Company Participants - The conference call featured key executives from Diamondback Energy, including Adam T. Lawlis (VP of Investor Relations), Daniel N. Wesson (Executive VP & COO), Jere W. Thompson (Executive VP & CFO), and Matthew Kaes Van't Hof (CEO & Director) [1][2][3] Conference Call Overview - The call was held to discuss Diamondback Energy's Second Quarter 2025 earnings, with an updated investor presentation and letter to stockholders available on the company's website [2][3]

Financial Data and Key Metrics Changes - The company reported a significant increase in cash flow, with a notable cash tax tailwind expected in Q3, contributing to a strong free cash flow outlook [28][34] - The cash tax rate is projected to decrease to 15% - 18% for 2025, down from 19% - 22% in the previous year, primarily due to one-time benefits from accelerated recovery of expenditures [78][79] Business Line Data and Key Metrics Changes - The company has increased its focus on workover programs, leading to production improvements of 20% to 100% on older wells [24][25] - The company announced a non-core asset sale target of $1.5 billion, with $250 million already realized from two small sales [16][18] Market Data and Key Metrics Changes - The company noted a significant increase in liquids yields, adding 33,000 barrels per day of NGLs in Q2 compared to Q1, indicating improved operational efficiency [46][48] - Flaring was reduced by 75 to 100 basis points in Q2 versus Q1, reflecting enhanced gas capture efforts [48] Company Strategy and Development Direction - The company aims to be the consolidator of choice in the Permian Basin, focusing on maximizing shareholder value through an "acquire and exploit" strategy [12][14] - The management emphasized a cautious approach to growth, maintaining flexibility in operations while waiting for favorable market conditions [130][136] Management's Comments on Operating Environment and Future Outlook - The management expressed a cautious outlook, indicating that while the demand and supply shocks have eased, uncertainty remains in the market [32][33] - The company is prepared to adjust its operations based on market conditions, with a focus on maintaining a strong balance sheet and reducing debt [28][120] Other Important Information - The company is exploring opportunities in power generation to reduce electricity costs, which are viewed as a significant inflationary pressure on cash costs [86][89] - The management highlighted the importance of maintaining a flexible drilling and completion strategy to adapt to market changes [75][77] Q&A Session Summary Question: Thoughts on reducing costs and consolidation in the industry - The CEO emphasized the company's focus on maximizing shareholder value and executing an effective acquisition strategy in the Permian [12][14] Question: Update on non-core asset sales and Endeavor water drop - The CEO provided an update on the $1.5 billion non-core asset sale target, with progress made on two small sales and ongoing efforts on larger assets [16][18] Question: Addressing production downtime and opportunities - The management discussed efforts to reduce production downtime and improve older wells through workover programs [24][25] Question: Managing cash from asset sales versus debt targets - The CEO indicated that cash from asset sales would be used to pay down debt, with a focus on maintaining a strong financial position [26][28] Question: Update on macro conditions and activity decisions - The management reiterated a cautious approach, indicating that while some uncertainty remains, they are prepared to adjust operations as needed [32][33] Question: Efficiency improvements and drilling performance - The COO highlighted ongoing efforts to improve drilling efficiency, with a focus on achieving consistent top-tier well performance [41][42] Question: Gas production improvements and midstream partnerships - The management noted significant improvements in gas capture and processing, contributing to increased production [46][48] Question: Recovery rates and technology developments - The CEO acknowledged ongoing efforts to improve recovery rates and emphasized the company's technical leadership in the basin [54][55] Question: Update on development mix and performance - The management discussed the evolving development mix, with expectations for increased focus on higher returning zones [82][84] Question: Power generation opportunities - The management highlighted ongoing efforts to explore in-basin egress solutions for natural gas and reduce electricity costs [86][89] Question: Industry support and pushback - The CEO characterized the overall industry response as supportive, while acknowledging some pushback from competitors [94][95] Question: Strategy for excess DUC balance - The management indicated a preference to maintain flexibility with DUCs, allowing for quick responses to market conditions [75][76] Question: Cash tax rate outlook - The CFO provided guidance on expected cash tax rates for 2025 and 2026, indicating a reduction in overall tax burden [78][79] Question: Development mix and performance in other zones - The management discussed the positive performance in new zones and the potential for continued growth in these areas [82][84] Question: Hedge book for 2026 - The CEO explained the strategy for building a hedge position for 2026, emphasizing patience in adding puts [119][120] Question: Operations post-water sale - The CEO indicated that while synergies would be created, the impact on operations would not be significant [121][122]

Oil & Gas Industry Analysis - US shell oil production has likely peaked at current oil prices [2] - Activity levels in the lower 48 (US states) are expected to remain depressed [2] - Oil companies are choosing to return capital instead of putting it in the ground [4] - Oil companies are avoiding repeating the overproduction mistake of 2016, which crushed their margins [4] Company Specifics (Diamondback Energy) - Diamondback Energy is considered a thoughtful company [2] - Diamondback Energy missed their numbers by choice, indicating a strategic decision [2] - Diamondback Energy is choosing not to drill and bring up a lot of oil because prices are depressed [3] - Diamondback Energy has the best properties in the Permian Basin but is not fully utilizing them due to unfavorable returns [4] Market Factors - OPEC plus is putting more barrels on the market, and Russia is pumping oil aggressively [3] - Lower energy prices are bullish for the American economy [4] - Lower insurance costs are contributing to a potentially stronger economy [3]

Financial Performance & Capital Allocation - Diamondback generated $1242 million of Free Cash Flow ("FCF") in Q2 2025, which is $425 per share, and $1334 million of Adjusted FCF, which is $457 per share[16] - The company expects to generate at least $58 billion of Adjusted FCF in 2025 at current commodity prices[16] - Diamondback is committed to returning at least 50% of quarterly FCF to stockholders[16] - Q2 2025 return of capital was $691 million, representing approximately 52% of Q2 2025 Adjusted FCF, distributed through base dividend and share repurchases[15, 16] - The company's share repurchase authorization increased by $20 billion, from $60 billion to $80 billion, with approximately $35 billion remaining[16] Production & Cost Efficiency - Q2 2025 oil production reached 4957 Mbo/d, and total production was 9199 Mboe/d[23] - Oil production per million shares was 1697 Bo/d, up 10% year-over-year[23] - The company's unhedged realized cash margin was 73% in Q2 2025[23] - Total operating cash expenses were $1010 per Boe[23] Asset Base & Strategy - Diamondback has significant scale with approximately 859000 net acres and approximately 490 Mbo/d (approximately 905 Mboe/d) of run-rate production beginning in Q3[18] - The company has approximately 9600 gross Permian Basin locations economic at $50 / Bbl[19] - Diamondback's annual base dividend is $400, representing a 27% current yield[16]

Report Industry Investment Rating No relevant content provided. Core View of the Report This week, oil prices rose first and then fell, with the monthly spreads of the three major crude oil markets increasing. Trump issued a secondary tariff warning to Russia, causing market concerns about a decline in global crude oil supply. Although the actual export of Russian crude oil has decreased, even in the case of extreme sanctions, it will not change the oversupply pattern. The market tends to strengthen the near - term monthly spreads and take a wait - and - see attitude towards medium - term absolute prices. After OPEC decided to increase production in September, oil prices quickly fell. From a macro perspective, the pressure of tariffs has been postponed, and the market is betting on a rate cut in September. Fundamentally, global oil inventories decreased slightly this week, while US commercial inventories increased significantly. Global refinery profits declined, and the summer's main contradictions in the crude oil market have basically been realized. The absolute price of oil is expected to continue to fall after the statement of OPEC +, and it is expected to drop to $55 - 60 per barrel in the fourth quarter. [5] Summary According to the Directory 1. Daily News - A shale oil giant, Diamondback Energy, warned of an oversupply of crude oil. It will cut $100 million in capital expenditure, lower its production guidance, and postpone some fracturing operations. The company's CEO said that the growth of global crude oil supply in the second half of this year cannot be ignored. The company aims to keep oil production flat while cutting costs. The US domestic crude oil drilling activity has decreased by 12% and reached the lowest level in nearly four years. [3] - OPEC's crude oil production remained stable last month. Saudi Arabia's production cut of 220,000 barrels per day offset part of the impact of the UAE's production increase of 100,000 barrels per day. OPEC's average daily production in July was 28.31 million barrels, basically the same as the previous month. [4] - An analyst said that OPEC + will increase production by 547,000 barrels per day starting from September, which is in line with market expectations. Although the additional supply may put pressure on prices, OPEC +'s wait - and - see stance may limit the downside risk. A weaker - than - expected US employment report has raised concerns about the economy, which is a negative factor for oil. On the other hand, the potential interruption of Russian crude oil transportation may support the market. [4] 2. Weekly View - This week, oil prices rose first and then fell, and the monthly spreads of the three major crude oil markets increased. Trump's secondary tariff warning to Russia led to concerns about a decline in global crude oil supply. Although Russian crude oil exports have decreased, even in the case of extreme sanctions, it will not change the oversupply pattern. The market tends to strengthen the near - term monthly spreads and take a wait - and - see attitude towards medium - term absolute prices. [5] - After OPEC decided to increase production in September, oil prices quickly fell, with Brent crude oil falling below the $70 per barrel mark. [5] - Macroscopically, the pressure of tariffs has been postponed, and the market is betting on a rate cut in September due to the poor July non - farm payrolls data. [5] - Fundamentally, global oil inventories decreased slightly this week, about 2% higher than the same period last year. US commercial inventories increased significantly, the number of oil rigs decreased again, gasoline inventories decreased while diesel inventories increased. Global refinery profits declined, and the summer's main contradictions in the crude oil market have basically been realized. The absolute price of oil is expected to continue to fall after the statement of OPEC +, and it is expected to drop to $55 - 60 per barrel in the fourth quarter. [5] 3. EIA Report - In the week of July 25, US crude oil exports decreased by 1.157 million barrels per day to 2.698 million barrels per day. [11] - US domestic crude oil production increased by 41,000 barrels to 13.314 million barrels per day. [11] - Commercial crude oil inventories excluding strategic reserves increased by 7.698 million barrels to 427 million barrels, an increase of 1.84%. [11] - The four - week average supply of US crude oil products was 20.801 million barrels per day, a 1.55% increase compared to the same period last year. [11] - US Strategic Petroleum Reserve (SPR) inventories increased by 238,000 barrels to 402.7 million barrels, an increase of 0.06%. [11] - US imports of commercial crude oil excluding strategic reserves were 6.136 million barrels per day, an increase of 160,000 barrels per day compared to the previous week. [11]

Core Viewpoint - Diamondback Energy warns of a significant influx of crude oil supply into the global market in the coming months, leading to a reduction in capital expenditures and a downward revision of production guidance [1] Group 1: Company Actions - Diamondback Energy plans to cut capital expenditures by $100 million and postpone some fracking operations [1] - The company is preparing for the remainder of 2025 by reducing spending while maintaining stable oil production levels [1] Group 2: Industry Context - The CEO, Van't Hoff, highlighted that the expected growth in global crude oil supply in the second half of the year is substantial [1] - In May, Diamondback indicated that U.S. shale oil production had peaked, and since then, domestic crude oil drilling activity has decreased by 12%, reaching the lowest level in nearly four years [1]

Group 1 - Diamondback Energy Inc. signals a cautious outlook for the global oil market, anticipating a potential oversupply in the coming months due to changes in supply and demand dynamics [1] - The company plans to cut capital expenditures by $100 million and adjust production forecasts while delaying some hydraulic fracturing operations as a defensive strategy [1][2] - CEO Keith Hutton emphasizes the need to avoid passive production increases in a market characterized by oversupply and price pressure [1] Group 2 - OPEC+ has recently approved an increase in oil production by 547,000 barrels per day, reversing significant cuts planned for 2023, which has directly impacted market conditions [1] - Since mid-January, U.S. crude oil prices have dropped by 17%, correlating with OPEC+’s decision to expand production capacity [1] - The International Energy Agency (IEA) forecasts a significant oversupply of 2 million barrels per day in the global market for the fourth quarter, driven by increased supply from the Americas [1] Group 3 - Diamondback's operational strategy for the remainder of 2025 will focus on expenditure control and stabilizing production, reflecting a cautious approach to market trends [2] - The company’s previous assessment that U.S. shale oil production has peaked aligns with a 12% decline in domestic drilling activity, marking a four-year low [2] - The strategic adjustments by Diamondback illustrate the industry's adaptive strategies in response to price volatility and supply-demand imbalances [2]

Core Insights - Diamondback Energy reported $3.68 billion in revenue for Q2 2025, a 48.1% year-over-year increase, exceeding the Zacks Consensus Estimate of $3.29 billion by 11.82% [1] - The company's EPS for the same period was $2.67, down from $4.52 a year ago, but still above the consensus estimate of $2.63 by 1.52% [1] Financial Performance - Average daily production was 919,879 BOE/D, surpassing the seven-analyst average estimate of 890,056.20 BOE/D [4] - Total production volume was 83,709 MBOE, exceeding the five-analyst average estimate of 80,985.42 MBOE [4] - Total production volume for oil was 45,108 MBBL, compared to the five-analyst average estimate of 44,920.97 MBBL [4] - Total production volume for natural gas was 110,119 MMcf, exceeding the five-analyst average estimate of 106,203.80 MMcf [4] - Revenues from oil, natural gas, and natural gas liquids reached $3.32 billion, above the three-analyst average estimate of $3.21 billion, representing a 52.5% year-over-year change [4] Stock Performance - Diamondback's shares returned +3.7% over the past month, outperforming the Zacks S&P 500 composite's +0.6% change [3] - The stock currently holds a Zacks Rank 3 (Hold), indicating expected performance in line with the broader market in the near term [3]

Core Viewpoint - Diamondback Energy, one of the largest independent oil companies in the Permian Basin, warns of a significant influx of crude oil supply into the global market in the coming months [1] Company Actions - The company plans to cut capital expenditures by $100 million and lower its production guidance while postponing some fracking operations [1] - CEO Van't Hoff stated that the growth expectations for global crude oil supply in the second half of this year are substantial, indicating a strategic shift in operations [1] Industry Context - This statement aligns with Diamondback's previous prediction in May, where the company indicated that U.S. shale oil production had peaked [1] - Following this prediction, domestic crude oil drilling activity in the U.S. has decreased by 12%, reaching the lowest level in nearly four years [1]

Company Performance - Diamondback Energy reported quarterly earnings of $2.67 per share, exceeding the Zacks Consensus Estimate of $2.63 per share, but down from $4.52 per share a year ago, indicating a decrease in profitability [1] - The company achieved revenues of $3.68 billion for the quarter ended June 2025, surpassing the Zacks Consensus Estimate by 11.82%, compared to $2.48 billion in the same quarter last year [2] - Over the last four quarters, Diamondback has surpassed consensus EPS estimates three times and topped consensus revenue estimates four times [2] Market Performance - Diamondback shares have declined approximately 10.8% since the beginning of the year, contrasting with the S&P 500's gain of 6.1% [3] - The current Zacks Rank for Diamondback is 3 (Hold), suggesting that the shares are expected to perform in line with the market in the near future [6] Future Outlook - The consensus EPS estimate for the upcoming quarter is $3.11 on revenues of $3.42 billion, while the estimate for the current fiscal year is $13.39 on revenues of $13.91 billion [7] - The outlook for the Oil and Gas - Exploration and Production - United States industry is currently in the bottom 32% of over 250 Zacks industries, which may impact Diamondback's stock performance [8]