Diamondback Drills into Caution: How Capex Cuts Could Fuel a Comeback

The energy sector is a rollercoaster—prices plunge, capex gets slashed, and investors wonder whether to hold on or jump ship. But when a Permian Basin powerhouse like Diamondback Energy (FANG) pulls back on spending and production targets, it’s time to pay attention. Let me break down why this move might not be as dire as it looks—and why it could position Diamondback to pounce when markets stabilize.

The Capex Cut: Prudent or Panic?

Diamondback slashed its 2025 capital expenditure (capex) guidance by $400 million, narrowing the range to $3.4–$3.8 billion. This isn’t just belt-tightening—it’s a strategic pivot. With oil prices down and gas markets volatile, the company is prioritizing free cash flow over growth. The midpoint reduction of 10% ensures Diamondback isn’t overextending itself in a market where prices could crater further.

But here’s the kicker: production targets only dipped slightly. Full-year oil output is now projected at 480–495 thousand barrels per day (MBO/d), down just 1–3% from earlier guidance. That’s because Diamondback is optimizing operations, not abandoning them. They’re drilling fewer wells but maximizing efficiency—like boosting production per $1 million of capex by ~10% to 49.4 MBO.

The Numbers That Matter: Liquidity and Leverage

Diamondback isn’t walking a tightrope. As of March 2025, it had $1.3 billion in standalone cash and $3.8 billion in total liquidity, including a revolving credit facility. Even with debt rising to $14.1 billion, the company’s cash flow is king. Remember, oil prices at $70/bbl or higher mean Diamondback can generate positive free cash flow—and that’s even after this capex cut.

Meanwhile, the dividend is still $1.00 per share—a 2.9% yield at recent prices. And with $1.8 billion remaining on its buyback authorization, management isn’t just surviving; it’s preparing to thrive.

The Hidden Play: Flexibility in a Volatile Market

The real magic here is Diamondback’s operational flexibility. They’ve cut drilling activity by 15–20%, but 95% of completions are still in the Midland Basin, where their expertise shines. Costs are dropping too: Midland well costs fell to $550–$590 per lateral foot, and Delaware Basin costs remain manageable.

This isn’t a retreat—it’s a strategic retreat. If oil prices rebound, Diamondback can ramp back up faster than rivals. The Permian Basin’s infrastructure and scale give it a “moat” that smaller players can’t match.

The Risks: Oil, Rates, and Regulations

Don’t be fooled—this isn’t risk-free. A prolonged oil price slump (below $60/bbl) could force deeper cuts. Rising interest rates are already squeezing margins: interest expenses jumped to $0.40–$0.65 per BOE, up from $0.25–$0.50.

Then there’s the elephant in the room: regulation. Climate policies and permitting delays could stifle growth, even if oil prices recover.

Conclusion: A Shrewd Move for the Long Game

Diamondback’s decision isn’t about fear—it’s about focus. By trimming capex and preserving liquidity, they’re building a fortress balance sheet. With $49.4 MBO per $1 million of capex, they’re proving they can produce more with less.

If oil prices stabilize near $75/bbl, Diamondback could generate $1.5–2.0 billion in free cash flow in 2025—enough to cover dividends, buybacks, and debt. And if prices surge? They’ll be ready to drill harder, faster, and smarter than anyone.

The Permian Basin isn’t going anywhere—and neither is Diamondback. This is a company that’s playing defense now to win offensively later. For investors with a 3–5 year horizon, FANG looks like a buy. Just keep an eye on oil—and don’t let short-term volatility scare you into selling this setup.

Final Take: Buy the dip. Diamondback’s got the cash, the assets, and the discipline to outlast this storm.