Q1 2026 Diamondback Energy Inc Earnings Call

May 5, 2026

Speaker #1: Good day, and thank you for standing by. Welcome to the Diamondback Energy first quarter 2026 conference call. At this time, all participants are in a listen-only mode.

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

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

Speaker #1: After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star 11 on your telephone; you will then hear an automated message advising that your hand is raised.

Speaker #1: To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Adam Lawlis, VP of Investor Relations.

Speaker #1: Please go ahead.

Speaker #2: Thank you, Corey. Good morning, and welcome to Diamondback Energy's first quarter 2026 conference call. During our call today, we will reference an updated investor presentation and letter to stockholders, which can be found on Diamondback's website.

Adam Lawlis: Thank you, Corey. Good morning, and welcome to Diamondback Energy's Q1 2026 conference call. During our call today, we will reference an updated investor presentation and letter to stockholders, which can be found on Diamondback's website. Representing Diamondback today are Kaes Van't Hof, CEO; Danny Wesson, COO; Jere Thompson, CFO; and Al Barkmann, Chief Engineer. During this conference call, the participants may make certain forward-looking statements relating to the company's financial condition, results of operations, plans, objectives, future performance and businesses. We caution you that actual results could differ materially from those that are indicated in these forward-looking statements due to a variety of factors. Information concerning these factors can be found in the company's filings with the SEC. In addition, we will make reference to certain non-GAAP measures. The reconciliations with the appropriate GAAP measures can be found in our earnings release issued yesterday afternoon.

Speaker #2: Representing Diamondback today are Case Vantoff, CEO; Danny Wesson, COO; Jerry Thompson, CFO; and Al Barkman, Chief Engineer. During this conference call, the participants may make certain forward-looking statements relating to the company's financial condition, results of operations, plans, objectives, future performance, and businesses.

Speaker #2: We caution you that actual results could differ materially from those that are indicated in these forward-looking statements due to a variety of factors. Information concerning these factors can be found in the company's findings with the SEC.

Speaker #2: In addition, we will make reference to certain non-GAAP measures. The reconciliations with the appropriate GAAP measures can be found in our earnings-related issue yesterday afternoon.

Speaker #2: On our turn, the call over to Case.

Adam Lawlis: I'll now turn the call over to Kaes.

Speaker #3: Thanks, thanks, Adam, and welcome, everyone. as with, the last few years, we're going to go straight into Q&A, so Operator, please open the line for questions.

Kaes Van't Hof: Thanks, thanks, Adam Lawlis, and welcome everyone. As with the last few years, we're going to go straight into Q&A. Operator, please open the line for questions.

Speaker #4: Thank you very much. One moment. as a reminder to ask a question, you can press star 11 on your telephone and wait for your name to be announced.

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

Speaker #4: To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Neil Mehta of Goldman Sachs.

Speaker #4: Neil, your line is open.

Speaker #5: Yeah, good, good morning, Case, and good morning, team. So I guess the, the big development here today, that you've been signaling is the move to a green light framework from Yellow Light, adding the two to three rigs and moving to the fifth completion crew.

Neil Mehta: Good morning, Kaes, and good morning team. I guess the big development here today that you've been signaling is the move to a green light framework from yellow light, adding the 2 to 3 rigs and moving to the fifth completion crew. Kaes, maybe you just take a moment for the investors on the line to talk about the thought process that went into this decision and just how you're thinking about where and when to add activity.

Speaker #5: So Case, maybe you just take a moment for the investors on the line to talk about the thought process that went into this decision and just how you're thinking about where and when to add activity.

Speaker #2: Yeah, Neil, I mean, it's a good question. You know, I, I think there's, there's some macro elements as well as some micro elements, and we'll, we'll go through both of those.

Kaes Van't Hof: Yeah, Neil, I mean, it's a good question. You know, I think there's some macro elements as well as some micro elements, and we'll go through both of those. You know, I think, I think from a macro perspective, you know, obviously there's a clear market signal. You know, we're 2 months into the world's largest oil supply disruption in history. I think, you know, Diamondback and Diamondback shareholders are very fortunate that, you know, we're solely based in West Texas. We're kind of tourists in this situation, but it's obviously a very serious situation with, you know, a lot of oil supply off the market. You know, if that isn't a signal to grow production in an advantaged area like the Permian Basin, then I don't know what is.

Speaker #2: You know, I think, I think from a macro perspective, you know, obviously, there's a, a clear market signal, you know, we're two months into the world's largest oil supply disruption in history, and, you know, I think, you know, Diamondback and Diamondback shareholders are very fortunate that, you know, we're solely based in West Texas.

Speaker #2: We're kind of, kind of tourists in this, in this situation, but it's obvious, obviously, a very serious situation with, you know, a lot of oil supply off the market.

Speaker #2: And so, you know, if that isn't a signal to, to grow production and, and an advantage area like, the Permian Basin, then, then I don't know what is.

Speaker #2: And, you know, we hope there's a, a resolution to the conflict, but even if there is, there's a lot of, a lot of noise in the system and a lot of barrels that have been taken off the market.

Kaes Van't Hof: You know, we hope there's a resolution to the conflict, but even if there is, there's a lot of noise in the system and a lot of barrels that have been taken off the market. That's kind of the macro signal that we've been looking at as a board and a management team. Obviously, global inventories are starting to decline very rapidly, and we're gonna do our small part to add some production into the mix. Then you go down to the micro level or the Diamondback level. I mean, listen, with the best inventory quality and depth in North America being executed at the best cost structure, if this isn't the time to grow now, then I don't know when it is.

Speaker #2: So that's kind of the macro signal that we've been looking at as a, as, as a board and a management team. Obviously, global inventories are starting to decline.

Speaker #2: Very rapidly, and we're going to do our small part to add some production into the mix. And then, then you go down to the micro level, or the Diamondback level.

Speaker #2: I mean, listen, with the best inventory quality and depth in North America, being executed at the best cost structure, if this isn't the time to grow now, then I don't know when it is.

Speaker #2: And, you know, so that decision at a micro level, was, you know, honestly fairly easy. And, you know, I think the last piece of, about it is, is, you know, we're able to do this in a, in a very capital-efficient manner and get it done very quickly.

Kaes Van't Hof: You know, so that decision at a micro level was, you know, honestly fairly easy. You know, I think the last piece about it is, you know, we're able to do this in a very capital efficient manner and get it done very quickly. You know, because we have this backlog of DUCs and we, you know, prepare our business for, you know, up, down or sideways, you know, we're able to just make one decision and add a frack crew a lot earlier in the year and get that production up immediately. I think it's a testament to the team's preparation, you know, everybody in the organization working together and being able to do this very, very quickly.

Speaker #2: you know, because we have this, backlog of ducks, and we, you know, prepare our business for, you know, up, down, or sideways, you know, we're able to just make one decision and add a frac crew a lot earlier in the year and get that production up, immediately.

Speaker #2: So I, I think it's a testament to the team's preparation, you know, everybody in the organization working together and being able to do this, very, very quickly.

Speaker #2: Whereas I think, in, in other organizations, it might take a little longer to, to make that decision.

Kaes Van't Hof: Whereas I think, in other organizations, it might take a little longer to make that decision.

Speaker #5: Thanks, Case. And then the follow-up is just on the return of capital framework. Y-you did move away from, from the fixed framework, in, in the while you bumped the dividend.

Neil Mehta: Thanks, Kaes. The follow-up is just on the return of capital framework. You did move away from the fixed framework in there. While you bumped the dividend, you indicated that you might be slowing down the buyback a little bit. Can you talk a little bit about that? What you intended to communicate with that? You know, there is a very concentrated seller ownership base here, and if the family ultimately is going to sell into the market or sell down their stake, do you still view Diamondback as a logical buyer to help offset that potential risk on the stock?

Speaker #5: Y-you indicated that you might be slowing down the buyback a little bit. So can you talk a little bit about that? what, what do you intended to communicate with that?

Speaker #5: And then, you know, there, there is a very concentrated seller, ownership base here, and if, if, if the family ultimately, is going to sell into the market or sell, sell down their stake, do you still view Diamondback as a, as a logical buyer to help offset that potential, risk on the stock?

Speaker #2: Yeah, I mean, listen, let's, let's take it a little higher level, right? I mean, I think, I think allocating capital is the most important job.

Kaes Van't Hof: Yeah, I mean, let's take it a little higher level, right? I mean, I think allocating capital is the most important job we have to do as a management team. You know, the, you know, the history of the return of capital program for both ourselves and the industry, you know, was put in place after the COVID, you know, near extinction event of the industry. You know, investors said, Hey, I want my money back, and I want it in a formulaic manner. I think that's worked very well, you know, over the last few years. You know, I don't expect our ability to return capital to stockholders to change.

Speaker #2: We have to do as a, as a management team. And, you know, the, the, you know, the history of the return of capital program for both ourselves and the industry, you know, was put in place after the COVID, you know, near extin near extinction event of the industry.

Speaker #2: And, you know, investors said, "Hey, I want my money back, and I want it in a formulaic manner." And I think that's worked very, very well.

Speaker #2: you know, over the last few years. And, you know, I, I don't expect our ability to return capital to stockholders to change. we just want the flexibility to, you know, make more cyclical moves versus, you know, moves within a 90-day window, within a quarter.

Kaes Van't Hof: We just want the flexibility to, you know, make more cyclical moves versus, you know, moves within a 90-day window, within a quarter. You know, we have a really, really good track record of buying back our own stock. We've bought back 42 million shares for $6 billion to date at $148 a share. You know, clearly, with the stock where it is today, that's a very positive rate of return for our stockholders, and I expect that to continue. You know, we recognize we also have a large shareholder that we found a way to help monetize their stake in a very efficient manner. You know, I think, you know, outside of their stake, they're most focused on us creating long-term value.

Speaker #2: So, you know, we, we have a really, really good track record of buying back around stock. We bought back 42 million shares for $6 billion to date at 148 dollars a share.

Speaker #2: You know, clearly, with the stock where it is today, that's a, a very positive rate of return for our stockholders, and I expect that to continue.

Speaker #2: you know, we recognize we also have a large shareholder that, we found a way to help monetize their stake in a very efficient manner.

Speaker #2: And, you know, I think, you know, outside of th-their stake, they're most focused on us creating, long-term value. And, you know, allocating a ton of free cash to, the balance sheet in times of extremely high oil prices, you know, does create long-term value with a, you know, in our mind, a, a higher floor for the stock long-term.

Kaes Van't Hof: You know, allocating a ton of free cash to the balance sheet in times of extremely high oil prices, you know, does create long-term value with a, you know, in our mind, a higher floor for the stock long term. I wouldn't expect anything to change. You know, we have a great relationship with the family. I think we have the ability to help them monetize. If we, you know, use kinda excess free cash flow over the next couple quarters to pay down debt, we can help monetize their stake actually more efficiently coming out of this. You know, they're long-term holders, and they want the stock higher.

Speaker #2: So, I wouldn't expect anything to change. You know, we're, we, we have a great relationship with the family. I think we have the ability to help them, monetize and, and if we, you know, use kind of excess free cash flow over the next couple quarters to pay down debt, we can help monetize their stake.

Speaker #2: Actually, more efficiently, coming out of this. You know, their long-term holders, and they want the stock higher.

Speaker #5: That makes sense. Thank you, Case.

Neil Mehta: That makes sense. Thank you, Kaes.

Speaker #2: Thanks, Neil.

Kaes Van't Hof: Thanks, Neil.

Speaker #3: Thank you very much. Our next question comes from the line of Scott Hanold of RBC Capital Markets. Scott, your line is open.

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

Speaker #6: Yeah, thanks. Neil had, some, some pretty robust, production performance in, in one Q and, and, you know, based on our chat last night, it sounds like it, you know, your, your completions were as planned.

Scott Hanold: Yeah, thanks. You all had some pretty robust production performance in 1Q. You know, based on our chat last night, it sounds like it, you know, your completions were as planned. Can you just walk through some of the specifics, you know, why performance was so strong? It sounds like it was a lot more well performance just versus, you know, any other kind of dynamic. Just, you know, give us a little bit of color on that end. Is that something we should anticipate moving forward, and what's embedded in guidance?

Speaker #6: Can you, can you just walk through some of the specifics, you know, why, performance was so strong? It, it sounds like it was a lot more well-performance just versus, you know, any other kind of dynamic, just, you know, give us a little bit of color on that.

Speaker #6: And, and is that something we should anticipate moving forward? And, and what's embedded in guidance?

Speaker #2: Yeah, Scott. I'll give a couple high-level points, and then let Danny talk about some of the details. But, you know, at a high level, our well performance year-to-date looks up relative to last year.

Kaes Van't Hof: Yeah, Scott, I'll give a couple high level, and then let Danny talk about some of the details. You know, high level, our well performance year to date looks up relative to last year. I think that is probably a surprise even to us internally. We've always continued to try new things in terms of completion design and efficiency that I think is starting to pay dividends. I think that's, you know, that's helping. That's one thing.

Speaker #2: I think that is probably a, a surprise, even to us, internally. But we've always continued to try new things in terms of completion design and efficiency that I think are, is starting to pay dividends.

Speaker #2: So I think that's, you know, that's helping. That's one thing. I think the other side of the business, the production side of the business, which we've been talking a lot about over the last, you know, couple quarters, you know, there's just kind of a lot of, a lot of good things happening in the field in terms of less downtime, more automation, you know, call it AI, call it automation, impacting that side of the business.

Kaes Van't Hof: I think the other side of the business, the production side of the business, which we've been talking a lot about over the last, you know, couple quarters, you know, there's just kinda a lot of good things happening in the field in terms of less downtime, more automation, you know, call it AI, call it automation, impacting that side of the business. I think, you know, better wells and lower downtime, that's a good recipe for a production beat.

Speaker #2: So I think, you know, better wells and, and, and lower downtime, that's a, that's a good recipe for a, a production beat.

Speaker #6: Yeah, Scott, you know, Case alluded to it, but we, you know, post the Endeavor merger, and getting the teams together, we started trading a lot of ideas on what we were doing to really optimize, you know, primary completions as well as the base.

Danny Wesson: Scott, you know, Kaes alluded to it, but we, you know, post the Endeavor merger and getting the teams together, we started trading a lot of ideas on what we were doing to really optimize, you know, primary completions as well as the base. We've talked about it over the past few quarters. You know, some of the things we're seeing on the completion optimization side with, you know, perforating strategies, you know, rate design and sand loadings, you know, we think we're seeing some uplift in the wells. You know, time will tell as we continue to implement that completion design.

Speaker #6: And we've talked about it over the past few quarters, but, you know, some of the things we're seeing on the completion optimization side with, you know, perforating strategies, you know, rate design and, and sand loadings, you know, we, we think we're seeing some, some uplift in the wells and, and, you know, time will tell, as we continue to implement that completion design.

Speaker #6: But also on the production side, you know, some of the stuff we're doing on the work overside, some of the, you know, the, the asset jobs, the, the chlorine dioxide jobs, the surfactin jobs, we're starting to see that pay dividends.

Danny Wesson: Also on the production side, you know, some of the stuff we're doing on the workover side, some of the, you know, the acid jobs, the chlorine dioxide jobs, the surfactant jobs, we're starting to see that pay dividends. Really, you know, layering on that machine learning, you know, as we continue to look at our data streams and processes and layer it on machine learning and trying to, you know, start working towards, you know, implementing AI into our field operations, we're seeing that downtime come down. You know, it's been a big part of our of the beat in Q1, just really, you know, that little bits of optimization across the board starting to show through to the top-line number.

Speaker #6: And, and really, you know, layering on that machine learning, you know, as we continue to look at our data streams and processes and, and layer it on machine learning and, and trying to, you know, start working towards, you know, implementing AI into our field operations, we're seeing that downtime come down and, you know, it's been a big part of our, of the beat in Q1, just, just really you know, that, that little bits of optimization across the board starting to show through to the top line number.

Speaker #6: Great. And, and as my follow-up, and when you guided oil, you talked about, like, great it looked like you're, you're improving greater than potentially 520 a day.

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

Speaker #6: And could you, could you just talk through, you know, if, if you continue to see this macro environment, is there how much desire is there to kind of continue to let that oil production grow versus, you know, curtail it?

Speaker #6: And, you know, is there a scenario where you'd actually even look to step it up even higher for macro, continues to be heightened?

Speaker #2: Yeah. I mean, it's a great question, Scott. You know, I think, I think it's kind of a it's a very fluid situation. And, and I think the boards wanted us to take this kind of quarter by quarter.

Kaes Van't Hof: Yeah. I mean, it's a great question, Scott. You know, I think it's kind of a very fluid situation. I think the board's wanted us to take this kind of quarter by quarter. Obviously, you know, if there's outperformance and we still have triple-digit oil prices, and the market's still calling for oil to come to market, then, you know, I think this is a year where instead of pulling back activity, you kind of just keep the efficiencies going and production continuing to climb. You know, listen, it's gonna be fluid, right? We're only 2 months into this conflict, and it could be resolved today. You know, and who knows what happens to the macro? I think we're just ready to react.

Speaker #2: obviously, you know, if the if there's outperformance and, and, and we still have triple-digit oil prices, and the market's still calling for, oil to come to market, then, you know, I think if this is a year where, instead of pulling back activity, you kind of just keep the efficiencies going, and production continuing to, to climb, but, you know, listen, it's gonna be, it's gonna be fluid, right?

Speaker #2: We're only two months into this, conflict, and it could re be resolved today. But, you know, and, and who knows what happens to the macros.

Speaker #2: I think we're just ready to react. We still have some things in our back pocket to grow further, but for now, this kind of 520-plus, 1,000 barrels a day on oil is the new baseline.

Kaes Van't Hof: We still have some things in our back pocket to grow further. For now, this kind of 520 plus thousand barrels a day on oil is the new baseline.

Speaker #6: Thank you.

Scott Hanold: Thank you.

Speaker #3: Thank you very much. Our next question comes from the line of Neil Dingman of William Blair. Neil, your line is open.

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

Neal Dingmann: Morning, Kaes and team. Thanks for fitting me in. My question is also on your activity. Specifically, Kaes, how much, if any, will negative Waha prices impact, you know, what you might or might not do? Same question with oil service prices. you know, maybe ask about are you expecting OFS inflation given, you know, what's going on with prices?

Speaker #7: morning, Case and teams. Thanks for fitting me in. my question, is also on your activity, y, specifically. Case, how much m if any, will wa negative waha prices, impact, you know, what you might or might not do?

Speaker #7: And then same question with, oil service prices and, you know, maybe ask about are you expecting, OFS inflation given, you know, what's going on with prices?

Speaker #2: Yeah, Neil. I mean, on the waha side, obviously, the, the, the pricing is deeply negative. you know, we're well protected with financial and physical hedges.

Kaes Van't Hof: Yeah, Neal, I mean, on the Waha side, obviously, the pricing is deeply negative. You know, we're well protected with financial and physical hedges. You know, our mix of physical to financial is gonna be moving more towards physical, when these two new pipes come on, you know, hopefully H2 of the year. I think we're, you know, pretty well protected to get through this tight spot from a financial perspective, where we can, you know, continue to, you know, add, you know, oily inventory, right? Where we're drilling some of the oiliest stuff in the basin. I think, you know, we're pretty well protected there. We'll continue to work on our physical protection on the gas side.

Speaker #2: You know, our mix of, of physical to financial is gonna be moving more towards physical, when these two new pipes come on. You know, hopefully, second half of the year.

Speaker #2: So I think we're, you know, pretty well protected. To get through this tight spot from a financial perspective, where we can, you know, continue to, you know, add, you know, oily inventory, right, where we're drilling some of the oiliest stuff in the basin, so I think, you know, we're pretty well protected there.

Speaker #2: We'll continue to work on our physical protection on the gas side. You know, we've worked on a power project now for almost a year, and we'll see if we can get, get that done.

Kaes Van't Hof: You know, we've worked on a power project now for almost a year, and we'll see if we can get that done. You know, we've talked at length about monetizing our gas and, you know, we're kind of on the cusp of that. That's starting to happen here when these pipes come on. You know, Danny, on the service side, what are you seeing?

Speaker #2: But, you know, we, we've talked at, at length about monetizing our gas and, you know, we're kind of on the cusp of that, that's starting to happen here when these, these pipes come on.

Speaker #2: But, you know, Danny, on the service side, what do you what are you seeing?

Speaker #6: Yeah. I mean, we hadn't really seen much pressure to date on the service, you know, inflation or service pricing. Side of the story, it's, it's really a capacity, question.

Danny Wesson: Yeah, I mean, we haven't really seen much pressure to date on the service, you know, inflation or service pricing side of the story. It's really a capacity question and, you know, what does the service capacity look like? Haven't seen industry activity ramp aggressively through these first couple months of this conflict. You know, there's still quite a bit of capacity out there in the rig space and in the completion space. You know, we're the calendars are not squeezed enough yet for them, I feel like, to be able to push pricing on to the guys when they go out and, you know, look for this additional equipment.

Speaker #6: And, and, you know, what is the service capacity look like? And haven't seen industry activity ramp, aggressively, through these first couple months of, of this conflict.

Speaker #6: And, and so, you know, there's still quite a bit of capacity out there in the rig space and in the completion space. And, you know, we're, we're the calendars are, are not, squeezed enough yet for then.

Speaker #6: I feel like to, to be able to push pricing on, onto the, the guys when they go out and, and, you know, look for this additional equipment.

Speaker #6: I mean, we have seen, obviously, some inflation and, and some and things that are tied directly to the commodity price. But, you know, those have been pretty minimal thus far.

Danny Wesson: We have seen obviously some inflation in some of the consumables, you know, and things that are tied directly to the commodity price. You know, those have been pretty minimal thus far. We'll just have to see what activity does, not only in the Permian but in the Lower 48 to see what, you know, we anticipate service inflation to do through the rest of the year.

Speaker #6: And we'll just have to see what activity does, not only in the Permian but in the Lower 48, to see what, you know, we anticipate service inflation to do through the rest of the year.

Speaker #7: Thanks, Danny. And then second question, just, on capital allocation, especially, given the continued, you know, record free cash flow growth per share you'll likely have.

Neal Dingmann: Thanks, Danny. Second question just on capital allocation, especially given the continued, you know, record free cash flow growth per share you'll likely have. Kaes, wondering specifically, how do you believe capital for M&A stacks up, you know, maybe against buybacks or simply the near-term debt repayment? I mean, do you factor that in? Maybe just talk about capital allocation.

Speaker #7: Case, wondering specifically, how do you believe capital for M&A stacks up, you know, maybe against buybacks or simply the net, near-term debt repayment? I mean, do you factor that in or maybe just talk about capital allocation?

Speaker #2: Yeah. I mean, you know, Neil, I think, I think, you know, my first j day of my first finance job in New York City, I was asked the question, what can a company do with their free cash flow?

Kaes Van't Hof: Yeah, I mean, you know, Neil Mehta, I think, you know, my first day in my first finance job in New York City, I was asked the question: What can a company do with their free cash flow? If we're going to go through all the options, you know, you can grow, right, either organically or inorganically. Organic growth, we've decided to hit that lever today in a small way by going to the top end of our CapEx guidance. Inorganic growth, which, you know, M&A, we've obviously been very, very good at M&A over the years. I think this volatility is kind of difficult to get deals done, you know, private or otherwise. I think generally, you know, M&A is probably fairly quiet at Diamondback for the foreseeable future.

Speaker #2: And if we're gonna go through all the options, you know, you can grow. Right? Either organically or inorganically. So organic growth, we've decided to hit that lever today in a small way by going to the top end of our, CapEx guidance.

Speaker #2: inorganic growth, which, you know, M&A, we've obviously been very, very good at M&A over the over the years. I think this volatility, is, is kind of difficult to get deals done.

Speaker #2: you, you know, private or, or otherwise. So I think generally, you know, M-M&A's probably fairly quiet at Diamondback for, for the foreseeable future. you know, and then you go down the other options of, of what you can do with your free cash.

Kaes Van't Hof: You know, you go down the other options of what you can do with your free cash. You can pay a base dividend, which we, you know, did and decided to increase today, or you can pay down debt, buy back shares, or you can just put the cash in a balance sheet. I think, you know, with oil prices where they are, I don't know if investors are capitalizing this price environment yet today. For us, you know, the bigger use of free cash is gonna be to pay down debt rapidly and convert that debt value to equity value in our NAV, and keep some cash for a rainy day, because this is a very volatile environment, and it can flip pretty quickly.

Speaker #2: You can pay a base dividend, which we, you know, did and decided to increase today. or you can pay down debt, buyback shares. Or you can just put the cash in a balance sheet.

Speaker #2: And I think, you know, with oil prices, where they are, I don't know if investors are capitalizing this, this price environment yet today. And so for us, you know, the, the bigger use of free cash is gonna be to pay down debt rapidly and, and convert that debt value to equity value in our NAV, and keep some cash for, for a rainy day.

Speaker #2: 'Cause this is a very volatile environment, and it can, it can flip pretty quickly.

Speaker #7: Makes sense. Thanks, Case. Thanks, Danny.

Neal Dingmann: Makes sense. Thanks, Kaes. Thanks, Danny.

Speaker #2: Thanks, Neil.

Kaes Van't Hof: Thanks, Neil.

Speaker #3: Thank you very much. Our next question comes from the line of Arun Jayaram, of JPMorgan Securities. Arun, your line is open.

Operator: Thank you very much. Our next question comes from the line of Arun Jayaram of J.P. Morgan Securities LLC. Arun, your line is open.

Speaker #8: Yeah. Good morning, gentlemen. Case, the calendar 26 and 27 strips are around $90 and $75. Ho-how do you think about your approach to development in a much stronger oil price than we sat just, call it, 90 days ago?

Arun Jayaram: Yeah, good morning, gentlemen. Kaes, the calendar 2026 and 2027 strips are around $90 and $75. How do you think about your approach to development in a much stronger oil price than we sat just, call it, 90 days ago? I was wondering if you could just maybe highlight for the 2 to 3 incremental rigs, how are you thinking about, you know, capital allocation across your asset base? Is the deeper benches now an area that are now competing with capital as you get down some of those well costs in the Barnett?

Speaker #8: And I was wondering if you could just maybe highlight for the two to three incremental rigs, how does how are you thinking about, you know, capital allocation across your, your asset base and is the, the deeper benches now an area that are now competing with capital as you get down some of those well costs in the Barnett?

Speaker #2: Yeah. I'll let, I'll let Danny and Al talk about latest Barnett developments. But, but just from a capital allocation perspective, you know, even with, with higher commodity pricing, you know, it's we, we, we're still gonna hold to, you know, the mid the vast majority of our spacing assumptions throughout the basin.

Kaes Van't Hof: Yeah, I'll let Danny now talk about latest Barnett developments. Just from a capital allocation perspective, you know, even with higher commodity pricing, you know, we're still gonna hold to, you know, the vast majority of our spacing assumptions throughout the basin. You know, we always kind of look at each project, and that's kind of on a DSU by DSU level basis and kind of say, Hey, let's get as many wells in this section as possible to where the incremental well, the last well that we add, generates a 40% rate of return at $60 oil. We think, you know, that provides prudent spacing but also a solid rate of return to our shareholders despite, you know, the commodity price volatility.

Speaker #2: You know, we always kind of look at each project, and that's kind of on a on a DSU by DSU level basis. And kind of say, "Hey, let's get as many wells in this section as possible to where the incremental well, the last well that we had, generates a 40% rate of return at $60 oil." And so we think, you know, that, provides prudent spacing but also a, a, a solid rate of return to our shareholders despite, you know, the commodity price volatility.

Speaker #2: So I think I think drilling our best stuff first and, and sticking to that knitting in terms of spacing is going to continue. clearly, the Barnett, particularly with the, the, the size of these wells, from a production perspective, generates more PV today.

Kaes Van't Hof: I think drilling our best stuff first and sticking to that knitting in terms of spacing is going to continue. Clearly the Barnett, particularly with the size of these wells, from a production perspective, generates more PV today, so that's getting more attention. Al, you wanna give anything on the latest Barnett?

Speaker #2: So that's getting more attention. But Al, you want to give anything on the latest Barnett?

Speaker #6: Yeah. I, I think that's right, Arun. I mean, you know, looking at, the acceleration of the plan coming in, with these two rigs, you know, really that's the, the acceleration of the Barnett plan.

Danny Wesson: Yeah, I think that's right, Arun. I mean, you know, looking at the acceleration of the plan coming in, with these 2 rigs, you know, really that's the acceleration of the Barnett plan. We're focused on that development. You know, really it's just kind of getting ahead of the Barnett obligations that we talked about last quarter. Yeah, I'll just add that, you know, the Barnett activity and the obligation activity is almost entirely focused on the JV area that we have with another partner. You know, those wells are not as high a working interest. They're about, you know, about half and half, a little bit heavier weighted on the Diamondback side.

Al Barkmann: Yeah, I think that's right, Arun. I mean, you know, looking at the acceleration of the plan coming in, with these 2 rigs, you know, really that's the acceleration of the Barnett plan. We're focused on that development. You know, really it's just kind of getting ahead of the Barnett obligations that we talked about last quarter.

Speaker #6: And we're, we're focused on, that development and, you know, really it's just kind of getting ahead of the, the Barnett obligations that we talked about last quarter.

Speaker #3: Yeah, and I'll just add that, you know, the Barnett activity and the obligation activity is almost entirely focused on the JV area that we have with another partner.

Danny Wesson: Yeah, I'll just add that, you know, the Barnett activity and the obligation activity is almost entirely focused on the JV area that we have with another partner. You know, those wells are not as high a working interest. They're about, you know, about half and half, a little bit heavier weighted on the Diamondback side.

Speaker #3: And, you know, those, those wells are, you know, are not, r as high a working interest. They're about, you know, fif you know, about half and half, a little bit m heavier weighted on the Diamondback side.

Speaker #3: So, you know, the two or three rigs that are picking up on the Barnett activity to get ahead on the JV area is really like one and a half net rigs to Diamondback.

Al Barkmann: You know, the 2 or 3 rigs we're picking up on the Barnett activity to get ahead on the JV area is really like 1.5 net rigs to Diamondback. While the top line looks like, you know, we're adding a bunch of activity in the back of the year, net to us, it won't be nearly as impactful.

Danny Wesson: You know, the 2 or 3 rigs we're picking up on the Barnett activity to get ahead on the JV area is really like 1.5 net rigs to Diamondback. While the top line looks like, you know, we're adding a bunch of activity in the back of the year, net to us, it won't be nearly as impactful.

Speaker #3: So, well, the top line looks like, you know, we're adding a bunch of activity in the back of the year, net to us. I-it won't be nearly as impactful.

Speaker #7: Yeah. Great. My, my follow-up is maybe for, for Jerry. you guys have taken, call it, pro forma a, a debt, I believe net debt down to 12.7 billion.

Arun Jayaram: Great. My follow-up is maybe for Jere. You guys have taken, call it pro forma debt, I believe net debt down to $12.7 billion. Jere, I was wondering if you could highlight, you know, given the intention to pay down more debt in a higher commodity price environment, what are some of the targets you're looking for for the balance sheet from either a gross or a net debt perspective?

Speaker #7: Jerry, I was wondering if you could highlight, you know, given the intention, to pay down more debt and a higher commodity price environment, what are some of the targets you're looking for for the balance sheet from either a gross or a, a net debt perspective?

Speaker #2: Yeah. Arun, great question. You know, I think we've, e, we've talked previously about hitting that $10 billion net debt figure, sometime in the next 12 to 18 months.

Jere Thompson: Yeah, Arun, great question. You know, I think we've talked previously about hitting that $10 billion net debt figure sometime in the next 12 to 18 months. Obviously, with where we are from a commodity pricing standpoint and some excess free cash flow generation, it looks like we'll be able to hit that much earlier to the tune of, you know, a couple months from now. As we move into the back end of the year, you know, I think we'll have an opportunity to not only reduce net debt but also gross debt. Likely build cash on the balance sheet through Q4. Once we get into Q4, take a look at obviously calling our $750 million of 2026s outstanding.

Speaker #2: Obviously, with where we are, from a commodity pricing standpoint and some excess free cash flow generation, it looks like we'll be able to hit that much earlier to the tune of, you know, a couple months from now.

Speaker #2: And then as we move into the back end of the year, you know, I think we'll have an opportunity to not only reduce net debt but also gross debt.

Speaker #2: So likely build cash on the balance sheet, through the fourth quarter. And then once we get into the fourth quarter, take a look at, obviously, calling our 750 million of 26 is outstanding.

Speaker #2: And then as we move into 2027, take a look at maybe doing a larger liability management exercise, with additional cash on the balance sheet with the idea of trying to take out as, as much as we can from a near-term maturity perspective, particularly as it relates to anything that matures prior to 2030.

Kaes Van't Hof: As we move into 2027, take a look at maybe doing a larger liability management exercise with additional cash on the balance sheet, with the idea of trying to take out as much as we can from a near-term maturity perspective, particularly as it relates to anything that matures prior to 2030. I think we're really in a really advantaged position to move our balance sheet from a position of strength to really kind of an adjective of fortress, and we can do that in the very near term.

Jere Thompson: As we move into 2027, take a look at maybe doing a larger liability management exercise with additional cash on the balance sheet, with the idea of trying to take out as much as we can from a near-term maturity perspective, particularly as it relates to anything that matures prior to 2030. I think we're really in a really advantaged position to move our balance sheet from a position of strength to really kind of an adjective of fortress, and we can do that in the very near term.

Speaker #2: So I think we're really in a really advantaged position to move our balance sheet from a position of strength to really kind of an adjective of fortress.

Speaker #2: And we can do that in the very near term.

Speaker #7: Great. Thank you.

Arun Jayaram: Great. Thank you.

Speaker #3: Thank you very much. Our next question comes from the line of John Freeman of Raymond James. John, your line is open.

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

Speaker #9: Thank you. Good morning, guys. you know, even after, you know, increasing activity, the, the reinvestment rate for y'all still fell pretty sharply from, you know, what y'all originally planning, last quarter from, you know, 44% to 34%, at the current strip.

John Freeman: Thank you. Good morning, guys. You know, even after, you know, increasing activity via the reinvestment rate for y'all still fell pretty sharply from, you know, what y'all originally planning, last quarter from, you know, 44% to 34%, at the current strip. You know, obviously y'all had the ability if you wanted to even increase activity more and still would've likely had kind of an industry-leading kind of low reinvestment rate. I know that returns, you know, ultimately drive y'all's decisions, but is there like a reinvestment rate that y'all just wanna stay below regardless of kind of the commodity environment?

Speaker #9: So, you know, obviously, y'all had the ability if you wanted to even increase activity more and still would have likely had kind of an industry-leading kind of low reinvestment rate.

Speaker #9: I know that returns, you know, ultimately drive y'all's decisions, but is there like a reinvestment rate that y'all just wanna stay below regardless of kind of the commodity environment?

Speaker #2: Yeah. John, I mean, it's, that's a good question. I mean, I think I'd probably take it a little different direction where, you know, obviously, we've been pulling investors that, you know, that own the stock to, to, to get their opinion on, you know, how they feel about growth and, and ramping activity.

Kaes Van't Hof: Yeah, John, I mean, that's a good question. I mean, I think I'd probably take it a little different direction where, you know, obviously we've been polling investors that, you know, that own the stock to get their opinion on, you know, how they feel about growth and ramping activity. I think the general consensus was, yeah, I think a little growth in the plan, you know, will differentiate Diamondback and makes a lot of sense. I just don't want you to do it in a capital inefficient manner. You know, if you think about what we're basically doing here, you know, we were gonna run somewhere between four and five frac crews in the model to hit our original guide.

Speaker #2: And, and I think the general consensus was, yeah, I think a little growth in the plan, you know, will differentiate Diamondback and makes a lot of sense.

Speaker #2: I just don't want you to do it, in a capital inefficient manner. And so, you know, if you think about what we're basically doing here, you know, we were gonna run, somewhere between 4 and 5 fract crews in the model, to hit our original guide.

Speaker #2: And, you know, that fifth frac crew was gonna go away for five or six months and then come back. And, you know, it's a hell of a burden—e-fleet simul frac, you know, as efficient as it gets crew.

Kaes Van't Hof: You know, that fifth frac crew was gonna go away for five or six months and then come back. You know, it's a Halliburton e-fleet simul-frac, you know, as efficient as it gets crew. We're just bringing that crew back and gonna run the five crews essentially, you know, consistently, and I think that will ensure, you know, we maintain capital efficiency in the field, versus trying to go too fast, too soon, you know, which sometimes has driven some inefficiencies in E&P's plans and Diamondback's plans in years past. I think, you know, trying to learn from, you know, the history of development in this basin, you know, staying capital efficient is probably the priority, and I think the reinvestment rate, you know, becomes the output of that.

Speaker #2: And so we're just bringing that crew back and gonna run the, the, the five crews, essentially, you know, consistently. And I think that will ensure, you know, we maintain capital efficiency in the field, versus trying to go two too fast too soon, you know, which sometimes drives has driven some inefficiencies in, in E&P's plans and, and, and Diamondback's plans in years past.

Speaker #2: So I think, you know, trying to learn from, you know, the history of development in this basin—staying capital efficient is probably the priority.

Speaker #2: And I think the reinvestment rate, you know, becomes the output of that.

Speaker #9: That's great. And then just along those same lines, I know the original 2026 plan, didn't forecast sort of any meaningful, you know, duck draws or builds.

John Freeman: That's great. Just along those same lines, I know the original 2026 plan didn't forecast sort of any meaningful, you know, DUC draws or builds. Can you just give us a rough idea kind of how that looks now with the new plan?

Speaker #9: can you just give us a rough idea of kind of how that, that looks now with the, the new plan?

Speaker #2: Yeah. It's kind it's kind of a, a, a kind of a, a, a story of through the year, right? So, so we, we're gonna draw down the ducks in Q2, and backfill that with two rigs' worth of activity to make sure we build our duck balance back up.

Kaes Van't Hof: Yeah. It's kind of a kind of a story of through the year, right? We're gonna draw down the DUCs from Q2 and backfill that with 2 rigs worth of activity to make sure we build our DUC balance back up. You know, we're basically, we peaked at a little over 200 DUCs in Q1. You know, that number's gonna come down over Q2, and then, you know, the backfill rigs start to build that back up.

Speaker #2: You know, we're, we're basically repeated a little over 200 ducks, in Q1. You know, that number's gonna come down in Q over Q2. And then, you know, the backfill rigs start to start to build that back up.

Speaker #2: So, in general, and, and Danny, you know, can, can opine. But, you know, we're gonna have to keep a little bit higher duck balance than, than we would running four crews 'cause we have, you know, we like to have two projects behind each crew.

Kaes Van't Hof: In general, and Danny, you know, can opine, but, you know, we're gonna have to keep a little bit higher DUC balance than we would running 4 crews because we have You know, we like to have 2 projects behind each crew ready to go, because if something bad happens then, you know, we just move to another project, and it looks like, you know, everything's going great at Diamondback on a quarterly basis. Probably need to maintain somewhere in the high hundreds, around 200 DUCs, and that's kind of where we are today. There's gonna be some movement throughout the year.

Speaker #2: ready to go because if something bad happens, then, you know, we just move to another project and it looks like you know, everything's going great.

Speaker #2: At Diamondback, on a quarterly basis. So probably need to maintain somewhere in the high hundreds, around 200 ducks. And, that's kind of where we are today.

Speaker #2: But there's going to be some movement throughout the year.

Speaker #3: Yeah. I mean, we, we like to keep kind of a quarter to a quarter and a half worth of inventory ahead of each crew.

Danny Wesson: Yeah. I mean, we like to keep kind of a quarter to a quarter and a half worth of inventory ahead of each crew, just so that, you know, we can have flexibility if we run into an issue on a pad with takeaway constraints or something like that. If you think about each of these crews will do about 100-ish wells a year, maybe a little more. To Kaes's point, you know, he hit the nail on the head. A couple 100 wells ahead of these 5 fleets is kind of the right, you know, carry number of a DUC balance.

Speaker #3: Just so that, you know, we can have flexibility if we run into an issue on a pad with takeaway constraints or something like that.

Speaker #3: And so if you think about e-each of these crews will do about 100-ish wells a year or a little maybe a little more. And so, the case is po you know, he, he hit the nail on the head.

Speaker #3: A couple hundred wells ahead of these five fleets is, is kind of the right, you know, carry number of the duck balance. But, you know, obviously, the more efficient we get and the guys are always chasing the efficiency, curve.

Danny Wesson: You know, obviously, the more efficient we get, the guys are always chasing the efficiency curve, you can see it in, I think it's slide 9 in our deck today, you know, the improvement quarter-over-quarter. You know, as the crews get more efficient and get more wells done, it either means we gotta release crews to keep the same well count, or we gotta build more DUCs to stay ahead of them. You know, it's a dynamic and fluid situation.

Speaker #3: And, and you can see it in, I think it's a slide nine in our deck today. You know, the improvement quarter over quarter and, you know, as, as the crews get more efficient and get more wells done, it either means we got to release crews to keep the same well count or we got to build more ducks to stay ahead of them.

Speaker #3: So, you know, it's a dynamic, and fluid situation. But, you know, I think, w-we're, we're, we're talking about adding, you know, 20 to 30 wells to the year in total.

Danny Wesson: You know, I think, we're talking about adding, you know, 20 to 30 wells to the year in total, and still being able to stay within our original guidance window, you know, which we took the momentum from Q1's beat and just kind of kept it going through the rest of the year.

Speaker #3: So and, and still being able to stay within our original guidance window. You know, which, which we took the momentum from Q1's beat and just kind of kept it going, through the rest of the year.

Speaker #9: Thanks, guys. Appreciate it.

John Freeman: Thanks, guys. Appreciate it.

Speaker #2: Thanks, John.

Kaes Van't Hof: Thanks, John.

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

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

Speaker #10: Hi. Good morning. Thank you for taking my question. I actually wanna ask about your crude oil marketing. so when Q pricing was a bit stronger, can you just remind us, your exposure to premium price indices and, and, and, yeah, the marketing strategy in general on the oil side?

Betty Jiang: Hi, good morning. Thank you for taking my question. I actually wanna ask about your crude oil marketing. When Q pricing was a bit stronger, can you just remind us your exposure to premium price indices and the marketing strategy in general on the oil side?

Speaker #2: Yeah, I mean, what's—go from a strategy perspective, Betty—you know, we learned from the, kind of the Permian takeaway crisis of, was it 2018, that, you know, we needed to use our balance sheet to get our crude to the biggest markets.

Kaes Van't Hof: Yeah. I mean, let's from a strategy perspective, Betty, you know, we learned from the kind of the Permian takeaway crisis, what was it, 2018, that, you know, we needed to use our balance sheet to get our crude to the biggest markets. You know, for us, that was, you know, let's get more crude down to Corpus Christi and as well as Houston. We have, you know, if you remember, we invested in three pipelines, EPIC, Gray Oak, and Wink to Webster, all of which made our investors a lot of money, but also protected Diamondback from a commercial perspective. You know, we have about 300,000 barrels a day going down to Corpus on EPIC and Gray Oak.

Speaker #2: And, you know, for, for us, that was, you know, let's get more crew down to Corpus Christi and as well as Houston. And so we have you know, if you remember, we invested in three pipelines, Epic, Grey, and Wink to Webster, all of which made our investors a lot of money.

Speaker #2: But, but also protected, Diamondback from a commercial perspective. So, you know, we have about 300,000 barrels a day going down to, Corpus on, on Epic and Grey.

Speaker #2: And then we have about another 100,000 a day going, down Wink to Webster. You know, feeding kind of refinery row in Houston. And so we're kind of, you know, pretty exposed to, you know, call it call it water-based pricing, you know, even have one small contract that has some dated rent exposure.

Kaes Van't Hof: We have about another 100,000 a day going down Wink to Webster, you know, feeding kind of refinery row in Houston. We're kind of, you know, pretty exposed to, you know, call it water-based pricing. Even have 1 small contract that has some Dated Brent exposure. That's been really helping us out. You know, I think that's a good playbook for what we're going to try to do on the gas side, right? I think we're a little behind because oil, you know, is 90% plus of our revenue, and we've done a good job there. The next trend is to improve that on the gas side.

Speaker #2: so that's been really helping us out. And, you know, I, I, I think, I think that's a good playbook for what we're gonna try to do on the gas side, right?

Speaker #2: I think we're a little behind because oil you know, is 90-plus percent of our, our revenue. And we've done a good job there. But, but, but the next trend is to improve that on the gas side.

Speaker #10: Got it. That makes sense. and then I wanna ask about the acquisition, line item. In one Q, there are just a few hundred billion.

Betty Jiang: Got it. That makes sense. I wanna ask about the acquisition line item in Q1. They're just $a few hundred billion. Are you guys doing any organic acquisitions and maybe picking up bolt-on things that's at good pricing? Yeah, can you just speak to that?

Speaker #10: are you guys doing any organic, acquisitions and, and, maybe picking up both on things that's, good pricing, yeah, can you just speak to that?

Speaker #2: Yeah, Betty. This is Jerry. There's, there's a couple of, of small acquisitions that are in our backyard and in the Midland Basin. You know, as a reminder, in that line item, we, we do have capitalized interest and capitalized G&A.

Jere Thompson: Yeah, Betty, this is Jere. There's a couple of small acquisitions that are in our backyard in the Midland Basin. You know, as a reminder, in that line item, we do have capitalized interest and capitalized G&A, and that made up, you know, the vast majority there. That plus a couple of small acquisitions and then, you know, let's call it $50 to 75 million in leasehold bonus as well.

Speaker #2: And that made up, you know, the vast majority there. so that plus a couple of small acquisitions and then, you know, let's call it 50 to 75 million in leasehold bonus as well.

Speaker #10: That's helpful. Thank you.

Betty Jiang: That's helpful. Thank you.

Speaker #3: Thanks, Betty.

Kaes Van't Hof: Thanks, Betty.

Speaker #1: Thank you very much. Our next question comes from the line of Philip Junkworth of BMO. Philip, your line is open.

Operator: Thank you very much. Our next question comes from the line of Phillip Jungwirth of BMO. Phillip, your line is open.

Speaker #11: Thanks. Good morning. can can you talk about how you're what's optimal for Diamondback? just 'cause you did sell some in the quarter but still on 39%.

Phillip Jungwirth: Thanks. Good morning.

Kaes Van't Hof: Good morning.

Phillip Jungwirth: Can you talk about how you're viewing Viper ownership and what's optimal for Diamondback? Just 'cause you did sell some in the quarter, but still own 39%. The company's free cash flow outlook's obviously stronger, so less need for divestitures. Is there any minimum level of ownership you'd kind of look to maintain, and how does that play into the overall capital allocation decisions?

Speaker #11: the company's free cash flow outlooks obviously stronger. So less need for divestitures. But is there any minimum level of, of ownership you'd kind of look to maintain?

Speaker #11: and how does that play into the overall capital allocation decisions?

Speaker #2: Yeah. I mean, you know, we, we did sell down a little bit of ownership in Viper. You know, it was kind of a, a follow-on from the dropdown where we took you know, the Diamondback side took a lot of stock from Viper.

Kaes Van't Hof: I mean, you know, we did sell down a little bit of ownership in Viper. You know, it was kind of a follow on from the drop-down where we took, you know, the Diamondback side took a lot of stock from Viper in that deal. We could have probably taken more cash, instead decided to wait and then sell a little bit here last quarter. I would say we're done selling Viper shares at Diamondback. I do think the growth opportunity set for Viper is pretty significant. Could there be a world where Diamondback's ownership is reduced through dilution? I think that's possible. No desire today to monetize any more shares.

Speaker #2: in that in that deal, we could have probably taken more cash. But instead decided to wait and then sell a little bit. Here, last quarter, I would say we're we're done selling Viper shares at, at Diamondback.

Speaker #2: I, I, I do think the, the, the growth, opportunity set for Viper is pretty significant. So could there be a world where Diamondback's ownership is reduced through dilution?

Speaker #2: I think that's, that's possible. but, but no, no, no desire today to, to monetize any more shares. I think if you just think about where both companies are gonna be from a balance sheet perspective, you know, in another in another few months, you know, they're gonna be well-positioned to kind of do anything from an M&A perspective and, and that's where we wanted to be.

Kaes Van't Hof: I think if you just think about where both companies are gonna be from a balance sheet perspective, you know, in another few months, you know, they're gonna be well-positioned to kinda do anything from an M&A perspective, and that's where we want it to be.

Speaker #11: Okay. Great. And then in the 2022, '23 upcycle, pr-private operators, they did drive an outsized share of rig editions, overall oil growth. you, you guys have a unique view here being, being based in Midland and, and just wondering how you'd characterize.

Phillip Jungwirth: Okay, great. In the 2022, 2023 upcycle, private operators, they did drive an outsized share of rig additions, overall oil growth. You guys have a unique view here being based in Midland, and just wondering how you'd characterize the ability of privates in the Permian to respond to what we're now seeing as far as higher oil prices versus a couple years ago, just 'cause it also has implications for tightening of OFS markets?

Speaker #11: The ability to prove up privates in the Permian to respond to what we're now seeing as far as higher oil prices, versus a couple years ago, just 'cause it also has implications for tightening of OFS markets.

Speaker #2: Yeah. No, that's a very important question, and it's gone into our calculus on thinking about the market and thinking about adding activity.

Kaes Van't Hof: Yeah, no, that's a very important question, and it's gone into our calculus on thinking about the market and thinking about adding activity. You know, if you go back to that 2022 upcycle, you had, you know, a company like Endeavor that's now part of Diamondback. They went from 2 rigs to 15 rigs. CrownRock went from 2 rigs to 8 rigs. That's now part of Oxy. NCAP North, which is now part of Ovintiv, went from 2 rigs to 6 rigs. Double Eagle, which is, you know, now part of us, a combination of us and Exxon, went from, you know, 1 rig to 6 rigs. I mean, you know, these were big moves on the private side.

Speaker #2: You know, if you go back to that 2022 upcycle, you had, you know, a company like Endeavor that's now part of Diamondback, part of Diamondback.

Speaker #2: They went from two rigs to 15 rigs. Crown Rock went from two rigs to eight rigs. That's now part of Oxy. NCAP North, which is now part of Ovinta, went from two rigs to six rigs.

Speaker #2: Double Eagle, which is, you know, now part of us. a combination of us and Exxon. went from, you know, one rig to six rigs.

Speaker #2: I mean, you know, these were big moves. On the private side and, and back then, there was still a lot of private, activity growth, particularly in, in, in the Midland Basin that, that has now been consolidated.

Kaes Van't Hof: Back then, there was still a lot of private activity growth, particularly in the Midland Basin that has now been consolidated. I think there's going to be private growth. I mean, there the private model has shifted to more of a, you know, smaller asset packages that they develop very, very quickly, farm into larger operators' positions. You know, there's been a big growth in kind of that northern New Mexico area. Right? That's 20, 30 rigs. It's not 100 rigs like it was in 2022. I think they're going to move very quickly. I just don't think the volume impacts will be nearly what we saw in that 2022 timeframe.

Speaker #2: So I, I think there's gonna be private growth. I mean, there, there the, the private model has shifted to more of a, you know, smaller asset packages that they develop very, very quickly.

Speaker #2: Farm into larger operators' positions. You know, there's been a big growth in kind of that Northern New Mexico area. But by our math, right, that's 20 or 30 rigs.

Speaker #2: It's, it's not it's not 100 rigs like it was, in 2022. So, I think they're gonna move very quickly. I just don't think the, the volume impact will be nearly what we saw in that 2022 timeframe.

Speaker #11: Great. Thanks, guys.

Phillip Jungwirth: Great. Thanks, guys.

Speaker #2: Thank you.

Kaes Van't Hof: Thank you.

Speaker #1: Thank you very much. One moment for our next question. Our next question comes from the line of Scott Gruber of Citigroup. Scott, your line is open.

Operator: Thank you very much. One moment for our next question. Our next question comes from the line of Scott Gruber of Citigroup. Scott, your line is open.

Speaker #12: Yes. Good morning. maybe I'll extend upon the, the last line of the inquiry. You know, kind of in light of what you just mentioned about, you know, the impact of the private's case, you know, how do you think about Diamondback's volumes?

Scott Gruber: Yes, good morning. Maybe I'll extend upon the last line of inquiry, you know, kind of in light of what you just mentioned about, you know, the impact of the private case. You know, how do you think about Diamondback's volumes, you know, say over the next 5 to 10 years on an organic basis? You know, do you think about Diamondback kind of being a in modest kind of growth mode over the next 5 to 10 years? This may happen, you know, kind of stepwise when called upon, you know, by the market. Do you step higher during periods of elevated prices like today and then maintain that new level so that net-net you're growing? You know, when commodity prices are soft, do you pare back on activity and let production fade back down?

Speaker #12: You know, say, over the next five to ten years, on an organic basis, do you think about Diamondback kind of being in, in modest kind of growth mode over the next five to ten years?

Speaker #12: And this may happen, you know, kind of stepwise, when called upon, you know, by the market. But do you step higher during periods of elevated prices like today and then maintain that new level so that net-net, you're growing?

Speaker #12: Or, you know, when commodity prices are soft, do you pare back on activity and let production fade back down? Just curious on how you think about the longer-term trajectory.

Scott Gruber: Just curious on how you think about the longer term trajectory.

Speaker #2: Yeah. I mean, listen, Scott, I think I think I'd go back to my earlier comment that, you know, the, the operator with the best inventory quality and the lowest cost structure, with the longest inventory depth, probably has the right to grow organically.

Kaes Van't Hof: Yeah, I mean, listen, Scott, I think I'd go back to my earlier comment that, you know, the operator with the best inventory quality and the lowest cost structure with the longest inventory depth probably has the right to grow organically and the right to do that and create shareholder value. I think, you know, we've been talking about trying to hit the organic growth accelerator for, you know, for a while now. We just haven't had the macro conditions to support it. You know, I think in a world of, you know, and who knows what's gonna happen where, you know, mid-cycle pricing is a little higher, call it $70 plus on WTI, $75 plus.

Speaker #2: And, and the right to do that, and create shareholder value. So I, I think, you know, we've been talking about, trying to hit the organic, organic growth accelerator for, you know, for a while now.

Speaker #2: We just haven't had the macro conditions to support it. But, you know, I think in a world of, you know, and, and who knows what's gonna happen where, you know, mid-cycle pricing is a little higher, call it 70-plus on WTI, 75-plus.

Speaker #2: Well, and, you know, I think that's a world where from a total shareholder return perspective, you know, a couple percentage points of organic growth, you know, really adds to the NAV of the business and adds to the, you know, long-term free cash generation.

Kaes Van't Hof: Well, you know, I think that's a world where from a total shareholder return perspective, you know, a couple percentage points of organic growth, you know, really adds to the NAV of the business and adds to the, you know, long-term free cash generation. That's kinda, you know, one of the important points that we ran in the model this year was that this new plan generates more free cash flow in 2026 per share than any other sorry, more free cash flow per share at any oil price above $60 oil. You know, a $70 plus world, you know, this is, this is advantageous to shareholders long term.

Speaker #2: And, and that's kind of, you know, one of the important points that we ran in the model this year was that this p this new plan generates more free cash flow in 2026 per share than, than any other pl that sorry, more free cash flow per share at any oil price above $60 oil.

Speaker #2: And so, you know, a, a 70-plus dollar world, you know, this is this is advantageous to, to shareholders long-term.

Speaker #12: Yeah. It would certainly help differentiate Diamondback. and then turning back to the, the capital efficiency of the investment program, you know, does, appear to improve on the margin with the, the updated plan.

Scott Gruber: Yeah. It would certainly help differentiate Diamondback. Turning back to the capital efficiency of the investment program, you know, it does appear to improve on the margin with the updated plan, but it's hard to separate the DUC draw impact from adding rigs in the Barnett where you're still ramping, you know, on learnings and efficiency. Just in general, how would you describe the kind of underlying trend in capital efficiency? You know, especially as you, as you lap the impact of the DUC draw, say, kinda into 2027, do you think you'll be able to show improvement kind of relative to the initial program this year?

Speaker #12: But it's hard to separate the DUC draw impact from adding rigs in the Barnett, where you're still ramping, you know, on learnings and efficiency.

Speaker #12: But just in general, how would you describe the kind of underlying trend in capital efficiency? You know, especially as you as you lap the impact of the duck draw, say, kind of into 2027, do you think you'll be able to show, show improvement kind of relative to the initial program this year?

Speaker #2: Yeah. Listen, I think things like duck, duck draws and bringing back ducks, and a Barnett—when you develop—I mean, I think that's all kind of noise, right? Below that noise, the team is executing flawlessly.

Kaes Van't Hof: Yeah. Listen, I think things like DUC draws and bringing back DUCs and a Barnett when you develop, I mean, I think that's all kind of noise, right? Below that noise, the team is executing flawlessly. I mean, we set, you know, records on the drilling side on 2, 3, 4-mile laterals. Wolfcamp D development, we gave the team a goal of $300 a foot for drilling, down from $360 a foot drilling last year. They're already at $300 a foot. You know, Barnett Drilling, we said the drilling guys need to be below $400 a foot to be able to get to $800 a foot to make the Barnett competitive with, you know, the base program.

Speaker #2: I mean, we set you know, records on the drilling side on two, three, four mile laterals. Wolf Camp de-development, we gave the team a goal of, 36 $300 a foot for drilling, down from 360 dollars a foot drilling last year.

Speaker #2: They're already at $300 a foot. You know, Barnett drilling—we said, the drilling guys need to be below $400 a foot to be able to get to $800 a foot.

Speaker #2: to make the Barnett competitive. With, you know, the base program, well, we already, already put a well in, in the ground under, under $400 a foot.

Kaes Van't Hof: Well, we already put a well in the ground under $400 a foot. I think at the highest level, you know, the business is firing on all cylinders. Efficiencies continue to improve above ground. But the big move also is going to be, you know, are we drilling and completing actually better wells subsurface? You know, those are all the drivers that, you know, separate the noise of are you drawing down DUCs this quarter or this month versus, you know, years past. And that's the long-term benefit to capital efficiency.

Speaker #2: So, I think at the at the highest level, you know, the business is firing on all cylinders. Efficiencies continue to improve. Above ground. But, but the big move also is going to be you know, are we drilling a-and completing actually better wells subsurface?

Speaker #2: And, you know, those are all the drivers that, you know, separate the noise of, are you drawing down DUCs this quarter or this month versus, you know, years past?

Speaker #2: And, and that's the long-term benefit to capital efficiency.

Speaker #12: That's great. Appreciate the call in. Thank you, Case.

Scott Gruber: That's great. Appreciate the color. Thank you, Kaes.

Speaker #2: Thanks, Scott.

Kaes Van't Hof: Thanks, Scott.

Speaker #1: Thank you very much. Our next call comes from the line of Derek Whitfield of Texas Capital. Derek, your line is open.

Operator: Thank you very much. Our next call comes from the line of Derrick Whitfield of Texas Capital. Derrick, your line is open.

Derrick Whitfield: Good morning, all, and thanks for taking my questions. Kaes, perhaps for you, just regarding your share buyback and its guiding principles, where do you view mid-cycle pricing now in light of the current Middle East conflict and the risk premium associated with that? Could you speak to what you're seeing in degradation of inventory quality across the Permian, clearly beyond Diamondback?

Speaker #13: good morning, Alan. Thanks for taking my, questions. Case, perhaps for you, just regarding your share of buyback and its guiding principles, where do you view mid-cycle pricing now in light of the current Middle East conflict and the risk premium associated with that?

Speaker #13: And could you speak to what you're seeing in degradation of inventory quality across the Permian? Clearly beyond Diamondback.

Speaker #2: Yeah. I mean, I'll take the macro question first, Derek. You know, if, if, if I wasn't long-term bullish, I'd be out of a job, right?

Kaes Van't Hof: Yeah. I mean, I'll take the macro question first, Derrick. You know, if I wasn't long-term bullish, I'd be out of a job, right? I guess, you know, we have to be long-term bulls, but also think about, you know, in practical terms, where the situation is right now. You know, within 3 months, we went from the projected largest oversupply in history, which I think we can debate was not going to be the case, to now the largest undersupply in history. You know, we're only 2 months in. I think it's hard for us to move off our mid-cycle pricing environment, which is kind of a mid-60s WTI, kind of, you know, mid-teens NGLs and $3 gas, you know, obviously with Waha diff.

Speaker #2: So I guess, you know, we're, we're, we're, we're we have to be long-term bulls. But, but also think about, you know, in practical terms, where, where the situation is right now.

Speaker #2: And, you know, within three months, we went from the, the projected largest oversupply in history, which I think we can debate was not gonna be the case, to now the largest undersupply in history.

Speaker #2: And, you know, we're only two months in. So I think it's hard for us to move off our mid-cycle pricing environment, which is kind of a mid-60s TI.

Speaker #2: Kind of, you know, mid-teens NGLs and, and $3 gas. You know, obviously with Wahoo diffs. But, you know, there's certainly a case to be made for energy security becoming a much more important, thing for the for countries around the world to think about.

Kaes Van't Hof: You know, there's certainly a case to be made for energy security becoming a much more important thing for countries around the world to think about. You know, I guess wearing my oil hat, that probably means, you know, more storage, more landed storage versus storage that you can buy, you know, somewhere that's in a riskier geopolitical area. I think that means the US barrel is more important than it's ever been. Again, I, I think it's early for us to say mid-cycle pricing has gone up by X. The way we do think about kind of our positioning relative to US shale and where US shale's mid-cycle pricing is going is that, you know, we do believe the cost curve is going up.

Speaker #2: You know, I, I guess wearing my oil hat, that probably means, you know, more storage, more lo-landed storage versus, storage that you can buy you know, somewhere that's in a, a, a riskier geopolitical area.

Speaker #2: I think that means the US barrel is, is more important than it's ever been. but again, I, I, I think it's early for us to say mid-cycle pricing has gone up by X.

Speaker #2: the way we do think about kind of our positioning relative to US shale and where US shale's mid-cycle pricing is, is going is that, you know, we, we do believe the cost curve is going up.

Speaker #2: We do think, you know, operators have done a really good job with efficiencies, longer laterals, better development. but, you know, geologic time, you know, catches up to you.

Kaes Van't Hof: We do think, you know, operators have done a really good job with efficiencies, longer laterals, better development. You know, geologic time, you know, catches up to you, and there's certain clearly signs of degradation throughout the US in terms of production or productive, you know, quality. We just try to keep ourselves at the low end of that cost curve, and I think we've done a very good job on that front, both from an inventory depth and quality perspective, but also the cost at which we execute on that inventory. I think, I think we're very well positioned, and I think it's a little too early for us to go higher on mid-cycle pricing today.

Speaker #2: And, and there's certain clearly signs of, of degradation throughout the US, in terms of, of production. Or productive, you know, quality. so we just try to keep ourselves at the low end of that cost curve.

Speaker #2: And I think we've done a very good job on that front, both from an inventory depth and quality perspective, but also the costs at which we execute on that inventory.

Speaker #2: So, you know, I think I think we're very well positioned. and I think it's a little too early for us to, to go higher on mid-cycle pricing today.

Speaker #12: Fair enough. And then it's my follow-up. I wanted to shift over to the Barnett. Referencing the play outline on page 16, how large could you reasonably grow this position beyond $200,000 that you're highlighting on the slide deck?

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

Speaker #12: And you clearly have one of the most prolific buyers of assets in Midland working with you. So, certainly you have that in your favor.

Speaker #2: Yeah. I mean, you know, we, we, we did announce this position after we thought we had a, a pretty solid position on what we could get.

Kaes Van't Hof: Yeah, I mean, you know, we did announce this position after we thought we had a pretty solid position on what we could get. You know, we have continued to add to the position in Q1, you know, on a small basis. I think what's exciting is, you know, now we're just starting to do a lot of trades. You know, a lot of the big operators have their Barnett positions, we're all now looking at how can we block up to three-mile laterals, four-mile laterals. You know, there's obviously a lot of private equity, kind of the small Midland-based private equity that's looking to build, you know, six, seven, eight-section positions. You know, those probably come to market. I think it's gonna happen.

Speaker #2: I, I, I do look forward to, you know, we have we have continued to add to the position in Q1. You know, in small on a small basis.

Speaker #2: But I think what's exciting is, is, you know, now we're just starting to do a lot of trades. You know, a lot of the big operators have their Barnett positions.

Speaker #2: And we're all now looking at how can we how can we block up to three mile laterals, four mile laterals. You know, there's obviously a lot of private equity kind of the small Midland-based private equity that's looking to build, you know, six, seven, eight, eight-section positions.

Speaker #2: You know, those probably come to market. So I, I, I think it's gonna happen. I think the position's gonna grow. but, but I think, you know, we have the, the sizable base we need to continue to grow it.

Kaes Van't Hof: I think the position is going to grow. I think, you know, we have the sizable base we need to continue to grow it.

Speaker #12: Great update. Thanks for your time.

Derrick Whitfield: Great update. Thanks for your time.

Speaker #2: Thanks, Derek.

Kaes Van't Hof: Thanks, Derrick.

Speaker #1: Thank you very much. Our next question comes from the line of Kevin McCarthy of Pickering Energy Partners. Kevin, your line is open.

Operator: Thank you very much. Our next question comes from the line of Kevin MacCurdy of Pickering Energy Partners. Kevin, your line is open.

Speaker #14: Hey, good morning. can you provide any color on the cadence of the net, net lateral footage per quarter throughout the year? And also the lateral length per well?

Kevin MacCurdy: Hey, good morning. Can you provide any color on the cadence of the net lateral footage per quarter throughout the year and also the lateral length per well? We would assume the additional 200,000 lateral feet is back half weighted. Any color there would help.

Speaker #14: we would assume the additional two h 200,000 lateral feet is, back half-weighted. But any color there would help.

Speaker #2: Yeah. So, you know, I think it's gonna be pretty evenly weighted here towards the back half, looking at, you know, that six we went up to, kind of that 6.2 million lateral feet, right?

Al Barkmann: Yeah. You know, I think it's going to be pretty evenly weighted here towards the back half, looking at, you know, kind of that 6.2 million lateral feet, right? You know, we're looking probably at 1.5 to, you know, 1.6 per quarter for H2 of the year there.

Speaker #2: So you're, you know, we're looking probably at 1.5 to, you know, 1.6 per, per quarter. for the back half of the year there.

Kevin MacCurdy: great. Lateral lengths per well should increase throughout the year, too. Is that right?

Speaker #12: great. And lateral lengths per well should, i-increase throughout the year, too. Is that is that right?

Kevin MacCurdy: great. Lateral lengths per well should increase throughout the year, too. Is that right?

Speaker #2: Yeah. So, you know, looking at Q1, I think that was probably one of our lighter quarters, I think we were like 11.5, for Q1.

Al Barkmann: Yeah, you know, looking at Q1, I think that was probably one of our lighter quarters. I think we were, like, 11.5 for Q1. For the full year of 2026, you know, we still expect to be at 12.9. We expect that to ramp kind of going through the H2.

Speaker #2: And so, we for the full year of 2026, you know, we still expect to be at 12.9. So, we expect that to ramp kind of going through the back half of the year.

Speaker #12: Got it. Appreciate that. A-and maybe as a follow-up, i any updates on the surfactant tests?

Kevin MacCurdy: Got it. Appreciate that. Maybe as a follow-up, any updates on the surfactant tests?

Speaker #2: Yeah, so we had a big push towards the end of the year last year. Really wanted to get some tests in the ground and try some different surfactant combinations with some different rock types.

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

Speaker #2: And understand what was driving the, the well performance there. and so we got those tests in the ground. We're looking at it. Team's studying it.

Speaker #2: and so we're refining the process, and plan to move forward with our next deployment. kind of early this quarter. Yeah. And Kevin, you know, one thing one thing I'd add to that, you know, we, we, we tested 50 wells or so last year.

Kaes Van't Hof: Yeah. Kevin, you know, one thing I'd add to that, you know, we tested 50 wells or so last year. On average, I think we got a 100 barrel a day uplift, but some wells were up by 400 or 500 barrels a day, and some wells were zero. Now we're trying to figure out what, you know, what did we do right in the, in the 400 or 500 barrel a day wells, and what did we do wrong in the, in the zeros. You know, we're gonna, we're gonna figure that out. This is version 1.0. That's what kind of gets me excited.

Speaker #2: On average, I think we got 100 barrel a day uplift. But some wells were up by 4 or 5 hundred barrels a day. And some wells were zero.

Speaker #2: And now we're trying to figure out what, you know, what do we do right in the in the 4 or 5 hundred barrel a day wells?

Speaker #2: And what, what do we do wrong in the in the zeros? And, you know, w-we're gonna we're gonna figure that out. This is version 1.0.

Speaker #2: And that's what kind of gets me excited. Like, I think I think from a high level, this basin and, and Diamondback, we're kind of on the cusp of, some technological breakthroughs related to increasing recoveries.

Kaes Van't Hof: I think from a high level, this basin and Diamondback, we're kind of on the cusp of some technological breakthroughs related to increasing recoveries, you know, past primary development. I think, you know, that's probably gonna be a mega theme over the next 4 or 5, 6 years, that you're gonna see a lot of dollars and time spent on. You know, that's kind of why we've held as much acreage as we have. You know, we have some of the best oil in place in the basin, and, you know, got some of the smartest people in the industry working on this to do what I think could be, you know, something that extends this basin's life by, you know, a decade or two.

Speaker #2: you know, past primary development. And I think, you know, that's probably gonna be a mega theme over the next four, five, six years that you're gonna see a lot of dollars and time spent on.

Speaker #2: And, you know, that's kind of why we've held as much acreage as we have. You know, we have some of the best oil in place in the basin.

Speaker #2: And, you know, we got some of the smartest people in the industry working on this to, do what I think could be, you know, something that, that extends this, this basin's life by, you know, a decade or two.

Speaker #12: Wow. Certainly, certainly be very meaningful. appreciate the update. Thanks.

Kevin MacCurdy: Well, certainly be very meaningful. Appreciate the update. Thanks.

Speaker #1: Thank you very much. Our next question comes from the line of Gabe Dowd at Truist. Gabe Dowd, your line is open.

Operator: Thank you very much. Our next question comes from the line of Gabe Daoud at Truist. Gabe Daoud, your line is open.

Speaker #2: Gabe. Can't hear you if you're if you're talking.

Kaes Van't Hof: Gabe, can't hear you if you're talking.

Speaker #15: Hey, sorry about that, guys. Morning. thanks for the time. Just going back to, the, the return of capital framework and, and, y-y pursuing growth this year, which obviously makes sense.

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

Speaker #15: But just curious if you could maybe talk a little bit about what an, an upper bound of oil production growth would be for Diamondback.

Speaker #15: Again, assuming you have the green light on the macro, is it fair to assume that it's 5% for Diamondback? Or, or would—would there be an environment where it could be even higher than that?

Speaker #2: Yeah. I don't wanna get into a specific number. I mean, I, I think I think, right now, we've already grown, you know, low single digits year to date.

Kaes Van't Hof: Yeah, I don't wanna get into a specific number. I mean, I think, I think, right now we've already grown, you know, low single digits year to date. You know, I don't think there's a ton of investor appetite for a large CapEx bump and something, you know, more than mid-single digits growth. I think it's, I think it's early. I think there's a lot of noise in the system and, you know, no one's really sure how this macro is gonna unfold. That's why I think we're keeping our cards kinda close to the vest here. You know, coming out with a good forecast in Q1, we'll see how the rest of the year unfolds.

Speaker #2: You know, I, I, I don't think there's a ton of investor appetite for a large CapEx bump in something, you know, more than mid-single digits, growth.

Speaker #2: But, I, I think it's I think it's early. I think there's, a lot of noise in the system. And, and, you know, no one's really sure how this macro's gonna unfold.

Speaker #2: And, and that's why I think we're keeping our cards kind of close to the vest here. you know, coming out with a, a, a good forecast in Q1.

Speaker #2: And, and we'll see how the rest of the year unfolds. But, you know, just pulling investor appetite, I don't think there's, a lot of appetite for, you know, something like the go-go days of 7 2017, 2018, where you had, you know, multiple CapEx increases in a year.

Kaes Van't Hof: You know, just polling investor appetite, I don't think there's a lot of appetite for, you know, something like the go-go days of 2017, 2018, where you had, you know, multiple CapEx increases in a year and double-digit, you know, mid-double-digit production growth. You know, we're gonna keep it steady and capital efficient, and I think that's what we put out there today, and kinda take this macro kinda quarter-by-quarter.

Speaker #2: And, and double digit, you know, mid-double digit production growth. So, you know, we're gonna keep it steady. And capital efficient, I think that's what we put out there today.

Speaker #2: And kind of take this macro kind of quarter by quarter.

Speaker #12: Got it. Okay. Thanks, Keith. That—that's helpful. And then, a follow-up for me would just be, is there any update around your, your surface position in light of maybe, you know, a new market entry in, in, in that regard?

Gabe Daoud: Got it. Okay. Thanks, Kaes. That's helpful. A follow-up for me would just be, is there any update around your surface position in light of maybe, you know, new market entry in that regard? Curious if there's any update on the conversations you're having there. Thanks, guys.

Speaker #12: Curious if there's any update on the conversations you're having there. Thanks, guys.

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

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

Speaker #2: but it continues to move forward.

Speaker #12: Got it. Okay. That's helpful. Thanks, guys.

Gabe Daoud: Got it. Okay. That's helpful. Thanks, guys.

Speaker #1: Thank you very much. Our next call comes from the line of Charles Meade of Johnson Rice. Charles, your line is open.

Operator: Thank you very much. Our next call comes from the line of Charles Meade of Johnson Rice. Charles, your line is open.

Speaker #16: Yes. Good morning, Keith. You and your, your team there. I, I'd like to go back to the, I think what the, the big the big question this morning, of the, the acceleration of, of CapEx.

Charles Meade: Good morning, Kaes, you and your team there. I'd like to go back to the, I think with the big question this morning of the acceleration of CapEx. Can you give us kind of an inside baseball account of how you came to that decision? You know, I can imagine, you know, it could be the case that your board left you with a certain amount of latitude. Alternatively, is this kind of thing where you know, kind of arranged in short order maybe a, you know, telephonic or Zoom board meeting and just had a quick 30-minute meeting where you made the case and then acted on it?

Speaker #16: Could you can you give us kind of a-an inside baseball account of, of how that how you came to that decision? And, and, you know, I can imagine you know, i-it, it could be the case that, that your board left you with a certain amount of, of latitude?

Speaker #16: or alternatively, is this kind of thing where, where you, you know, kind of arranged in short order, maybe a, you know, telephone telephonic or, or Zoom board meeting, and just had a quick 30-minute meeting where you made the case?

Speaker #16: And then, and then acted on it. And I'm, I'm not so much interested, interested in the kind of autopsy of your of your decision.

Charles Meade: I'm not so much interested in the kind of autopsy of your decision, but I'm more trying to get some insight into how the dynamics have worked for you guys as a fast mover in response in this, you know, volatile oil tape.

Speaker #16: But I’m more trying to get some insight into how the dynamics work for you guys as a fast mover in response in, in this, you know, volatile oil tape.

Speaker #2: Yeah. I mean, that's, that's actually a good question. You know, I, I there, there, there's a couple things I'd say. I'd say our board is a very is a very nimble board for its size, right?

Kaes Van't Hof: I mean, that's actually a good question. You know, there's a couple things I'd say. I'd say our board is a very nimble board for its size, right? We have 13 board members, but they are very responsive, and they move relatively quickly, particularly when the decision is very obvious. Second, I would say just some inside baseball, you know, we've tried to I got some advice from Jamie Dimon last year, which was, communicate with your board often and tell them everything. You know, we just decided to over-communicate with our board through this crisis. Obviously, you know, the crisis kicked off just a week after earnings, right? We had set the budget.

Speaker #2: We have 13 board members. But they, they, they are very responsive. And they move, relatively quickly, particularly when the decision is very obvious. and, a-and second, I would say, just some inside baseball, you know, we've, we've tried to I got some advice from Jamie Dimon last year, which was, communicate with your board often and tell them everything.

Speaker #2: And, you know, we just decided to over-communicate with our board through this crisis. Obviously, you know, the crisis kicked off, just a week after earnings, right?

Speaker #2: We had set the budget. but, you know, we I think we sent three or four notes to the board in, in March just to update them on, on how we're thinking.

Kaes Van't Hof: You know, I think we sent 3 or 4 notes to the board in March just to update them on how we're thinking. It was a simple meeting to get together ahead of earnings to make this decision. I think, you know, the board had resounding support for this plan. That's a little inside baseball on how Diamondback works with our board.

Speaker #2: And then and then it was a simple, simple meeting to get to get together ahead of earnings to make this decision. And, and I think, you know, the board was had, had resounding support for, for this plan.

Speaker #2: But, that's a little inside baseball on how Diamondback works with our with our board.

Speaker #16: Great. That's, that's all from me. Thanks, Keith.

Charles Meade: Great. That's all for me. Thanks, Kaes.

Speaker #2: Thanks, Charles.

Kaes Van't Hof: Thanks, Charles.

Speaker #1: Thank you very much. Our next question comes from the line of Leo Mariani of Roth. Leo, your line is open.

Operator: Thank you very much. Our next question comes from the line of Leo Mariani of Roth. Leo, your line is open.

Speaker #17: Hey, everybody. There's been some discussion of some pretty weak, you know, Waha prices in Q2. Wanted to get a sense whether or not you think that could be some, you know, short-term negative volume impact for the company.

Leo Mariani: Hey, everybody. There's been some discussion of some pretty weak, you know, Waha prices in Q2. Wanted to get a sense whether or not you think that could be some, you know, short-term negative volume impact for the company. Are there some wells that have maybe a lower oil cut where you say, Hey, maybe it's worth shutting some of those wells in for a little period of time here, just given how bad, you know, the gas price is? Just any color kind of around that dynamic and how you're thinking about it would be helpful.

Speaker #17: Are there some wells that have maybe a lower oil cut, where you say, 'Hey, maybe it's worth shutting some of those wells in for a little period of time here, just given how bad, you know, the gas price is,' or just any color kind of around that dynamic and how you're thinking about it?

Speaker #17: It'd be helpful.

Speaker #2: Yeah. I mean, listen, a-a-at these NGL prices, we kind of think, negative $3 waha, basically, you know, cuts out the value of your NGLs.

Kaes Van't Hof: Yeah, I mean, listen, at these NGL prices, we kinda think, -$3 Waha. Basically, you know, cuts out the value of your NGLs. You know, above that or worse than that, -$4, -$5, -$6, you start to eat into, you know, the value of your oil production. Now, you know, oil is $100 a barrel, not $60, so it's a little different math on should you shut in oil barrels because of Waha pricing. I do think that that's happening throughout the basin. I think in an area like New Mexico, with tighter restrictions on midstream development and flaring, that's probably a question for others, but it's probably something that's happening.

Speaker #2: And, you know, a-above that or worse than that, negative 4, negative 5, negative 6, you start to eat into you know, the, the, the value of your oil production.

Speaker #2: Now, you know, oil's $100 a barrel, not, not 60. So it's a little different math on should you shut in, oil barrels because of waha pricing.

Speaker #2: But, but I, I do think that that's happening throughout the basin. I, I think in an area like New Mexico, with, with tighter restrictions on, on midstream development and flaring, that's probably a, a question for others.

Speaker #2: But it but it's probably something that's happening. You know, for us, you know, if we go back to October of last year, waha blew out due to some maintenance issues.

Kaes Van't Hof: You know, for us, you know, if we go back to October of last year, Waha blew out due to some maintenance issues. You know, we shut in, you know, 2,000 or 3,000 barrels a day of production for a period of time. Then, you know, Waha came back, and we brought that production back. I would bet we're, you know, we're probably around somewhere in that range today with Waha as weak as it is. It's not impeding, you know, new development, particularly with the amount of hedges that we have on the financial side.

Speaker #2: You know, we shut in a, you know, 2 or 3 thousand barrels a day of production for a period of time. And then, you know, waha came back.

Speaker #2: And we brought that production back. I would bet we're, you know, we're probably around somewhere in that, that range today with waha as weak as it is.

Speaker #2: but it's not impeding, you know, new development, particularly with the amount of, of amount of hedges that we have on, on the on the phys or on the financial side.

Speaker #17: Okay. That, that's helpful. Sounds like you still have, flow assurance and this would be more of an economic decision for the company.

Leo Mariani: Okay. That's helpful. Sounds like you still have flow assurance, this would be more of an economic decision for the company.

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

Kaes Van't Hof: That's right. Every molecule we've produced has moved. It's just moving at a negative price.

Speaker #17: Yep. Okay. And then just wanted to talk a little bit on what you guys said on, on the growth part of it. Obviously, your, your guidance for the year on oil, it's a little bit open-ended with a 520,000-plus closing you guys did the 520, in 1Q.

Leo Mariani: Yeah. Okay. Just want to talk a little bit on what you all said on the growth part of it. Obviously, your guidance for the year on oil, it's a little bit open-ended with a 520,000 plus. Clearly, you guys did the 520 in Q1. It looks like your guide's telling us we're getting 520 again. You did talk about a little growth. I mean, if the oil environment holds here, people should be thinking about probably that plus and a little bit of growth here in H2 of the year. Is that kind of a fair way to look at it?

Speaker #17: Looks like your, your guide's telling us we're getting 520 again. You did talk about a little growth. So, I mean, if the oil environment holds here, people should be thinking about probably that plus and a, a little bit of growth here in the second half of the year.

Speaker #17: is that kind of a fair way to look at it?

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

Kaes Van't Hof: Yeah, I think that's fair. Again, we're gonna take it quarter by quarter. I think this is a year where if the plan is, if we're outperforming the plan, we're gonna, you know, hold activity and produce more oil into a market that needs it.

Speaker #17: Okay. Makes perfect sense. Thank you.

Leo Mariani: Okay. Makes perfect sense. Thank you.

Speaker #2: Thanks, Leo.

Kaes Van't Hof: Thanks, Leo.

Speaker #1: Thank you very much. As a reminder to ask a question, you will need to press star 11 on your telephone. And wait for your name to be announced.

Operator: Thank you very much. As a reminder to ask a question, you will need to press star 1 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 1 again. Our next question comes from the line of Doug Leggate of Wolfe Research.

Speaker #1: To withdraw your question, please press star 11 again. Our next question comes from the line of Doug Legate of Wolf

Speaker #18: Hey, thanks, fellas. I appreciate you having me on. guys, I wonder if I could come back to one of the comments earlier about the balance sheet.

Doug Leggate: Yeah, thanks, fellas. I appreciate you having me on. Guys, I wonder if I could come back to one of the comments earlier about the balance sheet. Jere, is it inconceivable that when we look out with no variable dividend taken out of the capital, you know, the capital returns structure, that your net debt balance sheet could basically go to zero over the next 2 or 3 years? Would you allow it to go to that level?

Speaker #18: Jerry, is it is it inconceivable that when we look out with no variable dividend taken out of the capital, you know, the capital returns, structure, that you're net your net debt balance sheet could basically go to zero over the next two or three years?

Speaker #18: Would you allow it to go to that level?

Speaker #2: Yeah, Doug. I mean, that listen that'd be a good a good problem to have. you know, I think I think generally, you know, we're gonna be transferring a lot of value from the debt side of the NAV to the equity side, over the over this quarter.

Kaes Van't Hof: Yeah, Doug, I mean, that Listen, that'd be a good problem to have. you know, I think generally, you know, we're gonna be transferring a lot of value from the debt side of the NAV to the equity side over this quarter. you know, who knows what happens after this. As we've kind of said, we're gonna take this quarter by quarter. We're early into this oil price environment. You know, should it persist and the stock continue to go up, we'll, you know, allocate less capital to buybacks and continue to put cash on the balance sheet. you know, at the end of the day, we know this is a cyclical business.

Speaker #2: And, and, you know, who knows what happens after this as, as, as, as we've kind of said. We're, we're gonna take this quarter by quarter.

Speaker #2: This is we're early into, this oil price environment. You know, should it persist and the stock continue to go up, then we'll you know, allocate less capital to, to buybacks and continue to put cash on the balance sheet.

Speaker #2: But, you know, at the end of the day, we know this is a cyclical business. And, you know, in this highly cyclical business, we wanna you know, have the ability to pounce on opportunities when, when the cycle turns.

Kaes Van't Hof: You know, in this highly cyclical business, we want to, you know, have the ability to pounce on opportunities when the cycle turns. You know, those opportunities could be M&A. They could be, you know, buying back a ton of stock. It could be, you know, leaning on your balance sheet to buy back stock. I think the key term here is flexibility, but also long-term value creation. You know, at the end of the day, we wanna get to zero debt. We wanna get to one share outstanding, and it's gonna be a race between those two, you know, with free cash generation over the coming decades.

Speaker #2: And, you know, those opportunities could be M&A. That could be you know, buying back a, a ton of stock. It could be, you know, leaning on your balance sheet to, to buy back stock.

Speaker #2: So, I think the key term here is flexibility, but also long-term value creation. Because, you know, at the end of the day, we want to get to zero debt.

Speaker #2: We want to get to one share outstanding. And it's going to be a race between those two, you know, with free cash generation over the coming decades.

Speaker #18: Well, I appreciate that. my, my follow-up, fellas, is, is not so much about your growth, than what you're seeing from your non-operated positions. And I guess this is particularly it might be a VIPER question, but, obviously, we've seen some private-side rigs and, you know, th-there's a, a lot of non-op working interest that basically can influence what happens to the growth story for you guys, on a consolidated basis.

Doug Leggate: I appreciate that. My follow-up, fellas, is not so much about your growth than what you're seeing from your non-operated positions. I guess this is particularly, it might be a Viper question, but obviously we've seen some private side rigs and, you know, there's a lot of non-op working interest that basically can influence what happens to the growth story for you guys on a consolidated basis. How would you characterize that? What are you seeing on your non-op, you know, I guess requests for activity?

Speaker #18: How would you characterize that? What are you seeing on your non-op, you know, I guess, requests for, for activity?

Speaker #2: Yeah, I mean, you know, Diamondback carries very little non-op. But Viper obviously sees, you know, half the wells in the basin—around numbers.

Kaes Van't Hof: Yeah, I mean, you know, Diamondback carries very little non-op, but Viper obviously sees, you know, half the wells in the basin, round numbers. You know, I think we'll talk about it on the Viper call, but, you know, early signs are, you know, nothing major on permitting. The discussions that we're hearing in the field and, you know, in Midland are that, you know, rigs are getting picked up on the private side. I think if we had to give a rig count forecast for the Permian today, by the end of the year, we're probably up 25, 30 rigs from where we are today.

Speaker #2: And, you know, I think we'll talk about it on the VIPER call. But, but, you know, early signs are, you know, nothing major on permitting.

Speaker #2: But the discussions that we're hearing in the field and, you know, in Midland are that, you know, rigs are getting picked up on the on the private side.

Speaker #2: I think if we had to give a rig count forecast for the Permian today, by the end of the year, we're probably up 25, 30 rigs from where we are today.

Speaker #18: That's helpful. Thanks, fellas.

Doug Leggate: That's helpful. Thanks, fellas.

Speaker #2: Thanks, Doug.

Kaes Van't Hof: Thanks, Doug.

Speaker #1: Thank you very much. Thank you very much. Our next question comes from the line of James West of Milius Research. James, your line is open.

Operator: Thank you very much. Our next question comes from the line of James West of Melius Research. James, your line is open.

Speaker #19: Hey, thanks, guys. I just wanted to—I know everything's pretty fluid right now, and you're kind of quarter by quarter. But you have to be thinking about a market that's significantly changed in the last 60 days.

James West: Hey, thanks, guys. I know everything's pretty fluid right now, and you're kind of quarter by quarter, but you have to be thinking about a market that's significantly changed in the last 60 days and an oil price that'll be structurally higher. Understanding you've raised your guidance for this year, how are you thinking about the out years and how you want to set up the company to either continue to grow at this bit signature rate or not, you know, 2027, 2028, 2029? Not looking for guidance, just kind of how your longer term thinking is evolving.

Speaker #19: And oil price, it'll be structurally higher. So, understanding you've raised your guidance for this year, but how are you thinking about the out years and how you want to set up the company to either continue to grow at this mid-synchronous rate or not?

Speaker #19: You know, '27, '28, '29—not looking for guidance, but just kind of how your longer-term thinking is evolving.

Speaker #2: Yeah. you know, obviously, we have to think about the long term. And, you know, I, I, I, I do think if, if we are in a higher for longer world, you know, then an advantage company with advantaged inventory like Diamondback should answer the call for production growth in that higher for longer world.

Kaes Van't Hof: Yeah. You know, obviously we have to think about the long term. You know, I, I do think if we are in a higher for longer world, you know, then an advantaged company with advantaged inventory like Diamondback should answer the call for production growth in that higher for longer world. You know, I think that's, you know, we don't live in a, in a vacuum that's static. If we did, I think, you know, some sort of organic growth in the story, you know, moving this business from a, a steady state kind of bond like free cash generator to a free cash flow per share growth generator over the next, you know, few years into the, into the decade.

Speaker #2: So, I, you know, I think that's, you know, we don't live in a in a vacuum that's static. But, but if, if we did, I think, you know, some sort of organic growth in the story you know, moving this, this business from a, a, a steady state kind of bond-like free cash generator to a, a free cash flow per share, growth generator over the next, you know, few years into the into the decade.

Speaker #2: So long as it maintains capital efficiency, I think that's something that investors would support. So, again, it's early. We'll see what the macro holds.

Kaes Van't Hof: Long as it maintains capital efficiency, I think that's something that investors would support. Again, it's early. We'll see what the macro holds. Certainly it feels like the world changed a lot since our last conference call.

Speaker #2: but, but certainly, it feels like the world changed a lot, since our last, conference call.

Speaker #19: No, I, I absolutely. That's very helpful. And then, as you think about your, your inventory, depth versus your peers, you guys are obviously in a leading position.

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

Speaker #19: But w-w-what would you consider your, your p—or how would you kind of phrase it—your position versus probably the peers in the market today, given the, the, the huge longevity we think you have?

Speaker #2: Yeah. Listen, we're, we're very fortunate. You know, we have a we have an incredible inventory quality and, and duration. But, but I'll, I'll say that, you know, within Diamondback, you know, we're always looking for that ne that next stick, right?

Kaes Van't Hof: Yeah, listen, we're very fortunate. You know, we have an incredible inventory quality and duration. I'll say that, you know, within Diamondback, you know, we're always looking for that next stick, right? Whether it's organic.

Speaker #2: Whether it's organic.

Speaker #19: Right.

James West: Right

Speaker #2: Generation. And, and Barnett Barnett development, you know, upper spray berry development over the last few years. Or, you know, inorganic, you know, we, we this machine, i-is built to do to do significant transactions, like Endeavor.

Kaes Van't Hof: generation in Barnett development, you know, Upper Spraberry development over the last few years or, you know, inorganic. You know, we this machine is built to do significant transactions like Endeavor, but also, you know, I don't want one unit in the Midland Basin trading hands without Diamondback knowing that that unit could be in our hands. You know, we're set up to do the sub $20 million deals, and the teams actually do a really good job at those. But also not so small that we're not in the picture for every other deal that transacts in this basin.

Speaker #2: But also, you know, I don't want one unit in the Midland Basin trading hands without Diamondback knowing that that unit could—could be in our hands.

Speaker #2: So, you know, we, we, we're set up to do the, the sub-$20 million deals. And, and the team's actually do a really good job at those.

Speaker #2: but, but also not so small that we we're not in the picture for, for every other deal that transacts in this basin.

Speaker #19: Got it. Thanks, guys.

James West: Got it. Thanks, Kaes.

Speaker #2: Thank you.

Kaes Van't Hof: Thank you.

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

Operator: Thank you. Thank you very much. I am showing no more questions at this time. I would now like to turn it back to Kaes Van't Hof for closing remarks.

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

Kaes Van't Hof: Yeah. Thank you everybody for your interest. You know, we're always available to answer any questions. Just reach out to the number or email on the notices.

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