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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 classTrading Symbol(s)Name of each exchange on which registered
Common StockFANGThe 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 FilerAccelerated Filer
Non-Accelerated FilerSmaller 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


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”):
BasinA large depression on the earth’s surface in which sediments accumulate.
Bbl or barrelOne stock tank barrel, or 42 U.S. gallons liquid volume, used in this report in reference to crude oil or other liquid hydrocarbons.
BOOne barrel of crude oil.
BOEOne barrel of oil equivalent, with six thousand cubic feet of natural gas being equivalent to one barrel of oil.
BOE/dBOE per day.
British Thermal Unit or BtuThe quantity of heat required to raise the temperature of one pound of water by one degree Fahrenheit.
CompletionThe 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 wellsThe total acres or wells, as the case may be, in which a working interest is owned.
Horizontal wellsWells drilled directionally horizontal to allow for development of structures not reachable through traditional vertical drilling mechanisms.
MBblOne thousand barrels of crude oil and other liquid hydrocarbons.
MBO/dOne thousand BO per day.
MBOE/dOne thousand BOE per day.
McfOne thousand cubic feet of natural gas.
Mineral interestsThe interests in ownership of the resource and mineral rights, giving an owner the right to profit from the extracted resources.
MMBtuOne million British Thermal Units.
Net acres or net wellsThe sum of the fractional working interest owned in gross acres.
Oil and natural gas propertiesTracts of land consisting of properties to be developed for oil and natural gas resource extraction.
ProspectA 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 reservesThe 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.
ReservesThe 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).
ReservoirA 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 interestAn 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 interestAn 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.
WTIWest Texas Intermediate.
ii

GLOSSARY OF CERTAIN OTHER TERMS
The following is a glossary of certain other terms that are used in this report:
ASCAccounting Standards Codification.
ASUAccounting Standards Update.
December 2019 NotesThe 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 PlanThe Company’s 2021 Amended and Restated Equity Incentive Plan.
Exchange ActThe Securities Exchange Act of 1934, as amended.
FASBFinancial Accounting Standards Board.
GAAPAccounting principles generally accepted in the United States.
IG IndentureThe 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).
LIBORThe London interbank offered rate.
March 2021 NotesThe 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 NotesThe Company’s 4.250% Senior Notes due 2052, issued under the IG Indenture and the related third supplemental indenture.
NYMEXNew York Mercantile Exchange.
OPECOrganization of the Petroleum Exporting Countries.
RattlerRattler Midstream LP, a Delaware limited partnership.
Rattler LLCRattler Midstream Operating LLC, a Delaware limited liability company and a subsidiary of Rattler.
SECUnited States Securities and Exchange Commission.
Senior NotesThe outstanding December 2019 Notes, the March 2021 Notes and the March 2022 Notes.
SOFRThe secured overnight financing rate.
TSRTotal stockholder return of the Company’s common stock.
ViperViper Energy Partners LP, a Delaware limited partnership.
Viper LLCViper Energy Partners LLC, a Delaware limited liability company and a subsidiary of Viper.
Wells FargoWells 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,
20222021
(In millions, except par values and share data)
Assets
Current assets:
Cash and cash equivalents$43 $654 
Restricted cash16 18 
Accounts receivable:
Joint interest and other, net76 72 
Oil and natural gas sales, net961 598 
Inventories65 62 
Derivative instruments17 13 
Income tax receivable 1 
Prepaid expenses and other current assets23 28 
Total current assets1,201 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 assets1,139 1,076 
Other property, equipment and land190 174 
Accumulated depletion, depreciation, amortization and impairment(14,160)(13,545)
Property and equipment, net21,369 20,619 
Funds held in escrow 12 
Equity method investments660 613 
Derivative instruments33 4 
Deferred income taxes, net33 40 
Investment in real estate, net87 88 
Other assets65 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,
20222021
Liabilities and Stockholders’ Equity(In millions, except par values and share data)
Current liabilities:
Accounts payable - trade$62 $36 
Accrued capital expenditures323 295 
Current maturities of long-term debt55 45 
Other accrued liabilities420 419 
Revenues and royalties payable615 452 
Derivative instruments162 174 
Deferred income taxes3 17 
Total current liabilities1,640 1,438 
Long-term debt5,401 6,642 
Derivative instruments123 29 
Asset retirement obligations260 166 
Deferred income taxes1,600 1,338 
Other long-term liabilities34 40 
Total liabilities9,058 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 capital13,772 14,084 
Retained earnings (accumulated deficit)(458)(1,998)
Total Diamondback Energy, Inc. stockholders’ equity13,316 12,088 
Non-controlling interest1,074 1,157 
Total equity14,390 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,
2022202120222021
(In millions, except per share amounts, shares in thousands)
Revenues:
Oil sales$2,189 $1,395 $4,135 $2,339 
Natural gas sales264 107 418 211 
Natural gas liquid sales299 165 588 289 
Midstream services14 12 31 23 
Other operating income2 2 4 3 
Total revenues2,768 1,681 5,176 2,865 
Costs and expenses:
Lease operating expenses159 157 308 259 
Production and ad valorem taxes178 105 339 180 
Gathering and transportation61 56 120 87 
Midstream services expenses23 23 45 51 
Depreciation, depletion, amortization and accretion330 341 643 614 
General and administrative expenses39 36 75 61 
Merger and integration expenses 2  77 
Other operating expenses 6 8 10 
Total costs and expenses790 726 1,538 1,339 
Income (loss) from operations1,978 955 3,638 1,526 
Other income (expense):
Interest expense, net(39)(57)(79)(113)
Other income (expense), net1 (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 investments28 5 37 2 
Total other income (expense), net(115)(533)(751)(816)
Income (loss) before income taxes1,863 422 2,887 710 
Provision for (benefit from) income taxes402 94 623 159 
Net income (loss) 1,461 328 2,264 551 
Net income (loss) attributable to non-controlling interest45 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:
Basic176,570 181,009 177,064 172,636 
Diluted176,876 181,199 177,380 172,806 
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 StockAdditional Paid-in CapitalRetained Earnings (Accumulated Deficit)Non-Controlling InterestTotal
SharesAmount
($ in millions, shares in thousands)
Balance December 31, 2021177,551 $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 awards58 — 1 — — 1 
Change in ownership of consolidated subsidiaries, net— — (12)— 15 3 
Net income (loss)— — — 779 24 803 
Balance March 31, 2022177,551 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 awards19 — — — — — 
Change in ownership of consolidated subsidiaries, net— — (9)— 12 3 
Net income (loss)— — — 1,416 45 1,461 
Balance June 30, 2022175,201 $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 StockAdditional Paid-in CapitalRetained Earnings (Accumulated Deficit)Non-Controlling InterestTotal
SharesAmount
($ in millions, shares in thousands)
Balance December 31, 2020158,088 $2 $12,656 $(3,864)$1,010 $9,804 
Unit-based compensation— — — — 3 3 
Distribution equivalent rights payments— — — (1)— (1)
Common units issued for acquisitions22,795 — 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 awards101 — — — — — 
Change in ownership of consolidated subsidiaries, net— — (4)— 4 — 
Net income (loss)— — — 220 3 223 
Balance March 31, 2021180,984 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 awards65 — 3 — — 3 
Change in ownership of consolidated subsidiaries, net— — (3)— 4 1 
Net income (loss)— — — 311 17 328 
Balance June 30, 2021181,049 $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,
20222021
(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 taxes273 155 
Depreciation, depletion, amortization and accretion643 614 
(Gain) loss on extinguishment of debt58 61 
(Gain) loss on derivative instruments, net653 661 
Cash received (paid) on settlement of derivative instruments(720)(484)
(Income) loss from equity investment(37)(2)
Equity-based compensation expense28 23 
(Gain) loss on sale of equity method investments (23)
Other36 15 
Changes in operating assets and liabilities:
Accounts receivable(380)(172)
Income tax receivable1 99 
Prepaid expenses and other15 18 
Accounts payable and accrued liabilities(21)(26)
Income tax payable(14) 
Revenues and royalties payable163 100 
Other(3)(12)
Net cash provided by (used in) operating activities2,959 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 assets72 100 
Funds held in escrow12 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 facilities1,579 661 
Repayments under credit facilities(1,563)(780)
Proceeds from senior notes750 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 period672 108 
Cash, cash equivalents and restricted cash at end of period(1)
$59 $396 





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.

7

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