FANGDiamondback Energy

Our certificate of incorporation and bylaws contain provisions that may make acquiring control of our company difficult, including provisions regulating the ability of our stockholders to nominate directors for election or to bring matters for action at annual meetings of our stockholders; limitations on the ability of our stockholders to call a special meeting and act by written consent; the ability of our board of directors to adopt, amend or repeal bylaws, and the requirement that the affirmative vote of holders representing at least 66 2/3% of the voting power of all outstanding shares of capital stock be obtained for stockholders to amend our bylaws; the requirement that the affirmative vote of holders representing at least 66 2/3% of the voting power of all outstanding shares of capital stock be obtained to remove directors; the requirement that the affirmative vote of holders representing at least 66 2/3% of the voting power of all outstanding shares of capital stock be obtained to amend our certificate of incorporation; and the authorization given to our board of directors to issue and set the terms of preferred stock without the approval of our stockholders.

Historically, oil and natural gas prices have been volatile and are subject to fluctuations in response to changes in supply and demand, market uncertainty and a variety of additional factors that are beyond our control, including the domestic and foreign supply of oil and natural gas; the level of prices and expectations about future prices of oil and natural gas; the level of global oil and natural gas exploration and production; the cost of exploring for, developing, producing and delivering oil and natural gas; the price and quantity of foreign imports; political and economic conditions in oil producing countries, including the Middle East, Africa, South America countries; regional conflicts and Russia; the potential impact of the war in Ukraine, the Israel-Hamas War and other conflicts in the Middle East on the global energy markets and macroeconomic conditions; political instability; the continued threat of terrorism terrorism, including attacks targeting oil and gas facilities and the impact of military and other action, including U.S. military operations in the Middle East; action; the ability of members of the OPEC+ to agree to and maintain oil price and production controls; speculative trading in crude oil and natural gas derivative contracts; the level of consumer product demand; extreme weather conditions and other natural disasters; risks associated with operating drilling rigs; technological advances affecting energy consumption; the price and availability of alternative fuels; domestic and foreign governmental regulations and taxes, including the new administration’s energy and environmental policies; taxes; global or national health concerns, including the outbreak of pandemic or contagious disease; the proximity, cost, availability and capacity of oil and natural gas pipelines and other transportation facilities; and overall domestic and global economic conditions.

However, our systems Our IT Systems and networks, Confidential Information, and those that of our vendors, service providers and other third-party providers, may become the target of providers and business partners, are vulnerable to evolving cybersecurity attacks, threats, including, without limitation, denial-of-service attacks; malicious software; software (e.g., ransomware); the exploitation of known and unknown misconfigurations, “bugs,” and other hardware or software vulnerabilities; data privacy breaches by employees, insiders or others with authorized access; cyber or phishing-attacks; ransomware; social engineering (e.g. phishing) attacks; attempts to gain unauthorized access to our data and systems; and other electronic or physical security breaches.

As Similarly, as a result of an ownership changes change for Diamondback Energy, Inc., QEP and Rattler, which occurred Sitio in connection with the acquisition of QEP and the Rattler Merger, our NOLs and other carryforwards, including those Viper’s Sitio Acquisition, carryforwards acquired from QEP and Rattler, Sitio are subject to an annual limitation under Section Sections 382 and 383 of the Code.

Our 2025 2026 cash capital budget, which gives effect to the pending Double Eagle Acquisition, for drilling, completion, infrastructure and midstream, including investments in water disposal infrastructure and gathering line projects, budget is currently estimated to be approximately $3.80 $3.60 billion to $4.20 $3.90 billion, representing an increase at the midpoint of 40% 6% from our 2024 2025 capital expenditures.

As an exploration and production company, we We rely extensively on information technology systems, systems and infrastructure, including internally developed software, but not limited to, data hosting platforms, real-time data acquisition systems, internally developed and third-party software, cloud services and other internally or externally hosted hardware and software platforms, platforms (collectively, “IT Systems”) for operational and other purposes, such as to (i) estimate our oil and natural gas reserves, (ii) process and record financial and operating data, (iii) process and analyze all stages of our business operations, including exploration, drilling, completions, production, transportation, pipelines and other related activities activities, and (iv) communicate with our employees and vendors, suppliers and other third parties.

For example, in recent years, certain Certain stakeholders and capital providers sought may seek to restrict or seek more to impose stringent conditions with respect to their investment in or financing of certain carbon intensive sectors. sectors, which could result in capital being unavailable to us, or only at significantly increased costs.

The These and other threat-related advancements in AI could lead to an increase in the frequency of identity fraud or cyberattacks (whether successful or unsuccessful), which could cause expose us to incur increasing costs, including costs to deploy additional personnel, protection technologies and policies and procedures, train employees, and engage third-party experts and consultants.

The Endeavor equityholders’ level of ownership and influence may make some transactions (such as those involving mergers, material share issuances or changes in control) more difficult or impossible, which in turn could adversely affect the market price of our shares of common stock or prevent our shareholders from realizing a premium over the market price for their shares of our common stock.

In addition, generative AI systems may also be are increasingly used by malicious actors to create more sophisticated cyber-attacks (i.e., more realistic phishing or other attacks). attacks) and to circumvent controls, evade detection and even remove forensic evidence, rendering incident detection and remediation more challenging.

In addition, these policies do not provide coverage We maintain specialized insurance for all liabilities, and possible liability resulting from a cyberattack on our assets, however, we cannot assure you that the insurance coverage will be adequate to cover claims that may arise, or that we will be able to maintain adequate insurance at rates we consider reasonable.

However, we cannot assure you that undertaking alternative financing plans, if necessary, plans would allow us be consummated on desirable terms or would be adequate to meet our any debt obligations. service obligations then due.

The following is a summary of some of the material risks relating to our business activities.

In addition to potentially reducing demand for our oil and natural gas and potentially reducing the availability of oilfield services and midstream and downstream customers, any further regulatory or other climate change incentives, to the extent they continue, may create investment and reputational risks associated with the exploration for, and production of, hydrocarbons, which may adversely affect the availability and cost to us of capital.

The revised rules will go went into effect on July 1, 2025.

Many In addition, many key responsibilities within our business have been assigned to a small number of employees.

Future changes in our stock ownership, however, ownership could result in an additional ownership change under Section 382 of the Code.

On January 30, May 1, 2025, our wholly owned subsidiary, EER LP and the Endeavor Subsidiaries, each of which is our subsidiary, entered into a definitive equity purchase agreement with Viper and Viper LLC to divest LP, divested the Endeavor Subsidiaries to Viper and Viper LLC in exchange for consideration consisting of (i) $1.0 billion $873 million in cash including customary post-closing adjustments, and (ii) the issuance of 69.63 million Viper LLC units and an equal number of shares of Viper’s Class B common stock (which securities are exchangeable for an equal number of Viper’s Class A common stock), in each case subject to customary closing adjustments, including for net title benefits. stock.

As of December 31, 2024, 2025, our debt, including the debt of Viper, consisted of approximately $12.0 $13.5 billion in aggregate outstanding principal amount of senior notes, $900 $550 million outstanding under the 2025 Term Loan due in 2027, $500 million outstanding under the Viper 2025 Term Loan due in 2027, which was repaid in February 2026, and $105 million in aggregate outstanding short-term borrowings under the Tranche A Loans and $261 million Viper Revolving Credit Facility, which was repaid in aggregate outstanding borrowings under revolving credit facilities. the first quarter of 2026.

The increase in operating cash flows for the year ended December 31, 2024 2025 compared to the same period in 2023 2024 primarily resulted from (i) an increase of $1.8 $3.4 billion in total additional revenue, excluding sales of purchased oil, and (ii) an additional $138 increase of $232 million of cash received on settlements of derivatives in interest income, and (iii) a reduction of $59 million in 2025 compared to cash paid on settlements of derivatives. derivatives in 2024, and a reduction of $114 million in cash paid for interest, net of capitalized amounts.

During the year ended December 31, 2024, net cash used in provided by financing activities was primarily attributable to (i) $5.5 billion of proceeds from the issuance of the April 2024 Notes, (ii) $900 million in borrowings on our Tranche A Loans, net of repayments, (iii) $476 million in proceeds from the Viper 2024 Equity Offering, $451 million Offering (as defined and discussed in proceeds from the sale of our shares of Viper’s Class A common stock Note 9—Stockholders’ Equity and $2 million Earnings (Loss) Per Share in borrowings on our credit facilities, net of repayments. Item 8.

The majority of our net cash used for in investing activities during the year ended December 31, 2024 and 2023 2024, was for drilling and completion costs in conjunction with our development program as well as the purchase of oil and gas properties including the Endeavor Acquisition and Viper’s Tumbleweed Acquisitions in 2024 and the Lario Acquisition and Viper’s GRP Acquisition in 2023. Acquisition.

These cash inflows were partially offset by (i) $1.6 billion of dividends paid to stockholders, (ii) $959 million of repurchases as part of the our and Viper’s share repurchase program, programs, (iii) $227 million in dividends to non-controlling interest, (iv) $99 million of debt issuance costs primarily associated with the April 2024 Notes, Term Loan Agreement and Bridge Facility, and (vi) $39 million in cash paid for tax withholdings on vested employee stock awards.

In connection with the Endeavor Double Eagle Acquisition, we Diamondback Energy, Inc., as guarantor, entered into a term loan credit agreement with Diamondback E&P, as borrower, and Bank of America, N.A., as administrative agent (the “2025 Term Loan Credit Agreement with Citibank, N.A. on February 29, 2024 (the “Term Loan Agreement”). Loan”).

Subject to regulatory restrictions and other factors discussed elsewhere in this report, we intend to continue opportunistically purchasing to purchase shares under this repurchase program opportunistically with available funds primarily with funds from cash flow from operations and liquidity events such as the sale of assets while maintaining sufficient liquidity to fund our capital expenditure programs; however, the stock repurchase program is at the discretion of our board of directors and can be amended, terminated or suspended at any time.

Our long-term target is to maintain We exceeded our net debt between $6 billion and $8 billion through free cash flow generation and potential non-core asset sales as demonstrated by our recently announced commitment to sell at least $1.5 billion of non-core assets during 2025 to help accelerate debt reduction and maintain a strong balance sheet.

The majority of our net cash used for in investing activities during the year ended December 31, 2024 and 2023 2025, was for drilling and completion costs in conjunction with our development program as well as the purchase acquisition of oil properties and gas properties including equipment for the Endeavor Double Eagle Acquisition and Viper’s Tumbleweed Acquisitions in 2024 and the Lario Acquisition and Viper’s GRP Acquisition in 2023. Sitio Acquisition.

Regional and worldwide economic activity, changes in trade or other government policies or regulations, including with respect to U.S. energy and monetary policies, tariffs or other trade barriers and any resulting trade tensions, regional conflicts and political instability, extreme weather conditions and other substantially variable factors, influence market conditions for these products.

The increase in general and administrative expenses of $52 $59 million in 2024 2025 compared to 2023 2024 was primarily due to (i) a $41 $47 million increase in employee compensation and benefit costs related to additional increasing headcount largely from the Endeavor Acquisition for the full year of 2025 and annual compensation adjustments, (ii) a $12 million increase in software costs, and (iii) offsetting changes in other individually insignificant items.

Our working capital requirements are primarily supported by our cash and cash equivalents and available borrowings under our revolving credit facility.