Diamondback Energy, Inc. — Call Transcript 2026

Speaker 1: Good day, and thank you for standing by. Welcome to the Diamondback Energy First Quarter 2026 Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press 11 on your telephone. You will then hear an automated message advising that your hand is raised. To withdraw your question, please press 11 again. Please be advised that today's conference is being recorded. I'd now like to hand the conference over to your first speaker today, Adam Lawless, VP of Investor Relations. Please go ahead.

Speaker 2: Thank you, Corey. Good morning, and welcome to Diamondback Energy's first quarter 2026 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 Kay Spantoff, CEO, Danny Wesson, COO, Jerry Thompson, CFO, and Al Barkman, Chief Engineer. 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 Case. Thanks, Adam, and welcome, everyone. As with the last few years, we're going to go straight into Q&A. So, operator, please open the line for questions.

Speaker 1: Thank you very much. One moment. As a reminder, to ask a question, you can press 11 on your telephone and wait for your name to be announced. To withdraw your question, please press 11 again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Neil Mehta of Goldman Sachs. Neil, your line is open.

Speaker 3: Yeah, good morning, Kase, and good morning, team. So I guess the big development here today that you've been signaling is the move to a green light framework from yellow light, adding the two to three rigs and moving to the fifth completion crew. So if maybe you just take a moment for the investors on the line to talk about the thought process that went into this decision and just how you're thinking about where and when to add activity.

Speaker 2: Yeah, Neil, I mean, it's a good question. I think there's some macro elements as well as some micro elements, and we'll go through Both of those, I think from a macro perspective, obviously there's a clear market signal, we're two months into the world's largest oil supply disruption in history, and I think Diamondback and Diamondback shareholders are very fortunate that you know we're solely based in West Texas we're kind of kind of tourists in this in this situation but it's obviously a very serious situation with you know a lot of oil supply off the market and so you know if that isn't a signal to grow production and an advantage area like the Permian Basin then I don't know what is and you know we hope there's a resolution to the conflict but even if there is there's a lot of a lot of noise in the system and a lot of barrels have been taken off the market. So that's kind of the macro signal that we've been looking at as a board and a management team. Obviously, global inventories are starting to decline very rapidly, and we're going to do our small part to add some production into the mix. And then you go down to the micro level or the Diamondback level, I mean, listen, with the best inventory quality and depth in North America being executed at the best cost structure, if this isn't the time to grow now, then I don't know when is. And so that decision at a micro level was honestly fairly easy. And I think the last piece about it is we're able to do this in a very capital-efficient manner and get it done very quickly because we have this backlog of ducks and we prepare our business for up, down, or sideways, we're able to just make one decision and add a frack crew a lot earlier in the year and get that production up immediately. So I think it's a testament to the team's preparation, everybody in the organization working together and being able to do this very, very quickly, whereas I think in other organizations it might take a little longer to make that decision.

Speaker 3: And then the follow-up is just on the return of capital framework. You didn't move away from the fixed framework in there while you bumped the dividend, you indicated that you might be slowing down the buyback a little bit. So can you talk a little bit about that, what you intended to communicate with that and then There is a very concentrated ownership base here. And if the family ultimately is going to sell into the market or sell down their stake, do you still view Diamondback as a logical buyer to help offset that potential risk on the stock?

Speaker 2: Yeah, I mean, let's take it a little higher level, right? I mean, I think allocating capital is the most important job we have to do as a management team. and you know the the um you know the history of the return of capital program for both ourselves and the industry you know was put in place after the covet you know near extin near extinction event of the industry and you know investors said hey i want my money back and i want it in a formulaic manner and i think that's worked very very well um you know over the last few years and you know i don't expect our ability to return capital to stockholders to change, we just want the flexibility to make more cyclical moves versus moves within a 90-day window within a quarter. We have a really, really good track record of buying back our own stock. We bought back 42 million shares for $6 billion to date at $148 a share. Clearly, with the stock where it is today, that's a very positive rate of return for our stockholders, and I expect that to continue. We recognize we also have a large shareholder that we found a way to help monetize their stake in a very efficient manner. And I think you know outside of their state they're most focused on us creating long-term value and you know allocating a ton of free cash to uh the balance sheet in times of extremely high oil prices you know does create long-term value with a you know in our mind a higher floor for the stock long term so i wouldn't expect anything to change you know we're we have a great relationship with the family i think we have the ability to help them monetize and and if we use kind of excess free cash flow over the next couple of quarters to pay down debt, we can help monetize their stake actually more efficiently coming out of this. They're long-term holders, and they want the stock higher.

Speaker 3: That makes sense. Thank you, Keith.

Speaker 2: Thanks, Neil.

Speaker 1: Thank you very much. Our next question comes from the line of Scott Henold of RBC Capital Markets. Scott, your line is open.

Speaker 3: Yeah, thanks. You all had some pretty robust production performance in one queue. And based on our chat last night, it sounds like your completions were as planned. Can you just walk through some of the specifics, why performance was so strong? It sounds like it was a lot more well performance just versus any other kind of dynamic, just give us a little bit of cut on that. And is that something we should anticipate moving forward and what's embedded in guidance?

Speaker 2: Yes, Scott, I'll give a couple of high level and then let Danny talk about some of the details. But high level, our well performance year-to-date looks up relative to last year. I think that is probably a surprise even to us internally, but we've always continued to try new things in terms of completion design and efficiency that I think is starting to pay dividends. So I think that's helping. That's one thing. I think the other side of the business, the production side of the business, which we've been talking a lot about over the last couple of quarters, there's just kind of a lot of good things happening in the field in terms of less downtime, more automation, call it AI, call it automation. impacting that side of the business. So I think better wells and lower downtime, that's a good recipe for production beat.

Speaker 3: Yeah. Scott, you know, Case alluded to it, but we post the Endeavor merger and getting the team together, we started trading a lot of ideas on what we were doing to really optimize primary completions as well as the base and we talked about it over the past few quarters, but some of the things we're seeing on the completion optimization side with perforating strategies, raid design and sand loadings, we think we're seeing some uplift in the wells and time will tell as we continue to implement that completion design, but also on the production side, some of the stuff we're doing on the work over side, some of the asset jobs the chlorine dioxide jobs the surfactant jobs we're starting to see that pay dividend and and really you know layering on that machine learning you know as we continue to look at our data streams and processes and and layered on machine learning and and trying to you know start working towards you know implementing ai into our field operations we're seeing that downtime come down and uh you know it's been a big part of our of the beat in Q1, just really that little bits of optimization across the board starting to show through to the top line number. Great. And as my follow-up, when you guided oil, you talked about like it looks like you're very greater than, potentially, 520 a day.

Speaker 1: And can you just talk through?

Speaker 3: You know, if you.

Speaker 1: Continue to see this macro environment, how much desire is there to kind of continue to let that oil production?

Speaker 3: Grow versus curtail it? And is there a scenario where you'd actually?

Speaker 1: Even look to step it up even higher if the macro continues to be heightened.

Speaker 2: Yeah, I mean, it's a great question, Scott. And I think it's kind of a very fluid situation. And I think the boards wanted us to take this kind of quarter by quarter. Obviously, if there's outperformance and then we still have triple-digit oil prices and the market's still calling for oil to come to market, then I think if this is a year where instead of pulling back activity, you kind of just keep the efficiencies going and production continuing to climb. But listen, it's going to be fluid, right? We're only two months into this. conflict and it could be resolved today but you know and who knows what happens to the macros i think we're just ready to uh react we still have some things in our back pocket to to grow further but for now this kind of five twenty plus uh thousand barrels a day on oil is is the new baseline.

Speaker 1: Thank you thank you very much Our next question comes from the line of Neil Dingman of William Blair. Neil, your line is open.

Speaker 3: Good morning, Kays and teams. Thanks for fitting me in. My question is also on your activity. Specifically, Kays, how much, if any, will negative Waha prices impact what you might or might not do? And then same question with oil service prices and maybe ask about are you expecting OFS in place and given what's going on with prices?

Speaker 2: Yeah, Neil, I mean, on the Waha side, obviously, the pricing is deeply negative. We're well protected with financial and physical hedges. Our mix of physical to financial is going to be moving more towards physical when these two new pipes come on, hopefully, the second-half of the year. So I think we're pretty well protected to get through this tight spot from a financial perspective where we can continue to add oily inventory, right, where we're drilling some of the oiliest stuff in the basin. So I think we're pretty well protected there. We'll continue to work on our physical protection on the gas side. We've worked on a power project now for almost a year, and we'll see if we can get that done. But we've talked at length about monetizing our gas, and we're kind of on the cusp of that. That's starting to happen here when these pipes come on. But Danny, on the service side, what are you seeing?

Speaker 3: Yeah, I mean, we haven't really seen much pressure to date on the service uh you know inflation or service pricing side of the story it's it's really a capacity uh question and and you know what does the service capacity look like and haven't seen industry activity ramp uh aggressively uh through these first couple months of of this conflict and uh and so you know there's still quite a bit of capacity out there in the rig space and in the completion space and uh you know where the calendars are are not uh squeezed enough yet for them i feel like to to be able to push pricing on on to the uh the guys when they go out and and you know look for this additional equipment i we have seen obviously some inflation and and some of the consumables you know and and things that are tied directly to the commodity price but you know those have been pretty minimal thus far and and we'll just have to see what activity does not only in the permian but in the lower 48 to see what we anticipate service inflation to do through the rest of the year. Thanks, Danny. And then second question, just on capital allocation, especially given the continued record free cash flow growth per share, you'll likely have. Kay, I was wondering specifically, how do you believe capital for M&A stacks up maybe against buybacks or simply the near-term debt repayment? Maybe you factor that in or maybe just talk about capital allocation?

Speaker 2: Yeah i mean you know neil i think i think you know my first day of my first finance job in new york city i was asked the question what can a company do with their free cash flow and if we're going to go through all the options you know you can grow right either organically or inorganically so organic growth we've decided to hit that lever today in a small way by going to the top end of our tapex guidance uh inorganic growth which you know m a we've obviously been very very good at m a over the over the years i think this volatility is kind of difficult to get deals done, private or otherwise. So I think generally, M&A is probably fairly quiet at Diamondback for the foreseeable future. And then you go down the other options of what you can do with your free cash, you can pay a base dividend, which we did and decided to increase today, or you can pay down debt, buyback shares, or you can just put the cash in the balance sheet, and I think with oil prices where they are. I don't know if investors are capitalizing this price environment yet today. And so for us, the bigger use of free cash is going to be to pay down debt rapidly and convert that debt value to equity value in our NAV and keep some cash for a rainy day because this is a very volatile environment and it can flip pretty quickly.

Speaker 3: Makes sense. Thanks, Kate. Thanks, David.

Speaker 2: Thanks, Neil.

Speaker 1: Thank you very much. Our next question comes from the line of Arun Jairam of JPMorgan Securities. Arun, your line is open.

Speaker 3: Good morning, gentlemen. Kase, the calendar '26 and '27 strips are around $90 and $75. How do you think about your approach to development in a much stronger oil price than we sat just call it 90 days ago. And I was wondering if you could just maybe highlight for the two to three incremental rigs, how are you thinking about capital allocation across your asset base? And is the deeper benches now an area that are now competing with capital as you get down some of those well costs in the Barnett?

Speaker 2: Yeah, I'll let Danny and Al talk about latest Barnett developments, but just from a capital allocation perspective, Even with higher commodity pricing, we're still going to hold to the vast majority of our spacing assumptions throughout the basin. we always kind of look at each project and that's kind of on a DSU by DSU level basis and kind of say, hey, let's get as many wells in this section as possible to where the incremental well, the last well that we add generates a 40% rate of return at $60 oil. And so we think that provides prudent spacing, but also a solid rate of return to our shareholders despite the commodity price volatility. So I think drilling our best stuff first and sticking to that, knitting in terms of spacing is going to continue. Clearly the Barnett, particularly with the size of these wells from a production perspective, generates more PV today, so that's getting more attention. But Al, you want to give anything on the latest Barnett?

Speaker 3: Yeah, I think that's right, Arun. I mean, you know, looking at the acceleration of the plan coming in with these two rigs, you know, really that's the acceleration of the Barnett plan. And we're focused on that development and really it's just kind of getting ahead of the Barnett obligations that we talked about last quarter. Yeah, and I'll just add that the Barnett activity and the obligation activity is almost entirely focused On the JV area that we have with another partner, and those wells are, not as high working interest, they're about, about half and half, a little bit heavier weighted on the Diamondback side. So the two or three rigs we're picking up on the Barnett activity to get ahead on the JV area is really like one and a half net rigs to Diamondback. So while the top line looks like we're adding a bunch of activity in the back of the year, net to us, it won't be nearly as impactful. Yeah, great. My follow-up is maybe for Jerry. You guys have taken, call it, pro forma debt, I believe net debt down to $12.7 billion. Jared, I was wondering if you could highlight, given the intention to pay down more debt in a higher commodity price environment, what are some of the targets you're looking for for the balance sheet from either a gross or a net debt perspective?

Speaker 2: Yeah, Arun, great question. I think we've talked previously about hitting that $10 billion net debt figure sometime in the next 12 to 18 months. Obviously, with where we are from a commodity pricing standpoint and some excess free cash flow generation, it looks like we'll be able to hit that much earlier to the tune of a couple months from now. And then as we move into the back end of the year, I think we'll have an opportunity to not only reduce net debt, but also gross debt. So likely build cash on the balance sheet through the fourth quarter. And then once we get into the fourth quarter, take a look at, obviously, calling our 750 million of 26 is outstanding. And then as we move into 2027, take a look at maybe doing a larger liability management exercise with additional cash on the balance sheet with the idea of trying to take out as much as we can from a near-term maturity perspective particularly as it relates to anything that matures prior to 2030 so i think we're really in a really advantaged position to move our balance sheet from a position of strength to really kind of an adjective of fortress and we can do that in the very near term great thank you

Speaker 1: thank you very much Our next question comes from the line of John Freeman of Raymond James. John, your line is open.

Speaker 2: Thank you. Good morning, guys. You know, even after increasing activity, the reinvestment rate for y'all still fell pretty sharply from, you know, what y'all were originally planning last quarter from, you know, 44% to 34% at the current strip. So, you know, obviously y'all had the ability if you wanted to even increase activity more and still would have likely had kind of an industry-leading kind of low reinvestment rate.

Speaker 3: I know that returns ultimately drive you all's decisions, but is there like a reinvestment rate that you all just want to stay below regardless of some kind of a commodity environment?

Speaker 2: Yeah, John, I mean, that's a good question. I mean, I think I'd probably take it a little different direction where obviously, we've been pulling investors that own the stock to get their opinion on how they feel about growth and ramping activity. And I think the general consensus was Yeah, I think a little growth in the plan, you know, will differentiate Diamondback and makes a lot of sense. I just don't want you to do it in a capital inefficient manner. And so, you know, if you think about what we're basically doing here, you know, we were going to run somewhere between four and five frac crews in the model to hit our original guide. And, you know, that fifth frac crew was going to go away for five or six months and then come back and, you know, it's a... Halliburton, eFleet, Simulfrat, you know, as efficient as it gets crew. And so we're just bringing that crew back and gonna run the five crews essentially, you know, consistently. And I think that will ensure, you know, we maintain capital efficiency in the field versus trying to go too fast, too soon, you know, which sometimes drives, has driven some inefficiencies in EMP's plans and Diamondback's plans. in years past. So I think trying to learn from the history of development in this basin, staying capital efficient is probably the priority. And I think the reinvestment rate becomes the output of that.

Speaker 3: That's great. And then just along those same lines, I know the original 2026 plan didn't forecast sort of any meaningful duck draws or builds.

Speaker 2: Can you just give us a rough idea kind of how that looks now with the new plan? Yeah, it's kind of a story through the year, right? So we're gonna draw down the ducks in Q2 and backfill that with two rigs worth of activity to make sure we build our duck balance back up. We're basically, we peaked at a little over 200 ducks in Q1. That number's gonna come down over Q2. And then the backfill rigs start to build that back up. So in general, and Danny can opine, but we're gonna have to keep a little bit higher duct balance than we would running four crews, 'cause we have, we like to have two projects behind each crew ready to go, because if something bad happens, then we just move to another project and it looks like everything's going great. Diamondback on a quarterly basis. So probably need to maintain somewhere in the high hundreds, around 200 ducks, and that's kind of where we are today, but there's going to be some movement throughout the year.

Speaker 3: Yeah, I mean, we like to keep kind of a quarter quarter and a half worth of inventory ahead of each crew, just so that we can have flexibility if we run into an issue on a pad with takeaway constraints or something like that. And so if you think about each of these crews will do about 100-ish wells a year, maybe a little more. And so the case is full, you hit the nail on the head, a couple of hundred wells ahead of these five fleets is kind of the right carry number of the duck balance. But obviously the more efficient we get and the guys are always chasing the efficiency curve and you can see it in, I think it's a slide nine in our deck today, the improvement quarter over quarter and as the crews get more efficient and get more wells done, it either means we got to release crews to keep the same well count or we got to build more ducts to stay ahead of them. So it's a dynamic and fluid situation, but I think We're talking about adding 20 to 30 wells to the year in total and still being able to stay within our original guidance window, which we took the momentum from Q1B and just kind of kept it going through the rest of the year. Thanks, guys. Appreciate it.

Speaker 2: Thanks, John.

Speaker 1: Thank you very much. Our next question comes from the line of Betty Jiang of Barclays. Betty, your line is open.

Speaker 3: Hi, good morning. Thank you for taking my question. I actually want to ask about your crude oil marketing. So 1Q pricing was a bit stronger. Can you just remind us your exposure to premium price indices and yet the marketing strategy in general on the oil side yeah

Speaker 2: from a strategy perspective betty you know we we learned from the kind of the permian takeaway crisis of it was a 2018 that you know we needed to use our balance sheet to get our crude to the biggest markets and you know for for us that was you know let's get more crude down to corpus christi and as well as houston and so we have you You know, if you remember, we invested in three pipelines, Epic, Gray Oak, and Wink to Webster, all of which made our investors a lot of money, but also protected Diamondback from a commercial perspective. So, you know, we have about 300,000 barrels a day going down to Corpus on Epic and Gray Oak. And then we have about another 100,000 a day going down Wink to Webster, you know, feeding kind of Refinery Row in Houston. And so we're kind of, you know, pretty exposed to, you know, call it water-based pricing, you know, even have one small contract that has some dated Brent exposure. So that's been really helping us out. And, you know, I think that's a good playbook for what we're going to try to do on the gas side, right? I think we're a little behind because oil, you know, is 90-plus percent of our revenue and we've done a good job there, but the next trend is to improve that on the gas side.

Speaker 3: Got it. That makes sense. And then I want to ask about the acquisition line item. In one queue, there's just a few hundred billion. Are you guys doing any organic acquisitions and maybe picking up things that's good pricing? Yeah, can you just speak to that?

Speaker 2: Yeah, Betty, this is Jerry. there's a couple of small acquisitions that are in our backyard in the midland basin you know as a reminder in that line item we do have capitalized interest in capitalized gna and that made up you know the vast majority there um so that plus a couple of small acquisitions and then you know let's call it 50 to 75 million in leasehold bonus as well

Speaker 3: that's helpful thank you

Speaker 1: thanks betty thank you very much Our next question comes from the line of Philip Jungworth of BMO. Philip, your line is open.

Speaker 3: Thanks. Good morning. Can you talk about how you're viewing Viper ownership and what's optimal for Diamondback just because you did sell some in the quarter, but still on 39%? The company's free cash flow outlook's obviously stronger, so less need for divestitures. But is there any minimum level of ownership you'd kind of look to maintain? And how does that play into the overall capital allocation decisions?

Speaker 2: Yeah, I mean, we did sell down a little bit of ownership in Viper. It was kind of a follow-on from the dropdown where we took the Diamondback side took a lot of stock from Viper. In that deal, we could have probably taken more cash, but instead decided to wait. and then sell a little bit here last quarter. I would say we're done selling Viper shares at Diamondback. I do think the growth opportunity set for Viper is pretty significant. So could there be a world where Diamondback's ownership is reduced through dilution? I think that's possible. But no desire today to to monetize any more shares. I think if you just think about where both companies are going to be from a balance sheet perspective, in another few months, they're going to be well positioned to kind of do anything from an M&A perspective, and that's where we wanted to be.

Speaker 3: Okay, great, and then in the 2022, '23 upcycle, Private operators, they did drive an outsized share of rig additions, overall oil growth. You guys have a unique view here being based in Midland. And just wondering how you'd characterize the ability of privates in the Permian to respond to what we're now seeing as far as higher oil prices versus a couple of years ago, just because it also has implications for tightening of OFS markets?

Speaker 2: Yeah, that's a very important question, and it's gone into our calculus on on thinking about the market and thinking about adding activity. You know, if you go back to that 2022 upcycle, you had, you know, a company like Endeavor that's now part of Diamondback, they went from two rigs to 15 rigs. Crown Rock went from two rigs to eight rigs. That's now part of Oxy. Encap North, which is now part of Oventa, went from two rigs to six rigs. Double Eagle, which is, you know, now part of us, a combination of us and Exxon, went from you know one rig to six rigs i mean you know these were big moves on the private side and back then there was still a lot of private uh activity growth particularly in in in the midland basin that that has now been consolidated so i think there's going to be private growth i mean there the the private model has shifted to more of a uh you know smaller asset packages that they develop very very quickly uh farm into larger operators positions you know there's been a big growth in kind of that northern new mexico uh area but but by our math right that's that's twenty thirty rigs it's not it's not a hundred rigs like it was uh twenty twenty two so i think they're going to move very quickly i just don't think the the volume impact will be nearly what we saw in that twenty twenty two time frame

Speaker 1: great thanks guys thank you thank you very much one moment for our next question Our next question comes from the line of Scott Gruber of Citigroup. Scott, your line is open. Yes, good morning. Maybe I'll extend upon the last line of inquiry, kind of in light of what you just mentioned about the impact of the private case. How do you think about Diamondback's volumes, say, over the next five to 10 years on an organic basis? Do you think about Diamondback kind of being a in modest kind of growth mode over the next five to 10 years. And this may happen kind of stepwise when called upon by the market. But do you step higher during periods of elevated prices like today and then maintain that new level so that net-net you're growing? Or when commodity prices are soft, do you pare back on activity and let production fade back down? I'm just curious on how you think about the longer-term trajectory.

Speaker 2: Yeah, I mean, listen, Scott, I think I'll go back to my earlier comment that you know the operator with the best inventory quality and the lowest cost structure with the longest inventory depth probably has the right to grow organically and the right to do that and creates shareholder value so i think you know we've been talking about uh trying to hit the organic organic growth accelerator for you know for a while now we just haven't had the macro conditions to support it but you know i think in a world of And who knows what's going to happen where mid-cycle pricing is a little higher, let's call it 70 plus on WTI, 75 plus. Well, I think that's a world where from a total shareholder return perspective, a couple of percentage points of organic growth really adds to the NAV of the business and adds to the long-term free cash generation. And that's kind of one of the important points that we ran in the model this year was that this new plan generates more free cash flow in 2026 per share than than any other sorry more free cash flow per share at any oil price above $60 oil and so you know a 70 plus dollar world uh you know this

Speaker 1: is this is advantageous to to shareholders long term yeah it would certainly help differentiate diamondback um And then turning back to the capital efficiency of the investment program, it does appear to improve on the margin with the updated plan, but it's hard to separate the duck draw impact from adding rigs in the Barnett where you're still ramping, you know, on learnings and efficiency. But just in general, how would you describe the kind of underlying trend in capital efficiency, you know, especially as you lap the impact of the duck draw, say, kind of into 2027? you think you'll be able to show improvement kind of relative to the initial program this year?

Speaker 2: Yeah, listen, I think things like duck draws and bringing back ducks and Barnett, when you develop, I mean, I think that's all kind of noise, right? So below that noise, the team is executing flawlessly. I mean, we set, you know, records on the drilling side on two, three, four mile laterals, Wolfcamp D development, we gave the team a goal of uh 300 a foot for drilling uh down from 360 a foot drilling last year they're already at 300 a foot you know Barnett drilling we said the drilling guys need to be below 400 a foot to be able to get to 800 a foot uh to make the Barnett competitive with you know the base program well we already already put a well in in the ground under under 400 a foot so I think at the at the highest level you know the business is firing on all cylinders efficiencies continue to improve above ground but but the big move also is going to be you know are we drilling and completing actually better wells subsurface and you know those are all the drivers that that you know separate the noise of are you drawing down ducts this quarter or this month versus uh you know years past and and that's the long-term benefit to capital efficiency that's great appreciate the color thank you case thanks scott

Speaker 1: thank you very much our next call comes from the line of derek whitfield of texas capital derek your line is open

Speaker 3: uh good morning all and thanks for taking my uh questions case perhaps for you just regarding your share buyback and its guiding principles Where do you view mid-cycle pricing now in light of the current Middle East conflict and the risk premium associated with that? And could you speak to what you're seeing in degradation of inventory quality across the Permian, clearly beyond down and back?

Speaker 2: Yeah, I mean, I'll take the macro question first, Derek. If I wasn't long-term bullish, I'd be out of a job, right? So I guess we have to be long-term bulls, but also think about in practical terms where the situation is right now. And within three months, we went from the projected largest oversupply in history, which I think we can debate was not going to be the case, to now the largest under-supply in history. And we're only two months in. So I think it's hard for us to move off our mid-cycle pricing environment, which is kind of a mid-60s TI, kind of mid-teens NGLs and $3 gas, obviously with Waha diffs. But there's certainly a case to be made for energy security becoming a much more important thing for countries around the world to think about. I guess, wearing my oil hat, that probably means more storage, more landed storage versus storage that you can buy somewhere that's in a riskier geopolitical area. I think that means the US barrel is more important than it's ever been. But again, I think it's early for us to say mid-cycle pricing has gone up by x. The way we do think about kind of our positioning relative to U.S. shale and where U.S. shale's mid-cycle pricing is going is that, you know, we do believe the cost curve is going up. We do think, you know, operators have done a really good job with efficiencies, longer laterals, better development, but, you know, geologic time, you know, catches up to you and there's certainly clearly signs of degradation throughout the U.S. in terms of production or productive, you know, quality. so we just try to keep ourselves at the low end of that cost curve and i think we've done a very good job on that front both from a inventory depth and quality perspective but also the costs at which we execute on that inventory so i think i think we're very well positioned and i think it's a little too early for us to to go higher on mid-cycle pricing today

Speaker 3: fair enough and then as my follow-up i wanted to shift over to the barnett referencing the play outline on page sixteen How large could you reasonably grow this position beyond $200,000 that you're highlighting on the slide deck?

Speaker 1: And you clearly have one of the most prolific buyers of assets in Midland working with you, so certainly you have that in your favor.

Speaker 2: Yeah, I mean, you know, we did announce this position after we thought we had a pretty solid position on what we could get. I do look forward to, you know, we have continued to add to the position in Q1. on a small basis but i think what's exciting is you know now we're just starting to do a lot of trades you know a lot of the big operators have their barnett positions and we're all now looking at how can we how can we block up to three-mile laterals four-mile laterals you know there's obviously a lot of private equity kind of the small midland based private equity that's looking to build you know six seven eight eight section positions you know those probably come to market so i i think it's going to happen i think the position is going to grow But I think we have the sizable base we need to continue to grow it.

Speaker 3: Great update. Thanks for your time.

Speaker 2: Thanks, Derek.

Speaker 1: Thank you very much. Our next question comes from the line of Kevin McCushy of Flickering Energy Partners. Kevin, your line is open. Hey, good morning.

Speaker 3: Can you provide any color on the cadence of the net lateral footage per quarter throughout the year and also the lateral length per well? We would assume the additional 200,000 lateral feet is back half weighted, but any color there would help. Yeah, so I think it's going to be pretty evenly weighted here towards the back half, looking at we went up to kind of that 6.2 million lateral feed, right? So you're we're looking probably at 1.5 to 1.6 per quarter for the back half of the year there. Great, and lateral links per well should increase throughout the year too, is that right? Yeah, so looking at Q1, I think that was probably one of our lighter quarters. I think we were like 11.5 for Q1. And so for the full year of 2026, we still expect to be at 12.9, so we expect that to ramp kind of going through the back half of the year.

Speaker 1: Got it, appreciate that. And maybe as a follow-up, any updates on the surfactant tests?

Speaker 3: Yeah, so we had a big push towards the end of the year last year. Really wanted to get some tests in the ground and try some different surfactant combinations with some different rock types and understand what was driving the well performance there. And so we got those tests in the ground, we're looking at it, team studying it. And so we're refining the process and plan to move forward with our next deployment kind of early this quarter.

Speaker 2: Yeah, and Kevin, one thing I'd add to that, we tested 50 wells or so last year. On average, I think we got 100 barrel a day uplift. But some wells were up by 400 or 500 barrels a day and some wells were zero. And now we're trying to figure out what do we do right in the 400 or 500 barrel a day wells and what do we do wrong in the zeros. And we're going to figure that out. This is version 1.0. And that's what kind of gets me excited. I think from a high level, this basin and Diamondback, we're kind of on the cusp of some technological breakthroughs related to increasing recoveries, you know, past primary development. And I think, you know, that's probably going to be a mega theme over the next four, five, six years that you're going to see a lot of dollars and time spent on and, you know, that's kind of why we've held as much acreage as we have. You know, we have some of the best oil in place in the basin and, you know, we've got some of the smartest people in the industry working on this to do what I think could be something that extends this basin's life by a decade or two.

Speaker 1: Well, it certainly would be very meaningful. Appreciate the update. Thanks. Thank you very much. Our next question comes from the line of Gabe Dowd at Truist. Gabe Dowd, your line is open.

Speaker 3: Hey, sorry about that, guys. Morning. Thanks for the time. Just going back to the return of capital framework and pursuing growth this year, which obviously makes sense. But just curious if you could maybe talk a little bit about what an upper bound of oil production growth would be for Diamondback. Again, assuming you have the green light on the macro, is it fair to assume that it's 5% for Diamondback or would there be an environment where it could be even higher than that?

Speaker 2: Yeah, I don't want to get into a specific number. I mean, I think right now, we've already grown low single digits year-to-date. I don't think there's a ton of investor appetite for a large CapEx bump and something more than mid-single digits. growth but um i think it's i think it's early i think there's a lot of noise in the system and and you know no one's really sure how this macro is going to unfold and and that's why i think we're keeping our cards kind of close to the vest here um you know coming out with a a good forecast in q1 and then we'll see how the rest of the year unfolds but you know just pulling investor appetite i don't think there's um a lot of appetite for you know something like the gogo days of 2017 2018 where you had you know multiple capex increases in a year and and double digit you know mid double digit production growth so um you know we're going to keep it steady and capital efficient i think that's what we put out there today and kind of take this macro kind of quarter by quarter.

Speaker 1: Got it okay thanks kay that's helpful and then a follow-up for me would just be is there any?

Speaker 3: Update around your surface position in light of maybe a new market entry in that regard. Curious if there's any update on the conversations you're having there.

Speaker 1: Thanks, guys.

Speaker 2: Yeah, Kase alluded to it earlier as it relates to our power project, but we're still making pretty meaningful progress with our partners here and really view this power and data center opportunity as something that has a unique opportunity for us to use our natural gas in basin and advantage pricing. I think once we do get a project finalized, we'll be able to talk about it in more detail, but it continues to move forward.

Speaker 1: Got it. Okay. That's helpful. Thanks, guys. Thank you very much. Our next call comes from the line of Charles Mead of Johnson Rice. Charles, your line is open. Good morning, Casey, you and your team there. I'd like to go back to the, I think, with the... the big question this morning of the acceleration of CapEx, can you give us kind of an inside baseball account of how you came to that decision and I can imagine it could be the case that your board left you with a certain amount of latitude. Or alternatively, is this kind of thing where you kind of arranged in short order, maybe a telephonic or Zoom board meeting and just had a quick 30-minute meeting where you made the case and then acted on it. And I'm not so much interested in the kind of autopsy of your decision, but I'm more trying to get some insight into how the dynamics for work for you guys as a fast mover in response in this volatile oil tape.

Speaker 2: Yeah, I mean, that's actually a good question. You know, there's a couple things I'd say. I'd say our board is a very nimble board for its size, right? We have 13 board members, but they are very responsive and they move relatively quickly, particularly when the decision is very obvious. And second, I would say just some inside baseball, you know, we've tried to, I got some advice from Jamie Dimon last year, which was, communicate with your board often and tell them everything and um you know we just decided to over communicate with our board through this crisis obviously you know the crisis kicked off um just a week after earnings right we had set the budget um but you know we I think we sent three or four notes to the board in March just to update them on on how we're thinking and then and then it was a simple simple meeting to get to get together ahead of earnings to make this decision and and I think you know the board was had resounding support for for this plan but um that's all inside baseball how Diamondback works with our with our board.

Speaker 1: Great that's that's all for me thanks case thanks Charles thank you very much our next question comes from the line of Leo Mariani of Roth Leo your line is open.

Speaker 3: Hey, everybody. There's been some discussion of some pretty weak Waha prices in 2Q. Wanted to get a sense whether or not you think that could be some short-term negative volume impact for the company. Are there some wells that have maybe a lower oil cut where you say, hey, maybe it's worth shedding some of those wells in for a little period of time here, just given how bad the gas price is or just any color kind of around that dynamic and how you're thinking about it would be helpful?

Speaker 2: Yeah, I mean, listen, at these NGL prices, we kind of think negative $3 Waha basically, you know, cuts out the value of your NGLs. And, you know, above that or worse than that, negative four and eight to five, negative six, you start to eat into, you know, the value of your oil production. Now, you know, oil's $100 a barrel, not 60, so it's a little different math on should you shut in oil barrels because of waha pricing but but i i do think that that's happening throughout the basin i think in an area like new mexico um with with tighter restrictions on on midstream development and flaring that's probably a uh a question for others but but it's probably something that's happening you know for us um you know if we go back to october of last year waha blew out due to some maintenance issues you know we shut in uh you know two or three thousand barrels a day of production for a period of time and then Waha came back and we brought that production back. I would bet we're probably around somewhere in that range today with Waha as weak as it is, but it's not impeding new development, particularly with the amount of hedges that we have on the financial side.

Speaker 3: Okay, that's helpful. Sounds like you still have flow assurance, so this would be more of an economic decision for the company.

Speaker 2: That's right. Every molecule we've produced has moved. It's just moving at a negative price.

Speaker 3: And then just want to talk a little bit on what you all said on the growth part of it. Obviously, your guidance for the year on oil, it's a little bit open-ended with a $520,000-plus. Clearly, you guys did the $520,000 in 1Q. It looks like your guy's telling us we're getting $520,000 again. You did talk about a little growth. So if the oil environment holds here, people should be thinking about probably that plus and a little bit of growth here in the second-half of the year. Is that kind of a fair way to look at it?

Speaker 2: Yeah, that's fair. Again, we're going to take it quarter by quarter. I think this is a year where if the plan is if we're outperforming the plan, we're going to hold activity and produce more oil into a market that needs it.

Speaker 3: OK, makes perfect sense. Thank you.

Speaker 2: Thanks, Leo.

Speaker 1: Thank you very much. As a reminder, to ask a question, you will need to press 11 on your telephone and wait for your name to be announced. To withdraw your question, please press 11 again. Our next question comes from the line of Doug Legate of Wolfe Research. Thanks, Phyllis. I appreciate you having me on. Guys, I wonder if I could come back to one of the comments earlier about the balance sheet. Jerry, is it inconceivable that When we look out with no variable dividend taken out of the capital returns structure, but your net debt balance sheet could basically go to zero over the next two or three years, would you allow it to go to that level?

Speaker 2: Yeah, Doug, I mean, listen, that'd be a good problem to have. I think generally, we're going to be transferring a lot of value from the debt side of the NAV to the equity side over this quarter and who knows what happens after this. As we've kind of said, we're going to take this quarter by quarter. This is we're early into this oil price environment. Should it persist and the stock continue to go up, then we'll allocate less capital to buybacks and continue to put cash on the balance sheet. But at the end of the day, we know this is a cyclical business. And in this highly cyclical business, we want to have the ability to pounce on opportunities when the cycle turns and those opportunities could be M&A, that could be buying back a ton of stock, it could be leaning on your balance sheet to buyback stock. So I think the key term here is flexibility, but also long-term value creation because at the end of the day, we want to get to zero debt, we want to get to one share outstanding and it's going to be a race between those two with free cash generation over the coming decades. I appreciate that. My follow-up, fellas, is not so much about your growth than what you're seeing from your non-operated positions. And I guess this is particularly, it might be a Viper question, but obviously, we've seen some private side rigs and there's a lot of non-op working interest that basically can influence what happens to the growth story for you guys on a consolidated basis. How would you characterize that?

Speaker 1: What are you seeing on your non-op i guess request for activity.

Speaker 2: Yeah i mean diamondback carries very little non-op but viper obviously sees you know half the wells in the basin uh round numbers um and you know i think we'll talk about on the viper call but but you know early signs are you know nothing major on permitting but the discussions that we're hearing in the field and you know in midland are that you know rigs are getting picked up on the on the private side i think if we had to give a rig count forecast for the permian today by the end of the year we're probably up 25 30 rigs from from where we are today that's helpful thanks fellas.

Speaker 1: Thanks doug very much thank you very much Our next question comes from the line of James West of Melius Research. James, your line is open. Hey, thanks, guys. I know everything's pretty fluid right now and you're kind of quarter by quarter, but you have to be thinking about a market that's significantly changed in the last 60 days and an oil price that will be structurally higher. So understanding you've raised your guidance for this year, but how are thinking about the out years and how you want to set up the company to either continue to grow at this mid single-digit rate or not, '27, '28, '29, not looking for guidance, but just kind of how your longer-term thinking is evolving.

Speaker 2: Yeah, obviously, we have to think about the long-term. And I do think if we are in a higher for longer world, then an advantaged company with advantaged inventory like Diamondback should answer the call for production growth in that higher for longer world. So I think that's we don't live in a vacuum that's static, but if we did, I think some sort of organic growth in the story moving this business from a steady state kind of bond-like free cash generator to a free cash flow per share growth generator over the next you know few years into the into the decade so long as it as it maintains capital efficiency i think that's something that investors would support so again it's early we'll see what the macro holds um but but certainly it feels like the world changed a lot since our last uh conference call.

Speaker 1: No absolutely it's very helpful and then As you think about your inventory depth versus your peers, you guys are obviously in a leading position, but what would you consider your, or how would you kind of phrase it, your position versus probably the peers in the market today, given the huge longevity we think you have?

Speaker 2: Yeah, listen, we're very fortunate. We have an incredible inventory quality and duration, but But I'll say that within Diamondback, we're always looking for that next stick, right, whether it's organic generation in Barnett development, upper spray very development over the last few years or inorganic, this machine is built to do significant transactions like Endeavor, but also I don't want one unit in the Midland Basin trading hands without diamondback knowing that that unit it could it could be in our hands so you know we we're set up to do the the sub $20 million deals and and the teams actually do a really good job at those um but but also not so small that we we're not in the picture for for every other deal that transacts in this basin.

Speaker 1: Got it thank you thank you Thank you very much. I'm showing no more questions at this time. I would now like to turn it back to Case Van Hoff for closing remarks.

Speaker 2: Yeah, thank you, everybody, for your interest. You know, we're always available to answer any questions. Just reach out to the number or e-mail on the notices.

Speaker 1: Thank you for your participation at today's conference. This does conclude the program, and you may now disconnect.