On Tuesday, Diamondback Energy (NASDAQ:FANG) discussed first-quarter financial results during its earnings call. The full transcript is provided below.
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Summary
Diamondback Energy announced a shift to a 'green light' framework, adding 2-3 rigs and a fifth completion crew to increase production in response to market conditions.
The company plans to maintain its capital efficiency while slightly increasing production, with a focus on the Permian Basin due to the global oil supply disruption.
Diamondback Energy aims to pay down debt rapidly, potentially reaching a net debt of $10 billion earlier than anticipated, with plans to call $750 million of 2026s by year-end.
Despite increasing activity, the company's reinvestment rate is expected to fall from 44% to 34%, with a focus on maintaining capital efficiency and shareholder returns.
Management highlighted strong operational performance and well productivity, with improvements in completion design and production efficiencies contributing to a robust Q1 production performance.
Full Transcript
OPERATOR
Good day and thank you for standing by. Welcome to the Diamondback Energy first quarter 2026 conference call. At this time, all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising that your hand is raised to withdraw your question. Please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Adam Lawless, VP of Investor Relations. Please go ahead.
Adam Lawless (VP of Investor Relations)
Thank you. Corey. Good morning and welcome to Diamondback Energy's first quarter 2026 conference call. During our call today, we will reference an updated investor presentation and letter to stockholders which can be found on Diamondback's website. Representing Diamondback today are Kate Spantoff, CEO, Danny Wesson, COO, Jerry Thompson, CFO and Al Barkman, Chief Engineer. During this conference call, the participants may make certain forward looking statements relating to the company's financial condition, results of operations, plans, objectives, future performance and businesses. We caution you that actual results could differ materially from those that are indicated in these forward looking statements due to a variety of factors. Information concerning these factors can be found in the company's filings with the SEC. In addition, we will make reference to certain non GAAP measures. The reconciliations with the appropriate GAAP measures can be found in our earnings release issued yesterday afternoon. I'll now turn the call over to Kate.
Kate Spantoff (CEO)
Thanks, Adam and welcome everyone. As with the last few years, we're going to go straight into Q&A. So operator, please open the line for questions.
OPERATOR
Thank you very much. One moment. As a reminder to ask a question, you can press star11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q and A roster. Our first question comes from the line of Neil Mehta of Goldman Sachs. Neil, your line is open.
Neil Mehta (Equity Analyst)
Yeah. Good morning, Case. And good morning, team. So I guess the big development here today that you've been signaling is the move to a green light framework from yellow light, adding the two to three rigs and moving to the fifth completion crew. So Case, maybe you just take a moment for the investors online to talk about the thought process that went into this decision and just how you're thinking about where and when to add activity.
Kate Spantoff (CEO)
Yeah, Neil, I mean, it's a good question. You know, I think there's some macro elements as well. As some micro elements and we'll go through both of those. You know, I think, I think from a macro perspective, you know, obviously there's a clear market signal. You know, we're two months into the world's largest oil supply disruption in history. And you know, I think, you know, Diamondback and Diamondback shareholders very fortunate that, you know, we're solely based in West Texas. We're kind of, kind of tourists in this, in this situation. But it's obviously a very serious situation with, you know, a lot of oil supply off the market. And so, you know, if that isn't a signal to grow production and an advantaged area like the Permian basin, then I don't know what is. And we hope there's a resolution to the conflict. But even if there is, there's a lot of noise in the system and a lot of barrels that have been taken off the market. So that's kind of the macro signal that we've been looking at as a board and a management team. Obviously, global inventories are starting to decline very rapidly and we're going to do our small part to add some production into the mix. And then you go down to the micro level or the Diamondback level. I mean, listen, with the best inventory quality and depth in North America being executed at the best cost structure, if this isn't the time to grow now, then I don't know when is. And you know, so that decision at a micro level was, you know, honestly fairly easy. And you know, I think the last piece about it is, you know, we're able to do this in a very capital efficient manner and get it done very quickly. You know, because we have this backlog of ducks and we, you know, prepare our business for, you know, up, down or sideways, you know, we're able to just make one decision and add a frac crew crew a lot earlier in the year and get that production up immediately. So I think it's a testament to the team's preparation. You know, everybody in the organization working together and being able to do this very, very quickly. Whereas I think in other organizations it might take a little longer to make that decision.
Neil Mehta (Equity Analyst)
Thanks, Case. And then the follow up is just on the return of capital framework. You didn't move away from the fixed framework while you bumped the dividend. You indicated that you might be slowing down the buyback a little bit. So can you talk a little bit about that, what you intended to communicate with that? And then there is a very concentrated ownership base here. And if the family ultimately is going to sell into the market or sell, sell down their stake. Do you still view Diamondback as a logical buyer to help offset that potential risk on the stock?
Kate Spantoff (CEO)
Yeah, I mean, listen, let's take it a little higher level, right? I mean, I think allocating capital is the most important job we have to do as a management team. And the history of the return of capital program for both ourselves and the industry was put in place after the COVID near extinction event of the industry. And investors said, hey, I want my money back and I want it in a formulaic manner. And I think that's worked very, very well over the last few years. And I don't expect our ability to return capital to stockholders to change. We just want the flexibility to make more cyclical moves versus, you know, moves within a 90 day window, within a quarter. So, you know, we have a really, really good track record of buying back our own stock. We bought back 42 million shares for $6 billion to date at $148 a share. You know, clearly with the stock where it is today, that's a very positive rate of return for our stockholders and I expect that to continue. You know, we recognize we also have a large shareholder that we found a way to help monetize their stake in a very efficient manner. And I think outside of their state, they're most focused on us creating long term value and allocating a ton of free cash to the balance sheet in times of extremely high oil prices does create long term value with in our mind a higher floor for the stock long term. So I wouldn't expect anything to change. We have a great relationship with the family. I think we have the ability to help them monetize. And if we use kind of excess free cash flow over the next couple quarters to pay down debt, we can help monetize their stake actually more efficiently coming out of this. They're long term holders and they want the stock higher.
Neil Mehta (Equity Analyst)
That makes sense. Thank you, Kay.
Kate Spantoff (CEO)
Thanks Neil.
OPERATOR
Thank you very much. Our next question comes from the line of Scott Hanold of RBC Capital Markets. Scott, your line is open.
Scott Hanold (Equity Analyst)
Yes. thanks. You all had some pretty robust production performance in 1Q. And based on our chat last night, it sounds like your completions were as planned. Can you just walk through some specifics why performance was so strong? It sounds like it was a lot more, well, performance just versus any other kind of dynamic. Just give us a little bit of color on that end. And is that something we should anticipate moving forward and what's embedded in guidance?
Kate Spantoff (CEO)
Yes, Scott, I'll give a couple high level and then let Danny talk about some of the details. But high level, our well performance year to date looks up relative to last year. I think that is probably a surprise even to us internally. But we've always continued to try new things in terms of completion design and efficiency that I think is starting to pay dividends. So I think that's, you know, that's helping. That's one thing. I think the other side of the business, the production side of the business, which we've been talking a lot about over the last couple quarters, there's just kind of a lot of good things happening in the field in terms of less downtime, more automation, call it AI, call it automation, impacting that side of the business. So I think better wells and lower downtime, that's a good recipe for production beat.
Danny Wesson (COO)
Yeah Scott, you know, Case alluded to it, but we, you know, post the Endeavor merger and getting the teams together, we started trading a lot of ideas on what we were doing to really optimize, you know, primary completions as well as the base. And we talked about it over the past few quarters. But some of the things we're seeing on the completion optimization side with, you know, perforating strategies, you know, rain design and sand loadings, we think we're seeing some uplift in the wells and time will tell as we continue to implement that completion design. But also on the production side, some of the stuff we're doing on the workover side, some of the acid jobs, the chlorine dioxide jobs, the surfactant jobs, we're starting to see that pay dividends and really layering on that machine learning. As we continue to look at our data streams and processes and, and layered on machine learning and trying to start working towards implementing AI into our field operations, we're seeing that downtime come down and it's been a big part of the beat in Q1. Just really that little bits of optimization across the board starting to show through to the top line number.
Scott Hanold (Equity Analyst)
Great. And as my follow up, when you guided oil, you talked about it looked like you're incurring greater than potentially 520 a day. Can you just talk through if you continue to see this macro environment, how much desire is there to kind of continue to let that oil production grow versus curtail it? And is there a scenario where you'd actually even look to step it up even higher if the macro continues to be heightened?
Kate Spantoff (CEO)
Yeah, I mean it's a great question, Scott. I think it's kind of a, a Very fluid situation. And I think the boards wanted us to take this kind of quarter by quarter. Obviously, if there's outperformance and we still have triple digit oil prices and the market's still calling for oil to come to market, then I think this is a year where instead of pulling back activity, you kind of just keep the efficiencies going and production continuing to climb. But listen, it's going to be going to be fluid, right? We're only two months into this conflict and it could be resolved today. But you know, and who knows what happens to the macro. So I think we're just ready to react. We still have some things in our back pocket to grow further. But for now this kind of 520 plus thousand barrels a day on oil is the new baseline.
Scott Hanold (Equity Analyst)
Thank you.
OPERATOR
Thank you very much. Our next question comes from the line of Neil Dingman of William Blair. Neil, your line is open.
Neil Dingman (Equity Analyst)
Morning Kayes and teams. Thanks for fitting me in. My question is also on your activity, specifically Kayes, how much, if any will negative Waha prices impact, you know, what you might or might not do? And then same question with oil service prices and you know, maybe ask about are you expecting ofs inflation given what's going on with prices?
Kate Spantoff (CEO)
Yeah, Neil. I mean on the WAHA side, obviously the pricing is deeply negative. We're well protected with financial and physical hedges. Our mix of physical to financial is going to be moving more towards physical when these two new pipes come on, hopefully second half of the year. So I think we're pretty well protected to get through this tight spot from a financial perspective where we can continue to add oily inventory right where we're drilling some of the oiliest stuff in the basin. So I think we're pretty well protected there. We'll continue to work on our physical protection. On the gas side, we've worked on a power project now for almost a year and we'll see if we can get that done. But we talked at length about monetizing our gas and we're kind of on the cusp of that. That's starting to happen here when these pipes come on. But Danny, on the service side, what are you seeing?
Danny Wesson (COO)
Yeah, I mean, we hadn't really seen much pressure to date on the service inflation or service pricing side of the story. It's really a capacity question. And what does the service capacity look like? And haven't seen industry activity ramp aggressively through these first couple months of this conflict. And so there's still quite a bit of capacity out there in the rig. Space and in the completion space and, you know, the calendars are not squeezed enough yet for them, I feel like, to be able to push pricing onto the guys when they go out and, you know, look for this additional equipment. We have seen, obviously some inflation and some of the consumables, you know, and things that are tied directly to the commodity price, but those have been pretty minimal thus far. And we'll just have to see what activity does not only in the Permian, but in the lower 48 to see what we anticipate service inflation to do through the rest of the year.
Neil Dingman (Equity Analyst)
Thanks, Danny. And then second question just on capital allocation, especially given the continued record free cash flow growth per share you'll likely have. Kay is wondering specifically, how do you believe capital for MA stacks up, maybe against buybacks or simply the near term debt repayment? Do you factor that in or maybe just talk about capital allocation?
Kate Spantoff (CEO)
Yeah, I mean, Neil, I think my first day of my first finance job in New York City, I was asked the question, what can a company do with their free cash flow? And if we're going to go through all the options, you can grow, right? Either organically or inorganically. So organic growth, we've decided to hit that lever today in a small way by going to the top end of our capital expenditure guidance. Inorganic growth, which, you know, M&A. We've obviously been very, very good at M&A over the years. I think this volatility is kind of difficult to get deals done, you know, private or otherwise. So I think generally, you know, M&A is probably fairly quiet at Diamondback for the foreseeable future. Then you go down the other options of what you can do with your free cash. You can pay a base dividend, which we did and decided to increase today, or you can pay down debt, buy back shares, or you can just put the cash on the balance sheet. And I think with oil prices where they are, I don't know if investors are capitalizing this price environment yet today. And so for us, the bigger use of free cash is going to be to pay down debt rapidly and convert that debt value to equity value in our NAV and keep some cash for a rainy day because this is a very volatile environment and it can flip pretty quickly. Makes sense. Thanks, Kate.
OPERATOR
Thanks, Danny. Thanks, Neil.
Arun Jayram (Equity Analyst)
Thank you very much. Our next question comes from the line of Arun Jayram of JP Morgan Securities. Arun, your line is open. Yeah, Good morning, gentlemen. Case, the calendar 26 and 27 strips around 90 and 75. How do you think about your approach to development in a much stronger oil price than we sat, just call it 90 days ago. And I was wondering if you could just maybe highlight for the two to three incremental rigs, how are you thinking about capital allocation across your asset base and is the deeper benches now an area that are now competing with capital as you get down some of those well costs and the Barnett?
Kate Spantoff (CEO)
Yeah, I'll let Danny and Al talk about latest Barnett developments. But just from a capital allocation perspective, even with higher commodity pricing, we're still going to hold to the vast majority of our spacing assumptions throughout the basin. You know, we always kind of look at each project and that's kind of on a, on a DSU by DSU level basis and kind of say, hey, let's get as many wells in this section as possible to where the incremental well, the last well that we ADD generates a 40% rate of return at $60 oil. And so we think, you know, that provides prudent spacing but also a solid rate of return to our shareholders despite the commodity price volatility. So I think drilling our best stuff first and sticking to that knitting in terms of spacing is going to continue. Clearly the Barnett, particularly with the size of these wells from a production perspective, generates more PV today. So that's getting more attention. But Al, you want to give anything on the latest Barnett?
Al Barkman (Chief Engineer)
Yeah, I think that's right, Arun. I mean, you know, looking at the acceleration of the plan coming in with these two rigs, you know, really that's the acceleration of the Barnett plan and we're focused on that development and you know, really it's just kind of getting ahead of the Barnett obligations that we talked about last quarter.
Danny Wesson (COO)
Yes, and I'll just add that the Barnett activity and the obligation activity is almost entirely focused on the JV area that we have with another partner. And those wells are not as high a working interest. They're about half and half, a little bit heavier weighted on the Diamondback side. So the two or three rigs are picking up on the Barnett activity to get ahead on the JV area is really like one and a half net rigs to Diamondback. So while the top line looks like we're adding a bunch of activity in the back of the year net to us, it won't be nearly as impactful.
Arun Jayram (Equity Analyst)
Yeah, great. My follow up is maybe for Jerry, you guys have taken, call it pro forma, I believe, net debt down to $12.7 billion. Jerry, I was wondering if you could highlight, given the intention to pay down More debt in a higher commodity price environment. What are some of the targets you're looking for for the balance sheet from either a gross or a net debt perspective?
Jerry Thompson (CFO)
Yeah, Arun, great question. I think we've talked previously about hitting that 10 billion net debt figure sometime in the next 12 to 18 months. Obviously, with where we are from a commodity pricing standpoint and some excess free cash flow generation, it looks like we'll be able to hit that much earlier to the tune of a couple months from now. And then as we move into the back end of the year, I think we'll have an opportunity to not only reduce net debt, but but also gross debt. So likely build cash on the balance sheet through the fourth quarter. And then once we get into the fourth quarter, take a look at obviously calling our 750 million of 26s outstanding. And then as we move into 2027, take a look at maybe doing a larger liability management exercise with additional cash on the balance sheet, with the idea of trying to take out as much as we can from a near term maturity perspective, particularly as it relates to anything that matures prior to 2030. So I think we're in a really advantaged position to move our balance sheet from a position of strength to really kind of an adjective of fortress. And we can do that in the very near term.
OPERATOR
Great. Thank you.
John Freeman (Equity Analyst)
Thank you very much. Our next question comes from the line of John Freeman of Raymond James. John, your line is open. Thank you. Good morning, guys. You know, even after increasing activity, the reinvestment rate for you all still fell pretty sharply from what you all originally planning last quarter, from 44% to 34% at the current strip. So obviously you all had the ability, if you wanted to even increase activity more and still would have likely had kind of an industry leading, kind of low reinvestment rate. I know that returns ultimately drive y' all's decisions, but is there like a reinvestment rate that y' all just want to stay below, regardless of kind of the commodity environment?
Kate Spantoff (CEO)
Yeah, John, I mean, that's a good question. I mean, I think I'd probably take it a little different direction where, you know, obviously we've been pulling investors that, you know, that own the stock to get their opinion on how they feel about growth and ramping activity. And I think the general consensus was, yeah, I think a little growth in the plan will differentiate Diamondback and makes a lot of sense. I just don't want you to do it in a capital inefficient manner. And so if you think about what we're basically doing here, we were going to run somewhere between four and five frac crews in the model to hit our original guide. And, you know, that fifth frac crew was going to go away for five or six months and then come back. And, you know, it's a Halliburton E Fleet Simulfrac as efficient as it gets crew. And so we're just bringing that crew back and going to run the five crews essentially consistently. And I think that will ensure we maintain capital efficiency in the field versus trying to go two too fast too soon, you know, which sometimes has driven some inefficiencies in E P's plans and Diamondback's plans in years past. So I think, you know, trying to learn from, you know, the history of development in this basin, you know, staying capital efficient is probably the priority. And I think the reinvestment rate, you know, becomes the output of that.
John Freeman (Equity Analyst)
That's great. And then just along those same lines, I know the original 2026 plan didn't forecast sort of any meaningful, you know, duck draws or builds. Can you just give us a rough idea kind of how that that looks now with the. The new plan?
Kate Spantoff (CEO)
Yeah, it's kind of. It's kind of a. Kind of a story of through the year. Right. So. So we. We're going to draw down the ducks in Q2 and backfill that with two rigs worth of activity to make sure we build our duck balance back up. You know, we're. We're basically repeated a little over 200 ducks in Q1. You know, that number is going to come down over Q2, and then, you know, the backfill rigs start to start to build that back up. So in general, and Danny, you know, can opine, but, you know, we're going to have to keep a little bit higher duct balance than we would running four crews. Because we have, you know, we like to have two projects behind each crew ready to go because if something bad happens, then, you know, we just move to another project. And it looks like, you know, everything's going great at Diamondback on a quarterly basis. So probably need to maintain somewhere in the high hundreds around 200 ducs. And that's kind of where we are today. But there's going to be some movement throughout the year. Yeah, I mean, we like to keep
Danny Wesson (COO)
kind of a quarter to quarter and a half worth of inventory ahead of each crew just so that, you know, we can have flexibility if we run into an issue on a pad with takeaway constraints or something like that.
Kate Spantoff (CEO)
And so if you think about each of these crews will do about 100ish wells a year, maybe a little more. And so, you know, he hit the nail on the head. A couple hundred wells ahead of these five fleets is kind of the right carry number of the duct balance. But obviously the more efficient we get and the guys are always chasing the efficiency curve and you can see it in, I think it's a slide nine in our deck today, the improvement quarter over quarter. And as the crews get more efficient and get more wells done, it either means we got to release crews to keep the same well count or we got to build more ducts to stay ahead of them. So it's a dynamic and fluid situation. But I think we're talking about adding 20 to 30 wells for the year in total and still being able to stay within our original guidance window, which we took the momentum from Q1's beat and just kind of kept it going through the rest of the year.
John Freeman (Equity Analyst)
Thanks guys. Appreciate it.
Kate Spantoff (CEO)
Thanks, John.
OPERATOR
Thank you very much. Our next question comes from the line of Betty Jang of Barclays. Betty, your line is open.
Betty Jang (Equity Analyst)
Hi, good morning. Thank you for taking my question. I actually want to ask about your crude oil marketing. So 1Q pricing was a bit stronger. Can you just remind us your exposure to premium price indices and the marketing strategy in general on the oil side?
Kate Spantoff (CEO)
Yeah. From a strategy perspective, Betty, we learned from the kind of the Permian takeaway Crisis Was it 2018, that we needed to use our balance sheet to get our crude to the biggest markets. And you know, for us that was, you know, let's get more crude down to Corpus Christi and as well as Houston. And so we have, you know, if you remember, we invested in three pipelines, Epic, Gray Oak and Wink to Webster. All of which made our investors a lot of money but also protected Diamondback from a commercial perspective. So you know, we have about 300,000 barrels a day going down to Corpus on Epic and Grey Oak. And then we have about another hundred thousand a day going down Wink to Webster, you know, feeding kind of refinery row in Houston. And so we're kind of, you know, pretty exposed to, you know, call it, call it water based pricing. You know, even have one small contract that has some dated Brent exposure. So that's been really helping us out. And you know, I think that's a good playbook for what we're going to try to do on the gas side. Right. I think we're a little behind because oil is 90 plus percent of our revenue and we've Done a good job there. But the next trend is to improve that on the gas side.
Betty Jang (Equity Analyst)
Got it. That makes sense. And then I want to ask about the acquisition line item. In 1Q, there are just a few hundred million. Are you guys doing any organic acquisitions and and maybe picking up bolt on things that's at good pricing? Yes. Can you just speak to that? Yes.
Jerry Thompson (CFO)
Betty, this is Jerry. There's a couple of small acquisitions that are in our backyard in the Midland Basin. As a reminder, in that line item, we do have capitalized interest and capitalized gna and that made up the vast majority there. So that plus a couple of small acquisitions and then, you know, let's call it 50 to 75 million in leasehold bonus as well.
Betty Jang (Equity Analyst)
That's helpful. Thank you.
Jerry Thompson (CFO)
Thanks, Betty.
OPERATOR
Thank you very much. Our next question comes from the line of Philip Jungwirth of bmo. Philip, your line is open.
Philip Jungwirth (Equity Analyst)
Good morning. Can you talk about how you're viewing Viper ownership and what's optimal for Diamondback? Just because you did sell some in the quarter but still own 39%, the company's free cash flow outlook's obviously stronger, so less need for divestitures. But is there any minimum level of ownership you'd kind of look to maintain and how does that play into the overall capital allocation decisions?
Kate Spantoff (CEO)
Yeah, I mean, we did sell down a little bit of ownership in vipr. It was kind of a follow on from the dropdown where we took the Diamondback side, took a lot of stock from Viper in that deal. We could have probably taken more cash, but instead decided to wait and then sell a little bit here. Last quarter, I would say we're done selling Viper shares at Diamondback. I do think the growth opportunity set for Viper is pretty significant. So could there be a world where Diamondback's ownership is reduced through dilution? I think that's possible. But no desire today to monetize any more shares. I think if you just think about where both companies are going to be from a balance sheet perspective in another few months, they're going to be well positioned to kind of do anything from an M and A perspective. And that's where we wanted to be.
Philip Jungwirth (Equity Analyst)
Okay, great. And then in the 20, 22, 23 upcycle, private operators, they did drive an outsized share of rig additions. Overall oil growth. You guys have a unique view here, being based in Midland and just wondering how you characterize the ability of privates in the Permian to respond to what we're now seeing as far as higher oil prices versus a couple years ago just because it also has implications for tightening of OFS markets.
Kate Spantoff (CEO)
Yeah, that's a very important question. And it's gone into our calculus on thinking about the market and thinking about adding activity. If you go back to that 2022 upcycle, you had a company like Endeavour that's now part of Diamondback, they went from two rigs to 15 rigs. Crown Rock went from two rigs to eight rigs. That's now part of Oxy. NCAP north, which is now part of Oventa, went from two rigs to six rigs. Double Eagle, which is now part of us, a combination of us and Exxon went from one rig to six rigs. These were big moves on the private side. And back then there was still a lot of private activity growth, particularly in the Midland Basin that has now been consolidated. So I think there's going to be private growth. The private model has shifted to more of a smaller asset packages that they develop very, very quickly, farm into larger operators positions. You know, there's been a big growth in kind of that northern New Mexico area, but by our math, right, that's, that's 2030 rigs. It's not, it's not 100 rigs like it was in 2022. So I think they're going to move very quickly. I just don't think the volume impact will be nearly what we saw in that 2022 timeframe.
OPERATOR
Great. Thanks guys. Thank you.
Scott Gruber (Equity Analyst)
Thank you very much. One moment for our next question. Our next question comes from the line of Scott Gruber of Citigroup. Scott, your line is open. Yes, good morning. Maybe I'll extend upon the last line of inquiry kind of in light of what you just mentioned about the impact of the private case. How do you think about Diamondback's volumes say over the next five to 10 years on an organic basis? Do you think about Diamondback kind of being in modest kind of growth mode over the next five to 10 years? And this may happen kind of step wise when called upon by the market, but do you step higher during periods of elevated prices like today and then maintain that new level? So the net net, you're, you're growing or you know, when commodity prices are soft, do you, do you pare back on activity and let production fade back down? Just curious on how you think about the longer term trajectory.
Kate Spantoff (CEO)
Yeah, I mean, listen, Scott, I think, I think I'd go back to my earlier comment that you know, the operator with the best inventory quality and the lowest cost structure with the longest inventory depth probably has the right to grow organically and then the right to do that and creates shareholder value. So I think we've been talking about trying to hit the organic growth accelerator for a while now. We just haven't had the macro conditions to support it. But I think in a world of, and who knows what's going to happen where mid cycle pricing is a little higher, call it 70 plus on WTI 75 plus. Well, I think that's a world where from a total shareholder return perspective, a couple percentage points of organic growth really adds to the nav of the business and adds to the long term free cash generation. And that's kind of one of the important points that we ran in the model this year was that this new plan generates more free cash flow in 2026 per share than any other, sorry, more free cash flow per share at any oil price above $60 oil. And so you know, a 70 plus dollar world, you know, this is, this is advantageous to shareholders long term and
Scott Gruber (Equity Analyst)
it would certainly help differentiate Diamondback. And then turning back to the capital efficiency of the investment program, it does appear to improve on the margin with the, the updated plan. But it's hard to separate the duckdraw impact from adding rigs in the Barnett where you're still ramping, you know, on learnings and efficiency. But just in general, how would you describe the kind of underlying trend in capital efficiency? You know, especially as you, as you lap the impact of the duck draw, say kind of into 2027, do you think you'll be able to show improvement kind of relative to the initial program this year?
Kate Spantoff (CEO)
Yeah, listen, I think things like duck draws and bringing back ducks and a bar net when you develop, I mean I think that's all kind of noise right below that noise. The team is executing flawlessly. I mean we set, you know, records on the drilling side on 2, 3, 4 mile laterals. Wolfcamp D Development we gave the team a goal of $300 a foot for drilling, down from $360 a foot drilling last year. They're already at $300 a foot. You know, Barnett drilling, we said the drilling guys need to be below $400 a foot to be able to get to $800 a foot to make the Barnett competitive with the base program. Well, we already put a well in, in the ground under $400 a foot. So I think at the highest level, you know, the business is firing on all cylinders, efficiencies above ground. But the big move also is going to be are we drilling and completing actually better wells Subsurface and those are all the drivers that separate the noise of are you drawing down ducks this quarter or this month versus years past? And that's the long term benefit to capital efficiency. That's great. Appreciate the caller. Thank you. Case.
Scott Gruber (Equity Analyst)
Thanks Scott.
OPERATOR
Thank you very much. Our next call comes from the line of Derek Whitfield of Texas Capital. Derek, your line is open.
Derek Whitfield (Equity Analyst)
Good morning all and thanks for taking my questions. Case, perhaps for you, just regarding your share buyback and its guiding principles, where do you view mid cycle pricing now in light of the current Middle east conflict and the risk premium associated with that? And could you speak to what you're seeing in degradation of inventory quality across the Permian clearly beyond Diamondback?
Kate Spantoff (CEO)
Yeah, I mean I'll take the macro question first Derek. You know, if I wasn't long term bullish, I'd be out of a job, right? So I guess you know, we have to be long term bulls. But also think about you know, in practical terms where the situation is right now and you know, within three months we went from the the projected largest oversupply in history, which I think we can debate was not going to be the case, to now the largest under supply in history. And you know, we're only two months in. So I think it's hard for us to move off our mid cycle pricing environment which is kind of a mid-60s ti, kind of, you know, mid teens NGLs and $3 gas, you know, obviously with waha dips. But you know there's certainly a case to be made for energy security becoming a much more important thing for the for countries around the world to think about. You know, I guess wearing my oil hat that probably means, you know, more storage, more landed storage versus storage that you can buy, you know, somewhere that's in a riskier geopolitical area. I think that means the US barrel is more important than it's ever been. But again I think it's early for us to say mid cycle pricing has gone up by X. The way we do think about kind of our positioning relative to US Shale and where US Shale's mid cycle pricing is going is that we do believe the cost curve is going up. We do think operators have done a really good job with efficiencies, longer laterals, better development, but geologic time catches up to you and there's certain clearly signs of degradation throughout the US in terms of production or productive quality. So we just try to keep ourselves at the low end of that cost curve and I think we've done a very good job on that front, both from inventory depth and quality perspective, but also the cost at which we execute on that inventory. So I think we're very well positioned and I think it's a little too early for us to go higher on mid cycle pricing today.
Derek Whitfield (Equity Analyst)
Fair enough. And then as my follow up, I wanted to shift over to the Barnett. Referencing the play outline on page 16. How large could you reasonably grow this position beyond 200,000 that you're highlighting on the slide deck. And you clearly have one of the most prolific buyers of assets in Midland working with you. So certainly had that in your favor.
Kate Spantoff (CEO)
Yes, I mean we did announce this position after we thought we had a pretty solid position on what we could get. I do look forward to, we have continued to add to the position in Q1 on a small basis, but I think what's exciting is now we're starting to do a lot of trades. A lot of the big operators have their Barnett positions and we're all now looking at how can we block up to 3 mile laterals, 4 mile laterals. There's obviously a lot of private equity, kind of the small Midland based private equity that's looking to build six, seven, eight section positions. Those probably come to market. So I think it's going to happen. I think the position is going to grow, but I think we have the sizable base we need to continue to grow it.
Derek Whitfield (Equity Analyst)
Great update. Thanks for your time.
Kate Spantoff (CEO)
Thanks, Derek.
OPERATOR
Thank you very much. Our next question comes from the line of Kevin McCurcy of Pickering Energy Partners. Kevin, your line is open.
Kevin McCurcy (Equity Analyst)
Hey, good morning. Can you provide any color on the cadence of the net lateral footage per quarter throughout the year and also the lateral length per. Well, we would assume the additional 200,000 lateral feet is back half weighted, but any color there would help.
Danny Wesson (COO)
Yeah. So, you know, I think it's going to be pretty evenly weighted here towards the back half. Looking at, you know, we went up to kind of that 6.2 million lateral feet. Right. So you're, you know, we're looking probably at 1.5 to, you know, 1.6 per quarter for the back half of the year there. Great. And lateral lengths per. Well should increase throughout the year too, is that right? Yeah. So, you know, looking at Q1, I think that was probably one of our lighter quarters. I think we were like 11, 5 for Q1. And so for the full year of 2026, you know, we still expect to be at 12.9. So we expect that to ramp kind of going through the back half of the year.
Kevin McCurcy (Equity Analyst)
Got it. Appreciate that. And maybe as a follow up. Any updates on the surfactant tests?
Danny Wesson (COO)
Yeah, so we had a big push towards, towards the end of the year last year. Really wanted to get some tests in the ground and try some different surfactant combinations with some different rock types and understand what was driving the well performance there. And so we've got those tests in the ground. We're looking at it, team studying it. And so we're refining the process and plan to move forward with our next deployment kind of early this quarter.
Kate Spantoff (CEO)
Yes. And Kevin, one thing I'd add to that. We tested 50 wells or so last year. On average. I think we got 100 barrel a day uplift. But some wells were up by 400 or 500 barrels a day and some wells were zero. And now we're trying to figure out what do we do right in the 400 or 500 barrel a day wells and what do we do wrong in the, in the zeros. And you know, we're going to figure that out. This is version 1.0 and that's what kind of gets me excited.
Kate Spantoff (CEO)
Like I think, I think from a high level, this basin and Diamondback, we're kind of on the cusp of some technological breakthroughs related to increasing recoveries, you know, past primary development. And I think, you know, that's probably going to be a mega theme over the next four, five, six years that you're going to see a lot of dollars and time spent on. And you know, that's kind of why we've held as much acreage as we have.
Kate Spantoff (CEO)
You know, we have some of the best oil in place in the basin and you know, we got some of the smartest people in the industry working on this to do what I think could be, you know, something that extends this basin's life by, you know, a decade or two.
Kevin McCurcy (Equity Analyst)
Wow. Certainly be very meaningful. Appreciate the update. Thanks.
OPERATOR
Thank you very much. Our next question comes from the line of Gabe Dowd at Truist. Gabe Dowd, your line is open.
Gabe Dowd (Equity Analyst)
Gabe can't hear you if you're talking. Hey, sorry about that, guys. Morning. Thanks for the time. Just going back to the return to capital framework and pursuing growth this year, which obviously makes sense. But just curious if you could maybe talk a little bit about what an upper bound of oil production growth would be for Diamondback. Again, assuming you have the green light on the macro, is it fair to assume that it's 5% for diamondback or would there be an environment where it could be even higher than that?
Kate Spantoff (CEO)
Yeah, I don't Want to get into a specific number? I mean I think right now we've already grown low single digits year to date. I don't think there's a ton of investor appetite for a large capex bump and something more than mid single digits growth. But I think it's early. I think there's a lot of noise in the system and, and no one's really sure how this macro is going to unfold and that's why I think we're keeping our cards kind of close to the vest here. Coming out with a good forecast in Q1 and we'll see how the rest of the year unfolds. But just pulling investor appetite. I don't think there's a lot of appetite for something like the go go days of 2017, 2018 where you had multiple capex increases in a year and, and double digit, mid double digit production growth. So we're going to keep it steady and capital efficient. I think that's what we put out there today and kind of take this macro kind of quarter by quarter.
Gabe Dowd (Equity Analyst)
Got it. Okay, thanks Katie, that's helpful. And then a follow up for me would just be is there any update around your surface position in light of maybe new market entry in that regard?
Danny Wesson (COO)
Curious if there's any update on the conversations you're having there. Thanks guys. Yeah, Case alluded to it earlier as it relates to our power project, but we're still making pretty meaningful progress with our partners here and really view this power and data center opportunity as something that has a unique opportunity for us to use our natural gas in basin and advantage pricing. I think once we do get a project finalized we'll be able to talk about it in more detail, but it continues to move forward.
Gabe Dowd (Equity Analyst)
Got it. Okay, that's helpful. Thanks guys.
OPERATOR
Thank you very much. Our next call comes from the line of Charles Mead of Johnson Rice. Charles, your line is open.
Charles Mead (Equity Analyst)
Good morning Case, you and your team there. I'd like to go back to the, I think the big question this morning of the acceleration of capex. Can you give us kind of an inside baseball account of how that, how you came to that decision? And you know, I can imagine, you know, it could be the case that your board left with a certain amount of latitude or alternatively is this kind of thing where you kind of arranged in short order maybe a telephonic or zoom board meeting and just had a quick 30 minute meeting where you made the case and then acted on it. I'm not so much interested in the autopsy of your decision, but I'm More trying to get some insight into how the dynamics work for you guys as a fast mover in response in this volatile oil tape.
Kate Spantoff (CEO)
Yeah, I mean that's actually a good question. There's a couple things I'd say. I'd say our board is a very nimble board for its size. Right. We have 13 board members, but they are very responsive and they move relatively quickly, particularly when the decision is very obvious. And second, I would say just some inside baseball. We've. I got some advice from Jamie Dimon last year which was communicate with your board often and tell them everything. And you know, we just decided to over communicate with our board through this crisis. Obviously the crisis kicked off just a week after earnings. Right. We had set the budget, but you know, I think we sent three or four notes to the board in March just to update them on how we're thinking. And then it was a simple, simple meeting to get, to get together ahead of earnings to make this decision. And I think, you know, the board was, had resounding support for this plan. But that's a little inside baseball on how Diamondback works with our, with our board.
Charles Mead (Equity Analyst)
Great. That's all for me. Thanks, Case.
Kate Spantoff (CEO)
Thanks, Charles.
Leo Mariani (Equity Analyst)
Thank you very much. Our next question comes from the line of Leo Mariani of Roth. Leo, your line is open. Hey everybody. There's been some discussion of some pretty weak Waha prices in 2Q. Wanted to get a sense whether or not you think that could be some short term negative volume impact for the company. Are there some wells that have maybe a lower oil cut where you say, hey, maybe it's worth checking some of those wells in for a little period of time here. Just given how bad the gas price is or just any color kind of around that dynamic and how you're thinking
Kate Spantoff (CEO)
about it would be helpful. Yeah, I mean, Listen, at these NGL prices, we kind of think negative $3. Waha basically cuts out the value of your NGLs. And above that or worse than that, negative 4, negative 5, negative 6, you start to eat into the value of your oil production. No, you know, oil's $100 a barrel, not 60. So it's a little different math on should you shut in oil barrels because of Waha pricing. But I do think that that's happening throughout the basin. I think in an area like New Mexico with tighter restrictions on midstream development and flaring. That's probably a question for others, but it's probably something that's happening for us. You know, if we go back to October of last year, Waha Blew out due to some maintenance issues. You know, we shut in, you know, 2,000 or 3,000 barrels a day of production for a period of time. And then, you know, Waha came back and we brought that production back. I would bet. You know, we're probably around somewhere in that range today with Waha as weak as it is. But it's not impeding, you know, new development, particularly with the amount of, amount of hedges that we have on the financial side.
Leo Mariani (Equity Analyst)
Okay, that's helpful. Sounds like you still have flow assurance and this would be more of an economic decision for the company. That's right. Every molecule we've produced has moved. It's just moving at a negative price. And then just wanted to talk a little bit on what you said on the growth part of it. Obviously your guidance for the year on oil is a little bit open ended with a 520,000 plus. Clearly you guys did the 520 in 1Q. It looks like your guide's telling us we're getting 520 again. You did talk about a little growth. So I mean if the oil environment holds here, people should be thinking about probably that plus and a little bit of growth here in the second half of the year. Is that kind of a fair way to look at it?
Kate Spantoff (CEO)
Yeah, I think that's fair. Again, we're going to take it quarter by quarter. I think this is a year where if the plan is, if we're outperforming the plan, we're going to hold activity and produce more oil into a market that needs it.
Leo Mariani (Equity Analyst)
Okay, makes perfect sense. Thank you. Thanks, Leo.
OPERATOR
Thank you very much. As a reminder to ask a question, you will need to press Star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Our next question comes from the line of Doug Legate of Wolf Research.
Doug Legate (Equity Analyst)
Thanks Phyllis. I appreciate you having me on. Guys, I wonder if I could come back to one of the comments earlier about the balance sheet. Jerry, is it inconceivable that when we look out with no variable dividend taken out of the capital returns structure that your net debt balance sheet could basically go to zero over the next two or three years? Would you allow it to go to that level?
Kate Spantoff (CEO)
Yes, Doug. I mean, listen, that would be a good problem to have. I think generally we're going to be transferring a lot of value from the debt side of the nav to the equity side over this quarter and who knows what happens after this. As we've kind of said, we're going to take this quarter by quarter. We're early into this oil price environment. Should it persist and the stock continue to go up then we'll allocate less capital to buybacks and continue to put cash on the balance sheet. But at the end of the day we know this is a cyclical business and in this highly cyclical business we want to have the ability to pounce on opportunities when the cycle turns and those opportunities could be M and A that could be buying back a ton of stock. It could be leaning on your balance sheet to buy back stock. So I think the key term here is flexibility but also long term value creation because at the end of the day we want to get to zero debt, we want to get to one share outstanding and it's going to be a race between those two with free cash generation over the coming decades.
Doug Legate (Equity Analyst)
I appreciate that my follow up fellows is not so much about your growth than what you're seeing from your non operated positions. And I guess this is particularly it might be a VIPER question but obviously we've seen some privates add rigs and there's a lot of non op working interest that basically can influence what happens to the growth story for you guys on a consolidated basis. How would you characterize that? What are you seeing on your non op I guess requests for activity?
Kate Spantoff (CEO)
Yeah, Diamondback carries very little non op but VIPER obviously sees half the wells in the basin round numbers and I think we'll talk about on the VIPER call but early signs are nothing major on permitting. But the discussions that we're hearing in the field and in Midland are that rigs are getting picked up on the private side. I think if we had to give a rig count forecast for the Permian today, by the end of the year we're probably up 2530 rigs from where we are today.
Doug Legate (Equity Analyst)
That's helpful. Thanks fellas. Thanks Doug.
OPERATOR
Thank you very much. Our next question comes from the line of James west of Milius Research. James, your line is open.
James West (Equity Analyst)
Hey thanks guys. Case wanted to I know everything's pretty fluid right now and you're kind of quarter by quarter but you have to be thinking about a market that's significantly changed in the last 60 days and an oil price that will be structurally higher. So understanding you've raised your guidance for this year but how are you thinking about the out years and how you want to set up the company to either continue to grow at this mid single digit rate or not 27, 28, 29? Not looking for guidance but just kind of how your longer term thinking is evolving.
Kate Spantoff (CEO)
Yeah, you know, obviously we have to think about the long term. And you know, I do think if we are in a higher for longer world, you know, then an advantaged company with advantaged inventory like Diamondback should answer the call for production growth in that higher for longer world. So, you know, I think that's, you know, we don't live in a vacuum that's static. But if we did, I think some sort of organic growth in the story, moving this business from a steady state kind of bond like free cash generator to a free cash flow per share growth generator over the next few years into the decade, so long as it maintains capital efficiency, I think that's something that investors would support. So again, it's early. We'll see what the macro holds. But certainly it feels like the world changed a lot since our last conference call.
James West (Equity Analyst)
Absolutely. That's very helpful. And then as you think about your inventory depth versus your peers, you guys are obviously in a leading position. But what would you consider your, or how would you kind of phrase it, your position versus probably the peers in the market today, given the huge longevity we think you have?
Kate Spantoff (CEO)
Yeah, listen, we're very fortunate. We have an incredible inventory quality and duration. But I'll say that, you know, within Diamondback, you know, we're always looking for that next stick. Right. Whether it's organic generation in Barnett development, you know, Upper Spraberry development over the last few years, or inorganic, this machine is built to do significant transactions like Endeavor. But also I don't want one unit in the Midland Basin trading hands without Diamondback knowing that that unit could be in our hands. So we're set up to do the sub 20 million dollar deals and the teams actually do a really good job at those. But also not so small that we're not in the picture for every other deal that transacts in this basin.
James West (Equity Analyst)
Got it. Thanks, Case. Thank you.
OPERATOR
Thank you. Thank you very much. I'm showing no more questions at this time. I would now like to turn it back to Case Van Hoff for closing remarks.
Kate Spantoff (CEO)
Thank you everybody for your interest. You know we're always available to answer any questions. Just reach out to the to the number or email on the notices.
Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company's SEC filings and official press releases. Corporate participants' and analysts' statements reflect their views as of the date of this call and are subject to change without notice.
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