Q4 2022 Viper Energy Partners LP Earnings Call

Our call is Leigh good day, and thank you for standing by.

Welcome to the Viper energy partners.

2022 earnings 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. During the session you will need to press star one on your telephone keypad.

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Please be advised that today's conference is being recorded I would like to now hand, the conference call over to your speaker today, one of your speakers today that would be Mr. Adam Lawlis, Vice President of Investor Relations. Adam. Please go ahead.

Thank you Sandra and good morning, and welcome to the Viper Energy Partners fourth quarter 2022 conference call.

During our call today, we will reference an updated investor presentation, which can be found on vipers website.

Representing Viper today are Travis Stice CEO .

Great.

During this conference call. The participants may make certain forward looking statements relating to the company's financial conditions result.

Operationally.

The future performance and businesses.

We caution you that actual results could differ materially from those that are indicating these statements due to a variety of factors.

Permission concerning these factors can be done.

You bet.

In addition, we will make reference to.

Certain non-GAAP measures.

Reconciliations to the appropriate GAAP measures can be.

Our earnings release issued yesterday afternoon.

I will turn the call over to Jonathan. Thank you Adam welcome everyone and thank you for listening to Viper Energy partners fourth quarter 2022 conference call.

The fourth quarter topped off a record year for Viper with quarterly oil production setting a company record on both an absolute and per unit basis for the third consecutive quarter.

Additionally, as a result of our strong production and continued best in class margins further supported by our disciplined capital allocation approach.

We're able to deliver on multiple return of capital and financial initiatives during the quarter.

During the fourth quarter, we reduced net debt by $100 million quarter over quarter repurchased roughly 1 million units.

Our scheduled to pay a distribution that provides a greater than 6% annualized yield.

Looking ahead to 2023, we have initiated average production guidance for the full year that implies 8% year over year growth.

Accordingly, Viper can deliver this growth without spending a single Broward capital and with most operators in the Permian and maintain roughly flat activity levels.

Additionally, this production growth.

Even as we generated over $100 million in proceeds from noncore asset sales during 2022.

<unk> the sale of our Eagle Ford asset, which was producing roughly 250 barrels of oil per day or just over 1% of our current volumes.

On the capital return front Viper continued to execute on our opportunistic unit repurchase program during the fourth quarter, but at a slower place than during the third quarter.

As a result.

We're set to paid 49 cents per unit distribution, which is flat quarter over quarter, despite oil prices being down 10% over the same period.

Our combined base plus variable distribution represents a greater than 6% yield at today's unit price.

In conclusion, the fourth quarter was an outstanding quarter for Viper and the forward outlook continues to improve as our high quality asset base continues to attract outsized activity levels.

<unk> remains a differentially positioned to grow production without having to spend a single dollar of development.

Of acquisition capital.

With only limited operating costs, we will be mostly insulated from continued inflationary cost pressures.

Given the midpoint of our 2023 production guidance and assuming $75 Meti, we are expected to deliver almost 10% annualized free cash flow yield.

<unk>. Please open the line for questions.

Thank you at this time, we will conduct a question and answer session. As a reminder to ask a question you will need to press star one one on your telephone keypad and wait for your name to be announced to withdraw your question. Please press star one.

One again, please stand by while we compile the Q&A roster.

Our first question comes from the line of Mr. Neal Dingmann with Q&A.

Neil.

Yeah.

Good morning, guys.

I'm sorry. This is my first question just on shareholder distributions, specifically, given now the low debt level and.

Current unit price do you all think today any differently about unit buybacks.

Going forward than you have in recent quarters.

Continues to be a nice mix. So I'm, just wondering sort of how you think about today about buybacks versus the sort of the.

The yield that the distribution out there.

Yes. Good question you know it really comes down to can we buy.

Minerals in the market cheaper than we can buy minerals in the.

Private market when we do deals.

Seems that buying.

Buying back units.

Price per net acre that is competitive with lower quality assets that are for sale in the basin. It seems like a good use of capital.

We've been pretty.

Pretty aggressive since converting our capital return plan through more buybacks, particularly in Q3, a little less so in Q4, I think that kind of mimics how we're thinking about things where you know it.

Periods like today or over the last couple of weeks and that it fell off and that's when the buyback.

But fundamentally we run at NAV at Viper, We also look at what.

Deals are trading for in the in the market versus where Viper is trading at.

Quite frankly, we believe we have a far superior.

Carrier asset base Thats trading.

Lower on a net net acre basis than some of the stuff we've seen trade out in the market.

Yes that makes sense and then just a quick follow up just on that small Eagle Ford I assume.

Just you didn't see the growth there and you had better I don't know maybe call it better prospects.

Continued growth in the Permian is that the sort of rationale.

Is there any could we assume any upcoming noncore.

Small Permian sales, so just maybe talk about that a little bit cases.

We've sold some non core Permian assets.

Usually from an operator that is going to develop those minerals very quickly so they're paying a number where.

It's higher than our whole case, because there if they get the deal theyre going to develop the asset faster.

Kind of what's happening in the Permian I would call that the exception versus the norm.

With the Eagle Ford sale, we bought that deal in.

2016 2017.

Been a good deal for us.

Unfortunately, theres not as much growth there as.

There was in years past.

And we just thought that that would be a very.

Good use of proceeds to fund Permian acquisitions, and I think generally.

And being able to sell that losing $2 50 to 300 barrels of oil a day and still hit numbers in 2023 that we expected. Prior just shows that we didn't need that that asset in the portfolio and instead, we're being we're moving to a 100% Permian and higher growth.

We pointed out in her travels in his prepared remarks right is this business.

Even though diamondback or other operators in the basin are growing like they used to the benefit of the mineral business as it can grow despite the parent company or other companies not growing as much.

Yeah, Great I love that.

Per unit growth, obviously with the buybacks and the production growth nice job guys. Thanks.

Thanks, Nick.

Our next call comes from the line of Derrick Wood sale with stifle.

Derek. Please go ahead with your question.

Good morning, all and congrats again on the strong quarter.

Thank you Derek.

With regard to your six months in 2023 guidance the outlook appears to imply a step up in growth in the second half to about 22000 barrel level for oil does.

Does that generally hit late Q2 early Q3 based on expected Diamondback activity.

Yes, that's right Derek it's just a lot of timing on some of these bigger diamondback pads.

As they kind of shifted to some of that large scale development, particularly in so in Robertson ranch, where we've got a larger NRI.

It was a very little bit quarter to quarter at those wells or pads get turned to production but.

The way that we're looking at it right now.

The first quarter will be kind of flattish to where we work here and then youll see volumes pick up in the second quarter kind of in higher end of that first half range, but then yes. Your math is right as well as at kind of the implied number in the back half of the year will still represent some pretty significant growth in that second quarter.

It's really just going to be the cadence of the net wells being turned to production.

I think importantly, Derek you can you can see these wells coming right I mean, the <unk> pad, which is going to be one of the larger pads and Robertson ranch coming on here mid year. So it's not a it's not a growth on the comps we know that that growth is coming and you can visibly see it hitting.

Hitting the business in Q2 and Q3.

Great makes sense and perhaps more long term in nature.

To ask how you guys are thinking about the opportunity in your exposure, resulting from the deeper Wolfcamp D Barnett and Woodford delineation test the industry is pursuing across the Midland Basin.

Yes, I think that is one of the greatest benefits of the mineral business.

Is that.

We underwrite minerals based on what we know.

And over the course of time, particularly in the Permian you've seen more zones become economic you've seen.

Better recoveries, you've seen large multi pad development and a lot of that was not underwritten 567 years ago. So you own. These mineral if you buy minerals versus an override you own those minerals forever in perpetuity and that creates opportunities like.

Some of these deeper rights.

Places like Spanish trail and the western side of the basin, which is starting to get a lot of attention.

As it relates to.

Deeper development so more to come you don't haven't signed a lot of leases yet in those deep zones, but you can bet that.

That's going to be a benefit.

Fiber and tangentially Diamondback.

Great. Thanks for your time.

Thank you Sir.

As a reminder.

To ask a question please dial star one on your keypad.

Our next call is coming from the line of Paul.

Paul Donovan with city please standby.

Hi, Good morning, just a quick.

Follow up here looking more to the macro I know you guys talked about kind of the bid asks being a bit wide for your tastes in prior quarters have you seen any movement on that in either direction as far as you guys are looking at like potential.

Whether it's bolt on or larger M&A.

Good question, Paul I would say versus E&P land the bid ask is still pretty wide.

In minerals.

Minerals is unique because.

A lot of these mineral owners they don't pay any capex I don't see the impacts of inflation on their cost structure Theyre checks all they see us.

The months they received in July and August of last year, when oil was $100 a barrel, so thats kind of a new baseline.

And that results in a wider bid ask spread.

Today with crude at 75, and then summer last year over 100, so it's a little different in mineral land I would say the bid ask is still pretty wide.

Obviously under Diamondback, we can still.

He'll have differential information on timing so that we can pay more for value perspective, because we know exactly when those minerals are going to get developed.

We'll see how it unfolds throughout the year, but right now its pretty wide.

Understood. Thank you and just a quick follow up kind of like shifting from the guidance coming back to encourage more of a third party.

As far as like operational cadence is there anything you guys have seen in the last quarter. So that surprise you as far as the operations cadence or just kind of how they're thinking about the medium to longer term.

No not really Paul let's say gross activity levels have been pretty pretty steady you know when you look at the rig count when you look at wells being spud or permits being filed across the position.

Really gross exited levels have been pretty steady for the past six to nine months.

When we look forward to 2023, though we're going to get some benefit on the third party side of some of our higher NRI stuff being developed by them. So here today you know in February it's kind of a harvest guidance, we have to do for the full year and making some assumptions.

What Q4 of 2023 might look like but right now today, we've got pretty much the same visibility to total net wells being turned to production. This year as we did all of last year. So that's pretty encouraging for us when we look at third party activity levels.

That could continue to improve as we progress through the year.

Understood. Thanks for your time.

Thanks, Paul.

At this time I would like to now turn the call back over to Mr. Travis Stice CEO .

Thank you again to everyone for participating in today's call. If you've got any questions. Please reach out to us.

Using the contact information provided thank you.

Thank you for your participation in today's call. This does conclude the program you may now disconnect.