SEC Filing | Diamondback Energy, Inc.

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fang-20200930

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2020


☐			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)


DE		45-4502447
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification Number)

500 West Texas
Suite 1200
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:


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):

Large Accelerated Filer

☒

Accelerated Filer

☐

Non-Accelerated Filer

☐

Smaller Reporting Company

☐

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 October 30, 2020, the registrant had 157,972,650 shares of common stock outstanding.

DIAMONDBACK ENERGY, INC.

FORM 10-Q

FOR THE QUARTER ENDED SEPTEMBER 30, 2020

TABLE OF CONTENTS


			Page
Glossary of Oil and Natural Gas Terms			ii
Glossary of Certain Other Terms			iv
Cautionary Statement Regarding Forward-Looking Statements			v

PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements (Unaudited)			1
Condensed Consolidated Balance Sheets			1
Condensed Consolidated Statements of Operations			3

Condensed Consolidated Statements of Stockholders’ Equity			4
Condensed Consolidated Statements of Cash Flows			6
Condensed Notes to Consolidated Financial Statements			7

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			33

Item 3. Quantitative and Qualitative Disclosures About Market Risk			49

Item 4. Controls and Procedures			50

PART II. OTHER INFORMATION
Item 1. Legal Proceedings			51

Item 1A. Risk Factors			51



Item 6. Exhibits			52

Signatures			53

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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”):



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.

BOE			One barrel of crude oil equivalent, with six thousand cubic feet of natural gas being equivalent to one barrel of oil.
BOE/d			BOE per day.
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.

Crude oil			Liquid hydrocarbons retrieved from geological structures underground to be refined into fuel sources.









Finding and development costs			Capital costs incurred in the acquisition, exploitation and exploration of proved oil and natural gas reserves divided by proved reserve additions and revisions to proved reserves.

Gross acres or gross wells			The total acres or wells, as the case may be, in which a working interest is owned.
Horizontal drilling			A drilling technique used in certain formations where a well is drilled vertically to a certain depth and then drilled at a right angle with a specified interval.
Horizontal wells			Wells drilled directionally horizontal to allow for development of structures not reachable through traditional vertical drilling mechanisms.


MBbl			One thousand barrels of crude oil and other liquid hydrocarbons.
MBOE/d			One thousand BOE per day.
Mcf			One thousand cubic feet of natural gas.
Mcf/d			One thousand cubic feet of natural gas per day.
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.

Net acres or net wells			The sum of the fractional working interest owned in gross acres.


Oil and natural gas properties			Tracts of land consisting of properties to be developed for oil and natural gas resource extraction.
Operator			The individual or company responsible for the exploration and/or production of an oil or natural gas well or lease.


Plugging and abandonment			Refers to the sealing off of fluids in the strata penetrated by a well so that the fluids from one stratum will not escape into another or to the surface. Regulations of all states require plugging of abandoned wells.


Prospect			A specific geographic area which, based on supporting geological, geophysical or other data and also preliminary economic analysis using reasonably anticipated prices and costs, is deemed to have potential for the discovery of commercial hydrocarbons.

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.


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).

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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.

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.
Spacing			The distance between wells producing from the same reservoir. Spacing is often expressed in terms of acres (e.g., 40-acre spacing) and is often established by regulatory agencies.



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.

iii

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GLOSSARY OF CERTAIN OTHER TERMS

The following is a glossary of certain other terms that are used in this report.


ASU			Accounting Standards Update


Equity Plan			The Company’s 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.


2025 Indenture			The indenture relating to the 2025 Senior Notes (defined below), dated as of December 20, 2016, among the Company, the subsidiary guarantors party thereto and Wells Fargo, as the trustee, as supplemented.
2025 Senior Notes			The Company’s 5.375% Senior Notes due 2025 in the aggregate principal amount of $800 million
December 2019 Notes			The Company’s 2.875% Senior Notes due 2024 in the aggregate principal amount of $1 billion, the Company’s 3.250% Senior Notes due 2026 in the aggregate principal amount of $800 million and the Company’s 3.500% Senior Notes due 2029 in the aggregate principal amount of $1.2 billion.
December 2019 Notes Indenture			The indenture, dated as of December 5, 2019, among the Company and Wells Fargo, as the trustee, as supplemented by the first supplemental indenture dated as of December 5, 2019 and the second supplemental indenture dated as of May 26, 2020, relating to the December 2019 Notes (defined above) and the May 2020 Notes (defined below).
May 2020 Notes			The Company’s 4.750% Senior Notes due 2025 in the aggregate principal amount of $500.0 million issued on May 26, 2020 under the December 2019 Notes Indenture (defined above) and the related second supplemental indenture.
NYMEX			New York Mercantile Exchange.
Rattler			Rattler Midstream LP, a Delaware limited partnership.
Rattler’s General Partner			Rattler Midstream GP LLC, a Delaware limited liability company; the general partner of Rattler Midstream LP and a wholly-owned subsidiary of the Company.
Rattler LLC			Rattler Midstream Operating LLC, a Delaware limited liability company and a subsidiary of Rattler.
Rattler LTIP			Rattler Midstream LP Long-Term Incentive Plan.
Rattler Offering			Rattler’s initial public offering.
Rattler’s Partnership Agreement			The first amended and restated agreement of limited partnership, dated May 28, 2019.
SEC			United States Securities and Exchange Commission.
Securities Act			The Securities Act of 1933, as amended.

Senior Notes			The 2025 Senior Notes, the December 2019 Notes and the May 2020 Notes.
Viper			Viper Energy Partners LP, a Delaware limited partnership.
Viper’s General Partner			Viper Energy Partners GP LLC, a Delaware limited liability company and the General Partner of the Partnership.
Viper LLC			Viper Energy Partners LLC, a Delaware limited liability company and a subsidiary of the Partnership.
Viper LTIP			Viper Energy Partners LP Long Term Incentive Plan.
Viper Offering			Viper’s initial public offering.
Viper’s Partnership Agreement			The second amended and restated agreement of limited partnership, dated May 9, 2018, as amended as of May 10, 2018.
Wells Fargo			Wells Fargo Bank, National Association.

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

Various statements contained in this report that express a belief, expectation, or intention, or that are not statements of historical fact, are forward-looking statements within the meaning of Section 27A of the Securities Act, and Section 21E of the Exchange Act. These forward-looking statements are subject to a number of risks and uncertainties, many of which are beyond our control. All statements, other than statements of historical fact, regarding our strategy, future operations, financial position, estimated revenues and losses, projected costs, prospects, plans and objectives of management are forward-looking statements. When used in this report, the words “could,” “believe,” “anticipate,” “intend,” “estimate,” “expect,” “may,” “continue,” “predict,” “potential,” “project” and similar expressions 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, 2019 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.

Forward-looking statements may include statements about:

•the volatility of realized oil and natural gas prices and the extent and duration of price reductions and increased production by the Organization of the Petroleum Exporting Counties, or OPEC, members and other oil exporting nations;

•the threat, occurrence, potential duration or other implications of epidemic or pandemic diseases, including the ongoing COVID-19 pandemic or any government responses to such threat, occurrence or pandemic;

•any impact of the ongoing COVID-19 pandemic on the health and safety of our employees;

•logistical challenges and the supply chain disruptions;

•changes in general economic, business or industry conditions;

•conditions in the capital, financial and credit markets and our ability to obtain capital needed for development and exploration operations on favorable terms or at all;

•conditions of the U.S. oil and natural gas industry and the effect of U.S. energy, monetary and trade policies;

•U.S. and global economic conditions and political and economic developments, including the outcome of the recent U.S. presidential election and resulting energy and environmental policies;

•our ability to execute our business and financial strategies;

•exploration and development drilling prospects, inventories, projects and programs;

•levels of production;

•the impact of reduced drilling activity;

•regional supply and demand factors, delays, curtailments or interruptions of production, and any governmental order, rule or regulation that may impose production limits;

•our ability to replace our oil and natural gas reserves;

•our ability to identify, complete and effectively integrate acquisitions of properties or businesses;

•competition in the oil and natural gas industry;

•title defects in our oil and natural gas properties;

•uncertainties with respect to identified drilling locations and estimates of reserves;

•the availability or cost of rigs, equipment, raw materials, supplies, oilfield services or personnel;

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•restrictions on the use of water;

•the availability of transportation, pipeline and storage facilities;

•our ability to comply with applicable governmental laws and regulations and to obtain permits and governmental approvals;

•federal and state legislative and regulatory initiatives relating to hydraulic fracturing;

•future operating results;

•impact of any impairment charges;

•lease operating expenses, general and administrative costs and finding and development costs;

•operating hazards;

•civil unrest, terrorist attacks and cyber threats;

•the effects of future litigation;

•our ability to keep up with technological advancements;

•capital expenditure plans;

•other plans, objectives, expectations and intentions; and

•certain other factors discussed elsewhere 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 securities laws. You should not place undue reliance on these forward-looking statements. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to 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 contained in any forward-looking statements we may make. Although we believe that our plans, intentions and expectations reflected in or suggested by the forward-looking statements we make in this report are reasonable, we can give no assurance that these plans, intentions or expectations will be achieved or occur, and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.

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PART I. FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


Diamondback Energy, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited)


	September 30,		December 31,
	2020		2019
	(In millions, except par values and share data)
Assets
Current assets:
Cash and cash equivalents	$	92	$	123
Restricted cash	7		5
Accounts receivable:
Joint interest and other, net	67		186
Oil and natural gas sales, net	224		429

Inventories	33		37

Derivative instruments	15		46
Income tax receivable	100		19
Prepaid expenses and other current assets	20		24
Total current assets	558		869
Property and equipment:
Oil and natural gas properties, full cost method of accounting ($7,879 million and $9,207 million excluded from amortization at September 30, 2020 and December 31, 2019, respectively)	27,305		25,782
Midstream assets	1,026		931
Other property, equipment and land	135		125
Accumulated depletion, depreciation, amortization and impairment	(11,031)		(5,003)
Property and equipment, net	17,435		21,835

Equity method investments	532		479
Derivative instruments	—		7
Deferred tax assets, net	75		142
Investment in real estate, net	104		109
Other assets	56		90
Total assets	$	18,760	$	23,531

See accompanying notes to condensed consolidated financial statements.

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Diamondback Energy, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets-(Continued)

(Unaudited)


	September 30,		December 31,
	2020		2019
	(In millions, except par values and share data)
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable - trade	$	95	$	179

Accrued capital expenditures	309		475
Current maturities of long-term debt	191		—
Other accrued liabilities	329		304
Revenues and royalties payable	219		278
Derivative instruments	86		27


Total current liabilities	1,229		1,263
Long-term debt	5,656		5,371
Derivative instruments	108		—
Asset retirement obligations	112		94
Deferred income taxes	978		1,886
Other long-term liabilities	8		11
Total liabilities	8,091		8,625
Commitments and contingencies (Note 17)
Stockholders’ equity:
Common stock, $0.01 par value; 200,000,000 shares authorized; 157,849,848 and 159,002,338 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively	2		2
Additional paid-in capital	12,615		12,357
Retained earnings (accumulated deficit)	(3,065)		890

Total Diamondback Energy, Inc. stockholders’ equity	9,552		13,249
Non-controlling interest	1,117		1,657
Total equity	10,669		14,906
Total liabilities and equity	$	18,760	$	23,531

See accompanying notes to condensed consolidated financial statements.

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Diamondback Energy, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

(Unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
	(In millions, except per share amounts, shares in thousands)
Revenues:
Oil sales	$	606	$	882	$	1,785	$	2,572
Natural gas sales	36		16		61		36
Natural gas liquid sales	65		58		156		190
Lease bonus	—		1		—		4
Midstream services	12		16		37		51
Other operating income	1		2		5		7
Total revenues	720		975		2,044		2,860
Costs and expenses:
Lease operating expenses	102		128		332		364
Production and ad valorem taxes	55		61		148		180
Gathering and transportation	33		25		105		54
Midstream services	26		26		81		60
Depreciation, depletion and amortization	286		365		1,036		1,046
Impairment of oil and natural gas properties	1,451		—		4,999		—
General and administrative expenses	20		19		64		68
Asset retirement obligation accretion	2		1		5		6
Other operating expense	1		1		4		3
Total costs and expenses	1,976		626		6,774		1,781
Income (loss) from operations	(1,256)		349		(4,730)		1,079
Other income (expense):

Interest expense, net	(53)		(38)		(147)		(133)
Other income, net	—		2		1		5

Gain (loss) on derivative instruments, net	(99)		177		82		3
Gain (loss) on revaluation of investment	(2)		—		(9)		4

Loss on extinguishment of debt	(2)		—		(5)		—
Income (loss) from equity investments	3		—		(10)		—
Total other income (expense), net	(153)		141		(88)		(121)
Income (loss) before income taxes	(1,409)		490		(4,818)		958
Provision for (benefit from) income taxes	(304)		102		(902)		171
Net income (loss)	(1,105)		388		(3,916)		787
Net income (loss) attributable to non-controlling interest	8		20		(138)		60
Net income (loss) attributable to Diamondback Energy, Inc.	$	(1,113)	$	368	$	(3,778)	$	727
Earnings (loss) per common share:
Basic	$	(7.05)	$	2.27	$	(23.91)	$	4.44
Diluted	$	(7.05)	$	2.26	$	(23.91)	$	4.42
Weighted average common shares outstanding:
Basic	157,833		162,543		157,984		164,070
Diluted	157,833		162,780		157,984		164,466
Dividends declared per share	$	0.375	$	0.1875	$	1.125	$	0.5625

See accompanying notes to condensed consolidated financial statements.

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Diamondback Energy, Inc. and Subsidiaries

Condensed Consolidated Statements of Stockholders’ Equity

(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, 2019	159,002	$	2	$	12,357	$	890	$	1,657	$	14,906


Unit-based compensation	—	—		—		—		5		5
Distribution equivalent rights payments	—	—		—		—		(1)		(1)

Stock-based compensation	—	—		10		—		—		10



Repurchased shares for tax withholding	(75)	—		(5)		—		—		(5)
Repurchased shares for share buyback program	(1,280)	—		(98)		—		—		(98)
Distribution to non-controlling interest	—	—		—		—		(43)		(43)


Dividend paid	—	—		—		(59)		—		(59)
Exercise of stock options and vesting of restricted stock units	168	—		1		—		—		1


Net income (loss)	—	—		—		(272)		(128)		(400)
Balance March 31, 2020	157,815	2		12,265		559		1,490		14,316

Distribution equivalent rights payments	—	—		—		—		(1)		(1)

Stock-based compensation	—	—		11		—		—		11
Repurchased shares for tax withholding	—	—		—		—		(2)		(2)

Distribution to non-controlling interest	—	—		—		—		(19)		(19)
Dividend paid	—	—		—		(59)		—		(59)
Exercise of stock options and vesting of restricted stock units	9	—		—		—		—		—
Change in ownership of consolidated subsidiaries, net	—	—		329		—		(329)		—
Net income (loss)	—	—		—		(2,393)		(18)		(2,411)
Balance June 30, 2020	157,824	2		12,605		(1,893)		1,121		11,835

Unit-based compensation	—	—		—		—		3		3
Stock-based compensation	—	—		10		—		—		10
Repurchased shares for tax withholding	(1)	—		—		—		—		—

Distribution to non-controlling interest	—	—		—		—		(15)		(15)
Dividend paid	—	—		—		(59)		—		(59)
Exercise of stock options and vesting of restricted stock units	27	—		—		—		—		—
Net income (loss)	—	—		—		(1,113)		8		(1,105)
Balance September 30, 2020	157,850	$	2	$	12,615	$	(3,065)	$	1,117	$	10,669

See accompanying notes to condensed consolidated financial statements.

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Diamondback Energy, Inc. and Subsidiaries

Condensed Consolidated Statements of Stockholders’ Equity

(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, 2018	164,273	$	2	$	12,936	$	762	$	467	$	14,167

Net proceeds from issuance of common units - Viper Energy Partners LP	—	—		—		—		341		341


Stock-based compensation	—	—		19		—		—		19
Repurchased shares for tax withholding	(125)	—		(13)		—		—		(13)
Distribution to non-controlling interest	—	—		—		—		(26)		(26)
Dividend paid	—	—		—		(20)		—		(20)



Exercise of stock options and vesting of restricted stock units	468	—		—		—		—		—
Change in ownership of consolidated subsidiaries, net	—	—		77		—		(74)		3
Net income (loss)	—	—		—		10		33		43
Balance March 31, 2019	164,616	2		13,019		752		741		14,514
Net proceeds from issuance of common units - Viper Energy Partners LP	—	—		—		—		720		720
Unit-based compensation	—	—		—		—		2		2
Stock-based compensation	—	—		12		—		—		12
Repurchased shares for share buyback program	(1,016)	—		(104)		—		—		(104)
Distribution to non-controlling interest	—	—		—		—		(24)		(24)
Dividend paid	—	—		—		(32)		—		(32)
Exercise of stock options and vesting of restricted stock units	349	—		6		—		—		6
Net income (loss)	—	—		—		349		7		356
Balance June 30, 2019	163,949	2		12,933		1,069		1,446		15,450

Unit-based compensation	—	—		—		—		2		2
Stock-based compensation	—	—		1		—		—		1
Repurchased shares for share buyback program	(2,954)	—		(296)		—		—		(296)
Distribution to non-controlling interest	—	—		—		—		(29)		(29)
Dividend paid	—	—		—		(30)		—		(30)
Exercise of stock options and vesting of restricted stock units	147	—		3		—		—		3

Net income (loss)	—	—		—		368		20		388
Balance September 30, 2019	161,142	$	2	$	12,641	$	1,407	$	1,439	$	15,489

See accompanying notes to condensed consolidated financial statements.

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Diamondback Energy, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)


	Nine Months Ended September 30,
	2020		2019
	(In millions)
Cash flows from operating activities:
Net income (loss)	$	(3,916)	$	787
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Provision for (benefit from) deferred income taxes	(902)		171

Impairment of oil and natural gas properties	4,999		—

Depreciation, depletion and amortization	1,036		1,046



(Gain) loss on derivative instruments, net	(82)		(3)
Cash received on settlement of derivative instruments	288		33




Other	68		34
Changes in operating assets and liabilities:
Accounts receivable	265		(116)





Accounts payable and accrued liabilities	(18)		(136)

Accrued interest	34		(29)

Revenues and royalties payable	(59)		64
Other	2		1

Net cash provided by (used in) operating activities	1,715		1,852
Cash flows from investing activities:
Drilling, completions and non-operated additions to oil and natural gas properties	(1,404)		(1,883)
Infrastructure additions to oil and natural gas properties	(96)		(104)

Additions to midstream assets	(133)		(186)

Acquisitions of leasehold interests	(89)		(311)
Acquisitions of mineral interests	(65)		(320)


Proceeds from sale of assets	2		301


Contributions to equity method investments	(90)		(225)
Distributions from equity method investments	27		—



Other	(7)		(16)
Net cash provided by (used in) investing activities	(1,855)		(2,744)
Cash flows from financing activities:
Proceeds from borrowings under credit facility	917		1,409
Repayments under credit facility	(1,238)		(1,168)
Proceeds from senior notes	997		—
Repayment of senior notes	(239)		—




Proceeds from joint venture	47		42

Public offering costs	—		(40)
Proceeds from public offerings	—		1,106





Repurchased shares as part of share buyback	(98)		(400)

Dividends to stockholders	(177)		(82)
Distributions to non-controlling interest	(77)		(79)


Other	(21)		(11)
Net cash provided by (used in) financing activities	111		777
Net increase (decrease) in cash and cash equivalents	(29)		(115)
Cash, cash equivalents and restricted cash at beginning of period	128		215
Cash, cash equivalents and restricted cash at end of period	$	99	$	100
Supplemental disclosure of cash flow information:
Interest paid, net of capitalized interest	$	100	$	115


Accrued capital expenditures	$	352	$	560

See accompanying notes to condensed consolidated financial statements.

Table of Contents

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 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. Diamondback was incorporated in Delaware on December 30, 2011.

The wholly-owned subsidiaries of Diamondback, as of September 30, 2020, include Diamondback E&P LLC, a Delaware limited liability company, Diamondback O&G LLC, a Delaware limited liability company, Viper Energy Partners GP LLC, a Delaware limited liability company, Rattler Midstream GP LLC, a Delaware limited liability company, and Energen Corporation, an Alabama corporation (“Energen”). The consolidated subsidiaries include these wholly-owned subsidiaries as well as Viper Energy Partners LP, a Delaware limited partnership, Viper’s subsidiary Viper Energy Partners LLC, a Delaware limited liability company, Rattler Midstream LP, a Delaware limited partnership, Rattler Midstream Operating LLC, a Delaware limited liability company, Rattler LLC’s wholly-owned subsidiaries Tall City Towers LLC, a Delaware limited liability company (“Tall City”), Rattler Ajax Processing LLC, a Delaware limited liability company, Rattler OMOG LLC, a Delaware limited liability company, and Energen’s wholly-owned subsidiaries Energen Resources Corporation, an Alabama corporation, and EGN Services, Inc., an Alabama corporation.

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.

Viper and Rattler are consolidated in the financial statements of the Company. As of September 30, 2020, the Company owned approximately 58% of Viper’s total units outstanding. The Company’s wholly-owned subsidiary, Viper Energy Partners GP LLC, is the general partner of Viper. As of September 30, 2020, the Company owned approximately 71% of Rattler’s total units outstanding. The Company’s wholly-owned subsidiary, Rattler Midstream GP LLC, is the general partner of Rattler. The results of operations attributable to the non-controlling interest in Viper and Rattler are presented within equity and net income and are shown separately from the Company’s 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, 2019, which contains a summary of the Company’s significant accounting policies and other disclosures.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Use of Estimates

Certain amounts included in or affecting the Company’s 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 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 at the date of the consolidated financial statements. Actual results could differ from those estimates.

Table of Contents

Diamondback Energy, Inc. and Subsidiaries

Condensed Notes to Consolidated Financial Statements-(Continued)

(Unaudited)

Making accurate estimates and assumptions is particularly difficult as the oil and natural gas industry experiences challenges resulting from negative pricing pressure from the effects of COVID-19 and actions by OPEC members and other exporting nations on the supply and demand in global oil and gas markets. Companies in the oil and gas industry have changed near term business plans in response to changing market conditions. The aforementioned circumstances generally increase the 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, asset retirement obligations, the fair value determination of acquired assets and liabilities assumed, equity-based compensation, fair value estimates of derivative instruments and estimates of income taxes.

Accounts Receivable

Accounts receivable consist of receivables from joint interest owners on properties the Company operates and from sales of oil and natural gas production delivered to purchasers. The purchasers remit payment for production directly to the Company. Most payments for production are received within three months after the production date.