Diamondback Energy (NASDAQ:FANG) said its second-quarter operational performance and view of global oil inventories support a potential path toward low-single-digit organic production growth in 2027, while management emphasized it intends to retain flexibility amid commodity-market volatility.
Chief Executive Officer Kaes Van’t Hof said the company increased its production outlook by roughly 3% to 4% versus its original 2026 plan after responding to oil-price signals in March. Production is now approximately 4% above its level at the start of the year, he said.
“Our bet is that these global inventories, including SPRs, are going to need to be refilled,” Van’t Hof said, referring to strategic petroleum reserves. He said oil and product inventories have been drawing down and that, absent permanent demand destruction, the market will need additional supply to meet global demand and replenish inventories.
Operations and Well Productivity
Management highlighted continued operational improvements across well construction, targeting and completions. Van’t Hof described the company’s progress as a “stacked innovation” effort, citing incremental advances that have improved drilling and completion performance over time.
Chief Engineer Al Barkmann said Diamondback has used larger tubulars that allow more aggressive flowback, while changes in stimulation design, stage architecture, perforating and well targeting have contributed to recent well outperformance. Management said its objective is to maximize the combination of wells per section, production per well and low well costs to generate the highest net present value per section and acre.
The company also discussed completion efficiency. Chief Operating Officer Danny Wesson said Diamondback averaged more than 21 hours of pumping per day during the first full quarter of continuous pumping. While the company sees potential to continue improving, Wesson said maintenance requirements and the cost of equipment redundancy create practical tradeoffs.
Diamondback is targeting average completion performance of 5,000 feet per day across its crews, after some pads surpassed that level, according to Wesson. The company is also using electric frac fleets, which management said have helped mitigate fuel-cost inflation.
On oilfield service costs, Wesson said Diamondback is seeing some inflation in consumables, particularly casing in the second half of 2026. He estimated the impact at slightly more than 1% of total well costs, adding that the company expects to offset much of that pressure through efficiency gains. Management said a quarterly capital run rate of roughly $1 billion to slightly more than $1 billion could be reasonable to hold production flat based on current conditions.
Gas, Power and Data Center Strategy
Van’t Hof said improved gas pricing at Waha during July, following the start-up of new pipelines, provided near-term relief after weak second-quarter conditions. He said Diamondback views natural gas as an additive component of its oil-focused strategy and intends to secure more contracted transportation capacity to Gulf Coast markets, where gas demand could come from LNG exports, power generation and data centers.
The company said gas production has exceeded expectations. Wesson attributed much of that outperformance to improved local gas marketing, including maturing gathering and processing systems, additional redundancy and strategic split connections. Barkmann said a growing role for Barnett development could cause gas volumes to increase further over time.
Chief Financial Officer Jere Thompson provided an update on a proposed power project at Diamondback’s approximately 30,000-acre Bryant Ranch site near Midland, Texas. The project is being developed with an independent power producer and is intended to provide a bridge-to-grid power solution using behind-the-meter reciprocating units.
- Management said the site has distributed generation, remediated land, and dedicated natural gas and water access.
- The initial phase could deliver first gas as soon as the second half of 2027, according to Thompson.
- Diamondback is also pursuing grid-connected power as early as 2028 through ERCOT’s Batch Zero process.
- The company was awaiting ERCOT’s determination on project eligibility following an August 20 meeting.
Thompson said Diamondback has set aside 200 million to 250 million cubic feet per day of natural gas for the project. He described a potential in-basin feed-gas solution as the project’s largest value driver, with additional possible benefits from Diamondback’s 30% interest in water infrastructure company Deep Blue and potential land-related proceeds.
Management said it would provide a broader update after signing definitive documentation with a hyperscale customer. Van’t Hof stressed that Diamondback does not plan to become a power or data center operator, but intends to provide molecules, surface acreage, water and industry knowledge.
Capital Allocation and Balance Sheet
Van’t Hof said Diamondback has moved away from a formulaic minimum free-cash-flow return commitment in favor of a more flexible capital-allocation approach. The company repurchased some shares in the second quarter and continued buying stock in the third quarter, he said, while also reducing net debt by $1.6 billion during the second quarter.
Van’t Hof estimated that the debt reduction represented $5.60 per share of value moving from the debt side of the capital structure to equity. He said Diamondback intends to use buybacks opportunistically rather than pursue procyclical repurchases.
The company also plans to build enough cash to address debt callable in 2026 and prepare for 2027 maturities, while potentially accumulating cash for maturities due between 2029 and 2032. Van’t Hof said cash accumulation is not intended to fund large cash acquisitions.
Barnett, EOR and Portfolio Development
Diamondback said it continues to expand and consolidate its Barnett position, including through leasing activity with Double Eagle. The company’s first four-well Spanish Trail pad has been drilled and is expected to be completed in coming months. Management said it expects full-section results around year-end or early 2027.
Van’t Hof said Barnett drilling costs are approaching $400 per foot, with some wells already below that level. The company expects to achieve costs around $400 per foot or less consistently as it builds scale in the play.
The company is also testing surfactant-based enhanced oil recovery techniques. Barkmann said Diamondback completed a 12-well project during the quarter and was flowing back the wells, with initial results described as positive. Management said results have varied widely across earlier work, with some wells showing no uplift and others producing three to four times more than before treatment.
Van’t Hof said the average earlier result involved wells producing roughly 150 to 200 barrels per day gaining an additional 100 to 150 barrels per day, though the company is still determining which rock types and reservoir conditions respond best. Diamondback is also incorporating the approach into new-well pads, with control and surfactant-treated portions of certain sections.
Management said it sees artificial intelligence and automation as early-stage tools for improving artificial lift optimization, reducing downtime and lowering operating costs. The company’s lease operating expense fell below $6 per barrel during the quarter, primarily because of higher production volumes, though management said it expects costs to remain around that level or somewhat higher in the second half.
About Diamondback Energy (NASDAQ:FANG)
Diamondback Energy, Inc (NASDAQ: FANG) is an independent oil and natural gas company focused on the development, exploration and production of unconventional resources in the Permian Basin. Headquartered in Midland, Texas, the company concentrates its operations in the core Midland and Delaware sub‑basins of West Texas and southeastern New Mexico, where it pursues contiguous acreage positions to support repeatable drilling programs.
Diamondback’s activities span the upstream value chain, including leasehold acquisition, well planning, drilling, completion and production optimization.
