Q1 2021 Viper Energy Partners LP Earnings Call
Yeah.
Okay.
Ladies and gentlemen, thank you for standing by and welcome to the Viper Energy partners first quarter 2021 earnings conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question from the session you will need to press star one on your telephone. Please be advised that today's conference is being recorded if you recall.
Any further assistance. Please press star Zero I would now like to hand, the conference over to your Speaker today, Adam Lawlis, Vice President of Investor Relations. Thank you. Please go ahead Sir.
Thank you Chantelle and good morning, and welcome to Viper Energy Partners first quarter 2021 conference call during our call today, we'll reference an updated investor presentation, which can be found in vipers website.
Representing Viper today are Travis Stice CEO in case of income off President.
During this conference call. The participants may make certain forward looking statements relating to the company's financial condition results of operations plans objectives future performance and businesses. We caution you that actual results could differ materially from those that are indicated in these forward looking statements due to a variety of factors information concerning these factors can be found in the company's filing.
With the FCC and.
In addition, we will make reference to certain non-GAAP measures the reconciliations with the appropriate GAAP measures can be found in our earnings release issued yesterday afternoon.
I will turn the call over to Travis Stice.
Thank you Adam welcome everyone and thank you for listening to Viper Energy partners first quarter 2021 conference call.
Despite the adversity presented by Winter storm year in February Viper produced a strong first quarter.
With production exceeding expectations and strong realized pricing.
As a result.
<unk> generated almost $55 million in net cash from operating activities, which enabled us to reduce debt by $27 million during the quarter.
We have now reduced total debt by over $136 million or roughly 20% over the past 12 months.
As a direct result of this and further supported by our confidence in our forward outlook, we are increasing our distribution to common unit holders to 60% of cash available for distribution for the first quarter of 2021, which equates to a 25 cent.
Per unit distribution.
Looking ahead Viper also increased its production outlook for the full year 2021 with oil production now 2% higher at the midpoint versus our previous 2021 guidance range.
This increased production outlook is predicated primarily on our confidence and.
Visibility into Diamondbacks expected forward development plan.
Which includes several large pads, where viper will own a significant royalty interest.
And our visibility into Diamondbacks operations, we continue to have a strong backlog of work in progress and line of sight wells operated by third parties.
Despite continued evidence of activity rates normalizing in the Permian basin.
We continue to incorporate slower than normal timing assumptions for third party operations in our production guidance.
Based on this updated production guidance, assuming production is held flat at the midpoint of the range.
Viper is expected to generate roughly $260 million of free cash flow in 2021, assuming $60 WT I.
This equates to an approximately 8% free cash flow yield as a percentage of our enterprise value.
Almost 10%.
Our current market cap.
<unk> remains in strong financial shape with $535 million of liquidity and.
And we will look to continue to decrease leverage while also increasing return of capital to our unit holders over the coming quarters.
In conclusion, the first quarter of 2021 was another strong quarter for Viper that once again highlighted our high quality asset base.
Best in class cost structure, and overall differentiated business model.
Coming out of the down cycle of 2020 Viper has emerged in a position of strength and is now situated to capitalize on opportunities as they arise.
We will maintain the financial flexibility to allow for continued debt reduction distributions that provide a competitive yield.
And the acquisitions either through our unit repurchase program or through the acquisition of private minerals.
Head of the Diamondback drill bit operator, please open the line for questions.
Thank you as a reminder to ask another question. Please press star one on your telephone.
Please hold on a moment, while we compile the Q&A roster.
And our first question will come from the line of Brian Downey with Citigroup.
Hey, good morning, Thanks for taking my questions, maybe just on that last comment I'm curious on how the uses of cash may evolve as the year progresses, you you bumped the payout ratio to 60% in the first quarter and I believe you used approximately 20% of your distributable cash flow towards repurchases. How should we think about you know continued debt reduction versus payout.
Purchases and then the A&D market opportunities is that a revolver balance continues to decline through the rest of the year.
Yes, Brian. Good question, you know I think it's just pure capital allocation from our perspective.
Outside of the the goal of having a revolver.
Zero zero by year end this year, so I think that's.
That's certainly an internal goal I think we are going to.
Easily get there while still distributing most of our cash in the form of a distribution or a buyback I think you've seen.
Yeah.
Tap the distribution a little more this quarter as the stocks recovered and the buyback is less less obvious than it was in the fall of last year, but generally I think you're probably two thirds to three quarters of cash gets distributed in some form or fashion, whether through the buyback or.
<unk> distribution and the rest.
<unk> retained to pay down debt or buy small deals and then pay it down right away.
Great and then as my follow up in your near term net well inventory slide you explicitly broke out the 50%, 57% public and 43% private operator figures of your third party operated inventory how would you characterize activity levels from here your private operator cohort it seems like private rig.
More broadly is from more quickly versus operators public operators staying more disciplined.
Yes, that's exactly right I think it's disappointing for the macro that the privates are growing.
Their activity levels and production as much as they are but but viper benefits without having much influence on that I'd say, we generally.
<unk> seen the same the same things that the public is seeing in terms of activity, particularly on Vipers Midland basin acreage. So the privates are going to grow they don't they don't answer to public shareholders like like we get to.
But yes, we're certainly seeing it and it'll be a nice little tailwind for Viper.
If it doesn't impact the macro too much.
Great I appreciate it thank you.
Thank you Brian Index.
And your next question will come from the line of Chris <unk> with credit Suisse.
Chris Your line is open.
Yeah.
If your phone is on mute could you. Please on mute your line.
And that question has been withdrawn go next question will come from the line of Neal Dingmann.
Okay.
First did you look at just notice on slide 10, I like that where you've talked about.
Having a significant amount of undeveloped acreage I'm just wondering do you have a sense of timing when you could potentially see do you think at least 50% of that Midland royalty acreage develops I mean does that quarters years with any any thoughts there.
Yes, Neil I mean, I think it's I think it's years, if youre if youre, making.
Conservative spacing assumptions and timing assumptions.
Generally.
We completed our brought on two five net wells in Q1, 'twenty. One I think we'll start to see that accelerate a little bit in the back half of the year, but that's.
That's a pace, where there is significant inventory runway and I think.
What's important for Viper is that wall, Spanish trail, which is vital as bread and butter is getting more and more developed the rest of the physician now has areas, where we have significant mineral interest.
Viper under Diamondback and also the new new.
The new acreage position in the new playground for the Viper team to buy under is really good rock that you know that has some some good mineral acquisition opportunities.
No. It makes sense and then just lastly, just going forward you guys are in strong position very strong know thoughts on hedging going forward. Thank you.
I think I think we've been discussing a similar strategy at Viper to Diamondback, where maybe there is there is.
Some hedging.
That gets layered on.
Six to 12 months in advance just to protect the extreme downside.
I think it's either you know the form a bond plus or doing wide two way collars, where the low end.
Our investors still receive a large distribution.
The debt doesn't blow out and.
We sleep better at NAV. So I think that's that's probably where we're headed.
Had a lot of 'twenty, one hedges put on this year that are unfortunately under water because of.
The recovery, but I think as you think about 'twenty, two and beyond putting.
Putting some sort of floor under.
The low end of distributable cash flow is something we're thinking about.
Very good thank you.
Thank you Neil.
Our next question will come from the line of Gail Nicholson with Stephens.
Good morning, I'm looking at slide nine it looks like at the fourth quarter has a heavy CIL count expected at least on the Diamondback.
Very good.
Hey, Greg.
When we look at volume going forward based on kind.
Kind of one way at line of sight that you guys have do you think that you can keep those <unk> 'twenty, one buying level flat or do you kind of view point before it isn't more keeping 21 average spot.
Alright.
Think generally gallon if the if the trend continues with rig count where it is maybe improves a little bit in the macro in 2022.
We see a little bit of growth at Viper as.
Gulf of that debt higher activity levels and I think we see we certainly are excited about the back half of the year I think.
Going into 'twenty, one and we were kind of hinting that Q1, and Q2 would be would be the lows production wise Q1 surprised the upside and we're getting a little more confidence in Q2, but generally the back half should see activity levels that are strong that falls through on production and kind of the Q4 timeframe.
<unk>.
Awesome anything you want to add there.
Okay.
And then just looking at the net undeveloped locations remaining you know what percentage of those locations are unbanked acreage.
Yes, I mean, it was a pretty high level formulaic approach. So you can just just use.
The percent owned by paying maybe just a little bit less but.
Moving back.
It was about two thirds of Vipers production, a little over half the V acreage. So it might be a little more developed but generally I think youre pretty close between the two.
Yes.
On slide six we have the net producing horizontal locations by Diamondback and third party split between the basins as well. So you can kind of back into the math does that information.
Again, ladies and gentlemen, this does can add to your question. Please press star one.
And your next question will come from the line of Chris Baker with Credit Suisse.
Hey, guys can you hear me.
Yeah, we got to Chris Okay, Yeah, I'm not sure what happened earlier apologies. If this was asked but I was just curious.
Beyond the near term focus on debt reduction how are you guys thinking about balancing return of capital versus <unk>.
Potentially funding.
Creative smaller scale acquisition opportunities just curious if the goal sort of longer term.
Is to essentially internally fund that activity next year and beyond.
Yes, no I think youre thinking about it the same way we are the smaller with smaller deals will be funded internally with internally generated cash flow I think I kind of referenced earlier in the call kind of a.
70, 30, or 70, 525 split between distributions of returns and balance sheet or deals.
And I'd say that that's probably rings true for the foreseeable future outside of.
If a large unicorn type deal came about then we'd have to think about funding that differently, but generally the blocking and tackling acquisition.
Machine is getting started again.
<unk>.
As long as you have a path towards.
A low to no balance on the revolver, then I think it's safe that we can fund those deals with internally generated cash flow.
Great. Thanks, and then just as a follow up you know, we've obviously seen a bit of consolidation on the E&P side recently.
Just curious if you have any view on.
What maybe some of the headwinds or maybe why we haven't seen.
Similar sort of larger scale deals announced on the mineral side.
Over the past few months.
Yes.
Generally in the mineral space, probably still needs to get better bigger in the public sphere. So I think more consolidation from price.
Private to public needs to happen rather than on the on the E&P side, you've seen public to public.
I'm just grasping at reasons, why we would think that it hasnt happened yet is that traditionally and mineral owners are forced sellers.
A&P, there's so much capital that needs to go into retaining your acreage position.
And maintaining production debt.
You often have more for sellers and on the mineral side, where youre checks you check stops going down for a few months, but youre not spending capital too.
Rob.
Great. Thanks, guys.
Thank you Chris.
And your next question will come from the line of Kyle May with capital one.
Yeah.
Hi, good morning, everyone.
Just wanted to follow up on some of your capital allocation comments, it's nice to see the.
The distribution payout step up this quarter, but I'm, just curious kind of how youre thinking about that longer term and kind of directionally, where that's headed.
Yes, I mean, I think it's directionally headed higher.
If you know because I think vipers unitholders want to own Viper four the distribution.
I think the.
The reason for the buybacks was so obvious the reason the buyback was so obvious in November was that we were selling.
Undeveloped minerals with no visibility for much higher values than the stock was trading so you could buy minerals.
Buying back the stock cheaper than you could in the public markets or sorry, yeah in the private markets and that's I won't say that thats flipped, but the GAAP is certainly narrowed.
So I think overall more distribution, but also funding some deals with cash flow rather than relying solely on capital markets is where we're headed.
Got it that makes sense and then as a follow up.
You kind of mentioned to the day.
Point to the playground for M&A activity has expanded with the recent acquisition just curious.
Kind of where you are in evaluating those opportunities and when Viper may consider getting back to.
Getting involved in the A&D market.
Yes, we're looking at them right now we just we just didn't close any deals in the first quarter and.
The secret to the mineral game is to make sure you buy minerals before.
<unk> get placed on on those on those units and.
Private.
Our private mineral competitors.
We'd love to have that information, but I think right now.
Because diamondback.
Not growing like we used to and we're a little bit ahead of our schedule, we know where pads are going to be placed and we're going to be able to buy minerals. A lot cheaper ahead of that drill bit. So we're doing that now it's not it's not huge dollars but.
But being prudent and we will probably start adding some some acreage here throughout the rest of the year.
Got it okay. Thanks for taking the questions you'll have a good day.
Thanks Carl.
Again, ladies and gentlemen.
Your question. Please press star one.
Okay.
And your next question will come from the line of Jeanine Wai with Barclays.
Good morning, everyone. Thanks for taking our question.
Jeanine Hi, good morning, maybe just one for us back to Brian's question on the privates with debt.
Average being less constrained on reinvestment rates from the Publix, we definitely think that private activity can be a meaningful tailwind from venom Fisher.
So just wondering.
How conservative you've been on the timing of the wells that you've put in your guidance for that and also you commented on overall activity levels, increasing from the pilots, but with higher oil prices.
Are you seeing more wells per section in terms of spacing or zones, given higher oil prices and we love the sense, you're not burdened by the Capex. So you could really benefit from this and maybe that makes it a little bit more neutral in the near term and iri's per well with.
On the macro side.
Yes, I mean, I think generally the entire basin going wider on spacing. So I wouldn't say I've seen a lot a lot of really tight.
Spacing tests from the privates, but we have seen the privates increased activity levels, just like you've observed.
But we were saying earlier.
It is a tailwind for Viper, but hopefully it doesn't screw up the macro because I think this industry is coming out of a pretty tough downcycle and and I think OPEC is watching and we need to be very mindful of our position in global oil supply and demand.
Which we probably werent as an industry going into this down cycle.
Great. Thank you very much.
Thanks, Jamie.
I am showing no further questions at this time I would now like to turn the conference back from Travis Stice CEO for closing remarks.
Thank you again to everyone participating in today's call if you've got any questions. Please contact us at the information provided.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
[music].
Okay.
Sure.
[music].
Yes.
And then.
[music].
Yes.
[music].
Yes.
Yes.
[music] partners.
Okay.
Okay.
Okay.
Okay.
[music].
Yeah.
Yes.
Okay.
Okay.
Sure.
Yes.
Okay.
Thank you.
[music].
Okay.
Okay.
[music].
Okay.
Okay.
Okay.
Okay.
Okay.
[music] reported.
Good day.
Total revenue.
Yes.
Yes.
Revenue from.
Good day.
Thank you.
Okay.
Yes.
Yes.
Yes.
Okay.
<unk> expenses.
In 2013.
And the next day.
Great.
Hum.
Hum.
Okay.
Sure.
Okay.
Okay.
[music].
Yes.
Okay.
[music] cash.
Yes.
Right.
Yes.
Hi.
Hi.
With this before.
Net.
Sure.
Okay.
Okay.
Okay.
Sure.
Yes.
Great.
Yes.
Yes.
[music].
Yes.
Okay.
[music].
Yeah.
Yes.
Loans.
Sure.
Yes.
[music].
Yes.
Thank you.
[music] alone.
<unk>.
Okay.
Yes.
From.
[music].
Okay.
Yes.
Growth from us.
Okay.
Okay.
Yes.
Okay.
Yes.
Yes.
Yes.
[music] growth.
Okay.
Okay.
Okay.