# How Diamondback Energy makes money

CXProWealth Business Lens · Diamondback Energy (FANG) · Q2 FY2026

Read from the 10-Q for the period 2026-04-01 to 2026-06-30, filed 2026-08-05 with the SEC (accession 0001539838-26-000142): https://www.sec.gov/Archives/edgar/data/1539838/000153983826000142/

Business Lens explains how a company earns, spends and keeps its money, from its own filings. It is insight and context, never a view on the shares, a target, or advice. Figures are raw units as filed; percentages are percentage points.

## Headline figures

- Revenue: $5.6B (+37.4% on the year)
- Operating income: $2.5B (operating margin 45.2%)
- Net income: $1.9B (net margin 33.8%)
- Gross margin: not reported (the company reports expenses by nature: no cost of revenue or gross profit line exists)
- Free cash flow: —
- Cash conversion (operating cash flow / net income): 1.91x
- Capital expenditure: — of revenue

## Where the money goes (Q2 FY2026)

- Total revenues → Total costs and expenses: $3.1B
- Total costs and expenses → General and administrative expenses: $72.0M
- Total costs and expenses → Production and ad valorem taxes: $302.0M
- Total costs and expenses → Depreciation, depletion, amortization and accretion: $1.3B
- Total costs and expenses → Other operating expenses, net: $9.0M
- Total costs and expenses → Purchased oil expense: $730.0M
- Total costs and expenses → Gathering, processing and transportation: $113.0M
- Total costs and expenses → Lease operating expenses: $552.0M
- Total revenues → Income (loss) from operations: $2.5B
- Income (loss) from operations → Income (loss) before income taxes: $2.5B
- Total other income (expense), net → Income (loss) before income taxes: $123.0M
- Income (loss) before income taxes → Provision for (benefit from) income taxes: $580.0M
- Income (loss) before income taxes → Net income (loss): $2.1B
- Net income (loss) → Net income (loss) attributable to non-controlling interest: $173.0M
- Net income (loss) → Net income (loss) attributable to Diamondback Energy, Inc.: $1.9B

## Income statement, as filed

| Line | Q2 FY2026 | Of revenue |
|---|---:|---:|
| Oil sales | $4.6B | 83.2% |
| Natural gas sales | -$276.0M | 5.0% |
| Natural gas liquid sales | $435.0M | 7.8% |
| Sales of purchased oil | $739.0M | 13.3% |
| Other operating income | $37.0M | 0.7% |
| **Total revenues** | $5.6B | 100% |
| Lease operating expenses | $552.0M | 9.9% |
| Production and ad valorem taxes | $302.0M | 5.4% |
| Gathering, processing and transportation | $113.0M | 2.0% |
| Purchased oil expense | $730.0M | 13.1% |
| Depreciation, depletion, amortization and accretion | $1.3B | 22.9% |
| Impairment of oil and natural gas properties | $0 | 0.0% |
| General and administrative expenses | $72.0M | 1.3% |
| Other operating expenses, net | $9.0M | 0.2% |
| **Total costs and expenses** | $3.1B | 54.8% |
| **Income (loss) from operations** | $2.5B | 45.2% |
| Interest expense, net | -$56.0M | 1.0% |
| Other income (expense), net | -$4.0M | 0.1% |
| Gain (loss) on derivative instruments, net | $49.0M | 0.9% |
| Gain (loss) on extinguishment of debt, net | $134.0M | 2.4% |
| **Total other income (expense), net** | $123.0M | 2.2% |
| **Income (loss) before income taxes** | $2.6B | 47.4% |
| Provision for (benefit from) income taxes | $580.0M | 10.4% |
| **Net income (loss)** | $2.1B | 36.9% |
| Net income (loss) attributable to non-controlling interest | $173.0M | 3.1% |
| **Net income (loss) attributable to Diamondback Energy, Inc.** | $1.9B | 33.8% |
| Basic (in usd per share) | $7 | 0.0% |
| Diluted (in usd per share) | $7 | 0.0% |
| Basic (in shares) | 281,202,000 |  |
| Diluted (in shares) | 281,202,000 |  |

## History

| Period | Revenue | Operating income | Net income | Operating cash flow | Capital expenditure | Free cash flow |
|---|---:|---:|---:|---:|---:|---:|
| FY2010 | — | $9.2M | $8.2M | $5.2M | — | — |
| FY2011 | — | $15.1M | -$386.0K | $31.0M | — | — |
| FY2012 | — | $17.3M | -$36.5M | $49.7M | — | — |
| FY2013 | — | $95.2M | $54.6M | $155.8M | — | — |
| FY2014 | — | $212.7M | $193.8M | $356.4M | — | — |
| FY2015 | — | -$740.3M | -$550.6M | $416.5M | — | — |
| FY2016 | $527.1M | -$68.6M | -$165.0M | $332.1M | — | — |
| FY2017 | $1.2B | $605.0M | $482.0M | $889.0M | — | — |
| FY2018 | $2.2B | $1.0B | $846.0M | $1.6B | — | — |
| FY2019 | $4.0B | $695.0M | $240.0M | $2.7B | — | — |
| FY2020 | $2.8B | -$5.5B | -$4.5B | $2.1B | — | — |
| FY2021 | $6.8B | $4.0B | $2.2B | $3.9B | — | — |
| FY2022 | $9.6B | $6.5B | $4.4B | $6.3B | — | — |
| FY2023 | $8.4B | $4.6B | $3.1B | $5.9B | — | — |
| FY2024 | $11.1B | $4.4B | $3.3B | $6.4B | — | — |
| FY2025 | $15.0B | $1.3B | $1.7B | $8.8B | — | — |

Latest trend (the newest full year against the year before; a reading, not a forecast):

- Revenue: +35.8% (year before +31.6%): accelerating
- Operating income: -71.2% (year before -3.8%): slowing
- Net income: -50.1% (year before +6.2%): slowing
- Free cash flow: — (year before —): too short a history to read

## Operating figures stated in the filing

- Daily combined production: 1,017,659 boe/d (as of 2026-06-30). "Daily combined volumes (BOE/d) 1,017,659 979,356" (Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS)
- Daily combined production: 979,356 boe/d (as of 2026-03-31). "Daily combined volumes (BOE/d) 1,017,659 979,356" (Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS)
- Daily oil production: 525,176 bo/d (as of 2026-06-30). "Daily oil volumes (BO/d) 525,176 520,989" (Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS)
- Daily oil production: 520,989 bo/d (as of 2026-03-31). "Daily oil volumes (BO/d) 525,176 520,989" (Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS)
- Average realized oil price: $97 (as of 2026-06-30). "Oil ($ per Bbl) $ 96.82 $ 73.47" (Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS)
- Average realized oil price: $73 (as of 2026-03-31). "Oil ($ per Bbl) $ 96.82 $ 73.47" (Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS)
- Cash operating costs per BOE: $11 (as of 2026-06-30). "Our cash operating costs were $10.96 per BOE" (Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS)
- Gross horizontal wells drilled: 97 wells (as of 2026-06-30). "Drilled 97 gross horizontal wells in the Midland Basin and turned 168 gross operated horizontal wells in the Midland Basin to production." (Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS)
- Gross operated wells turned to production: 168 wells (as of 2026-06-30). "Drilled 97 gross horizontal wells in the Midland Basin and turned 168 gross operated horizontal wells in the Midland Basin to production." (Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS)
- Average lateral length of completed wells: 11,983 feet (as of 2026-06-30). "The average lateral length for the wells completed during the second quarter of 2026 was 11,983 feet." (Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS)
- Net acres in the Permian Basin: 902,005 acres (as of 2026-06-30). "As of June 30, 2026, we had approximately 902,005 net acres in the Permian Basin, which included approximately 808,401 net acres in the Midland Basin and 93,604 net acres in the Delaware Basin." (Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS)
- Gross operated wells: 10,040 wells (as of 2026-06-30). "Total 4,404 4,184 5,636 5,294 10,040 9,478" (Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS)
- Gross wells with an interest held: 44,314 wells (as of 2026-06-30). "As of June 30, 2026, we and Viper held interests in 44,314 gross (9,810 net) wells, including 1,909 gross (331 net) wells in which we have a non-operated working interest." (Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS)
- Drilling rigs operating: 17 rigs (as of 2026-06-30). "We are currently operating 17 drilling rigs and five completion crews." (Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS)

## Key insights

### Oil price, not volume, drove the revenue jump

The realized oil price rose 31.8% from the first quarter while daily oil volume rose 0.8%: the gain came mostly from price.

The average realized oil price was $96.82 a barrel, against $73.47 in the first quarter, 31.8% higher. Daily oil production was 525,176 barrels, against 520,989, up 0.8%, and combined production was 1,017,659 barrels of oil equivalent a day against 979,356, up 3.9%. Against the first quarter, the filing attributes most of the gain in oil, gas and liquids revenue to higher prices received for oil. _(from the filing)_
Oil carries the business. Oil sales were $4,627M of $5,562M in total revenues, 83.2%, against $2,852M of $3,678M a year earlier, 77.5%. The filing's backdrop is a supply shock: the conflict in the Middle East moved the global crude market "from a supply-demand surplus to a deficit", raising benchmark prices. _(from the filing)_
Analysis: the year-on-year comparison mixes price with acquisitions that added volume, so the first quarter is the cleaner test of what changed. On that test, the drilling program held oil output roughly level and the market set the result. The quarter shows mainly what the same output earns at a higher oil price. _(analysis)_

### Flat depletion turned higher prices into margin

Revenue rose 51.22% while depletion barely moved, so operating margin reached 45.16%, against 30.97% a year earlier.

Total revenues rose 51.22% from a year earlier while total costs and expenses rose 20.13%, to $3.05B from $2.54B. The largest cost, depreciation, depletion, amortization and accretion, was $1,272M against $1,266M, up 0.47%, so its share of revenue fell to 22.9% from 34.4%. Operating income was $2,512M against $1,139M, 2.2 times. _(from the filing)_
The filing ties the lower depletion rate to the ceiling test impairments of the last quarter of the prior year and the first quarter of this one: writing down the asset base left less book value to deplete per barrel. Part of the wider margin is therefore a consequence of earlier write-downs, alongside the higher price. _(from the filing)_
Caveat: total revenues include $739M of purchased oil sales, matched by $730M of purchased oil expense, 98.8% of those sales. This pass-through, used to fill unused pipeline commitments, adds revenue with almost no profit, so it dilutes the reported operating margin. Its weight grew: purchased oil expense rose 120.54% from a year earlier. _(from the filing)_

### Write-downs swing earnings while operating cash holds steady

Operating cash flow of $3,589M was 1.9 times net income attributable to Diamondback, and it stayed positive through quarters of impairment-driven operating losses.

In the last quarter of the prior fiscal year the company reported an operating loss of $2,782M, yet operating cash flow that quarter was $2,343M. For that full year, operating income was $1,266M against operating cash flow of $8,758M: operating income was 14.5% of operating cash flow. In the first quarter of this year, operating income was $116M on revenue of $4,240M, while operating cash flow was $1,828M. _(from the filing)_
The cause is full cost accounting. Each quarter the company caps the book value of its proved reserves at a ceiling based on trailing prices and writes off any excess at once. The filing states it plainly: "Impairment charges affect our results of operations but do not reduce our cash flow." _(from the filing)_
Analysis: reported operating income tracks trailing prices through the ceiling test, while operating cash flow tracks the barrels sold and the price received. Comparing quarters on cash flow separates the business from the accounting cycle. This quarter, with no impairment, the two lines moved closer: operating cash flow was 1.9 times net income attributable, against 2.4 times a year earlier. _(analysis)_

### Debt and hedge gains lifted net profit past operating profit

Operating income rose 120.5%, but net income attributable rose 169.2%, helped by a $134M gain on retiring debt and a derivatives swing.

Operating income rose 120.5% from a year earlier, to $2,512M from $1,139M. Net income attributable to Diamondback rose 169.2%, to $1,882M from $699M. The gap comes from below the operating line: total other income was $123M, against an expense of $196M a year earlier. _(from the filing)_
Two items explain most of that swing. A $134M gain on extinguishment of debt, against $55M a year earlier, which the filing ties mainly to a tender offer that bought back senior notes below face value. And a $49M gain on derivative instruments, against a $197M loss a year earlier. The debt gain alone was 5.1% of income before income taxes of $2,635M. _(from the filing)_
Per share the gain is larger again. Diluted earnings per share were $6.65 against $2.38, up 179.4%, on 281.2 million diluted shares against 292.1 million, 3.7% fewer after repurchases. Viper's outside holders took a rising share: $173M, 8.4% of net income, against $40M, 5.4%, a year earlier. _(from the filing)_
Analysis: a gain from retiring debt below face value depends on bond prices and is not a recurring part of the business, and derivative results reverse as prices move. The operating line is the better guide to what the barrels earned. _(analysis)_

### Competitive edge

- **Low cash costs on concentrated Midland acreage** Cash operating costs were $10.96 per barrel of oil equivalent, against $96.82 realized per barrel of oil, leaving wide room before price erodes cash margin.
- **A stock of drilled wells lets output rise quickly** The company turned 168 gross operated wells to production while drilling 97, drawing on wells already drilled to lift output without waiting for new drilling.
- **Viper collects royalties well beyond Diamondback's own wells** Diamondback and Viper hold interests in 44,314 gross wells, against the 10,040 it operates, so royalty income reaches past its own drilling.

### What to watch

- **The margin rests on a supply-shock oil price** The realized oil price was 31.8% above the first quarter's, a rise the filing ties to a Middle East supply deficit it calls beyond its control.
- **Pipeline limits turned gas sales negative** Natural gas sales were minus $276M against $97M a year earlier, offsetting 6.0% of oil sales, as Permian takeaway constraints pushed Waha prices below zero.
- **Falling trailing prices can bring write-downs back** Ceiling test impairments held first-quarter operating income to $116M on $4,240M of revenue, and the filing warns of material write-downs if trailing prices fall.

## Investor view

**Oil sales made up 83.2% of Diamondback's revenue in the quarter, while its Permian natural gas sales turned negative**

### How it makes money

Diamondback drills and produces oil and gas in the Permian Basin of West Texas and reports a single upstream segment. It sells what comes out of the ground: in the filing's words, "Substantially all of our revenues are generated through the sale of oil, natural gas and natural gas liquids production." Oil sales were $4.6B of $5.6B in total revenues this quarter, 83.2%, up from 77.5% a year earlier. _(from the filing)_
Revenue is volume times price. The company produced 1,017,659 barrels of oil equivalent a day, against 979,356 in the first quarter. Oil was 525,176 barrels a day of that, about 51.6% of the volume, yet it carries most of the value: the average realized oil price was $96.82 a barrel, against $73.47 in the first quarter. _(from the filing)_
Costs are reported by nature, so there is no gross margin. The largest line is depreciation, depletion, amortization and accretion at $1,272M, the non-cash cost of capital already spent on wells. The cash costs of running the field are smaller: lease operating expenses of $552M, production and ad valorem taxes of $302M, and gathering, processing and transportation of $113M. The filing puts cash operating costs at $10.96 per barrel of oil equivalent. _(from the filing)_
Two side streams sit inside the totals. Viper, a publicly traded subsidiary that Diamondback controls and consolidates, owns mineral and royalty interests; its outside holders took $173M of the quarter's $2,055M net income. And the company purchases third-party oil "to satisfy certain of our unused oil pipeline capacity commitments": $739M of such sales against $730M of purchased oil expense, close to a wash. _(from the filing)_

### What shifted

Price did most of the work. Total revenues were $5.6B against $3.7B a year earlier, and oil sales $4,627M against $2,852M, while daily oil volume rose only modestly from the first quarter. The filing gives the backdrop: the conflict in the Middle East moved the global crude market "from a supply-demand surplus to a deficit", raising benchmark prices. Against the first quarter, the company attributes most of its revenue gain to higher oil prices received. _(from the filing)_
Costs did not follow revenue up. Total costs and expenses were $3.05B against $2.54B a year earlier. Depletion barely moved, $1,272M against $1,266M, so its share of revenue fell from 34.4% to 22.9%. The filing ties the lower depletion rate to the ceiling test impairments of recent quarters, which shrank the asset base being depleted. _(from the filing)_
Natural gas sales turned negative: minus $276M, against $97M a year earlier. The filing says pipeline takeaway constraints in the Permian caused "periods of negative pricing at Waha Hub", the regional gas price. Gas comes out of the same wells as the oil, so it kept flowing. Natural gas liquids, separated from the gas stream, still earned $435M against $367M a year earlier. _(from the filing)_
The first quarter is the sharper comparison. Revenue was $4.2B and operating income $116M then, weighed down by a non-cash ceiling test impairment; this quarter they were $5.6B and $2.5B. Below the operating line, a $134M gain on retiring debt below face value and a $49M derivatives gain, against a $197M loss a year earlier, lifted net income attributable to Diamondback to $1.88B, against $699M a year earlier. _(from the filing)_
Per share, the gain was larger than in total because the share count shrank. Diluted earnings per share were $6.65 against $2.38 a year earlier, on 281.2 million diluted shares against 292.1 million, after repurchases. _(from the filing)_

### Risks in the filing

The quarterly report says its risk factors have not changed materially since the annual report. The risk the filing returns to most is price: oil, gas and liquids prices move with conflict, trade policy, OPEC+ decisions, weather and the economy, and the company says "These factors are beyond our control and are difficult to predict." _(from the filing)_
Write-downs. Under full cost accounting the company tests the book value of its reserves every quarter against trailing prices. It warns that if trailing prices fall, "we may have material write-downs in subsequent quarters." These charges reduce reported earnings but not cash flow. _(from the filing)_
Takeaway and basis. Regional gas pipeline constraints have pushed Waha prices below zero at times, and the company says realized prices remain subject to "future supply, demand, transportation availability and other market factors." Its hedges carry their own exposure: derivatives create counterparty credit risk, which it limits by trading only with lenders under its credit facility. _(from the filing)_
Commitments and claims. Under the sale of its water business to Deep Blue, the company could owe contingent consideration if annual well completion thresholds are not met. It has signed a fixed-price power purchase contract running into the next decade, and it is a defendant in coastal erosion suits brought under Louisiana law, claims it says lack merit. _(from the filing)_
The numbers already show two of these risks. Basis risk is visible as a negative natural gas sales line. Write-down risk shows as the operating losses booked in the quarters with ceiling test impairments, while operating cash flow in those same quarters stayed positive. Price risk shows in reverse this quarter: it is what lifted the result. _(analysis)_

## Founder view: mechanisms

### Shale development run as a production line

Diamondback treats shale drilling as repeatable manufacturing rather than exploration. It concentrates on contiguous acreage in the Midland Basin, drills long horizontal laterals into stacked formations it already knows, and keeps a steady fleet of rigs and completion crews working. It cannot set the price of what it sells, so the variables it controls are the cost and speed of each well, and the business is organized around driving both down. _(analysis)_

### Reported earnings swing, operating cash holds

Diamondback uses full cost accounting. It capitalizes the cost of finding and developing reserves, depletes it as oil is produced, and each quarter caps the book value of proved reserves at a ceiling based on trailing prices. When prices fall, the excess is written off at once. The charge is real for the balance sheet but costs no cash in that quarter, because the money was spent earlier on wells that keep producing. _(analysis)_

### A royalty arm that collects on its own drilling

Viper, a public company Diamondback controls, owns mineral and royalty interests, many beneath acreage Diamondback itself drills. A royalty owner takes a share of production revenue without paying for wells or operations. Diamondback's drilling therefore feeds Viper's income, and Viper's shares become a currency: the parent drops minerals into Viper for units, raises cash by placing Viper stock with investors, and keeps control while outside holders own part of the stream. _(analysis)_

### A byproduct priced by the pipes

Permian wells drilled for oil also bring up natural gas and liquids. The gas cannot be shut in without shutting in the oil, so its value depends on regional pipeline space the company does not own. When takeaway is short, the local price can fall below zero and the producer pays to move it. On the oil side the exposure runs the other way: committed pipeline capacity it must fill, which it does by purchasing other producers' oil and marketing it through that capacity. _(analysis)_

### Uncompleted wells as a throttle

Drilling and completing a shale well are separate steps. Diamondback keeps a stock of wells drilled but not yet completed, which lets it add production quickly by finishing them when prices rise, without waiting for new drilling. With capital spending it calls "largely discretionary", the company can speed up or slow down its program as prices move. _(analysis)_

## Member research

Signed-in members read, on the page: what Diamondback Energy's numbers depend on from here, and the playbook behind each mechanism (what needs scale, what transfers, how to test it, the metric that would show it).

## Sources

- Diamondback Energy 10-Q for the period to 2026-06-30: https://www.sec.gov/Archives/edgar/data/1539838/000153983826000142/ (2026-08-05)

Methodology business-lens-1.0 · schema 1.2.0 · run business-lens-2026-11-02 · as of 2026-11-02