Diamondback Energy, Inc. (FANG) Q3 2026 Earnings Call Transcript

Kaes Van't Hof

Chief Executive Officer, Diamondback Energy

Yeah, I mean, we've been there for years now. And I think, you know, when you compare where we are versus peers, we've been paying a much higher overall tax rate, you know, for a while. I think they're all going to have to catch up and have to live with our world of higher cash taxes. But yeah, we're paying our fair share, Doug.

Conference Operator

Operator

All right. Fair point. Thanks, Ellis.

Kaes Van't Hof

Chief Executive Officer, Diamondback Energy

Thank you.

Conference Operator

Operator

Thank you. Our next question comes from the line of Kevin McCurdy of Pickering. Please go ahead.

Kevin McCurdy / Jeff Jay

Analysts, Pickering Energy Partners / Daniel Energy Partners

Hey, thanks for taking my question. Maybe coming back to the mega theme on gas, you obviously are going to get a cash flow benefit from higher Waha prices, but are there any operational or inventory uplifts from the higher gas prices? Like maybe are there parts of your acreage program that you haven't drilled due to the prices, which may be in the drilling queue in coming years?

Kaes Van't Hof

Chief Executive Officer, Diamondback Energy

Yeah, we certainly have that in the inventory. It just hasn't been something we've had to or tried to drill to date. So, you know, I think that you're going to see across the basin, you know, a lot higher gas cuts in certain zones and certain areas. And, you know, we have some of it. We just haven't had to drill it yet.

Conference Operator

Operator

Okay, that's fair.

Kevin McCurdy / Jeff Jay

Analysts, Pickering Energy Partners / Daniel Energy Partners

And then it looks like to us that OpEx was the driver of the EBITDA beat for the quarter. You talked a little bit about the LOE earlier, but maybe on the GP&T side, what was driving the lower guidance there?

Kaes Van't Hof

Chief Executive Officer, Diamondback Energy

Yeah, GPT is really kind of a mix between your gas realization and your GPT cost, depending on how much gas we take in kind. So I would say the beat that we're most focused on is the stuff we can control, which is L.O.E., but on the GPT side, it's really just a mix between realizations and how much GPT you pay.

Gabe Dowd / Arun Jayaram

Analysts, Truist / J.P. Morgan

I appreciate it. Thanks, Chase.

Kaes Van't Hof

Chief Executive Officer, Diamondback Energy

Thanks, Kevin.

Conference Operator

Operator

Thank you. Our next question comes from the line of Jeff Jay of Daniel Energy Partners. Please go ahead.

Kevin McCurdy / Jeff Jay

Analysts, Pickering Energy Partners / Daniel Energy Partners

Hey, guys. I had a quick follow-up on the AI optimization of artificial lifts. I mean, you're referencing these in manpower and compression, but what about productivity uplift from that?

Kaes Van't Hof

Chief Executive Officer, Diamondback Energy

Yeah, that's a great point. We are definitely seeing the productivity uplift and the downtime minimization as you have storms and so forth come through. And so when you think about the effects on LOE, our teams are just doing a fantastic job controlling costs in somewhat of an inflationary environment. But the other side of that equation on the volume side The technology is helping, but the responsiveness of our teams to managing the downtime and coupling that with the benefit you get from the AI autonomous controls has been a huge win for us.

Kevin McCurdy / Jeff Jay

Analysts, Pickering Energy Partners / Daniel Energy Partners

And roughly how long do you think to get the remaining 1,000 plunger lift wells online with this? Is it a matter of weeks, months, quarters?

Kaes Van't Hof

Chief Executive Officer, Diamondback Energy

It's just a matter of months to get those up and running.

Kevin McCurdy / Jeff Jay

Analysts, Pickering Energy Partners / Daniel Energy Partners

Excellent. Thank you, guys.

Kaes Van't Hof

Chief Executive Officer, Diamondback Energy

Thanks, Jeff.

Conference Operator

Operator

Thank you. Our next question comes from the line of Betty Xiong of Barclays. Your line is now open.

Betty Xiong

Analyst, Barclays

Hi, good morning. Thank you for taking my question. Thank you. Appreciate all the comments earlier about the chemicals, EOR. Just a follow-up on that, like where do you think you are, what inning you are in terms of understanding that technology and Feeling comfortable about a broader deployment and maybe just how much capital do you think will be appropriate to be putting into that technology right now?

Kaes Van't Hof

Chief Executive Officer, Diamondback Energy

Yeah, I mean, I think we just threw the first pitch, Betty. You know, this is like a Wolf Camp beef rack in Upton County in 2012, right, compared to where we are today. So I think our investors... would like us to continue to spend capital here. It's not a huge dollar amount, you know, 50 to 100 million total across, you know, over $4 billion budget. But I think, you know, that capital will be well spent. And as we learn more, just like anything at Diamondback, if it works and gets better, it'll attract more capital.

Betty Xiong

Analyst, Barclays

Makes sense. And then for my follow-up, I want to ask about just the activity cadence and how to think about the a normalized development program going forward. There's a lot of footage that came online in the last couple quarters. And then 4Q, at least based on the guidance, implied a lower completion quarter on a footage basis. And then through all that, oil is roughly flat. I know there's a lot of nuances that goes behind the lumpiness. Maybe just how to think about how these periods fit together. Maybe any... I think the base case is run 19 to 20 rigs and run the five frack crews consistently. I think that's where our

Kaes Van't Hof

Chief Executive Officer, Diamondback Energy

are heads at right now, and whether that spits out 120 tills in a quarter or 140 is just going to be dependent upon when those wells are popped. But in general, we're running a very level-loaded program that should spit out some organic growth.

Betty Xiong

Analyst, Barclays

Got it. Makes sense. Thank you.

Conference Operator

Operator

Thank you. Our next question comes from the line of Gabe Dowd of Truist. Your line is now open.

Gabe Dowd / Arun Jayaram

Analysts, Truist / J.P. Morgan

Thanks, operator, and thanks, guys. Thanks for taking my questions. I was hoping I could maybe follow up on Betty's question just on 27 and Kaes' earlier comment you made in the call around CapEx. So if you were to run the five crews through 27, is that the high end of 4Q's CapEx number, the 1050? Is that what we should expect for quarterly CapEx in 27, or is it a bit higher to get that low signal digit growth?

Kaes Van't Hof

Chief Executive Officer, Diamondback Energy

Yeah, I don't know. You know, Gabe, today, there's still a lot of variables out there. I'd probably say, you know, at $100 oil, it probably is a little higher, but we'll see what happens over the next few months.

Conference Operator

Operator

Thank you. Our next question comes from the line of Arun Jayaram of JP Morgan. Your line is now open.

Gabe Dowd / Arun Jayaram

Analysts, Truist / J.P. Morgan

Yeah, good morning. Thanks for taking my question. I was wondering if we could go back to slide 11 and talk a little bit about Diamondbacks results relative to the industry for the Barnett, because the gap relative to peers looks to be greater than for the kind of core Midland Basin programs. and then maybe just talk a little bit about the planned shift into full development mode. As you mentioned, I think the Barn End is about 20% of drilling activities as we stand here today.

Kaes Van't Hof

Chief Executive Officer, Diamondback Energy

Yeah, Arun. I think just generally the team had a very specific strategy on where they wanted to target. As I've said many times in this call, we're basin experts. We just think about this basin day in, day out and we had a thesis that seems to be proving out in the geology, and I think that separation will continue.

Gabe Dowd / Arun Jayaram

Analysts, Truist / J.P. Morgan

Understood, understood. And then as a follow-up, Case, if you ran kind of five frat crews, 19 rigs or so, in 2027, ballpark, how much footage would that kind of generate relative to the 6.4 Our next question comes from the line of Charles Mead of Johnson Rice.

Kaes Van't Hof

Chief Executive Officer, Diamondback Energy

Your line is now open.

Charles Meade

Analyst, Johnson Rice

Good morning, Kaes, to you and your team. And I want to say I always enjoy your unvarnished comments in this format. Thanks, Charles. One quick follow-up on the Barnett. I think you mostly addressed this, but just one other dimension, perhaps. It sounds like the big determinants of this productivity you're seeing are reservoir energy and the thickness. So you're choosing the best places. But is there anything else? That has surprised you guys, or do those two factors explain most of this uplift that we're seeing?

Kaes Van't Hof

Chief Executive Officer, Diamondback Energy

I think geology drives the day, right, Charles? We've picked some really good spots to get going here. I think we're learning the aerial extent of what's good. I think if we take it back to 30,000 feet, this is a play that was funded via Diamondbacks cash flow and You know, done at very low acreage prices and on a full cycle basis. This is probably one of the best investments we've ever made.

Charles Meade

Analyst, Johnson Rice

That's a good characterization. And in case this, I'm going to actually go out on a limb a little bit here, so feel free to punt if you'd like. But your comments on the gas macro, you know, and saying that this is becoming more of a demand pull, the way I interpret that is it's kind of, you know, to a to put it in phrases like, look, we're doing a B and a half a day without even trying. And so assuming you had the price signal and you wanted to try, what do you think you could grow your gas volumes by year over year? My first guess would be somewhere around 10% or 15%, which would be a doubling in like five or six years. But what would your guess be?

Kaes Van't Hof

Chief Executive Officer, Diamondback Energy

Yeah, I don't think that's a bad number. I think what we would need to see, though, and need to control is more of the value chain, right? So it's not just what you're receiving at the wellhead, it's, you know, what's the processing cost, what's your cost to, you know, move it down the pipe, and then what's, you know, a buyer buying it at. So, you know, I think we're probably still a long way from drilling for gas specifically. I think it's naturally just going to happen, but... If you were to drill for gas specifically out of this basin, you've got to think more like a gas company that has more of the value chain under their control.

Charles Meade

Analyst, Johnson Rice

That's great detail. Thank you, Kaes. Appreciate it.

Kaes Van't Hof

Chief Executive Officer, Diamondback Energy

Thanks, Charles.

Conference Operator

Operator

Thank you. Our last question comes from the line of Leo Mariani of Roth. Your line is now open.

Leo Mariani

Analyst, Roth

Hey, guys. Wanted to follow up on the comments just around approved recoveries. Obviously, you're talking about roughly 10% currently. Do you think you can actually move the needle on that number where it actually goes, like, say, closer to 11? Is that a this-decade event, or do you think of that as more of something that could happen in, say, the first part of the 2030s?

Kaes Van't Hof

Chief Executive Officer, Diamondback Energy

I mean, I think 11 is achievable in the next couple of years. The question is, how do you get from 10 to 20? Obviously, a much larger... oil companies talked about that in this basin. And I think there's probably some use cases that are working in a lab or early tests in the field that give me some hope that that's probably possible in the next decade. But I think strategy-wise, Leo, we have the longest duration inventory in the basin at the lowest cost structure. So we're going to be the last company that has to try this stuff. and if this stuff, you know, these methodologies become better rate of return than what we have left to drill, then we'll pivot to allocating more capital to them. But I think what we've built inside the business is the most flexibility to try these things or have to do these things last versus try them and learn from them today.

Leo Mariani

Analyst, Roth

Okay, that certainly makes sense. And then just to kind of be clear on your comments just around thoughts going forward, I mean, presumably you're still fully in green light mode here today. At this point in time, I know 27 is TBD, but at least for now it doesn't seem like there's anything that's moving you guys off green light in the near term.

Kaes Van't Hof

Chief Executive Officer, Diamondback Energy

Yeah, that's right. I mean, it's been a couple months or a couple quarters since the stoplight went into retirement, but we're still in the green light.

Leo Mariani

Analyst, Roth

Okay. Thanks, guys.

Kaes Van't Hof

Chief Executive Officer, Diamondback Energy

Thank you.

Conference Operator

Operator

Thank you. This concludes the question and answer session. I would now like to turn it back to Kaes Van't Hof, CEO, for closing remarks.

Kaes Van't Hof

Chief Executive Officer, Diamondback Energy

Well, thanks everybody for the time. New record, 65 minutes, and appreciate everyone making the effort. So thank you for your interest, and we're available to answer any questions if you have any.

Conference Operator

Operator

Thank you for your participation in today's conference. This does conclude the program, and you may now disconnect.

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Diamondback Energy, Inc. Q3 F2026 Earnings Call Transcript

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