filings.toolsItem 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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Item 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
| Diamondback Energy, Inc. and Subsidiaries | |||||||||||
| Condensed Consolidated Balance Sheets | |||||||||||
| (Unaudited) | |||||||||||
| June 30, | December 31, | ||||||||||
| 2023 | 2022 | ||||||||||
| (In millions, except par values and share data) | |||||||||||
| Assets | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | 18 | $ | 157 | |||||||
| Restricted cash | 3 | 7 | |||||||||
| Accounts receivable: | |||||||||||
| Joint interest and other, net | 143 | 104 | |||||||||
| Oil and natural gas sales, net | 544 | 618 | |||||||||
| Inventories | 66 | 67 | |||||||||
| Derivative instruments | 7 | 132 | |||||||||
| Income tax receivable | 120 | 284 | |||||||||
| Prepaid expenses and other current assets | 17 | 23 | |||||||||
| Total current assets | 918 | 1,392 | |||||||||
| Property and equipment: | |||||||||||
| Oil and natural gas properties, full cost method of accounting ($8,558 million and $8,355 million excluded from amortization at June 30, 2023 and December 31, 2022, respectively) | 39,948 | 37,122 | |||||||||
| Other property, equipment and land | 755 | 1,481 | |||||||||
| Accumulated depletion, depreciation, amortization and impairment | (15,558) | (14,844) | |||||||||
| Property and equipment, net | 25,145 | 23,759 | |||||||||
| Funds held in escrow | — | 119 | |||||||||
| Equity method investments | 587 | 566 | |||||||||
| Assets held for sale | 742 | 158 | |||||||||
| Derivative instruments | 1 | 23 | |||||||||
| Deferred income taxes, net | 60 | 64 | |||||||||
| Investment in real estate, net | 85 | 86 | |||||||||
| Other assets | 49 | 42 | |||||||||
| Total assets | $ | 27,587 | $ | 26,209 | |||||||
| Liabilities and Stockholders’ Equity | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable - trade | $ | 249 | $ | 127 | |||||||
| Accrued capital expenditures | 558 | 480 | |||||||||
| Current maturities of long-term debt | — | 10 | |||||||||
| Other accrued liabilities | 454 | 399 | |||||||||
| Revenues and royalties payable | 729 | 619 | |||||||||
| Derivative instruments | 118 | 47 | |||||||||
| Income taxes payable | 15 | 34 | |||||||||
| Total current liabilities | 2,123 | 1,716 | |||||||||
| Long-term debt | 6,543 | 6,238 | |||||||||
| Derivative instruments | 175 | 148 | |||||||||
| Asset retirement obligations | 286 | 336 | |||||||||
| Deferred income taxes | 2,233 | 2,069 | |||||||||
| Other long-term liabilities | 15 | 12 | |||||||||
| Total liabilities | 11,375 | 10,519 | |||||||||
| Commitments and contingencies (Note 14) | |||||||||||
| Stockholders’ equity: | |||||||||||
| Common stock, $0.01 par value; 400,000,000 shares authorized; 179,221,318 and 179,840,797 shares issued and outstanding at June 30, 2023 and December 31, 2022, respectively | 2 | 2 | |||||||||
| Additional paid-in capital | 14,187 | 14,213 | |||||||||
| Retained earnings (accumulated deficit) | 1,372 | 801 | |||||||||
| Accumulated other comprehensive income (loss) | (7) | (7) | |||||||||
| Total Diamondback Energy, Inc. stockholders’ equity | 15,554 | 15,009 | |||||||||
| Non-controlling interest | 658 | 681 | |||||||||
| Total equity | 16,212 | 15,690 | |||||||||
| Total liabilities and equity | $ | 27,587 | $ | 26,209 |
See accompanying notes to condensed consolidated financial statements.
Diamondback Energy, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| (In millions, except per share amounts, shares in thousands) | |||||||||||||||||||||||
| Revenues: | |||||||||||||||||||||||
| Oil sales | $ | 1,708 | $ | 2,189 | $ | 3,362 | $ | 4,135 | |||||||||||||||
| Natural gas sales | 48 | 264 | 117 | 418 | |||||||||||||||||||
| Natural gas liquid sales | 140 | 299 | 319 | 588 | |||||||||||||||||||
| Other operating income | 23 | 16 | 46 | 35 | |||||||||||||||||||
| Total revenues | 1,919 | 2,768 | 3,844 | 5,176 | |||||||||||||||||||
| Costs and expenses: | |||||||||||||||||||||||
| Lease operating expenses | 200 | 159 | 392 | 308 | |||||||||||||||||||
| Production and ad valorem taxes | 148 | 178 | 303 | 339 | |||||||||||||||||||
| Gathering and transportation | 68 | 61 | 136 | 120 | |||||||||||||||||||
| Depreciation, depletion, amortization and accretion | 432 | 330 | 835 | 643 | |||||||||||||||||||
| General and administrative expenses | 37 | 39 | 77 | 75 | |||||||||||||||||||
| Merger and integration expenses | 2 | — | 10 | — | |||||||||||||||||||
| Other operating expenses | 32 | 23 | 66 | 53 | |||||||||||||||||||
| Total costs and expenses | 919 | 790 | 1,819 | 1,538 | |||||||||||||||||||
| Income (loss) from operations | 1,000 | 1,978 | 2,025 | 3,638 | |||||||||||||||||||
| Other income (expense): | |||||||||||||||||||||||
| Interest expense, net | (51) | (39) | (97) | (79) | |||||||||||||||||||
| Other income (expense), net | (21) | 1 | 32 | 2 | |||||||||||||||||||
| Gain (loss) on derivative instruments, net | (189) | (101) | (282) | (653) | |||||||||||||||||||
| Gain (loss) on extinguishment of debt | (4) | (4) | (4) | (58) | |||||||||||||||||||
| Income (loss) from equity investments | 16 | 28 | 30 | 37 | |||||||||||||||||||
| Total other income (expense), net | (249) | (115) | (321) | (751) | |||||||||||||||||||
| Income (loss) before income taxes | 751 | 1,863 | 1,704 | 2,887 | |||||||||||||||||||
| Provision for (benefit from) income taxes | 165 | 402 | 372 | 623 | |||||||||||||||||||
| Net income (loss) | 586 | 1,461 | 1,332 | 2,264 | |||||||||||||||||||
| Net income (loss) attributable to non-controlling interest | 30 | 45 | 64 | 69 | |||||||||||||||||||
| Net income (loss) attributable to Diamondback Energy, Inc. | $ | 556 | $ | 1,416 | $ | 1,268 | $ | 2,195 | |||||||||||||||
| Earnings (loss) per common share: | |||||||||||||||||||||||
| Basic | $ | 3.05 | $ | 7.93 | $ | 6.95 | $ | 12.28 | |||||||||||||||
| Diluted | $ | 3.05 | $ | 7.93 | $ | 6.95 | $ | 12.28 | |||||||||||||||
| Weighted average common shares outstanding: | |||||||||||||||||||||||
| Basic | 180,373 | 176,570 | 181,176 | 177,064 | |||||||||||||||||||
| Diluted | 180,373 | 176,572 | 181,176 | 177,066 | |||||||||||||||||||
| Dividends declared per share | $ | 0.84 | $ | 3.05 | $ | 1.67 | $ | 6.10 | |||||||||||||||
See accompanying notes to condensed consolidated financial statements.
Diamondback Energy, Inc. and Subsidiaries
Condensed Consolidated Statements of Stockholders’ Equity
(Unaudited)
| Common Stock | Additional Paid-in Capital | Retained Earnings (Accumulated Deficit) | Accumulated Other Comprehensive Income (Loss) | Non-Controlling Interest | Total | ||||||||||||||||||||||||||||||||||||
| Shares | Amount | ||||||||||||||||||||||||||||||||||||||||
| ($ in millions, shares in thousands) | |||||||||||||||||||||||||||||||||||||||||
| Balance December 31, 2022 | 179,841 | $ | 2 | $ | 14,213 | $ | 801 | $ | (7) | $ | 681 | $ | 15,690 | ||||||||||||||||||||||||||||
| Unit-based compensation | — | — | — | — | — | 1 | 1 | ||||||||||||||||||||||||||||||||||
| Distribution equivalent rights payments | — | — | — | (4) | — | — | (4) | ||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | 15 | — | — | — | 15 | ||||||||||||||||||||||||||||||||||
| Cash paid for tax withholding on vested equity awards | (119) | — | (18) | — | — | — | (18) | ||||||||||||||||||||||||||||||||||
| Repurchased shares under buyback program | (2,531) | — | (332) | — | — | — | (332) | ||||||||||||||||||||||||||||||||||
| Repurchased units under buyback programs | — | — | — | — | — | (34) | (34) | ||||||||||||||||||||||||||||||||||
| Common shares issued for acquisition | 4,330 | — | 633 | — | — | — | 633 | ||||||||||||||||||||||||||||||||||
| Distributions to non-controlling interest | — | — | — | — | — | (34) | (34) | ||||||||||||||||||||||||||||||||||
| Dividend paid | — | — | — | (542) | — | — | (542) | ||||||||||||||||||||||||||||||||||
| Exercise of stock options and issuance of restricted stock units and awards | 84 | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||
| Change in ownership of consolidated subsidiaries, net | — | — | (9) | — | — | 11 | 2 | ||||||||||||||||||||||||||||||||||
| Net income (loss) | — | — | — | 712 | — | 34 | 746 | ||||||||||||||||||||||||||||||||||
| Balance March 31, 2023 | 181,605 | 2 | 14,502 | 967 | (7) | 659 | 16,123 | ||||||||||||||||||||||||||||||||||
| Distribution equivalent rights payments | — | — | — | (1) | — | — | (1) | ||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | 22 | — | — | — | 22 | ||||||||||||||||||||||||||||||||||
| Cash paid for tax withholding on vested equity awards | (18) | — | (1) | — | — | — | (1) | ||||||||||||||||||||||||||||||||||
| Repurchased shares under buyback program | (2,427) | — | (321) | — | — | — | (321) | ||||||||||||||||||||||||||||||||||
| Repurchased units under buyback programs | — | — | — | — | — | (23) | (23) | ||||||||||||||||||||||||||||||||||
| Distributions to non-controlling interest | — | — | — | — | — | (25) | (25) | ||||||||||||||||||||||||||||||||||
| Dividend paid | — | — | — | (150) | — | — | (150) | ||||||||||||||||||||||||||||||||||
| Exercise of stock options and vesting of restricted stock units and awards | 59 | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||
| Change in ownership of consolidated subsidiaries, net | — | — | (15) | — | — | 17 | 2 | ||||||||||||||||||||||||||||||||||
| Net income (loss) | — | — | — | 556 | — | 30 | 586 | ||||||||||||||||||||||||||||||||||
| Balance June 30, 2023 | 179,219 | $ | 2 | $ | 14,187 | $ | 1,372 | $ | (7) | $ | 658 | $ | 16,212 | ||||||||||||||||||||||||||||
See accompanying notes to condensed consolidated financial statements.
Diamondback Energy, Inc. and Subsidiaries
Condensed Consolidated Statements of Stockholders’ Equity - (Continued)
(Unaudited)
| Common Stock | Additional Paid-in Capital | Retained Earnings (Accumulated Deficit) | Non-Controlling Interest | Total | |||||||||||||||||||||||||||||||||||||
| Shares | Amount | ||||||||||||||||||||||||||||||||||||||||
| ($ in millions, shares in thousands) | |||||||||||||||||||||||||||||||||||||||||
| Balance December 31, 2021 | 177,551 | $ | 2 | $ | 14,084 | $ | (1,998) | $ | 1,157 | $ | 13,245 | ||||||||||||||||||||||||||||||
| Unit-based compensation | — | — | — | — | 3 | 3 | |||||||||||||||||||||||||||||||||||
| Distribution equivalent rights payments | — | — | — | — | (1) | (1) | |||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | 16 | — | — | 16 | |||||||||||||||||||||||||||||||||||
| Cash paid for tax withholding on vested equity awards | — | — | (15) | — | — | (15) | |||||||||||||||||||||||||||||||||||
| Repurchased shares under buyback program | (58) | — | (7) | — | — | (7) | |||||||||||||||||||||||||||||||||||
| Repurchased units under buyback programs | — | — | — | — | (42) | (42) | |||||||||||||||||||||||||||||||||||
| Distributions to non-controlling interest | — | — | — | — | (47) | (47) | |||||||||||||||||||||||||||||||||||
| Dividend paid | — | — | — | (107) | — | (107) | |||||||||||||||||||||||||||||||||||
| Exercise of stock options and issuance of restricted stock units and awards | 58 | — | 1 | — | — | 1 | |||||||||||||||||||||||||||||||||||
| Change in ownership of consolidated subsidiaries, net | — | — | (12) | — | 15 | 3 | |||||||||||||||||||||||||||||||||||
| Net income (loss) | — | — | — | 779 | 24 | 803 | |||||||||||||||||||||||||||||||||||
| Balance March 31, 2022 | 177,551 | 2 | 14,067 | (1,326) | 1,109 | 13,852 | |||||||||||||||||||||||||||||||||||
| Unit-based compensation | — | — | — | — | 3 | 3 | |||||||||||||||||||||||||||||||||||
| Distribution equivalent rights payments | — | — | — | (7) | — | (7) | |||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | 17 | — | — | 17 | |||||||||||||||||||||||||||||||||||
| Cash paid for tax withholding on vested equity awards | — | — | — | — | (3) | (3) | |||||||||||||||||||||||||||||||||||
| Repurchased shares under buyback program | (2,369) | — | (303) | — | — | (303) | |||||||||||||||||||||||||||||||||||
| Repurchased units under buyback programs | — | — | — | — | (29) | (29) | |||||||||||||||||||||||||||||||||||
| Distributions to non-controlling interest | — | — | — | — | (63) | (63) | |||||||||||||||||||||||||||||||||||
| Dividend paid | — | — | — | (541) | — | (541) | |||||||||||||||||||||||||||||||||||
| Exercise of stock options and vesting of restricted stock units and awards | 19 | — | — | — | — | — | |||||||||||||||||||||||||||||||||||
| Change in ownership of consolidated subsidiaries, net | — | — | (9) | — | 12 | 3 | |||||||||||||||||||||||||||||||||||
| Net income (loss) | — | — | — | 1,416 | 45 | 1,461 | |||||||||||||||||||||||||||||||||||
| Balance June 30, 2022 | 175,201 | $ | 2 | $ | 13,772 | $ | (458) | $ | 1,074 | $ | 14,390 | ||||||||||||||||||||||||||||||
See accompanying notes to condensed consolidated financial statements.
Diamondback Energy, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
| Six Months Ended June 30, | |||||||||||
| 2023 | 2022 | ||||||||||
| (In millions) | |||||||||||
| Cash flows from operating activities: | |||||||||||
| Net income (loss) | $ | 1,332 | $ | 2,264 | |||||||
| Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | |||||||||||
| Provision for (benefit from) deferred income taxes | 175 | 273 | |||||||||
| Depreciation, depletion, amortization and accretion | 835 | 643 | |||||||||
| (Gain) loss on extinguishment of debt | 4 | 58 | |||||||||
| (Gain) loss on derivative instruments, net | 282 | 653 | |||||||||
| Cash received (paid) on settlement of derivative instruments | (38) | (720) | |||||||||
| (Income) loss from equity investment | (30) | (37) | |||||||||
| Equity-based compensation expense | 27 | 28 | |||||||||
| Other | (26) | 36 | |||||||||
| Changes in operating assets and liabilities: | |||||||||||
| Accounts receivable | 38 | (380) | |||||||||
| Income tax receivable | 164 | 1 | |||||||||
| Prepaid expenses and other | 13 | 15 | |||||||||
| Accounts payable and accrued liabilities | 74 | (21) | |||||||||
| Income tax payable | (19) | (14) | |||||||||
| Revenues and royalties payable | 86 | 163 | |||||||||
| Other | 21 | (3) | |||||||||
| Net cash provided by (used in) operating activities | 2,938 | 2,959 | |||||||||
| Cash flows from investing activities: | |||||||||||
| Drilling, completions and infrastructure additions to oil and natural gas properties | (1,303) | (863) | |||||||||
| Additions to midstream assets | (65) | (42) | |||||||||
| Property acquisitions | (1,025) | (369) | |||||||||
| Proceeds from sale of assets | 532 | 72 | |||||||||
| Other | (13) | (30) | |||||||||
| Net cash provided by (used in) investing activities | (1,874) | (1,232) | |||||||||
| Cash flows from financing activities: | |||||||||||
| Proceeds from borrowings under credit facilities | 3,451 | 1,579 | |||||||||
| Repayments under credit facilities | (3,036) | (1,563) | |||||||||
| Proceeds from senior notes | — | 750 | |||||||||
| Repayment of senior notes | (134) | (1,865) | |||||||||
| Proceeds from (repayments to) joint venture | — | (17) | |||||||||
| Premium on extinguishment of debt | — | (49) | |||||||||
| Repurchased shares under buyback program | (653) | (310) | |||||||||
| Repurchased units under buyback program | (57) | (71) | |||||||||
| Dividends paid to stockholders | (692) | (648) | |||||||||
| Distributions to non-controlling interest | (59) | (110) | |||||||||
| Other | (27) | (36) | |||||||||
| Net cash provided by (used in) financing activities | (1,207) | (2,340) | |||||||||
| Net increase (decrease) in cash and cash equivalents | (143) | (613) | |||||||||
| Cash, cash equivalents and restricted cash at beginning of period | 164 | 672 | |||||||||
| Cash, cash equivalents and restricted cash at end of period | $ | 21 | $ | 59 | |||||||
See accompanying notes to condensed consolidated financial statements.
Diamondback Energy, Inc. and Subsidiaries
Condensed Notes to Consolidated Financial Statements
(Unaudited)
1. DESCRIPTION OF THE BUSINESS AND BASIS OF PRESENTATION
Organization and Description of the Business
Diamondback Energy, Inc., together with its subsidiaries (collectively referred to as “Diamondback” or the “Company” unless the context otherwise requires), is an independent oil and natural gas company currently focused on the acquisition, development, exploration and exploitation of unconventional, onshore oil and natural gas reserves in the Permian Basin in West Texas.
As of June 30, 2023, the wholly owned subsidiaries of Diamondback include Diamondback E&P LLC (“Diamondback E&P”), a Delaware limited liability company, Viper Energy Partners GP LLC, a Delaware limited liability company (“Viper’s General Partner”), Rattler Midstream GP LLC, a Delaware limited liability company (“Rattler’s GP”), Rattler Midstream LP, a Delaware limited partnership (“Rattler”) and QEP Resources, Inc. (“QEP”), a Delaware corporation.
Rattler Merger
On August 24, 2022 (the “Effective Date”), the Company completed the merger with Rattler pursuant to which the Company acquired all of the approximately 38.51 million publicly held outstanding common units of Rattler in exchange for approximately 4.35 million shares of the Company’s common stock (the “Rattler Merger”). Rattler continued as the surviving entity. Following the Rattler Merger, the Company owns all of Rattler’s outstanding common units and Class B units, and Rattler GP remains the general partner of Rattler. Following the closing of the Rattler Merger, Rattler’s common units were delisted from the NASDAQ Global Select Market and Rattler filed a certification on Form 15 with the SEC requesting the deregistration of its common units and suspension of Rattler’s reporting obligations under the Exchange Act.
The Rattler Merger was accounted for as a non-cash equity transaction resulting in increases to common stock of $44 thousand, additional paid-in-capital of $344 million, merger and integration expense of $11 million and a decrease in noncontrolling interests in consolidated subsidiaries of $344 million. For periods prior to the Effective Date, the results of operations attributable to the non-controlling interest in Rattler are presented within equity and net income and are shown separately from the equity and net income attributable to the Company.
Basis of Presentation
The condensed consolidated financial statements include the accounts of the Company and its subsidiaries after all significant intercompany balances and transactions have been eliminated upon consolidation. The Company has one reportable segment, the upstream segment.
Diamondback’s publicly traded subsidiary Viper Energy Partners LP (“Viper”) is consolidated in the Company’s financial statements. As of June 30, 2023, the Company owned approximately 57% of Viper’s total units outstanding. The Company’s wholly owned subsidiary, Viper Energy Partners GP LLC, is the general partner of Viper. The results of operations attributable to the non-controlling interest in Viper are presented within equity and net income and are shown separately from the equity and net income attributable to the Company.
These condensed consolidated financial statements have been prepared by the Company without audit, pursuant to the rules and regulations of the SEC. They reflect all adjustments that are, in the opinion of management, necessary for a fair statement of the results for interim periods, on a basis consistent with the annual audited financial statements. All such adjustments are of a normal recurring nature. Certain information, accounting policies and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been omitted pursuant to SEC rules and regulations, although the Company believes the disclosures are adequate to make the information presented not misleading. This Quarterly Report on Form 10–Q should be read in conjunction with the Company’s most recent Annual Report on Form 10–K for the fiscal year ended December 31, 2022, which contains a summary of the Company’s significant accounting policies and other disclosures.
Reclassifications
Certain prior period amounts have been reclassified to conform to the current period financial statement presentation. These reclassifications had an immaterial effect on the previously reported total assets, total liabilities, stockholders’ equity, results of operations or cash flows.
Diamondback Energy, Inc. and Subsidiaries
Condensed Notes to Consolidated Financial Statements - (Continued)
(Unaudited)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
Certain amounts included in or affecting the Company’s condensed consolidated financial statements and related disclosures must be estimated by management, requiring certain assumptions to be made with respect to values or conditions that cannot be known with certainty at the time the consolidated financial statements are prepared. These estimates and assumptions affect the amounts the Company reports for assets and liabilities and the Company’s disclosure of contingent assets and liabilities as of the date of the consolidated financial statements. Actual results could differ from those estimates.
Making accurate estimates and assumptions is particularly difficult in the oil and natural gas industry given the challenges resulting from volatility in oil and natural gas prices. For instance, the war in Ukraine, rising interest rates, global supply chain disruptions, concerns about a potential economic downturn or recession, recent measures to combat persistent inflation and instability in the financial sector have contributed to recent economic and pricing volatility. The financial results of companies in the oil and natural gas industry have been impacted materially as a result of these events and changing market conditions. Such circumstances generally increase uncertainty in the Company’s accounting estimates, particularly those involving financial forecasts.
The Company evaluates these estimates on an ongoing basis, using historical experience, consultation with experts and other methods the Company considers reasonable in the particular circumstances. Nevertheless, actual results may differ significantly from the Company’s estimates. Any effects on the Company’s business, financial position or results of operations resulting from revisions to these estimates are recorded in the period in which the facts that give rise to the revision become known. Significant items subject to such estimates and assumptions include estimates of proved oil and natural gas reserves and related present value estimates of future net cash flows therefrom, the carrying value of oil and natural gas properties, fair value estimates of derivative instruments, the fair value determination of acquired assets and liabilities assumed and estimates of income taxes, including deferred tax valuation allowances.
Recent Accounting Pronouncements
Recently Adopted Pronouncements
In October 2021, the FASB issued ASU 2021-08, “Business Combinations (Topic 805) – Accounting for Contract Assets and Contract Liabilities from Contracts with Customers.” This update required the acquirer in a business combination to record contract asset and liabilities following Topic 606 – “Revenue from Contracts with Customers” at acquisition as if it had originated the contract, rather than at fair value. The Company adopted this update effective January 1, 2023. The adoption of this update did not have a material impact on its financial position, results of operations or liquidity.
Accounting Pronouncements Not Yet Adopted
In March 2023, the FASB issued ASU 2023-01, “Leases (Topic 842) – Common Control Arrangements.” This update (i) requires all lessees that are a party to a lease between entities under common control in which there are leasehold improvements to record amortization utilizing the shorter period of the remaining lease term and the useful life of the improvements, and (ii) requires leasehold improvements to be accounted for as a transfer between entities under common control through an adjustment to equity if, and when, the lessee no longer controls the use of the underlying asset. This update is effective for public business entities beginning after December 15, 2023 with early adoption permitted. The Company may adopt this update (i) prospectively to all new leasehold improvements on or after the date of adoption, (ii) prospectively to all new and existing leasehold improvements on or after the date of adoption, or (iii) retrospectively to the beginning of the period in which the Company first applied Topic 842. The Company continues to evaluate the provisions of this update, but does not believe the adoption will have a material impact on its financial position, results of operations or liquidity.
The Company considers the applicability and impact of all ASUs. ASUs not discussed above were assessed and determined to be either not applicable, the effects of adoption are not expected to be material or are clarifications of ASUs previously disclosed.
Diamondback Energy, Inc. and Subsidiaries
Condensed Notes to Consolidated Financial Statements - (Continued)
(Unaudited)
3. REVENUE FROM CONTRACTS WITH CUSTOMERS
Revenue from Contracts with Customers
The following tables present the Company’s revenue from contracts with customers disaggregated by product type and basin:
| Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||
| Midland Basin | Delaware Basin | Other | Total | Midland Basin | Delaware Basin | Other | Total | ||||||||||||||||||||||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||||||||||||||||||||||||||
| Oil sales | $ | 1,322 | $ | 384 | $ | 2 | $ | 1,708 | $ | 1,610 | $ | 577 | $ | 2 | $ | 2,189 | |||||||||||||||||||||||||||||||
| Natural gas sales | 31 | 17 | — | 48 | 168 | 95 | 1 | 264 | |||||||||||||||||||||||||||||||||||||||
| Natural gas liquid sales | 93 | 47 | — | 140 | 207 | 91 | 1 | 299 | |||||||||||||||||||||||||||||||||||||||
| Total | $ | 1,446 | $ | 448 | $ | 2 | $ | 1,896 | $ | 1,985 | $ | 763 | $ | 4 | $ | 2,752 | |||||||||||||||||||||||||||||||
| Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||
| Midland Basin | Delaware Basin | Other | Total | Midland Basin | Delaware Basin | Other | Total | ||||||||||||||||||||||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||||||||||||||||||||||||||
| Oil sales | $ | 2,617 | $ | 742 | $ | 3 | $ | 3,362 | $ | 3,008 | $ | 1,122 | $ | 5 | $ | 4,135 | |||||||||||||||||||||||||||||||
| Natural gas sales | 79 | 38 | — | 117 | 266 | 151 | 1 | 418 | |||||||||||||||||||||||||||||||||||||||
| Natural gas liquid sales | 225 | 94 | — | 319 | 398 | 188 | 2 | 588 | |||||||||||||||||||||||||||||||||||||||
| Total | $ | 2,921 | $ | 874 | $ | 3 | $ | 3,798 | $ | 3,672 | $ | 1,461 | $ | 8 | $ | 5,141 |
4. ACQUISITIONS AND DIVESTITURES
2023 Activity
Lario Acquisition
On January 31, 2023, the Company closed on its acquisition of all leasehold interests and related assets of Lario Permian, LLC, a wholly owned subsidiary of Lario Oil and Gas Company, and certain associated sellers (collectively “Lario”). The acquisition included approximately 25,000 gross (16,000 net) acres in the Midland Basin and certain related oil and gas assets (the “Lario Acquisition”), in exchange for 4.33 million shares of the Company’s common stock and $814 million in cash, including certain customary post-closing adjustments. Approximately $113 million of the cash consideration was deposited in an indemnity holdback escrow account at closing to be distributed upon satisfactory settlement of any potential title defects on the acquired properties. The cash portion of the consideration for the Lario Acquisition was funded through a combination of cash on hand, a portion of the net proceeds from the Company’s December 2022 senior notes offering and borrowings under the Company’s revolving credit facility.
The following table presents the acquisition consideration paid in the Lario Acquisition (in millions, except per share data, shares in thousands):
| Consideration: | |||||
| Shares of Diamondback common stock issued at closing | 4,330 | ||||
| Closing price per share of Diamondback common stock on the closing date | $ | 146.12 | |||
| Fair value of Diamondback common stock issued | $ | 633 | |||
| Cash consideration | 814 | ||||
| Total consideration (including fair value of Diamondback common stock issued) | $ | 1,447 |
Diamondback Energy, Inc. and Subsidiaries
Condensed Notes to Consolidated Financial Statements - (Continued)
(Unaudited)
Purchase Price Allocation
The Lario Acquisition has been accounted for as a business combination using the acquisition method. The following table represents the allocation of the total purchase price paid in the Lario Acquisition to the identifiable assets acquired and the liabilities assumed based on the fair values at the acquisition date. Although the purchase price allocation is substantially complete as of the date of this filing, there may be further adjustments to the fair value of certain assets acquired and liabilities assumed, including but not limited to the Company’s oil and natural gas properties. The Company expects to complete the purchase price allocation during the 12-month period following the acquisition date and may revise the value of the assets and liabilities as appropriate within that time frame.
The following table sets forth the Company’s preliminary purchase price allocation (in millions):
| Total consideration | $ | 1,447 | |||
| Fair value of liabilities assumed: | |||||
| Other long-term liabilities | 37 | ||||
| Fair value of assets acquired: | |||||
| Oil and natural gas properties | 1,460 | ||||
| Inventories | 2 | ||||
| Other property, equipment and land | 22 | ||||
| Amount attributable to assets acquired | 1,484 | ||||
| Net assets acquired and liabilities assumed | $ | 1,447 |
Oil and natural gas properties were valued using an income approach utilizing the discounted cash flow method, which takes into account production forecasts, projected commodity prices and pricing differentials, and estimates of future capital and operating costs which were then discounted utilizing an estimated weighted-average cost of capital for industry market participants. The fair value of acquired midstream assets, vehicles and a field office were based on the cost approach, which utilized asset listings and cost records with consideration for the reported age, condition, utilization and economic support of the assets and were included in the Company’s consolidated balance sheets under the caption “Other property, equipment and land.” The majority of the measurements of assets acquired and liabilities assumed are based on inputs that are not observable in the market and are therefore considered Level 3 inputs in the fair value hierarchy.
With the completion of the Lario Acquisition, the Company acquired proved properties of $924 million and unproved properties of $536 million. The results of operations attributable to the Lario Acquisition since the acquisition date have been included in the condensed consolidated statements of operations and include $122 millions and $211 million of total revenue and $55 millions and $87 million of net income for the three and six months ended June 30, 2023, respectively.
Divestitures
On April 28, 2023, the Company divested non-core assets to an unrelated third-party buyer consisting of approximately 19,000 net acres in Glasscock County, TX for net cash proceeds at closing of $275 million, subject to certain customary post-closing adjustments including $3 million retained as an indemnity holdback in an escrow account for certain title defects. This transaction did not result in a significant alteration of the relationship between the Company’s capitalized costs and proved reserves and, accordingly, the Company recorded the proceeds as a reduction of its full cost pool with no gain or loss recognized on the sale. The Company used its net proceeds from this transaction for debt reduction and other general corporate purposes.
On March 31, 2023, the Company divested non-core assets consisting of approximately 4,900 net acres in Ward and Winkler counties to unrelated third-party buyers for $78 million in net cash proceeds, including customary post-closing adjustments.
On January 9, 2023, the Company divested its 10% non-operating equity investment in Gray Oak Pipeline, LLC (“Gray Oak”) for $172 million in net cash proceeds and recorded a gain on the sale of equity method investments of approximately $53 million in the first quarter of 2023 that is included in the caption “Other income (expense), net” on the condensed consolidated statement of operations for the six months ended June 30, 2023.
Diamondback Energy, Inc. and Subsidiaries
Condensed Notes to Consolidated Financial Statements - (Continued)
(Unaudited)
2022 Activity
FireBird Energy LLC
On November 30, 2022, the Company closed on its acquisition of all leasehold interests and related assets of FireBird Energy LLC, which included approximately 75,000 gross (68,000 net) acres in the Midland Basin and certain related oil and gas assets, in exchange for 5.92 million shares of the Company’s common stock and $787 million in cash, including certain customary post-closing adjustments. Approximately $125 million of the cash consideration was deposited in an indemnity holdback escrow account at closing to be distributed upon satisfactory settlement of any potential title defects on the acquired properties. The cash portion of the consideration for the FireBird Acquisition was funded through a combination of cash on hand and borrowings under the Company’s revolving credit facility. As a result of the FireBird Acquisition, the Company added approximately 854 gross producing wells.
The following table presents the acquisition consideration paid in the FireBird Acquisition (in millions, except per share data, shares in thousands):
| Consideration: | |||||
| Shares of Diamondback common stock issued at closing | 5,921 | ||||
| Closing price per share of Diamondback common stock on the closing date | $ | 148.02 | |||
| Fair value of Diamondback common stock issued | $ | 876 | |||
| Cash consideration | 787 | ||||
| Total consideration (including fair value of Diamondback common stock issued) | $ | 1,663 |
Purchase Price Allocation
The FireBird Acquisition has been accounted for as a business combination using the acquisition method. The following table represents the allocation of the total purchase price paid in the FireBird Acquisition to the identifiable assets acquired and the liabilities assumed based on the fair values at the acquisition date. Although the purchase price allocation is substantially complete as of the date of this filing, there may be further adjustments to the fair value of certain assets acquired and liabilities assumed, including but not limited to the Company’s oil and natural gas properties and other property, equipment and land. The Company expects to complete the purchase price allocation during the 12-month period following the acquisition date and may revise the value of the assets and liabilities as appropriate within that time frame.
The following table sets forth the Company’s preliminary purchase price allocation (in millions):
| Total consideration | $ | 1,663 | |||
| Fair value of liabilities assumed: | |||||
| Other long-term liabilities | 10 | ||||
| Fair value of assets acquired: | |||||
| Oil and natural gas properties | 1,558 | ||||
| Inventories | 1 | ||||
| Other property, equipment and land | 114 | ||||
| Amount attributable to assets acquired | 1,673 | ||||
| Net assets acquired and liabilities assumed | $ | 1,663 |
Oil and natural gas properties were valued using an income approach utilizing the discounted cash flow method, which takes into account production forecasts, projected commodity prices and pricing differentials, and estimates of future capital and operating costs which were then discounted utilizing an estimated weighted-average cost of capital for industry market participants. The fair value of acquired midstream assets was based on the cost approach, which utilized asset listings and cost records with consideration for the reported age, condition, utilization and economic support of the assets and were included in the Company’s consolidated balance sheets under the caption “Other property, equipment and land.” The majority of the measurements of assets acquired and liabilities assumed are based on inputs that are not observable in the market and are therefore considered Level 3 inputs.
Diamondback Energy, Inc. and Subsidiaries
Condensed Notes to Consolidated Financial Statements - (Continued)
(Unaudited)
With the completion of the FireBird Acquisition, the Company acquired proved properties of $648 million and unproved properties of $910 million.
Delaware Basin Acquisition
On January 18, 2022, the Company acquired, from an unrelated third-party seller, approximately 6,200 net acres in the Delaware Basin for $232 million in cash, including customary post-closing adjustments. The acquisition was funded through cash on hand.
Other 2022 Acquisitions
Additionally during the year ended December 31, 2022, the Company acquired, from unrelated third-party sellers, approximately 4,000 net acres and over 200 gross wells in the Permian Basin for an aggregate purchase price of approximately $220 million in cash, including customary post-closing adjustments. The acquisitions were funded through cash on hand.
Divestitures of Certain Non-Core Assets
In October 2022, the Company completed the divestiture of non-core Delaware Basin acreage consisting of approximately 3,272 net acres, with net production of approximately 550 BO/d (800 BOE/d) for $155 million of net proceeds. The Company used the net proceeds from this transaction towards debt reduction.
Pro Forma Financial Information
The following unaudited summary pro forma financial information for the three and six months ended June 30, 2023 and 2022 has been prepared to give effect to the FireBird Acquisition and the Lario Acquisition as if they had occurred on January 1, 2022. The unaudited pro forma financial information does not purport to be indicative of what the combined company’s results of operations would have been if these transactions had occurred on the dates indicated, nor is it indicative of the future financial position or results of operations of the combined company.
The below information reflects pro forma adjustments for the issuance of the Company’s common stock as consideration for the FireBird Acquisition and the Lario Acquisition, as well as pro forma adjustments based on available information and certain assumptions that the Company believes are reasonable, including adjustments to depreciation, depletion and amortization based on the full cost method of accounting.
Additionally, pro forma earnings for the three and six months ended June 30, 2023 were adjusted to exclude acquisition-related costs incurred by the Company of $1 million and $8 million for the Lario Acquisition and $2 million and $3 million for the FireBird Acquisition, respectively, which consist primarily of legal and advisory fees. The pro forma results of operations do not include any cost savings or other synergies that may result from the Firebird Acquisition and the Lario Acquisition or any estimated costs that have been or will be incurred by the Company to integrate the acquired assets. The pro forma financial data does not include the results of operations for any other acquisitions made during the periods presented, as they were primarily acreage acquisitions, and their results were not deemed material.
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| (In millions, except per share amounts) | |||||||||||||||||||||||
| Revenues | $ | 1,919 | $ | 3,023 | $ | 3,889 | $ | 5,627 | |||||||||||||||
| Income (loss) from operations | $ | 1,002 | $ | 2,154 | $ | 2,060 | $ | 3,931 | |||||||||||||||
| Net income (loss) | $ | 558 | $ | 1,603 | $ | 1,298 | $ | 2,510 | |||||||||||||||
| Basic earnings (loss) per common share | $ | 3.07 | $ | 8.48 | $ | 7.14 | $ | 12.61 | |||||||||||||||
| Diluted earnings (loss) per common share | $ | 3.07 | $ | 8.48 | $ | 7.14 | $ | 12.61 |
Diamondback Energy, Inc. and Subsidiaries
Condensed Notes to Consolidated Financial Statements - (Continued)
(Unaudited)
5. PROPERTY AND EQUIPMENT
Property and equipment includes the following as of the dates indicated:
| June 30, | December 31, | ||||||||||
| 2023 | 2022 | ||||||||||
| (In millions) | |||||||||||
| Oil and natural gas properties: | |||||||||||
| Subject to depletion | $ | 31,390 | $ | 28,767 | |||||||
| Not subject to depletion | 8,558 | 8,355 | |||||||||
| Gross oil and natural gas properties | 39,948 | 37,122 | |||||||||
| Accumulated depletion | (7,462) | (6,671) | |||||||||
| Accumulated impairment | (7,954) | (7,954) | |||||||||
| Oil and natural gas properties, net | 24,532 | 22,497 | |||||||||
| Other property, equipment and land | 755 | 1,481 | |||||||||
| Accumulated depreciation, amortization, accretion and impairment | (142) | (219) | |||||||||
| Total property and equipment, net | $ | 25,145 | $ | 23,759 |
Under the full cost method of accounting, the Company is required to perform a ceiling test each quarter which determines a limit, or ceiling, on the book value of proved oil and natural gas properties. No impairment expense was recorded for the three and six months ended June 30, 2023 or 2022 based on the results of the respective quarterly ceiling tests.
In addition to commodity prices, the Company’s production rates, levels of proved reserves, future development costs, transfers of unevaluated properties and other factors will determine its actual ceiling test calculation and impairment analysis in future periods. If the future trailing 12-month commodity prices decline as compared to the commodity prices used in prior quarters, the Company may have material write downs in subsequent quarters. It is possible that circumstances requiring additional impairment testing will occur in future interim periods, which could result in potentially material impairment charges being recorded.
Assets Held For Sale
During the second quarter of 2023, the Company commenced separate plans to sell certain assets consisting of midstream water assets with a carrying value of $667 million and oil gathering assets with a carrying value of $75 million. As of June 30, 2023, the Company had ceased depreciating these assets and classified them as held for sale on the Company’s condensed consolidated balance sheet. At December 31, 2022, the midstream water assets and oil gathering assets were included in the Company’s consolidated balance sheet under the caption “Other property, equipment and land.” All of these assets are included in the midstream operating segment, which is categorized as “All Other” in the Company’s segment disclosures in Note 16—Segment Information.
At the time these assets were transferred to held for sale, their carrying values approximated or were less than their respective fair values less costs to sell based on observable exit prices obtained from third party bids. As such, no impairment loss was recorded on these assets upon their transfer to held for sale. The Company expects to complete the sale of these assets in the third quarter of 2023.
Diamondback Energy, Inc. and Subsidiaries
Condensed Notes to Consolidated Financial Statements - (Continued)
(Unaudited)
6. ASSET RETIREMENT OBLIGATIONS
The following table describes the changes to the Company’s asset retirement obligations liability for the following periods:
| Six Months Ended June 30, | |||||||||||
| 2023 | 2022 | ||||||||||
| (In millions) | |||||||||||
| Asset retirement obligations, beginning of period | $ | 347 | $ | 171 | |||||||
| Additional liabilities incurred | 12 | 26 | |||||||||
| Liabilities acquired | 3 | 3 | |||||||||
| Liabilities settled and divested | (42) | (8) | |||||||||
| Accretion expense | 14 | 6 | |||||||||
| Revisions in estimated liabilities | (43) | 75 | |||||||||
| Asset retirement obligations, end of period | 291 | 273 | |||||||||
| Less current portion(1) | 5 | 13 | |||||||||
| Asset retirement obligations - long-term | $ | 286 | $ | 260 |
(1) The current portion of the asset retirement obligation is included in other accrued liabilities in the Company’s condensed consolidated balance sheets.
7. DEBT
Long-term debt consisted of the following as of the dates indicated:
| June 30, | December 31, | ||||||||||
| 2023 | 2022 | ||||||||||
| (In millions) | |||||||||||
| 5.250% Senior Notes due 2023 | $ | — | $ | 10 | |||||||
| 3.250% Senior Notes due 2026 | 750 | 780 | |||||||||
| 5.625% Senior Notes due 2026 | 14 | 14 | |||||||||
| 7.125% Medium-term Notes, Series B, due 2028 | 73 | 73 | |||||||||
| 3.500% Senior Notes due 2029 | 921 | 1,021 | |||||||||
| 3.125% Senior Notes due 2031 | 789 | 789 | |||||||||
| 6.250% Senior Notes due 2033 | 1,100 | 1,100 | |||||||||
| 4.400% Senior Notes due 2051 | 650 | 650 | |||||||||
| 4.250% Senior Notes due 2052 | 750 | 750 | |||||||||
| 6.250% Senior Notes due 2053 | 650 | 650 | |||||||||
| Unamortized debt issuance costs | (42) | (43) | |||||||||
| Unamortized discount costs | (23) | (26) | |||||||||
| Unamortized premium costs | 4 | 4 | |||||||||
| Unamortized basis adjustment of dedesignated interest rate swap agreements(1) | (90) | (106) | |||||||||
| Revolving credit facility | 343 | — | |||||||||
| Viper revolving credit facility | 224 | 152 | |||||||||
| Viper 5.375% Senior Notes due 2027 | 430 | 430 | |||||||||
| Total debt, net | 6,543 | 6,248 | |||||||||
| Less: current maturities of long-term debt | — | 10 | |||||||||
| Total long-term debt | $ | 6,543 | $ | 6,238 |
(1) Represents the unamortized basis adjustment related to two receive-fixed, pay variable interest rate swap agreements which were previously designated as fair value hedges of the Company’s $1.2 billion 3.500% fixed rate senior notes due 2029. These swaps were dedesignated in the second quarter of 2022 as discussed further in Note 11—Derivatives.
Diamondback Energy, Inc. and Subsidiaries
Condensed Notes to Consolidated Financial Statements - (Continued)
(Unaudited)
References in this section to the Company shall mean Diamondback Energy, Inc. and Diamondback E&P, collectively, unless otherwise specified.
Credit Agreement
As of June 30, 2023, Diamondback E&P, as borrower, and Diamondback Energy, Inc., as parent guarantor, have a credit agreement, as amended, which provides for a maximum credit amount of $1.6 billion. As of June 30, 2023, the Company had $343 million in outstanding borrowings under the credit agreement and $1.3 billion available for future borrowings. During the three and six months ended June 30, 2023 the weighted average interest rate on borrowings under the credit agreement was 6.37% and 6.23%, respectively. During both the three and six months ended June 30, 2022 the weighted average interest rate on borrowings under the credit agreement was 2.69%. During the second quarter of 2023, the Company exercised an election to extend the maturity date of the credit agreement by one year to June 2, 2028 in accordance with the terms of the credit agreement.
As of June 30, 2023, the Company was in compliance with all financial maintenance covenants under the credit agreement.
Repurchases of Notes
In the second quarter of 2023, the Company repurchased principal amounts of $30 million of its 3.250% Senior Notes due 2026 and $100 million of its 3.500% Senior Notes due 2029 for total cash consideration, including accrued interest paid of $124 million. These repurchases resulted in an immaterial loss on extinguishment of debt during the second quarter of 2023.
Viper’s Credit Agreement
On May 31, 2023, Viper LLC entered into a tenth amendment to its existing credit agreement, which among other things, (i) maintained the maximum credit amount under the Viper LLC credit agreement of $2.0 billion, (ii) increased the borrowing base from $580 million to $1.0 billion and (iii) increased the elected commitment amount from $500 million to $750 million. As of June 30, 2023, Viper LLC had $224 million of outstanding borrowings and $526 million available for future borrowings. During the three and six months ended June 30, 2023 and 2022, the weighted average interest rates on borrowings under the Viper credit agreement were 7.53%, 7.24% and 3.20% and 2.88%, respectively. The Viper credit agreement will mature on June 2, 2025. As of June 30, 2023, Viper LLC was in compliance with all financial maintenance covenants under the Viper credit agreement.
8. STOCKHOLDERS’ EQUITY AND EARNINGS (LOSS) PER SHARE
Stock Repurchase Program
In September 2021, the Company’s board of directors approved a stock repurchase program to acquire up to $2.0 billion of the Company’s outstanding common stock, excluding excise tax. On July 28, 2022, the Company’s board of directors approved an increase in the Company’s common stock repurchase program from $2.0 billion to $4.0 billion, excluding excise tax. Purchases under the repurchase program may be made from time to time in open market or privately negotiated transactions, and are subject to market conditions, applicable legal requirements, contractual obligations and other factors. The repurchase program does not require the Company to acquire any specific number of shares. This repurchase program may be suspended from time to time, modified, extended or discontinued by the board of directors at any time. During the three and six months ended June 30, 2023 and 2022, the Company repurchased, excluding excise tax, approximately $321 million, $653 million, $303 million and $310 million of common stock under this repurchase program, respectively. As of June 30, 2023, approximately $1.8 billion remained available for use to repurchase shares under the Company’s common stock repurchase program, excluding excise tax.
Diamondback Energy, Inc. and Subsidiaries
Condensed Notes to Consolidated Financial Statements - (Continued)
(Unaudited)
Change in Ownership of Consolidated Subsidiaries
Non-controlling interests in the accompanying condensed consolidated financial statements represent minority interest ownership in Viper and Rattler through the Effective Date and are presented as a component of equity. When the Company’s relative ownership interests in Viper and Rattler change, adjustments to non-controlling interest and additional paid-in-capital, tax effected, will occur. The following table summarizes changes in the ownership interest in consolidated subsidiaries during the periods presented:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||
| Net income (loss) attributable to the Company | $ | 556 | $ | 1,416 | $ | 1,268 | $ | 2,195 | |||||||||||||||
| Change in ownership of consolidated subsidiaries | (15) | (9) | (24) | (21) | |||||||||||||||||||
| Change from net income (loss) attributable to the Company's stockholders and transfers to non-controlling interest | $ | 541 | $ | 1,407 | $ | 1,244 | $ | 2,174 |
Earnings (Loss) Per Share
The Company’s earnings (loss) per share amounts have been computed using the two-class method. The two-class method is an earnings allocation proportional to the respective ownership among holders of common stock and participating securities. Basic earnings (loss) per share amounts have been computed based on the weighted-average number of shares of common stock outstanding for the period. Diluted earnings per share include the effect of potentially dilutive non-participating securities outstanding for the period. Additionally, the per share earnings of Viper are included in the consolidated earnings per share computation based on the consolidated group’s holdings of the subsidiaries.
A reconciliation of the components of basic and diluted earnings per common share is presented in the table below:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| ($ in millions, except per share amounts, shares in thousands) | |||||||||||||||||||||||
| Net income (loss) attributable to common stock | $ | 556 | $ | 1,416 | $ | 1,268 | $ | 2,195 | |||||||||||||||
| Less: distributed and undistributed earnings allocated to participating securities(1) | 5 | 16 | 9 | 21 | |||||||||||||||||||
| Net income (loss) attributable to common stockholders | $ | 551 | $ | 1,400 | $ | 1,259 | $ | 2,174 | |||||||||||||||
| Weighted average common shares outstanding: | |||||||||||||||||||||||
| Basic weighted average common shares outstanding | 180,373 | 176,570 | 181,176 | 177,064 | |||||||||||||||||||
| Effect of dilutive securities: | |||||||||||||||||||||||
| Weighted-average potential common shares issuable | — | 2 | — | 2 | |||||||||||||||||||
| Diluted weighted average common shares outstanding | 180,373 | 176,572 | 181,176 | 177,066 | |||||||||||||||||||
| Basic net income (loss) attributable to common stock | $ | 3.05 | $ | 7.93 | $ | 6.95 | $ | 12.28 | |||||||||||||||
| Diluted net income (loss) attributable to common stock | $ | 3.05 | $ | 7.93 | $ | 6.95 | $ | 12.28 |
(1) Unvested restricted stock awards and performance stock awards that contain non-forfeitable distribution equivalent rights are considered participating securities and therefore are included in the earnings per share calculation pursuant to the two-class method.
Diamondback Energy, Inc. and Subsidiaries
Condensed Notes to Consolidated Financial Statements - (Continued)
(Unaudited)
9. EQUITY-BASED COMPENSATION
Under the Equity Plan approved by the Board of Directors, the Company is authorized to issue up to 11.8 million shares of incentive and non-statutory stock options, restricted stock awards and restricted stock units, performance awards and stock appreciation rights to eligible employees. The Company has outstanding restricted stock units and performance-based restricted stock units under the Equity Plan. The Company also has immaterial amounts of restricted share awards and stock appreciation rights outstanding which were issued under plans assumed in connection with previously completed mergers. At June 30, 2023, approximately 5.1 million shares of common stock remain available for future grants under the Equity Plan. The Company classifies its restricted stock units and performance-based restricted stock units as equity-based awards and estimates the fair values of restricted stock awards and units as the closing price of the Company’s common stock on the grant date of the award, which is expensed over the applicable vesting period.
In addition to the Equity Plan, Viper maintains its own long-term incentive plan, which is not significant to the Company.
The following table presents the financial statement impacts of equity compensation plans and related costs on the Company’s financial statements:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||
| General and administrative expenses | $ | 16 | $ | 13 | $ | 27 | $ | 28 | |||||||||||||||
| Equity-based compensation capitalized pursuant to full cost method of accounting for oil and natural gas properties | $ | 6 | $ | 6 | $ | 11 | $ | 10 | |||||||||||||||
Restricted Stock Units
The following table presents the Company’s restricted stock unit activity during the six months ended June 30, 2023 under the Equity Plan:
| Restricted Stock Units | Weighted Average Grant-Date Fair Value | ||||||||||
| Unvested at December 31, 2022 | 918,902 | $ | 95.74 | ||||||||
| Granted | 390,530 | $ | 143.74 | ||||||||
| Vested | (154,606) | $ | 122.88 | ||||||||
| Forfeited | (52,986) | $ | 98.87 | ||||||||
| Unvested at June 30, 2023 | 1,101,840 | $ | 108.62 |
The aggregate grant date fair value of restricted stock units that vested during the six months ended June 30, 2023 was $19 million. As of June 30, 2023, the Company’s unrecognized compensation cost related to unvested restricted stock units was $94 million, which is expected to be recognized over a weighted-average period of 1.8 years.
Diamondback Energy, Inc. and Subsidiaries
Condensed Notes to Consolidated Financial Statements - (Continued)
(Unaudited)
Performance Based Restricted Stock Units
The following table presents the Company’s performance restricted stock units activity under the Equity Plan for the six months ended June 30, 2023:
| Performance Restricted Stock Units | Weighted Average Grant-Date Fair Value | ||||||||||
| Unvested at December 31, 2022 | 347,881 | $ | 168.48 | ||||||||
| Granted | 126,347 | $ | 259.52 | ||||||||
| Forfeited | (27,168) | $ | 131.06 | ||||||||
| Unvested at June 30, 2023(1) | 447,060 | $ | 196.48 |
(1)A maximum of 1,068,213 units could be awarded based upon the Company’s final TSR ranking.
As of June 30, 2023, the Company’s unrecognized compensation cost related to unvested performance based restricted stock awards and units was $50 million, which is expected to be recognized over a weighted-average period of 1.7 years.
In March 2023, eligible employees received performance restricted stock unit awards totaling 126,347 units from which a minimum of 0% and a maximum of 200% of the units could be awarded based upon the measurement of total stockholder return of the Company’s common stock as compared to a designated peer group during the 3-year performance period of January 1, 2023 to December 31, 2025 and cliff vest at December 31, 2025 subject to continued employment. The initial payout of the March 2023 awards will be further adjusted by a TSR modifier that may reduce the payout or increase the payout up to a maximum of 250%.
The fair value of each performance restricted stock unit issuance is estimated at the date of grant using a Monte Carlo simulation, which results in an expected percentage of units to be earned during the performance period.
The following table presents a summary of the grant-date fair values of performance restricted stock units granted and the related assumptions for the awards granted during the period presented:
| 2023 | |||||||||||||||||
| Grant-date fair value | $ | 259.52 | |||||||||||||||
| Risk-free rate | 4.64 | % | |||||||||||||||
| Company volatility | 46.90 | % |
10. INCOME TAXES
The following table provides the Company’s provision for (benefit from) income taxes and the effective income tax rate for the periods indicated:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| (In millions, except for tax rate) | |||||||||||||||||||||||
| Provision for (benefit from) income taxes | $ | 165 | $ | 402 | $ | 372 | $ | 623 | |||||||||||||||
| Effective income tax rate | 22.0 | % | 21.6 | % | 21.8 | % | 21.6 | % |
Total income tax expense from continuing operations for the three and six months ended June 30, 2023 and 2022 differed from amounts computed by applying the United States federal statutory tax rate to pre-tax income primarily due to (i) state income taxes, net of federal benefit, and (ii) the impact of permanent differences between book and taxable income, partially offset by (iii) tax benefit resulting from a reduction in the valuation allowance on Viper’s deferred tax assets for the three and six months ended June 30, 2022 due to Viper’s pre-tax income for the period.
As of June 30, 2023, Viper maintained a partial valuation allowance against its deferred tax assets, based on its assessment of all available evidence, both positive and negative, supporting realizability of Viper’s deferred tax assets.
Diamondback Energy, Inc. and Subsidiaries
Condensed Notes to Consolidated Financial Statements - (Continued)
(Unaudited)
For the three and six months ended June 30, 2023 and 2022, the Company’s items of discrete income tax expense or benefit were not material.
The Inflation Reduction Act of 2022 (“IRA”) was enacted on August 16, 2022, which created a 15% corporate alternative minimum tax (“CAMT”) on the “adjusted financial statement income” of certain large corporations (generally, corporations reporting at least $1 billion of average adjusted pre-tax net income on their consolidated financial statements) as well as an excise tax of 1% on the fair market value of certain public company stock/unit repurchases for tax years beginning after December 31, 2022. Based on application of currently available guidance, the Company’s income tax expense for the three and six months ended June 30, 2023 were not impacted by the CAMT. The Company’s excise tax during the three and six months ended June 30, 2023 was immaterial and was recognized as part of the cost basis of the units repurchased.
11. DERIVATIVES
At June 30, 2023, the Company has commodity derivative contracts and interest rate swaps outstanding. All derivative financial instruments are recorded at fair value.
Commodity Contracts
The Company has entered into multiple crude oil and natural gas derivatives, indexed to the respective indices as noted in the table below, to reduce price volatility associated with certain of its oil and natural gas sales. The Company has not designated its commodity derivative instruments as hedges for accounting purposes and, as a result, marks its commodity derivative instruments to fair value and recognizes the cash and non-cash changes in fair value in the condensed consolidated statements of operations under the caption “Gain (loss) on derivative instruments, net.”
By using derivative instruments to economically hedge exposure to changes in commodity prices, the Company exposes itself to credit risk and market risk. Credit risk is the failure of the counterparty to perform under the terms of the derivative contract. When the fair value of a derivative contract is positive, the counterparty owes the Company, which creates credit risk. The Company has entered into commodity derivative instruments only with counterparties that are also lenders under its credit facility and have been deemed an acceptable credit risk. As such, collateral is not required from either the counterparties or the Company on its outstanding commodity derivative contracts.
As of June 30, 2023, the Company had the following outstanding commodity derivative contracts. When aggregating multiple contracts, the weighted average contract price is disclosed.
| Swaps | Collars | ||||||||||||||||||||||||||||
| Settlement Month | Settlement Year | Type of Contract | Bbls/MMBtu Per Day | Index | Weighted Average Differential | Weighted Average Floor Price | Weighted Average Ceiling Price | ||||||||||||||||||||||
| OIL | |||||||||||||||||||||||||||||
| July - Dec. | 2023 | Basis Swap(1) | 24,000 | Argus WTI Midland | $0.90 | $— | $— | ||||||||||||||||||||||
| Jan. - Dec. | 2024 | Basis Swap(1) | 4,000 | Argus WTI Midland | $1.27 | $— | $— | ||||||||||||||||||||||
| NATURAL GAS | |||||||||||||||||||||||||||||
| July - Dec. | 2023 | Costless Collar | 310,000 | Henry Hub | $— | $3.18 | $9.22 | ||||||||||||||||||||||
| Jan. - Dec. | 2024 | Costless Collar | 200,000 | Henry Hub | $— | $3.00 | $8.42 | ||||||||||||||||||||||
| July - Dec. | 2023 | Basis Swap(1) | 330,000 | Waha Hub | $(1.24) | $— | $— | ||||||||||||||||||||||
| Jan. - Dec. | 2024 | Basis Swap(1) | 380,000 | Waha Hub | $(1.18) | $— | $— | ||||||||||||||||||||||
| Jan. - Dec. | 2025 | Basis Swap(1) | 110,000 | Waha Hub | $(0.76) | $— | $— |
(1) The Company has fixed price basis swaps for the spread between the Cushing crude oil price and the Midland WTI crude oil price as well as the spread between the Henry Hub natural gas price and the Waha Hub natural gas price. The weighted average differential represents the amount of reduction to the Cushing, Oklahoma oil price and the Waha Hub natural gas price for the notional volumes covered by the basis swap contracts.
Diamondback Energy, Inc. and Subsidiaries
Condensed Notes to Consolidated Financial Statements - (Continued)
(Unaudited)
| Settlement Month | Settlement Year | Type of Contract | Bbls Per Day | Index | Strike Price | Weighted Average Differential | Deferred Premium | ||||||||||||||||
| OIL | |||||||||||||||||||||||
| July - Sep. | 2023 | Put | 113,000 | Brent | $54.69 | $— | $1.65 | ||||||||||||||||
| July - Sep. | 2023 | Put | 32,000 | Argus WTI Houston | $55.00 | $— | $1.68 | ||||||||||||||||
| July - Sep. | 2023 | Put | 12,000 | WTI | $55.00 | $— | $1.80 | ||||||||||||||||
| Oct. - Dec. | 2023 | Put | 96,000 | Brent | $55.00 | $— | $1.60 | ||||||||||||||||
| Oct. - Dec. | 2023 | Put | 26,000 | Argus WTI Houston | $55.00 | $— | $1.68 | ||||||||||||||||
| Oct. - Dec. | 2023 | Put | 12,000 | WTI | $55.00 | $— | $1.85 | ||||||||||||||||
| Jan. - Mar. | 2024 | Put | 44,000 | Brent | $55.00 | $— | $1.70 | ||||||||||||||||
| Jan. - Mar. | 2024 | Put | 6,000 | Argus WTI Houston | $55.00 | $— | $1.87 | ||||||||||||||||
| Apr. - Jun. | 2024 | Put | 12,000 | Brent | $55.00 | $— | $1.81 |
Interest Rate Swaps
In the second quarter of 2021, the Company entered into two interest rate swap agreements for notional amounts of $600 million, which were designated as fair value hedges of the Company’s $1.2 billion 3.50% fixed rate senior notes due 2029 (the “2029 Notes”) at inception. The Company receives a fixed 3.50% rate of interest on these swaps. Effective on May 28, 2023, the variable rate of interest the Company pays on these swaps was reset from three month LIBOR to three month SOFR plus 2.1865%. The Company previously adopted the optional expedient in ASU 2020-04, “Reference Rate Reform (Topic 848) - Facilitation of the Effects of Reference Rate Reform on Financial Reporting,” as later extended for these contract term modifications, and as a result, did not recognize any impact of the change in reference rate on its financial position, results of operations or liquidity for the three or six months ended June 30, 2023.
In the second quarter of 2022, the Company elected to fully dedesignate these interest rate swaps and hedge accounting was discontinued. The cumulative fair value basis adjustment recorded on the 2029 Notes at the time of dedesignation totaled $135 million. This basis adjustment is being amortized to interest expense over the remaining term of the 2029 Notes utilizing the effective interest method. The dedesignated interest rate swaps are considered economic hedges of the Company’s fixed-rate debt. As such, changes in the fair value of the interest rate swaps after the date of dedesignation have been recorded in earnings under the caption “Gain (loss) on derivative instruments, net” in the condensed consolidated statements of operations.
Balance Sheet Offsetting of Derivative Assets and Liabilities
The fair value of derivative instruments is generally determined using established index prices and other sources which are based upon, among other things, futures prices and time to maturity. These fair values are recorded by netting asset and liability positions, including any deferred premiums that are with the same counterparty and are subject to contractual terms which provide for net settlement. See Note 12—Fair Value Measurements for further details.
Diamondback Energy, Inc. and Subsidiaries
Condensed Notes to Consolidated Financial Statements - (Continued)
(Unaudited)
Gains and Losses on Derivative Instruments
The following table summarizes the gains and losses on derivative instruments not designated as hedging instruments included in the condensed consolidated statements of operations:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||
| Gain (loss) on derivative instruments, net: | |||||||||||||||||||||||
| Commodity contracts | $ | (152) | $ | (102) | $ | (261) | $ | (654) | |||||||||||||||
| Interest rate swaps | (37) | 1 | (21) | 1 | |||||||||||||||||||
| Total | $ | (189) | $ | (101) | $ | (282) | $ | (653) | |||||||||||||||
| Net cash received (paid) on settlements: | |||||||||||||||||||||||
| Commodity contracts(1) | $ | (17) | $ | (306) | $ | (16) | $ | (726) | |||||||||||||||
| Interest rate swaps | (22) | 6 | (22) | 6 | |||||||||||||||||||
| Total | $ | (39) | $ | (300) | $ | (38) | $ | (720) |
(1)The six months ended June 30, 2022 includes cash paid on commodity contracts terminated prior to their contractual maturity of $135 million.
12. FAIR VALUE MEASUREMENTS
Assets and Liabilities Measured at Fair Value on a Recurring Basis
As discussed in Note 13—Fair Value Measurements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, certain financial instruments of the Company are reported at fair value on the Company’s condensed consolidated balance sheets. The net amounts of derivative instruments are classified as current or noncurrent based on their anticipated settlement dates. The Company has an immaterial investment that is reported at fair value using observable, quoted stock prices and is included in “Other assets” on the Company’s condensed consolidated balance sheet at June 30, 2023.
Diamondback Energy, Inc. and Subsidiaries
Condensed Notes to Consolidated Financial Statements - (Continued)
(Unaudited)
The following table provides the fair value of financial instruments that are recorded at fair value in the condensed consolidated balance sheets as of June 30, 2023 and December 31, 2022:
| As of June 30, 2023 | ||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total Gross Fair Value | Gross Amounts Offset in Balance Sheet | Net Fair Value Presented in Balance Sheet | |||||||||||||||
| (In millions) | ||||||||||||||||||||
| Assets: | ||||||||||||||||||||
| Current assets- Derivative instruments: | ||||||||||||||||||||
| Commodity derivative instruments | $ | — | $ | 60 | $ | — | $ | 60 | $ | (53) | $ | 7 | ||||||||
| Non-current assets- Derivative instruments: | ||||||||||||||||||||
| Commodity derivative instruments | $ | — | $ | 14 | $ | — | $ | 14 | $ | (13) | $ | 1 | ||||||||
| Non-current assets- Other assets: | ||||||||||||||||||||
| Investment | $ | 13 | $ | — | $ | — | $ | 13 | $ | — | $ | 13 | ||||||||
| Liabilities: | ||||||||||||||||||||
| Current liabilities- Derivative instruments: | ||||||||||||||||||||
| Commodity derivative instruments | $ | — | $ | 119 | $ | — | $ | 119 | $ | (53) | $ | 66 | ||||||||
| Interest rate swaps | $ | — | $ | 52 | $ | — | $ | 52 | $ | — | $ | 52 | ||||||||
| Non-current liabilities- Derivative instruments: | ||||||||||||||||||||
| Commodity derivative instruments | $ | — | $ | 48 | $ | — | $ | 48 | $ | (13) | $ | 35 | ||||||||
| Interest rate swaps | $ | — | $ | 140 | $ | — | $ | 140 | $ | — | $ | 140 |
| As of December 31, 2022 | ||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total Gross Fair Value | Gross Amounts Offset in Balance Sheet | Net Fair Value Presented in Balance Sheet | |||||||||||||||
| (In millions) | ||||||||||||||||||||
| Assets: | ||||||||||||||||||||
| Current assets- Derivative instruments: | ||||||||||||||||||||
| Commodity derivative instruments | $ | — | $ | 197 | $ | — | $ | 197 | $ | (65) | $ | 132 | ||||||||
| Non-current assets- Derivative instruments: | ||||||||||||||||||||
| Commodity derivative instruments | $ | — | $ | 62 | $ | — | $ | 62 | $ | (39) | $ | 23 | ||||||||
| Liabilities: | ||||||||||||||||||||
| Current liabilities- Derivative instruments: | ||||||||||||||||||||
| Commodity derivative instruments | $ | — | $ | 67 | $ | — | $ | 67 | $ | (65) | $ | 2 | ||||||||
| Interest rate swaps | $ | — | $ | 45 | $ | — | $ | 45 | $ | — | $ | 45 | ||||||||
| Non-current liabilities- Derivative instruments: | ||||||||||||||||||||
| Commodity derivative instruments | $ | — | $ | 39 | $ | — | $ | 39 | $ | (39) | $ | — | ||||||||
| Interest rate swaps | $ | — | $ | 148 | $ | — | $ | 148 | $ | — | $ | 148 |
Diamondback Energy, Inc. and Subsidiaries
Condensed Notes to Consolidated Financial Statements - (Continued)
(Unaudited)
Assets and Liabilities Not Recorded at Fair Value
The following table provides the fair value of financial instruments that are not recorded at fair value in the condensed consolidated balance sheets:
| June 30, 2023 | December 31, 2022 | ||||||||||||||||||||||
| Carrying | Carrying | ||||||||||||||||||||||
| Value | Fair Value | Value | Fair Value | ||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||
| Debt | $ | 6,543 | $ | 6,167 | $ | 6,248 | $ | 5,754 |
The fair values of the Company’s credit agreement and the Viper credit agreement approximate their carrying values based on borrowing rates available to the Company for bank loans with similar terms and maturities and is classified as Level 2 in the fair value hierarchy. The fair values of the outstanding notes were determined using the quoted market price at each period end, a Level 1 classification in the fair value hierarchy.
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
Certain assets and liabilities are measured at fair value on a nonrecurring basis in certain circumstances. These assets and liabilities can include those acquired in a business combination, inventory, proved and unproved oil and gas properties and other long-lived assets that are written down to fair value when they are impaired or held for sale. Refer to Note 4—Acquisitions and Divestitures and Note 5—Property and Equipment for additional discussion of nonrecurring fair value adjustments.
Fair Value of Financial Assets
The carrying amount of cash and cash equivalents, receivables, funds held in escrow, prepaid expenses and other current assets, payables and other accrued liabilities approximate their fair value because of the short-term nature of the instruments.
13. SUPPLEMENTAL INFORMATION TO STATEMENTS OF CASH FLOWS
| Six Months Ended June 30, | |||||||||||||||||||||||
| 2023 | 2022 | ||||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||
| Supplemental disclosure of cash flow information: | |||||||||||||||||||||||
| Cash paid (received) for income taxes | $ | 54 | $ | 362 | |||||||||||||||||||
| Supplemental disclosure of non-cash transactions: | |||||||||||||||||||||||
| Accrued capital expenditures included in accounts payable and accrued expenses | $ | 686 | $ | 340 | |||||||||||||||||||
| Common stock issued for acquisitions | $ | 633 | $ | — | |||||||||||||||||||
14. COMMITMENTS AND CONTINGENCIES
The Company is a party to various routine legal proceedings, disputes and claims arising in the ordinary course of its business, including those that arise from interpretation of federal and state laws and regulations affecting the crude oil and natural gas industry, personal injury claims, title disputes, royalty disputes, contract claims, contamination claims relating to oil and natural gas exploration and development and environmental claims, including claims involving assets previously sold to third parties and no longer part of the Company’s current operations. While the ultimate outcome of the pending proceedings, disputes or claims and any resulting impact on the Company, cannot be predicted with certainty, the Company’s management believes that none of these matters, if ultimately decided adversely, will have a material adverse effect on the Company’s financial condition, results of operations or cash flows. The Company’s assessment is based on information known about the pending matters and its experience in contesting, litigating and settling similar matters. Actual outcomes could differ materially from the Company’s assessment. The Company records reserves for contingencies related to outstanding legal proceedings,
Diamondback Energy, Inc. and Subsidiaries
Condensed Notes to Consolidated Financial Statements - (Continued)
(Unaudited)
disputes or claims when information available indicates that a loss is probable and the amount of the loss can be reasonably estimated.
Environmental Matters
The United States Department of the Interior, Bureau of Safety and Environmental Enforcement, ordered several oil and gas operators, including a corporate predecessor of Energen Corporation, to perform decommissioning and reclamation activities related to a Louisiana offshore oil and gas production platform and related facilities. In response to the insolvency of the operator of record, the government ordered the former operators and/or alleged former lease record title owners to decommission the platform and related facilities. The Company has agreed to an arrangement with other operators to contribute to a trust to fund the decommissioning costs, however, the Company’s portion of such costs are not expected to be material.
Beginning in 2013 and continuing through the second quarter of 2023, several coastal Louisiana parishes and the State of Louisiana have filed 43 lawsuits under Louisiana’s State and Local Coastal Resources Management Act (“SLCRMA”) against numerous oil and gas producers seeking damages for coastal erosion in or near oil fields located within Louisiana’s coastal zone. The Company is a defendant in three of these cases, and Plaintiffs’ claims against the Company relate to the prior operations of entities previously acquired by Energen Corporation. The Company has exercised contractual indemnification rights where applicable. Plaintiffs’ SLCRMA theories are unprecedented, and there remains significant uncertainty about the claims (both as to scope and damages). Although we cannot predict the ultimate outcome of these matters, the Company believes the claims lack merit and intends to continue vigorously defending these lawsuits.
15. SUBSEQUENT EVENTS
Second Quarter 2023 Dividend Declaration
On July 26, 2023, the board of directors of the Company approved an increase to the Company’s annual base dividend to $3.36 per share and declared a cash dividend for the second quarter of 2023 of $0.84 per share of common stock, payable on August 17, 2023 to its stockholders of record at the close of business on August 10, 2023. Future base and variable dividends are at the discretion of the board of directors of the Company.
Divestiture
On July 28, 2023, the Company divested its 43% non-operating equity investment in OMOG for $225 million in gross cash proceeds received at closing and a potential earn-out payment of $15 million, resulting in an initial gain on the sale of equity method investments of approximately $27 million in the third quarter of 2023. The earn-out payment is contingent on production volumes attributable to a certain area specified in the purchase and sales agreement reaching an average level of 165,000 Bbls/day during 2024. If met, the earn-out payment would be received in 2025 and will be recorded by the Company if and when it becomes realizable.
16. SEGMENT INFORMATION
As of June 30, 2023, the Company has one reportable segment, 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. Other operations are included in the “All Other” category in the table below.
Diamondback Energy, Inc. and Subsidiaries
Condensed Notes to Consolidated Financial Statements - (Continued)
(Unaudited)
The following tables summarize the results of the Company’s operating segments during the periods presented:
| Upstream | All Other | Eliminations | Total | ||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||
| Three Months Ended June 30, 2023: | |||||||||||||||||||||||
| Third-party revenues | $ | 1,895 | $ | 24 | $ | — | $ | 1,919 | |||||||||||||||
| Intersegment revenues | — | 103 | (103) | — | |||||||||||||||||||
| Total revenues | $ | 1,895 | $ | 127 | $ | (103) | $ | 1,919 | |||||||||||||||
| Depreciation, depletion, amortization and accretion | $ | 421 | $ | 11 | $ | — | $ | 432 | |||||||||||||||
| Income (loss) from operations | $ | 979 | $ | 54 | $ | (33) | $ | 1,000 | |||||||||||||||
| Interest expense, net | $ | (51) | $ | — | $ | — | $ | (51) | |||||||||||||||
| Other income (expense) | $ | (206) | $ | 16 | $ | (8) | $ | (198) | |||||||||||||||
| Provision for (benefit from) income taxes | $ | 162 | $ | 3 | $ | — | $ | 165 | |||||||||||||||
| Net income (loss) attributable to non-controlling interest | $ | 30 | $ | — | $ | — | $ | 30 | |||||||||||||||
| Net income (loss) attributable to Diamondback Energy, Inc. | $ | 530 | $ | 67 | $ | (41) | $ | 556 | |||||||||||||||
| As of June 30, 2023: | |||||||||||||||||||||||
| Total assets | $ | 25,919 | $ | 2,161 | $ | (493) | $ | 27,587 |
| Upstream | All Other | Eliminations | Total | ||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||
| Three Months Ended June 30, 2022: | |||||||||||||||||||||||
| Third-party revenues | $ | 2,753 | $ | 15 | $ | — | $ | 2,768 | |||||||||||||||
| Intersegment revenues | — | 90 | (90) | — | |||||||||||||||||||
| Total revenues | $ | 2,753 | $ | 105 | $ | (90) | $ | 2,768 | |||||||||||||||
| Depreciation, depletion, amortization and accretion | $ | 314 | $ | 16 | $ | — | $ | 330 | |||||||||||||||
| Income (loss) from operations | $ | 1,962 | $ | 39 | $ | (23) | $ | 1,978 | |||||||||||||||
| Interest expense, net | $ | (30) | $ | (9) | $ | — | $ | (39) | |||||||||||||||
| Other income (expense) | $ | (100) | $ | 28 | $ | (4) | $ | (76) | |||||||||||||||
| Provision for (benefit from) income taxes | $ | 398 | $ | 4 | $ | — | $ | 402 | |||||||||||||||
| Net income (loss) attributable to non-controlling interest | $ | 33 | $ | 12 | $ | — | $ | 45 | |||||||||||||||
| Net income (loss) attributable to Diamondback Energy, Inc. | $ | 1,401 | $ | 42 | $ | (27) | $ | 1,416 | |||||||||||||||
| As of December 31, 2022: | |||||||||||||||||||||||
| Total assets | $ | 24,452 | $ | 2,213 | $ | (456) | $ | 26,209 |
| Upstream | All Other | Eliminations | Total | ||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||
| Six Months Ended June 30, 2023: | |||||||||||||||||||||||
| Third-party revenues | $ | 3,799 | $ | 45 | $ | — | $ | 3,844 | |||||||||||||||
| Intersegment revenues | — | 202 | (202) | — | |||||||||||||||||||
| Total revenues | $ | 3,799 | $ | 247 | $ | (202) | $ | 3,844 | |||||||||||||||
| Depreciation, depletion, amortization and accretion | $ | 809 | $ | 26 | $ | — | $ | 835 | |||||||||||||||
| Income (loss) from operations | $ | 1,981 | $ | 99 | $ | (55) | $ | 2,025 | |||||||||||||||
| Interest expense, net | $ | (97) | $ | — | $ | — | $ | (97) | |||||||||||||||
| Other income (expense) | $ | (299) | $ | 83 | $ | (8) | $ | (224) | |||||||||||||||
| Provision for (benefit from) income taxes | $ | 365 | $ | 7 | $ | — | $ | 372 | |||||||||||||||
| Net income (loss) attributable to non-controlling interest | $ | 64 | $ | — | $ | — | $ | 64 | |||||||||||||||
| Net income (loss) attributable to Diamondback Energy, Inc. | $ | 1,156 | $ | 175 | $ | (63) | $ | 1,268 | |||||||||||||||
| As of June 30, 2023: | |||||||||||||||||||||||
| Total assets | $ | 25,919 | $ | 2,161 | $ | (493) | $ | 27,587 |
Diamondback Energy, Inc. and Subsidiaries
Condensed Notes to Consolidated Financial Statements - (Continued)
(Unaudited)
| Upstream | All Other | Eliminations | Total | ||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||
| Six Months Ended June 30, 2022: | |||||||||||||||||||||||
| Third-party revenues | $ | 5,144 | $ | 32 | $ | — | $ | 5,176 | |||||||||||||||
| Intersegment revenues | — | 177 | (177) | — | |||||||||||||||||||
| Total revenues | $ | 5,144 | $ | 209 | $ | (177) | $ | 5,176 | |||||||||||||||
| Depreciation, depletion, amortization and accretion | $ | 606 | $ | 37 | $ | — | $ | 643 | |||||||||||||||
| Income (loss) from operations | $ | 3,599 | $ | 78 | $ | (39) | $ | 3,638 | |||||||||||||||
| Interest expense, net | $ | (61) | $ | (18) | $ | — | $ | (79) | |||||||||||||||
| Other income (expense) | $ | (700) | $ | 37 | $ | (9) | $ | (672) | |||||||||||||||
| Provision for (benefit from) income taxes | $ | 617 | $ | 6 | $ | — | $ | 623 | |||||||||||||||
| Net income (loss) attributable to non-controlling interest | $ | 49 | $ | 20 | $ | — | $ | 69 | |||||||||||||||
| Net income (loss) attributable to Diamondback Energy, Inc. | $ | 2,172 | $ | 71 | $ | (48) | $ | 2,195 | |||||||||||||||
| As of December 31, 2022: | |||||||||||||||||||||||
| Total assets | $ | 24,452 | $ | 2,213 | $ | (456) | $ | 26,209 |
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