UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2023March 31, 2024
OR
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☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number 001-35700
Diamondback Energy, Inc.
(Exact Name of Registrant As Specified in Its Charter)
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DE | | 45-4502447 |
(State or Other Jurisdiction of Incorporation or Organization) | | (I.R.S. Employer Identification Number) |
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500 West Texas Ave. | | |
Suite 100 | | |
Midland, TX | | 79701 |
(Address of principal executive offices) | | (Zip code) |
(432) 221-7400
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:
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Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock | FANG | The Nasdaq Stock Market LLC |
| | (NASDAQ Global Select Market) |
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check One):
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Large Accelerated Filer | | ☒ | | Accelerated Filer | | ☐ |
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Non-Accelerated Filer | | ☐ | | Smaller Reporting Company | | ☐ |
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| | | | Emerging Growth Company | | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of November 3, 2023,April 26, 2024, the registrant had 178,984,911178,343,733 shares of common stock outstanding.
DIAMONDBACK ENERGY, INC.
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2023MARCH 31, 2024
TABLE OF CONTENTS
GLOSSARY OF OIL AND NATURAL GAS TERMS
The following is a glossary of certain oil and natural gas industry terms that are used in this Quarterly Report on Form 10-Q (this “report”):
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Argus WTI Houston | Grade of oil that serves as a benchmark price for oil at Houston, Texas. |
Argus WTI Midland | Grade of oil that serves as a benchmark price for oil at Midland, Texas. |
Basin | A large depression on the earth’s surface in which sediments accumulate. |
Bbl or barrel | One stock tank barrel, or 42 U.S. gallons liquid volume, used in this report in reference to crude oil or other liquid hydrocarbons. |
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BO | One barrel of crude oil. |
BO/d | One BO per day. |
BOE | One barrel of oil equivalent, with six thousand cubic feet of natural gas being equivalent to one barrel of oil. |
BOE/d | BOE per day. |
Brent | A major trading classification of light sweet oil that serves as a benchmark price for oil worldwide. |
British Thermal Unit or Btu | The quantity of heat required to raise the temperature of one pound of water by one degree Fahrenheit. |
Completion | The process of treating a drilled well followed by the installation of permanent equipment for the production of natural gas or oil, or in the case of a dry hole, the reporting of abandonment to the appropriate agency. |
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Gross acres or gross wells | The total acres or wells, as the case may be, in which a working interest is owned. |
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Henry Hub | Natural gas gathering point that serves as a benchmark price for natural gas futures on the NYMEX. |
Horizontal wells | Wells drilled directionally horizontal to allow for development of structures not reachable through traditional vertical drilling mechanisms. |
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MBbl | One thousand barrels of crude oil and other liquid hydrocarbons. |
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MBOE | One thousand BOE. |
MBOE/d | One thousand BOE per day. |
Mcf | One thousand cubic feet of natural gas. |
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Mineral interests | The interests in ownership of the resource and mineral rights, giving an owner the right to profit from the extracted resources. |
MMBtu | One million British Thermal Units. |
MMcf | Million cubic feet of natural gas. |
Net acres | The sum of the fractional working interest owned in gross acres. |
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Oil and natural gas properties | Tracts of land consisting of properties to be developed for oil and natural gas resource extraction. |
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Proved reserves | The estimated quantities of oil, natural gas and natural gas liquids which geological and engineering data demonstrate with reasonable certainty to be commercially recoverable in future years from known reservoirs under existing economic and operating conditions. |
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Reserves | The estimated remaining quantities of oil and natural gas and related substances anticipated to be economically producible, as of a given date, by application of development projects to known accumulations. In addition, there must exist, or there must be a reasonable expectation that there will exist, the legal right to produce or a revenue interest in the production, installed means of delivering oil and natural gas or related substances to the market and all permits and financing required to implement the project. Reserves are not assigned to adjacent reservoirs isolated by major, potentially sealing, faults until those reservoirs are penetrated and evaluated as economically producible. Reserves should not be assigned to areas that are clearly separated from a known accumulation by a non-productive reservoir (i.e., absence of reservoir, structurally low reservoir or negative test results). Such areas may contain prospective resources (i.e., potentially recoverable resources from undiscovered accumulations). |
Reservoir | A porous and permeable underground formation containing a natural accumulation of producible natural gas and/or crude oil that is confined by impermeable rock or water barriers and is separate from other reservoirs. |
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Royalty interest | An interest that gives an owner the right to receive a portion of the resources or revenues without having to carry any costs of development, which may be subject to expiration. |
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Waha Hub | Natural gas gathering point that serves as a benchmark price for natural gas at western Texas and New Mexico. |
Working interest | An operating interest that gives the owner the right to drill, produce and conduct operating activities on the property and receive a share of production and requires the owner to pay a share of the costs of drilling and production operations. |
WTI | West Texas Intermediate, a light sweet blend of oil produced from fields in western Texas and is a grade of oil that serves as a benchmark for oil on the NYMEX. |
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GLOSSARY OF CERTAIN OTHER TERMS
The following is a glossary of certain other terms that are used in this report:
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ASU | Accounting Standards Update. |
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Equity Plan | The Company’s 2021 Amended and Restated Equity Incentive Plan. |
Exchange Act | The Securities Exchange Act of 1934, as amended. |
FASB | Financial Accounting Standards Board. |
GAAP | Accounting principles generally accepted in the United States. |
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| LIBOR | The London interbank offered rate.
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Nasdaq | The Nasdaq Global Select Market. |
NYMEX | New York Mercantile Exchange. |
OPEC | Organization of the Petroleum Exporting Countries. |
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SEC | United States Securities and Exchange Commission. |
Securities Act | The Securities Act of 1933, as amended. |
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Guaranteed Senior Notes | The outstanding senior notes issued by Diamondback Energy, Inc. under indentures where Diamondback E&P is the sole guarantor, consisting of the 3.250% Senior Notes due 2026, 3.500% Senior Notes due 2029, 3.125% Senior Notes due 2031, 6.250% Senior Notes due 2033, 4.400% Senior Notes due 2051, 4.250% Senior Notes due 2052 and 6.250% Senior Notes due 2053. |
SOFR | The secured overnight financing rate. |
TSR | Total stockholder return of the Company’s common stock. |
Viper | Viper Energy, Inc. |
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Viper LLC | Viper Energy Partners LLC, a Delaware limited liability company and a subsidiary of Viper. |
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Wells Fargo | Wells Fargo Bank, National Association. |
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Various statements contained in this report are “forward-looking statements” within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act, which involve risks, uncertainties and assumptions. All statements, other than statements of historical fact, including statements regarding our: future performance; business strategy; future operations (including drilling plans and capital plans); estimates and projections of revenues, losses, costs, expenses, returns, cash flow and financial position; reserve estimates and our ability to replace or increase reserves; anticipated benefits of strategic transactions (including acquisitions and divestitures); and plans and objectives of management (including plans for future cash flow from operations and for executing environmental strategies) are forward-looking statements. When used in this report, the words “aim,” “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “forecast,” “future,” “guidance,” “intend,” “may,” “model,” “outlook,” “plan,” “positioned,” “potential,” “predict,” “project,” “seek,” “should,” “target,” “will,” “would,” and similar expressions (including the negative of such terms) as they relate to the Company are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words. In particular, the factors discussed in this report and detailed under Part II, Item 1A. Risk Factors in this report and our Annual Report on Form 10–K for the year ended December 31, 20222023 could affect our actual results and cause our actual results to differ materially from expectations, estimates or assumptions expressed, forecasted or implied in such forward-looking statements. Unless the context requires otherwise, references to “we,” “us,” “our” or the “Company” are intended to mean the business and operations of the Company and its consolidated subsidiaries.
Factors that could cause our outcomes to differ materially include (but are not limited to) the following:
•changes in supply and demand levels for oil, natural gas and natural gas liquids, and the resulting impact on the price for those commodities;
•the impact of public health crises, including epidemic or pandemic diseases and any related company or government policies or actions;
•actions taken by the members of OPEC and Russia affecting the production and pricing of oil, as well as other domestic and global political, economic, or diplomatic developments;
•changes in general economic, business or industry conditions, including changes in foreign currency exchange rates, interest rates and inflation rates, instability in the financial sector and concerns over a potential economic downturn or recession;
•regional supply and demand factors, including delays, curtailment delays or interruptions of production, or governmental orders, rules or regulations that impose production limits;
•federal and state legislative and regulatory initiatives relating to hydraulic fracturing, including the effect of existing and future laws and governmental regulations;
•physical and transition risks relating to climate change;
•restrictions on the use of water, including limits on the use of produced water and a moratorium on new produced water well permits recently imposed by the Texas Railroad Commission in an effort to control induced seismicity in the Permian Basin;
•significant declines in prices for oil, natural gas, or natural gas liquids, which could require recognition of significant impairment charges;
•changes in U.S. energy, environmental, monetary and trade policies;
•conditions in the capital, financial and credit markets, including the availability and pricing of capital for drilling and development operations and our environmental and social responsibility projects;
•challenges with employee retention and an increasingly competitive labor market;
•changes in availability or cost of rigs, equipment, raw materials, supplies, oilfield services;
•changes in safety, health, environmental, tax and other regulations or requirements (including those addressing air emissions, water management, or the impact of global climate change);
•security threats, including cybersecurity threats and disruptions to our business and operations from breaches of our information technology systems, or from breaches of information technology systems of third parties with whom we transact business;
•lack of, or disruption in, access to adequate and reliable transportation, processing, storage and other facilities for our oil, natural gas and natural gas liquids;
•failures or delays in achieving expected reserve or production levels from existing and future oil and natural gas developments, including due to operating hazards, drilling risks, or the inherent uncertainties in predicting reserve and reservoir performance;
•difficulty in obtaining necessary approvals and permits;
•severe weather conditions;
•acts of war or terrorist acts and the governmental or military response thereto;
•changes in the financial strength of counterparties to our credit agreement and hedging contracts;
•changes in our credit rating;
•risks related to the pending Endeavor Acquisition (as defined below); and
•other risks and factors disclosed in this report.
In light of these factors, the events anticipated by our forward-looking statements may not occur at the time anticipated or at all. Moreover, we operate in a very competitive and rapidly changing environment and new risks emerge from time to time. We cannot predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those anticipated by any forward-looking statements we may make. Accordingly, you should not place undue reliance on any forward-looking statements made in this report. All forward-looking statements speak only as of the date of this report or, if earlier, as of the date they were made. We do not intend to, and disclaim any obligation to, update or revise any forward-looking statements unless required by applicable law.
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
| Diamondback Energy, Inc. and Subsidiaries | Diamondback Energy, Inc. and Subsidiaries | Diamondback Energy, Inc. and Subsidiaries |
Condensed Consolidated Balance Sheets | Condensed Consolidated Balance Sheets | Condensed Consolidated Balance Sheets |
(Unaudited) | (Unaudited) | (Unaudited) |
| September 30, | | December 31, |
| 2023 | | 2022 |
| (In millions, except par values and share data) |
| March 31, | | | March 31, | | December 31, |
| 2024 | | | 2024 | | 2023 |
| (In millions, except par values and share data) | | | (In millions, except par values and share data) |
Assets | Assets | (In millions, except par values and share data) | Assets |
Current assets: | Cash and cash equivalents | |
Cash and cash equivalents | |
Cash and cash equivalents | Cash and cash equivalents | $ | 827 | | | $ | 157 | |
Restricted cash | Restricted cash | 3 | | | 7 | |
Accounts receivable: | Accounts receivable: | |
Joint interest and other, net | Joint interest and other, net | 191 | | | 104 | |
Oil and natural gas sales, net | 789 | | | 618 | |
Joint interest and other, net | |
Joint interest and other, net | |
Oil and natural gas sales, net ($132 million and $109 million related to Viper) | |
Income tax receivable | |
Inventories | Inventories | 70 | | | 67 | |
Derivative instruments | Derivative instruments | 1 | | | 132 | |
Income tax receivable | 16 | | | 284 | |
Prepaid expenses and other current assets | Prepaid expenses and other current assets | 19 | | | 23 | |
Total current assets | Total current assets | 1,916 | | | 1,392 | |
Property and equipment: | Property and equipment: | | | |
Oil and natural gas properties, full cost method of accounting ($8,239 million and $8,355 million excluded from amortization at September 30, 2023 and December 31, 2022, respectively) | 40,647 | | | 37,122 | |
Oil and natural gas properties, full cost method of accounting ($8,455 million and $8,659 million excluded from amortization at March 31, 2024 and December 31, 2023, respectively) ($4,649 million and $4,629 million and $1,719 million and $1,769 million excluded from amortization related to Viper) | |
Oil and natural gas properties, full cost method of accounting ($8,455 million and $8,659 million excluded from amortization at March 31, 2024 and December 31, 2023, respectively) ($4,649 million and $4,629 million and $1,719 million and $1,769 million excluded from amortization related to Viper) | |
Oil and natural gas properties, full cost method of accounting ($8,455 million and $8,659 million excluded from amortization at March 31, 2024 and December 31, 2023, respectively) ($4,649 million and $4,629 million and $1,719 million and $1,769 million excluded from amortization related to Viper) | |
Other property, equipment and land | Other property, equipment and land | 706 | | | 1,481 | |
Accumulated depletion, depreciation, amortization and impairment | (15,988) | | | (14,844) | |
Accumulated depletion, depreciation, amortization and impairment ($913 million and $866 million related to Viper) | |
Property and equipment, net | Property and equipment, net | 25,365 | | | 23,759 | |
Funds held in escrow | 50 | | | 119 | |
| Equity method investments | Equity method investments | 519 | | | 566 | |
Assets held for sale | — | | | 158 | |
Equity method investments | |
Equity method investments | |
| Derivative instruments | |
Derivative instruments | |
Derivative instruments | Derivative instruments | 1 | | | 23 | |
Deferred income taxes, net | Deferred income taxes, net | 60 | | | 64 | |
Investment in real estate, net | Investment in real estate, net | 85 | | | 86 | |
Other assets | Other assets | 53 | | | 42 | |
Total assets | Total assets | $ | 28,049 | | | $ | 26,209 | |
Liabilities and Stockholders’ Equity | Liabilities and Stockholders’ Equity | | | |
Current liabilities: | Current liabilities: | |
Current liabilities: | |
Current liabilities: | |
Accounts payable - trade | |
Accounts payable - trade | |
Accounts payable - trade | Accounts payable - trade | $ | 358 | | | $ | 127 | |
Accrued capital expenditures | Accrued capital expenditures | 397 | | | 480 | |
Current maturities of long-term debt | — | | | 10 | |
| Other accrued liabilities | |
Other accrued liabilities | |
Other accrued liabilities | Other accrued liabilities | 428 | | | 399 | |
Revenues and royalties payable | Revenues and royalties payable | 782 | | | 619 | |
Derivative instruments | Derivative instruments | 139 | | | 47 | |
Income taxes payable | Income taxes payable | 37 | | | 34 | |
Total current liabilities | Total current liabilities | 2,141 | | | 1,716 | |
Long-term debt | 6,230 | | | 6,238 | |
Long-term debt ($1,094 million and $1,083 million related to Viper) | |
Derivative instruments | Derivative instruments | 199 | | | 148 | |
Asset retirement obligations | Asset retirement obligations | 240 | | | 336 | |
Deferred income taxes | Deferred income taxes | 2,243 | | | 2,069 | |
Other long-term liabilities | Other long-term liabilities | 12 | | | 12 | |
Total liabilities | Total liabilities | 11,065 | | | 10,519 | |
Commitments and contingencies (Note 14) | | | |
Commitments and contingencies (Note 15) | | Commitments and contingencies (Note 15) | | | |
Stockholders’ equity: | Stockholders’ equity: | |
Common stock, $0.01 par value; 400,000,000 shares authorized; 178,815,302 and 179,840,797 shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively | 2 | | | 2 | |
Common stock, $0.01 par value; 400,000,000 shares authorized; 178,339,978 and 178,723,871 shares issued and outstanding at March 31, 2024 and December 31, 2023, respectively | |
Common stock, $0.01 par value; 400,000,000 shares authorized; 178,339,978 and 178,723,871 shares issued and outstanding at March 31, 2024 and December 31, 2023, respectively | |
Common stock, $0.01 par value; 400,000,000 shares authorized; 178,339,978 and 178,723,871 shares issued and outstanding at March 31, 2024 and December 31, 2023, respectively | |
Additional paid-in capital | Additional paid-in capital | 14,149 | | | 14,213 | |
Retained earnings (accumulated deficit) | Retained earnings (accumulated deficit) | 2,136 | | | 801 | |
Accumulated other comprehensive income (loss) | Accumulated other comprehensive income (loss) | (7) | | | (7) | |
Total Diamondback Energy, Inc. stockholders’ equity | Total Diamondback Energy, Inc. stockholders’ equity | 16,280 | | | 15,009 | |
Non-controlling interest | Non-controlling interest | 704 | | | 681 | |
Total equity | Total equity | 16,984 | | | 15,690 | |
Total liabilities and equity | $ | 28,049 | | | $ | 26,209 | |
Total liabilities and stockholders' equity | |
See accompanying notes to condensed consolidated financial statements.
Diamondback Energy, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
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| | | | | 2024 | | 2023 |
| | | | | (In millions, except per share amounts, shares in thousands) |
Revenues: | | | | | | | |
Oil sales | | | | | $ | 1,867 | | | $ | 1,654 | |
Natural gas sales | | | | | 50 | | | 69 | |
Natural gas liquid sales | | | | | 184 | | | 179 | |
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Sales of purchased oil | | | | | 116 | | | — | |
Other operating income | | | | | 10 | | | 23 | |
Total revenues | | | | | 2,227 | | | 1,925 | |
Costs and expenses: | | | | | | | |
Lease operating expenses | | | | | 255 | | | 192 | |
Production and ad valorem taxes | | | | | 119 | | | 155 | |
Gathering, processing and transportation | | | | | 77 | | | 68 | |
Purchased oil expense | | | | | 117 | | | — | |
Depreciation, depletion, amortization and accretion | | | | | 469 | | | 403 | |
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General and administrative expenses | | | | | 46 | | | 40 | |
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Merger and integration expenses | | | | | 12 | | | 8 | |
Other operating expenses | | | | | 14 | | | 34 | |
Total costs and expenses | | | | | 1,109 | | | 900 | |
Income (loss) from operations | | | | | 1,118 | | | 1,025 | |
Other income (expense): | | | | | | | |
Interest expense, net | | | | | (46) | | | (46) | |
Other income (expense), net | | | | | 4 | | | 53 | |
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Gain (loss) on derivative instruments, net | | | | | (48) | | | (93) | |
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Gain (loss) on extinguishment of debt | | | | | 2 | | | — | |
Income (loss) from equity investments, net | | | | | 2 | | | 14 | |
Total other income (expense), net | | | | | (86) | | | (72) | |
Income (loss) before income taxes | | | | | 1,032 | | | 953 | |
Provision for (benefit from) income taxes | | | | | 223 | | | 207 | |
Net income (loss) | | | | | 809 | | | 746 | |
Net income (loss) attributable to non-controlling interest | | | | | 41 | | | 34 | |
Net income (loss) attributable to Diamondback Energy, Inc. | | | | | $ | 768 | | | $ | 712 | |
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Earnings (loss) per common share: | | | | | | | |
Basic | | | | | $ | 4.28 | | | $ | 3.88 | |
Diluted | | | | | $ | 4.28 | | | $ | 3.88 | |
Weighted average common shares outstanding: | | | | | | | |
Basic | | | | | 178,477 | | | 181,988 | |
Diluted | | | | | 178,477 | | | 181,988 | |
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| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
| (In millions, except per share amounts, shares in thousands) |
Revenues: | | | | | | | |
Oil sales | $ | 1,997 | | | $ | 1,853 | | | $ | 5,359 | | | $ | 5,988 | |
Natural gas sales | 80 | | | 296 | | | 197 | | | 714 | |
Natural gas liquid sales | 188 | | | 268 | | | 507 | | | 856 | |
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Sales of purchased oil | 59 | | | — | | | 59 | | | — | |
Other operating income | 16 | | | 20 | | | 62 | | | 55 | |
Total revenues | 2,340 | | | 2,437 | | | 6,184 | | | 7,613 | |
Costs and expenses: | | | | | | | |
Lease operating expenses | 226 | | | 183 | | | 618 | | | 491 | |
Production and ad valorem taxes | 118 | | | 156 | | | 421 | | | 495 | |
Gathering and transportation | 73 | | | 71 | | | 209 | | | 191 | |
Depreciation, depletion, amortization and accretion | 442 | | | 336 | | | 1,277 | | | 979 | |
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Purchased oil expense | 59 | | | — | | | 59 | | | — | |
General and administrative expenses | 34 | | | 34 | | | 111 | | | 109 | |
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Merger and integration expenses | 1 | | | 11 | | | 11 | | | 11 | |
Other operating expenses | 47 | | | 32 | | | 113 | | | 85 | |
Total costs and expenses | 1,000 | | | 823 | | | 2,819 | | | 2,361 | |
Income (loss) from operations | 1,340 | | | 1,614 | | | 3,365 | | | 5,252 | |
Other income (expense): | | | | | | | |
Interest expense, net | (41) | | | (43) | | | (138) | | | (122) | |
Other income (expense), net | 37 | | | (5) | | | 69 | | | (3) | |
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Gain (loss) on derivative instruments, net | (76) | | | (24) | | | (358) | | | (677) | |
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Gain (loss) on extinguishment of debt | — | | | (1) | | | (4) | | | (59) | |
Income (loss) from equity investments | 9 | | | 19 | | | 39 | | | 56 | |
Total other income (expense), net | (71) | | | (54) | | | (392) | | | (805) | |
Income (loss) before income taxes | 1,269 | | | 1,560 | | | 2,973 | | | 4,447 | |
Provision for (benefit from) income taxes | 276 | | | 290 | | | 648 | | | 913 | |
Net income (loss) | 993 | | | 1,270 | | | 2,325 | | | 3,534 | |
Net income (loss) attributable to non-controlling interest | 78 | | | 86 | | | 142 | | | 155 | |
Net income (loss) attributable to Diamondback Energy, Inc. | $ | 915 | | | $ | 1,184 | | | $ | 2,183 | | | $ | 3,379 | |
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Earnings (loss) per common share: | | | | | | | |
Basic | $ | 5.07 | | | $ | 6.72 | | | $ | 12.01 | | | $ | 18.99 | |
Diluted | $ | 5.07 | | | $ | 6.72 | | | $ | 12.01 | | | $ | 18.99 | |
Weighted average common shares outstanding: | | | | | | | |
Basic | 178,872 | | | 174,406 | | | 180,400 | | | 176,169 | |
Diluted | 178,872 | | | 174,408 | | | 180,400 | | | 176,171 | |
Dividends declared per share | $ | 3.37 | | | $ | 2.26 | | | $ | 5.04 | | | $ | 8.36 | |
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See accompanying notes to condensed consolidated financial statements.
Diamondback Energy, Inc. and Subsidiaries
Condensed Consolidated Statements of Stockholders’ Equity
(Unaudited)
| | Common Stock | | | Common Stock | | Additional Paid-in Capital | | Retained Earnings (Accumulated Deficit) | | Accumulated Other Comprehensive Income (Loss) | | Non-Controlling Interest | | Total |
| Shares | |
| ($ in millions, shares in thousands) | |
| ($ in millions, shares in thousands) | |
| ($ in millions, shares in thousands) | |
Balance December 31, 2023 | |
| Distribution equivalent rights payments | |
Distribution equivalent rights payments | |
Distribution equivalent rights payments | |
Stock-based compensation | |
Cash paid for tax withholding on vested equity awards | |
Repurchased shares under buyback program | |
| Proceeds from partial sale of investment in Viper Energy, Inc. | |
| Proceeds from partial sale of investment in Viper Energy, Inc. | |
| Proceeds from partial sale of investment in Viper Energy, Inc. | |
Dividends to non-controlling interest | |
Dividends paid | |
Issuance of shares upon vesting of equity awards | |
Change in ownership of consolidated subsidiaries, net | |
| Net income (loss) | |
Net income (loss) | |
Net income (loss) | |
Balance March 31, 2024 | |
| | | Common Stock | | Additional Paid-in Capital | | Retained Earnings (Accumulated Deficit) | | Accumulated Other Comprehensive Income (Loss) | | Non-Controlling Interest | | Total |
| | Shares | | Amount | |
| | ($ in millions, shares in thousands) |
Balance December 31, 2022 | 179,841 | | | $ | 2 | | | $ | 14,213 | | | $ | 801 | | | $ | (7) | | | $ | 681 | | | $ | 15,690 | |
Unit-based compensation | — | | | — | | | — | | | — | | | — | | | 1 | | | 1 | |
Distribution equivalent rights payments | — | | | — | | | — | | | (4) | | | — | | | — | | | (4) | |
Stock-based compensation | — | | | — | | | 15 | | | — | | | — | | | — | | | 15 | |
Cash paid for tax withholding on vested equity awards | (119) | | | — | | | (18) | | | — | | | — | | | — | | | (18) | |
Repurchased shares under buyback program | (2,531) | | | — | | | (332) | | | — | | | — | | | — | | | (332) | |
Repurchased units under buyback programs | — | | | — | | | — | | | — | | | — | | | (34) | | | (34) | |
Common shares issued for acquisition | 4,330 | | | — | | | 633 | | | — | | | — | | | — | | | 633 | |
Distributions to non-controlling interest | — | | | — | | | — | | | — | | | — | | | (34) | | | (34) | |
Dividend paid | — | | | — | | | — | | | (542) | | | — | | | — | | | (542) | |
Exercise of stock options and issuance of restricted stock units and awards | 84 | | | — | | | — | | | — | | | — | | | — | | | — | |
Change in ownership of consolidated subsidiaries, net | — | | | — | | | (9) | | | — | | | — | | | 11 | | | 2 | |
| Net income (loss) | — | | | — | | | — | | | 712 | | | — | | | 34 | | | 746 | |
Balance March 31, 2023 | 181,605 | | | 2 | | | 14,502 | | | 967 | | | (7) | | | 659 | | | 16,123 | |
| Distribution equivalent rights payments | — | | | — | | | — | | | (1) | | | — | | | — | | | (1) | |
Stock-based compensation | — | | | — | | | 22 | | | — | | | — | | | — | | | 22 | |
Cash paid for tax withholding on vested equity awards | (18) | | | — | | | (1) | | | — | | | — | | | — | | | (1) | |
Repurchased shares under buyback program | (2,427) | | | — | | | (321) | | | — | | | — | | | — | | | (321) | |
Repurchased units under buyback programs | — | | | — | | | — | | | — | | | — | | | (23) | | | (23) | |
| Distributions to non-controlling interest | — | | | — | | | — | | | — | | | — | | | (25) | | | (25) | |
Dividend paid | — | | | — | | | — | | | (150) | | | — | | | — | | | (150) | |
Exercise of stock options and vesting of restricted stock units and awards | 59 | | | — | | | — | | | — | | | — | | | — | | | — | |
Change in ownership of consolidated subsidiaries, net | — | | | — | | | (15) | | | — | | | — | | | 17 | | | 2 | |
| Net income (loss) | — | | | — | | | — | | | 556 | | | — | | | 30 | | | 586 | |
Balance June 30, 2023 | 179,219 | | | 2 | | | 14,187 | | | 1,372 | | | (7) | | | 658 | | | 16,212 | |
| Distribution equivalent rights payments | — | | | — | | | — | | | (2) | | | — | | | — | | | (2) | |
Stock-based compensation | — | | | — | | | 21 | | | — | | | — | | | — | | | 21 | |
Cash paid for tax withholding on vested equity awards | (1) | | | — | | | — | | | — | | | — | | | — | | | — | |
Repurchased shares under buyback program | (407) | | | — | | | (56) | | | — | | | — | | | — | | | (56) | |
Repurchased units under buyback programs | — | | | — | | | — | | | — | | | — | | | (10) | | | (10) | |
| Distributions to non-controlling interest | — | | | — | | | — | | | — | | | — | | | (25) | | | (25) | |
Dividend paid | — | | | — | | | — | | | (149) | | | — | | | — | | | (149) | |
Exercise of stock options and vesting of restricted stock units and awards | 4 | | | — | | | — | | | — | | | — | | | — | | | — | |
Change in ownership of consolidated subsidiaries, net | — | | | — | | | (3) | | | — | | | — | | | 3 | | | — | |
| Net income (loss) | — | | | — | | | — | | | 915 | | | — | | | 78 | | | 993 | |
Balance September 30, 2023 | 178,815 | | | $ | 2 | | | $ | 14,149 | | | $ | 2,136 | | | $ | (7) | | | $ | 704 | | | $ | 16,984 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | Additional Paid-in Capital | | Retained Earnings (Accumulated Deficit) | | Accumulated Other Comprehensive Income (Loss) | | Non-Controlling Interest | | Total |
| Shares | | Amount | | | | | |
| ($ in millions, shares in thousands) |
Balance December 31, 2022 | 179,841 | | | $ | 2 | | | $ | 14,213 | | | $ | 801 | | | $ | (7) | | | $ | 681 | | | $ | 15,690 | |
Unit-based compensation | — | | | — | | | — | | | — | | | — | | | 1 | | | 1 | |
Distribution equivalent rights payments | — | | | — | | | — | | | (4) | | | — | | | — | | | (4) | |
Stock-based compensation | — | | | — | | | 15 | | | — | | | — | | | — | | | 15 | |
Cash paid for tax withholding on vested equity awards | (119) | | | — | | | (18) | | | — | | | — | | | — | | | (18) | |
Repurchased shares under buyback program | (2,531) | | | — | | | (332) | | | — | | | — | | | — | | | (332) | |
Repurchased units under buyback programs | — | | | — | | | — | | | — | | | — | | | (34) | | | (34) | |
Common shares issued for acquisition | 4,330 | | | — | | | 633 | | | — | | | — | | | — | | | 633 | |
Distributions to non-controlling interest | — | | | — | | | — | | | — | | | — | | | (34) | | | (34) | |
Dividend paid | — | | | — | | | — | | | (542) | | | — | | | — | | | (542) | |
Exercise of stock options and issuance of restricted stock units and awards | 84 | | | — | | | — | | | — | | | — | | | — | | | — | |
Change in ownership of consolidated subsidiaries, net | — | | | — | | | (9) | | | — | | | — | | | 11 | | | 2 | |
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Net income (loss) | — | | | — | | | — | | | 712 | | | — | | | 34 | | | 746 | |
Balance March 31, 2023 | 181,605 | | | $ | 2 | | | $ | 14,502 | | | $ | 967 | | | $ | (7) | | | $ | 659 | | | $ | 16,123 | |
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See accompanying notes to condensed consolidated financial statements.
Diamondback Energy, Inc. and Subsidiaries
Condensed Consolidated Statements of Stockholders’ Equity - (Continued)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | Additional Paid-in Capital | | Retained Earnings (Accumulated Deficit) | | | | Non-Controlling Interest | | Total |
| Shares | | Amount | | | | | |
| ($ in millions, shares in thousands) |
Balance December 31, 2021 | 177,551 | | | $ | 2 | | | $ | 14,084 | | | $ | (1,998) | | | | | $ | 1,157 | | | $ | 13,245 | |
Unit-based compensation | — | | | — | | | — | | | — | | | | | 3 | | | 3 | |
Distribution equivalent rights payments | — | | | — | | | — | | | — | | | | | (1) | | | (1) | |
Stock-based compensation | — | | | — | | | 16 | | | — | | | | | — | | | 16 | |
Cash paid for tax withholding on vested equity awards | — | | | — | | | (15) | | | — | | | | | — | | | (15) | |
Repurchased shares under buyback program | (58) | | | — | | | (7) | | | — | | | | | — | | | (7) | |
Repurchased units under buyback programs | — | | | — | | | — | | | — | | | | | (42) | | | (42) | |
Distributions to non-controlling interest | — | | | — | | | — | | | — | | | | | (47) | | | (47) | |
Dividend paid | — | | | — | | | — | | | (107) | | | | | — | | | (107) | |
Exercise of stock options and issuance of restricted stock units and awards | 58 | | | — | | | 1 | | | — | | | | | — | | | 1 | |
Change in ownership of consolidated subsidiaries, net | — | | | — | | | (12) | | | — | | | | | 15 | | | 3 | |
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Net income (loss) | — | | | — | | | — | | | 779 | | | | | 24 | | | 803 | |
Balance March 31, 2022 | 177,551 | | | 2 | | | 14,067 | | | (1,326) | | | | | 1,109 | | | 13,852 | |
Unit-based compensation | — | | | — | | | — | | | — | | | | | 3 | | | 3 | |
Distribution equivalent rights payments | — | | | — | | | — | | | (7) | | | | | — | | | (7) | |
Stock-based compensation | — | | | — | | | 17 | | | — | | | | | — | | | 17 | |
Cash paid for tax withholding on vested equity awards | — | | | — | | | — | | | — | | | | | (3) | | | (3) | |
Repurchased shares under buyback program | (2,369) | | | — | | | (303) | | | — | | | | | — | | | (303) | |
Repurchased units under buyback programs | — | | | — | | | — | | | — | | | | | (29) | | | (29) | |
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Distributions to non-controlling interest | — | | | — | | | — | | | — | | | | | (63) | | | (63) | |
Dividend paid | — | | | — | | | — | | | (541) | | | | | — | | | (541) | |
Exercise of stock options and vesting of restricted stock units and awards | 19 | | | — | | | — | | | — | | | | | — | | | — | |
Change in ownership of consolidated subsidiaries, net | — | | | — | | | (9) | | | — | | | | | 12 | | | 3 | |
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Net income (loss) | — | | | — | | | — | | | 1,416 | | | | | 45 | | | 1,461 | |
Balance June 30, 2022 | 175,201 | | | 2 | | | 13,772 | | | (458) | | | | | 1,074 | | | 14,390 | |
Unit-based compensation | — | | | — | | | — | | | — | | | | | 2 | | | 2 | |
Distribution equivalent rights payments | — | | | — | | | — | | | (5) | | | | | (1) | | | (6) | |
Stock-based compensation | — | | | — | | | 17 | | | — | | | | | — | | | 17 | |
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Repurchased shares under buyback program | (3,922) | | | — | | | (472) | | | — | | | | | — | | | (472) | |
Repurchased units under buyback programs | — | | | — | | | — | | | — | | | | | (51) | | | (51) | |
Common shares issued for acquisition | 4,352 | | | — | | | 344 | | | — | | | | | (344) | | | — | |
Distributions to non-controlling interest | — | | | — | | | — | | | — | | | | | (71) | | | (71) | |
Dividend paid | — | | | — | | | — | | | (526) | | | | | — | | | (526) | |
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Change in ownership of consolidated subsidiaries, net | — | | | — | | | (15) | | | — | | | | | 20 | | | 5 | |
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Net income (loss) | — | | | — | | | — | | | 1,184 | | | | | 86 | | | 1,270 | |
Balance September 30, 2022 | 175,631 | | | $ | 2 | | | $ | 13,646 | | | $ | 195 | | | | | $ | 715 | | | $ | 14,558 | |
See accompanying notes to condensed consolidated financial statements.
Diamondback Energy, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
| | | | | | | | | | | |
| Nine Months Ended September 30, |
| 2023 | | 2022 |
| (In millions) |
Cash flows from operating activities: | | | |
Net income (loss) | $ | 2,325 | | | $ | 3,534 | |
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | | | |
Provision for (benefit from) deferred income taxes | 185 | | | 375 | |
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Depreciation, depletion, amortization and accretion | 1,277 | | | 979 | |
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(Gain) loss on extinguishment of debt | 4 | | | 59 | |
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(Gain) loss on derivative instruments, net | 358 | | | 677 | |
Cash received (paid) on settlement of derivative instruments | (62) | | | (816) | |
(Income) loss from equity investment | (39) | | | (56) | |
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Equity-based compensation expense | 40 | | | 42 | |
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Other | (23) | | | 57 | |
Changes in operating assets and liabilities: | | | |
Accounts receivable | (218) | | | (113) | |
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Income tax receivable | 267 | | | (1) | |
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Prepaid expenses and other | 5 | | | (16) | |
Accounts payable and accrued liabilities | 46 | | | (29) | |
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Income tax payable | 4 | | | 14 | |
Revenues and royalties payable | 139 | | | 182 | |
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Other | (12) | | | (4) | |
Net cash provided by (used in) operating activities | 4,296 | | | 4,884 | |
Cash flows from investing activities: | | | |
Drilling, completions and infrastructure additions to oil and natural gas properties | (1,948) | | | (1,327) | |
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Additions to midstream assets | (104) | | | (69) | |
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Property acquisitions | (1,193) | | | (623) | |
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Proceeds from sale of assets | 1,400 | | | 105 | |
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Other | (14) | | | (38) | |
Net cash provided by (used in) investing activities | (1,859) | | | (1,952) | |
Cash flows from financing activities: | | | |
Proceeds from borrowings under credit facilities | 4,466 | | | 4,100 | |
Repayments under credit facilities | (4,368) | | | (4,119) | |
Proceeds from senior notes | — | | | 750 | |
Repayment of senior notes | (134) | | | (1,910) | |
Proceeds from (repayments to) joint venture | — | | | (41) | |
Premium on extinguishment of debt | — | | | (49) | |
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Repurchased shares under buyback program | (709) | | | (782) | |
Repurchased units under buyback program | (67) | | | (122) | |
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Dividends paid to stockholders | (841) | | | (1,174) | |
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Distributions to non-controlling interest | (84) | | | (181) | |
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Other | (34) | | | (42) | |
Net cash provided by (used in) financing activities | (1,771) | | | (3,570) | |
Net increase (decrease) in cash and cash equivalents | 666 | | | (638) | |
Cash, cash equivalents and restricted cash at beginning of period | 164 | | | 672 | |
Cash, cash equivalents and restricted cash at end of period | $ | 830 | | | $ | 34 | |
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See accompanying notes to condensed consolidated financial statements.
Diamondback Energy, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
| | | | | | | | | | | |
| Three Months Ended March 31, |
| 2024 | | 2023 |
| (In millions) |
Cash flows from operating activities: | | | |
Net income (loss) | $ | 809 | | | $ | 746 | |
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | | | |
Provision for (benefit from) deferred income taxes | 52 | | | 97 | |
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Depreciation, depletion, amortization and accretion | 469 | | | 403 | |
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(Gain) loss on extinguishment of debt | (2) | | | — | |
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(Gain) loss on derivative instruments, net | 48 | | | 93 | |
Cash received (paid) on settlement of derivative instruments | (4) | | | 1 | |
(Income) loss from equity investment, net | (2) | | | (14) | |
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Equity-based compensation expense | 14 | | | 11 | |
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Other | 16 | | | (34) | |
Changes in operating assets and liabilities: | | | |
Accounts receivable | (95) | | | (36) | |
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Income tax receivable | 12 | | | 95 | |
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Prepaid expenses and other current assets | 89 | | | — | |
Accounts payable and accrued liabilities | (110) | | | (26) | |
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Income taxes payable | 70 | | | 17 | |
Revenues and royalties payable | (35) | | | 60 | |
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Other | 3 | | | 12 | |
Net cash provided by (used in) operating activities | 1,334 | | | 1,425 | |
Cash flows from investing activities: | | | |
Drilling, completions and infrastructure additions to oil and natural gas properties | (605) | | | (622) | |
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Additions to midstream assets | (4) | | | (35) | |
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Property acquisitions | (153) | | | (880) | |
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Proceeds from sale of assets | 12 | | | 264 | |
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Other | (1) | | | (6) | |
Net cash provided by (used in) investing activities | (751) | | | (1,279) | |
Cash flows from financing activities: | | | |
Proceeds from borrowings under credit facilities | 90 | | | 1,696 | |
Repayments under credit facilities | (80) | | | (989) | |
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Repayment of senior notes | (25) | | | — | |
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Repurchased shares under buyback program | (42) | | | (332) | |
Repurchased shares/units under Viper's buyback program | — | | | (34) | |
Proceeds from partial sale of investment in Viper Energy, Inc. | 451 | | | — | |
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Dividends paid to stockholders | (548) | | | (542) | |
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Dividends/distributions to non-controlling interest | (44) | | | (34) | |
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Other | (71) | | | (22) | |
Net cash provided by (used in) financing activities | (269) | | | (257) | |
Net increase (decrease) in cash and cash equivalents | 314 | | | (111) | |
Cash, cash equivalents and restricted cash at beginning of period | 585 | | | 164 | |
Cash, cash equivalents and restricted cash at end of period | $ | 899 | | | $ | 53 | |
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See accompanying notes to condensed consolidated financial statements.
Diamondback Energy, Inc. and Subsidiaries
Condensed Notes to Consolidated Financial Statements
(Unaudited)
1. DESCRIPTION OF THE BUSINESS AND BASIS OF PRESENTATION
Organization and Description of the Business
Diamondback Energy, Inc., together with its subsidiaries (collectively referred to as “Diamondback” or the “Company” unless the context otherwise requires), is an independent oil and natural gas company currently 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 September 30, 2023,March 31, 2024, the wholly owned subsidiaries of Diamondback include Diamondback E&P LLC (“Diamondback E&P”), a Delaware limited liability company, Viper Energy Partners GP LLC, a Delaware limited liability company (“Viper’s General Partner”), Rattler Midstream GP LLC, a Delaware limited liability company (“Rattler’s GP”), Rattler Midstream LP, a Delaware limited partnership (“Rattler”) and QEP Resources, Inc. (“QEP”), a Delaware corporation.
Rattler MergerViper Conversion to Corporate Structure
On August 24, 2022November 13, 2023, the Company’s publicly traded subsidiary, Viper Energy Partners LP, completed its conversion from a Delaware limited partnership into a Delaware corporation, Viper Energy, Inc. (“Viper”) (the “Effective Date”“Viper Conversion”),. At the Company completed the merger with Rattler pursuant to which the Company acquired alltime of the approximately 38.51 million publicly held outstanding common units of Rattler in exchange for approximately 4.35 million sharesViper Conversion, each of the Company’s common units representing limited partnership interest in Viper Energy Partners, LP was converted, on a unit-for-unit basis, into one issued and outstanding, fully paid and nonassessable share of Class A common stock (the “Rattler Merger”). Rattler continued asof Viper Energy, Inc., and each of the surviving entity. Following the Rattler Merger, the Company owns all of Rattler’s outstanding common units andCompany’s Class B units representing a limited partnership interest in Viper Energy Partners, LP was converted, on a unit-for-unit basis, into one issued and Rattler GP remains the general partneroutstanding, fully paid and nonassessable share of Rattler. Following the closing of the Rattler Merger, Rattler’s common units were delisted from Nasdaq and Rattler filed a certification on Form 15 with the SEC requesting the deregistration of its common units and suspension of Rattler’s reporting obligations under the Exchange Act.
The Rattler Merger was accounted for as a non-cash equity transaction resulting in increases toClass B common stock of $44 thousand, additional paid-in-capitalViper. At the time of $344 million, merger and integration expensethe Conversion, Viper was a “controlled company” under the Nasdaq rules as the Company owned more than 50% of $11 million and a decrease in noncontrolling interests in consolidated subsidiariesthe voting power of $344 million. For periods prior to the Effective Date, the results of operations attributable to the non-controlling interest in Rattler are presented within equity and net income and are shown separately from the equity and net income attributable to the Company.Viper’s common stock.
Basis of Presentation
The condensed consolidated financial statements include the accounts of the Company and its subsidiaries after all significant intercompany balances and transactions have been eliminated upon consolidation. The Company has one reportable segment, the upstream segment.
Diamondback’s publicly traded subsidiaryOn October 31, 2023, pursuant to a common unit purchase and sale agreement entered into on September 4, 2023, Viper Energy Partners LPissued approximately 7.22 million of its common units, which were converted to shares of Viper Class A common stock at the time of the Viper Conversion, to the Company at a price of $27.72 per unit for total consideration to Viper of approximately $200 million. On March 5, 2024, the Company exercised certain of its demand rights, pursuant to a registration rights agreement initially entered into on June 23, 2014, as amended and restated on May 9, 2018 and November 10, 2023, and on March 8, 2024, completed a public offering of approximately 13.23 million of Viper’s Class A common stock at a price of $35.00 per share for proceeds, net of underwriters’ discount, of approximately $451 million. After this offering and through March 31, 2024, the Company owned approximately 48% of Viper’s combined outstanding Class A common stock and Class B common stock, resulting in Viper no longer being a controlled company under the Nasdaq rules. However, the Company determined that it still controls the activities of Viper in accordance with the guidance for variable interest entities in Accounting Standards Codification Topic 810— “Consolidation” (“Viper”ASC 810”) is consolidatedand therefore continues to consolidate Viper in the Company’s financial statements. Asstatements at March 31, 2024. See further discussion of September 30, 2023, the Company owned approximately 57%Company’s determination that Viper is a variable interest entity (“VIE”) in Note 2—Summary of Viper’s total units outstanding. The Company’s wholly owned subsidiary, Viper Energy Partners GP LLC, is the general partner of Viper.Significant Accounting Policies. The results of operations attributable to the non-controlling interest in Viper are presented within equity and net income and are shown separately from the equity and net income attributable to the Company.
These condensed consolidated financial statements have been prepared by the Company without audit, pursuant to the rules and regulations of the SEC. They reflect all adjustments that are, in the opinion of management, necessary for a fair statement of the results for interim periods, on a basis consistent with the annual audited financial statements. All such adjustments are of a normal recurring nature. Certain information, accounting policies and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been omitted pursuant to SEC rules and regulations, although the Company believes the disclosures are adequate to make the information presented not misleading. This Quarterly Report on Form 10–Q should be read in conjunction with the Company’s most recent Annual Report on Form 10–K for the fiscal year ended December 31, 2022,2023, which contains a summary of the Company’s significant accounting policies and other disclosures.
Reclassifications
Certain prior period amounts have been reclassified to conform to the current period financial statement presentation. These reclassifications had an immaterial effect on the previously reported total assets, total liabilities, stockholders’ equity, results of operations or cash flows.
Diamondback Energy, Inc. and Subsidiaries
Condensed Notes to Consolidated Financial Statements - (Continued)
(Unaudited)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
Certain amounts included in or affecting the Company’s condensed consolidated financial statements and related disclosures must be estimated by management, requiring certain assumptions to be made with respect to values or conditions that cannot be known with certainty at the time the condensed consolidated financial statements are prepared. These estimates and assumptions affect the amounts the Company reports for assets and liabilities and the Company’s disclosure of contingent assets and liabilities as of the date of the condensed consolidated financial statements. Actual results could differ from those estimates.
Making accurate estimates and assumptions is particularly difficult in the oil and natural gas industry given the challenges resulting from volatility in oil and natural gas prices. For instance, the war in Ukraine and the Israel-Hamas war, rising interest rates, global supply chain disruptions, concerns about a potential economic downturn or recession, recent measures to combat persistent inflation and instability in the financial sector have contributed to recent economic and pricing volatility. The financial results of companies in the oil and natural gas industry have been impacted materially as a result of these events and changing market conditions. Such circumstances generally increase uncertainty in the Company’s accounting estimates, particularly those involving financial forecasts.
The Company evaluates these estimates on an ongoing basis, using historical experience, consultation with experts and other methods the Company considers reasonable in the particular circumstances. Nevertheless, actual results may differ significantly from the Company’s estimates. Any effects on the Company’s 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. Significant items subject to such estimates and assumptions include estimates of proved oil and natural gas reserves and related present value estimates of future net cash flows therefrom, the carrying value of oil and natural gas properties, fair value estimates of derivative instruments, the fair value determination of acquired assets and liabilities assumed and estimates of income taxes, including deferred tax valuation allowances.
Net Sales of Purchased OilVariable Interest Entity
Viper is a publicly traded corporation formed by the Company in 2014 to provide an attractive return to its shareholders (the largest of which is Diamondback) by focusing on business results, maximizing dividends through organic growth and pursuing accretive growth opportunities through acquisitions of mineral, royalty, overriding royalty, net profits and similar interests from the Company and from third parties. Viper has no employees and the Company provides management, operating and administrative services to Viper under a services and secondment agreement, including the services of the executive officers and other employees.
In connection with the reduction of the Company’s ownership percentage in Viper to below 50% in March 2024, the Company re-evaluated whether Viper should continue to be consolidated in the Company’s financial statements. Viper meets the definition of a VIE under ASC 810 and the Company continues to be the primary beneficiary of the VIE through its ability, via existing contractual agreements, to direct the activities that most significantly affect the economic performance of Viper. The Company enters into pipeline capacity commitments in orderalso has the obligation to secure available transportation capacityabsorb losses and the right to receive benefits that could be significant to Viper. As such, the Company will continue to consolidate the activity of Viper.
Viper maintains its own capital structure that is separate from the
Company's areasCompany. The Company is not under any obligation to provide additional financial support or investment to Viper. Viper’s assets cannot be used by the Company for general corporate purposes, and the creditors of
production for its commodities. BeginningViper’s liabilities do not have recourse to the Company’s assets. The assets and liabilities of Viper are included in the
third quarter of 2023, the Company has also entered into purchase transactions with third parties and separate sale transactions with third parties to satisfy certain of its unused oil pipeline capacity commitments. Revenues and expenses from these transactions are generally presented on a gross basis in the captions “Sales of purchased oil” and “Purchased oil expense” in the accompanyingCompany’s condensed consolidated
statements of operations as the Company acts as a principal in the transaction by assuming both the risksbalance sheets and
rewards of ownership, including credit risk, of the oil volumes purchased and the responsibility to deliver the oil volumes sold. See Note 3—Revenue from Contracts with Customers for additional information.disclosed parenthetically, if material.
Recent Accounting Pronouncements
Recently Adopted Pronouncements
In October 2021,March 2023, the FASB issued ASU 2021-08, “Business Combinations2023-01, “Leases (Topic 805)842) – Accounting for Contract Assets and Contract Liabilities from Contracts with Customers.Common Control Arrangements.” This update required the acquirer(i) requires all lessees that are a party to a lease between entities under common control in a business combinationwhich there are leasehold improvements to record contract assetsamortization over the useful life of the leasehold improvements to the common control group, regardless of the lease term, and liabilities following Topic 606 – “Revenue from Contracts with Customers” at acquisition as if it had originated the contract, rather than at fair value. The Company adopted this update effective January 1, 2023. The adoption of this update did not have a material impact on its financial position, results of operations or liquidity.
Accounting Pronouncements Not Yet Adopted
The Company considers the applicability and impact of all ASUs. ASUs not discussed above were assessed and determined(ii) requires leasehold improvements to be either not applicable,accounted for as a transfer between entities under common control through an adjustment to equity if, and when, the effectslessee no longer controls the use of adoption are not expected to be material or are clarifications of ASUs previously disclosed.
the underlying asset. The
Diamondback Energy, Inc. and Subsidiaries
Condensed Notes to Consolidated Financial Statements - (Continued)
(Unaudited)
Company adopted this update effective January 1, 2024 by electing to apply the guidance in ASU 2023-01 prospectively to all new leasehold improvements recognized on or after January 1, 2024. As such, the adoption of this update did not have a material impact on the Company’s financial position, results of operations or liquidity.
Accounting Pronouncements Not Yet Adopted
In November 2023, the FASB issued ASU 2023-07, “Segment Reporting (Topic 280) – Improvements to Reportable Segment Disclosures,” which updates reportable segment disclosure requirements primarily through enhanced disclosures about significant segment expenses and information used to assess segment performance. The amendments are effective for annual periods beginning after December 15, 2023, and for interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The amendments should be applied retrospectively to all prior periods presented in the financial statements. Management is currently evaluating this ASU to determine its impact on the Company’s disclosures. Adoption of the update will not impact the Company’s financial position, results of operations or liquidity.
In December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740) – Improvements to Income Tax Disclosures,” which requires that certain information in a reporting entity’s tax rate reconciliation be disaggregated and provides additional requirements regarding income taxes paid. The amendments are effective for annual periods beginning after December 15, 2024, with early adoption permitted, and should be applied either prospectively or retrospectively. Management is currently evaluating this ASU to determine its impact on the Company’s disclosures. Adoption of the update will not impact the Company’s financial position, results of operations or liquidity.
The Company considers the applicability and impact of all ASUs. ASUs not listed above were assessed and determined to be either not applicable, previously disclosed, or not material upon adoption.
3. REVENUE FROM CONTRACTS WITH CUSTOMERS
Revenue from Contracts with Customers
The following tables present the Company’s revenue from contracts with customers:
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
| (In millions) |
| | | Three Months Ended March 31, | |
| | | Three Months Ended March 31, | |
| | | Three Months Ended March 31, | |
| | | | | 2024 | | | | | | | 2024 | | 2023 |
| | | | | (In millions) | | | | | | | (In millions) |
Oil sales | Oil sales | $ | 1,997 | | | $ | 1,853 | | | $ | 5,359 | | | $ | 5,988 | |
Natural gas sales | Natural gas sales | 80 | | | 296 | | | 197 | | | 714 | |
Natural gas liquid sales | Natural gas liquid sales | 188 | | | 268 | | | 507 | | | 856 | |
Total oil, natural gas and natural gas liquid revenues | Total oil, natural gas and natural gas liquid revenues | 2,265 | | | 2,417 | | | 6,063 | | | 7,558 | |
Sales of purchased oil | Sales of purchased oil | 59 | | | — | | | 59 | | | — | |
Midstream and marketing services | Midstream and marketing services | 13 | | | 18 | | | 56 | | | 49 | |
Total revenue from contracts with customers | Total revenue from contracts with customers | $ | 2,337 | | | $ | 2,435 | | | $ | 6,178 | | | $ | 7,607 | |
The following tables present the Company’s revenue from oil, natural gas, and natural gas liquids disaggregated by basin:
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| Three Months Ended September 30, 2023 | | Three Months Ended September 30, 2022 |
| Midland Basin | | Delaware Basin | | Other | | Total | | Midland Basin | | Delaware Basin | | Other | | Total |
| (In millions) |
Oil sales | $ | 1,588 | | | $ | 407 | | | $ | 2 | | | $ | 1,997 | | | $ | 1,311 | | | $ | 539 | | | $ | 3 | | | $ | 1,853 | |
Natural gas sales | 52 | | | 28 | | | — | | | 80 | | | 200 | | | 95 | | | 1 | | | 296 | |
Natural gas liquid sales | 138 | | | 50 | | | — | | | 188 | | | 188 | | | 80 | | | — | | | 268 | |
Total | $ | 1,778 | | | $ | 485 | | | $ | 2 | | | $ | 2,265 | | | $ | 1,699 | | | $ | 714 | | | $ | 4 | | | $ | 2,417 | |
| | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2023 | | Nine Months Ended September 30, 2022 |
| Midland Basin | | Delaware Basin | | Other | | Total | | Midland Basin | | Delaware Basin | | Other | | Total |
| (In millions) |
Oil sales | $ | 4,205 | | | $ | 1,149 | | | $ | 5 | | | $ | 5,359 | | | $ | 4,319 | | | $ | 1,661 | | | $ | 8 | | | $ | 5,988 | |
Natural gas sales | 131 | | | 66 | | | — | | | 197 | | | 466 | | | 246 | | | 2 | | | 714 | |
Natural gas liquid sales | 363 | | | 144 | | | — | | | 507 | | | 586 | | | 268 | | | 2 | | | 856 | |
Total | $ | 4,699 | | | $ | 1,359 | | | $ | 5 | | | $ | 6,063 | | | $ | 5,371 | | | $ | 2,175 | | | $ | 12 | | | $ | 7,558 | |
4. ACQUISITIONS AND DIVESTITURES
2023 Activity
Deep Blue Acquisition and Divestiture of Water Assets
On September 1, 2023, the Company closed on a joint venture agreement with Five Point Energy LLC (“Five Point”) to form Deep Blue Midland Basin LLC (“Deep Blue”). At closing, the Company contributed certain treated water, fresh water and salt water disposal assets (the “Water Assets”) with a net carrying value of $681 million and Five Point contributed $251 million in cash, including customary closing adjustments, to Deep Blue. In exchange for these contributions, Deep Blue issued the Company a one-time cash distribution of approximately $516 million and issued to the Company a 30% equity ownership and voting interest, and issued to Five Point a 70% equity ownership and voting interest. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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| Three Months Ended March 31, 2024 | | Three Months Ended March 31, 2023 |
| Midland Basin | | Delaware Basin | | Other | | Total | | Midland Basin | | Delaware Basin | | Other | | Total |
| (In millions) |
Oil sales | $ | 1,503 | | | $ | 360 | | | $ | 4 | | | $ | 1,867 | | | $ | 1,295 | | | $ | 358 | | | $ | 1 | | | $ | 1,654 | |
Natural gas sales | 34 | | | 15 | | | 1 | | | 50 | | | 48 | | | 21 | | | — | | | 69 | |
Natural gas liquid sales | 137 | | | 47 | | | — | | | 184 | | | 132 | | | 47 | | | — | | | 179 | |
Total | $ | 1,674 | | | $ | 422 | | | $ | 5 | | | $ | 2,101 | | | $ | 1,475 | | | $ | 426 | | | $ | 1 | | | $ | 1,902 | |
Diamondback Energy, Inc. and Subsidiaries
Condensed Notes to Consolidated Financial Statements - (Continued)
(Unaudited)
Under4. ACQUISITIONS AND DIVESTITURES
2024 Activity
See Note 16—Endeavor Energy Resources, LP Acquisition for details on the previously announced plan of merger. The Company had no other material acquisition or divestiture activity during the three months ended March 31, 2024.
2023 Activity
Acquisitions
GRP Acquisition
On November 1, 2023, Viper and Viper LLC acquired certain mineral and royalty interests from Royalty Asset Holdings, LP, Royalty Asset Holdings II, LP and Saxum Asset Holdings, LP and affiliates of Warwick Capital Partners and GRP Energy Capital (collectively, “GRP”), pursuant to a separatedefinitive purchase and sale agreement with Deep Blue, the Company is continuing to operate the Water Assets on a short-term basis before transferring operations to Deep Blue, which is anticipated to happen in 2024. Contingent upon the successful transfer of operations, the Company will receivefor approximately $479.02 million Viper common units and $750 million in cash, including transactions costs and subject to be contributed by Five Point in 2024. This contingent consideration does not meet the criteria to be accounted for as a derivative. As such, at September 30, 2023, approximately $43 million has been recorded as a receivablecustomary post-closing adjustments (the “GRP Acquisition”). The mineral and royalty interests acquired in the condensed consolidated balance sheetGRP Acquisition represent 4,600 net royalty acres in the Permian Basin, plus an additional 2,700 net royalty acres in other major basins. The cash consideration for the fair valueGRP Acquisition was funded through a combination of cash on hand and held in escrow, borrowings under the additional consideration to be received when operationViper credit agreement, proceeds from Viper’s offering of the Water Assets transfers to Deep Blue.
The Company recorded its 30% equity interest$400 million in Deep Blue at fair value based on the cash consideration contributed by Five Point to Deep Blue in exchange for its 70% equity ownership and the estimated fair value of contingent consideration to be contributed by Five Point in future years. As of September 30, 2023, the Company’s equity method investment in Deep Blue has a carrying value equal to its initial fair value of $126 million and is included in the caption “Equity method investments” in the condensed consolidated balance sheet. The Company’s proportionate share of the income or loss from Deep Blue will be recognized on a two-month lag. For the three and nine months ended September 30, 2023, the Company recognized a $2 million loss on the saleaggregate principal amount of its Water Assets, which is included7.375% Senior Notes due in 2031 and proceeds from the caption “Other operating expenses” in$200 million common unit issuance to the condensed consolidated statement of operations.
The Company and Five Point currently anticipate collectively contributing $500 million in follow-on capital to fund future growth projects and acquisitions.
As part of the transaction, the Company also entered into a 15-year dedication with Deep Blue for its produced water and supply water within a 12-county area of mutual interest in the Midland Basin. Fees paid to Deep Blue for produced water and supply water services and fees received from Deep Blue for operating services provided by the Company during the three and nine months ended September 30, 2023 were insignificant.Company.
Lario Acquisition
On January 31, 2023, the Company closed on its acquisition of all leasehold interests and related assets of Lario Permian, LLC, a wholly owned subsidiary of Lario Oil and Gas Company, and certain associated sellers (collectively “Lario”). The acquisition included approximately 25,000 gross (16,000 net) acres in the Midland Basin and certain related oil and gas assets (the “Lario Acquisition”), in exchange for 4.33 million shares of the Company’s common stock and $814 million in cash, including certain customary post-closing adjustments. Approximately $113 million of the cash consideration was deposited in an indemnity holdback escrow account at closing to be distributed upon satisfactory settlement of any potential title defects on the acquired properties. As of March 31, 2024, the Company has released the full amount of the indemnity holdback to Lario. The cash portion of the consideration for the Lario Acquisition was funded through a combination of cash on hand, a portion of the net proceeds from the Company’s offering of 6.250% Senior Notes due 2053 and borrowings under the Company’s revolving credit facility.
The following table presents the acquisition consideration paid in the Lario Acquisition (in millions, except per share data, shares in thousands):
| | | | | |
Consideration: | |
Shares of Diamondback common stock issued at closing | 4,330 |
Closing price per share of Diamondback common stock on the closing date | $ | 146.12 | |
Fair value of Diamondback common stock issued | $ | 633 | |
Cash consideration | 814 | |
Total consideration (including fair value of Diamondback common stock issued) | $ | 1,447 | |
Diamondback Energy, Inc. and Subsidiaries
Condensed Notes to Consolidated Financial Statements - (Continued)
(Unaudited)
Purchase Price Allocation
The Lario Acquisition has been accounted for as a business combination using the acquisition method. The following table represents the allocation of the total purchase price paid in the Lario Acquisition to the identifiable assets acquired and the liabilities assumed based on the fair values at the acquisition date. Although theThe purchase price allocation is substantially complete as of the date of this filing, there may be further adjustments to the fair value of certain assets acquired and liabilities assumed, including but not limited to the Company’s oil and natural gas properties. The Company expects to complete the purchase price allocation during the 12-month period following the acquisition date and may revise the value of the assets and liabilities as appropriate within that time frame. There have been no material changes to the purchase price allocation for the Lario Acquisition through September 30,was completed in December 2023.
Diamondback Energy, Inc. and Subsidiaries
Condensed Notes to Consolidated Financial Statements - (Continued)
(Unaudited)
The following table sets forth the Company’s preliminary purchase price allocation (in millions):
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Total consideration | $ | 1,447 | |
| |
Fair value of liabilities assumed: | |
Other long-term liabilities | 37 | |
| |
Fair value of assets acquired: | |
Oil and natural gas properties | 1,460 | |
Inventories | 2 | |
Other property, equipment and land | 22 | |
Amount attributable to assets acquired | 1,484 | |
Net assets acquired and liabilities assumed | $ | 1,447 | |
Oil and natural gas properties were valued using an income approach utilizing the discounted cash flow method, which takes into account production forecasts, projected commodity prices and pricing differentials, and estimates of future capital and operating costs which were then discounted utilizing an estimated weighted-average cost of capital for industry market participants. The fair value of acquired midstream assets, vehicles and a field office were based on the cost approach, which utilized asset listings and cost records with consideration for the reported age, condition, utilization and economic support of the assets and were included in the Company’s condensed consolidated balance sheets under the caption “Other property, equipment and land.” The majority of the measurements of assets acquired and liabilities assumed are based on inputs that are not observable in the market and are therefore considered Level 3 inputs in the fair value hierarchy.
With the completion of the Lario Acquisition, the Company acquired proved properties of $924 million and unproved properties of $536 million. The results
Divestitures
Divestiture of Deep Blue Water Assets and Deep Blue Formation
On September 1, 2023, the Company closed on a joint venture agreement with Five Point Energy LLC (“Five Point”) to form Deep Blue Midland Basin LLC (“Deep Blue”). At closing, the Company contributed certain treated water, fresh water and saltwater disposal assets (the “Deep Blue Water Assets”) with a net carrying value of $692 million and Five Point contributed $251 million in cash, subject to certain customary post-closing adjustments, to Deep Blue. In exchange for these contributions, Deep Blue issued the Company a one-time cash distribution of approximately $516 million and issued to the Company a 30% equity ownership and voting interest, and issued to Five Point a 70% equity ownership and voting interest.
Under a separate agreement with Deep Blue, the Company is continuing to operate the Deep Blue Water Assets on a short-term basis before transferring operations to Deep Blue, which is anticipated to happen in the second quarter of 2024. Contingent upon the successful transfer of operations, attributablethe Company will receive approximately $47 million in cash to be contributed by Five Point in 2024. This contingent consideration does not meet the Lario Acquisition since the acquisition date havecriteria to be accounted for as a derivative. As such, at March 31, 2024, approximately $43 million has been includedrecorded as a receivable in the condensed consolidated statements of operations and include $134 million and $345 million of total revenue and $53 million and $140 million of net incomebalance sheet for the three and nine months ended September 30, 2023, respectively.fair value of the additional consideration to be received when operation of the Deep Blue Water Assets transfers to Deep Blue.
Diamondback Energy, Inc. and Subsidiaries
Condensed Notes to Consolidated Financial Statements - (Continued)
(Unaudited)
The Company recorded its 30% equity interest in Deep Blue at fair value based on the cash consideration contributed by Five Point to Deep Blue in exchange for its 70% equity ownership and the estimated fair value of contingent consideration to be contributed by Five Point in future years. The Company’s equity method investment in Deep Blue had an initial fair value of $126 million. The Company’s proportionate share of the income or loss from Deep Blue will be recognized on a two-month lag. The Company has recognized an aggregate $13 million loss on the sale of its Deep Blue Water Assets, of which approximately $1 million was recognized during the three months ended March 31, 2024. The loss on the sale of Deep Blue Water Assets is included in the caption “Other operating expenses” in the condensed consolidated statement of operations. The majority of measurements utilized to determine the fair value amounts reported above relating to this transaction are based on inputs that are not observable in the market and are therefore considered Level 3 inputs in the fair value hierarchy.
The Company and Five Point currently anticipate collectively contributing $500 million in follow-on capital to fund future growth projects and acquisitions.
As part of the transaction, the Company also entered into a 15-year dedication with Deep Blue for its produced water and supply water within a 12-county area of mutual interest in the Midland Basin. See Note 7— Related Party Transactions for further discussion of transactions with Deep Blue.
OMOG Divestiture
On July 28, 2023, the Company divested its 43% limited liability company interest in OMOG JV LLC (“OMOG”) for $225 million in cash received at closing. This divestiture resulted in a gain on the sale of equity method investments of approximately $35 million for the three and nine months ended September 30, 2023, which is included in the caption “Other income (expense), net” in the condensed consolidated statement of operations.million. The Company used its net proceeds from this transaction for debt reduction and other general corporate purposes.
Non-Core Assets Divestiture
On April 28, 2023, the Company divested non-core assets to an unrelated third-party buyer consisting of approximately 19,000 net acres in Glasscock County, TX for net cash proceeds at closing of $269 million, including customary post-closing adjustments. The Company used its net proceeds from this transaction for debt reduction and other general corporate purposes.
On March 31, 2023, the Company divested non-core assets consisting of approximately 4,900 net acres in Ward and Winkler counties to unrelated third-party buyers for $78$72 million in net cash proceeds, including customary post-closing adjustments.
The divestitures of non-core oil and gas assets did not result in a significant alteration of the relationship between the Company’s capitalized costs and proved reserves and, accordingly, the Company recorded the proceeds as a reduction of its full cost pool with no gain or loss recognized on the sale.
Gray Oak Divestiture
On January 9, 2023, the Company divested its 10% non-operating equity investment in Gray Oak Pipeline, LLC (“Gray Oak”) for $172 million in net cash proceeds and recorded a gain on the sale of equity method investments of approximately $53 million, in the first quarter of 2023 thatwhich is included in the caption “Other income (expense), net” on the condensed consolidated statement of operations for the ninethree months ended September 30,March 31, 2023.
Diamondback Energy, Inc. and Subsidiaries
Condensed Notes to Consolidated Financial Statements - (Continued)
(Unaudited)
2022 Activity
FireBird Energy LLC
On November 30, 2022, the Company closed on its acquisition of all leasehold interests and related assets of FireBird Energy LLC, which included approximately 75,000 gross (68,000 net) acres in the Midland Basin and certain related oil and gas assets, in exchange for 5.92 million shares of the Company’s common stock and $787 million in cash, including certain customary post-closing adjustments. Approximately $125 million of the cash consideration was deposited in an indemnity holdback escrow account at closing to be distributed upon satisfactory settlement of any potential title defects on the acquired properties. The cash portion of the consideration for the FireBird Acquisition was funded through a combination of cash on hand and borrowings under the Company’s revolving credit facility. As a result of the FireBird Acquisition, the Company added approximately 854 gross producing wells.
The following table presents the acquisition consideration paid in the FireBird Acquisition (in millions, except per share data, shares in thousands):
| | | | | |
Consideration: | |
Shares of Diamondback common stock issued at closing | 5,921 |
Closing price per share of Diamondback common stock on the closing date | $ | 148.02 | |
Fair value of Diamondback common stock issued | $ | 876 | |
Cash consideration | 787 | |
Total consideration (including fair value of Diamondback common stock issued) | $ | 1,663 | |
Purchase Price Allocation
The FireBird Acquisition has been accounted for as a business combination using the acquisition method. The following table represents the allocation of the total purchase price paid in the FireBird Acquisition to the identifiable assets acquired and the liabilities assumed based on the fair values at the acquisition date. Although the purchase price allocation is substantially complete as of the date of this filing, there may be further adjustments to the fair value of certain assets acquired and liabilities assumed, including but not limited to the Company’s oil and natural gas properties and other property, equipment and land. The Company expects to complete the purchase price allocation during the 12-month period following the acquisition date and may revise the value of the assets and liabilities as appropriate within that time frame. During the three months ended September 30, 2023, the Company decreased the fair value allocated to certain midstream assets by $36 million and; increased the fair value allocated to the acquired oil and natural gas properties by $36 million based on new information that became available related to the fair value of these assets on the acquisition date.
The following table sets forth the Company’s preliminary purchase price allocation (in millions):
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Total consideration | $ | 1,663 | |
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Fair value of liabilities assumed: | |
Other long-term liabilities | 10 | |
| |
Fair value of assets acquired: | |
Oil and natural gas properties | 1,598 | |
Inventories | 3 | |
Other property, equipment and land | 72 | |
Amount attributable to assets acquired | 1,673 | |
Net assets acquired and liabilities assumed | $ | 1,663 | |
Oil and natural gas properties were valued using an income approach utilizing the discounted cash flow method, which takes into account production forecasts, projected commodity prices and pricing differentials, and estimates of future capital and operating costs which were then discounted utilizing an estimated weighted-average cost of capital for industry market participants. The fair value of acquired midstream assets was based on the cost approach, which utilized asset listings and cost records with consideration for the reported age, condition, utilization and economic support of the assets and was included in the Company’s condensed consolidated balance sheets under the caption “Other property, equipment and land.” The majority of
Diamondback Energy, Inc. and Subsidiaries
Condensed Notes to Consolidated Financial Statements - (Continued)
(Unaudited)
the measurements of assets acquired and liabilities assumed are based on inputs that are not observable in the market and are therefore considered Level 3 inputs.
With the completion of the FireBird Acquisition, the Company acquired proved properties of $648 million and unproved properties of $950 million.
Delaware Basin Acquisition
On January 18, 2022, the Company acquired, from an unrelated third-party seller, approximately 6,200 net acres in the Delaware Basin for $232 million in cash, including customary post-closing adjustments. The acquisition was funded through cash on hand.
Other 2022 Acquisitions
Additionally during the year ended December 31, 2022, the Company acquired, from unrelated third-party sellers, approximately 4,000 net acres and over 200 gross wells in the Permian Basin for an aggregate purchase price of approximately $220 million in cash, including customary post-closing adjustments. The acquisitions were funded through cash on hand.
Divestitures of Certain Non-Core Assets
In October 2022, the Company completed the divestiture of non-core Delaware Basin acreage consisting of approximately 3,272 net acres, with net production of approximately 550 BO/d (800 BOE/d) for $155 million of net proceeds. The Company used the net proceeds from this transaction towards debt reduction.
Pro Forma Financial Information
The following unaudited summary pro forma financial information for the three and nine months ended September 30, 2023 and 2022 has been prepared to give effect to the FireBird Acquisition and the Lario Acquisition as if they had occurred on January 1, 2022. The unaudited pro forma financial information does not purport to be indicative of what the combined company’s results of operations would have been if these transactions had occurred on the dates indicated, nor is it indicative of the future financial position or results of operations of the combined company.
The below information reflects pro forma adjustments for the issuance of the Company’s common stock as consideration for the FireBird Acquisition and the Lario Acquisition, as well as pro forma adjustments based on available information and certain assumptions that the Company believes are reasonable, including adjustments to depreciation, depletion and amortization based on the full cost method of accounting.
Additionally, pro forma earnings for the three and nine months ended September 30, 2023 were adjusted to exclude acquisition-related costs incurred by the Company of $1 million and $8 million for the Lario Acquisition, respectively, and $3 million for the FireBird Acquisition during the nine months ended September 30, 2023, which consist primarily of legal and advisory fees. The pro forma results of operations do not include any cost savings or other synergies that may result from the Firebird Acquisition and the Lario Acquisition or any estimated costs that have been or will be incurred by the Company to integrate the acquired assets. The pro forma financial data does not include the results of operations for any other acquisitions made during the periods presented, as they were primarily acreage acquisitions, and their results were not deemed material.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
| (In millions, except per share amounts) |
Revenues | $ | 2,340 | | | $ | 2,681 | | | $ | 6,229 | | | $ | 8,308 | |
Income (loss) from operations | $ | 1,341 | | | $ | 1,776 | | | $ | 3,401 | | | $ | 5,707 | |
Net income (loss) | $ | 916 | | | $ | 1,356 | | | $ | 2,214 | | | $ | 3,866 | |
Basic earnings (loss) per common share | $ | 5.07 | | | $ | 7.34 | | | $ | 12.18 | | | $ | 20.74 | |
Diluted earnings (loss) per common share | $ | 5.07 | | | $ | 7.36 | | | $ | 12.18 | | | $ | 20.79 | |
Diamondback Energy, Inc. and Subsidiaries
Condensed Notes to Consolidated Financial Statements - (Continued)
(Unaudited)
5. PROPERTY AND EQUIPMENT
Property and equipment includes the following as of the dates indicated:
| | September 30, | | December 31, |
| 2023 | | 2022 |
| (In millions) |
| March 31, | | | March 31, | | December 31, |
| 2024 | | | 2024 | | 2023 |
| (In millions) | | | (In millions) |
Oil and natural gas properties: | Oil and natural gas properties: | |
Subject to depletion | |
Subject to depletion | |
Subject to depletion | Subject to depletion | $ | 32,408 | | | $ | 28,767 | |
Not subject to depletion | Not subject to depletion | 8,239 | | | 8,355 | |
Gross oil and natural gas properties | Gross oil and natural gas properties | 40,647 | | | 37,122 | |
Accumulated depletion | Accumulated depletion | (7,884) | | | (6,671) | |
Accumulated impairment | Accumulated impairment | (7,954) | | | (7,954) | |
Oil and natural gas properties, net | Oil and natural gas properties, net | 24,809 | | | 22,497 | |
Other property, equipment and land | Other property, equipment and land | 706 | | | 1,481 | |
Accumulated depreciation, amortization, accretion and impairment | Accumulated depreciation, amortization, accretion and impairment | (150) | | | (219) | |
Total property and equipment, net | Total property and equipment, net | $ | 25,365 | | | $ | 23,759 | |
Under the full cost method of accounting, the Company is required to perform a ceiling test each quarter which determines a limit, or ceiling, on the book value of proved oil and natural gas properties. No impairment expense was recorded for the three and nine months ended September 30,March 31, 2024 or 2023 or 2022 based on the results of the respective quarterly ceiling tests.
In addition to commodity prices, the Company’s production rates, levels of proved reserves, future development costs, transfers of unevaluated properties and other factors will determine its actual ceiling test calculation and impairment analysis in future periods. If the future trailing 12-month commodity prices decline as compared to the commodity prices used in prior quarters, the Company may have material write downs in subsequent quarters. It is possible that circumstances requiring additional impairment testing will occur in future interim periods, which could result in potentially material impairment charges being recorded.
Assets Held For Sale
During the third quarter of 2023, the Company completed the sale of its Water Assets and oil gathering assets which had been classified as assets held for sale in the condensed consolidated balance sheet as of June 30, 2023, with carrying values of $667 million and $75 million, respectively. The sale of these assets resulted in an insignificant loss on disposal of property, plant and equipment for the three and nine months ended September 30, 2023, which is included in the caption “Other operating expenses” in the condensed consolidated statements of operations. See Note 4—Acquisitions and Divestitures for further discussion of the divestiture of the Water Assets. At December 31, 2022, the Water Assets and oil gathering assets were included in the Company’s condensed consolidated balance sheet under the caption “Other property, equipment and land.” All of these assets are included in the midstream operating segment, which is categorized as “All Other” in the Company’s segment disclosures in Note 16—Segment Information.
Diamondback Energy, Inc. and Subsidiaries
Condensed Notes to Consolidated Financial Statements - (Continued)
(Unaudited)
6. ASSET RETIREMENT OBLIGATIONS
The following table describes the changes to the Company’s asset retirement obligations liability for the following periods:
| | Nine Months Ended September 30, |
| 2023 | | 2022 |
| (In millions) |
| Three Months Ended March 31, | | | Three Months Ended March 31, |
| 2024 | | | 2024 | | 2023 |
| (In millions) | | | (In millions) |
Asset retirement obligations, beginning of period | Asset retirement obligations, beginning of period | $ | 347 | | | $ | 171 | |
Additional liabilities incurred | Additional liabilities incurred | 5 | | | 31 | |
Liabilities acquired | Liabilities acquired | 7 | | | 3 | |
Liabilities settled and divested | Liabilities settled and divested | (83) | | | (12) | |
Accretion expense | Accretion expense | 12 | | | 10 | |
Revisions in estimated liabilities | Revisions in estimated liabilities | (42) | | | 133 | |
Asset retirement obligations, end of period | Asset retirement obligations, end of period | 246 | | | 336 | |
Less current portion(1) | Less current portion(1) | 6 | | | 11 | |
Asset retirement obligations - long-term | Asset retirement obligations - long-term | $ | 240 | | | $ | 325 | |
(1) The current portion of the asset retirement obligation is included in the caption “Other accrued liabilities” in the Company’s condensed consolidated balance sheets.
Diamondback Energy, Inc. and Subsidiaries
Condensed Notes to Consolidated Financial Statements - (Continued)
(Unaudited)
7. RELATED PARTY TRANSACTIONS
Deep Blue
In addition to the Deep Blue transaction discussed in Note 4— Acquisitions and Divestitures, the Company has other significant related party transactions with Deep Blue which include (i) contingent consideration and other post-close adjustments receivable from Deep Blue, (ii) accrued capital expenditures and other accrued payables related to a commitment to fund certain capital expenditures on projects that were in process at the time of the Deep Blue transaction, and (iii) lease operating expenses and capitalized expenses related to fees paid to Deep Blue under a 15-year dedication for its produced water and supply water within a 12-county area of mutual interest in the Midland Basin.
The following table presents the significant related party balances included in the condensed consolidated balance sheet at March 31, 2024 and December 31, 2023:
| | | | | | | | | | | |
| March 31, | | December 31, |
| 2024 | | 2023 |
| (In millions) |
Current assets - Accounts receivable | $ | 65 | | | $ | 61 | |
Current liabilities - Accrued capital expenditures | $ | (32) | | | $ | (21) | |
Current liabilities - Other accrued liabilities | $ | (15) | | | $ | (18) | |
| | | |
During the three months ended March 31, 2024, the Company recorded approximately $31 million for water services provided by Deep Blue during the completion phase of wells. These costs were capitalized and are included in the caption “Oil and natural gas properties” on the condensed consolidated balance sheet.
The following table presents the significant related party transactions included in the condensed consolidated statement of operations for the three months ended March 31, 2024 and 2023:
| | | | | | | | | | | |
| Three Months Ended |
| 2024 | | 2023 |
| (In millions) |
Lease operating expenses | $ | 26 | | | $ | — | |
| | | |
Diamondback Energy, Inc. and Subsidiaries
Condensed Notes to Consolidated Financial Statements - (Continued)
(Unaudited)
8. DEBT
Long-term debt consisted of the following as of the dates indicated:
| | September 30, | | December 31, |
| 2023 | | 2022 |
| (In millions) |
5.250% Senior Notes due 2023 | $ | — | | | $ | 10 | |
| March 31, | | | March 31, | | December 31, |
| 2024 | | | 2024 | | 2023 |
| (In millions) | | | (In millions) |
3.250% Senior Notes due 2026 | 3.250% Senior Notes due 2026 | 750 | | | 780 | |
5.625% Senior Notes due 2026 | 5.625% Senior Notes due 2026 | 14 | | | 14 | |
7.125% Medium-term Notes, Series B, due 2028 | 7.125% Medium-term Notes, Series B, due 2028 | 73 | | | 73 | |
3.500% Senior Notes due 2029 | 3.500% Senior Notes due 2029 | 921 | | | 1,021 | |
3.125% Senior Notes due 2031 | 3.125% Senior Notes due 2031 | 789 | | | 789 | |
6.250% Senior Notes due 2033 | 6.250% Senior Notes due 2033 | 1,100 | | | 1,100 | |
4.400% Senior Notes due 2051 | 4.400% Senior Notes due 2051 | 650 | | | 650 | |
4.250% Senior Notes due 2052 | 4.250% Senior Notes due 2052 | 750 | | | 750 | |
6.250% Senior Notes due 2053 | 6.250% Senior Notes due 2053 | 650 | | | 650 | |
Unamortized debt issuance costs | Unamortized debt issuance costs | (41) | | | (43) | |
Unamortized discount costs | Unamortized discount costs | (23) | | | (26) | |
Unamortized premium costs | Unamortized premium costs | 4 | | | 4 | |
Unamortized basis adjustment of dedesignated interest rate swap agreements(1) | Unamortized basis adjustment of dedesignated interest rate swap agreements(1) | (87) | | | (106) | |
Revolving credit facility | — | | | — | |
| Viper revolving credit facility | |
Viper revolving credit facility | |
Viper revolving credit facility | Viper revolving credit facility | 250 | | | 152 | |
Viper 5.375% Senior Notes due 2027 | Viper 5.375% Senior Notes due 2027 | 430 | | | 430 | |
| Viper 7.375% Senior Notes due 2031 | |
Total debt, net | Total debt, net | 6,230 | | | 6,248 | |
Less: current maturities of long-term debt | Less: current maturities of long-term debt | — | | | 10 | |
Total long-term debt | Total long-term debt | $ | 6,230 | | | $ | 6,238 | |
(1) Represents the unamortized basis adjustment related to two receive-fixed, pay variable interest rate swap agreements which were previously designated as fair value hedges of the Company’s $1.2 billion 3.500% fixed rate senior notes due 2029. These swaps were dedesignatedThis basis adjustment is being amortized to interest expense over the remaining term of the 2029 Notes utilizing the effective interest method.
References in this section to the Company shall mean Diamondback Energy, Inc. and Diamondback E&P, collectively, unless otherwise specified.
Credit Agreement
On March 6, 2024, Diamondback E&P, as borrower, and Diamondback Energy, Inc., as parent guarantor, entered into a fourteenth amendment to the existing credit agreement, which upon consummation of the pending Endeavor Acquisition (as defined in Note 16—Endeavor Energy Resources, LP Acquisition) will among other things, (i) increase the maximum credit amount from $1.6 billion to $2.5 billion, (ii) decrease the swingline commitments amount from $100 million to $50 million and (iii) make certain amendments to the representations and warranties, affirmative and negative covenants, and events of default. As of March 31, 2024, the Company had no outstanding borrowings under the credit agreement and $1.6 billion available for future borrowings. During the three months ended March 31, 2023, the weighted average interest rate on borrowings under the credit agreement was 6.02%. The credit agreement matures on June 2, 2028.
As of March 31, 2024, the Company was in compliance with all financial maintenance covenants under the credit agreement.
Diamondback Energy, Inc. and Subsidiaries
Condensed Notes to Consolidated Financial Statements - (Continued)
(Unaudited)
Term Loan Agreement
In connection with the pending Endeavor Acquisition (as defined in Note 16—Endeavor Energy Resources, LP Acquisition), Diamondback Energy, Inc., as guarantor, entered into a Term Loan Credit Agreement with Diamondback E&P LLC, as borrower, and Citibank, N.A., as administrative agent (the “Term Loan Agreement”) on February 29, 2024.
The Term Loan Agreement provides the Company with the ability to borrow up to $1.5 billion, which is comprised of $1 billion of Tranche A Loans and $500 million of Tranche B Loans (collectively, the “Term Loans”) on an unsecured basis to pay a portion of the cash consideration for the Endeavor Acquisition (as defined in Note 16—Endeavor Energy Resources, LP Acquisition), repay certain debt of Endeavor or pay fees, costs and expenses related to the acquisition. As of March 31, 2024, the Company had no outstanding borrowings under the Term Loan Agreement and $1.5 billion available for future borrowings.
The availability of the Term Loans, which have not yet been funded, is subject to the satisfaction of certain limited customary acquisition-financing conditions under the Term Loan Agreement. The Term Loans will be made in a single borrowing on the date of closing of the Endeavor Acquisition (as defined in Note 16—Endeavor Energy Resources, LP Acquisition) (the “Closing Date”) and will mature and be payable in full, in the case of the Tranche A Loans, on the first anniversary of the Closing Date and, in the case of the Tranche B Loans, on the second quarteranniversary of 2022the Closing Date.
Outstanding borrowings under the Term Loan Agreement bear interest at a per annum rate elected by the Company that is equal to (i) term SOFR plus 0.10% (“Adjusted Term SOFR”) or (ii) an alternate base rate (which is equal to the greatest of the prime rate, the federal funds effective rate plus 0.50%, and 1-month Adjusted Term SOFR plus 1.0%), in each case plus the applicable margin. After giving effect to the amendment, (i) the applicable margin ranges from 0.125% to 1.000% and 0.250% to 1.125% for Tranche A and Tranche B, respectively, per annum in the case of the alternate base rate, and from 1.125% to 2.000% and 1.250% to 2.125% for Tranche A and Tranche B, respectively, per annum in the case of Adjusted Term SOFR, in each case based on the pricing level, and (ii) the commitment fee is equal to 0.125% per annum on the aggregate principal amount of the commitments. The pricing level depends on the Company’s long-term senior unsecured debt ratings.
Bridge Facility
On February 11, 2024, in connection with the pending Endeavor Acquisition (as defined in Note 16—Endeavor Energy Resources, LP Acquisition), Diamondback Energy, Inc., as guarantor, obtained commitments of $8.0 billion to a 364-day senior unsecured term loan facility with Diamondback E&P LLC, as borrower, and Citigroup Global Markets Inc., as administrative agent (the “Bridge Facility”). The Bridge Facility was reduced on a dollar-for-dollar basis by the amount of the Term Loan Agreement to $6.5 billion on February 29, 2024. The Bridge Facility will be further reduced on a dollar-for-dollar basis by the April 2024 Notes as defined and discussed further in Note 11—17— DerivativesSubsequent Events. The proceeds from the Bridge Facility may be used to repay certain debt of Endeavor and pay fees, costs and expenses related to the pending Endeavor Acquisition. As of March 31, 2024, the Company had no outstanding borrowings under the Bridge Facility.
Outstanding borrowings under the Bridge Facility bear interest at a per annum rate elected by the Company that is equal to (i) term SOFR plus 0.10% (“Adjusted Term SOFR”) or (ii) an alternate base rate (which is equal to the greatest of the prime rate, the federal funds effective rate plus 0.50%, and 1-month Adjusted Term SOFR plus 1.0%), in each case plus the applicable margin. The applicable margin ranges from (i) 1.125% to 2.000% from the Closing Date through 89 days following the Closing Date, (ii) 1.375% to 2.250% from the 90th day following the Closing Date through the 179th day following the Closing Date, (iii) 1.625% to 2.500% from the 180th day following the Closing Date through the 269th day following the Closing Date, and (iv) 1.875% to 2.750% for the 270th day following the Closing Date through the expiration of the Bridge Facility, in each case based on the pricing level, and (ii) the commitment fee is equal to 0.125% per annum on the aggregate principal amount of the commitments. The pricing level depends on the Company’s long-term senior unsecured debt ratings.
Retirement of Notes
In the first quarter of 2024, the Company opportunistically repurchased principal amounts of $22 million of its 3.125% Senior Notes due 2031 and $6 million of its 3.500% Senior Notes due 2029 for total cash consideration, including accrued interest paid of $25 million. These repurchases resulted in an immaterial gain on extinguishment of debt during the three months ended March 31, 2024.
Diamondback Energy, Inc. and Subsidiaries
Condensed Notes to Consolidated Financial Statements - (Continued)
(Unaudited)
References in this section to the Company shall mean Diamondback Energy, Inc. and Diamondback E&P, collectively, unless otherwise specified.
Credit Agreement
As of September 30, 2023, Diamondback E&P, as borrower, and Diamondback Energy, Inc., as parent guarantor, have a credit agreement, as amended, which provides for a maximum credit amount of $1.6 billion. As of September 30, 2023, the Company had no outstanding borrowings under the credit agreement and $1.6 billion available for future borrowings. During the three and nine months ended September 30, 2023 and 2022, the weighted average interest rate on borrowings under the credit agreement was 6.59%, 6.31%, 3.92% and 3.50%, respectively. During the second quarter of 2023, the Company exercised an election to extend the maturity date of the credit agreement by one year to June 2, 2028 in accordance with the terms of the credit agreement.
As of September 30, 2023, the Company was in compliance with all financial maintenance covenants under the credit agreement.
Repurchases of Notes
In the second quarter of 2023, the Company repurchased principal amounts of $30 million of its 3.250% Senior Notes due 2026 and $100 million of its 3.500% Senior Notes due 2029 for total cash consideration, including accrued interest paid of $124 million. These repurchases resulted in an immaterial loss on extinguishment of debt during the nine months ended September 30, 2023.
Viper’s Credit Agreement
On September 22, 2023, Viper LLC entered into an eleventh and separately a twelfth amendment to the existingLLC’s credit agreement, which among other things, (i) extended the maturityas amended to date, from June 2, 2025 to September 22, 2028, (ii) maintainedprovides for a revolving credit facility in the maximum credit amount under the Viper LLC credit agreement of $2.0 billion (iii) increased thewith a borrowing base from $1.0 billion toof $1.3 billion upon consummationbased on Viper LLC’s oil and natural gas reserves and other factors. As of the Viper Acquisition (as defined in Note 15—Subsequent Events), (iv) increasedMarch 31, 2024, the elected commitment amount from $750 million towas $850 million, and (v) waived the automatic reduction of the borrowing base that otherwise would have occurred upon the consummation of the issuance of the Viper 2031 Notes (as defined in Note 15—Subsequent Events). As of September 30, 2023, Viper LLC had $250with $273 million of outstanding borrowings and $600$577 million available for future borrowings. During the three and nine months ended September 30,March 31, 2024 and 2023, and 2022, the weighted average interest rates on borrowings under the Viper credit agreement were 7.58%, 7.37%, 4.75%7.65% and 3.53%6.10%, respectively. As of September 30, 2023,March 31, 2024, Viper LLC was in compliance with all financial maintenance covenants under the Viper credit agreement.The revolving credit facility will mature on September 22, 2028.
8.9. STOCKHOLDERS’ EQUITY AND EARNINGS (LOSS) PER SHARE
Stock Repurchase Program
The Company’s board of directors has approved a common stock repurchase program to acquire up to $4.0 billion of the Company’s outstanding common stock, excluding excise tax. Purchases under the repurchase program may be made from time to time in open market or privately negotiated transactions, and are subject to market conditions, applicable legal requirements, contractual obligations and other factors. The repurchase program does not require the Company to acquire any specific number of shares. This repurchase program may be suspended from time to time, modified, extended or discontinued by the board of directors at any time. During the three and nine months ended September 30,March 31, 2024 and 2023, and 2022, the Company repurchased, excluding excise tax, approximately $56 million, $709 million, $472$42 million and $782$332 million of common stock under this repurchase program, respectively. As of September 30, 2023,March 31, 2024, approximately $1.8$1.6 billion remained available for use to repurchase shares under the Company’s common stock repurchase program, excluding excise tax.
Diamondback Energy, Inc. and Subsidiaries
Condensed Notes to Consolidated Financial Statements - (Continued)
(Unaudited)
Change in Ownership of Consolidated Subsidiaries
Non-controlling interests in the accompanying condensed consolidated financial statements represent minority interest ownership in Viper and Rattler through the Effective Date and are presented as a component of equity. When the Company’s relative ownership interests in Viper and Rattler change, adjustments to non-controlling interest and additional paid-in-capital, tax effected, will occur. The following table summarizes changes in the ownership interest in consolidated subsidiaries during the periods presented:
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
| (In millions) |
| | | Three Months Ended March 31, | |
| | | Three Months Ended March 31, | |
| | | Three Months Ended March 31, | |
| | | | | 2024 | | | | | | | 2024 | | 2023 |
| | | | | (In millions) | | | | | | | (In millions) |
Net income (loss) attributable to the Company | Net income (loss) attributable to the Company | $ | 915 | | | $ | 1,184 | | | $ | 2,183 | | | $ | 3,379 | |
Change in ownership of consolidated subsidiaries | Change in ownership of consolidated subsidiaries | (3) | | | (15) | | | (27) | | | (36) | |
Change from net income (loss) attributable to the Company's stockholders and transfers to non-controlling interest | $ | 912 | | | $ | 1,169 | | | $ | 2,156 | | | $ | 3,343 | |
Change from net income (loss) attributable to the Company's stockholders and transfers with non-controlling interest | |
Dividends
The following table presents dividends and distribution equivalent rights paid on the Company’s common stock during the respective periods:
| | | | | | | | | | | | | | | | | | | | | | | |
| Base | | Variable | | Total | | Total |
| ($ per share) | | (In millions) |
2024 | | | | | | | |
First quarter | $ | 0.90 | | | $ | 2.18 | | | $ | 3.08 | | | $ | 552 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
2023 | | | | | | | |
First quarter | $ | 0.80 | | | $ | 2.15 | | | $ | 2.95 | | | $ | 546 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Diamondback Energy, Inc. and Subsidiaries
Condensed Notes to Consolidated Financial Statements - (Continued)
(Unaudited)
Earnings (Loss) Per Share
The Company’s earnings (loss) per share amounts have been computed using the two-class method. The two-class method is an earnings allocation proportional to the respective ownership among holders of common stock and participating securities. Basic earnings (loss) per share amounts have been computed based on the weighted-average number of shares of common stock outstanding for the period. Diluted earnings per share include the effect of potentially dilutive non-participating securities outstanding for the period. Additionally, the per share earnings of Viper are included in the consolidated earnings per share computation based on the consolidated group’s holdings of the subsidiaries.
A reconciliation of the components of basic and diluted earnings per common share is presented in the table below:
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
| ($ in millions, except per share amounts, shares in thousands) |
Net income (loss) attributable to common stock | $ | 915 | | | $ | 1,184 | | | $ | 2,183 | | | $ | 3,379 | |
| | | Three Months Ended March 31, | |
| | | Three Months Ended March 31, | |
| | | Three Months Ended March 31, | |
| | | | | 2024 | | | | | | | 2024 | | 2023 |
| | | | | ($ in millions, except per share amounts, shares in thousands) | | | | | | | ($ in millions, except per share amounts, shares in thousands) |
Net income (loss) attributable to common shares | |
Less: distributed and undistributed earnings allocated to participating securities(1) | Less: distributed and undistributed earnings allocated to participating securities(1) | 8 | | | 12 | | | 17 | | | 34 | |
Net income (loss) attributable to common stockholders | Net income (loss) attributable to common stockholders | $ | 907 | | | $ | 1,172 | | | $ | 2,166 | | | $ | 3,345 | |
Weighted average common shares outstanding: | Weighted average common shares outstanding: | | | | | | | |
Basic weighted average common shares outstanding | Basic weighted average common shares outstanding | 178,872 | | | 174,406 | | | 180,400 | | | 176,169 | |
Basic weighted average common shares outstanding | |
Basic weighted average common shares outstanding | |
Effect of dilutive securities: | Effect of dilutive securities: | |
Weighted-average potential common shares issuable | Weighted-average potential common shares issuable | — | | | 2 | | | — | | | 2 | |
Weighted-average potential common shares issuable | |
Weighted-average potential common shares issuable | |
Diluted weighted average common shares outstanding | Diluted weighted average common shares outstanding | 178,872 | | | 174,408 | | | 180,400 | | | 176,171 | |
Basic net income (loss) attributable to common stock | $ | 5.07 | | | $ | 6.72 | | | $ | 12.01 | | | $ | 18.99 | |
Diluted net income (loss) attributable to common stock | $ | 5.07 | | | $ | 6.72 | | | $ | 12.01 | | | $ | 18.99 | |
Basic net income (loss) attributable to common shares | |
Diluted net income (loss) attributable to common shares | |
(1) Unvested restricted stock awards and performance stock awards that contain non-forfeitable distribution equivalent rights are considered participating securities and therefore are included in the earnings per share calculation pursuant to the two-class method.
Diamondback Energy, Inc. and Subsidiaries
Condensed Notes to Consolidated Financial Statements - (Continued)
(Unaudited)
9.10. EQUITY-BASED COMPENSATION
Under the Equity Plan approved by the Boardboard of Directors,directors, the Company is authorized to issue up to 11.8 million shares of incentive and non-statutory stock options, restricted stock awards and restricted stock units, performance awards and stock appreciation rights to eligible employees. The Company currently has outstanding restricted stock units and performance-based restricted stock units under the Equity Plan. The Company also has immaterial amounts of restricted share awards and stock appreciation rights outstanding which were issued under plans assumed in connection with previously completed mergers. At September 30, 2023,March 31, 2024, approximately 5.14.7 million shares of common stock remain available for future grants under the Equity Plan. The Company classifies its restricted stock units and performance-based restricted stock units as equity-based awards and estimates the fair values of restricted stock awards and units as the closing price of the Company’s common stock on the grant date of the award, which is expensed over the applicable vesting period.
In addition to the Equity Plan, Viper maintains its own long-term incentive plan, which is not significant to the Company.
The following table presents the financial statement impacts of equity compensation plans and related costs on the Company’s financial statements:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
| (In millions) |
General and administrative expenses | $ | 13 | | | $ | 14 | | | $ | 40 | | | $ | 42 | |
Equity-based compensation capitalized pursuant to full cost method of accounting for oil and natural gas properties | $ | 8 | | | $ | 6 | | | $ | 19 | | | $ | 16 | |
| | | | | | | |
Restricted Stock Units
The following table presents the Company’s restricted stock unit activity during the nine months ended September 30, 2023 under the Equity Plan:
| | | | | | | | | | | |
| Restricted Stock Units | | Weighted Average Grant-Date Fair Value |
Unvested at December 31, 2022 | 918,902 | | | $ | 95.74 | |
Granted | 392,310 | | | $ | 143.69 | |
Vested | (161,878) | | | $ | 122.77 | |
Forfeited | (64,453) | | | $ | 104.66 | |
Unvested at September 30, 2023 | 1,084,881 | | | $ | 108.34 | |
The aggregate grant date fair value of restricted stock units that vested during the nine months ended September 30, 2023 was $20 million. As of September 30, 2023, the Company’s unrecognized compensation cost related to unvested restricted stock units was $78 million, which is expected to be recognized over a weighted-average period of 1.6 years. | | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, |
| | | | | 2024 | | 2023 |
| | | | | (In millions) |
General and administrative expenses | | | | | $ | 14 | | | $ | 11 | |
Equity-based compensation capitalized pursuant to full cost method of accounting for oil and natural gas properties | | | | | $ | 7 | | | $ | 5 | |
| | | | | | | |
Diamondback Energy, Inc. and Subsidiaries
Condensed Notes to Consolidated Financial Statements - (Continued)
(Unaudited)
Restricted Stock Units
The following table presents the Company’s restricted stock unit activity during the three months ended March 31, 2024 under the Equity Plan:
| | | | | | | | | | | |
| Restricted Stock Units | | Weighted Average Grant-Date Fair Value |
Unvested at December 31, 2023 | 751,196 | | | $ | 132.29 | |
Granted | 308,923 | | | $ | 180.39 | |
Vested | (82,003) | | | $ | 152.41 | |
Forfeited | (7,506) | | | $ | 139.36 | |
Unvested at March 31, 2024 | 970,610 | | | $ | 145.85 | |
The aggregate grant date fair value of restricted stock units that vested during the three months ended March 31, 2024 was $12 million. As of March 31, 2024, the Company’s unrecognized compensation cost related to unvested restricted stock units was $115 million, which is expected to be recognized over a weighted-average period of 2.2 years.
Performance Based Restricted Stock Units
The following table presents the Company’s performance restricted stock units activity under the Equity Plan for the ninethree months ended September 30, 2023:March 31, 2024:
| | | | | | | | | | | |
| Performance Restricted Stock Units | | Weighted Average Grant-Date Fair Value |
Unvested at December 31, 2022 | 347,881 | | | $ | 168.48 | |
Granted | 128,205 | | | $ | 258.98 | |
| | | |
Forfeited | (42,657) | | | $ | 144.48 | |
Unvested at September 30, 2023(1) | 433,429 | | | $ | 197.61 | |
| | | | | | | | | | | |
| Performance Restricted Stock Units | | Weighted Average Grant-Date Fair Value |
Unvested at December 31, 2023 | 278,056 | | | $ | 234.80 | |
Granted | 110,989 | | | $ | 214.14 | |
| | | |
| | | |
Unvested at March 31, 2024(1) | 389,045 | | | $ | 228.91 | |
(1)A maximum of 1,034,136923,176 units could be awarded based upon the Company’s final TSR ranking.
As of September 30, 2023,March 31, 2024, the Company’s unrecognized compensation cost related to unvested performance based restricted stock awards and units was $42$52 million, which is expected to be recognized over a weighted-average period of 1.52.0 years.
In March 2023,2024, eligible employees received performance restricted stock unit awards totaling 126,347110,989 units from which a minimum of 0% and a maximum of 200% of the units could be awarded based upon the measurement of total stockholder return of the Company’s common stock as compared to a designated peer group during the 3-yearthree-year performance period of January 1, 20232024 to December 31, 20252026 and cliff vest at December 31, 20252026 subject to continued employment. The initial payout of the March 20232024 awards will be further adjusted by a TSR modifier that may reduce the payout or increase the payout up to a maximum of 250%. Additionally, in July 2023 the Company granted 1,858 units under substantially the same terms as the March 2023 performance restricted stock unit awards.
The fair value of each performance restricted stock unit issuance is estimated at the date of grant using a Monte Carlo simulation, which results in an expected percentage of units to be earned during the performance period.
The following table presents a summary of the grant-date fair values of performance restricted stock units granted and the related assumptions for the awards granted during the periods presented:
| | | | | | | | | | | | | | | |
| March 2023 | | July 2023 | | | | |
Grant-date fair value | $ | 259.52 | | | $ | 222.09 | | | | | |
Risk-free rate | 4.64 | % | | 4.70 | % | | | | |
Company volatility | 46.90 | % | | 47.20 | % | | | | |
| | | | | | | | | | | |
| March 2024 | | | | | | |
Grant-date fair value | $ | 341.81 | | | | | | | |
Risk-free rate | 4.38 | % | | | | | | |
Company volatility | 41.40 | % | | | | | | |
10.
Diamondback Energy, Inc. and Subsidiaries
Condensed Notes to Consolidated Financial Statements - (Continued)
(Unaudited)
11. INCOME TAXES
The following table provides the Company’s provision for (benefit from) income taxes and the effective income tax rate for the periods indicated:
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
| (In millions, except for tax rate) |
| | | Three Months Ended March 31, | |
| | | Three Months Ended March 31, | |
| | | Three Months Ended March 31, | |
| | | | | 2024 | | | | | | | 2024 | | 2023 |
| | | | | (In millions, except for tax rate) | | | | | | | (In millions, except for tax rate) |
Provision for (benefit from) income taxes | Provision for (benefit from) income taxes | $ | 276 | | | $ | 290 | | | $ | 648 | | | $ | 913 | |
Effective income tax rate | Effective income tax rate | 21.7 | % | | 18.6 | % | | 21.8 | % | | 20.5 | % | Effective income tax rate | | | | | 21.6 | % | | 21.7 | % |
Total income tax expense from continuing operations for the three and nine months ended September 30,March 31, 2024 and 2023 and 2022 differed from amounts computed by applying the United StatesU.S. federal statutory tax rate to pre-tax income primarily due to (i) state income taxes, net of federal benefit, and (ii) the impact of permanent differences between book and taxable income, partially offset by (iii) a tax benefit resulting from a reduction in the valuation allowance on Viper’s deferred tax assets for the three and nine months ended September 30, 2022.
Diamondback Energy, Inc. and Subsidiaries
Condensed Notes to Consolidated Financial Statements - (Continued)
(Unaudited)
income.
As of September 30, 2023,March 31, 2024, Viper maintained a partial valuation allowance against its deferred tax assets, based on its assessment of all available evidence, both positive and negative, supporting realizability of Viper’s deferred tax assets.
ForIn connection with the public offering of Viper’s Class A common stock and resulting change of ownership in Viper during the three and nine months ended September 30, 2023,March 31, 2024, the Company recorded a $36 million increase in tax payable and a $3 million increase in deferred tax liability through paid in capital and an $18 million increase in the deferred tax asset, net of valuation allowance, through non-controlling interest on the Company’s items of discrete income tax expense or benefit were not material. For the three and nine months ended September 30, 2022, the Company recognized discrete income tax benefit of $50 million related to a partial release of Viper’s beginning-of-the-year valuation allowance, based on a change in judgment about the realizability of Viper’s deferred tax assets in future years.condensed consolidated balance sheet.
TheBased on application of the Inflation Reduction Act of 2022 (“IRA”) was enacted on August 16, 2022, which created a 15% corporate alternative minimum tax (“CAMT”) on the “adjusted financial statement income” of certain large corporations (generally, corporations reporting at least $1 billion of average adjusted pre-tax net income on their consolidated financial statements) as well as an excise tax of 1% on the fair market value of certain public company stock/unit repurchases for tax years beginning after December 31, 2022. Based on application of currently available guidance, the Company’s income tax expense for the three and nine months ended September 30, 2023 wereMarch 31, 2024 was not impacted by the CAMT.corporate alternative minimum tax. The Company’s excise tax during the three and nine months ended September 30, 2023March 31, 2024 was immaterial and was recognized as part of the cost basis of the units repurchased.
11.12. DERIVATIVES
At September 30, 2023,March 31, 2024, the Company has commodity derivative contracts and interest rate swaps outstanding. All derivative financial instruments are recorded at fair value.
Commodity Contracts
The Company has entered into multiple crude oil and natural gas derivatives, indexed to the respective indices as noted in the table below, to reduce price volatility associated with certain of its oil and natural gas sales. The Company has not designated its commodity derivative instruments as hedges for accounting purposes and, as a result, marks its commodity derivative instruments to fair value and recognizes the cash and non-cash changes in fair value in the condensed consolidated statements of operations under the caption “Gain (loss) on derivative instruments, net.”
By using derivative instruments to economically hedge exposure to changes in commodity prices, the Company exposes itself to credit risk and market risk. Credit risk is the failure of the counterparty to perform under the terms of the derivative contract. When the fair value of a derivative contract is positive, the counterparty owes the Company, which creates credit risk. The Company has entered into commodity derivative instruments only with counterparties that are also lenders under its credit facility and have been deemed an acceptable credit risk. As such, collateral is not required from either the counterparties or the Company on its outstanding commodity derivative contracts.
Diamondback Energy, Inc. and Subsidiaries
Condensed Notes to Consolidated Financial Statements - (Continued)
(Unaudited)
As of September 30, 2023,March 31, 2024, the Company had the following outstanding commodity derivative contracts. When aggregating multiple contracts, the weighted average contract price is disclosed.
| | Swaps | | Collars |
| | | | | Swaps | |
| | | | | Swaps | |
| | | | | Swaps | | | Collars |
Settlement Month | Settlement Month | Settlement Year | Type of Contract | Bbls/MMBtu Per Day | Index | Weighted Average Differential | | Weighted Average Floor Price | Weighted Average Ceiling Price | Settlement Month | Settlement Year | Type of Contract | Bbls/MMBtu Per Day | Index | Weighted Average Differential | | | Weighted Average Floor Price | Weighted Average Ceiling Price |
OIL | OIL | | | |
Oct. - Dec. | 2023 | Basis Swap(1) | 24,000 | Argus WTI Midland | $0.90 | | $— |
Jan. - Dec. | 2024 | Basis Swap(1) | 6,000 | Argus WTI Midland | $1.23 | | $— |
Jan. - Jun. | 2024 | Costless Collar | 6,000 | WTI Cushing | $— | | $65.00 | $95.55 |
Jan. - Dec. | 2024 | Roll Swap | 25,000 | WTI | $0.81 | | $— |
Apr. - Jun. | |
Apr. - Jun. | |
Apr. - Jun. | | 2024 | Costless Collar | 6,000 | WTI Cushing | $— | | | $65.00 | $95.55 |
Apr. - Dec. | | Apr. - Dec. | 2024 | Basis Swap(1) | 12,000 | Argus WTI Midland | $1.19 | | | $— | $— |
Apr. - Dec. | | Apr. - Dec. | 2024 | Roll Swap | 40,000 | WTI Cushing | $0.82 | | | $— | $— |
Jul. - Dec. | | Jul. - Dec. | 2024 | Costless Collar | 4,000 | WTI Cushing | $— | | | $55.00 | $93.66 |
NATURAL GAS | NATURAL GAS | | | |
Oct. - Dec. | 2023 | Costless Collar | 310,000 | Henry Hub | $— | | $3.18 | $9.22 |
Jan. - Dec. | 2024 | Costless Collar | 260,000 | Henry Hub | $— | | $2.87 | $7.76 |
Oct. - Dec. | 2023 | Basis Swap(1) | 330,000 | Waha Hub | $(1.24) | | $— |
Apr. - Dec. | |
Apr. - Dec. | |
Apr. - Dec. | | 2024 | Costless Collar | 290,000 | Henry Hub | $— | | | $2.83 | $7.52 |
Apr. - Dec. | | Apr. - Dec. | 2024 | Basis Swap(1) | 380,000 | Waha Hub | $(1.18) | | | $— | $— |
Jan. - Dec. | Jan. - Dec. | 2024 | Basis Swap(1) | 380,000 | Waha Hub | $(1.18) | | $— | Jan. - Dec. | 2025 | Basis Swap(1) | 310,000 | Waha Hub | $(0.69) | | | $— | $— |
Jan. - Dec. | Jan. - Dec. | 2025 | Basis Swap(1) | 160,000 | Waha Hub | $(0.72) | | $— | Jan. - Dec. | 2025 | Costless Collar | 150,000 | Henry Hub | $— | | | $2.50 | $5.31 |
(1) The Company has fixed price basis swaps for the spread between the Cushing crude oil price and the Midland WTI crude oil price as well as the spread between the Henry Hub natural gas price and the Waha Hub natural gas price. The weighted average differential represents the amount of reduction to the Cushing, Oklahoma oil price and the Waha Hub natural gas price for the notional volumes covered by the basis swap contracts.
| Settlement Month | Settlement Month | Settlement Year | Type of Contract | Bbls Per Day | Index | Strike Price | | Deferred Premium |
Settlement Month | |
Settlement Month | | Settlement Year | Type of Contract | Bbls Per Day | Index | Strike Price | | Deferred Premium |
OIL | OIL | | | |
Apr. - Jun. | |
Apr. - Jun. | |
Apr. - Jun. | | 2024 | Put | 110,000 | Brent | $55.45 | | $1.49 |
Apr. - Jun. | | Apr. - Jun. | 2024 | Put | 32,000 | Argus WTI Houston | $55.63 | | $1.56 |
Apr. - Jun. | | Apr. - Jun. | 2024 | Put | 39,000 | WTI Cushing | $59.23 | | $1.49 |
Jul. - Sep. | | Jul. - Sep. | 2024 | Put | 80,000 | Brent | $55.25 | | $1.55 |
Jul. - Sep. | | Jul. - Sep. | 2024 | Put | 28,000 | Argus WTI Houston | $56.07 | | $1.58 |
Jul. - Sep. | | Jul. - Sep. | 2024 | Put | 51,000 | WTI Cushing | $57.65 | | $1.54 |
Oct. - Dec. | Oct. - Dec. | 2023 | Put | 110,000 | Brent | $55.00 | | $1.59 | Oct. - Dec. | 2024 | Put | 44,000 | Brent | $55.23 | | $1.61 |
Oct. - Dec. | Oct. - Dec. | 2023 | Put | 28,000 | Argus WTI Houston | $55.00 | | $1.67 | Oct. - Dec. | 2024 | Put | 14,000 | Argus WTI Houston | $57.14 | | $1.66 |
Oct. - Dec. | Oct. - Dec. | 2023 | Put | 16,000 | WTI Cushing | $56.25 | | $1.70 | Oct. - Dec. | 2024 | Put | 40,000 | WTI Cushing | $57.00 | | $1.64 |
Jan. - Mar. | Jan. - Mar. | 2024 | Put | 110,000 | Brent | $55.00 | | $1.50 | Jan. - Mar. | 2025 | Put | 2,000 | Argus WTI Houston | $60.00 | | $1.60 |
Jan. - Mar. | Jan. - Mar. | 2024 | Put | 28,000 | Argus WTI Houston | $55.00 | | $1.60 | Jan. - Mar. | 2025 | Put | 4,000 | WTI Cushing | $60.00 | | $1.73 |
Jan. - Mar. | 2024 | Put | 14,000 | WTI Cushing | $58.57 | | $1.54 |
Apr. - Jun. | 2024 | Put | 74,000 | Brent | $55.00 | | $1.48 |
Apr. - Jun. | 2024 | Put | 18,000 | Argus WTI Houston | $55.00 | | $1.51 |
Apr. - Jun. | 2024 | Put | 12,000 | WTI Cushing | $60.00 | | $1.50 |
Jul. - Sep. | 2024 | Put | 34,000 | Brent | $55.00 | | $1.41 |
Jul. - Sep. | 2024 | Put | 10,000 | Argus WTI Houston | $55.00 | | $1.45 |
Oct. - Dec. | 2024 | Put | 12,000 | Brent | $55.00 | | $1.49 |
Interest Rate Swaps
In the second quarter of 2021, theThe Company entered intohas two receive-fixed, pay variable interest rate swap agreements for notional amounts of $600 million which were designated as fair valueare considered economic hedges of the Company’s $1.2 billion 3.50% fixed rate senior notes due 2029 (the “2029 Notes”) at inception.. The Company receives a fixed 3.50% rate of interest on these swaps. Effective on May 28, 2023,swaps and pays the variable rate of interest the Company pays on these swaps was reset from three month LIBOR to three month SOFR plus 2.1865%. The Company previously adopted the optional expedient in ASU 2020-04, “Reference Rate Reform (Topic 848) - Facilitation of the Effects of Reference Rate Reform on Financial Reporting,”interest rate swaps are not treated as later extendedhedges for these contract term modifications,accounting purposes and, as a result, did not recognize any impactchanges in fair value are recorded in earnings under the caption “Gain (loss) on derivative instruments, net” in the condensed consolidated statements of operations.
The interest rate swaps were designated as fair value hedges at inception, but the Company subsequently elected to discontinue hedge accounting. The cumulative fair value basis adjustment recorded at the time of dedesignation is being amortized to interest expense over the remaining term of the change in reference rate on its financial position, results of operations or liquidity2029 Notes utilizing the effective interest method. See Note 8—Debt for the three or nine months ended September 30, 2023.further details.
Diamondback Energy, Inc. and Subsidiaries
Condensed Notes to Consolidated Financial Statements - (Continued)
(Unaudited)
In the second quarter of 2022, the Company elected to fully dedesignate these interest rate swaps and hedge accounting was discontinued. The cumulative fair value basis adjustment recorded on the 2029 Notes at the time of dedesignation totaled $135 million. This basis adjustment is being amortized to interest expense over the remaining term of the 2029 Notes utilizing the effective interest method. The dedesignated interest rate swaps are considered economic hedges of the Company’s fixed-rate debt. As such, changes in the fair value of the interest rate swaps after the date of dedesignation have been recorded in earnings under the caption “Gain (loss) on derivative instruments, net” in the condensed consolidated statements of operations.
Balance Sheet Offsetting of Derivative Assets and Liabilities
The fair value of derivative instruments is generally determined using established index prices and other sources which are based upon, among other things, futures prices and time to maturity. These fair values are recorded by netting asset and liability positions, including any deferred premiums that are with the same counterparty and are subject to contractual terms which provide for net settlement. See Note 12—13—Fair Value Measurements for further details.
Gains and Losses on Derivative Instruments
The following table summarizes the gains and losses on derivative instruments not designated as hedging instruments included in the condensed consolidated statements of operations:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
| (In millions) |
Gain (loss) on derivative instruments, net: | | | | | | | |
Commodity contracts | $ | (36) | | | $ | 39 | | | $ | (297) | | | $ | (615) | |
Interest rate swaps | (40) | | | (63) | | | (61) | | | (62) | |
Total | $ | (76) | | | $ | (24) | | | $ | (358) | | | $ | (677) | |
| | | | | | | |
Net cash received (paid) on settlements: | | | | | | | |
Commodity contracts(1) | $ | (24) | | | $ | (96) | | | $ | (40) | | | $ | (822) | |
Interest rate swaps | — | | | — | | | (22) | | | 6 | |
Total | $ | (24) | | | $ | (96) | | | $ | (62) | | | $ | (816) | |
(1)The three and nine months ended September 30, 2022 includes cash paid on commodity contracts terminated prior to their contractual maturity of $3 million and $138 million. | | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, |
| | | | | 2024 | | 2023 |
| | | | | (In millions) |
Gain (loss) on derivative instruments, net: | | | | | | | |
Commodity contracts | | | | | $ | (16) | | | $ | (109) | |
Interest rate swaps | | | | | (32) | | | 16 | |
Total | | | | | $ | (48) | | | $ | (93) | |
| | | | | | | |
Net cash received (paid) on settlements: | | | | | | | |
Commodity contracts | | | | | $ | (4) | | | $ | 1 | |
| | | | | | | |
Total | | | | | $ | (4) | | | $ | 1 | |
12.13. FAIR VALUE MEASUREMENTS
Assets and Liabilities Measured at Fair Value on a Recurring Basis
As discussed in Note 13—Fair Value Measurements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022,2023, certain financial instruments of the Company are reported at fair value on the Company’s condensed consolidated balance sheets. The net amounts of derivative instruments are classified as current or noncurrent based on their anticipated settlement dates. The Company has an immaterial investment that is reported at fair value using observable, quoted stock prices and is included in “Other assets” on the Company’s condensed consolidated balance sheetsheets at September 30,March 31, 2024 and December 31, 2023.
Diamondback Energy, Inc. and Subsidiaries
Condensed Notes to Consolidated Financial Statements - (Continued)
(Unaudited)
The following table provides the fair value of financial instruments that are recorded at fair value in the condensed consolidated balance sheets as of September 30, 2023March 31, 2024 and December 31, 2022:2023:
| | As of September 30, 2023 |
| Level 1 | Level 2 | Level 3 | Total Gross Fair Value | Gross Amounts Offset in Balance Sheet | Net Fair Value Presented in Balance Sheet |
| (In millions) |
| As of March 31, 2024 | | | As of March 31, 2024 |
| Level 1 | | | Level 1 | Level 2 | Level 3 | Total Gross Fair Value | Gross Amounts Offset in Balance Sheet | Net Fair Value Presented in Balance Sheet |
| (In millions) | | | (In millions) |
Assets: | Assets: | |
Current assets- Derivative instruments: | |
Current assets- Derivative instruments: | |
Current assets- Derivative instruments: | Current assets- Derivative instruments: | |
| Commodity derivative instruments | Commodity derivative instruments | $ | — | | $ | 49 | | $ | — | | $ | 49 | | $ | (48) | | $ | 1 | |
| Commodity derivative instruments | |
| Commodity derivative instruments | |
| Non-current assets- Derivative instruments: | Non-current assets- Derivative instruments: | |
Non-current assets- Derivative instruments: | |
Non-current assets- Derivative instruments: | |
Commodity derivative instruments | |
Commodity derivative instruments | |
Commodity derivative instruments | Commodity derivative instruments | $ | — | | $ | 13 | | $ | — | | $ | 13 | | $ | (12) | | $ | 1 | |
Non-current assets- Other assets: | Non-current assets- Other assets: | |
Investment | Investment | $ | 8 | | $ | — | | $ | — | | $ | 8 | | $ | — | | $ | 8 | |
Investment | |
Investment | |
| Liabilities: | Liabilities: | |
Liabilities: | |
Liabilities: | |
Current liabilities- Derivative instruments: | Current liabilities- Derivative instruments: | |
Current liabilities- Derivative instruments: | |
Current liabilities- Derivative instruments: | |
Commodity derivative instruments | |
Commodity derivative instruments | |
Commodity derivative instruments | Commodity derivative instruments | $ | — | | $ | 134 | | $ | — | | $ | 134 | | $ | (48) | | $ | 86 | |
Interest rate swaps | Interest rate swaps | $ | — | | $ | 53 | | $ | — | | $ | 53 | | $ | — | | $ | 53 | |
Non-current liabilities- Derivative instruments: | Non-current liabilities- Derivative instruments: | |
Commodity derivative instruments | Commodity derivative instruments | $ | — | | $ | 33 | | $ | — | | $ | 33 | | $ | (12) | | $ | 21 | |
Commodity derivative instruments | |
Commodity derivative instruments | |
Interest rate swaps | Interest rate swaps | $ | — | | $ | 178 | | $ | — | | $ | 178 | | $ | — | | $ | 178 | |
| | As of December 31, 2022 |
| Level 1 | Level 2 | Level 3 | Total Gross Fair Value | Gross Amounts Offset in Balance Sheet | Net Fair Value Presented in Balance Sheet |
| (In millions) |
| As of December 31, 2023 | | | As of December 31, 2023 |
| Level 1 | | | Level 1 | Level 2 | Level 3 | Total Gross Fair Value | Gross Amounts Offset in Balance Sheet | Net Fair Value Presented in Balance Sheet |
| (In millions) | | | (In millions) |
Assets: | Assets: | |
Current assets- Derivative instruments: | |
Current assets- Derivative instruments: | |
Current assets- Derivative instruments: | Current assets- Derivative instruments: | |
| Commodity derivative instruments | Commodity derivative instruments | $ | — | | $ | 197 | | $ | — | | $ | 197 | | $ | (65) | | $ | 132 | |
| Non-current assets- Derivative instruments: | |
Commodity derivative instruments | |
| Commodity derivative instruments | Commodity derivative instruments | $ | — | | $ | 62 | | $ | — | | $ | 62 | | $ | (39) | | $ | 23 | |
| Non-current assets- Derivative instruments: | |
Non-current assets- Derivative instruments: | |
Non-current assets- Derivative instruments: | |
Commodity derivative instruments | |
Commodity derivative instruments | |
Commodity derivative instruments | |
Non-current assets- Other assets: | |
Investment | |
Investment | |
Investment | |
| Liabilities: | |
Liabilities: | |
Liabilities: | Liabilities: | |
Current liabilities- Derivative instruments: | Current liabilities- Derivative instruments: | |
Current liabilities- Derivative instruments: | |
Current liabilities- Derivative instruments: | |
Commodity derivative instruments | |
Commodity derivative instruments | |
Commodity derivative instruments | Commodity derivative instruments | $ | — | | $ | 67 | | $ | — | | $ | 67 | | $ | (65) | | $ | 2 | |
Interest rate swaps | Interest rate swaps | $ | — | | $ | 45 | | $ | — | | $ | 45 | | $ | — | | $ | 45 | |
Non-current liabilities- Derivative instruments: | Non-current liabilities- Derivative instruments: | |
Commodity derivative instruments | Commodity derivative instruments | $ | — | | $ | 39 | | $ | — | | $ | 39 | | $ | (39) | | $ | — | |
Commodity derivative instruments | |
Commodity derivative instruments | |
Interest rate swaps | Interest rate swaps | $ | — | | $ | 148 | | $ | — | | $ | 148 | | $ | — | | $ | 148 | |
Diamondback Energy, Inc. and Subsidiaries
Condensed Notes to Consolidated Financial Statements - (Continued)
(Unaudited)
Assets and Liabilities Not Recorded at Fair Value
The following table provides the fair value of financial instruments that are not recorded at fair value in the condensed consolidated balance sheets:
| | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2023 | | December 31, 2022 |
| Carrying | | | | Carrying | | |
| Value | | Fair Value | | Value | | Fair Value |
| (In millions) |
Debt | $ | 6,230 | | | $ | 5,650 | | | $ | 6,248 | | | $ | 5,754 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2024 | | December 31, 2023 |
| Carrying | | | | Carrying | | |
| Value | | Fair Value | | Value | | Fair Value |
| (In millions) |
Debt | $ | 6,629 | | | $ | 6,474 | | | $ | 6,641 | | | $ | 6,507 | |
The fair values of the Company’s credit agreement and the Viper credit agreement approximate their carrying values based on borrowing rates available to the Company for bank loans with similar terms and maturities and isare classified as Level 2 in the fair value hierarchy. The fair values of the outstanding notes were determined using the quoted market price at each period end, a Level 1 classification in the fair value hierarchy.
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
Certain assets and liabilities are measured at fair value on a nonrecurring basis in certain circumstances. These assets and liabilities can include those acquired in a business combination, inventory, proved and unproved oil and gas properties, equity method investments, asset retirement obligations and other long-lived assets that are written down to fair value when they are impaired or held for sale. Refer to Note 4—Acquisitions and Divestitures and Note 5—Property and Equipment for additional discussion of nonrecurring fair value adjustments.
Fair Value of Financial Assets
The carrying amount of cash and cash equivalents, receivables, funds held in escrow, prepaid expenses and other current assets, payables and other accrued liabilities approximate their fair value because of the short-term nature of the instruments.
13.14. SUPPLEMENTAL INFORMATION TO STATEMENTS OF CASH FLOWS
| | | | Three Months Ended March 31, | |
| | | Three Months Ended March 31, | |
| | | Three Months Ended March 31, | |
| | | | | 2024 | | | | | | | 2024 | | 2023 |
| | | | | (In millions) | | | | | | | (In millions) |
| | | | Nine Months Ended September 30, |
| | | 2023 | | 2022 |
Supplemental disclosure of non-cash transactions: | |
| | | (In millions) |
Supplemental disclosure of cash flow information: | | |
| Cash paid (received) for income taxes | | $ | 195 | | | $ | 560 | |
Supplemental disclosure of non-cash transactions: | Supplemental disclosure of non-cash transactions: | | |
| Supplemental disclosure of non-cash transactions: | |
Accrued capital expenditures included in accounts payable and accrued expenses | |
Accrued capital expenditures included in accounts payable and accrued expenses | |
Accrued capital expenditures included in accounts payable and accrued expenses | Accrued capital expenditures included in accounts payable and accrued expenses | | $ | 639 | | | $ | 431 | |
| Common stock issued for acquisitions | Common stock issued for acquisitions | | $ | 633 | | | $ | 595 | |
Equity method investment received in exchange for contributed assets | | $ | 126 | | | $ | — | |
Common stock issued for acquisitions | |
Common stock issued for acquisitions | |
| |
14.15. COMMITMENTS AND CONTINGENCIES
The Company is a party to various routine legal proceedings, disputes and claims arising in the ordinary course of its business, including those that arise from interpretation of federal and state laws and regulations affecting the crude oil and natural gas industry, personal injury claims, title disputes, royalty disputes, contract claims, employment claims, claims alleging violations of antitrust laws, contamination claims relating to oil and natural gas exploration and development and environmental claims, including claims involving assets previously sold to third parties and no longer part of the Company’s current operations. While the ultimate outcome of the pending proceedings, disputes or claims and any resulting impact on the Company, cannot be predicted with certainty, the Company’s management believes that none of these matters, if ultimately decided adversely, will have a material adverse effect on the Company’s financial condition, results of operations or cash flows. The Company’s assessment is based on information known about the pending matters and its experience in contesting, litigating and settling similar matters. Actual outcomes could differ materially from the Company’s assessment. The Company records reservesaccrued liabilities for contingencies related to outstanding legal proceedings,
Diamondback Energy, Inc. and Subsidiaries
Condensed Notes to Consolidated Financial Statements - (Continued)
(Unaudited)
disputes or claims when information available indicates that a loss is probable and the amount of the loss can be reasonably estimated.
Diamondback Energy, Inc. and Subsidiaries
Condensed Notes to Consolidated Financial Statements - (Continued)
(Unaudited)
Environmental Matters
The United States Department of the Interior, Bureau of Safety and Environmental Enforcement, ordered several oil and gas operators, including a corporate predecessor of Energen Corporation, to perform decommissioning and reclamation activities related to a Louisiana offshore oil and gas production platform and related facilities. In response to the insolvency of the operator of record, the government ordered the former operators and/or alleged former lease record title owners to decommission the platform and related facilities. The Company has agreed to an arrangement with other operators to contribute to a trust to fund the decommissioning costs, however, the Company’s portion of such costs are not expected to be material.
Beginning in 2013 and continuing through the third quarter of 2023, severalSeveral coastal Louisiana parishes and the State of Louisiana have filed 43numerous lawsuits under Louisiana’s State and Local Coastal Resources Management Act (“SLCRMA”) against numerous oil and gas producers seeking damages for coastal erosion in or near oil fields located within Louisiana’s coastal zone. The Company is a defendant in three of these cases, and Plaintiffs’ claims against the Company relate to the prior operations of entities previously acquired by Energen Corporation. The Company has exercised contractual indemnification rights where applicable. Plaintiffs’ SLCRMA theories are unprecedented, and there remains significant uncertainty about the claims (both as to scope and damages). Although we cannot predict the ultimate outcome of these matters, the Company believes the claims lack merit and intends to continue vigorously defending these lawsuits.
15.16. ENDEAVOR ENERGY RESOURCES, LP ACQUISITION
On February 11, 2024, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”), by and among the Company, Eclipse Merger Sub I, LLC, Eclipse Merger Sub II, LLC, Endeavor Manager, LLC (solely or purposes of certain sections set forth therein), and Endeavor Parent, LLC (“Endeavor”), to acquire Endeavor (the “Endeavor Acquisition”) for consideration consisting of a base cash amount of $8.0 billion, subject to adjustments under the terms of the Merger Agreement, and approximately 117.27 million shares of the Company’s common stock. The Endeavor Acquisition is expected to close in the fourth quarter of 2024, subject to the satisfaction or waiver of certain customary closing conditions, including the expiration or termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. In a special meeting held on April 26, 2024, the Company’s stockholders approved the issuance of the Company’s common stock to Endeavor as consideration for the Endeavor Acquisition.
As a result of the Endeavor Acquisition, equityholders of Endeavor are expected to hold, at closing, approximately 39.5% of the outstanding Company common stock. If the Merger Agreement is terminated under certain circumstances, the Company may be required to pay a termination fee of $1.4 billion, including if the proposed Merger Agreement is terminated because the Company’s board of directors has changed its recommendation in respect of the stockholder proposal relating to approval of the issuance of the Company common stock in the Endeavor Acquisition. Additionally, if the Merger Agreement is terminated because the Company’s stockholders fail to approve the issuance of the Company’s common stock in the Endeavor Acquisition and the termination fee is not payable in connection with such termination, the Company is required to reimburse Endeavor for its transaction related expenses, subject to a cap of $260 million. The payment of this reimbursement will reduce any termination fee that is subsequently payable by the Company.
17. SUBSEQUENT EVENTS
Viper 2031 Notes Offering
On October 19, 2023, Viper completed an offering (the “Viper 2031 Notes Offering”) of $400 million in aggregate principal amount of its 7.375% Senior Notes maturing on November 1, 2031 (the “Viper 2031 Notes”). Viper received net proceeds of approximately $394 million, after deducting the initial purchasers’ discount and expected transaction costs, from the Viper 2031 Notes Offering. Viper loaned the gross proceeds to Viper LLC, which used the proceeds to partially fund the cash portion of the Viper Acquisition as defined and discussed further below.
The Viper 2031 Notes are senior unsecured obligations of Viper, initially guaranteed on a senior unsecured basis by Viper LLC, and will pay interest semi-annually. Neither the Company nor Viper’s General Partner will guarantee the Viper 2031 Notes. In the future, each of Viper’s restricted subsidiaries that either (i) guarantees any of its or a guarantor’s indebtedness, or (ii) is a domestic restricted subsidiary and is an obligor with respect to any indebtedness under any credit facility will be required to guarantee the Viper 2031 Notes.
Viper Issuance of Common Units to Diamondback
On October 31, 2023, pursuant to a common unit purchase and sale agreement entered into on September 4, 2023, Viper issued approximately 7.22 million of its common units to the Company at a price of $27.72 per unit for total net proceeds to Viper of approximately $200 million. Viper used the net proceeds of this common unit issuance to fund a portion of the cash consideration for the Viper Acquisition, as defined and discussed further below.
Viper Acquisition
On November 1, 2023, Viper and Viper LLC acquired certain mineral and royalty interests from Royalty Asset Holdings, LP, Royalty Asset Holdings II, LP and Saxum Asset Holdings, LP (collectively, “the Sellers,” and affiliates of Warwick Capital Partners and GRP Energy Capital) pursuant to a definitive purchase and sale agreement for approximately 9.02 million Viper common units and $750 million in cash, subject to customary post-closing adjustments (the “Viper Acquisition”). The mineral and royalty interests acquired in the Viper Acquisition represent 4,600 net royalty acres in the Permian Basin, plus an additional 2,700 net royalty acres in other major basins. The cash consideration for the Viper Acquisition was funded through a combination of cash on hand and held in escrow, borrowings under Viper LLC’s credit agreement, proceeds from the Viper 2031 Notes Offering and proceeds from the $200 million common unit issuance to the Company.
Following the completion of the Viper Acquisition and the related issuance of Viper common units to the Company under the common unit purchase and sale agreement, the Company beneficially owned approximately 56% of Viper’s total units outstanding.
Diamondback Energy, Inc. and Subsidiaries
Condensed Notes to Consolidated Financial Statements - (Continued)
(Unaudited)
ThirdFirst Quarter 20232024 Dividend Declaration
On November 2, 2023,April 25, 2024, the board of directors of the Company declared a cash dividend for the thirdfirst quarter of 20232024 of $3.37$1.97 per share of common stock, payable on November 24, 2023May 22, 2024 to its stockholders of record at the close of business on November 16, 2023.May 15, 2024. The dividend consists of a base quarterly dividend of $0.84$0.90 per share of common stock and a variable quarterly dividend of $2.53$1.07 per share of common stock. Future base and variable dividends are at the discretion of the board of directors of the Company.
Notes Offering
16.
On April 18, 2024, the Company 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, each a “series of the April 2024 Notes” and collectively, the “April 2024 Notes”). The Company received net proceeds of $5.5
Diamondback Energy, Inc. and Subsidiaries
Condensed Notes to Consolidated Financial Statements - (Continued)
(Unaudited)
billion, including discounts and underwriter fees. The Company intends to use the net proceeds to fund a portion of the cash consideration for the pending Endeavor Acquisition. Interest on the 2030 Notes is payable semi-annually on January 30 and July 30 of each year, beginning on July 30, 2024. Interest on each other series of notes will be payable semi-annually on April 18 and October 18 of each year, beginning on October 18, 2024.
18. SEGMENT INFORMATION
As of September 30, 2023,March 31, 2024, the Company has one reportable segment, the upstream segment, which is engaged in the acquisition, development, exploration and exploitation of unconventional, onshore oil and natural gas reserves primarily in the Permian Basin in West Texas. Other operations are included in the “All Other” category in the table below. The sources of the revenue included in the “All Other” category include midstream gathering, compression, water handling, disposal and treatment operations which are primarily derived from intersegment transactions for services provided to the upstream segment. The segments comprise the structure used by the Company’s Chief Operating Decision Maker (“CODM”) to make key operating decisions and assess performance.
The following tables summarize the results of the Company’s operating segments during the periods presented:
| | | | | | | | | | | | | | | | | | | | | | | |
| Upstream | | All Other | | Eliminations | | Total |
| (In millions) |
Three Months Ended September 30, 2023: | |
Third-party revenues | $ | 2,327 | | | $ | 13 | | | $ | — | | | $ | 2,340 | |
Intersegment revenues | — | | | 84 | | | (84) | | | — | |
Total revenues | $ | 2,327 | | | $ | 97 | | | $ | (84) | | | $ | 2,340 | |
Depreciation, depletion, amortization and accretion | $ | 435 | | | $ | 7 | | | $ | — | | | $ | 442 | |
| | | | | | | |
| | | | | | | |
Income (loss) from operations | $ | 1,339 | | | $ | 19 | | | $ | (18) | | | $ | 1,340 | |
Interest expense, net | $ | (42) | | | $ | 1 | | | $ | — | | | $ | (41) | |
Other income (expense) | $ | (71) | | | $ | 45 | | | $ | (4) | | | $ | (30) | |
Provision for (benefit from) income taxes | $ | 261 | | | $ | 15 | | | $ | — | | | $ | 276 | |
Net income (loss) attributable to non-controlling interest | $ | 78 | | | $ | — | | | $ | — | | | $ | 78 | |
Net income (loss) attributable to Diamondback Energy, Inc. | $ | 887 | | | $ | 50 | | | $ | (22) | | | $ | 915 | |
As of September 30, 2023: | | | | | | | |
Total assets | $ | 27,382 | | | $ | 1,263 | | | $ | (596) | | | $ | 28,049 | |
| | Upstream | | All Other | | Eliminations | | Total |
| (In millions) |
Three Months Ended September 30, 2022: | |
| Upstream | | | Upstream | | All Other | | Eliminations | | Total |
| (In millions) | | | (In millions) |
Three Months Ended March 31, 2024: | |
Third-party revenues | |
Third-party revenues | |
Third-party revenues | Third-party revenues | $ | 2,419 | | | $ | 18 | | | $ | — | | | $ | 2,437 | |
Intersegment revenues | Intersegment revenues | — | | | 96 | | | (96) | | | — | |
Total revenues | Total revenues | $ | 2,419 | | | $ | 114 | | | $ | (96) | | | $ | 2,437 | |
Depreciation, depletion, amortization and accretion | Depreciation, depletion, amortization and accretion | $ | 323 | | | $ | 13 | | | $ | — | | | $ | 336 | |
| Income (loss) from operations | |
Income (loss) from operations | |
Income (loss) from operations | Income (loss) from operations | $ | 1,598 | | | $ | 41 | | | $ | (25) | | | $ | 1,614 | |
Interest expense, net | Interest expense, net | $ | (33) | | | $ | (10) | | | $ | — | | | $ | (43) | |
Other income (expense) | Other income (expense) | $ | (27) | | | $ | 20 | | | $ | (4) | | | $ | (11) | |
Income (loss) from equity investments | |
Provision for (benefit from) income taxes | Provision for (benefit from) income taxes | $ | 287 | | | $ | 3 | | | $ | — | | | $ | 290 | |
Net income (loss) attributable to non-controlling interest | Net income (loss) attributable to non-controlling interest | $ | 76 | | | $ | 10 | | | $ | — | | | $ | 86 | |
Net income (loss) attributable to Diamondback Energy, Inc. | Net income (loss) attributable to Diamondback Energy, Inc. | $ | 1,175 | | | $ | 38 | | | $ | (29) | | | $ | 1,184 | |
As of December 31, 2022: | |
As of March 31, 2024: | |
Total assets | Total assets | $ | 24,452 | | | $ | 2,213 | | | $ | (456) | | | $ | 26,209 | |
Total assets | |
Total assets | |
Diamondback Energy, Inc. and Subsidiaries
Condensed Notes to Consolidated Financial Statements - (Continued)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
| Upstream | | All Other | | Eliminations | | Total |
| (In millions) |
Nine Months Ended September 30, 2023: | | | | | | | |
Third-party revenues | $ | 6,126 | | | $ | 58 | | | $ | — | | | $ | 6,184 | |
Intersegment revenues | — | | | 286 | | | (286) | | | — | |
Total revenues | $ | 6,126 | | | $ | 344 | | | $ | (286) | | | $ | 6,184 | |
Depreciation, depletion, amortization and accretion | $ | 1,244 | | | $ | 33 | | | $ | — | | | $ | 1,277 | |
| | | | | | | |
Income (loss) from operations | $ | 3,320 | | | $ | 118 | | | $ | (73) | | | $ | 3,365 | |
Interest expense, net | $ | (139) | | | $ | 1 | | | $ | — | | | $ | (138) | |
Other income (expense) | $ | (370) | | | $ | 128 | | | $ | (12) | | | $ | (254) | |
Provision for (benefit from) income taxes | $ | 626 | | | $ | 22 | | | $ | — | | | $ | 648 | |
Net income (loss) attributable to non-controlling interest | $ | 142 | | | $ | — | | | $ | — | | | $ | 142 | |
Net income (loss) attributable to Diamondback Energy, Inc. | $ | 2,043 | | | $ | 225 | | | $ | (85) | | | $ | 2,183 | |
As of September 30, 2023: | | | | | | | |
Total assets | $ | 27,382 | | | $ | 1,263 | | | $ | (596) | | | $ | 28,049 | |
| | Upstream | | All Other | | Eliminations | | Total |
| (In millions) |
Nine Months Ended September 30, 2022: | |
| Upstream | | | Upstream | | All Other | | Eliminations | | Total |
| (In millions) | | | (In millions) |
Three Months Ended March 31, 2023: | |
Third-party revenues | |
Third-party revenues | |
Third-party revenues | |
Third-party revenues | |
Third-party revenues | |
Third-party revenues | |
Third-party revenues | |
Third-party revenues | |
Third-party revenues | |
Third-party revenues | |
Third-party revenues | |
Third-party revenues | |
Third-party revenues | |
Third-party revenues | |
Third-party revenues | |
Third-party revenues | |
Third-party revenues | |
Third-party revenues | |
Third-party revenues | |
Third-party revenues | |
Third-party revenues | Third-party revenues | $ | 7,563 | | | $ | 50 | | | $ | — | | | $ | 7,613 | |
Intersegment revenues | Intersegment revenues | — | | | 273 | | | (273) | | | — | |
Total revenues | Total revenues | $ | 7,563 | | | $ | 323 | | | $ | (273) | | | $ | 7,613 | |
Depreciation, depletion, amortization and accretion | Depreciation, depletion, amortization and accretion | $ | 929 | | | $ | 50 | | | $ | — | | | $ | 979 | |
| Income (loss) from operations | Income (loss) from operations | $ | 5,197 | | | $ | 119 | | | $ | (64) | | | $ | 5,252 | |
Income (loss) from operations | |
Income (loss) from operations | |
Interest expense, net | Interest expense, net | $ | (94) | | | $ | (28) | | | $ | — | | | $ | (122) | |
Other income (expense) | Other income (expense) | $ | (727) | | | $ | 57 | | | $ | (13) | | | $ | (683) | |
Income (loss) from equity investments | |
Provision for (benefit from) income taxes | Provision for (benefit from) income taxes | $ | 904 | | | $ | 9 | | | $ | — | | | $ | 913 | |
Net income (loss) attributable to non-controlling interest | Net income (loss) attributable to non-controlling interest | $ | 125 | | | $ | 30 | | | $ | — | | | $ | 155 | |
Net income (loss) attributable to Diamondback Energy, Inc. | Net income (loss) attributable to Diamondback Energy, Inc. | $ | 3,347 | | | $ | 109 | | | $ | (77) | | | $ | 3,379 | |
As of December 31, 2022: | |
As of December 31, 2023: | |
Total assets | Total assets | $ | 24,452 | | | $ | 2,213 | | | $ | (456) | | | $ | 26,209 | |
Total assets | |
Total assets | |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
We are an independent oil and natural gas company currently focused on the acquisition, development, exploration and exploitation of unconventional, onshore oil and natural gas reserves in the Permian Basin in West Texas. As discussed in Note 1—Description of the Business and Basis of Presentation and Note 16—18—Segment Information of the condensed notes to the consolidated financial statements, as of September 30, 2023,March 31, 2024, we have one reportable segment, the upstream segment.
ThirdFirst Quarter 20232024 Financial and Operating Highlights
•Recorded net income of $915 million for the third quarter of 2023.$768 million.
•Increased our annual base dividend to $3.36$3.60 per share, paid dividends to stockholders of $149$548 million during the thirdfirst quarter of 20232024 and declared a combined base and variable dividend payable in the fourthsecond quarter of 20232024 of $3.37$1.97 per share of common stock.
•Repurchased $56$42 million, excluding excise tax, of our common stock, leaving approximately $1.8$1.6 billion available for future purchases under our common stock repurchase program at September 30, 2023.March 31, 2024.
•Sold 13.23 million shares of Viper’s Class A Common Stock for approximately $451 million in net proceeds, which we intend to use to fund a portion of the cash consideration for the pending Endeavor Acquisition.
•Our cash operating costs for the third quarter of 2023 were $10.51$11.52 per BOE, including lease operating expenses of $5.42$6.08 per BOE, cash general and administrative expenses of $0.51$0.76 per BOE and production and ad valorem taxes and gathering and transportation expenses of $4.58$4.68 per BOE.
•Our average production was 452.8461.1 MBOE/d during the third quarter of 2023.d.
•Drilled 7969 gross horizontal wells in the Midland Basin and 710 gross horizontal wells in the Delaware Basin, and turned 74101 gross operated horizontal wells (73(101 in the Midland Basin and 1none in the Delaware Basin) to production.
•Incurred capital expenditures, excluding acquisitions, of $684 million during the third quarter of 2023.
•To date, we have executed or announced non-core asset sale transactions, including those discussed in these highlights and “—Recent Developments” below, involving gross proceeds of approximately $1.7 billion, in excess of our previously announced non-core asset divestiture target of at least $1.0 billion by year end 2023.$609 million.
Transactions and Recent Developments
Endeavor Acquisition and Divestiture Update
Deep Blue Acquisition and Divestiture of Water Assets
On September 1, 2023,February 11, 2024, we contributedentered into the Merger Agreement to acquire Endeavor for consideration consisting of a base cash amount of $8.0 billion, subject to adjustments under the terms of the Merger Agreement, and approximately 117.27 million shares of our Water Assets with a net carrying value of $681 million in exchange for $516 million, a 30% equity ownership and voting interestcommon stock. The Endeavor Acquisition is expected to close in the newly formed Deep Blue joint venture and certain contingent consideration.
Divestiture Transaction
On July 28, 2023, we divested our 43% limited liability company interest in OMOG for $225 million in cash receivedfourth quarter of 2024, subject to the satisfaction or waiver of customary closing conditions, including the expiration or termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. As a result of the Endeavor Acquisition, the Endeavor Stockholders are expected to hold, at closing, and recordedapproximately 39.5% of our outstanding common stock. In a gainspecial meeting held on April 26, 2024, our stockholders approved the saleissuance of equity method investments of approximately $35 million inour common stock to Endeavor as consideration for the third quarter of 2023.Endeavor Acquisition.
Subsequent Events Transactions
Viper 2031 Notes Offering
On October 19, 2023, Viper completedApril 18, 2024, we issued the Viper 2031April 2024 Notes Offering of $400 million infor an aggregate principal amount of $5.5 billion. We intend to use the Viper 2031 Notes. Viper received net proceeds of approximately $394 million, after deducting the initial purchasers’ discount and expected transaction costs, from the Viper 2031 Notes Offering.
Viper Acquisition
On November 1, 2023, Viper acquired certain mineral and royalty interests for total consideration consisting of approximately 9.02 million Viper common units and $750 million in cash, subject to customary post-closing adjustments. The mineral and royalty interests acquired in the Viper Acquisition represent 4,600 net royalty acres in the Permian Basin, plus an additional 2,700 net royalty acres in other major basins. The cash portion of this transaction was funded through a combination of cash on hand and held in escrow, borrowings under Viper LLC’s credit agreement, the proceeds from the Viper 2031April 2024 Notes and $200 millionto fund a portion of proceeds from Viper’s issuance of common units to us under the common unit purchase and sale agreement.cash consideration for the pending Endeavor Acquisition.
See Note 15—17—Subsequent Events of the condensed notes to the consolidated financial statements for further details.discussion of the offering of our April 2024 Notes.
Commodity Prices and Inflation
Prices for oil, natural gas and natural gas liquids are determined primarily by prevailing market conditions. Regional and worldwide economic activity, including any economic downturn or recession that has occurred or may occur in the future, 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 the ninethree months ended 20232024 and 2022,2023, NYMEX WTI priceprices averaged $77.28$76.91 and $98.25$75.99 per Bbl, respectively, and NYMEX Henry Hub priceprices averaged $2.58$2.10 and $6.69$2.74 per MMBtu, respectively. The war in Ukraine
For additional information around risks related to commodity prices, see Part II. Item 3. Quantitative and Israel-Hamas war, rising interest rates, global supply chain disruptions, concerns about a potential economic downturn or recession, and measures to combat persistent inflation and instability in the financial sector have contributed to recent economic and pricing volatility and may continue to impact pricing throughout 2023. Although the impact of inflation on our business has been insignificant in prior periods, inflation in the U.S. has been rising at its fastest rate in over 40 years, creating inflationary pressure on the cost of services, equipment and other goods in the energy industry and other sectors, which is contributing to labor and materials shortages across the supply-chain. Additionally, OPEC and its non-OPEC allies, known collectively as OPEC+, continues to meet regularly to evaluate the state of global oil supply, demand and inventory levels.Qualitative Disclosures About Market Risk—Commodity Price Risk.
Upstream Operations
Our activities are primarily directed at the horizontal development of the Wolfcamp and Spraberry formations in the Midland Basin and the Wolfcamp and Bone Spring formations in the Delaware Basin within the Permian Basin. Additionally, our publicly-traded subsidiary, Viper, is focused on owning and acquiring mineral interests and royalty interests in oil and natural gas properties primarily in the Permian Basin and derives royalty income and lease bonus income from such interests.
As of September 30, 2023,March 31, 2024, we had approximately 500,793487,264 net acres, which primarily consisted of approximately 354,084346,911 net acres in the Midland Basin and 146,388140,033 net acres in the Delaware Basin.
We intendexpect production to stay relatively flat in the second quarter of 2024 as we continue to developpromote our reserves and increase production through development drilling and exploitation and exploration activities on our multi-year inventory of identified potential drilling locations and through acquisitions that meet our strategic and financial objectives, targeting oil-weighted reserves. Production is expectedcommitment to grow slightly in the fourth quarter of 2023, with oil production projected to be between 269 and 273 MBO/d (455 to 460 MBOE/d).capital efficiency. We anticipate we will continue to grow production organically at a low single digit annual pace in 2024, with a similar level of activity to 2023, primarily due to the quality of the acreage we are developing on a large scale in the Midland Basin, combined with multi-well pads and a high mineral interest across our development plan. Wealso anticipate that capital expenditures will decrease by 5% to 10% in the fourth quarter of 2023remain flat due to lower well costs lowerin 2024 and a reduction in drilling activity and,as a result of keeping production flat. We continue to a lesser degree, a slower completion cadence. We expect this will set a baseline for our 2024 capital development plan. We also expectsee lower completion costs in the coming quarter and into 2024 due to a continuous decline in raw materials and service costs. The majority of our wells are now being completed with either a simulfrac or simulfrac e-fleet, reducing our exposure to spot frac prices.
The following table sets forth the total number of operated horizontal wells drilled and completed during the periods indicated:
| | Three Months Ended September 30, 2023 | | Nine Months Ended September 30, 2023 |
| Drilled | | Completed(1) | | Drilled | | Completed(2) |
| Three Months Ended March 31, 2024 | |
| Three Months Ended March 31, 2024 | |
| Three Months Ended March 31, 2024 | |
| Drilled | |
| Drilled | |
| Drilled | |
Area: | |
Area: | |
Area: | Area: | Gross | | Net | | Gross | | Net | | Gross | | Net | | Gross | | Net |
Midland Basin | Midland Basin | 79 | | | 69 | | | 73 | | | 70 | | | 235 | | | 215 | | | 213 | | | 201 | |
Midland Basin | |
Midland Basin | |
Delaware Basin | |
Delaware Basin | |
Delaware Basin | Delaware Basin | 7 | | | 6 | | | 1 | | | 1 | | | 31 | | | 27 | | | 38 | | | 35 | |
| Total | Total | 86 | | | 75 | | | 74 | | | 71 | | | 266 | | | 242 | | | 251 | | | 236 | |
| Total | |
| Total | |
(1)The average lateral length for the wells completed during the thirdfirst quarter of 20232024 was 11,86411,463 feet. Operated completions during the thirdfirst quarter of 20232024 consisted of 2530 Lower Spraberry wells, 2019 Wolfcamp A wells, 1116 Jo Mill wells, eight15 Wolfcamp B wells, seven12 Middle Spraberry wells, one Third Bone Spring well, onesix Wolfcamp D wells and three Upper Spraberry well and one Barnett well.
(2)The average lateral length for the wells completed during the first nine months of 2023 was 11,184 feet. Operated completions during the nine months of 2023 consisted of 69 Lower Spraberry wells, 64 Wolfcamp A wells, 41 Wolfcamp B wells, 32 Jo Mill wells, 18 Middle Spraberry wells, 15 Third Bone Spring wells, eight Second Bone Spring wells, two Upper Spraberry wells and two Barnett wells.
As of September 30, 2023,March 31, 2024, we operated the following wells:
| | As of September 30, 2023 |
| Vertical Wells | | Horizontal Wells | | Total |
| As of March 31, 2024 | | | As of March 31, 2024 |
| Vertical Wells | | | Vertical Wells | | Horizontal Wells | | Total |
Area: | Area: | Gross | | Net | | Gross | | Net | | Gross | | Net | Area: | Gross | | Net | | Gross | | Net | | Gross | | Net |
Midland Basin | Midland Basin | 2,667 | | | 2,525 | | | 2,219 | | | 2,048 | | | 4,886 | | | 4,573 | |
Delaware Basin | Delaware Basin | 39 | | | 36 | | | 700 | | | 649 | | | 739 | | | 685 | |
| Total | Total | 2,706 | | | 2,561 | | | 2,919 | | | 2,697 | | | 5,625 | | | 5,258 | |
Total | |
Total | |
As of September 30, 2023,March 31, 2024, we held interests in 12,01221,251 gross (5,347(5,411 net) wells, including 1,123528 gross (89(85 net) wells in which we have a non-operated working interest.
Guidance
The following table presents our current estimates, which do not take into account the pending Endeavor Acquisition, of certain financial and operating results for the full year of 2024, as well as production and cash tax guidance for the second quarter of 2024:
| | | | | |
| 2024 Guidance |
Net production - MBOE/d | 458 - 466 |
Oil production - MBO/d | 270 - 275 |
Q2 2024 oil production - MBO/d (total - MBOE/d) | 271 - 275 (459 - 466) |
| |
(Unit costs $/BOE): | |
Lease operating expenses, including workovers | $6.00 - $6.50 |
General and administrative expenses - cash | $0.55 - $0.65 |
Non-cash stock-based compensation | $0.40 - $0.50 |
Depreciation, depletion, amortization and accretion | $10.50 - $11.50 |
Interest expense (net of interest income) | $1.65 - $1.85 |
Gathering, processing and transportation | $1.80 - $2.00 |
| |
Production and ad valorem taxes (% of revenue) | ~7% |
Corporate tax rate (% of pre-tax income) | 23% |
Cash tax rate (% of pre-tax income) | 15% - 18% |
Q2 2024 cash taxes (in millions) | $180 - $220 |
Results of Operations
Comparison of the Three Months Ended September 30, 2023March 31, 2024 and June 30,December 31, 2023
As noted in “—Recent DevelopmentsCommodity Prices and Inflation,” the markets for oil and natural gas are highly volatile and are influenced by a number of factors which can lead to significant changes in our results of operations and management’s operational strategy on a quarterly basis. Accordingly, our results of operations discussion focuses on a comparison of the current quarter’s results of operations with those of the immediately preceding quarter. We believe our discussion provides investors with a more meaningful analysis of material operational and financial changes which occurred during the quarter based on current market and operational trends.
The following table sets forth selected operating data for the three months ended September 30, 2023March 31, 2024 and June 30,December 31, 2023:
| | Three Months Ended |
| September 30, 2023 | | June 30, 2023 |
| Three Months Ended | | | Three Months Ended |
| March 31, 2024 | | | March 31, 2024 | | December 31, 2023 |
Revenues (In millions): | Revenues (In millions): | | | |
Oil sales | |
Oil sales | |
Oil sales | Oil sales | $ | 1,997 | | | $ | 1,708 | |
Natural gas sales | Natural gas sales | 80 | | | 48 | |
Natural gas liquid sales | Natural gas liquid sales | 188 | | | 140 | |
Total oil, natural gas and natural gas liquid revenues | Total oil, natural gas and natural gas liquid revenues | $ | 2,265 | | | $ | 1,896 | |
| Production Data: | Production Data: | |
Production Data: | |
Production Data: | |
Oil (MBbls) | |
Oil (MBbls) | |
Oil (MBbls) | Oil (MBbls) | 24,482 | | | 23,946 | |
Natural gas (MMcf) | Natural gas (MMcf) | 49,423 | | | 50,809 | |
Natural gas liquids (MBbls) | Natural gas liquids (MBbls) | 8,943 | | | 8,528 | |
Combined volumes (MBOE)(1) | Combined volumes (MBOE)(1) | 41,662 | | | 40,942 | |
| Daily oil volumes (BO/d) | Daily oil volumes (BO/d) | 266,109 | | | 263,143 | |
Daily oil volumes (BO/d) | |
Daily oil volumes (BO/d) | |
Daily combined volumes (BOE/d) | Daily combined volumes (BOE/d) | 452,848 | | | 449,912 | |
| Average Prices: | Average Prices: | |
Average Prices: | |
Average Prices: | |
Oil ($ per Bbl) | |
Oil ($ per Bbl) | |
Oil ($ per Bbl) | Oil ($ per Bbl) | $ | 81.57 | | | $ | 71.33 | |
Natural gas ($ per Mcf) | Natural gas ($ per Mcf) | $ | 1.62 | | | $ | 0.94 | |
Natural gas liquids ($ per Bbl) | Natural gas liquids ($ per Bbl) | $ | 21.02 | | | $ | 16.42 | |
Combined ($ per BOE) | Combined ($ per BOE) | $ | 54.37 | | | $ | 46.31 | |
| Oil, hedged ($ per Bbl)(2) | Oil, hedged ($ per Bbl)(2) | $ | 80.51 | | | $ | 70.41 | |
Oil, hedged ($ per Bbl)(2) | |
Oil, hedged ($ per Bbl)(2) | |
Natural gas, hedged ($ per Mcf)(2) | Natural gas, hedged ($ per Mcf)(2) | $ | 1.62 | | | $ | 1.08 | |
Natural gas liquids, hedged ($ per Bbl)(2) | Natural gas liquids, hedged ($ per Bbl)(2) | $ | 21.02 | | | $ | 16.42 | |
Average price, hedged ($ per BOE)(2) | Average price, hedged ($ per BOE)(2) | $ | 53.74 | | | $ | 45.94 | |
(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.
Production Data. Substantially all of our revenues are generated through the sale of oil, natural gas and natural gas liquids production. The following tables provide information on the mix of our production for the three months ended September 30, 2023March 31, 2024 and June 30,December 31, 2023:
| | | | | | | | | | | |
| Three Months Ended |
| September 30, 2023 | | June 30, 2023 |
Oil (MBbls) | 59 | % | | 58 | % |
Natural gas (MMcf) | 20 | % | | 21 | % |
Natural gas liquids (MBbls) | 21 | % | | 21 | % |
| 100 | % | | 100 | % |
| | | | | | | | | | | |
| Three Months Ended |
| March 31, 2024 | | December 31, 2023 |
Oil (MBbls) | 59 | % | | 59 | % |
Natural gas (MMcf) | 20 | % | | 20 | % |
Natural gas liquids (MBbls) | 21 | % | | 21 | % |
| 100 | % | | 100 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, 2023 | | Three Months Ended June 30, 2023 |
| Midland Basin | | Delaware Basin | | Other(1) | | Total | | Midland Basin | | Delaware Basin | | Other(1) | | Total |
Production Data: | | | | | | | | | | | | | | | |
Oil (MBbls) | 19,400 | | | 5,058 | | | 24 | | | 24,482 | | | 18,528 | | | 5,410 | | | 8 | | | 23,946 | |
Natural gas (MMcf) | 34,661 | | | 14,696 | | | 66 | | | 49,423 | | | 35,515 | | | 15,232 | | | 62 | | | 50,809 | |
Natural gas liquids (MBbls) | 6,705 | | | 2,232 | | | 6 | | | 8,943 | | | 6,326 | | | 2,197 | | | 5 | | | 8,528 | |
Total (MBOE) | 31,882 | | | 9,739 | | | 41 | | | 41,662 | | | 30,773 | | | 10,146 | | | 23 | | | 40,942 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2024 | | Three Months Ended December 31, 2023 |
| Midland Basin | | Delaware Basin | | Other(1) | | Total | | Midland Basin | | Delaware Basin | | Other(2) | | Total |
Production Data: | | | | | | | | | | | | | | | |
Oil (MBbls) | 20,055 | | | 4,768 | | | 51 | | | 24,874 | | | 20,211 | | | 4,886 | | | 27 | | | 25,124 | |
Natural gas (MMcf) | 37,494 | | | 12,894 | | | 214 | | | 50,602 | | | 36,997 | | | 13,413 | | | 87 | | | 50,497 | |
Natural gas liquids (MBbls) | 6,643 | | | 1,990 | | | 20 | | | 8,653 | | | 7,010 | | | 1,993 | | | 13 | | | 9,016 | |
Total (MBOE) | 32,947 | | | 8,907 | | | 107 | | | 41,961 | | | 33,387 | | | 9,115 | | | 55 | | | 42,556 | |
(1)Includes the Rockies.Rockies, High Plains, Eagle Ford Shale, Appalachia, Barnett, Denver-Julesburg, Mid-Con, and Williston.
(2)Includes the Rockies and High Plains.
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 for the thirdfirst quarter of 2023 increased2024 decreased by $369$64 million to $2.3$2.1 billion compared to the secondfourth quarter of 2023. The increasedecrease consisted of $325$38 million attributable to higherlower average prices received for our oil natural gas and natural gas liquids production and $44$26 million attributable to the 2% growth1% decline in our combined volumes sold.
Net Sales of Purchased Oil. Beginning in the third quarter of 2023, weWe have entered into purchase transactions with third parties and separate salesales 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 three months ended September 30, 2023March 31, 2024 and June 30,December 31, 2023:
| | | | | | | | | | | |
| Three Months Ended |
(In millions) | September 30, 2023 | | June 30, 2023 |
Sales of purchased oil | $ | 59 | | | $ | — | |
Purchased oil expense | 59 | | | — | |
Net sales of purchased oil | $ | — | | | $ | — | |
| | | | | | | | | | | |
| Three Months Ended |
(In millions) | March 31, 2024 | | December 31, 2023 |
Sales of purchased oil | $ | 116 | | | $ | 52 | |
Purchased oil expense | 117 | | | 52 | |
Net sales of purchased oil | $ | (1) | | | $ | — | |
Other Revenues. The following table presents other insignificant revenue for the three months ended September 30, 2023March 31, 2024 and June 30,December 31, 2023:
| | Three Months Ended |
| Three Months Ended | | | Three Months Ended |
(In millions) | (In millions) | September 30, 2023 | | June 30, 2023 | (In millions) | March 31, 2024 | | December 31, 2023 |
Other operating income | Other operating income | $ | 16 | | | $ | 23 | |
Lease Operating Expenses. The following table shows lease operating expenses for the three months ended September 30, 2023March 31, 2024 and June 30,December 31, 2023:
| | Three Months Ended | |
| September 30, 2023 | | June 30, 2023 | |
| Three Months Ended | |
| Three Months Ended | |
| Three Months Ended | |
| March 31, 2024 | |
| March 31, 2024 | |
| March 31, 2024 | |
(In millions, except per BOE amounts) | |
(In millions, except per BOE amounts) | |
(In millions, except per BOE amounts) | (In millions, except per BOE amounts) | Amount | | Per BOE | | Amount | | Per BOE | |
Lease operating expenses | Lease operating expenses | $ | 226 | | | $ | 5.42 | | | $ | 200 | | | $ | 4.88 | | |
Lease operating expenses | |
Lease operating expenses | |
Lease operating expenses increased by $26 millionremained relatively flat in total and increased by $0.54 on a per BOE basis for the thirdfirst quarter of 20232024 compared to the second quarter of 2023, primarily due to (i) $8 million in additional costs incurred for water services as a result of divesting our Water Assets in the third quarter of 2023, (ii) $6 million in increased spend on electrical generation and disposal related costs, (iii) $4 million due to the increase in production volumes, and (iv) other individually insignificant changes, including adjustments of prior period accruals in the secondfourth quarter of 2023.
Production and Ad Valorem Tax Expense. The following table shows production and ad valorem tax expense for the three months ended September 30, 2023March 31, 2024 and June 30,December 31, 2023:
| | Three Months Ended |
| September 30, 2023 | | June 30, 2023 |
| Three Months Ended | | | Three Months Ended |
| March 31, 2024 | | | March 31, 2024 | | December 31, 2023 |
(In millions, except per BOE amounts) | (In millions, except per BOE amounts) | Amount | | Per BOE | | Amount | | Per BOE | (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 | Production taxes | $ | 108 | | | $ | 2.59 | | | $ | 87 | | | $ | 2.12 | | Production taxes | $ | 82 | | | $ | | $ | 1.96 | | | 3.9 | | 3.9 | % | | $ | 93 | | | $ | | $ | 2.18 | | | 4.3 | | 4.3 | % |
Ad valorem taxes | Ad valorem taxes | 10 | | | 0.24 | | | 61 | | | 1.49 | |
Total production and ad valorem expense | Total production and ad valorem expense | $ | 118 | | | $ | 2.83 | | | $ | 148 | | | $ | 3.61 | | Total production and ad valorem expense | $ | 119 | | | $ | | $ | 2.84 | | | 5.7 | | 5.7 | % | | $ | 104 | | | $ | | $ | 2.44 | | | 4.8 | | 4.8 | % |
| Production taxes as a % of oil, natural gas and natural gas liquids revenue | 4.8 | % | | 4.6 | % | |
In general, production taxes are directly related to production revenues and are based upon current year commodity prices. ProductionHowever, due to the recent settlement of an ongoing audit of production taxes from historical periods, the first quarter of 2024 includes a refund of $17 million and the fourth quarter of 2023 includes a refund of $8 million, which primarily accounts for the decrease in production taxes between periods and as a percentage of production revenues forrevenue. The remainder of the third quarter of 2023 increased slightly compareddecrease is largely attributable to the second quarter of 2023, primarily due to an increasedecline in our natural gas and natural gas liquids sales, which have a higher production tax rate.volumes.
Ad valorem taxes are based, among other factors, on property values driven by prior year commodity prices. InDuring the thirdfirst quarter of 2024 compared to the fourth quarter of 2023, we lowered ourad valorem taxes increased by $26 million due primarily to the fourth quarter of 2023 reflecting a reduction to the full year estimate of2023 accrual for ad valorem taxes based on expected reductions in ouractual tax rates and accordingly, decreased our ad valorem accrual compared to the second quarter of 2023.assessments received.
Gathering and Transportation Expense. The following table shows gathering and transportation expense for the three months ended September 30, 2023March 31, 2024 and June 30,December 31, 2023:
| | Three Months Ended | |
| September 30, 2023 | | June 30, 2023 | |
| Three Months Ended | |
| Three Months Ended | |
| Three Months Ended | |
| March 31, 2024 | |
| March 31, 2024 | |
| March 31, 2024 | |
(In millions, except per BOE amounts) | (In millions, except per BOE amounts) | Amount | | Per BOE | | Amount | | Per BOE | |
Gathering and transportation | $ | 73 | | | $ | 1.75 | | | $ | 68 | | | $ | 1.66 | | |
(In millions, except per BOE amounts) | |
(In millions, except per BOE amounts) | |
Gathering, processing and transportation | |
Gathering, processing and transportation | |
Gathering, processing and transportation | |
The increases in gatheringGathering, processing and transportation expenses in total and theon a per BOE amounts duringbasis remained relatively flat in the thirdfirst quarter of 20232024 compared to the second quarter of 2023 primarily resulted from incurring higher costs for third party oil gathering services after divesting our oil gathering assets in the thirdfourth quarter of 2023.
Depreciation, Depletion, Amortization and Accretion. The following table provides the components of our depreciation, depletion, amortization and accretion expense for the three months ended September 30, 2023March 31, 2024 and June 30,December 31, 2023:
| | Three Months Ended |
| Three Months Ended | | | Three Months Ended |
(In millions, except BOE amounts) | (In millions, except BOE amounts) | September 30, 2023 | | June 30, 2023 | (In millions, except BOE amounts) | March 31, 2024 | | December 31, 2023 |
Depletion of proved oil and natural gas properties | Depletion of proved oil and natural gas properties | $ | 426 | | | $ | 410 | |
Depreciation and amortization of other property and equipment | Depreciation and amortization of other property and equipment | 12 | | | 16 | |
Other amortization | Other amortization | — | | | 1 | |
Asset retirement obligation accretion | Asset retirement obligation accretion | 4 | | | 5 | |
Depreciation, depletion, amortization and accretion | Depreciation, depletion, amortization and accretion | $ | 442 | | | $ | 432 | |
Oil and natural gas properties depletion rate per BOE | Oil and natural gas properties depletion rate per BOE | $ | 10.23 | | | $ | 10.01 | |
Depreciation, depletion, amortization and accretion per BOE | Depreciation, depletion, amortization and accretion per BOE | $ | 10.61 | | | $ | 10.55 | |
Depletion of proved oil and natural gas properties increased by $16.0 millionin total and on a per BOE basis was flat in the thirdfirst quarter of 20232024 as compared to the secondfourth quarter of 2023 due primarily to the growth in production volumes discussed above and an increase in the depletion rate.2023.
General and Administrative Expenses. The following table shows general and administrative expenses for the three months ended September 30, 2023March 31, 2024 and June 30,December 31, 2023:
| | Three Months Ended |
| September 30, 2023 | | June 30, 2023 |
| Three Months Ended | | | Three Months Ended |
| March 31, 2024 | | | March 31, 2024 | | December 31, 2023 |
(In millions, except per BOE amounts) | (In millions, except per BOE amounts) | Amount | | Per BOE | | Amount | | Per BOE | (In millions, except per BOE amounts) | Amount | | Per BOE | | Amount | | Per BOE |
General and administrative expenses | General and administrative expenses | $ | 21 | | | $ | 0.51 | | | $ | 21 | | | $ | 0.51 | |
Non-cash stock-based compensation | Non-cash stock-based compensation | 13 | | | 0.31 | | | 16 | | | 0.39 | |
Total general and administrative expenses | Total general and administrative expenses | $ | 34 | | | $ | 0.82 | | | $ | 37 | | | $ | 0.90 | |
General and administrative expenses remained consistent forincreased in the thirdfirst quarter of 2024 compared to the fourth quarter of 2023 compared to the second quarter of 2023. The decrease in non-cash stock-based compensation isprimarily due to forfeitures of unvested restricted stock units(i) $2 million in additional charitable contributions, (ii) $2 million in additional professional services, and performance restricted stock units during the third quarter of 2023.(iii) other individually insignificant changes.
Other Operating Costs and Expenses. The following table shows other operating costs and expenses for the three months ended September 30, 2023March 31, 2024 and June 30,December 31, 2023:
| | Three Months Ended | |
| Three Months Ended | |
| Three Months Ended | |
| Three Months Ended | |
(In millions) | (In millions) | September 30, 2023 | | June 30, 2023 | |
(In millions) | |
(In millions) | |
Merger and integration expenses | |
Merger and integration expenses | |
Merger and integration expenses | Merger and integration expenses | $ | 1 | | | $ | 2 | | |
| Other operating expenses | Other operating expenses | $ | 47 | | | $ | 32 | | |
| Other operating expenses | |
| Other operating expenses | |
The increaseMerger and integration expenses in other operating expenses during the thirdfirst quarter of 2023 compared2024 relate to the second quarter of 2023 is primarily duepending Endeavor Acquisition as discussed in Note 16—Endeavor Energy Resources, LP Acquisition to insignificant losses recorded on disposals of property, plant and equipment in the third quarter of 2023.condensed notes to the consolidated financial statements.
Derivative Instruments. The following table shows the net gain (loss) on derivative instruments and the net cash receipts (payments) on settlements of derivative instruments for the three months ended September 30, 2023March 31, 2024 and June 30,December 31, 2023:
| | Three Months Ended |
| Three Months Ended | | | Three Months Ended |
(In millions) | (In millions) | September 30, 2023 | | June 30, 2023 | (In millions) | March 31, 2024 | | December 31, 2023 |
Gain (loss) on derivative instruments, net | Gain (loss) on derivative instruments, net | $ | (76) | | | $ | (189) | |
Net cash received (paid) on settlements | Net cash received (paid) on settlements | $ | (24) | | | $ | (39) | |
The change in gain (loss) on derivative instruments for the first quarter of 2024 compared to the fourth quarter of 2023 primarily reflects a decrease in the value of interest rate swaps of $100 million due to an increase in SOFR rates, and a decrease in the value of our oil commodity contracts of $64 million due to increasing market prices for oil compared to our contract prices. Net cash paid on settlements of derivatives in the fourth quarter of 2023 includes $27 million for the semi-annual settlement of our interest rate swaps. See Note 11—12—Derivatives of the condensed notes to the consolidated financial statements for further details regarding our derivative instruments.
Other Income (Expense). The following table shows other income and expenses for the three months ended September 30, 2023March 31, 2024 and June 30,December 31, 2023:
| | Three Months Ended | |
| Three Months Ended | |
| Three Months Ended | |
| Three Months Ended | |
(In millions) | |
(In millions) | |
(In millions) | (In millions) | September 30, 2023 | | June 30, 2023 | |
Interest expense, net | Interest expense, net | $ | (41) | | | $ | (51) | | |
Interest expense, net | |
Interest expense, net | |
Other income (expense), net | |
Other income (expense), net | |
Other income (expense), net | Other income (expense), net | $ | 37 | | | $ | (21) | | |
Gain (loss) on extinguishment of debt | Gain (loss) on extinguishment of debt | $ | — | | | $ | (4) | | |
Income (loss) from equity investments | $ | 9 | | | $ | 16 | | |
Gain (loss) on extinguishment of debt | |
Gain (loss) on extinguishment of debt | |
Income (loss) from equity investments, net | |
Income (loss) from equity investments, net | |
Income (loss) from equity investments, net | |
The decreaseincrease in net interest expense for the thirdfirst quarter of 20232024 compared to the secondfourth quarter of 2023 primarily consists of a $6an additional $10 million increase in capitalized interestamortization of debt issuance costs which reduce interest expense,related primarily to our Bridge Facility and a $4 million decrease in interest expense on our revolving credit facility, which was undrawn for a portion of the third quarter of 2023.
The change in other income (expense), net is primarily due to the third quarter of 2023 including the $35 million gain on the sale of our equity method investment in OMOG as discussed further in Note 4—Acquisitions and Divestitures to the condensed notes to the consolidated financial statements.Term Loan Agreement.
See Note 7—8—Debt of the condensed notes to the consolidated financial statements for further details regarding outstanding borrowings and gain (loss) on extinguishment of debt.
Provision for (Benefit from) Income Taxes. The following table shows the provision for (benefit from) income taxes for the three months ended September 30, 2023March 31, 2024 and June 30,December 31, 2023:
| | Three Months Ended |
| Three Months Ended | | | Three Months Ended |
(In millions) | (In millions) | September 30, 2023 | | June 30, 2023 | (In millions) | March 31, 2024 | | December 31, 2023 |
Provision for (benefit from) income taxes | Provision for (benefit from) income taxes | $ | 276 | | | $ | 165 | |
The changereduction in our income tax provision for the thirdfirst quarter of 20232024 compared to the secondfourth quarter of 2023 was primarily due to the increasedecrease in pre-tax income between the periods which resulted largely from a decrease in the changes in revenues from oil, natural gas and natural gas liquidsvalue of our derivative instruments as discussed above. See Note 10—11—Income Taxes of the condensed notes to the consolidated financial statements for further discussion of our income tax expense.
Comparison of the NineThree Months Ended September 30,March 31, 2024 and 2023 and 2022
The following table sets forth selected operating data for the ninethree months ended September 30, 2023March 31, 2024 and 2022:2023:
| | Nine Months Ended September 30, |
| 2023 | | 2022 |
| Three Months Ended March 31, | | | Three Months Ended March 31, |
| 2024 | | | 2024 | | 2023 |
Revenues (In millions): | Revenues (In millions): | | | |
Oil sales | |
Oil sales | |
Oil sales | Oil sales | $ | 5,359 | | | $ | 5,988 | |
Natural gas sales | Natural gas sales | 197 | | | 714 | |
Natural gas liquid sales | Natural gas liquid sales | 507 | | | 856 | |
Total oil, natural gas and natural gas liquid revenues | Total oil, natural gas and natural gas liquid revenues | $ | 6,063 | | | $ | 7,558 | |
| Production Data: | Production Data: | |
Production Data: | |
Production Data: | |
Oil (MBbls) | |
Oil (MBbls) | |
Oil (MBbls) | Oil (MBbls) | 71,052 | | | 60,813 | |
Natural gas (MMcf) | Natural gas (MMcf) | 147,620 | | | 131,356 | |
Natural gas liquids (MBbls) | Natural gas liquids (MBbls) | 25,201 | | | 22,177 | |
Combined volumes (MBOE)(1) | Combined volumes (MBOE)(1) | 120,856 | | | 104,883 | |
| Daily oil volumes (BO/d) | Daily oil volumes (BO/d) | 260,264 | | | 222,758 | |
Daily oil volumes (BO/d) | |
Daily oil volumes (BO/d) | |
Daily combined volumes (BOE/d) | Daily combined volumes (BOE/d) | 442,696 | | | 384,187 | |
| Average Prices: | Average Prices: | |
Average Prices: | |
Average Prices: | |
Oil ($ per Bbl) | |
Oil ($ per Bbl) | |
Oil ($ per Bbl) | Oil ($ per Bbl) | $ | 75.42 | | | $ | 98.47 | |
Natural gas ($ per Mcf) | Natural gas ($ per Mcf) | $ | 1.33 | | | $ | 5.44 | |
Natural gas liquids ($ per Bbl) | Natural gas liquids ($ per Bbl) | $ | 20.12 | | | $ | 38.60 | |
Combined ($ per BOE) | Combined ($ per BOE) | $ | 50.17 | | | $ | 72.06 | |
| Oil, hedged ($ per Bbl)(2) | Oil, hedged ($ per Bbl)(2) | $ | 74.41 | | | $ | 89.39 | |
Oil, hedged ($ per Bbl)(2) | |
Oil, hedged ($ per Bbl)(2) | |
Natural gas, hedged ($ per Mcf)(2) | Natural gas, hedged ($ per Mcf)(2) | $ | 1.54 | | | $ | 4.43 | |
Natural gas liquids, hedged ($ per Bbl)(2) | Natural gas liquids, hedged ($ per Bbl)(2) | $ | 20.12 | | | $ | 38.60 | |
Average price, hedged ($ per BOE)(2) | Average price, hedged ($ per BOE)(2) | $ | 49.83 | | | $ | 65.54 | |
(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.
Production Data. Substantially all of our revenues are generated through the sale of oil, natural gas and natural gas liquids production. The following tables set forth the mix of our production data by product and basin for the ninethree months ended September 30, 2023March 31, 2024 and 2022:2023:
| | Nine Months Ended September 30, |
| 2023 | | 2022 |
| Three Months Ended March 31, | | | Three Months Ended March 31, |
| 2024 | | | 2024 | | 2023 |
Oil (MBbls) | Oil (MBbls) | 59 | % | | 58 | % | Oil (MBbls) | 59 | % | | 59 | % |
Natural gas (MMcf) | Natural gas (MMcf) | 20 | % | | 21 | % | Natural gas (MMcf) | 20 | % | | 21 | % |
Natural gas liquids (MBbls) | Natural gas liquids (MBbls) | 21 | % | | 21 | % | Natural gas liquids (MBbls) | 21 | % | | 20 | % |
| 100 | % | | 100 | % |
| 100 | | | 100 | % | | 100 | % |
| | Nine Months Ended September 30, 2023 | | Nine Months Ended September 30, 2022 |
| Midland Basin | | Delaware Basin | | Other(1) | | Total | | Midland Basin | | Delaware Basin | | Other(2) | | Total |
| Three Months Ended March 31, 2024 | | | Three Months Ended March 31, 2024 | | Three Months Ended March 31, 2023 |
| Midland Basin | | | Midland Basin | | Delaware Basin | | Other(1) | | Total | | Midland Basin | | Delaware Basin | | Other(2) | | Total |
Production Data: | Production Data: | | | | | | | | | | | | | | | |
Oil (MBbls) | |
Oil (MBbls) | |
Oil (MBbls) | Oil (MBbls) | 55,648 | | | 15,360 | | | 44 | | | 71,052 | | | 43,344 | | | 17,370 | | | 99 | | | 60,813 | |
Natural gas (MMcf) | Natural gas (MMcf) | 103,724 | | | 43,716 | | | 180 | | | 147,620 | | | 86,198 | | | 44,817 | | | 341 | | | 131,356 | |
Natural gas liquids (MBbls) | Natural gas liquids (MBbls) | 18,889 | | | 6,303 | | | 9 | | | 25,201 | | | 15,323 | | | 6,805 | | | 49 | | | 22,177 | |
Total (MBOE) | Total (MBOE) | 91,824 | | | 28,949 | | | 83 | | | 120,856 | | | 73,033 | | | 31,645 | | | 205 | | | 104,883 | |
(1)Includes the Rockies.Rockies, High Plains, Eagle Ford Shale, Appalachia, Barnett, Denver-Julesburg, Mid-Con, and Williston.
(2)Includes the Eagle Ford ShaleRockies and Rockies.High Plains.
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 for the ninethree months ended September 30, 2023 decreasedMarch 31, 2024 increased by $1.5 billion,$199 million, or 20%10%, to $6.1$2.1 billion from the same period in 20222023 primarily due to a reduction of $2.7 billion attributable to lower average prices received for our oil production and to a lesser extent, our natural gas and natural gas liquids production. The decrease due to lower average prices was partially offset by an increase of $1.2 billion$191 million attributable to the 15%10% growth in our combined volumes, which was primarily duevolumes. Approximately 19% of the increase in production is attributable to the GRP Acquisition and an additional 9% is attributable to including a full quarter of production from the FireBird Acquisition andLario Acquisition. The remainder of the Lario Acquisition.growth comes from new wells added between periods.
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 ninethree months ended September 30, 2023March 31, 2024 and 2022:2023:
| | Nine Months Ended September 30, |
| Three Months Ended March 31, | | | Three Months Ended March 31, |
(In millions) | (In millions) | 2023 | | 2022 | (In millions) | 2024 | | 2023 |
Sales of purchased oil | Sales of purchased oil | $ | 59 | | | $ | — | |
Purchased oil expense | Purchased oil expense | 59 | | | — | |
Net sales of purchased oil | Net sales of purchased oil | $ | — | | | $ | — | |
Other Revenues. The following table shows the other insignificant revenues for the ninethree months ended September 30, 2023March 31, 2024 and 2022:2023:
| | Nine Months Ended September 30, |
| Three Months Ended March 31, | | | Three Months Ended March 31, |
(In millions) | (In millions) | 2023 | | 2022 | (In millions) | 2024 | | 2023 |
Other operating income | Other operating income | $ | 62 | | | $ | 55 | |
Lease Operating Expenses. The following table shows lease operating expenses for the ninethree months ended September 30, 2023March 31, 2024 and 2022:2023:
| | Nine Months Ended September 30, |
| 2023 | | 2022 |
| Three Months Ended March 31, | | | Three Months Ended March 31, |
| 2024 | | | 2024 | | 2023 |
(In millions, except per BOE amounts) | (In millions, except per BOE amounts) | Amount | | Per BOE | | Amount | | Per BOE | (In millions, except per BOE amounts) | Amount | | Per BOE | | Amount | | Per BOE |
Lease operating expenses | Lease operating expenses | $ | 618 | | | $ | 5.11 | | | $ | 491 | | | $ | 4.68 | |
Lease operating expenses increased by $127$63 million, or $0.43$1.06 per BOE for the ninethree months ended September 30, 2023March 31, 2024 compared to the same period in 2022.2023. The increase primarily consists of (i) $76 million in production and operating expenses incurred in 2023 on wells acquired in the FireBird Acquisition and the Lario Acquisition, (ii) $43 million in additional utility and service costs driven primarily by inflation, and (iii) $8$26 million in additional costs incurred for water services as a result of divesting our Water Assets in the third quarter of 2023.
After giving effect2023, (ii) approximately $19 million due to the divestiture of our Water Assets, we expect lease operating expenses to range from approximately $832 million to $881increase in combined production volumes between the periods, and (iii) $16 million in 2023.increased spend on wellwork.
Production and Ad Valorem Tax Expense. The following table shows production and ad valorem tax expense for the ninethree months ended September 30, 2023March 31, 2024 and 2022:2023:
| | Nine Months Ended September 30, |
| 2023 | | 2022 |
| Three Months Ended March 31, | | | Three Months Ended March 31, |
| 2024 | | | 2024 | | 2023 |
(In millions, except per BOE amounts) | (In millions, except per BOE amounts) | Amount | | Per BOE | | Amount | | Per BOE | (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 | Production taxes | $ | 287 | | | $ | 2.37 | | | $ | 384 | | | $ | 3.66 | | Production taxes | $ | 82 | | | $ | | $ | 1.96 | | | 3.9 | | 3.9 | % | | $ | 92 | | | $ | | $ | 2.40 | | | 4.8 | | 4.8 | % |
Ad valorem taxes | Ad valorem taxes | 134 | | | 1.11 | | | 111 | | | 1.06 | |
Total production and ad valorem expense | Total production and ad valorem expense | $ | 421 | | | $ | 3.48 | | | $ | 495 | | | $ | 4.72 | | Total production and ad valorem expense | $ | 119 | | | $ | | $ | 2.84 | | | 5.7 | | 5.7 | % | | $ | 155 | | | $ | | $ | 4.05 | | | 8.1 | | 8.1 | % |
| Production taxes as a % of oil, natural gas and natural gas liquids revenue | 4.7 | % | | 5.1 | % | |
In general, production taxes are directly related to production revenues and are based upon current year commodity prices. Production taxes as a percentage of production revenues for the 20232024 period decreased slightly compared to the same period in 2022,2023, primarily due to a decreaserefund of $17 million received for settlement of an audit in natural gas and natural gas liquids sales,the first quarter of 2024, which havewas partially offset by a higher$9 million increase in production tax rate.volumes.
Ad valorem taxes are based, among other factors, on property values driven by prior year commodity prices. Ad valorem taxes for the ninethree months ended September 30, 2023March 31, 2024 as compared to the same period in 2022 increased2023 decreased by $23$26 million, partiallyprimarily due to recording $17 milliona reduction in the expected ad valorem taxestax rates for properties acquired2024 compared to the expected rates in the FireBird Acquisition and the Lario Acquisition and $6 million in ad valorem taxes related to new wells added between periods and changes in valuations on existing wells.
We expect production and ad valorem taxes to be approximately 7%first quarter of oil, natural gas and natural gas liquids revenue during 2023.
Gathering and Transportation Expense. The following table shows gathering and transportation expense for the ninethree months ended September 30, 2023March 31, 2024 and 2022:2023:
| | Nine Months Ended September 30, |
| 2023 | | 2022 |
| Three Months Ended March 31, | | | Three Months Ended March 31, |
| 2024 | | | 2024 | | 2023 |
(In millions, except per BOE amounts) | (In millions, except per BOE amounts) | Amount | | Per BOE | | Amount | | Per BOE | (In millions, except per BOE amounts) | Amount | | Per BOE | | Amount | | Per BOE |
Gathering and transportation | $ | 209 | | | $ | 1.73 | | | $ | 191 | | | $ | 1.82 | |
Gathering, processing and transportation | |
The increase in gathering and transportation expenses for the ninethree months ended September 30, 2023March 31, 2024 compared to the same period in 20222023 is primarily attributable to the growth in production volumes discussed above. The rate per BOE decreased between periods, primarilyincrease is due to the 2022 period including additional fees incurred on minimum volume commitments.annual rate adjustments.
After giving effect to the divestiture of our oil gathering assets, we expect cash gathering and transportation expenses to range from approximately $269 million to $294 million in 2023.
Depreciation, Depletion, Amortization and Accretion. The following table provides the components of our depreciation, depletion, amortization and accretion expense for the ninethree months ended September 30, 2023March 31, 2024 and 2022:2023:
| | Nine Months Ended September 30, |
| Three Months Ended March 31, | | | Three Months Ended March 31, |
(In millions, except BOE amounts) | (In millions, except BOE amounts) | 2023 | | 2022 | (In millions, except BOE amounts) | 2024 | | 2023 |
Depletion of proved oil and natural gas properties | Depletion of proved oil and natural gas properties | $ | 1,217 | | | $ | 908 | |
Depreciation and amortization of other property and equipment | Depreciation and amortization of other property and equipment | 45 | | | 58 | |
Other amortization | Other amortization | 2 | | | 3 | |
Asset retirement obligation accretion | Asset retirement obligation accretion | 13 | | | 10 | |
Depreciation, depletion, amortization and accretion | Depreciation, depletion, amortization and accretion | $ | 1,277 | | | $ | 979 | |
Oil and natural gas properties depletion rate per BOE | Oil and natural gas properties depletion rate per BOE | $ | 10.07 | | | $ | 8.66 | |
Depreciation, depletion, amortization and accretion per BOE | Depreciation, depletion, amortization and accretion per BOE | $ | 10.57 | | | $ | 9.33 | |
The increase in depletion of proved oil and natural gas properties of $309$71 million for the ninethree months ended September 30, 2023March 31, 2024 as compared to the same period in 20222023 resulted largelyprimarily from (i) $37 million from the increase in production volumes and (i) $34 million due to an increase in the depletion rate and production volumes resulting from the addition of leasehold costs reserves and productionreserves from the FireBird Acquisition and the LarioGRP Acquisition.
General and Administrative Expenses. The following table shows general and administrative expenses for the ninethree months ended September 30, 2023March 31, 2024 and 2022:2023:
| | Nine Months Ended September 30, |
| 2023 | | 2022 |
| Three Months Ended March 31, | | | Three Months Ended March 31, |
| 2024 | | | 2024 | | 2023 |
(In millions, except per BOE amounts) | (In millions, except per BOE amounts) | Amount | | Per BOE | | Amount | | Per BOE | (In millions, except per BOE amounts) | Amount | | Per BOE | | Amount | | Per BOE |
General and administrative expenses | General and administrative expenses | $ | 71 | | | $ | 0.59 | | | $ | 67 | | | $ | 0.64 | |
Non-cash stock-based compensation | Non-cash stock-based compensation | 40 | | | 0.33 | | | 42 | | | 0.40 | |
Total general and administrative expenses | Total general and administrative expenses | $ | 111 | | | $ | 0.92 | | | $ | 109 | | | $ | 1.04 | |
The increase in generalGeneral and administrative expenses for the ninethree months ended September 30, 2023March 31, 2024 remained relatively flat in total and on a per BOE basis compared to the same period in 2022 was primarily due to higher professional services costs in the current year.
Currently, we expect cash general and administrative expenses to range from approximately $90 million to $106 million and non-cash stock-based compensation to range from $49 million to $65 million, respectively, in 2023.
Other Operating Costs and Expenses. The following table shows the other operating costs and expenses for the ninethree months ended September 30, 2023March 31, 2024 and 2022:2023:
| | Nine Months Ended September 30, |
| Three Months Ended March 31, | | | Three Months Ended March 31, |
(In millions) | (In millions) | 2023 | | 2022 | (In millions) | 2024 | | 2023 |
Merger and integration expenses | Merger and integration expenses | $ | 11 | | | $ | 11 | |
Other operating expenses | Other operating expenses | $ | 113 | | | $ | 85 | |
The increasedecrease in other operating expenses for the ninethree months ended September 30, 2023March 31, 2024 compared to the same period in 20222023 primarily resulted from additionala decrease in midstream services expenses incurred for activity on leasehold acreage obtaineddue to the sale of our Water Assets in the FireBird Acquisition and Lario Acquisition.Q3 2023.
Derivative Instruments. The following table shows the net gain (loss) on derivative instruments and the net cash receipts (payments) on settlements of derivative instruments for the ninethree months ended September 30, 2023March 31, 2024 and 2022:2023:
| | | | | | | | | | | |
| Nine Months Ended September 30, |
(In millions) | 2023 | | 2022 |
Gain (loss) on derivative instruments, net | $ | (358) | | | $ | (677) | |
Net cash received (paid) on settlements(1) | $ | (62) | | | $ | (816) | |
(1)The nine months ended September 30, 2022 includes cash paid on commodity contracts terminated prior to their contractual maturity of $138 million. | | | | | | | | | | | |
| Three Months Ended March 31, |
(In millions) | 2024 | | 2023 |
Gain (loss) on derivative instruments, net | $ | (48) | | | $ | (93) | |
Net cash received (paid) on settlements | $ | (4) | | | $ | 1 | |
See Note 11—12—Derivatives of the condensed notes to the consolidated financial statements for further details regarding our derivative instruments.
Other Income (Expense). The following table shows other income and expenses for the ninethree months ended September 30, 2023March 31, 2024 and 2022:2023:
| | Nine Months Ended September 30, |
| Three Months Ended March 31, | | | Three Months Ended March 31, |
(In millions) | (In millions) | 2023 | | 2022 | (In millions) | 2024 | | 2023 |
Interest expense, net | Interest expense, net | $ | (138) | | | $ | (122) | |
Other income (expense), net | Other income (expense), net | $ | 69 | | | $ | (3) | |
| Gain (loss) on extinguishment of debt | Gain (loss) on extinguishment of debt | $ | (4) | | | $ | (59) | |
Income (loss) from equity investments | $ | 39 | | | $ | 56 | |
Gain (loss) on extinguishment of debt | |
Gain (loss) on extinguishment of debt | |
Income (loss) from equity investments, net | |
The increase inInterest expense, net interest expense for the ninethree months ended September 30, 2023March 31, 2024 compared to the same period in 2022, reflects2023 remained flat compared to the same period in 2023. This was largely due to offsetting changes consisting of (i) a netan increase of $46$10 million in amortization of debt issuance costs primarily related to our Bridge Facility and Term Loan Agreement, (ii) an increase of $6 million in interest expense on our senior notes primarily related to interest expense on Viper’s 7.375% Senior Notes due primarily to $82 million in additional interest costs on senior notes2031 which were issued in the fourth quarter of 2022, partially offset by the impact2023, (iii) a decrease of retirements of various senior notes in 2023 and 2022, and (ii) a $14$11 million increase in interest expense on our and Viper’s revolving credit facilities due primarily to higher weighted average interest rates and borrowings to fund the cash portion of acquisitions and other corporate expenses. These increases were partially offset by a $34 millionan increase in capitalized interest costs, which reduce interest expense, and other insignificant reductions(iv) a decrease of $4 million in interest incomeexpense on our revolving credit facility due to lower average borrowings outstanding in the first quarter of 2024, and the amortization of debt issuances costs and discounts.(v) other individually insignificant changes.
Currently, we expect interest expenseSee Note 8—Debt of the condensed notes to range from approximately $180 million to $204 million in 2023.the consolidated financial statements for further details regarding outstanding borrowings.
Other income (expense), net for the ninethree months ended September 30,March 31, 2023 includes a $53 million gain on the sale of equity method investment in Gray Oak and $35 million gain on the sale of equity method investment in OMOG as discussed further in Note 4—Acquisitions and Divestitures to the condensed notes to the consolidated financial statements, partially offset by various other insignificant expenses.
Gain (loss) on extinguishment of debt reflects the difference between the carrying value and reacquisition price for the repurchase and redemption of various senior notes during 2023 and 2022.
See Note 7—Debt of the condensed notes to the consolidated financial statements for further details regarding outstanding borrowings.statements.
Provision for (Benefit from) Income Taxes. The following table shows the provision for (benefit from) income taxes for the ninethree months ended September 30, 2023March 31, 2024 and 2022:2023:
| | Nine Months Ended September 30, |
| Three Months Ended March 31, | | | Three Months Ended March 31, |
(In millions) | (In millions) | 2023 | | 2022 | (In millions) | 2024 | | 2023 |
Provision for (benefit from) income taxes | Provision for (benefit from) income taxes | $ | 648 | | | $ | 913 | |
The change in our income tax provision for the ninethree months ended September 30, 2023March 31, 2024 compared to the same period in 20222023 was primarily due to the decreaseincrease in pre-tax income resulting largely from the declineincrease in revenues from oil, natural gas and natural gas liquids and was partially offset by the discretechanges in operating expenses and other income tax benefit recognized for the nine months ended September 30, 2022 related to a reduction in Viper’s valuation allowance against its deferred tax assets.(expenses) as discussed above. See Note 10—11—Income Taxes of the condensed notes to the consolidated financial statements 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, 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.properties, repayment of debt and returning capital to stockholders. At September 30, 2023,March 31, 2024, we had approximately $2.3$2.5 billion of liquidity consisting of $680$876 million in standalone cash and cash equivalents and $1.6 billion available under our credit facility. Additionally, for purposes of funding the cash consideration for the pending Endeavor Acquisition, we currently have $1.5 billion and $1.0 billion available under the Term Loans and Bridge Facility, respectively, as well as the net proceeds of $5.5 billion from the April 2024 Notes. As discussed below, our revised capital budget for 20232024 is $2.66$2.30 billion to $2.70 billion.$2.55 billion, which does not take into account the pending Endeavor Acquisition. As of September 30, 2023,March 31, 2024, we have no debt maturities until 2026.
Future cash flows are subject to a number of variables, including the level of oil and natural gas production and 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 as discussed further in Part I, Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2022.2023. 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 11—12—Derivatives of the condensed notes to the consolidated financial statements and
Cash Flow
Our cash flows for the ninethree months ended September 30,March 31, 2024 and 2023 and 2022 are presented below:
| | Nine Months Ended September 30, |
| 2023 | | 2022 |
| (In millions) |
| Three Months Ended March 31, | | | Three Months Ended March 31, |
| 2024 | | | 2024 | | 2023 |
| (In millions) | | | (In millions) |
Net cash provided by (used in) operating activities | Net cash provided by (used in) operating activities | $ | 4,296 | | | $ | 4,884 | |
Net cash provided by (used in) investing activities | Net cash provided by (used in) investing activities | (1,859) | | | (1,952) | |
Net cash provided by (used in) financing activities | Net cash provided by (used in) financing activities | (1,771) | | | (3,570) | |
Net increase (decrease) in cash | Net increase (decrease) in cash | $ | 666 | | | $ | (638) | |
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. Prices for these commodities are determined primarily by prevailing market conditions, which are influenced by regional and worldwide economic activity, weather and other substantially variable factors. These factors are beyond our control and are difficult to predict.
The decrease in operating cash flows for the ninethree months ended September 30, 2023March 31, 2024 compared to the same period in 20222023 primarily resulted from (i) a decrease of $1.4 billion in total revenue, and (ii) an increase in our cash operating expenses of approximately $162 million. These were partially offset by (i) a reduction of $754$140 million in net cash paid on settlements of derivative contracts,and (ii) a reduction of $365approximately $188 million in cash paid for taxes, and (iii)due to fluctuations in other working capital balances due primarily to the timing of when collections were made on accounts receivable including taxes receivable, and payments made on accounts payable. These were partially offset by an increase of $302 million in total revenue. 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 ninethree months ended September 30,March 31, 2024 and 2023 and 2022 was for drilling and completion costs incurred in conjunction with our development program as well as the purchase of oil and gas properties including the Lario Acquisition. These cash outflows were partially offset by proceeds received fromAcquisition in the divestituresfirst quarter of various oil and gas properties and other assets, which are discussed further in Note 4—Acquisitions and Divestitures of the condensed notes to the consolidated financial statements.2023.
Capital Expenditure Activities
Our capital expenditures excluding acquisitions and equity method investments (on a cash basis) were as follows for the specified period:
| | Nine Months Ended September 30, |
| 2023 | | 2022 |
| (In millions) |
| Three Months Ended March 31, | | | Three Months Ended March 31, |
| 2024 | | | 2024 | | 2023 |
| (In millions) | | | (In millions) |
Drilling, completions and non-operated additions to oil and natural gas properties(1) | Drilling, completions and non-operated additions to oil and natural gas properties(1) | $ | 1,826 | | | $ | 1,203 | |
Infrastructure additions to oil and natural gas properties | Infrastructure additions to oil and natural gas properties | 122 | | | 124 | |
Additions to midstream assets | Additions to midstream assets | 104 | | | 69 | |
Total | Total | $ | 2,052 | | | $ | 1,396 | |
Financing Activities
During the ninethree months ended September 30,March 31, 2024, net cash used in financing activities was primarily attributable to (i) $548 million of dividends paid to stockholders, (ii) $44 million in dividends to non-controlling interest, (iii) $42 million of repurchases as part of the share repurchase programs, (iv) $34 million in cash paid for tax withholdings on vested employee stock awards (v) $33 million of debt issuance costs primarily associated with the Term Loan Agreement and Bridge Facility, and (vi) $25 million paid for the retirement of principal outstanding on certain senior notes. These cash outflows were partially offset by $451 million in proceeds from the public offering of Viper’s Class A common stock and an additional $10 million in borrowings under credit facilities, net of repayments.
During the three months ended March 31, 2023, net cash used in financing activities was primarily attributable to (i) $776 million of repurchases as part of the share and unit repurchase programs, (ii) $841$542 million of dividends paid to stockholders, (iii) $134 million paid for the retirement of principal outstanding on certain senior notes, and (iv) $84 million in distributions to non-controlling interest. These cash outflows were partially offset by an additional $98 million in borrowings under credit facilities, net of repayments.
During the nine months ended September 30, 2022, net cash used in financing activities was primarily attributable to (i) $1.9 billion paid for the repurchase, repayment and redemption of principal outstanding on certain senior notes, as well as $49 million of additional premiums paid in connection with the redemptions, (ii) $1.2 billion of dividends paid to stockholders, (iii) $904$366 million of repurchases as part of the share and unit repurchase programs, and (iv) $181$34 million in distributions to non-controlling interests.interest. These reductions in cash outflowsflow were partially offset by $750$707 million in proceeds from the 4.250% Senior Notes due March 15, 2052.borrowings under credit facilities, net of repayments,
Capital Resources
Our working capital requirements are primarily 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.program and to finance the pending Endeavor Acquisition. Further, the Term Loans, Bridge Facility and net proceeds from the April 2024 Notes, are also available to finance the cash portion of the pending Endeavor 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.
As we pursue our business and financial strategy, we regularly consider which capital resources, including cash flow and 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. ContinuedAny prolonged volatility in the capital, financial and/or credit markets due to the war in Ukraine 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 September 30, 2023,March 31, 2024, our debt, including the debt of Viper, consisted of approximately $6.1$6.5 billion in aggregate outstanding principal amount of senior notes, and $250$273 million in aggregate outstanding borrowings under revolving credit facilities.
As of September 30, 2023,March 31, 2024, the maximum credit amount available under our credit agreement was $1.6 billion, with no outstanding borrowings and $1.6 billion available for future borrowings. During the second quarter of 2023, we extended the maturity date of our revolvingOur credit facility from June 2, 2027 toagreement matures on June 2, 2028, whichand we may further improvedextend it by one one-year extension pursuant to the terms set forth in the credit agreement. Upon consummation of the Endeavor Acquisition, the maximum credit amount available under our long-term liquidity position.credit agreement will increase to $2.5 billion.
RepurchasesMarch 31, 2024, the maximum credit amount available under the Term Loan Agreement was $1.5 billion, with no outstanding borrowings and $1.5 billion available for future borrowings. Our Term Loan Agreement matures on the anniversary of Notesthe Closing Date and the second anniversary of the Closing date for Tranche A and Tranche B, respectively.
InAs of March 31, 2024, the second quartermaximum credit amount available under our Bridge Facility was $6.5 billion, with no outstanding borrowings and $6.5 billion available for future borrowings. The Bridge Facility matures 364 days after it has been drawn on. The Bridge Facility was further reduced on a dollar-for-dollar basis by the $5.5 billion principal amount of 2023, we opportunistically repurchased principal amounts of $30 million of our 3.250% Seniorthe April 2024 Notes, due 2026 and $100 million of our 3.500% Senior Notes due 2029resulting in open market transactions$1.0 billion currently available for total cash consideration of $124 million, at an average of 95.5% of par value.future borrowings.
We may continueOn April 18, 2024, we issued $5.5 billion in aggregate principal amount of the April 2024 Notes for net proceeds of $5.5 billion, we intend to repurchase someuse the net proceeds to fund a portion of our outstanding senior notes in open market purchases or in privately negotiated transactions in future periods.the cash consideration for the pending Endeavor Acquisition.
Viper’s Credit Agreement
On September 22, 2023,The Viper LLC entered into an eleventh and separately a twelfth amendment to its existing credit agreement, which among other things, (i) extended the maturity date from June 2, 2025, to as amended, matures on September 22, 2028 (ii) maintained and provides for a revolving credit facility in the maximum credit amount of $2.0 billion, (iii) increased thewith a borrowing base from $1.0 billion toof $1.3 billion upon consummation of the Viper Acquisition, (iv) increased theand an elected commitment amount from $750 million toof $850 million, based on Viper LLC’s oil and (v) waivednatural gas reserves and other factors. As of March 31, 2024. the automatic reduction of the borrowing base that would otherwise occur upon the consummation of the Viper 2031 Notes. The Viper credit agreement had $250$273 million of outstanding borrowings and $600$577 million available for future borrowings as of September 30, 2023.
borrowings.
Issuance of Viper 2031 Notes
On October 19, 2023, Viper completed the Viper 2031 Notes Offering of $400 million in aggregate principal amount of its 7.375% Senior Notes maturing on November 1, 2031. Through maturity, Viper expects to incur approximately $236 million in aggregate interest costs (approximately $30 million annually) for the Viper 2031 Notes.
For additional discussion of our outstanding debt as of September 30, 2023,March 31, 2024, see Note 7—8—Debt and Note 15—Subsequent Events of the condensed notes to the consolidated financial statements.statements and for discussion of the April 2024 Notes see Note 17—Subsequent Events.
Capital Requirements
In addition to future operating expenses and working capital commitments discussed in —Results ofTransactions and Recent Developments - Upstream Operations, our primary short and long-term liquidity requirements, excluding those of Viper, consist primarily of (i) capital expenditures, (ii) payments of principal and interest on our revolving credit agreements and senior notes, (iii) payments of other contractual obligations, and (iv) cash used to pay for dividends and repurchases of securities, as discussed below.and (v) the cash portion of the consideration for the pending Endeavor Acquisition.
20232024 Capital Spending Plan
Our board of directors has approved a revised 20232024 capital budget for drilling, midstream, infrastructure and environmental of approximately $2.66$2.30 billion to $2.70$2.55 billion, orwhich does not take into account the high end of our initial 2023 guidance range.pending Endeavor Acquisition. We estimate that, of these expenditures, approximately:
•$2.372.10 billion to $2.39$2.33 billion will be spent primarily on drilling 340265 to 350285 gross (306(244 to 315263 net) horizontal wells and completing 325300 to 335320 gross (305(273 to 315291 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 11,000+11,500+ feet;
•Approximately $120$200 million to $130 million will be spent on midstream infrastructure, excluding equity method investments; and
•Approximately $170 million to $180$220 million will be spent on infrastructure and environmentalmidstream expenditures, excluding the cost of any leasehold and mineral interest acquisitions.
We do not have a specific acquisition budget since the timing and size of acquisitions cannot be accurately forecasted.
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 are currently operating 13 drilling rigs and 4four completion crews. We will continue monitoring commodity prices and overall market conditions and can adjust our rig cadence and our capital expenditure budget in response to changes in commodity prices and overall market conditions.
41Interest on April 2024 Notes
. As a result, we expect to incur additional future cash interest costs on the April 2024 Notes of approximately $152 million in 2024, $607 million cumulatively in the years from 2025 through 2026, $541 million cumulatively in the years from 2027 and 2028, and $4.7 billion cumulatively between 2029 and 2064.
Return of Capital Commitment
Currently,Beginning in the first quarter of 2024, our board of directors has approved a return of capital commitment of at least 50% from 75% of free cash flow to our shareholders 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 November 2, 2023,April 25, 2024, our board of directors declared a combined base and variable dividend for the thirdfirst quarter of 20232024 of $3.37$1.97 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.
As of November 3, 2023,April 26, 2024, we have repurchased 18.419.3 million shares of our common stock for a total cost of $2.3$2.4 billion since the inception of the stock repurchase program, excluding excise tax. We intend to continue to purchase shares under this repurchase program opportunistically with available funds primarily from cash flow from operations and liquidity events such as the sale of assets while maintaining sufficient liquidity to fund our capital expenditure programs, however, the stock repurchase program is at the discretion of our board of directors and can be amended, terminated or suspended at any time. See Note 8—9—Stockholders' Equity and Earnings (Loss) Per Share of the condensed notes to the consolidated financial statements.
Other Commitments
We and Five Point currently anticipate collectively contributing $500 million in follow-on capital to fund future Deep Blue growth projects and acquisitions.
Income Taxes
We expect our cash tax rate to be 15% to 17%18% of pre-tax income for the year ended December 31, 2023.2024. See Note 10—11—Income Taxes of the condensed notes to the consolidated financial statements.
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.
| | September 30, 2023 | | December 31, 2022 |
| March 31, 2024 | | | March 31, 2024 | | December 31, 2023 |
Summarized Balance Sheets: | Summarized Balance Sheets: | (In millions) | Summarized Balance Sheets: | (In millions) |
Assets: | Assets: | |
Current assets | |
Current assets | |
Current assets | Current assets | $ | 1,490 | | | $ | 1,191 | |
Property and equipment, net | Property and equipment, net | $ | 20,482 | | | $ | 18,252 | |
Other noncurrent assets | Other noncurrent assets | $ | 30 | | | $ | 164 | |
Liabilities: | Liabilities: | |
Current liabilities | Current liabilities | $ | 1,966 | | | $ | 1,547 | |
Current liabilities | |
Current liabilities | |
Intercompany accounts payable, non-guarantor subsidiary | Intercompany accounts payable, non-guarantor subsidiary | $ | 2,102 | | | $ | 2,253 | |
Long-term debt | Long-term debt | $ | 5,540 | | | $ | 5,647 | |
Other noncurrent liabilities | Other noncurrent liabilities | $ | 2,686 | | | $ | 2,509 | |
| | | | | |
| NineThree Months Ended September 30, 2023March 31, 2024 |
Summarized Statement of Operations: | (In millions) |
Revenues | $ | 5,2511,744 | |
Income (loss) from operations | $ | 2,737806 | |
Net income (loss) | $ | 1,719541 | |
Critical Accounting Estimates
There have been no changes in our critical accounting estimates from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2022.2023.
Recent Accounting Pronouncements
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Commodity Price Risk
Our major market risk exposure in our exploration and production business is in the pricing applicable to our oil and natural gas production. Realized pricing is primarily driven by the prevailing worldwide price for crude oil and spot market prices applicable to our natural gas production. Pricing for oil and natural gas production has been volatile and unpredictable for several years. Although demand and market prices for oil and natural gas have recently increased, we cannot predict events, including the outcome of the war in Ukraine and Israel-Hamas war, rising interest rates, global supply chain disruptions, a potential economic downturn or recession that may lead to future price volatility and the near term energy outlook remains subject to heightened levels of uncertainty. Further, the prices we receive for production depend on many other factors outside of our control.
We use derivatives, including swaps, basis swaps, roll swaps, costless collars, puts and basis puts, to reduce price volatility associated with certain of our oil and natural gas sales.
At September 30, 2023,March 31, 2024, we had a net liability derivative position of $105$37 million, related to our commodity price risk derivatives. Utilizing actual derivative contractual volumes under our commodity price derivatives as of September 30, 2023,March 31, 2024, a 10% increase in forward curves associated with the underlying commodity would have increased the net liability position by $11$8 million to $116$45 million, while a 10% decrease in forward curves associated with the underlying commodity would have decreased the net liability position by $19$14 million to $86$23 million. However, any cash derivative gain or loss would be substantially offset by a decrease or increase, respectively, in the actual sales value of production covered by the derivative
instrument. For additional information on our open commodity derivative instruments at September 30, 2023,March 31, 2024, see Note 11—12—Derivatives of the condensed notes to the consolidated financial statements.
Counterparty and Customer Credit Risk
Our principal exposures to credit risk are due to the concentration of receivables from the sale of our oil and natural gas production (approximately $789$734 million at September 30, 2023)March 31, 2024), and to a lesser extent, receivables resulting from joint interest and other receivables (approximately $133$119 million at September 30, 2023)March 31, 2024).
We do not require our customers to post collateral, and the failure or inability of our significant customers to meet their obligations to us due to their liquidity issues, bankruptcy, insolvency or liquidation may adversely affect our financial results.
Joint operations receivables arise from billings to entities that own partial interests in the wells we operate. These entities participate in our wells primarily based on their ownership in leases on which we intend to drill. We have little ability to control whether these entities will participate in our wells.
Interest Rate Risk
We are subject to market risk exposure related to changes in interest rates on our indebtedness under our revolving credit facilities and changes in the fair value of our fixed rate debt. Outstanding borrowings under the credit agreement bear interest at a per annum rate elected by Diamondback E&P. At September 30, 2023,March 31, 2024, the applicable margin ranges from 0.125% to 1.000% per annum in the case of the alternate base rate, and from 1.125% to 2.000% per annum in the case of Adjusted Term SOFR, in each case based on the pricing level. The pricing level depends on certain rating agencies’ ratings of our long-term senior unsecureunsecured debt. We are obligated to pay a quarterly commitment fee ranging from 0.125% to 0.325% per year on the unused portion of the commitment. We believe significant interest rate changes would not have a material near-term impact on our future earnings or cash flows. For additional information on our variable interest rate debt at September 30, 2023,March 31, 2024, see Note 7—8—Debt of the condensed notes to the consolidated financial statements.
Historically, we have at times used interest rates swaps to manage our exposure to (i) interest rate changes on our floating-rate date, and (ii) fair value changes on our fixed rate debt. At September 30, 2023,March 31, 2024, we have interest rate swap agreements for a notional amount of $1.2 billion to manage the impact of changes to the fair value of our fixed rate senior notes due to changes in market interest rates through December 2029. We pay an average variable rate of interest for these swaps based on three month SOFR plus 2.1865% and receive a fixed interest rate of 3.50% from our counterparties. At September 30, 2023,March 31, 2024, our
receive-fixed, pay-variable interest rate swaps were in a net liability position of $231$195 million, and the weighted average variable rate was 6.69%6.35%. For additional information on our interest rate swaps, see Note 11—12—Derivatives of the condensed notes to the consolidated financial statements.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures. Under the direction of our Chief Executive Officer and Chief Financial Officer, we have established disclosure controls and procedures, as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act, as amended, or the Exchange Act, that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. The disclosure controls and procedures are also intended to ensure that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints, and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.
As of September 30, 2023,March 31, 2024, an evaluation was performed under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15(b) under the Exchange Act. Based upon our evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that as of September 30, 2023,March 31, 2024, our disclosure controls and procedures are effective.
Changes in Internal Control over Financial Reporting. There have not been any changes in our internal control over financial reporting that occurred during the quarter ended September 30, 2023,March 31, 2024, that have materially affected, or are reasonably likely to materially affect, internal controls over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are a party to various routine legal proceedings, disputes and claims arising in the ordinary course of our business, including those that arise from interpretation of federal and state laws and regulations affecting the natural gas and crude oil industry, personal injury claims, title disputes, royalty disputes, contract claims, employment claims, claims alleging violations of antitrust laws, contamination claims relating to oil and natural gas exploration and development and environmental claims, including claims involving assets previously sold to third parties and no longer part of our current operations. While the ultimate outcome of the pending proceedings, disputes or claims and any resulting impact on us, cannot be predicted with certainty, we believe that none of these matters, if ultimately decided adversely, will have a material adverse effect on our financial condition, results of operations or cash flows. See Note 14—15—Commitments and Contingencies of the condensed notes to the consolidated financial statements.
ITEM 1A. RISK FACTORS
Our business faces many risks. Any of the risks discussed in this report and our other SEC filings could have a material impact on our business, financial position or results of operations. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may also materially impair our business operations, financial condition or future results.
As of the date of this filing, in addition to the factors discussed elsewhere in this report, we continue to be subject to the risk factors previously disclosed in Part I, Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2022,2023, filed with the SEC on February 23, 202322, 2024 and in subsequent filings we make with the SEC. There have been no material changes in our risk factors from those described in our Annual Report on Form 10-K for the year ended December 31, 2022.2023.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Unregistered Sales of Equity Securities
None.
Issuer Repurchases of Equity Securities
Our common stock repurchase activity for the three months ended September 30, 2023March 31, 2024 was as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Period | | Total Number of Shares Purchased(1) | | Average Price Paid Per Share(2) | | Total Number of Shares Purchased as Part of Publicly Announced Plan | | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plan(3)(4) |
| | ($ In millions, except per share amounts, shares in thousands) |
July 1, 2023 - July 31, 2023 | | 398 | | $ | 136.40 | | | 398 | | $ | 1,764 | |
August 1, 2023 - August 31, 2023 | | 10 | | $ | 145.17 | | | 9 | | $ | 1,763 | |
September 1, 2023 - September 30, 2023 | | — | | $ | — | | | — | | $ | 1,763 | |
Total | | 408 | | $ | 136.61 | | | 407 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Period | | Total Number of Shares Purchased(1) | | Average Price Paid Per Share(2)(4) | | Total Number of Shares Purchased as Part of Publicly Announced Plan | | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plan(3)(4) |
| | ($ In millions, except per share amounts, shares in thousands) |
January 1, 2024 - January 31, 2024 | | 203 | | $ | 149.57 | | | 203 | | $ | 1,603 | |
February 1, 2024 - February 29, 2024 | | 76 | | $ | 149.31 | | | 76 | | $ | 1,592 | |
March 1, 2024 - March 31, 2024 | | 186 | | $ | 182.64 | | | — | | $ | 1,592 | |
Total | | 465 | | $ | 162.76 | | | 279 | | |
(1)Includes 981186,241 shares of common stock repurchased from executives in order to satisfy tax withholding requirements. Such shares are cancelled and retired immediately upon repurchase.
(2)The average price paid per share includes any commissions paid to repurchase stock.
(3)On July 28, 2022, our board of directors approved an increase in our common stock repurchase program from $2.0 billion to $4.0 billion, excluding excise tax. The stock repurchase program has no time limit and may be suspended, modified, or discontinued by the board of directors at any time.
(4)The Inflation Reduction Act of 2022, which was enacted into law on August 16, 2022, imposed a nondeductible 1% excise tax on the net value of certain stock repurchases made after December 31, 2022. All dollar amounts presented exclude such excise taxes, as applicable.
ITEM 5. OTHER INFORMATION
On August 21, 2023, Travis D. Stice, the Company's Chief Executive Officer and Chairman of the board of directors of the Company, adopted a trading plan intended to satisfy Rule 10b5-1(c), as amended. The plan relates to the sale of up to 90,000 shares of common stock between November 22, 2023 and November 22, 2024. The shares covered by this plan include shares of common stock which will be acquired upon (i) the exercise of any employee stock options, and (ii) vesting of restricted stock units, including the net settlement of such restricted stock units to satisfy tax withholding obligations.
None of the Company’s other directors or officers adopted or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement during the Company’s fiscal quarter ended September 30, 2023.March 31, 2024.
ITEM 6. EXHIBITS
EXHIBIT INDEX | | | | | | | | |
Exhibit Number | | Description |
2.1 | | |
2.2 | | |
2.3 | | Letter Agreement, amending the Merger Agreement, by and among the Company, Endeavor, Merger Sub I, Merger Sub II and the Company Representative, dated March 18, 2024 (incorporated by reference to Exhibit 2.1 to the Form 8-K, File No 001-35700, filed by the Company with the SEC on March 18, 2024). |
3.1 | | |
3.2 | | |
4.1 | | Second Supplemental Indenture, dated as of April 18, 2024, between Diamondback Energy, Inc., Diamondback E&P LLC and Computershare Trust Company, National Association, as Trustee (including the form of the Notes (incorporated by reference to Exhibit 4.2 to the Form 8-K, File No. 001-35700, filed by the Company with the SEC on April 18, 2024). |
4.2 | | |
4.210.1 | | Registration RightsTerm Loan Credit Agreement, dated as of February 26, 2021,29, 2024, by and among the Company, Guidon Operating LLCas borrower, the lenders party thereto, and Guidon Energy Holdings LPCitibank, N.A., as administrative agent (incorporated by reference to Exhibit 4.3 10.1to the Company’s Registration Statement on Form S-3,8-K, File No. 333-255731,No 001-35700, filed by the Company with the SEC on May 3, 2021)March 6, 2024). |
4.310.2 | | LetterFourteenth Amendment to Second Amended and Restated Credit Agreement, dated as of April 27, 2021,March 6, 2024, by and among the Company, Guidon Operating LLCas borrower, the lenders and Guidon Energy Holdings LP relating to the Registration Rights Agreement referencedother parties party thereto, and Wells Fargo Bank, National Association, as Exhibit 4.3 heretoadministrative agent (incorporated by reference to Exhibit 4.410.2 to the Company’s Registration Statement on Form S-3,8-K, File No. 333-255731,No 001-35700, filed by the Company with the SEC on May 3, 2021). |
10.1 | | Tenth Amendment to Amended and Restated Senior Secured Revolving Credit Agreement and Second Amendment to Guaranty and Collateral Agreement, dated as of May 31, 2023, by and among Viper Energy Partners LLC, as borrower, Viper Energy Partners LP, as parent guarantor, Wells Fargo Bank, National Association, as administrative agent, and the lenders party thereto (incorporated by reference to Exhibit 10.1 to Viper Energy Partners LP’s Current Report on Form 8-K (File No. 001-36505) filed on JuneMarch 6, 2023). |
10.2 | | Eleventh Amendment to Amended and Restated Senior Secured Revolving Credit Agreement dated as of September 22, 2023, by and among Viper Energy Partners LLC, as borrower, Viper Energy Partners LP, as parent guarantor, Wells Fargo Bank, National Association, as administrative agent, and the lenders party thereto(incorporated by reference to Exhibit 10.1 of Viper’s Current Report on Form 8-K (File No. 001-36505) filed on September 28, 2023). |
10.3 | | Twelfth Amendment to Amended and Restated Senior Secured Revolving Credit Agreement dated as of September 22, 2023, by and among Viper Energy Partners LLC, as borrower, Viper Energy Partners LP, as parent guarantor, Wells Fargo Bank, National Association, as administrative agent, and the lenders party thereto(incorporated by reference to Exhibit 10.2 of Viper’s Current Report on Form 8-K (File No. 001-36505) filed on September 28, 2023)2024). |
22.1 | | |
31.1* | | |
31.2* | | |
32.1** | | |
32.2** | | |
101 | | The following financial information from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2023,March 31, 2024, formatted in Inline XBRL: (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations, (iii) Condensed Consolidated Statement of Changes in Stockholders’ Equity, (iv) Condensed Consolidated Statements of Cash Flows, and (v) Condensed Notes to Consolidated Financial Statements. |
104 | | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
______________
| | | | | |
* | Filed herewith. |
** | The certifications attached as Exhibit 32.1 and Exhibit 32.2 accompany this Quarterly Report on Form 10-Q pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, and shall not be deemed “filed” by the Registrant for purposes of Section 18 of the Securities Exchange Act of 1934, as amended. |
| |
| |
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| | | | | | | | |
| | DIAMONDBACK ENERGY, INC. |
| |
Date: | November 8, 2023May 2, 2024 | /s/ Travis D. Stice |
| | Travis D. Stice |
| | Chief Executive Officer |
| | (Principal Executive Officer) |
| |
Date: | November 8, 2023May 2, 2024 | /s/ Kaes Van’t Hof |
| | Kaes Van’t Hof |
| | Chief Financial Officer |
| | (Principal Financial Officer) |