Q2 2026 Diamondback Energy Inc Earnings Call

August 4, 2026

Operator: Good day, and thank you for standing by. Welcome to the Diamondback Energy Second Quarter 2026 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' 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 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 this call over to your host today, Adam Lawlis, VP of Investor Relations. Adam, please go ahead.

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

Speaker #1: After the speaker's presentations, 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.

Speaker #1: You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded.

Speaker #1: I would now like to hand the call over to your host today, Adam Lawlis, VP of Investor Relations. Adam, please go ahead.

Speaker #2: Thank you, Grace. Good morning, and welcome to Diamondback Energy's second 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, Grace. Good morning, and welcome to Diamondback Energy's Second Quarter 2026 Conference Call. During our call today, we will reference an updated investor presentation and letter to stockholders, which can be found on Diamondback's website. Representing Diamondback today are 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. 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 Vantil, CEO; Danny Wesson, COO; Jerry Thompson, CFO; and Al Bartman, 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 business.

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 can certain these factors can be found on the company's filings with 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 release issued yesterday afternoon.

Speaker #2: We'll now turn the call over to Case.

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

Speaker #3: Hey, good morning, everyone, and I hope everybody read our shareholder letter last night. It continues to get good feedback from the investment community. And as we've done over the last couple of years, we're just going to move straight into Q&A.

Kaes Van't Hof: Good morning, everyone, I hope everybody read our shareholder letter last night. I continue to get good feedback from the investment community. As we've done over the last couple of years, we're just going to move straight into Q&A. Operator, please open the line up for questions.

Speaker #3: So operator, please open the line up for questions.

Speaker #1: Thank you. At this time, we will conduct the question-and-answer session. As a reminder, to ask the question, you'll need to press wait for your name to be announced.

Operator: Thank you. At this time, we will conduct a question-and-answer session. As a reminder, to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Neal Dingmann with William Blair. Neal, you are live.

Speaker #1: To withdraw your question, please press star one-one again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Neil Dingman with William Blair.

Speaker #1: Neil, you're live.

Speaker #4: Morning, all. And happy birthday, Case, from me in the coach. Turning to my first question, I really want to talk about your macro view, specifically your remarks last night.

Neal Dingmann: Morning, all, and happy birthday, Kaes, from me and the coach. Turning to my first question, I really want to talk about your macro view, specifically your remarks last night. You seemed to indicate your thoughts that worldwide inventory levels will remain low for the foreseeable future. As such, am I correct in thinking that you all will continue to strategically grow production well into 2027 given this low inventory backdrop and positive oil backdrop?

Speaker #4: you seem to indicate your thoughts that worldwide inventory levels will remain low for the foreseeable future. So as such, you know, am I correct in thinking that you all will continue to strategically grow production well in the 27, given this low inventory backdrop and positive oil backdrop?

Speaker #2: Yeah, Neil, you know, I I think it's, you know, been pretty hard to predict what's what's going to happen. you know, globally with over the last couple couple of months, you know, certainly our opinion and the data shows that, you know, inventories are draining.

Kaes Van't Hof: Yeah, Neal, I think it has been pretty hard to predict what is going to happen globally over the last couple of months. Certainly our opinion and the data shows that inventories are draining, not only on the oil side, but on the product side. Absent permanent demand destruction, which we are hopeful is not the case, those inventories are going to have to be refilled. We can debate at what price those inventories need to be refilled, but I do think that helps us get some confidence that there is a longer-term bid for oil to refill those inventories and meet global demand. In general, I think that does skew us towards the decision to grow production versus hold production flat. We were the first to respond to the price signals in March to increase our production for the year by 3% or 4%, versus original plan.

Speaker #2: You know, not only on the oil side, but on the product side. And, you know, absent, permanent demand destruction, which, you know, we're we're hope hopeful is not the case, you know, those inventories are going to have to be refilled.

Speaker #2: And, you know, we can debate at what price those inventories need to be refilled, but I do think that helps us, you know, get some confidence that there's a bid for a longer-term bid for oil to, you know, refill those inventories and meet, you know, global demand.

Speaker #2: So, in general, you know, I think that that does skew us toward the decision to, you know, grow production versus hold production flat. You know, we were the first to respond to the price signals in in March, to, you know, increase our production for the year.

Speaker #2: You know, by three or four percent, you know, versus original plan. You know, the team executed on that very, very quickly to where we are today.

Kaes Van't Hof: The team executed on that very quickly to where we are today, up somewhere around 4% from where we started the year. I think the goalposts are, for us, going into next year, do we hold production flat? Which we are kind of doing from these higher elevated levels right now in Q3, or do we grow organically off of this number in a capital-efficient way? Right now the model spits out some form of low double-digit organic growth, while maintaining capital efficiency and running 5 frac crews consistently throughout the year. I think in today's environment, betting on the need to refill inventories, that is probably where our head is today. As you have seen in the past, Diamondback can react quickly to the positive or the negative. I think in this environment, it is prudent to be able to do that.

Speaker #2: You know, up, you know, somewhere around four percent from where we started the year. And, you know, I think I think the the goalpost goalposts are for us, you know, going into next year, you know, do we do we hold production flat, which we're kind of doing from these higher elevated levels right now in Q3, or do we, you know, grow organically off of this number in a in a capital-efficient way?

Speaker #2: And, you know, right now, the model spits out, you know, some some form of, you know, low single-digit organic growth, you know, while maintaining capital efficiency and running, you know, five-fract crews consistently throughout the year.

Speaker #2: So I think I think in in today's environment, you know, betting on the need to refill inventories, that's probably where our head is today.

Speaker #2: but, you know, as you've seen in the past, Diamondback can react quickly to the positive or the negative. And I think in this, in this environment, it's prudent to be able to, to do that.

Speaker #2: So there's a lot of uncertainty out there, Neil. I think, you know, our our bet is is that, you know, these global inventories, including SPRs, you know, are going to need to be refilled.

Kaes Van't Hof: There's a lot of uncertainty out there, Neil. I think our bet is that these global inventories, including SPR, are going to need to be refilled. That should be a positive for Diamondback shareholders and Diamondback's growth trajectory.

Speaker #2: And that should be a positive for Diamondback shareholders and Diamondback's growth trajectory.

Speaker #4: Good, great points. Case, and then just secondly, turning to wealth productivity. You know, definitely shown on on your recent slide 10. You know, to to to me, what seems most intriguing there is not only the the high productivity you have, but you're doing this by you know, I'm looking at the left side of the slide also, by sort of seems like maximizing value.

Neal Dingmann: Great points, Kaes. Just secondly, turning to well productivity, definitely shown on your recent slide 10. To me, what seems most intriguing there is not only the high productivity you have, but you're doing this by I'm looking at the left side of the slide also, why it sort of seems like maximizing value. You're targeting the most zones, wells per section, and I think what you all would say probably the most appropriate completion level. I'm just wondering, could you talk about how you're able to sort of target the leading productivity while maximizing value?

Speaker #4: You know, you're you're you're targeting the most zones, wells per section, and and, you know, I think what you all would say probably the most appropriate completion level.

Speaker #4: So I'm just wondering, could you talk about how you're able to, you know, sort of target these— the leading productivity— while maximizing value?

Speaker #2: Yeah, so I mean, I I think, you know, slide 10 is the most important slide in our deck when it comes to the technical aspects of our business and how we're, you know, making the capital allocation decisions in the field.

Kaes Van't Hof: Yeah. I think slide 10 is the most important slide in our deck when it comes to the technical aspects of our business and how we're making the capital allocation decisions in the field. It's been in there for a couple of quarters now, and we've put in some data on year-to-date performance and clearly, we're having a good year in 2026 so far. I kind of steal a comment from one of our competitors, because I think his comment's smart in that this is kind of a stacked innovation play, right? We've done a lot of things in terms of well construction, well targeting, stimulation, and that's leading to better results. We didn't get here overnight, right? We started by drilling wells in 30 days, now we're drilling them in five.

Speaker #2: So, you know, it's been in there for a couple a couple, quarters now. And, you know, we we've put in some data on year-to-date performance and and clearly, you know, we're having a a good year in 2026 so far.

Speaker #2: you know, and and I I kind of I kind of, steal a comment from one of our, competitors because I think his his comment's smart in in that, you know, this is kind of a stacked innovation you know, play, right?

Speaker #2: We've done a lot of things in terms of well construction, well targeting, and stimulation, and that's leading to better results. And, you know, we didn't get here overnight, right?

Speaker #2: We started by drilling wells in 30 days. Now we're drilling them in five. But, you know, our culture and our organization is a continuous improvement culture that has led to these results today.

Kaes Van't Hof: Our culture and our organization is a continuous improvement culture that has led to these results today. High level, we try to blend the best mix of most wells per section, right on the bottom left of that slide, multiplied by the most production per well. Clearly, Diamondback operates at the lowest cost per well, and that should generate or does generate the most NPV per section or acre or asset in the basin. We're very proud of that, and we've got to keep working on that to continuously improve the business. Al, do you want to add anything on what we've changed and done over the last couple of years?

Speaker #2: So, you know, high-level, you know, we try to blend the best mix of most wells per section right on the bottom left of that slide, multiplied by the most production per well.

Speaker #2: And clearly, you know, Diamondback operates at the lowest cost per well, and that should generate, or does generate, the most NPV per section or acre, or asset, you know, in the basin.

Speaker #2: And, you know, we're very proud of that. And we got to keep keep working on that to, continuously improve the business. Al, do you want to add anything on what we've changed and done over the last couple of years?

Speaker #3: Yeah, I mean, like you said, I I think it's really about maximizing the return on every DSU, every well that we put in a DSU, Neil.

Al Barkmann: Yeah, like you said, I think it's really about maximizing the return on every DSU, every well that we put in a DSU, Neil. The specifics, when you think about well construction, doing larger tubulars, that allows us to flow the wells back more aggressively on the stimulation side and stage architecture and perforating. Then on the targeting side, the technical teams taking a deep dive, looking at how we target every well within the DSU, I think is what we're seeing leading to the outperformance on the page here.

Speaker #3: I mean, the the specifics you know, when you think about wealth construction, doing lar larger tubulars, that allows us to flow the wells back, more aggressively.

Speaker #3: you know, on the stimulation side, stage architecture and perforating, and then on the targeting side, you know, the technical team's taking a deep dive looking at how we target every well within the DSU.

Speaker #3: I think is what what we're seeing leading, to the outperformance on the page here.

Speaker #2: Yeah, so it's a lot of little wins, Neil. You know, we got to stack up those little wins and and keep doing that to to maintain our position.

Kaes Van't Hof: Yeah. It's a lot of little wins, Neil. We got to stack up those little wins and keep doing that to maintain our position.

Speaker #4: Perfect. Thanks, Case. Thanks, Danny.

Neal Dingmann: Perfect. Thanks, Kaes. Thanks, Danny.

Speaker #1: Thank you. Our next question comes from the line of Neil Mehta with Goldman Sachs. Neil, your line is live.

Operator: Thank you. Our next question comes from the line of Neil Mehta with Goldman Sachs. Neil, your line is live.

Speaker #5: Yeah, thank you, Case. Appreciate you taking the time. I guess the first question is just on the gas side. Waha has firmed up a little bit, so just how are you thinking about egress out of the basin, and recognizing this is probably a problem that will percolate again?

Neil Mehta: Yeah. Thanks, Kaes. Appreciate you taking the time. I guess the first question is just on the gas side. Waha has firmed up a little bit. Just how are you thinking about egress out of the basin, recognizing this is probably a problem that will percolate again? Does this create some near-term relief? As you think about your gas strategy in general, maybe it is a good opportunity for you to update the market on where you stand around the data center side and the power side of your business.

Speaker #5: But does this, does this create some near-term relief? And then, as you think about, your gas strategy in general, maybe you can it's a good opportunity for you to update the market on where you stand around, the data center side and the power side of your, your business.

Speaker #2: Yeah, Neil. You know, anything is a relief compared to Q2, so we're happy to see these new pipes start to flow.

Kaes Van't Hof: Yeah, Neil, anything is relief compared to Q2. We're happy to see these new pipes start to flow. We've seen some announcements from both Energy Transfer and WhiteWater that the two big pipes are moving forward. That's resulted in Waha being positive for the whole month of July, certainly a nice tailwind for us and for our shareholders in the near term. I'll take it a little higher level because I think we believe in the gas mega-theme. It's not core to Diamondback's value proposition, it can be additive to the amount of oil we produce. In general, I think that means us owning more space to the Gulf Coast. We can debate where that needs to go in the Gulf Coast, certainly the large demand centers are going to be along those pipelines for either power projects or data centers.

Speaker #2: And we've seen some announcements, from both Energy Transfer and Whitewater that, the two big pipes are are are moving moving forward. you know, that's resulted in Waha being positive for the whole month of of July and and certainly a nice tailwind for for us and for our shareholders, in the near term.

Speaker #2: but but, you know, I'll take it a little higher level because I I I think, you know, I think we believe in the gas mega theme.

Speaker #2: It's not, you know, core to Diamondback's value proposition, but it can be additive to, you know, the amount of oil we produce. And in general, I think that means, you know, us owning more space to the Gulf Coast, and we can debate where that needs to go in the Gulf Coast.

Speaker #2: But certainly, the the large demand centers are going to be along those pipelines for either, you know, power projects or data centers. And then, you know, the rest of the gas that gets to the Gulf Coast is going to, you know, cross the docks, in the LNG terminals.

Kaes Van't Hof: The rest of the gas that gets to the Gulf Coast is going to cross the docks in the LNG terminals. I think I'm not smart enough to figure this out today, the question is going to be how much demand can the world handle from an LNG perspective, because we're certainly going to have enough supply coming out of the US on the LNG side. To fill that, I think the Permian is going to play a big role. I think Diamondback's going to play a big role. Our gas production continues to outperform expectations. I think that will continue over the next 10 plus years, therefore we need to have more contracted space to more markets to be in the conversation when the LNG off-takers need supply.

Speaker #2: And, you know, I that this out today, but, you know, the question is going to be how much demand can the world, you know, handle from an LNG perspective?

Speaker #2: Because we're certainly going to have enough enough supply coming out of the US, on the LNG side. And to fill that, you know, I think the Permian is going to play a a big role.

Speaker #2: And I think Diamondback is going to play a big role. So, you know, our gas production continues to outperform expectations. I think that will continue over the next, you know, 10-plus years.

Speaker #2: And therefore, we need to have more contracted space to more markets to be in the conversation, when the LNG offtakers need supply. So, you know, we're meeting new people in that world, and and building relationships because I do think, you know, kind of the wellhead to water gas strategy, you know, has to be part of the the Diamondback proposition.

Kaes Van't Hof: We're meeting new people in that world, building relationships because I do think kind of the wellhead to water gas strategy has to be part of the Diamondback proposition. On top of that, we also believe in the power of data center mega-theme. We have a project that we've been working on, Jere's going to give you some color on where we are.

Speaker #2: You know, on top of that, we also believe in the power of the data center mega theme. And, you know, we have a project that we've been working on, and Jerry is going to give you some color on where we are.

Speaker #1: Yeah, Neil, great question. for some background, we in our IPP partner put together a a what we view as a very unique bridge-to-grid solution on our 30,000-acre Bryant Ranch location.

Jere Thompson: Yeah, Neil, great question. For some background, we and our IPP partner put together what we view as a very unique bridge to grid solution on our 30,000 acre Bryant Ranch location. Ultimately, to deliver scalable, reliable power near Midland, Texas. We have secured distributed power generation, remediated land, and directed access to dedicated nat gas and water supply. All of this should allow us to provide a shovel-ready development project delivering first gas as soon as the back half of 2027 through the use of behind the meter recip units. Beyond this initial phase of power generation, we are working to secure grid-connected power as soon as 2028 via Batch Zero. We believe we are well positioned within the Batch Zero queue and are awaiting ERCOT's final determination regarding project eligibility for the next interconnection study as soon as their meeting on 20 August.

Speaker #1: ultimately, to deliver scalable, reliable power, near Midland, Texas. We have secured distributed power generation, remediated land, and directed access to dedicated NAC gas and water supply.

Speaker #1: All of this should allow us to provide a shovel-ready development project delivering first gas as soon as the back half of 2027 through the use of behind-the-meter resip units.

Speaker #1: Beyond this initial phase of power generation, we are working to secure grid-connected power as soon as 2028 via batch zero. We believe we are well positioned within the batch zero queue and are awaiting ERCOT's final determination regarding project eligibility for the next interconnection study, as soon as their meeting on August 20.

Speaker #1: We are closely monitoring communication out of Austin and remain confident in a project like ours, with low water use and new generation, ultimately meeting batch zero standards.

Jere Thompson: We are closely monitoring communication out of Austin and remain confident in a project like ours with low water use and new generation, ultimately meeting Batch Zero standards. We will give the market a larger update once we have signed definitive documentation with a hyperscaler, but are confident in the direction that this project is going.

Speaker #1: We'll give the market a larger update once we sign definitive documentation with the hyperscaler. But are confident in the direction that this project is going.

Speaker #2: Yeah, you know, Neil, I'll add one thing. You know, I was in a room with a lot of the tech world about a year and a half ago, kind of a mix of energy and tech.

Kaes Van't Hof: Yeah, Neil, I will add one thing.

Jere Thompson: Yeah.

Kaes Van't Hof: I was in a room with a lot of the tech world about a year and a half ago. It is kind of a mix of energy and tech, and the energy side of the equation kind of got laughed out of the room when we suggested to come to West Texas and build behind the meter. Someone that was in that meeting called me last week and reminded me of that and said, I am coming to West Texas, and I want to build behind the meter. I do think we offer a lot of opportunity out here. At the end of the day, Diamondback is going to stay in our lane, which is produce the molecules, provide the surface, provide the water, provide the industry knowhow.

Speaker #2: And, you know, the energy side of the equation kind of got laughed out of a room when we suggested to come to West Texas.

Speaker #2: And, and build behind-the-meter. And, you know, someone that was in that meeting called me last week and was and reminded me of that and said, "I'm coming to West Texas, and I want to build behind-the-meter." So, I I I do think, you know, we offer a lot of opportunity out here.

Speaker #2: You know, at at the end of the day, Diamondback is going to stay in our lane, which is, you know, produce the molecules on, you know, deal with the, you know, produce provide the surface, provide the water, provide the industry know-how.

Speaker #2: You know, we're not a power company. We're not a a data center company. But we we certainly can play an important role on this ecosystem that's coming together.

Kaes Van't Hof: We're not a power company, we're not a data center company, we certainly can play an important role in this ecosystem that's coming together.

Speaker #5: Yeah, that's that's a really helpful update. and we'll stay tuned for more. And then, Case, just maybe give give the market an update around how you're thinking about return of capital, I think you you adopted a little bit more of a flexible strategy or way of updating the market.

Neil Mehta: Yeah. That's a really helpful update, we'll stay tuned for more. Kaes, just maybe give the market an update around how you're thinking about return of capital. I think you adopted a little bit more of a flexible strategy or way of updating the market. How'd you approach it in Q2? How do you think about the balance of the year, talk about that in the context of your largest shareholder too?

Speaker #5: How how do you how do you approach it into Q? How do you think about the balance of the year? And talk about that in the context of of your largest shareholder too.

Speaker #2: Yeah. So let me, you know, let me just frame the goal, right? The goal for us is to maximize and capitalize on the option value that is inherent in this business, right?

Kaes Van't Hof: Yeah. Let me just frame the goal, right? The goal for us is to maximize and capitalize on the option value that is inherent in this business, right? We live in a very volatile business where things can change overnight, we felt that a formula, or any sort of restriction on capital allocation does not allow for the maximization of that option value. That's why last quarter as prices rose, we said, Listen, we're not going to commit to returning a minimum percentage of free cash, just because we have to. We removed that minimum commitment. There was a lot of discussion on the call about it. There was a lot of discussion in the couple of days afterwards with shareholders explaining our case, they were very supportive. Since then, I have not heard a lot about it from long only shareholders.

Speaker #2: We live in a very volatile business where things can change overnight. And, you know, we felt that a formula or any sort of restriction on capital allocation, you know, does not allow for the maximization of that option value.

Speaker #2: So, you know, that that's why we, you know, last quarter, as prices rose, we said, "Listen, we're not going to commit to returning a minimum percentage of free cash, just because we have to." And we removed that minimum commitment.

Speaker #2: And, you know, there's a lot of discussion on the call about it. There's a lot of discussion in the couple days afterwards, you know, with shareholders explaining our our our case and they were very supportive.

Speaker #2: And, you know, since then, I have not hurt a lot about it from, from long-only shareholders. They've been they've been supportive. And then and then you look at what we did, right?

Kaes Van't Hof: They've been supportive. You look at what we did, right? We did allocate a little bit to the buyback in Q2 as weakness stepped in at the end of the quarter. We've allocated a little bit to the buyback here in Q3. You can see that those numbers that we're willing to buy back at have gone up. We also reduced net debt by $1.6 billion. That translates to $5.60 a share of value that went from the debt side of the equation to the equity side. Because in my mind, our NAV

Speaker #2: So we we did we did allocate a little bit to the buyback in in in Q2 as as weakness stepped in, at the end of the quarter.

Speaker #2: We've allocated a little bit to the buyback here in Q3. You can see that those numbers that we're willing to buy back at have gone up.

Speaker #2: we also reduced net debt by 1.6 billion dollars. And, you know, that translates to $5.60 a share of value that went from the debt side of the equation to the equity side because, in my mind, our NAV, you know, wasn't didn't go down much.

Kaes Van't Hof: It didn't go down much in Q2. In fact, it went up. I think it's more about look at what we've done versus what we're going to do. I do think investors know that we will lean in on the buyback when it presents itself. You look at a year like 2025, we bought back over 5% of our stock. I wish it was 10, right? Now I think we're positioning the balance sheet to be in a position where we actually can lean on it to buy back shares when the cycle turns in this volatile business. Really just trying to make the right capital allocation decision every day, and just like the stacked innovation in the field, if we can stack up those wins on return of capital, I think that's a long-term win for our shareholders.

Speaker #2: And the, in the second quarter, in fact, it it went up. So, you know, I think it's more about look at what we've done versus what we're going to do.

Speaker #2: And I I do think investors know that we will lean in on the buyback, when it presents itself. You look at a year like 2025, we bought back over 5% of our stock.

Speaker #2: You know, I wish it was 10, right? and and now I think we're positioning the the balance sheet to be in a a position where we actually can lean on it to buy back shares when, you know, when the cycle turns in this in this volatile business.

Speaker #2: So, really just trying to make the right capital allocation decision every day, and just like the stacked innovation in the field, if we can stack up those wins on return of capital, I think that's a long-term win for our shareholders.

Speaker #5: Thanks, Case.

Neil Mehta: Thanks.

Speaker #3: One moment for our next question. Our next question comes from the line of Scott Henold from RBC Capital Markets. Your line is live.

Operator: One moment for our next question. Our next question comes from the line of Scott Hanold from RBC Capital Markets. Your line is live.

Speaker #4: Yeah, thanks. Good morning. I I was wondering if you could, delve into some of the production performance a little bit. You you all are delivering, more than oil barrels and and, I guess, guided too.

Scott Hanold: Yeah, thanks. Good morning. I was wondering if you could delve into some of the production performance a little bit. You all are delivering more than oil barrels and I guess guided too, but nat gas is really outperforming. Can you just give a sense of why you think that is? Are you just being conservative with gas expectation, or is there any kind of zone targeting that's different that would cause that? Where do you see that going moving forward?

Speaker #4: But NACAS is really outperforming. And and can you just give us a sense of why you think that is? Are are you just being conservative with gas expectation, or is there any kind of zone targeting, you know, that's different that would cause that?

Speaker #4: And and where do you see that going moving forward?

Danny Wesson: Hey, Scott. It's Danny. Great question. I think it's multiple different things. I'll let Al talk on the technicals, but I think just the biggest driver has been really an improvement in our ability to market our gas locally. As the G&P have continued to mature their systems and build in redundancy, we've worked with our gathering and processing partners to add split connects in really strategic areas. We've really improved on our flaring metrics, thus we've improved on our gas processing and selling gas. It doesn't feel good to sell it at a negative price, but we've gotten to a point where we've really gotten a lot better at marketing the gas downstream. That's the biggest needle mover, I'll let Al cover any other of the technical background on the gas number.

Speaker #2: Hey, Scott. Danny, I, you know, great question. I think, you know, it's it's a it's multiple different things. I'll let Al, you know, talk on the technicals.

Speaker #2: But I think, you know, just the the biggest driver has been, really, an improvement in our ability to market our gas, locally. You know, as as, the the GMPs have continued to mature their systems and and build in redundancy and we've worked with our, gathering in, processing partners to add split connects and really strategic areas.

Speaker #2: We've really improved on our, you know, our flaring, metrics and and thus we've improved in our gas processing and s and selling gas. you know, I don't feel good to sell it at a negative price, but, you know, we've gotten to a point where where we've really gotten a lot better at at marketing the gas downstream.

Speaker #2: And that's that's the biggest needle mover and, you know, I'll let Al cover any other of of the, you know, technical, background on on the gas number.

Speaker #6: Yeah, not really much in terms of well selection in this quarter associated with the gas production. We brought on a couple pads in the southern end of the Midland Basin that were a little higher GOR, but that really didn't drive the beat on gas.

Al Barkmann: Yeah, not really much in terms of well selection in this quarter associated with the gas production. We brought on a couple pads in the southern end of the Midland Basin, that were a little higher GOR, that really didn't drive the beat on gas. It's really related to what Danny mentioned before. With the targeting of the Barnett and the Barnett becoming a bigger portion of the development plan moving forward, I would expect to see that number kind of creep up a little bit.

Speaker #6: It's really related to what Danny mentioned before. but with the targeting of the the Barnett and the Barnett becoming a bigger portion, of the development plan moving forward, I would expect to see that number kind of creep up a little bit.

Scott Hanold: Thanks for that, guys. My follow-up is, if you can give us a lens into what you're all seeing on the oilfield service cost front, any kind of inflation pressures. When you look at this higher production base you're running at, when you think about, I don't know if it's good to think about just a steady-state maintenance pace exiting this year, what is the quarterly capital run rate you all see right now?

Speaker #4: thanks for that. Got it. And and then my follow-up is, you know, if you can give us some a lens into what you're all seeing on the, oil field service cost front, any any kind of inflation pressures and when you when you look at this higher, you know, the production base you're running at, when you when you think about, like, a I don't know if it's it's good to think about, like, just a kind of a steady-state maintenance pace, you know, exiting this year, like, what what is the quarterly capital run rate you you all see right now?

Speaker #2: Yeah. An another good question. I think, you know, we we have optics into, some inflation you know, mainly tied to some of our consumables.

Danny Wesson: Yeah. Another good question. I think we have optics into some inflation, mainly tied to some of our consumables. Obviously, we talked about fuel cost, excuse me, fuel cost in the past with the rise in commodity prices, and that's still here. Thankfully, our biggest fuel consumption would be on the completion side with the frac fleets, but all of our frac fleets are currently electric fleets. We've kind of mitigated that inflation hurdle through utilizing the electric fleets. What we're seeing in the future, casing prices in the back half of the year are going to come up. That's really the big needle mover. We think it's about 1, a little over 1% of our total well cost in inflation. Not much, and we think we can offset it with efficiency gains.

Speaker #2: Obviously, we've talked about fuel cost excuse me, fuel cost in the past with, you know, the rise in commodity prices and and, you know, that's still still here.

Speaker #2: You know, thankfully, we our biggest fuel consumption, would be on the completion side with the frack fleets, but but all of our frack fleets are currently electric fleets.

Speaker #2: So, we've kind of mitigated that inflation hurdle through utilizing the electric fleets. You know, what we're seeing in the future is casing prices in the back half of the year are going to come up.

Speaker #2: and that's that's really the big needle mover. we think it's about one a little over 1% of our total well cost, in inflation. So, not much.

Speaker #2: And we think we we can offset it with efficiency gains. You know, it's a little early to talk about 27, but, you know, I think somewhere around, you know, a a billion to a little bi over a billion dollars a quarter run rate to hold, production flat is is reasonable with what we see today.

Danny Wesson: It's a little early to talk about 2027, I think somewhere around $1 billion to a little bit over $1 billion a quarter run rate to hold production flat is reasonable with what we see today. If we continue to add rigs in the US, I think we're up 60 rigs from the bottom. If we continue to go and there's some forecast out there up to 80-ish rigs being picked up. We anticipate we're going to see some more pressure, time will tell, what happens in the gas basins along with what happens in the oil basins, what activity does. As we get closer to 2027, we'll be able to talk to you guys more about what we anticipate inflation to do.

Speaker #2: But, you know, if we if we continue to add rigs in the US and, you know, I think we're up go and there's some forecast out there up to 80, ish rigs, being picked up.

Speaker #2: You know, we we anticipate we're going to see some more pressure, but, you know, time will tell. And and what happens in the gas basins along with what happens in the oil basins, you know, what activity does and and, you know, as we get closer to 27, we'll be able to talk to you guys more about what we anticipate inflation to do.

Speaker #2: But right now, that's that's where we're at. And, you know, we're going to try and and fight the variable cost side of it. Like, we've always done.

Danny Wesson: Right now, that's where we're at, and we're going to try and fight the variable cost side of it like we've always done, and drive efficiencies to reclaim any inflation we see on the consumable side.

Speaker #2: And drive efficiencies to reclaim any inflation we see on the consumable side.

Speaker #4: All right. Appreciate the context. Thank you.

Scott Hanold: All right. Appreciate the context. Thank you.

Operator: One moment for our next question. Our next question comes from the line of Arun Jayaram from JPMorgan. Your line is live.

Speaker #3: One moment for our next question. Our next question comes from the line of Arun Duyaram from J.P. Morgan. Your line is live.

Speaker #5: Good morning, Case and team. I was wondering if you could provide an update on what's going on in the field with the Barnett. It looks like you're running three or four rigs targeting that play right now in the basin.

Arun Jayaram: Good morning, Kaes and team. I was wondering if you could provide an update on what's going on in the field with the Barnett. Looks like you're running three or four rigs targeting that play right now in the basin. I was just kind of interested in your focus on reducing cost caught from $1,000 a foot to 800, and how you plan to lean into that program in 2027.

Speaker #5: But it's just kind of interested on, your, focus on reducing cost caught from $1,000 a foot to 800. and, how you plan to lean into that program, in 2027.

Speaker #2: Yeah, Arun. I mean, you know, stepping back earlier this year, we did a big a big reveal on our Barnett position. You know, since then, that position has continued to grow.

Kaes Van't Hof: Rune. Stepping back to earlier this year, we did a big reveal on our Barnett position. Continued to block it up as well, so that we can have longer lateral development as we start developing the position aggressively basically now. Our first four-well pad in Spanish Trail has been drilled and will be completed in the next couple of months. It will be interesting to see full section results end of the year into next year. Obviously, with the Viper minerals, that is going to be a very high return project. That will also give us a really good idea into the cost side, right? Since the beginning, it has been a couple wells here, a couple wells there. We have not done a full section with an e-fleet simul-frac crew getting the cost down on the completion side.

Speaker #2: you know, continued to block it up as well so that we couldn't have you know, longer lateral development as we start developing the position aggressively.

Speaker #2: You know, basically now, you know, our first, four well pad in Spanish Trail has has been drilled and will be completed, in the next couple months.

Speaker #2: So, you know, we'll be interesting to see, you know, full section results kind of end of the year, end of next year. obviously, with the Viper Minerals, that's going to be a very high return, high return project.

Speaker #2: You know, and that'll also give us a really good idea into the cost side, right? I mean, since the beginning, it's been a couple wells here, a couple wells there.

Speaker #2: We haven't done a full section with a, you know, E-fleet simul-frac crew. Getting the cost down on the completion side. I will say, you know, we're seeing wins on the drilling side.

Kaes Van't Hof: I will say, we are seeing wins on the drilling side. I think we are more on our front foot than anybody else in the basin on Barnett exposure and drilling costs. They are getting closer to $400 a foot. I think we have 5% or 10% to go. There have been a couple wells below $400 a foot. I think we expect to consistently get to around that $400 or less per foot number to make returns competitive with the base plan.

Speaker #2: I think we're more on our front foot than anybody else in in the basin on on Barnett exposure and drilling cost. And, you know, they're getting closer to 400 a foot.

Speaker #2: I think we have, you know, 5 or 10 percent to go. there have been a couple a couple wells below 400 dollars a foot, but, you know, I think we expect to con consistently get to around that 400 or less, per foot, number to make you know, returns competitive with the the base plant.

Speaker #5: Got it, got it. Okay. And then my follow-up—I was wondering if you could give us some details on how the enhanced oil recovery program is going. I know you did a pilot of 50 wells, and I think you're expanding that pilot.

Arun Jayaram: Got it. Okay. My follow-up, I was wondering if you could give us some details on how the enhanced oil recovery program. I know you did a pilot of 50 wells, and I think you are expanding that pilot to another batch of wells. Maybe just give a little bit of an update on what kind of well productivity improvement you have seen from chemicals and surfactants. Do you plan to evolve that program into new completions?

Speaker #5: to another batch of wells. Maybe just give a little bit of an update on what kind of well productivity improvement you've seen from chemicals and and surfactants.

Speaker #5: And do you plan to evolve that program into new completions?

Speaker #2: Yeah. So, I mean, just just like, you know, we think the the gas, power, AI theme is a mega theme. I think on the oil side, you know, enhanced recovery or improving recoveries out of this basin is is going to be a mega theme as well on the on the oil front.

Kaes Van't Hof: We think the gas power AI theme is a mega theme. I think on the oil side, enhanced recovery or improving recoveries out of this basin is going to be a mega theme as well on the oil front. I think generally, given our size and scale on asset base, we certainly need to be, as we said in the letter, we need to be on our front foot on this. I do not think we need to be tip of the spear, but we certainly need to be spending dollars to understand what is happening. That project kicked off last year with our first surfactant program where we learned a lot. I will let Al update you on what we are seeing today and what we expect in the future.

Speaker #2: you know, I think generally, you know, given our size and scale and asset base, we we certainly need to be as we said in the letter, we need to be in our front foot on this.

Speaker #2: I don't think we need to be tip of the spear, but we certainly need to be spending dollars to understand what's happening. And that project, you know, kicked off last year with our first surfactant program, where we learned a lot. And I'll let Al update you on what we're seeing today.

Speaker #2: And and what we expect in the future. But my my high level is, you know, you're going to hear a lot about all this kind of stuff from, from large operators over the over the coming years.

Kaes Van't Hof: My high level is, you're going to hear a lot about all this kind of stuff from large operators over the coming years.

Speaker #6: Yeah, Arun. So, we executed a 12-well project this quarter and are in the process of flowing those wells back currently. The initial results are very positive.

Al Barkmann: Yeah, Rune. We executed a 12-well project this quarter and are in the process of flowing those wells back currently. The initial results are very positive, and I think we're going to take the learnings from this batch of wells, in terms of what rock type, what reservoirs this technology is really suitable for. Take those learnings and apply it to the next group of wells that we'll be doing in Q3. I think we're just scratching the surface on the potential for this technology, and we're really excited about it going forward.

Speaker #6: And, you know, I think we're going to take the learnings from this batch of wells, you know, in terms of what rock type, what reservoirs, this technology is really suitable for.

Speaker #6: and take those learnings and apply them to the next group of wells, which they will be doing in Q3. So, you know, I think we're just scratching the surface on the potential for this technology.

Speaker #6: And we're really excited about it going forward.

Speaker #2: Yeah. I think there's two two ways to think about it. I think it either, you know, reduces your base decline, or it's a replacement of capital for something that's, you know, higher returning.

Kaes Van't Hof: Yeah, I think there's two ways to think about it. I think it either reduces your base decline or it's a replacement of capital for something that's higher returning. To date, we've only done remedial work where we go back in existing well bores to learn about this treatment process. We are now also incorporating it into some of our pads on the new well side, where we have a control half of the section and a surfactant half of the section. Moving with haste and learning a lot pretty quickly here.

Speaker #2: you know, to date, we've only done remedial work where we go back in existing well bores to learn about, this this treatment process. But we are now also incorporating it into some, you know, some of our pads where we have, on on the new well side where we have a control half of the section and a and a surfactant half of the section.

Speaker #2: So, you know, moving with haste and and learning a lot pretty quickly here.

Speaker #5: Sounds interesting. Thanks, gentlemen.

Arun Jayaram: Sounds interesting. Thanks, gentlemen.

Speaker #2: Thanks, Arun.

Kaes Van't Hof: Thanks, Rune.

Operator: One moment for our next question. Our next question comes from the line of John Freeman with Raymond James. John, you are live.

Speaker #3: One moment for our next question. Our next question comes from the line of John Freeman with Raymond James. John, you are live.

Speaker #7: Thank you. Good morning. you highlighted a number of, impressive operational achievements in the letter. And, you know, the one that really stood out for me is just that that first full quarter of, continuous pumping, you know, over over 21 hours of of average pumping time per day, which is kind of hard for me to even wrap my head around.

John Freeman: Thank you. Good morning. You highlighted a number of impressive operational achievements in the letter, the one that really stood out for me is just that first full quarter of continuous pumping over 21 hours of average pumping time per day, which is kind of hard for me to even wrap my head around. Just sort of what's achievable there? Is it in a couple of years, are we going to be talking about something that's bordering on close to 24 hours or something? Just trying to understand what's achievable there.

Speaker #7: But just sort of what's like achievable there? I mean, like, is it like, in a couple years, are we going to be talking about something that's, you know, bordering on close to like 24 hours or something?

Speaker #7: Just trying to understand what's what's even what's achievable there.

Al Barkmann: Hey, John. Yeah, thanks. Great question. We continue to try and push the manufacturing mode kind of mindset with regards to the surface operations on the completion. I think there's 24 hours in a day, so I don't think the team's going to quit till they can get to a point where they're pumping a full 24 hours. In reality, there is maintenance associated with

Danny Wesson: Hey, John. Yeah, thanks. Great question. We continue to try and push the manufacturing mode kind of mindset with regards to the surface operations on the completion. I think there's 24 hours in a day, so I don't think the team's going to quit till they can get to a point where they're pumping a full 24 hours. In reality, there is maintenance associated with the equipment on location and every piece of redundancy costs money. There's a balance between adding more equipment out there to get redundancy and how many hours in a day you're pumping. That's been the fight with the team on doing trimul-frac work versus trimul-frac work and those things.

Speaker #6: Hey, John. Yeah, thanks. great question. We, you know, we continue to try and push the the, you know, manufacturing mode kind of mindset with regards to the surface operations on the completion.

Speaker #6: And, you know, I think that, you know, it's 24 hours in a day. So I don't think the team's going to quit till they can get to a point where they're pumping a full 24 hours.

Speaker #6: But in reality, there is maintenance associated with with, the equipment on location and and, you know, every every piece of redundancy, costs money. So there's a balance between, you know, adding more equipment out there to get redundancy and, and and how many hours in a day you're pumping and, you know, that's the been the fight with the team on, you know, doing trimal frack work versus simul frack work.

Danny Wesson: with the equipment on location and every piece of redundancy costs money. There's a balance between adding more equipment out there to get redundancy and how many hours in a day you're pumping. That's been the fight with the team on doing trimul-frac work versus trimul-frac work and those things. They continue to look at how they can push efficiency, push pumping hours, push rate to get more done in a single day. I think we've seen some pads that we've broached the 5,000 plus feet a day on average. I think that's the next bogey for us, is how do we get to achieving 5,000 feet per day across all of our crews every day. I do think that's achievable and something that we can hopefully talk about in the next year or so when they get to that point.

Speaker #6: And and those things. But, you know, they continue to look at how do they con push efficiency, push pumping hours, and push rate. To get more done in a in a single day.

Danny Wesson: They continue to look at how they can push efficiency, push pumping hours, push rate to get more done in a single day. I think we've seen some pads that we've broached the 5,000 plus feet a day on average. I think that's the next bogey for us, is how do we get to achieving 5,000 feet per day across all of our crews every day. I do think that's achievable and something that we can hopefully talk about in the next year or so when they get to that point. They're working on it. They're applying new technology at the surface, continues to get better.

Speaker #6: You know, I think we we've seen some pads that we've we've, you know, appro we've broached the 5,000 plus foot a day on average, and I think that's kind of the next, bogey for us is how do we get to to, you know, achieving 5,000 feet per day across all of our crews every day.

Speaker #6: And so, I do think that's achievable, and something that we can hopefully talk about in the next year or so when they get to that point.

Speaker #6: But, you know, they're they're working on it. They're applying new technology at the surface. and and, you know, continues to get better.

Danny Wesson: They're working on it. They're applying new technology at the surface, continues to get better.

Speaker #7: Thanks for that, Danny. And then, just one housekeeping item—it looks like there were some bolt-ons this quarter. Looks like net to investors was about $385 million.

John Freeman: Thanks for that, Danny. Then, just one housekeeping item. It looks like there was some bolt-on acquisitions during the quarter. Looks like netted divestitures, $385 million. Is there any production that was associated with those transactions or anything else we should be aware of?

Speaker #7: Is there any production that was associated with those transactions? Just anything else we should be aware of?

Speaker #2: Yeah. Very little, John. I mean, you know, we're continuing this the Barnett leasing play, with our partners at Double Eagle. So that's continuing, onward.

Danny Wesson: Yeah, very little, John. We're continuing the Barnett leasing play with our partners at Double Eagle, that's continuing onward. I'd say outside of that, I've actually been very pleased that the team has been finding, call it $20 to $100 million deals, to either net off or extend laterals or block up our position. They've been finding them pretty consistently. About one sizable deal a quarter. I think, looking into Q3, we got another couple small ones. Those don't get headlines, but they add up. Right? All of this ties into our corporate NAV. Higher working interest, longer laterals should result in a higher stock price.

Kaes Van't Hof: Yeah, very little, John. We're continuing the Barnett leasing play with our partners at Double Eagle, that's continuing onward. I'd say outside of that, I've actually been very pleased that the team has been finding, call it $20 to $100 million deals, to either net off or extend laterals or block up our position. They've been finding them pretty consistently. About one sizable deal a quarter. I think, looking into Q3, we got another couple small ones. Those don't get headlines, but they add up. Right? All of this ties into our corporate NAV. Higher working interest, longer laterals should result in a higher stock price.

Speaker #2: And, you know, I'd say outside of that, I've actually been very pleased that the team has been finding, you know, call it 20 to 100 million dollar deals, to either net up or, you know, extend laterals or block up our position.

Speaker #2: And they've been finding them pretty consistently. I mean, about, you know, kind of one sizable deal a quarter. And I think, you know, looking into Q3, we've got another couple small ones.

Speaker #2: So, you know, those don't get headlines, but they they add up, right? All all of this ties into, you know, our corporate NAV, you know, higher higher working interest, longer laterals, you know, should result in a in a higher in a higher stock price.

John Freeman: Thanks, guys. Appreciate it.

Speaker #2: You know, done with cash, which is important, John. And, you know, the thing I'll say about the Barnett position we built—you know, we built that at a very low cost of entry.

Danny Wesson: Done with cash.

Kaes Van't Hof: Done with cash.

John Freeman: Yeah. Thanks.

Danny Wesson: Done with cash, which is important, John. The thing I'll say about the Barnett position we built that at a very low cost of entry with cash. That position is worth multiples of that today, and that should just accrue directly to shareholders.

John Freeman: Yeah. Thanks.

Kaes Van't Hof: Done with cash, which is important, John. The thing I'll say about the Barnett position we built that at a very low cost of entry with cash. That position is worth multiples of that today, and that should just accrue directly to shareholders.

Speaker #2: You know, with cash. And, you know, that position is worth, you know, multiples of that today. And, you know, that should just accrue directly to, to shareholders.

Speaker #7: Thank you.

John Freeman: Thank you.

Speaker #3: One moment for our next question. Our next question comes from the line of Philip Jungworth at BMO. Your line is live.

Operator: One moment for our next question. Our next question comes from the line of Phillip Jungwirth at BMO. Your line is live.

Speaker #5: Yeah. Thanks. Good morning. I'm curious what what what when when you look at the the the mid-cycle nav, which I think you mentioned earlier, you feel like went up during the quarter.

Phillip Jungwirth: Yeah, thanks. Good morning.

Danny Wesson: Morning, Phil.

Kaes Van't Hof: Morning, Phil.

Phillip Jungwirth: I'm curious, when you look at the mid-cycle NAV, which I think you mentioned earlier, feel like went up during the quarter. Obviously, oil price is the main driver here. I think you conservatively use around $65. The question's more just how much do you think some of the operational improvements and resource expansion initiatives you've achieved can contribute to a higher NAV, plus just more volumes or growth? Just wondering how meaningful overall these are based on your assessments to value and whether improvements in the business can contribute to the thought process around intrinsic value and future capital returns.

Speaker #5: o-obviously, oil prices remain driver here. I think you get you can certainly lease around 65. But, the question's more just how much do you think some of the operational improvements and resource expansion initiatives you've achieved can contribute to a higher NAV plus just more volumes or growth?

Speaker #5: so just wondering how meaningful overall these are, based on your assessments to to value and whether improvements to the business can contribute to the thought process around intrinsic value and future capital returns.

Speaker #2: Yeah, that's a great question. You know, they 100% do. And I'll take you down a little bit down memory lane here. You know, we put our buyback program in place post-COVID.

Danny Wesson: Yeah, it's a great question. They 100% do, I'll take you a little bit down memory lane here. We put our buyback program in place post-COVID at I think Q3 of 2021. We told investors we were going to buy back shares at a mid-cycle price at a rate of return above our cost of capital. That initial top was $90 a share. Here we are 5 years later, we've obviously done a lot in terms of M&A. The asset base has expanded from a zone perspective. Things like the Barnett, things like Jo Mill, Middle Spraberry weren't big things in 2021. Upper Spraberry, obviously, the cost structure, the lateral lengths.

Kaes Van't Hof: Yeah, it's a great question. They 100% do, I'll take you a little bit down memory lane here. We put our buyback program in place post-COVID at I think Q3 of 2021. We told investors we were going to buy back shares at a mid-cycle price at a rate of return above our cost of capital. That initial top was $90 a share. Here we are 5 years later, we've obviously done a lot in terms of M&A. The asset base has expanded from a zone perspective. Things like the Barnett, things like Jo Mill, Middle Spraberry weren't big things in 2021. Upper Spraberry, obviously, the cost structure, the lateral lengths.

Speaker #2: At, you know, I think Q3 of 2021, we told investors we were going to buy back shares at a mid-cycle price, at a rate of return above our cost of capital.

Speaker #2: And that initial top was, $90 a share. And, you know, here we are five years later. We've obviously done a lot in terms of MN M&A.

Speaker #2: the asset base has expanded. You know, from a zone perspective, you know, things like the Barnett, things like Joe Mill Middle Spray Berry, you know, weren't big things in 2021.

Speaker #2: Upper Spray Berry, obviously, the cost structure, the the lateral lengths, I mean, everything that the team has done in terms of execution in the field, but also, adding to the asset base in an accretive manner, has resulted in that top going up significantly.

Danny Wesson: Everything that the team has done in terms of execution in the field, but also adding to the asset base in an accretive manner has resulted in that top going up significantly, more than doubling since that moment. When people ask me what's the future value creation opportunities for Diamondback? You look back 5 years ago, and you say, we doubled the value of the company at the same parameters, right? We've stuck to our guns on what we think mid-cycle is from a price perspective. We've stuck to our guns on what the rate of return is. The rest of the business has driven those improvements, and I expect that to continue.

Kaes Van't Hof: Everything that the team has done in terms of execution in the field, but also adding to the asset base in an accretive manner has resulted in that top going up significantly, more than doubling since that moment. When people ask me what's the future value creation opportunities for Diamondback? You look back 5 years ago, and you say, we doubled the value of the company at the same parameters, right? We've stuck to our guns on what we think mid-cycle is from a price perspective. We've stuck to our guns on what the rate of return is. The rest of the business has driven those improvements, and I expect that to continue.

Speaker #2: You know, more than doubling since that that moment. So, you know, people ask me what what's the future value creation opportunities for Diamondback. And I, you know, you look back five years ago and you say we doubled the value of the company at the same at the same parameters, right?

Speaker #2: We've stuck to our guns on what we think mid-cycle is, from a price perspective. We've stuck to our guns on what the rate of return is.

Speaker #2: But the rest of the business has driven those improvements, and I expect that to continue.

Speaker #5: No, that's great. and and then on the on the shovel-ready power project, w-where's the most value creation for for Diamondback on on a project like this?

Phillip Jungwirth: No, that's great. On the shovel-ready power project, where is the most value creation for Diamondback on a project like this? Is it more utilizing the surface acreage, the gas supply deal, or partnering on the data center cooling, which I assume would be Deep Blue, but let me know if you're thinking of it otherwise. Any color you could provide around the distributed power piece that you referenced earlier.

Speaker #5: Is it more utilizing the surface acreage, the gas supply deal, or partnering on the data center cooling, which I assume would be Deep Blue?

Speaker #5: But let me let me know if you you're thinking of it otherwise. And a-any color you could provide around the distributed power piece that you referenced earlier.

Speaker #2: Yeah. Phil, if it's Jerry, great question. I think the biggest driver for us is just having a new end-base in-feed gas solution for nat gas.

Jere Thompson: Phillip, it's Jere. A great question. I think the biggest driver for us is just having a new in-basin feed gas solution for nat gas. We're setting aside $200 to 250 million a day for this project. You think about contract structure, ideally, you're getting something that's like a WAHA plus with a four. For us, based off of what we've seen over the past couple of quarters, this would provide a material uplift. You're exactly right. As it relates to the other revenue streams, this could have a material benefit for Deep Blue, of which we own 30%. There's some land proceeds that likely could come through the door, either as a one-time payment or structured as a royalty. These are just kind of scratching the surface of what we're seeing. Really excited about it.

Speaker #2: you know, we're we're setting aside 200 to 250 million a day for this project. and we you think about contract structure, ideally, you're you're getting something that's like a Waha Plus for the floor.

Speaker #2: And for us, you know, based off of what we've seen over the past couple of quarters, this would pro-provide a material uplift. You're exactly right.

Speaker #2: As it relates to the other revenue streams, this could have a material benefit for Deep Blue, of which we own 30%. There are some land proceeds that could likely come through the door, either as a one-time payment or structured as a royalty.

Speaker #2: And, you know, these are just kind of scratching the surface of what we're seeing, so really excited about it. But I think nat gas is the one that we're focused on.

Jere Thompson: I think nat gas is the one that we're focused on.

Speaker #2: Yeah. I think the one thing I'd say is is we you know, this is a the the first step in what I think will be a a a long process, right?

Danny Wesson: I think the one thing I'd say is this is the first step in what I think will be a long process, right? This is us planting our flag, proving we can do this. We can make money for our shareholders, but also partner across this tech space. I think it can be repeatable. You get one of these done, you have a blueprint to get round two, round three. If you hear the numbers that the tech guys throw about in terms of what kind of power needs they have, this could be meaningful over time for Diamondback.

Kaes Van't Hof: I think the one thing I'd say is this is the first step in what I think will be a long process, right? This is us planting our flag, proving we can do this. We can make money for our shareholders, but also partner across this tech space. I think it can be repeatable. You get one of these done, you have a blueprint to get round two, round three. If you hear the numbers that the tech guys throw about in terms of what kind of power needs they have, this could be meaningful over time for Diamondback.

Speaker #2: This is a this is us planting our flag. You know, proving we can do this, we can make, you know, money for our shareholders, but also, you know, partner across this this tech space and, you know, I think it can be repeatable.

Speaker #2: You get one of these done, you you have a blueprint to get round two, round three. And if you hear the the numbers that the tech guys throw about in terms of what kind of power needs they have, you know, this could be, this could be meaningful over time for for Diamondback.

Speaker #5: Thank you.

Phillip Jungwirth: Thank you.

Operator: One moment for our next question. Our next question comes from the line of Kevin MacCurdy with Pickering Energy Partners. Kevin, you are live.

Speaker #3: One moment for our next question. Our next question comes from the line of Kevin McCurdy with Pickering Energy Partners. Kevin, you are live.

Kevin MacCurdy: Hey, good morning, thanks for taking my question. I guess, for the first question, I'll stick on the operation front. Maybe you can expand a little bit on what you saw on productivity and costs on the U-turn wells and how you might be integrating that into your plan heading forward.

Speaker #6: Hey, good morning, and thanks for taking my question. I guess for the first question, I'll stick on the operations front. Maybe you can expand a little bit on what you saw on productivity and costs on the U-turn wells.

Speaker #6: And how you might be integrating that into your plan heading forward?

Speaker #2: Yeah. So great question. We we haven't completed the six wells that we've drilled, thus far. We're still in the middle of developing that pad.

Danny Wesson: Yeah. Great question. We haven't completed the six wells that we've drilled thus far. We're still in the middle of developing that pad. I think on the drilling front, it was certainly a success for us. There's some things that we learned and some challenges we saw, but we still saw lower per foot well cost than drilling standalone 7,500 footers. We've completed some U-turn wells that we inherited from an acquisition. Those were short 5,000-foot U-turns, so 10,000 foot total lateral length. Everything went great on the completion front with those. This will be our first fully developed Diamondback pad. We just haven't gotten it on production yet. As far as the pad we inherited, productivity-wise and execution-wise, it was in line with what we would see from a regular straight 10,000-foot well.

Kaes Van't Hof: Yeah. Great question. We haven't completed the six wells that we've drilled thus far. We're still in the middle of developing that pad. I think on the drilling front, it was certainly a success for us. There's some things that we learned and some challenges we saw, but we still saw lower per foot well cost than drilling standalone 7,500 footers. We've completed some U-turn wells that we inherited from an acquisition. Those were short 5,000-foot U-turns, so 10,000 foot total lateral length. Everything went great on the completion front with those. This will be our first fully developed Diamondback pad. We just haven't gotten it on production yet. As far as the pad we inherited, productivity-wise and execution-wise, it was in line with what we would see from a regular straight 10,000-foot well.

Speaker #2: I think, you know, on the drilling front, it—it was certainly, you know, a success for us. You know, there were some things that we learned and some challenges we saw.

Speaker #2: But, you know, we still saw, you know, lower per-foot well cost than drilling standalone 7,500 footers. you know, we we've completed some U-turn wells that we inherited from an acquisition.

Speaker #2: And those were short, 5,000-foot U-turns to 10,000-foot total lateral length. And everything went great on the completion front with those.

Speaker #2: So but, you know, this will be our first fully developed, Diamondback pad. Just we just haven't gotten it on production yet. But as far as the pad, we inherited, productivity-wise a-and and execution-wise, you know, it it was in line with what we would see from a regular, you know, straight 10,000-foot well.

Kevin MacCurdy: Great. As a follow-up, maybe I'll hit on LOE. It looked like it fell below $6 a barrel and partially drove the EBITDA beat this quarter. You kind of talked about some of the reasons for that. Is there anything structural in there for that to continue, or how are you viewing LOE for the rest of the year?

Speaker #6: Great. And as a follow-up, maybe I'll hit on LOE. it looked like it fell below $6 a barrel and, you know, was partially, d-drove the EBIT to beat this quarter.

Speaker #6: You kind of talked about some of the reasons for that. Is there anything structural on there, you know, for that to continue? Or how are you viewing LOE for the rest of the year?

Speaker #2: Yeah. I think if you look at the top line, HOPEX number, you know, the the dollars were were actually flat quarter over quarter. so the LOE beat was was driven by, you know, the production beat.

Danny Wesson: I think if you look at the top-line OpEx number, the dollars were actually flat quarter over quarter. The LOE beat was driven by the production beat. I think the team has done a really remarkable job of fighting off some of the cost pressures we're seeing from power, from water, and doing the things that they can. They do the little things they do to save a dollar here and there, that adds up. I don't think we're going to see LOE trend down in the back half of the year. I think we like that kind of circling that $6 number or a little higher. I think if we continue to see volume outperformance, we could see some upside to that number.

Kaes Van't Hof: I think if you look at the top-line OpEx number, the dollars were actually flat quarter over quarter. The LOE beat was driven by the production beat. I think the team has done a really remarkable job of fighting off some of the cost pressures we're seeing from power, from water, and doing the things that they can. They do the little things they do to save a dollar here and there, that adds up. I don't think we're going to see LOE trend down in the back half of the year. I think we like that kind of circling that $6 number or a little higher. I think if we continue to see volume outperformance, we could see some upside to that number.

Speaker #2: I I think, you really remarkable job of fighting off some of the cost pressures we're seeing from power. from water. And and doing the things that they can they do the little things they do, to to save, you know, a dollar here and there that adds up.

Speaker #2: And, you know, I think we're still gonna see—you know, I don't think we're gonna see LOE trend down in the back half of the year.

Speaker #2: I think I think we like that kind of r circling that $6 number or or a little higher. But, you know, I think, if we continue to see volume outperformance, we we could see some upside to that number.

Speaker #2: But, you know, I I I do believe that, some of this inflation stuff we have on on power and and, and and water and tubulars, you know, will flow through on on the top line LOE number as well.

Danny Wesson: I do believe that some of this inflation stuff we have on power and water and tubulars will flow through on the top-line LOE number as well. The team feels pretty confident in that $6 range. Again, that denominator is a pretty big number. It was just a great quarter on the productivity front and helped drive the beat on OpEx. Yeah. I also say that the KPIs that we track that the team can control on LOE look as good as they've ever looked. As well as some of the things we've done in the field post-Endeavor integration. Integrating two large field organizations takes a little longer than the office, but we're starting to see the benefits of that in terms of moving to a pump-by-exception company, a lot more automation.

Kaes Van't Hof: I do believe that some of this inflation stuff we have on power and water and tubulars will flow through on the top-line LOE number as well. The team feels pretty confident in that $6 range. Again, that denominator is a pretty big number. It was just a great quarter on the productivity front and helped drive the beat on OpEx. Yeah. I also say that the KPIs that we track that the team can control on LOE look as good as they've ever looked. As well as some of the things we've done in the field post-Endeavor integration. Integrating two large field organizations takes a little longer than the office, but we're starting to see the benefits of that in terms of moving to a pump-by-exception company, a lot more automation.

Speaker #2: So, you know, if the team feels pretty confident in that $6 range, you know, but again, it that that denominators are pretty big numbers.

Speaker #2: So, you know, it was just a great quarter on the productivity front and helped helped drive the beat on on, HOPEX. Yeah. But I you know, I also say that, you know, the KPIs that we track that the team can control, on LOE, are looked as good as they've ever looked.

Speaker #2: And, as well as some of the things we've done in the field post-Endeavor integration—you know, integrating two large field organizations takes a little longer than the office.

Speaker #2: But we're starting to see the benefits of that in terms of, you know, moving to a a pump-by-exception, company, a lot more automation. You know, I I I think that, I think that, you know, AI is helping, Diamondback and the office today.

Danny Wesson: I think that AI is helping Diamondback in the office today, but I think AI and automation are going to be very big drivers of the production base, either shallowing or costing less to maintain.

Kaes Van't Hof: I think that AI is helping Diamondback in the office today, but I think AI and automation are going to be very big drivers of the production base, either shallowing or costing less to maintain.

Speaker #2: But I think AI is going to be an automation are gonna be very big drivers of, you know, the production base you know, either shallowing or costing less to maintain.

Kevin MacCurdy: That's great detail. Thank you.

Speaker #6: That's great detail. Thank you.

Speaker #3: One moment for our next question. Our next question comes from the line of Doug LeGait with Wolfe. Your line is now live.

Operator: One moment for our next question. Our next question comes from the line of Doug Leggate with Wolfe Research. Your line is now live.

Doug Leggate: Thanks. Again, thanks, guys, for having me on. I've got a couple of things. The first one, I want to take you back to your first comment about the trade-off between the balance sheet and your buybacks. I think you've been more vocal than most about avoiding procyclical share buybacks. You could do some serious damage to your balance sheet with the kind of free cash flow you're generating. My question is: where are you prepared to take that to in terms of building cash and balance sheet as opposed to going after debt redemptions, but actually just sitting cash to reduce net debt? That's my first question. My follow-up very quickly is, the capital efficiency is extraordinary. Your latest type curves are significantly above 2025. You've run through a number of the reasons why that's happening.

Speaker #7: Oh, thanks again. Thanks, guys, for having me on. Okay. So I've got a couple of things. The first one, I wanted to take you back to your first comment about the trade-off between the balance sheet and your, you know, your buybacks.

Speaker #7: I think you've been more vocal than most about avoiding procyclical share buybacks. But you could do some serious damage to your balance sheet with the kind of free cash flow you're generating.

Speaker #7: So my question is, where do you prepare to take that to in terms of building cash and balance sheet as opposed to, you know, going after debt redemptions but actually just sitting cash to reduce net debt?

Speaker #7: That's my first question. And my follow-up, very quickly, is: the capital efficiency is extraordinary. Your latest tight curves are, you know, significantly above 2025.

Speaker #7: You've run through a number of reasons why that's happening. My question is, would you take the capital efficiency and lower your spending in 27?

Doug Leggate: My question is: would you take the capital efficiency and lower your spending in 2027, or would you take the incremental production and keep the CapEx flat? I know you talked a little bit about growth, but just curious on the trade-off between those two things as well. Thanks.

Speaker #7: Or would you take the incremental production and keep the capex flat? I know you talked a little bit about growth, but just curious on the trade-off between those two things as well.

Speaker #7: Thanks.

Speaker #2: Yeah. Both good questions. You know, I I I I think there's no near-term discussion and a long-term discussion on on both of them. You know, I I think on the debate of taking productivity and reducing capex or or increasing production, I I think, you know, today and today's market, you know, we made that decision to, you know, spend more you know, spend more within our budget.

Kaes Van't Hof: Both good questions. I think there's a near-term discussion and a long-term discussion on both of them. I think on the debate of taking productivity and reducing CapEx or increasing production, I think, in today's market, we made that decision to spend more within our budget, but growth is the output. I think there's going to be a debate throughout the years. Some years it's going to be obvious to grow organically, and some years are going to be like 2025 and 2024, where it made sense to cut the CapEx and return more cash to shareholders. I think we'll maintain flexibility there, Doug. I think that also then ties to your other question, which is: where are we prepared to take the balance sheet? I think that there's some near-term aspects that we want to cover, right?

Speaker #2: But growth is the output. Yeah. I think there's going to be a debate throughout the year. Some years it's going to be obvious to grow organically.

Speaker #2: And some years, you know, are gonna be like 2025 and 2024 where, it made sense to cut the capex and and return more cash to to shareholders.

Speaker #2: So, I think we'll maintain flexibility there. Doug, and I, and, you know, I think that also then ties to your other question, which is, you know, where are we prepared to take the balance sheet?

Speaker #2: And, you know, I think that there are some near-term aspects that we want to cover, right? We want to put enough cash on the balance sheet to take care of our 2026s, which are callable in a couple months.

Kaes Van't Hof: We want to put enough cash on the balance sheet to take care of our 2026s, which are callable in a couple of months, and also be prepared to take out our 2027s. That puts us in a position where we could build cash beyond that, to tackle the maturity tower we have in the 2029 to 2032 timeframe. I'm certainly not afraid to put some cash on the balance sheet. I think it's a good idea, and it's prudent at this point in the cycle because we know that cycles turn. The one thing I will say to give investors comfort is we're not building cash here to do big cash deals and blow up the balance sheet doing deals. That's not what we're here for. We still want to grow the business and look at opportunities.

Speaker #2: And also, take out our, you know, be prepared to take out our 2027s. You know, and that puts us in a position where we could build cash beyond that, to, you know, tackle the maturity tower we have, kind of in the 2029 to 2032 timeframe.

Speaker #2: So, you know, I I I'm certainly not afraid to to put some cash on the balance sheet. I think it's a I think it's a good idea.

Speaker #2: And it's prudent at this point in the in the cycle 'cause we know that, you know, cycles turn. And, you know, the one thing I will say, to give investors comfort is, you know, we're not building cash here to do, you know, big cash deals and and, you know, blow up the balance sheet, you know, doing deals.

Speaker #2: That's not what we're here for. We're here to, you know, grow—we still want to grow the business and look at opportunities. But if you look at our history of how we've done M&A, it's very rarely been a significant amount of cash in any of these deals.

Kaes Van't Hof: If you look at our history of how we've done M&A, it's very rarely been a significant amount of cash in any of these deals.

Doug Leggate: Right. Appreciate the answers, Kaes. Thank you.

Speaker #7: Right. Appreciate the answers, Keith. Thank you.

Speaker #2: Thanks, Doug.

Kaes Van't Hof: Thanks, Doug.

Speaker #3: One moment for our next question. Our next question comes from the line of Jeff Day with Daniel Energy Partners. Your line is live.

Operator: One moment for our next question. Our next question comes from the line of Jeff Day with Daniel Energy Partners. Your line is live.

Speaker #8: Hey, guys. Just wanted to follow up on what you said earlier, Keith, about the deployment of AI and, you know, things like predictive maintenance and remote sensing, etc.

Jeff Day: Hey, guys. Just wanted to follow up on what you said earlier, Kaes, about the deployment of AI and predictive maintenance and remote sensing, et cetera. How far down the pike are you on that, and I guess what's the timeline look like to you for the deployment of those technologies out there to try to even improve your uptime?

Geoff Jay: Hey, guys. Just wanted to follow up on what you said earlier, Kaes, about the deployment of AI and predictive maintenance and remote sensing, et cetera. How far down the pike are you on that, and I guess what's the timeline look like to you for the deployment of those technologies out there to try to even improve your uptime?

Speaker #8: How far down the pike are you on that? And I guess, what's the timeline look like to you for the deployment of those technologies out there to try to even improve your uptime?

Speaker #2: Yeah. I'll let Chad or Danny give the details. I mean, I think on all of this stuff, we're in the first inning, right?

Kaes Van't Hof: Yeah, I'll let Chad or Danny give the details. I think on all of this stuff, we're in the first inning, right? There's so much that we can spitball and debate internally what could happen. I think in five years, we're going to look back and say we were such rookies at all this stuff, and it's going to be a huge help to our production base. Chad, anything we're doing and seeing?

Speaker #2: There's just there's so much that, you know, we can spitball and debate, internally what what could happen. I mean, I I think in five years, we're gonna look back and say, you know, we were we were such rookies at at all this stuff.

Speaker #2: And it's going to be a huge help to our production base. But Chad, anything we're doing and seeing?

Speaker #9: Yeah, we're really excited about the progress, but it is incredibly early. We're tackling it first on artificial lift and using the AI and the automation to help manage that optimization on a day-to-day process, which is going really, really well for us.

Chad McAllaster: Yeah, we're really excited about the progress, it is incredibly early. We're tackling it first on artificial lift and using the AI and the automation to help manage that optimization on a day-to-day process, which is going really well for us. The team's doing a great job just managing downtime with some of these tools, and that's been an incredible value add. Still very early, but lots of room to run.

Speaker #9: And then the team's doing a great job just managing downtime with some of these tools. And that's been an incredible value add. So still very early, but lots of room to run.

Speaker #2: Yeah, it's kind of an enumerator-denominator thing, right? The lower downtime, you know, lower spend, lower decline rate—okay, then we don't have to spend as much capital to sustain production.

Kaes Van't Hof: Yeah, it is kind of a numerator/denominator thing, right? The lower downtime, lower spend, lower decline rate. Okay, we do not have to spend as much capital to sustain production. Just a 1% move in that decline rate, which we have been fighting for a long time, it can make a big difference.

Speaker #2: So, I mean, just a 1% move and that decline rate, which we've been fighting for a long time, it it it can make a big difference.

Speaker #8: Definitely. Thanks, guys.

Jeff Day: Definitely. Thanks, guys.

Geoff Jay: Definitely. Thanks, guys.

Speaker #2: Thanks, Jeff.

Kaes Van't Hof: Thanks, Jeff.

Operator: One moment for our next question. Our next question comes from the line of Paul Sankey with Sankey Research. Paul, you are live.

Speaker #3: One moment for our next question. Our next question comes from the line of Paul Sankey with Sankey Research. Paul, you are live.

Speaker #10: Good morning. Oh, can you hear me okay?

Paul Sankey: Morning all. Can you hear me okay?

Speaker #2: Yeah. Paul, we got you.

Kaes Van't Hof: Yeah, Paul, we got you.

Speaker #10: Hey, guys. Hey, Keith, you mentioned the NAV. You were kind of coy about it, but you said that the NAV went up more or less during the quarter.

Paul Sankey: Hey, guys. Hey, Kaes, you mentioned the NAV. You were kind of coy about it, but you said that the NAV went up more or less during the quarter. Can you just talk a little bit more about how you think about the NAV now, particularly, first of all, obviously on the upstream performance side? I don't know if you want to throw the oil price in there, but also the other businesses, and whether or not it's still a key driver of buyback attractiveness. Thanks.

Speaker #10: Can you just talk a little bit more about how you think about the NAV now, particularly, first of all, obviously, on the upstream performance side?

Speaker #10: I don't know if you want to throw the oil price in there, but also the other businesses, and whether or not, you know, it's still a key driver of buyback attractiveness.

Speaker #10: Thanks.

Speaker #2: Yeah. I mean, you know, high level, we try to keep price constant, right? And, you know, juicing your NAV by changing price I don't think is the right way to look at it.

Kaes Van't Hof: Yeah. High level, we try to keep price constant, right? Juicing your NAV by changing price, I don't think is the right way to look at it. I think generally Q2, we obviously generated a significant amount of free cash flow above that mid-cycle price, so that helps NAV. I also think as we're looking at type curves and well performance and the Barnett development. The Barnett's moved from something that had $200 million of value in our NAV to now $2 billion. I think as those things continue to develop and we refine our analysis, the NAV should continue to go up if we're doing our job. I think on the other businesses, I certainly don't have any power value in our NAV. We do have a good amount of midstream value with our Deep Blue investment.

Speaker #2: So, you know, I think generally, in Q2 we obviously generated a significant amount of free cash flow above that mid-cycle price, so that helps NAV.

Speaker #2: But I also think, as we're looking at type curves and well performance, and, you know, the Barnett development—you know, the Barnett's moved from something that had, like, you know, a couple hundred million dollars of value in our NAV to now a couple billion.

Speaker #2: And so, you know, I think as those things continue to develop and we refine our analysis, the NAV should continue to go up if we're doing our job.

Speaker #2: I think on the other businesses, you know, I don't — I certainly don't have any power value in our NAV. You know, we do have a good amount of midstream value with our Deep Blue investment.

Speaker #2: You know, it's been interesting to watch multiples expand on the, you know, the water side of the equation, as I think more attention gets brought to that business line in this basin.

Kaes Van't Hof: It's been interesting to watch multiples expand on the water side of the equation as I think more attention gets brought to that business line in this basin. I think we're going to be very money ahead on that investment. All of that ties up together and a reduced share count and a lower net debt value pops out of a higher per share value.

Speaker #2: So, you know, I think we're going to be very money ahead on that investment. But all of that ties together. And, you know, a reduced share count and a lower debt value both contribute to a higher per share value.

Speaker #10: Thank you, sir.

Paul Sankey: Thank you, sir.

Speaker #2: Thanks, Paul.

Kaes Van't Hof: Thanks, Paul.

Operator: One moment for our next question. Our next question comes from the line of Gabe Daoud with Truist. Your line is now open.

Speaker #3: One moment for our next question. Our next question comes from the line of Gabe Daoud with Truist. Your line is now open.

Speaker #7: Thanks, operator. Morning, Keith and everyone. Keith, I was hoping maybe you could get a little more, color on on just the last point that you hit on on the water side.

Gabe Daoud: Thanks, operator. Morning, Kaes and everyone. Kaes, I was hoping maybe could get a little more color on just the last point that you hit on the water side. Is there anything that you're seeing, just given some of the changes the RRC has made to injection? Are you seeing any constraints at this point or maybe concerned about constraints moving forward?

Speaker #7: Is there anything that you're seeing, just given some of the changes the RRC has made to injection? Are you seeing any RES constraints at this point, or maybe concern about constraints moving forward?

Speaker #2: Yeah, Gabe, good question. I mean, we—we haven't seen anything yet in terms of constraints on our system. I mean, I think what this means is, you know, you have to have significant capacity.

Kaes Van't Hof: Gabe, good question. We haven't seen anything yet in terms of constraints on our system. I think what this means is you have to have significant capacity. You have to have a large interconnected system. The days of one or two SWDs being hooked up to a system makes no sense. I think we have that valuable partnership with Deep Blue where they are investing capital to loop certain lines, connect certain areas, add SWD capacity, to make sure that those issues don't happen to us. The water discussion is certainly getting a lot more attention in this basin. I think the Delaware Basin, obviously, given the amount of water produced there is working to solve these problems probably sooner than the Midland Basin will need to.

Speaker #2: You have to have a large intercon interconnected system. You know, the days of, you know, one or two SWDs being hooked up to a a a system, you know, makes makes no sense.

Speaker #2: And, you know, I think we have that valuable partnership with Deep Blue, where they are investing capital to loop certain lines and connect certain areas.

Speaker #2: Add SWD capacity to make sure that those issues don't happen to us. You know, the water discussion is certainly getting a lot more attention in this basin.

Speaker #2: You know, I think the Delaware Basin, obviously, given the amount of water produced there, is working to solve these problems probably sooner than the Midland Basin will need to.

Speaker #2: But I think there are a lot of lessons and a lot of learnings that we're following from what those businesses are doing over there, or companies are doing over there, that we can translate over here.

Kaes Van't Hof: I think there's a lot of lessons and a lot of learnings that we're following from what those businesses are doing over there, or companies are doing over there, that we can translate over here. In general, I would say Deep Blue has used the asset base that we gave them with Diamondback as the anchor customer and done a great job adding third-party business and also working to connect the system and improve it.

Speaker #2: But in in general, I would say, you know, Deep Blue has you know, used the asset base that we've we gave them with Diamondback, you know, as the anchor customer and done a great job adding third-party business and also, you know, working to to connect the system and and improve it.

Speaker #7: Thanks, Keith. That's helpful. And then just to follow up, I think this year, you had non-DNC spend of $600 million across some science and midstream.

Gabe Daoud: Okay. That's helpful. Then just a follow-up. I think this year you had non-D&C spend of $600 million across some science and midstream. Just curious, how does that change into 2027? Does the Barnett require any incremental midstream or facility spend that maybe we're not thinking of? Is the answer there no? Thanks, guys.

Speaker #7: Just curious, like, how does that change to '27? Does does the Barnett like require any incremental midstream or facility spend that maybe we're not thinking of, or or or is the answer there, no?

Speaker #7: Thanks, guys.

Speaker #2: I think generally, the the number will go up slightly. but within that number, the mix will will move. You know, as we get to, you know, large-scale Barnett development in in areas where we don't have existing infrastructure, we're gonna have to build, you know, new batteries and and, you know, we're working on, that design and making that design, tailored towards, you know, what a Barnett well looks like versus what, you know, Wolf Barrywells look like.

Kaes Van't Hof: I think generally the number will go up slightly. Within that number, the mix will move. As we get to large scale Barnett development in areas where we don't have existing infrastructure, we're going to have to build new batteries and we're working on that design and making that design tailored towards what a Barnett well looks like versus what Wolfberry wells look like. As in any deal or any expansion, infrastructure capital is higher in the beginning and then reduces. I think generally that number is close with a little bit of upside next year.

Speaker #2: So, you know, as as as in any deal or any, you know, expansion, you know, infrastructure capital is higher in the beginning. And then, and then reduces.

Speaker #2: But, you know, I think generally that number is close, with a little bit of upside next year.

Speaker #7: Okay. Okay. Makes sense. Thanks, Keith. Thanks, guys.

Gabe Daoud: Okay. Makes sense. Thanks, Kaes. Thanks, guys.

Speaker #2: Thank you.

Kaes Van't Hof: Thank you.

Operator: One moment for our next question. Our next question comes from the line of Derrick Whitfield with Texas Capital. Your line is live.

Speaker #3: One moment for our next question. Our next question comes from the line of Derek Whitfield with Texas Capital. Your line is live.

Derrick Whitfield: Good morning, all. Congrats on a solid update this quarter.

Speaker #5: Good morning all. And congrats on a solid update this quarter.

Speaker #2: Thanks, Derek.

Kaes Van't Hof: Thanks, Derrick.

Speaker #7: Morning.

Derrick Whitfield: Wanted to start on the operational front. Could you speak to some of the design changes you incorporated this quarter to drive lower equipment cost per well?

Speaker #5: Wanted to start on the operational front. Can you speak to some of the design changes you incorporated this quarter to drive lower equipment cost per well?

Speaker #2: Yeah. I mean, I I think generally, you know, high level, it's been it's been the combination of how Endeavor was doing things and how we were doing things and finding the best of both, on the equip side.

Kaes Van't Hof: Yeah. I think generally, high level it's been the combination of how Endeavor was doing things and how we were doing things and finding the best of both on the equip side. I don't know if Danny or Al you want to add any detail.

Speaker #2: I don't know if Daniel or Al, you want to add any details?

Danny Wesson: A lot of it's driven by just extending lateral lengths. That's the biggest lever we have to pull, it's one of the reasons why we're starting to lean into some of the U-turn development because we talk about a lot. What is the efficient frontier for lateral lengths, can we get to a point where our average lateral length continues to creep up beyond 12,000 feet? It just drives so much more efficiency. That's really what you're seeing. The biggest change is just a little longer laterals, you need the same flow line and same tubing and all that for that well. It just drives down your per foot cost.

Speaker #6: I mean, a lot of it's driven by just extending lateral links, right? I mean, that's that's the biggest, lever we have to pull. And and, you know, it's it's one of the reasons why we're we're we're starting to lean into some of the U-turn development.

Speaker #6: Because we, you know, we talk about it a lot. Like, what is the efficient frontier for lateral lengths? And can we get to a point where, you know, our average lateral length continues to creep up beyond 12,000 feet?

Speaker #6: And, you know, it just drives so much more efficiency. And so that's really what you're seeing. The biggest change is just, hey, a little longer laterals.

Speaker #6: And you need the same flow lines and the same tubing and all that for that that well. It just drives down your per-foot cost.

Speaker #2: And I think some things have come out of the scope as well. So, you know, we're always looking at each little line item. But, you know, Danny's point is, you know, the equip piece and the infrastructure piece, that's non-productive capital, right?

Kaes Van't Hof: I think some things have come out of the scope as well. We're always looking at each little line item. But Danny's point is the equip piece and the infrastructure piece, that's non-productive capital. We want to minimize the non-oil producing capital in our CapEx budget.

Speaker #2: And we want to minimize the non-oil-producing capital in our capex budget.

Speaker #5: Great, makes sense. As my follow-up, I wanted to touch back on the EOR question from earlier. Could you speak to the lessons you’ve learned so far and how you’re thinking about broadening this program as you look beyond the first 50 wells?

Derrick Whitfield: Great. Makes sense. As my follow-up, maybe wanted to touch back on the EOR question from earlier. Could you speak to the lessons you guys have learned so far and how you're thinking about broadening this program as you look out beyond the first 50 wells?

Speaker #2: Yeah, Derek. Yeah, great question. You know, really, it's figuring out which rock types and lithologies, the technology, the specifics are backed in technology. we're applying works best in and where we're seeing the best returns.

Danny Wesson: Yes, Derrick, great question. Really it's figuring out which rock types and lithologies, the technology, the specific surfactant technology we're applying

Al Barkmann: Yes, Derrick, great question. Really it's figuring out which rock types and lithologies, the technology, the specific surfactant technology we're applying where we're seeing the best returns. Looking at the overall portfolio of the thousands of wells that we operate, where are those rock types situated? Thinking about the chemical composition of the surfactant and which ones are working best in which different rock types. That's sort of the ongoing process. Like I said earlier, I think we're really just early innings on this, and the team's learning a lot. The initial results that we're seeing from this 12-well package are really promising. We're going to learn a lot from these 12 and apply it to the next group of wells that we do in the future.

Al Barkmann: Where we're seeing the best returns. Looking at the overall portfolio of the thousands of wells that we operate, where are those rock types situated? Thinking about the chemical composition of the surfactant and which ones are working best in which different rock types. That's sort of the ongoing process. Like I said earlier, I think we're really just early innings on this, and the team's learning a lot. The initial results that we're seeing from this 12-well package are really promising. We're going to learn a lot from these 12 and apply it to the next group of wells that we do in the future.

Speaker #2: And then looking at the overall portfolio of the thousands of wells that we operate, you know, where are those rock types situated? And then thinking about sort of the chemical composition of the surfactant.

Speaker #2: And which ones are working best, and with different rock types. And so that's sort of the ongoing process. And, you know, like I said earlier, I think we're really just in the early innings on this.

Speaker #2: And, you know, the team's learning a lot. And, you know, the initial results that we're seeing from this 12-well package are really promising. but we're gonna learn a lot from these 12.

Speaker #2: And apply it to the next group of wells that we do in the future. And, you know, I think this is something that—as Keith talked about earlier—we could see some shallowing of the decline rate and then the decision on, you know, do we take capital out of the system or do we lean in.

Kaes Van't Hof: I think this is something that, like Kaes talked about earlier, where we could see some shallowing of the decline rate, the decision on do we take capital out of the system or do we lean in? Yeah, overall, that's sort of the details of where we are today.

Al Barkmann: I think this is something that, like Kaes talked about earlier, where we could see some shallowing of the decline rate, the decision on do we take capital out of the system or do we lean in? Yeah, overall, that's sort of the details of where we are today.

Speaker #2: But, yeah, overall, that's sort of the details of where we are today.

Speaker #5: Thanks. And, great update.

Derrick Whitfield: Thanks, great update.

Speaker #2: Thanks, Derek.

Kaes Van't Hof: Thanks, Derrick.

Speaker #3: One moment for our next question. Our next question comes from the line of Charles Meade with Johnson Rice. Charles, your line is live.

Operator: One moment for our next question. Our next question comes from the line of Charles Meade with Johnson Rice. Charles, your line is live.

Speaker #8: Good morning, Keith. To you and your team, I wanted to go back to your shareholder letter and your theme of volatility, and see if you'd maybe share your view on the macro.

Charles Meade: Good morning, Kaes, to you and your team. I wanted to go back to your shareholder letter and your theme of volatility and see if you'd maybe share your view on the macro. We've been living in a world with a lot of volatility. I'm curious, we see some this morning, but I'm curious, do you think that stopping the bombing and opening the Strait of Hormuz is what's going to end the volatility? Are you anticipating that there's been some structural changes in the oil market that even if we do get these agreements, that we're going to be living with more volatility going forward?

Speaker #8: We've been living in a world with a lot of volatility. But I'm curious—you know, we see some this morning—but I'm curious, do you think that, you know, stopping the bombing and opening the stadium for use is what's going to end the volatility?

Speaker #8: Or, do you—are you anticipating that there have been some structural changes in the oil market, that, you know, even if we do get these agreements, we're going to be living with more volatility going forward?

Speaker #2: Yeah. I mean, listen, I think it's been—it's probably not our place to comment on geopolitical events, and instead focus on, you know, global inventories.

Kaes Van't Hof: Yeah. Listen, I think it's probably not our place to comment on geopolitical events and instead focus on global inventories. I think the relationship between inventories and price has broken down a little bit over the last couple of months, but I think that's probably because there's noise in the system. Someone smarter than me explained the market as basically a sine wave because of everything that's happened and everything's been disrupted. At times, there's going to be heightened volatility on the upside and heightened volatility on the downside with a steady state far from a possibility today. I think, generally, chasing headlines over the last three months has been exhausting. I think we've decided to just put our head down and believe that crude oil that comes out of inventories today has to be replaced tomorrow.

Speaker #2: And, you know, I think the relationship between inventories and price has broken down a little bit over the last couple months. But I think that's probably because there's noise in the system.

Speaker #2: Someone smarter than me explained the market as basically a sine wave. Because of everything that's happened and everything's been disrupted. And at times, there's going to be heightened volatility on the upside.

Speaker #2: And heightened volatility on the downside with, you know, a steady state, you know, far from far far from a possibility today. So, I think, you know, generally, chasing headlines over the last three months has been has been exhausting.

Speaker #2: And, I think, you know, we've decided to just kind of put our head down and believe that, you know, crude oil that comes out of inventories today has to be replaced tomorrow.

Speaker #2: And, you know, over a multi-year period, that that should be that should result in a bid for oil, you know, for a longer period of time here.

Kaes Van't Hof: Over a multi-year period, that should result in a bid for oil for a longer period of time here.

Speaker #8: Got it. Thank you. And then, second question on the Wolfcamp D. You wrote about that in your shareholder letter, that you've been driving down costs there.

Charles Meade: Got it. Thank you. Second question on the Wolfcamp D. You wrote about that in your shareholder letter that you have been driving down costs there. If I look at slide 11, it is actually interesting. That looks like the Wolfcamp D is actually the biggest rate of change from 2025 to 2026 as far as your lateral footage. I am curious, two things. Which direction does the causality work there? Are you getting the cost down because you are drilling more of them and learning more? Or is it the other way around that you are drilling more because you have gotten the cost down? Perhaps you could also talk about what the other side of the equation there, what you are seeing in productivity trends in the Wolfcamp D.

Speaker #8: I mean, you know, if I look at slide 11, it's actually interesting. It looks like the Wolfcamp D is actually the biggest rate of change from '25 to '26 as far as your lateral footage.

Speaker #8: So, I'm curious, two things. I-it's what which direction does it causality work there? Are you are you getting the costs down because you're just you're you're drilling more of them and learning more?

Speaker #8: Or or or is it the other way around that you're you're drilling more because you you've gotten the costs down? And and, and perhaps you could also talk about what, you know, the other side of the equation there, what you're seeing in, productivity trends in the Wolf Camp D.

Speaker #2: Yeah. So, you know, from a cost perspective, the team had a budget of, like, $350, $360 a foot. And their stretch goal was to drill wells at $300 a foot.

Kaes Van't Hof: Yeah. From a cost perspective, the team had a budget of like $350, $360 a foot, and their stretch goal was to drill wells at $300 a foot. They are actually hitting their stretch goal, that does improve the returns of the Wolfcamp D. What has brought more Wolfcamp D into our program is that when we merged with Endeavor, they had some acreage in kind of the sweet spot of the Wolfcamp D, kind of Midland County, eastern Midland County, versus where our prior asset base did not have as much upside. In general, as these other zones get more air time, I want you to pay attention to productivity. Traditionally, if a company brings in a lot of secondary zones that they had not been developing to date, their productivity per foot takes a hit.

Speaker #2: And they're actually hitting their their stretch goal. So that does improve the returns of the Wolf Camp D. You know, what what did what has res what has brought more Wolf Camp D into our program is that when we merged with Endeavor, you know, they had some acreage in kinda the sweet spot of the Wolf Camp D.

Speaker #2: Kinda Midland County, Eastern Midland County versus where you know, we're our prior asset base didn't have as much as much upside. But, you know, in general, you know, as as these other zones get more airtime, you know, I I want you to I want you to pay attention to productivity.

Speaker #2: Because traditionally, if someone brings in if if a company brings in a lot of secondary zones that they hadn't been developing, to date, you know, their productivity per foot takes a hit.

Speaker #2: And and our productivity per foot while adding these zones has been consistent to now, up this year. So, credit to the team. But but I think it's also just a combination of a larger asset base with more with more places to allocate capital post, post Endeavor.

Kaes Van't Hof: Our productivity per foot while adding these zones has been consistent to now up this year. Credit to the team, but I think it is also just a combination of a larger asset base with more places to allocate capital post-Endeavor.

Speaker #8: Thanks for the cover, Keith.

Charles Meade: Thanks for the color, Kaes.

Speaker #2: Thanks, Charles.

Kaes Van't Hof: Thanks, Charles.

Speaker #3: One moment for our next question. Our next question—oh, one moment for our next question. Our next question comes from the line of Leo Mariani with Roth.

Operator: One moment for our next question. Our next question comes from the line of Leo Mariani with Roth. Your line is now open.

Speaker #3: Your line is now open.

Leo Mariani: Hi. Good morning. I see there really hasn't been much in the way of Delaware Basin activity over the last handful of quarters. Can you just give us an update, kind of what's planned for that asset? Is that just going to sit there and kind of slowly decline over time? Is it something you're going to look to get back after kind of later on down the road? Just any color would be great.

Speaker #9: Hi, good morning. I see there really hasn't been much in the way of Delaware-based activity over the last, you know, handful of quarters.

Speaker #9: Can you just give us an update—kind of what's planned, you know, for that asset? Is that just going to kind of, you know, sit there and slowly decline over time?

Speaker #9: Is it something you're going to look to get back after, kind of, later on down the road? Just any color would be great.

Speaker #2: Yeah. I mean, well, there's no capital being allocated to the Delaware this year. There are some interesting things happening over there.

Kaes Van't Hof: Yeah. While there's no capital being allocated to the Delaware this year, there are some interesting things happening over there. We've done some farm outs in the Second Bone Spring in our Reeves and Ward position, those produced some really good results that unlocked some inventory that we probably didn't think was as competitive a couple of years ago as it is today. We see a lot through our Viper lens. I'll tell you, the leasing in the Delaware for Viper has been significant year to date. There's a kind of a Delaware Woodford trend that is getting a lot of attention. Some big wells. They're expensive wells, but big wells, and some leasing going on there. There's stuff going on beneath the waves, but no major capital allocated there this year or likely next.

Speaker #2: you know, w-we we've done some farmhouse in in the second bone spring. and our reward position, those, you know, produced some really good results that unlock some inventory that we you know, probably didn't think was as as competitive.

Speaker #2: a couple years ago as it is today. you know, w-we we see a lot through our you know, the our VIPER lens, and I'll I'll tell you, the leasing in the Delaware for VIPER has been significant year to date.

Speaker #2: You know, there's a kind of a Delaware Woodford trend that is getting a lot of attention. Some big wells — they're expensive wells, but big wells — and some leasing going on there.

Speaker #2: So, you know, there's stuff going on beneath the waves. But no major capital allocated there this year, or likely next.

Speaker #9: Okay. and then just on EOR, I know it's kinda early days and you guys are still, analyzing results. But at at this point, do you think that you've had, you know, clear economic benefit at least some of the wells out on on some versus others.

Leo Mariani: Okay. Just on EOR, I know it's early days, and you guys are still analyzing results, but at this point, do you think that you've had clear economic benefit on at least some of the wells out there? Maybe not all of them. I know it works better on some versus others, but are you convinced that there's economic benefit in terms of incremental capital that's gone into some of those existing wells?

Speaker #9: But are you convinced that there's economic benefit in terms of incremental capital that's gone into some of those existing wells?

Speaker #2: Yes, 100%. You know, we just gotta figure out—we gotta learn about what's happening. You know, some wells saw zero uplift. Some wells saw production, you know, triple or quadruple versus where they were before.

Kaes Van't Hof: Yes, 100%. We just got to learn about what's happening. Some wells saw zero uplift, some wells saw production triple or quadruple versus where they were before. The average was somewhere in the range of 150 to 200 barrels a day well going up by 100 to 150 barrels a day. The dispersion is just so wide. I liken it to Wolfcamp B frac in 2014 versus a Wolfcamp B frac today. These are Wolfcamp B fracs from 2014, we got to figure out what's going on beneath the surface. I think with the quality of the data and our ability to process it as quickly as we can today is going to allow for continuous improvement.

Speaker #2: And, the average was, you know, somewhere in the range of, you know, 150 to 200 barrel a day well going up by 100 to 150 barrels a day.

Speaker #2: but the dispersion is just so wide. And so, you know, I I I I liken it to, you know, a Wolf Camp B frac in 2014 versus a Wolf Camp B frac today.

Speaker #2: You know, these are Wolf Camp B fracs, from 2014. And we gotta figure out, what's going on beneath the surface. And I think with the quality of the data and our ability to process it as quickly as as we can today, it is gonna allow for continuous improvement.

Speaker #9: Okay. Thank you.

Leo Mariani: Okay. Thank you.

Speaker #2: Thanks, Leo.

Kaes Van't Hof: Thanks, Leo.

Speaker #3: Thank you. This concludes the question and answer session. I would now like to turn the call back over to Keith Van Hoff, CEO, for closing remarks.

Operator: Thank you. This concludes the question and answer session. I would now like to turn the call back over to Kaes Van't Hof, CEO, for closing remarks.

Speaker #2: Well, thanks, everyone, for the time and the questions. We, again, used up a full hour. I continue to be impressed with the analyst community.

Kaes Van't Hof: Well, thanks everyone for the time and the questions. We again used up a full hour. Continue to be impressed with the analyst community. Thank you for the time.

Speaker #2: So thank you thank you for the time.

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

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