Good day, and thank you for standing by. Welcome to the Diamondback Energy Second Quarter 2025 Earnings Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will 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. I would now like to hand the conference over to your first speaker today, Adam Lawless, VP of Investor Relations. Please go ahead. Thank you. At this time, we will conduct the question and answer session. Our first question comes from Arun Jayaram of JPMorgan Securities, LLC. Your line is now open.

Good morning. Sorry about the AC situation. I hope you have a couple of fans because it can get hot in the middle of the summer.

Yes, it can.

Yep. Hopefully, this is not part of, Case, your thoughts on reducing costs at the company because AC is pretty important. Yeah, but let me shift gears a little bit. Case, I want to hit this one kind of head on. There's been a lot of consolidation talk in the industry, particularly from some of your big cap peers who've highlighted some of the benefits they've received from synergy capture from previous deals. I was wondering if you could comment on how you think about the consolidation roadmap in the Permian and Fang's role within the industry and just overall M&A thoughts.

Yeah, I mean, good question.

Great case. My follow-up, you announced some non-core, non-op Delaware Basin property sales in the quarter. I was wondering if you could maybe give us some thoughts on the broader asset sale target of $1.5 billion, in particular, maybe an update on the Endeavor water drop. Great. I'll turn it over. Thanks.

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

Thanks for taking my questions, guys. I'll keep it short in the interest of comfort. I'm wondering if you can contextualize a bit more case the opportunity to address some of the production downtime and focus on the production tail now can you quantify the size of that opportunity that you think can be addressed over the next couple of years endeavor team had and we're seeing some

some interesting results on some of our we call them HDL jobs my tail and we've

seen some some really encouraging stuff out of out of that program you don't have anything we can really quantify today, but, you know, we're going to continue to work that and get some data around it so we can talk to it in the future. But, you know, I think, you know, our three, four, or five years old that have been impacted by offset cracks and whatnot, and, you know, put some acid or some other, you know, chemical optimization into the reservoir, or stimulation into the reservoir, we're seeing, you know, So almost 100% improvement in production on lower production volumes. But it was very encouraging what we're seeing on some of the work we're doing on the tail end of the production curve.

Thanks for that color, Danny. Maybe, Kay, just following up on just Arun's comments with some of the non-core sales targeted for perhaps the back half of this year, how do you think about managing that cash coming in the door versus some of your debt targets by the end of the year and some shareholder returns.

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

Yeah, thanks, Case and team. If you can provide an update to the stoplight analogy, it sounds like you still think we're at yellow here, but your perspective on the macro and how that informs your activity decisions is there's some bifurcation in the industry about how players want to approach the back half of the year, and you guys have definitely taken a more guarded position here. So talk about the top-down view that informs how you're approaching your activity.

It unveiled itself last quarter, and I don't think it's going anywhere anytime soon. Unfortunately, we still think we're...

In case that kind of ties into the M&A in relation to last quarter, I think your message was Double Eagle represented an opportunity for you guys to pause because at that point you had consolidated a lot of the higher quality positions in the Permian and you wanted to stay at pure play. And then, you know, incremental M&A, if it's done, it would probably be done from a Viper Energy perspective where you view that as a roll-up story. Is that still the framework or are you suggesting a different posture here today? Great. We'll talk in the Viper call.

In this room.

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

Yeah, good morning, all. Hey, you all every quarter seem to find ways of squeezing out more efficiency, getting drill days down and et cetera. Look, how many more things can you do? I mean, drilling days can't go to zero, but do you have a line of sight on how you can continue you improve efficiencies or you get to a point where um you're more at the optimal level and maybe if if we understand what the leading edge kind of um you know metrics right now are versus averages that'd be helpful hey scott yeah thanks for the question uh you know where we can be you know efficiency and you know you know i think all right that's good to hear um and my follow-up question is um you know you all had a bit stronger gas production this quarter and you know it sounds like it came from more gas capture and in processing improvements um can you tell us how much more of that is is yet to come and is that something where your midstream partners are investing more capital to improve it are are you you know doing things differently with them or give us a little bit of color behind what really drove that and and how much more can we see from that perspective.

Thank you.

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

Good morning, guys. One of the majors has recently sort of highlighted some pretty ambitious targets for kind of dramatically improving kind of oil recovery rates in the Permian, just sort of y'all's thoughts on that side of the equation. Obviously, you've done a fantastic down in the cost side, and just anything that y'all are looking at on the recovery rate side of things.

Yeah, I mean, listen, we're...

And then just one housekeeping item for me. Was there a production associated with the Delaware Basin non-op divestiture?

Yeah, there was a little bit, John, a little bit over 1,000 barrels a day of net oil.

Got it. Thanks a lot, Casey.

Our next question comes from Philip Jungworth of BMO. Your line is now open.

Good morning. Wondering how you're viewing the cost of capital advantage right now for Viper versus FANG and how this shapes capital allocation decisions at the parent level. Looks like based on the DEX, both stocks are yielding around 10% free cash right now at 70, but I know you guys look at it in a lot more detail.

Yeah, I mean, listen, I think there's some technical things going on at Viper right now. We're stuck merger closed, and that limits some of the things we can do in terms of…

Okay, great. And then maybe more from a macro perspective, but can you talk about typical cycle times right now in the Permian, just considering efficiency gains, larger pad sizes, longer laterals, and really just trying to understand how long it takes to start to see the production impact from some of the reduced activity rig and frac that we've seen in the basin.

Yeah, I mean, if you think about, you know, kind of you could look at slides, you know, wells for, you know, somewhere or DSU development that may be broken down into multiple paths completion timing, full DSU.

Great, thanks.

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

Yes, good morning. i had a question on your your excess duck balance you know how big would that be at the end of the year and what's the strategy kind of going into to 26 with the excess ducks you know if oil is is weak would you pull it down because there's less incremental spend per well or would you like to maintain it you know for some quick to respond barrels in case oil moves higher yeah good Good question, Scott.

It seems the duck balance has gotten a little more attention than...

I got it.

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

I got it. I appreciate to come. Thank you.

Thank you. Our next question is from Betty Jean of Barclays. Your line is now open.

Hi, good morning. Thank you for taking my question. I want to ask about the development mix. If I look at the development mix provided in the back of the slide, there's an increase in other zones and also Wolf Camp B, but yet at the same time, you're able to maintain performance, if not better performance, which is quite impressive. So how do you see development mix evolving over time? And if you could just talk about what you're seeing in the other zone development performance-wise versus the traditional zones.

Yeah, maybe that.

Yeah, thank you.

Thank you for that color.

My follow-up is on power. We started to see some gas power deals in the basin. Can you just give us an update on what you are seeing along that front? Where do you see the value-add opportunities for Dynadoc? Got it. That makes sense. Thank you.

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

Thanks, and good morning, all.

There's been a lot of industry discussion on your comments from the one-key reporting cycle, both supportive and non-supportive, as you've highlighted, how would you characterize the support from your peers out of basin and the pushback within the basin?

And then maybe shifting to operations, I wanted to lean in on Scott's earlier question on your four-day SPUD to 2-day record. If you were to compare the segment performance of the four versus the average of the eight, where do you guys see the greatest differences in performance? And more broadly, did most of your wells fall within a day or so of the eight average?

Yeah, I mean, I think this is an efficiency going forward. Continue to grow up the things that call it, you know, bid selection or BHA selection optimization. And as we get more data and we're able to go back into the areas and optimize, we're going to see more consistent.

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

Hey, good morning. Keish, your letter warns of 25% casing cost inflation from tariffs. Can you remind us if you have any of that locked in and how much of that inflation is baked into your 550 to 580-a-foot wall cost guidance?

Inflation since – I appreciate that detail.

And as a follow-up, I mean, it looks like lower OPEX is certainly beneficial to your 2Q financials. Can you walk through the moving parts of your changes to guidance in LOE and GP&T?

GPT really quickly. You know, really the GPT moves between when we're taking in kind or not taking in kind.

Thanks for the answers, and good luck with the AC situation over there.

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

Hey, guys. It's kind of a follow-up to Neil's question from earlier, but I'm curious about the calculus around lowering activity. You know, we've had some companies tell us that, you know, with service cost declines and efficiency gains, that returns are even in lower tier acreage are pretty strong here. And obviously, you have super high quality acreage and very low cost. So I'm just kind of thinking about, like, what metric you're looking at to kind of make the decision to lower even here.

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

Yeah, that's fair. And then I guess my second question to you is, you know, when you do get the green light situation, is there any concern that you may lose some of the efficiencies, at least for a short period of time, as you kind of add activity back?

Not at all. That's not an excuse.

Great. Thanks, guys.

Thank you. Our next question is from Cali Akamain of Bank of America. Your line is now open.

Hey, good morning, guys. Okay, two real quick ones for me. Number one, just kind of looking at your hedge book for 2026, You look rather exposed on the oil side. Does that marry up with your outlook for 26 oil prices?

No, it's really just...

That makes sense. My second one is on maybe operations post the water sale. So the Endeavor asset will effectively fold into a bigger system. Does that create opportunities to improve your own operations with respect to water, i.e. being able to move more water to the right places or being able to move more water to different places that you currently don't have access to today? Got it. I appreciate the answers.

Thank you.

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

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

Good morning, Charles.

It sounds like you guys are holding up well. Really, just one question from me, Case, and you touched on this, but I just want to try to go right at it. Can you give us an update on what the green light conditions would be in your metaphor to re-accelerate? And have there been any changes to that in light of a lot of the dynamics that you've been talking about here today, whether casing costs up, service pricing, efficiency higher, service pricing down, And also, arguably, with the impending decline of U.S. oil volumes, that's a nascent bullish indicator, I think. So can you just give us a reminder of where you are and how that's changed?

Yeah.

Emphasis on caution. Thanks a lot, Case.

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

Thanks. Good morning, guys. Case, I wonder if I could ask you, I guess it's been asked multiple times, the return to growth question, but maybe ask it a little more pointedly. It seemed that under Travis, it was pretty clear that Diamondback would essentially be X growth, given, for want of a better expression, a subsidized oil market. Listening to you this morning, reading the letter, it sounds like there is a case where growth would make sense. Is that a change of stance under Case versus under Travis? That's very clear. Well, I guess my follow-up is related to that because although a lot of people might say, well, there'll come a time to grow, not everybody can because of inventory. So I want to be careful how I ask this, but you've talked about eight to ten years of tier one inventory, but as you and I have talked about before, you don't just develop tier one when you're doing a cube or whatever. So from a practical development stance, meaning tier one plus the other benches that you might develop alongside that. What would you say today is the consumption rate of your inventory, not 8 to 10 years? What's the real number?

Yeah, cheers.

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

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

Yeah, hi, guys. I wanted to ask a little about sort of the red light scenario, a lot of focus on the green light scenario, but what causes you folks to maybe slow down and consider shrinking a bit? Obviously, oil price is a key thing, but what else would you be looking at kind of apart from oil price here? That makes sense. And then just with respect to kind of targeted debt levels, for Venom, you guys kind of came out with a new target today of $1.5 billion in net debt, at which point you guys would increase returns to shareholders. Can you provide any kind of similar methodology at the FANG level in terms of how you're thinking about that to maybe boost some of the shareholder returns?

Yeah, I think...

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

Hi. Good morning. Case, just want to look at the business on a longer-term basis. I mean, since the formation, you guys have been always doing very good as the growth through acquisition. And as you say, until you prove them you are not a good consolidator, you should continue to be the preferred one. But at the same time, you also say that the asset available in Midland where is your focus is getting scalability. And so from that standpoint, I mean, how the longer term your business model need to be evolved over the next say call it five to ten years do you think that you will need to move outside uh midland into some of your peers we talk about international opportunities or that you think that you would just focus in midland okay um our second question real quick uh 2026 i know you're still a little bit early but if we assume your program would be relatively flat on the number of drilling rig or flat crew or number of welcoming on stream what's the plus and minus is that on the capix program may look like in terms of inflation or efficiency gain can you give us some idea that how that different factor will move that number comparing to this year number. And Case, that's already including the TALIS impact, right? The TALIS?

Yes.

Okay. Thank you.

Thanks, Paul.

Thank you. This now concludes the question-answer session. I would now like to turn it back to Case Vanthoff for closing remarks.

Temperature rising 20 degrees in that hour. I look forward to discussing any questions one might have.

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