Release Date: November 05, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Viper Energy Inc (VNOM, Financial) reported continued organic production growth on its legacy asset base.
- The company successfully closed the Tumbleweed acquisition, enhancing its portfolio.
- Viper Energy Inc (VNOM) was added to the S&P MidCap 400 and the Russell 1000, indicating increased market presence and trading liquidity.
- The merger between Diamondback and Endeavor has strengthened Viper's alignment with its parent company, enhancing operational synergies.
- Viper Energy Inc (VNOM) maintains a strategy of consolidating high-quality mineral and royalty assets, positioning itself as a strategic consolidator in the fragmented minerals and royalty space.
Negative Points
- The company faces potential challenges in managing leverage, particularly with the upcoming Endeavor mineral drop-down.
- There is uncertainty regarding the cash and stock mix for the Endeavor drop-down, which could impact financial planning.
- The third quarter saw a unique situation with an 83% payout of cash available for distribution, higher than the usual 75%, due to the Tumbleweed acquisition.
- Viper Energy Inc (VNOM) needs to carefully manage its debt levels, aiming for a pro forma leverage of around 1.5 turns.
- The company must navigate the complexities of integrating the Endeavor merger and optimizing Diamondback activity to enhance visibility on Viper's mineral assets.
Q & A Highlights
Q: Can you provide an update on future well activity and how it impacts your production guidance for the fourth quarter and 2025?
A: Austen Gilfillian, Vice President, explained that there has been a significant increase in work-in-progress wells on the Diamondback-operated side, particularly in Robertson Range and Northeast Martin County. This will drive growth over the next few quarters. Additionally, the Tumbleweed acquisition added five to six net wells, enhancing their portfolio. The growth trajectory is expected to continue into 2026.
Q: Regarding shareholder returns and capital allocation, is the goal to continue paying out around 85% of cash available for distribution? How do you balance this with debt repayment?
A: Travis Stice, CEO, noted that the third quarter payout of 83% was a one-off due to the Tumbleweed acquisition. The company aims to maintain a 75% payout, which is well-protected even at low oil prices. This strategy supports a growing base dividend and decreasing breakeven costs as the business scales.
Q: Can you discuss the timing and funding of the Endeavour mineral drop-down, and how it affects Diamondback's share exposure?
A: Travis Stice stated that while specific details are still being worked out, both boards agree on a modest leverage increase that will be quickly paid down. The funding will likely involve a mix of cash, stock, and equity capital, with Diamondback expected to take back some equity. This approach aligns with past successful capital raises and supports future corporate development opportunities.
Q: How does the Endeavour merger impact Viper's visibility on Diamondback's activity and future growth?
A: Travis Stice highlighted ongoing collaboration between Viper and Diamondback teams to optimize development plans. The merger enhances visibility and provides opportunities to high-grade development plans, particularly as Endeavor was a significant third-party operator on Viper's acreage. This is expected to benefit growth from 2026 onwards.
Q: What are the leverage parameters for Viper post-Endeavour drop-down, and how does this position the company for future deals?
A: Travis Stice mentioned a target leverage of 1.5 times on a pro forma basis, which can be quickly reduced due to Viper's strong free cash flow. The company's increased size and scale attract attention from rating agencies, improving its cost of capital. Viper is well-positioned for future consolidation opportunities in the mineral space, leveraging its unique market position and structural advantages.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
