Lesson 4 of 8
Reading an oil and gas producer
Diamondback's standardized measure was 36,910 million dollars at the end of 2025. It is priced on a backward average at a fixed rate, and is not a valuation.
By Javier Sanz
Founder of ValueScreener. Built Ninety Nine, a securities services provider, and sold it to a tier-one global bank; ran operations and internationalization at Alpaca, the brokerage API.
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In one minute
- The standardized measure is a rule-defined present value of proved reserves, discounted at exactly 10 percent, using a prescribed backward-looking average price.
- Diamondback's stood at 36,910 million dollars at 31 December 2025, against 39,833 million a year earlier and 27,058 million at the end of 2023.
- Its year-on-year reconciliation is the most useful table in the filing, because it separates what was produced from what was found, bought and sold.
An oil and gas producer publishes something no other industry does: a discounted present value of its principal asset, computed under a rule. It looks like a valuation. It is not one, and knowing why is the lesson.
Diamondback standardized measure, three year ends
| Line, in millions | 2025 | 2024 | 2023 |
|---|---|---|---|
| Future cash inflows | 140,499 | 157,944 | 106,418 |
| Future development costs | -9,425 | -9,992 | -6,400 |
| Future production costs | -40,789 | -44,097 | -25,656 |
| Standardized measure of discounted future net cash flows | 36,910 | 39,833 | 27,058 |
The price inside it
The filing defines the prices used: an unweighted arithmetic average of the first-day-of-the-month price for each month of the twelve months before the period end.
That is a deliberate rule and it has a consequence. The figure is priced on the past year's average, not on today's price and not on a forward curve. A year in which prices fell steadily produces a standardized measure computed largely at prices that no longer exist.
The discount rate is fixed at 10 percent by the same rule, regardless of the company's cost of capital, its leverage or the risk of the reserves. So two producers with entirely different risk profiles discount at the same rate.
Why it is not a valuation
Three reasons, each stated in the construction. It covers proved reserves only, so anything the company expects to find is excluded. It uses a prescribed price rather than an expected one. And it applies a fixed 10 percent discount that represents nobody's actual required return.
It is a standardised comparison tool, which is exactly what it was designed to be. Comparing two producers' standardized measures is meaningful because both were computed the same way. Treating either as what the reserves are worth is not.
The reconciliation is the real disclosure
The filing walks from the opening figure to the closing one, and the components separate things the total conceals.
For 2025 the measure opened at 39,833 million dollars. Sales of oil and natural gas net of production costs removed 10,222 million, which is the year's production being converted into cash and leaving the asset. Acquisitions of reserves added 3,630 million, against 21,639 million the prior year. Divestitures removed 632 million. Extensions and discoveries, net of future development costs, added 7,496 million. The measure closed at 36,910 million.
Read that way, the business replaced about three quarters of what it produced through the drill bit, and bought the rest. The single closing number says none of it.
The three disclosures that matter
The reserve quantity table, which separates proved developed from proved undeveloped and says how much spending is still required. The standardized measure and its reconciliation, read for its components rather than its total. And the hedging disclosure, because a producer that has sold its output forward has a different exposure from the one the reserve table implies.
Check yourself
What price does the standardized measure use?
- The price on the last day of the year
- An unweighted arithmetic average of the first-day-of-the-month price for each of the twelve months before the period end
- A forward curve to the end of the reserve life
Show the answer
Answer: B.
The rule prescribes a backward-looking twelve-month average, so a year of falling prices produces a figure computed largely at prices that no longer apply.Why is the standardized measure not a valuation?
- Because it excludes taxes
- Because it covers proved reserves only, uses a prescribed price, and discounts at a fixed 10 percent that represents nobody's required return
- Because it is unaudited
Show the answer
Answer: B.
It is a standardised comparison tool by design. Comparing two producers computed the same way is meaningful; treating either as what the reserves are worth is not.What does the 2025 reconciliation show about how reserves were replaced?
- Entirely by acquisition
- 7,496 million dollars from extensions and discoveries against 10,222 million removed by production, with 3,630 million acquired
- Not at all
Show the answer
Answer: B.
The closing figure of 36,910 million says none of that. The components separate what was produced, found, bought and sold.Sources
- Diamondback Energy, Inc., Form 10-K for the year ended 31 December 2025, filed 2026-02-25, accession 0001539838-26-000010: the standardized measure of discounted future net cash flows, its components, its year-on-year reconciliation, and the definition of the prices used.
- ASC 932, Extractive Activities: Oil and Gas, and the Commission's rules governing proved reserve disclosure and the standardized measure.
What this leaves out
- The reconciliation table here shows a selection of components. The filing's own reconciliation includes further lines, among them price revisions, changes in estimates, accretion of discount and the effect of income taxes.
- The standardized measure is computed under a prescribed rule, not by the company's own judgement, and the filing says so.
- The claim that about three quarters of production was replaced through extensions and discoveries is this course's comparison of two disclosed components, in value terms rather than in barrels.
- Nothing here is a view on Diamondback Energy or on any security.