Release Date: August 06, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Oil production grew by roughly 4% quarter over quarter.
- Cash available for distribution increased by almost 9% over the same period.
- Full-year production guidance for 2024 has been increased.
- Board of Directors approved an 11% increase in the annual base dividend.
- Conversion to a Delaware corporation has expanded the investor base and improved trading liquidity.
Negative Points
- Loss of roughly 150 barrels of oil per day of quarterly production from non-Permian assets divested during the second quarter.
- Rig count on the mineral portfolio is down quarter over quarter.
- Visibility on non-operated properties is limited at the start of the year.
- High competition for smaller deals in the mineral space.
- FTC second request has restricted preparatory work for the Endeavor drop-down deal.
Q & A Highlights
Highlights of Viper Energy Inc (VNOM, Financial) Q2 2024 Earnings Call
Q: Travis, my first question is on your 2024 guided production bump. Are you assuming much yield, kind of on a go forward or would this forecast, are you assuming much change in rig count?
A: (Kaes Van't Hof, President) The high level is that as the year progresses, visibility on non-operated properties increases. Part of the production bump is due to efficiency improvements and significant paying wells coming online in the second half of the year. (Austen Gilfillian, Vice President) The divestiture of non-Permian assets has been factored into the updated guidance. (Travis Stice, CEO) Improved efficiencies and additional zones like Upper Spraberry and Wolfcamp D are contributing positively.
Q: On capital allocation, do you view VNOM's payout as opportunistic or are you more inclined to stick with the base and variable dividends?
A: (Kaes Van't Hof, President) The feedback from investors and the board leans towards a high distribution model with a focus on growing the base dividend. Buybacks are considered but are third in priority behind base and variable dividends.
Q: Can you maintain current levels of activity at a portfolio level even at a lower rig count?
A: (Austen Gilfillian, Vice President) Rig count fluctuations are less important than work in progress and line of sight wells. We have not seen changes in conversion rates or cycle times, maintaining confidence in production growth. (Kaes Van't Hof, President) Net rigs and net work in progress wells give us an advantage, especially with Diamondback's development plan.
Q: Should we expect Diamondback's activity to revert higher to around 50% of the backlog?
A: (Austen Gilfillian, Vice President) Yes, only 40%-45% of Diamondback's net completions were in the first half of the year. The second half will see a significant increase, reverting to more Diamondback-driven growth.
Q: Where do you see the right mix going forward in terms of portfolio optimization?
A: (Kaes Van't Hof, President) We aim to be the consolidator of choice in the Permian. Significant opportunities under Diamondback are fewer, but we are positioning ourselves for large packages with visibility and upside, like the potential drop-down from the Endeavor merger.
Q: How do you see cycle times evolving in the coming quarters and years?
A: (Austen Gilfillian, Vice President) We have not modeled an improvement in cycle times but maintain historical averages. Steady work in progress and line of sight wells could provide upside to current guidance.
Q: Have you been able to do any prep work for the Endeavor drop-down deal?
A: (Kaes Van't Hof, President) Due to the FTC second request, we haven't done much prep work. Once through, we will move quickly. The sizing and potential opportunity set remain unchanged from the merger deck.
Q: Should we expect VNOM to focus on larger deals rather than smaller ones?
A: (Kaes Van't Hof, President) Yes, we are focusing on larger deals and being the aggregator of smaller aggregators. Smaller deals are competitive, but we aim to leverage our liquidity and market access for larger opportunities.
Q: Can you provide more color on the visibility of activity trends?
A: (Austen Gilfillian, Vice President) We track work in progress and line of sight wells more than rig count. Conversion rates and cycle times remain steady, supporting production growth in the back half of the year and into next year.
Q: How do you view the impact of improved efficiencies on production?
A: (Travis Stice, CEO) Improved efficiencies and additional zones like Upper Spraberry and Wolfcamp D are positive read-throughs for Viper. Viper's breakeven price below $30 WTI is a significant advantage.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
