How is Diamondback thinking about egress out of the basin given Waha's firming, and what is the update on the data center power side of the business?

Kaes and Jere detailed their 'wellhead to water gas strategy' to meet large demand centers and LNG terminals. They provided an update on the Bryant Ranch data center power project, aiming for first gas by H2 2027 and grid-connected power by 2028, pending ERCOT approval. They emphasized their role as molecule producers and surface providers, not power or data center operators. “We are closely monitoring communication out of Austin and remain confident in a project like ours with low water use and new generation ultimately meeting batch 0 standards. We'll give the market a larger update once we've signed the definitive documentation with a hyperscaler but are confident in the direction that this project is going.”

Can management provide an update on their thinking regarding return of capital, particularly the flexible strategy and balance of buybacks versus debt reduction?

Kaes explained the flexible capital allocation strategy aims to maximize 'option value' rather than adhering to rigid formulas. He highlighted a $1.6 billion net debt reduction in Q2 and selective buybacks when market weakness presents itself, referencing a historical buyback target of $90 per share. The goal is to position the balance sheet to lean into buybacks when cycles turn. “The goal for us is to maximize and capitalize on the option value that is inherent in this business, right? We live in a very volatile business where things can change overnight.”

Why is natural gas outperforming expectations, and what are the current inflation pressures, particularly regarding capital run rate for steady-state maintenance?

Danny and Albert attributed gas outperformance to improved local marketing and strategic split connects, with some contribution from higher geo-orbit pads. They noted casing prices are expected to rise by 1% to over 1% of total well cost in H2. A quarterly capital run rate of $1 billion to a little over $1 billion is reasonable to hold production flat, but more pressure is anticipated if rig counts continue to increase. “I think just the biggest driver has been really an improvement in our ability to market our gas locally as the GMPs continue to mature their systems and build in redundancy and we've worked with our gathering processing partners to at split connects in really strategic areas, we've really improved on our flaring metrics and thus, we've improved in our gas processing and selling gas.”

FANG

Diamondback Energy (FANG) Q2 FY26 earnings call: guidance and Q&A

Earnings call· Jun 2026 (Q2 FY26)· Energy· Aug 4, 2026

Source: earnings call transcript

Executive summary

Diamondback Energy Q2 FY26 — Strong Operational Execution and Strategic Capital Allocation

Diamondback Energy delivered strong Q2 FY26 results, driven by robust operational execution and strategic capital allocation. The company achieved significant production growth and continued to enhance well productivity and drilling efficiency, particularly in the Wolfcamp D. Management emphasized a flexible capital allocation strategy, reducing net debt while selectively engaging in share buybacks, and is actively pursuing innovative projects like the Bryant Ranch data center power solution.

Highlights

Production grew by 4% year-to-date FY26 from the start of the year.
Waha gas prices turned positive for the entire month of July.
Achieved over 21 hours of average pumping time per day in Q2 FY26, a new operational efficiency milestone.
Wolfcamp D drilling costs hit stretch goals of $300 per foot, down from a budget of $3.50-$3.60 per foot.
Reduced net debt by $1.6 billion in Q2 FY26, translating to $5.60 per share of value.

Concerns

Casing prices are expected to increase by 1% to over 1% of total well cost in H2 FY26.
Lease operating expense (LOE) is not expected to trend down in H2 FY26, likely circling $6 per barrel or higher.
Ongoing geopolitical events contribute to heightened volatility in oil markets.

Guidance & targets

Category	Target	Timeline	Confidence
Organic production growth	low single-digit organic growth high materiality	FY27	High
Frac crews operating	5 frac crews consistently medium materiality	FY27	High
Quarterly capital run rate	$1 billion to a little over $1 billion a quarter high materiality	FY27	Medium
Bryant Ranch data center project first gas	as soon as the back half of 2027 medium materiality	H2 FY27	High
Bryant Ranch data center project grid-connected power	as soon as 2028 medium materiality	CY28	Medium
Casing price inflation	1% to a little over 1% low materiality	H2 FY26	High
Lease operating expense (LOE)	circling that $6 number or a little higher medium materiality	H2 FY26	Medium

Deals & partnerships

Multiple Bolt-on acquisitions net of divestitures, primarily for Barnett leasing, extending laterals, or blocking up positions. $385 million

Net of divestitures, these deals are typically small ($20M-$100M) but consistent, occurring about once a quarter.

Double Eagle Continuing leasing play in the Barnett position.

Partnership for Barnett leasing, contributing to blocking up the position and enabling longer lateral development.

Capital programs

Bryant Ranch Data Center Power Project underway

Benefit:scalable, reliable power near Midland, Texas; 200-250 MMcf/d nat gas solution

A shovel-ready development project on 30,000-acre Bryant Ranch, with secured distributed power generation, remediated land, and direct access to dedicated natural gas and water supply. Awaiting ERCOT's final determination for Batch 0 interconnection study.

Risks & headwinds

Inflationary pressures H2 FY26

Casing prices expected to increase by 1% to over 1% of total well cost in H2 FY26. LOE expected to circle $6/barrel or higher in H2 FY26.

Mitigation:Utilizing electric frac fleets to mitigate fuel cost inflation; driving efficiencies to offset variable costs.

Geopolitical volatility Ongoing

Heightened volatility on the upside and heightened volatility on the downside in oil markets.

Mitigation:Focusing on the fundamental belief that crude oil drawn from inventories must be replaced, providing a long-term bid for oil.

Midstream infrastructure for Barnett development As Barnett development scales

Infrastructure capital is higher in the beginning and then reduces.

Mitigation:Working on tailored designs for new batteries to support large-scale Barnett development in areas without existing infrastructure.

What to watch in Q3 FY26

Bryant Ranch Data Center Project Progress

August 20 (ERCOT meeting), H2 2027 (first gas), 2028 (grid-connected power)

Current Awaiting ERCOT's final determination for Batch 0 interconnection study.

Target Definitive documentation signed with a hyperscaler; ERCOT approval for Batch 0.

Why it matters

This project represents a significant new in-basin gas solution and potential for material uplift in gas pricing, as well as new revenue streams from land and Deep Blue.

We are closely monitoring communication out of Austin and remain confident in a project like ours with low water use and new generation ultimately meeting batch 0 standards. We'll give the market a larger update once we've signed the definitive documentation with a hyperscaler but are confident in the direction that this project is going.

Find out whether FANG delivers this. Inve re-checks your case every morning.

Q&A highlights

What is Diamondback's macro view on low worldwide inventory levels, and will this lead to continued strategic production growth into 2027?

Kaes believes draining global inventories, including SPRs, will need to be refilled, providing a longer-term bid for oil. This supports a strategy of low single-digit organic growth for FY27, running 5 frac crews, while maintaining flexibility to react to market changes.

“I think our bet is that these global inventories, including SPRs are going to need to be rebuilt. And that should be a positive for Diamondback shareholders and Diamondback's growth trajectory.”

asked by Neal Dingmann · answered by Kaes Van't Hof

2 min read 6 chapters

Detailed narrative

Macro View & Inventory Rebuild

Management believes global oil and product inventories are draining and will need to be refilled, providing a "longer-term bid for oil." This underpins their confidence in strategic production growth. They acknowledge market volatility but are betting on the need to rebuild inventories, including SPRs, which should be positive for Diamondback's growth trajectory.

Well Productivity & Capital Allocation

Diamondback's operational strategy focuses on maximizing NPV per section by blending high wells per section, high production per well, and low cost per well. This "stacked innovation play" involves continuous improvement in well construction, targeting, and stimulation, leading to better results and capital efficiency. The company aims to continuously improve the business to maintain its position.

Gas Strategy & Data Centers

The company sees a "gas mega theme" and aims to own more space to the Gulf Coast for large demand centers like power projects and data centers, as well as LNG terminals. They are developing a "wellhead to water gas strategy" and are actively pursuing a data center power project at their 30,000-acre Bryant Ranch location near Midland, Texas.

This project aims to deliver scalable, reliable power and is awaiting ERCOT's final determination for interconnection.

Enhanced Oil Recovery (EOR)

Diamondback is actively exploring EOR technologies, viewing it as a "mega theme" for improving oil recoveries. They have executed a 12-well surfactant project with "very positive" initial results, seeing production triple or quadruple in some wells. The company is learning which rock types and methodologies work best and is incorporating the technology into new well pads to understand its impact on new wells versus remedial work.

Barnett Development

The company has expanded its Barnett position and is aggressively developing it, with the first 4-well pad (Spanish Trail) drilled and awaiting completion. They are focused on reducing drilling costs to "$400 or less per foot" to make returns competitive with the base plan. The Barnett is expected to become a larger portion of the development plan moving forward.

Wolfcamp D Efficiency

Diamondback has significantly improved the cost efficiency of Wolfcamp D drilling, with costs hitting stretch goals of "$300 a foot" from a budget of "$3.50-$3.60 a foot." This, combined with acreage from the Endeavor merger, has made Wolfcamp D a more competitive part of their capital allocation program, contributing to consistent or improved productivity per foot despite adding new zones.

Summary of the company's earnings call; see how call summaries are prepared. Not investment advice.