Earnings call transcript: Diamondback Energy Q2 2025 results miss EPS forecast

Diamondback Energy Inc. reported its second-quarter earnings for 2025, revealing a mixed financial performance that saw the company miss its earnings per share (EPS) forecast but exceed revenue expectations. The EPS came in at $2.67, below the forecasted $2.86, marking a negative surprise of 6.64%. However, the company reported actual revenue of $3.68 billion, surpassing the forecast of $3.38 billion by 8.88%. Following the earnings release, Diamondback’s stock saw a decline of 4.42% in regular trading, closing at $141.25, down from the previous close of $147.78. According to InvestingPro analysis, the company maintains a "GOOD" overall financial health score of 3.0 out of 5, with particularly strong profitability metrics.

[Get access to 8 more exclusive InvestingPro Tips for Diamondback Energy, including crucial insights about the company’s financial health and market position.] In pre-market trading, the stock continued its downward trend, falling an additional 1.88% to $145.

Key Takeaways

• Diamondback Energy’s Q2 2025 EPS fell short of expectations, but revenue exceeded forecasts.
• The company is maintaining strong capital discipline with a focus on non-core asset sales.
• Stock price dropped by 4.42% in regular trading and continued to decline in pre-market.
• Operational improvements include increased well count and reduced flaring.
• The oil market remains uncertain, with potential production declines anticipated.

Company Performance

Diamondback Energy demonstrated robust operational efficiency in Q2 2025, despite missing its EPS forecast. The company increased its well count by 30 quarter-over-quarter and achieved significant improvements in drilling efficiency. However, the broader oil market’s "yellow light" scenario, with reduced rig counts in the Permian Basin, poses challenges. Diamondback continues to focus on optimizing production and exploring secondary zones in the Permian Basin.

Financial Highlights

• Revenue: $3.68 billion, up from the forecast of $3.38 billion.
• Earnings per share: $2.67, below the forecast of $2.86.
• Cash tax rate expected to decrease to 15-18% for 2025.
• One-time tax benefits of approximately $200 million anticipated in 2025.

Earnings vs. Forecast

Diamondback Energy’s Q2 2025 EPS of $2.67 fell short of the forecasted $2.86, resulting in a negative surprise of 6.64%. This miss contrasts with the company’s revenue performance, which exceeded expectations by 8.88%, achieving $3.68 billion against a forecast of $3.38 billion.

Market Reaction

The market reacted negatively to Diamondback’s earnings miss, with the stock price dropping by 4.42% in regular trading. This decline continued in pre-market trading, where the stock fell by an additional 1.88%. The stock is currently trading at $145, still within its 52-week range of $114 to $202.87, but significantly lower than its recent highs.

Outlook & Guidance

Looking forward, Diamondback Energy plans to maintain production at around 90,000 barrels per day and keep quarterly capital expenditures at approximately $900 million. The company is committed to returning 50% of free cash flow to shareholders and is exploring growth opportunities in an unsubsidized oil market. Future revenue forecasts indicate a gradual decline, with expectations of $3.47 billion in Q3 2025 and $3.47 billion in Q4 2025.

Executive Commentary

CEO Case Vantolf emphasized the company’s commitment to maximizing shareholder value and maintaining flexibility in capital allocation. He stated, "We’re closer to discussing growth again," highlighting potential future expansion. Vantolf also reiterated the company’s focus on operational efficiency, stating, "We change things every day."

Risks and Challenges

• Potential decline in U.S. oil production due to reduced rig counts.
• Volatile oil market dynamics could impact revenue and profitability.
• Regulatory changes affecting tax rates and environmental policies.
• Competition in the Permian Basin may pressure Diamondback’s cost structure.
• Geopolitical tensions could affect global oil supply and demand.

Q&A

During the earnings call, analysts inquired about Diamondback’s merger and acquisition strategy and its approach to hedging and debt management. The company detailed its operational efficiency improvements and addressed scenarios that could influence future activity levels, including potential market normalization in 2026.

Full transcript - Diamondback Energy Inc (FANG) Q2 2025:

Brianna, Conference Operator: Good day and thank you for standing by. Welcome to the Diamondback Energy’s Second Quarter twenty twenty five Earnings Call. At this time, all participants are in a listen only mode. After the speakers’ presentation, there will be a question and answer session. 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 Lawless, VP of Investor Relations. Please go ahead.

Adam Lawless, VP of Investor Relations, Diamondback Energy: Thank you, Brianna. Good morning,

Case Vantolf, CEO, Diamondback Energy: and welcome to Diamondback Energy’s second quarter twenty twenty five conference call. During our call today, we will reference an updated investor presentation letter to stockholders, which can be found on our website. Representing Diamondback today are Case Vantolf, CEO Danny Wesson, COO and Jerry Thompson, CFO. 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. Great.

Thank you, Adam, and good morning, everyone, and thanks for taking the time to listen into our earnings call. We’re in our conference room in Midland, Texas with no air conditioning and truly valuing the importance of American Energy this morning with no air conditioning in his office. So we’ll get it started. I hope you read our letter investor presentation and release last night, and we’re going to go straight into Q and A.

Brianna, Conference Operator: Thank you. At this time, we will conduct the question and answer session. Our first question comes from Arun Jayaram of JPMorgan Securities LLC. Your line is now open.

Arun Jayaram, Analyst, JPMorgan Securities LLC: Good morning. Sorry about the AC situation. Hope you have a couple of fans because it can get hot in Midland in the middle of the summer.

Case Vantolf, CEO, Diamondback Energy: Yes. It can. Yep.

Arun Jayaram, Analyst, JPMorgan Securities LLC: Hopefully, this is not part of Case, the your thoughts on reducing costs at the company because they see it as being important. Yeah. But let me shift gears a little bit. Case, I want to hit this one kind of head on. There’s been a lot of consolidation talk in the industry, particularly from some of your big cap peers who’ve highlighted some of the benefits they’ve received from synergy capture from previous deals.

So wondering if you could comment on how you think about the consolidation roadmap in the Permian and FANG’s role within the industry and just overall M and A thoughts.

Case Vantolf, CEO, Diamondback Energy: Yes. I mean, question Arun. I mean, I think first and foremost, we have to remind everybody that our job is to maximize shareholder value. And I think we’ve done that very successfully at Diamondback over the last fifteen years. And what I think and I think investors would agree is extremely has been an extremely tough tape.

So generating alpha and creating value in a tough tape is what we’ve done. And we’ve done that via an acquire and exploit strategy in the Permian where we’ve been able to cut costs and execute better than anybody else on the assets we acquired. And I think that ability to integrate acquisitions and not have any issues executing post doing it, the most recent example is Endeavor, almost doubled the size of the company and outside to investors, looked like we didn’t skip a beat. So listen, we got a young team executing at the highest level in the prime of all of our careers and we’re only getting better quarter in quarter out as proven with the results today. So I think the way we see it is we should naturally be the consolidator of choice as we execute at a lower cost and better overall development strategy, some slides we put in the deck today that are pretty interesting.

And until someone else can prove they can do it better than us and we lose our edge, then we should be the consolidator of choice. So that’s what I spend my time thinking about. I think it’s interesting to see larger peers get bigger in the basin and talk about M and A, but I think we’re singularly focused on continuing to execute at the highest level, and we exhibited that today.

Arun Jayaram, Analyst, JPMorgan Securities LLC: Great, Casey. My follow-up, you announced some noncore, non op Delaware Basin property sales in the quarter. I was wondering if you could maybe give us some thoughts on the broader asset sale target of 1,500,000,000 in particular, maybe an update on the Endeavor water drop.

Case Vantolf, CEO, Diamondback Energy: Yes. So we announced a $1,500,000,000 non core asset sale target with the Double Eagle transaction that closed early in the second quarter. We’re a small way through it with two small sales, non op sale and the BANGL sale getting us to about $250,000,002 60,000,000 of cash in the door coming in this quarter. The other two big pieces of non core assets that we see as on the block are our EPIC pipeline stake, which we’ve increased to 27.5% of that pipe. It’s a pretty valuable pipe now with the last remaining expansion out of the basin.

And then the other piece being our Endeavor water assets that we feel make a ton of sense in our Deep Blue JV. So we’re working on both of those projects imminently. It’s hard for us to put too much detail when we don’t have binding documents done, but we are working on binding documents for both of those. So expect to have a very fulsome update for our shareholders at some point in the next quarter or two on hitting that target and getting that cash in the door.

Arun Jayaram, Analyst, JPMorgan Securities LLC: Great. I’ll turn it over. Thanks.

Case Vantolf, CEO, Diamondback Energy: Thanks, Arun.

Brianna, Conference Operator: Thank you. Our next question comes from David Deckelbaum of TD Cowen. Your line is now open.

David Deckelbaum, Analyst, TD Cowen: Thanks for taking my questions, guys. I’ll keep it short in the interest of comfort. I’m wondering if you can contextualize a bit more case the opportunity to address some of the production downtime and focus on the production tail. Can you quantify the size of that opportunity that you think can be addressed over the next couple of years?

Case Vantolf, CEO, Diamondback Energy: Yes, I’ll give you the high level. Commentary is kind of new to us, right? I mean, you look back at the development of shale or Diamondback, used to be 80% of our spend was on capital and 20% was on op costs. And now here we are at the size that we are, capital is 65% or so of our spend, op costs are 35% we think it’s going to fifty-fifty. And I think there’s a lot of things to work on, on the tail of our production, some of which came over from ideas the Endeavor team had and we’re seeing some interesting results on some of our, we call them HCL jobs.

But I think if we can get a lot of little wins on the production side of the business, reduce downtime by 1% here, 1% there, do some of these workover jobs that bring some of the old wells back to life, so to speak, that kind of adds up over a very large program. So I don’t know, Danny or Chad, you want add anything that we’ve been doing on that and our focus on that, but that’s the highlights.

Adam Lawless, VP of Investor Relations, Diamondback Energy: Yes, I mean, we’ve really leaned in a little bit more to our workover program this year. The spend, non DC and E spend budget line item is a little larger this year than it has been years past and really to allocate some more capital to working over older wells and trying to optimize the tail and we’ve seen some some really encouraging stuff out of out of that program. You don’t have anything we can really quantify today, but we’re going to continue to work that and get some data around it so we can talk to it in the future. But I think some of these wells that are three, four or five years old that have been impacted by offset fracs and whatnot. When we go into them and clean them out and put some acid or some other you know chemical optimization into the reservoir simulation into the reservoir we’re seeing you know almost 20 to 50 to 100% you know improvement in production on lower production volumes.

But it was very encouraging what we’re seeing on some of the work we’re doing on the tail end of the production curve.

David Deckelbaum, Analyst, TD Cowen: Thanks for the color, Danny. Maybe, Keh, just following up on just Arun’s comments with some of the non core sales targeted for perhaps the back half of this year. How do you think about managing that cash coming in the door versus some of your debt targets by the end of the year and some shareholder returns?

Case Vantolf, CEO, Diamondback Energy: Yes. I mean, think getting the cash in the door will help pay down our two year term loan that we took out with the Double Eagle deal. That’s really our big piece of debt that’s due in 2027. We have another note due in 2026, but it’s 3% interest. So we’ll just build cash to be able to take that out and enjoy that 3% interest for the last year that we have it.

I think overall, we have some nice tailwinds here in Q3, a little lower CapEx, production strong, a pretty big cash tax tailwind with the one big beautiful bill flowing through. And so that should create more free cash or significantly more free cash in Q3, some of which can be used to pay down debt. But a combination of that plus non core asset sales probably gets us into a really good spot where we think we could lean in on repurchases should things weaken further from here.

David Deckelbaum, Analyst, TD Cowen: Thanks, guys.

Brianna, Conference Operator: Thank you. Our next call is from Neil Mehta of Goldman Sachs and Co. Your line is now open.

Neil Mehta, Analyst, Goldman Sachs: Yes, thanks, Kase and team. If you can provide an update to the stoplight analogy, it sounds like you still think we’re at yellow here, but your perspective on the macro and how that informs your activity decisions as there’s some bifurcation in the industry about how they want to how players want to approach the back half of the year and you guys have definitely taken a more guarded position here. So talk about the top down view that informs how you’re approaching your activity.

Case Vantolf, CEO, Diamondback Energy: Yes, Neal, good question. I think the stoplight unveiled itself last quarter and I don’t think it’s going anywhere anytime soon. Unfortunately, we still think we’re in the yellow situation, but if you go back to kind of May 5, May 4 when we released Q1 earnings, there’s probably still more uncertainty then than there is today. And basically, we said we’re prepared to go red if needed back then. And I think we’re still ready to do that.

But I think it seems that the double whammy of a demand shock and a supply shock had dissipated for now. There’s still a lot of firms, yours included that see oil prices as much lower next year. I don’t know if I believe that they’re going to be that low, but it’s certainly hard for me to get extremely bullish today. And that’s why I think 2025 for us is a year of debt reduction and share count reduction, waiting for that spring to coil when commodity prices do rally at some point.

Neil Mehta, Analyst, Goldman Sachs: Guess that kind of ties into the M and A in relation to last quarter, I think your message was Double Eagle represent an opportunity for you guys to pause because at that point you had consolidated a lot of the higher quality positions in the Permian and you want to stay a pure play and then incremental M and A if it’s done or would probably be done from a Viper Energy perspective where you view that as a roll up story. Is that still the framework or are you suggesting a different posture year to date?

Case Vantolf, CEO, Diamondback Energy: No, that’s still our base case. I mean, think at Diamondback, we’re very fortunate to have the inventory quality and depth that we have today. There certainly is more consolidation to happen in the Permian. I think for Diamondback, we need to be a lot more selective than we’ve been in the past because there’s not a lot of inventory out there that competes for capital in our top quartile that we have today. And that’s why we were so aggressive on Double Eagle.

And unfortunately, the timing wasn’t great as that it closed right before Liberation Day, but we still feel very happy about the assets we acquired there, the sub-forty percent breakeven inventory we acquired there. And we really don’t see that much sub-forty breakeven inventory in hands of potential targets. So I think we have to be a lot more selective. Viper, on the other hand, we can talk about on the Viper call, has had a great year consolidating and building that business. But I think your analysis is correct that Diamondback is going to be more patient and Viper is going to keep growing its business.

John Freeman, Analyst, Raymond James: Great. We’ll talk in the Viper call.

Case Vantolf, CEO, Diamondback Energy: It’ll be hotter than in this room.

Brianna, Conference Operator: Thank you. Our next question comes from Scott Hanold of RBC Capital Markets. Your line is now open.

Scott Hanold, Analyst, RBC Capital Markets: Yes, good morning all. You all every quarter seem to find ways of squeezing out more efficiency, getting drill days down and etcetera. Look, how many more things can you do? I mean, drilling days can’t go to zero, but like, do you have a line of sight on how you can continue to improve efficiencies? Are you getting to a point where you’re more at the optimal level?

And maybe if we understand what the leading edge kind of metrics right now are versus averages that’d be helpful.

Adam Lawless, VP of Investor Relations, Diamondback Energy: Hey, Yeah, thanks for the question. Love to talk about the ops guys and nice reprieve and some of the stuff we talked about on these calls. So I think the drilling guys in particular have done a phenomenal job of really chasing that leading edge well and getting to that leading edge well more consistently. I think we’ve hit these four or five day wells that we talk about kind of sporadically throughout quarters in the past, but they’re getting to where they’re hitting them more consistently. And I think that’s the real efficiency driver is how do we become more consistent and chasing those really record wells.

You know we continue to push lateral lengths longer. We put in our letter a highlighted a well that you know we drilled 30 plus thousand feet. I think it was a record well in Texas and so you know we’re really pushing the limits of what we’ve known to be capable to do on the drilling side and I really don’t know where the threshold limits going to take us there. But you know the guys have done a really good job of just consistently eliminating you know the downtime out of the operation and chasing that leading edge well in every section of the drilling well. And on the completion side you know they continue to do the same thing.

Just chasing that final frac efficiency continuing to get better pad after pad and you see that in the results of the aggregate lateral footage per day pushing 4,000 foot per day on the final frac crews. Look, I think there’s opportunities to do some different things in the final frac world where we can grow that efficiency 15% to 20% more on top of that. We’re not done chasing those things. Think we’ll continue to try and lead the pack in the Permian with regards to drilling completion efficiency and I think at some point in time we will reach a plateau but we don’t see it here in the near future.

Scott Hanold, Analyst, RBC Capital Markets: All right, that’s good to hear. And my follow-up question is, you all had a bit stronger gas production this quarter. And it sounds like it came from more gas capture and processing improvements. Can you tell us how much more of that is yet to come? And is that something where your midstream partners are investing more capital to improve it?

Are you doing things differently with them? Or give us a little bit of color behind what really drove that and how much more can we see from that perspective?

Case Vantolf, CEO, Diamondback Energy: Yes, Scott. Mean, the backstory there is a business that we invested in WTG, West Texas Gas sold to Energy Transfer a year ago. WTG has been spending a lot of capital adding plants and capacity to a very high growth area, Martin County, of which we were the largest producer on the system. With that growth, there was some growing pains and some power issues that took both WTG and Energy Transfer some time to work through. But now we’ve started to see that those plants operate a lot more efficiently.

And the big increase was to our liquids yields. We’ve added 33,000 barrels a day of NGLs to our production in Q2 over Q1 like the snap of a finger. And I think that’s very positive for long term cash flow and as well as the production in that area makes it more economic. So big wins from the Energy Transfer team, that’s why we put them in the letter. But we continue to do things on our side too.

I mean, flaring was down 75 bps or 100 bps in the second quarter versus the first quarter That ties to the gas capture side. So really trying to get all three molecules generating as much revenue as possible for Diamondback here.

Scott Gruber, Analyst, Citigroup: Thank you.

Brianna, Conference Operator: Thank you. Our next question is from John Freeman of Raymond James. Your line is now open.

John Freeman, Analyst, Raymond James: Good morning, guys.

Case Vantolf, CEO, Diamondback Energy: Hey, John.

Betty Jiang, Analyst, Barclays: One of the majors is recently sort of highlighted some pretty ambitious targets for kind of dramatically improving kind of oil recovery rates in the Permian. Just sort of your thoughts on that side of the equation. Obviously, have done a fantastic on the cost side and just anything that you all are looking at on the recovery rate side of things.

Case Vantolf, CEO, Diamondback Energy: Yes, mean, listen, we’re always trying to drill better wells, right? We added an interesting slide this quarter, Slide nine, about our development strategy where we talk about how many zones per section, how many wells per section we’re drilling. And I think it’s well known that Diamondback is the cost leader in the basin, but I think it’s less understood that we’re also a technical leader in the basin, drilling, maximizing both returns and resource, right? With our cost structure, we’re able to put another couple of wells in every section. And if we’re getting the same production per well than peers that are spacing wider than ours, then we’re naturally generating better returns and more recoveries for our shareholders.

And I think with respect to your comments on the ambitious goals, I think that’s amazing. I’m not going to knock technology developments in the basin because Diamondback is naturally going to be a beneficiary of that. And I think it’s positive all around. So I hope it all works. We’re going to continue to look across the fence line and try to drill the best wells possible, which I think we’ve done over the last ten years.

And maybe some technology will help us combine with our low cost structure over the next ten years.

Betty Jiang, Analyst, Barclays: Great. And then just one housekeeping item for me. Was there a production associated with the Delaware Basin non op divestiture?

Case Vantolf, CEO, Diamondback Energy: Yes, there was a little bit, John, a little bit over 1,000 barrels a day of net oil production and a little bit more on the BOEs. But we just added it to the guidance going to the back half of the year.

Betty Jiang, Analyst, Barclays: Got it. Thanks a lot, Keith.

Case Vantolf, CEO, Diamondback Energy: Thanks, John.

Brianna, Conference Operator: Thank you. Our next question comes from Philip Jungworth of BMO. Your line is now open.

Adam Lawless, VP of Investor Relations, Diamondback Energy0: Thanks. Good morning. Good morning. Wondering how you’re viewing the cost of capital advantage right now for Viper versus Spang and how this shapes capital allocation decisions at the parent level. Looks like based on the decks, both stocks are yielding around 10% free cash right now at 70%, but I know you guys look at it in a lot more detail.

Case Vantolf, CEO, Diamondback Energy: Yes, I mean, listen, think there’s some technical things going on at Viper right now. We’re stuck trying to get a public merger closed and that limits some of the things we can do in terms of repurchases, but also I think brings in a different kind of investor for the period of time between sign and close. I think I look forward to the window opening at the Viper level and being able to repurchase some shares aggressively as I think it is a very unique investment in the space. Also, another thing I’ll note from a debt cost capital perspective, Viper just did its first investment grade deal that priced basically at or inside some very large peers of ours showing that there is a lot of investor support for that business. But I think there’s some things on the equity side that are temporary that need to work themselves out.

Adam Lawless, VP of Investor Relations, Diamondback Energy0: Okay, great. And then maybe more from a macro perspective, but can talk about typical cycle times right now in the Permian, just considering efficiency gains, larger pad sizes, longer laterals? We’re really just trying to understand how long it takes to start to see the production impact from some of the reduced activity, rig and frac that we’ve seen in the basin.

Adam Lawless, VP of Investor Relations, Diamondback Energy: Yeah, mean if you think about kind of you could look at slide nine in our deck actually and we highlight some of the average wells per section from ourselves and some peers. And if you look at kind of 15 to 25 ish wells a section, call it 20 on average, ten days a well, you’re looking at two hundred days of drilling time to cycle off that pad. Somewhere in the neighborhood of six to nine months is a typical pad development or DSU development that may be broken down into multiple pads. So it’s really the projects are not as short cycle as I think they’re often referred to as because you know, to properly develop the whole DSU, it does take you know, a quite a bit of time and the completion coming in following you know that much lateral footage it can be a month or two of completion timing. So yeah I like to think of these things as kind of twelve month cycles on a full DSU timeframe.

Know, a lot of flexibility in there if you see volatility and bring in rigs at certain times or factories at certain times, but these are not a short cycle as I think we regard them in the public markets.

Case Vantolf, CEO, Diamondback Energy: Yeah, but I think from a macro perspective, you can’t take 60 rigs out of the Permian in three months and 20 to 30 frac spreads out of the Permian in three months and not see eventually see a production response. So I think we kind of doubled down on our commentary. I think we’re going to see U. S. Production roll a bit here at these prices.

It is taking a little bit longer than we all expected, but maybe that was the price reprieve we had in June. But there’s just too much activity being taken out of The U. S. Basins.

Adam Lawless, VP of Investor Relations, Diamondback Energy0: Great, thanks.

Brianna, Conference Operator: Thank you. Our next question comes from Scott Gruger of Citigroup. Your line is now open.

Scott Gruber, Analyst, Citigroup: Yes. Good morning.

Case Vantolf, CEO, Diamondback Energy: Good morning, Scott.

Scott Gruber, Analyst, Citigroup: I had a question on your excess DUC balance. How big would that be at the end of the year? And what’s the strategy kind of going into ’26 with the excess DUCs? If oil is weak, would you pull it down because there’s less incremental spend per well? Or would you like to maintain it for some quick to respond barrels in case oil moves higher?

Case Vantolf, CEO, Diamondback Energy: Yes, good question, Scott. It seems the DUC balance has gotten a little more attention than we expected. Listen, we’re completing 500 to five fifty wells a year. It’s good to have two fifty to 300 in the hopper, especially with this large pad development waiting for completions. I think we’d be comfortable going as low as high 100s to 200 ducts, but would still like to maintain flexibility in that range.

I think what’s happened this year is drilling efficiencies and well costs are very low. And what we decided was, given that we’re still definitively in this yellow light analogy. We wanted to maintain that flexibility later through this year. And that, as you mentioned, gives us two options, right? If things are weak, we can slow down a bit.

If things are strong, we can accelerate pretty quickly. So we’ve built a lot of flexibility into our entire plan, which is why our results are always consistent and best in class. And that’s why you expect us to do that. Our investors expect us to do that. So we’re going maintain that flexibility later in the year.

There’s certainly some drawdown coming in Q3 and Q4, but these drilling guys keep drilling wells in four days. We might not have any DUC drawdown by the end of the year.

Scott Gruber, Analyst, Citigroup: I got it. And then on cash taxes, you guys realized a good bit of savings this year following the one big beautiful bill. I think some of that is kind of a makeup in the second half. How do you think about ’twenty six and beyond from a cash tax rate perspective?

Case Vantolf, CEO, Diamondback Energy: Yes, Scott, this is Jerry. 2026, we expect cash tax rate to kind of level out at 18% to 20% of pretax income. When we look at 2025, we’re expecting a 15% to 18% cash tax rate down from roughly 19% to 22%. So reduction of roughly 300,000,000 in total, about $200,000,000 of this is one time benefits. Two components of 200,000,000 here in 2025, the vast majority is related to the accelerated recovery of remaining unamortized R and E expenditures that were capitalized over the last three years.

And then the remaining is related to the full expensing of depreciable equipment, primarily related to LWE we acquired earlier this year in the Double Eagle transaction.

Scott Gruber, Analyst, Citigroup: Got it. I appreciate the color. Thank you.

Brianna, Conference Operator: Thank you. Our next question is from Betty Jiang of Barclays. Your line is now open.

Adam Lawless, VP of Investor Relations, Diamondback Energy1: Hi. Good morning. Thank you for taking my question. I want to ask about the development mix. If I look at the development mix provided in the back of the slide, there’s a there’s an increase in other zones and also Wolfcamp B, but, yet at the same time, you’re able to maintain performance, if not better performance, which is quite impressive.

So how do you see development mix evolving over time? And if you could just talk about what you’re seeing in the other zone development performance wise versus the traditional zones? Thanks.

Adam Lawless, VP of Investor Relations, Diamondback Energy: Yeah, Betty, that’s a great question. We focused on delineating some of these upside zones over the past couple of years. And on the slide that you’re talking about in the back of the deck there, can see sort of that mix changing over time. I would expect that to increase over time as we sort of delineate and rationalize where the highest returning areas are for those zones in the Upper Spraberry and in the Barnett and some of the deeper zones like the Wolfcamp D. So yeah, I would expect that to continue as we progress through the year and then going into 2026.

Case Vantolf, CEO, Diamondback Energy: Yeah, think also on top of that, Endeavor Acreage probably had some better Wolfcamp D than our legacy acreage and probably better overall Wolfcamp B further south in the Midland Basin. So that’s driving it a little bit. But as Al mentioned, being able to add these zones into the mix and not see productivity degradation as a company is a very impressive feat.

Adam Lawless, VP of Investor Relations, Diamondback Energy1: Yeah, thank you. Thank you for that color. My follow-up is on power. We started to see some gas power deals in the basin. Can you just give us an update on what you’re seeing along that front?

Where do you see the value add opportunities for Diamondback?

Case Vantolf, CEO, Diamondback Energy: Yeah, Betty. I mean, I think the two big value this is Jerry. The two big value drivers for Diamondback are one, finding an in basin egress solution for our natural gas molecules, and then two, lowering what we view is probably the most inflationary piece of our cash cost structure on a go forward basis, which is electricity costs that you find within LOE. So I think when you PV those two items, that’s where you’re seeing the greatest benefit to Diamondback. If we could lock in a behind the meter solution here for power gen, we’re not going to go out and build anything on spec here.

We’ve continued to look at various opportunities on potentially advancing power gen within the basin. It’s just taken a little longer and I think there’s going to be opportunities over the next five to ten years. We’re just being patient. Yes, I think there’s some other little things we can do on our existing asset base if we don’t do a large power trade. I mean, just using the example today, right, our NGL yield and gas capture went up in Martin County because the gas plants had a better power solution in place.

So it just shows that there’s power issues all throughout the basin with or without hyperscalers or data centers coming into the basin.

Adam Lawless, VP of Investor Relations, Diamondback Energy1: Got it. That makes sense. Thank you.

Brianna, Conference Operator: Thank you. Our next question is from Derek Whitfield of Texas Capital. Your line is now open.

Scott Hanold, Analyst, RBC Capital Markets: Thanks, and, good morning all.

Case Vantolf, CEO, Diamondback Energy: Morning, Derek. Morning.

Scott Hanold, Analyst, RBC Capital Markets: Yes. There’s been a lot of industry discussion, on your comments from the one key reporting cycle, both supportive and non supportive as you’ve highlighted. How would you characterize the support from your peers out of Basin and the pushback within the basin?

Case Vantolf, CEO, Diamondback Energy: Well, I’ll say those are all Travis’s. So, but moving on, I would say most of the industry either reached out and was supportive of what we were saying at the time. I think there’s been pushback and I also say most investors agreed with what we said in Q1 at the time. It’s interesting to hear the pushback come from and we’re okay accepting pushback come from some within the industry, some at different companies in the basin. And I think that’s just natural competition and we welcome that.

But I think what we said in terms of activity has been spot on, right? I mean, we said 15% of the rigs out of the Permian in Q2 and that number was has been exceeded, right? 60 rigs are out, twenty, twenty five frac spreads are out. And I just think we know what’s going on in the ground in the Permian and in The U. S.

And it’s inevitable that that much activity being taken out of the plan results in production declines because of the natural high decline nature of this business. So I wasn’t trying to be all doom and gloom, but I think what we’re trying to say is how sensitive shale has become to prices at probably a higher level than everybody expected three or four years ago when we were all burning through capital at $50 oil. I think the messaging and the demands of our shareholders have changed over that period of time.

Scott Hanold, Analyst, RBC Capital Markets: Yeah, completely fair. And then maybe shifting to operations, I wanted to lean in on Scott’s earlier question on your four days budget TD record. If you were to compare the segment performance of the four versus the average of the eight, where do you guys see the greatest differences in performance? More broadly, the most of your wells fall within a day or so of the eight average?

Adam Lawless, VP of Investor Relations, Diamondback Energy: Yeah, I mean, think that the four day well is, you know, it’s in the top decile of our performance for sure. I mean, I think we had 30 something wells. We have 30 something wells that we’ve spud in less than I mean spud the TD in less than five days, not in this quarter, but since in company history. And so the eight days were almost of our wells are within a day or two of the eight day average. But again, I’ll echo the point I made earlier with Scott that look at the drilling team has done a phenomenal job of really chasing consistency and try to consistently deliver that top tier well and they’re getting better at it.

And so I think that’s going to be the story and efficiency going forward is, hey how do we continue to grab that four and five day well and work the things that cause us to go to eight days out of

Case Vantolf, CEO, Diamondback Energy: the system. And a lot

Adam Lawless, VP of Investor Relations, Diamondback Energy: of times it’s an extra trip or some kind of bid selection or BHA selection optimization. And as we get more data and we’re able to go back into the areas and optimize, we’re going to see more consistent delivery of those ultra fast spud to TD times.

Scott Hanold, Analyst, RBC Capital Markets: That’s great. I’ll turn it back to the operator.

Brianna, Conference Operator: Thank you. Our next question comes from Kevin McCurdy of Pickering Energy Partners. Your line is now open.

Scott Hanold, Analyst, RBC Capital Markets: Hey, good morning. Keish, your letter warns of 25% casing cost inflation from tariffs. Can you remind us if you have any of that locked in and how much of that inflation is baked into your $5.50 to $5.80 a foot wall cost guidance?

Adam Lawless, VP of Investor Relations, Diamondback Energy: We’ve got we’ve taken about 15% inflation since liberation day was announced on casing. And so I think we’re anticipating a little bit more of that to come. We have a procurement agreement with a casing supplier but the pricing it kind of floats with regard to market pricing formulaically. So we’re not necessarily locked into a casing price except on a quarterly basis. So if the market increases because of tariffs, will follow along with that with a little bit of discount to what we can get at the spot market.

Case Vantolf, CEO, Diamondback Energy: Yeah, I think it’ll be interesting, Kevin, to see how the push pull of a lower rig count and lower steel use in the industry compares to steel costs. It seems that steel costs are winning today, but we’ll see what happens over the next year or so.

Scott Hanold, Analyst, RBC Capital Markets: I appreciate that detail. And as a follow-up, I mean, looks like lower OpEx is certainly beneficial to your 2Q financials. Can you walk through the moving parts of your changes to guidance in LOE and GP and T?

Case Vantolf, CEO, Diamondback Energy: Yes, I’ll take GPT really quickly. Really the GPT moves between when we’re taking in kind or not taking in kind on the gas side. And so we’ve flipped some contracts to take in kind and that number goes up. On the LOE side, generally the teams had a really good first half of the year. We expect kind of run rate LOE to be somewhere in the kind of five sixty to five eighty range on normalized basis.

But I think we’ve generally been surprised to start to see some of those smaller synergies in the field between the Endeavor and Diamondback teams kind of come through on the LOE side. I think long term, should we get a water sale done to our JV partner at Deep Blue, LOE will go up slightly. But there’s a lot of things going on, on the LOE side, work Danny talked about workover expense and management, production management. So not all LOE is low return. Some of it can be very high return.

Thanks for the answers and good luck with

Scott Hanold, Analyst, RBC Capital Markets: the AC situation over there.

Case Vantolf, CEO, Diamondback Energy: It’s getting hotter, Kevin.

Brianna, Conference Operator: Thank you. Our next question comes from Jeff Jay of Daniel Energy Partners. Your line is now open.

Adam Lawless, VP of Investor Relations, Diamondback Energy2: Hey guys, it’s kind of a follow-up to Neil’s question from earlier, but I’m curious about the calculus around lowering activity. We’ve had some companies tell us that with service cost declines and efficiency gains, that returns are even in lower tier acreage are pretty strong here. And obviously, you have super high quality acreage and very low cost. So I’m just kind of thinking about like what metric you’re looking at to kind of make the decision to lower even here.

Case Vantolf, CEO, Diamondback Energy: Yes, I mean, I wouldn’t say we’re lowering much from here, right? We actually increased well count, drilled wells are up 30 wells this quarter versus last for the full year. Completed wells are down a little bit, but that’s just because volume is outperforming. I think going back to three months ago, again, there was a concern that we were lower headed going lower headed lower, the calls for $50 and $40 oil were rampant and we were prepared to reduce further if needed. And I think as the price pressures have eased over the last three months, we decided that, hey, I think we can hold production here at $4.90.

I think all of our investors have been supportive of our decision. We’ve always tried to make the right capital allocation decision. And I think I’d flip that question back to you, Jeff, to ask the higher cost operators why they’re maintaining activity levels when the lowest cost operator is doing the right thing and waiting for a better day.

Scott Hanold, Analyst, RBC Capital Markets: Yes, that’s fair. And then I

Adam Lawless, VP of Investor Relations, Diamondback Energy2: guess my second question to you is, when you do get the green light situation, is there any concern that you may lose some of the efficiencies at least for a short period of time as you kind of add activity back?

Case Vantolf, CEO, Diamondback Energy: Not at all. That’s not an excuse that is allowed inside the halls of Diamondback. I mean, think anybody using the efficiency excuse for why they’re maintaining activity is not looking at their business in the right amount of detail. We change things every day, right? I think Danny uses a really good analogy that the Diamondback activity plan looks like a duck on a pond.

The pond is calm and the duck looks calm above the water, but below the water there’s a lot going on. And we change out drilling rigs on an annual basis, we change out frac spreads on an annual basis, we increase activity, lower activity within quarters to make sure that what you see on the outside is flawless execution, but that takes a lot of work from top to bottom in this organization.

Adam Lawless, VP of Investor Relations, Diamondback Energy2: Great. Thanks, guys.

Case Vantolf, CEO, Diamondback Energy: Thanks, Jeff. Thanks, Jeff.

Brianna, Conference Operator: Thank you. Our next question is from Kalle Akamyne of Bank of America. Your line is now open.

Adam Lawless, VP of Investor Relations, Diamondback Energy0: Hey, good morning guys. Two real quick ones for me. Number one, just kind of looking at your hedge book for 2026, you look rather exposed on the oil side. Does that marry up with your outlook for 2026 oil prices?

Case Vantolf, CEO, Diamondback Energy: No, it’s really just patience on adding puts. We’ve been buying puts, but 2026 puts are expensive today, right? So I think we’re going to continue to slowly build that position. I think we’re really well protected in the second half of this year and starting to build ’26. But we really don’t want to pay too much per barrel for the deferred premium puts.

And I also think as balance sheet improves and non core asset sales get in, proceeds come in, the need to hedge reduces or the need to we could lower that hedge price to pay less for the puts. I think the base dividend is protected today at $37 $38 a barrel at maintenance CapEx. I think we’re due for a dividend review in the beginning of the year next year. But as the balance sheet shrinks and the share count shrinks and the breakeven stays low, the need for hedging reduces over time.

Adam Lawless, VP of Investor Relations, Diamondback Energy0: That makes sense. My second one is on maybe operations post the water sale. So, the Endeavor asset will effectively float into a bigger system. Does that create opportunities to improve your own operations with respect to water, I. E.

Being able to move more water to the right places or being able to move more water to different places that you currently don’t have access to today?

Case Vantolf, CEO, Diamondback Energy: Not in a meaningful way. Think we’ve set up the deals with our partners at Deep Blue to be able to simulfrac or use two simulfracs across our position. So I don’t think much of that changes. I do think getting a deal done and getting these two systems together will create some synergies, but you probably won’t see it at the Diamondback level.

Adam Lawless, VP of Investor Relations, Diamondback Energy0: Got it. I appreciate the answers.

Case Vantolf, CEO, Diamondback Energy: Thank you.

Brianna, Conference Operator: Thank you. Our next question is from Charles Meade of Johnson Rice. Your line is now open.

Adam Lawless, VP of Investor Relations, Diamondback Energy3: Good morning, Case, to you and your companions in the sweat lodge.

Case Vantolf, CEO, Diamondback Energy: Good morning, Charles.

Adam Lawless, VP of Investor Relations, Diamondback Energy3: It sounds like you guys are holding up well. Really, just one question from me, Case, and you touched on this, but I just want to try go right at it. Can you give us an update on what the green light conditions would be in your metaphor, you know, to reaccelerate? And have there been any changes to that in light of a lot of the dynamics that you’ve been talking about here today, whether casing costs up, service pricing, efficiency higher, service pricing down, and also arguably there’s with the impending decline of U. S.

Oil volumes, that’s a nascent bullish indicator, I think. So can you just give us a reminder of where you are and how that’s changed?

Case Vantolf, CEO, Diamondback Energy: Yes, that’s a good question, Charles. I mean, I think we’re certainly closer to the second half of the year when a perceived supply wave is coming our way. We’ll see what actually happens. We’ve now unwound or OPEC has unwound their initial cuts. I think they’re moving to a world where instead of it was a discussion around who was cheating on their quota, it’s who can hit their quota.

And I think that’s a huge difference in messaging, right? If production at OPEC hangs in there and you see U. S. Production start to struggle a little bit and then the curve is going to have to react. And when the curve reacts, that’s probably our biggest signal.

I think just generally the tone over the last four months has been a lot of companies running $50 and $60 scenarios versus the traditional last kind of three years, dollars 60, dollars 70 and $80 scenario. So I think when you start to see some changes in U. S. Production plus all

Scott Gruber, Analyst, Citigroup: of

Case Vantolf, CEO, Diamondback Energy: the OPEC barrels back, you start to look at what does a normalized market look like. And I think that resolves itself sooner rather than later in a commodity based market. So I’m cautiously optimistic on ’26, but right now for the rest of ’25, we’re hunkering down and maintaining our flexibility for next year.

Adam Lawless, VP of Investor Relations, Diamondback Energy3: Yeah, emphasis on caution. Thanks a lot, Case.

Case Vantolf, CEO, Diamondback Energy: Thank you, Charles.

Brianna, Conference Operator: Thank you. Our next question is from Doug Leggate of Wolfe Research. Your line is now open.

Adam Lawless, VP of Investor Relations, Diamondback Energy4: Thanks. Good morning, guys. Case, I wonder if I could ask, guess it’s been asked multiple times the return to growth question, but maybe ask it a little more pointedly. It seemed that under Travis, was pretty clear that Diamondback would essentially be ex growth given, for want of a better expression, a subsidized oil market. Listening to you this morning, reading the letter, it sounds like there is a case where growth would make sense.

Is that a change of stance under Case versus under Travis?

Case Vantolf, CEO, Diamondback Energy: I wouldn’t say it’s a change of stance, Doug. I think we’re closer to discussing it again. I think if you go back to why U. S. Shale or the big publics went kind of ex growth, it was coming out of 2020 and we went through a near extinction event as an industry and the shareholders said time out, it’s time to give us our money back.

We gave you a lot of money over the last ten years to grow your business and now we expect a return and the risk of that return almost went away in 2020. And coming out of that, a lot of the companies decided to exert capital discipline and spend less and return cash to shareholders. And I think that’s been in general a positive outcome for our shareholders. I think I don’t think we’re talking about going to spending all of our dollars growing the business, but I do think at some point that outside of your words on mine, subsidized oil market, there’s going to be an unsubsidized unsubsidized oil market that’s going to call for growth from companies like Diamondback and we’re going to be there to answer that call. We’re going answer it cautiously and with high capital efficiency, but that call is coming at some point over the next couple of years.

Adam Lawless, VP of Investor Relations, Diamondback Energy4: That’s very clear. Well, guess my follow-up is related to that because although a lot of people might say, there’ll be a time to grow, not everybody can because of inventory. So I wanna be careful how I ask this, but you’ve talked about eight to ten years of tier one inventory. But as you and have talked about before, you don’t just develop tier one when you’re doing a cube or whatever. So from a practical development stance, meaning Tier one plus the other benches that you might develop alongside that, what would you say today is the consumption rate of your inventory, not eight to ten years?

What’s the real number?

Case Vantolf, CEO, Diamondback Energy: Yeah, I mean, I think it’s a little higher than that, Doug, but I think we’re fortunate that a lot of these secondary zones are pretty economic today before we have to get to kind of true Tier two, Tier three zones. I mean, I think we need to move away from individual well IRRs or breakevens and really start to look at and we do this internally looking at pad level breakevens or section level breakevens because you’re really developing half a section or a section at a time and that’s really the rate of return you’re achieving on that project.

Adam Lawless, VP of Investor Relations, Diamondback Energy4: That’s very clear. Thanks guys. I appreciate you getting me on.

Case Vantolf, CEO, Diamondback Energy: Thanks, Doug.

Brianna, Conference Operator: Thank you. Our next question is from Leo Mariani of Roth. Your line is now open.

Adam Lawless, VP of Investor Relations, Diamondback Energy5: Yeah. Hi guys. Wanted to ask a little about sort of the red light scenario, a lot of focus on the green light scenario, but what causes you folks to maybe slow down and consider shrinking a bit? Obviously, oil price key thing, but what else would you be looking at kind of apart from oil price here?

Case Vantolf, CEO, Diamondback Energy: Yes, it’s really just oil price, Leo. I mean, I think if printing a month in the low 50s, month, then I think we have to have a discussion. But I think we kind of did our part and cut a ton of CapEx out of the plan this year to generate more free cash and shrink the balance sheet and shrink the share count. But I’m not in a camp being the first to hit the red light if that comes because we’ve done our part here.

Adam Lawless, VP of Investor Relations, Diamondback Energy5: Okay. That makes sense. And then just with respect to kind of targeted debt levels for Venom, you guys kind of came out with a new target today of $1,500,000,000 in net debt, at which point you guys would increase returns to shareholders. Can you provide any kind of similar methodology at the FANG level in terms of how you’re thinking about that to maybe boost some of the shareholder returns?

Case Vantolf, CEO, Diamondback Energy: Yes, I think at the paying level, having more flexibility is important, right? And right now we’re committed to at least 50% of free cash going to equity, combination of the base dividend and share repurchases. I think if there’s share price weakness, number should go higher than 50%. But if things are strong, then it should stay around 50%. I think at the E and P level, you have all the CapEx that’s associated with the business.

And so it’s hard to put an exact number on where you’d like debt because I think at Diamondback, we’d like to have lower debt, but also cash on the balance sheet for flexibility the cycles do move against you.

Adam Lawless, VP of Investor Relations, Diamondback Energy5: Thank you.

Brianna, Conference Operator: Thank you. Our final question is from Paul Cheng of Scotiabank. Your line is now open.

John Freeman, Analyst, Raymond James: Good morning. Case, just want to look at the business on a longer term basis. I mean, since the formation, you guys have been always doing very good as to go through acquisition. And as we say, mean, until you prove them, you’re not a good consolidator, you should continue to be the preferred one. But at the same time, you also say that the asset available in Midland, where is your focus, is getting scarcity.

And so from that standpoint, I mean, how the long longer term your business model need to be evolved over the next, say, call it five to ten years?

Case Vantolf, CEO, Diamondback Energy: Yes, good question, Paul. I mean, listen, I think we’ve obviously done a ton of consolidation, particularly in the last two years, Endeavor and Double Eagle, very large trades relative to the other trades we’ve done in our company’s history. And so I think we’re in really good shape right now. So I think over the next five to ten years, I think there’s going to be opportunities that present themselves, but they have to be presented at a value that’s obvious by inspection to shareholders. Because as you know and as you said, there aren’t 15 private equity companies with 20,000 acres of Tier one rock available to be consolidated.

So I think for us that means continue to explore in our existing asset base, which we’ve done with some of these secondary zones starting to get more attention and perform well, as well as continue to trade and block up and do all the little things to wait for opportunities when they present themselves. But I think patience is going to be the key for us versus where we’ve been in the last ten years or so.

John Freeman, Analyst, Raymond James: Do you think that you will need to move outside Midland into some of your peers, we talk about international opportunity or that you think that you would just focus in Midland?

Case Vantolf, CEO, Diamondback Energy: I think we’re very focused on Midland and the Permian in general today and going to continue to be so. I think there’s still a lot of resource left to explore within our asset base and around the Permian and that’s where we’re committed from a G and A perspective today, Paul.

John Freeman, Analyst, Raymond James: Okay. Second question real quick, 2026, I know you’re still a little bit early, but if we assume your program would be relatively flat on the, number of drilling rig or frac crew or number of wells coming on stream, what’s the, plus and minuses that on the CapEx program may look like in terms of inflation or efficiency gain? Can you give us some idea that how that different factor will move that number comparing to this year number?

Case Vantolf, CEO, Diamondback Energy: Yes. I mean, I think CapEx has moved around a lot throughout the quarters this year with Q3 being the low and Q4 coming back up a little bit. But I think we can generally hold our oil production for 90,000 barrels a day plus or minus with about $900,000,000 a quarter going forward, maybe a little bit lower than that if things go our way. So that’s still a really good best in class capital efficiency on the oil side. And also, we have the flexibility to go higher or lower depending what the macro tells us.

John Freeman, Analyst, Raymond James: And in case that’s already including the tariff impact, right?

Case Vantolf, CEO, Diamondback Energy: It’s already included in what impact?

John Freeman, Analyst, Raymond James: The tariff.

Case Vantolf, CEO, Diamondback Energy: Yes.

John Freeman, Analyst, Raymond James: Okay, we do. Thank you.

Case Vantolf, CEO, Diamondback Energy: Thanks, Paul.

Brianna, Conference Operator: Thank you. This now concludes the question and answer session. I would now like to turn it back to Case Vant Hoff for closing remarks.

Case Vantolf, CEO, Diamondback Energy: Well, I’m proud of all the analysts for still going a full hour despite the temperature rising 20 degrees in that hour this office. But thank you for your interest in Diamondback, and we look forward to discussing any questions anyone might have offline. Thank you.

Brianna, Conference Operator: Thank you for your participation in today’s conference. This does conclude the program. You may now disconnect.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.