Diamondback Energy, Inc. (FANG) stock intrinsic value fair value estimate & owner earnings analysis

Diamondback Energy is an independent oil and natural gas producer focused on the Permian Basin in West Texas. It held about 869,000 net acres at the end of 2025 (mostly Midland Basin) and produced about 921,000 barrels of oil equivalent per day in 2025. Its publicly traded subsidiary Viper Energy owns mineral and royalty interests. Revenue comes from selling oil and gas to a handful of large purchasers; four each took more than 10% of 2025 revenue (Medallion Midstream 16%, Shell 13%, Enterprise 12%, Vitol 11%). How we measured earnings. We start with operating cash flow and subtract the swing in working capital, stock compensation, and all drilling and equipment spending. We treat all of that spending as the cost of holding production steady, because a shale producer must keep drilling to offset natural decline, and its revenue growth comes mostly from oil prices and purchased acreage rather than from spending. Acquisition payments (about $5.9 billion in 2025 and $8.9 billion in 2024) are not deducted, and we give no credit for future acquisitions. On this basis owner earnings per share were about $13.42 (2021), $25.66 (2022), $15.80 (2023), $16.61 (2024) and $18.80 (2025). 2017 to 2020 were near or below zero, when the company was spending heavily to build its acreage or oil prices collapsed, so they are not used. The 2022 figure reflects peak commodity prices and 2024 is flattered because the Endeavor merger closed in September 2024 and the average share count only partly reflects the new shares. Using 2021 to 2025 (the period after the 2020 collapse) and adjusting 2024 to the enlarged share count (about $12.2), the median is about $15.80 per share. Because roughly 7% of consolidated cash flow belongs to outside holders of Viper (distributions of $382 million in 2025), we use about $14.70 per share as the level attributable to Diamondback shareholders. Owner earnings grew about 13% in 2025 in total dollars ($3.5 billion to $5.4 billion); we assume no growth in the first year of any case, because we cannot point to a contract or backlog that locks in more. What keeps the earnings going. At the end of 2025 the company had about 8,854 gross horizontal drilling locations it believes are economic at $50 per barrel of oil, against 503 wells put on production in 2025, roughly 17 years of drilling at the current pace. That inventory is the evidence behind the length of each case. We do not forecast oil prices, so the earnings level stays flat in each case rather than growing. Base case: about $129 per share. Owner earnings stay flat at about $14.70 per share for ten years, then decline steadily to zero over the following seven years as the drilling inventory is used up. We discount at 6%. This gives no credit for further acquisitions, new basins or higher prices. Bear case: about $73 per share. Owner earnings drop to about $10 per share (below the $13.42 of 2021, the weakest post-2020 year) because of weaker pricing, and the economic inventory runs out sooner, with earnings ending after about 13 years. Diamondback carried $14.5 billion of debt at the end of 2025, about $51 per share, with $763 million maturing within a year, and it borrowed heavily to fund acquisitions in 2024 and 2025. Interest is already deducted in owner earnings; we do not subtract debt again, but leverage is the reason this case is weak. Viper distributions to outside holders also take a share of cash flow. Bull case: about $165 per share. Owner earnings hold at 2025's $18.80 per share less the outside share of Viper (about $17.50), flat for ten years, then fade to zero over ten more years, as the inventory supports a slower drilling pace than the current one. Anything beyond that would depend on new acquisitions or higher prices, which we do not include. What could make this wrong. Oil and gas prices are the main swing factor and are not assumed anywhere; a sustained price below the $50 level assumed for the drilling inventory would shorten the life of the business. About 30% of proved reserves at the end of 2025 were undeveloped and may not be developed as planned. The 2025 result also included a $3.7 billion write-down of oil and gas properties, which is a non-cash charge that we do not deduct from owner earnings. Diamondback has repeatedly paid large amounts to acquire acreage; if that pattern continues at prices above what the acreage earns, our no-acquisition-credit approach would be right but shareholders' returns would be lower than the operating results suggest. We could not verify from the annual report a reserve life figure in barrels of oil equivalent, so we rely on drilling locations for the length of the story. Our latest full annual report is the 2025 filing (February 2026); the most recent quarterly report on file (August 2026) was not used to change the level.