you know, that's why that kind of 150 number, we mentioned feels like a much more balanced number going forward.
Scott Gruber -- Citi -- Analyst
I got you. So, the inventory count is, under normal conditions, is just going up. I got it.
Kaes Van't Hof -- President and Chief Financial Officer
Yeah. This feels like a good inventory number. Again going back, we're not -- these aren't the days of, you know, two well pads where something bad happens, you can pull out the pad and go somewhere else. These are long-cycle mini -- you know, Danny like to call mini offshore projects given the amount of dollars that go into a project before first oil comes online.
Scott Gruber -- Citi -- Analyst
That makes sense. And good detail on, you know, all the cost trends across the various, buckets on Slide 10. If you think about, you know, going through RFP season for various services, I know you have some longer-term contracts in place, but do you think you'll see any continued deflation across any of the major buckets as you go into '24? Or are those starting to stabilize now?
Kaes Van't Hof -- President and Chief Financial Officer
Yeah. I think -- we think, you know, it's kind of stabilizing right now. And then, for us, there really is no RFP season, right? RFP season is every day coming back. If something's cheaper and we can do something cheaper or replace something with something cheaper, it's going to happen right away.
It's not going to wait, you know, for next season or for the summer. It's going to happen now. So, it's a constant RFP season here. And these are all real-time costs that the team has to present to Travis on a line-by-line basis every quarter.
And, you know, this is a real-time look at where we are and where things are headed. As you noticed, we put a Q4 2023 number in there just to kind of show where even we've moved from Q3 to Q4.
Scott Gruber -- Citi -- Analyst
Got it. Appreciate the color. Thank you.
Kaes Van't Hof -- President and Chief Financial Officer
Thanks, Scott.
Travis Stice -- Chairman and Chief Executive Officer
Thanks, Scott.
Operator
Thank you. One moment for our next question. Our next question comes from the line of Leo Mariani of ROTH MKM. Your line is now open.
Leo Mariani -- ROTH MKM -- Analyst
Hey, just wanted to follow up a little bit on '24. If I'm kind of reading this right, it looks like you guys are talking about a rough budget next year of just a hair over $2.5 billion. Sounds like that's kind of flat activity. Just wanted to get a sense of kind of what's assumed in there for inflation or deflation? Are you just kind of assuming sort of current well costs in that number?
Kaes Van't Hof -- President and Chief Financial Officer
Yeah. I mean, we're always kind of a little conservative here, Leo. So, I would say we're kind of in the range of where we think we are today. You know, again, we think generally service costs have kind of modeled or flattened out.
And, I've seen a major change in rig count. This feels like a pretty good range for next year.
Leo Mariani -- ROTH MKM -- Analyst
OK. And then, just to follow-up quickly on the M&A topic here. I think you guys have made it pretty clear that, you know, you want to continue to be a consolidator over time with your cost advantage. I guess at the same time, just kind of, you know, you guys talk about kind of a $60, you know, type of budgeting case, for oil, obviously, been above there.
Is there any, you know, scenario where, you know, FANG thinks about potentially going the other way and actually selling at the end of the day?
Travis Stice -- Chairman and Chief Executive Officer
You know, Leo, I tried to address that a little bit in my opening comments as one of the first questions and also in my letter. Look, we'll always do the right thing for our shareholders we've been -- I feel like we've done that for 12 years now. But again, what our focus is on delivering our business plan, and we believe in our business model. We believe that there's a meaningful spot in our investment community for a company like Diamondback, and we continue to execute flawlessly.
And I think I'm really confident about what our forward plan looks like.
Leo Mariani -- ROTH MKM -- Analyst
OK. Thanks.
Travis Stice -- Chairman and Chief Executive Officer
Thanks, Leo.
Operator
All right. Thank you. And one moment for our next question. Next question comes from the line of Paul Cheng of Scotiabank.
Your line is now open.
Paul Cheng -- Scotiabank -- Analyst
Thank you. Good morning. Two questions. One, one of the way that to reduce costs, I think the industry is moving for electrification.
And sort of about that, wondering if you can give us some idea that how far along on your process in doing so. And secondly, that with the Deep Blue -- I think in the past that, you guys are very proud of your water infrastructure and all that. So, is that signaling that now you have a change of view of what kind of infrastructure need to be owned by or need to be controlled by Diamondback going forward? So, should we just assume that this means that you really don't think that's necessary for you to have control or to own those infrastructure. Thank you.
Travis Stice -- Chairman and Chief Executive Officer
Yeah. Good questions, Paul. I'll take the second one first, you know, on the midstream infrastructure, you know, we spent a lot of money building those systems to the specs that we needed. And so, I think we're not turning over a blank canvas, right? This is a painting that's already been, it's finished finishing touches.
And so, we feel confident, particularly with a lot of our field team members going over to Deep Blue to run the asset that will be well served as its largest customer and also a large equity holder. So, I think if we were early in our development plan, might be a different story. But in this case, it's a very well built-out system that is kind of readymade to turn over to them to, in our minds, do some more things commercially that we couldn't do as a stand-alone water enterprise. And then your other question on electrification, you know, certainly a hot topic in the Permian.
You know, I think, generally electrification means both lower cost and lower environmental footprint. And that's a great thing for us in the basin. And, you know, we've done a lot of work ourselves. I think the state of Texas and the utilities need to kind of do their part to get more power out to the Permian to connect to all of us so that, you know, we can run off of line power versus different forms of generation in the field.
So, I think that's going to be a constant battle that we're intently focused on. And, again, it saves us money and improves environmental performance that that feels like a win.
Paul Cheng -- Scotiabank -- Analyst
Just curious then, I mean, what percent of your operation now here has already been electrified and where you think is the biggest opportunity over the next one or two years.
Kaes Van't Hof -- President and Chief Financial Officer
Yeah. We've got about 90% to 95% of our current production operations electrified. We've been -- you know, the biggest opportunities we've been working on today in the production operations world have been electrification of our compression fleet. And I think we're probably, you know, 70-ish percent electrified there.
So, we'll continue to work on, you know, getting rid of our, you know, gas recip compressors and putting electric packages, in their place. And then on the D&C side, you know, we've got two SimulFRAC fleets that are Halliburton, what they call their ZEUS fleets, their electric fleets. And, you know, we've really enjoyed the benefits of those and, you know, look forward to continuing to try and electrify the completion world. And then, on the drilling side, you know, we've got, I think five or six rigs running right now on line power.
And we're continuing to, you know, put in the infrastructure that we need to run those rigs off line power as the supply chain kind of frees up, you know, on the back of COVID, and we can get the electrical equipment we need to convert those rigs. So, you know, it's kind of all over. But we're working on it as fast as we can. And I anticipate that over the next four or five years, there won't be much of the field that's not electrified.
Paul Cheng -- Scotiabank -- Analyst
Thank you.
Operator
All right. Thank you. This does conclude the question-and-answer session. I would now like to turn it back to Travis Stice, chairman and CEO, for closing remarks.
Travis Stice -- Chairman and Chief Executive Officer
I appreciate all the good questions this morning. I hope you find our shareholder letter constructive in the way that we can help communicate details about our business plan. The last comment I want to make before we sign off is that we have an opportunity this Saturday to recognize all of our veterans across this country on Veterans Day, certainly for all of the veterans that are employed by Diamondback, thank you for your service. And then, anyone that's on the phone that also dedicated a portion of their lives to our country, I want to tell you, thank you for your service as well.
And then, particularly for the Diamondback employees, hopefully, we'll see you at breakfast or lunch ceremonies that we have planned for this Friday. So, thank you. You all have a great day, and God bless.
Operator
All right. Thank you for your participation in today's conference. This does conclude the program. [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
Neil Mehta -- Goldman Sachs -- Analyst
David Deckelbaum -- TD Cowen -- Analyst
Scott Hanold -- RBC Capital Markets -- Analyst
Roger Read -- Wells Fargo Securities -- Analyst
Derrick Whitfield -- Stifel Financial Corp. -- Analyst
Danny Wesson -- Chief Operating Officer
Kevin MacCurdy -- Pickering Energy Partners -- Analyst
Jeoffrey Lambujon -- Tudor, Pickering, Holt and Company -- Analyst
Nitin Kumar -- Mizuho Securities -- Analyst
Charles Meade -- Johnson Rice and Company -- Analyst
Arun Jayaram -- JPMorgan Chase and Company -- Analyst
Scott Gruber -- Citi -- Analyst
Leo Mariani -- ROTH MKM -- Analyst
Paul Cheng -- Scotiabank -- Analyst