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

Overview

We are 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 discussed in Note 1—Description of the Business and Basis of Presentation and Note 18—Segment Information of the condensed notes to the consolidated financial statements, as of March 31, 2024, we have one reportable segment, the upstream segment.

First Quarter 2024 Financial and Operating Highlights

• Recorded net income of $768 million.

• Increased our annual base dividend to $3.60 per share, paid dividends to stockholders of $548 million during the first quarter of 2024 and declared a combined base and variable dividend payable in the second quarter of 2024 of $1.97 per share of common stock.

• Repurchased $42 million, excluding excise tax, of our common stock, leaving approximately $1.6 billion available for future purchases under our common stock repurchase program at March 31, 2024.

• Sold 13.23 million shares of Viper’s Class A Common Stock for approximately $451 million in net proceeds, which we intend to use to fund a portion of the cash consideration for the pending Endeavor Acquisition.

• Our cash operating costs were $11.52 per BOE, including lease operating expenses of $6.08 per BOE, cash general and administrative expenses of $0.76 per BOE and production and ad valorem taxes and gathering and transportation expenses of $4.68 per BOE.

• Our average production was 461.1 MBOE/d.

• Drilled 69 gross horizontal wells in the Midland Basin and 10 gross horizontal wells in the Delaware Basin, and turned 101 gross operated horizontal wells (101 in the Midland Basin and none in the Delaware Basin) to production.

• Incurred capital expenditures, excluding acquisitions, of $609 million.

Transactions and Recent Developments

Endeavor Acquisition

On February 11, 2024, we entered into the Merger Agreement to acquire Endeavor 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 our common stock. The Endeavor Acquisition is expected to close in the fourth quarter of 2024, subject to the satisfaction or waiver of customary closing conditions, including the expiration or termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. As a result of the Endeavor Acquisition, the Endeavor Stockholders are expected to hold, at closing, approximately 39.5% of our outstanding common stock. In a special meeting held on April 26, 2024, our stockholders approved the issuance of our common stock to Endeavor as consideration for the Endeavor Acquisition.

See Note 16—Endeavor Energy Resources, LP Acquisition of the condensed notes to the consolidated financial statements for further discussion of the pending Endeavor Acquisition.

Notes Offering

On April 18, 2024, we issued the April 2024 Notes for an aggregate principal amount of $5.5 billion. We intend to use the net proceeds from the April 2024 Notes to fund a portion of the cash consideration for the pending Endeavor Acquisition.

See Note 17—Subsequent Events of the condensed notes to the consolidated financial statements for further discussion of the offering of our April 2024 Notes.

Commodity Prices and Inflation

Prices for oil, natural gas and natural gas liquids are determined primarily by prevailing market conditions. Regional and worldwide economic activity, extreme weather conditions and other substantially variable factors influence market conditions for these products. These factors are beyond our control and are difficult to predict. During the three months ended 2024 and 2023, NYMEX WTI prices averaged $76.91 and $75.99 per Bbl, respectively, and NYMEX Henry Hub prices averaged $2.10 and $2.74 per MMBtu, respectively.

For additional information around risks related to commodity prices, see Part II. Item 3. Quantitative and Qualitative Disclosures About Market Risk—Commodity Price Risk.

Upstream Operations

Our activities are primarily directed at the horizontal development of the Wolfcamp and Spraberry formations in the Midland Basin and the Wolfcamp and Bone Spring formations in the Delaware Basin within the Permian Basin. Additionally, our publicly-traded subsidiary, Viper, is focused on owning and acquiring mineral interests and royalty interests in oil and natural gas properties primarily in the Permian Basin and derives royalty income and lease bonus income from such interests.

As of March 31, 2024, we had approximately 487,264 net acres, which primarily consisted of approximately 346,911 net acres in the Midland Basin and 140,033 net acres in the Delaware Basin.

We expect production to stay relatively flat in the second quarter of 2024 as we continue to promote our commitment to capital efficiency. We also anticipate that capital expenditures will remain flat due to lower well costs in 2024 and a reduction in drilling activity as a result of keeping production flat. We continue to see lower completion costs due to a continuous decline in raw materials and service costs. The majority of our wells are now being completed with either a simulfrac or simulfrac e-fleet, reducing our exposure to spot frac prices.

The following table sets forth the total number of operated horizontal wells drilled and completed during the periods indicated:

			Three Months Ended March 31, 2024
			Drilled												Completed**(1)**
Area:			Gross						Net						Gross						Net
Midland Basin			69						67						101						89
Delaware Basin			10						9						—						—
Total			79						76						101						89

(1)The average lateral length for the wells completed during the first quarter of 2024 was 11,463 feet. Operated completions during the first quarter of 2024 consisted of 30 Lower Spraberry wells, 19 Wolfcamp A wells, 16 Jo Mill wells, 15 Wolfcamp B wells, 12 Middle Spraberry wells, six Wolfcamp D wells and three Upper Spraberry wells.

As of March 31, 2024, we operated the following wells:

			As of March 31, 2024
			Vertical Wells												Horizontal Wells												Total
Area:			Gross						Net						Gross						Net						Gross						Net
Midland Basin			2,621						2,480						2,371						2,178						4,992						4,658
Delaware Basin			37						35						681						633						718						668
Total			2,658						2,515						3,052						2,811						5,710						5,326

As of March 31, 2024, we held interests in 21,251 gross (5,411 net) wells, including 528 gross (85 net) wells in which we have a non-operated working interest.

Guidance

The following table presents our current estimates, which do not take into account the pending Endeavor Acquisition, of certain financial and operating results for the full year of 2024, as well as production and cash tax guidance for the second quarter of 2024:

			2024 Guidance
Net production - MBOE/d			458 - 466
Oil production - MBO/d			270 - 275
Q2 2024 oil production - MBO/d (total - MBOE/d)			271 - 275 (459 - 466)
(Unit costs $/BOE):
Lease operating expenses, including workovers			$6.00 - $6.50
General and administrative expenses - cash			$0.55 - $0.65
Non-cash stock-based compensation			$0.40 - $0.50
Depreciation, depletion, amortization and accretion			$10.50 - $11.50
Interest expense (net of interest income)			$1.65 - $1.85
Gathering, processing and transportation			$1.80 - $2.00
Production and ad valorem taxes (% of revenue)			~7%
Corporate tax rate (% of pre-tax income)			23%
Cash tax rate (% of pre-tax income)			15% - 18%
Q2 2024 cash taxes (in millions)			$180 - $220

Results of Operations

Comparison of the Three Months Ended March 31, 2024 and December 31, 2023

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

The following table sets forth selected operating data for the three months ended March 31, 2024 and December 31, 2023:

			Three Months Ended
			March 31, 2024						December 31, 2023
Revenues (In millions):
Oil sales			$	1,867					$	1,920
Natural gas sales			50						65
Natural gas liquid sales			184						180
Total oil, natural gas and natural gas liquid revenues			$	2,101					$	2,165
Production Data:
Oil (MBbls)			24,874						25,124
Natural gas (MMcf)			50,602						50,497
Natural gas liquids (MBbls)			8,653						9,016
Combined volumes (MBOE)(1)			41,961						42,556
Daily oil volumes (BO/d)			273,341						273,087
Daily combined volumes (BOE/d)			461,110						462,565
Average Prices:
Oil ($ per Bbl)			$	75.06					$	76.42
Natural gas ($ per Mcf)			$	0.99					$	1.29
Natural gas liquids ($ per Bbl)			$	21.26					$	19.96
Combined ($ per BOE)			$	50.07					$	50.87
Oil, hedged ($ per Bbl)(2)			$	74.13					$	75.59
Natural gas, hedged ($ per Mcf)(2)			$	1.36					$	1.31
Natural gas liquids, hedged ($ per Bbl)(2)			$	21.26					$	19.96
Average price, hedged ($ per BOE)(2)			$	49.97					$	50.40

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

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

Production Data. Substantially all of our revenues are generated through the sale of oil, natural gas and natural gas liquids production. The following tables provide information on the mix of our production for the three months ended March 31, 2024 and December 31, 2023:

			Three Months Ended
			March 31, 2024						December 31, 2023
Oil (MBbls)			59		%				59		%
Natural gas (MMcf)			20		%				20		%
Natural gas liquids (MBbls)			21		%				21		%
			100		%				100		%

			Three Months Ended March 31, 2024																								Three Months Ended December 31, 2023
			Midland Basin						Delaware Basin						Other**(1)**						Total						Midland Basin						Delaware Basin						Other**(2)**						Total
Production Data:
Oil (MBbls)			20,055						4,768						51						24,874						20,211						4,886						27						25,124
Natural gas (MMcf)			37,494						12,894						214						50,602						36,997						13,413						87						50,497
Natural gas liquids (MBbls)			6,643						1,990						20						8,653						7,010						1,993						13						9,016
Total (MBOE)			32,947						8,907						107						41,961						33,387						9,115						55						42,556

(1)Includes the Rockies, High Plains, Eagle Ford Shale, Appalachia, Barnett, Denver-Julesburg, Mid-Con, and Williston.

(2)Includes the Rockies and High Plains.

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

Our oil, natural gas and natural gas liquids revenues for the first quarter of 2024 decreased by $64 million to $2.1 billion compared to the fourth quarter of 2023. The decrease consisted of $38 million attributable to lower average prices received for our oil and natural gas production and $26 million attributable to the 1% decline in our combined volumes sold.

Net Sales of Purchased Oil. We have entered into purchase transactions and separate sales transactions with third parties to satisfy certain of our unused oil pipeline capacity commitments. The following table presents the net sales of purchased oil from third parties for the three months ended March 31, 2024 and December 31, 2023:

			Three Months Ended
(In millions)			March 31, 2024						December 31, 2023
Sales of purchased oil			$	116					$	52
Purchased oil expense			117						52
Net sales of purchased oil			$	(1)					$	—

Other Revenues. The following table presents other insignificant revenue for the three months ended March 31, 2024 and December 31, 2023:

			Three Months Ended
(In millions)			March 31, 2024						December 31, 2023
Other operating income			$	10					$	11

Lease Operating Expenses. The following table shows lease operating expenses for the three months ended March 31, 2024 and December 31, 2023:

			Three Months Ended
			March 31, 2024												December 31, 2023
(In millions, except per BOE amounts)			Amount						Per BOE						Amount						Per BOE
Lease operating expenses			$	255					$	6.08					$	254					$	5.97

Lease operating expenses remained relatively flat in total and on a per BOE basis for the first quarter of 2024 compared to the fourth quarter of 2023.

Production and Ad Valorem Tax Expense. The following table shows production and ad valorem tax expense for the three months ended March 31, 2024 and December 31, 2023:

			Three Months Ended
			March 31, 2024																		December 31, 2023
(In millions, except per BOE amounts)			Amount						Per BOE						Percentage of oil, natural gas and natural gas liquids revenue						Amount						Per BOE						Percentage of oil, natural gas and natural gas liquids revenue
Production taxes			$	82					$	1.96					3.9		%				$	93					$	2.18					4.3		%
Ad valorem taxes			37						0.88						1.8						11						0.26						0.5
Total production and ad valorem expense			$	119					$	2.84					5.7		%				$	104					$	2.44					4.8		%

In general, production taxes are directly related to production revenues and are based upon current year commodity prices. However, due to the recent settlement of an ongoing audit of production taxes from historical periods, the first quarter of 2024 includes a refund of $17 million and the fourth quarter of 2023 includes a refund of $8 million, which primarily accounts for the decrease in production taxes between periods and as a percentage of revenue. The remainder of the decrease is largely attributable to the decline in production volumes.

Ad valorem taxes are based, among other factors, on property values driven by prior year commodity prices. During the first quarter of 2024 compared to the fourth quarter of 2023, ad valorem taxes increased by $26 million due primarily to the fourth quarter of 2023 reflecting a reduction to the full year 2023 accrual for ad valorem taxes based on actual tax assessments received.

Gathering and Transportation Expense. The following table shows gathering and transportation expense for the three months ended March 31, 2024 and December 31, 2023:

			Three Months Ended
			March 31, 2024												December 31, 2023
(In millions, except per BOE amounts)			Amount						Per BOE						Amount						Per BOE
Gathering, processing and transportation			$	77					$	1.84					$	78					$	1.83

Gathering, processing and transportation expenses in total and on a per BOE basis remained relatively flat in the first quarter of 2024 compared to the fourth quarter of 2023.

Depreciation, Depletion, Amortization and Accretion. The following table provides the components of our depreciation, depletion, amortization and accretion expense for the three months ended March 31, 2024 and December 31, 2023:

			Three Months Ended
(In millions, except BOE amounts)			March 31, 2024						December 31, 2023
Depletion of proved oil and natural gas properties			$	452					$	452
Depreciation and amortization of other property and equipment			12						11
Other amortization			2						4
Asset retirement obligation accretion			3						2
Depreciation, depletion, amortization and accretion			$	469					$	469
Oil and natural gas properties depletion rate per BOE			$	10.77					$	10.62
Depreciation, depletion, amortization and accretion per BOE			$	11.18					$	11.02

Depletion of proved oil and natural gas properties in total and on a per BOE basis was flat in the first quarter of 2024 as compared to the fourth quarter of 2023.

General and Administrative Expenses. The following table shows general and administrative expenses for the three months ended March 31, 2024 and December 31, 2023:

			Three Months Ended
			March 31, 2024												December 31, 2023
(In millions, except per BOE amounts)			Amount						Per BOE						Amount						Per BOE
General and administrative expenses			$	32					$	0.76					$	25					$	0.59
Non-cash stock-based compensation			14						0.34						14						0.33
Total general and administrative expenses			$	46					$	1.10					$	39					$	0.92

General and administrative expenses increased in the first quarter of 2024 compared to the fourth quarter of 2023 primarily due to (i) $2 million in additional charitable contributions, (ii) $2 million in additional professional services, and (iii) other individually insignificant changes.

Other Operating Costs and Expenses. The following table shows other operating costs and expenses for the three months ended March 31, 2024 and December 31, 2023:

			Three Months Ended
(In millions)			March 31, 2024						December 31, 2023
Merger and integration expenses			$	12					$	—
Other operating expenses			$	14					$	27

Merger and integration expenses in the first quarter of 2024 relate to the pending Endeavor Acquisition as discussed in Note 16—Endeavor Energy Resources, LP Acquisition to the condensed notes to the consolidated financial statements.

Derivative Instruments. The following table shows the net gain (loss) on derivative instruments and the net cash receipts (payments) on settlements of derivative instruments for the three months ended March 31, 2024 and December 31, 2023:

			Three Months Ended
(In millions)			March 31, 2024						December 31, 2023
Gain (loss) on derivative instruments, net			$	(48)					$	99
Net cash received (paid) on settlements			$	(4)					$	(48)

The change in gain (loss) on derivative instruments for the first quarter of 2024 compared to the fourth quarter of 2023 primarily reflects a decrease in the value of interest rate swaps of $100 million due to an increase in SOFR rates, and a decrease in the value of our oil commodity contracts of $64 million due to increasing market prices for oil compared to our contract prices. Net cash paid on settlements of derivatives in the fourth quarter of 2023 includes $27 million for the semi-annual settlement of our interest rate swaps. See Note 12—Derivatives of the condensed notes to the consolidated financial statements for further details regarding our derivative instruments.

Other Income (Expense). The following table shows other income and expenses for the three months ended March 31, 2024 and December 31, 2023:

			Three Months Ended
(In millions)			March 31, 2024						December 31, 2023
Interest expense, net			$	(46)					$	(37)
Other income (expense), net			$	4					$	(1)
Gain (loss) on extinguishment of debt			$	2					$	—
Income (loss) from equity investments, net			$	2					$	9

The increase in net interest expense for the first quarter of 2024 compared to the fourth quarter of 2023 primarily consists of an additional $10 million in amortization of debt issuance costs related primarily to our Bridge Facility and Term Loan Agreement.

See Note 8—Debt of the condensed notes to the consolidated financial statements for further details regarding outstanding borrowings and gain (loss) on extinguishment of debt.

Provision for (Benefit from) Income Taxes. The following table shows the provision for (benefit from) income taxes for the three months ended March 31, 2024 and December 31, 2023:

			Three Months Ended
(In millions)			March 31, 2024						December 31, 2023
Provision for (benefit from) income taxes			$	223					$	264

The reduction in our income tax provision for the first quarter of 2024 compared to the fourth quarter of 2023 was primarily due to the decrease in pre-tax income between the periods which resulted largely from a decrease in the value of our derivative instruments as discussed above. See Note 11—Income Taxes of the condensed notes to the consolidated financial statements for further discussion of our income tax expense.

Comparison of the Three Months Ended March 31, 2024 and 2023

The following table sets forth selected operating data for the three months ended March 31, 2024 and 2023:

			Three Months Ended March 31,
			2024						2023
Revenues (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
Production Data:
Oil (MBbls)			24,874						22,624
Natural gas (MMcf)			50,602						47,388
Natural gas liquids (MBbls)			8,653						7,730
Combined volumes (MBOE)(1)			41,961						38,252
Daily oil volumes (BO/d)			273,341						251,378
Daily combined volumes (BOE/d)			461,110						425,022
Average Prices:
Oil ($ per Bbl)			$	75.06					$	73.11
Natural gas ($ per Mcf)			$	0.99					$	1.46
Natural gas liquids ($ per Bbl)			$	21.26					$	23.16
Combined ($ per BOE)			$	50.07					$	49.72
Oil, hedged ($ per Bbl)(2)			$	74.13					$	72.05
Natural gas, hedged ($ per Mcf)(2)			$	1.36					$	1.96
Natural gas liquids, hedged ($ per Bbl)(2)			$	21.26					$	23.16
Average price, hedged ($ per BOE)(2)			$	49.97					$	49.72

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

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

Production Data. Substantially all of our revenues are generated through the sale of oil, natural gas and natural gas liquids production. The following tables set forth the mix of our production data by product and basin for the three months ended March 31, 2024 and 2023:

			Three Months Ended March 31,
			2024						2023
Oil (MBbls)			59		%				59		%
Natural gas (MMcf)			20		%				21		%
Natural gas liquids (MBbls)			21		%				20		%
			100		%				100		%

			Three Months Ended March 31, 2024																								Three Months Ended March 31, 2023
			Midland Basin						Delaware Basin						Other**(1)**						Total						Midland Basin						Delaware Basin						Other**(2)**						Total
Production Data:
Oil (MBbls)			20,055						4,768						51						24,874						17,720						4,892						12						22,624
Natural gas (MMcf)			37,494						12,894						214						50,602						33,548						13,786						54						47,388
Natural gas liquids (MBbls)			6,643						1,990						20						8,653						5,858						1,874						(2)						7,730
Total (MBOE)			32,947						8,907						107						41,961						29,169						9,064						19						38,252

(1)Includes the Rockies, High Plains, Eagle Ford Shale, Appalachia, Barnett, Denver-Julesburg, Mid-Con, and Williston.

(2)Includes the Rockies and High Plains.

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

Our oil, natural gas and natural gas liquids revenues for the three months ended March 31, 2024 increased by $199 million, or 10%, to $2.1 billion from the same period in 2023 primarily due to an increase of $191 million attributable to the 10% growth in our combined volumes. Approximately 19% of the increase in production is attributable to the GRP Acquisition and an additional 9% is attributable to including a full quarter of production from the Lario Acquisition. The remainder of the growth comes from new wells added between periods.

Net Sales of Purchased Oil. Beginning in the third quarter of 2023, we entered into purchase transactions and separate sale transactions with third parties to satisfy certain of our unused oil pipeline capacity commitments. The following table presents the net sales of purchased oil from third parties for the three months ended March 31, 2024 and 2023:

			Three Months Ended March 31,
(In millions)			2024						2023
Sales of purchased oil			$	116					$	—
Purchased oil expense			117						—
Net sales of purchased oil			$	(1)					$	—

Other Revenues. The following table shows the other insignificant revenues for the three months ended March 31, 2024 and 2023:

			Three Months Ended March 31,
(In millions)			2024						2023
Other operating income			$	10					$	23

Lease Operating Expenses. The following table shows lease operating expenses for the three months ended March 31, 2024 and 2023:

			Three Months Ended March 31,
			2024												2023
(In millions, except per BOE amounts)			Amount						Per BOE						Amount						Per BOE
Lease operating expenses			$	255					$	6.08					$	192					$	5.02

Lease operating expenses increased by $63 million, or $1.06 per BOE for the three months ended March 31, 2024 compared to the same period in 2023. The increase primarily consists of (i) $26 million in additional costs incurred for water services as a result of divesting our Water Assets in the third quarter of 2023, (ii) approximately $19 million due to the increase in combined production volumes between the periods, and (iii) $16 million in increased spend on wellwork.

Production and Ad Valorem Tax Expense. The following table shows production and ad valorem tax expense for the three months ended March 31, 2024 and 2023:

			Three Months Ended March 31,
			2024																		2023
(In millions, except per BOE amounts)			Amount						Per BOE						Percentage of oil, natural gas and natural gas liquids revenue						Amount						Per BOE						Percentage of oil, natural gas and natural gas liquids revenue
Production taxes			$	82					$	1.96					3.9		%				$	92					$	2.40					4.8		%
Ad valorem taxes			37						0.88						1.8						63						1.65						3.3
Total production and ad valorem expense			$	119					$	2.84					5.7		%				$	155					$	4.05					8.1		%

In general, production taxes are directly related to production revenues and are based upon current year commodity prices. Production taxes as a percentage of production revenues for the 2024 period decreased compared to the same period in 2023, primarily due to a refund of $17 million received for settlement of an audit in the first quarter of 2024, which was partially offset by a $9 million increase in production volumes.

Ad valorem taxes are based, among other factors, on property values driven by prior year commodity prices. Ad valorem taxes for the three months ended March 31, 2024 as compared to the same period in 2023 decreased by $26 million, primarily due to a reduction in the expected ad valorem tax rates for 2024 compared to the expected rates in the first quarter of 2023.

Gathering and Transportation Expense. The following table shows gathering and transportation expense for the three months ended March 31, 2024 and 2023:

			Three Months Ended March 31,
			2024												2023
(In millions, except per BOE amounts)			Amount						Per BOE						Amount						Per BOE
Gathering, processing and transportation			$	77					$	1.84					$	68					$	1.78

The increase in gathering and transportation expenses for the three months ended March 31, 2024 compared to the same period in 2023 is primarily attributable to the growth in production volumes discussed above. The rate increase is due to annual rate adjustments.

Depreciation, Depletion, Amortization and Accretion. The following table provides the components of our depreciation, depletion, amortization and accretion expense for the three months ended March 31, 2024 and 2023:

			Three Months Ended March 31,
(In millions, except BOE amounts)			2024						2023
Depletion of proved oil and natural gas properties			$	452					$	381
Depreciation and amortization of other property and equipment			12						17
Other amortization			2						1
Asset retirement obligation accretion			3						4
Depreciation, depletion, amortization and accretion			$	469					$	403
Oil and natural gas properties depletion rate per BOE			$	10.77					$	9.96
Depreciation, depletion, amortization and accretion per BOE			$	11.18					$	10.54

The increase in depletion of proved oil and natural gas properties of $71 million for the three months ended March 31, 2024 as compared to the same period in 2023 resulted primarily from (i) $37 million from the increase in production volumes and (i) $34 million due to an increase in the depletion rate resulting from the addition of leasehold costs and reserves from the GRP Acquisition.

General and Administrative Expenses. The following table shows general and administrative expenses for the three months ended March 31, 2024 and 2023:

			Three Months Ended March 31,
			2024												2023
(In millions, except per BOE amounts)			Amount						Per BOE						Amount						Per BOE
General and administrative expenses			$	32					$	0.76					$	29					$	0.76
Non-cash stock-based compensation			14						0.34						11						0.29
Total general and administrative expenses			$	46					$	1.10					$	40					$	1.05

General and administrative expenses for the three months ended March 31, 2024 remained relatively flat in total and on a per BOE basis compared to the same period in 2023.

Other Operating Costs and Expenses. The following table shows the other operating costs and expenses for the three months ended March 31, 2024 and 2023:

			Three Months Ended March 31,
(In millions)			2024						2023
Merger and integration expenses			$	12					$	8
Other operating expenses			$	14					$	34

The decrease in other operating expenses for the three months ended March 31, 2024 compared to the same period in 2023 primarily resulted from a decrease in midstream services due to the sale of our Water Assets in Q3 2023.

Derivative Instruments. The following table shows the net gain (loss) on derivative instruments and the net cash receipts (payments) on settlements of derivative instruments for the three months ended March 31, 2024 and 2023:

			Three Months Ended March 31,
(In millions)			2024						2023
Gain (loss) on derivative instruments, net			$	(48)					$	(93)
Net cash received (paid) on settlements			$	(4)					$	1

See Note 12—Derivatives of the condensed notes to the consolidated financial statements for further details regarding our derivative instruments.

Other Income (Expense). The following table shows other income and expenses for the three months ended March 31, 2024 and 2023:

			Three Months Ended March 31,
(In millions)			2024						2023
Interest expense, net			$	(46)					$	(46)
Other income (expense), net			$	4					$	53
Gain (loss) on extinguishment of debt			$	2					$	—
Income (loss) from equity investments, net			$	2					$	14

Interest expense, net for the three months ended March 31, 2024 compared to the same period in 2023 remained flat compared to the same period in 2023. This was largely due to offsetting changes consisting of (i) an increase of $10 million in amortization of debt issuance costs primarily related to our Bridge Facility and Term Loan Agreement, (ii) an increase of $6 million in interest expense on senior notes primarily related to interest expense on Viper’s 7.375% Senior Notes due 2031 which were issued in the fourth quarter of 2023, (iii) a decrease of $11 million due to an increase in capitalized interest costs, which reduce interest expense, (iv) a decrease of $4 million in interest expense on our revolving credit facility due to lower average borrowings outstanding in the first quarter of 2024, and (v) other individually insignificant changes.

See Note 8—Debt of the condensed notes to the consolidated financial statements for further details regarding outstanding borrowings.

Other income (expense), net for the three months ended March 31, 2023 includes a $53 million gain on the sale of equity method investment in Gray Oak as discussed further in Note 4—Acquisitions and Divestitures to the condensed notes to the consolidated financial statements.

Provision for (Benefit from) Income Taxes. The following table shows the provision for (benefit from) income taxes for the three months ended March 31, 2024 and 2023:

			Three Months Ended March 31,
(In millions)			2024						2023
Provision for (benefit from) income taxes			$	223					$	207

The change in our income tax provision for the three months ended March 31, 2024 compared to the same period in 2023 was primarily due to the increase in pre-tax income resulting largely from the increase in revenues from oil, natural gas and natural gas liquids and changes in operating expenses and other income (expenses) as discussed above. See Note 11—Income Taxes of the condensed notes to the consolidated financial statements for further discussion of our income tax expense.

Liquidity and Capital Resources

Overview of Sources and Uses of Cash

Historically, our primary sources of liquidity have included cash flows from operations, proceeds from our public equity offerings, borrowings under our revolving credit facility, proceeds from the issuance of senior notes and sales of non-core assets. Our primary uses of capital have been for the acquisition, development and exploration of oil and natural gas properties, repayment of debt and returning capital to stockholders. At March 31, 2024, we had approximately $2.5 billion of liquidity consisting of $876 million in standalone cash and cash equivalents and $1.6 billion available under our credit facility. Additionally, for purposes of funding the cash consideration for the pending Endeavor Acquisition, we currently have $1.5 billion and $1.0 billion available under the Term Loans and Bridge Facility, respectively, as well as the net proceeds of $5.5 billion from the April 2024 Notes. As discussed below, our capital budget for 2024 is $2.30 billion to $2.55 billion, which does not take into account the pending Endeavor Acquisition. As of March 31, 2024, we have no debt maturities until 2026.

Future cash flows are subject to a number of variables, including the level of oil and natural gas production and volatility of commodity prices. Further, significant additional capital expenditures will be required to more fully develop our properties. Prices for our commodities are determined primarily by prevailing market conditions, regional and worldwide economic activity, weather and other substantially variable factors. These factors are beyond our control and are difficult to predict as discussed further in Part I, Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2023. In order to mitigate this volatility, we enter into derivative contracts with a number of financial institutions, all of which are participants in our credit facility, to economically hedge a portion of our estimated future crude oil and natural gas production as discussed further in Note 12—Derivatives of the condensed notes to the consolidated financial statements and

Item 3. Quantitative and Qualitative Disclosures About Market Risk—Commodity Price Risk. The level of our hedging activity and duration of the financial instruments employed depend on our desired cash flow protection, available hedge prices, the magnitude of our capital program and our operating strategy.

Cash Flow

Our cash flows for the three months ended March 31, 2024 and 2023 are presented below:

			Three Months Ended March 31,
			2024						2023
			(In millions)
Net cash provided by (used in) operating activities			$	1,334					$	1,425
Net cash provided by (used in) investing activities			(751)						(1,279)
Net cash provided by (used in) financing activities			(269)						(257)
Net increase (decrease) in cash			$	314					$	(111)

Operating Activities

The decrease in operating cash flows for the three months ended March 31, 2024 compared to the same period in 2023 primarily resulted from (i) an increase in our cash operating expenses of approximately $140 million and (ii) a reduction of approximately $188 million due to fluctuations in other working capital balances due primarily to the timing of when collections were made on accounts receivable and payments made on accounts payable. These were partially offset by an increase of $302 million in total revenue. See “—**Results of Operations” for discussion of significant changes in our revenues and expenses.

Investing Activities

The majority of our net cash used for investing activities during the three months ended March 31, 2024 and 2023 was for drilling and completion costs incurred in conjunction with our development program as well as the purchase of oil and gas properties including the Lario Acquisition in the first quarter of 2023.

Capital Expenditure Activities

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

			Three Months Ended March 31,
			2024						2023
			(In millions)
Drilling, completions and non-operated additions to oil and natural gas properties(1)			$	580					$	580
Infrastructure additions to oil and natural gas properties			25						42
Additions to midstream assets			4						35
Total			$	609					$	657

(1) See “—Transactions and Recent Developments - Upstream Operations” above for additional detail on wells drilled and turned to production during the three and three months ended March 31, 2024 and 2023.

Financing Activities

During the three months ended March 31, 2024, net cash used in financing activities was primarily attributable to (i) $548 million of dividends paid to stockholders, (ii) $44 million in dividends to non-controlling interest, (iii) $42 million of repurchases as part of the share repurchase programs, (iv) $34 million in cash paid for tax withholdings on vested employee stock awards (v) $33 million of debt issuance costs primarily associated with the Term Loan Agreement and Bridge Facility, and (vi) $25 million paid for the retirement of principal outstanding on certain senior notes. These cash outflows were partially offset by $451 million in proceeds from the public offering of Viper’s Class A common stock and an additional $10 million in borrowings under credit facilities, net of repayments.

During the three months ended March 31, 2023, net cash used in financing activities was primarily attributable to (i) $542 million of dividends paid to stockholders, (iii) $366 million of repurchases as part of the share and unit repurchase programs, and (iv) $34 million in distributions to non-controlling interest. These reductions in cash flow were partially offset by $707 million in borrowings under credit facilities, net of repayments,

Capital Resources

Our working capital requirements are primarily supported by our cash and cash equivalents and available borrowings under our revolving credit facility. We may draw on our revolving credit facility to meet short-term cash requirements, or issue debt or equity securities as part of our longer-term liquidity and capital management program and to finance the pending Endeavor Acquisition. Further, the Term Loans, Bridge Facility and net proceeds from the April 2024 Notes, are also available to finance the cash portion of the pending Endeavor Acquisition. Because of the alternatives available to us, we believe that our short-term and long-term liquidity are adequate to fund not only our current operations, but also our near-term and long-term capital requirements.

As we pursue our business and financial strategy, we regularly consider which capital resources, including cash flow and equity and debt financings, are available to meet our future financial obligations, planned capital expenditure activities and liquidity requirements. Our future ability to grow proved reserves and production will be highly dependent on the capital resources available to us. Any prolonged volatility in the capital, financial and/or credit markets and/or adverse macroeconomic conditions may limit our access to, or increase our cost of, capital or make capital unavailable on terms acceptable to us or at all.

Revolving Credit Facilities and Other Debt Instruments

As of March 31, 2024, our debt, including the debt of Viper, consisted of approximately $6.5 billion in aggregate outstanding principal amount of senior notes, and $273 million in aggregate outstanding borrowings under revolving credit facilities.

As of March 31, 2024, the maximum credit amount available under our credit agreement was $1.6 billion, with no outstanding borrowings and $1.6 billion available for future borrowings. Our credit agreement matures on June 2, 2028, and we may further extend it by one one-year extension pursuant to the terms set forth in the credit agreement. Upon consummation of the Endeavor Acquisition, the maximum credit amount available under our credit agreement will increase to $2.5 billion.

As of March 31, 2024, the maximum credit amount available under the Term Loan Agreement was $1.5 billion, with no outstanding borrowings and $1.5 billion available for future borrowings. Our Term Loan Agreement matures on the anniversary of the Closing Date and the second anniversary of the Closing date for Tranche A and Tranche B, respectively.

As of March 31, 2024, the maximum credit amount available under our Bridge Facility was $6.5 billion, with no outstanding borrowings and $6.5 billion available for future borrowings. The Bridge Facility matures 364 days after it has been drawn on. The Bridge Facility was further reduced on a dollar-for-dollar basis by the $5.5 billion principal amount of the April 2024 Notes, resulting in $1.0 billion currently available for future borrowings.

On April 18, 2024, we issued $5.5 billion in aggregate principal amount of the April 2024 Notes for net proceeds of $5.5 billion, we intend to use the net proceeds to fund a portion of the cash consideration for the pending Endeavor Acquisition.

Viper’s Credit Agreement

The Viper credit agreement, as amended, matures on September 22, 2028 and provides for a revolving credit facility in the maximum credit amount of $2.0 billion, with a borrowing base of $1.3 billion and an elected commitment amount of $850 million, based on Viper LLC’s oil and natural gas reserves and other factors. As of March 31, 2024. the Viper credit agreement had $273 million of outstanding borrowings and $577 million available for future borrowings.

For additional discussion of our outstanding debt as of March 31, 2024, see Note 8—Debt of the condensed notes to the consolidated financial statements and for discussion of the April 2024 Notes see Note 17—Subsequent Events.

Capital Requirements

In addition to future operating expenses and working capital commitments discussed in —Transactions and Recent Developments - Upstream Operations, our primary short and long-term liquidity requirements, excluding those of Viper, consist primarily of (i) capital expenditures, (ii) payments of principal and interest on our revolving credit agreements and senior notes, (iii) payments of other contractual obligations, (iv) cash used to pay for dividends and repurchases of securities, and (v) the cash portion of the consideration for the pending Endeavor Acquisition.

2024 Capital Spending Plan

Our board of directors has approved a 2024 capital budget for drilling, midstream, infrastructure and environmental of approximately $2.30 billion to $2.55 billion, which does not take into account the pending Endeavor Acquisition. We estimate that, of these expenditures, approximately:

• $2.10 billion to $2.33 billion will be spent primarily on drilling 265 to 285 gross (244 to 263 net) horizontal wells and completing 300 to 320 gross (273 to 291 net) horizontal wells across our operated and non-operated leasehold acreage in the Northern Midland and Southern Delaware Basins, with an average lateral length of approximately 11,500+ feet;

• Approximately $200 million to $220 million will be spent on infrastructure and midstream expenditures, excluding the cost of any leasehold and mineral interest acquisitions.

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

Interest on April 2024 Notes

On April 18, 2024, we issued $5.5 billion in aggregate principal amount of the April 2024 Notes, as discussed further in Note 17— Subsequent Events. As a result, we expect to incur additional future cash interest costs on the April 2024 Notes of approximately $152 million in 2024, $607 million cumulatively in the years from 2025 through 2026, $541 million cumulatively in the years from 2027 and 2028, and $4.7 billion cumulatively between 2029 and 2064.

Return of Capital Commitment

Beginning in the first quarter of 2024, our board of directors has approved a return of capital commitment of at least 50% from 75% of free cash flow to our shareholders through repurchases under our share repurchase program, base dividends and variable dividends. The remainder of our free cash flow will be used primarily to reduce debt. On April 25, 2024, our board of directors declared a combined base and variable dividend for the first quarter of 2024 of $1.97 per share of common stock.

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

As of April 26, 2024, we have repurchased 19.3 million shares of our common stock for a total cost of $2.4 billion since the inception of the stock repurchase program, excluding excise tax. We intend to continue to purchase shares under this repurchase program opportunistically with available funds primarily from cash flow from operations and liquidity events such as the sale of assets while maintaining sufficient liquidity to fund our capital expenditure programs, however, the stock repurchase program is at the discretion of our board of directors and can be amended, terminated or suspended at any time. See Note 9—Stockholders' Equity and Earnings (Loss) Per Share of the condensed notes to the consolidated financial statements.

Income Taxes

We expect our cash tax rate to be 15% to 18% of pre-tax income for the year ended December 31, 2024. See Note 11—Income Taxes of the condensed notes to the consolidated financial statements.

Guarantor Financial Information

Diamondback E&P is the sole guarantor under the indentures governing the outstanding Guaranteed Senior Notes.

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

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

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

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

			March 31, 2024						December 31, 2023
Summarized Balance Sheets:			(In millions)
Assets:
Current assets			$	1,583					$	1,269
Property and equipment, net			$	21,003					$	20,780
Other noncurrent assets			$	12					$	28
Liabilities:
Current liabilities			$	1,923					$	1,974
Intercompany accounts payable, non-guarantor subsidiary			$	2,290					$	2,217
Long-term debt			$	5,521					$	5,544
Other noncurrent liabilities			$	2,931					$	2,835

			Three Months Ended March 31, 2024
Summarized Statement of Operations:			(In millions)
Revenues			$	1,744
Income (loss) from operations			$	806
Net income (loss)			$	541

Critical Accounting Estimates

There have been no changes in our critical accounting estimates from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2023.

Recent Accounting Pronouncements

See Note 2—Summary of Significant Accounting Policies of the condensed notes to the consolidated financial statements for recent accounting pronouncements not yet adopted, if any.