On Tuesday, Diamondback Energy (NASDAQ:FANG) discussed first-quarter financial results during its earnings call. The full transcript is provided below.
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Summary
Diamondback Energy announced a shift to a ‘green light’ framework, adding 2-3 rigs and a fifth completion crew to increase production in response to market conditions.
The company plans to maintain its capital efficiency while slightly increasing production, with a focus on the Permian Basin due to the global oil supply disruption.
Diamondback Energy aims to pay down debt rapidly, potentially reaching a net debt of $10 billion earlier than anticipated, with plans to call $750 million of 2026s by year-end.
Despite increasing activity, the company’s reinvestment rate is expected to fall from 44% to 34%, with a focus on maintaining capital efficiency and shareholder returns.
Management highlighted strong operational performance and well productivity, with improvements in completion design and production efficiencies contributing to a robust Q1 production performance.
Full Transcript
OPERATOR
Good day and thank you for standing by. Welcome to the Diamondback Energy first quarter 2026 conference call. At this time, all participants are in a listen only mode. After the speaker’s presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising that your hand is raised to withdraw your question. Please press star 11 again. Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your first speaker today, Adam Lawless, VP of Investor Relations. Please go ahead.
Adam Lawless (VP of Investor Relations)
Thank you. Corey. Good morning and welcome to Diamondback Energy’s first quarter 2026 conference call. During our call today, we will reference an updated investor presentation and letter to stockholders which can be found on Diamondback’s website. Representing Diamondback today are Kate Spantoff, CEO, Danny Wesson, COO, Jerry Thompson, CFO and Al Barkman, Chief Engineer. During this conference call, the participants may make certain forward looking statements relating to the company’s financial condition, results of operations, plans, objectives, future performance and businesses. We caution you that actual results could differ materially from those that are indicated in these forward looking statements due to a variety of factors. Information concerning these factors can be found in the company’s filings with the SEC. In addition, we will make reference to certain non GAAP measures. The reconciliations with the appropriate GAAP measures can be found in our earnings release issued yesterday afternoon. I’ll now turn the call over to Kate.
Kate Spantoff (CEO)
Thanks, Adam and welcome everyone. As with the last few years, we’re going to go straight into Q&A. So operator, please open the line for questions.
OPERATOR
Thank you very much. One moment. As a reminder to ask a question, you can press star11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q and A roster. Our first question comes from the line of Neil Mehta of Goldman Sachs. Neil, your line is open.
Neil Mehta (Equity Analyst)
Yeah. Good morning, Case. And good morning, team. So I guess the big development here today that you’ve been signaling is the move to a green light framework from yellow light, adding the two to three rigs and moving to the fifth completion crew. So Case, maybe you just take a moment for the investors online to talk about the thought process that went into this decision and just how you’re thinking about where and when to add activity.
Kate Spantoff (CEO)
Yeah, Neil, I mean, it’s a good question. You know, I think there’s some macro elements as well. As some micro elements and we’ll go through both of those. You know, I think, I think from a macro perspective, you know, obviously there’s a clear market signal. You know, we’re two months into the world’s largest oil supply disruption in history. And you know, I think, you know, Diamondback and Diamondback shareholders very fortunate that, you know, we’re solely based in West Texas. We’re kind of, kind of tourists in this, in this situation. But it’s obviously a very serious situation with, you know, a lot of oil supply off the market. And so, you know, if that isn’t a signal to grow production and an advantaged area like the Permian basin, then I don’t know what is. And we hope there’s a resolution to the conflict. But even if there is, there’s a lot of noise in the system and a lot of barrels that have been taken off the market. So that’s kind of the macro signal that we’ve been looking at as a board and a management team. Obviously, global inventories are starting to decline very rapidly and we’re going to do our small part to add some production into the mix. And then you go down to the micro level or the Diamondback level. I mean, listen, with the best inventory quality and depth in North America being executed at the best cost structure, if this isn’t the time to grow now, then I don’t know when is. And you know, so that decision at a micro level was, you know, honestly fairly easy. And you know, I think the last piece about it is, you know, we’re able to do this in a very capital efficient manner and get it done very quickly. You know, because we have this backlog of ducks and we, you know, prepare our business for, you know, up, down or sideways, you know, we’re able to just make one decision and add a frac crew crew a lot earlier in the year and get that production up immediately. So I think it’s a testament to the team’s preparation. You know, everybody in the organization working together and being able to do this very, very quickly. Whereas I think in other organizations it might take a little longer to make that decision.
Neil Mehta (Equity Analyst)
Thanks, Case. And then the follow up is just on the return of capital framework. You didn’t move away from the fixed framework while you bumped the dividend. You indicated that you might be slowing down the buyback a little bit. So can you talk a little bit about that, what you intended to communicate with that? And then there is a very concentrated ownership base here. And if the family ultimately is going to sell into the market or sell, sell down their stake. Do you still view Diamondback as a logical buyer to help offset that potential risk on the stock?
Kate Spantoff (CEO)
Yeah, I mean, listen, let’s take it a little higher level, right? I mean, I think allocating capital is the most important job we have to do as a management team. And the history of the return of capital program for both ourselves and the industry was put in place after the COVID near extinction event of the industry. And investors said, hey, I want my money back and I want it in a formulaic manner. And I think that’s worked very, very well over the last few years. And I don’t expect our ability to return capital to stockholders to change. We just want the flexibility to make more cyclical moves versus, you know, moves within a 90 day window, within a quarter. So, you know, we have a really, really good track record of buying back our own stock. We bought back 42 million shares for $6 billion to date at $148 a share. You know, clearly with the stock where it is today, that’s a very positive rate of return for our stockholders and I expect that to continue. You know, we recognize we also have a large shareholder that we found a way to help monetize their stake in a very efficient manner. And I think outside of their state, they’re most focused on us creating long term value and allocating a ton of free cash to the balance sheet in times of extremely high oil prices does create long term value with in our mind a higher floor for the stock long term. So I wouldn’t expect anything to change. We have a great relationship with the family. I think we have the ability to help them monetize. And if we use kind of excess free cash flow over the next couple quarters to pay down debt, we can help monetize their stake actually more efficiently coming out of this. They’re long term holders and they want the stock higher.
Neil Mehta (Equity Analyst)
That makes sense. Thank you, Kay.
Kate Spantoff (CEO)
Thanks Neil.
OPERATOR
Thank you very much. Our next question comes from the line of Scott Hanold of RBC Capital Markets. Scott, your line is open.
Scott Hanold (Equity Analyst)
Yes. thanks. You all had some pretty robust production performance in 1Q. And based on our chat last night, it sounds like your completions were as planned. Can you just walk through some specifics why performance was so strong? It sounds like it was a lot more, well, performance just versus any other kind of dynamic. Just give us a little bit of color on that end. And is that something we should anticipate moving forward and what’s embedded in guidance?
Kate Spantoff (CEO)
Yes, Scott, I’ll give a couple high level and then let Danny talk about some of the details. But high level, our well performance year to date looks up relative to last year. I think that is probably a surprise even to us internally. But we’ve always continued to try new things in terms of completion design and efficiency that I think is starting to pay dividends. So I think that’s, you know, that’s helping. That’s one thing. I think the other side of the business, the production side of the business, which we’ve been talking a lot about over the last couple quarters, there’s just kind of a lot of good things happening in the field in terms of less downtime, more automation, call it AI, call it automation, impacting that side of the business. So I think better wells and lower downtime, that’s a good recipe for production beat.
Danny Wesson (COO)
Yeah Scott, you know, Case alluded to it, but we, you know, post the Endeavor merger and getting the teams together, we started trading a lot of ideas on what we were doing to really optimize, you know, primary completions as well as the base. And we talked about it over the past few quarters. But some of the things we’re seeing on the completion optimization side with, you know, perforating strategies, you know, rain design and sand loadings, we think we’re seeing some uplift in the wells and time will tell as we continue to implement that completion design. But also on the production side, some of the stuff we’re doing on the workover side, some of the acid jobs, the chlorine dioxide jobs, the surfactant jobs, we’re starting to see that pay dividends and really layering on that machine learning. As we continue to look at our data streams and processes and, and layered on machine learning and trying to start working towards implementing AI into our field operations, we’re seeing that downtime come down and it’s been a big part of the beat in Q1. Just really that little bits of optimization across the board starting to show through to the top line number.
Scott Hanold (Equity Analyst)
Great. And as my follow up, when you guided oil, you talked about it looked like you’re incurring greater than potentially 520 a day. Can you just talk through if you continue to see this macro environment, how much desire is there to kind of continue to let that oil production grow versus curtail it? And is there a scenario where you’d actually even look to step it up even higher if the macro continues to be heightened?
Kate Spantoff (CEO)
Yeah, I mean it’s a great question, Scott. I think it’s kind of a, a Very fluid situation. And I think the boards wanted us to take this kind of quarter by quarter. Obviously, if there’s outperformance and we still have triple digit oil prices and the market’s still calling for oil to come to market, then I think this is a year where instead of pulling back activity, you kind of just keep the efficiencies going and production continuing to climb. But listen, it’s going to be going to be fluid, right? We’re only two months into this conflict and it could be resolved today. But you know, and who knows what happens to the macro. So I think we’re just ready to react. We still have some things in our back pocket to grow further. But for now this kind of 520 plus thousand barrels a day on oil is the new baseline.
Scott Hanold (Equity Analyst)
Thank you.
OPERATOR
Thank you very much. Our next question comes from the line of Neil Dingman of William Blair. Neil, your line is open.
Neil Dingman (Equity Analyst)
Morning Kayes and teams. Thanks for fitting me in. My question is also on your activity, specifically Kayes, how much, if any will negative Waha prices impact, you know, what you might or might not do? And then same question with oil service prices and you know, maybe ask about are you expecting ofs inflation given what’s going on with prices?
Kate Spantoff (CEO)
Yeah, Neil. I mean on the WAHA side, obviously the pricing is deeply negative. We’re well protected with financial and physical hedges. Our mix of physical to financial is going to be moving more towards physical when these two new pipes come on, hopefully second half of the year. So I think we’re pretty well protected to get through this tight spot from a financial perspective where we can continue to add oily inventory right where we’re drilling some of the oiliest stuff in the basin. So I think we’re pretty well protected there. We’ll continue to work on our physical protection. On the gas side, we’ve worked on a power project now for almost a year and we’ll see if we can get that done. But we talked at length about monetizing our gas and we’re kind of on the cusp of that. That’s starting to happen here when these pipes come on. But Danny, on the service side, what are you seeing?
Danny Wesson (COO)
Yeah, I mean, we hadn’t really seen much pressure to date on the service inflation or service pricing side of the story. It’s really a capacity question. And what does the service capacity look like? And haven’t seen industry activity ramp aggressively through these first couple months of this conflict. And so there’s still quite a bit of capacity out there in the rig. Space and in the completion space and, you know, the calendars are not squeezed enough yet for them, I feel like, to be able to push pricing onto the guys when they go out and, you know, look for this additional equipment. We have seen, obviously some inflation and some of the consumables, you know, and things that are tied directly to the commodity price, but those have been pretty minimal thus far. And we’ll just have to see what activity does not only in the Permian, but in the lower 48 to see what we anticipate service inflation to do through the rest of the year.
Neil Dingman (Equity Analyst)
Thanks, Danny. And then second question just on capital allocation, especially given the continued record free cash flow growth per share you’ll likely have. Kay is wondering specifically, how do you believe capital for MA stacks up, maybe against buybacks or simply the near term debt repayment? Do you factor that in or maybe just talk about capital allocation?
Kate Spantoff (CEO)
Yeah, I mean, Neil, I think my first day of my first finance job in New York City, I was asked the question, what can a company do with their free cash flow? And if we’re going to go through all the options, you can grow, right? Either organically or inorganically. So organic growth, we’ve decided to hit that lever today in a small way by going to the top end of our capital expenditure guidance. Inorganic growth, which, you know, M&A. We’ve obviously been very, very good at M&A over the years. I think this volatility is kind of difficult to get deals done, you know, private or otherwise. So I think generally, you know, M&A is probably fairly quiet at Diamondback for the foreseeable future. Then you go down the other options of what you can do with your free cash. You can pay a base dividend, which we did and decided to increase today, or you can pay down debt, buy back shares, or you can just put the cash on the balance sheet. And I think with oil prices where they are, I don’t know if investors are capitalizing this price environment yet today. And so for us, the bigger use of free cash is going to be to pay down debt rapidly and convert that debt value to equity value in our NAV and keep some cash for a rainy day because this is a very volatile environment and it can flip pretty quickly. Makes sense. Thanks, Kate.
OPERATOR
Thanks, Danny. Thanks, Neil.
Arun Jayram (Equity Analyst)
Thank you very much. Our next question comes from the line of Arun Jayram of JP Morgan Securities. Arun, your line is open. Yeah, Good morning, gentlemen. Case, the calendar 26 and 27 strips around 90 and 75. How do you think about your approach to development in a much stronger oil price than we sat, just call it 90 days ago. And I was wondering if you could just maybe highlight for the two to three incremental rigs, how are you thinking about …
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