Diamondback Energy (NASDAQ:FANG) used its third-quarter 2026 earnings call to emphasize capital discipline, Permian Basin development and longer-term opportunities in natural gas, enhanced oil recovery and power infrastructure.
Chief Executive Officer Kaes Van’t Hof said the company’s reinvestment rate was approximately 32%, or about 30% using the commodity-price strip referenced during the call. He said the low reinvestment rate reflects Diamondback’s focus on developing its highest-return inventory first, maintaining a low-cost operating structure and preserving free cash flow for debt reduction, dividends, share repurchases and other capital-allocation opportunities.
“Our best protection is to keep that reinvestment rate low, generate a ton of free cash, and then allocate that free cash appropriately to what the market’s giving us,” Van’t Hof said.
Capital Plans Remain Dependent on Market Conditions
Diamondback said it expects to maintain oil production at the high end of its current range while working to offset inflation through operational efficiencies. Van’t Hof said the company’s fourth-quarter capital spending guidance is broadly similar to its third-quarter spending level, though spending would likely need to rise above that level if the company elects to pursue production growth in 2027.
Management did not provide a formal 2027 budget, citing commodity-price volatility and other market variables. Van’t Hof said the company’s base development program is currently centered on operating 19 to 20 drilling rigs and five frac crews, which he said should result in relatively flat completed lateral footage compared with the 6.4 million feet expected in 2026 while generating organic growth.
Chief Operating Officer Danny Wesson said Diamondback expects to remain a “price taker” for service costs but plans to continue seeking savings through execution, procurement and relationships with service providers. He said inflationary pressure could emerge in a higher oil-price environment, although the company is focused on controlling variable costs.
Van’t Hof said Diamondback has reduced consolidated debt by roughly $4 billion over the past year. He described the company’s approach as using free cash flow opportunistically, including buying shares during periods of market weakness and repurchasing long-dated bonds when they trade below par. He added that Diamondback intends to continue increasing its base dividend over time while maintaining a balance sheet capable of supporting share repurchases during a downturn.
Barnett Development Moves Toward Full-Field Activity
A major topic on the call was Diamondback’s deeper Barnett development program in the Permian Basin. Management said recently disclosed well results, including activity around the Spanish Trail area, support a transition from geological delineation toward more meaningful full-field development.
Chief Engineer Al Barkmann said the company has drilling obligations in 2027 concentrated near the locations where it reported Barnett results. Diamondback plans to co-develop those areas in part to avoid leaving behind child wells. He said the returns in areas including Spanish Trail can compete with core development, particularly where Diamondback has Viper mineral ownership.
Wesson said the company sees opportunities to lower Barnett well costs through longer laterals, shared surface infrastructure and continued drilling improvements. While the dataset remains limited, he said drilling performance has improved across several well sections quarter over quarter.
Management said it is initially using robust completion designs while it assesses full-section development results. The company may later tailor completion intensity based on well spacing and the development design, rather than assuming a single design will fit all Barnett locations.
Van’t Hof said four or five full-section developments are expected to come online over the next three to four months. While early flowback results appear encouraging, he said Diamondback will provide more detail as the wells generate a broader performance history.
Barkmann said the company sees particularly attractive economics if Barnett well costs can reach roughly $850 to $900 per foot. At that level, he said the program’s capital efficiency, returns and net present value would exceed those of the core program under the assumptions used in the company’s analysis.
Permian Gas, Power and Recovery Technology
Diamondback also discussed its view that Permian gas may gain value over the coming decade as LNG exports and power demand create a shift from supply-driven markets toward demand-driven markets. Van’t Hof said the company has secured pipeline capacity and is discussing potential arrangements with LNG market participants that have downstream capacity but need gas supply.
He said Diamondback is not seeking to become the primary developer behind long-term LNG projects, but it sees potential “win-wins” as a supplier of gas molecules. The company also has inventory with higher gas content that it has not needed to develop to date, according to Van’t Hof.
Chief Financial Officer Jere Thompson said Diamondback’s planned power project at Bryant Ranch is nearing final agreements. The company has remediated the land, secured equipment and arranged water and gas supply, he said. Management expects the project to use mobile power generation initially to bring power online quickly, while longer-term power options could be evaluated as projects expand.
Van’t Hof said investments in projects such as the Solitude Pipeline and power generation are expected to flow through equity affiliates rather than Diamondback’s traditional capital budget. He said such investments could be attractive for shareholders while also helping defer taxes, noting that the company expects to pay nearly $2 billion in cash taxes this year.
AI and EOR Remain Early-Stage Opportunities
Management highlighted artificial intelligence and automation as potential drivers of operational efficiency. Executive Vice President of Operations Chad McAllaster said Diamondback is deploying autonomous, self-optimizing artificial-lift systems, beginning with plunger-lift wells. He said the technology is reducing manpower requirements and compression usage while improving uptime and minimizing downtime after weather events.
McAllaster said the company expects to bring its remaining roughly 1,000 plunger-lift wells onto the system within months. Diamondback is also using drone technology to identify field issues before personnel are dispatched, which management said could improve workforce productivity as the business scales.
On enhanced oil recovery, Barkmann said Diamondback estimates it currently recovers about 10% of oil in place. The company is testing surfactants and other chemical approaches in laboratories and field trials. He said even a 1% to 2% increase in recovery could add an estimated 50,000 to 100,000 barrels per well.
Van’t Hof said the company has allocated roughly $50 million to $100 million for such testing within a capital budget exceeding $4 billion. He said reaching an 11% recovery factor could be achievable within the next several years, while substantially larger gains would likely require further technological progress over the next decade.
About Diamondback Energy (NASDAQ:FANG)
Diamondback Energy, Inc is an independent oil and natural gas company engaged in the acquisition, development, exploration and exploitation of unconventional, onshore oil and natural gas reserves. The company’s operations are concentrated in the Permian Basin of West Texas and southeastern New Mexico, particularly the Midland and Delaware Basins.
Diamondback produces crude oil, natural gas and natural gas liquids from horizontal wells and related infrastructure. Its activities include drilling and completing wells, operating gathering and processing assets, and managing midstream services that support production.
