Item 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Diamondback Energy, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited)
			September 30,						December 31,
			2023						2022
			(In millions, except par values and share data)
Assets
Current assets:
Cash and cash equivalents			$	827					$	157
Restricted cash			3						7
Accounts receivable:
Joint interest and other, net			191						104
Oil and natural gas sales, net			789						618
Inventories			70						67
Derivative instruments			1						132
Income tax receivable			16						284
Prepaid expenses and other current assets			19						23
Total current assets			1,916						1,392
Property and equipment:
Oil and natural gas properties, full cost method of accounting ($8,239 million and $8,355 million excluded from amortization at September 30, 2023 and December 31, 2022, respectively)			40,647						37,122
Other property, equipment and land			706						1,481
Accumulated depletion, depreciation, amortization and impairment			(15,988)						(14,844)
Property and equipment, net			25,365						23,759
Funds held in escrow			50						119
Equity method investments			519						566
Assets held for sale			—						158
Derivative instruments			1						23
Deferred income taxes, net			60						64
Investment in real estate, net			85						86
Other assets			53						42
Total assets			$	28,049					$	26,209
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable - trade			$	358					$	127
Accrued capital expenditures			397						480
Current maturities of long-term debt			—						10
Other accrued liabilities			428						399
Revenues and royalties payable			782						619
Derivative instruments			139						47
Income taxes payable			37						34
Total current liabilities			2,141						1,716
Long-term debt			6,230						6,238
Derivative instruments			199						148
Asset retirement obligations			240						336
Deferred income taxes			2,243						2,069
Other long-term liabilities			12						12
Total liabilities			11,065						10,519
Commitments and contingencies (Note 14)
Stockholders’ equity:
Common stock, $0.01 par value; 400,000,000 shares authorized; 178,815,302 and 179,840,797 shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively			2						2
Additional paid-in capital			14,149						14,213
Retained earnings (accumulated deficit)			2,136						801
Accumulated other comprehensive income (loss)			(7)						(7)
Total Diamondback Energy, Inc. stockholders’ equity			16,280						15,009
Non-controlling interest			704						681
Total equity			16,984						15,690
Total liabilities and equity			$	28,049					$	26,209

See accompanying notes to condensed consolidated financial statements.

Diamondback Energy, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

(Unaudited)

			Three Months Ended September 30,												Nine Months Ended September 30,
			2023						2022						2023						2022
			(In millions, except per share amounts, shares in thousands)
Revenues:
Oil sales			$	1,997					$	1,853					$	5,359					$	5,988
Natural gas sales			80						296						197						714
Natural gas liquid sales			188						268						507						856
Sales of purchased oil			59						—						59						—
Other operating income			16						20						62						55
Total revenues			2,340						2,437						6,184						7,613
Costs and expenses:
Lease operating expenses			226						183						618						491
Production and ad valorem taxes			118						156						421						495
Gathering and transportation			73						71						209						191
Depreciation, depletion, amortization and accretion			442						336						1,277						979
Purchased oil expense			59						—						59						—
General and administrative expenses			34						34						111						109
Merger and integration expenses			1						11						11						11
Other operating expenses			47						32						113						85
Total costs and expenses			1,000						823						2,819						2,361
Income (loss) from operations			1,340						1,614						3,365						5,252
Other income (expense):
Interest expense, net			(41)						(43)						(138)						(122)
Other income (expense), net			37						(5)						69						(3)
Gain (loss) on derivative instruments, net			(76)						(24)						(358)						(677)
Gain (loss) on extinguishment of debt			—						(1)						(4)						(59)
Income (loss) from equity investments			9						19						39						56
Total other income (expense), net			(71)						(54)						(392)						(805)
Income (loss) before income taxes			1,269						1,560						2,973						4,447
Provision for (benefit from) income taxes			276						290						648						913
Net income (loss)			993						1,270						2,325						3,534
Net income (loss) attributable to non-controlling interest			78						86						142						155
Net income (loss) attributable to Diamondback Energy, Inc.			$	915					$	1,184					$	2,183					$	3,379
Earnings (loss) per common share:
Basic			$	5.07					$	6.72					$	12.01					$	18.99
Diluted			$	5.07					$	6.72					$	12.01					$	18.99
Weighted average common shares outstanding:
Basic			178,872						174,406						180,400						176,169
Diluted			178,872						174,408						180,400						176,171
Dividends declared per share			$	3.37					$	2.26					$	5.04					$	8.36

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
Distribution equivalent rights payments			—						—						—						(2)						—						—						(2)
Stock-based compensation			—						—						21						—						—						—						21
Cash paid for tax withholding on vested equity awards			(1)						—						—						—						—						—						—
Repurchased shares under buyback program			(407)						—						(56)						—						—						—						(56)
Repurchased units under buyback programs			—						—						—						—						—						(10)						(10)
Distributions to non-controlling interest			—						—						—						—						—						(25)						(25)
Dividend paid			—						—						—						(149)						—						—						(149)
Exercise of stock options and vesting of restricted stock units and awards			4						—						—						—						—						—						—
Change in ownership of consolidated subsidiaries, net			—						—						(3)						—						—						3						—
Net income (loss)			—						—						—						915						—						78						993
Balance September 30, 2023			178,815						$	2					$	14,149					$	2,136					$	(7)					$	704					$	16,984

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
Unit-based compensation			—						—						—						—												2						2
Distribution equivalent rights payments			—						—						—						(5)												(1)						(6)
Stock-based compensation			—						—						17						—												—						17
Repurchased shares under buyback program			(3,922)						—						(472)						—												—						(472)
Repurchased units under buyback programs			—						—						—						—												(51)						(51)
Common shares issued for acquisition			4,352						—						344						—												(344)						—
Distributions to non-controlling interest			—						—						—						—												(71)						(71)
Dividend paid			—						—						—						(526)												—						(526)
Change in ownership of consolidated subsidiaries, net			—						—						(15)						—												20						5
Net income (loss)			—						—						—						1,184												86						1,270
Balance September 30, 2022			175,631						$	2					$	13,646					$	195											$	715					$	14,558

See accompanying notes to condensed consolidated financial statements.

Diamondback Energy, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)

			Nine Months Ended September 30,
			2023						2022
			(In millions)
Cash flows from operating activities:
Net income (loss)			$	2,325					$	3,534
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Provision for (benefit from) deferred income taxes			185						375
Depreciation, depletion, amortization and accretion			1,277						979
(Gain) loss on extinguishment of debt			4						59
(Gain) loss on derivative instruments, net			358						677
Cash received (paid) on settlement of derivative instruments			(62)						(816)
(Income) loss from equity investment			(39)						(56)
Equity-based compensation expense			40						42
Other			(23)						57
Changes in operating assets and liabilities:
Accounts receivable			(218)						(113)
Income tax receivable			267						(1)
Prepaid expenses and other			5						(16)
Accounts payable and accrued liabilities			46						(29)
Income tax payable			4						14
Revenues and royalties payable			139						182
Other			(12)						(4)
Net cash provided by (used in) operating activities			4,296						4,884
Cash flows from investing activities:
Drilling, completions and infrastructure additions to oil and natural gas properties			(1,948)						(1,327)
Additions to midstream assets			(104)						(69)
Property acquisitions			(1,193)						(623)
Proceeds from sale of assets			1,400						105
Other			(14)						(38)
Net cash provided by (used in) investing activities			(1,859)						(1,952)
Cash flows from financing activities:
Proceeds from borrowings under credit facilities			4,466						4,100
Repayments under credit facilities			(4,368)						(4,119)
Proceeds from senior notes			—						750
Repayment of senior notes			(134)						(1,910)
Proceeds from (repayments to) joint venture			—						(41)
Premium on extinguishment of debt			—						(49)
Repurchased shares under buyback program			(709)						(782)
Repurchased units under buyback program			(67)						(122)
Dividends paid to stockholders			(841)						(1,174)
Distributions to non-controlling interest			(84)						(181)
Other			(34)						(42)
Net cash provided by (used in) financing activities			(1,771)						(3,570)
Net increase (decrease) in cash and cash equivalents			666						(638)
Cash, cash equivalents and restricted cash at beginning of period			164						672
Cash, cash equivalents and restricted cash at end of period			$	830					$	34

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 September 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 Nasdaq 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 September 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 condensed 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 condensed 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 and Israel-Hamas war, 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.

Net Sales of Purchased Oil

The Company enters into pipeline capacity commitments in order to secure available transportation capacity from the Company's areas of production for its commodities. Beginning in the third quarter of 2023, the Company has also entered into purchase transactions with third parties and separate sale transactions with third parties to satisfy certain of its unused oil pipeline capacity commitments. Revenues and expenses from these transactions are generally presented on a gross basis in the captions “Sales of purchased oil” and “Purchased oil expense” in the accompanying condensed consolidated statements of operations as the Company acts as a principal in the transaction by assuming both the risks and rewards of ownership, including credit risk, of the oil volumes purchased and the responsibility to deliver the oil volumes sold. See Note 3—Revenue from Contracts with Customers for additional information.

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 assets 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

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:

			Three Months Ended September 30,												Nine Months Ended September 30,
			2023						2022						2023						2022
			(In millions)
Oil sales			$	1,997					$	1,853					$	5,359					$	5,988
Natural gas sales			80						296						197						714
Natural gas liquid sales			188						268						507						856
Total oil, natural gas and natural gas liquid revenues			2,265						2,417						6,063						7,558
Sales of purchased oil			59						—						59						—
Midstream and marketing services			13						18						56						49
Total revenue from contracts with customers			$	2,337					$	2,435					$	6,178					$	7,607

The following tables present the Company’s revenue from oil, natural gas, and natural gas liquids disaggregated by basin:

			Three Months Ended September 30, 2023																								Three Months Ended September 30, 2022
			Midland Basin						Delaware Basin						Other						Total						Midland Basin						Delaware Basin						Other						Total
			(In millions)
Oil sales			$	1,588					$	407					$	2					$	1,997					$	1,311					$	539					$	3					$	1,853
Natural gas sales			52						28						—						80						200						95						1						296
Natural gas liquid sales			138						50						—						188						188						80						—						268
Total			$	1,778					$	485					$	2					$	2,265					$	1,699					$	714					$	4					$	2,417
			Nine Months Ended September 30, 2023																								Nine Months Ended September 30, 2022
			Midland Basin						Delaware Basin						Other						Total						Midland Basin						Delaware Basin						Other						Total
			(In millions)
Oil sales			$	4,205					$	1,149					$	5					$	5,359					$	4,319					$	1,661					$	8					$	5,988
Natural gas sales			131						66						—						197						466						246						2						714
Natural gas liquid sales			363						144						—						507						586						268						2						856
Total			$	4,699					$	1,359					$	5					$	6,063					$	5,371					$	2,175					$	12					$	7,558

4. ACQUISITIONS AND DIVESTITURES

2023 Activity

Deep Blue Acquisition and Divestiture of Water Assets

On September 1, 2023, the Company closed on a joint venture agreement with Five Point Energy LLC (“Five Point”) to form Deep Blue Midland Basin LLC (“Deep Blue”). At closing, the Company contributed certain treated water, fresh water and salt water disposal assets (the “Water Assets”) with a net carrying value of $681 million and Five Point contributed $251 million in cash, including customary closing adjustments, to Deep Blue. In exchange for these contributions, Deep Blue issued the Company a one-time cash distribution of approximately $516 million and issued to the Company a 30% equity ownership and voting interest, and issued to Five Point a 70% equity ownership and voting interest.

Diamondback Energy, Inc. and Subsidiaries

Condensed Notes to Consolidated Financial Statements - (Continued)

(Unaudited)

Under a separate agreement with Deep Blue, the Company is continuing to operate the Water Assets on a short-term basis before transferring operations to Deep Blue, which is anticipated to happen in 2024. Contingent upon the successful transfer of operations, the Company will receive approximately $47 million in cash to be contributed by Five Point in 2024. This contingent consideration does not meet the criteria to be accounted for as a derivative. As such, at September 30, 2023, approximately $43 million has been recorded as a receivable in the condensed consolidated balance sheet for the fair value of the additional consideration to be received when operation of the Water Assets transfers to Deep Blue.

The Company recorded its 30% equity interest in Deep Blue at fair value based on the cash consideration contributed by Five Point to Deep Blue in exchange for its 70% equity ownership and the estimated fair value of contingent consideration to be contributed by Five Point in future years. As of September 30, 2023, the Company’s equity method investment in Deep Blue has a carrying value equal to its initial fair value of $126 million and is included in the caption “Equity method investments” in the condensed consolidated balance sheet. The Company’s proportionate share of the income or loss from Deep Blue will be recognized on a two-month lag. For the three and nine months ended September 30, 2023, the Company recognized a $2 million loss on the sale of its Water Assets, which is included in the caption “Other operating expenses” in the condensed consolidated statement of operations.

The Company and Five Point currently anticipate collectively contributing $500 million in follow-on capital to fund future growth projects and acquisitions.

As part of the transaction, the Company also entered into a 15-year dedication with Deep Blue for its produced water and supply water within a 12-county area of mutual interest in the Midland Basin. Fees paid to Deep Blue for produced water and supply water services and fees received from Deep Blue for operating services provided by the Company during the three and nine months ended September 30, 2023 were insignificant.

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 offering of 6.250% Senior Notes due 2053 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

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. There have been no material changes to the purchase price allocation for the Lario Acquisition through September 30, 2023.

Diamondback Energy, Inc. and Subsidiaries

Condensed Notes to Consolidated Financial Statements - (Continued)

(Unaudited)

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 condensed 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 $134 million and $345 million of total revenue and $53 million and $140 million of net income for the three and nine months ended September 30, 2023, respectively.

Divestitures

On July 28, 2023, the Company divested its 43% limited liability company interest in OMOG JV LLC (“OMOG”) for $225 million in cash received at closing. This divestiture resulted in a gain on the sale of equity method investments of approximately $35 million for the three and nine months ended September 30, 2023, which is included in the caption “Other income (expense), net” in the condensed consolidated statement of operations. The Company used its net proceeds from this transaction for debt reduction and other general corporate purposes.

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 $269 million, including customary post-closing adjustments. 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.

The divestitures of non-core oil and gas assets 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.

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 nine months ended September 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. During the three months ended September 30, 2023, the Company decreased the fair value allocated to certain midstream assets by $36 million and; increased the fair value allocated to the acquired oil and natural gas properties by $36 million based on new information that became available related to the fair value of these assets on the acquisition date.

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			1,598
Inventories			3
Other property, equipment and land			72
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 was included in the Company’s condensed consolidated balance sheets under the caption “Other property, equipment and land.” The majority of

Diamondback Energy, Inc. and Subsidiaries

Condensed Notes to Consolidated Financial Statements - (Continued)

(Unaudited)

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.

With the completion of the FireBird Acquisition, the Company acquired proved properties of $648 million and unproved properties of $950 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 nine months ended September 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 nine months ended September 30, 2023 were adjusted to exclude acquisition-related costs incurred by the Company of $1 million and $8 million for the Lario Acquisition, respectively, and $3 million for the FireBird Acquisition during the nine months ended September 30, 2023, 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 September 30,												Nine Months Ended September 30,
			2023						2022						2023						2022
			(In millions, except per share amounts)
Revenues			$	2,340					$	2,681					$	6,229					$	8,308
Income (loss) from operations			$	1,341					$	1,776					$	3,401					$	5,707
Net income (loss)			$	916					$	1,356					$	2,214					$	3,866
Basic earnings (loss) per common share			$	5.07					$	7.34					$	12.18					$	20.74
Diluted earnings (loss) per common share			$	5.07					$	7.36					$	12.18					$	20.79

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:

			September 30,						December 31,
			2023						2022
			(In millions)
Oil and natural gas properties:
Subject to depletion			$	32,408					$	28,767
Not subject to depletion			8,239						8,355
Gross oil and natural gas properties			40,647						37,122
Accumulated depletion			(7,884)						(6,671)
Accumulated impairment			(7,954)						(7,954)
Oil and natural gas properties, net			24,809						22,497
Other property, equipment and land			706						1,481
Accumulated depreciation, amortization, accretion and impairment			(150)						(219)
Total property and equipment, net			$	25,365					$	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 nine months ended September 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 third quarter of 2023, the Company completed the sale of its Water Assets and oil gathering assets which had been classified as assets held for sale in the condensed consolidated balance sheet as of June 30, 2023, with carrying values of $667 million and $75 million, respectively. The sale of these assets resulted in an insignificant loss on disposal of property, plant and equipment for the three and nine months ended September 30, 2023, which is included in the caption “Other operating expenses” in the condensed consolidated statements of operations. See Note 4—Acquisitions and Divestitures for further discussion of the divestiture of the Water Assets. At December 31, 2022, the Water Assets and oil gathering assets were included in the Company’s condensed 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.

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:

			Nine Months Ended September 30,
			2023						2022
			(In millions)
Asset retirement obligations, beginning of period			$	347					$	171
Additional liabilities incurred			5						31
Liabilities acquired			7						3
Liabilities settled and divested			(83)						(12)
Accretion expense			12						10
Revisions in estimated liabilities			(42)						133
Asset retirement obligations, end of period			246						336
Less current portion(1)			6						11
Asset retirement obligations - long-term			$	240					$	325

(1) The current portion of the asset retirement obligation is included in the caption “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:

			September 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			(41)						(43)
Unamortized discount costs			(23)						(26)
Unamortized premium costs			4						4
Unamortized basis adjustment of dedesignated interest rate swap agreements(1)			(87)						(106)
Revolving credit facility			—						—
Viper revolving credit facility			250						152
Viper 5.375% Senior Notes due 2027			430						430
Total debt, net			6,230						6,248
Less: current maturities of long-term debt			—						10
Total long-term debt			$	6,230					$	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 September 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 September 30, 2023, the Company had no outstanding borrowings under the credit agreement and $1.6 billion available for future borrowings. During the three and nine months ended September 30, 2023 and 2022, the weighted average interest rate on borrowings under the credit agreement was 6.59%, 6.31%, 3.92% and 3.50%, respectively. 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 September 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 nine months ended September 30, 2023.

Viper’s Credit Agreement

On September 22, 2023, Viper LLC entered into an eleventh and separately a twelfth amendment to the existing credit agreement, which among other things, (i) extended the maturity date from June 2, 2025 to September 22, 2028, (ii) maintained the maximum credit amount under the Viper LLC credit agreement of $2.0 billion, (iii) increased the borrowing base from $1.0 billion to $1.3 billion upon consummation of the Viper Acquisition (as defined in Note 15—Subsequent Events), (iv) increased the elected commitment amount from $750 million to $850 million, and (v) waived the automatic reduction of the borrowing base that otherwise would have occurred upon the consummation of the issuance of the Viper 2031 Notes (as defined in Note 15—Subsequent Events). As of September 30, 2023, Viper LLC had $250 million of outstanding borrowings and $600 million available for future borrowings. During the three and nine months ended September 30, 2023 and 2022, the weighted average interest rates on borrowings under the Viper credit agreement were 7.58%, 7.37%, 4.75% and 3.53%, respectively. As of September 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

The Company’s board of directors has approved a common stock repurchase program to acquire up to $4.0 billion of the Company’s outstanding common stock, 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 nine months ended September 30, 2023 and 2022, the Company repurchased, excluding excise tax, approximately $56 million, $709 million, $472 million and $782 million of common stock under this repurchase program, respectively. As of September 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 September 30,												Nine Months Ended September 30,
			2023						2022						2023						2022
			(In millions)
Net income (loss) attributable to the Company			$	915					$	1,184					$	2,183					$	3,379
Change in ownership of consolidated subsidiaries			(3)						(15)						(27)						(36)
Change from net income (loss) attributable to the Company's stockholders and transfers to non-controlling interest			$	912					$	1,169					$	2,156					$	3,343

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 September 30,												Nine Months Ended September 30,
			2023						2022						2023						2022
			($ in millions, except per share amounts, shares in thousands)
Net income (loss) attributable to common stock			$	915					$	1,184					$	2,183					$	3,379
Less: distributed and undistributed earnings allocated to participating securities(1)			8						12						17						34
Net income (loss) attributable to common stockholders			$	907					$	1,172					$	2,166					$	3,345
Weighted average common shares outstanding:
Basic weighted average common shares outstanding			178,872						174,406						180,400						176,169
Effect of dilutive securities:
Weighted-average potential common shares issuable			—						2						—						2
Diluted weighted average common shares outstanding			178,872						174,408						180,400						176,171
Basic net income (loss) attributable to common stock			$	5.07					$	6.72					$	12.01					$	18.99
Diluted net income (loss) attributable to common stock			$	5.07					$	6.72					$	12.01					$	18.99

(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 currently 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 September 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 September 30,												Nine Months Ended September 30,
			2023						2022						2023						2022
			(In millions)
General and administrative expenses			$	13					$	14					$	40					$	42
Equity-based compensation capitalized pursuant to full cost method of accounting for oil and natural gas properties			$	8					$	6					$	19					$	16

Restricted Stock Units

The following table presents the Company’s restricted stock unit activity during the nine months ended September 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			392,310						$	143.69
Vested			(161,878)						$	122.77
Forfeited			(64,453)						$	104.66
Unvested at September 30, 2023			1,084,881						$	108.34

The aggregate grant date fair value of restricted stock units that vested during the nine months ended September 30, 2023 was $20 million. As of September 30, 2023, the Company’s unrecognized compensation cost related to unvested restricted stock units was $78 million, which is expected to be recognized over a weighted-average period of 1.6 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 nine months ended September 30, 2023:

			Performance Restricted Stock Units						Weighted Average Grant-Date Fair Value
Unvested at December 31, 2022			347,881						$	168.48
Granted			128,205						$	258.98
Forfeited			(42,657)						$	144.48
Unvested at September 30, 2023(1)			433,429						$	197.61

(1)A maximum of 1,034,136 units could be awarded based upon the Company’s final TSR ranking.

As of September 30, 2023, the Company’s unrecognized compensation cost related to unvested performance based restricted stock awards and units was $42 million, which is expected to be recognized over a weighted-average period of 1.5 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%. Additionally, in July 2023 the Company granted 1,858 units under substantially the same terms as the March 2023 performance restricted stock unit awards.

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 periods presented:

			March 2023						July 2023
Grant-date fair value			$	259.52					$	222.09
Risk-free rate			4.64		%				4.70		%
Company volatility			46.90		%				47.20		%

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 September 30,												Nine Months Ended September 30,
			2023						2022						2023						2022
			(In millions, except for tax rate)
Provision for (benefit from) income taxes			$	276					$	290					$	648					$	913
Effective income tax rate			21.7		%				18.6		%				21.8		%				20.5		%

Total income tax expense from continuing operations for the three and nine months ended September 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) a tax benefit resulting from a reduction in the valuation allowance on Viper’s deferred tax assets for the three and nine months ended September 30, 2022.

Diamondback Energy, Inc. and Subsidiaries

Condensed Notes to Consolidated Financial Statements - (Continued)

(Unaudited)

As of September 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.

For the three and nine months ended September 30, 2023, the Company’s items of discrete income tax expense or benefit were not material. For the three and nine months ended September 30, 2022, the Company recognized discrete income tax benefit of $50 million related to a partial release of Viper’s beginning-of-the-year valuation allowance, based on a change in judgment about the realizability of Viper’s deferred tax assets in future years.

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 nine months ended September 30, 2023 were not impacted by the CAMT. The Company’s excise tax during the three and nine months ended September 30, 2023 was immaterial and was recognized as part of the cost basis of the units repurchased.

11. DERIVATIVES

At September 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.

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Condensed Notes to Consolidated Financial Statements - (Continued)

(Unaudited)

As of September 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
Oct. - Dec.			2023			Basis Swap(1)			24,000			Argus WTI Midland			$0.90									$—			$—
Jan. - Dec.			2024			Basis Swap(1)			6,000			Argus WTI Midland			$1.23									$—			$—
Jan. - Jun.			2024			Costless Collar			6,000			WTI Cushing			$—									$65.00			$95.55
Jan. - Dec.			2024			Roll Swap			25,000			WTI			$0.81									$—			$—
NATURAL GAS
Oct. - Dec.			2023			Costless Collar			310,000			Henry Hub			$—									$3.18			$9.22
Jan. - Dec.			2024			Costless Collar			260,000			Henry Hub			$—									$2.87			$7.76
Oct. - 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)			160,000			Waha Hub			$(0.72)									$—			$—

(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.

Settlement Month			Settlement Year			Type of Contract			Bbls Per Day			Index			Strike Price						Deferred Premium
OIL
Oct. - Dec.			2023			Put			110,000			Brent			$55.00						$1.59
Oct. - Dec.			2023			Put			28,000			Argus WTI Houston			$55.00						$1.67
Oct. - Dec.			2023			Put			16,000			WTI Cushing			$56.25						$1.70
Jan. - Mar.			2024			Put			110,000			Brent			$55.00						$1.50
Jan. - Mar.			2024			Put			28,000			Argus WTI Houston			$55.00						$1.60
Jan. - Mar.			2024			Put			14,000			WTI Cushing			$58.57						$1.54
Apr. - Jun.			2024			Put			74,000			Brent			$55.00						$1.48
Apr. - Jun.			2024			Put			18,000			Argus WTI Houston			$55.00						$1.51
Apr. - Jun.			2024			Put			12,000			WTI Cushing			$60.00						$1.50
Jul. - Sep.			2024			Put			34,000			Brent			$55.00						$1.41
Jul. - Sep.			2024			Put			10,000			Argus WTI Houston			$55.00						$1.45
Oct. - Dec.			2024			Put			12,000			Brent			$55.00						$1.49

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 nine months ended September 30, 2023.

Diamondback Energy, Inc. and Subsidiaries

Condensed Notes to Consolidated Financial Statements - (Continued)

(Unaudited)

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.

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 September 30,												Nine Months Ended September 30,
			2023						2022						2023						2022
			(In millions)
Gain (loss) on derivative instruments, net:
Commodity contracts			$	(36)					$	39					$	(297)					$	(615)
Interest rate swaps			(40)						(63)						(61)						(62)
Total			$	(76)					$	(24)					$	(358)					$	(677)
Net cash received (paid) on settlements:
Commodity contracts(1)			$	(24)					$	(96)					$	(40)					$	(822)
Interest rate swaps			—						—						(22)						6
Total			$	(24)					$	(96)					$	(62)					$	(816)

(1)The three and nine months ended September 30, 2022 includes cash paid on commodity contracts terminated prior to their contractual maturity of $3 million and $138 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 September 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 September 30, 2023 and December 31, 2022:

			As of September 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			$	—		$	49		$	—		$	49		$	(48)		$	1
Non-current assets- Derivative instruments:
Commodity derivative instruments			$	—		$	13		$	—		$	13		$	(12)		$	1
Non-current assets- Other assets:
Investment			$	8		$	—		$	—		$	8		$	—		$	8
Liabilities:
Current liabilities- Derivative instruments:
Commodity derivative instruments			$	—		$	134		$	—		$	134		$	(48)		$	86
Interest rate swaps			$	—		$	53		$	—		$	53		$	—		$	53
Non-current liabilities- Derivative instruments:
Commodity derivative instruments			$	—		$	33		$	—		$	33		$	(12)		$	21
Interest rate swaps			$	—		$	178		$	—		$	178		$	—		$	178

			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

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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:

			September 30, 2023												December 31, 2022
			Carrying												Carrying
			Value						Fair Value						Value						Fair Value
			(In millions)
Debt			$	6,230					$	5,650					$	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, equity method investments 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

									Nine Months Ended September 30,
															2023						2022
															(In millions)
Supplemental disclosure of cash flow information:
Cash paid (received) for income taxes															$	195					$	560
Supplemental disclosure of non-cash transactions:
Accrued capital expenditures included in accounts payable and accrued expenses															$	639					$	431
Common stock issued for acquisitions															$	633					$	595
Equity method investment received in exchange for contributed assets															$	126					$	—

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,

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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 third 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

Viper 2031 Notes Offering

On October 19, 2023, Viper completed an offering (the “Viper 2031 Notes Offering”) of $400 million in aggregate principal amount of its 7.375% Senior Notes maturing on November 1, 2031 (the “Viper 2031 Notes”). Viper received net proceeds of approximately $394 million, after deducting the initial purchasers’ discount and expected transaction costs, from the Viper 2031 Notes Offering. Viper loaned the gross proceeds to Viper LLC, which used the proceeds to partially fund the cash portion of the Viper Acquisition as defined and discussed further below.

The Viper 2031 Notes are senior unsecured obligations of Viper, initially guaranteed on a senior unsecured basis by Viper LLC, and will pay interest semi-annually. Neither the Company nor Viper’s General Partner will guarantee the Viper 2031 Notes. In the future, each of Viper’s restricted subsidiaries that either (i) guarantees any of its or a guarantor’s indebtedness, or (ii) is a domestic restricted subsidiary and is an obligor with respect to any indebtedness under any credit facility will be required to guarantee the Viper 2031 Notes.

Viper Issuance of Common Units to Diamondback

On October 31, 2023, pursuant to a common unit purchase and sale agreement entered into on September 4, 2023, Viper issued approximately 7.22 million of its common units to the Company at a price of $27.72 per unit for total net proceeds to Viper of approximately $200 million. Viper used the net proceeds of this common unit issuance to fund a portion of the cash consideration for the Viper Acquisition, as defined and discussed further below.

Viper Acquisition

On November 1, 2023, Viper and Viper LLC acquired certain mineral and royalty interests from Royalty Asset Holdings, LP, Royalty Asset Holdings II, LP and Saxum Asset Holdings, LP (collectively, “the Sellers,” and affiliates of Warwick Capital Partners and GRP Energy Capital) pursuant to a definitive purchase and sale agreement for approximately 9.02 million Viper common units and $750 million in cash, subject to customary post-closing adjustments (the “Viper Acquisition”). The mineral and royalty interests acquired in the Viper Acquisition represent 4,600 net royalty acres in the Permian Basin, plus an additional 2,700 net royalty acres in other major basins. The cash consideration for the Viper Acquisition was funded through a combination of cash on hand and held in escrow, borrowings under Viper LLC’s credit agreement, proceeds from the Viper 2031 Notes Offering and proceeds from the $200 million common unit issuance to the Company.

Following the completion of the Viper Acquisition and the related issuance of Viper common units to the Company under the common unit purchase and sale agreement, the Company beneficially owned approximately 56% of Viper’s total units outstanding.

Diamondback Energy, Inc. and Subsidiaries

Condensed Notes to Consolidated Financial Statements - (Continued)

(Unaudited)

Third Quarter 2023 Dividend Declaration

On November 2, 2023, the board of directors of the Company declared a cash dividend for the third quarter of 2023 of $3.37 per share of common stock, payable on November 24, 2023 to its stockholders of record at the close of business on November 16, 2023. The dividend consists of a base quarterly dividend of $0.84 per share of common stock and a variable quarterly dividend of $2.53 per share of common stock. Future base and variable dividends are at the discretion of the board of directors of the Company.

16. SEGMENT INFORMATION

As of September 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.

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 September 30, 2023:
Third-party revenues			$	2,327					$	13					$	—					$	2,340
Intersegment revenues			—						84						(84)						—
Total revenues			$	2,327					$	97					$	(84)					$	2,340
Depreciation, depletion, amortization and accretion			$	435					$	7					$	—					$	442
Income (loss) from operations			$	1,339					$	19					$	(18)					$	1,340
Interest expense, net			$	(42)					$	1					$	—					$	(41)
Other income (expense)			$	(71)					$	45					$	(4)					$	(30)
Provision for (benefit from) income taxes			$	261					$	15					$	—					$	276
Net income (loss) attributable to non-controlling interest			$	78					$	—					$	—					$	78
Net income (loss) attributable to Diamondback Energy, Inc.			$	887					$	50					$	(22)					$	915
As of September 30, 2023:
Total assets			$	27,382					$	1,263					$	(596)					$	28,049

			Upstream						All Other						Eliminations						Total
			(In millions)
Three Months Ended September 30, 2022:
Third-party revenues			$	2,419					$	18					$	—					$	2,437
Intersegment revenues			—						96						(96)						—
Total revenues			$	2,419					$	114					$	(96)					$	2,437
Depreciation, depletion, amortization and accretion			$	323					$	13					$	—					$	336
Income (loss) from operations			$	1,598					$	41					$	(25)					$	1,614
Interest expense, net			$	(33)					$	(10)					$	—					$	(43)
Other income (expense)			$	(27)					$	20					$	(4)					$	(11)
Provision for (benefit from) income taxes			$	287					$	3					$	—					$	290
Net income (loss) attributable to non-controlling interest			$	76					$	10					$	—					$	86
Net income (loss) attributable to Diamondback Energy, Inc.			$	1,175					$	38					$	(29)					$	1,184
As of December 31, 2022:
Total assets			$	24,452					$	2,213					$	(456)					$	26,209

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Condensed Notes to Consolidated Financial Statements - (Continued)

(Unaudited)

			Upstream						All Other						Eliminations						Total
			(In millions)
Nine Months Ended September 30, 2023:
Third-party revenues			$	6,126					$	58					$	—					$	6,184
Intersegment revenues			—						286						(286)						—
Total revenues			$	6,126					$	344					$	(286)					$	6,184
Depreciation, depletion, amortization and accretion			$	1,244					$	33					$	—					$	1,277
Income (loss) from operations			$	3,320					$	118					$	(73)					$	3,365
Interest expense, net			$	(139)					$	1					$	—					$	(138)
Other income (expense)			$	(370)					$	128					$	(12)					$	(254)
Provision for (benefit from) income taxes			$	626					$	22					$	—					$	648
Net income (loss) attributable to non-controlling interest			$	142					$	—					$	—					$	142
Net income (loss) attributable to Diamondback Energy, Inc.			$	2,043					$	225					$	(85)					$	2,183
As of September 30, 2023:
Total assets			$	27,382					$	1,263					$	(596)					$	28,049

			Upstream						All Other						Eliminations						Total
			(In millions)
Nine Months Ended September 30, 2022:
Third-party revenues			$	7,563					$	50					$	—					$	7,613
Intersegment revenues			—						273						(273)						—
Total revenues			$	7,563					$	323					$	(273)					$	7,613
Depreciation, depletion, amortization and accretion			$	929					$	50					$	—					$	979
Income (loss) from operations			$	5,197					$	119					$	(64)					$	5,252
Interest expense, net			$	(94)					$	(28)					$	—					$	(122)
Other income (expense)			$	(727)					$	57					$	(13)					$	(683)
Provision for (benefit from) income taxes			$	904					$	9					$	—					$	913
Net income (loss) attributable to non-controlling interest			$	125					$	30					$	—					$	155
Net income (loss) attributable to Diamondback Energy, Inc.			$	3,347					$	109					$	(77)					$	3,379
As of December 31, 2022:
Total assets			$	24,452					$	2,213					$	(456)					$	26,209