Diamondback Energy (FANG) Q3 2026 Earnings Call: Q&A Summary

Q: Neal Dingmann of William Blair asked how a leading 30% reinvestment rate changes Diamondback's thought process for capital allocation and growth plans.

A: Kaes Van't Hof, CEO, explained that Diamondback's reinvestment rate is around 32%, which is exceptionally low for an E&P company and a result of field-level capital allocation and a low cost structure. He stated that keeping the reinvestment rate low protects against commodity price volatility and allows the company to generate free cash flow to allocate to the balance sheet.

Q: Neal Dingmann of William Blair asked about Diamondback's relationship with the Stevens family following their share sales.

A: Kaes Van't Hof, CEO, stated that Diamondback has a great relationship with the family, who remain long-term believers in the story. He noted that the board is now an 11-person board with two members designated by the family, and the company is happy with the board size and the relationship.

Q: Neil Mehta of Goldman Sachs asked how oil recovery rates are expected to evolve beyond 10% and how completion technology and chemical EOR factor into basin growth.

A: Kaes Van't Hof, CEO, responded that completion technology is improving and chemical EOR use cases are moving from theory to modelable successes, which should allow the basin to grow more or produce longer into the 2030s.

Q: Neil Mehta of Goldman Sachs asked if Diamondback intends to remain a Permian pure play rather than diversifying internationally.

A: Kaes Van't Hof, CEO, stated that Diamondback is a Permian basin expert with 1,700 people focused locally, and investors would rather see capital spent on surfactant tests to improve recoveries and duration than on exploring unfamiliar regions outside the basin.

Q: David Deckelbaum of Stifel asked if the fourth quarter capital spending level is a reasonable starting point for 2027 while achieving single-digit growth.

A: Kaes Van't Hof, CEO, and Daniel Wesson, COO, noted that fourth quarter capital is guided similarly to previous quarters, and while efficiencies help fight inflation, growing next year would likely require slightly higher spending depending on macro conditions and service sector inflation.

Q: David Deckelbaum of Stifel asked when the Barnett play shifts from HBP commitments to full-field development.

A: Kaes Van't Hof, CEO, and Albert Barkmann, Chief Engineer, explained that the Barnett is moving into full field development as geologic success turns into meaningful value, with 2027 obligation drilling leaning into co-development around successful areas like Spanish Trail.

Q: Jeoffrey Lambujon of TPH Research asked what operational changes will drive well cost targets as the Barnett moves to full-field development.

A: Daniel Wesson, COO, stated that longer laterals, shared surface infrastructure, and drilling efficiencies in intermediate strings and curves will drive down costs, though data is still early.

Q: Jeoffrey Lambujon of TPH Research asked what a good deal looks like for Diamondback regarding downstream gas and LNG counterparties, and the status of the power project.

A: Albert Barkmann, Chief Engineer, and Jere Thompson, CFO, noted that LNG players are short molecules while Diamondback is long molecules, creating win-win opportunities, and added that the Brian Ranch power project is very close to final agreements.

Q: Bob Brackett of Bernstein Research asked about the time horizon for the demand pull and physical molecule shortage in the gas market.

A: Kaes Van't Hof, CEO, responded that while it is not next month, increasing LNG demand and power requirements in Texas and the U.S. mean Permian gas will increase in value over the next decade.

Q: Scott Hanold of RBC Capital Markets asked if the deep parts of the basin where Barnett wells were drilled will work as they move toward the shelf edge.

A: Scott Hanold, answering for management, noted that the deeper parts of the basin provide higher bottomhole pressure and thickness, which was the thesis behind building the acreage position.

Q: Joshua Silverstein of UBS asked if the stronger oil price environment is being used for balance sheet debt reduction to save capacity for buybacks during downturns.

A: Kaes Van't Hof, CEO, confirmed that the strategy is to increase the base dividend, strengthen the balance sheet, buy back bonds when trading below par, and retain capacity to buy back shares if oil prices decline.

Q: Joshua Silverstein of UBS asked about power generation capacity timelines for data centers and the potential use of fiber.

A: Kaes Van't Hof, CEO, stated that mobile power is being used to get power quickly, long-term power solutions are being evaluated using basin gas, and Viper's monetization of projects remains a future discussion.

Q: John Freeman of Raymond James asked if upcoming full-section development results in the first half of 2027 will determine a potential acceleration to a five-rig run rate.

A: Kaes Van't Hof, CEO, stated that current early-time flowbacks look good, four to five full-section developments are coming over the next three to four months, and geologic success is turning into value.

Q: John Freeman of Raymond James asked if pilots are underway to lower completion intensity and cost per foot in the Barnett.

A: Daniel Wesson, COO, explained that initial developments use robust completions to avoid undercapitalization, but wider-spaced wells in the future will allow evaluation of right-sized jobs to maximize NPV.

Q: Scott Hanold of RBC Capital Markets asked why management is cautious on 2027 despite a high forward curve and strong execution capabilities.

A: Kaes Van't Hof, CEO, clarified that he is personally in the higher-for-longer camp due to global inventories and geopolitical instability, but the company always prepares for lower prices and will formally update 2027 plans in February.

Q: Scott Hanold of RBC Capital Markets asked where capital spending for the Solitude pipeline and similar projects will fall within the budget.

A: Kaes Van't Hof, CEO, explained that capital will roll through equity affiliates and serve as great investments outside the traditional CapEx budget while helping defer high U.S. cash taxes.

Q: Phillip Jungwirth of BMO asked why Diamondback's developed-to-undeveloped NPV ratio is 89%, significantly higher than peers, and why peers cannot replicate it.

A: Kaes Van't Hof, CEO, and Albert Barkmann, Chief Engineer, explained that Diamondback's low cost structure, parent-child avoidance, and high well productivity allow it to capture 90% of idealized DSU value, whereas peers face degradation risks from parent-child issues.

Q: Phillip Jungwirth of BMO asked about the go-forward opportunity set for Viper Minerals and how M&A is viewed given current commodity prices.

A: Albert Barkmann, Chief Engineer, noted that large public M&A is difficult in volatile markets, but Viper has used its balance sheet to execute cash deals like McElroy Ranch based on conservative NAV returns.

Q: Derrick Whitfield of Texas Capital asked where the organization stands along the AI machine learning adoption curve and the expected upside.

A: Albert Barkmann, Chief Engineer, and Chad McAllaster explained that AI is deployed across automated artificial lift, self-optimizing plunger lifts, and drone technology to reduce manual issue hunting, with subsurface and completion design representing potential multibillion-dollar future wins.

Q: Derrick Whitfield of Texas Capital asked how much incremental recovery surfactants could add and how it compares to Chevron's advanced chemicals.

A: Kaes Van't Hof, CEO, stated that a 1% to 2% recovery uplift would represent a 50,000 to 100,000 barrel per well increase, and while lab results are impressive, field deployment variables are still being optimized.

Q: Douglas Leggate of Wolfe Research asked how sustaining capital will move as the Barnett moves to full-field development with better productivity but more expensive wells.

A: Daniel Wesson, COO, and Albert Barkmann, Chief Engineer, stated that as costs drop toward the $850 to $900 per foot range, the high rate of return and NPV will help extend the company's ability to maintain sustaining capital.

Q: Douglas Leggate of Wolfe Research asked if Diamondback is now in a full cash tax position.

A: Daniel Wesson, COO, confirmed that Diamondback has been paying high overall cash taxes for years and expects peers will eventually catch up.

Q: Kevin MacCurdy of Pickering asked if higher gas prices will unlock operational inventory uplifts in gassier acreage.

A: Daniel Wesson, COO, confirmed that gassier inventory exists in certain zones, though it has not been necessary to drill it yet.

Q: Kevin MacCurdy of Pickering asked what drove the lower GPT guidance during the quarter.

A: Daniel Wesson, COO, explained that GPT is a mix between gas realizations and in-kind costs, though the primary focus remains on controlling LOE.

Q: An unnamed analyst asked about productivity uplifts and the timeline for automating remaining plunger lift wells using AI.

A: Kaes Van't Hof, CEO, and Daniel Wesson, COO, noted that AI optimization minimizes downtime during weather events and increases volume, with remaining plunger lift wells expected to be automated in a matter of months.

Q: Wei Jiang of Barclays asked which inning Diamondback is in regarding chemical EOR understanding and what capital allocation is appropriate.

A: Kaes Van't Hof, CEO, compared chemical EOR to a 2012 Wolfcamp B frac, stating it is early innings with a modest total budget allocation of $50 million to $100 million that will expand if results warrant.

Q: Wei Jiang of Barclays asked how to think about the normalized development program cadence and production contributions.

A: Kaes Van't Hof, CEO, stated that the base case is running 19 to 20 rigs and about 5 frac crews consistently, yielding a level-loaded program with organic growth.

Q: Gabe Daoud of Truist asked if fourth quarter CapEx is the expected quarterly run rate for 2027 assuming five crews are run.

A: Kaes Van't Hof, CEO, responded that at $100 oil, CapEx would likely be slightly higher, but details will be determined in coming months.

Q: Arun Jayaram of JPMorgan asked if industry outperformance in the Barnett is driven by better rock or completion design, and what footage a five-rig program generates.

A: Kaes Van't Hof, CEO, stated that geology and specific targeting drive the success, and a five-rig and five-frac crew program in 2027 would generate footage relatively flat to the current year.

Q: Charles Meade of Johnson Rice asked if reservoir energy and thickness explain the Barnett productivity uplift or if other factors are involved.

A: Kaes Van't Hof, CEO, stated that geology drives the results in carefully chosen spots, making the Barnett one of the best investments the company has made.

Q: Charles Meade of Johnson Rice asked what gas growth volumes could reach if Diamondback actively targeted gas with favorable price signals.

A: Kaes Van't Hof, CEO, responded that a 10% to 15% growth rate is not a bad estimate, but capturing more of the value chain from wellhead to processing and transport would be required before drilling specifically for gas.

Q: Leo Mariani of ROTH asked if reaching an 11% recovery factor is a current decade event or part of the 2030s.

A: Kaes Van't Hof, CEO, stated that 11% is achievable in the next couple of years, while pushing toward 20% is a 2030s goal, and Diamondback maintains the flexibility to try these technologies last due to its long-duration inventory.

Q: Leo Mariani of ROTH asked if the green light mode remains fully active for 2027.

A: Kaes Van't Hof, CEO, confirmed that the company remains fully in green light mode.