Q3 2023 Viper Energy Partners LP Earnings Call

November 7, 2023

Good day.

Speaker 1: Today, and thank you for standing by. Welcome to the vibe.

Thank you for standing by.

Welcome to the Viper energy partners.

Speaker 1: There at quarter, 2020 three are in his conference call.

Third quarter 2023 earnings conference call.

Speaker 1: At this time, our participants are in listening only mode. After the speakers presentation, there will be a question in answer session.

At this time, all participants are in listen only mode.

After the speaker's presentation, there will be a question and answer session.

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Speaker 1: Please be advised that today's conference is being recorded. I would now like to hand a conference over to Adam Lawless, Vice President of Investor Relation.

Please be advised that today's conference is being recorded I would now like to hand, the conference over to Adam Lawlis, Vice President of.

Investor Relations. Please go ahead.

Speaker 2: Thank you, Anzal. Good morning. And welcome to the Viber Energy Partners third quarter of 2020.

Speaker 2: Conference call during our call and over the reference an updated investor presentation, which can be found on Bipers Web.

Speaker 2: Representative Hi Auditor

Renting Viper today are Travis Stice CEO.

President and often you will fill it and general manager.

Speaker 2: During this conference call of participants, I make certain forward looking statements relating to the company's financial condition, results of operations, plans, objectives, future performance.

During this conference call participants may make certain forward looking statements relating to the company's financial condition results of operations plans objectives future performance and businesses.

Speaker 2: We caution you that actual results could differ materially from those that are indicated in these forward looking statements due to a variety of facts.

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 filings with the SEC.

Speaker 2: information concerning these factors can be found in the company's following with that CC. In addition, we will make...

We will make reference to certain non-GAAP measures the reconciliations with the appropriate GAAP measures can be found in the earnings release issued yesterday afternoon, I'll now turn the call over to Travis Stice.

Speaker 2: The reconciliation with the appropriate gap mentors and you found in our earnings relief that she gets her day after day. And I'll send the call to her with chat.

Thank you Adam welcome everyone and thank you for listening to Viper Energy partners third quarter 2023 conference call.

Speaker 2: Thank you, Adam. Welcome everyone and thank you for listening to Viper Energy Partners Third Quarter 2023 Cup.

Speaker 3: There were several important updates made yesterday with our...

There were several important updates made yesterday with our earnings announcement, so I will start with our upcoming conversion into a Delaware Corporation first.

Speaker 3: So I will start with our upcoming conversion into a Delaware Corporation first. The Board of Directors approved the conversion of November 2nd, and we extend.

The board of directors of forensic conversion on November 2nd and we expect that it will become effective on November 13th.

Speaker 3: When completed, this conversion will deliver increased corporate governance rights to our limited

When completed this conversion will delivered increased corporate governance rights to our limited.

Partners and is intended to position fiber such that the value of our mineral and royalty assets can be fully recognized further on that point. We expect the conversion to result in an increase in vipers trading liquidity and potential investor Universe.

Speaker 3: intended to position Viper such that the value of mineral and water will be as it can be.

Speaker 3: Expect the conversion to result in an increase in Viper' trading liquidity and potential Investor universe, given Viper' current status as partnership.

Kevin Vipers current status as a partnership we estimate that approximately 2% of our public float is held by index funds.

Speaker 3: to a select group of our peers averaging around 30%.

This compares to a select group of our peers, averaging around 30% ownership.

Speaker 3: Fundamentally, we believe this conversion is the right thing to do for our unit holders in that it will provide numerous benefits, but the foundation of the decision is to fully highlight the advantage nature of mineral ownership and the unique value proposition that by...

Fundamentally we believe as conversion is the right thing to do for our unit holders and that it will provide numerous benefits.

But the foundation of the decision is to fully highlight the advantage nature of mineral ownership and a unique value proposition that Viper presents within this space.

As a separate recent event Viper announced last week, the closing of our <unk> acquisition.

Speaker 3: acquisition was a truly unique opportunity in that it checked all the boxes we looked for in an acquisition.

The acquisition was a truly unique opportunity and that it checked all the boxes. We look forward in an acquisition immediate accretion to all relevant financial metrics substantial.

Speaker 3: Stantial, undeveloped inventory to support long-term return.

Substantial undeveloped inventory to support long term returns.

And significant scale that results in a pro forma business that is both bigger and better.

Speaker 3: and significant scale that results in a pro-former business that is both bigger and better.

What differentiates this acquisition, however, as both the quantity and quality of the undeveloped inventory.

Speaker 3: What differentiates this acquisition, however, is both the quantity and quality of the undeveloped inventory, particularly in the Northern Middle of Base.

Particularly in the northern Midland Basin.

Following the closing of this acquisition.

Speaker 3: Viper now owns roughly 32,000 net royalty acres in the permanent basin, and our production will be over 25,000 barrels.

<unk> now owns roughly 32000 net royalty acres in the Permian basin, and our production will be over 25000 barrels of oil per day.

Speaker 3: Looking ahead, we have an unparalleled growth runway of high quality undeveloped

Looking ahead, we have an unparalleled growth runway of high quality undeveloped acreage and as the largest player in the public minerals market.

Speaker 3: and as the largest player in the public minerals market.

Speaker 3: to play a meaningful role in consolidating the highly fragmented

We expect to play a meaningful role in consolidating the highly fragmented space.

Speaker 3: high-value proposition opportunities like GRP.

High value proposition opportunities like Gee ERP present themselves.

Turning to the results of the business. The third quarter was another strong quarter for Viper as production grew roughly 5% for the second consecutive quarter.

Speaker 3: Turning to the results of the business, the third quarter was another strong order for Viper as production grew roughly 5% for the second to

While growth will not always be ratable from quarter to quarter, given we own varying interest and what is mostly large scale development in the Permian basin.

Speaker 3: While growth will not always be radical from quarter to quarter, given we own varying interests in what is mostly large scale development.

We expect the trend of meaningful growth on an annual basis to continue.

Speaker 3: We expect the trend of meaningful growth on an annual bus

Speaker 3: as evidenced by their preliminary full year 2024 production guidance that we provided.

As evidenced by their preliminary full year 2024 production guidance that we provided.

Additionally, during the third quarter, Viper announced an almost $100 million lease bonus.

Speaker 3: Additionally, during the third quarter, Viper announced an almost $100 million.

Speaker 3: will allow for the future development of deeper zones on certain aggregates in the middle of the base.

Which will allow for the future development of deeper zones on certain acreage in the Midland Basin.

Speaker 3: As mentioned in our rationale for converting into a corporation, there are many structural advantages to mineral ownership beyond just the cost-free royalties, and this significant

As mentioned in our rationale for converting into a corporation. There are many structural advantages to mineral ownership beyond just the cost free royalties and this significant lease bonus is just one specific example.

Speaker 3: as owners and lessors of the sub-service park.

As owners and lessors of the subsurface property.

Speaker 3: Modern lease terms can dictate development requirements of office.

Lease terms can dictate development requirements of operators and when those terms are not net leases can expire and have the full development rights revert back to us as the mineral owner.

Speaker 3: and those terms are not met, Lisa's can expire.

Speaker 3: have the full development rights revert back to us as the middle.

Speaker 3: As deep her zones are tested throughout the basin, we believe this is an advantage that will only be further...

As deeper zones are tested throughout the basin. We believe this is an advantage that will only be further highlighted in the years to come.

As a final point.

Speaker 3: Vibrate remains committed to a sustainable and growing return of capital through cash distribution to the long term. We have the balance, cheat strength, durable cash flow profile.

<unk> remains committed to a sustainable and growing return of capital through cash distributions over the long term.

We have the balance sheet strength durable cash flow profile.

And undeveloped inventory base to support many years of significant return of capital through the cycle.

Activity on our asset base continues to be strong.

Speaker 3: Believe we're positioned to execute opportunistic in.

We believe we are positioned to execute on opportunistic M&A to further complement complement what is already a unique value proposition. Both in terms of return on and return of capital.

Speaker 3: further complement, complement what is already a unique value.

Speaker 3: open terms of return on and return of capital. Operator, please open the line for questions.

Operator, please open the line for questions.

Okay.

Thank you.

We will now conduct a question and answer session.

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Question.

And the answer roster.

Our first question comes from Neal Dingmann from <unk> Securities. Please go ahead.

Speaker 1: Our first question comes from Neil Dingman. From True Securities, please go ahead.

Good morning, guys nice quarter.

Speaker 4: Morning guys, nice quarter. My first question guys, just on all these bonuses that from Press and One, you all reach out to the seat. I'm just wondering, you speak to all that bonus was tied likely to the deeper zones and wonder, do you all believe you have many of your other assets have potential for similar type bonuses, maybe in those type of areas?

My first question guys just on the lease bonus is that the price of one youll see but I'm just wondering.

Speak to you.

All of that bonus was tied likely to the deeper zones and wondering do you. All believe you have many of your other assets have potential for similar type bonuses, maybe in those type of areas.

Yes, good question.

Speaker 2: You have any other good questions? You know, I'll answer part of it and give it to Austin. Talk about the rest of the acid base.

I'll answer part of it and give it to us and talk about the rest of the asset base I think high level.

Speaker 2: I think high level, we kind of added a slide in the deck to kind of show that even in an area like Spanish trail highly developed on the traditional wolfberry play that we all know. But now, moving back in and developing, Barnett Woodford and some of the wolf can't be across the position, the mineral owner gets the benefit there, right? They get at least bonus and they get a royalty on.

We kind of added a slide in the deck to kind of show that.

Even in the area of Spanish trail highly developed on the traditional wolfberry play that we all know but now.

Moving back in and developing.

At Woodford and some of the Wolfcamp b across the position.

The mineral owner gets the benefit there.

They get a lease bonus when they get a royalty on.

All of the <unk>.

Speaker 2: all the new zones. So I think we're going to be slow to test it. I think it was a convenient time to get that least done between Don and Backing Viper as it provided a lot of cash to Viper to help close.

All of the new zone. So I think we're going to be slow to test. It I think it was a convenient time to get that lease done between diamondback and Viper.

As it provided a lot of cash to Viper to help close the ERP deal.

Speaker 2: the GRPDL, but I think just generally we're trying to highlight that.

But I think just generally we tried to highlight that we own a lot of minerals in the Midland Basin and Theres a lot left to do in terms of other zones deeper zones shallower zones, and all of that benefits the mineral alone or whether you can model it today or not and also you won't talk about the asset base, yes. The.

Speaker 5: We own a lot of minerals in the Midland Basin, and there's a lot left to do in terms of other zones, deeper zones, shallower zones, and all of that benefits the mineral owner, whether you can model it today or not. Austin, do you want to talk about the asset base? Yeah. Monitoring and enforcing these type of lease terms is a really important part of what we do now, especially kind of where we are today.

Monitoring and enforcing these type of returns if it is a really important part of what we do know, especially kind of where we are in the industry and these modern leases and some of the terms that they could have.

Speaker 5: So this specific lease with Spanish trail represented about 10% of our total net acres, when we kind of go through and look.

This specific lease with Spanish trail represented about 10% of our total net acres.

When we kind of go through and look at the lease specific lease provisions that are included across the acreage that we own we estimate about 50% of our acreage.

Speaker 5: specific leak provisions that are included across the acres that we own. You know, we estimate about 50% of our acres had a similar leaf language that where if the deeper rights hadn't been developed, that that acreage would kind of fall out and it would become available. So, you know, I don't think that...

Kind of similar lease language, where if the deeper rights haven't been developed that that acreage what kind of fallout and will become available. So.

I don't think Thats a.

Story for Tomorrow, but certainly as things play out over time in the zone becomes more developed and it kind of expands across the basin I think it is something that youll see more of that going forward.

Speaker 5: story for tomorrow, but certainly as things play out of her time and the zone becomes more developed and it kind of expands across the base.

Speaker 4: Yeah, like that upside things often and then just quick second one on capital allocation. I just wanted to give him the current leverage, you know, post the deal and, you know, obviously the great production guide for next year. I'm just wondering any thoughts on if capital allocation would change or with a payout type, I continue. Now, that's a good question to you.

Yes, like that upside Thanks, Austin and then just a quick second one on capital allocation I'm just wondering given the current leverage post the deal and obviously the great production guide for next year I'm, just wondering any thoughts on capital allocation will change or what the payout.

Payout type continue.

Good question too I mean, I think our.

Speaker 2: Payout philosophy is the same. 75% of pre-cash flow goes to equity. 25% goes to the balance sheet. We know we put a good amount of cash flow.

Payout philosophy is the same 75% of free cash flow goes to equity, 25% goes to the balance sheet.

Put a good amount of cash in this ERP deal, but we have the balance sheet capacity to do it.

Speaker 2: GRPDL, but we had the balance sheet capacity to do it. We also have kind of a small balance on our revolver after closing the deal, so that'll be easy dead paydown. And I kind of strip prices, we're still going to be likely below one time's leverage.

We also have kind of a.

Our small balance on our revolver after closing the deal so that'll be easy debt Paydown and.

I kind of strip prices were still going to be likely below one times leverage.

Speaker 2: the end of 2024 even if we do pay out 75% equity.

At the end of 2024, even if we do pay out 75% equity.

Speaker 2: You know, I think BIPER has kind of gone back and forth on, on, you know, how we're returning capital to shareholders. I think we've probably preferred to distribute more cash via the fixed plus variable distribution than BIPACS. But, you know, there might be opportunities to buy back stock in the unique situations over the coming year. But I think, you know, our preference on that 75% to get returned to...

Viper has kind of gone back and forth on on.

We are returning capital to shareholders I think we'd probably prefer to distribute more cash.

The fixed plus variable distribution than buybacks, but there might be opportunities to buy back stock and unique situations.

Over the coming year, but I think our preference on that 75% that gets returned.

Shareholders and unitholders as.

Speaker 4: Chair holders, unit holders is through the base plus very good living. Presented details, thanks, Case.

It is through the base plus variable dividend.

I appreciate the details thanks guys.

Thanks Neil.

Thank you.

One moment for our next question.

Our next question comes from Derrick Whitfield from Stifel. Please go ahead.

Speaker 1: Our next question comes from Derek Whitfield from Stiffle, please go ahead. Good morning, Alan.

Hi, Good morning, all and thanks again for your time.

Is there with respect with respect to the recent <unk> acquisition. This was one of the first we've seen you pursue where there wasn't diamondback ngor immediate time Diamondback angle.

Speaker 5: There is respect, with respect to the recent GERP acquisition. This was one of the first we've seen you perceive where there wasn't a down and back angle or a medium down and back angle. Think about your prepared remarks and the validation opportunities you're seeing. Could you speak to what you're seeing in Dillflow and the dead-ass spreads from metals, which could lead to incremental opportunities?

Thinking about your prepared remarks, and consolidation opportunities Youre seeing could you speak to what youre seeing in deal flow and the bid ask spreads for minerals, which could lead to incremental opportunities.

Yeah, I'll talk about the ERP deal in Austin can talk about the market right now.

Speaker 2: Yeah, I'll talk about the GRPDL and I'll see you can talk about the market right now. I mean, you know, this deal was kind of the one we've been waiting for. You know, this team built this asset base over eight or ten years. And, you know, I think it can be best sums up a, you know, very unique in that, it'd be impossible to build that position today. And so we needed to buy that position.

This deal was kind of the one we've been waiting for this team is also focused asset base over.

After 10 years and I think it can be.

Best summed up.

Very unique in that it.

It would be impossible to build that position today, and so we needed to buy that position and the reason why we liked it is it's a lot of.

Speaker 2: And the reason why we liked it is, you know, it's a lot of, the middle basin is the core asset.

The Midland Basin is the core asset it's a lot of undeveloped units in the Midland Basin.

Speaker 2: It's a lot of undeveloped units in the Midland Basin and it's all in acreage that we would cover. So while there isn't a huge diamond back operated component to it, we put our operator hat on and said, would we like to own exposure to the core of the basin under competent operators like Pioneer and Devar, now axon, et cetera. And

And it's all in acreage that we would cut it so while there isn't a huge diamondback operated component to it we put our operator hat on and said.

Would we like to own exposure to the core of the basin under competent operators like pioneer endeavor, now Exxon et cetera.

And.

Speaker 2: You know, that is second to none and in our mind can't be built through the ground game. And so we used our size and scale to be able to put a good amount of cash in the deal and get it across finish line.

That is second to none in our mind.

Can't be built through the ground game and so we used our size and scale to be able to put a good amount of cash in the deal and get it across the finish line.

Yes.

Speaker 5: Yeah, the actually, you know, there's been quite a few deals that have come to market in a transacted this year. We really have been pretty selected the last couple of years.

There's been quite a few deals that have come to market in a transacted this year.

We really have been pretty selective for the last couple of years with the primary focus on Diamondback operated like you mentioned or secondarily as Keith highlighted if it doesn't happen to high Diamondback operated percentage that is just really high quality acreage with clear undeveloped inventory, where we can have that confidence and with a long term development is going to look like.

Speaker 5: What the primary focus on diamondback operated like you mentioned, or secondarily, as case kind of highlighted, if it doesn't have the high diamondback operator percentage, then it's just really high quality entries with clear undeveloped inventory where we can have that confidence in what the long-term development is going to look like.

Speaker 5: I think going forward, if it's going to get somewhere viewpoint for us and we see an opportunity for quite a few more deals to come to market. But for us, it's always a pretty high hurdle. You have to give them the quality of acres that we have today, the development that we see going forward, and it kind of has to compete for that, right? Just being accrued at Bay 1's, not enough for us. We kind of have to have confidence in that.

I think going forward, it's going to get similar viewpoint for us and can we see an opportunity for quite a few more deals to come to market.

But it's already a pretty high hurdle given the quality of acreage that we have today the development and we see going forward and it kind of has to compete for that rate being accretive day, one not enough for us we kind of have to have confidence in that development.

Speaker 5: Development outlook over your Q, your Q, your Q, your 4, etc. And that's all right, the hardest hurdle clear.

Development outlook your two year three year, four et cetera.

That's always the hardest hurdle clear.

Speaker 2: Again, one last comment on the data back operator piece, you know, it's certainly...

One last comment on the Diamondback operated piece.

Certainly has been beneficial to have that Diamondback Viper relationship.

Speaker 2: has been beneficial to have that gone back like a relationship.

Speaker 2: for significant amount of our production. As the business has gotten bigger, and we chase these same decline rates that the EMP's do, it's harder to find sizable packages under diamond back.

For a significant amount of our production.

The business has gotten bigger and you know we chase the same decline rates that the e&ps do.

It's been hard it's harder to find sizable packages under diamondback that will move the needle for the next 567 years, So I think generally.

Speaker 2: that will move the needle for the next five, six, seven years. So I think generally,

Speaker 2: You know, we have a great position, operated by Diamondback, but the next leg of the stool is going to be, you know, undeveloped units, particularly the middle basin, like what we found with GRP that drive growth in the next decade.

We have a great position operated by Diamondback, but the next leg of the stool is going to be undeveloped units, particularly in the Midland Basin.

What we found with ERP that drive growth.

Next decade.

Speaker 5: Perhaps actually picking up with where you ended their case, because I think the opportunity that you guys have to deep rise under Spanish trail could be quite remarkable. But I would love to, you guys could share what the opportunity you see with the Woodford and Barnett, and others at present, and how soon you could see meaningful activity, and that would clearly benefit Viper given the elevated inner eyes you have in that area.

Perhaps actually picking up with where you ended their case.

I think the opportunity that you guys have the deep rights under Spanish trail could be quite remarkable but.

I would love to meet you again, you guys could share what the opportunity you see with the Woodford and Barnett <unk> President and how soon you could see meaningful activity and that would clearly benefit Viper given the elevated <unk> have in that area.

Speaker 2: Yeah, you know, there's certainly a lot of a lot of industry activity in the Barnett and Woodford and traditionally our mentality has been to be a fast follower. But, you know, I think there will be some tests, particularly, you know, operated by Diamondback in the next, you know, in the next 12 to 24 months.

Yes, there's certainly a lot of a lot of industry activity in the Barnett and Woodford and traditionally our our mentality has been to be a fast follower but.

I think there will be.

Some tests, particularly operated by Diamondback in the next in the next 12 to 24 months.

Speaker 5: I don't think it'll move the full-scale development until kind of 2025, 2026, but all indications are pointing to those zones being very productive, covering a lot of the base and it works at a price, right? It's going to be a little more expensive to the operator. We're in my Vipro app, we don't really care, as long as there's a lot of resource. And I think all indications are pointing towards significant resource in those deeper zones.

It will move to full scale development until.

Kind of 2025 2026, but.

All indications are pointing to those zones being very productive.

Covering a lot of the basin.

And it works at a price that it's going to be a little more expensive to the operator wearing my Viper at we don't really care as long as there's a lot of resource and I think all indications are pointing towards significant resourcing those deeper zones.

That's great. Thanks for your time.

Thanks Terry.

Thank you.

One moment for our next question.

Speaker 1: Our next question comes from Paul Diamond from City. Please go ahead.

Our next question comes from Paul <unk> from Citi. Please go ahead.

Alright, Thank you and good morning, Thanks for taking my call just a quick.

Speaker 6: Thank you, good morning off, thanks for taking my call. Just a quick one on the Delaware Corp conversion. Talked about day currently, 2% of the public flowed. Whole news held by the next funds.

One on the Delaware Corp conversion you talked about.

Currently 2% of the public float is held by index funds versus.

Speaker 6: About 30% by peers just want to get a little bit deeper on that to see how you guys are envisioning the, you know, any trend towards that higher rate, you know, post.

30% by peers just wanted to dig.

Think a bit deeper on that to see.

And how you guys are envisioning.

The trend towards that higher rate you know post conversion.

Speaker 2: Yeah, great question. We've done a little bit of work on it.

Yeah, Great. Great question, you know, we've done a little bit of work on it.

The deals the conversion supposed to close next Monday.

Speaker 2: You know, the deals, the conversion spots are closed next Monday. And then we'll be a corporation, a detailed member for shareholders. So they know what's going on. But, you know, from what we can tell, there's a couple of indices that we could be eligible for, you know, even before the end of the year. And, you know, those are pretty significant.

Then it will be a corporation there are some details in there for shareholders. So they know what's going on but.

Well from what we can tell there's a couple of indices that we could be eligible for <unk>, even before the end of the year and you know those are pretty significant in the seasoning.

Speaker 2: indices, I think, you know, the vanguard related indices as well as then eventually some of the S&P related indices and as the market knows that's a lot of buying for a company that has...

Vanguard related indices as well as then eventually some of the S&P related indices and as the market knows that's a lot of.

There's a lot of buying for a company that has a.

Speaker 2: a lower public flow. So we're gonna start working with them right away after getting the sink closed and getting as many industries as possible and kind of follow the path of...

Lower public float and so we're going to start working with them right away. After after getting this thing closed and getting as many indices as possible and kind of follow the path of hopefully what diamondback followed years ago is that business grew and got more exposure to the large index funds and what if anything they are awesome, yes.

Speaker 5: You know, hopefully what Donna back followed, you know, years ago, as that business grew and got more exposure to large index funds. And anything there else? Yeah, well, the name's pretty benchmarks are kind of your F&P, Chris and in Russell. And F&P and Chris do quarterly revounces, so they'll both do one middle of December . So the conversion will be done by then.

Three benchmarks or connect your S&P, Chris and Russell S&P and crisp quarterly rebalancing so both of you.

Middle East Middle of December so the conversion will be done by then so we'll be in communication with them and see if that's something that can happen. It happened. This year and then Russell rebound annually in June.

Speaker 5: that's something that can happen this year. And then Russell does their rebalance annual.

Speaker 5: Then additionally, you know, you'll have something that's more pressurized based or are subjective like like the S&P 600 Where we'll have to ask communication with them, but but all signs point to being eligible right away

Additionally, you'll have something that's more criteria based or subjective.

600, where we will have to have some communication with them, but but all signs point to take E eligible right away and hopefully getting included pretty soon but certainly meet our criteria now the incorporation as opposed to being a partnership.

Speaker 2: Yeah, and the strategy there's also exposure, right? There's a lot of other investors that, you know, I think are limited in their exposure to minerals and you've already had some success converting some...

Our strategy. There is also exposure right, there's a lot of other investors that.

I think are limited in their exposure to minerals and have already had some success converting some.

Speaker 2: You know, shareholders, potential shareholders on the road to look at the story.

If shareholders potential shareholders on the road.

So look at the story I mean.

Speaker 2: I envision and travel, I envision the world where, you know, this, this mineral space and this business is competing with, you know, the lights of some of the

I envision interests envisioned a world where.

This mineral space and this business is competing with the likes of some of the mid end at the smid and mid caps on the E&P side.

Speaker 2: at the Smith & Midcaps on the EMP side and you know this business certainly shows as a safer way to play.

This business certainly shows is a safer way to play.

Speaker 2: You know, the Permian Basin or oil exposure, you know, with no cap of requirements and just upset.

Permian basin or oil exposure.

With no capital requirements and just upset.

Understood I appreciate the clarity there and just one more quick follow up just more on the <unk>.

Speaker 6: I appreciate the clarity there. Just one more quick follow up just more on the lease bonus payments. How are you guys envisioning that going forward? Is it more and to be chunkier do you see it as just a consistent growth?

One is payments.

How are you guys envisioning that going forward is that more tend to be chunky or do you see it as just a consistent growth over time.

Well, it's been a show on unique right I mean, this was a unique asset.

Speaker 2: Well, the same as trail on unique, right? I mean, this was a unique asset that, in generational assets, it doesn't come around very often. So this was certainly the big one. You know, I think it's logical that a lot of the deep rights throughout the basin are going to get least that, you know, over the coming 12 to 24 months. But for us, they'll all be smaller than this large pavement, you know, which was a pretty significant amount of acreage.

And generational asset that doesn't come around very often so this was certainly the big one I think it's logical that a lot of the deep rights throughout the basin are going to get leased up.

Over the coming.

<unk> months to 24 months, but for us to all be smaller than this large payment, which was a pretty significant amount of acreage.

Understood. Thanks for the clarity.

Yes.

Thanks, Paul Thank you.

Mommy Farrar.

Speaker 1: Our next question comes from Leo Morini. From Rob Imp...

Our next question comes from Leo Mariani.

Rob Please.

Please go ahead.

Speaker 7: Hi, guys. I wanted to ask whether or not you see any kind of material change in the tax rates for Venom following this kind of corporate conversion. I did see you had this kind of soft sort of not really guidance, but just kind of numbers that you kind of rolled out for 2024 outside of production where you talk about kind of an effective tax rate. But I know you've got kind of multiple classes of units historically. I know you're going to have maybe one in one class of shares, but just trying to get a sense. So we're going to see any material difference.

Hi, guys wanted to ask whether or not you see any kind of material change in the tax rates for venom.

Following this kind of corporate conversion I did see yes.

<unk> sort of not really guidance, but just kind of.

The numbers that you kind of rolled out for 2024 outside of production, where you talk about kind of an effective tax rate, but I know you've got kind of multiple classes of units historically I know you're going to have many more than one class of shares but just trying to get a sense are we going to see any material difference in kind of cash taxes, and 24 versus <unk> 23.

Speaker 7: Kevin Cash Taxes in 24 versus 23.

No we are not.

Speaker 5: You know, we are nothing to change at all for the public unit holders that will become public stockholders. So tax position didn't change and I think it'll just provide them more more flow and more liquidity. And we know that's why the conversion made so much sense is that we became a taxable partnership back in 2018 and in there for a couple of years Diamondback was affected with shielding us from corporate tax.

That should change at all for the public unit holders that will become public stockholders, so tax position didn't change.

Yeah, I think I'll, just provide them more more flowed more liquidity.

That's why the conversion makes so much sense that that we became a tactical partnership back in 2018 and in there for a couple of years Diamondback with effectively shielding us from corporate taxes.

Speaker 5: And that agreement ran out in the last year. So here in 2023, we're a partnership with the Painful Corporate Income Taxes and getting all the downsides effectively of being a corporation, but you don't have any of the upsides. So it just made a lot of sense to do that today. Given the large part, the kind of tax.

That agreement ran out end of last year, so far here in 2023, where partnership with painful corporate income taxes.

And getting all the downsides effectively being a corporation, but you don't have any of the upsides.

So it just made a lot of sense to do that.

Given in large part to the kind of tax situation that we're in.

Okay. That's helpful.

Speaker 7: Okay, that's helpful. And then just wanted to kind of ask kind of a couple other sort of numbers here. So I think you guys are kind of expecting production to come down a little bit in the first quarter. I'm assuming that's all just kind of timing related, but just wanted to maybe get a little color around that. And then also just noticing that...

And then just wanted to kind of ask on a call.

Other sort of numbers here. So I think you guys are kind of expecting production to come down a little bit.

In the first quarter I'm, assuming that's all just kind of timing related but just wanted to maybe get a little color around that and then also just noticing that your cash G&A per barrel guidance also came down nicely as well.

Speaker 7: Your cash GNA, Probarol Guide, and it also came down nicely as well. Is that a function of spending kind of less than you expected there or maybe just perhaps production results have been better and then when the acquisition you're seeing the BOE go up and you're just able to spread the cost out over more barrels.

And a function.

Spending kind of less than you expected there or maybe just perhaps production results have been better and then with the acquisition and Youre seeing that the Boe's go up and you're just able to spread the cost out over more barrels.

Okay.

Speaker 5: On the production side first, you know, reported production will actually go up from Q4 to Q1. Q4, you're going to have two-thirds of contributions from the GRP assets. So we have the midpoint there of 24.5 and then going into the first quarter, you know, actual reported production will go up, given you have a full quarter of those assets, contributions. But, you know, we're trying to be intellectually honest there, look at it on a proof form and basis.

On the production side first.

Reported production will actually go up from Q4 to Q1 Q4, youre going to have two thirds of contribution from the ERP assets. So we have the midpoint there of 24 five.

And then going into the first quarter actual reported production will go up given you have a full quarter of those assets contributions, but we're trying to be intellectually honest there and look at it on a pro forma basis and Thats kind of what we're 22, there was a slight sequential decline and really that in context that follows you know back to back quarters, a 5% growth that we've had.

Speaker 5: And that's kind of what we're pointing to there with a slight sequential decline. And really that in context, that follows, you know, back to back quarters of 5% growth that we've had here. And it's mainly a result of this kind of a timing that's going to be really large time that we have really high.

Here and there.

Mainly a result of this kind of a timing of some of these really large diamondback pads really have really high interest.

Speaker 5: And we put in slide, slide nine of the deck where we kind of show the visibility to the Dynamics schedule. You know, the way that we kind of see 2024 right now with the Dynamics side is...

And we put in slide slide nine of the deck, where we kind of showed that the visibility to the diamondback schedule.

The way that we kind of see 2024, right now with the Diamondback side, having owning an interest in about 60% of Diamondbacks completions next year with about a six 5% interest within those wells.

Speaker 5: Having an interest in about 60% of Dynevex completions next year with about a 6.5% interest within those wells, but that'll be split roughly 40-60 between first half to year and the second half to year. So still significant growth coming, especially with Dynevex operated side, is this most significant be second half weighted to give some of the bigger pads?

But that'll be split roughly 40 60 between first half of the year in the second half of the year, So still significant growth coming especially from a diamondback operated side is it mostly going to be second half weighted just given some of the bigger pads.

Speaker 5: And then on the cost side, I mean, those are all very minimal. We've kind of been spending $6,7 million a year in cash, GNA, as production growth goes up. We grow the business work. We're not going to have any people. So on a per unit basis, that those should continue to trend down even further over time.

And then on the cost items, you know I mean those.

We're all very minimal we've kind of been spending six seven maybe $8 million a year in cash G&A.

Production growth goes up if we can.

Grow the business, where we're not having to add any people.

So on a per unit basis, but those should continue to trend down even further over time.

Okay. Thank you.

Thank you.

Speaker 1: At this time, the Q&A session has now ended. I will now time the call over to Travis Dice for closing.

At this time the Q&A session has now ended I will now turn the call over to Travis Stice.

For closing remarks Mark.

Speaker 3: Thank you, hand to everyone participating in today's call.

Thank you again to everyone participating in today's call.

Speaker 1: If you have any questions, please contact us using the information provided. Thank you. This concludes today's conference call.

Do you have any questions. Please contact us using the information provided thank you.

This concludes today's conference call.

Thank you for participating you may now disconnect.

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Welcome to the Viper energy partners.

Speaker 1: Third quarter, 2023, our NIS conference call.

Third quarter 2023 earnings conference call.

Speaker 1: At this time, our participants are in listen only mode. After the speakers presentation, there will be a question in answer session.

At this time, all participants are in listen only mode.

The speaker's presentation, there will be a question and answer session.

Speaker 1: To ask a question during this session, you need to press star 11 on your telephone. You would then hear an automated message advising your hand is raised.

To ask a question. During this session you will need to press star one on your telephone you would deem to hear an automated message advising your hand is raised.

Speaker 1: To withdraw your question, please press star 111 again.

To withdraw your question. Please press star one again.

Speaker 1: Please be advised that today's conference is being recorded. I would now like to hand a conference over to Adam Lawless, Vice President of Investor Relation.

Please be advised that today's conference is being recorded I would now like to hand, the conference over to Adam Lawlis Vice President.

Investor Relations. Please go ahead.

Speaker 3: Thank you, Anzalon. Good morning and welcome to Viber Energy Partners third quarter of 2020.

Thank you Antoine good morning, and welcome to Viper Energy Partners third quarter 2023 conference call. During our call today, we will reference an updated investor presentation, which can be found on <unk> website, representing Viper today are Travis Stice, CEO, Kate Spade half President and often gilfillan general manager during.

Speaker 3: Conference call during our call and over reference an updated investor presentation which can be found on Bipers Web.

Speaker 3: Representing bker today or trafvis science CE case fan house President and Austin gillbill and jinal.

Speaker 3: During this conference call of participants, they make certain forward looking statements relating to the company's financial condition, results of operations, plans, objectives, future performance.

This conference call participants may make certain forward looking statements relating to the company's financial condition results of operations plans objectives future performance and businesses.

Speaker 3: caution you that actual results could differ materially from those that are indicated in these forward looking statements due to a variety of effects.

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 filings with the SEC and Additionally, we'll 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'll now turn the call over to Travis Stice.

Speaker 3: information concerning these factors can be found in the company's following to the last week's city. In addition, we will make...

Speaker 3: The reconciliation with the appropriate gap mentors can be found in our earnings release as she gets her day after day. On Alpheon to call her with chat.

Speaker 3: Thank you, Adam. Welcome everyone and thank you for listening to Viper Energy Partners Third Quarter 2023 Cup.

<unk>.

Thank you Adam welcome everyone and thank you for listening to Viper Energy partners third quarter 2023 conference call.

Speaker 3: There were several important updates made yesterday with our enemies.

There were several important updates made yesterday with our earnings announcement, so I will start with our upcoming conversion into a Delaware Corporation first.

Speaker 3: So I will start with our upcoming conversion into a Delaware Corporation first. The Board of Directors approved the conversion on November 2nd and we extend.

The board of directors approved the conversion on November 2nd and we expect that it will become effective on November 13th.

Speaker 3: When completed, this conversion will deliver increased corporate governance rights to our limited

When completed this conversion will delivered increased corporate governance rights to our limited partners and is intended to position Viper.

Speaker 3: intended to position Viper such that the value of mineral and role the assets can be

Such that the value of our mineral and royalty assets can be fully recognized further on that point.

Speaker 3: to respect the conversion to result in an increase in Viper's trading liquidity and potential investor universe. Given Viper's current status as a partnership.

We expect the conversion to result in an increase in vipers trading liquidity and potential investor Universe.

Vipers current status as a partnership we estimate that approximately 2% of our public float is held by index funds.

Speaker 3: to a select group of our peers averaging around 30%.

This compares to a select group of our peers.

Averaging around 30% ownership.

Fundamentally we believe this conversion is the right thing to do for our unitholders and that it will provide numerous benefits.

With the foundation of the decision is to fully highlight the advantage nature of mineral ownership and.

And the unique value proposition that Viper presents within this space.

As a separate recent event Viper announced last week, the closing of our <unk> acquisition.

Speaker 3: acquisition was a truly unique opportunity in that it checked all the boxes we looked for in an acquisition.

This acquisition was a truly unique opportunity and that it checked all the boxes. We look forward in an acquisition are mainly the accretion to all relevant financial metrics.

Speaker 3: Undeveloped inventory to support long-term return

Substantial undeveloped inventory to support long term returns.

Speaker 3: and significant scale that results in a pro-forma business that is both bigger and better.

And significant scale that results in a pro forma business that is both bigger and better.

Speaker 3: What differentiates this acquisition, however, is both the quantity and quality of the undeveloped inventory, particularly in the Northern Middle of Base.

What differentiates this acquisition, however, as both the quantity and quality of the undeveloped inventory.

Particularly in the northern Midland Basin.

Following the closing of this acquisition Viper now owns roughly 32000 net royalty acres in the Permian basin and our production will be over 25000 barrels of oil per day.

Speaker 3: Viper now owns roughly 32,000 net royalty acres in the Permian Basin, and our production will be over 25,000 barrels.

Speaker 3: Looking ahead, we have an unparalleled growth runway of high quality undeveloped

Looking ahead, we have an unparalleled growth runway of high quality undeveloped acreage and as the largest player in the public minerals market.

Speaker 3: and as the largest player in the public minerals market.

Speaker 3: to play a meaningful role in consolidating the highly fragmented

I think to play a meaningful role in consolidating the highly fragmented space as high value proposition opportunities like <unk> present themselves.

Speaker 3: high value proposition opportunities like GRP present themselves.

Turning to the results of the business. The third quarter was another strong quarter for Viper as production grew roughly 5% for the second consecutive quarter.

Speaker 3: The third quarter was another strong order for Viper as production grew roughly 5% for the second to continue.

Speaker 3: While growth will not always be radical from quarter to quarter, given we own varying interests in what is mostly large scale development.

While growth will not always be ratable from quarter to quarter, given we own very interest in what is mostly large scale development in the Permian basin.

Speaker 3: We expect the trend of meaningful growth on an annual bus

We expect the trend of meaningful growth on an annual basis to continue as evidenced by their preliminary full year 2020 forward production guidance that we provided.

Speaker 3: as edited by their preliminary four year 2024 production guidance that we provide.

Speaker 3: Additionally, during the third quarter, Viper announced an almost hundred million dollars.

Additionally, during the third quarter Viper announced an almost $100 million lease bonus, which will allow for the future development of deeper zones on certain acreage in the Midland Basin.

Speaker 3: will allow for the future development of deeper zones on certain aggregates in the middle of the base.

Speaker 3: As mentioned in our rationale for converting into cooperation, there are many structural advantages to minim ownership beyond just the cost-free rule these. And this significant...

As mentioned in our rationale for converting into a corporation. There are many structural advantages to mineral ownership beyond just the cost free royalties and this significant lease boneless.

One specific example.

Speaker 3: as owners and less orders of the sub-service property.

As owners and lessors of the subsurface property.

Speaker 3: Modern lease terms can dictate development requirements of office.

Modern lease terms can dictate development requirements of operators and when those terms are not net leases can expire and have the full development rights revert back to us as the mineral owner.

Speaker 3: and those terms are not met, Lisa's can expire.

Speaker 3: have the full development rights revert back to us as the minimum.

Speaker 3: As deep rsoans are tested throughout the basin, we believe this is an advantage that will only be further housed.

As deeper zones are tested throughout the basin. We believe this is an advantage that will only be further highlighted in years to come.

As a final point.

Speaker 3: Vipers remains committed to a sustainable and growing return of capital through cash distribution to the long term. We have the balance, cheat strength, durable cash low profile.

<unk> remains committed to a sustainable and growing return of capital through cash distributions over the long term.

We have the balance sheet strength durable cash flow profile.

And undeveloped inventory base to support many years of significant return of capital through the cycle.

Activity on our asset base continues to be strong.

Speaker 3: We're positioned to execute on opportunistic in and

We believe we are positioned to execute on opportunistic M&A to further complement complement what is already a unique value proposition. Both in terms of return on and return of capital.

Speaker 3: further complement, complement what is already a unique value.

Speaker 3: open terms of return on and return of capital. Operator, please open the line for questions.

Operator, please open the line for questions.

Okay.

Thank you.

We will now conduct a question and answer session.

Speaker 1: To ask a question, please press star 11 on your telephone and wait for your name to be announced.

To ask a question. Please press star one one of your telephone and wait for your name to be announced too.

Speaker 1: To withdraw your question, please press star 111 again. Please stand by while I compile the...

To withdraw your question. Please press star one again.

Please stand by while a comparable question.

And answer roster.

Speaker 1: Our first question comes from Neil Dingman. From True Securities, please go ahead.

Our first question comes from Neal Dingmann from <unk> Securities. Please go ahead.

Speaker 9: Morning guys, nice quarter. My first question guys, just on all these bonuses, that from Press of 1, you all reach out to the seed. I'm just wondering, you speak to all that bonus was tied likely to the deeper zones and wonder, now you all believe you have many of your other assets have potential for similar type bonuses, maybe in those type of areas.

Good morning, guys Nice quarter. My first question guys just on the lease bonuses. The impressive one you. All recently received I'm just wondering you speak to if all.

All of that bonus was tied likely to the deeper zones and wondering do you. All believe you have many of your other assets how potential for similar type bonuses, maybe in those type of areas.

Speaker 2: You have any other good questions? You know, I'll answer part of it and give it to Austin. Talk about the rest of the acid base.

Yes. Good question ill answer part of it and give it to Austin was talking about the rest of the asset base I think high level.

Speaker 2: I think high level, we kind of added a slide in the deck to kind of show that even in an area like Tennis Trail highly develops on the traditional wolfberry play that we all know. But now moving back in and developing Barnett Woodford and some of the wolf can't be across the position, the mineral owner gets the benefit there, right? They get at least bonus and they get a royalty on.

We kind of added a slide in the deck to kind of show that.

Even in the area a lot of Spanish trail highly developed on the traditional wolfberry play that we all know, but now moving back in and developing Barnett Woodford and some of the Wolfcamp b across the position.

The mineral owner gets the benefit there.

Lease bonus when they get a royalty on.

All of the <unk>.

Speaker 2: all the new zones. So I think we're going to be slow to test it. I think it was a convenient time to get that least done between Don and back and Viper as it provided a lot of cash to Viper to help close.

All of the new zone. So I think we're going to be slow to test. It I think it was a convenient time to get that lease done between diamondback and Viper.

As it provided a lot of cash to Viper to help close the ERP deal.

Speaker 2: the GRPDL, but I think just generally we're trying to highlight that.

But I think just generally we tried to highlight that we own a lot of minerals in the Midland Basin and Theres a lot left to do in terms of other zones deeper zones shallower zones, and all of that benefits the mineral alone or whether you can model. It today or not and also you were talking about the asset base, yes ma'am.

Speaker 5: We own a lot of minerals in the middle of basin and there's a lot left to do in terms of other zones, deeper zones, shallower zones and all of that benefits the mineral owner whether you can model it today or not and I'll see you in front of what the asset base. Yeah, monitoring and enforcing these type of least terms is a really important part of what we do now. Especially kind of wherever we...

Monitoring and enforcing these type of retirement, if it's a really important part of what we do know, especially kind of where we are in the industry and these modern leases and some of the terms that they could have so this specific lease with the Spanish trail represented about 10% of our total net acres.

Speaker 5: So this specific lease with the Spanish Trail represented about 10% of our total net acres, when we kind of go through and look.

When we kind of go through and look at the lease specific lease provisions that are included across the acreage that we own we estimate about 50% of our acreage.

Speaker 5: specific leaf provisions that are included across the acres that we own. You know, we estimate about 50% of our acres had a similar leaf language that where if the deeper rights haven't been developed, that that acreage would kind of fall out and it would become available. So, you know, I don't think that...

And a similar lease language, where if the deeper rights haven't been developed that that acreage would kind of fall out and will become available. So.

I don't think Thats.

Speaker 5: story for tomorrow, but certainly as things play out of her time and the zone becomes more developed and it kind of expands across the base.

Story for Tomorrow, but certainly as things play out over time in the zone becomes more developed and it kind of expands across the basin I think it's something that youll see more of that going forward.

Speaker 4: Yeah, like that upside things, Austin. And then just quick second one on cap allocation. I'm just wondering, given the current leverage, post the deal and obviously the great production guide for next year, I'm just wondering any thoughts on if cap allocation would change or whether payout type continue. Now, that's a good question, too.

Yes, like that upside Thanks, Austin and then just a quick second one on capital allocation I'm just wondering given the current leverage post the deal and.

Obviously, the great production guide for next year I'm, just wondering any thoughts on capital allocation would change or.

Payout type continue.

Good question too I mean, I think our.

Speaker 2: Payout philosophy is the same. 75% of pre-cash flow goes to equity. 25% goes to the balance sheet. We know we put a good amount of cash.

Payout philosophy is the same 75% of free cash flow goes to equity, 25% goes to the balance sheet.

We know we've put a good amount of cash in this ERP deal, but we have the balance sheet capacity to do it.

Speaker 2: GRPDL, but we had the balance sheet capacity to do it. We also have kind of a small balance on our revolver after closing the deal. So that'll be, you know, easy dead paydown. And, you know, it's kind of strip prices where we're still going to be likely below one time's leverage.

We also have kind of a.

Our small balance on our revolver after closing the deal so that'll be easy debt Paydown and.

I kind of strip prices were still going to be likely below one times leverage.

Speaker 2: the end of 2024, even if we do pay out 75% equity.

At the end of 2024, even if we do pay out 75% equity.

Speaker 2: You know, I think Biber has kind of gone back and forth on, on, you know, how we're returning capital to shareholders. I think we've probably preferred to distribute more cash via the fixed plus variable distribution than buybacks. But, you know, there might be opportunities to buyback stock in the unique situations over the coming year. But I think, you know, our preference on that 75% that gets returned to...

Viper has kind of gone back and forth on on.

How we're returning capital to shareholders I think we'd probably prefer to distribute more cash.

The fixed plus variable distribution than buybacks, but there might be opportunities to buy back stock and unique situations.

Over the coming year, but I think our preference on that 75% that gets returned.

Speaker 4: Chair holders, unit holders is through the base plus variable dividend. Presented details, thanks, Case.

Shareholders unitholders as.

Through the base plus variable dividend.

I appreciate the details thanks guys.

Thanks Neil.

Thank you.

One moment for our next question.

Speaker 1: Next question comes from Derrick Whitfield from Stiffle, please go ahead Good morning on

Our next question comes from Derrick Whitfield from Stifel. Please go ahead.

Hi, Good morning, all and thanks again for your time.

Speaker 9: There is respect, with respect to the recent GERP acquisition. This was one of the first we've seen you perceive where there wasn't a down and back angle or a immediate down and back angle. Thinking about your prepare through marks and deflation opportunities you're seeing, could you speak to what you're seeing in Dillflow and the dead <expletive> spreads from minerals, which could lead to incremental opportunities?

Hey, Darren with respect with respect to the recent <unk> acquisition. This was one of the first we've seen we pursue where there wasn't diamondback ngor immediate time Diamondback angle thinking about your prepared remarks and consolidation opportunities youre seeing.

Speak to what Youre seeing in deal flow and the bid ask spreads for minerals, which could lead to incremental opportunities.

Yeah, I'll talk about the ERP deal in Austin can talk about the market right now.

Speaker 2: Yeah, I'll talk about the GRPDL and Austin can talk about the market right now. I mean, you know, this deal was kind of the one we've been waiting for. You know, this team built this asset base over, you know, eight or 10 years. And, you know, I think it can be best sums up a, you know, very unique in that it'd be impossible to build that position today. And so we needed to buy that position.

This deal what's kind of the one we've been waiting for this team's focused asset base over.

10 years in.

I think it can be.

Best summed up.

Very unique in that it would be.

Impossible to build that position today, and so we needed to buy that position and the reason why we like it is.

Speaker 2: And the reason why we liked it is, you know, it's a lot of, the middle basin is the core asset.

A lot of.

The Midland Basin is a core asset it has a lot of undeveloped units in the Midland Basin.

And it's all in acreage that we would cut it so while there isn't a huge diamondback operated component to it we put our operator hat on and said.

Would we like to own exposure to the core of the basin under competent operators like pioneer endeavor.

On et cetera.

And.

Yes.

<unk> is second to none in our mind.

Can't be built through the ground game and so we used our size and scale to be able to put a good amount of cash in the deal and get it across the finish line.

Yes, yes.

Speaker 5: Yeah, the X-Zert, you know, there's been quite a few deals that have come to market in a transacted this year. We've really been pretty selected the last couple of years.

Quite a few deals that have come to market in a transacted this year.

We've really been pretty selective in last couple of years with the primary focus on diamondback operated by condensing or secondarily at Keith kind of highlighted if it doesn't have the high Diamondback operated percentage that is just really high quality acreage with clear undeveloped inventory, where we can have that confidence in what the long term development is going to look like.

Speaker 5: What the primary focus on diamond back operated like you mentioned, or secondarily, as case kind of highlighted, if it doesn't have the high diamond back operator's percentage, then it's just really high quality entries with clear undeveloped inventory where we can have that confidence in what the long term development is going to look like.

Speaker 5: I think going forward, if it's going to get somewhere viewpoint for us and we see an opportunity for quite a few more deals to come to market. But for us, it's always a pretty high hurdle. You have to give them the quality of acres that we have today, the development that we see going forward, and it kind of has to compete for that, right? Just being accrued at day one, not enough for us, we kind of have to have confidence in that.

I think going forward, it's going to be a similar viewpoint for us and can we see an opportunity for quite a few more deals to come to market.

But for US it's already a pretty high hurdle given the quality of acreage that we have today.

Development, and we see going forward any kind of have to compete for that rate being accretive day, one not enough for us we kind of have to have confidence in that development outlook. Your two year three year four et cetera.

Speaker 5: Development outlook, your Q, your Q, your Q, your 4, etc. And that's all like the hardest hurdle clear.

That's all right the hardest hurdle clear.

Speaker 2: Again, one last comment on the dynamite operator piece, you know, it's certainly...

Yes, one last comment on the Diamondback operated piece.

It certainly has been beneficial to have that diamondback Viper a relationship.

Speaker 2: has been beneficial to have that done-of-back life or relationship.

Speaker 2: for a significant amount of our production. As the business has gotten bigger, and we chase these same decline rates that the EMP do, it's harder to find sizable packages under diamond back.

For a significant amount of our production as the business has gotten bigger and we chase the same decline rates that the E&P view.

It's been it's harder to find sizable packages under diamondback.

Speaker 2: that will move the needle for the next five, six, seven years. So I think generally,

We will move the needle for the next 567 years, So I think generally.

Speaker 2: You know, we have a great position operated by Donald back, but the next leg of the stool is going to be, you know, undeveloped units, particularly the middle basin, like what we found with GRP that drives growth in the next decade.

We have a great position operated by Diamondback, but the next leg of the stool is going to be undeveloped units, particularly in the Midland Basin.

Like like what we found with ERP that drive growth in the next decade.

Speaker 2: perhaps actually picking up with where you ended their case, because I think the opportunity that you guys have to deep rights under Spanish Trail could be quite remarkable. But I would love to, if you guys could share what the opportunity you see with the Woodford and Barnett intervals at present, and how soon you could see meaningful activity, and that would clearly benefit VIPER given the elevated NRIs you have in that area.

Perhaps actually picking up with where you are.

And in their case because.

I think the opportunity that you guys have the deep rights under Spanish trail could be quite remarkable but.

Would love to meet you again, you guys could share with the opportunity you see with the Woodford and Barnett and if those are president and how soon you could see meaningful activity and that would clearly benefit Viper given the elevated in our eyes you have in that journey.

Speaker 2: Yeah, you know, there's certainly a lot of a lot of industry activity in the Barnett and Woodford and traditionally our mentality has been to be a fast follower. But, you know, I think there will be some tests particularly, you know, operated by Diamondback in the next, you know, in the next 12 to 24 months.

Yes.

Certainly a lot of a lot of industry activity in the Barnett and Woodford and traditionally our our mentality has been to be a fast follower but.

I think there will be.

Some tests, particularly operated by Diamondback in the next in the next 12 to 24 months.

Speaker 2: I don't think it'll move the full scale development until kind of 2025, 2026, but all indications are pointing to those zones being very productive, covering a lot of the base and it works at a price. It's going to be a little more expensive to the operator. We're in my Vipro app, we don't really care, as long as there's a lot of resource. And I think all indications are pointing towards significant resource in those deeper zones.

I don't think it will move to full scale development until.

Kind of 2025 2026, but.

All indications are pointing to those zones being very productive.

Covering a lot of the basin.

And it works at a price that is going to be a little more expensive to the operator wearing my Viper at we don't really care as long as there is a lot of resource and I think all indications are pointing towards significant resourcing those deep resolved.

That's great. Thanks for your time.

Thanks Terry.

Thank you.

One moment for our next question.

Speaker 1: Our next question comes from Paul Diamond from City. Please go ahead.

Our next question comes from Paul <unk> from Citi. Please go ahead.

Speaker 6: Thank you, good morning off, thanks for taking my call. Just a quick one on the Delaware Corp conversion. You talked about the current, we have a 2% of the public float hold is held by the next funds.

Alright, Thank you and good morning, Thanks for taking my call just a quick one on the Delaware Corp conversion you talked about.

Currently about 2% of the public float it was held by index funds versus about 30% by peers just wanted to.

Speaker 6: about 30% by peers. Just want to get a bit deeper on that to see how you guys are envisioning any trend towards that higher rate, you know, post.

I think a bit deeper on that to see how you guys are envisioning.

Any trend towards that higher rate post conversion.

Speaker 2: Yeah, great question. We've done a little bit of work on it.

Yes, great Great question, we've done a little bit of work on it.

Speaker 2: you know, the deals, the conversions supposed to close next Monday, then we'll be a corporation, and some details in there for shareholders, so they know what's going on. But, you know, from what we can tell, there's a couple of indices that we could be eligible for, you know, even before the end of the year. And, you know, those are pretty significant.

The deals the conversion is supposed to close next Monday and.

And then it will be a corporation there are some details and therefore for shareholders. So they know what's going on but.

Well from what we can tell there's a couple of indices that we could be eligible for yes, even before the end of the year and those.

Pretty significant indices I think.

Speaker 2: indices, I think, you know, the vanguard related indices as well as then eventually some of the F&P related indices and as the market knows that's a lot of a a lot of buying for a company that has

Vanguard related indices as well as then eventually some of the S&P related indices in.

The market knows that is a lot of that's a lot.

Sort of buying for a company that has.

Speaker 2: a lower public flow. So we're gonna start working with them right away after getting the thing closed and getting as many industries as possible and kind of follow the path of...

Lower public float and so we're going to start working with them right away.

After getting this thing closed and getting as many indices as possible and kind of follow the path of.

Speaker 5: You know, hopefully what, what Donovan that followed, you know, years ago, as that business grew and got more exposure to, to large index funds. And, do you know anything there are some? Yeah, Paul, the name's pretty benchmarks are kind of your FMP, Chris, and in Russell. And FMP and Chris do quarterly revounces, so they'll both do one, um, um, middle of, middle of December . So the conversion will be done by then.

Hopefully what diamondback follow up years ago is that business grew and got more exposure to the large index funds and what if anything they are awesome.

I mean pretty benchmarks with S&P.

S&P, Chris and Russell, S&P, and Christy quarterly rebalancing.

<unk>.

Middle East Middle of December so the conversion will be done by then so we'll be in communication with them and see if that's something that can happen has happened. This year and then Russell rebound annually in June.

Speaker 5: that's something that can happen this year. And then Russell does the rebalance annual.

Speaker 5: Then additionally, you know, you'll have something that's more press very based or are subjective like like the S&P 600 where we'll have to ask communication with them, but all signs point to being eligible.

Additionally, you'll have something that's more criteria based or subjective.

600, where we will have to have some communication with them, but but all signs are pointing to.

Being eligible right away and hopefully getting included pretty soon but certainly meet our criteria now the incorporation as opposed to being a partnership.

Speaker 2: You know, in the strategy, there's also exposure, right? There's a lot of other investors that, you know, I think are limited in their exposure to minerals and you've already had some success converting some...

The strategy. There is also exposure right, there's a lot of other investors that.

I think are limited in their exposure to minerals and have already had some success converting some shareholders.

Speaker 2: You know, shareholders, potential shareholders on the road to look at the story.

Shareholders potential shareholders on the road.

Look at the story I mean.

Speaker 2: I envision and transcend visions of the world where, you know, this mineral space and this business is competing with, you know, the lights of some of the

I envision and Travis envisioned a world where.

This mineral space and this business is competing with the likes of some of the mid and smid and mid caps on the E&P side.

Speaker 2: at the Smith & Midcaps on the EMP side and this business certainly shows as a safer way to play.

This business certainly shows us.

Safer way to play.

Speaker 2: You know, the Permian Basin or oil exposure, you know, with no capillar requirements and just upset.

Simeon basin, our oil exposure.

With no capital requirements and just upset.

Understood I appreciate the clarity there and just one more quick follow up just more on the.

Speaker 6: I appreciate the clarity there. Just one more quick follow up just more on the weak bonus payments. How are you guys envisioning that going forward? Is it more pen to be chunkier do you see it as just a consistent growth?

We have bonus payments.

Have you guys been visiting that going forward is it more tend to be chunky or do you see it as just a consistent growth over time.

Speaker 2: Well, the thing is, you know, one unique, right? I mean, this was a unique asset that, in generational assets, it doesn't come around very often. So this was certainly the big one. You know, I think it's logical that a lot of the deep rights throughout the basin are going to get least that, you know, over the coming, you know, 12 to 24 months. But for us, they'll all be smaller than this large payment, you know, which was a pretty significant amount of acreage.

Well, Thanks, Carol one unique right I mean, this was a unique asset.

And generational asset that doesn't come around very often so this was certainly the big one I think it's logical that a lot of the deep rights throughout the basin are going to get leased up.

Over the coming.

<unk> months to 24 months, but for us to all be smaller than this large payment, which was a pretty significant amount of acreage.

Understood Thanks for clarity.

Thanks, Paul Thank you.

Hi, Mommy var.

Speaker 1: Our next question comes from Leo Morini. From Rob and...

Our next question comes from Leo Mariani.

From Roth MTM. Please go ahead.

Okay.

Speaker 7: Hi, guys. I wanted to ask whether or not you see any kind of material change in the tax rates for Venom following this kind of corporate conversion. I did see you had this kind of soft sort of not really guidance, but just kind of numbers that you kind of rolled out for 2024 outside of production where you talk about kind of an effective tax rate. But I know you've got kind of multiple classes of units historically. I know you're going to have many more than one class of shares, but let's try and get a sense. So we're going to see any material difference.

Hi, guys I wanted to ask whether or not you see any kind of material change in the tax rates for venom.

Following this kind of corporate conversion I did see you had this kind of soft sort of not really guidance, but just kind of.

Trying to get a sense are we going to see any material difference.

Speaker 7: Kevin Cash Taxes in 24 versus 23.

Cash taxes, and 24 versus 23.

Speaker 5: No, we are nothing to change at all for the public unit holders that will become public stockholders. So tax position didn't change and I think it will just provide them more flow and more liquidity. And we know that's why the conversion made so much sense is that we became a taxable partnership back in 2018. And in there for a couple of years, Diamondback was affected with shielding us from corporate tax.

No no nothing should change at all for the public unit holders that will become public stockholders, so tax position didn't change.

Yes, I think I'll just provide them more.

More flowed more liquidity.

That's why the conversion makes so much sense is that we became a taxable partnership back in 2018.

Isn't there for a couple of years diamondback with effectively shielding us from corporate taxes.

Speaker 5: And that agreement ran out in the last year. So here, here in 2023, we're a partnership with Payne School Corporation in Texas and getting all the downsides effectively of being a corporation, but you don't have any of the upsides. So it just made a lot of sense to do that today, given it a large part, the kind of tax.

That agreement ran out end of last year, so far here in 2023, where partnership with painful corporate income taxes.

And getting all the downsides effectively being a corporation, but you don't have any of the upside.

So it just made a lot of sense to do that given in large part to the kind of tax situations. We're in.

Speaker 7: Okay, that's helpful. And then just wanted to kind of ask kind of a couple other sort of numbers here. So I think you guys are kind of expecting production to come down a little bit in the first quarter. I'm assuming that's all just kind of time you related, but just wanted to maybe get a little color around that and then also just noticing that.

Okay. That's helpful.

And then just wanted to kind of ask on a couple of other sort of numbers here. I think you guys are kind of expecting production to come down a little bit.

In the first quarter I'm, assuming that's all just kind of timing related but just wanted to maybe get a little color around that and then also just is there anything that you're cash G&A per barrel guidance also came down nicely as well.

Speaker 7: your cash GNA Probarol guidance also came down you're nicely as well. Is that a function of spending kind of less than you expected there or maybe just perhaps production results have been better and then when the acquisition you're seeing the BOE go up and you're just able to spread the cost out over more barrels.

To add a function.

Spending kind of less than you expected there or maybe just perhaps production results have been better than what the acquisition and Youre seeing the <unk> go up and you're just able to spread the cost out over more barrels.

Okay.

Speaker 5: On the production side first, you know, reported production will actually go up from Q4 to Q1. Q4, you're going to have Q3 contributions from the GRP asset. So we have a midpoint there of 24.5 and then going into the first quarter, you know, actual reported production will go up, giving you have a full quarter of those assets, contributions. But you know, we're trying to be intellectually honest there, look at it on a proof form and make fire.

On the production side first.

Our reported production will actually go up from Q4 to Q1 Q4, youre going to have two thirds of contribution from the ERP assay. So we have the midpoint there of 24 five.

And then going into the first quarter actual reported pre tax income will go up given you have a full quarter of those assets contributions right. We're trying to be intellectually honest, there and look at it on a pro forma basis.

Speaker 5: And that's kind of what we're pointing to there with a slight sequential decline. And really that in context, that follows, back to back quarters of 5% growth that we've had here. And this mainly resulted in this kind of a tiny, some really large sign that has, where we have really high...

And thats kind of what we're pointing to there with a slight sequential decline and really that in context that follows back to back quarters, a 5% growth that we've had here.

Mainly a result of just kind of the timing of some of these really large dynamic pad, where we have really high interest.

Speaker 5: And we put in slide nine of the deck where we kind of show the visibility to the Dynamics schedule. You know, the way that we kind of see 2024 right now with the Dynamics side is...

And we put in slide slide nine of the deck, where we kind of showed that visibility to the diamondback schedule.

The way that we kind of see 2024, right now with the Diamondback side, having owning an interest in about 60% of diabetics completions next year with about a six 5% interest within those wells.

Speaker 5: Having an interest in about 60% of the Dynevex completions next year with about a 6.5% interest within those wells, but that'll be roughly 40-60 between first half to year and the second half to year. So still significant growth coming, especially with Dynevex operated side, it is mostly going to be second half weighted to give some of the bigger pads.

But that'll be split roughly 40 60 between first half of the year in the second half of the year, So still significant growth coming, especially with Diamondback operated side is it mostly going to be second half weighted just given some of the bigger pads.

Speaker 5: And then on the cost items, you know, I mean, those are all very minimal. We've kind of been spending $6,7 million a year in cash, GNA, as production growth goes up. And we grow the business work. We're not going to have any people. So on a per unit basis, that those should continue to trend down even further over time.

And then on the cost items.

We're all very minimal we've kind of been spending six seven maybe $8 million a year in cash G&A as production goes up if we grow the business, we're not really having to add any people.

So on a per unit basis that those should continue to trend down even further over time.

Okay. Thank you.

Thank you.

Speaker 1: At this time, the Q and A session has now ended. I will now time the call over to Travis Dice for closing.

At this time the Q&A session has now Andy I will now turn the call over to Travis Stice for.

For closing remarks.

Speaker 3: Thank you, hand to everyone participating in today's call.

Thank you again to everyone participating in today's call.

Speaker 1: If you have any questions, please contact us using the information provided. Thank you. This concludes today's conference call.

You have any questions. Please contact us using the information provided thank you.

This concludes today's conference call.

Thank you for participating you may now disconnect.

Q3 2023 Viper Energy Partners LP Earnings Call

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