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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, 2023
OR
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 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:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common StockFANGThe 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 FilerAccelerated Filer
Non-Accelerated FilerSmaller 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 November 3, 2023, the registrant had 178,984,911 shares of common stock outstanding.



DIAMONDBACK ENERGY, INC.
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2023
TABLE OF CONTENTS
Page


i

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”):
Argus WTI HoustonGrade of oil that serves as a benchmark price for oil at Houston, Texas.
Argus WTI MidlandGrade of oil that serves as a benchmark price for oil at Midland, Texas.
BasinA large depression on the earth’s surface in which sediments accumulate.
Bbl or barrelOne stock tank barrel, or 42 U.S. gallons liquid volume, used in this report in reference to crude oil or other liquid hydrocarbons.
BOOne barrel of crude oil.
BO/dOne BO per day.
BOEOne barrel of oil equivalent, with six thousand cubic feet of natural gas being equivalent to one barrel of oil.
BOE/dBOE per day.
BrentA major trading classification of light sweet oil that serves as a benchmark price for oil worldwide.
British Thermal Unit or BtuThe quantity of heat required to raise the temperature of one pound of water by one degree Fahrenheit.
CompletionThe 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.
Gross acres or gross wellsThe total acres or wells, as the case may be, in which a working interest is owned.
Henry HubNatural gas gathering point that serves as a benchmark price for natural gas futures on the NYMEX.
Horizontal wellsWells drilled directionally horizontal to allow for development of structures not reachable through traditional vertical drilling mechanisms.
MBblOne thousand barrels of crude oil and other liquid hydrocarbons.
MBOEOne thousand BOE.
MBOE/dOne thousand BOE per day.
McfOne thousand cubic feet of natural gas.
Mineral interestsThe interests in ownership of the resource and mineral rights, giving an owner the right to profit from the extracted resources.
MMBtuOne million British Thermal Units.
MMcfMillion cubic feet of natural gas.
Net acresThe sum of the fractional working interest owned in gross acres.
Oil and natural gas propertiesTracts of land consisting of properties to be developed for oil and natural gas resource extraction.
Proved reservesThe 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.
ReservesThe 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).
ReservoirA 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 interestAn 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.
Waha HubNatural gas gathering point that serves as a benchmark price for natural gas at western Texas and New Mexico.
Working interestAn 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.
WTIWest 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.
ii

GLOSSARY OF CERTAIN OTHER TERMS
The following is a glossary of certain other terms that are used in this report:
ASUAccounting Standards Update.
Equity PlanThe Company’s 2021 Amended and Restated Equity Incentive Plan.
Exchange ActThe Securities Exchange Act of 1934, as amended.
FASBFinancial Accounting Standards Board.
GAAPAccounting principles generally accepted in the United States.
LIBORThe London interbank offered rate.
NasdaqThe Nasdaq Global Select Market.
NYMEXNew York Mercantile Exchange.
OPECOrganization of the Petroleum Exporting Countries.
SECUnited States Securities and Exchange Commission.
Securities ActThe Securities Act of 1933, as amended.
Guaranteed Senior NotesThe 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.
SOFRThe secured overnight financing rate.
TSRTotal stockholder return of the Company’s common stock.
Wells FargoWells Fargo Bank, National Association.

iii

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, 2022 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;
iv

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; 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.
v


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,
20232022
(In millions, except par values and share data)
Assets
Current assets:
Cash and cash equivalents$827 $157 
Restricted cash3 7 
Accounts receivable:
Joint interest and other, net191 104 
Oil and natural gas sales, net789 618 
Inventories70 67 
Derivative instruments1 132 
Income tax receivable16 284 
Prepaid expenses and other current assets19 23 
Total current assets1,916 1,392 
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 
Other property, equipment and land706 1,481 
Accumulated depletion, depreciation, amortization and impairment(15,988)(14,844)
Property and equipment, net25,365 23,759 
Funds held in escrow50 119 
Equity method investments519 566 
Assets held for sale 158 
Derivative instruments1 23 
Deferred income taxes, net60 64 
Investment in real estate, net85 86 
Other assets53 42 
Total assets$28,049 $26,209 
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable - trade$358 $127 
Accrued capital expenditures397 480 
Current maturities of long-term debt 10 
Other accrued liabilities428 399 
Revenues and royalties payable782 619 
Derivative instruments139 47 
Income taxes payable37 34 
Total current liabilities2,141 1,716 
Long-term debt6,230 6,238 
Derivative instruments199 148 
Asset retirement obligations240 336 
Deferred income taxes2,243 2,069 
Other long-term liabilities12 12 
Total liabilities11,065 10,519 
Commitments and contingencies (Note 14)
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 
Additional paid-in capital14,149 14,213 
Retained earnings (accumulated deficit)2,136 801 
Accumulated other comprehensive income (loss)(7)(7)
Total Diamondback Energy, Inc. stockholders’ equity16,280 15,009 
Non-controlling interest704 681 
Total equity16,984 15,690 
Total liabilities and equity$28,049 $26,209 


See accompanying notes to condensed consolidated financial statements.
1

Diamondback Energy, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
Three Months Ended September 30,Nine Months Ended September 30,
2023202220232022
(In millions, except per share amounts, shares in thousands)
Revenues:
Oil sales$1,997 $1,853 $5,359 $5,988 
Natural gas sales80 296 197 714 
Natural gas liquid sales188 268 507 856 
Sales of purchased oil59  59  
Other operating income16 20 62 55 
Total revenues2,340 2,437 6,184 7,613 
Costs and expenses:
Lease operating expenses226 183 618 491 
Production and ad valorem taxes118 156 421 495 
Gathering and transportation73 71 209 191 
Depreciation, depletion, amortization and accretion442 336 1,277 979 
Purchased oil expense59  59  
General and administrative expenses34 34 111 109 
Merger and integration expenses1 11 11 11 
Other operating expenses47 32 113 85 
Total costs and expenses1,000 823 2,819 2,361 
Income (loss) from operations1,340 1,614 3,365 5,252 
Other income (expense):
Interest expense, net(41)(43)(138)(122)
Other income (expense), net37 (5)69 (3)
Gain (loss) on derivative instruments, net(76)(24)(358)(677)
Gain (loss) on extinguishment of debt (1)(4)(59)
Income (loss) from equity investments9 19 39 56 
Total other income (expense), net(71)(54)(392)(805)
Income (loss) before income taxes1,269 1,560 2,973 4,447 
Provision for (benefit from) income taxes276 290 648 913 
Net income (loss) 993 1,270 2,325 3,534 
Net income (loss) attributable to non-controlling interest78 86 142 155 
Net income (loss) attributable to Diamondback Energy, Inc.$915 $1,184 $2,183 $3,379 
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:
Basic178,872 174,406 180,400 176,169 
Diluted178,872 174,408 180,400 176,171 
Dividends declared per share$3.37 $2.26 $5.04 $8.36 





See accompanying notes to condensed consolidated financial statements.
2

Diamondback Energy, Inc. and Subsidiaries
Condensed Consolidated Statements of Stockholders’ Equity
(Unaudited)
Common StockAdditional Paid-in CapitalRetained Earnings (Accumulated Deficit)Accumulated
Other
Comprehensive
Income (Loss)
Non-Controlling InterestTotal
SharesAmount
($ in millions, shares in thousands)
Balance December 31, 2022179,841 $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 acquisition4,330 — 633 — — — 633 
Distributions to non-controlling interest— — — — — (34)(34)
Dividend paid— — — (542)— — (542)
Exercise of stock options and issuance of restricted stock units and awards84 — — — — — — 
Change in ownership of consolidated subsidiaries, net— — (9)— — 11 2 
Net income (loss)— — — 712 — 34 746 
Balance March 31, 2023181,605 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 awards59 — — — — — — 
Change in ownership of consolidated subsidiaries, net— — (15)— — 17 2 
Net income (loss)— — — 556 — 30 586 
Balance June 30, 2023179,219 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 awards4 — — — — — — 
Change in ownership of consolidated subsidiaries, net— — (3)— — 3  
Net income (loss)— — — 915 — 78 993 
Balance September 30, 2023178,815 $2 $14,149 $2,136 $(7)$704 $16,984 






See accompanying notes to condensed consolidated financial statements.
3

Diamondback Energy, Inc. and Subsidiaries
Condensed Consolidated Statements of Stockholders’ Equity - (Continued)
(Unaudited)

Common StockAdditional Paid-in CapitalRetained Earnings (Accumulated Deficit)Non-Controlling InterestTotal
SharesAmount
($ in millions, shares in thousands)
Balance December 31, 2021177,551 $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 awards58 — 1 — — 1 
Change in ownership of consolidated subsidiaries, net— — (12)— 15 3 
Net income (loss)— — — 779 24 803 
Balance March 31, 2022177,551 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)
Distributions to non-controlling interest— — — — (63)(63)
Dividend paid— — — (541)— (541)
Exercise of stock options and vesting of restricted stock units and awards19 — — — — — 
Change in ownership of consolidated subsidiaries, net— — (9)— 12 3 
Net income (loss)— — — 1,416 45 1,461 
Balance June 30, 2022175,201 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 
Repurchased shares under buyback program(3,922)— (472)— — (472)
Repurchased units under buyback programs— — — — (51)(51)
Common shares issued for acquisition4,352 — 344 — (344) 
Distributions to non-controlling interest— — — — (71)(71)
Dividend paid— — — (526)— (526)
Change in ownership of consolidated subsidiaries, net— — (15)— 20 5 
Net income (loss)— — — 1,184 86 1,270 
Balance September 30, 2022175,631 $2 $13,646 $195 $715 $14,558 








See accompanying notes to condensed consolidated financial statements.
4

Diamondback Energy, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended September 30,
20232022
(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 taxes185 375 
Depreciation, depletion, amortization and accretion1,277 979 
(Gain) loss on extinguishment of debt4 59 
(Gain) loss on derivative instruments, net358 677 
Cash received (paid) on settlement of derivative instruments(62)(816)
(Income) loss from equity investment(39)(56)
Equity-based compensation expense40 42 
Other(23)57 
Changes in operating assets and liabilities:
Accounts receivable(218)(113)
Income tax receivable267 (1)
Prepaid expenses and other5 (16)
Accounts payable and accrued liabilities46 (29)
Income tax payable4 14 
Revenues and royalties payable139 182 
Other(12)(4)
Net cash provided by (used in) operating activities4,296 4,884 
Cash flows from investing activities:
Drilling, completions and infrastructure additions to oil and natural gas properties(1,948)(1,327)
Additions to midstream assets(104)(69)
Property acquisitions(1,193)(623)
Proceeds from sale of assets1,400 105 
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 facilities4,466 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)
Repurchased shares under buyback program(709)(782)
Repurchased units under buyback program(67)(122)
Dividends paid to stockholders(841)(1,174)
Distributions to non-controlling interest(84)(181)
Other(34)(42)
Net cash provided by (used in) financing activities(1,771)(3,570)
Net increase (decrease) in cash and cash equivalents666 (638)
Cash, cash equivalents and restricted cash at beginning of period164 672 
Cash, cash equivalents and restricted cash at end of period$830 $34 









See accompanying notes to condensed consolidated financial statements.
5

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 in the Permian Basin in West Texas.

As of September 30, 2023, 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 Merger

On August 24, 2022 (the “Effective Date”), the Company completed the merger with Rattler pursuant to which the Company acquired all of the approximately 38.51 million publicly held outstanding common units of Rattler in exchange for approximately 4.35 million shares of the Company’s common stock (the “Rattler Merger”). Rattler continued as the surviving entity. Following the Rattler Merger, the Company owns all of Rattler’s outstanding common units and Class B units, and Rattler GP remains the general partner 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 to common stock of $44 thousand, additional paid-in-capital of $344 million, merger and integration expense of $11 million and a decrease in noncontrolling interests in consolidated subsidiaries 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.

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 subsidiary Viper Energy Partners LP (“Viper”) is consolidated in the Company’s financial statements. As of September 30, 2023, the Company owned approximately 57% of Viper’s total units outstanding. The Company’s wholly owned subsidiary, Viper Energy Partners GP LLC, is the general partner of Viper. 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, 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.
6

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 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 Oil

The Company enters into pipeline capacity commitments in order to secure available transportation capacity from the Company's areas of production for its commodities. Beginning 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 accompanying condensed consolidated statements of operations as the Company acts as a principal in the transaction by assuming both the risks 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.

Recent Accounting Pronouncements

Recently Adopted Pronouncements

In October 2021, the FASB issued ASU 2021-08, “Business Combinations (Topic 805) – Accounting for Contract Assets and Contract Liabilities from Contracts with Customers.” This update required the acquirer in a business combination to record contract assets 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 to be either not applicable, the effects of adoption are not expected to be material or are clarifications of ASUs previously disclosed.

7

Diamondback Energy, Inc. and Subsidiaries
Condensed Notes to Consolidated Financial Statements - (Continued)
(Unaudited)
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,
2023202220232022
(In millions)
Oil sales$1,997 $1,853 $5,359 $5,988 
Natural gas sales80 296 197 714 
Natural gas liquid sales188 268 507 856 
Total oil, natural gas and natural gas liquid revenues2,265 2,417 6,063 7,558 
Sales of purchased oil59  59  
Midstream and marketing services13 18 56 49 
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:

Three Months Ended September 30, 2023Three Months Ended September 30, 2022
Midland BasinDelaware Basin OtherTotalMidland BasinDelaware Basin OtherTotal
(In millions)
Oil sales$1,588 $407 $2 $1,997 $1,311 $539 $3 $1,853 
Natural gas sales52 28  80 200 95 1 296 
Natural gas liquid sales138 50  188 188 80  268 
Total$1,778 $485 $2 $2,265 $1,699 $714 $4 $2,417 
Nine Months Ended September 30, 2023Nine Months Ended September 30, 2022
Midland BasinDelaware BasinOtherTotalMidland BasinDelaware BasinOtherTotal
(In millions)
Oil sales$4,205 $1,149 $5 $5,359 $4,319 $1,661 $8 $5,988 
Natural gas sales131 66  197 466 246 2 714 
Natural gas liquid sales363 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.

8

Diamondback Energy, Inc. and Subsidiaries
Condensed Notes to Consolidated Financial Statements - (Continued)
(Unaudited)
Under a separate 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 receive approximately $47 million in cash 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 receivable in the condensed consolidated balance sheet for the fair value of the additional consideration to be received when operation of the Water Assets transfers to Deep Blue.

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. 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 sale of its Water Assets, which is included in the caption “Other operating expenses” in 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.

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. 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 closing4,330
Closing price per share of Diamondback common stock on the closing date$146.12 
Fair value of Diamondback common stock issued$633 
Cash consideration814 
Total consideration (including fair value of Diamondback common stock issued)$1,447 

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 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. 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, 2023.

9

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):

Total consideration$1,447 
Fair value of liabilities assumed:
Other long-term liabilities37 
Fair value of assets acquired:
Oil and natural gas properties1,460 
Inventories2 
Other property, equipment and land22 
Amount attributable to assets acquired1,484 
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 of operations attributable to the Lario Acquisition since the acquisition date have been included 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 income for the three and nine months ended September 30, 2023, respectively.

Divestitures

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. The Company used its net proceeds from this transaction for debt reduction and other general corporate purposes.

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 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.

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 that is included in the caption “Other income (expense), net” on the condensed consolidated statement of operations for the nine months ended September 30, 2023.

10

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 closing5,921
Closing price per share of Diamondback common stock on the closing date$148.02 
Fair value of Diamondback common stock issued$876 
Cash consideration787 
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):

Total consideration$1,663 
Fair value of liabilities assumed:
Other long-term liabilities10 
Fair value of assets acquired:
Oil and natural gas properties1,598 
Inventories3 
Other property, equipment and land