Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with our unaudited consolidated financial statements and notes thereto presented in this report as well as our audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2021. The following discussion contains “forward-looking statements” that reflect our future plans, estimates, beliefs, and expected performance. Actual results and the timing of events may differ materially from those contained in these forward-looking statements due to a number of factors. See “Part II. Item 1A. Risk Factors” and “Cautionary Statement Regarding Forward-Looking Statements.”

Overview

We operate in two operating segments: (i) the upstream segment, which is engaged in the acquisition, development, exploration and exploitation of unconventional, onshore oil and natural gas reserves primarily in the Permian Basin in West Texas and (ii) through our subsidiary, Rattler, the midstream operations segment, which is focused on ownership, operation, development and acquisition of midstream infrastructure assets in the Midland and Delaware Basins of the Permian Basin.

Despite the recovery in commodity prices and rising demand in recent quarters, we expect to hold our oil production levels flat during 2022, using excess cash flow for debt repayment and/or return to our stockholders rather than expanding our drilling program. During the second quarter of 2022 we have continued to use cash on hand to pay down debt and believe that we now have a strong balance sheet that can withstand another down cycle. We are focused on maintaining high cash margins, a low-cost structure to drive an increasing return on capital and operational excellence, working to mitigate inflationary pressures through improvements and efficiencies in our drilling and completion programs. Going forward, we will continue to remain flexible, using a combination of our growing and sustainable base dividend, variable dividend and opportunistic share repurchase program to generate the highest value proposition for our shareholders.

Recent Developments

Second Quarter 2022 Highlights

• We recorded net income of $1.4 billion for the second quarter of 2022.

• Paid dividends to shareholders of $541 million during the second quarter and declared a cash dividend for the second quarter of 2022 of $3.05 per share of common stock, consisting of a base quarterly dividend of $0.75 per share of common stock and a variable quarterly dividend of $2.30 per share of common stock.

• Repurchased approximately $303 million of our common stock, leaving approximately $1.3 billion available for future purchases under our common stock repurchase program at June 30, 2022. The repurchase program was further increased from $2.0 billion to $4.0 billion in July 2022.

• Repurchased an aggregate of $337 million in principal amount of our outstanding senior notes with cash on hand.

• Our cash operating costs for the second quarter of 2022 were $12.24 per BOE, including lease operating expenses of $4.59 per BOE, cash general and administrative expenses of $0.75 per BOE and production and ad valorem taxes and gathering and transportation expenses of $6.90 per BOE.

• Our average production was 380.5 MBOE/d during the second quarter of 2022.

• Drilled 43 gross horizontal wells in the Midland Basin and 9 gross horizontal wells in the Delaware Basin, and turned 62 gross operated horizontal wells (56 in the Midland Basin and 6 in the Delaware Basin) to production.

• Incurred capital expenditures, excluding acquisitions, of $468 million during the second quarter of 2022.

See Part II, Item 1A. Risk Factors in this report for discussion of the potential risks of climate change and related litigation on our financial condition, results of operations or cash flows.

Commodity Prices and Inflation

Prices for oil, natural gas and natural gas liquids are determined primarily by prevailing market conditions. Regional and worldwide economic activity, extreme weather conditions and other substantially variable factors influence market conditions for these products. These factors are beyond our control and are difficult to predict. During 2021 and the first half of 2022, the posted NYMEX WTI price for crude oil ranged from $47.62 to $123.70 per Bbl, and the NYMEX Henry Hub price

of natural gas ranged from $2.45 to $9.32 per MMBtu, with seven-year highs reached in 2022. The war in Ukraine, the COVID-19 pandemic, and recent measures to combat inflation have continued to contribute to economic and pricing volatility during 2022. Although the impact of inflation on our business has been insignificant in prior periods, inflation in the U.S. has been rising at its fastest rate in over 40 years, creating inflationary pressure on the cost of services, equipment and other goods in the energy industry and other sectors, which is contributing to labor and materials shortages across the supply-chain. Additionally, OPEC and its non-OPEC allies, known collectively as OPEC+, continues to meet regularly to evaluate the state of global oil supply, demand and inventory levels, and has planned production increases throughout 2022, however such increases cannot be guaranteed. As such, pricing may remain volatile during the second half of 2022.

Rattler Merger

On May 15, 2022, we entered into the Merger Agreement with Rattler, Rattler Midstream GP LLC, the General Partner, and Merger Sub. The Merger Agreement provides that, among other things and subject to the terms and conditions of the Merger Agreement, at the effective time of the Rattler Merger, (i) Merger Sub will be merged with and into Rattler, with Rattler surviving and continuing as the surviving entity in the merger and (ii) each issued and outstanding publicly held common unit representing a limited partner interest in Rattler (other than any common units owned by the Company and its subsidiaries) will be converted into the right to receive 0.113 of a share of common stock, par value $0.01 per share, of the Company. The Merger Agreement also specifies the treatment of outstanding Rattler equity awards in connection with the Merger. Our board of directors and the board of directors of Rattler’s General Partner (acting upon the recommendation of its conflicts committee) unanimously approved the merger. We and Rattler expect that the Rattler Merger will close, subject to certain conditions, reasonably promptly following the distribution payment date for the second quarter 2022 distribution to Rattler’s unitholders reported by Rattler.

Upstream Segment

In our upstream segment, our activities are primarily directed at the horizontal development of the Wolfcamp and Spraberry formations in the Midland Basin and the Wolfcamp and Bone Spring formations in the Delaware Basin within the Permian Basin. We intend to continue to develop our reserves and increase production through development drilling and exploitation and exploration activities on our multi-year inventory of identified potential drilling locations and through acquisitions that meet our strategic and financial objectives, targeting oil-weighted reserves. Additionally, our publicly-traded subsidiary, Viper, is focused on owning and acquiring mineral interests and royalty interests in oil and natural gas properties primarily in the Permian Basin and derives royalty income and lease bonus income from such interests.

As of June 30, 2022, we had approximately 448,859 net acres, which primarily consisted of approximately 267,634 net acres in the Midland Basin and 153,166 net acres in the Delaware Basin.

The following table sets forth the total number of operated horizontal wells drilled and completed during the second quarter of 2022:

			Three Months Ended June 30, 2022																								Six Months Ended June 30, 2022
			Drilled												Completed**(1)**												Drilled												Completed**(2)**
Area			Gross						Net						Gross						Net						Gross						Net						Gross						Net
Midland Basin			43						39						56						52						90						85						110						102
Delaware Basin			9						9						6						6						23						22						21						19
Total			52						48						62						58						113						107						131						121

(1)The average lateral length for the wells completed during the second quarter of 2022 was 10,444 feet. Operated completions during the second quarter of 2022 consisted of 20 Wolfcamp A wells, 15 Lower Spraberry wells, 13 Wolfcamp B wells, seven Jo Mill wells, five Middle Spraberry wells and two Second Bone Spring wells.

(2)The average lateral length for the wells completed during the first six months of 2022 was 10,030 feet. Operated completions during the first six months of 2022 consisted of 35 Wolfcamp A wells, 34 Lower Spraberry wells, 19 Jo Mill wells, 19 Wolfcamp B wells, 14 Middle Spraberry wells, eight Second Bone Spring wells, one Third Bone Spring well and one Barnett well.

As of June 30, 2022, we operated the following wells:

			As of June 30, 2022
			Vertical Wells												Horizontal Wells												Total
Area			Gross						Net						Gross						Net						Gross						Net
Midland Basin			2,216						2,075						1,857						1,728						4,073						3,803
Delaware Basin			47						42						710						662						757						704
Total			2,263						2,117						2,567						2,390						4,830						4,507

As of June 30, 2022, we held interests in 11,382 gross (4,619 net) wells, including wells that we do not operate.

Midstream Operations

In our midstream operations segment, Rattler’s crude oil infrastructure assets consist of gathering pipelines and metering facilities, which collectively gather crude oil for its customers. Rattler’s facilities gather crude oil from horizontal and vertical wells in our ReWard, Spanish Trail, Pecos and Fivestones areas within the Permian Basin. Rattler’s water sourcing and distribution assets consist of water wells, hydraulic fracturing pits, pipelines and water treatment and recycling facilities, which collectively gather and distribute water from Permian Basin aquifers to the drilling and completion sites through buried pipelines and temporary surface pipelines. Rattler’s gathering and disposal system spans approximately 609 miles and consists of gathering pipelines along with produced water disposal wells and facilities which collectively gather and dispose of produced water from operations throughout our Permian Basin acreage.

We have entered into multiple fee-based commercial agreements with Rattler, each with an initial term ending in 2034, utilizing Rattler’s infrastructure assets or its planned infrastructure assets to provide an array of essential services critical to our upstream operations in the Delaware and Midland Basins. Our agreements with Rattler include substantial acreage dedications.

The midstream operations segment’s revenues and operating expenses were not significant to our condensed consolidated statements of operations for the three and six months ended June 30, 2022 and 2021. See Note 16—Segment Information of the condensed notes to the consolidated financial statements included elsewhere in this report for financial information related to our midstream operations.

Comparison of the Three Months Ended June 30, 2022 and March 31, 2022

As noted in “—Recent Developments,” the markets for oil and natural gas are highly volatile and are influenced by a number of factors which can lead to significant changes in our results of operations and management’s operational strategy on a quarterly basis. Accordingly, our results of operations discussion focuses on a comparison of the current quarter’s results of operations with those of the immediately preceding quarter. We believe our discussion provides investors with a more meaningful analysis of material operational and financial changes which occurred during the quarter based on current market and operational trends.

Results of Operations

The following table sets forth selected operating data for the three months ended June 30, 2022 and March 31, 2022:

			Three Months Ended
			June 30, 2022						March 31, 2022
Revenues (In millions):
Oil sales			$	2,189					$	1,946
Natural gas sales			264						154
Natural gas liquid sales			299						289
Total oil, natural gas and natural gas liquid revenues			$	2,752					$	2,389
Production Data:
Oil (MBbls)			20,120						20,055
Natural gas (MMcf)			42,912						42,645
Natural gas liquids (MBbls)			7,349						7,161
Combined volumes (MBOE)(1)			34,621						34,324
Daily oil volumes (BO/d)			221,099						222,833
Daily combined volumes (BOE/d)			380,451						381,378
Average Prices:
Oil ($ per Bbl)			$	108.80					$	97.03
Natural gas ($ per Mcf)			$	6.15					$	3.61
Natural gas liquids ($ per Bbl)			$	40.69					$	40.36
Combined ($ per BOE)			$	79.49					$	69.60
Oil, hedged ($ per Bbl)(2)			$	97.32					$	83.47
Natural gas, hedged ($ per Mcf)(2)			$	4.40					$	3.31
Natural gas liquids, hedged ($ per Bbl)(2)			$	40.69					$	40.36
Average price, hedged ($ per BOE)(2)			$	70.65					$	61.30

(1)Bbl equivalents are calculated using a conversion rate of six Mcf per Bbl.

(2)Hedged prices reflect the effect of our commodity derivative transactions on our average sales prices and include gains and losses on cash settlements for matured commodity derivatives, which we do not designate for hedge accounting. Hedged prices exclude gains or losses resulting from the early settlement of commodity derivative contracts.

Production Data. Substantially all of our revenues are generated through the sale of oil, natural gas and natural gas liquids production. The following tables provide information on the mix of our production for the three months ended June 30, 2022 and March 31, 2022:

			Three Months Ended
			June 30, 2022						March 31, 2022
Oil (MBbls)			58		%				58		%
Natural gas (MMcf)			21		%				21		%
Natural gas liquids (MBbls)			21		%				21		%
			100		%				100		%

			Three Months Ended June 30, 2022															Three Months Ended March 31, 2022
			Midland Basin			Delaware Basin			Other**(1)**			Total						Midland Basin			Delaware Basin			Other**(2)**			Total
Production Data:
Oil (MBbls)			14,713			5,378			29			20,120						13,921			6,101			33			20,055
Natural gas (MMcf)			28,539			14,257			116			42,912						26,873			15,681			91			42,645
Natural gas liquids (MBbls)			5,123			2,213			13			7,349						4,750			2,390			21			7,161
Total (MBoe)			24,593			9,967			61			34,621						23,150			11,105			69			34,324

(1)Includes the Eagle Ford Shale and Rockies.

(2)Includes the Eagle Ford Shale and Rockies.

Oil, Natural Gas and Natural Gas Liquids Revenues. Our revenues are a function of oil, natural gas and natural gas liquids production volumes sold and average sales prices received for those volumes.

Our oil, natural gas and natural gas liquids revenues for the second quarter of 2022 increased by $363 million, or 15%, to $2.8 billion from $2.4 billion during the first quarter of 2022. Higher average oil prices, and to a lesser extent natural gas liquids prices, contributed $348 million of the total increase.

Higher commodity prices in the second quarter of 2022 compared to the first quarter of 2022 primarily reflect the continued increase in demand compared to supply for oil due to macroeconomic factors such as the war in Ukraine as discussed in “—**Recent Developments” above. The increase in production resulted primarily from having one additional day of production in the second quarter of 2022 compared to the first quarter of 2022.

Other Revenues. The following table shows other insignificant revenues for the three months ended June 30, 2022 and March 31, 2022:

			Three Months Ended
			June 30, 2022						March 31, 2022
			(In millions)
Midstream services			$	14					$	17
Other operating income			$	2					$	2

Lease Operating Expenses. The following table shows lease operating expenses for the three months ended June 30, 2022 and March 31, 2022:

			Three Months Ended
			June 30, 2022												March 31, 2022
			Amount						Per BOE						Amount						Per BOE
			(In millions, except per BOE amounts)
Lease operating expenses			$	159					$	4.59					$	149					$	4.34

Lease operating expenses increased by $10 million, or $0.25 on a per BOE basis for the second quarter of 2022 compared to the first quarter of 2022, primarily due to service cost inflation.

Production and Ad Valorem Tax Expense. The following table shows production and ad valorem tax expense for the three months ended June 30, 2022 and March 31, 2022:

			Three Months Ended
			June 30, 2022												March 31, 2022
			Amount						Per BOE						Amount						Per BOE
			(In millions, except per BOE amounts)
Production taxes			$	139					$	4.01					$	120					$	3.50
Ad valorem taxes			39						1.13						41						1.19
Total production and ad valorem expense			$	178					$	5.14					$	161					$	4.69
Production taxes as a % of oil, natural gas, and natural gas liquids revenue			5.1		%										5.0		%

In general, production taxes are directly related to production revenues and are based upon current year commodity prices. Production taxes as a percentage of production revenues for the second quarter of 2022 remained consistent with the first quarter of 2022.

Ad valorem taxes are based, among other factors, on property values driven by prior year commodity prices, which were adjusted upward during the first quarter of 2022 based on the recovery in commodity prices during 2021 as compared to 2020. For the second quarter of 2022, ad valorem taxes remained relatively consistent with the first quarter of 2022.

Gathering and Transportation Expense. The following table shows gathering and transportation expense for the three months ended June 30, 2022 and March 31, 2022:

			Three Months Ended
			June 30, 2022												March 31, 2022
			Amount						Per BOE						Amount						Per BOE
			(In millions, except per BOE amounts)
Gathering and transportation expense			$	61					$	1.76					$	59					$	1.72

Gathering and transportation expenses remained relatively consistent in total and on a per BOE basis for the second quarter of 2022 compared to the first quarter of 2022.

Depreciation, Depletion, Amortization and Accretion. The following table provides the components of our depreciation, depletion, amortization and accretion expense for the three months ended June 30, 2022 and March 31, 2022:

			Three Months Ended
			June 30, 2022						March 31, 2022
			(In millions, except BOE amounts)
Depletion of proved oil and natural gas properties			$	306					$	286
Depreciation of midstream assets			15						20
Depreciation of other property and equipment			3						4
Other amortization			3						—
Asset retirement obligation accretion			3						3
Depreciation, depletion, amortization and accretion expense			$	330					$	313
Oil and natural gas properties depletion rate per BOE			$	8.84					$	8.33

The increase in depletion of proved oil and natural gas properties of $20 million for the second quarter of 2022 as compared to the first quarter of 2022 resulted largely from an increase in the average depletion rate, which was primarily attributable to higher value leasehold being transferred into the amortization base during the second quarter of 2022.

General and Administrative Expenses. The following table shows general and administrative expenses for the three months ended June 30, 2022 and March 31, 2022:

			Three Months Ended
			June 30, 2022												March 31, 2022
			Amount						Per BOE						Amount						Per BOE
			(In millions, except per BOE amounts)
General and administrative expenses			$	26					$	0.75					$	21					$	0.61
Non-cash stock-based compensation			13						0.38						15						0.44
Total general and administrative expenses			$	39					$	1.13					$	36					$	1.05

The increase in general and administrative expenses for the second quarter of 2022 compared to the first quarter of 2022 was largely due to a $2 million increase in charitable donations during the second quarter of 2022.

Other Operating Costs and Expenses. The following table shows other insignificant operating costs and expenses for the three months ended June 30, 2022 and March 31, 2022:

			Three Months Ended
			June 30, 2022						March 31, 2022
			(In millions)
Midstream services expenses			$	23					$	22
Other operating expenses			$	—					$	8

Net Interest Expense. The following table shows the components of net interest expense for the three months ended June 30, 2022 and March 31, 2022:

			Three Months Ended
			June 30, 2022						March 31, 2022
			(In millions)
Revolving credit agreements			$	6					$	4
Senior notes			54						61
Amortization of debt issuance costs and discounts			7						5
Other			2						1
Capitalized interest			(30)						(31)
Interest expense, net			$	39					$	40

Total interest expense, net was consistent between the second quarter and first quarter of 2022. The components of interest expense reflect a decrease of $7 million in interest expense for our senior notes due to redemptions and repurchases of approximately $1.9 billion in principal in first and second quarters of 2022, partially offset by interest expense incurred on the March 2022 Notes. See Note 7—Debt of the condensed notes to the consolidated financial statements included elsewhere in this report for further details regarding outstanding borrowings and interest expense.

Derivative Instruments. The following table shows the net gain (loss) on derivative instruments and the net cash receipts (payments) on settlements of derivative instruments for the three months ended June 30, 2022 and March 31, 2022:

			Three Months Ended
			June 30, 2022						March 31, 2022
			(In millions)
Gain (loss) on derivative instruments, net			$	(101)					$	(552)
Net cash received (paid) on settlements(1)			$	(300)					$	(420)

(1)The three months ended June 30, 2022 includes $6 million in realized settlements related to interest rate swaps. The three months ended March 31, 2022 includes cash paid on commodity contracts terminated prior to their contractual maturity of $135 million.

We have not designated our commodity derivative instruments as hedges for accounting purposes. As a result, we mark our commodity derivative instruments to fair value and recognize the cash and non-cash changes in fair value on derivative instruments in earnings.

Certain of our interest rate swaps were designated as fair value hedges for accounting purposes, but were fully dedesignated at management’s election in the second quarter of 2022. After dedesignation, gains and losses due to settlements and changes in the fair value of the interest rate swaps are recognized in earnings in the caption “Gain (loss) on derivative instruments, net” on the condensed consolidated statements of operations. See Note 11—Derivatives of the condensed notes to the consolidated financial statements included elsewhere in this report for further details regarding our derivative instruments

Other Income (Expense). The following table shows other income and expenses for the three months ended June 30, 2022 and March 31, 2022:

			Three Months Ended
			June 30, 2022						March 31, 2022
			(In millions)
Other income (expense), net			$	1					$	1
Gain (loss) on extinguishment of debt			$	(4)					$	(54)
Income (loss) from equity investments			$	28					$	9

Gain (loss) on extinguishment of debt reflects the difference between the carrying value and reacquisition price for the repurchases of various senior notes in the second quarter of 2022 and the redemptions of our 4.750% 2025 Senior Notes and 2.875% 2024 Senior Notes in the first quarter of 2022. See Note 7—Debt of the condensed notes to the consolidated financial statements included elsewhere in this report for further details regarding gain (loss) on extinguishment of debt.

The increase in income from our equity investments primarily reflects higher capacity utilization and price realizations for our midstream investees in the second quarter of 2022 compared to the first quarter of 2022.

Provision for (Benefit from) Income Taxes. The following table shows the provision for (benefit from) income taxes for the three months ended June 30, 2022 and March 31, 2022:

			Three Months Ended
			June 30, 2022						March 31, 2022
			(In millions)
Provision for (benefit from) income taxes			$	402					$	221

The change in our income tax provision for the second quarter of 2022 compared to the first quarter of 2022 was primarily due to the increase in pre-tax income between the periods which resulted primarily from the changes in gain (loss) on derivatives and revenues from oil, natural gas and natural gas liquids discussed above. See Note 10—Income Taxes for further discussion of our income tax expense.

Comparison of the Six Months Ended June 30, 2022 and 2021

The following table sets forth selected operating data for the six months ended June 30, 2022 and 2021:

									Six Months Ended June 30,
															2022						2021
Revenues (In millions):
Oil sales															$	4,135					$	2,339
Natural gas sales															418						211
Natural gas liquid sales															588						289
Total oil, natural gas and natural gas liquid revenues															$	5,141					$	2,839
Production Data:
Oil (MBbls)															40,175						38,645
Natural gas (MMcf)															85,557						78,615
Natural gas liquids (MBbls)															14,510						12,452
Combined volumes (MBOE)(1)															68,945						64,200
Daily oil volumes (BO/d)															221,961						213,508
Daily combined volumes (BOE/d)															380,912						354,696
Average Prices:
Oil ($ per Bbl)															$	102.92					$	60.53
Natural gas ($ per Mcf)															$	4.89					$	2.68
Natural gas liquids ($ per Bbl)															$	40.52					$	23.21
Combined ($ per BOE)															$	74.57					$	44.22
Oil, hedged ($ per Bbl)(2)															$	90.40					$	48.54
Natural gas, hedged ($ per Mcf)(2)															$	3.86					$	2.18
Natural gas liquids, hedged ($ per Bbl)(2)															$	40.52					$	23.05
Average price, hedged ($ per BOE)(2)															$	65.99					$	36.36

(1)Bbl equivalents are calculated using a conversion rate of six Mcf per Bbl.

(2)Hedged prices reflect the effect of our commodity derivative transactions on our average sales prices and include gains and losses on cash settlements for matured commodity derivatives, which we do not designate for hedge accounting. Hedged prices exclude gains or losses resulting from the early settlement of commodity derivative contracts.

Production Data. Substantially all of our revenues are generated through the sale of oil, natural gas and natural gas liquids production. The following tables set forth the mix of our production data by product and basin for the six months ended June 30, 2022 and 2021:

			Six Months Ended June 30,
			2022						2021
Oil (MBbls)			58		%				60		%
Natural gas (MMcf)			21		%				21		%
Natural gas liquids (MBbls)			21		%				19		%
			100		%				100		%

			Six Months Ended June 30, 2022															Six Months Ended June 30, 2021
			Midland Basin			Delaware Basin			Other**(1)**			Total						Midland Basin			Delaware Basin			Other**(2)**			Total
Production Data:
Oil (MBbls)			28,634			11,479			62			40,175						23,800			12,827			2,018			38,645
Natural gas (MMcf)			55,412			29,938			207			85,557						43,576			31,293			3,746			78,615
Natural gas liquids (MBbls)			9,873			4,603			34			14,510						7,599			4,137			716			12,452
Total (MBoe)			47,742			21,072			131			68,945						38,662			22,180			3,358			64,200

(1)Includes the Eagle Ford Shale and Rockies.

(2)Includes the Eagle Ford Shale, Rockies and High Plains.

Oil, Natural Gas and Natural Gas Liquids Revenues. Our revenues are a function of oil, natural gas and natural gas liquids production volumes sold and average sales prices received for those volumes.

Our oil, natural gas and natural gas liquids revenues for the six months ended June 30, 2022 increased by $2.3 billion, or 81%, to $5.1 billion from $2.8 billion during the six months ended June 30, 2021. Higher average oil prices, and to a lesser extent natural gas and natural gas liquids prices, contributed $2.1 billion of the total increase. The remainder of the overall change is due to a 7% increase in combined volumes sold.

Higher commodity prices during the six months ended June 30, 2022 compared to the same period in 2021 primarily reflect the increase in demand for oil due to economic recovery from the COVID-19 pandemic and other macroeconomic factors such as the war in Ukraine as discussed in “—**Recent Developments” above. The increase in production for the six months ended June 30, 2022 compared to the same period in 2021 resulted primarily from recognizing six months of production in the current period associated with production from the Guidon Acquisition and QEP Merger, which occurred late in the first quarter 2021, and new well additions between periods.

Other Revenues. The following table shows the other insignificant revenues for the six months ended June 30, 2022 and 2021:

			Six Months Ended June 30,
			2022						2021
			(In millions)
Midstream services			$	31					$	23
Other operating income			$	4					$	3

Lease Operating Expenses. The following table shows lease operating expenses for the six months ended June 30, 2022 and 2021:

									Six Months Ended June 30,
															2022												2021
																											Amount						Per BOE						Amount						Per BOE
																											(In millions, except per BOE amounts)
Lease operating expenses																											$	308					$	4.47					$	259					$	4.03

Lease operating expenses increased by $49 million, or $0.44 per BOE for the six months ended June 30, 2022 compared to the same period in 2021. Approximately $15 million of this increase is due to production and operating expenses incurred on wells acquired in the Guidon Acquisition and the QEP Merger in the first quarter of 2021, including certain properties in the Williston Basin that were divested in the fourth quarter of 2021. These properties, on average, have higher lease operating expenses per BOE than our historical properties. The remainder of the increase is attributable to service cost inflation. As a result of inflationary pressures, we have increased the expected range for our total lease operating expenses in 2022 to between $614 million and $694 million.

Production and Ad Valorem Tax Expense. The following table shows production and ad valorem tax expense for the six months ended June 30, 2022 and 2021:

									Six Months Ended June 30,
															2022												2021
																											Amount						Per BOE						Amount						Per BOE
																											(In millions, except per BOE amounts)
Production taxes																											$	259					$	3.76					$	147					$	2.29
Ad valorem taxes																											80						1.16						33						0.51
Total production and ad valorem expense																											$	339					$	4.92					$	180					$	2.80
Production taxes as a % of oil, natural gas, and natural gas liquids revenue																											5.0		%										5.2		%

In general, production taxes are directly related to production revenues and are based upon current year commodity prices. Production taxes as a percentage of production revenues remained consistent for the six months ended June 30, 2022 compared to the same period in 2021.

Ad valorem taxes are based, among other factors, on property values driven by prior year commodity prices. Ad valorem taxes for the six months ended June 30, 2022 as compared to the same period in 2021 increased by $47 million primarily due to higher overall valuations resulting from an increase in commodity prices between valuation periods.

Gathering and Transportation Expense. The following table shows gathering and transportation expense for the six months ended June 30, 2022 and 2021:

									Six Months Ended June 30,
															2022												2021
																											Amount						Per BOE						Amount						Per BOE
																											(In millions, except per BOE amounts)
Gathering and transportation expense																											$	120					$	1.74					$	87					$	1.36

The increase in gathering and transportation expenses for the six months ended June 30, 2022 compared to the same period in 2021 is primarily attributable to the increase in production between periods, as well as an overall increase in the cost per BOE. On a per BOE basis, several individually insignificant factors contributed to the overall increase including higher third-party gas gathering expenses incurred after the sale of certain gas gathering assets during the fourth quarter of 2021, production added from the QEP Merger which has higher average gathering and transportation costs per BOE than our historical properties and annual contractual rate escalations.

We expect gathering and transportation expenses to range from approximately $232 to $250 million in 2022.

Depreciation, Depletion, Amortization and Accretion. The following table provides the components of our depreciation, depletion, amortization and accretion expense for the six months ended June 30, 2022 and 2021:

									Six Months Ended June 30,
															2022						2021
															(In millions, except BOE amounts)
Depletion of proved oil and natural gas properties															$	592					$	575
Depreciation of midstream assets															35						26
Depreciation of other property and equipment															7						8
Other amortization															3						—
Asset retirement obligation accretion															6						5
Depreciation, depletion, amortization and accretion expense															$	643					$	614
Oil and natural gas properties depletion rate per BOE															$	8.59					$	8.96

The increase in depletion of proved oil and natural gas properties of $17 million for the six months ended June 30, 2022 as compared to the same period in 2021 resulted largely from higher production volumes partially offset by a lower average depletion rate. The decline in rate resulted primarily from higher SEC prices utilized in the reserve calculations in the 2022 period, lengthening the economic life of the reserve base and resulting in higher projected remaining reserve volumes on our wells.

Impairment of Oil and Natural Gas Properties. No impairment expense was recorded for the six months ended June 30, 2022. In connection with the QEP Merger and the Guidon Acquisition in the first quarter of 2021, we recorded the oil and natural gas properties acquired at fair value. Pursuant to SEC guidance, we determined the fair value of the properties acquired in the QEP Merger and the Guidon Acquisition clearly exceeded the related full cost ceiling limitation beyond a reasonable doubt. As such, we requested and received a waiver from the SEC to exclude the acquired properties from the first quarter 2021 ceiling test calculation. As a result, no impairment expense related to the QEP Merger and the Guidon Acquisition was recorded for the three months ended March 31, 2021. Had we not received the waiver from the SEC, an impairment charge of approximately $1.1 billion would have been recorded during the six months ended June 30, 2021.

Impairment charges affect our results of operations but do not reduce our cash flow. In addition to commodity prices, our production rates, levels of proved reserves, future development costs, transfers of unevaluated properties and other factors will determine our actual ceiling test calculation and impairment analysis in future periods. If the trailing 12-month commodity prices fall significantly as compared to the commodity prices used in prior quarters, we may have material write-downs in subsequent quarters. See Note 5—Property and Equipment of the condensed notes to the consolidated financial statements included elsewhere in this report for further details regarding factors that impact the impairment of oil and natural gas properties.

General and Administrative Expenses. The following table shows general and administrative expenses for the six months ended June 30, 2022 and 2021:

									Six Months Ended June 30,
															2022												2021
																											Amount						Per BOE						Amount						Per BOE
																											(In millions, except per BOE amounts)
General and administrative expenses																											$	47					$	0.68					$	38					$	0.59
Non-cash stock-based compensation																											28						0.41						23						0.36
Total general and administrative expenses																											$	75					$	1.09					$	61					$	0.95

The increase in general and administrative expenses for the six months ended June 30, 2022 compared to the same period in 2021 was due primarily to higher compensation costs resulting from growth in our headcount and an increase in salary and benefits costs in the current year. Additionally, equity compensation increased by $5 million for the six months ended June 30, 2022 compared to the same period in 2021, primarily due to a higher grant-date fair value for performance stock units issued in the first quarter of 2022 and the accelerated vesting of restricted stock held by transitional employees related to the QEP Merger.

Merger and Integration Expense. The following tables shows merger and integration expense for the six months ended June 30, 2022 and 2021:

									Six Months Ended June 30,
															2022						2021
															(In millions)
Merger and integration expenses															$	—					$	77

Total merger and integration expense for the six months ended June 30, 2021 includes $68 million in costs incurred for the QEP Merger and $9 million in costs incurred for the Guidon Acquisition. The QEP Merger related expenses primarily consisted of $38 million in severance costs and $30 million in banking, legal and advisory fees, and the Guidon Acquisition related expenses consisted primarily of advisory and legal fees. See Note 4—Acquisitions and Divestitures of the condensed notes to the consolidated financial statements included elsewhere in this report for further details regarding the QEP Merger and the Guidon Acquisition.

Other Operating Costs and Expenses. The following table shows the other insignificant operating costs and expenses for the six months ended June 30, 2022 and 2021:

			Six Months Ended June 30,
			2022						2021
			(In millions)
Midstream services expenses			$	45					$	51
Other operating expenses			$	8					$	10

Net Interest Expense. The following table shows the components of net interest expense for the six months ended June 30, 2022 and 2021:

									Six Months Ended June 30,
															2022						2021
															(In millions)
Revolving credit agreements															$	10					$	5
Senior notes															115						131
Amortization of debt issuance costs and discounts															12						8
Other															3						4
Capitalized interest															(61)						(35)
Interest expense, net															$	79					$	113

The decrease in net interest expense for the six months ended June 30, 2022 compared to the same period in 2021, primarily reflects (i) a decrease in interest expense on our senior notes due largely to redemptions and repurchases of principal between the periods, and (ii) an increase in capitalized interest costs. See Note 7—Debt of the condensed notes to the consolidated financial statements included elsewhere in this report for further details regarding outstanding borrowings.

Derivative Instruments. The following table shows the net gain (loss) on derivative instruments and the net cash receipts (payments) on settlements of derivative instruments for the six months ended June 30, 2022 and 2021:

									Six Months Ended June 30,
															2022						2021
															(In millions)
Gain (loss) on derivative instruments, net(1)															$	(653)					$	(661)
Net cash received (paid) on settlements(2)															$	(720)					$	(425)

(1)The six months ended June 30, 2022 includes $6 million in losses related to interest rate swaps.

(2)The six months ended June 30, 2022 includes cash paid on commodity contracts terminated prior to their contractual maturity of $135 million. The six months ended June 30, 2021 includes cash received on interest rate swap contracts terminated prior to their contractual maturity of $80 million.

We have not designated our commodity derivative instruments as hedges for accounting purposes. As a result, we mark our derivative instruments to fair value and recognize the cash and non-cash changes in fair value on derivative instruments in our condensed consolidated statements of operations under the line item captioned “Gain (loss) on derivative instruments, net.” See Note 11—Derivatives of the condensed notes to the consolidated financial statements included elsewhere in this report for further details regarding our derivative instruments.

Other Income (Expense). The following table shows other income and expenses for the six months ended June 30, 2022 and 2021:

									Six Months Ended June 30,
															2022						2021
												(In millions)
Other income (expense), net															$	2					$	(6)
Gain (loss) on extinguishment of debt															$	(58)					$	(61)
Income (loss) from equity investments															$	37					$	2

Gain (loss) on extinguishment of debt reflects the difference between the carrying value and reacquisition price for the repurchases and redemptions of various senior notes during the 2022 and 2021 periods. See Note 7—Debt of the condensed notes to the consolidated financial statements included elsewhere in this report for further details regarding gain (loss) on extinguishment of debt.

The increase in income from our equity investments primarily reflects higher capacity utilization and price realizations for our midstream investees in the second quarter of 2022 compared to the first quarter of 2022, as well as $19 million in income from Rattler’s investment in an interconnected gas gathering system in the Midland Basin, which was acquired in the fourth quarter of 2021.

Provision for (Benefit from) Income Taxes. The following table shows the provision for (benefit from) income taxes for the six months ended June 30, 2022 and 2021:

									Six Months Ended June 30,
															2022						2021
															(In millions)
Provision for (benefit from) income taxes															$	623					$	159

The change in our income tax provision for the six months ended June 30, 2022 compared to the same period in 2021 was primarily due to the increase in pre-tax income which resulted largely from the changes in revenues from oil, natural gas and natural gas liquids, gain (loss) on derivatives and other expenses discussed above. See Note 10—Income Taxes of the condensed notes to the consolidated financial statements included elsewhere in this report for further discussion of our income tax expense.

Liquidity and Capital Resources

Overview of Sources and Uses of Cash

Historically, our primary sources of liquidity include cash flows from operations, proceeds from our public equity offerings, borrowings under our revolving credit facility, proceeds from the issuance of senior notes and sales of non-core assets. Our primary uses of capital have been for the acquisition, development and exploration of oil and natural gas properties. At June 30, 2022, we had approximately $1.6 billion of liquidity consisting of $21 million in standalone cash and cash equivalents and $1.6 billion available under our credit facility. As discussed below, our capital budget for 2022 is $1.82 billion to $1.90 billion. In July 2022, we fully redeemed the principal amounts of $25 million and $20 million of our 5.375% Notes due 2022 and 7.320% Medium-term Notes due 2022, respectively, and have an additional $10 million of senior notes maturing in the next 12 months.

Our working capital requirements are supported by our cash and cash equivalents and our credit facility. We may draw on our revolving credit facility to meet short-term cash requirements, or issue debt or equity securities as part of our longer-term liquidity and capital management program. Because of the alternatives available to us as discussed above, we believe that our short-term and long-term liquidity are adequate to fund not only our current operations, but also our near-term and long-term funding requirements including our capital spending programs, dividend payments, debt service obligations, debt maturities, repurchases of equity or debt securities and other amounts that may ultimately be paid in connection with contingencies.

Future cash flows are subject to a number of variables, including the level of oil and natural gas production and prices, and significant additional capital expenditures will be required to more fully develop our properties. In order to mitigate this volatility, we entered into derivative contracts with a number of financial institutions, all of which are participants in our credit

facility, hedging a portion of our estimated future crude oil and natural gas production through the end of 2023 as discussed further in Note 11—Derivatives and Item 3. Quantitative and Qualitative Disclosures About Market Risk—Commodity Price Risk. The level of our hedging activity and duration of the financial instruments employed depend on our desired cash flow protection, available hedge prices, the magnitude of our capital program and our operating strategy.

As we pursue our business and financial strategy, we regularly consider which capital resources, including cash flow and equity and debt financings, are available to meet our future financial obligations, planned capital expenditure activities and liquidity requirements. Our future ability to grow proved reserves and production will be highly dependent on the capital resources available to us. Continued prolonged volatility in the capital, financial and/or credit markets due to the war in Ukraine, the COVID-19 pandemic, and/or other adverse macroeconomic conditions may limit our access to, or increase our cost of, capital or make capital unavailable on terms acceptable to us or at all. Although the Company expects that its sources of funding will be adequate to fund its short-term and long-term liquidity requirements, we cannot assure you the needed capital will be available on acceptable terms or at all.

Cash Flow

Our cash flows for the six months ended June 30, 2022 and 2021 are presented below:

			Six Months Ended June 30,
			2022						2021
			(In millions)
Net cash provided by (used in) operating activities			$	2,959					$	1,578
Net cash provided by (used in) investing activities			(1,232)						(898)
Net cash provided by (used in) financing activities			(2,340)						(392)
Net increase (decrease) in cash			$	(613)					$	288

Operating Activities

Our operating cash flow is sensitive to many variables, the most significant of which is the volatility of prices for the oil and natural gas we produce. Prices for these commodities are determined primarily by prevailing market conditions. Regional and worldwide economic activity, weather and other substantially variable factors influence market conditions for these products. These factors are beyond our control and are difficult to predict.

The increase in operating cash flows for the six months ended June 30, 2022 compared to the same period in 2021 primarily resulted from an additional $2.3 billion in total revenue, which was partially offset by (i) a change of $462 million in cash paid for taxes due to making payments of $362 million in 2022 compared to receiving a refund of $100 million in federal taxes under the 2020 CARES act in 2021, (ii) an increase in our cash operating expenses of approximately $165 million primarily due to costs incurred for the properties acquired in the QEP Merger and the Guidon Acquisition, (iii) $236 million due to making net cash payments of $720 million on our derivative contracts in 2022 compared to net cash payments of $484 million on our derivative contracts in 2021, and (iv) fluctuations in other working capital balances due primarily to the timing of when collections are made on accounts receivable and payments are made on accounts payable and accrued liabilities. See “—**Results of Operations” for discussion of significant changes in our revenues and expenses.

Investing Activities

The majority of our net cash used for investing activities during the six months ended June 30, 2022 and 2021 was for drilling and completion costs in conjunction with our development program as well as the purchase of oil and gas properties which are discussed further in Note 4—Acquisitions and Divestitures of the condensed notes to the consolidated financial statements included elsewhere in this report.

Capital Expenditure Activities

Our capital expenditures excluding acquisitions and equity method investments (on a cash basis) were as follows for the specified period:

			Six Months Ended June 30,
			2022						2021
			(In millions)
Drilling, completions and non-operated additions to oil and natural gas properties(1)			$	781					$	623
Infrastructure additions to oil and natural gas properties			82						22
Additions to midstream assets			42						17
Total			$	905					$	662

(1) See “—Recent Developments - Upstream Segment” above for additional detail on wells drilled and turned to production during the three and six months ended June 30, 2022 and 2021.

Financing Activities

During the six months ended June 30, 2022, net cash used in financing activities was primarily attributable to (i) $1.9 billion paid for the repurchase and redemption of principal outstanding on certain senior notes as discussed in “—2022 Debt Transactions” below, as well as $49 million of additional premiums paid in connection with the redemptions, (ii) $648 million of dividends paid to stockholders, (iii) $110 million in distributions to non-controlling interests, (iv) $381 million of repurchases as part of the share and unit repurchase programs, and (v) $16 million of repayments under credit facilities, net of borrowings. These cash outflows were partially offset by $750 million in proceeds from the March 2022 Notes.

Net cash used in financing activities for the six months ended June 30, 2021 was primarily attributable to (i) $2.1 billion paid for the repurchase of principal outstanding on certain senior notes as well as $166 million of additional premiums paid in connection with the repurchases, (ii) $140 million of dividends paid to stockholders, (iii) $119 million of repayments under our credit facilities, net of borrowings, (iv) $41 million in distributions to non-controlling interest and (v) $36 million of unit repurchases as part of the Viper and Rattler unit repurchase programs. These cash outflows were partially offset by $2.2 billion in proceeds from the March 2021 Notes and $59 million in net cash receipts from the early settlement of interest rate swaps and commodity derivative contracts that contained an other-than-insignificant financing element.

Capital Resources

Revolving Credit Facilities and Other Debt Instruments

As of June 30, 2022, our debt, including the debt of Viper and Rattler, consists of approximately $5.1 billion in aggregate outstanding principal amount of senior notes, $515 million in aggregate outstanding borrowings under revolving credit facilities and $41 million in outstanding amounts due under our DrillCo Agreement.

As of June 30, 2022, the maximum credit amount available under our credit agreement was $1.6 billion, with $33 million in outstanding borrowings and approximately $1.6 billion available for future borrowings. As of June 30, 2022, there was an aggregate of $3 million in outstanding letters of credit, which reduce available borrowings under our credit agreement on a dollar for dollar basis. During the second quarter of 2022, we extended the maturity date on our credit agreement by one year to June 2, 2027, and may further extend it by two one-year extensions pursuant to the terms set forth in the credit agreement.

Viper’s Credit Agreement

The Viper credit agreement, as amended to date, matures on June 2, 2025 and provides for a revolving credit facility in the maximum credit amount of $2.0 billion, with a borrowing base of $580 million as of June 30, 2022, although Viper LLC had elected a commitment amount of $500 million, based on Viper LLC’s oil and natural gas reserves and other factors. As of June 30, 2022, there were $250 million of outstanding borrowings and $250 million available for future borrowings under the Viper credit agreement.

Rattler’s Credit Agreement

The Rattler credit agreement, as amended to date, matures on May 28, 2024 and provides for a revolving credit facility in the maximum credit amount of $600 million, which is expandable to $1.0 billion upon Rattler’s election, subject to obtaining additional lender commitments and satisfaction of customary conditions. As of June 30, 2022, there were $232 million of outstanding borrowings and $368 million available for future borrowings under the Rattler credit agreement.

2022 Debt Transactions

On March 17, 2022, we issued $750 million in aggregate principal amount of March 2022 Notes for net proceeds of $739 million, which were used to fund, together with cash on hand, the redemption of all of our outstanding 4.750% Senior Notes due 2025 and 2.875% Senior Notes due 2024 in the aggregate principal amount of $1.5 billion. Interest on the March 2022 Notes is payable semi-annually on March 15 and September 15 of each year, beginning on September 15, 2022.

In the second quarter of 2022, we repurchased an aggregate of $337 million in various tranches of senior notes with cash on hand, and Viper repurchased $50 million of its 5.375% senior notes due 2027 with cash on hand and borrowings under the Viper credit agreement.

Subject to market conditions and other factors, we expect to continue to issue debt securities from time to time in the future to refinance our maturing debt. The availability, interest rate and other terms of any new borrowings will depend on the ratings assigned by credit rating agencies, among other factors. We may also from time to time opportunistically repurchase some of our outstanding Senior Notes of one or more tranches or series, in open market purchases or in privately negotiated transactions.

We are currently in compliance, and expect to continue to be in compliance, with all financial maintenance covenants in our debt instruments.

For additional discussion of our outstanding debt as of June 30, 2022, see Note 7—Debt of the condensed notes to the consolidated financial statements included elsewhere in this report.

Debt Ratings

We receive debt ratings from the major ratings agencies in the U.S. In determining our debt ratings, the agencies consider a number of qualitative and quantitative items including, but not limited to, commodity pricing levels, our liquidity, asset quality, reserve mix, debt levels, cost structure, planned asset sales and production growth opportunities. Our credit rating from Standard and Poor’s Global Ratings Services is BBB-. Our credit rating from Fitch Investor Services is BBB. Our credit rating from Moody’s Investor Services is Baa3. Any rating downgrades may result in additional letters of credit or cash collateral being posted under certain contractual arrangements.

Capital Requirements

In addition to future operating expenses and working capital commitments discussed in —Results of Operations, our primary short and long-term liquidity requirements consist primarily of (i) capital expenditures, (ii) payments of other contractual obligations and (iii) cash used to pay for dividends and repurchases of securities as discussed below.

Based upon current oil and natural gas prices and production expectations for 2022, we believe that our cash flow from operations, cash on hand and borrowings under our revolving credit facility will be sufficient to fund our operations through the 12-month period following the filing of this report and thereafter. However, future cash flows are subject to a number of variables, including the level of oil and natural gas production and prices, and significant additional capital expenditures will be required to more fully develop our properties. We cannot assure you that the needed capital will be available on acceptable terms or at all. Further, our 2022 capital expenditure budget does not allocate any funds for leasehold interest and property acquisitions.

2022 Capital Spending Plan

Our board of directors has approved a revised 2022 capital budget for drilling, midstream and infrastructure of approximately $1.82 billion to $1.90 billion. We estimate that, of these expenditures, approximately:

• $1.63 billion to $1.67 billion will be spent primarily on drilling 270 to 290 gross (248 to 267 net) horizontal wells and completing 260 to 280 gross (240 to 258 net) horizontal wells across our operated and non-operated leasehold acreage in the Northern Midland and Southern Delaware Basins, with an average lateral length of approximately 10,200 feet;

• $80 million to $100 million will be spent on midstream infrastructure, excluding joint venture investments; and

• $110 million to $130 million will be spent on infrastructure and environmental expenditures, excluding the cost of any leasehold and mineral interest acquisitions.

We do not have a specific acquisition budget since the timing and size of acquisitions cannot be accurately forecasted.

The amount and timing of our capital expenditures are largely discretionary and within our control. We could choose to defer a portion of these planned capital expenditures depending on a variety of factors, including but not limited to the success of our drilling activities, prevailing and anticipated prices for oil and natural gas, the availability of necessary equipment, infrastructure and capital, the receipt and timing of required regulatory permits and approvals, seasonal conditions, drilling and acquisition costs and the level of participation by other interest owners. We are currently operating 13 drilling rigs and 4 completion crews. We will continue monitoring commodity prices and overall market conditions and can adjust our rig cadence and our capital expenditure budget in response to changes in commodity prices and overall market conditions.

Dividends and Repurchases of Securities

In addition to our base dividend program, in the first quarter of 2022 we initiated a variable dividend strategy whereby we may pay a quarterly variable dividend based the prior quarter’s free cash flow remaining after the payment of the base dividend. Beginning in the third quarter of 2022, our board of directors approved an increase to this return of capital commitment to at least 75% of free cash flow, from the previous commitment of at least 50% of free cash flow. We have declared a base plus variable cash dividend for the second quarter of 2022 of $3.05 per share of common stock.

Free cash flow is a non-GAAP financial measure. As used by the Company, free cash flow is defined as cash flow from operating activities before changes in working capital in excess of cash capital expenditures. The Company believes that free cash flow is useful to investors as it provides a measure to compare both cash flow from operating activities and additions to oil and natural gas properties across periods on a consistent basis.

Future base and variable dividends are at the discretion of our board of directors, and, if declared, the board of directors may change the dividend amount based on the Company's outlook for commodity prices, liquidity, debt levels, capital resources, free cash flow and other factors. The Company can provide no assurance that dividends will be authorized or declared in the future or as to the amount of any future dividends. Any future variable dividends, if declared and paid, will by their nature fluctuate based on the Company's free cash flow, which will depend on a number of factors beyond the Company's control, including commodity prices.

As of July 29, 2022, we have repurchased 8.3 million shares of our common stock for a total cost of $940 million since the inception of the repurchase program. On July 28, 2022, our board of directors approved an increase in our common stock repurchase program from $2.0 billion to $4.0 billion. We intend to continue to purchase shares under this repurchase program opportunistically with available funds primarily from cash flow from operations and liquidity events such as the sale of assets while maintaining sufficient liquidity to fund our capital expenditure programs. See Note 8—Stockholders' Equity and Earnings Per Share of the condensed notes to the consolidated financial statements included elsewhere in this report for further discussion of the repurchase program.

Income Taxes

We expect our cash tax rate to be 10% to 15% of pre-tax income for the year ended December 31, 2022. See Note 10—Income Taxes of the condensed notes to the consolidated financial statements included elsewhere in this report for further discussion of our income taxes.

Guarantor Financial Information

As of June 30, 2022, Diamondback E&P is the sole guarantor under the indentures governing the outstanding December 2019 Notes, the March 2021 Notes and the March 2022 Notes.

Guarantees are “full and unconditional,” as that term is used in Regulation S-X, Rule 3-10(b)(3), except that such guarantees will be released or terminated in certain circumstances set forth in the IG Indenture, such as, with certain exceptions, (1) in the event Diamondback E&P (or all or substantially all of its assets) is sold or disposed of, (2) in the event Diamondback E&P ceases to be a guarantor of or otherwise be an obligor under certain other indebtedness, and (3) in connection with any covenant defeasance, legal defeasance or satisfaction and discharge of the relevant indenture.

Diamondback E&P’s guarantees of the outstanding December 2019 Notes, the March 2021 Notes and the March 2022 Notes are senior unsecured obligations and rank senior in right of payment to any of its future subordinated indebtedness, equal in right of payment with all of its existing and future senior indebtedness, including its obligations under its revolving credit facility, and effectively subordinated to any of its existing and future secured indebtedness, to the extent of the value of the collateral securing such indebtedness.

The rights of holders of the Senior Notes against Diamondback E&P may be limited under the U.S. Bankruptcy Code or state fraudulent transfer or conveyance law. Each guarantee contains a provision intended to limit Diamondback E&P’s liability to the maximum amount that it could incur without causing the incurrence of obligations under its guarantee to be a fraudulent conveyance. However, there can be no assurance as to what standard a court will apply in making a determination of the maximum liability of Diamondback E&P. Moreover, this provision may not be effective to protect the guarantee from being voided under fraudulent conveyance laws. There is a possibility that the entire guarantee may be set aside, in which case the entire liability may be extinguished.

The following tables present summarized financial information for Diamondback Energy, Inc., as the parent, and Diamondback E&P, as the guarantor subsidiary, on a combined basis after elimination of (i) intercompany transactions and balances between the parent and the guarantor subsidiary and (ii) equity in earnings from and investments in any subsidiary that is a non-guarantor. The information is presented in accordance with the requirements of Rule 13-01 under the SEC’s Regulation S-X. The financial information may not necessarily be indicative of results of operations or financial position had the guarantor subsidiary operated as an independent entity.

			June 30, 2022						December 31, 2021
Summarized Balance Sheets:			(In millions)
Assets:
Current assets			$	851					$	1,148
Property and equipment, net			$	15,678					$	14,778
Other noncurrent assets			$	59					$	55
Liabilities:
Current liabilities			$	1,419					$	1,221
Intercompany accounts payable, non-guarantor subsidiary			$	1,899					$	1,440
Long-term debt			$	3,945					$	5,093
Other noncurrent liabilities			$	1,967					$	1,549

			Six Months Ended June 30, 2022
Summarized Statement of Operations:			(In millions)
Revenues			$	4,028
Income (loss) from operations			$	2,775
Net income (loss)			$	1,449

Critical Accounting Estimates

There have been no changes in our critical accounting estimates from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2021.

Recent Accounting Pronouncements

See Note 2—Summary of Significant Accounting Policies included in the condensed notes to the consolidated financial statements included elsewhere in this Quarterly Report for recent accounting pronouncements and accounting policies not yet adopted, if any.