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Diamondback Energy is an independent oil and natural gas company. Focused on the acquisition, development, exploration, and production of unconventional, onshore oil and natural gas reserves, the company primarily operates in the Permian Basin in West Texas, expanding into the top oil producer focused exclusively on the Permian. Diamondback has grown through strategic acquisitions, including the recent $26 billion merger with Endeavor Energy Resources, making it one of the largest producers in the country. Diamondback continues to play a significant role in meeting the nation’s energy needs.

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Diamondback Energy (FANG): Company Profile, Stock Price, News, Rankings

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Diamondback Energy

diamondback energy

Good day and thank you for standing by. Welcome to the Diamondback Energy's First Quarter 2026 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 then hear an automated message advising that your hand is raised. To withdraw your question please press star one one again. Please be advised that today's conference is being recorded.

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

Thanks. Thanks, Adam. Welcome everyone. As with the last few years, we're gonna go straight into Q&A. Operator, please open the line for questions.

Thank you very much. One moment. As a reminder, to ask a question, you can press star one one on your telephone and wait for your name to be announced. 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 Mehta of Goldman Sachs. Neil, your line is open.

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

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

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

You know, so that decision at a micro level was, you know, honestly fairly easy. You know, I think the last piece of, about it is, you know, we're able to do this in a very capital efficient manner and get it done very quickly. You know, because we have this backlog of DUCs and we, you know, prepare our business for, you know, up, down or sideways, you know, we're able to just make one decision and add a frack crew a lot earlier in the year and get that production up immediately. I think it's a testament to the team's preparation, you know, everybody in the organization working together and being able to do this very, very quickly.

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

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

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

We just want the flexibility to, you know, make more cyclical moves versus, you know, moves within a 90-day window, within a quarter. You know, we have a really, really good track record of buying back our own stock. We've bought back 42 million shares for $6 billion to-date at $148 a share. You know, clearly with the stock where it is today, that's a very positive rate of return for our stockholders, and I expect that to continue. You know, we recognize we also have a large shareholder that we found a way to help monetize their stake in a very efficient manner. You know, I think, you know, outside of their stake, they're most focused on us creating long-term value.

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

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

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

Yeah, Scott, I'll give a couple high-level, and then let Danny talk about some of the details. You know, high-level, you know, our well performance year-to-date looks up relative to last year. I think that is probably a surprise even to us internally. We've always continued to try new things in terms of completion design and efficiency that I think is starting to pay dividends. I think that's, you know, that's helping. That's one thing.

I think the other side of the business, the production side of the business, which we've been talking a lot about over the last, you know, couple quarters, you know, there's just kinda a lot of, a lot of good things happening in the field in terms of less downtime, more automation, you know, call it AI, call it automation, impacting that side of the business. I think, you know, better wells and lower downtime, that's a, that's a good recipe for a production beat.

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

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

Great. As my follow-up, when you guided oil, you talked about like great. It looks like you're bringing greater than, can't say 520 Mbbl/d a day. Can you just talk through, you know, if you continue to see this macro environment, how much desire is there to kind of continue to let that oil production grow versus, you know, curtail it? You know, is there a scenario where you'd actually even look to step it up even higher if the macro continues to be heightened?

Yeah. I mean, it's a great question, Scott. You know, I think it's kind of a very fluid situation, I think the Board's wanted us to take this kind of quarter-by-quarter. Obviously, you know, if there's outperformance and we still have triple-digit oil prices and the market's still calling for oil to come to market, you know, I think this is a year where instead of pulling back activity, you kind of just keep the efficiencies going and production continuing to climb. You know, listen, it's gonna be fluid, right? We're only two months into this conflict, it could be resolved today. You know, who knows what happens to the macro? I think we're just ready to react.

We still have some things in our back pocket to grow further. For now, this kind of 520+ Mbbl/d on oil is the new baseline.

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

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

Yeah, Neal, I mean, on the Waha side, obviously, the pricing is deeply negative. You know, we're well protected with financial and physical hedges. You know, our mix of physical to financial is gonna be moving more towards physical when these two new pipes come on, you know, hopefully second half of the year. I think we're, you know, pretty well protected to get through this tight spot from a financial perspective where we can, you know, continue to, you know, add, you know, oily inventory, right, where we're drilling some of the oiliest stuff in the basin. I think, you know, we're pretty well protected there. We'll continue to work on our physical protection on the gas side. You know, we've worked on a power project now for almost a year, and we'll see if we can get that done.

You know, we've talked at length about monetizing our gas and, you know, we're kind of on the cusp of that. That's starting to happen here when these pipes come on. You know, Danny, on the service side, what are you seeing?

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

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

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

Yeah, I mean, you know, Neil, I think, you know, my first day in my first finance job in New York City, I was asked the question, what can a company do with their free cash flow? If we're gonna go through all the options, you know, you can grow, right, either organically or inorganically. Organic growth, we've decided to hit that lever today in a small way by going to the top end of our CapEx guidance. Inorganic growth, which, you know, M&A, we've obviously been very good at M&A over the years. I think this volatility is kind of difficult to get deals done, you know, private or otherwise. I think generally, you know, M&A is probably fairly quiet at Diamondback for the foreseeable future.

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

Makes sense. Thanks, Kaes. Thanks, Danny.

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

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

Yeah, I'll let Danny now talk about latest Barnett developments, but just from a capital allocation perspective, you know, even with higher commodity pricing, you know, we're still gonna hold to, you know, the vast majority of our spacing assumptions throughout the basin. You know, we always kind of look at each project, and that's kind of on a DSU by DSU level basis and kind of say, Hey, let's get as many wells in this section as possible to where the incremental well, the last well that we add generates a 40% rate of return at $60 oil.  We think, you know, that provides prudent spacing but also a solid rate of return to our shareholders despite, you know, the commodity price volatility.

I think drilling our best stuff first and sticking to that knitting in terms of spacing is going to continue. Clearly the Barnett, particularly with the size of these wells, from a production perspective, generates more PV today, so that's getting more attention. Al, you wanna give anything on the latest Barnett?

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

I'll just add that, you know, the Barnett activity and the obligation activity is almost entirely focused on the JV area that we have with another partner. You know, those wells are not as high a working interest. They're about half and half, a little bit heavier weighted on the Diamondback side. You know, the two or three rigs we're picking up on the Barnett activity to get ahead on the JV area is really like one and a half net rigs to Diamondback. While the top line looks like, you know, we're adding a bunch of activity in the back of the year, net to us, it won't be nearly as impactful.

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

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

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

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

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

Yeah, John, I mean, that's a good question. I mean, I think I'd probably take it a little different direction where, you know, obviously we've been polling investors that, you know, that own the stock to get their opinion on, you know, how they feel about growth and ramping activity. I think the general consensus was, Yeah, I think a little growth in the plan, you know, will differentiate Diamondback and makes a lot of sense. I just don't want you to do it in a capital inefficient manner. If you think about what we're basically doing here, you know, we were gonna run somewhere between 4 frac crews and 5 frac crews in the model to hit our original guide.

You know, that fifth frac crew was gonna go away for five or six months and then come back. You know, it's a Halliburton e-fleet Simul-Frac, you know, as efficient as it gets crew. We're just bringing that crew back and gonna run the five crews essentially, you know, consistently. I think that will ensure, you know, we maintain capital efficiency in the field versus trying to go too fast, too soon, you know, which sometimes has driven some inefficiencies in E&P's plans and Diamondback's plans in years past. I think, you know, trying to learn from, you know, the history of development in this basin, you know, staying capital efficient is probably the priority. I think the reinvestment rate, you know, becomes the output of that.

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

Yeah. It's kind of a story of through the year, right? We're gonna draw down the DUCs in Q2 and backfill that with two rigs worth of activity to make sure we build our DUC balance back up. You know, we're basically, we peaked at a little over 200 DUCs in Q1. You know, that number's gonna come down over Q2, and then, you know, the backfill rigs start to build that back up. In general, and Danny, you know, can opine, but, you know, we're gonna have to keep a little bit higher DUC balance than we would running four crews because we have, you know, we like to have two projects behind each crew ready to go.

If something bad happens then, you know, we just move to another project, and it looks like, you know, everything's going great at Diamondback on a quarterly basis. Probably need to maintain somewhere in the high hundreds, around 200 DUCs, and that's kind of where we are today. There's gonna be some movement throughout the year.

Kind of a quarter to quarter and a half worth of inventory ahead of each crew, just so that, you know, we can have flexibility if we run into an issue on a pad with takeaway constraints or something like that. If you think about each of these crews will do about 100-ish wells a year, maybe a little more. To Kaes' point, you know, he hit the nail on the head. A couple of 200 wells ahead of these five fleets is kind of the right, you know, carry number of a DUC balance.

You know, obviously, the more efficient we get, and the guys are always chasing the efficiency curve, and you can see it in, I think it's a slide nine in our deck today, you know, the improvement quarter-over-quarter. You know, as the crews get more efficient and get more wells done, it either means we got to release crews to keep the same well count or we got to build more DUCs to stay ahead of them. You know, it's a dynamic and fluid situation. You know, I think, we're talking about adding, you know, 20 wells-30 wells to the year in total.

Still being able to stay within our original guidance window, you know, which we took the momentum from Q1 beat and just kind of kept it going through the rest of the year.

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

Hi, good morning. Thank you for taking my question. I actually wanna ask about your crude oil marketing. 1Q pricing was a bit stronger, can you just remind us, your exposure to premium price indices and, yeah, the marketing strategy in general on the oil side?

Yeah, I mean, from a strategy perspective, Betty, you know, we learned from the kind of the Permian takeaway crisis, what was it, 2018, that, you know, we needed to use our balance sheet to get our crude to the biggest markets. You know, for us, that was, you know, let's get more crude down to Corpus Christi and as well as Houston. We have, you know, if you remember, we invested in three pipelines, Epic, Gray Oak, and Wink to Webster, all of which made our investors a lot of money, but also protected Diamondback from a commercial perspective. You know, we have about 300,000 bpd going down to Corpus on Epic and Gray Oak.

We have about another 100,000 bpd going down Wink to Webster, you know, feeding kind of refinery row in Houston. We're kind of, you know, pretty exposed to, you know, call it water-based pricing, you know, even have one small contract that has some dated Brent exposure. That's been really helping us out. You know, I think that's a good playbook for what we're gonna try to do on the gas side, right? I think we're a little behind because oil, you know, is 90+% of our revenue, and we've done a good job there. But the next trend is to improve that on the gas side.

Got it. That makes sense. I wanna ask about the acquisition line item in 1Q. They're just a few hundred billion. Are you guys doing any organic acquisitions and maybe picking up bolt-on things that's at good pricing? Yeah. Can you just speak to that?

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

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

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

Yeah, I mean, you know, we did sell down a little bit of ownership in Viper. You know, it was kind of a follow on from the dropdown where we took, you know, the Diamondback side took a lot of stock from Viper in that deal. We could have probably taken more cash, instead decided to wait and then sell a little bit here last quarter. I would say we're done selling Viper shares at Diamondback. I do think the growth opportunity set for Viper is pretty significant. Could there be a world where Diamondback's ownership is reduced through dilution? I think that's possible. But no desire today to monetize any more shares.

I think if you just think about where both companies are gonna be from a balance sheet perspective, you know, in another few months, you know, they're gonna be well-positioned to kind of do anything from an M&A perspective, and that's where we want it to be.

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

Yeah, no, that's a very important question, and it's gone into our calculus on thinking about the market and thinking about adding activity. You know, if you go back to that 2022 upcycle, you had, you know, a company like Endeavor that's now part of Diamondback. They went from 2 rigs to 15 rigs. CrownRock went from 2 rigs to 8 rigs. That's now part of Oxy. EnCap North, which is now part of Ovintiv, went from 2 rigs to 6 rigs. Double Eagle, which is, you know, now part of us, a combination of us and Exxon, went from, you know, 1 rig to 6 rigs. I mean, you know, these were big moves on the private side.

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

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

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

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

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

Well, you know, I think that's a world where from a total shareholder return perspective, you know, a couple percentage points of organic growth, you know, really adds to the NAV of the business and adds to the, you know, long-term free cash generation. That's kinda, you know, one of the important points that we ran in the model this year was that this new plan generates more free cash flow in 2026 per share than any other, more free cash flow per share at any oil price above $60 oil. So, you know, a $70+ world, you know, this is advantageous to shareholders long term.

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

Listen, I think things like DUC draws and bringing back DUCs in Barnett when you develop, I mean, I think that's all kind of noise, right? Below that noise, the team is executing flawlessly. I mean, we set, you know, records on the drilling side on 2 mi, 3 mi, 4 mi laterals. Wolfcamp D development, we gave the team a goal of $300/ft for drilling, down from $360/ft drilling last year. They're already at $300/ft. You know, Barnett Drilling, we said the drilling guys need to be below $400/ft to be able to get to $800/ft to make the Barnett competitive with, you know, the base program.

Well, we already put a well in the ground under $400/ft. I think at the highest level, you know, the business is firing on all cylinders. Efficiencies continue to improve above ground. The big move also is going to be, you know, are we drilling and completing actually better wells subsurface? You know, those are all the drivers that, you know, separate the noise of are you drawing down DUCs this quarter or this month versus, you know, years past. That's the long-term benefit to capital efficiency.

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

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

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

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

You know, there's certainly a case to be made for energy security becoming a much more important thing for countries around the world to think about. You know, I guess wearing my oil hat, that probably means, you know, more storage, more landed storage versus storage that you can buy, you know, somewhere that's in a riskier geopolitical area. I think that means the U.S. barrel is more important than it's ever been. Again, I think it's early for us to say mid-cycle pricing has gone up by x. The way we do think about kinda our positioning relative to U.S. shale and where U.S. shale's mid-cycle pricing is going is that, you know, we do believe the cost curve is going up.

We do think, you know, operators have done a really good job with efficiencies, longer laterals, better development. You know, geologic time, you know, catches up to you, and there's certain clearly signs of degradation throughout the U.S. in terms of production or productive, you know, quality. We just try to keep ourselves at the low end of that cost curve, and I think we've done a very good job on that front, both from a inventory depth and quality perspective, but also the cost at which we execute on that inventory. I think, I think we're very well positioned, and I think it's a little too early for us to go higher on mid-cycle pricing today.

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

Yeah, I mean, you know, we did announce this position after we thought we had a pretty solid position on what we could get. I do look forward to. You know, we have continued to add to the position in Q1, you know, on a small basis. I think what's exciting is, you know, now we're just starting to do a lot of trades. You know, a lot of the big operators have their Barnett positions, and we're all now looking at how can we block up to 3-mi laterals, 4-mi laterals. You know, there's obviously a lot of private equity, kind of the small Midland-based private equity that's looking to build, you know, six, seven, eight section positions. You know, those probably come to market. I think it's gonna happen.

I think the position's gonna grow. I think, you know, we have the sizable base we need to continue to grow it.

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

Diamondback Energy (FANG) Q1 2026 Earnings Call Transcript

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