Diamondback Energy Inc

In addition to future operating expenses and working capital commitments discussed in “—Outlook”, our primary short and long-term liquidity requirements consist primarily of (i) capital expenditures, (ii) payments of principal and interest on our revolving credit agreements and senior notes, (iii) payments of other contractual obligations, (iv) cash commitments for dividends and repurchases of securities, and (v) the pending Endeavor Acquisition.

2024 Capital Spending Plan

Our board of directors approved a 2024 capital budget for drilling, midstream infrastructure and environmental of $2.30 billion to $2.55 billion. We estimate that, of these expenditures, approximately:

•$2.10 billion to $2.33 billion will be spent primarily on drilling 265 to 285 gross (244 to 263 net) horizontal wells and completing 300 to 320 gross (273 to 291 net) horizontal wells across our operated and non-operated leasehold acreage in the Northern Midland and Southern Delaware Basins, with an average lateral length of approximately 11,500+ feet;

•Approximately $200 million to $220 million will be spent on infrastructure and midstream expenditures, excluding the cost of any leasehold and mineral interest acquisitions.

The amount and timing of our capital expenditures are largely discretionary and within our control. We could choose to defer a portion of these planned capital expenditures depending on a variety of factors, including but not limited to the success of our drilling activities, prevailing and anticipated prices for oil and natural gas, the availability of necessary equipment, infrastructure and capital, the receipt and timing of required regulatory permits and approvals, seasonal conditions, drilling and acquisition costs and the level of participation by other interest owners. We will continue monitoring commodity prices and overall market conditions and can adjust our rig cadence and our capital expenditure budget up or down in response to changes in commodity prices and overall market conditions.

Payments of Principal and Interest on Senior Notes

At December 31, 2023, we have total principal payments due on our outstanding senior notes, including those of Viper, of $764 million in 2026, $430 million in 2027, $73 million in 2028 and $5.3 billion thereafter. Additionally, we expect to incur future cash interest costs on these senior notes of approximately $310 million in 2024, $619 million cumulatively in the years from 2025 through 2026, $543 million cumulatively in the years from 2027 and 2028, and $2.9 billion cumulatively between 2029 and 2053.

Retirements of Notes

In January 2024, we opportunistically repurchased principal amounts of $22 million of our 3.125% Senior Notes due 2031 and $6 million of our 3.500% Senior Notes due 2029 in open market transactions for total cash consideration of $25 million, at an average of 89.0% of par value.

We may continue to repurchase some of our outstanding senior notes in open market purchases or in privately negotiated transactions in future periods.

Other Contractual Obligations and Commitments

At December 31, 2023, our other significant contractual obligations consist primarily of (i) minimum transportation commitments totaling $768 million, (ii) electrical power purchase commitments totaling $407 million (iii) asset retirement obligations totaling $245 million, (iv) electronic fracturing fleet and related power generation services commitments totaling $93 million and (v) minimum purchase commitments for quantities of sand used in our drilling operations totaling $70 million. We expect to make aggregate payments of approximately $252 million for these commitments during 2024. See Note 6—Asset Retirement Obligations and Note 15—Commitments and Contingencies in Item 8. Financial Statements and Supplementary Data of this report for further discussion of these and other contractual obligations and commitments.

We and Five Point currently anticipate collectively contributing $500 million in follow-on capital to fund future Deep Blue growth projects and acquisitions.

Return of Capital Commitment

Beginning in the first quarter of 2024, our board of directors has approved a reduction in our return of capital commitment to at least 50% from 75% of our quarterly free cash flow to our shareholders through repurchases under our share repurchase program, base dividends and variable dividends. The remainder of our free cash flow will be used primarily to reduce debt. On February 11, 2024, our board of directors approved an increase in our annual base dividend to $3.60 per share of common stock and, on February 16, 2024, our board of directors declared a combined base and variable dividend for the fourth quarter of 2023 of $3.08 per share of common stock.

Free cash flow is a non-GAAP financial measure. As used by us, free cash flow is defined as cash flow from operating activities before changes in working capital in excess of cash capital expenditures and other adjustments as determined by us. We believe that free cash flow is useful to investors as it provides a measure to compare both cash flow from operating activities and additions to oil and natural gas properties across periods on a consistent basis.

Future base and variable dividends are at the discretion of our board of directors, and the board of directors may change the dividend amount from time to time based on our outlook for commodity prices, liquidity, debt levels, capital resources, free cash flow and other factors. We can provide no assurance that dividends will be authorized or declared in the future or as to the amount and type of any future dividends. Any future dividends, whether base or variable, if declared and paid, will by their nature fluctuate based on our free cash flow, which will depend on a number of factors beyond our control, including commodity prices.

As of February 16, 2024, we have repurchased 19.3 million shares of our common stock for a total cost of $2.4 billion since the inception of the stock repurchase program, excluding excise tax. We intend to continue to opportunistically purchase shares under this repurchase program with available funds primarily from cash flow from operations and liquidity events such as the sale of assets while maintaining sufficient liquidity to fund our capital expenditure programs. See Note 9—Stockholders' Equity and Earnings Per Share in Item 8. Financial Statements and Supplementary Data of this report for further discussion of the repurchase program.

On February 11, 2024, in connection with the execution of the Merger Agreement, we entered into a commitment letter with Citi pursuant to which Citi committed to provide an $8.0 billion senior unsecured bridge facility, subject to customary conditions. We expect to replace such commitment with permanent debt financing prior to the closing of the Endeavor Acquisition.

Guarantor Financial Information

Diamondback E&P is the sole guarantor under the indentures governing the outstanding Guaranteed Senior Notes.

Guarantees are “full and unconditional,” as that term is used in Regulation S-X, Rule 3-10(b)(3), except that such guarantees will be released or terminated in certain circumstances set forth in the indentures governing the Guaranteed Senior Notes, such as, with certain exceptions, (i) in the event Diamondback E&P (or all or substantially all of its assets) is sold or disposed of, (ii) in the event Diamondback E&P ceases to be a guarantor of or otherwise be an obligor under certain other indebtedness, and (iii) in connection with any covenant defeasance, legal defeasance or satisfaction and discharge of the relevant indenture.

Diamondback E&P’s guarantees of the Guaranteed Senior Notes are senior unsecured obligations and rank senior in right of payment to any of its future subordinated indebtedness, equal in right of payment with all of its existing and future senior indebtedness, including its obligations under its revolving credit facility, and effectively subordinated to any of its existing and future secured indebtedness, to the extent of the value of the collateral securing such indebtedness.

The rights of holders of the Guaranteed Senior Notes against Diamondback E&P may be limited under the U.S. Bankruptcy Code or state fraudulent transfer or conveyance law. Each guarantee contains a provision intended to limit Diamondback E&P’s liability to the maximum amount that it could incur without causing the incurrence of obligations under its guarantee to be a fraudulent conveyance. However, there can be no assurance as to what standard a court will apply in making a determination of the maximum liability of Diamondback E&P. Moreover, this provision may not be effective to protect the guarantee from being voided under fraudulent conveyance laws. There is a possibility that the entire guarantee may be set aside, in which case the entire liability may be extinguished.

The following tables present summarized financial information for Diamondback Energy, Inc., as the parent, and Diamondback E&P, as the guarantor subsidiary, on a combined basis after elimination of (i) intercompany transactions and balances between the parent and the guarantor subsidiary, and (ii) equity in earnings from and investments in any subsidiary that is a non-guarantor. The information is presented in accordance with the requirements of Rule 13-01 under the SEC’s Regulation S-X. The financial information may not necessarily be indicative of results of operations or financial position had the guarantor subsidiary operated as an independent entity.