Diamondback Energy, Inc.

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 star 1-1 on your telephone. You will then hear an automated message advising that your hand is raised. To withdraw your question, please press star 1-1 again. 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.

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 Kate 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. And I'll turn the call over to Kate.

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.

Thank you very much. One moment. As a reminder, to ask a question, you can press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 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.

Yeah, good morning, Case, 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 cruise. So, Case, maybe you just take a moment for the investors on the line to talk about the thought process that went into this decision and and just how you're thinking about where and when to add activity.

Yeah, Neil, I mean, it's a good question. You know, I think there's some macro elements as well as some micro elements, and we'll go through both of those. You know, I think from a macro perspective, you know, obviously there's a clear market signal. You know, we're two months into the world's largest oil supply disruption in history. And, you know, I think, you know, Diamondback and Diamondback shareholders are very fortunate that, you know, we're solely based in West Texas. We're kind of tourists 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 in an advantaged 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, you know, so that decision at a micro level was, you know, honestly fairly easy. And, you know, I think the last piece about it is, you know, we're able to do this in a very capital efficient manner and get it done very quickly, you know, because we have this backlog of ducks and we, you know, prepare our business for, you know, 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.

Next case. And then the follow-up is just on the return of capital framework. You didn't move away from the fixed framework 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?

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 history of the return of capital program for both ourselves and the industry you know, was put in place after the COVID, you know, 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, 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, you know, make more cyclical moves versus, you 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. I think you know, outside of their stake, they're most focused on us creating long-term value and, you know, allocating a ton of free cash to 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 have a great relationship with the family. I think we have the ability to help them monetize. And if we you know, use kind of excess free cash flow over the next couple quarters to pay down debt, we can help monetize their stake actually more efficiently coming out of this. You know, they're long-term holders, and they want the stock higher.

That makes sense. Thank you, Kay.

Thanks, Neil.

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

Yeah, thanks. We 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 specifics, you know, why performance was so strong? It sounds like it was a lot more well-performance just versus, you know, any other kind of dynamic. Just, you know, give us a little bit of thought on that. And is that something we should anticipate moving forward and what's embedded in guidance?

Yes, Scott, I'll give a couple high level and then let Danny talk about some of the details. But, you know, high level, you know, 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, you know, 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, you know, couple quarters, you know, there's just kind of a lot of good things happening in the field in terms of less downtime, more automation, you know, call it AI, call it automation, impacting that side of the business. So, I think, you know, better wells and lower downtime, that's a good recipe for a production beat. Yeah.

Scott, you know, Case alluded to it, but we, you know, post the Endeavor project, merger and getting the teams together, we started trading a lot of ideas on what we were doing to really optimize primary completions as well as the base. We've talked about it over the past few quarters, but some of the things we're seeing on the completion optimization side with perforating strategies, rain 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 workover side, some of the acid jobs, the chlorine dioxide jobs, the surfactant jobs, we're starting to see that pay dividends, and really layering on that machine learning as we continue to look at our data streams and processes and and layered on machine learning and trying to, you know, start working towards, you know, implementing AI into our field operations, we're seeing that downtime come down. And, you know, it's been a big part of the beat in Q1, just really, you know, that little bits of optimization across the board starting to show through to the top line numbers.

Great. And as my follow-up, when you guided oil, you talked about it looks like you're inferring greater than potentially 520 a day. Can you just talk through if you continue to see this macro environment, is there how much desire there to kind of continue to let that oil production grow versus curtail it and Is there a scenario where you'd actually even look to step it up even higher if the macro continues to be heightened?

Yeah, I mean, it's a great question, Scott. 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 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, you know, 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 macro. So I think we're just ready to react. We still have some things in our back pocket to grow further. But for now, this kind of 520-plus thousand barrels a day on oil is the new baseline.

Thank you.

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

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, you know, what you might or might not do. And then same question with oil service prices and, you know, maybe ask about are you expecting OFS inflation given, you know, what's going on with prices?

Yeah, Neil, I mean, on the WAHAT side, obviously, the pricing is deeply negative. You know, we're well protected with financial and physical hedges. You know, our mix of physical to financial is going to be moving more towards physical when these two new pipes come on, you know, hopefully the second half of the year. 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, where we're drilling some of the oiliest stuff in the basin. 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. We've talked at length about monetizing our gas. We're kind of on the cusp of that. That's starting to happen here when these pipes come on. Danny, on the service side, what are you seeing?

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

Yeah, I mean, you know, Neil, I think, you know, my first day and 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. Inorganic growth, which, you know, M&A, we've obviously been very, very good at M&A over the years. I think this volatility is kind of difficult to get deals done, you know, private or otherwise. So I think generally... M&A is probably fairly quiet at Diamondback for the foreseeable future. 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, buy back shares, or you can just put the cash in a balance sheet. I think with oil prices where they are, I don't know if investors are capitalizing this price environment yet today. For us, you know, 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.

Makes sense. Thanks, Dave.

Thanks, Neil.

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

Yeah, good morning, gentlemen. Case, 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 you know, 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?

Yeah, I'll let Danny and Al talk about the latest Barnett developments, but just from a capital allocation perspective, you know, even with higher commodity pricing, you know, we're still going to hold to, you know, the vast majority of our spacing assumptions throughout the basin and you know, 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, you know, that provides prudent spacing, but also a solid rate of return to our shareholders despite, you know, the commodity price volatility. So I think 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?

Yeah, I think that's right, Arun. I mean, looking at the acceleration of the plan coming in with these two rigs. Really, that's the acceleration of the Barnett plan. We're focused on that development. Really, it's just getting ahead of the Barnett obligations that we talked about last quarter.

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. Those wells are not as high a working interest. you know, about half and half, a little bit heavier weight on the Diamondback side. So, you know, 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, you know, 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?

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, you know, a couple months from now. And then as we move into the back end of the year, you know, I think we'll have an opportunity to not only reduce net debt, but also gross debt. So like we 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 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.

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

Thank you. Good morning, guys. you know, even after, you know, increasing activity, the reinvestment rate for y'all still fell pretty sharply from, you know, what y'all 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. I know that returns, you know, ultimately drive y'all's decisions, but is there a, like a reinvestment rate that you all just want to stay below, regardless of kind of the commodity environment?

Yeah, John, I mean, that's a good question. I mean, I think I'd probably take it a little different direction where, you know, obviously we've been pulling investors that, you know, that own the stock to get their opinion on, you know, 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 frack crews in the model to hit our original guide. And, you know, that fifth frack crew was going to go away for five or six months and then come back. And, you know, it's a Halliburton, E-Fleet, Simulfrac, you know, as efficient as it gets crew. And so we're just bringing that crew back and going to 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 has driven some inefficiencies in E&P's plans and Diamondback's plans. in years past. So I think, you know, trying to learn from, you know, the history of development in this basin, you know, staying capital efficient is probably the priority. And I think the reinvestment rate, you know, becomes the output of that.

That's great. And then just along those same lines, I know the original 2026 plan didn't forecast sort of any meaningful, you know, duck draws or builds. 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 of through the year, right? So, we're going to draw down the ducts in Q2 and backfill that with two rigs worth of activity to make sure we build our duct balance back up. You know, we're basically, we peaked at a little over 200 ducts in Q1. You know, that number is going to 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 going to have to keep a little bit higher duct balance than we would running four crews because 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. at 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.

Yeah, I mean, we like to keep kind of a quarter to quarter and a half's 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. If you think about it, each of these crews will do about 100-ish wells a year or maybe a little more. To Kate's point, he hit the nail on the head, a couple hundred wells ahead of these five fleets is kind of the right, you know, carry number of a duck balance. But, you know, 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, you know, the improvement quarter over quarter and, you know, as the crews get more efficient and get more wells done, it either means we've got to release crews to keep the same well count or we've got to build more ducks to stay ahead of them. So, you know, 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 Q1's beat and just kind of kept it going through the rest of the year.

Thanks, guys. Appreciate it.

Thanks, John.

Thank you very much. Our next question comes from the line of Betty Jang of Barclays. Betty, your line is open.

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 the marketing strategy in general? on the oil side?

From a strategy perspective, Betty, we learned from the Permian takeaway crisis of 2018 that we needed to use our balance sheet to get our crude to the biggest markets. For us, that was, let's get more crude down to Corpus Christi as well as Houston. If you remember, we invested in three pipelines. Epic, Grey Oak, and Wink to Webster, all of which made our investors a lot of money, but also protected Diamondback from a commercial perspective. We have about 300,000 barrels a day going down to Corpus on Epic and Grey Oak, and then we have about another 100,000 a day going down Wink to Webster, 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 rent 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.

Got it. That makes sense. And then I want to ask about the acquisition line item in 1Q. There are just a few hundred billion. Are you guys doing any organic acquisitions and maybe picking up bulldom things that's at good pricing? Yeah, can you just speak to that?

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 and capitalized GNA, and that made up, you know, the vast majority there. 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.

That's helpful.

Thank you.

Thanks, Betty.

Thank you very much. Our next question comes from the line of Philip Jungworth of BMO. Philip, your line is open.

Thanks. Good morning. Can you talk about how you're viewing a Viper ownership and what's optimal for Diamondback? Just because you did sell some in the quarter, but still own 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?

Yeah, I mean, we did sell down a little bit of ownership in Viper. It was kind of a follow-on from the drop-down where we took, you know, 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 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 monetize any more shares. I think if you just think about where both companies are going to be from a balance sheet perspective, you know, in another few months, you know, 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.

Okay, great. And then in the 2022-23 up cycle, 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 years ago, just because it also has implications for tightening of OFS markets?

Yeah, that's a very important question, and it's gone into our calculus on thinking about the market and thinking about adding activity. If you go back to that 2022 up cycle, you had 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. NCAP North, which is now part of Oventa, went from two rigs to six rigs. Double Eagle, which is now part of us, a combination of us and Exxon, went from one rig to six rigs. These were big moves on the private side, and back then there was still a lot of private activity growth, particularly in the Midland Basin that has now been consolidated into So I think there's going to be private growth. I mean, the private model has shifted to more of a, you know, smaller asset packages that they develop very, very quickly, farm into larger operators positions. You know, there's been a big growth in kind of that northern New Mexico area, but by our math, right, that's 20, 30 rigs. It's not 100 rigs like it was uh 2022 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 2022 time frame 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, you know, kind of in light of what you just mentioned about, you know, the impact of the private case. You know, how do you think about Diamondback's volumes, you know, say over the next five to ten years on an organic basis, you know, do you think about Diamondback kind of being in modest kind of growth mode over the next five to ten years? And this may happen, you know, kind of stepwise when called upon, you know, 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, you know, 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.

Yeah, I mean, listen, Scott, I think I'll go back to my earlier comment that 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 create shareholder value. So I think we've been talking about trying to hit the organic growth accelerator for a while now. We just haven't had the macro conditions to support it. But I think in a world of, and who knows what's going to happen where you know, mid-cycle pricing is a little higher, call it 70 plus on WTI, 75 plus. Well, you know, I think that's a world where from a total shareholder return perspective, you know, a couple percentage points of organic growth, you know, really adds to the NAV of the business and adds to the, you know, long-term free cash generation. And that's kind of, you know, one of the important points that we ran in the model this year was that this new plan is generates more free cash flow in 2026 per share than any other – sorry, more free cash flow per share at any oil price above $60 oil. And so, you know, a $70-plus world, you know, this is advantageous to shareholders long-term.

Yeah, it would certainly help differentiate Diamondback. And then turning back to the capital efficiency of the investment program, you know, 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. So 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? Do you think you'll be able to show improvement kind of relative to the initial program this year?

Yeah, listen, I think things like duck draws and bringing back ducks and a barnet, when you develop, I mean, I think that's all kind of noise, right? Below that noise, the team is executing flawlessly. I mean, we set records on the drilling side on two, three, four mile laterals. Wolf Camp D development, we gave the team a goal of $300 a foot for drilling a 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 to make the Barnett competitive with the base program. Well, we already put a well in in the ground under $400 a foot. So I think at the highest level, you know, if the business is firing on all cylinders, efficiencies continue to improve significantly. above ground, 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, you know, separate the noise of are you drawing down ducts this quarter or this month versus, you know, years past. And that's the long-term benefit to capital efficiency.

That's great. Appreciate the call. Thank you, Chase.

Thanks, Scott. Thank you very much. Our next call comes from the line of Derek Whitfield of Texas Capital. Derek, your line is open.

Good morning, all, and thanks for taking my 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 Donald Beck?

Yeah, I mean, I'll take the macro question first, Derek. You know, if I wasn't long-term bullish, I'd be out of a job, right? So I guess, you know, we have to be long-term bulls, but also think about, you know, in practical terms where the situation is right now. And, you know, 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 undersupply in history in 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 U.S. 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 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 certain 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 an inventory depth and quality perspective, but also the costs at which we execute on that inventory. I think we're very well positioned, and I think it's a little too early for us to go higher on mid-cycle pricing today.

Fair enough. As my follow-up, I wanted to shift over to the Barnett, referencing the play outline on page 16. How large could you reasonably grow this position beyond $200,000 that you're highlighting on the slide deck? You clearly have one of the most prolific buyers of assets in Midland working with you, so certainly you have that in your favor.

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

Great update. Thanks for your time.

Thanks, Derek.

Thank you very much. Our next question comes from the line of Kevin McCarthy of Clickering Energy Partners. Kevin, your line is open.

Hey, good morning. 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, you know, I think it's going to be pretty evenly weighted here towards the back half looking at, you know, that six – we went up to kind of that 6.2 million lateral feet, right? So you're – You know, we're looking probably at 1.5 to, you know, 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, you know, 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, you know, we still expect to be at 12.9. So, we expect that to ramp kind of going through the back half of the year.

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

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. We got those tests in the ground. We're looking at it, team studying it. We're refining the process and plan to move forward with our next deployment early this quarter.

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, you know, what do we do right in the 400 or 500 barrel a day wells, and what do we do wrong in the zeros, and, you know, we're going to figure that out. This is version 1.0, and that's what kind of gets me excited. Like, 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. That's kind of why we've held as much acreage as we have. We have some of the best oil in place in the basin. 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.

Bob, 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.

Gabe, can't hear you if you're talking.

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?

Yeah, I don't want to get into a specific number. I mean, I think right now we've already grown, you know, low single digits year to date. You know, I don't think there's a ton of investor appetite for a large CapEx bump and something, you know, more than mid single digits. growth, but I think it's early. I think there's a lot of noise in the system, and no one's really sure how this macro is going to unfold, and that's why I think we're keeping our cards kind of close to the vest here, coming out with a good forecast in Q1, and we'll see how the rest of the year unfolds. But just pulling investor appetite, I don't think there's a lot of appetite for you know, something like the go-go days of 2017, 2018, where you had, you know, multiple capex increases in a year and double-digit, you know, mid-double-digit production growth. So, 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.

Got it. Okay. Thanks, Casey. That's helpful. And then a follow-up for me would just be, is there any update around your surface position in light of maybe a new market entry in that regard. I'm curious if there's any update on the conversations you're having there. Thanks, guys.

Yeah, Case 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.

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, I think, 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? 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 arrange 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? I'm not so much interested in the autopsy of your decision, but I'm more trying to get some insight into how the dynamics work for you guys as a fast mover in response in this volatile oil tape.

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 we just decided to over communicate with our board through this crisis. Obviously, the crisis kicked off just a week after earnings, right? We had set the budget. But I think we sent three or four notes to the board in March just to update them on how we're thinking. And then it was a simple meeting to get together ahead of earnings to make this decision. And I think the board was had resounding support for this plan. But that's all inside baseball and how Donovac works with our board.

Great. That's all from 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.

Hey, everybody. There's been some discussion of some pretty weak, you know, Waha prices in 2Q. Wanted to get a sense whether or not you think that could be some, you know, 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, you know, the gas price is or just any color kind of around that dynamic and how you're thinking about it would be helpful.

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 4, negative 5, negative 6, you start to eat into, you know, the value of your oil production. Now, you know, oil is $100 a barrel, not $60, so it's a little different math on should you shut in oil barrels because of Waha pricing, but I do think that that's happening throughout the basin. I think in an area like New Mexico with tighter restrictions on midstream development and flaring, that's probably a question for others, but it's probably something that's happening. For us, if we go back to October of last year, Waha blew out due to some maintenance issues. We shut in 2,000 or 3,000 barrels a day of production for a period of time, and then, you know, Waha came back and we brought that production back, I would bet, you know, we're probably around somewhere in that range today with Waha as weak as it is. But it's not impeding, you know, new development, particularly with the amount of hedges that we have on the financial side.

Okay. That's helpful. Sounds like you still have flow assurance. This would be more of an economic decision for the company.

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

Yeah. Okay. 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 one queue. It looks like your guys are telling us we're getting $520,000 again. You did talk about a little growth. So, I mean, 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?

Yeah, I think 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.

Okay. Makes perfect sense. Thank you.

Thanks, Leo.

Thank you very much. As a reminder to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Our next question comes from the line of Doug Legate of Wolf 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?

Yeah, Doug, I mean, listen, that would be a good problem to have. You know, I think generally, you know, 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, you know, who knows what happens after this. As we've kind of said, we're going to take this quarter by quarter. We're early into this oil price environment. You know, should it persist and the stock continue to go up, then we'll, you know, allocate less capital to buybacks and continue to put cash on the balance sheet. But, you know, at the end of the day, we know this is a cyclical business. And, you know, in this highly cyclical business, we want to you know, have the ability to pounce on opportunities when the cycle turns. And, you know, those opportunities could be M&A, that could be, you know, buying back a ton of stock. It could be, you know, leaning on your balance sheet to buy back stock. So I think the key term here is flexibility, but also long-term value creation. Because, you know, 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, you know, 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 privates add 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? What are you seeing on your non-op, I guess, requests for activity?

Yeah, I mean, Diamondback carries very little non-op, but Viper obviously sees half the wells in the basin around numbers. And I think we'll talk about it on the Viper call, but early signs are nothing major on permitting, but the discussions that we're hearing in the field and in Midland are that rigs are getting picked up 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 where we are today.

That's helpful. Thanks, fellas.

Thanks, Doug. Thank you very much. Thank you very much. Our next question comes from the line of James West of Milius 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 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 you thinking about the out years and how you want to set up the company to either continue to grow at this bid-signature rate or not? You know, 27, 28, 29, not looking for guidance, but just kind of how your longer-term thinking is evolving.

Yeah, you know, obviously we have to think about the long term. And, you know, I do think if we are in a hire for longer world, you know, then an advantaged company with advantaged inventory like Diamondback should answer the call for production growth in that hire for longer world. So, you know, I think that's, you know, we don't live in a vacuum that's static. But if we did, I think, you know, some sort of organic growth in the story would you know, 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 decade. So long as it maintains capital efficiency, I think that's something that investors would support. Again, it's early. We'll see what the macro holds, but certainly it feels like the world changed a lot since our last conference call.

Absolutely. That'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.

Yeah, listen, we're very fortunate. We have an incredible inventory quality and duration. But I'll say that, you know, within Diamondback, you know, we're always looking for that next stick, right? Whether it's organic generation and Barnett development, you know, upper sprayberry 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 could be in our hands. So we're set up to do the sub $20 million deals, and the teams actually do a really good job at those, but also not – so small that we're not in the picture for every other deal that transacts in this basin.

Got it. Thanks, Case.

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.

Thank you, everybody, for your interest. We're always available to answer any questions. Just reach out to the number or email on the notices.

Thank you for your participation in today's conference. This does conclude the program and you may now disconnect.