filings.toolsItem 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
123K characters. Original on sec.gov · Markdown
Item 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
| Diamondback Energy, Inc. and Subsidiaries | |||||||||||
| Condensed Consolidated Balance Sheets | |||||||||||
| (Unaudited) | |||||||||||
| March 31, | December 31, | ||||||||||
| 2024 | 2023 | ||||||||||
| (In millions, except par values and share data) | |||||||||||
| Assets | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | 896 | $ | 582 | |||||||
| Restricted cash | 3 | 3 | |||||||||
| Accounts receivable: | |||||||||||
| Joint interest and other, net | 208 | 192 | |||||||||
| Oil and natural gas sales, net ($132 million and $109 million related to Viper) | 734 | 654 | |||||||||
| Income tax receivable | — | 1 | |||||||||
| Inventories | 57 | 63 | |||||||||
| Derivative instruments | 7 | 17 | |||||||||
| Prepaid expenses and other current assets | 43 | 109 | |||||||||
| Total current assets | 1,948 | 1,621 | |||||||||
| Property and equipment: | |||||||||||
| Oil and natural gas properties, full cost method of accounting ($8,455 million and $8,659 million excluded from amortization at March 31, 2024 and December 31, 2023, respectively) ($4,649 million and $4,629 million and $1,719 million and $1,769 million excluded from amortization related to Viper) | 43,240 | 42,430 | |||||||||
| Other property, equipment and land | 675 | 673 | |||||||||
| Accumulated depletion, depreciation, amortization and impairment ($913 million and $866 million related to Viper) | (16,891) | (16,429) | |||||||||
| Property and equipment, net | 27,024 | 26,674 | |||||||||
| Equity method investments | 529 | 529 | |||||||||
| Derivative instruments | 7 | 1 | |||||||||
| Deferred income taxes, net | 61 | 45 | |||||||||
| Investment in real estate, net | 83 | 84 | |||||||||
| Other assets | 38 | 47 | |||||||||
| Total assets | $ | 29,690 | $ | 29,001 | |||||||
| Liabilities and Stockholders’ Equity | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable - trade | $ | 243 | $ | 261 | |||||||
| Accrued capital expenditures | 570 | 493 | |||||||||
| Other accrued liabilities | 337 | 475 | |||||||||
| Revenues and royalties payable | 732 | 764 | |||||||||
| Derivative instruments | 102 | 86 | |||||||||
| Income taxes payable | 134 | 29 | |||||||||
| Total current liabilities | 2,118 | 2,108 | |||||||||
| Long-term debt ($1,094 million and $1,083 million related to Viper) | 6,629 | 6,641 | |||||||||
| Derivative instruments | 144 | 122 | |||||||||
| Asset retirement obligations | 266 | 239 | |||||||||
| Deferred income taxes | 2,502 | 2,449 | |||||||||
| Other long-term liabilities | 12 | 12 | |||||||||
| Total liabilities | 11,671 | 11,571 | |||||||||
| Commitments and contingencies (Note 15) | |||||||||||
| Stockholders’ equity: | |||||||||||
| Common stock, $0.01 par value; 400,000,000 shares authorized; 178,339,978 and 178,723,871 shares issued and outstanding at March 31, 2024 and December 31, 2023, respectively | 2 | 2 | |||||||||
| Additional paid-in capital | 14,251 | 14,142 | |||||||||
| Retained earnings (accumulated deficit) | 2,705 | 2,489 | |||||||||
| Accumulated other comprehensive income (loss) | (8) | (8) | |||||||||
| Total Diamondback Energy, Inc. stockholders’ equity | 16,950 | 16,625 | |||||||||
| Non-controlling interest | 1,069 | 805 | |||||||||
| Total equity | 18,019 | 17,430 | |||||||||
| Total liabilities and stockholders' equity | $ | 29,690 | $ | 29,001 |
See accompanying notes to condensed consolidated financial statements.
Diamondback Energy, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2024 | 2023 | ||||||||||||||||||||||
| (In millions, except per share amounts, shares in thousands) | |||||||||||||||||||||||
| Revenues: | |||||||||||||||||||||||
| Oil sales | $ | 1,867 | $ | 1,654 | |||||||||||||||||||
| Natural gas sales | 50 | 69 | |||||||||||||||||||||
| Natural gas liquid sales | 184 | 179 | |||||||||||||||||||||
| Sales of purchased oil | 116 | — | |||||||||||||||||||||
| Other operating income | 10 | 23 | |||||||||||||||||||||
| Total revenues | 2,227 | 1,925 | |||||||||||||||||||||
| Costs and expenses: | |||||||||||||||||||||||
| Lease operating expenses | 255 | 192 | |||||||||||||||||||||
| Production and ad valorem taxes | 119 | 155 | |||||||||||||||||||||
| Gathering, processing and transportation | 77 | 68 | |||||||||||||||||||||
| Purchased oil expense | 117 | — | |||||||||||||||||||||
| Depreciation, depletion, amortization and accretion | 469 | 403 | |||||||||||||||||||||
| General and administrative expenses | 46 | 40 | |||||||||||||||||||||
| Merger and integration expenses | 12 | 8 | |||||||||||||||||||||
| Other operating expenses | 14 | 34 | |||||||||||||||||||||
| Total costs and expenses | 1,109 | 900 | |||||||||||||||||||||
| Income (loss) from operations | 1,118 | 1,025 | |||||||||||||||||||||
| Other income (expense): | |||||||||||||||||||||||
| Interest expense, net | (46) | (46) | |||||||||||||||||||||
| Other income (expense), net | 4 | 53 | |||||||||||||||||||||
| Gain (loss) on derivative instruments, net | (48) | (93) | |||||||||||||||||||||
| Gain (loss) on extinguishment of debt | 2 | — | |||||||||||||||||||||
| Income (loss) from equity investments, net | 2 | 14 | |||||||||||||||||||||
| Total other income (expense), net | (86) | (72) | |||||||||||||||||||||
| Income (loss) before income taxes | 1,032 | 953 | |||||||||||||||||||||
| Provision for (benefit from) income taxes | 223 | 207 | |||||||||||||||||||||
| Net income (loss) | 809 | 746 | |||||||||||||||||||||
| Net income (loss) attributable to non-controlling interest | 41 | 34 | |||||||||||||||||||||
| Net income (loss) attributable to Diamondback Energy, Inc. | $ | 768 | $ | 712 | |||||||||||||||||||
| Earnings (loss) per common share: | |||||||||||||||||||||||
| Basic | $ | 4.28 | $ | 3.88 | |||||||||||||||||||
| Diluted | $ | 4.28 | $ | 3.88 | |||||||||||||||||||
| Weighted average common shares outstanding: | |||||||||||||||||||||||
| Basic | 178,477 | 181,988 | |||||||||||||||||||||
| Diluted | 178,477 | 181,988 | |||||||||||||||||||||
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, 2023 | 178,724 | $ | 2 | $ | 14,142 | $ | 2,489 | $ | (8) | $ | 805 | $ | 17,430 | ||||||||||||||||||||||||||||
| Distribution equivalent rights payments | — | — | — | (4) | — | — | (4) | ||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | 21 | — | — | — | 21 | ||||||||||||||||||||||||||||||||||
| Cash paid for tax withholding on vested equity awards | (187) | — | (34) | — | — | — | (34) | ||||||||||||||||||||||||||||||||||
| Repurchased shares under buyback program | (279) | — | (42) | — | — | — | (42) | ||||||||||||||||||||||||||||||||||
| Proceeds from partial sale of investment in Viper Energy, Inc. | — | — | 219 | — | — | 197 | 416 | ||||||||||||||||||||||||||||||||||
| Dividends to non-controlling interest | — | — | — | — | — | (44) | (44) | ||||||||||||||||||||||||||||||||||
| Dividends paid | — | — | — | (548) | — | — | (548) | ||||||||||||||||||||||||||||||||||
| Issuance of shares upon vesting of equity awards | 82 | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||
| Change in ownership of consolidated subsidiaries, net | — | — | (55) | — | — | 70 | 15 | ||||||||||||||||||||||||||||||||||
| Net income (loss) | — | — | — | 768 | — | 41 | 809 | ||||||||||||||||||||||||||||||||||
| Balance March 31, 2024 | 178,340 | $ | 2 | $ | 14,251 | $ | 2,705 | $ | (8) | $ | 1,069 | $ | 18,019 | ||||||||||||||||||||||||||||
| 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 | ||||||||||||||||||||||||||||
See accompanying notes to condensed consolidated financial statements.
Diamondback Energy, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
| Three Months Ended March 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| (In millions) | |||||||||||
| Cash flows from operating activities: | |||||||||||
| Net income (loss) | $ | 809 | $ | 746 | |||||||
| Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | |||||||||||
| Provision for (benefit from) deferred income taxes | 52 | 97 | |||||||||
| Depreciation, depletion, amortization and accretion | 469 | 403 | |||||||||
| (Gain) loss on extinguishment of debt | (2) | — | |||||||||
| (Gain) loss on derivative instruments, net | 48 | 93 | |||||||||
| Cash received (paid) on settlement of derivative instruments | (4) | 1 | |||||||||
| (Income) loss from equity investment, net | (2) | (14) | |||||||||
| Equity-based compensation expense | 14 | 11 | |||||||||
| Other | 16 | (34) | |||||||||
| Changes in operating assets and liabilities: | |||||||||||
| Accounts receivable | (95) | (36) | |||||||||
| Income tax receivable | 12 | 95 | |||||||||
| Prepaid expenses and other current assets | 89 | — | |||||||||
| Accounts payable and accrued liabilities | (110) | (26) | |||||||||
| Income taxes payable | 70 | 17 | |||||||||
| Revenues and royalties payable | (35) | 60 | |||||||||
| Other | 3 | 12 | |||||||||
| Net cash provided by (used in) operating activities | 1,334 | 1,425 | |||||||||
| Cash flows from investing activities: | |||||||||||
| Drilling, completions and infrastructure additions to oil and natural gas properties | (605) | (622) | |||||||||
| Additions to midstream assets | (4) | (35) | |||||||||
| Property acquisitions | (153) | (880) | |||||||||
| Proceeds from sale of assets | 12 | 264 | |||||||||
| Other | (1) | (6) | |||||||||
| Net cash provided by (used in) investing activities | (751) | (1,279) | |||||||||
| Cash flows from financing activities: | |||||||||||
| Proceeds from borrowings under credit facilities | 90 | 1,696 | |||||||||
| Repayments under credit facilities | (80) | (989) | |||||||||
| Repayment of senior notes | (25) | — | |||||||||
| Repurchased shares under buyback program | (42) | (332) | |||||||||
| Repurchased shares/units under Viper's buyback program | — | (34) | |||||||||
| Proceeds from partial sale of investment in Viper Energy, Inc. | 451 | — | |||||||||
| Dividends paid to stockholders | (548) | (542) | |||||||||
| Dividends/distributions to non-controlling interest | (44) | (34) | |||||||||
| Other | (71) | (22) | |||||||||
| Net cash provided by (used in) financing activities | (269) | (257) | |||||||||
| Net increase (decrease) in cash and cash equivalents | 314 | (111) | |||||||||
| Cash, cash equivalents and restricted cash at beginning of period | 585 | 164 | |||||||||
| Cash, cash equivalents and restricted cash at end of period | $ | 899 | $ | 53 | |||||||
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 primarily in the Permian Basin in West Texas.
As of March 31, 2024, the wholly owned subsidiaries of Diamondback include Diamondback E&P LLC (“Diamondback E&P”), a Delaware limited liability company, 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.
Viper Conversion to Corporate Structure
On November 13, 2023, the Company’s publicly traded subsidiary, Viper Energy Partners LP, completed its conversion from a Delaware limited partnership into a Delaware corporation, Viper Energy, Inc. (“Viper”) (the “Viper Conversion”). At the time of the Viper Conversion, each of the Company’s common units representing limited partnership interest in Viper Energy Partners, LP was converted, on a unit-for-unit basis, into one issued and outstanding, fully paid and nonassessable share of Class A common stock of Viper Energy, Inc., and each of the Company’s Class B units representing a limited partnership interest in Viper Energy Partners, LP was converted, on a unit-for-unit basis, into one issued and outstanding, fully paid and nonassessable share of Class B common stock of Viper. At the time of the Conversion, Viper was a “controlled company” under the Nasdaq rules as the Company owned more than 50% of the voting power of Viper’s common stock.
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.
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, which were converted to shares of Viper Class A common stock at the time of the Viper Conversion, to the Company at a price of $27.72 per unit for total consideration to Viper of approximately $200 million. On March 5, 2024, the Company exercised certain of its demand rights, pursuant to a registration rights agreement initially entered into on June 23, 2014, as amended and restated on May 9, 2018 and November 10, 2023, and on March 8, 2024, completed a public offering of approximately 13.23 million of Viper’s Class A common stock at a price of $35.00 per share for proceeds, net of underwriters’ discount, of approximately $451 million. After this offering and through March 31, 2024, the Company owned approximately 48% of Viper’s combined outstanding Class A common stock and Class B common stock, resulting in Viper no longer being a controlled company under the Nasdaq rules. However, the Company determined that it still controls the activities of Viper in accordance with the guidance for variable interest entities in Accounting Standards Codification Topic 810— “Consolidation” (“ASC 810”) and therefore continues to consolidate Viper in the Company’s financial statements at March 31, 2024. See further discussion of the Company’s determination that Viper is a variable interest entity (“VIE”) in Note 2—Summary of Significant Accounting Policies. 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, 2023, which contains a summary of the Company’s significant accounting policies and other disclosures.
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 the Israel-Hamas war, rising interest rates, global supply chain disruptions, 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.
Variable Interest Entity
Viper is a publicly traded corporation formed by the Company in 2014 to provide an attractive return to its shareholders (the largest of which is Diamondback) by focusing on business results, maximizing dividends through organic growth and pursuing accretive growth opportunities through acquisitions of mineral, royalty, overriding royalty, net profits and similar interests from the Company and from third parties. Viper has no employees and the Company provides management, operating and administrative services to Viper under a services and secondment agreement, including the services of the executive officers and other employees.
In connection with the reduction of the Company’s ownership percentage in Viper to below 50% in March 2024, the Company re-evaluated whether Viper should continue to be consolidated in the Company’s financial statements. Viper meets the definition of a VIE under ASC 810 and the Company continues to be the primary beneficiary of the VIE through its ability, via existing contractual agreements, to direct the activities that most significantly affect the economic performance of Viper. The Company also has the obligation to absorb losses and the right to receive benefits that could be significant to Viper. As such, the Company will continue to consolidate the activity of Viper.
Viper maintains its own capital structure that is separate from the Company. The Company is not under any obligation to provide additional financial support or investment to Viper. Viper’s assets cannot be used by the Company for general corporate purposes, and the creditors of Viper’s liabilities do not have recourse to the Company’s assets. The assets and liabilities of Viper are included in the Company’s condensed consolidated balance sheets and disclosed parenthetically, if material.
Recent Accounting Pronouncements
Recently Adopted Pronouncements
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 over the useful life of the leasehold improvements to the common control group, regardless of the lease term, 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. The
Diamondback Energy, Inc. and Subsidiaries
Condensed Notes to Consolidated Financial Statements - (Continued)
(Unaudited)
Company adopted this update effective January 1, 2024 by electing to apply the guidance in ASU 2023-01 prospectively to all new leasehold improvements recognized on or after January 1, 2024. As such, the adoption of this update did not have a material impact on the Company’s financial position, results of operations or liquidity.
Accounting Pronouncements Not Yet Adopted
In November 2023, the FASB issued ASU 2023-07, “Segment Reporting (Topic 280) – Improvements to Reportable Segment Disclosures,” which updates reportable segment disclosure requirements primarily through enhanced disclosures about significant segment expenses and information used to assess segment performance. The amendments are effective for annual periods beginning after December 15, 2023, and for interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The amendments should be applied retrospectively to all prior periods presented in the financial statements. Management is currently evaluating this ASU to determine its impact on the Company’s disclosures. Adoption of the update will not impact the Company’s financial position, results of operations or liquidity.
In December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740) – Improvements to Income Tax Disclosures,” which requires that certain information in a reporting entity’s tax rate reconciliation be disaggregated and provides additional requirements regarding income taxes paid. The amendments are effective for annual periods beginning after December 15, 2024, with early adoption permitted, and should be applied either prospectively or retrospectively. Management is currently evaluating this ASU to determine its impact on the Company’s disclosures. Adoption of the update will not impact the Company’s financial position, results of operations or liquidity.
The Company considers the applicability and impact of all ASUs. ASUs not listed above were assessed and determined to be either not applicable, previously disclosed, or not material upon adoption.
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 March 31, | |||||||||||||||||||||||
| 2024 | 2023 | ||||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||
| Oil sales | $ | 1,867 | $ | 1,654 | |||||||||||||||||||
| Natural gas sales | 50 | 69 | |||||||||||||||||||||
| Natural gas liquid sales | 184 | 179 | |||||||||||||||||||||
| Total oil, natural gas and natural gas liquid revenues | 2,101 | 1,902 | |||||||||||||||||||||
| Sales of purchased oil | 116 | — | |||||||||||||||||||||
| Midstream and marketing services | 8 | 21 | |||||||||||||||||||||
| Total revenue from contracts with customers | $ | 2,225 | $ | 1,923 |
The following tables present the Company’s revenue from oil, natural gas, and natural gas liquids disaggregated by basin:
| Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | ||||||||||||||||||||||||||||||||||||||||||||||
| Midland Basin | Delaware Basin | Other | Total | Midland Basin | Delaware Basin | Other | Total | ||||||||||||||||||||||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||||||||||||||||||||||||||
| Oil sales | $ | 1,503 | $ | 360 | $ | 4 | $ | 1,867 | $ | 1,295 | $ | 358 | $ | 1 | $ | 1,654 | |||||||||||||||||||||||||||||||
| Natural gas sales | 34 | 15 | 1 | 50 | 48 | 21 | — | 69 | |||||||||||||||||||||||||||||||||||||||
| Natural gas liquid sales | 137 | 47 | — | 184 | 132 | 47 | — | 179 | |||||||||||||||||||||||||||||||||||||||
| Total | $ | 1,674 | $ | 422 | $ | 5 | $ | 2,101 | $ | 1,475 | $ | 426 | $ | 1 | $ | 1,902 |
Diamondback Energy, Inc. and Subsidiaries
Condensed Notes to Consolidated Financial Statements - (Continued)
(Unaudited)
4. ACQUISITIONS AND DIVESTITURES
2024 Activity
See Note 16—Endeavor Energy Resources, LP Acquisition for details on the previously announced plan of merger. The Company had no other material acquisition or divestiture activity during the three months ended March 31, 2024.
2023 Activity
Acquisitions
GRP 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 and affiliates of Warwick Capital Partners and GRP Energy Capital (collectively, “GRP”), pursuant to a definitive purchase and sale agreement for approximately 9.02 million Viper common units and $750 million in cash, including transactions costs and subject to customary post-closing adjustments (the “GRP Acquisition”). The mineral and royalty interests acquired in the GRP 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 GRP Acquisition was funded through a combination of cash on hand and held in escrow, borrowings under the Viper credit agreement, proceeds from Viper’s offering of $400 million in aggregate principal amount of its 7.375% Senior Notes due in 2031 and proceeds from the $200 million common unit issuance to the Company.
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. As of March 31, 2024, the Company has released the full amount of the indemnity holdback to Lario. 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 |
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. The purchase price allocation was completed in December 2023.
The following table sets forth the Company’s 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.
Divestitures
Divestiture of Deep Blue Water Assets and Deep Blue Formation
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 saltwater disposal assets (the “Deep Blue Water Assets”) with a net carrying value of $692 million and Five Point contributed $251 million in cash, subject to certain customary post-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.
Under a separate agreement with Deep Blue, the Company is continuing to operate the Deep Blue Water Assets on a short-term basis before transferring operations to Deep Blue, which is anticipated to happen in the second quarter of 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 March 31, 2024, 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 Deep Blue Water Assets transfers to Deep Blue.
Diamondback Energy, Inc. and Subsidiaries
Condensed Notes to Consolidated Financial Statements - (Continued)
(Unaudited)
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. The Company’s equity method investment in Deep Blue had an initial fair value of $126 million. The Company’s proportionate share of the income or loss from Deep Blue will be recognized on a two-month lag. The Company has recognized an aggregate $13 million loss on the sale of its Deep Blue Water Assets, of which approximately $1 million was recognized during the three months ended March 31, 2024. The loss on the sale of Deep Blue Water Assets is included in the caption “Other operating expenses” in the condensed consolidated statement of operations. The majority of measurements utilized to determine the fair value amounts reported above relating to this transaction are based on inputs that are not observable in the market and are therefore considered Level 3 inputs in the fair value hierarchy.
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. See Note 7— Related Party Transactions for further discussion of transactions with Deep Blue.
OMOG Divestiture
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. The Company used its net proceeds from this transaction for debt reduction and other general corporate purposes.
Non-Core Assets Divestiture
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 $72 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.
Gray Oak Divestiture
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, which is included in the caption “Other income (expense), net” on the condensed consolidated statement of operations for the three months ended March 31, 2023.
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:
| March 31, | December 31, | ||||||||||
| 2024 | 2023 | ||||||||||
| (In millions) | |||||||||||
| Oil and natural gas properties: | |||||||||||
| Subject to depletion | $ | 34,785 | $ | 33,771 | |||||||
| Not subject to depletion | 8,455 | 8,659 | |||||||||
| Gross oil and natural gas properties | 43,240 | 42,430 | |||||||||
| Accumulated depletion | (8,785) | (8,333) | |||||||||
| Accumulated impairment | (7,954) | (7,954) | |||||||||
| Oil and natural gas properties, net | 26,501 | 26,143 | |||||||||
| Other property, equipment and land | 675 | 673 | |||||||||
| Accumulated depreciation, amortization, accretion and impairment | (152) | (142) | |||||||||
| Total property and equipment, net | $ | 27,024 | $ | 26,674 |
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 months ended March 31, 2024 or 2023 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.
6. ASSET RETIREMENT OBLIGATIONS
The following table describes the changes to the Company’s asset retirement obligations liability for the following periods:
| Three Months Ended March 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| (In millions) | |||||||||||
| Asset retirement obligations, beginning of period | $ | 245 | $ | 347 | |||||||
| Additional liabilities incurred | 1 | 7 | |||||||||
| Liabilities acquired | 1 | 4 | |||||||||
| Liabilities settled and divested | (7) | (18) | |||||||||
| Accretion expense | 3 | 4 | |||||||||
| Revisions in estimated liabilities | 31 | (32) | |||||||||
| Asset retirement obligations, end of period | 274 | 312 | |||||||||
| Less current portion(1) | 8 | 6 | |||||||||
| Asset retirement obligations - long-term | $ | 266 | $ | 306 |
(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.
Diamondback Energy, Inc. and Subsidiaries
Condensed Notes to Consolidated Financial Statements - (Continued)
(Unaudited)
7. RELATED PARTY TRANSACTIONS
Deep Blue
In addition to the Deep Blue transaction discussed in Note 4— Acquisitions and Divestitures, the Company has other significant related party transactions with Deep Blue which include (i) contingent consideration and other post-close adjustments receivable from Deep Blue, (ii) accrued capital expenditures and other accrued payables related to a commitment to fund certain capital expenditures on projects that were in process at the time of the Deep Blue transaction, and (iii) lease operating expenses and capitalized expenses related to fees paid to Deep Blue under a 15-year dedication for its produced water and supply water within a 12-county area of mutual interest in the Midland Basin.
The following table presents the significant related party balances included in the condensed consolidated balance sheet at March 31, 2024 and December 31, 2023:
| March 31, | December 31, | ||||||||||
| 2024 | 2023 | ||||||||||
| (In millions) | |||||||||||
| Current assets - Accounts receivable | $ | 65 | $ | 61 | |||||||
| Current liabilities - Accrued capital expenditures | $ | (32) | $ | (21) | |||||||
| Current liabilities - Other accrued liabilities | $ | (15) | $ | (18) | |||||||
During the three months ended March 31, 2024, the Company recorded approximately $31 million for water services provided by Deep Blue during the completion phase of wells. These costs were capitalized and are included in the caption “Oil and natural gas properties” on the condensed consolidated balance sheet.
The following table presents the significant related party transactions included in the condensed consolidated statement of operations for the three months ended March 31, 2024 and 2023:
| Three Months Ended | |||||||||||
| 2024 | 2023 | ||||||||||
| (In millions) | |||||||||||
| Lease operating expenses | $ | 26 | $ | — | |||||||
Diamondback Energy, Inc. and Subsidiaries
Condensed Notes to Consolidated Financial Statements - (Continued)
(Unaudited)
8. DEBT
Long-term debt consisted of the following as of the dates indicated:
| March 31, | December 31, | ||||||||||
| 2024 | 2023 | ||||||||||
| (In millions) | |||||||||||
| 3.250% Senior Notes due 2026 | $ | 750 | $ | 750 | |||||||
| 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 | 915 | 921 | |||||||||
| 3.125% Senior Notes due 2031 | 767 | 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 | (45) | (46) | |||||||||
| Unamortized discount costs | (21) | (23) | |||||||||
| Unamortized premium costs | 4 | 4 | |||||||||
| Unamortized basis adjustment of dedesignated interest rate swap agreements(1) | (81) | (84) | |||||||||
| Viper revolving credit facility | 273 | 263 | |||||||||
| Viper 5.375% Senior Notes due 2027 | 430 | 430 | |||||||||
| Viper 7.375% Senior Notes due 2031 | 400 | 400 | |||||||||
| Total debt, net | 6,629 | 6,641 | |||||||||
| Less: current maturities of long-term debt | — | — | |||||||||
| Total long-term debt | $ | 6,629 | $ | 6,641 |
(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. This basis adjustment is being amortized to interest expense over the remaining term of the 2029 Notes utilizing the effective interest method.
References in this section to the Company shall mean Diamondback Energy, Inc. and Diamondback E&P, collectively, unless otherwise specified.
Credit Agreement
On March 6, 2024, Diamondback E&P, as borrower, and Diamondback Energy, Inc., as parent guarantor, entered into a fourteenth amendment to the existing credit agreement, which upon consummation of the pending Endeavor Acquisition (as defined in Note 16—Endeavor Energy Resources, LP Acquisition) will among other things, (i) increase the maximum credit amount from $1.6 billion to $2.5 billion, (ii) decrease the swingline commitments amount from $100 million to $50 million and (iii) make certain amendments to the representations and warranties, affirmative and negative covenants, and events of default. As of March 31, 2024, the Company had no outstanding borrowings under the credit agreement and $1.6 billion available for future borrowings. During the three months ended March 31, 2023, the weighted average interest rate on borrowings under the credit agreement was 6.02%. The credit agreement matures on June 2, 2028.
As of March 31, 2024, the Company was in compliance with all financial maintenance covenants under the credit agreement.
Diamondback Energy, Inc. and Subsidiaries
Condensed Notes to Consolidated Financial Statements - (Continued)
(Unaudited)
Term Loan Agreement
In connection with the pending Endeavor Acquisition (as defined in Note 16—Endeavor Energy Resources, LP Acquisition), Diamondback Energy, Inc., as guarantor, entered into a Term Loan Credit Agreement with Diamondback E&P LLC, as borrower, and Citibank, N.A., as administrative agent (the “Term Loan Agreement”) on February 29, 2024.
The Term Loan Agreement provides the Company with the ability to borrow up to $1.5 billion, which is comprised of $1 billion of Tranche A Loans and $500 million of Tranche B Loans (collectively, the “Term Loans”) on an unsecured basis to pay a portion of the cash consideration for the Endeavor Acquisition (as defined in Note 16—Endeavor Energy Resources, LP Acquisition), repay certain debt of Endeavor or pay fees, costs and expenses related to the acquisition. As of March 31, 2024, the Company had no outstanding borrowings under the Term Loan Agreement and $1.5 billion available for future borrowings.
The availability of the Term Loans, which have not yet been funded, is subject to the satisfaction of certain limited customary acquisition-financing conditions under the Term Loan Agreement. The Term Loans will be made in a single borrowing on the date of closing of the Endeavor Acquisition (as defined in Note 16—Endeavor Energy Resources, LP Acquisition) (the “Closing Date”) and will mature and be payable in full, in the case of the Tranche A Loans, on the first anniversary of the Closing Date and, in the case of the Tranche B Loans, on the second anniversary of the Closing Date.
Outstanding borrowings under the Term Loan Agreement bear interest at a per annum rate elected by the Company that is equal to (i) term SOFR plus 0.10% (“Adjusted Term SOFR”) or (ii) an alternate base rate (which is equal to the greatest of the prime rate, the federal funds effective rate plus 0.50%, and 1-month Adjusted Term SOFR plus 1.0%), in each case plus the applicable margin. After giving effect to the amendment, (i) the applicable margin ranges from 0.125% to 1.000% and 0.250% to 1.125% for Tranche A and Tranche B, respectively, per annum in the case of the alternate base rate, and from 1.125% to 2.000% and 1.250% to 2.125% for Tranche A and Tranche B, respectively, per annum in the case of Adjusted Term SOFR, in each case based on the pricing level, and (ii) the commitment fee is equal to 0.125% per annum on the aggregate principal amount of the commitments. The pricing level depends on the Company’s long-term senior unsecured debt ratings.
Bridge Facility
On February 11, 2024, in connection with the pending Endeavor Acquisition (as defined in Note 16—Endeavor Energy Resources, LP Acquisition), Diamondback Energy, Inc., as guarantor, obtained commitments of $8.0 billion to a 364-day senior unsecured term loan facility with Diamondback E&P LLC, as borrower, and Citigroup Global Markets Inc., as administrative agent (the “Bridge Facility”). The Bridge Facility was reduced on a dollar-for-dollar basis by the amount of the Term Loan Agreement to $6.5 billion on February 29, 2024. The Bridge Facility will be further reduced on a dollar-for-dollar basis by the April 2024 Notes as defined and discussed further in Note 17— Subsequent Events. The proceeds from the Bridge Facility may be used to repay certain debt of Endeavor and pay fees, costs and expenses related to the pending Endeavor Acquisition. As of March 31, 2024, the Company had no outstanding borrowings under the Bridge Facility.
Outstanding borrowings under the Bridge Facility bear interest at a per annum rate elected by the Company that is equal to (i) term SOFR plus 0.10% (“Adjusted Term SOFR”) or (ii) an alternate base rate (which is equal to the greatest of the prime rate, the federal funds effective rate plus 0.50%, and 1-month Adjusted Term SOFR plus 1.0%), in each case plus the applicable margin. The applicable margin ranges from (i) 1.125% to 2.000% from the Closing Date through 89 days following the Closing Date, (ii) 1.375% to 2.250% from the 90th day following the Closing Date through the 179th day following the Closing Date, (iii) 1.625% to 2.500% from the 180th day following the Closing Date through the 269th day following the Closing Date, and (iv) 1.875% to 2.750% for the 270th day following the Closing Date through the expiration of the Bridge Facility, in each case based on the pricing level, and (ii) the commitment fee is equal to 0.125% per annum on the aggregate principal amount of the commitments. The pricing level depends on the Company’s long-term senior unsecured debt ratings.
Retirement of Notes
In the first quarter of 2024, the Company opportunistically repurchased principal amounts of $22 million of its 3.125% Senior Notes due 2031 and $6 million of its 3.500% Senior Notes due 2029 for total cash consideration, including accrued interest paid of $25 million. These repurchases resulted in an immaterial gain on extinguishment of debt during the three months ended March 31, 2024.
Diamondback Energy, Inc. and Subsidiaries
Condensed Notes to Consolidated Financial Statements - (Continued)
(Unaudited)
Viper’s Credit Agreement
Viper LLC’s credit agreement, as amended to date, provides for a revolving credit facility in the maximum credit amount of $2.0 billion with a borrowing base of $1.3 billion based on Viper LLC’s oil and natural gas reserves and other factors. As of March 31, 2024, the elected commitment amount was $850 million, with $273 million of outstanding borrowings and $577 million available for future borrowings. During the three months ended March 31, 2024 and 2023, the weighted average interest rates on borrowings under the Viper credit agreement were 7.65% and 6.10%, respectively. As of March 31, 2024, Viper LLC was in compliance with all financial maintenance covenants under the Viper credit agreement. The revolving credit facility will mature on September 22, 2028.
9. 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 months ended March 31, 2024 and 2023, the Company repurchased, excluding excise tax, approximately $42 million and $332 million of common stock under this repurchase program, respectively. As of March 31, 2024, approximately $1.6 billion remained available for use to repurchase shares under the Company’s common stock repurchase program, excluding excise tax.
Change in Ownership of Consolidated Subsidiaries
Non-controlling interests in the accompanying condensed consolidated financial statements represent minority interest ownership in Viper and are presented as a component of equity. When the Company’s relative ownership interests in Viper 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 March 31, | |||||||||||||||||||||||
| 2024 | 2023 | ||||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||
| Net income (loss) attributable to the Company | $ | 768 | $ | 712 | |||||||||||||||||||
| Change in ownership of consolidated subsidiaries | (55) | (9) | |||||||||||||||||||||
| Change from net income (loss) attributable to the Company's stockholders and transfers with non-controlling interest | $ | 713 | $ | 703 |
Dividends
The following table presents dividends and distribution equivalent rights paid on the Company’s common stock during the respective periods:
| Base | Variable | Total | Total | ||||||||||||||||||||
| ($ per share) | (In millions) | ||||||||||||||||||||||
| 2024 | |||||||||||||||||||||||
| First quarter | $ | 0.90 | $ | 2.18 | $ | 3.08 | $ | 552 | |||||||||||||||
| 2023 | |||||||||||||||||||||||
| First quarter | $ | 0.80 | $ | 2.15 | $ | 2.95 | $ | 546 | |||||||||||||||
Diamondback Energy, Inc. and Subsidiaries
Condensed Notes to Consolidated Financial Statements - (Continued)
(Unaudited)
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 March 31, | |||||||||||||||||||||||
| 2024 | 2023 | ||||||||||||||||||||||
| ($ in millions, except per share amounts, shares in thousands) | |||||||||||||||||||||||
| Net income (loss) attributable to common shares | $ | 768 | $ | 712 | |||||||||||||||||||
| Less: distributed and undistributed earnings allocated to participating securities(1) | 5 | 5 | |||||||||||||||||||||
| Net income (loss) attributable to common stockholders | $ | 763 | $ | 707 | |||||||||||||||||||
| Weighted average common shares outstanding: | |||||||||||||||||||||||
| Basic weighted average common shares outstanding | 178,477 | 181,988 | |||||||||||||||||||||
| Effect of dilutive securities: | |||||||||||||||||||||||
| Weighted-average potential common shares issuable | — | — | |||||||||||||||||||||
| Diluted weighted average common shares outstanding | 178,477 | 181,988 | |||||||||||||||||||||
| Basic net income (loss) attributable to common shares | $ | 4.28 | $ | 3.88 | |||||||||||||||||||
| Diluted net income (loss) attributable to common shares | $ | 4.28 | $ | 3.88 |
(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.
10. 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. At March 31, 2024, approximately 4.7 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 March 31, | |||||||||||||||||||||||
| 2024 | 2023 | ||||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||
| General and administrative expenses | $ | 14 | $ | 11 | |||||||||||||||||||
| Equity-based compensation capitalized pursuant to full cost method of accounting for oil and natural gas properties | $ | 7 | $ | 5 | |||||||||||||||||||
Diamondback Energy, Inc. and Subsidiaries
Condensed Notes to Consolidated Financial Statements - (Continued)
(Unaudited)
Restricted Stock Units
The following table presents the Company’s restricted stock unit activity during the three months ended March 31, 2024 under the Equity Plan:
| Restricted Stock Units | Weighted Average Grant-Date Fair Value | ||||||||||
| Unvested at December 31, 2023 | 751,196 | $ | 132.29 | ||||||||
| Granted | 308,923 | $ | 180.39 | ||||||||
| Vested | (82,003) | $ | 152.41 | ||||||||
| Forfeited | (7,506) | $ | 139.36 | ||||||||
| Unvested at March 31, 2024 | 970,610 | $ | 145.85 |
The aggregate grant date fair value of restricted stock units that vested during the three months ended March 31, 2024 was $12 million. As of March 31, 2024, the Company’s unrecognized compensation cost related to unvested restricted stock units was $115 million, which is expected to be recognized over a weighted-average period of 2.2 years.
Performance Based Restricted Stock Units
The following table presents the Company’s performance restricted stock units activity under the Equity Plan for the three months ended March 31, 2024:
| Performance Restricted Stock Units | Weighted Average Grant-Date Fair Value | ||||||||||
| Unvested at December 31, 2023 | 278,056 | $ | 234.80 | ||||||||
| Granted | 110,989 | $ | 214.14 | ||||||||
| Unvested at March 31, 2024(1) | 389,045 | $ | 228.91 |
(1)A maximum of 923,176 units could be awarded based upon the Company’s final TSR ranking.
As of March 31, 2024, the Company’s unrecognized compensation cost related to unvested performance based restricted stock awards and units was $52 million, which is expected to be recognized over a weighted-average period of 2.0 years.
In March 2024, eligible employees received performance restricted stock unit awards totaling 110,989 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 three-year performance period of January 1, 2024 to December 31, 2026 and cliff vest at December 31, 2026 subject to continued employment. The initial payout of the March 2024 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 periods presented:
| March 2024 | |||||||||||||||||||||||
| Grant-date fair value | $ | 341.81 | |||||||||||||||||||||
| Risk-free rate | 4.38 | % | |||||||||||||||||||||
| Company volatility | 41.40 | % |
Diamondback Energy, Inc. and Subsidiaries
Condensed Notes to Consolidated Financial Statements - (Continued)
(Unaudited)
11. 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 March 31, | |||||||||||||||||||||||
| 2024 | 2023 | ||||||||||||||||||||||
| (In millions, except for tax rate) | |||||||||||||||||||||||
| Provision for (benefit from) income taxes | $ | 223 | $ | 207 | |||||||||||||||||||
| Effective income tax rate | 21.6 | % | 21.7 | % |
Total income tax expense from continuing operations for the three months ended March 31, 2024 and 2023 differed from amounts computed by applying the U.S. 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.
As of March 31, 2024, 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.
In connection with the public offering of Viper’s Class A common stock and resulting change of ownership in Viper during the three months ended March 31, 2024, the Company recorded a $36 million increase in tax payable and a $3 million increase in deferred tax liability through paid in capital and an $18 million increase in the deferred tax asset, net of valuation allowance, through non-controlling interest on the Company’s condensed consolidated balance sheet.
Based on application of the Inflation Reduction Act of 2022 guidance, the Company’s income tax expense for the three months ended March 31, 2024 was not impacted by the corporate alternative minimum tax. The Company’s excise tax during the three months ended March 31, 2024 was immaterial and was recognized as part of the cost basis of the units repurchased.
12. DERIVATIVES
At March 31, 2024, 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.
Diamondback Energy, Inc. and Subsidiaries
Condensed Notes to Consolidated Financial Statements - (Continued)
(Unaudited)
As of March 31, 2024, 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 | |||||||||||||||||||||||||||||
| Apr. - Jun. | 2024 | Costless Collar | 6,000 | WTI Cushing | $— | $65.00 | $95.55 | ||||||||||||||||||||||
| Apr. - Dec. | 2024 | Basis Swap(1) | 12,000 | Argus WTI Midland | $1.19 | $— | $— | ||||||||||||||||||||||
| Apr. - Dec. | 2024 | Roll Swap | 40,000 | WTI Cushing | $0.82 | $— | $— | ||||||||||||||||||||||
| Jul. - Dec. | 2024 | Costless Collar | 4,000 | WTI Cushing | $— | $55.00 | $93.66 | ||||||||||||||||||||||
| NATURAL GAS | |||||||||||||||||||||||||||||
| Apr. - Dec. | 2024 | Costless Collar | 290,000 | Henry Hub | $— | $2.83 | $7.52 | ||||||||||||||||||||||
| Apr. - Dec. | 2024 | Basis Swap(1) | 380,000 | Waha Hub | $(1.18) | $— | $— | ||||||||||||||||||||||
| Jan. - Dec. | 2025 | Basis Swap(1) | 310,000 | Waha Hub | $(0.69) | $— | $— | ||||||||||||||||||||||
| Jan. - Dec. | 2025 | Costless Collar | 150,000 | Henry Hub | $— | $2.50 | $5.31 |
(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 | |||||||||||||||||||||||
| Apr. - Jun. | 2024 | Put | 110,000 | Brent | $55.45 | $1.49 | |||||||||||||||||
| Apr. - Jun. | 2024 | Put | 32,000 | Argus WTI Houston | $55.63 | $1.56 | |||||||||||||||||
| Apr. - Jun. | 2024 | Put | 39,000 | WTI Cushing | $59.23 | $1.49 | |||||||||||||||||
| Jul. - Sep. | 2024 | Put | 80,000 | Brent | $55.25 | $1.55 | |||||||||||||||||
| Jul. - Sep. | 2024 | Put | 28,000 | Argus WTI Houston | $56.07 | $1.58 | |||||||||||||||||
| Jul. - Sep. | 2024 | Put | 51,000 | WTI Cushing | $57.65 | $1.54 | |||||||||||||||||
| Oct. - Dec. | 2024 | Put | 44,000 | Brent | $55.23 | $1.61 | |||||||||||||||||
| Oct. - Dec. | 2024 | Put | 14,000 | Argus WTI Houston | $57.14 | $1.66 | |||||||||||||||||
| Oct. - Dec. | 2024 | Put | 40,000 | WTI Cushing | $57.00 | $1.64 | |||||||||||||||||
| Jan. - Mar. | 2025 | Put | 2,000 | Argus WTI Houston | $60.00 | $1.60 | |||||||||||||||||
| Jan. - Mar. | 2025 | Put | 4,000 | WTI Cushing | $60.00 | $1.73 |
Interest Rate Swaps
The Company has two receive-fixed, pay variable interest rate swap agreements for notional amounts of $600 million which are considered economic hedges of the Company’s $1.2 billion 3.50% fixed rate senior notes due 2029 (the “2029 Notes”). The Company receives a fixed 3.50% rate of interest on these swaps and pays the variable rate of SOFR plus 2.1865%. The interest rate swaps are not treated as hedges for accounting purposes and, as a result, changes in fair value are recorded in earnings under the caption “Gain (loss) on derivative instruments, net” in the condensed consolidated statements of operations.
The interest rate swaps were designated as fair value hedges at inception, but the Company subsequently elected to discontinue hedge accounting. The cumulative fair value basis adjustment recorded at the time of dedesignation is being amortized to interest expense over the remaining term of the 2029 Notes utilizing the effective interest method. See Note 8—Debt for further details.
Diamondback Energy, Inc. and Subsidiaries
Condensed Notes to Consolidated Financial Statements - (Continued)
(Unaudited)
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 13—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 March 31, | |||||||||||||||||||||||
| 2024 | 2023 | ||||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||
| Gain (loss) on derivative instruments, net: | |||||||||||||||||||||||
| Commodity contracts | $ | (16) | $ | (109) | |||||||||||||||||||
| Interest rate swaps | (32) | 16 | |||||||||||||||||||||
| Total | $ | (48) | $ | (93) | |||||||||||||||||||
| Net cash received (paid) on settlements: | |||||||||||||||||||||||
| Commodity contracts | $ | (4) | $ | 1 | |||||||||||||||||||
| Total | $ | (4) | $ | 1 |
13. 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, 2023, 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 sheets at March 31, 2024 and December 31, 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 March 31, 2024 and December 31, 2023:
| As of March 31, 2024 | ||||||||||||||||||||
| 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 | $ | — | $ | 59 | $ | — | $ | 59 | $ | (52) | $ | 7 | ||||||||
| Non-current assets- Derivative instruments: | ||||||||||||||||||||
| Commodity derivative instruments | $ | — | $ | 16 | $ | — | $ | 16 | $ | (9) | $ | 7 | ||||||||
| Non-current assets- Other assets: | ||||||||||||||||||||
| Investment | $ | 8 | $ | — | $ | — | $ | 8 | $ | — | $ | 8 | ||||||||
| Liabilities: | ||||||||||||||||||||
| Current liabilities- Derivative instruments: | ||||||||||||||||||||
| Commodity derivative instruments | $ | — | $ | 103 | $ | — | $ | 103 | $ | (52) | $ | 51 | ||||||||
| Interest rate swaps | $ | — | $ | 51 | $ | — | $ | 51 | $ | — | $ | 51 | ||||||||
| Non-current liabilities- Derivative instruments: | ||||||||||||||||||||
| Commodity derivative instruments | $ | — | $ | 9 | $ | — | $ | 9 | $ | (9) | $ | — | ||||||||
| Interest rate swaps | $ | — | $ | 144 | $ | — | $ | 144 | $ | — | $ | 144 |
| As of December 31, 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 | $ | — | $ | 88 | $ | — | $ | 88 | $ | (71) | $ | 17 | ||||||||
| Non-current assets- Derivative instruments: | ||||||||||||||||||||
| Commodity derivative instruments | $ | — | $ | 8 | $ | — | $ | 8 | $ | (7) | $ | 1 | ||||||||
| Non-current assets- Other assets: | ||||||||||||||||||||
| Investment | $ | 5 | $ | — | $ | — | $ | 5 | $ | — | $ | 5 | ||||||||
| Liabilities: | ||||||||||||||||||||
| Current liabilities- Derivative instruments: | ||||||||||||||||||||
| Commodity derivative instruments | $ | — | $ | 111 | $ | — | $ | 111 | $ | (71) | $ | 40 | ||||||||
| Interest rate swaps | $ | — | $ | 46 | $ | — | $ | 46 | $ | — | $ | 46 | ||||||||
| Non-current liabilities- Derivative instruments: | ||||||||||||||||||||
| Commodity derivative instruments | $ | — | $ | 12 | $ | — | $ | 12 | $ | (7) | $ | 5 | ||||||||
| Interest rate swaps | $ | — | $ | 117 | $ | — | $ | 117 | $ | — | $ | 117 |
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:
| March 31, 2024 | December 31, 2023 | ||||||||||||||||||||||
| Carrying | Carrying | ||||||||||||||||||||||
| Value | Fair Value | Value | Fair Value | ||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||
| Debt | $ | 6,629 | $ | 6,474 | $ | 6,641 | $ | 6,507 |
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 are 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, asset retirement obligations 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, prepaid expenses and other current assets, payables and other accrued liabilities approximate their fair value because of the short-term nature of the instruments.
14. SUPPLEMENTAL INFORMATION TO STATEMENTS OF CASH FLOWS
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2024 | 2023 | ||||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||
| Supplemental disclosure of non-cash transactions: | |||||||||||||||||||||||
| Accrued capital expenditures included in accounts payable and accrued expenses | $ | 674 | $ | 609 | |||||||||||||||||||
| Common stock issued for acquisitions | $ | — | $ | 633 | |||||||||||||||||||
15. 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, employment claims, claims alleging violations of antitrust laws, 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 accrued liabilities for contingencies related to outstanding legal proceedings, disputes or claims when information available indicates that a loss is probable and the amount of the loss can be reasonably estimated.
Diamondback Energy, Inc. and Subsidiaries
Condensed Notes to Consolidated Financial Statements - (Continued)
(Unaudited)
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.
Several coastal Louisiana parishes and the State of Louisiana have filed numerous 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.
16. ENDEAVOR ENERGY RESOURCES, LP ACQUISITION
On February 11, 2024, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”), by and among the Company, Eclipse Merger Sub I, LLC, Eclipse Merger Sub II, LLC, Endeavor Manager, LLC (solely or purposes of certain sections set forth therein), and Endeavor Parent, LLC (“Endeavor”), to acquire Endeavor (the “Endeavor Acquisition”) for consideration consisting of a base cash amount of $8.0 billion, subject to adjustments under the terms of the Merger Agreement, and approximately 117.27 million shares of the Company’s common stock. The Endeavor Acquisition is expected to close in the fourth quarter of 2024, subject to the satisfaction or waiver of certain customary closing conditions, including the expiration or termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. In a special meeting held on April 26, 2024, the Company’s stockholders approved the issuance of the Company’s common stock to Endeavor as consideration for the Endeavor Acquisition.
As a result of the Endeavor Acquisition, equityholders of Endeavor are expected to hold, at closing, approximately 39.5% of the outstanding Company common stock. If the Merger Agreement is terminated under certain circumstances, the Company may be required to pay a termination fee of $1.4 billion, including if the proposed Merger Agreement is terminated because the Company’s board of directors has changed its recommendation in respect of the stockholder proposal relating to approval of the issuance of the Company common stock in the Endeavor Acquisition. Additionally, if the Merger Agreement is terminated because the Company’s stockholders fail to approve the issuance of the Company’s common stock in the Endeavor Acquisition and the termination fee is not payable in connection with such termination, the Company is required to reimburse Endeavor for its transaction related expenses, subject to a cap of $260 million. The payment of this reimbursement will reduce any termination fee that is subsequently payable by the Company.
17. SUBSEQUENT EVENTS
First Quarter 2024 Dividend Declaration
On April 25, 2024, the board of directors of the Company declared a cash dividend for the first quarter of 2024 of $1.97 per share of common stock, payable on May 22, 2024 to its stockholders of record at the close of business on May 15, 2024. The dividend consists of a base quarterly dividend of $0.90 per share of common stock and a variable quarterly dividend of $1.07 per share of common stock. Future base and variable dividends are at the discretion of the board of directors of the Company.
Notes Offering
On April 18, 2024, the Company issued an aggregate of $5.5 billion in senior notes, consisting of (i) $850 million aggregate principal amount of 5.200% Senior Notes due April 18, 2027 (the “2027 Notes”), (ii) $850 million aggregate principal amount of 5.150% Senior Notes due January 30, 2030 (the “2030 Notes”), (iii) $1.3 billion aggregate principal amount of 5.400% Senior Notes due April 18, 2034 (the “2034 Notes”), (iv) $1.5 billion aggregate principal amount of 5.750% Senior Notes due April 18, 2054 (the “2054 Notes”), and (v) $1.0 billion aggregate principal amount of 5.900% Senior Notes due April 18, 2064 (the “2064 Notes” and together with the 2027 Notes, the 2030 Notes the 2034 Notes and the 2054 Notes, each a “series of the April 2024 Notes” and collectively, the “April 2024 Notes”). The Company received net proceeds of $5.5
Diamondback Energy, Inc. and Subsidiaries
Condensed Notes to Consolidated Financial Statements - (Continued)
(Unaudited)
billion, including discounts and underwriter fees. The Company intends to use the net proceeds to fund a portion of the cash consideration for the pending Endeavor Acquisition. Interest on the 2030 Notes is payable semi-annually on January 30 and July 30 of each year, beginning on July 30, 2024. Interest on each other series of notes will be payable semi-annually on April 18 and October 18 of each year, beginning on October 18, 2024.
18. SEGMENT INFORMATION
As of March 31, 2024, 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 sources of the revenue included in the “All Other” category include midstream gathering, compression, water handling, disposal and treatment operations which are primarily derived from intersegment transactions for services provided to the upstream segment. The segments comprise the structure used by the Company’s Chief Operating Decision Maker (“CODM”) to make key operating decisions and assess performance.
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 March 31, 2024: | |||||||||||||||||||||||
| Third-party revenues | $ | 2,218 | $ | 9 | $ | — | $ | 2,227 | |||||||||||||||
| Intersegment revenues | — | 37 | (37) | — | |||||||||||||||||||
| Total revenues | $ | 2,218 | $ | 46 | $ | (37) | $ | 2,227 | |||||||||||||||
| Depreciation, depletion, amortization and accretion | $ | 463 | $ | 6 | $ | — | $ | 469 | |||||||||||||||
| Income (loss) from operations | $ | 1,090 | $ | 21 | $ | 7 | $ | 1,118 | |||||||||||||||
| Interest expense, net | $ | (46) | $ | — | $ | — | $ | (46) | |||||||||||||||
| Other income (expense) | $ | (38) | $ | — | $ | (4) | $ | (42) | |||||||||||||||
| Income (loss) from equity investments | $ | — | $ | 2 | $ | — | $ | 2 | |||||||||||||||
| Provision for (benefit from) income taxes | $ | 221 | $ | 2 | $ | — | $ | 223 | |||||||||||||||
| Net income (loss) attributable to non-controlling interest | $ | 41 | $ | — | $ | — | $ | 41 | |||||||||||||||
| Net income (loss) attributable to Diamondback Energy, Inc. | $ | 744 | $ | 21 | $ | 3 | $ | 768 | |||||||||||||||
| As of March 31, 2024: | |||||||||||||||||||||||
| Total assets | $ | 29,059 | $ | 1,235 | $ | (604) | $ | 29,690 |
Diamondback Energy, Inc. and Subsidiaries
Condensed Notes to Consolidated Financial Statements - (Continued)
(Unaudited)
| Upstream | All Other | Eliminations | Total | ||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||
| Three Months Ended March 31, 2023: | |||||||||||||||||||||||
| Third-party revenues | $ | 1,904 | $ | 21 | $ | — | $ | 1,925 | |||||||||||||||
| Intersegment revenues | — | 99 | (99) | — | |||||||||||||||||||
| Total revenues | $ | 1,904 | $ | 120 | $ | (99) | $ | 1,925 | |||||||||||||||
| Depreciation, depletion, amortization and accretion | $ | 388 | $ | 15 | $ | — | $ | 403 | |||||||||||||||
| Income (loss) from operations | $ | 1,002 | $ | 45 | $ | (22) | $ | 1,025 | |||||||||||||||
| Interest expense, net | $ | (46) | $ | — | $ | — | $ | (46) | |||||||||||||||
| Other income (expense) | $ | (93) | $ | 53 | $ | — | $ | (40) | |||||||||||||||
| Income (loss) from equity investments | $ | — | $ | 14 | $ | — | $ | 14 | |||||||||||||||
| Provision for (benefit from) income taxes | $ | 203 | $ | 4 | $ | — | $ | 207 | |||||||||||||||
| Net income (loss) attributable to non-controlling interest | $ | 34 | $ | — | $ | — | $ | 34 | |||||||||||||||
| Net income (loss) attributable to Diamondback Energy, Inc. | $ | 626 | $ | 108 | $ | (22) | $ | 712 | |||||||||||||||
| As of December 31, 2023: | |||||||||||||||||||||||
| Total assets | $ | 28,362 | $ | 1,242 | $ | (603) | $ | 29,001 |
Previous: Cover and table of contents · Next: Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS