filings.toolsItem 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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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 September 30, 2024, we have one reportable segment, the upstream segment.
Third Quarter 2024 Financial and Operating Highlights
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Recorded net income of $659 million.
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Paid dividends to stockholders of $416 million during the third quarter of 2024 and declared a base cash dividend payable in the fourth quarter of 2024 of $0.90 per share of common stock.
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Increased our common stock repurchase program authorization to $6.0 billion, excluding excise taxes, repurchased $515 million of our common stock and had approximately $3.1 billion available for future repurchases under our common stock repurchase program at September 30, 2024.
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Our cash operating costs were $11.49 per BOE, including lease operating expenses of $6.01 per BOE, cash general and administrative expenses of $0.63 per BOE and production and ad valorem taxes and gathering, processing and transportation expenses of $4.85 per BOE.
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Our average production was 571.1 MBOE/d.
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Drilled 71 gross horizontal wells in the Midland Basin and five gross horizontal wells in the Delaware Basin, and turned 95 gross operated horizontal wells (87 in the Midland Basin and eight in the Delaware Basin) to production.
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Incurred capital expenditures, excluding acquisitions, of $688 million.
Transactions and Recent Developments
Acquisitions and Divestitures
TRP Energy, LLC Asset Exchange
On November 3, 2024, we entered into an exchange agreement with TRP, pursuant to which we agreed to exchange certain of our assets consisting of approximately 35,000 net acres located in the Delaware Basin and $238 million in cash, subject to customary regulatory approvals and closing conditions, for certain of TRP’s assets consisting of approximately 15,000 net acres located in the Midland Basin. This transaction is expected to close by the end of 2024. We intend to fund the cash portion of the exchange with cash on hand and borrowings under our revolving credit facility.
Viper TWR Acquisition
On October 1, 2024 Viper and Viper LLC completed the Viper TWR Acquisition for consideration consisting of approximately $459 million of cash and 10.09 million Viper LLC units, subject to customary post-closing adjustments, and the TWR Class B Option. Additionally, the Viper TWR Acquisition contemplates contingent cash consideration of up to $41 million payable in January of 2026, based on the WTI 2025 Average. The mineral and royalty interests acquired in the Viper TWR Acquisition represent approximately 3,067 net royalty acres located primarily in the Permian Basin.
See Note 17—Subsequent Events of the condensed notes to the consolidated financial statements for further discussion of the transactions above.
Endeavor Acquisition
On September 10, 2024, we completed the Endeavor Acquisition for consideration consisting of $7.3 billion in cash, subject to certain customary post-closing adjustments, and approximately 117.27 million shares of our common stock. The Endeavor Acquisition included approximately 500,849 gross (361,927 net) acres, which are primarily located in the Permian Basin.
See Note 5—Endeavor Energy Resources, LP Acquisition of the condensed notes to the consolidated financial statements for further discussion of the Endeavor Acquisition.
Viper Q&M Acquisitions
On September 3, 2024 Viper and Viper LLC completed the Viper Q Acquisition which consisted of approximately 406 net royalty acres primarily in the Permian Basin for a purchase price of $114 million in cash, subject to transaction costs and customary post-closing adjustments, and contingent cash consideration of up to $5 million payable in January of 2026.
On September 3, 2024 Viper and Viper LLC completed the Viper M Acquisition which consisted of approximately 267 net royalty acres primarily in the Permian Basin for a purchase price of $76 million in cash, subject to transaction costs and customary post-closing adjustments, and contingent cash consideration of up to $4 million payable in January of 2026.
WTG Midstream Transaction
On July 15, 2024, the WTG joint venture completed the WTG Midstream Transaction, resulting in proceeds to us of 10.1 million common units of Energy Transfer LP and $190 million in cash, subject to customary closing adjustments. At the closing of the WTG Midstream Transaction, the value attributable to us for the 10.1 million common units was approximately $135 million, of which we received approximately $81 million and $54 million was held in escrow pursuant to an escrow agreement entered into by the WTG joint venture in connection with the initial transaction. The WTG Midstream Transaction resulted in a gain of approximately $76 million in the third quarter of 2024.
See Note 4—Acquisitions and Divestitures of the condensed notes to the consolidated financial statements for further discussion of the transactions above.
Viper 2024 Equity Offering
On September 13, 2024, Viper completed an underwritten public offering of approximately 11.50 million shares of its Class A Common Stock, which included 1.50 million shares issued pursuant to an option to purchase additional shares of Class A Common Stock granted to the underwriters, at a price to the public of $42.50 per share for total net proceeds to Viper of approximately $476 million, after the underwriters’ discount and transaction costs.
See Note 10—Stockholders' Equity and Earnings (Loss) Per Share of the condensed notes to the consolidated financial statements for further discussion of the Viper 2024 Equity Offering.
Commodity Prices
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 nine months ended 2024 and 2023, WTI prices averaged $77.61 and $77.28 per Bbl, respectively, and Henry Hub prices averaged $2.22 and $2.58 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 September 30, 2024, we had approximately 870,303 net acres, which primarily consisted of approximately 715,956 net acres in the Midland Basin and 154,026 net acres in the Delaware Basin.
The following table sets forth the total number of operated horizontal wells drilled and completed during the periods indicated:
| Three Months Ended September 30, 2024 | Nine Months Ended September 30, 2024 | ||||||||||||||||||||||||||||||||||||||||||||||
| Drilled | Completed**(2)** | Drilled | Completed**(3)** | ||||||||||||||||||||||||||||||||||||||||||||
| Area: | Gross | Net**(1)** | Gross | Net**(1)** | Gross | Net | Gross | Net | |||||||||||||||||||||||||||||||||||||||
| Midland Basin | 71 | 67 | 87 | 95 | 211 | 201 | 267 | 256 | |||||||||||||||||||||||||||||||||||||||
| Delaware Basin | 5 | 4 | 8 | 7 | 24 | 21 | 15 | 13 | |||||||||||||||||||||||||||||||||||||||
| Total | 76 | 71 | 95 | 102 | 235 | 222 | 282 | 269 |
(1)Includes two additional net wells drilled and nine net wells completed, respectively, from interests acquired in the Endeavor Acquisition during the first six months of 2024.
(2)The average lateral length for the wells completed during the third quarter of 2024 was 12,238 feet. Operated completions during the third quarter of 2024 consisted of 22 Wolfcamp A wells, 21 Lower Spraberry wells, 15 Jo Mill wells, 14 Wolfcamp B wells, 12 Middle Spraberry wells, four Dean wells, four Third Bone Spring wells and three Upper Spraberry wells.
(3)The average lateral length for the wells completed during the first nine months of 2024 was 11,645 feet. Operated completions during the first nine months of 2024 consisted of 72 Lower Spraberry wells, 61 Wolfcamp A wells, 45 Wolfcamp B wells, 40 Jo Mill wells, 34 Middle Spraberry wells, nine Wolfcamp D wells, nine Dean wells, six Upper Spraberry wells, four Third Bone Spring wells, one Second Bone Spring well and one Barnett well.
As of September 30, 2024, we operated the following wells:
| As of September 30, 2024 | |||||||||||||||||||||||||||||||||||
| Vertical Wells | Horizontal Wells | Total | |||||||||||||||||||||||||||||||||
| Area: | Gross | Net | Gross | Net | Gross | Net | |||||||||||||||||||||||||||||
| Midland Basin | 3,262 | 3,091 | 3,948 | 3,705 | 7,210 | 6,796 | |||||||||||||||||||||||||||||
| Delaware Basin | 45 | 42 | 696 | 649 | 741 | 691 | |||||||||||||||||||||||||||||
| Other | 26 | 21 | — | — | 26 | 21 | |||||||||||||||||||||||||||||
| Total | 3,333 | 3,154 | 4,644 | 4,354 | 7,977 | 7,508 |
As of September 30, 2024, we held interests in 28,920 gross (7,774 net) wells, including 2,051 gross (267 net) wells in which we have a non-operated working interest.
Guidance
We expect production and capital expenditures to increase in the fourth quarter of 2024 due to the Endeavor Acquisition and to a lesser extent the Viper Q&M Acquisitions and the Viper TWR Acquisition. Well performance continues to meet or exceed expectations in our core Midland Basin position, which we believe will allow us to continue to execute on our plan and achieve additional capital efficiency gains.
The following table presents our current estimates, which give effect to the Endeavor Acquisition, of certain financial and operating results for the full year of 2024 and the fourth quarter of 2024:
| 2024 Guidance | |||||
| Net production - MBOE/d | 587 - 590 (from 462 - 470) | ||||
| Oil production - MBO/d | 335 - 337 (from 273 - 276) | ||||
| Q4 2024 oil production - MBO/d (total - MBOE/d) | 470 - 475 (840 - 850) | ||||
| (Q4 2024 Unit costs $/BOE): | |||||
| Lease operating expenses, including workovers | $5.90 - $6.20 | ||||
| General and administrative expenses - cash | $0.55 - $0.65 | ||||
| Non-cash stock-based compensation | $0.25 - $0.40 | ||||
| Depreciation, depletion, amortization and accretion | $14.00 - $15.00 | ||||
| Interest expense (net of interest income) | $0.25 - $0.50 | ||||
| Gathering, processing and transportation | $1.60 - $1.80 | ||||
| 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% | ||||
| Q4 2024 cash taxes (in millions) | $240 - $300 |
Results of Operations
Comparison of the Three Months Ended September 30, 2024 and June 30, 2024
As noted in “—Commodity Prices,” 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 September 30, 2024 and June 30, 2024:
| Three Months Ended | |||||||||||
| September 30, 2024 | June 30, 2024 | ||||||||||
| Revenues (In millions): | |||||||||||
| Oil sales | $ | 2,160 | $ | 1,998 | |||||||
| Natural gas sales | (17) | 5 | |||||||||
| Natural gas liquid sales | 211 | 171 | |||||||||
| Total oil, natural gas and natural gas liquid revenues | $ | 2,354 | $ | 2,174 | |||||||
| Production Data: | |||||||||||
| Oil (MBbls) | 29,537 | 25,129 | |||||||||
| Natural gas (MMcf) | 66,519 | 51,310 | |||||||||
| Natural gas liquids (MBbls) | 11,918 | 9,514 | |||||||||
| Combined volumes (MBOE)(1) | 52,541 | 43,195 | |||||||||
| Daily oil volumes (BO/d) | 321,054 | 276,143 | |||||||||
| Daily combined volumes (BOE/d) | 571,098 | 474,670 | |||||||||
| Average Prices: | |||||||||||
| Oil ($ per Bbl) | $ | 73.13 | $ | 79.51 | |||||||
| Natural gas ($ per Mcf) | $ | (0.26) | $ | 0.10 | |||||||
| Natural gas liquids ($ per Bbl) | $ | 17.70 | $ | 17.97 | |||||||
| Combined ($ per BOE) | $ | 44.80 | $ | 50.33 | |||||||
| Oil, hedged ($ per Bbl)(2) | $ | 72.32 | $ | 78.55 | |||||||
| Natural gas, hedged ($ per Mcf)(2) | $ | 0.60 | $ | 1.03 | |||||||
| Natural gas liquids, hedged ($ per Bbl)(2) | $ | 17.70 | $ | 17.97 | |||||||
| Average price, hedged ($ per BOE)(2) | $ | 45.43 | $ | 50.89 |
(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 September 30, 2024 and June 30, 2024:
| Three Months Ended | |||||||||||
| September 30, 2024 | June 30, 2024 | ||||||||||
| Oil (MBbls) | 56 | % | 58 | % | |||||||
| Natural gas (MMcf) | 21 | 20 | |||||||||
| Natural gas liquids (MBbls) | 23 | 22 | |||||||||
| 100 | % | 100 | % |
| Three Months Ended September 30, 2024 | Three Months Ended June 30, 2024 | ||||||||||||||||||||||||||||||||||||||||||||||
| Midland Basin | Delaware Basin | Other | Total | Midland Basin | Delaware Basin | Other | Total | ||||||||||||||||||||||||||||||||||||||||
| Production Data: | |||||||||||||||||||||||||||||||||||||||||||||||
| Oil (MBbls) | 24,819 | 4,706 | 12 | 29,537 | 20,867 | 4,248 | 14 | 25,129 | |||||||||||||||||||||||||||||||||||||||
| Natural gas (MMcf) | 53,087 | 13,322 | 110 | 66,519 | 38,399 | 12,818 | 93 | 51,310 | |||||||||||||||||||||||||||||||||||||||
| Natural gas liquids (MBbls) | 9,799 | 2,113 | 6 | 11,918 | 7,566 | 1,940 | 8 | 9,514 | |||||||||||||||||||||||||||||||||||||||
| Total (MBOE) | 43,466 | 9,039 | 36 | 52,541 | 34,833 | 8,324 | 38 | 43,195 |
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 third quarter of 2024 increased by $180 million to $2.4 billion compared to the second quarter of 2024. The net increase was due to an additional $395 million attributable to the 22% increase in our combined volumes sold due primarily to the Endeavor Acquisition, which was partially offset by a $215 million decrease attributable to lower average prices received primarily for our oil, and to a lesser extent our natural gas and natural gas liquids production.
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 September 30, 2024 and June 30, 2024:
| Three Months Ended | |||||||||||
| (In millions) | September 30, 2024 | June 30, 2024 | |||||||||
| Sales of purchased oil | $ | 282 | $ | 300 | |||||||
| Purchased oil expense | 280 | 299 | |||||||||
| Net sales of purchased oil | $ | 2 | $ | 1 |
Other Revenues. The following table presents other insignificant revenue for the three months ended September 30, 2024 and June 30, 2024:
| Three Months Ended | |||||||||||
| (In millions) | September 30, 2024 | June 30, 2024 | |||||||||
| Other operating income | $ | 9 | $ | 9 |
Lease Operating Expenses. The following table shows lease operating expenses for the three months ended September 30, 2024 and June 30, 2024:
| Three Months Ended | |||||||||||||||||||||||
| September 30, 2024 | June 30, 2024 | ||||||||||||||||||||||
| (In millions, except per BOE amounts) | Amount | Per BOE | Amount | Per BOE | |||||||||||||||||||
| Lease operating expenses | $ | 316 | $ | 6.01 | $ | 254 | $ | 5.88 |
Lease operating expenses increased in total and on a per BOE basis for the third quarter of 2024 compared to the second quarter of 2024 primarily due to (i) a $38 million increase attributable to wells acquired as part of the Endeavor Acquisition, (ii) a $12 million increase in workover expense in the third quarter of 2024, (iii) a $9 million increase from higher legacy production volumes, and (iv) insignificant electrical generation and winterization costs.
Production and Ad Valorem Tax Expense. The following table shows production and ad valorem tax expense for the three months ended September 30, 2024 and June 30, 2024:
| Three Months Ended | |||||||||||||||||||||||||||||||||||
| September 30, 2024 | June 30, 2024 | ||||||||||||||||||||||||||||||||||
| (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 | $ | 109 | $ | 2.07 | 4.6 | % | $ | 103 | $ | 2.38 | 4.7 | % | |||||||||||||||||||||||
| Ad valorem taxes | 44 | 0.84 | 1.9 | 38 | 0.88 | 1.8 | |||||||||||||||||||||||||||||
| Total production and ad valorem expense | $ | 153 | $ | 2.91 | 6.5 | % | $ | 141 | $ | 3.26 | 6.5 | % |
In general, production taxes are directly related to production revenues and are based upon current year commodity prices. Production taxes as a percentage of oil, natural gas and natural gas liquids revenue remained consistent from the second quarter of 2024 to the third quarter of 2024.
Ad valorem taxes are based, among other factors, on property values driven by prior year commodity prices. Ad valorem taxes remained relatively consistent in total and per BOE during the third quarter of 2024 compared to the second quarter of 2024.
Gathering, Processing and Transportation Expense. The following table shows gathering, processing and transportation expense for the three months ended September 30, 2024 and June 30, 2024:
| Three Months Ended | |||||||||||||||||||||||
| September 30, 2024 | June 30, 2024 | ||||||||||||||||||||||
| (In millions, except per BOE amounts) | Amount | Per BOE | Amount | Per BOE | |||||||||||||||||||
| Gathering, processing and transportation | $ | 102 | $ | 1.94 | $ | 82 | $ | 1.90 |
The increase in gathering, processing and transportation expenses is primarily attributable to the growth in production volumes in the third quarter of 2024 compared to the second quarter of 2024.
Depreciation, Depletion, Amortization and Accretion. The following table provides the components of our depreciation, depletion, amortization and accretion expense for the three months ended September 30, 2024 and June 30, 2024:
| Three Months Ended | |||||||||||
| (In millions, except BOE amounts) | September 30, 2024 | June 30, 2024 | |||||||||
| Depletion of proved oil and natural gas properties | $ | 721 | $ | 465 | |||||||
| Depreciation and amortization of other property and equipment | 13 | 11 | |||||||||
| Other amortization | 2 | 2 | |||||||||
| Asset retirement obligation accretion | 6 | 5 | |||||||||
| Depreciation, depletion, amortization and accretion | $ | 742 | $ | 483 | |||||||
| Oil and natural gas properties depletion rate per BOE | $ | 13.72 | $ | 10.77 | |||||||
| Depreciation, depletion, amortization and accretion per BOE | $ | 14.12 | $ | 11.18 |
The increase in depletion of proved oil and natural gas properties of $256 million for the third quarter of 2024 compared to the second quarter of 2024 consists primarily of (i) $155 million due to an increase in the depletion rate, and (ii) $101 million from the growth in production volumes. The increase in depletion rate was due primarily to the addition of proved properties acquired in the Endeavor Acquisition and to a lesser extent, the Viper Q&M Acquisitions.
General and Administrative Expenses. The following table shows general and administrative expenses for the three months ended September 30, 2024 and June 30, 2024:
| Three Months Ended | |||||||||||||||||||||||
| September 30, 2024 | June 30, 2024 | ||||||||||||||||||||||
| (In millions, except per BOE amounts) | Amount | Per BOE | Amount | Per BOE | |||||||||||||||||||
| General and administrative expenses | $ | 33 | $ | 0.63 | $ | 27 | $ | 0.63 | |||||||||||||||
| Non-cash stock-based compensation | 16 | 0.30 | 19 | 0.44 | |||||||||||||||||||
| Total general and administrative expenses | $ | 49 | $ | 0.93 | $ | 46 | $ | 1.07 |
Other Operating Costs and Expenses. The following table shows other operating costs and expenses for the three months ended September 30, 2024 and June 30, 2024:
| Three Months Ended | |||||||||||
| (In millions) | September 30, 2024 | June 30, 2024 | |||||||||
| Merger and integration expenses | $ | 258 | $ | 3 | |||||||
| Other operating expenses | $ | 35 | $ | 19 |
Merger and integration expenses for the third quarter of 2024 include (i) approximately $171 million in severance and accelerated incentive compensation payments to former Endeavor employees, (ii) approximately $78 million in investment banking and legal costs incurred upon the closing of the Endeavor Acquisition, and (iii) other individually insignificant items including SEC filing fees and other professional fees. See Note 5—Endeavor Energy Resources, LP Acquisition of the condensed notes to the consolidated financial statements for further details regarding the Endeavor Acquisition.
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 September 30, 2024 and June 30, 2024:
| Three Months Ended | |||||||||||
| (In millions) | September 30, 2024 | June 30, 2024 | |||||||||
| Gain (loss) on derivative instruments, net(1) | $ | 131 | $ | 18 | |||||||
| Net cash received (paid) on settlements(1) | $ | (4) | $ | (28) |
(1)The three months ended September 30, 2024 includes cash paid on interest rate swaps terminated prior to their contractual maturity of $37 million.
The change in gain (loss) on derivative instruments for the third quarter of 2024 compared to the second quarter of 2024 primarily reflects (i) a net increase in the value of interest rate swaps of $53 million due primarily to a decrease in future SOFR rates, (ii) a net increase in the value of our commodity contracts of $36 million due to changes in commodity futures pricing compared to our contract prices, (iii) a net $15 million decrease in cash paid on the settlement and early termination of interest rate derivatives, and (iv) an increase of $9 million in cash received primarily on settlements of natural gas contracts.
See Note 13—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 September 30, 2024 and June 30, 2024:
| Three Months Ended | |||||||||||
| (In millions) | September 30, 2024 | June 30, 2024 | |||||||||
| Interest expense, net | $ | (18) | $ | (44) | |||||||
| Other income (expense), net | $ | 89 | $ | 1 | |||||||
| Income (loss) from equity investments, net | $ | 6 | $ | 15 |
The decrease in interest expense, net for the third quarter of 2024 compared to the second quarter of 2024 primarily consists of (i) a $25 million increase in capitalized interest costs, which reduces interest expense, and (ii) an $18 million decrease in debt amortization costs primarily due to expensing costs associated with the Company’s terminated Bridge Facility
during the second quarter of 2024. These decreases were partially offset by (i) an additional $15 million in interest expense on senior notes due to the April 2024 Notes being outstanding for the full third quarter of 2024, (ii) a $5 million increase in interest expense related to the Company’s draws on its Tranche A Loans and revolving credit facility during the third quarter of 2024, and (ii) other individually insignificant changes.
See Note 9—Debt of the condensed notes to the consolidated financial statements for further details regarding outstanding borrowings.
The increase in other income (expense), net for the third quarter of 2024 compared to the second quarter of 2024 is primarily attributable to a gain recorded on the WTG Midstream Transaction of approximately $76 million during the third quarter of 2024.
See Note 4—Acquisitions and Divestitures of the condensed notes to the consolidated financial statements for further details regarding the Company’s divestiture activity.
Provision for (Benefit from) Income Taxes. The following table shows the provision for (benefit from) income taxes for the three months ended September 30, 2024 and June 30, 2024:
| Three Months Ended | |||||||||||
| (In millions) | September 30, 2024 | June 30, 2024 | |||||||||
| Provision for (benefit from) income taxes | $ | 210 | $ | 252 |
The change in our income tax provision for the third quarter of 2024 compared to the second quarter of 2024 was primarily due to the decrease in pre-tax income between the periods which resulted largely from changes in revenues and operating expenses as discussed above. See Note 12—Income Taxes of the condensed notes to the consolidated financial statements for further discussion of our income tax expense.
Comparison of the Nine Months Ended September 30, 2024 and 2023
The following table sets forth selected operating data for the nine months ended September 30, 2024 and 2023:
| Nine Months Ended September 30, | |||||||||||
| 2024 | 2023 | ||||||||||
| Revenues (In millions): | |||||||||||
| Oil sales | $ | 6,025 | $ | 5,359 | |||||||
| Natural gas sales | 38 | 197 | |||||||||
| Natural gas liquid sales | 566 | 507 | |||||||||
| Total oil, natural gas and natural gas liquid revenues | $ | 6,629 | $ | 6,063 | |||||||
| Production Data: | |||||||||||
| Oil (MBbls) | 79,540 | 71,052 | |||||||||
| Natural gas (MMcf) | 168,431 | 147,620 | |||||||||
| Natural gas liquids (MBbls) | 30,085 | 25,201 | |||||||||
| Combined volumes (MBOE)(1) | 137,697 | 120,856 | |||||||||
| Daily oil volumes (BO/d) | 290,292 | 260,264 | |||||||||
| Daily combined volumes (BOE/d) | 502,544 | 442,696 | |||||||||
| Average Prices: | |||||||||||
| Oil ($ per Bbl) | $ | 75.75 | $ | 75.42 | |||||||
| Natural gas ($ per Mcf) | $ | 0.23 | $ | 1.33 | |||||||
| Natural gas liquids ($ per Bbl) | $ | 18.81 | $ | 20.12 | |||||||
| Combined ($ per BOE) | $ | 48.14 | $ | 50.17 | |||||||
| Oil, hedged ($ per Bbl)(2) | $ | 74.86 | $ | 74.41 | |||||||
| Natural gas, hedged ($ per Mcf)(2) | $ | 0.96 | $ | 1.54 | |||||||
| Natural gas liquids, hedged ($ per Bbl)(2) | $ | 18.81 | $ | 20.12 | |||||||
| Average price, hedged ($ per BOE)(2) | $ | 48.53 | $ | 49.83 |
(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 nine months ended September 30, 2024 and 2023:
| Nine Months Ended September 30, | |||||||||||
| 2024 | 2023 | ||||||||||
| Oil (MBbls) | 58 | % | 59 | % | |||||||
| Natural gas (MMcf) | 20 | 20 | |||||||||
| Natural gas liquids (MBbls) | 22 | 21 | |||||||||
| 100 | % | 100 | % |
| Nine Months Ended September 30, 2024 | Nine Months Ended September 30, 2023 | ||||||||||||||||||||||||||||||||||||||||||||||
| Midland Basin | Delaware Basin | Other | Total | Midland Basin | Delaware Basin | Other | Total | ||||||||||||||||||||||||||||||||||||||||
| Production Data: | |||||||||||||||||||||||||||||||||||||||||||||||
| Oil (MBbls) | 65,741 | 13,722 | 77 | 79,540 | 55,648 | 15,360 | 44 | 71,052 | |||||||||||||||||||||||||||||||||||||||
| Natural gas (MMcf) | 128,978 | 39,033 | 420 | 168,431 | 103,724 | 43,716 | 180 | 147,620 | |||||||||||||||||||||||||||||||||||||||
| Natural gas liquids (MBbls) | 24,008 | 6,043 | 34 | 30,085 | 18,889 | 6,303 | 9 | 25,201 | |||||||||||||||||||||||||||||||||||||||
| Total (MBOE) | 111,245 | 26,271 | 181 | 137,697 | 91,824 | 28,949 | 83 | 120,856 |
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 nine months ended September 30, 2024 increased by $566 million, or 9%, to $6.6 billion from the same period in 2023 primarily due to an increase of $766 million attributable to the 14% growth in our combined volumes, which was partially offset by a $200 million net decrease attributable to lower average prices received for our natural gas and natural gas liquids production.
Approximately 47% of the increase in production is attributable to the Endeavor Acquisition and 14% is attributable to Viper’s GRP Acquisition. The remainder of the production 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 nine months ended September 30, 2024 and 2023:
| Nine Months Ended September 30, | |||||||||||
| (In millions) | 2024 | 2023 | |||||||||
| Sales of purchased oil | $ | 698 | $ | 59 | |||||||
| Purchased oil expense | 696 | 59 | |||||||||
| Net sales of purchased oil | $ | 2 | $ | — |
Other Revenues. The following table shows the other insignificant revenues for the nine months ended September 30, 2024 and 2023:
| Nine Months Ended September 30, | |||||||||||
| (In millions) | 2024 | 2023 | |||||||||
| Other operating income | $ | 28 | $ | 62 |
The decrease in other operating income for the nine months ended September 30, 2024 compared to the same period in 2023 primarily resulted from a reduction in revenue from midstream services due to the sale of the Deep Blue Water Assets in the third quarter of 2023.
Lease Operating Expenses. The following table shows lease operating expenses for the nine months ended September 30, 2024 and 2023:
| Nine Months Ended September 30, | |||||||||||||||||||||||
| 2024 | 2023 | ||||||||||||||||||||||
| (In millions, except per BOE amounts) | Amount | Per BOE | Amount | Per BOE | |||||||||||||||||||
| Lease operating expenses | $ | 825 | $ | 5.99 | $ | 618 | $ | 5.11 |
Lease operating expenses increased in total and on a per BOE basis for the nine months ended September 30, 2024 compared to the same period in 2023 primarily due to (i) $74 million of additional costs incurred for water services as a result of divesting the Deep Blue Water Assets in the third quarter of 2023, (ii) $46 million due to an increase in legacy production volumes, (iii) a $38 million increase attributable to wells acquired as part of the Endeavor Acquisition, (iv) a $30 million increase in workover expense, (v) $14 million in increased spend on electrical generation, and (vi) other individually insignificant changes.
Production and Ad Valorem Tax Expense. The following table shows production and ad valorem tax expense for the nine months ended September 30, 2024 and 2023:
| Nine Months Ended September 30, | |||||||||||||||||||||||||||||||||||
| 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 | $ | 294 | $ | 2.14 | 4.4 | % | $ | 287 | $ | 2.37 | 4.7 | % | |||||||||||||||||||||||
| Ad valorem taxes | 119 | 0.86 | 1.8 | 134 | 1.11 | 2.2 | |||||||||||||||||||||||||||||
| Total production and ad valorem expense | $ | 413 | $ | 3.00 | 6.2 | % | $ | 421 | $ | 3.48 | 6.9 | % |
In general, production taxes are directly related to production revenues and are based upon current year commodity prices. Production taxes as a percentage of oil, natural gas and natural gas liquids revenue 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.
Ad valorem taxes are based, among other factors, on property values driven by prior year commodity prices. Ad valorem taxes for the nine months ended September 30, 2024 as compared to the same period in 2023 decreased by $15 million, primarily due to a reduction in our expected ad valorem tax rates for 2024 compared to the expected rates during the nine months ended 2023.
Gathering, Processing and Transportation Expense. The following table shows gathering, processing and transportation expense for the nine months ended September 30, 2024 and 2023:
| Nine Months Ended September 30, | |||||||||||||||||||||||
| 2024 | 2023 | ||||||||||||||||||||||
| (In millions, except per BOE amounts) | Amount | Per BOE | Amount | Per BOE | |||||||||||||||||||
| Gathering, processing and transportation | $ | 261 | $ | 1.90 | $ | 209 | $ | 1.73 |
The increase in gathering, processing and transportation expenses for the nine months ended September 30, 2024 compared to the same period in 2023 is attributable to (i) a $29 million increase from the growth in production volumes discussed above, and (ii) a $17 million increase due to contractual pricing increases on our gathering, processing and transportation costs, and (iii) an additional $5 million in shortfall penalties related to certain minimum volume commitments.
Depreciation, Depletion, Amortization and Accretion. The following table provides the components of our depreciation, depletion, amortization and accretion expense for the nine months ended September 30, 2024 and 2023:
| Nine Months Ended September 30, | |||||||||||
| (In millions, except BOE amounts) | 2024 | 2023 | |||||||||
| Depletion of proved oil and natural gas properties | $ | 1,638 | $ | 1,217 | |||||||
| Depreciation and amortization of other property and equipment | 36 | 45 | |||||||||
| Other amortization | 6 | 2 | |||||||||
| Asset retirement obligation accretion | 14 | 13 | |||||||||
| Depreciation, depletion, amortization and accretion | $ | 1,694 | $ | 1,277 | |||||||
| Oil and natural gas properties depletion rate per BOE | $ | 11.90 | $ | 10.07 | |||||||
| Depreciation, depletion, amortization and accretion per BOE | $ | 12.30 | $ | 10.57 |
The increase in depletion of proved oil and natural gas properties of $421 million for the nine months ended September 30, 2024 as compared to the same period in 2023 consists primarily of (i) $252 million due to an increase in the depletion rate resulting largely from the addition of leasehold costs and reserves from the Endeavor Acquisition and to a lesser extent, Viper’s GRP Acquisition and the Viper Q&M Acquisitions, and (ii) $169 million from the growth in production volumes.
General and Administrative Expenses. The following table shows general and administrative expenses for the nine months ended September 30, 2024 and 2023:
| Nine Months Ended September 30, | |||||||||||||||||||||||
| 2024 | 2023 | ||||||||||||||||||||||
| (In millions, except per BOE amounts) | Amount | Per BOE | Amount | Per BOE | |||||||||||||||||||
| General and administrative expenses | $ | 92 | $ | 0.67 | $ | 71 | $ | 0.59 | |||||||||||||||
| Non-cash stock-based compensation | 49 | 0.36 | 40 | 0.33 | |||||||||||||||||||
| Total general and administrative expenses | $ | 141 | $ | 1.03 | $ | 111 | $ | 0.92 |
General and administrative expenses increased for the nine months ended September 30, 2024 compared to the same period in 2023 primarily due to (i) a $13 million increase in employee compensation and benefit costs related to increasing headcount and annual compensation adjustments, (ii) a $9 million increase in stock-based compensation, and (iii) a $5 million increase in charitable contributions, and (iv) offsetting changes in other individually insignificant items.
Other Operating Costs and Expenses. The following table shows the other operating costs and expenses for the nine months ended September 30, 2024 and 2023:
| Nine Months Ended September 30, | |||||||||||
| (In millions) | 2024 | 2023 | |||||||||
| Merger and integration expenses | $ | 273 | $ | 11 | |||||||
| Other operating expenses | $ | 68 | $ | 113 |
Merger and integration expenses for the nine months ended September 30, 2024 include costs incurred in connection with the Endeavor Acquisition as discussed in the quarterly comparisons above.
See Note 5—Endeavor Energy Resources, LP Acquisition of the condensed notes to the consolidated financial statements for further details regarding the Endeavor Acquisition.
The decrease in other operating expenses for the nine months ended September 30, 2024 compared to the same period in 2023 primarily resulted from a $74 million reduction in midstream services costs due primarily to the sale of the Deep Blue Water Assets in the third quarter of 2023. This reduction was partially offset by a $22 million loss on the sale of property, plant and equipment in 2024 and other individually insignificant changes.
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 nine months ended September 30, 2024 and 2023:
| Nine Months Ended September 30, | |||||||||||
| (In millions) | 2024 | 2023 | |||||||||
| Gain (loss) on derivative instruments, net(1) | $ | 101 | $ | (358) | |||||||
| Net cash received (paid) on settlements(1) | $ | (36) | $ | (62) |
(1)The nine months ended September 30, 2024 includes cash paid on interest rate swaps terminated prior to their contractual maturity of $37 million.
The change from a loss to a gain on derivative instruments for the nine months ended September 30, 2024 compared to the same period in 2023 primarily reflects an increase in the value of both our natural gas and oil contracts due to a decrease in market prices for natural gas and oil compared to our contract prices and an increase in the value of our interest rate swap contracts primarily due to a decrease in future SOFR rates and the early termination of $300 million of the notional value of the interest rate swap contracts in 2024. See Note 13—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 nine months ended September 30, 2024 and 2023:
| Nine Months Ended September 30, | |||||||||||
| (In millions) | 2024 | 2023 | |||||||||
| Interest expense, net | $ | (101) | $ | (130) | |||||||
| Other income (expense), net | $ | 87 | $ | 61 | |||||||
| Gain (loss) on extinguishment of debt | $ | 2 | $ | (4) | |||||||
| Income (loss) from equity investments, net | $ | 23 | $ | 39 |
Interest expense, net decreased $29 million for the nine months ended September 30, 2024 compared to the same period in 2023. This decrease primarily consisted of (i) an increase in interest income of $142 million due to holding funds raised for the Endeavor Acquisition in cash in short-term interest bearing accounts, which reduces interest expense, (ii) an additional $66 million in capitalized interest costs, which reduce interest expense, and (iii) a decrease of $13 million in interest expense on our revolving credit facility due to lower average borrowings outstanding in 2024. These reductions were largely offset by (i) an increase of $156 million in interest expense on senior notes related primarily to the issuance of the April 2024 Notes and Viper’s 7.375% Senior Notes which were issued in the fourth quarter of 2023, and (ii) an increase of $35 million in amortization of debt issuance costs primarily related to our Bridge Facility, Term Loan Agreement and April 2024 Notes.
See Note 9—Debt of the condensed notes to the consolidated financial statements for further details regarding outstanding borrowings.
Other income (expense), net for the nine months ended September 30, 2024 includes a gain recorded on the WTG Midstream Transaction of approximately $76 million compared to the nine months ended September 30, 2023 including a $53 million gain on the sale of our 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 nine months ended September 30, 2024 and 2023:
| Nine Months Ended September 30, | |||||||||||
| (In millions) | 2024 | 2023 | |||||||||
| Provision for (benefit from) income taxes | $ | 685 | $ | 648 |
The change in our income tax provision for the nine months ended September 30, 2024 compared to the same period in 2023 was primarily due to the increase in pre-tax income resulting largely from higher revenues from oil and natural gas liquids, along with changes in operating expenses and other income (expenses) as discussed above. See Note 12—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 September 30, 2024, we had approximately $2.6 billion of liquidity consisting of $201 million in standalone cash and cash equivalents and $2.4 billion available under our credit facility. As of September 30, 2024, we have approximately $1.0 billion of Tranche A Loans maturing in the next 12 months.
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 13—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 nine months ended September 30, 2024 and 2023 are presented below:
| Nine Months Ended September 30, | |||||||||||
| 2024 | 2023 | ||||||||||
| (In millions) | |||||||||||
| Net cash provided by (used in) operating activities | $ | 4,072 | $ | 4,296 | |||||||
| Net cash provided by (used in) investing activities | (9,366) | (1,859) | |||||||||
| Net cash provided by (used in) financing activities | 5,082 | (1,771) | |||||||||
| Net increase (decrease) in cash | $ | (212) | $ | 666 |
Operating Activities
The decrease in operating cash flows for the nine months ended September 30, 2024 compared to the same period in 2023 primarily resulted from (i) an increase in our cash operating expenses, excluding purchased oil expense, of approximately $489 million related primarily to merger and integration costs incurred in the Endeavor Acquisition and additional lease operating expenses, (ii) a reduction of approximately $408 million due to fluctuations in other working capital balances due primarily to the timing of when collections were made on accounts receivable, payments made on accounts payable and the payment of accrued capital expenditures acquired from Endeavor, and (iii) an increase of $46 million in cash paid for interest, net of capitalized interest. These were partially offset by (i) an increase of $532 million in total revenue, excluding sales of purchased oil, (ii) an additional $142 million in interest income, and (iii) a reduction of $26 million in cash paid on settlements of derivatives. 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 nine months ended September 30, 2024 and 2023 was for the acquisition of properties and equipment including the Endeavor Acquisition in the third quarter of 2024 and the Lario Acquisition in the first quarter of 2023 as well as drilling and completion costs incurred in conjunction with our development program.
Capital Expenditure Activities
Our capital expenditures excluding acquisitions and equity method investments (on a cash basis) were as follows for the specified period:
| Nine Months Ended September 30, | |||||||||||
| 2024 | 2023 | ||||||||||
| (In millions) | |||||||||||
| Drilling, completions and non-operated additions to oil and natural gas properties(1) | $ | 1,798 | $ | 1,826 | |||||||
| Infrastructure additions to oil and natural gas properties | 128 | 122 | |||||||||
| Additions to midstream assets | 8 | 104 | |||||||||
| Total | $ | 1,934 | $ | 2,052 |
(1) See “—Transactions and Recent Developments—Upstream Operations” above for additional detail on wells drilled and turned to production during the three and nine months ended September 30, 2024 and 2023.
Financing Activities
During the nine months ended September 30, 2024, net cash provided by financing activities was primarily attributable to $5.5 billion of proceeds from the issuance of the April 2024 Notes, $1.0 billion in borrowings under the Tranche A Loans, $476 million in proceeds from the Viper 2024 Equity Offering and $451 million in proceeds from the sale of our shares of Viper’s Class A common stock. These cash inflows were partially offset by (i) $1.3 billion of dividends paid to stockholders, (ii) $557 million of repurchases as part of the share repurchase program, (iii) $157 million in dividends paid to non-controlling interest, (iv) $148 million in repayments on our credit facilities, net of borrowings, (v) $95 million of debt issuance costs
primarily associated with the April 2024 Notes, Term Loan Agreement and Bridge Facility, and (vi) $37 million in cash paid for tax withholdings on vested employee stock awards.
During the nine months ended September 30, 2023, net cash used in financing activities was primarily attributable to (i) $776 million of repurchases as part of the share and unit repurchase programs, (ii) $841 million of dividends paid to stockholders, (iii) $134 million paid for the retirement of principal outstanding on certain senior notes, and (iv) $84 million in distributions to non-controlling interest. These cash outflows were partially offset by an additional $98 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. In September, we received an upgrade from two of the three major ratings agencies in the U.S., as Standard and Poor’s Global Ratings Services upgraded us to BBB from BBB- and Fitch Investor Services upgraded us to BBB+ from BBB. 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 September 30, 2024, our debt, including the debt of Viper, consisted of approximately $12.0 billion in aggregate outstanding principal amount of senior notes, $1.0 billion in aggregate outstanding borrowings under the Tranche A Loans of our Term Loan Agreement and $115 million in aggregate outstanding borrowings under revolving credit facilities.
As of September 30, 2024, the maximum credit amount available under our credit agreement was $2.5 billion, with $115 million of outstanding borrowings and $2.4 billion available for future borrowings. Our credit agreement matures on June 2, 2028, and we have a further one-year extension available pursuant to the terms set forth in the credit agreement.
On August 2, 2024, we terminated our undrawn Tranche B Loans under the Term Loan Agreement.
Viper LLC’s Credit Agreement
The Viper LLC 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 September 30, 2024, the Viper LLC credit agreement had no outstanding borrowings and $850 million available for future borrowings.
On October 1, 2024, Viper completed the Viper TWR Acquisition as discussed in Note 17—Subsequent Events of the condensed notes to the consolidated financial statements. Approximately $280 million of the cash consideration for this transaction was funded through borrowings under the Viper LLC credit agreement, reducing the amount that remained available for future borrowings under this facility to $570 million as of October 1, 2024.
For additional discussion of our debt as of September 30, 2024, see Note 9—Debt of the condensed notes to the consolidated financial statements.
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, Tranche A Loans and senior notes, (iii) payments of other contractual obligations, and (iv) cash used to pay for dividends and repurchases of securities.
2024 Capital Spending Plan
Our board of directors has approved an increase to our 2024 capital budget for drilling, midstream, infrastructure and environmental expenditures, which takes into account the Endeavor Acquisition. Our revised capital budget for the full year 2024 is approximately $2.88 billion to $3.00 billion and for the fourth quarter 2024 is approximately $950 million to $1.05 billion. In the fourth quarter of 2024, we estimate we will drill 105 to 125 gross (100 to 118 net) horizontal wells and complete 110 to 130 gross (102 to 120 net) horizontal wells across our operated and non-operated leasehold acreage in the Northern Midland and Southern Delaware Basins.
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 20 drilling rigs and five 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 9—Debt. As a result, we expect to incur additional future cash interest costs on the April 2024 Notes of approximately $130 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% (down from 75%) of free cash flow to our stockholders 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 October 31, 2024, our board of directors declared a base cash dividend for the third quarter of 2024 of $0.90 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.
On September 18, 2024, our board of directors approved an increase in our common stock repurchase program from $4.0 billion to $6.0 billion, excluding excise tax. Since the inception of the stock repurchase program, we repurchased an aggregate of 23.3 million shares of our common stock for a total cost of $3.1 billion, excluding excise tax, as of November 1, 2024. Subject to regulatory restrictions and other factors discussed elsewhere in this report, 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 10—Stockholders' Equity and Earnings (Loss) Per Share 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.
| September 30, 2024 | December 31, 2023 | ||||||||||
| Summarized Balance Sheets: | (In millions) | ||||||||||
| Assets: | |||||||||||
| Current assets | $ | 679 | $ | 1,269 | |||||||
| Property and equipment, net | $ | 21,052 | $ | 20,780 | |||||||
| Other noncurrent assets | $ | 57 | $ | 28 | |||||||
| Liabilities: | |||||||||||
| Current liabilities | $ | 2,877 | $ | 1,974 | |||||||
| Intercompany accounts payable, non-guarantor subsidiary | $ | 1,985 | $ | 2,217 | |||||||
| Long-term debt | $ | 11,087 | $ | 5,544 | |||||||
| Other noncurrent liabilities | $ | 3,010 | $ | 2,835 |
| Nine Months Ended September 30, 2024 | |||||
| Summarized Statement of Operations: | (In millions) | ||||
| Revenues | $ | 5,379 | |||
| Income (loss) from operations | $ | 2,009 | |||
| Net income (loss) | $ | 1,449 |
Critical Accounting Estimates
There have been no changes in our critical accounting estimates from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 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.
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