Diamondback Energy Q1 Earnings Call Highlights

Key Points

• "Green light framework": Diamondback said a major global oil supply disruption and falling inventories justify higher activity, adding 2–3 rigs and a fifth completion crew and targeting a new oil baseline of 520k+ barrels/day.
• Capital-allocation shift: management plans more flexibility to make cyclical moves — including directing free cash to debt reduction — with a stated goal to hit about $10 billion net debt much sooner than prior timelines, while M&A is likely to remain quiet.
• Operational beat: Q1 production outperformed expectations due to stronger well performance, completion design experiments (perforating, rate and sand strategies), and operational gains like reduced downtime, automation and machine-learning initiatives.

Diamondback Energy NASDAQ: FANG used its first quarter 2026 conference call to explain a shift toward what CEO Kaes Van’t Hof described as a “green light framework,” signaling higher activity levels amid what he called a clear market signal following a major global oil supply disruption. Management moved quickly into a question-and-answer format, focusing on changes to development plans, capital returns flexibility, and balance sheet priorities.

Activity ramps as Diamondback cites macro and company-specific drivers

Van’t Hof said the decision to add activity reflected both macro and micro considerations. On the macro front, he pointed to “the world’s largest oil supply disruption in history” and said declining global inventories were part of the board and management team’s calculus. “We’re gonna do our small part to add some production into the mix,” he said.

At the company level, Van’t Hof said Diamondback believed it was positioned to grow efficiently due to inventory quality, cost structure, and preparedness. He emphasized the ability to respond quickly because of a drilled-but-uncompleted well backlog and a plan designed for “up, down or sideways” commodity environments. The company’s approach includes adding “2-3 rigs” and moving to a fifth completion crew, a change analysts connected to the updated operating framework.

When asked about additional upside if the macro backdrop remains supportive, Van’t Hof said the situation is fluid and the company intends to reassess quarterly. “We still have some things in our back pocket to grow further,” he said, adding that “520 plus thousand barrels a day on oil is the new baseline.”

Operational execution and production beat attributed to well performance and lower downtime

Analysts pressed the team on strong first-quarter production performance. Van’t Hof said well performance year-to-date was tracking above last year, which he noted “is probably a surprise even to us internally.” He attributed improvements to continued experimentation in completion design and efficiency, alongside operational gains on the production side, including “less downtime, more automation,” and tools he described as “AI” or automation.

COO Danny Wesson expanded on specific optimization efforts following the Endeavor merger, saying teams shared practices to improve both primary completions and base production. On the completion side, Wesson referenced “perforating strategies,” “rate design,” and “sand loadings” as areas where the company believes it is seeing uplift.

On production operations, Wesson cited workover initiatives such as “acid jobs,” “chlorine dioxide jobs,” and “surfactant jobs,” and said the company is applying machine learning to data streams in an effort to reduce downtime. “It’s been a big part of our of the beat in Q1,” he said.

Capital allocation: more flexibility, higher dividend, and greater focus on debt reduction

Diamondback also discussed changes to its return-of-capital posture. Van’t Hof said the industry’s more formulaic return programs emerged after the COVID downturn, but management now wants greater flexibility to make “more cyclical moves” rather than decisions “within a 90-day window.” He said the company’s ability to return capital should not change, while highlighting Diamondback’s buyback history: “We’ve bought back 42 million shares for $6 billion to date at $148 a share,” he said.

At the same time, Van’t Hof suggested free cash flow could be directed more toward the balance sheet in a high-price environment. “Allocating a ton of free cash to the balance sheet in times of extremely high oil prices…does create long-term value,” he said.

On mergers and acquisitions, Van’t Hof said Diamondback has historically executed M&A well, but called the current volatility “kind of difficult to get deals done,” adding that “M&A is probably fairly quiet at Diamondback for the foreseeable future.”

CFO Jere Thompson provided more specific balance sheet targets and timing. He reiterated a prior goal of reaching $10 billion of net debt within 12 to 18 months, but said current pricing and free cash flow generation could allow Diamondback to reach that level “much earlier to the tune of…a couple months from now.” Thompson said the company could then work on reducing gross debt, building cash through the fourth quarter, and evaluating actions such as calling “our $750 million of 2026s outstanding.” He also described a potential 2027 “larger liability management exercise” focused on maturities prior to 2030, with the aim of strengthening the balance sheet toward what he called a “fortress” position.

Asked whether net debt could fall to zero over the next several years, Thompson said it would be “a good problem to have” and reiterated that flexibility is central to the strategy in a cyclical business. “At the end of the day, we wanna get to zero debt. We wanna get to one share outstanding, and it’s gonna be a race between those two,” he said.

Waha pricing, hedging, and service cost commentary

Management addressed deeply negative Waha natural gas pricing and its impact on operations. Van’t Hof said Diamondback was “well protected with financial and physical hedges,” and expects its mix to shift “more towards physical when these two new pipes come on…hopefully second half of the year.” He added the company is working on additional physical protection and referenced a power project that has been in development for nearly a year.

Wesson said the company had not seen significant service cost pressure so far, framing it more as a capacity issue. He noted there remains “quite a bit of capacity out there in the rig space and in the completion space,” while acknowledging some inflation in consumables tied to commodity prices.

Regarding potential shut-ins due to weak gas pricing, Van’t Hof said that at certain levels of negative Waha pricing, the economics can affect NGL value and eventually oil value, though high oil prices change the math. He said Diamondback had previously shut in “2,000 or 3,000 barrels a day” during a prior Waha blowout and suggested it was “probably around somewhere in that range today,” while emphasizing that “every molecule we’ve produced has moved. It’s just moving at a negative price.”

Barnett development, DUC management, Viper stake, and marketing strategy

Diamondback also discussed the Barnett and the role it plays in its updated development plan. Van’t Hof said the company intends to hold most spacing assumptions and continue evaluating projects at a granular level, targeting a framework where the “last well” added delivers “a 40% rate of return at $60 oil.” Chief Engineer Al Barkmann said the incremental rigs largely represent “the acceleration of the Barnett plan,” including getting ahead of “Barnett obligations” discussed previously. Wesson added that much of the Barnett activity relates to a joint venture area and that, net to Diamondback, “it won’t be nearly as impactful” as the headline rig additions might suggest.

On drilled-but-uncompleted inventory, Van’t Hof said Diamondback peaked at “a little over 200 DUCs in Q1,” expects that number to decline in Q2, and then rebuild with additional rig activity. He indicated the company likely needs to maintain a higher DUC balance with five completion crews, “somewhere in the high hundreds, around 200 DUCs.” Wesson said the company likes to keep “a quarter to quarter and a half worth of inventory ahead of each crew,” describing the balance as dynamic as completion efficiency changes.

Marketing strategy also came up as oil pricing strengthened. Van’t Hof said Diamondback uses its balance sheet and pipeline investments to reach larger markets, referencing prior investments in Epic, Gray Oak, and Wink to Webster. He said the company has about “300,000 barrels a day” moving to Corpus Christi on Epic and Gray Oak and “about another 100,000 a day” moving on Wink to Webster toward Houston markets, adding that some exposure to waterborne pricing and a small contract with dated Brent exposure has been beneficial.

Van’t Hof also discussed Diamondback’s ownership in Viper, saying the company sold down some shares as a follow-on from a prior dropdown but stated, “we’re done selling Viper shares at Diamondback,” citing Viper’s growth opportunities and potential for dilution rather than active monetization.

Finally, Van’t Hof offered a view on longer-term growth, suggesting that in a “70 plus on WTI” mid-cycle environment, “a couple percentage points of organic growth” could improve net asset value and long-term free cash generation, while reiterating the company’s intent to remain capital efficient and adjust plans quarter by quarter.

About Diamondback Energy NASDAQ: FANG

Diamondback Energy, Inc NASDAQ: FANG is an independent oil and natural gas company focused on the development, exploration and production of unconventional resources in the Permian Basin. Headquartered in Midland, Texas, the company concentrates its operations in the core Midland and Delaware sub‑basins of West Texas and southeastern New Mexico, where it pursues contiguous acreage positions to support repeatable drilling programs.

Diamondback's activities span the upstream value chain, including leasehold acquisition, well planning, drilling, completion and production optimization.

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