Diamondback Energy, Inc. (FANG) Earnings

Management highlights

### Production & Operational Efficiency - Achieved over 21 hours of average daily pumping time on completion crews, a significant operational efficiency improvement; management targets 5,000 feet of lateral drilled per day across all crews within the next 1-2 years, pushing toward near 24-hour continuous pumping long-term. - Drilling time per well has fallen dramatically from 30 days to 5 days, driven by continuous incremental innovation in well construction, targeting, and stimulation. Lower per-foot costs are achieved partially through longer average lateral lengths, which spread fixed infrastructure costs across more producing footage. - LOE fell below $6 per barrel in Q2, driven by production outperformance and post-Endeavor integration automation efficiencies; management expects LOE to stabilize around the $6 range for the remainder of 2026. - U.S. electric frac fleet conversion is complete, which has mitigated fuel cost inflation pressures. ### Development & Technical Initiatives - The Barnett Shale position has been expanded and blockaded up for large-scale development, with the first 4-well pad drilled and awaiting completion; drilling costs have fallen to ~$400 per foot, making Barnett returns competitive with core Permian assets. - Enhanced Oil Recovery (EOR) via surfactant treatments is an ongoing priority initiative: 12 wells were completed in Q2, with initial positive results, and management views improving basin recovery factors as a long-term mega-theme for the company. Early results show wide variability in uplift, with some wells seeing production increases of 100-150 barrels per day, and the program is expanding to test EOR on new completions as well as existing wellbores. - AI and automation are being deployed first for artificial lift optimization and predictive maintenance, which has already reduced downtime; management expects AI to further lower LOE and shallow base production declines over time, still in early innings of deployment. ### Gas Strategy & New Business Development - New pipeline takeaway capacity has come online, lifting Waha gas prices out of negative territory in July, providing near-term margin relief. Management is pursuing long-term contracted takeaway to Gulf Coast and LNG export markets, and views Permian gas as a long-term growth opportunity. - A 30,000-acre shovel-ready power generation project at Bryant Ranch is advancing, targeting first power in H2 2027 via behind-the-meter units, with grid-connected power possible by 2028; the project will provide new in-basin gas demand with contracted pricing that delivers material margin uplift vs. recent Waha prices, and can be replicated across the company's acreage. Diamondback will focus on providing gas, land, water, and operational expertise rather than operating power/data center assets directly. ### Capital Allocation - The company removed its prior minimum free cash flow return commitment to retain flexibility to maximize option value in a volatile market; management maintains a flexible approach, leaning into buybacks when share prices are attractive relative to mid-cycle NAV and prioritizing debt reduction at other times. In Q2 2026, the company reduced net debt by $1.6 billion and deployed capital to share buybacks during periods of price weakness.

Guidance

- Management currently expects low single-digit organic production growth for 2027, up from holding production flat at 2026's elevated level, driven by the expectation that low global oil inventories will need to be refilled, supporting a long-term price floor for crude. The company retains flexibility to adjust plans quickly if market conditions change. - Quarterly capital run-rate to hold production flat exiting 2026 is expected to be in the range of $1 billion to just over $1 billion, with low expected inflation (only ~1% total well cost increase from rising casing prices, which will be offset by efficiency gains). - Non-D&C capital spending for 2027 is expected to be slightly higher than 2026's $600 million, with higher upfront infrastructure spending for new large-scale Barnett development that will decline over time. - Gas production is expected to trend gradually higher as the Barnett, which has higher gas-oil ratios, becomes a larger portion of the development program.

Segment performance

No explicit segment-level financial results (absolute revenue or revenue contribution percentages) were disclosed in this call. Management referenced outperformance in natural gas production vs. internal expectations, and ongoing development expansion in the Barnett and Wolf Camp D zones, but no formal segment-level financial metrics were provided.

Risks & headwinds

- Oil and gas prices are highly volatile, with ongoing macro and geopolitical uncertainty creating unpredictable market conditions; the company mitigates this by retaining operational and capital allocation flexibility to adjust quickly to market changes. - Further growth in U.S. onshore drilling activity could increase oilfield service cost inflation beyond current expectations, with additional pressure possible if rig counts continue to rise from current levels 60 rigs above the recent bottom. - Gas takeaway constraints have historically pressured Permian gas prices; while new pipeline capacity has provided near-term relief, long-term access to high-value markets remains a core challenge that the company is addressing via new contracted capacity and in-basin demand projects.

Analyst Q&A

• Q: Given management's view that global oil inventories will remain low long-term, will Diamondback continue growing production into 2027? /

  A: Management confirms data shows both crude and product inventories are draining, and will need to be refilled absent permanent demand destruction, creating a long-term price bid for oil. The company already raised 2026 production 3-4% from original plans in response to March price signals, and is currently targeting low single-digit organic growth in 2027 while maintaining capital efficiency, running five frac crews consistently. The company retains flexibility to adjust to any market changes.

• Q: How is Diamondback achieving leading well productivity while maximizing per-acre value? /

  A: Productivity gains are the result of stacked incremental innovations across well construction, stimulation, and targeting, built up over years of continuous improvement. The company blends an optimal mix of wells per section and production per well, paired with the industry's lowest cost per well, to generate maximum net present value per acre. Specific improvements include larger tubulars for more aggressive flowback, optimized stage architecture and perforating, and refined well targeting within each development spacing unit.

• Q: What is the update on the gas market, takeaway constraints, and the company's power/data center project? /

  A: New pipeline projects have started service, lifting Waha prices into positive territory in July, providing near-term relief. Management views Permian gas as a long-term growth theme, and is securing additional contracted takeaway to Gulf Coast LNG markets. The joint Bryant Ranch power project is shovel-ready, with first power expected H2 2027, awaiting ERCOT eligibility confirmation in August. The primary benefit for Diamondback is new contracted in-basin gas demand that will uplift gas realizations, with additional potential land and royalty revenue. Diamondback will stay focused on its core competency of supplying oil/gas/land, not operating power or data center assets.

• Q: How does management balance balance sheet strength, debt reduction, and share buybacks? /

  A: Management is building cash to cover upcoming 2026 and 2027 bond maturities, and to address longer-term maturities in 2029-2032, and is comfortable holding excess cash on balance sheet as a prudent measure at this point in the cycle. Cash is not being accumulated to fund large cash M&A; management maintains a disciplined approach to small, accretive bolt-on acquisitions. The company will lean into buybacks when shares trade below mid-cycle NAV, and prioritized debt reduction in Q2 2026, retaining full flexibility to adjust capital allocation to market conditions.

• Q: What is the update on the Barnett Shale development program? /

  A: Diamondback has built a large, low-cost Barnett position via accretive leasing and small bolt-on acquisitions. The first full 4-well pad is drilled and will be completed in the coming months, which will provide full section data to confirm returns. Drilling costs have already fallen close to $400 per foot, making Barnett returns competitive with core Permian assets, and development will scale up in 2027.