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    Earnings call· Sep 2025(Q3 FY25)

    Diamondback Energy, Inc. FANG

    Nov 4, 2025 Source

    Executive summary

    Diamondback Energy Q3 FY25 — Capital Discipline and Operational Efficiency Amidst Macro Uncertainty

    Diamondback Energy maintained a disciplined capital allocation strategy in Q3 FY25, focusing on free cash flow generation and shareholder returns amidst a challenging and uncertain macro environment. The company demonstrated strong operational efficiency, particularly in drilling and completions, while strategically divesting non-core assets to fortify its balance sheet. Management continues to prioritize capital efficiency and flexibility, ready to adapt to evolving market conditions.

    Highlights

    5

    • Achieved a 36% reinvestment rate at mid-$60s oil year-to-date, demonstrating capital efficiency.

    • Successfully cut 2025 CapEx by $500 million from the original $4 billion budget, showing flexibility.

    • Executed $1.5 billion in non-core asset sales at higher multiples, strengthening the balance sheet.

    • Improved drilling efficiency with 1 in 10 wells completed under 5 days, driving down spud-to-TD days.

    • Reduced Waha gas exposure from over 70% today to an expected 40% by year-end 2026, improving gas realizations.

    Concerns

    3

    • Macro outlook remains murky, with concerns about oversupplied crude markets and potential demand weakness.

    • Steel tariffs negatively impacted well costs by approximately 20%, creating a headwind to cost reduction.

    • Gas realizations are not optimal over the next 12 months, despite long-term improvements.

    Guidance & targets

    3
    CategoryTargetConfidence
    Q4 FY25 Capital Expenditure
    $875M-$975M
    high materiality
    High
    Q1 FY26 Crude Oil Production
    505,000 bbl/d
    high materiality
    High
    Waha Gas Sales Exposure
    40%
    medium materiality
    High

    Operational metrics

    17
    Reinvestment rate
    36-37%
    YTD

    Achieved at mid-$60s oil.

    CapEx reduction
    $500Mfrom original $4B budget
    FY25

    Cut defensively post-Liberation Day moves, including an initial 10% cut and an additional $100M.

    Well cost per foot
    $550-$580
    current

    Target range for drilling efficiency.

    Crude oil price for green light
    $70-$80
    future

    Price range where capital spending would yield much higher rates of return.

    Deep Blue ownership
    30%
    current

    Stake in the water management business, happy with the current ownership.

    Crude oil price
    $63
    YTD

    Operating at this oil price with a 36-37% reinvestment ratio.

    Free cash flow per share growth
    15%YoY
    YTD

    Achieved despite oil prices being down 14%.

    Non-core asset sales
    $1.5B
    YTD

    Primarily 90% non-E&P producing assets sold at higher multiples.

    Wells completed under 5 days
    1 in 10up from 1 or 2 wells in previous quarters
    current

    Reflects improved consistency in drilling results.

    Lateral footage completed per day increase
    20%
    future

    Expected increase with continuous pumping design at pad level.

    Waha gas sales exposure
    70%+
    current

    Current exposure to Waha pricing.

    Core inventory locations
    5,000-5,500
    current

    Sub-$40 type inventory, developed at ~500 wells per year.

    Wells completed per year
    500
    annual

    Current development pace.

    3-mile+ laterals percentage
    20-25%
    FY25 program

    Portion of the total program dedicated to longer laterals.

    Extended laterals percentage
    6%
    FY25 program

    Portion of the total program dedicated to very long laterals (17,500-20,000 feet).

    Public float buyback
    1%+
    per quarter

    Target for share repurchases, a primary use of free cash flow.

    Steel tariffs impact on well costs
    20%
    current

    Headwind on steel costs, despite which overall well costs have decreased.

    Industry KPIs

    3
    MetricValueDetails
    D c efficiency rig activity1 in 10 wells under 5 daysratio
    FCF shareholder distributions15% per share%
    Take or pay contract structure50 MMcf/dMMcf/d

    Orderbook & backlog

    1
    Drilled Uncompleted (DUC) wellssignificantQ3 FY25

    Maintained as a structural advantage, providing flexibility to manage production.

    Deals & partnerships

    4
    Competitive Power VenturesLong-term natural gas supply agreement for a new power plant.50 MMcf/duntil 2029

    Supply for their new 1.3 gigawatt Basin Ranch power plant in Ward County, expected operational in 2029.

    Deep Blue30% ownership in a water management business.

    Diamondback holds a 30% ownership stake. Market attention on water management has increased, good for valuations.

    Viper Energy PartnersSale of non-Permian assets by subsidiary Viper Energy Partners.good number

    Viper also executed a non-core or non-Permian asset sale.

    SitioAcquisition for Viper Energy Partners.

    The Sitio acquisition for Viper provides private well-level data on Permian wells, a huge asset for engineers.

    Capital programs

    1
    Basin Ranch Power Plantcommitted

    Benefit: 1.3 GW

    Diamondback committed 50 MMcf/d of natural gas to Competitive Power Ventures for this new plant in Ward County. It's viewed as a creative in-basin egress solution for natural gas supply.

    Risks & headwinds

    5
    Murky macro environmentnext couple of quarters

    oil prices being down 14%

    Mitigation: Focus on free cash flow generation, capital discipline, and balance sheet strength.

    Oversupplied crude markettoday

    adding crude to a market that is clearly oversupplied

    Mitigation: Not making imprudent decisions to add crude; maintaining defensive stance.

    Potential demand weaknessfuture

    null

    Mitigation: Flexibility to adjust activity, focus on lower share count and net debt.

    Steel tariffscurrent

    20% on our steel costs

    Mitigation: Team has found ways to increase efficiencies despite the headwinds.

    Sub-optimal gas realizationsnext 12 months

    null

    Mitigation: Protected with hedges; long-term strategy to reduce Waha exposure and diversify markets (e.g., power projects).

    What to watch in Q4 FY25

    5

    Q1 FY26 Crude Oil Production

    Q1 FY26
    Current510,000 bbl/d (current run rate)
    Target505,000 bbl/d (flat)

    Why it matters

    Verifying the new production baseline after asset sales and the company's ability to hold it flat with disciplined CapEx.

    that's kind of the new -- the new baseline is 510 mbo/d oil. We're going to sell some -- we announced the sale of some production at Viper. So we'll go down to 505,000 barrels a day kind of run rate in Q1.

    Q&A highlights

    7

    Why isn't Diamondback accelerating activity like some peers, given its low cost structure?

    Diamondback maintains conviction in its plan, focusing on free cash flow per share growth and a 36% reinvestment rate at mid-$60s oil. They have the flexibility to change plans if the macro improves, but with a lower share count and net debt.

    “We are focused on generating free cash flow per share, growing free cash flow per share over growing cash flow into a tenuous macro environment.”

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

    2 min read6 chapters

    Detailed Narrative

    01

    Capital Discipline and Reinvestment

    Diamondback emphasized its commitment to capital discipline, achieving a 36% reinvestment rate at mid-$60s oil year-to-date. This strategy prioritizes free cash flow per share growth over cash flow growth in a volatile macro environment. The company has the flexibility to adjust activity based on market conditions, aiming for a lower share count, reduced net debt, and a lower cost structure.

    02

    Operational Efficiency and Development Style

    The company highlighted its development style, particularly co-development of all zones in the Midland Basin, as a key differentiator. This approach focuses on optimizing returns per section and DSU, resulting in higher overall returns and improved PV-10 per well for the next five years, especially after the Endeavor merger. Efficiency gains include more consistent drilling performance with 1 in 10 wells completed under 5 days, and the implementation of continuous pumping design.

    03

    Gas Realization and Power Generation Opportunities

    Diamondback is actively working to improve natural gas realizations and reduce its exposure to Waha pricing. By year-end 2026, Waha exposure is expected to decrease from over 70% to 40% of gas sales. The company committed 50 million cubic feet per day of natural gas to Competitive Power Ventures for a new 1.3 GW power plant, expected operational in 2029, viewing it as a creative in-basin egress solution.

    04

    Macro Outlook and Strategic Flexibility

    Management described the macro outlook as "murky" but noted that the debate is shifting to the supply side. Despite the uncertainty, Diamondback is focused on generating more free cash flow, having increased it by 15% per share this year despite a 14% drop in oil prices. The company maintains a defensive stance, ready to defer capital if oil prices drop significantly, while also being positioned to capitalize on a "green light" scenario ($70-$80 crude).

    05

    Non-Core Asset Sales and M&A Strategy

    Diamondback successfully executed $1.5 billion in non-core asset sales, primarily non-E&P producing assets, at higher multiples, which significantly strengthened its balance sheet. The company views its asset base as highly coveted and is selective regarding large M&A, focusing on value-accretive, cashless bolt-on deals and leveraging its high working interest.

    06

    DUC Backlog and Longer Laterals

    The company maintains a significant DUC (drilled but uncompleted) backlog, providing flexibility to manage production outcomes. While continuous pumping can reduce the number of frac crews needed, the DUC backlog remains a strategic lever. Diamondback is also pushing for longer laterals, with 3-mile or longer wells making up 20-25% of the 2025 program, and exploring even longer laterals (17,500-20,000 feet) and U-turn/J-hook wells to maximize NPV per section.

    AI-generated summary of the company’s earnings call. Not investment advice.