UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2022

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF SECURITIES EXCHANGE ACT OF 1934

Commission File Number 001-35700

Diamondback Energy, Inc.

(Exact Name of Registrant As Specified in Its Charter)

DE	45-4502447
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification Number)
500 West Texas Ave.
Suite 100
Midland, TX	79701
(Address of principal executive offices)	(Zip code)

(432) 221-7400

(Registrant’s telephone number, including area code)

 Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock	FANG	The Nasdaq Stock Market LLC
		(NASDAQ Global Select Market)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check One):

Large Accelerated Filer	☒	Accelerated Filer	☐
Non-Accelerated Filer	☐	Smaller Reporting Company	☐
		Emerging Growth Company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐     No  ☒ 

As of July 29, 2022, the registrant had 173,441,061 shares of common stock outstanding.

DIAMONDBACK ENERGY, INC.

FORM 10-Q

FOR THE QUARTER ENDED JUNE 30, 2022

TABLE OF CONTENTS

	Page
Glossary of Oil and Natural Gas Terms	ii
Glossary of Certain Other Terms	iii
Cautionary Statement Regarding Forward-Looking Statements	iv
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements (Unaudited)	1
Condensed Consolidated Balance Sheets	1
Condensed Consolidated Statements of Operations	3
Condensed Consolidated Statements of Stockholders’ Equity	4
Condensed Consolidated Statements of Cash Flows	6
Condensed Notes to Consolidated Financial Statements	7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	29
Item 3. Quantitative and Qualitative Disclosures About Market Risk	48
Item 4. Controls and Procedures	49
PART II. OTHER INFORMATION
Item 1. Legal Proceedings	50
Item 1A. Risk Factors	50
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	54
Item 6. Exhibits	55
Signatures	56

i

GLOSSARY OF OIL AND NATURAL GAS TERMS

The following is a glossary of certain oil and natural gas industry terms that are used in this Quarterly Report on Form 10-Q (this “report”):

Basin	A large depression on the earth’s surface in which sediments accumulate.
Bbl or barrel	One stock tank barrel, or 42 U.S. gallons liquid volume, used in this report in reference to crude oil or other liquid hydrocarbons.
BO	One barrel of crude oil.
BOE	One barrel of oil equivalent, with six thousand cubic feet of natural gas being equivalent to one barrel of oil.
BOE/d	BOE per day.
British Thermal Unit or Btu	The quantity of heat required to raise the temperature of one pound of water by one degree Fahrenheit.
Completion	The process of treating a drilled well followed by the installation of permanent equipment for the production of natural gas or oil, or in the case of a dry hole, the reporting of abandonment to the appropriate agency.
Gross acres or gross wells	The total acres or wells, as the case may be, in which a working interest is owned.
Horizontal wells	Wells drilled directionally horizontal to allow for development of structures not reachable through traditional vertical drilling mechanisms.
MBbl	One thousand barrels of crude oil and other liquid hydrocarbons.
MBO/d	One thousand BO per day.
MBOE/d	One thousand BOE per day.
Mcf	One thousand cubic feet of natural gas.
Mineral interests	The interests in ownership of the resource and mineral rights, giving an owner the right to profit from the extracted resources.
MMBtu	One million British Thermal Units.
Net acres or net wells	The sum of the fractional working interest owned in gross acres.
Oil and natural gas properties	Tracts of land consisting of properties to be developed for oil and natural gas resource extraction.
Prospect	A specific geographic area which, based on supporting geological, geophysical or other data and also preliminary economic analysis using reasonably anticipated prices and costs, is deemed to have potential for the discovery of commercial hydrocarbons.
Proved reserves	The estimated quantities of oil, natural gas and natural gas liquids which geological and engineering data demonstrate with reasonable certainty to be commercially recoverable in future years from known reservoirs under existing economic and operating conditions.
Reserves	The estimated remaining quantities of oil and natural gas and related substances anticipated to be economically producible, as of a given date, by application of development projects to known accumulations. In addition, there must exist, or there must be a reasonable expectation that there will exist, the legal right to produce or a revenue interest in the production, installed means of delivering oil and natural gas or related substances to the market and all permits and financing required to implement the project. Reserves are not assigned to adjacent reservoirs isolated by major, potentially sealing, faults until those reservoirs are penetrated and evaluated as economically producible. Reserves should not be assigned to areas that are clearly separated from a known accumulation by a non-productive reservoir (i.e., absence of reservoir, structurally low reservoir or negative test results). Such areas may contain prospective resources (i.e., potentially recoverable resources from undiscovered accumulations).
Reservoir	A porous and permeable underground formation containing a natural accumulation of producible natural gas and/or crude oil that is confined by impermeable rock or water barriers and is separate from other reservoirs.
Royalty interest	An interest that gives an owner the right to receive a portion of the resources or revenues without having to carry any costs of development, which may be subject to expiration.
Working interest	An operating interest that gives the owner the right to drill, produce and conduct operating activities on the property and receive a share of production and requires the owner to pay a share of the costs of drilling and production operations.
WTI	West Texas Intermediate.

ii

GLOSSARY OF CERTAIN OTHER TERMS

The following is a glossary of certain other terms that are used in this report:

ASC	Accounting Standards Codification.
ASU	Accounting Standards Update.
December 2019 Notes	The Company’s 3.250% senior unsecured notes due 2026 and the Company’s 3.500% senior unsecured notes due 2029 issued under the IG Indenture and the related first supplemental indenture.
Equity Plan	The Company’s 2021 Amended and Restated Equity Incentive Plan.
Exchange Act	The Securities Exchange Act of 1934, as amended.
FASB	Financial Accounting Standards Board.
GAAP	Accounting principles generally accepted in the United States.
IG Indenture	The indenture, dated as of December 5, 2019, among the Company, the subsidiary guarantors party thereto and Wells Fargo, as the trustee, as supplemented by the supplemental indentures relating to the outstanding December 2019 Notes (defined above), the March 2021 Notes (defined below) and the March 2022 Notes (defined below).
LIBOR	The London interbank offered rate.
March 2021 Notes	The Company’s 0.900% Senior Notes due 2023, the Company’s 3.125% Senior Notes due 2031 and the Company’s 4.400% Senior Notes due 2051 issued under the IG Indenture and the related third supplemental indenture.
March 2022 Notes	The Company’s 4.250% Senior Notes due 2052, issued under the IG Indenture and the related third supplemental indenture.
NYMEX	New York Mercantile Exchange.
OPEC	Organization of the Petroleum Exporting Countries.
Rattler	Rattler Midstream LP, a Delaware limited partnership.
Rattler LLC	Rattler Midstream Operating LLC, a Delaware limited liability company and a subsidiary of Rattler.
SEC	United States Securities and Exchange Commission.
Senior Notes	The outstanding December 2019 Notes, the March 2021 Notes and the March 2022 Notes.
SOFR	The secured overnight financing rate.
TSR	Total stockholder return of the Company’s common stock.
Viper	Viper Energy Partners LP, a Delaware limited partnership.
Viper LLC	Viper Energy Partners LLC, a Delaware limited liability company and a subsidiary of Viper.
Wells Fargo	Wells Fargo Bank, National Association.

iii

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

Various statements contained in this report are “forward-looking statements” within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act, which involve risks, uncertainties, and assumptions. All statements, other than statements of historical fact, including statements regarding our: future performance; business strategy; future operations (including drilling plans and capital plans); estimates and projections of revenues, losses, costs, expenses, returns, cash flow, and financial position; reserve estimates and our ability to replace or increase reserves; anticipated benefits of strategic transactions (including acquisitions and divestitures); and plans and objectives of management (including plans for future cash flow from operations and for executing environmental strategies) are forward-looking statements. When used in this report, the words “aim,” “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “forecast,” “future,” “guidance,” “intend,” “may,” “model,” “outlook,” “plan,” “positioned,” “potential,” “predict,” “project,” “seek,” “should,” “target,” “will,” “would,” and similar expressions (including the negative of such terms) as they relate to the Company are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words. In particular, the factors discussed in this report and detailed under Part II, Item 1A. Risk Factors in this report, Part II, Item 1A Risk Factors in our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2022, and our Annual Report on Form 10–K for the year ended December 31, 2021 could affect our actual results and cause our actual results to differ materially from expectations, estimates or assumptions expressed, forecasted or implied in such forward-looking statements. Unless the context requires otherwise, references to “we,” “us,” “our” or the “Company” are intended to mean the business and operations of the Company and its consolidated subsidiaries.

Factors that could cause our outcomes to differ materially include (but are not limited to) the following:

•changes in supply and demand levels for oil, natural gas, and natural gas liquids, and the resulting impact on the price for those commodities;

•the impact of public health crises, including epidemic or pandemic diseases such as the COVID-19 pandemic, and any related company or government policies or actions;

•actions taken by the members of OPEC and Russia affecting the production and pricing of oil, as well as other domestic and global political, economic, or diplomatic developments;

•changes in general economic, business or industry conditions, including changes in foreign currency exchange rates, interest rates and inflation rates and concerns over a potential recession;

•regional supply and demand factors, including delays, curtailment delays or interruptions of production, or governmental orders, rules or regulations that impose production limits;

•federal and state legislative and regulatory initiatives relating to hydraulic fracturing, including the effect of existing and future laws and governmental regulations;

•transition risks relating to climate change;

•restrictions on the use of water, including limits on the use of produced water and a moratorium on new produced water well permits recently imposed by the Texas Railroad Commission in an effort to control induced seismicity in the Permian Basin;

•significant declines in prices for oil, natural gas, or natural gas liquids, which could require recognition of significant impairment charges;

•changes in U.S. energy, environmental, monetary and trade policies;

•conditions in the capital, financial and credit markets, including the availability and pricing of capital for drilling and development operations and our environmental and social responsibility projects;

•challenges with employee retention and an increasingly competitive labor market due to a sustained labor shortage or increased turnover caused by the COVID-19 pandemic;

•changes in availability or cost of rigs, equipment, raw materials, supplies, oilfield services;

•changes in safety, health, environmental, tax, and other regulations or requirements (including those addressing air emissions, water management, or the impact of global climate change);

•security threats, including cybersecurity threats and disruptions to our business and operations from breaches of our information technology systems, or from breaches of information technology systems of third parties with whom we transact business;

•The timing and completion of the Rattler Merger (as defined in See Note 1—Description of the Business and Basis of Presentation of the condensed notes to the consolidated financial statements included elsewhere in this report);

iv

•lack of, or disruption in, access to adequate and reliable transportation, processing, storage, and other facilities for our oil, natural gas, and natural gas liquids;

•failures or delays in achieving expected reserve or production levels from existing and future oil and natural gas developments, including due to operating hazards, drilling risks, or the inherent uncertainties in predicting reserve and reservoir performance;

•difficulty in obtaining necessary approvals and permits;

•severe weather conditions;

•acts of war or terrorist acts and the governmental or military response thereto;

•changes in the financial strength of counterparties to our credit agreement and hedging contracts;

•changes in our credit rating; and

•other risks and factors disclosed in this report.

In light of these factors, the events anticipated by our forward-looking statements may not occur at the time anticipated or at all. Moreover, we operate in a very competitive and rapidly changing environment and new risks emerge from time to time. We cannot predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those anticipated by any forward-looking statements we may make. Accordingly, you should not place undue reliance on any forward-looking statements made in this report. All forward-looking statements speak only as of the date of this report or, if earlier, as of the date they were made. We do not intend to, and disclaim any obligation to, update or revise any forward-looking statements unless required by applicable law.

v

PART I. FINANCIAL INFORMATION

ITEM 1.     CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Diamondback Energy, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited)
	June 30,		December 31,
	2022		2021
	(In millions, except par values and share data)
Assets
Current assets:
Cash and cash equivalents	$	43	$	654
Restricted cash	16		18
Accounts receivable:
Joint interest and other, net	76		72
Oil and natural gas sales, net	961		598
Inventories	65		62
Derivative instruments	17		13
Income tax receivable	—		1
Prepaid expenses and other current assets	23		28
Total current assets	1,201		1,446
Property and equipment:
Oil and natural gas properties, full cost method of accounting ($8,097 million and $8,496 million excluded from amortization at June 30, 2022 and December 31, 2021, respectively)	34,200		32,914
Midstream assets	1,139		1,076
Other property, equipment and land	190		174
Accumulated depletion, depreciation, amortization and impairment	(14,160)		(13,545)
Property and equipment, net	21,369		20,619
Funds held in escrow	—		12
Equity method investments	660		613
Derivative instruments	33		4
Deferred income taxes, net	33		40
Investment in real estate, net	87		88
Other assets	65		76
Total assets	$	23,448	$	22,898

See accompanying notes to condensed consolidated financial statements.

1

Diamondback Energy, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets - (Continued)

(Unaudited)

	June 30,		December 31,
	2022		2021
Liabilities and Stockholders’ Equity	(In millions, except par values and share data)
Current liabilities:
Accounts payable - trade	$	62	$	36
Accrued capital expenditures	323		295
Current maturities of long-term debt	55		45
Other accrued liabilities	420		419
Revenues and royalties payable	615		452
Derivative instruments	162		174
Deferred income taxes	3		17
Total current liabilities	1,640		1,438
Long-term debt	5,401		6,642
Derivative instruments	123		29
Asset retirement obligations	260		166
Deferred income taxes	1,600		1,338
Other long-term liabilities	34		40
Total liabilities	9,058		9,653
Commitments and contingencies (Note 14)
Stockholders’ equity:
Common stock, $0.01 par value; 400,000,000 shares authorized; 175,201,453 and 177,551,347 shares issued and outstanding at June 30, 2022 and December 31, 2021, respectively	2		2
Additional paid-in capital	13,772		14,084
Retained earnings (accumulated deficit)	(458)		(1,998)
Total Diamondback Energy, Inc. stockholders’ equity	13,316		12,088
Non-controlling interest	1,074		1,157
Total equity	14,390		13,245
Total liabilities and equity	$	23,448	$	22,898

See accompanying notes to condensed consolidated financial statements.

2

Diamondback Energy, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

(Unaudited)

	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
	(In millions, except per share amounts, shares in thousands)
Revenues:
Oil sales	$	2,189	$	1,395	$	4,135	$	2,339
Natural gas sales	264		107		418		211
Natural gas liquid sales	299		165		588		289
Midstream services	14		12		31		23
Other operating income	2		2		4		3
Total revenues	2,768		1,681		5,176		2,865
Costs and expenses:
Lease operating expenses	159		157		308		259
Production and ad valorem taxes	178		105		339		180
Gathering and transportation	61		56		120		87
Midstream services expenses	23		23		45		51
Depreciation, depletion, amortization and accretion	330		341		643		614
General and administrative expenses	39		36		75		61
Merger and integration expenses	—		2		—		77
Other operating expenses	—		6		8		10
Total costs and expenses	790		726		1,538		1,339
Income (loss) from operations	1,978		955		3,638		1,526
Other income (expense):
Interest expense, net	(39)		(57)		(79)		(113)
Other income (expense), net	1		(7)		2		(6)
Gain (loss) on derivative instruments, net	(101)		(497)		(653)		(661)
Gain (loss) on sale of equity method investments	—		23		—		23
Gain (loss) on extinguishment of debt	(4)		—		(58)		(61)
Income (loss) from equity investments	28		5		37		2
Total other income (expense), net	(115)		(533)		(751)		(816)
Income (loss) before income taxes	1,863		422		2,887		710
Provision for (benefit from) income taxes	402		94		623		159
Net income (loss)	1,461		328		2,264		551
Net income (loss) attributable to non-controlling interest	45		17		69		20
Net income (loss) attributable to Diamondback Energy, Inc.	$	1,416	$	311	$	2,195	$	531
Earnings (loss) per common share:
Basic	$	7.95	$	1.70	$	12.30	$	3.05
Diluted	$	7.93	$	1.70	$	12.28	$	3.04
Weighted average common shares outstanding:
Basic	176,570		181,009		177,064		172,636
Diluted	176,876		181,199		177,380		172,806
Dividends declared per share	$	3.05	$	0.45	$	6.10	$	0.85

See accompanying notes to condensed consolidated financial statements.

3

Diamondback Energy, Inc. and Subsidiaries

Condensed Consolidated Statements of Stockholders’ Equity

(Unaudited)

	Common Stock			Additional Paid-in Capital		Retained Earnings (Accumulated Deficit)		Non-Controlling Interest		Total
	Shares	Amount
	($ in millions, shares in thousands)
Balance December 31, 2021	177,551	$	2	$	14,084	$	(1,998)	$	1,157	$	13,245
Unit-based compensation	—	—		—		—		3		3
Distribution equivalent rights payments	—	—		—		—		(1)		(1)
Stock-based compensation	—	—		16		—		—		16
Cash paid for tax withholding on vested equity awards	—	—		(15)		—		—		(15)
Repurchased shares under buyback program	(58)	—		(7)		—		—		(7)
Repurchased units under buyback programs	—	—		—		—		(42)		(42)
Distributions to non-controlling interest	—	—		—		—		(47)		(47)
Dividend paid	—	—		—		(107)		—		(107)
Exercise of stock options and issuance of restricted stock units and awards	58	—		1		—		—		1
Change in ownership of consolidated subsidiaries, net	—	—		(12)		—		15		3
Net income (loss)	—	—		—		779		24		803
Balance March 31, 2022	177,551	2		14,067		(1,326)		1,109		13,852
Unit-based compensation	—	—		—		—		3		3
Distribution equivalent rights payments	—	—		—		(7)		—		(7)
Stock-based compensation	—	—		17		—		—		17
Cash paid for tax withholding on vested equity awards	—	—		—		—		(3)		(3)
Repurchased shares under buyback program	(2,369)	—		(303)		—		—		(303)
Repurchased units under buyback programs	—	—		—		—		(29)		(29)
Distributions to non-controlling interest	—	—		—		—		(63)		(63)
Dividend paid	—	—		—		(541)		—		(541)
Exercise of stock options and vesting of restricted stock units and awards	19	—		—		—		—		—
Change in ownership of consolidated subsidiaries, net	—	—		(9)		—		12		3
Net income (loss)	—	—		—		1,416		45		1,461
Balance June 30, 2022	175,201	$	2	$	13,772	$	(458)	$	1,074	$	14,390

See accompanying notes to condensed consolidated financial statements.

4

Diamondback Energy, Inc. and Subsidiaries

Condensed Consolidated Statements of Stockholders’ Equity - (Continued)

(Unaudited)

	Common Stock			Additional Paid-in Capital		Retained Earnings (Accumulated Deficit)		Non-Controlling Interest		Total
	Shares	Amount
	($ in millions, shares in thousands)
Balance December 31, 2020	158,088	$	2	$	12,656	$	(3,864)	$	1,010	$	9,804
Unit-based compensation	—	—		—		—		3		3
Distribution equivalent rights payments	—	—		—		(1)		—		(1)
Common units issued for acquisitions	22,795	—		1,727		—		—		1,727
Stock-based compensation	—	—		11		—		—		11
Cash paid for tax withholding on vested equity awards	—	—		(6)		—		—		(6)
Repurchased units under buyback programs	—	—		—		—		(24)		(24)
Distributions to non-controlling interest	—	—		—		—		(17)		(17)
Dividend paid	—	—		—		(68)		—		(68)
Exercise of stock options and issuance of restricted stock units and awards	101	—		—		—		—		—
Change in ownership of consolidated subsidiaries, net	—	—		(4)		—		4		—
Net income (loss)	—	—		—		220		3		223
Balance March 31, 2021	180,984	2		14,384		(3,713)		979		11,652
Unit-based compensation	—	—		—		—		3		3
Distribution equivalent rights payments	—	—		—		(1)		(1)		(2)
Stock-based compensation	—	—		15		—		—		15
Cash paid for tax withholding on vested equity awards	—	—		—		—		(2)		(2)
Repurchased units under buyback programs	—	—		—		—		(12)		(12)
Distributions to non-controlling interest	—	—		—		—		(24)		(24)
Dividend paid	—	—		—		(72)		—		(72)
Exercise of stock options and vesting of restricted stock units and awards	65	—		3		—		—		3
Change in ownership of consolidated subsidiaries, net	—	—		(3)		—		4		1
Net income (loss)	—	—		—		311		17		328
Balance June 30, 2021	181,049	$	2	$	14,399	$	(3,475)	$	964	$	11,890

See accompanying notes to condensed consolidated financial statements.

5

Diamondback Energy, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)

	Six Months Ended June 30,
	2022		2021
	(In millions)
Cash flows from operating activities:
Net income (loss)	$	2,264	$	551
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Provision for (benefit from) deferred income taxes	273		155
Depreciation, depletion, amortization and accretion	643		614
(Gain) loss on extinguishment of debt	58		61
(Gain) loss on derivative instruments, net	653		661
Cash received (paid) on settlement of derivative instruments	(720)		(484)
(Income) loss from equity investment	(37)		(2)
Equity-based compensation expense	28		23
(Gain) loss on sale of equity method investments	—		(23)
Other	36		15
Changes in operating assets and liabilities:
Accounts receivable	(380)		(172)
Income tax receivable	1		99
Prepaid expenses and other	15		18
Accounts payable and accrued liabilities	(21)		(26)
Income tax payable	(14)		—
Revenues and royalties payable	163		100
Other	(3)		(12)
Net cash provided by (used in) operating activities	2,959		1,578
Cash flows from investing activities:
Drilling, completions and infrastructure additions to oil and natural gas properties	(863)		(645)
Additions to midstream assets	(42)		(17)
Property acquisitions	(381)		(421)
Proceeds from sale of assets	72		100
Funds held in escrow	12		51
Other	(30)		34
Net cash provided by (used in) investing activities	(1,232)		(898)
Cash flows from financing activities:
Proceeds from borrowings under credit facilities	1,579		661
Repayments under credit facilities	(1,563)		(780)
Proceeds from senior notes	750		2,200
Repayment of senior notes	(1,865)		(2,107)
Proceeds from (repayments to) joint venture	(17)		(10)
Premium on extinguishment of debt	(49)		(166)
Repurchased shares under buyback program	(310)		—
Repurchased units under buyback program	(71)		(36)
Dividends to stockholders	(648)		(140)
Distributions to non-controlling interest	(110)		(41)
Financing portion of net cash received (paid) for derivative instruments	—		59
Other	(36)		(32)
Net cash provided by (used in) financing activities	(2,340)		(392)
Net increase (decrease) in cash and cash equivalents	(613)		288
Cash, cash equivalents and restricted cash at beginning of period	672		108
Cash, cash equivalents and restricted cash at end of period(1)	$	59	$	396

(1) See Note 2—Summary of Significant Accounting Policies.

See accompanying notes to condensed consolidated financial statements.

6

Diamondback Energy, Inc. and Subsidiaries

Condensed Notes to Consolidated Financial Statements

(Unaudited)

1.    DESCRIPTION OF THE BUSINESS AND BASIS OF PRESENTATION

Organization and Description of the Business

Diamondback Energy, Inc., together with its subsidiaries (collectively referred to as “Diamondback” or the “Company” unless the context otherwise requires), is an independent oil and natural gas company currently focused on the acquisition, development, exploration and exploitation of unconventional, onshore oil and natural gas reserves in the Permian Basin in West Texas.

As of June 30, 2022, the wholly owned subsidiaries of Diamondback include Diamondback E&P LLC (“Diamondback E&P”), a Delaware limited liability company, Viper Energy Partners GP LLC, a Delaware limited liability company, Rattler Midstream GP LLC, a Delaware limited liability company, and QEP Resources, Inc. (“QEP”), a Delaware corporation.

Rattler Merger

On May 15, 2022, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Rattler, Rattler Midstream GP LLC, the general partner of the Partnership (the “General Partner”), and Bacchus Merger Sub Company, a wholly owned subsidiary of the Company (“Merger Sub”). The Merger Agreement provides that, among other things and subject to the terms and conditions of the Merger Agreement, at the effective time of the Merger, (i) Merger Sub will be merged with and into Rattler (the “Rattler Merger”), with Rattler surviving and continuing as the surviving entity in the merger and (ii) each issued and outstanding publicly held common unit representing a limited partner interest in Rattler (other than any common units owned by the Company and its subsidiaries) will be converted into the right to receive 0.113 of a share of common stock, par value $0.01 per share, of the Company. The Merger Agreement also specifies the treatment of outstanding Rattler equity awards in connection with the merger. The Company’s board of directors and the board of directors of the General Partner (acting upon the recommendation of its conflicts committee) unanimously approved the merger. The Company and Rattler expect that the Rattler Merger will close, subject to certain conditions, reasonably promptly following the distribution payment date for the second quarter 2022 distribution to Rattler’s unitholders reported by Rattler.

Basis of Presentation

The condensed consolidated financial statements include the accounts of the Company and its subsidiaries after all significant intercompany balances and transactions have been eliminated upon consolidation.

Diamondback’s publicly traded subsidiaries Viper Energy Partners LP (“Viper”) and Rattler Midstream LP (“Rattler”) are consolidated in the Company’s financial statements. As of June 30, 2022, the Company owned approximately 55% of Viper’s total units outstanding. The Company’s wholly owned subsidiary, Viper Energy Partners GP LLC, is the general partner of Viper. As of June 30, 2022, the Company owned approximately 74% of Rattler’s total units outstanding. The Company’s wholly owned subsidiary, Rattler Midstream GP LLC, is the general partner of Rattler. The results of operations attributable to the non-controlling interest in Viper and Rattler are presented within equity and net income and are shown separately from the equity and net income attributable to the Company.

These condensed consolidated financial statements have been prepared by the Company without audit, pursuant to the rules and regulations of the SEC. They reflect all adjustments that are, in the opinion of management, necessary for a fair statement of the results for interim periods, on a basis consistent with the annual audited financial statements. All such adjustments are of a normal recurring nature. Certain information, accounting policies and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been omitted pursuant to SEC rules and regulations, although the Company believes the disclosures are adequate to make the information presented not misleading. This Quarterly Report on Form 10–Q should be read in conjunction with the Company’s most recent Annual Report on Form 10–K for the fiscal year ended December 31, 2021, which contains a summary of the Company’s significant accounting policies and other disclosures.

Reclassifications

Certain prior period amounts have been reclassified to conform to the current period financial statement presentation. These reclassifications had an immaterial effect on the previously reported total assets, total liabilities, stockholders’ equity, results of operations or cash flows.

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Diamondback Energy, Inc. and Subsidiaries

Condensed Notes to Consolidated Financial Statements - (Continued)

(Unaudited)

2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Use of Estimates

Certain amounts included in or affecting the Company’s consolidated financial statements and related disclosures must be estimated by management, requiring certain assumptions to be made with respect to values or conditions that cannot be known with certainty at the time the consolidated financial statements are prepared. These estimates and assumptions affect the amounts the Company reports for assets and liabilities and the Company’s disclosure of contingent assets and liabilities as of the date of the consolidated financial statements. Actual results could differ from those estimates.

Making accurate estimates and assumptions is particularly difficult in the oil and natural gas industry, given the challenges resulting from volatility in oil and natural gas prices and the effects of the COVID-19 pandemic. Such circumstances generally increase the uncertainty in the Company’s accounting estimates, particularly those involving financial forecasts.

The Company evaluates these estimates on an ongoing basis, using historical experience, consultation with experts and other methods the Company considers reasonable in the particular circumstances. Nevertheless, actual results may differ significantly from the Company’s estimates. Any effects on the Company’s business, financial position or results of operations resulting from revisions to these estimates are recorded in the period in which the facts that give rise to the revision become known. Significant items subject to such estimates and assumptions include estimates of proved oil and natural gas reserves and related present value estimates of future net cash flows therefrom, the carrying value of oil and natural gas properties, the fair value determination of acquired assets and liabilities assumed, fair value estimates of derivative instruments and estimates of income taxes.

Cash, Cash Equivalents and Restricted Cash

The following table provides a reconciliation of cash, cash equivalents and restricted cash as reported at the end of the period in the condensed consolidated statements of cash flows for the six months ended June 30, 2022 and 2021 to the line items within the condensed consolidated balance sheets:

	Six Months Ended June 30,
	2022		2021
	(In millions)
Cash and cash equivalents	$	43	$	344
Restricted cash	16		18
Restricted cash included in funds held in escrow	—		34
Total cash, cash equivalents and restricted cash	$	59	$	396

Recent Accounting Pronouncements

Recently Adopted Pronouncements

There are no recently adopted pronouncements.

Accounting Pronouncements Not Yet Adopted

In October 2021, the FASB issued ASU 2021-08, "Business Combinations (Topic 805) – Accounting for Contract Assets and Contract Liabilities from Contracts with Customers.” This update requires the acquirer in a business combination to record contract asset and liabilities following Topic 606 – “Revenue from Contracts with Customers” at acquisition as if it had originated the contract, rather than at fair value. This update is effective for public business entities beginning after December 15, 2022 with early adoption permitted. The Company continues to evaluate the provisions of this update, but does not believe the adoption will have a material impact on its financial position, results of operations or liquidity.

The Company considers the applicability and impact of all ASUs. ASUs not discussed above were assessed and determined to be either not applicable, the effects of adoption are not expected to be material or are clarifications of ASUs previously disclosed.

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Diamondback Energy, Inc. and Subsidiaries

Condensed Notes to Consolidated Financial Statements - (Continued)

(Unaudited)

3.    REVENUE FROM CONTRACTS WITH CUSTOMERS

Revenue from Contracts with Customers

Sales of oil, natural gas and natural gas liquids are recognized at the point control of the product is transferred to the customer. Virtually all of the pricing provisions in the Company’s contracts are tied to a market index, with certain adjustments based on, among other factors, whether a well delivers to a gathering or transmission line, the quality of the oil or natural gas and the prevailing supply and demand conditions. As a result, the price of the oil, natural gas and natural gas liquids fluctuates to remain competitive with other available oil, natural gas and natural gas liquids supplies. The following tables present the Company’s revenue from contracts with customers disaggregated by product type and basin: