Q2 2025 Diamondback Energy Inc Earnings Call

Kaes Van't Hof: Our earnings call. We are in our conference room in Midland, Texas, with no air conditioning. You know, truly valuing the importance of American Energy this morning with no air conditioning in this office. We will get it started. I hope you read our letter and the investor presentation and release last night. We are going to go straight into Q&A.

Which room in Midland, Texas with no air conditioning and.

Truly valuing the importance of American energy this morning with no air conditioning in this office so we'll get it started.

If you read our letter and in the Investor presentation, released last night, and we're going to go straight into Q&A.

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.

Thank you at this time, we will conduct a question and answer session.

Our first question comes from Arun Jairam of J P. Morgan Securities LLC. Your line is now open.

Arun Jayaram: Good morning. sorry about the AC situation. Hope you have a couple of fans 'cause it can get hot in Midland, in the middle of the summer.

Good morning.

Sorry about the AC situation hope you have a couple of fans because they can get hot in Midland in the middle of the summer.

Kaes Van't Hof: Yes.

Arun Jayaram: Yep. Hopefully, this is not part of the case. Your thoughts on reducing costs at the company because AC is pretty important. Let me shift gears a little bit. Kaes, I want to hit this one kind of head-on. There has been a lot of consolidation talk in the industry, particularly from some of your big-cap peers who have highlighted some of the benefits they have received from synergy capture from previous deals. So I was 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&A thoughts.

Yep hopefully this is not part of our case youre thoughts on reducing costs at the company because they see it.

[laughter], yeah, but let me shift gears, a little bit case I wanted 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 of that.

<unk> received from synergy capture from previous deals I was wondering if you could comment on how you think about the consolidation roadmap in the Permian and in fangs role within the industry and just overall M&A thoughts.

Kaes Van't Hof: Yeah. I mean, good question, Arun. I mean, I, I, 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, at Diamondback, you know, over the last 15 years. And, and what I think, and I think investors would agree, is an extremely has been an extremely tough tape. So generating alpha and creating value in a tough tape is what we've, we've done. And we've done that via an acquire and exploit strategy in, in the permian where, you know, we've been able to cut costs and execute, you know, better than anybody else on the assets we acquired. And, you know, I think, that ability to, integrate acquisitions and not have any issues executing, post doing it, you know, the most recent example is Endeavour.

Yeah. Good question Arun.

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.

Going back you know over the last 15 years.

I think Ken I think investors would agree is a extremely has been extremely tough tape, so generating alpha and creating value in a tough state is what we've done and we've done that.

And 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 in I.

I think.

That ability too.

Integrate acquisitions and not have any issues executing post doing it you know the most recent example is endeavor at almost double the size of the company.

Kaes Van't Hof: It almost, you know, doubled the size of the company. And, outside to investors, it, it looked like we didn't skip a beat. So listen, we got a 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, you know, we're, we're we, 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 that are pretty interesting. And, until someone else can prove they can do it better than us, then and we lose our edge, then we should be, you know, the consolidator of choice. So that's what I spend my time thinking about.

Outside to investors it looked like we didn't skip a beat so listen we got a 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 as we're 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 that are pretty interesting and until someone else can prove they can do it better than us then 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.

Kaes Van't Hof: you know, I think it's, it's interesting to see, larger peers, you know, get bigger in the basin and, and talk about M&A. But I think we're singularly focused on continuing to execute at the highest level. And, you know, we exhibited that today.

Larger peers get bigger in the basin and talk about M&A, but I think we're singularly focused on continuing to execute at the highest level.

I mean is that today.

Arun Jayaram: Great case. My follow-up, you announced, some non-core, 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 1.5 billion, in particular, maybe an update on the Endeavour, water, drop.

Great case, 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 5 billion in particular, maybe an update on the endeavour our water drop.

Kaes Van't Hof: Yeah. So, you know, we, we, announced a $1.5 billion non-core asset sale target with the Double Eagle transaction that closed early in the second quarter. you know, we're a, a, a small way through it with two smooth, two small sales, non-op sale and the, the Bengal sale, getting us to about 250, 260 of, of cash in the door coming in this quarter. the other two big pieces of, of non-core assets that we see as, you know, on the block are our Epic Pipeline space, which we've increased to 27.5% of that pipe. it's a pretty valuable pipe now with, you know, the last remaining expansion out of the basin. And then the other piece being our, Endeavour water assets that we feel make a ton of sense in our deep blue JV. so, you know, we're working on both of those projects imminently.

Yes, So we announced the $1 5 billion noncore asset sale target with the double Eagle.

Transaction that closed early in the second quarter.

We're a small way through it with two smooth two small sales non op sale on the bangle sale getting us to about $2 50 to 60 of of cash in the door coming in this quarter. The other two big pieces of non core assets that we see as you know on the block are our epic pipeline stake.

<unk> increased to 27, 5% of that pipe 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.

No.

Working on both of those projects imminently.

Kaes Van't Hof: you know, 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, our shareholders, you know, at some point in the next quarter or two on, on hitting that target and, getting that cash in the door.

Hard for us to put too much detail, but 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 on hitting that target and getting that cash in the door.

Arun Jayaram: Great. I'll turn it over. Thanks.

Great I'll turn it over thanks.

Thanks Arun.

Operator: Thank you. Our next question comes from David Deckelbaum of TD Cohen. Your line is now open.

Thank you.

Our next question comes from David Deco Bomber T. D. Cohen. Your line is now open.

David Deckelbaum: Thanks for taking my questions, guys. I'll, 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. Now, can you quantify the size of that opportunity that you think can be addressed over the next couple of years?

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 in case the opportunity to address some of the production downtime.

Focus on the production tail.

You quantified the size of that opportunity that you think can be addressed over the next couple of years.

Kaes Van't Hof: Yeah. I'll give you a high level. You know, this, this, this commentary is, is, is kinda new to us, right? I mean, if you look back at, at the development of Shell or, or Diamondback, you know, it 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, you know, capital's 65% or so of our spend, op costs are 35%, and we think it's going to 50/50. And, you know, 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 Endeavour team had. And we're seeing some, some interesting results on some of our, we call them HTL jobs.

Yeah, I'll give you a high level.

This commentary is.

It's kind of new to us right.

If you look back at the development of shale our Diamondback.

He used to be 80% of our spend was on capital of 20% was on op costs and now here. We are at the size that we are capital of 65% or so of our spin off costs are 35% and we think it's going to 50 50, and I think theres a lot of things to work on the tail of our production some of which came over.

Ideas the endeavor team had and we're seeing some some interesting results on some of our we call them HDL jobs.

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

But I think if we can get a lot of unknowns and on the production side of the business.

Or do you, sometimes 5% here a percent there.

Do some of these workover jobs at bringing some of the old wells back.

So to speak that that kind of adds up over.

So I don't know Daniel Chad do you want anything we do.

Doing that and our focus on that but that's the highlights.

Danny Wesson: Yeah. I mean, we've, we've, we've really, you know, leaned in a little bit more to our workover program this year. you know, the spend, the non-DC and e-spend budget line item, is a little larger this year than it has been in years past. And, really to, to allocate some more capital to working over, older wells, and trying to optimize the tail. And, and we've seen some, some really encouraging stuff out of, out of that program. We don't have anything we can really quantify today, but, you know, we're gonna continue to work that and, and, and, and get some, some data around it so we can talk to it in the future.

Yes.

Really.

Leaned in a little bit more to our Workover program this year.

The spend in non D C any spend budget line item a little larger this year than it has been years past.

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. We don't have anything we can really quantify today, but we're going to continue to work that and and and and.

Get some some data around it so we can talk to it in the future, but I think.

Danny Wesson: But, you know, I think I think some of these wells that, you know, are three, four, or five years old that have been impacted by offset cracks and whatnot, when we go into them and, and, you know, and, and clean them out and, and put some acid or some other, you know, chemical optimization, into the reservoir or stimulation into the reservoir, we're seeing, you know, almost, you know, 20 to, to 50 to 100 percent, you know, improvement in production on, on, on lower production volumes. But, you know, it's very encouraging, what we're seeing on, on some of the work we're doing on the tail end of the production curve.

Some of these wells.

Our 345 years old that have been impacted by offset fracs and whatnot.

When we go into them in.

And clean them out and put some asset or some other you know chemical optimization.

The reservoir stimulation into the reservoir, we're seeing.

Almost.

20 to 50% to 100%.

Improvement in production on lower production volumes, but it was very encouraging.

We're seeing on some of the work we're doing on the tail end of the production curve.

David Deckelbaum: Thanks for the call there, Danny. and maybe, Case, just, following up on just Arun's comments with, with some of the non-core sales, you know, targeted for perhaps the back half of this year. How do you think about managing that cash coming in the door, door versus some of your debt targets by the end of the year and, and some shareholder returns?

Thanks for the color Danny.

Maybe just following up on just to Ron's comments with some of the noncore sales targeted for perhaps the back half of this year. How do you think about managing that cash coming in the door door versus some of your debt targets by the end of the year and some.

Shareholder returns.

Kaes Van't Hof: Yeah. I mean, I, I think, I 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. You know, that's really our big, our big, piece of debt that's due in 2027. we have another, 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, the last year that we have it. you know, I think I think overall, we, we have some nice tailwinds here in, in Q3. you know, lower, a little lower CapEx, production, you know, strong, a pretty big cash tax tailwind, with, you know, the one big beautiful bill flowing through.

Yeah, I mean, I think I 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.

Really our bank our bank a piece of debt that's due in 2027.

Another 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 the last year that we have it.

I think I think overall, we have some nice tail winds here in Q3.

Lower a little lower Capex production strong.

Pretty big cash tax tailwind.

With the one big beautiful bill flowing through and so that should.

Kaes Van't Hof: And so that, that should, create more free cash or significantly more free cash in, 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, a really good spot where we think, you know, we could lean in on repurchases should things, should things weaken further from here.

Create more free cash are significantly more free cash in Q3.

Some of which can be used to pay down debt, but a combination of that plus the noncore asset sales probably gets us into a really good spot, where we think we could lean in on repurchases should things.

Things, we can further from here.

Danny Wesson: Thanks, guys.

Thanks, guys.

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

Thank you.

Our next call is from Neil Mehta of Goldman Sachs <unk> Co. Your line is now open.

Derrick Whitfield: Yeah. Thanks, Case and team. If, if you can provide an update to the stoplight analogy, you know, it sounds like you still think we're at yellow here, but your perspective on the macro and how that informs your activity decisions is there's, you know, there's some bifurcation in the industry about how they want 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.

Yeah, Thanks, Keith and team if you could provide an update to the stoplight analogy you know.

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 theirs.

Some bifurcation in the industry about how they want it how players wanted 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. Yeah. Good question I think the stoplight.

Kaes Van't Hof: Yeah. Neil, good, good question. You know, I think the stoplight, it, it unveiled itself last quarter. And, and I don't think it's going anywhere anytime soon. you know, unfortunately, we still think we're in the yellow situation. But, but if you go back to kinda May 5th, May 4th when we released Q1 earnings, you know, there's probably still more uncertainty then than there is today. And, you know, basically, we, we said we were prepared to go, to go red if needed back then. And I think we're still ready to do that. But, but I think it, it seems that the, the double whammy of a demand shock and a supply shock has dissipated for now. you know, there's still a lot of a lot of firms, you know, yours, yours included, that, you know, see oil prices as, as much lower next year.

It's unveiled itself last quarter and I don't think its going anywhere anytime soon.

Unfortunately, we still think we're in the yellow situation, but if you go back to kind of make that may 4th when we released Q1 earnings. It was there's probably still more uncertainty than there is today.

And basically we said we're prepared to go to go read if needed back then and I think we're still ready to do that but.

But I think it seems that the the double whammy of a demand shock and a supply shock anticipated for now.

Still a lot of a lot of firms yours included that.

Oil prices is much lower next year I don't know if I believe that theyre going to be that low but it's.

Kaes Van't Hof: I, I don't know if I believe that they're gonna be that low, but, I, it's certainly hard for me to get extremely bullish today. And that's why I think 2025 for us is a year of, you know, debt reduction and share count reduction, you know, waiting for that spring to coil when commodity prices do, do rally in, at some point.

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.

For that spring to coil when commodity prices do do rally and at some point.

Derrick Whitfield: And then, Case, that kinda ties into the M&A in relation to, you know, last quarter, I think your, your message was Double Eagle represented 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 wanted to stay at pure play. And then, you know, incremental M&A, if it's done, it would probably be done from a Viper Energy perspective where you view that as a roll-up story. Is that still the still the framework, or, or, or are you suggesting a different posture here today?

And I can get that kind of ties into the M&A.

In relation to <unk>.

Last quarter I think your message was double Eagle.

Represent an opportunity for you guys to parse because at that point you had consolidated a lot of the higher quality positions in the Permian and you wanted to stay a pure play in.

Incremental M&A, if it's done it would probably be done from the Viper energy perspective, where you view that as a roll up story, that's still there.

Still the framework or are you, suggesting a different posture year to date.

Kaes Van't Hof: No. That, that is still our, our base case. I mean, I think at Diamondback, you know, we're very fortunate to have the inventory quality and depth that we have today. you know, there certainly is more consolidation to happen in the permian. I, 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, you know, that's why, you know, we were so aggressive on, on Double Eagle. And, you know, unfortunately, the, the timing wasn't great in that it closed right before Liberation Day. But we still feel very happy about, the assets we acquired there, the sub-40 break-even inventory we acquired there.

That's still our base case, I mean, I 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 theres not a lot of inventory out there that competes for capital in our top quartile that we have today and that's why.

Yeah, we were so aggressive on double Eagle.

Unfortunately, the timing wasn't great is that it closed right before liberation day, but we still feel very happy about.

The assets, we acquired their sub 40 breakeven inventory, we acquired there and we really don't see that much sub 40 breakeven inventory in hands of.

Kaes Van't Hof: And we really don't see that much sub-40 break-even inventory in hands of, you know, potential targets. so I think we have to be a lot more selective. Now, you know, Viper, on the other hand, we can talk about that on, on the Viper call, has had a great year consolidating and, and building that business. But I think, I think your analysis is correct that Diamondback's gonna be more patient and, and Viper's gonna keep, keep growing its business.

You know potential targets.

So I think we have to be a lot more selective now viper on the other hand, we can talk about that on the Viper call has had a great year consolidating and building that business, but I think.

I think your analysis is correct that diamondback is going to be more patient and Viper is going to keep keep growing its business.

Derrick Whitfield: Great. We'll talk on the Viper call.

We're talking to the typical.

Kaes Van't Hof: It'll be hotter then in this room.

It'll be hotter than in this room.

Yes.

Yeah.

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

Thank you.

Our next question comes from Scott Hanold of RBC capital markets. Your line is now open.

Scott Hanold: Yeah. Good morning, all. Hey, you all every quarter seem to find ways of squeezing out more efficiency, getting drill days down, and etc. Look, how many more things can you do? Drilling days cannot go to zero. Do you have a line of sight on how you can continue to improve efficiencies? Or are you getting to a point where you are more at the optimal level? Maybe if we understand what the leading edge kind of metrics right now are versus averages, that would be helpful.

Yes, good morning all.

You all every quarter seem to find ways of squeezing out more efficiency getting drill days down and et cetera.

Look how much how many more things can you do I mean drilling these can't go to zero, but like do you have a line of sight on how you can continue to improve efficiencies or are you getting to a point where you're.

You're more at the optimal level and maybe if we understand what the leading edge kind of metric.

Metrics right now are versus averages that'd be helpful.

Kaes Van't Hof: Hey, Scott. Yeah. Thanks for the question. love to talk about the, the ops guys and, you know, the nice reprieve and some of the stuff we talk about on these calls. So I think the, you know, the, the drilling guys in particular have done a, a phenomenal job of, of really chasing that leading edge well and, and, and getting to that leading edge well more consistently. I think we've, we've hit these, you know, four and five-day wells that we talk about, you know, kinda sporadically throughout, quarters in the past. But they're, they're getting to where they're hitting them more consistently. And I think that's the, the real efficiency driver is how do we become more consistent in chasing those really, record wells. You know, we continue to push lateral links longer.

Hey, Scott Yeah. Thanks for the question.

They talk about the ops guys in.

It's a nice increase in some of the stuff we talked about on these calls so I think the you know.

The drilling guys in particular have done a phenomenal job of it.

Really chasing that leading edge well in and getting their leading edge. It will more consistently I think we we've hit these four or five day wells that we talk about.

Kind of sporadically throughout the quarters in the past, but they're getting to where theyre getting 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 we <unk>.

To push lateral lengths longer we put in our letter.

Kaes Van't Hof: We put in our letter a, a highlighted a well that, you know, we drilled 30,000 feet. I think it was a record well in Texas. And so, you know, we're really pushing the limits of, of what we've known to be capable to do on the drilling side. And I really don't know where the, where the threshold limit's gonna, gonna take us there. But, you know, the guys have done a really good job of, of just consistently eliminating, you know, the downtime out of the operation and chasing that leading edge well in every section of the, of the, of the drilling well. And on the completion side, you know, they continue to do the same thing. They're, they're just chasing that simulcrack efficiency, you know, continuing to get better, pad after pad.

Ah highlighted a well that we drilled 30000 feet I think.

It was record well in Texas, and so we're really pushing the limits of what we are known to be capable to do on the drilling side and I really don't know, where the where the threshold limits going to going to take us there, but the guys have done a really good job of just consistently eliminating the downtime out of there.

The operation and chasing that leading edge well in every section.

Of the drilling well and on the completion side. They continue to do the same thing there, they're just chasing that simultaneous efficiency continuing to get better.

Pad after pad and you see that in the results of the aggregate lateral footage per day, pushing 4000 foot per day on the final frac.

Kaes Van't Hof: And, and, you know, you see that in the results of the aggregate, you know, lateral footage per day pushing 4,000 foot per day on, on the simulcrack, crews. And, and look, I think there's, there's opportunity to do some different things in the simulcrack world where we can, we can grow that, efficiency, you know, 15 to 20 percent more on top of that. So, you know, we're not done chasing those things. I think, you know, we'll, we'll continue to try and lead the pack in the permian with, with regards to drilling completion efficiency. And, you know, you know, I think at some point in time, we will reach a plateau, but we don't see it here, in the near future.

Cruise and look I think there is opportunity to do some different things in the final Frac World, where we can we can grow that.

<unk>.

15% to 20% more on top of that so you know we're not done chasing those things I think.

We will continue to try and lead the pack in the Permian with with regards to drilling completion efficiency.

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: All right. That's, that's good to hear. and my follow-up question is, you, you know, you all had, a bit stronger gas production this quarter. And, you know, it sounds like it came from more gas capture and, and processing improvements. can, can you tell us how much more of that is, is yet to come? And, and is that something where your midstream partners are investing more capital to improve it? Are, are you, you know, doing things differently with them? Or give us a little bit of color behind what really drove that and, and how much more can we see from that perspective?

Alright, thats good to hear.

And my follow up question is.

You know you all had a bit stronger gas production this quarter and you know 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 or are you.

We're doing things differently with them or give us a little bit of color behind what really drove that and how much more can be keep from that perspective, yes.

Kaes Van't Hof: Yeah, Scott. I mean, the backstory there is, you know, a business that we invested in, WTG, West Texas Gas, sold to, Energy Transfer a year ago. You know, WTG had been spending a lot of capital adding plants and capacity to a very high-growth area, you know, Martin County, of which we were the largest, producer on the system. you know, with that growth, there was a, you know, some growing pains and some power issues that, you know, took, took both, both WTG and Energy Transfer some time to work through. But, now we've started to see that, you know, those plants operate a lot more efficiently. and, you know, the big, the big increase was, you know, to our liquids yields. We, we've added 33,000 barrels a day of NGLs to our production in, in Q2 over Q1, like the snap of a finger.

Yes, Scott I mean, the backstory there is.

Business that we invested in W. T G West, Texas gas sold to.

Energy transfer or a year ago, <unk> had been spending a lot of capital, adding plants and capacity to a very high growth area, you know Martin County of which we were the largest producer.

Producer on the system.

With that growth there was some growing pains and some power issues that.

So it took both both W. T G energy transfer some time to work through but.

Now we've started to see that.

You know.

Those plans to operate a lot more efficiently.

And the big.

Big increase was to our liquids yields we have added 33000 barrels a day of Ngls to our production and in Q2 over Q1 like.

The snap of a finger and you know I think that's very positive for.

Kaes Van't Hof: And, you know, I think that's, that's very positive for, you know, long-term cash flow and, as well as, you know, the production in, in that area. Makes it more economic. So, big wins from, from the Energy Transfer team. That's why we put them in the, in the letter. but we continue to do things on our side too. I mean, our flaring was down, I don't know, 75 bips or 100 bips in the, in the second quarter versus the first quarter. and that, that ties to the gas capture side. So, you know, really trying to get, all three molecules generating as much revenue as possible for, for Diamondback here.

Long term cash flow and as well as.

The production in that area. It makes it more economic so big wins from from the energy transfer team. That's why we put them in the in the letter, but we continue to do things on our side too I mean, our flaring was down I don't know if 75 bps to 100 bps in the in the second quarter versus the first quarter.

That ties in the gas capture side. So you know really trying to get all three molecules generating as much revenue as possible for predominant back here.

Scott Hanold: Thank you.

Thank you.

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

Thank you. Our next question is from John Freeman of Raymond James Your line is now open.

John Freeman: Good morning, guys.

Good morning, guys.

Kaes Van't Hof: Hey, John.

Hey, John.

John Freeman: One, one of the, the majors is, has recently sort of highlighted some, some pretty ambitious, targets for kinda dramatically improving kinda oil recovery rates in the permian. just sort of y'all's thoughts on, on that side of the, the equation. Obviously, you've done a fantastic job on the cost side. And just anything that y'all are looking at on the recovery rate side of things.

Well one of the majors.

When you sort of highlighted it sounds like some pretty ambitious targets for <unk>.

Kind of dramatically improving kind of oil recovery rates in the Permian just sort of golf's thoughts on on that side of the equation. Obviously you kept on the same topic on the cost side.

Anything that you all are looking at on the recovery side of things.

Kaes Van't Hof: Yeah. I mean, listen, we're, we're always trying to drill better wells, right? We added an interesting slide this, this quarter, slide, slide nine about our development strategy, where, you know, we talk about how many zones per section, how many wells per section we're, we're drilling. You know, I think it's well known that Diamondback's the cost leader in the basin. But I think it's, it's, it's less understood that we're also a technical leader in the basin, you know, drilling, maximizing both returns and, 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, than peers that are spacing wider than ours, then, then we're naturally, generating better returns and more recoveries for our shareholders.

Yeah, I mean listen we're always trying to drill better wells right. We added an interesting slide this this quarter slides slide nine about our development strategy.

We talked about how many zones per section how many wells per section, where we're drilling and I think it's well known the diamondback as a cost leader in the basin, but I think it's less understood. There were 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 then we're naturally.

Generating better returns and more recoveries for our shareholders and I think with respect to.

Kaes Van't Hof: And, you know, I think with respect to, you know, your comments on, on the ambitious goal, you know, I think that's, I think that's amazing. I'm not gonna knock technology developments in the basin because Diamondback's naturally going to be a, a beneficiary of that. And, you know, it's, it's, I think it's positive all around. So I hope it, I hope it all works. We're gonna be, continue to look across the fence line and, and try to drill the best wells possible, which I think we've done over the last 10 years. And, you know, maybe some technology will help us, combine with our, our low-cost structure over the next 10 years.

On your comments on on the ambitious goals I think Thats I think Thats amazing.

Going to knock technology developments in the basin, because diamondbacks naturally going to be a beneficiary of that and.

You know it.

I think it's positive all around so I hope, it's I hope it all works, we're going to be continue to look across the fence line and try to drill the best wells possible, which I think we've done over the last 10 years and you know.

Maybe some technology will help us.

And bind with our low cost structure over the next 10 years.

John Freeman: Great. And then just, one, one housekeeping, item for me. Was there a production associated with the, the Delaware basin non-op investiture?

Great and then just one housekeeping item for me.

Production associated with the Delaware Basin divestiture.

Kaes Van't Hof: Yeah. There was a little bit, John. A little bit over 1,000 barrels a day of, of net oil production. A little bit more on the VOEs. but we just, you know, we, we just added it to the, to the guidance going the back half of the year.

Yeah, there was a little bit John a little bit over 1000 barrels a day of net oil production a little bit more on the <unk>.

But we just.

We've just added it to the to the guidance go in the back half of the year.

John Freeman: Got it. Thanks a lot, Case.

Got it thanks, a lot too.

Yeah.

Kaes Van't Hof: Thanks, John.

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

Thanks, Sean.

Our next question comes from Phillip Jungwirth of BMO. Your line is now open.

Philip Jungwirth: thanks. Good morning.

Thanks, Good morning.

Scott Hanold: Morning.

Philip Jungwirth: Wondering how you're viewing the cost of capital advantage right now for Viper versus FANG and how this shapes capital allocation decisions at the parent level. It 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.

Wondering how you're viewing the cost of capital advantage right now for the Viper, Bruce Bruce Fang and.

How this shapes capital allocation decisions at the parent level looks.

It looks like based on the decks.

So stocks are yielding around 10% free cash right now at 70, but I know you guys look at it a lot more detail.

Kaes Van't Hof: Yeah. I mean, listen, I think, I think there's some technical things going on at, at Viper right now. We're stuck, trying to get a, a public merger closed. And that limits, you know, some of the things we can do in terms of repurchases, but also, I think, brings in a, a different kind of investor for the period of time between, between sign and close. I think, I look forward to the, the window opening, at the Viper level and being able to repurchase some shares aggressively as, you know, I think it, it, it is a, a very unique investment in the space.

Yeah, I mean listen I think I think there are 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 between sign and close.

I think I look forward to the the window opening at the Viper level and being able to repurchase some shares aggressively as you know I think it is a very unique investment in the space.

Kaes Van't Hof: You know, also, another thing I'll note, from a debt cost capital perspective, Viper just did its first investment grade deal, that priced, you know, basically at or inside some, you know, very large peers of ours, you know, 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.

Also the other thing I'll note.

From a debt cost of capital perspective, Viper just did its first investment grade deal that price you know 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 theres some things on the equity side that are temporary and they need to work themselves out.

Philip Jungwirth: Okay. Great. And then maybe more from a macro perspective, but can, can you talk about typical cycle time right now in the permian just considering efficiency gains, larger pad sizes, longer laterals? And we're really, 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.

Okay, Great and then maybe more from a macro perspective, but can you talk about typical cycle times right now in the Permian just considering the efficiency gains.

Hi, this is longer laterals.

Really just trying to understand how long it.

Starting to see the production impact from.

Due to the activity rig and frac that we'd seen in the basin.

Kaes Van't Hof: Yeah. I mean, if you think about, you know, kind of, you could look at slide, nine in our deck, actually. And we highlight some of the average, you know, wells per section, for, from, from ourselves and some peers. And if you look at, you know, kinda 15 to 20, 5-ish wells a section, call it 20 on average, you know, 10 days a well, you're looking at, you know, 200 days, of drilling time, to cycle off that pad. So, you know, somewhere in the neighborhood of, of six to nine months, is, is a typical pad development, or, or DSU development that may be broken down into multiple pads.

Yes, I mean, if you think about it.

You can look at.

Nine in our deck actually and we highlight some of the average.

Wells per section for from ourselves and some peers and if you look at kind of 15 to 20.

Five ish wells a section called 20 on average.

10 days, a well youre looking at 200 days.

Drilling time, the cycle off that path so.

Somewhere in the neighborhood of <unk>.

Six to nine months.

Is it a typical pad development.

<unk> development, maybe broken down into multiple pads, but.

Kaes Van't Hof: But, you know, so it's, it's, it's really these 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, quite a bit of time. And, and the completion coming in following on, you know, that, that much lateral footage, it can, it can be a, a month or two of, of completion timing. So, you know, I, I, I like to think of these things as kinda 12-month, cycles on a, on a full DSU time frame. you know, with a lot of flexibility in there if, if you see vol-volatility and, and, you know, bringing in rigs at certain times or, or frac crews at certain times. But these are not a, a short cycle as, as I think we regard, them, in the public market. Yeah.

So it's really these projects are not as short cycle as I think they are often referred to as because you know what the.

Properly developed a whole <unk> it does take.

Quite a bit of time and the completion coming in following on that.

That much lateral footage.

It can be a month or two or a completion timing so yeah.

I like to think of these things is kind of a 12 month cycles on a on a pool <unk> timeframe.

You know a lot of flexibility in there if you see volume volatility in brain and rigs at certain times or refractory to certain times, but these are not short cycle is as I think we regard them.

The public markets.

Kaes Van't Hof: But I think from a macro perspective, you know, you can't, you can't take 60 rigs out of the permian in 3 months and, and 20 to 30 frac spreads out of the permian in 3 months and not see, eventually see a production response. So, you know, I think we, you know, we kinda doubled down on our commentary. And I think we're, we're going to see US production roll a bit here at these prices. You know, it, it, it's taken a little bit longer than we all expected. But, maybe that was the price reprieve we had in, in June. But, it's just, there's just too much activity being taken out of the, the US basins.

From a macro perspective, you can't I can't take 60 rigs out of the Permian and three months and 20 to 30 Frac spreads out of the Permian and three months and not see eventually see a production.

Spot. So you know I think we you know we kind of doubled down on our commentary I think we were going to see U S production roll a bit here at these prices you know it has taken a little bit longer than we all expected, but maybe.

Maybe that was the price Repreve, we had in June but it's.

It's just there's just too much activity being taken out of the U S basins.

Philip Jungwirth: Great. Thanks.

Great. Thanks.

Yeah.

Operator: Thank you. Our next question comes from Scott Gruber of Citigroup. Your line is now open.

Thank you.

Our next question comes from Scott Gruber of Citigroup. Your line is now open.

Kaes Van't Hof: Yes. Good morning.

Yes, good morning.

Scott Hanold: Morning, Scott.

Good morning, Scott.

Kaes Van't Hof: I had a question on your, your excess duct balance. You know, how, how big will that be at the end of the year? And, and what's the strategy kinda going into '26 with the excess duct? You know, if, if oil is, is weak, would you pull it down because there's less incremental spend per well? Or would you like to maintain it, you know, for some quick-to-respond barrels in case oil moves higher? Yeah. Good question, Scott. It seems the duct balance has gotten a little more attention than, than we expected. but, you know, we're listen, we're completing 500 to 550 wells a year. It's good to have 250 to 300 in the hopper, you know, especially with this large pad development waiting for, waiting for completions.

Got it.

On your your accident.

You know, how how big would that be at the end of the year and what's the strategy kind of going into 26 with the excess stock.

If oil as we.

Would you pull it down because there's lots of incremental spend per well or would.

Would you like to maintain it you know for some quick to respond barrels in case oil moves higher.

Yeah. Good question Scott It seems the DUC balance has gotten a little more attention than than we expected.

But we're listen we're completing 500 to 550 wells a year. It's good to have $2 50 to 300 in the Hopper.

Especially with this large pad development waiting for waiting for completions.

Kaes Van't Hof: You know, I think we'd be comfortable going as low as, you know, high 100s to 200 ducts, but, but would still like to maintain flexibility in, in that range. I think what's happened this year is, you know, drilling efficiencies and well costs are, are very low. And what we decided was, you know, given that, we're still definitively in this, this yellow light, analogy, you know, we, we wanted to maintain that flexibility later through this year. and that, that, as you, as you mentioned, gives us two options, right? If, if things are, are weak, we can slow down a bit. If things are strong, we can accelerate pretty quickly. So, you know, we build a lot of flexibility into our entire plan, which is why our results are, you know, always consistent and, and, best in class.

I think we'd be comfortable going as low as high 100 to 200 docs.

But would still like to maintain flexibility in that range I think what's happened this year is drilled.

Drilling efficiencies and well cost are very low and what we decided was.

Given that.

We're still definitively in the yellow light.

The analogy we wanted to maintain that flexibility later through this year.

As you as you mentioned gives us two options right. If things are are weak we can slow down a bit things are strong we can accelerate pretty quickly. So we built a lot of flexibility into our entire plan, which is why our results are always consistent and.

Kaes Van't Hof: And that's why, you know, you expect us to, to do that. Our investors expect us to do that. So we're gonna maintain that flexibility, later in the year. There's certainly some drawdown coming in Q3 and Q4. But, if these drilling guys keep drilling wells in four days, we might not have any duct drawdown by the end of the year.

Best in class and that's why.

You expect us to do that our investors expect us to do that so we're going to 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.

Arun Jayaram: I got it. And then on, on cash taxes, you know, you guys realize a good bit of savings, this year, following the one big beautiful bill. I think some of that is, is, is kind of a makeup in the second half. How do you think about '26, and beyond from a cash tax rate perspective?

Okay got it.

Then on fantastic taxes, you guys realize a good bit of savings this year.

The one big beautiful Bill.

I think some of that is.

Kind of a makeup in the second half how do you think about 26 and beyond from a cash tax perspective.

Jere Thompson: Yeah, Scott. This is Jerry. 2026, we expect the cash tax rate to kinda level out at 18 to 20 percent, of pre-tax income. You know, when we look at 2025, we're expecting a, a 15 to 18 percent cash tax rate down from roughly 19 to 22 percent. So a reduction of roughly 300 million in total. about 200 million of this is one-time benefits. two components of the, of the 200 million here in 2025, the vast majority is related to the accelerated recovery of remaining unamortized R&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.

Yes, Scott this is Jerry 'twenty 'twenty, six we expect cash tax rate to kind of level out at 18% to 20%.

Pre tax income.

Look at 2025, we're expecting a 15% to 18% cash tax rate down from roughly 19% to 22%. So a reduction of roughly $300 million in total about $200 million of this as onetime benefits.

Two components of the $200 million here in 2025.

Vast majority is related to the accelerated recovery of remaining unamortized R&D 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 <unk>, we acquired.

Earlier, this year and the double Eagle transaction.

Arun Jayaram: I got it. I appreciate the calling. Thank you.

Got it I appreciate the color. Thank you.

Operator: Thank you. Our next question is from Betty Zhang of Barclays. Your line is now open.

Thank you.

Our next question is from Betsy <unk> of Barclays. Your line is now open.

Betty Zhang: 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 definitely there's an increase in other zones and also Wolf Camp 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.

Hi, Good morning. Thank you for taking my question I Wonder about the development next if I look at the development mix provided it in the back of the slide yourself.

These and other zones and also Wolfcamp b, but yeah at the same time, you're able to.

Performance, if not better performance, which is quite impressive.

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 gels.

Kaes Van't Hof: Yeah, Betty, that's a great question. You know, we, we focus 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, you can see sort of that mix changing over time. I would expect that to increase over time as we sort of, you know, delineate and rationalize where the highest returning areas are for those zones in the Upper Sprayberry and in the Barnett and some of the deeper zones like the Wolf Camp B. so yeah, I, I would expect that to continue, you know, as we progress through the year and then going into 2026.

Yes, yes.

Great question.

We focused on delineating some of these upsides zones over the past couple of years and on the slide that Youre talking about in the back of the deck. There you can see sort of that mix changing over time.

I would expect that to increase over time, as we sort of delineate.

Delineate and rationalize where the highest returning areas.

For those zones in the upper <unk> and in the Barnett and some of the deeper zones like the Wolfcamp D. So.

So, yes, I would expect that to continue.

As we progress through the year, and then going into 2026.

Kaes Van't Hof: You know, I, I think, I think also on top of that, you know, Endeavour, Endeavour acreage probably had some better Wolf Camp B than, than our legacy acreage and probably better overall Wolf Camp B, you know, further south in the, in, in the Midland basin. So that, that's, that's driving it a little bit. But as Al mentioned, you know, being able to add these zones into the mix and not see productivity degradation as a company is, is a, is a very impressive feat.

Yeah, I mean, I think I think also on top of that endeavor.

Endeavour acreage, probably had some better wolfcamp D than 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.

You know being able to add these zones into the mix and not see productivity degradation as a company has a very impressive feat.

Betty Zhang: Yeah. Thank you. Thank you for that caller. 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 are seeing along that front? Where do you see the value-add opportunities for Diamondback?

Yeah. Thank you. Thank you for that color my follow up is on.

Power, we started to see some gas powered deals in the basin can you just give us an update on what you were seeing a lot in that front, where do you see the value add opportunity for sandbox.

Yeah.

Jere Thompson: Yeah, Betty. I mean, I think the, the two big value this is Jerry. The two big value drivers for Diamondback are, are one, you know, finding an, an in-base in-base and egress solution for our natural gas molecules. And then two, lowering what we view as probably the most inflationary piece of our cash cost structure on a go-forward basis, which is electricity costs that are defined within LOE. So I think when you PV those two items, you know, that's where you're seeing the greatest benefit to Diamondback if, if we could lock in, a behind-the-meter solution here for PowerGen. you know, we're, we're not gonna go out and, and build anything on spec here. we've continued to look at various opportunities on, on potentially, advancing PowerGen within the basin. it's just taken a little longer.

Yeah, I mean, I think the two big valleys. This is Jerry the two big value drivers for Diamondback or one.

Finding and base in basin egress solution for our natural gas molecules and then too.

<unk>, what we view as probably the most inflationary piece of our cash cost structure.

On a go forward basis, which is electricity costs that you find within Ela, we so I think when you PV those two items, that's where you're seeing the greatest benefit.

Diamondback, if we could lock in behind the meter solution here for power Gen.

<unk>.

We're not going to go out and build anything on spec here.

Continue to.

Look at various opportunities on potentially.

Advancing <unk>.

Again within the basin, it's just taken a little longer and I think theres going to be opportunities over the next five to 10 years, we're just being patient.

Jere Thompson: And, you know, I think there's, there's gonna be opportunities over the next 5 to 10 years. We're just being patient.

Kaes Van't Hof: Yeah. I think there's some other little things we can do, you know, on our existing asset base if we don't do, you know, a large, a large power trade. I mean, just, just using the example today, right? our NGL yield and, and gas capture went up in Martin County 'cause the gas plants had, a, a better power solution in place. so it just shows that there's power issues all throughout the basin, with or without, you know, hyperscalers or data centers coming into the basin.

I think there was some other little things, we can do on our existing asset base and we don't do you know a large <unk>.

Large powertrain.

I mean, just just using the example today right.

Our NGL yield in 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.

Hyperscale datacenters coming into the basin.

Okay.

Betty Zhang: Got it. That makes sense. Thank you.

Got it that makes sense. Thank you.

Operator: Thank you. Our next question is from Derrick Whitfield of Texas Capital. Your line is now open.

Thank you.

Our next question is from Derrick Whitfield of Texas Capital. Your line is now open.

Derrick Whitfield: Thanks, Dan. Good morning, all.

Thanks, and good morning all.

Kaes Van't Hof: Morning, Derek.

Good morning Derik.

Scott Hanold: Morning.

Derrick Whitfield: Case, 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?

Yes, there's been a lot of industry discussion on your comments from the <unk> reporting cycle bodes supported or not supported this you've highlighted how would you characterize the support from your peers out of basin and the push back within the basin.

Kaes Van't Hof: Well, I would say those are all Travis's, so, you know, I don't know. But moving on, you know, we, we, we, I would say with most of the industry, either it reached out and was supportive of what we were saying at the time. I think there's been, pushback, you know, and, and I also say most investors agreed with what we said in Q1 at the time. It's interesting to hear, hear the pushback, you know, come from and, and we're okay accepting pushback, come from some, some within the industry, some, some at, you know, different companies in, in the basin. And, and I think that's just natural competition. And we, we welcome that. But, you know, I think, what we said in terms of activity has, has been spot on, right? I mean, we said 15% of the rigs out of the permian in Q2.

Well I'll say those are all Travis just so you know [laughter] moving on.

You know we are I would savings most of the industry.

Either it reached out and were supportive of what we were saying at the time.

I think there has been.

[noise] pushback, you know and I also say most investors agreed with what we said in Q1 at a time, it's interesting to hear the pushback you know come from and where we're okay accepting pushback.

Come from some some within the industry some summit.

Companies and 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 60 rigs are out 2025, frac spreads are out and.

Kaes Van't Hof: And that number was, you know, has been exceeded, right? 60 rigs are out. 20, 25 frac spreads are out. And, you know, I just think we know what's going on in the ground in the permian and in the US. And, and it's inevitable that that much activity being taken out of the, out of the plan results in, in, production declines because of the natural high-decline nature of this, this business. So, you know, I, I wasn't trying to be all, all doom and gloom. But, I think what we're trying to say is how sensitive Shell has become to prices, at, 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, the messaging and the demands of our shareholders have changed over that period of time.

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.

Out of the plan results in a 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.

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.

Derrick Whitfield: Yeah. Completely fair. And then maybe shifting to operations, I wanted to lean in on Scott's earlier question on your four-day spud to 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? And more broadly, do most of your wells fall within a day or so of the eight average?

Yeah, absolutely there and then maybe shifting to operations I wanted to lean in on Scotts earlier question on your four days spud to TD Bank group. If you were to compare this segment performance of the floor versus the average of the eight.

Where do you guys see the greatest differences in performance and more broadly than most of your wells fall within a day or so it'll be eight average.

Kaes Van't Hof: Yeah. I mean, I think the, the four-day well is, is, you know, it's, it's in the top decile of, of our, performance for sure. I mean, we, I think we had 30-something wells, you know, we had 30-something wells that we've spud in less than, I mean, spud to TD in less than five days, you know, not in this quarter, but, since, you know, in company history. and so I, you know, the eight days were, you know, all most of our wells are within a day or two of, of the eight-day average. you know, but I, again, I'll echo the point I made earlier with Scott that, look, the, the drilling team has done a phenomenal job of really chasing the consistency and trying to, to, you know, consistently deliver that top-tier well. And, and they're getting better at it.

Yeah, I mean, I think there's a four day well as is.

It's in the top decile of our.

Performance for sure I mean, we I think we had 30 something.

Wells.

We have 30, something wells that we spud in less already spud to TD in less than five days.

Not in this quarter, but.

As you know in company history.

And so the eight days were all most of our wells are within a day or two of the eight day average.

But again I will echo the point I made earlier with Scott that look at the drilling team has done a phenomenal job of really chasing the consistency and trying to.

Consistently deliver that top tier well and theyre getting better at it and so I think that's going to be the story in efficiency going forward is how do we how do we continue to grab that four and five day well.

Kaes Van't Hof: And so I think that's gonna be the story in efficiency going forward is, hey, how do we, how do we continue to grab that four and five-day well, and, and work the things that cause us to go to eight days out of the system? And a lot of times, it's an extra trip or, you know, some, some kind of, you know, bid selection or BHA selection, optimization. And as we get more data and we, and, and we're able to, to go back into the areas and optimize, we're gonna see more consistent delivery of those ultra-fast spud to TD times.

And work the things that cause us to go to eight days out of the system. There's a lot of times, it's an extra trip or.

Some some kind of.

<unk> bid selection or BHA selection optimization and as we get more data and we were able to go back into the areas and optimized we're going to see more consistent delivery of those ultrafast spud to TD times.

Scott Hanold: That's great. I'll turn it back to the operator.

That's great I'll turn it back to the operator.

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

Thank you.

Our next question comes from Kevin Mccurdy of Pickering Energy Partners. Your line is now open.

Scott Hanold: Hey, good morning. Case, 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 550 to 580 a foot, wall cost guidance?

Hey, good morning.

Your letter warrants, a 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 550 to 5000 foot well cost guidance.

Kaes Van't Hof: We've got, we've taken about, 15% inflation since, Liberation Day was announced on casing. and so I think, you know, we're, we're anticipating a little bit more of that to come. you know, I, I, we, we have a, we have a procurement agreement with a casing supplier. but, but the pricing, it, it kinda floats, with regard to market pricing, formulaically. So we're not necessarily locked into a casing price except, on a quarterly basis. and, and so, you know, we, if, if the market increases because of tariffs, we, we will follow along with that, with a little bit of discount to, you know, what we can get at the spot market. Yeah. I think it'll be interesting, Kevin, to see how the push-pull of a, a lower rate count and lower steel use in the industry compares to steel costs.

We've got with.

We've taken about <unk>.

15% inflation since our liberation day was announced on casing.

So I think we're anticipating a little bit more of that to come.

We have a.

We have a procurement agreement with a casing supplier.

But the pricing is it kind of flows.

With regard to market pricing.

Formulaic Lee so that we're not necessarily locked into a casing comprise except on a quarterly basis.

And so.

You know if you have the market increases because of tariffs we will.

Well along with that.

Little bit of a discount to what we can get at the spot market.

Yeah, I think it'll be interesting Kevin to see how the push for a lower rig count in lower steel use in the industry compares to steel cost it seems that.

Kaes Van't Hof: It seems that, steel costs are winning today. but we'll see, we'll see what happens over the next, you know, year or so.

Steel costs are winning today, but.

But we'll see we'll see what happens over the next year or so.

Scott Hanold: I appreciate that detail. and as a follow-up, I mean, it looks like lower OPEX was certainly, you know, beneficial to your 2Q financials. Can you walk through the moving parts of your, your changes to guidance in LOE and GP&T?

I appreciate that detail and just.

The follow up yeah, I mean, it looks like lower Opex is certainly beneficial to your <unk> financials can you walk through the moving parts of your changes to guidance in L O.

G P N T.

Kaes Van't Hof: Yeah. I'll take GP&T really quickly. You know, really, the GP&T 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, that number goes up. On the LOE side, you know, generally, the teams had a really good first half of the year. You know, we expect kinda run rate LOE to be, you know, somewhere in the kind of 560 to 580 range on a, on a normalized basis. But, I think, I think we've generally been surprised, you know, to start to see some of those smaller synergies in the field between the Endeavour and Diamondback teams kinda come through on the, on the LOE side.

Yeah, I'll take GPT really quickly really the GPT moves between when were taken in kind or not taken any kind on the gas side and so we've flipped some contracts to take in kind and that that number goes up on the low side generally the teams had a really good first half of the year, we expect to kind of run rate LOE to be.

Somewhere in the kind of $5 60 to $5 80 range.

On a 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.

On the <unk> side, I think long term.

Kaes Van't Hof: I think, you know, long term, you know, should we get a water sale done to our JV partner at, at Deep Blue, LOE will go up slightly. But, there's a lot of things going on on the LOE side. You know, work Danny talked about workover expense and management, production management. So, you know, not all LOE is, is low return. Some of it can be, can be very high return.

Should we get a water sale done to our JV partner at a deep blue with how low it will go up slightly but.

There's a lot of things going on on the OE side work, Danny talks about Workover expense and management.

Production management. So you know not all OE is low return some of it can be it can be very high return.

Yeah.

Scott Hanold: Yeah. Thanks for the answers. And, good luck with the AC situation over there.

Yeah. Thanks for the answers and good luck with the AC situation over there its getting hotter Kevin.

Kaes Van't Hof: It's getting hotter, Kevin.

Yeah.

[noise].

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

Thank you.

Our next question comes from Joseph J of Daniel Energy Partners. Your line is now open.

Scott Hanold: 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. You know, we've had some companies tell us that, you know, 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 kinda look thinking about, like, what metric you're looking at to kinda make the decision to lower even here.

Hey, guys, just kind of a follow up to neil's question from earlier, but I'm curious about the calculus around lowering activity.

Companies tell us that you know with service cost declines and efficiency gains that returns or 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 look thinking about like what metrics youre looking at to kind of make the decision to lower even here.

Kaes Van't Hof: Yeah. I mean, I wouldn't say we're lowering much from here. 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's outperforming. I think, going back to three months ago, again, there was a concern that we were headed lower. The calls for $50 and $40 oil were rampant, and we were prepared to reduce further if needed. 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 490. I think all of our investors have been supportive of our decision. We've always tried to make the right capital allocation decision.

Yeah, I mean, I wouldn't say, we're lowering much from here right we actually.

Increased well count drill balls are up 30 wells. This this.

This quarter versus last for the full year completed wells are down a little bit, but that's just because volumes outperforming.

I think.

Going back to three months ago again, although there was a concern that you know.

We were lower.

Lower headed lower.

<unk> for 50, and $40 oil we're ramp it and we.

We're prepared to.

You know reduce further if needed and I think as.

The price pressures have eased over the last three months, we decided that hey, you know I think we can hold production here at 490.

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 think I would flip that question back to you Jeff just asked me.

Kaes Van't Hof: I think I'd flip that question back to you, Geoff, 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.

Cost operators, why why theyre maintaining activity levels were in the lowest cost operator.

<unk> is doing the right thing and waiting for a better day.

Scott Hanold: Yeah, and that's fair. 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?

Yeah, that's fair.

And then I guess my second question to you is as you know 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.

Kaes Van't Hof: Not at all. That's, that's not an excuse that, that is allowed inside the, the halls of Diamondback. I mean, I think, I think anybody using the efficiency excuse for why they're maintaining activity is, is not, is not looking at their business in, in the right amount of detail. We, we, 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, 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, is flawless execution.

Not at all that's not an excuse that it allowed inside the.

The halls of Diamondback, I mean, I think I think anybody using the inefficiency excuse for why they're maintaining activity is is not is not looking at their business and in the right amount of detail.

We changed things every day right I think Danny use isn't really good analogy that the diamondback activity plan looks like a duck on a on a part the pond as com and the Doc looks calm above the water, but below the water, there's a lot going on and we change out.

Grilling rigs on an annual basis, we change out frac spreads on an annual basis, we increased 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.

Kaes Van't Hof: But that takes a lot of work, from top to bottom in this organization.

From top to bottom in this organization.

Scott Hanold: Great. Thanks, guys.

Great. Thanks, guys.

Kaes Van't Hof: Thanks, Dan.

Thanks, Yeah. Thanks, Jeff.

Yeah.

Operator: Thank you. Our next question is from Kalei Akamine of Bank of America. Your line is now open.

Thank you. Our next question is from Kelly <unk> of Bank of America. Your line is now open.

Derrick Whitfield: Hey. Good morning, guys. Case, two real quick ones from me. Number one, just kinda looking at your hedge quote for 2026, you look rather exposed on the oil side. Does that marry up with your outlook for '26 oil prices?

Hey, good morning, guys. Good two real quick ones for me number one just kind of looking at your hedge book for 2026 look rather exposed on the oil side does that marry up with your outlook for 'twenty six oil prices.

Kaes Van't Hof: No. It's really just, just patience on, on adding puts. You know, we've been buying, buying puts. But, 2026 puts are, are expensive today, right? So, you know, I think we're gonna, you know, 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 wanna pay, you know, too much per barrel for the deferred premium puts. And, you know, I also think as, as balance sheet improves and non-core asset sales get in, you know, proceeds come in, the need to hedge, reduces or the need to, you know, we could lower that hedge price to, you know, pay less for the puts. You know, I think the base dividends protected today at 37, 38 dollars a barrel, at, at maintenance cap X.

No. It's really just just patients on adding pumps, we've been buying buy and flips, but 2026 books are are expensive today right. So you know 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 in.

Also think us balance sheet improves and noncore asset sales proceeds.

Proceeds come in the need to hedge.

<unk> reduces or the need to we could lower that hedge price to pay less for the puts you know I think the base dividends protected today at 37 $38 a barrel.

At maintenance Capex I think we're due for a dividend.

Kaes Van't Hof: You know, I think we're, we're due for a, a dividend, review in the beginning of the year next year. But as, as the balance sheet shrinks and the share count shrinks and, the breakeven stays low, you know, the need for hedging, reduces over time.

[noise] review in the beginning of the year next year, but as as the balance sheet shrinks and the share count shrinks and the breakeven stays low the need for hedging reduces over time.

Derrick Whitfield: That, that makes sense. My, my second one is on maybe operations post the water sale. So the Endeavour asset will effectively flow out 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?

Yeah that makes sense my second one is on maybe operation post deepwater steel so the endeavor as it will effectively put 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 give them.

Places that you currently don't have access to today.

Kaes Van't Hof: Not in a meaningful way. I, I think, you know, I think we've set it, we've set up the deals with our, our partners at Deep Blue to be able to simulcrack or use two simulcracks, you know, across our, our position. So I, I don't think much of that changes. I do think, you know, getting a deal done and getting these two systems together will create some synergies. But, but you probably won't see it at the Diamondback level.

Not in a meaningful way and I think you know I think we've set out we set up the deals with our partners that people would be able to simulcast or used too subtle fracs across our 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 wont see it at the diamondback level.

Derrick Whitfield: Got it. I appreciate the answers.

Got it I appreciate the answers.

Kaes Van't Hof: Thank you.

Thank you.

Operator: Thank you. Our next question is from Charles Mead of Johnson Rice. Your line is now open.

Thank you. Our next question is from.

Trials Meade of Johnson Rice. Your line is now open.

Yeah.

Scott Hanold: Good morning, Case, to you and your companions in the sweat lodge.

Good morning case to you and your companions and sweat Lodge.

Kaes Van't Hof: Good morning, Charles.

Charles.

Scott Hanold: it sounds like you guys are holding up well. really, just, just, just one question from me, Case. And, and you touched on this, but I just wanna try to go, go right at it. Can you give us, an update on what the, the green light conditions would be in your metaphor, you know, to, 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, you know, casing costs up, service pricing, you know, efficiencies, you know, higher, service pricing down? And, and also, you know, arguably, there's a, you know, with a, impending decline of US oil volume, that, that's a, that's a nascent bullish, indicator, I think. So can you just give us, you know, a, a reminder of where you are and how that's changed?

It sounds like you guys are holding up well.

Really just well just one question from me case and you've touched on this but I just wanted to try to go go right at it.

Can you give.

Give us an upper.

Update on what.

The Green light conditions would be in your metaphor you know two 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 you know casing costs up service pricing.

You know our efficiencies.

Service pricing down and in also.

Arguably there's a you know what.

Impending decline U S wallboard.

So that's a nascent bullish.

Indicator I think so can you just give us you know.

Mind, or where you are and how that has changed yeah. That's a good question Charles I mean, I think we are.

Kaes Van't Hof: Yeah. I, I that's a good question, Charles. I mean, I think we're certainly closer to the second half of the year when, when, you know, a, a perceived supply wave is, is coming our way. You know, we'll see what actually happens. You know, we've now unwound or OPEC has unwound their, initial cuts. And, and I think they're moving to a world where, instead of, you know, it was a discussion around who was cheating on their quota, it's, it's who can hit their quota. And I think that's a huge, a huge difference in, in messaging, right? If, if, you know, production at OPEC, you know, hangs in there and you see US production start to struggle a little bit, and then, and, you know, then the curve's gonna have to react. And when the curve reacts, you know, that's probably our, our biggest signal.

Certainly closer to the second half of the year when when a perceived.

<unk> supply wave is coming our way, we'll see what actually happens you know, we've now unwound or OPEC is unwound there.

Initial cuts in and I think theyre moving to a world where.

Instead of you know it was a discussion around who was cheating on their quota.

Hit their quota I think thats a huge.

A huge difference and messaging right if you.

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 current reacts.

It's probably our biggest signal I think just generally the tone over the last four months has been you know a lot of companies running.

Kaes Van't Hof: You know, I think just generally, the, the tone over the last four months has been, you know, a lot of companies running, you know, 50 and 60 dollar scenarios versus, the traditional last kinda three years, you know, 60, 70, and 80 dollar scenarios. So I think, you know, I think when you start to see, some changes in US production plus, you know, all, all of the OPEC barrels back, you start to, you know, look at what does a, a normalized market look like. And, and I think that, that resolves itself sooner rather than later in, 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, and maintaining our flexibility for, for next year.

$50 $60 scenarios versus.

The traditional last kind of three years.

$60 $70 $80 scenario, so I think.

I think when you start to see.

Some changes in U S production plus.

All of the OPEC barrels back you start to look at what is a normalized market look like and I think that resolves itself sooner rather than later and in a commodity based market. So I'm cautiously optimistic on 'twenty six but right.

Right now for the rest of the 25 were.

Hunkering down and maintaining our flexibility for for next year.

Scott Hanold: Yeah. Emphasis on caution. Thanks a lot, Case.

Yeah emphasis on caution thanks, a lot case, thank you Charles.

Kaes Van't Hof: Thank you, Charles.

Hi.

Operator: Thank you. Our next question is from Doug Legate of Wolf Research. Your line is now open.

Thank you.

Next question is from Doug Leggate of Wolfe Research. Your line is now open.

Doug Leggate: thanks. Good morning, guys. Case, I wonder if I could ask you to, I, I guess it's been asked multiple times, the return to growth question, but maybe ask it a little more pointedly. It, it seemed to under Travis, it 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?

Thanks, Good morning, guys, Keith I Wonder if I could ask two I guess, it's been asked multiple times the return to growth question, but maybe ask it a little more pointedly.

It seemed to under promise it was pretty clear the diamondback would essentially be egg schools.

Given a one of a better expression are subsidized oil market.

Listening to this morning reading the letter it sounds like there is a case where growth would make sense is that a change of status under case versus under promise.

Kaes Van't Hof: I wouldn't say it's a change of stance, Doug. I, I think, I think we're closer to discussing it again. I, you know, I think if you go back to, you know, why US Shell or, or the big publics went kinda ex-growth, it was coming out of 2020. And, you know, we, we went through a near extinction event as an industry. And the shareholders said, "Time out. Time to, you know, give us our money back. We gave you a lot of money over the last 10 years to, to grow your business. And now we expect a return." And, you know, the risk of that return almost went away in 2020. And, you know, coming out of that, a lot of the, companies decided to, you know, exert capital discipline and, and spend less and return cash to shareholders.

I wouldn't say, it's a change in stance, Doug I think I think we're closer to discussing it again I think if you go back to.

You know why U S shale or the big publics when kind of ex growth.

Coming out of 2020, and you know we went through a near extinct extinction event as an industry and the shareholder said time out on too.

Give us our money back and we gave you a lot of money over the last 10 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.

Kaes Van't Hof: And I think that's been, in general, a, a positive outcome for our shareholders. So, you know, I think, I don't think we're talking about going to spending all of our dollars, you know, growing the business. But I do think at some point, the, you know, outside of a, you know, your words, not mine, subsidized oil market, there's going to be a, an unsubsidized oil market that's going to call for growth from companies like Diamondback. And we're gonna be there to, to answer that call. We're gonna answer it cautiously and with, high capital efficiency. But, but that call's coming at some point over the next couple of years.

And in general a positive outcome for our shareholders. So.

Thank you.

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.

Outside of our.

You know your words online subsidized oil market theres going to be a non subsidized oil market, that's going to call for growth from companies like Diamondback and we're gonna be there to answer that call really answer it cautiously and with a high capital efficiency, but.

But that calls come in at some point over the next couple of years.

Doug Leggate: That sounds very clear. My follow-up is related to that because a lot of people might say, "There will come a time to grow." Not everybody can because of inventory. I want to be careful how I ask this, but you have talked about 8 to 10 years of Tier 1 inventory. As you and I have talked about before, you do not just develop Tier 1 when you are doing a cube or whatever. From a practical development stance, meaning Tier 1 plus the other benches that you might develop alongside that, what would you say today is the consumption rate of your inventory, not 8 to 10 years? What is the real number?

And so it was very clear as well I guess my follow up is related to that because.

A lot of people may say, well there'll be come a time to grow not everybody can because of inventory.

So I don't want to be careful how I ask this but you've talked about eight to 10 years of tier one inventory, but as you and I've talked about before you don't just develop pier one when you're doing the Cuba or whatever so from a practical development stance, meaning tier one plus the other benches that you might develop alongside that what would.

Would you say today is the consumption rate, albeit inventory no eight to 10 years most of your number.

Kaes Van't Hof: 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, you know, 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, you know, 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, you know, the rate of return you're achieving on that, on that project.

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 a true.

Tier two tier three.

I mean, I think we need to move away from individual well.

<unk>, our breakeven and really start to look at.

And we do this internally looking at pad level break evens or section level breakeven, because you're really developing half a section or a section at a time and thats really the.

The rate of return you're achieving on on on that on that project.

Doug Leggate: That's very clear. Thanks, guys. I appreciate you getting me on.

That's very clear thanks, guys I appreciate you getting me on thanks, Doug.

Kaes Van't Hof: Thanks, Doug.

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

Thank you.

Our next question is from Leo Mariano Mariani of Ross. Your line is now open.

Leo Mariani: Yeah. Hi, guys. Wanted to, ask a little bit about sort of the, the red light scenario. A lot of focus on the, the green light scenario. But what, you know, causes you folks, to maybe slow down and consider shrinking a bit? obviously, you know, oil price is a key thing. But what else would you be looking at kind of apart from oil price here?

Yeah, Hi, guys wanted to ask a little about sort of the the red light scenario a lot of focus on that the greenlight scenario, but what.

Causes you folks to maybe slow down and consider shrinking a bit obviously, you know oil price key thing, but what else would you be looking at kind of apart from oil price here.

Kaes Van't Hof: Yeah. It's really just oil price, Leo. I mean, I, I think if we're, if we're printing a month in the low 50s, you know, full month, then, then I think we have to have a discussion. But, you know, I think we kinda did our, 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, you know, I'm not in a, in a camp of, of being the first to hit the red light if that, if that comes because we've, we've done our part here.

Yeah, it's really just the oil price leader.

We're printing a month in the low fifties.

Full months, 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 of.

Being the first hit the Red light if that if that comes because we've done our part here.

Leo Mariani: Okay. That makes sense. and then just with respect to kind of, targeted debt levels, for Venom, you guys kinda came out with a, a new target today of, of 1.5 billion in net debt, at which point you guys would increase, returns to shareholders. Can you provide any kind of similar, you know, methodology at the, at the FANG level in terms of how you're thinking about that to maybe boost some of the shareholder returns?

Okay that makes sense and then just with respect to kind of targeted.

Targeted debt levels prevent them you guys kind of came out with a.

Our new target today of $1 5 billion and net debt at which point you guys would increase.

Turns to shareholders can you provide any kind of similar methodology.

Methodology at the <unk>.

Same level in terms of how youre thinking about that maybe boost some of the shareholder returns.

Kaes Van't Hof: Yeah. I, I think, I think at the FANG level, you know, having more flexibility is important, right? And, you know, right now, we're committed to at least, at least 50% of free cash going to equity, a combination of the base, base dividend and, and share repurchases. I think if, you know, if there's share price weakness, that, that number should go higher than 50%. but if, you know, things are strong, then it should stay around 50%. You know, I think at the E&P level, you have all the CAPEX, that, that's associated with the business. And so it's hard to, you know, put a, a exact number on where you'd like debt 'cause I think at Diamondback, we'd like to have, you know, lower debt but also cash on the balance sheet for, for flexibility when, you know, the cycles do move against you.

Yeah, I think I think it's a fang level, having more flexibility is important right and.

Right now we're committed to at least at least 50% of free cash flow into equity combination of the base base dividend and share repurchases I think.

You know if their share price weakness that number should go higher than 50%.

But if things are strong.

Then it should stay around 50% I think at the E&P level you have all the capex.

That's associated with the business and so it's hard to put exact number on where you'd like that because I think at diamondback and we'd like to have.

Lower debt, but also cash on the balance sheet for for flexibility win.

The cycles do move against you.

Leo Mariani: Thank you.

Thank you.

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

Thank you.

Our final question is from Paul Cheng of Scotiabank. Your line is now open.

Paul Cheng: Hi. good morning. Case, just, want, want to look at, the business on a longer-term basis. I mean, since the formation, you guys have been always, doing very good at the, growth through acquisition. And as you say, I mean, until you prove that 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, scared of you. And so from that standpoint, I mean, how the long, longer-term your business model needs to be evolved, over the next, say, call it 5 to 10 years?

Hi, good morning.

Just.

One wanted to look at.

It sits on a longer term basis I mean, it seems the Polynesian you guys have been always.

Doing very good that's to grow through acquisition and as he said.

Do you put them together with.

With consolidated you should continue to be the pizza of one.

But at the same time, you also state that.

The answer in a way that bogey Mcmahon wages, you'll focus is getting a scanner.

And so from that standpoint.

Longer term business model.

Over the next say call it five to 10 years.

Kaes Van't Hof: Yeah. It's a good question, Paul. I mean, listen, I think, we've obviously done a, a ton of, a ton of consolidation, particularly in the last two years, you know, Endeavour and Double Eagle, both, both very large trades, you know, relative to the other trades we've done in our, you know, company's history. And so I think, you know, I think we're in, in really good shape right now. So I think, I think over the next 5 to 10 years, I think there's gonna be opportunities that present themselves. But they have to be presented at a value that's, you know, obvious by inspection to, to shareholders 'cause, you know, a-a-as we, as you know, and as you said, there aren't, you know, 15 private equity companies with 20,000 acres of tier one rock, available to be consolidated.

Yes, it's good question, Paul I mean listen I think we've obviously done a ton of.

A ton of consolidation, particularly in the last two years, you know endeavor and double Eagle both both very large trades relative to the other trades we've done in our.

The company's history, and so I think I.

I think we're in really good shape right now so I think.

I think over the next five to 10 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 too to shareholders. Because you know as we as you know as you said there arent.

15 private equity companies.

20000 acres of tier one rock avail.

Available to be consolidated so I think for us that means.

Kaes Van't Hof: 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, and, 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 gonna be the, the key for us, versus, you know, where we've been in the last, you know, 10 years or so.

To explore in our existing asset base, which we've done with some of these secondary zones, starting to get more attention and and and perform well.

As well as continue to trade and block up and do all the little things too.

Wait for opportunities when they present themselves, but I think patience is going to be the key for us.

Worse as you know where we've been in the last 10 years or so.

Paul Cheng: Do, do you think that you would need to move outside, Midland into, some of your peers? We talk about the international opportunity. Or that you think that, you would just focus in Midland?

Do you think that you will need to move all recently midnight into some of your peers talk about international opportunities.

Do you think that.

We're just focusing Midland.

Kaes Van't Hof: I think we're, we're very focused on Midland and the permian in general today, and, and gonna continue to be so. You know, I think there's still a lot of resource left to explore within our asset base and, and around the permian. And, and that's where we're committed, from a G&A perspective today, Paul.

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 in and around the Permian and that's what we're committed from a G&A perspective today Paul.

Paul Cheng: Okay. second question real quick. 2026, I know it's 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 well coming on stream, what's the, plus and minuses that on the CAPEX program may look like, in terms of the inflation or efficiency gain? Can, can you give us some idea that how that, different factor will move that number, comparing to this year number?

Okay.

Oh second question real quick the 2026, I know you still need a bit already but if we assume your program would be relatively flat.

A number of accounting, Michael Frank Cool number well coming on stream.

Once the plus and minuses that on the Capex program evoke light.

In terms of utilization or efficiency gains can you give us some idea that debt.

That's a different factor with that number.

If you remember.

Kaes Van't Hof: Yeah. I mean, I, I think, you know, CAPEX has moved around a lot throughout the quarters this, this year with Q3 being the low and, and Q4 coming back up a little bit. But, you know, I think we can generally hold our oil production, you know, 490,000 barrels a day plus or minus, you know, with about 900 million a quarter, going forward, maybe a little bit lower than that if things go our way. So, you know, it's still, that's still a really good, best-in-class capital efficiency on the, on the oil side. And, and also, you know, we have the flexibility to, to go higher or lower depending on what the macro tells us.

I mean, I think Capex has moved around a lot throughout the quarters. This year with Q3 being the low in Q4 coming back up a little bit, but you know I think we can generally hold our oil production 498000 barrels a day plus or minus.

With about $900 million a quarter.

Going forward, maybe a little bit lower than that if things go our way so.

That's still a really good best.

Best in class capital efficiency on the on the oil side and and also you know we have the flexibility to go higher or lower depending on what the macro tells us.

Paul Cheng: And Case, that's already including the, tariff impact, right?

And in case, that's already including the.

Tenda can impact right.

Kaes Van't Hof: It's already included in what impact?

It's already included and what impact.

Paul Cheng: the tariff.

Tennis.

Kaes Van't Hof: Yes.

Yes.

Paul Cheng: Okay. Will do. Thank you.

Okay. Okay. Thank you.

Kaes Van't Hof: Thanks, Paul.

Thanks, Paul.

Operator: Thank you. This now concludes the question and answer session. I would now like to turn it back to Case Van't Hoff for closing remarks.

Thank you.

This now concludes the question and answer session.

Now I'd like to turn it back to case Kantar for closing remarks.

Kaes Van't Hof: Well, I'm proud of all the analysts for still going a full hour despite the, temperature rising 20 degrees in that hour in this, in this office. But, thank you for your interest in, in Diamondback. And we, we look forward to, discussing any questions anyone might have offline. Thank you.

Well I'm proud of all the analysts for still go on a full hour. Despite the temperature rising 20 degrees and that our in this in this office, but thank you for your interest in <unk> and Diamondback and we are we look forward to discussing any questions anyway, one might have offline. Thank you.

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

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

Yeah.

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Okay.

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