Diamondback Energy, Inc. (FANG)

ITEM 2.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with our unaudited condensed consolidated financial statements and notes thereto presented in this report as well as our audited financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2025. The following discussion contains “forward-looking statements” that reflect our future plans, estimates, beliefs and expected performance. Actual results and the timing of events may differ materially from those contained in these forward-looking statements due to a number of factors. See Part II. Item 1A. Risk Factors, Part I. Item 1A. Risk Factors of our Annual Report on Form 10-K for the year ended December 31, 2025 and Cautionary Statement Regarding Forward-Looking Statements.

Overview

We are an independent oil and natural gas company currently focused on the acquisition, development, exploration and exploitation of unconventional, onshore oil and natural gas reserves in the Permian Basin in West Texas. As discussed in Note 1—Description of the Business and Basis of Presentation and Note 17—Segment Information of the notes to the condensed consolidated financial statements, as of June 30, 2026, we have one reportable segment, the upstream segment.

Second Quarter 2026 Financial and Operating Highlights

•Recorded net income of $1.9 billion.

•Our cash operating costs were $10.96 per BOE, including lease operating expenses of $5.96 per BOE, cash general and administrative expenses of $0.52 per BOE, production and ad valorem taxes of $3.26 per BOE and gathering, processing and transportation expenses of $1.22 per BOE.

•Incurred cash capital expenditures, excluding acquisitions, of $996 million.

•Paid dividends to stockholders, including dividend equivalent rights, of $311 million, or $1.10 per share, during the second quarter of 2026 and declared a base cash dividend payable in the third quarter of 2026 of $1.10 per share of common stock.

•Repurchased $141 million of our common stock, excluding excise taxes.

•Retired approximately $828 million in aggregate principal of our senior notes and $550 million in outstanding borrowings on our 2025 Term Loan, which was terminated upon repayment.

•Our average production was 1,017.7 MBOE/d, surpassing the 1.0 million BOE/d milestone.

•Drilled 97 gross horizontal wells in the Midland Basin and turned 168 gross operated horizontal wells in the Midland Basin to production.

Transactions and Recent Developments

Pending 2026 Drop Down

On August 3, 2026, we entered into a definitive purchase agreement with Viper Energy Partners LP to divest certain mineral and royalty interests in exchange for 3.65 million Viper LLC Units and an equivalent number of shares of Viper’s Class B common stock (the pending “2026 Drop Down”), subject to transaction costs and certain customary post-closing adjustments. The pending 2026 Drop Down will be accounted for as a transaction between entities under common control with the acquired properties recorded at Diamondback’s historical carrying value in the Company’s condensed consolidated balance sheet.

Increase in Stock Repurchase Program Authorization

On July 30, 2026, our board of directors approved an increase in stock repurchase authorization under the Company’s existing stock repurchase program from $8.0 billion to $16.0 billion, excluding excise tax.

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Viper Riverbend Acquisition

On July 1, 2026, Viper and Viper Energy Partners LP acquired all of the equity interests of Riverbend for consideration consisting of approximately (i) $339 million in cash and (ii) 3.69 million shares of Viper’s Class A common stock, in each case, subject to customary post-closing adjustments.

Commodity Prices

Prices for oil, natural gas and natural gas liquids are determined primarily by prevailing market conditions. Geopolitical global conflicts, tariffs or other trade barriers and any resulting trade tensions, regional and worldwide economic activity, changes in trade or other government policies or regulations, including with respect to U.S. energy and monetary policies, extreme weather conditions, changes in OPEC+ production levels and other substantially variable factors influence market conditions for these products. For example, as a result of the ongoing conflict in the Middle East, in 2026 the global crude oil market shifted from a supply-demand surplus to a deficit, materially reducing crude oil and refined products from the markets, and increasing benchmark crude oil prices. These factors are beyond our control and are difficult to predict. During the six months ended June 30, 2026 and 2025, WTI prices averaged $83.00 and $70.81 per Bbl, respectively, and Henry Hub prices averaged $3.20 and $3.69 per MMBtu, respectively.

During the three and six months ended June 30, 2026, natural gas price realizations were adversely affected by widening basis differentials between natural gas prices at Waha Hub and prices at Henry Hub. The unfavorable differentials were primarily driven by regional natural gas takeaway constraints in the Permian Basin, which resulted in periods of negative pricing at Waha Hub. The Company expects the impact of these constraints to be reduced later in 2026 as its secured takeaway capacity is meaningfully increased through the execution of new contracts and expanded infrastructure build out in the region. However, realized prices are expected to continue to be influenced by, and subject to, future supply, demand, transportation availability and other market factors.

Upstream Operations

Our activities are primarily directed at the horizontal development of the Wolfcamp, Spraberry and Barnett formations in the Midland Basin and the Wolfcamp and Bone Spring formations in the Delaware Basin within the Permian Basin. Additionally, our publicly-traded subsidiary, Viper, is focused on owning and acquiring mineral interests and royalty interests in oil and natural gas properties primarily in the Permian Basin and derives royalty income and lease bonus income from such interests.

As of June 30, 2026, we had approximately 902,005 net acres in the Permian Basin, which included approximately 808,401 net acres in the Midland Basin and 93,604 net acres in the Delaware Basin.

The following table sets forth the total number of operated horizontal wells drilled and completed during the periods indicated:

(1)The average lateral length for the wells completed during the second quarter of 2026 was 11,983 feet. Operated completions during the second quarter of 2026 consisted of 41 Wolfcamp B wells, 38 Wolfcamp A wells, 31 Jo Mill wells, 31 Lower Spraberry wells, 13 Middle Spraberry wells, seven Wolfcamp D wells, five Dean wells, one Barnett well and one Upper Spraberry well.

(2)The average lateral length for the wells completed during the six months ended June 30, 2026 was 11,679 feet. Operated completions during the six months ended June 30, 2026 consisted of 71 Wolfcamp B wells, 69 Wolfcamp A wells, 63 Lower Spraberry wells, 62 Jo Mill wells, 20 Middle Spraberry wells, 15 Wolfcamp D wells, 11 Dean wells, three Upper Spraberry wells and one Barnett well.

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As of June 30, 2026, we operated the following wells:

As of June 30, 2026, we and Viper held interests in 44,314 gross (9,810 net) wells, including 1,909 gross (331 net) wells in which we have a non-operated working interest.

Outlook

We have increased our annual production guidance by 3% to approximately 1,000 MBOE/d based on our assessment of current market fundamentals, including global oil supply constraints that began in the first quarter of 2026 and their continuing impact on crude oil inventory levels. We expect to achieve this increase in part by continuing to convert portions of our drilled but uncompleted well balance and building upon our improved operational efficiencies.

Results of Operations

Comparison of the Three Months Ended June 30, 2026, and March 31, 2026

As noted in “—Commodity Prices,” the markets for oil and natural gas are highly volatile and are influenced by a number of factors, which can lead to significant changes in our results of operations and management’s operational strategy on a quarterly basis. Accordingly, our results of operations discussion focuses on a comparison of the current quarter’s results of operations with those of the immediately preceding quarter. We believe our discussion provides investors with a more meaningful analysis of material operational and financial changes which occurred during the quarter based on current market and operational trends.

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The following table sets forth selected operating data for the periods indicated:

(1)Bbl equivalents are calculated using a conversion rate of six Mcf per Bbl.

(2)Hedged prices reflect the effect of our commodity derivative transactions on our average sales prices and include gains and losses on cash settlements for matured commodity derivatives, which we do not designate for hedge accounting. Hedged prices exclude gains or losses resulting from the early settlement of commodity derivative contracts.

Production Data. Substantially all of our revenues are generated through the sale of oil, natural gas and natural gas liquids production. The following tables provide information on the mix of our production for the periods indicated:

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with our consolidated financial statements and notes thereto in Item 8. Financial Statements and Supplementary Data of this report. The following discussion contains “forward-looking statements” that reflect our future plans, estimates, beliefs, and expected performance. Actual results and the timing of events may differ materially from those contained in these forward-looking statements due to a number of factors discussed further in Item 1A. Risk Factors and Cautionary Statement Regarding Forward-Looking Statements of this report.

Overview

We are an independent oil and natural gas company focused on the acquisition, development, exploration and exploitation of unconventional, onshore oil and natural gas reserves primarily in the Permian Basin in West Texas. As of December 31, 2025, we have one reportable segment, the upstream segment. See Note 1—Description of the Business and Basis of Presentation and Note 17—Segment Information in Item 8. Financial Statements and Supplementary Data of this report for further discussion.

2025 Financial and Operating Highlights

•Recorded net income of $1.7 billion, which includes impairment of approximately $3.7 billion recorded on our proved oil and natural gas properties during the fourth quarter of 2025.

•Our cash operating costs were $10.23 per BOE, including lease operating expenses of $5.55 per BOE, cash general and administrative expenses of $0.62 per BOE and production and ad valorem taxes and gathering, processing and transportation expenses of $4.06 per BOE.

•Incurred cash capital expenditures, excluding acquisitions, of $3.5 billion.

•Paid dividends to stockholders of $1.2 billion during 2025 and declared a base cash dividend payable in the first quarter of 2026 of $1.05 per share of common stock.

•Increased our common stock repurchase program authorization to $8.0 billion, excluding excise taxes, and repurchased $2.0 billion of our common stock in 2025, leaving approximately $2.7 billion available for future repurchases at December 31, 2025.

•Issued $1.2 billion aggregate principal amount of 5.550% Senior Notes due April 1, 2035 (the “2035 Notes”) to fund a portion of the cash consideration for the Double Eagle Acquisition.

•Repurchased an aggregate of approximately $455 million of our senior notes.

•Our average production was 921.0 MBOE/d.

•Drilled 463 gross horizontal wells (including 459 in the Midland Basin and 4 in the Delaware Basin).

•Turned 503 gross operated horizontal wells (including 488 in the Midland Basin and 15 in the Delaware Basin) to production.

•As of December 31, 2025, we had approximately 869,036 net acres in the Permian Basin, which primarily consisted of 774,645 net acres in the Midland Basin and 94,391 net acres in the Delaware Basin. As of December 31, 2025, we had an estimated 8,854 gross horizontal locations that we believe to be economic at $50.00 per Bbl WTI. Our publicly traded subsidiary, Viper, also owns mineral interests underlying approximately 36,004 net royalty acres in the Delaware Basin and approximately 50,595 net royalty acres in the Midland Basin. We operate approximately 35% of these net royalty acres.

Transactions and Recent Developments

Diamondback Acquisition and Divestitures

EPIC Divestiture

On October 31, 2025, we divested our 27.5% equity interest in EPIC for approximately $504 million in cash and an additional $96 million in contingent consideration (the “EPIC Divestiture”), which resulted in a gain on the sale of equity method investments of approximately $299 million. The gain is included in the caption “Other income (expense), net” on the consolidated statements of operations for the year ended December 31, 2025.

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Divestiture of Water Assets to Deep Blue

On October 1, 2025, we divested EDS, a subsidiary originally acquired in connection with the Endeavor Acquisition, to our affiliate, Deep Blue Midland Basin LLC (“Deep Blue”), in exchange for upfront net cash proceeds of $694 million, subject to customary post-closing adjustments, and approximately $34 million of additional equity interests issued by Deep Blue as non-cash consideration. This transaction provides for the potential for us to earn up to an additional $200 million. If certain completion thresholds are not met, we could owe up to $150 million in contingent consideration for the years 2026 through 2028. The divestiture resulted in a gain of approximately $168 million, which is included in the caption “Other operating expenses, net” on the consolidated statements of operations for the year ended December 31, 2025. As part of the divestiture, we renewed our 15-year dedication to Deep Blue for its produced water and supply water within a 12-county area of mutual interest in the Midland Basin.

2025 Drop Down

On May 1, 2025, our wholly owned subsidiary, EER LP, divested the Endeavor Subsidiaries to Viper and Viper LLC in exchange for consideration consisting of (i) $873 million in cash including customary post-closing adjustments, and (ii) the issuance of 69.63 million Viper LLC units and an equal number of shares of Viper’s Class B common stock.

Double Eagle Acquisition

On April 1, 2025, we completed the Double Eagle Acquisition for consideration of $3.1 billion in cash and approximately 6.84 million shares of our common stock, including transaction costs and certain customary post-closing adjustments. The Double Eagle Acquisition consisted of approximately 67,700 gross (40,000 net) acres, which are primarily located in the Midland Basin, and approximately 407 gross (342 net) horizontal locations in primary development targets.

Viper Acquisitions and Divestitures

Divestiture of Non-Permian Assets

On February 9, 2026, Viper completed the Viper Non-Permian Divestiture for net cash proceeds of approximately $617 million, subject to customary post-closing adjustments. The divested properties consisted of approximately 9,400 net royalty acres in the Denver-Julesburg, Eagle Ford and Williston basins with current production of approximately 4,750 BO/d. Proceeds from the Viper Non-Permian Divestiture were used to repay the Viper 2025 Term Loan (as defined below) and to reduce borrowings outstanding on the Viper Revolving Credit Facility (as defined and discussed in Note 8—Debt in Item 8. Financial Statements and Supplementary Data of this report).

Sitio Acquisition

On August 19, 2025, Viper and Viper LLC completed the Sitio Acquisition in an all-equity transaction valued at approximately $4.0 billion, including customary transaction costs and post-closing adjustments and the partial retirement of Sitio’s net debt of approximately $1.2 billion. The mineral and royalty interests acquired in the Sitio Acquisition represent approximately 25,300 net royalty acres in the Permian Basin and approximately 9,000 net royalty acres in the Denver-Julesburg, Eagle Ford and Williston basins, for total acreage of approximately 34,300 net royalty acres.

See Note 4—Acquisitions and Divestitures and Note 16—Subsequent Events in Item 8. Financial Statements and Supplementary Data of this report for further discussion of the acquisitions and divestitures discussed above.

Diamondback Capital Transactions

2025 Term Loan Agreement

In connection with the Double Eagle Acquisition, Diamondback Energy, Inc., as guarantor, entered into a term loan credit agreement with Diamondback E&P, as borrower, and Bank of America, N.A., as administrative agent (the “2025 Term Loan”). The 2025 Term Loan provided the Company with the ability to borrow up to $1.5 billion, which we drew in a single borrowing to fund a portion of the cash consideration for the Double Eagle Acquisition.

2035 Notes Offering

On March 20, 2025, we issued the 2035 Notes for net proceeds of $1.2 billion, after underwriters’ discounts and transaction costs, which we used to fund a portion of the cash consideration for the Double Eagle Acquisition.

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Diamondback Retirement of Notes

During the year ended December 31, 2025, we opportunistically repurchased an aggregate principal amount of $455 million of our senior notes in open market transactions for total cash consideration, including accrued interest paid, of approximately $363 million, at an average of 79.3% of par value.

Viper Capital Transactions

Viper 2025 Notes Offering and Retirement of Notes

On July 23, 2025, Viper LLC issued $1.6 billion in aggregate principal amount of senior notes consisting of (i) $500 million aggregate principal amount of 4.900% Senior Notes due August 1, 2030 (the “Viper 2030 Notes”), and (ii) $1.1 billion aggregate principal amount of 5.700% Senior Notes due August 1, 2035 (the “Viper 2035 Notes” and together with the Viper 2030 Notes, the “Viper 2025 Notes”). Viper used approximately $824 million of the net proceeds from the issuance of the Viper 2025 Notes to redeem all of Viper’s 7.375% Senior Notes maturing on November 1, 2031 (the “Viper 2031 Notes”), and on November 1, 2025, Viper redeemed all of their 5.375% Senior Notes due 2027 (the “Viper 2027 Notes”), including accrued and unpaid interest through the date of redemption and any redemption premiums. Viper used the remaining net proceeds to partially retire Sitio’s net debt of approximately $1.2 billion including any fees, costs and expenses related to the redemption or repayment of such debt, and for general corporate purposes. On December 23, 2025, Viper Energy Partners LLC converted its legal form (the “Viper LLC Conversion”), in accordance with the applicable laws of the State of Delaware, to a Delaware limited partnership named Viper Energy Partners LP (“Viper LP”), which is now the issuer under the Viper 2025 Notes.

Viper 2025 Term Loan

On July 23, 2025, Former Viper, as guarantor, Viper LLC, as borrower, and Goldman Sachs Bank USA, as administrative agent, entered into a $500 million term loan credit agreement (the “Viper 2025 Term Loan”), which was fully drawn to partially fund the retirement of Sitio’s net debt. Following the closing of the Sitio Acquisition, New Viper became an additional guarantor of the borrower’s obligations under the Viper 2025 Term Loan. Further, after the Viper LLC Conversion, Viper LP, as successor to Viper Energy Partners LLC, became the borrower with respect to the Viper 2025 Term Loan. The Viper 2025 Term Loan was repaid in full in February 2026.

Viper 2025 Equity Offering

On February 3, 2025, Viper completed an underwritten public offering of approximately 28.34 million shares of its Class A common stock, which included approximately 3.70 million shares issued pursuant to an option to purchase additional shares of its Class A common stock granted to the underwriters at a price to the public of $44.50 per share, for total net proceeds to Viper of approximately $1.2 billion, after the underwriters’ discount and transaction costs (the “Viper 2025 Equity Offering”).

See Note 8—Debt and Note 9—Stockholders’ Equity and Earnings (Loss) Per Share in Item 8. Financial Statements and Supplementary Data of this report for further discussion of the capital transactions above.

Commodity Prices

Prices for oil, natural gas and natural gas liquids are determined primarily by prevailing market conditions. Regional and worldwide economic activity, changes in trade or other government policies or regulations, including with respect to U.S. energy and monetary policies, tariffs or other trade barriers and any resulting trade tensions, regional conflicts and political instability, extreme weather conditions and other substantially variable factors, influence market conditions for these products. These factors are beyond our control and are difficult to predict. During 2025, 2024 and 2023, WTI prices averaged $64.73, $75.76 and $77.60 per Bbl, respectively, and Henry Hub prices averaged $

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