# Diamondback Energy, Inc. (FANG) FY 2024 MD&A

Verbatim Item 7 Management's Discussion and Analysis from Diamondback Energy, Inc.'s 10-K for fiscal year 2024.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1539838/000153983825000021/fang-20241231.htm
Accession: 0001539838-25-000021
Filing date: 2025-02-26
Report date: 2024-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary. Published MD&A gate trimmed front/tail over-capture.
Confidence: high

Company profile: /company/FANG/
All MD&A years: /company/FANG/mda/
Previous year: /company/FANG/mda/fy2023/ (FY 2023)
Next year: /company/FANG/mda/fy2025/ (FY 2025)

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, 2024, we have one reportable segment, the upstream segment. See Note 1—Description of the Business and Basis of Presentation and Note 18—Segment Information in Item 8. Financial Statements and Supplementary Data of this report for further discussion.

2024 Financial and Operating Highlights

•We recorded net income of $3.3 billion.

•Increased our annual base dividend to $4.00 per share of common stock in the fourth quarter of 2024, paid dividends to stockholders of $1.6 billion during 2024 and declared a base cash dividend payable in the first quarter of 2025 of $1.00 per share of common stock.

•Increased our common stock repurchase program authorization to $6.0 billion, excluding excise taxes, and repurchased $959 million of our common stock, leaving approximately $2.7 billion available for future purchases under our common stock repurchase program at December 31, 2024.

•Our cash operating costs were $11.09 per BOE, including lease operating expenses of $5.87 per BOE, cash general and administrative expenses of $0.68 per BOE and production and ad valorem taxes and gathering, processing and transportation expenses of $4.54 per BOE.

•Issued the April 2024 Notes for an aggregate of $5.5 billion in proceeds and incurred $1.0 billion in initial borrowings under the Tranche A Loans (as defined below in “—Transactions and Recent Developments”) to fund a portion of the cash consideration for the Endeavor Acquisition.

•Our average production was 598,284 MBOE/d.

•Drilled 372 gross horizontal wells (including 342 in the Midland Basin and 30 in the Delaware Basin).

•Turned 410 gross operated horizontal wells (including 391 in the Midland Basin and 19 in the Delaware Basin) to production.

•As of December 31, 2024, we had approximately 860,719 net acres, which primarily consisted of 737,181 net acres in the Midland Basin and 123,218 net acres in the Delaware Basin. As of December 31, 2024, we had an estimated 9,188 gross horizontal locations that we believe to be economic at $50.00 per Bbl WTI. In addition, our publicly traded subsidiary, Viper, owns mineral interests underlying approximately 987,861 gross acres and 35,671 net royalty acres in the Permian Basin. We operate approximately 52% of these net royalty acres.

•Incurred capital expenditures, excluding acquisitions, of $2.9 billion.

Transactions and Recent Developments

2025 Transactions

Pending Double Eagle Acquisition

On February 14, 2025, we entered into a definitive securities purchase agreement with Double Eagle to effect the pending Double Eagle Acquisition for consideration of $3.0 billion in cash and approximately 6.9 million shares of our common stock, subject to customary adjustments. The pending Double Eagle Acquisition consists 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. We intend to fund the cash portion of the pending Double Eagle Acquisition through a combination of cash on hand, borrowings under our credit facility or proceeds from term loans and senior notes offerings. The pending Double Eagle Acquisition is expected to close in the second quarter of 2025, subject to the satisfaction of customary closing conditions and regulatory approval.

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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 (the “Viper 2025 Equity Offering”), which included 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. Viper received total net proceeds for the Viper 2025 Equity Offering of approximately $1.2 billion after the underwriters’ discount and estimated transaction costs.

Pending 2025 Drop Down Transaction

On January 30, 2025, EER LP and the Endeavor Subsidiaries, each of which is our subsidiary, entered into a definitive equity purchase agreement with Viper and Viper LLC to divest the Endeavor Subsidiaries to Viper in exchange for consideration consisting of (i) $1.0 billion in cash and (ii) the issuance of 69.63 million Viper LLC units and an equal number of shares of Viper’s Class B common stock (which securities are exchangeable for an equal number of Viper’s Class A common stock), in each case subject to customary closing adjustments, including for net title benefits. The pending 2025 Drop Down is expected to close in the second quarter of 2025, subject to the approval by Viper’s stockholders, regulatory clearance and the satisfaction or waiver of other closing conditions. Viper intends to fund the cash consideration for the pending 2025 Drop Down with the net proceeds from the Viper 2025 Equity Offering discussed above. The mineral and royalty interests owned by the Endeavor Subsidiaries being divested in the pending 2025 Drop Down represent approximately 22,847 net royalty acres located primarily in the Permian Basin. The Endeavor Subsidiaries being sold in the pending 2025 Drop Down were acquired by us in the recently completed Endeavor Acquisition.

See Note 17—Subsequent Events in Item 8. Financial Statements and Supplementary Data of this report for further discussion of the pending Double Eagle Acquisition, the Viper 2025 Equity Offering and the pending 2025 Drop Down.

2024 Diamondback Acquisitions and Divestitures

Endeavor Acquisition

On September 10, 2024, we completed the Endeavor Acquisition for consideration consisting of $7.3 billion in cash, subject to certain customary post-closing adjustments, and approximately 117.27 million shares of our common stock. The Endeavor Acquisition included approximately 500,849 gross (361,927 net) acres, which are primarily located in the Permian Basin. The cash consideration for the Endeavor Acquisition was funded through a combination of cash on hand, the net proceeds of the Company’s $5.5 billion April 2024 Senior Notes offering and $1.0 billion in borrowings under the Tranche A Loans (as defined and discussed below). See Note 5—Endeavor Energy Resources, LP Acquisition in Item 8. Financial Statements and Supplementary Data of this report for further discussion of the Endeavor Acquisition.

TRP Energy, LLC Asset Exchange

On December 20, 2024, we completed an exchange agreement with TRP Energy, LLC (“TRP”), in which we exchanged approximately 47,034 gross (35,673 net) acres located in the Delaware Basin and $325 million in cash, subject to customary post-closing adjustments, for certain of TRP’s assets consisting of approximately 21,582 gross (15,421 net) acres located in the Midland Basin (the “TRP Exchange”). The TRP Exchange was valued at approximately $1.4 billion.

WTG Midstream Transaction

On July 15, 2024, Remuda Midstream Holdings LLC, (the “WTG joint venture”) sold its WTG Midstream LLC subsidiary (the “WTG Midstream Transaction”), resulting in proceeds to us of 10.1 million common units of Energy Transfer LP and $190 million in cash, subject to customary closing adjustments. At the closing of the WTG Midstream Transaction, the value attributable to us for the 10.1 million common units was approximately $135 million, of which we received approximately $81 million with the remaining $54 million held in escrow pursuant to an escrow agreement entered into by the WTG joint venture. A gain of approximately $74 million was recognized for the WTG Transaction in the third quarter of 2024.

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2024 Viper Acquisitions

Viper Tumbleweed Acquisitions

On October 1, 2024, Viper and Viper LLC completed the Viper TWR Acquisition, for which the consideration consisted of approximately (i) $464 million in cash, (ii) 10.09 million Viper LLC units, including transaction costs and certain customary post-closing adjustments, (iii) the TWR Class B Option, and (iv) contingent cash consideration of up to $41 million payable in January of 2026. The mineral and royalty interests acquired in the Viper TWR Acquisition represent approximately 3,067 net royalty acres located primarily in the Permian Basin.

On September 3, 2024 Viper and Viper LLC acquired all of the issued and outstanding equity interests in Tumbleweed-Q Royalties, LLC (i) the Viper Q Acquisition for a purchase price of approximately $114 million in cash, including transaction costs and certain customary post-closing adjustments, and a contingent cash consideration of up to $5 million payable in January of 2026, and (ii) MC TWR Royalties, LP and MC TWR Intermediate, LLC the Viper M Acquisition for a purchase price of approximately $76 million in cash, including transaction costs and certain customary post-closing adjustments, and a contingent cash consideration of up to $4 million payable in January of 2026. The mineral and royalty interests acquired in the Viper Q & M Acquisitions, represent approximately 406 and 267 net royalty acres located primarily in the Permian Basin, respectively.

See Note 4—Acquisitions and Divestitures in Item 8. Financial Statements and Supplementary Data of this report for further discussion of the TRP Exchange, the Viper Tumbleweed Acquisitions and the WTG Midstream Transaction.

2024 Capital Transactions

Viper 2024 Equity Offering

On September 13, 2024, Viper completed an underwritten public offering of approximately 11.5 million shares of its Class A common stock at a price to the public of $42.50 per share for total net proceeds to Viper of approximately $476 million (the “Viper 2024 Equity Offering”).

See Note 10—Stockholders' Equity and Earnings (Loss) Per Share in Item 8. Financial Statements and Supplementary Data of this report for further discussion of the Viper 2024 Equity Offering.

April 2024 Notes Offering

On April 18, 2024, we issued an aggregate of $5.5 billion in senior notes, consisting of (i) $850 million aggregate principal amount of 5.200% Senior Notes due April 18, 2027 (the “2027 Notes”), (ii) $850 million aggregate principal amount of 5.150% Senior Notes due January 30, 2030 (the “2030 Notes”), (iii) $1.3 billion aggregate principal amount of 5.400% Senior Notes due April 18, 2034 (the “2034 Notes”), (iv) $1.5 billion aggregate principal amount of 5.750% Senior Notes due April 18, 2054 (the “2054 Notes”), and (v) $1.0 billion aggregate principal amount of 5.900% Senior Notes due April 18, 2064 (the “2064 Notes” and together with the 2027 Notes, the 2030 Notes the 2034 Notes and the 2054 Notes, the “April 2024 Notes”).

Term Loan Agreement

In connection with the Endeavor Acquisition, we entered into a Term Loan Credit Agreement with Citibank, N.A. on February 29, 2024 (the “Term Loan Agreement”). The Term Loan Agreement provided the Company with the ability to borrow up to $1.5 billion, which was comprised of $1.0 billion of Tranche A Loans (the “Tranche A Loans”) and $500 million of Tranche B Loans (the “Tranche B Loans”). On August 2, 2024, we terminated our undrawn Tranche B Loans. Initial borrowings of $1.0 billion under the Tranche A Loans were used to fund a portion of the cash consideration for the Endeavor Acquisition.

Commodity Prices

Prices for oil, natural gas and natural gas liquids are determined primarily by prevailing market conditions. Regional and worldwide economic activity, 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 2024, 2023 and 2022 the NYMEX WTI prices averaged $75.76, $77.60 and $94.33 per Bbl, respectively, and the NYMEX Henry Hub prices averaged $2.41, $2.66 and $6.54 per MMBtu, respectively.

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For additional information around risks related to commodity prices, see Part II. Item 7A. Quantitative and Qualitative Disclosures About Market Risk—Commodity Price Risk.

Outlook

During 2024, we had total capital expenditures of $2.9 billion, which was consistent with our guidance presented in November 2024. In 2025, we expect production and capital expenditures to increase as a result of the Endeavor Acquisition the Viper Tumbleweed Acquisitions, and the pending Double Eagle Acquisition, if consummated. Giving effect to the pending Double Eagle Acquisition, we have currently budgeted 2025 total capital spend of $3.80 billion to $4.20 billion, which at the midpoint is an increase of 36% year over year. Given the volatile current macro environment for oil prices and near-term global oil supply and demand dynamics, we have made the capital allocation decision to focus on free cash flow (as defined in “— Capital Requirements”) generation and capital efficiency over volume growth in 2025.

As part of the agreement with Double Eagle, we have also agreed to accelerate development on a portion of our non-core southern Midland Basin acreage. This acceleration is expected to bring forward net asset value to us by developing our lower quality acreage at a faster pace than current expectations. As a result, we expect significant free cash flow growth in 2026 and beyond with minimal capital deployment through this accelerated development plan.

Beginning in the first quarter of 2024, our board of directors approved a reduction to our return of capital commitment to our shareholders to at least 50% (down from 75%) of our quarterly free cash flow. Because we added debt to fund the cash portion of the Endeavor Acquisition and expect to add additional debt upon completion of the pending Double Eagle Acquisition, we are allocating more free cash flow to pay down our debt, with a near-term goal to reduce net debt to $10 billion. Our long-term target is to maintain our net debt between $6 billion and $8 billion through free cash flow generation and potential non-core asset sales as demonstrated by our recently announced commitment to sell at least $1.5 billion of non-core assets to help accelerate debt reduction and maintain a strong balance sheet. We also remain focused on our long-term priority to return cash to our stockholders.

In the Midland Basin, we continued to have positive results across our core development areas located within Midland, Martin, Ector, Glasscock, Reagan, Andrews and Howard counties, where development has primarily focused on drilling long-lateral, multi-well pads targeting the Spraberry and Wolfcamp formations.

In the Delaware Basin, we continued to target the Wolfcamp and Bone Spring formations across our primary development areas located in Pecos, Reeves and Ward counties. Collectively, the Delaware Basin accounted for approximately 5% of our total development in 2024, and we expect a similar portion of our total development to be focused in these areas in 2025.

As of December 31, 2024, we were operating 19 drilling rigs and four completion crews and currently intend to operate between 13 and 19 drilling rigs and between four and six completion crews in 2025 on average across our current acreage position in the Midland and Delaware Basins.

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2025 Guidance

The following table presents our current estimates, which give effect to the estimated contribution related to the pending Double Eagle Acquisition, of certain financial and operating results for the full year of 2025, as well as production and cash tax guidance for the first quarter of 2025:

[[GREPCENT_TABLE]]
[["","2025 Guidance"],["Net production - MBOE/d","883 - 909"],["Oil production - MBO/d","485 - 498"],["Q1 2025 oil production - MBO/d (total - MBOE/d)","470 - 475 (860 - 875)"],["(Unit costs $/BOE):"],["Lease operating expenses, including workovers","$5.90 - $6.30"],["General and administrative expenses - cash","$0.60 - $0.75"],["Non-cash stock-based compensation","$0.25 - $0.35"],["Depreciation, depletion, amortization and accretion","$14.00 - $15.00"],["Interest expense (net of interest income)","$0.25 - $0.50"],["Gathering, processing and transportation","$1.20 - $1.40"],["Production and ad valorem taxes (% of revenue)","~7%"],["Corporate tax rate (% of pre-tax income)","23%"],["Cash tax rate (% of pre-tax income)","17% - 20%"],["Q1 2025 cash taxes (in millions)","$280 - $340"]]
[[/GREPCENT_TABLE]]

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Results of Operations

Comparison of the Years Ended December 31, 2024 and 2023

For a discussion of the results of operations for the year ended December 31, 2023 as compared to the year ended December 31, 2022, please refer to Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2023 (filed with the SEC on February 22, 2024), which is incorporated in this report by reference from such prior report on Form 10-K.

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

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","2024","","2023"],["Revenues (in millions):"],["Oil sales","$","9,067","","","$","7,279"],["Natural gas sales","89","","","262"],["Natural gas liquid sales","944","","","687"],["Total oil, natural gas and natural gas liquid revenues","$","10,100","","","$","8,228"],["Production Data:"],["Oil (MBbls)","123,325","","","96,176"],["Natural gas (MMcf)","275,680","","","198,117"],["Natural gas liquids (MBbls)","49,700","","","34,217"],["Combined volumes (MBOE)(1)","218,972","","","163,413"],["Daily oil volumes (BO/d)","336,954","","","263,496"],["Daily combined volumes (BOE/d)","598,284","","","447,707"],["Average Prices:"],["Oil ($ per Bbl)","$","73.52","","","$","75.68"],["Natural gas ($ per Mcf)","$","0.32","","","$","1.32"],["Natural gas liquids ($ per Bbl)","$","18.99","","","$","20.08"],["Combined ($ per BOE)","$","46.12","","","$","50.35"],["Oil, hedged ($/Bbl)(2)","$","72.68","","","$","74.72"],["Natural gas, hedged ($/Mcf)(2)","$","0.91","","","$","1.48"],["Natural gas liquids, hedged ($/Bbl)(2)","$","18.99","","","$","20.08"],["Average price, hedged ($/BOE)(2)","$","46.38","","","$","49.98"]]
[[/GREPCENT_TABLE]]

(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.

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Production Data. Substantially all of our revenues are generated through the sale of oil, natural gas and natural gas liquids production. The following table provides information on the mix of our production for the years ended December 31, 2024 and 2023:

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","2024","","2023"],["Oil (MBbls)","56","%","","59","%"],["Natural gas (MMcf)","21","%","","20","%"],["Natural gas liquids (MBbls)","23","%","","21","%"],["","100","%","","100","%"]]
[[/GREPCENT_TABLE]]

See Items 1 and 2. Business and Properties—Oil and Natural Gas Data—Oil and Natural Gas Production and Price History of this report for further discussion of production by basin.

Oil, Natural Gas and Natural Gas Liquids Revenues. Our revenues are a function of oil, natural gas and natural gas liquids production volumes sold and average sales prices received for those volumes.

Our oil, natural gas and natural gas liquids revenues increased by approximately $1.9 billion, or 23%, to $10.1 billion in 2024 compared to $8.2 billion in 2023. This net increase consisted of an additional $2.5 billion attributable to the 34% growth in our combined production volumes, and a reduction of $596 million attributable to lower average prices received for our oil, natural gas and natural gas liquids production.

Approximately 72% of the increase in combined production volumes is attributable to the Endeavor Acquisition, 4% is attributable to Viper’s GRP Acquisition and 1% is attributable to Viper’s Tumbleweed Acquisitions. The remainder of the change is attributable to new wells drilled on previously existing acreage.

See Note 4—Acquisitions and Divestitures and Note 5—Endeavor Energy Resources, LP Acquisition in Item 8. Financial Statements and Supplementary Data of this report for further definition and discussion of Viper’s GRP Acquisition, the Viper Tumbleweed Acquisitions and the Endeavor Acquisition.

Net Sales of Purchased Oil. Beginning in the third quarter of 2023, we entered into purchase transactions with third parties and separate sale transactions with third parties to satisfy certain of our unused oil pipeline capacity commitments.

The following table presents the net sales of purchased oil from third parties for the year ended December 31, 2024 and 2023:

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["(In millions)","2024","","2023"],["Sales of purchased oil","$","923","","","$","111"],["Purchased oil expense","921","","","111"],["Net sales of purchased oil","$","2","","","$","\u2014"]]
[[/GREPCENT_TABLE]]

Other Revenues. The following table shows the other revenues for the year ended December 31, 2024 and 2023:

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["(In millions)","2024","","2023"],["Other operating income","$","43","","","$","73"]]
[[/GREPCENT_TABLE]]

Other operating income decreased by $30 million in 2024 compared to 2023 primarily due to (i) a $37 million reduction in midstream service revenues following the sale of the Deep Blue Water Assets in the third quarter of 2023, (ii) a $5 million increase in midstream service revenues resulting from the Endeavor Acquisition and (iii) other individually insignificant changes.

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Lease Operating Expenses. The following table shows lease operating expenses for the years ended December 31, 2024 and 2023:

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","2024","","2023"],["(In millions, except per BOE amounts)","Amount","","Per BOE","","Amount","","Per BOE"],["Lease operating expenses","$","1,286","","","$","5.87","","","$","872","","","$","5.34"]]
[[/GREPCENT_TABLE]]

Lease operating expenses increased by $414 million, or $0.53 per BOE in 2024 as compared to 2023. The increase primarily consists of (i) $220 million in lease operating expenses related to the Endeavor Acquisition, (ii) $66 million in additional costs incurred for water services as a result of divesting the Deep Blue Water Assets in the third quarter of 2023, (iii) $65 million due to an increase in legacy production volumes, (iv) $48 million due to an increase in workover expense, (v) $12 million due to an increase in electrical generation costs, and (vi) other individually insignificant changes.

Production and Ad Valorem Tax Expense. The following table shows production and ad valorem tax expense for the years ended December 31, 2024 and 2023:

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","2024","","2023"],["(In millions, except per BOE amounts)","Amount","","Per BOE","","Percentage of oil, natural gas and natural gas liquids revenue","","Amount","","Per BOE","","Percentage of oil, natural gas and natural gas liquids revenue"],["Production taxes","$","462","","","$","2.11","","","4.6","%","","$","380","","","$","2.32","","","4.6","%"],["Ad valorem taxes","176","","","0.80","","","1.7","","","145","","","0.89","","","1.8"],["Total production and ad valorem expense","$","638","","","$","2.91","","","6.3","%","","$","525","","","$","3.21","","","6.4","%"]]
[[/GREPCENT_TABLE]]

In general, production taxes are directly related to production revenues and are based upon current year commodity prices. Production taxes as a percentage of oil, natural gas and natural gas liquids revenues remained consistent during 2024 compared to 2023.

Ad valorem taxes are based, among other factors, on property values driven by prior year commodity prices. Ad valorem taxes increased by $31 million in 2024 compared to 2023 primarily due to $28 million of ad valorem taxes accrued on properties acquired as part of the Endeavor Acquisition and other individually insignificant changes.

Gathering, Processing and Transportation Expense. The following table shows gathering, processing and transportation expense for the years ended December 31, 2024 and 2023:

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","2024","","2023"],["(In millions, except per BOE amounts)","Amount","","Per BOE","","Amount","","Per BOE"],["Gathering, processing and transportation","$","356","","","$","1.63","","","$","287","","","$","1.76"]]
[[/GREPCENT_TABLE]]

Gathering, processing and transportation expense increased by $69 million in 2024 compared to 2023 primarily due to an increase in our production from legacy wells as well as an increase in our contractual rates throughout the year. The decrease in the overall rate per BOE between 2024 and 2023 is due to recording gathering, processing and transportation charges for production from the Endeavor Acquisition as a reduction to revenue in accordance with the terms of the acquired contracts.

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Depreciation, Depletion, Amortization and Accretion. The following table shows the components of our depreciation, depletion and amortization expense for the years ended December 31, 2024 and 2023:

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["(In millions, except BOE amounts)","2024","","2023"],["Depletion of proved oil and natural gas properties","$","2,759","","","$","1,669"],["Depreciation of other property and equipment","61","","","56"],["Other amortization","8","","","6"],["Asset retirement obligation accretion","22","","","15"],["Depreciation, depletion, amortization and accretion expense","$","2,850","","","$","1,746"],["Oil and natural gas properties depletion rate per BOE","$","12.60","","","$","10.21"],["Depreciation, depletion, amortization and accretion per BOE","$","13.02","","","$","10.68"]]
[[/GREPCENT_TABLE]]

The increase in depletion of proved oil and natural gas properties of $1.1 billion in 2024 as compared to 2023 consists of an additional (i) $567 million from the growth in production volumes, and (ii) $523 million due to applying a higher depletion rate in 2024. The increase in depletion rate was primarily due to the addition of higher value leasehold costs and proved reserves from the Endeavor Acquisition and Viper’s Tumbleweed Acquisitions into the depletable base in 2024.

General and Administrative Expenses. The following table shows general and administrative expenses for the years ended December 31, 2024 and 2023:

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","2024","","2023"],["(In millions, except per BOE amounts)","Amount","","Per BOE","","Amount","","Per BOE"],["General and administrative expenses","$","148","","","$","0.68","","","$","96","","","$","0.59"],["Non-cash stock-based compensation","65","","","0.30","","","54","","","0.33"],["Total general and administrative expenses","$","213","","","$","0.98","","","$","150","","","$","0.92"]]
[[/GREPCENT_TABLE]]

The increase in general and administrative expenses of $52 million in 2024 compared to 2023 was primarily due to (i) a $41 million increase in employee compensation and benefit costs related to additional headcount largely from the Endeavor Acquisition and annual compensation adjustments, (ii) a $12 million increase in software costs, and (iii) offsetting changes in other individually insignificant items.

Other Operating Costs and Expenses. The following table shows the other operating costs and expenses for the year ended December 31, 2024 and 2023:

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["(In millions)","2024","","2023"],["Merger and integration expenses","$","303","","","$","11"],["Other operating expenses","$","103","","","$","140"]]
[[/GREPCENT_TABLE]]

Merger and integration expenses in 2024 include costs incurred in connection with the Endeavor Acquisition primarily for severance and accelerated incentive compensation payments to former Endeavor employees as well as investment banking and legal costs. See Note 5—Endeavor Energy Resources, LP Acquisition in Item 8. Financial Statements and Supplementary Data of this report for further details regarding expenses incurred the Endeavor Acquisition.

Other operating expenses decreased by $37 million in 2024 compared to 2023 primarily due to a $77 million reduction in midstream services costs as a result of the sale of the Deep Blue Water Assets in the third quarter of 2023. This reduction was partially offset by increases of (i) $25 million in midstream services costs following the Endeavor Acquisition, (ii) $8 million in net losses on the sale of property, plant and equipment in 2024, (iii) $7 million primarily attributable to the write off of certain saltwater disposal assets during 2024, and (iv) other individually insignificant changes.

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Derivative Instruments. The following table shows the net gain (loss) on derivative instruments and the net cash received (paid) on settlements of derivative instruments for the years ended December 31, 2024 and 2023:

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["(In millions)","2024","","2023"],["Gain (loss) on derivative instruments, net","$","137","","","$","(259)"],["Net cash received (paid) on settlements(1)","$","(51)","","","$","(110)"]]
[[/GREPCENT_TABLE]]

(1)The year ended December 31, 2024 includes cash paid on interest rate swaps terminated prior to their contractual maturity of $37 million and cash paid for the early settlement of treasury lock contracts of $25 million

The change from a loss to a gain on derivative instruments in 2024 compared to 2023 primarily reflects (i) a $374 million increase in the value of our unsettled natural gas contracts due to a decrease in market prices for natural gas compared to our contract prices, (ii) a $129 million increase in cash received on the settlement of natural gas contracts, and (iii) a $10 million increase in the value of our interest rate swap contracts primarily due to a decline in expected future interest rates. These increases were partially offset by (i) a $60 million increase in cash paid on the settlement of interest rate derivatives (ii) a $43 million decrease in the value of our unsettled oil contracts due to an increase in market prices for oil compared to our contract prices, (iii) an $11 million increase in cash paid for the settlement of oil contracts, and (iv) other individually insignificant changes.

See Note 13—Derivatives in Item 8. Financial Statements and Supplementary Data of this report for further details regarding our derivative instruments and interest rate swaps.

Other Income (Expense). The following table shows other income and expenses for the years ended December 31, 2024 and 2023:

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["(In millions)","2024","","2023"],["Interest expense, net","$","(135)","","","$","(159)"],["Other income (expense), net","$","80","","","$","52"],["Gain (loss) on extinguishment of debt","$","2","","","$","(4)"],["Income (loss) from equity investments, net","$","21","","","$","48"]]
[[/GREPCENT_TABLE]]

Interest expense, net decreased $24 million in 2024 compared to 2023 primarily due to (i) an additional $165 million in capitalized interest costs, which reduce interest expense, (ii) an increase in interest income of $138 million due to holding proceeds from the April 2024 Notes in short-term interest bearing accounts until the close of the Endeavor Acquisition, and (iii) a $12 million decrease in interest expense on our revolving credit facility due to lower average borrowings outstanding in 2024. These reductions were largely offset by (i) an increase of $233 million in interest expense on senior notes related primarily to the issuance of the April 2024 Notes and Viper’s 7.375% Senior Notes due 2031 which were issued in the fourth quarter of 2023, (ii) an increase of $39 million in amortization of debt issuance costs primarily related to our terminated Bridge Facility, Tranche A Loans and April 2024 Notes, and (iii) a $19 million increase in interest expense incurred in connection with the Tranche A Loans.

See Note 9—Debt in Item 8. Financial Statements and Supplementary Data of this report for further details regarding outstanding borrowing, interest expense and gain (loss) on extinguishment of debt.

Other income (expense), net for 2024 includes a gain recorded on the WTG Midstream Transaction of approximately $74 million compared to 2023 including a $53 million gain on the sale of our equity method investment in Gray Oak Pipeline, LLC (“Gray Oak”), partially offset by various other insignificant activity.

The decrease in income from our equity investments primarily reflects reductions of (i) $17 million due to the sale of our interest in OMOG JV LLC in the third quarter of 2023, (ii) $11 million due to the WTG Midstream Transaction, and (ii) other individually insignificant activity.

See Note 8—Equity Method Investments and Related Party Transactions in Item 8. Financial Statements and Supplementary Data of this report for further discussion.

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Provision for (Benefit from) Income Taxes. The following table shows the provision for (benefit from) income taxes for the years ended December 31, 2024 and 2023:

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["(In millions)","2024","","2023"],["Provision for (benefit from) income taxes","$","800","","","$","912"]]
[[/GREPCENT_TABLE]]

The change in our income tax provision for 2024 compared to 2023 was primarily due to a lower effective annual tax rate following the release of Viper’s $156 million valuation allowance in the fourth quarter of 2024. See Note 12—Income Taxes in Item 8. Financial Statements and Supplementary Data of this report for further discussion of our income tax expense.

Liquidity and Capital Resources

Overview of Sources and Uses of Cash

Historically, our primary sources of liquidity have included cash flows from operations, proceeds from our public equity offerings, issuances of common stock in connection with acquisitions, borrowings under our revolving credit facility, proceeds from the issuance of senior notes and sales of non-core assets. Our primary uses of capital have been for the acquisition, development and exploration of oil and natural gas properties and repayment of debt and returning capital to stockholders. At December 31, 2024, we had approximately $2.6 billion of liquidity consisting of $134 million in standalone cash and cash equivalents and $2.5 billion available under our credit facility. As discussed below, our capital budget for 2025, which gives effect to the pending Double Eagle Acquisition, is $3.80 billion to $4.20 billion. As of December 31, 2024, we have approximately $900 million of Tranche A Loans maturing in September 2025.

Future cash flows are subject to a number of variables, including the level of our oil and natural gas production and the volatility of commodity prices. Further, significant additional capital expenditures will be required to more fully develop our properties. Prices for our commodities are determined primarily by prevailing market conditions, regional and worldwide economic activity, weather and other substantially variable factors. These factors are beyond our control and are difficult to predict. See Item 1A. Risk Factors of this report above. In order to mitigate this volatility, we enter into derivative contracts with a number of financial institutions, all of which are participants in our credit facility, to economically hedge a portion of our estimated future crude oil and natural gas production as discussed further in Note 13—Derivatives in Item 8. Financial Statements and Supplementary Data and Item 7A. Quantitative and Qualitative Disclosures About Market Risk—Commodity Price Risk of this report. The level of our hedging activity and duration of the financial instruments employed depend on our desired cash flow protection, available hedge prices, the magnitude of our capital program and our operating strategy.

Cash Flow

Our cash flows for the years ended December 31, 2024 and 2023 are presented below:

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","2024","","2023"],["","(In millions)"],["Net cash provided by (used in) operating activities","$","6,413","","","$","5,920"],["Net cash provided by (used in) investing activities","(11,221)","","","(3,323)"],["Net cash provided by (used in) financing activities","4,387","","","(2,176)"],["Net change in cash","$","(421)","","","$","421"]]
[[/GREPCENT_TABLE]]

Operating Activities

Our operating cash flow is sensitive to many variables, the most significant of which is the volatility of prices for the oil and natural gas we produce.

The increase in operating cash flows for the year ended December 31, 2024 compared to the same period in 2023 primarily resulted from (i) an increase of $1.8 billion in total revenue, excluding sales of purchased oil, (ii) an additional $138 million in interest income, and (iii) a reduction of $59 million in cash paid on settlements of derivatives. These cash inflows were partially offset by an increase in our cash operating expenses, excluding purchased oil expense, of

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approximately $903 million related primarily to merger and integration costs incurred in connection with the Endeavor Acquisition and additional lease operating expenses, (ii) an increase of $253 million in cash paid for taxes, (iii) an increase of $123 million in cash paid for interest, net of capitalized amounts, and (iv) fluctuations in other working capital balances due primarily to the timing of when collections were made on accounts receivable and payments were made on accounts payable. See “—Results of Operations” for discussion of significant changes in our revenues and expenses.

Investing Activities

The majority of our net cash used for investing activities during the year ended December 31, 2024 and 2023 was for drilling and completion costs in conjunction with our development program as well as the purchase of oil and gas properties including the Endeavor Acquisition and Viper’s Tumbleweed Acquisitions in 2024 and the Lario Acquisition and Viper’s GRP Acquisition in 2023. These cash outflows were partially offset by proceeds received from the divestitures of various oil and gas properties and other assets, which are discussed further in Note 4—Acquisitions and Divestitures in Item 8. Financial Statements and Supplementary Data of this report.

Capital Expenditure Activities

Our capital expenditures excluding acquisitions and equity method investments (on a cash basis) were as follows for the specified period:

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","2024","","2023"],["","(In millions)"],["Drilling, completions and non-operated additions to oil and natural gas properties","$","2,632","","","$","2,429"],["Infrastructure additions to oil and natural gas properties","221","","","153"],["Additions to midstream assets","14","","","119"],["Total","$","2,867","","","$","2,701"]]
[[/GREPCENT_TABLE]]

For further discussion regarding our development program, please see Items 1 and 2. Business and Properties—Oil and Natural Gas Data—Wells Drilled and Completed in 2024 of this report.

Financing Activities

During the year ended December 31, 2024, net cash used in financing activities was primarily attributable to $5.5 billion of proceeds from the issuance of the April 2024 Notes, $900 million in borrowings on our Tranche A Loans, net of repayments, $476 million in proceeds from the Viper 2024 Equity Offering, $451 million in proceeds from the sale of our shares of Viper’s Class A common stock and $2 million in borrowings on our credit facilities, net of repayments. These cash inflows were partially offset by (i) $1.6 billion of dividends paid to stockholders, (ii) $959 million of repurchases as part of the share repurchase program, (iii) $227 million in dividends to non-controlling interest, (iv) $99 million of debt issuance costs primarily associated with the April 2024 Notes, Term Loan Agreement and Bridge Facility, and (vi) $39 million in cash paid for tax withholdings on vested employee stock awards.

Net cash used in financing activities for the year ended December 31, 2023 was primarily attributable to (i) $1.4 billion of dividends paid to stockholders, (ii) $935 million of repurchases as part of the Diamondback and Viper share repurchase programs, (iii) $134 million paid for the retirement of outstanding principal on certain senior notes, and (iv) $129 million in distributions to non-controlling interest. The cash outflows were partially offset by (i) $394 million in net proceeds from the issuance of the Viper 2031 Notes and an additional $111 million in borrowings under credit facilities, net of repayments.

Capital Resources

Our working capital requirements are supported by our cash and cash equivalents and available borrowings under our revolving credit facility. We may draw on our revolving credit facility to meet short-term cash requirements, or issue debt or equity securities as part of our longer-term liquidity and capital management program and to finance the pending Double Eagle Acquisition. Because of the alternatives available to us, we believe that our short-term and long-term liquidity are adequate to fund not only our current operations, but also our near-term and long-term capital requirements.

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As we pursue our business and financial strategy, we regularly consider which capital resources, including cash flow and/or equity and debt financings, are available to meet our future financial obligations, planned capital expenditure activities and liquidity requirements. Our future ability to grow proved reserves and production will be highly dependent on the capital resources available to us. Any prolonged volatility in the capital, financial and/or credit markets and/or adverse macroeconomic conditions may limit our access to, or increase our cost of, capital or make capital unavailable on terms acceptable to us or at all.

Revolving Credit Facilities and Other Debt Instruments

As of December 31, 2024, our debt, including the debt of Viper, consisted of approximately $12.0 billion in aggregate outstanding principal amount of senior notes, $900 million in aggregate outstanding short-term borrowings under the Tranche A Loans and $261 million in aggregate outstanding borrowings under revolving credit facilities.

As of December 31, 2024, the maximum credit amount available under our credit agreement was $2.5 billion, which may be increased to a total maximum commitment amount of $2.6 billion, with no outstanding borrowings and $2.5 billion available for future borrowings. Our credit agreement matures on June 2, 2029.

Viper LLC’s Credit Agreement

The Viper LLC credit agreement, as amended to date, matures on September 22, 2028 and provides for a revolving credit facility in the maximum credit amount of $2.0 billion, with a borrowing base and elected commitment amount of $1.3 billion. At December 31, 2024, there were $261 million of outstanding borrowings and $1.0 billion available for future borrowings under the Viper LLC credit agreement.

For additional discussion of our outstanding debt as of December 31, 2024, see Note 9—Debt in Item 8. Financial Statements and Supplementary Data of this report.

Debt Ratings

We receive debt ratings from the major ratings agencies in the U.S which impact the interest rates we receive on our variable rate debt and interest rate swaps. In determining our debt ratings, the agencies consider a number of qualitative and quantitative items including, but not limited to, commodity pricing levels, our liquidity, asset quality, reserve mix, debt levels, cost structure, planned asset sales and production growth opportunities. In September, we received an upgrade from two of the three major ratings agencies in the U.S., Standard and Poor’s Global Ratings Services and Fitch Investor Services. Currently, our credit ratings from the three main credit rating agencies are as follows:

•Standard and Poor’s Global Ratings Services (BBB);

•Fitch Investor Services (BBB+); and

•Moody’s Investor Services (Baa2).

Any rating downgrades may result in additional letters of credit or cash collateral being posted under certain contractual arrangements.

Capital Requirements

In addition to future operating expenses and working capital commitments discussed in “—Outlook”, our primary short and long-term liquidity requirements consist primarily of (i) capital expenditures, (ii) payments of principal and interest on our revolving credit agreements, Tranche A Loans and senior notes, (iii) payments of other contractual obligations, (iv) cash commitments for dividends and repurchases of securities, and the pending Double Eagle Acquisition.

2025 Capital Spending Plan

    We currently estimate that our 2025 capital budget, which gives effect to the pending Double Eagle Acquisition, will be $3.80 billion to $4.20 billion, including $3.13 billion to $3.44 billion for horizontal drilling and completions, $280 million to $320 million for non-operated activity and capital workovers and $390 million to $440 million spent on infrastructure, midstream and environmental capital expenditures. We currently expect to drill approximately 446 to 471 gross (406 to 428 net) horizontal wells and complete approximately 557 to 592 gross (526 to 560 net) horizontal wells across our operated and non-operated leasehold acreage in the Northern Midland and Southern Delaware Basins, with an average lateral length of approximately 11,500 feet.

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The amount and timing of our capital expenditures are largely discretionary and within our control. We could choose to defer a portion of these planned capital expenditures depending on a variety of factors, including but not limited to the success of our drilling activities, prevailing and anticipated prices for oil and natural gas, the availability of necessary equipment, infrastructure and capital, the receipt and timing of required regulatory permits and approvals, seasonal conditions, drilling and acquisition costs and the level of participation by other interest owners. We will continue monitoring commodity prices and overall market conditions and can adjust our rig cadence and our capital expenditure budget up or down in response to changes in commodity prices and overall market conditions.

Payments of Principal and Interest on Senior Notes and Tranche A Loans

At December 31, 2024, we have total principal payments due on our outstanding senior notes, including those of Viper, of $764 million in 2026, $1.3 billion in 2027, $73 million in 2028, $915 million in 2029 and $9.0 billion thereafter. Additionally, we expect to incur future cash interest costs on these senior notes of approximately $612 million in 2025, $1.2 billion cumulatively in the years from 2026 through 2027, $1.0 billion cumulatively in the years from 2028 and 2029, and $7.1 billion cumulatively between 2030 and 2064.

In addition to the senior notes, we have $900 million in aggregate outstanding borrowings under the Tranche A Loans due in 2025. See Note 9—Debt in Item 8. Financial Statements and Supplementary Data of this report for further discussion on the Tranche A Loans.

Other Contractual Obligations and Commitments

At December 31, 2024, our other significant contractual obligations consist primarily of (i) minimum transportation commitments totaling $2.8 billion, (ii) electrical power purchase commitments totaling $365 million (iii) asset retirement obligations totaling $592 million, (iv) electric fracturing fleet and related power generation services commitments totaling $199 million and (v) minimum purchase commitments for quantities of sand used in our drilling operations totaling $66 million. We expect to make aggregate payments of approximately $442 million for these commitments during 2025. See Note 7—Asset Retirement Obligations and Note 16—Commitments and Contingencies in Item 8. Financial Statements and Supplementary Data of this report for further discussion of these and other contractual obligations and commitments.

We and Five Point Energy LLC currently anticipate collectively contributing $500 million in follow-on capital to fund future growth in our Deep Blue Midland Basin LLC joint venture projects and acquisitions.

Return of Capital Commitment

Beginning in the first quarter of 2024, our board of directors approved a return of capital commitment of at least 50% (down from 75%) of our quarterly free cash flow to our stockholders through repurchases under our share repurchase program, base dividends and variable dividends. The remainder of our free cash flow will be used primarily to reduce debt. On February 21, 2025, our board of directors declared a base cash dividend for the fourth quarter of 2024 of $1.00 per share of common stock.

Free cash flow is a non-GAAP financial measure. As used by us, free cash flow is defined as cash flow from operating activities before changes in working capital in excess of cash capital expenditures and other adjustments as determined by us. We believe that free cash flow is useful to investors as it provides a measure to compare both cash flow from operating activities and additions to oil and natural gas properties across periods on a consistent basis.

Future base and variable dividends are at the discretion of our board of directors, and the board of directors may change the dividend amount from time to time based on our outlook for commodity prices, liquidity, debt levels, capital resources, free cash flow and other factors. We can provide no assurance that dividends will be authorized or declared in the future or as to the amount and type of any future dividends. Any future dividends, whether base or variable, if declared and paid, will by their nature fluctuate based on our free cash flow, which will depend on a number of factors beyond our control, including commodity prices.

On September 18, 2024, our board of directors approved an increase in our common stock repurchase program from $4.0 billion to $6.0 billion, excluding excise tax. Since the inception of the stock repurchase program, we have repurchased an aggregate 25.84 million shares of our common stock for a total cost of $3.5 billion, excluding excise tax, as of February 21, 2025. Subject to regulatory restrictions and other factors discussed elsewhere in this report, we intend to continue opportunistically purchasing shares under this repurchase program primarily with funds from cash flow from operations and liquidity events such as the sale of assets while maintaining sufficient liquidity to fund our capital expenditure

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programs. See Note 10—Stockholders' Equity and Earnings (Loss) Per Share in Item 8. Financial Statements and Supplementary Data of this report for further discussion of the repurchase program.

Guarantor Financial Information

Diamondback E&P is the sole guarantor under the indentures governing the outstanding Guaranteed Senior Notes.

Guarantees are “full and unconditional,” as that term is used in Regulation S-X, Rule 3-10(b)(3), except that such guarantees will be released or terminated in certain circumstances set forth in the indentures governing the Guaranteed Senior Notes, such as, with certain exceptions, (i) in the event Diamondback E&P (or all or substantially all of its assets) is sold or disposed of, (ii) in the event Diamondback E&P ceases to be a guarantor of or otherwise be an obligor under certain other indebtedness, and (iii) in connection with any covenant defeasance, legal defeasance or satisfaction and discharge of the relevant indenture.

Diamondback E&P’s guarantees of the Guaranteed Senior Notes are senior unsecured obligations and rank senior in right of payment to any of its future subordinated indebtedness, equal in right of payment with all of its existing and future senior indebtedness, including its obligations under its revolving credit facility, and effectively subordinated to any of its existing and future secured indebtedness, to the extent of the value of the collateral securing such indebtedness.

The rights of holders of the Guaranteed Senior Notes against Diamondback E&P may be limited under the U.S. Bankruptcy Code or state fraudulent transfer or conveyance law. Each guarantee contains a provision intended to limit Diamondback E&P’s liability to the maximum amount that it could incur without causing the incurrence of obligations under its guarantee to be a fraudulent conveyance. However, there can be no assurance as to what standard a court will apply in making a determination of the maximum liability of Diamondback E&P. Moreover, this provision may not be effective to protect the guarantee from being voided under fraudulent conveyance laws. There is a possibility that the entire guarantee may be set aside, in which case the entire liability may be extinguished.

The following tables present summarized financial information for Diamondback Energy, Inc., as the parent, and Diamondback E&P, as the guarantor subsidiary, on a combined basis after elimination of (i) intercompany transactions and balances between the parent and the guarantor subsidiary, and (ii) equity in earnings from and investments in any subsidiary that is a non-guarantor. The information is presented in accordance with the requirements of Rule 13-01 under the SEC’s Regulation S-X. The financial information may not necessarily be indicative of results of operations or financial position had the guarantor subsidiary operated as an independent entity.

[[GREPCENT_TABLE]]
[["","December 31, 2024"],["Summarized Balance Sheets:","(In millions)"],["Assets:"],["Current assets","$","933"],["Property and equipment, net","$","21,795"],["Other noncurrent assets","$","32"],["Liabilities:"],["Current liabilities","$","2,943"],["Intercompany accounts payable, non-guarantor subsidiary","$","3,381"],["Long-term debt","$","10,978"],["Other noncurrent liabilities","$","2,979"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","Year Ended December 31, 2024"],["Summarized Statement of Operations:","(In millions)"],["Revenues","$","7,022"],["Income (loss) from operations","$","2,319"],["Net income (loss)","$","1,631"]]
[[/GREPCENT_TABLE]]

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Critical Accounting Estimates

The discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States.

Certain amounts included in or affecting our consolidated financial statements and related disclosures must be estimated by our management, requiring certain assumptions to be made with respect to values or conditions that cannot be known with certainty at the time the consolidated financial statements are prepared. These estimates and assumptions affect the amounts we report for assets and liabilities and our disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. We evaluate our estimates and assumptions on a regular basis. Critical accounting estimates are those estimates made in accordance with generally accepted accounting principles that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on the financial condition or results of operations of the registrant. Any effects on our business, financial position or results of operations resulting from revisions to these estimates are recorded in the period in which the facts that give rise to the revision become known.

We consider the following to be our most critical accounting estimates and have reviewed these critical accounting estimates with the Audit Committee of our board of directors.

Oil and Natural Gas Accounting and Reserves

We account for our oil and natural gas producing activities using the full cost method of accounting, which is dependent on the estimation of proved reserves to determine the rate at which we record depletion on our oil and natural gas properties and whether the value of our evaluated oil and natural gas properties is permanently impaired based on the quarterly full cost ceiling impairment test. Further, we utilize estimated proved reserves to assign fair value to acquired proved oil and natural gas properties including mineral and royalty interests. As such, we consider the estimation of proved reserves to be a critical accounting estimate.

Oil and natural gas reserve engineering is a subjective process of estimating underground accumulations of oil and natural gas that cannot be precisely measured and the accuracy of any reserve estimate is a function of the quality of available data and of engineering and geological interpretation and judgment. Proved oil and natural gas reserve estimates and their associated future net cash flows were prepared by our internal reservoir engineers and audited by Ryder Scott Company, L.P., independent petroleum engineers as of December 31, 2024, 2023 and 2022. The process of estimating oil and natural gas reserves is complex, requiring significant decisions in the evaluation of available geological, geophysical, engineering and economic data. Significant inputs included in the calculation of future net cash flows include our estimate of operating and development costs, anticipated production of proved reserves and other relevant data. The data for a given property may also change substantially over time as a result of numerous factors, including additional development activity, evolving production history and a continual reassessment of the viability of production under changing economic conditions. As a result, material revisions to existing reserve estimates occur from time to time, and reserve estimates are often different from the quantities of oil and natural gas that are ultimately recovered. Although every reasonable effort is made to ensure that reported reserve estimates represent the most accurate assessments possible, the subjective decisions and variances in available data for various properties increase the likelihood of significant changes in these estimates. If such changes are material, they could significantly affect future depletion of capitalized costs and result in impairment of assets that may be material. Revisions of previous reserve estimates accounted for approximately $2.0 billion, or 16% of the change in the standardized measure of our total reserves from December 31, 2023 to December 31, 2024. No impairments were recorded for our proved oil and gas properties during the years ended December 31, 2024, 2023 and 2022. Based on the historical 12-month average trailing SEC prices for oil and natural gas throughout 2024 and into 2025, we are not currently projecting a full cost ceiling impairment in the first quarter of 2025.

Additionally, costs associated with unevaluated properties are excluded from the full cost pool until we have made a determination as to the existence of proved reserves. We assess all items classified as unevaluated property (on an individual basis or as a group if properties are individually insignificant) at least annually for possible impairment. This assessment is subjective and includes consideration of the following factors, among others: (i) intent to drill, (ii) remaining lease term, (iii) geological and geophysical evaluations, (iv) drilling results and activity, (v) the assignment of proved reserves, and (vi) the economic viability of development if proved reserves are assigned. At December 31, 2024, our unevaluated properties totaled $22.7 billion, which consisted of 433,335 net undeveloped leasehold acres with approximately 4,290 net acres set to expire in 2025. We did not record any impairment on our unevaluated properties during the year ended December 31, 2024, but any such future impairment could potentially be material to our consolidated financial statements.

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Business Combinations

We account for business combinations in which it has been determined we are the acquirer using the acquisition method of accounting. Accordingly, identifiable assets acquired and liabilities assumed are recognized at the date of acquisition at their respective estimated fair values.

We make various assumptions in estimating the fair values of assets acquired and liabilities assumed. Fair value estimates are determined based on information that existed at the time of the acquisition, utilizing expectations and assumptions that would be available to and made by a market participant. When market-observable prices are not available to value assets and liabilities, the Company may use the cost, income, or market valuation approaches depending on the quality of information available to support management’s assumptions.

The most significant assumptions relate to the estimated fair values assigned to proved and unproved oil and natural gas properties. The assumptions made in performing these valuations include future production volumes, future commodity prices and costs, future operating and development activities, projections of oil and gas reserves and a weighted average cost of capital rate. The market-based weighted average cost of capital rate is subjected to additional project-specific risking factors. In addition, when appropriate, we review comparable purchases and sales of natural gas and oil properties within the same regions, and use that data as a proxy for fair market value; for example, the amount a willing buyer and seller would enter into in exchange for such properties. Changes in key assumptions may cause the acquisition accounting to be revised, including the recognition of goodwill or discount on an acquisition. There is no assurance the underlying assumptions or estimates associated with the valuation will occur as initially expected. See Note 4—Acquisitions and Divestitures and Note 5—Endeavor Energy Resources, LP Acquisition in Item 8. Financial Statements and Supplementary Data of this report for further discussion of the estimated fair value of assets acquired and liabilities assumed in business combinations including any significant changes in these estimates from the date of acquisition.

Estimated fair values assigned to assets acquired can have a significant effect on results of operations in the future. In addition, differences between the future commodity prices when acquiring assets and the historical 12-month average trailing price to calculate ceiling test impairments of upstream assets may impact net earnings.

Income Taxes

The amount of income taxes we record requires interpretations of complex rules and regulations of federal, state, and local tax jurisdictions. We use the asset and liability method of accounting for income taxes, under which deferred tax assets and liabilities are recognized for the future tax consequences of (1) temporary differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities and (2) operating loss and tax credit carryforwards. Deferred income tax assets and liabilities are based on enacted tax rates applicable to the future period when those temporary differences are expected to be recovered or settled. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period the rate change is enacted. A valuation allowance is provided for deferred tax assets when it is more likely than not the deferred tax assets will not be realized after considering all positive and negative evidence available concerning the realizability of our deferred tax assets. Positive evidence may include forecasts of future taxable income, assessment of future business assumptions and any applicable tax planning strategies available to the Company. Negative evidence may include losses in recent years, if any, or the projection of losses in future periods. The assessment of the realizability of our deferred tax assets, including the assessment of whether a valuation allowance is required, entails that we make estimates of, and assumptions about, future events, including the pattern of reversal of taxable temporary differences and our future income from operations. Estimating future taxable income requires numerous judgments and assumptions, including projections of future operating conditions which may be impacted by volatile future prices for our oil, natural gas and natural gas production, the expected timing and quantity of future production volumes, and the impact of our commodity derivative instruments on our income.

In 2024, management’s assessment of all available evidence, both positive and negative, supporting realizability of Viper’s deferred tax assets as required by applicable accounting standards, resulted in the full release of Viper’s remaining valuation allowance of $156 million. The positive evidence assessed included recent cumulative income due in part to commodity prices remaining consistently high, acquisitions of additional oil and gas properties, and an expectation of future taxable income based upon recent actual and forecasted production volumes and prices. As of December 31, 2024, Viper had a deferred tax asset of $185 million. Any changes in the positive or negative evidence evaluated when determining if Viper’s deferred tax assets will be realized, including projected future income, could result in a material change to our consolidated financial statements. As of December 31, 2024, our balance of taxable temporary differences anticipated to reverse within the carryforward period provides significant positive evidence for the determination that our remaining deferred tax assets are more likely than not to be realized.

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The accruals for deferred tax assets and liabilities are often based on unclear tax positions and assumptions that are subject to a significant amount of judgment by management. These assumptions and judgments are reviewed and adjusted as facts and circumstances change. At December 31, 2024, we had no uncertain tax positions, however, material changes to our income tax accruals may occur in the future based on the progress of ongoing audits, changes in legislation or resolution of pending matters.

Recent Accounting Pronouncements

See Note 2—Summary of Significant Accounting Policies in Item 8. Financial Statements and Supplementary Data of this report for recent accounting pronouncements not yet adopted, if any.

Off-Balance Sheet Arrangements

See Note 16—Commitments and Contingencies in Item 8. Financial Statements and Supplementary Data of this report for a discussion of our significant commitments and contingencies, some of which are not recognized in the consolidated balance sheets under GAAP.