FANG (Diamondback): Record $6.65 EPS — And The Gas Sold For MINUS $2.15. Q2 2026

Diamondback Energy, Inc. (FANG) Q2 2026 — Reported after the close on August 3 (three months ended June 30, 2026). Total revenue $5,562M, +51.2%. GAAP diluted EPS $6.65 vs $2.38 a year ago; adjusted EPS $6.48 vs a ~$6.40 consensus. Free cash flow $2,330M on capex of $996M. Production crossed 1,018 MBOE/d — above one million barrels of oil equivalent per day for the first time in company history — on a realized oil price of $96.82/bbl after the Strait of Hormuz supply shock. Full-year guidance RAISED twice (oil to 522+ MBO/d, total to 1,000+ MBOE/d) with capex unchanged at $3.90B. The stock closed at $198.75 the session INTO the print, down 2.1%; there is no reaction session yet. The number nobody decomposed: 525 MBO/d x 91 days x $96.82 realized = $4,626M of oil sales, against $4,786M of TOTAL wellhead revenue. So gas and NGLs together contributed about $160M — 3.4% of the revenue from roughly 48% of the molecules. Diamondback's realized natural gas price was NEGATIVE $2.15/Mcf; Waha touched about -$10/Mcf in the quarter. The 1 million BOE/d milestone is half revenue and half disposal problem. THE CALL: AVOID (2/5, A MAGNIFICENT QUARTER, PRICED AS IF THE WAR PREMIUM IS PERMANENT) — base-case value ~$136.0 vs ~$198.75 today. KEY METRICS: - THE CALL: AVOID 2/5 - fair value ~$136 vs the $198.75 close (-32%); Street average $219.91, median $232 (48 buy / 5 hold / 0 sell, 53 analysts, range $100-$255, +11%), so we DIFFER on the rating and are far more CAUTIOUS on the number. We would be real buyers near $110. - DCF GRID (bear/base/bull x 8.5/9.5/10.5%): $102-91-80, $150-136-123, $197-182-166. Scenarios are OIL PRICES, stated on the slide: bear mid-cycle WTI $62 ($3.2B attributable FCF), base $75 ($5.0B), bull $88 ($6.8B). Base case: $5.0B attributable FCF capitalised over 12 years of visible inventory at 9.5% = $34.9B, plus $14.0B residual (Viper royalty, deeper zones, surface power), less $10.7B standalone net debt, over 280.6M shares = ~$136. CROSS-CHECK: at $136 that is 4.9x mid-cycle attributable EBITDA versus 6.5x at the market price. REVERSE DCF: at $198.75 the attributable enterprise is $66.4B; strip the residual and the remaining $52.4B demands ~$7.5B of attributable FCF a year for twelve years, which at ~$134M per $1/bbl requires roughly $93/bbl WTI PERMANENTLY - within four dollars of the war-shocked $96.82 just realized. - THE PRINT: total revenue $5,562M (+51.2% from $3,678M); oil, gas and NGL sales $4,786M; net income attributable $1,882M vs $699M (+169%); GAAP diluted EPS $6.65 vs $2.38; adjusted EPS $6.48 vs ~$6.40 consensus; consolidated adjusted EBITDA $3,940M ($3,549M attributable); operating cash flow $3,589M; capex $996M; FREE CASH FLOW $2,330M. Diluted shares 281,202K; 280,567,508 outstanding at June 30. - PRODUCTION AND UNIT ECONOMICS: oil 525 MBO/d (top end of guidance), total 1,018 MBOE/d - above 1.0 million BOE/d for the first time ever. Realized prices: oil $96.82/bbl (vs $73.47 in Q1 and $63.23 a year ago), natural gas NEGATIVE $2.15/Mcf (vs +$0.18 and +$0.88), NGLs $18.56/bbl, combined $51.68/BOE. Cash costs $10.96/BOE (LOE $5.96, production and ad valorem taxes $3.26, gathering and transport $1.22, cash G&A $0.52), DOWN from $11.26 in Q1. Capex $10.75/BOE; free cash flow $25.15/BOE. - CAPITAL ALLOCATION - THE FORMULA IS GONE: total return of capital $452M (base dividend $1.10/share plus $141M of buybacks at $186.63) = just 19.4% of the $2,330M of free cash flow. Total debt cut $1,302M in the quarter to $12,766M; net debt down $1,590M to $12,304M and down $2.8B (-19%) over twelve months. The company states it 'removed our prior formulaic return of capital framework' to accelerate debt reduction. The board DOUBLED the buyback authorization to $16.0B on July 30 with $9.9B remaining - while spending only 6% of quarterly FCF on stock. Cumulative buyback: 43.0M shares for $6,124M at an average of $142.44. - THE HEDGE BOOK AND THE MACRO: as of July 31 Diamondback held LONG PUTS (floors only, no ceiling) on ~305 MBO/d - 190,000 b/d WTI Cushing at $52.57, 95,000 b/d Magellan East Houston at $50.53, 20,000 b/d Brent at $52.50. Hedged oil realization $94.33 vs $96.82 unhedged = a $2.49/bbl cost, roughly $119M in the quarter, insuring against $50 oil. Management's own letter calls the Strait of Hormuz disruption 'the largest supply shock in the history of the global oil market', with May global production 13.6 MMbbl/d below pre-conflict levels and inventory draws of 143 MMbbl in May alone (IEA). - GUIDANCE AND THE FORWARD OPTIONS: FY2026 oil raised to 522+ MBO/d (from 520+) and total to 1,000+ MBOE/d (from 972+), capex UNCHANGED at ~$3.90B. Q3 oil 517-527 MBO/d (995-1,015 MBOE/d), Q3 capex $950-1,050M. Waha gas turned POSITIVE in July after a record ~-$10/Mcf; long-haul takeaway expected to MORE THAN DOUBLE by year end. Diamondback is working to land gigawatt-plus scale behind-the-meter power projects on its own surface acreage, with a large shovel-ready project awaiting a signed long-term contract. Operationally: longest well in company history at 31,465 ft, first six U-turn (3-mile) laterals, equipment cost per well -14% QoQ, flaring -24% QoQ. What to watch: Bullish: WTI holding above $85 into 2027 (drags the base case toward $180); a SIGNED gigawatt-scale power contract on Diamondback's own surface acreage, which converts negatively-priced Permian gas into contracted revenue and is in nobody's model; Waha basis staying positive as the doubled long-haul takeaway arrives. Bearish: another quarter with the payout under 30% of free cash flow (if management will not buy stock here with $9.9B authorised, that is the tell); WTI back under $75 while service inflation hits in 2027; any slippage in the takeaway build that puts Waha back through zero. Any two and our number is nearer $110. Also on YouTube: @ChargedAlpha DISCLAIMER: For informational and educational purposes only. Not financial advice. Do your own research before any investment decision.