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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, 2021
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
Suite 1200
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 30, 2021, the registrant had 181,053,648 shares of common stock outstanding.


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DIAMONDBACK ENERGY, INC.
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2021
TABLE OF CONTENTS
Page


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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.
Finding and development costsCapital costs incurred in the acquisition, exploitation and exploration of proved oil and natural gas reserves divided by proved reserve additions and revisions to proved reserves.
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.
Net revenue interest An owner’s interest in the revenues of a well after deducting proceeds allocated to royalty and overriding interests.
NGLs. The combination of ethane, propane, butane and natural gasolines that when removed from natural gas become liquid under various levels of higher pressure and lower temperature.
Oil and natural gas propertiesTracts of land consisting of properties to be developed for oil and natural gas resource extraction.
Plugging and abandonmentRefers to the sealing off of fluids in the strata penetrated by a well so that the fluids from one stratum will not escape into another or to the surface. Regulations of all states require plugging of abandoned wells.
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.
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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.
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GLOSSARY OF CERTAIN OTHER TERMS
The following is a glossary of certain other terms that are used in this report:
2019 IndentureThe indenture, dated as of December 5, 2019, among the Company and Wells Fargo, as the trustee, as supplemented by the first supplemental indenture dated as of December 5, 2019, the second supplemental indenture dated as of May 26, 2020, the third supplemental indenture dated as of March 24, 2021, and the fourth supplemental indenture dated as of June 30, 2021, relating to the December 2019 Notes (defined above), the May 2020 Notes (defined below) and the March 2021 Notes (defined below).
2025 IndentureThe indenture relating to the 2025 Senior Notes (defined below), dated as of December 20, 2016, among the Company, the subsidiary guarantor party thereto and Wells Fargo, as the trustee, as supplemented.
2025 Senior NotesThe Company’s 5.375% senior unsecured notes due 2025 in the aggregate principal amount of $800 million issued under the 2025 Indenture.
ASCAccounting Standards Codification.
ASUAccounting Standards Update.
December 2019 NotesThe Company’s 2.875% senior unsecured notes due 2024 in the aggregate principal amount of $1.0 billion, the Company’s 3.250% senior unsecured notes due 2026 in the aggregate principal amount of $800 million and the Company’s 3.500% senior unsecured notes due 2029 in the aggregate principal amount of $1.2 billion issued under the 2019 Indenture.
Equity PlanThe Company’s Equity Incentive Plan.
Exchange ActThe Securities Exchange Act of 1934, as amended.
FASBFinancial Accounting Standards Board.
GAAPAccounting principles generally accepted in the United States.
LIBORThe London interbank offered rate.
May 2020 NotesThe Company’s 4.750% Senior Notes due 2025 in the aggregate principal amount of $500.0 million issued under the 2019 Indenture.
March 2021 NotesThe Company’s 0.900% Senior Notes due 2023 in the aggregate principal amount of $650 million, the Company’s 3.125% Senior Notes due 2031 in the aggregate principal amount of $900 million and the Company’s 4.400% Senior Notes due 2051 in the aggregate principal amount of $650 million issued under the 2019 Indenture.
NYMEXNew York Mercantile Exchange.
OPECOrganization of the Petroleum Exporting Countries.
RattlerRattler Midstream LP, a Delaware limited partnership.
Rattler’s General PartnerRattler Midstream GP LLC, a Delaware limited liability company; the general partner of Rattler Midstream LP and a wholly owned subsidiary of the Company.
Rattler LLCRattler Midstream Operating LLC, a Delaware limited liability company and a subsidiary of Rattler.
SECUnited States Securities and Exchange Commission.
Senior NotesThe 2025 Senior Notes, the December 2019 Notes, the May 2020 Notes and the March 2021 Notes.
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.

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

Various statements contained in this report are “forward-looking statements” as defined by the SEC. These forward-looking statements are subject to a number of risks, uncertainties and assumptions, many of which are beyond our control. All statements, other than statements of historical fact, regarding our strategy, future operations, financial position, estimated revenues and losses, projected costs, prospects, plans and objectives of management are forward-looking statements. When used in this report, the words “could,” “believe,” “anticipate,” “intend,” “estimate,” “expect,” “may,” “continue,” “predict,” “potential,” “project” and similar expressions 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 and our Annual Report on Form 10–K for the year ended December 31, 2020 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.

Forward-looking statements may include statements about:
the volatility of realized oil and natural gas prices;
the implications and logistical challenges of epidemic or pandemic diseases, including the COVID-19 pandemic and its impact on the oil and natural gas industry, pricing and demand for oil and natural gas and supply chain logistics;
logistical challenges and the supply chain disruptions;
changes in general economic, business or industry conditions, including conditions of the U.S. oil and natural gas industry and the effect of U.S. energy, environmental, monetary and trade policies;
conditions in the capital, financial and credit markets and our ability to obtain capital needed for development and exploration operations on favorable terms or at all;
conditions of the U.S. oil and natural gas industry and the effect of U.S. energy, monetary and trade policies on our industry and business;
our ability to execute our business and financial strategies;
exploration and development drilling prospects, inventories, projects and programs;
levels of production;
the impact of reduced drilling activity on our exploration and development drilling prospects, inventories, projects and programs;
regional supply and demand factors, any delays, curtailment delays or interruptions of production, and any governmental order, rule or regulation that may impose production limits;
our ability to replace our oil and natural gas reserves;
our ability to identify, complete and effectively integrate acquisitions of properties or businesses, including our recently completed acquisition of certain assets of Guidon Operating LLC and our merger with QEP Resources, Inc., as well as our anticipated synergies and cost savings from these transactions;
competition in the oil and natural gas industry;
uncertainties with respect to identified drilling locations and estimates of reserves;
the impact of severe weather conditions, including the February 2021 winter storms in the Permian Basin, on our production;
our ability to comply with applicable governmental laws and regulations and to obtain permits and governmental approvals;
our environmental initiatives and targets;
future operating results;
future dividends to our stockholders;
impact of any impairment charges;
lease operating expenses, general and administrative costs and finding and development costs;
capital expenditure plans;
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other plans, objectives, expectations and intentions; and
certain other factors discussed elsewhere 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 securities laws. You should not place undue reliance on these forward-looking statements. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to 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 contained in any forward-looking statements we may make. Although we believe that our plans, intentions and expectations reflected in or suggested by the forward-looking statements we make in this report are reasonable, we can give no assurance that these plans, intentions or expectations will be achieved or occur, and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.
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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,
20212020
(In millions, except par values and share data)
Assets
Current assets:
Cash and cash equivalents$344 $104 
Restricted cash18 4 
Accounts receivable:
Joint interest and other, net78 56 
Oil and natural gas sales, net579 281 
Inventories52 33 
Derivative instruments13 1 
Income tax receivable33 100 
Prepaid expenses and other current assets25 23 
Total current assets1,142 602 
Property and equipment:
Oil and natural gas properties, full cost method of accounting ($8,287 million and $7,493 million excluded from amortization at June 30, 2021 and December 31, 2020, respectively)
32,155 27,377 
Midstream assets1,018 1,013 
Other property, equipment and land160 138 
Accumulated depletion, depreciation, amortization and impairment(12,914)(12,314)
Property and equipment, net20,419 16,214 
Funds held in escrow34 51 
Equity method investments518 533 
Derivative instruments5  
Deferred income taxes, net28 73 
Investment in real estate, net89 101 
Other assets100 45 
Total assets$22,335 $17,619 














See accompanying notes to condensed consolidated financial statements.
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Diamondback Energy, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets - (Continued)
(Unaudited)
June 30,December 31,
20212020
Liabilities and Stockholders’ Equity(In millions, except par values and share data)
Current liabilities:
Accounts payable - trade$104 $71 
Accrued capital expenditures236 186 
Current maturities of long-term debt 191 
Other accrued liabilities455 302 
Revenues and royalties payable404 237 
Derivative instruments773 249 
Total current liabilities1,972 1,236 
Long-term debt7,360 5,624 
Derivative instruments32 57 
Asset retirement obligations185 108 
Deferred income taxes879 783 
Other long-term liabilities17 7 
Total liabilities10,445 7,815 
Commitments and contingencies (Note 13)
Stockholders’ equity:
Common stock, $0.01 par value; 400,000,000 shares authorized; 181,049,191 and 158,088,182 shares issued and outstanding at June 30, 2021 and December 31, 2020, respectively
2 2 
Additional paid-in capital14,399 12,656 
Retained earnings (accumulated deficit)(3,475)(3,864)
Total Diamondback Energy, Inc. stockholders’ equity10,926 8,794 
Non-controlling interest964 1,010 
Total equity11,890 9,804 
Total liabilities and equity$22,335 $17,619 






















See accompanying notes to condensed consolidated financial statements.
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Diamondback Energy, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
Three Months Ended June 30,Six Months Ended June 30,
2021202020212020
(In millions, except per share amounts, shares in thousands)
Revenues:
Oil sales$1,395 $352 $2,339 $1,179 
Natural gas sales107 21 211 25 
Natural gas liquid sales165 39 289 91 
Midstream services12 11 23 25 
Other operating income2 2 3 4 
Total revenues1,681 425 2,865 1,324 
Costs and expenses:
Lease operating expenses157 103 259 230 
Production and ad valorem taxes105 22 180 93 
Gathering and transportation56 36 87 72 
Midstream services expense23 32 51 55 
Depreciation, depletion, amortization and accretion341 344 614 753 
Impairment of oil and natural gas properties 2,539  3,548 
General and administrative expenses36 20 61 44 
Merger and integration expense2  77  
Other operating expense6 1 10 3 
Total costs and expenses726 3,097 1,339 4,798 
Income (loss) from operations955 (2,672)1,526 (3,474)
Other income (expense):
Interest expense, net(57)(46)(113)(94)
Other income (expense), net(7)3 (6)(6)
Gain (loss) on derivative instruments, net(497)(361)(661)181 
Gain (loss) on sale of equity method investments23  23  
Loss on extinguishment of debt (3)(61)(3)
Income (loss) from equity investments5 (13)2 (13)
Total other income (expense), net(533)(420)(816)65 
Income (loss) before income taxes422 (3,092)710 (3,409)
Provision for (benefit from) income taxes94 (681)159 (598)
Net income (loss) 328 (2,411)551 (2,811)
Net income (loss) attributable to non-controlling interest17 (18)20 (146)
Net income (loss) attributable to Diamondback Energy, Inc.$311 $(2,393)$531 $(2,665)
Earnings (loss) per common share:
Basic$1.72 $(15.16)$3.08 $(16.86)
Diluted$1.71 $(15.16)$3.06 $(16.86)
Weighted average common shares outstanding:
Basic181,009 157,829 172,636 158,060 
Diluted181,968 157,829 173,518 158,060 
Dividends declared per share$0.45 $0.375 $0.85 $0.75 



See accompanying notes to condensed consolidated financial statements.
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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, 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.
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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, 2019159,002 $2 $12,357 $890 $1,657 $14,906 
Unit-based compensation— — — — 5 5 
Distribution equivalent rights payments— — — — (1)(1)
Stock-based compensation— — 10 — — 10 
Cash paid for tax withholding on vested equity awards— — (5)— — (5)
Repurchased shares for share buyback program(1,280)— (98)— — (98)
Distribution to non-controlling interest— — — — (43)(43)
Dividend paid— — — (59)— (59)
Exercise of stock options and vesting of restricted stock units93 — 1 — — 1 
Net income (loss)— — — (272)(128)(400)
Balance March 31, 2020157,815 2 12,265 559 1,490 14,316 
Distribution equivalent rights payments— — — — (1)(1)
Stock-based compensation— — 11 — — 11 
Repurchased shares for share buyback program —  — (2)(2)
Distribution to non-controlling interest— — — — (19)(19)
Dividend paid— — — (59)— (59)
Exercise of stock options and vesting of restricted stock units9 — — — — — 
Change in ownership of consolidated subsidiaries, net— — 329 — (329) 
Net income (loss)— — — (2,393)(18)(2,411)
Balance June 30, 2020157,824 $2 $12,605 $(1,893)$1,121 $11,835 
























See accompanying notes to condensed consolidated financial statements.
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Diamondback Energy, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Six Months Ended June 30,
20212020
(In millions)
Cash flows from operating activities:
Net income (loss) $551 $(2,811)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Provision for (benefit from) deferred income taxes155 (536)
Impairment of oil and natural gas properties 3,548 
Depreciation, depletion, amortization and accretion614 753 
Loss on extinguishment of debt61 3 
(Gain) loss on derivative instruments, net661 (181)
Cash received (paid) on settlement of derivative instruments(484)297 
Equity-based compensation expense23 18 
(Gain) loss on sale of equity method investments(23) 
Other13 28 
Changes in operating assets and liabilities:
Accounts receivable(172)229 
Income tax receivable99 (62)
Prepaid expenses and other18 1 
Accounts payable and accrued liabilities(26)(50)
Revenues and royalties payable100 (50)
Other(12)(14)
Net cash provided by (used in) operating activities1,578 1,173 
Cash flows from investing activities:
Drilling, completions and non-operated additions to oil and natural gas properties(623)(1,178)
Infrastructure additions to oil and natural gas properties(22)(80)
Additions to midstream assets(17)(94)
Purchase of business and assets, net(410)(64)
Acquisitions of mineral interests(1)(65)
Proceeds from sale of assets100  
Funds held in escrow51  
Contributions to equity method investments(6)(66)
Distributions from equity method investments18 18 
Proceeds from the sale of equity method investments23  
Other(11)(6)
Net cash provided by (used in) investing activities(898)(1,535)
Cash flows from financing activities:
Proceeds from borrowings under credit facilities661 652 
Repayments under credit facilities(780)(390)
Proceeds from senior notes2,200 497 
Repayment of senior notes(2,107)(222)
Premium on extinguishment of debt(166) 
Proceeds from (repayments to) joint venture(10)43 
Repurchased shares under buyback program (98)
Repurchased units under buyback program(36) 
Dividends to stockholders(140)(118)
Distributions to non-controlling interest(41)(62)
Financing portion of net cash received (paid) for derivative instruments59  
Other(32)(9)
Net cash provided by (used in) financing activities(392)293 
Net increase (decrease) in cash and cash equivalents288 (69)
Cash, cash equivalents and restricted cash at beginning of period108 128 
Cash, cash equivalents and restricted cash at end of period(1)
$396 $59 
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Diamondback Energy, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows - (Continued)
(Unaudited)
Six Months Ended June 30,
20212020
(In millions)
Supplemental disclosure of non-cash transactions:
Accrued capital expenditures included in accounts payable and accrued expenses$296 $427 
Common stock issued for business combinations$1,727 $ 
















































See accompanying notes to condensed consolidated financial statements.
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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.

The wholly owned subsidiaries of Diamondback, as of June 30, 2021, 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. Diamondback O&G LLC (“O&G”), Energen Corporation (“Energen”), Energen Resources Corporation and EGN Services, Inc., former wholly owned subsidiaries of Diamondback, were merged with and into Diamondback E&P LLC effective June 30, 2021 as part of the internal restructuring of the Company’s subsidiaries (the “E&P Merger”).

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, 2021, the Company owned approximately 59% 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, 2021, the Company owned approximately 72% 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 Company’s 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, 2020, 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.

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.

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Diamondback Energy, Inc. and Subsidiaries
Condensed Notes to Consolidated Financial Statements - (Continued)
(Unaudited)
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. For instance, in 2020, the effects of COVID-19 and actions by OPEC members and other exporting nations on the supply and demand in global oil and natural gas markets resulted in significant negative pricing pressures in the first half of 2020, followed by a recovery in pricing and an increase in demand in the second half of 2020 and into 2021. The financial results of companies in the oil and natural gas industry have been impacted materially as a result of changing market conditions. 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, asset retirement obligations, the fair value determination of acquired assets and liabilities assumed, equity-based compensation, fair value estimates of derivative instruments and estimates of income taxes.

Cash, Cash Equivalents and Restricted Cash

The following table provides a reconciliation of cash, cash equivalents and restricted cash as reported at the end of the period in the condensed consolidated statements of cash flows for the six months ended June 30, 2021 and 2020 to the line items within the condensed consolidated balance sheets:

Six Months Ended June 30,
20212020
(In millions)
Cash and cash equivalents$344 $51 
Restricted cash18 8 
Restricted cash included in funds held in escrow(1)
34  
      Total cash, cash equivalents and restricted cash$396 $59 
(1) As of June 30, 2021, the restricted cash included in funds held in escrow on the condensed consolidated balance sheet is related to cash deposited into an escrow account for a title dispute between outside parties in the Williston Basin.

Recent Accounting Pronouncements

Recently Adopted Pronouncements

In December 2019, the FASB issued ASU 2019-12, "Income Taxes (Topic 740) - Simplifying the Accounting for Income Taxes." This update is intended to simplify the accounting for income taxes by removing certain exceptions and by clarifying and amending existing guidance and is effective for public business entities beginning after December 15, 2020 with early adoption permitted. The Company adopted this update effective January 1, 2021. The adoption of this update did not have a material impact on its financial position, results of operations or liquidity.

The Company considers the applicability and impact of all ASUs. ASUs not discussed above were assessed and determined to be either not applicable, the effects of adoption are not expected to be material or clarifications of ASUs previously disclosed.

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Diamondback Energy, Inc. and Subsidiaries
Condensed Notes to Consolidated Financial Statements - (Continued)
(Unaudited)
3.    REVENUE FROM CONTRACTS WITH CUSTOMERS

Revenue from Contracts with Customers

Sales of oil, natural gas and natural gas liquids are recognized at the point control of the product is transferred to the customer. Virtually all of the pricing provisions in the Company’s contracts are tied to a market index, with certain adjustments based on, among other factors, whether a well delivers to a gathering or transmission line, the quality of the oil or natural gas and the prevailing supply and demand conditions. As a result, the price of the oil, natural gas and natural gas liquids fluctuates to remain competitive with other available oil, natural gas and natural gas liquids supplies. The following tables present the Company’s revenue from contracts with customers disaggregated by product type and basin:

Three Months Ended June 30, 2021Three Months Ended June 30, 2020
Midland BasinDelaware Basin OtherTotalMidland BasinDelaware Basin OtherTotal
(In millions)
Oil sales$876 $408 $111 $1,395 $211 $141 $ $352 
Natural gas sales75 27 5 107 11 9 1 21 
Natural gas liquid sales102 52 11 165 23 16  39 
Total$1,053 $487 $127 $1,667 $245 $166 $1