Q2 2024 Viper Energy Inc Earnings Call

August 6, 2024

Speaker Change: Good day and thank you for standing by. Welcome to the Viper Energy second quarter 2024 earnings call.

Operator: 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 1-1 on your telephone. You will then hear an automated message advising that your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Adam Lawlis, Vice President of Investor Relations. Please go ahead.

Speaker Change: At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session.

Speaker Change: To ask a question during the session, you will need to press star one one on your telephone. You will then hear an automated message advising that your hand is raised.

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

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

Adam Lawlis: Thank you, Jill. Good morning, and welcome to Viper Energy's second quarter 2024 conference call. During our call today, we will reference an updated investor presentation, which can be found on Viper's website. Representing Viper today are Travis Stice, CEO, Kate Van't Hoff, President, and Austen Gilfillian, Vice President.

Adam Lawlis: Thank you, Jill. Good morning and welcome to Viper Energy's second quarter 2024 conference call. During our call today, we will reference an updated investor presentation, which can be found on Viper's website.

Speaker Change: Representing Viper today are Travis Stice, CEO, Kaye Svantoff, President, and Austin Gilsilin, Vice President. During this conference call, the participants may make certain forward-looking statements relating to the company's financial condition, results of operations, plans, objectives, future performance, and businesses.

Adam Lawlis: During this conference call, the participants may make certain forward-looking statements relating to the company's financial condition, results of operations, Plans, objectives, future performance, and business. 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. In addition, we will make reference to certain non-GAAP measures. The reconciliations with the appropriate GAAP measures can be found in our earnings release issued yesterday afternoon. I'll now turn the call over to Travis Stice.

Speaker Change: 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.

Speaker Change: Information concerning these factors can be found in the company's filings with the SEC. In addition, we will make reference to certain non-GAAP measures. The reconciliations with the appropriate GAAP measures can be found in our earnings release issued yesterday afternoon.

Travis Stice: Thank you, Adam. Welcome, everyone, and thank you for listening to Viper Energy's second quarter 2024 conference call. The second quarter was a strong quarter for Viper with oil production growing roughly 4% quarter over quarter and our cash available for distribution increasing by almost 9% over the same period. As a result of the production outperformance we have seen during the first half of the year, as well as an increase in expectations for the remainder of 2024, we have increased our production guidance for the full year 2025.

Speaker Change: I'll now turn the call over to Travis Stice.

Travis Stice: Thank you, Adam. Welcome, everyone, and thank you for listening to Viper Energy's second quarter 2024 conference call.

Travis Stice: The second quarter was a strong quarter for Viper, with oil production growing roughly 4% quarter over quarter, and our cash available for distribution increasing by almost 9% over the same period.

Travis Stice: As a result of the production outperformance we have seen during the first half of the year, as well as an increase in expectations for the remainder of 2024,

Travis Stice: In addition to updating our four-year guidance range, we've also provided guidance for Q3 that implies 1.5% growth relative to Q2, despite losing roughly 150 barrels of oil per day of quarterly production from the non-permian assets we divested during the second quarter.

Travis Stice: We have increased our production guidance for the full year 2024.

Travis Stice: In addition to updating our four-year guidance range,

Travis Stice: We've also provided guidance for Q3 that implies 1.5% growth relative to Q2, despite losing roughly 150 barrels of oil per day of quarterly production from the non-Permian assets we divested during the second quarter.

Travis Stice: Overall, we continue to see strong activity levels across our acreage position and benefit from Diamondback's continued large-scale development of Viper's high-concentration royalty acres. In addition to the strong operational and financial results announced yesterday, we also announced that Viper's board of directors has approved an 11% increase in our annual base dividend, which highlights the board's belief that a sustainable and growing base dividend can be maintained through the cycle. This belief and commitment to our shareholders is supported by Viper's strong balance sheet and durable cash flow profile.

Travis Stice: In addition to the strong operational and financial results announced yesterday,

Travis Stice: We also announced that Vipers Board of Directors has approved an 11% increase in our annual base dividend, which highlights the Board's belief that a sustainable and growing base dividend can be maintained through the cycle.

Travis Stice: This belief and commitment to our shareholders is supported by Viper's Strong Balance Sheet and Durable Cash Flow Profile.

Travis Stice: Relative to a year ago, when we last increased our base pivot, Viper has grown oil production per share by 14% while maintaining our cash margins and free cash flow conversion at around 80%. Importantly, at current production levels, the annual fixed amount of the increased base dividend represents roughly 50% of the expected free cash flow at $50 WTI and is fully protected down to below $30 WTI. Big picture, the second quarter was also an important quarter strategically for Viper.

Travis Stice: Relative to a year ago, when we last increased our base pivot in, Viper has grown oil production per share by 14%.

Travis Stice: While maintaining our cash margins and free cash flow conversion at around 80%.

Travis Stice: Importantly, at current production levels, the annual fixed amount of the increased base dividend represents roughly 50% of the expected free cash flow at the $50 WTI and is fully protected down to below $30 WTI.

Travis Stice: Bigger picture, the second quarter was also an important quarter strategically for VIPA.

Travis Stice: Following our conversion to a Delaware corporation late last year, we were added to several notable indices during the second quarter, including the Russell 1000. In addition to the increased governance rights that this conversion provided for our shareholders, it has so far also delivered on our expectations of providing an expanded investor base and improved trading liquidity. Fundamentally, we believe this conversion is just one step in the process of fully highlighting the advantaged nature of mineral ownership and the unique value proposition that Viper presents within the space, as well as in the energy complex more broadly. Operator, please open the line for questions. Thank you.

Travis Stice: Following our conversion to a Delaware corporation late last year, we were added to several notable indices during the second quarter, including the Russell 1000.

Travis Stice: In addition to the increased governance rights that this conversion provided for our shareholders,

Travis Stice: It has so far also delivered on our expectations of providing an expanded investor base and improved trading liquidity.

Travis Stice: Fundamentally, we believe this conversion is just one step in the process of fully highlighting the advantaged nature of mineral ownership and the unique value proposition that VIPRA presents within the space, as well as in the energy complex more broadly.

Operator: Thank you. At this time, we will conduct the question and answer session. As a reminder, to ask a question, you will need to press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. Please stand by while we compile the Q&A roster. The first question comes from Neal Dingmann with Truist. Go ahead. Your line is open.

Speaker Change: Operator, please open the line for questions.

Speaker Change: Thank you. At this time, we will conduct the question and answer session.

Speaker Change: As a reminder, to ask a question, you will need to press star 1-1 on your telephone and wait for your name to be announced.

Speaker Change: To withdraw your question, please press star one one again. Please stand by while we compile the Q&A roster.

Neal Dingmann: Good morning, all. Fantastic results. Travis, my first question is on your 2024 Guided Production Bump. Specifically, you all seem to be expecting some really notable upside, especially when you capture some of the asset sales. So I'm just wondering, are you assuming much, you know, kind of on a go-forward or with this forecast, are you assuming much change in rig count, or do we assume the majority of this upside is coming from the operational efficiencies like we're seeing over at Fang?

Speaker Change: The first question comes from Neil Dingman with Truist. Go ahead, your line is open.

Neil Dingman: Good morning, all. Fantastic results. Travis, my first question is on your 2024 Guided Production Bump. Specifically, you all seem to be expecting some really notable upside, especially when you capture some of the asset sales.

Speaker Change: So I'm just wondering, are you assuming much, you know, kind of on a go-forward, or with this, with this forecast, are you assuming much change in rig count, or we can, we assume the majority of this upside is coming from the operational efficiencies like we're seeing over in Fang?

Travis Stice: Good question, Neal. At a high level, as you think about when we start the year, we don't have as much visibility on non-fang operated properties, and as the year goes on, that visibility increases. I think part of it is the efficiency piece. I think we always kind of expected a pretty big ramp in the back half of the year with some significant fang wells or fang pads coming on, and that gives us a lot of confidence in the third quarter.

Speaker Change: Yeah, good question Neil, you know, I think high level as you think about when we start the year

Speaker Change: We don't have as much visibility on non-FANG-operated properties, and as the year goes on, that visibility increases. I think part of it is the efficiency piece.

Speaker Change: I think we always kind of expected a pretty big ramp in the back half of the year with some significant

Travis Stice: And then we're starting to see more near-term activity and visibility in the fourth quarter, showing that we're going to keep growing this business organically in the second half of the year versus the first half. Austen, do you want to add anything?

Speaker Change: bang wells or bang pads coming on. And that gives us a lot of confidence in the third quarter and then we're starting to see more near-term activity, visibility in the fourth quarter showing that we're going to keep...

Austin: Growing this business organically in the second half of the year versus the first half. Austin, do you want to add anything to that? Yeah, I mean on the divestiture, as a reminder, that was doing about 450 barrels of ore per day, and that divestiture closed May 1st. So we got one month of contribution in the second quarter, but have updated the four-year guidance to reflect the loss of that production contribution. And to Kate's point, we only guide to what we can see, so we have pretty good visibility to the back half of the year on the non-op side. On the diamond bank operated side, you know, halfway through the year, we've only had about 40 to 45 percent of the net diamond bank locations turn to production. So we'll see a pretty significant ramp in activity and production there as we kind of progress through the next two quarters.

Austen Gilfillian: Yeah, on the divestiture, as a reminder, that was doing about 450 barrels of ore per day, and that divestiture closed on May 1st. So we got one month of contribution in the second quarter, but we have updated the four-year guidance to reflect the loss of that production contribution. And to Kate's point, you know, we only guide to what we can see. So we have pretty good visibility to the back half of the year on the non-op side.

Austen Gilfillian: On the diamond bank-operated side, you know, halfway through the year, we've only had about 40 to 45 percent of the net diamond bank locations turn to production. So we'll see a pretty significant ramp-up in activity and production there as we progress through the next two quarters.

Travis Stice: You know Neal, since you listened to the Diamondback call, you heard the commentary around improved efficiencies, and that's obviously a direct read through for operators that are developing Vipers Minerals, but also your Diamondback talk about these additional zones that we didn't formerly think were Tier 1 zones at the Diamondback level, but now we're confident, you know, in the upper Sprayberry, in the Wolf Camp D, that those zones are going to All of those are positive read-throughs, you know, for Viper. And again... I emphasize it in my prepared remarks, but with Viper having below a $30 WTI breakeven price, that's a pretty stunning statistic.

Austin: You know, Neal, since you listened to the Dymovac call, you heard the commentary around improved efficiencies, and that's obviously a direct read-through for operators that are developing.

Speaker Change: minerals, but also you heard Diamondback talk about these additional zones that we didn't formally think were Tier 1 zones at the Diamondback level, but now we're confident.

Speaker Change: I emphasize it in my prepared remarks, but with Viper having below a $30 WTI breakeven price, that's a pretty stunning statistic.

Travis Stice: Great, it's a great addition by Travis. And then my second question is just on capital allocation. Specifically, do you view Venom's payout, you know, maybe for K's options, as opportunistic as Fang or, you know, given the mineral structure, are you more inclined to stick with it?

Speaker Change: Do you view Venom's payout as opportunistic as SPANG, or are you more inclined to stick with the base of variable dividends?

Travis Stice: I think the feedback from investors and our board has been to lean more towards the cash distribution model, but also continuing to grow that base dividend. I think we moved this base plus variable model two years ago now, and it's been a positive development. Buybacks aren't out of the question at Viper, but they're probably, you know, third behind the base dividend, the variable dividend, and then buybacks, kind of the opposite at Diamond But, you know, there will be times of stress in this very cyclical industry where buybacks make a ton of sense, like when we started buying back shares at the end of the end of 2020 and in 2021. But right now, we're very comfortable with the, you know, high distribution model. Thanks.

Speaker Change: Yeah, I think the feedback from investors and our board has been to

Speaker Change: Transcripts provided by Transcription Outsourcing, LLC.

Speaker Change: a positive, positive development. You know, I think...

Speaker Change: Buybacks aren't out of the question at Viper, but they're probably, you know, third behind base dividend, variable dividend, and then buybacks, kind of the opposite at Diamondback, but

Speaker Change: There will be times of stress in this very cyclical industry where buybacks make a ton of sense, like when we started buying back shares at the end of 2020 and into 2021, but right now we're very comfortable with the high distribution model.

Operator: One moment for our next question. The next question comes from Betty Yang with Barclays. Go ahead. Your line is open.

Speaker Change: Thanks, guys.

Speaker Change: One moment for our next question.

Speaker Change: The next question comes from Betty Yang with Barclays. Go ahead, your line is open.

Betty Yang: Good morning. I actually have a follow-up. I would love to get more color on the... We did note that the recount on the mineral portfolio is down quarter over quarter, but the well backlog is still flattish. So clearly, we're hearing from the Diamondback call that there's an uptick in efficiency gains, but are you seeing more activity conversion from less equipment, basically not just from the Diamondback-operated assets, but also on NANA? Can you maintain this level of activity at a portfolio level, even at a lower account?

Betty Yang: Good morning. Um, I actually have a follow-up. I would love to get more color on the

Betty Yang: the visibility on the activity trends that you're seeing.

Speaker Change: We did note that the recount on the mineral portfolio is down quarter over quarter, but the well backlog is still slavish. So clearly we're hearing from the Diamondback call that there's an uptick in efficiency gains.

Speaker Change: But are you are you seeing more activity conversion from less equipment based?

Speaker Change: Can you maintain this level of activity at a portfolio level, even at a lower account?

Austen Gilfillian: Yeah, that's a good question, Betty. I mean, we obviously track the rig count, but what's more important for us is the work in progress and the line of sight wells. And then when you look at, you know, what percentage of those are converted, and then also kind of the cycle times to be converted. So the rig count will fluctuate, you know, day by day, week by week, but we haven't really seen any change in the conversion rates or the cycle times. So with these works in progress and line of sight wells kind of staying at all-time highs, we still feel really confident that that's going to lead to some production growth in the background.

Speaker Change: Yeah, that's a good question, Betty. I mean, we obviously track the rig count, but what's more important for us is the work in progress and line of sight wells. And then when you look at, you know, what percentage of those are converted, and then also kind of the cycle times to be converted.

Speaker Change: So the recount will fluctuate, you know, day by day, week by week, but we haven't really seen any change in the conversion rates at the cycle times. So with those work in progress and line of sight wells kind of staying at all-time highs, we still feel really confident that that's going to lead to some production growth in the back half of the year and into the beginning of part of next year.

Austen Gilfillian: Yeah, I think the other thing to think about, Betty, is net rigs, right? I mean, really look at, you could have a lot of gross rig exposure at, you know, half a percent interest across. You know, a hundred wells, but you know if you think about the exposure we have to the Diamondback development plan. You know, that's where your net rigs and your net work-in-progress wells that we have a, you know, differential line of sight to really give us an advantage.

Speaker Change: Yeah, I think the other thing to think about, Betty, is also net rates, right? I mean, really look at, you know, you could have a lot of gross rate of exposure, you know, at, you know, half a percent interest across...

Betty Yang: 100 wells, but if you think about the exposure we have to the Diamondback development plan, that's where your net rigs and your net work in progress wells that we have a differential line of sight to really give us an advantage.

Betty Yang: Yep, no, that makes a lot of sense. And then just a follow-up on the Diamondback portion of the percentage of total activity. 2Q is a bit light on the Diamondback side. So going forward, the backlog, Diamondback accounts for roughly 50% of the backlog. So should we expect that to revert higher back to that 50% level?

Betty Yang: Yep, no, that makes a lot of sense.

Speaker Change: And then just a follow-up on the diamondback portion of the percentage of total.

Speaker Change: activity. 2Q is a bit light on Damenbach's side. So going forward, the backlog, Damenbach accounts for roughly 50% of the backlog. So should that, should we expect that to revert higher back to that 50% level?

Austen Gilfillian: Yeah, that's right. I kind of mentioned it in the previous question, but when we look at the diamondback net completions expected for the year, only about 40 to 45 percent of those were in the first half, and the remainder will be in the second half. And really, you kind of get a little bit of that lumpiness with the large pad sizes. So, I mean, right now, we have a 24-well diamondback pad with 9 to 10 percent Viper NRI being turned on for production.

Speaker Change: Yeah, that's right. I kind of mentioned it on the previous question, but when we look at the diamondback net completions expected for the year, only about 40% to 45% of those were in the first half, and the remainder will be in the second half. And really, you kind of get a little bit of that lumpiness with the large pad sizes. So, I mean, right now, we have a 24-well diamondback pad with 9% to 10% viper NRI being turned to production. So, it's not always rateable, but we do see the big increase coming into the back half of the year, and it'll kind of revert to being more diamondback growth-driven here and now versus the first half having a lot of upside from the third-party piece.

Austen Gilfillian: So, it's not always rainable, but, you know, we do see the big increase coming in the back half of the year, and it'll kind of revert to being more diamondback growth-driven here now versus, you know, the first half having a lot of upside from the third party.

Operator: Great, thank you for the call.

Operator: One moment for our next question. The next question comes from Paul Diamond with Citi. Go ahead. Your line is open.

Speaker Change: Great, thank you for the call.

Paul Diamond: Thank you. Good morning, Al.

Speaker Change: The next question comes from Paul Diamond with Citi. Go ahead, your line is open.

Paul Diamond: Thanks for taking my question. Just a quick one for you is to kind of think about portfolio optimization in the coming quarters. I guess, where do you all see the kind of right mix going forward, you know, at the current rate and kind of looking into the next year, as far as the breakdown between, you know, opportunities across, whether it's from, you know, within FANG or elsewhere in the private market or in the third-party market?

Paul Diamond: Thank you. Good morning, Alfred. Thanks for taking my question. Just a quick one for you is I'm kind of thinking about portfolio optimization in coming quarters.

Paul Diamond: I guess, where do you all see the kind of the right mix going forward, you know, at current and kind of looking in the next year as far as the breakdown between, you know, opportunities across whether it's from, you know, within FANG or elsewhere in the private market or in the third party market?

Travis Stice: Yeah, I mean, you know, I think we're trying to position ourselves to be, you know, the consolidator of choice in the Permian. I think you saw how we treated the non-core or non-Permian assets associated with the GRP deal. We kind of monetized those very quickly for a quick gain.

Speaker Change: Yeah, I mean, I you know, I think we're trying to position ourselves to be, you know, the consolidator of choice in the permeant. I think you saw how we

Speaker Change: Transcripts provided by Transcription Outsourcing, LLC.

Travis Stice: But, you know, really, I think generally, the significant opportunities under Diamondback that would move the needle for Viper production are fewer and further between. You know, obviously, the potential drop down from the Endeavor merger is the biggest and most visible. But on a Diamondback stand-alone basis, there's not, you know, a lot of Spanish trails sitting out there. But that's why we've kind of moved to this portfolio effect of looking at, you know, really good rock that we covet at the Diamondback level or the Viper level with deals like GRP.

Speaker Change: are fewer and further between.

Speaker Change: Obviously, the potential drop-down from the Endeavor merger is the biggest and most visible. But on a Diamondback stand-alone basis, there's not...

Speaker Change: You know, a lot of Spanish trails sitting out there, but...

Speaker Change: That's why we've kind of moved to this portfolio effect of looking at.

Travis Stice: And, you know, that's a deal that's, it was a billion-dollar deal that's tough to get done in the mineral space today. So I think we're positioning ourselves to be the buyer of choice for those large packages with a lot of visibility and a lot of upside in the basin that we know the best.

Speaker Change: you know, really good rock that we coveted at the Diamondback level or the Viper level.

Speaker Change: With deals like GRP.

Speaker Change: And, you know, that's a deal that's, it was a billion-dollar deal that's tough to get done in the mineral space today. So, I think we're positioning ourselves to be the buyer of choice for those large packages with a lot of visibility and a lot of upside in the basin that we know the best.

Speaker Change: Understood, makes perfect sense. And just a quick follow-up, talking about visibility into work-in-progress wells and cycle time evolution, how do you all see, those cycle times have obviously been trending positively, how I guess, how linear should we expect that to be in coming quarters and years in your view?

Travis Stice: Matt, we don't really model, you know, an improvement from here, so we're...

Speaker Change: Matt, we don't really model, you know, an improvement from here. So we're constantly watching operators kind of by county or even, you know, more precise geographic region than that. And then also looking at pad size as well to kind of think about what those permits will look like in terms of being converted to production and driving production growth. You know, so I wouldn't say that we've baked in an improvement in cycle times into our modeling. We've kind of kept the historical average. So I would say as long as we have a steady state of, you know, work in progress or line-of-sight wells and cycle time is improved, then that might just be a little bit of upside to the guidance that we currently have it modeled on.

Paul Diamond: I understand. I appreciate the clarity. Thanks for your time.

Operator: And bye for our next question. The next question comes from Leo Mariani with Roth. Go ahead. Your line is open.

Speaker Change: Understood. Appreciate the clarity. Thanks for your time.

Speaker Change: And bye for our next question.

Speaker Change: The next question comes from Leo Mariani with Roth. Go ahead, your line is open.

Leo Mariani: I just wanted to follow up on some of your comments here just around M&A. You talked about obviously the Endeavor drop-down being a big focus.

Leo Mariani: I just wanted to follow up on some of your comments here just around M&A. You talked about, obviously, the Endeavor drop-down being a big focus.

Leo Mariani: Just wanted to kind of get a sense, I know the deal hasn't closed yet, but have you all been able to kind of, you know, do some prep work, you know, ahead of time to maybe try to get that, you know, deal to fruition a little sooner? I know there's kind of a lot of land work that needs to kind of get done in the background, but do you really have to kind of wait for the deal to close to get on that?

Leo Mariani: I just wanted to kind of get a sense, I know the deal hasn't closed yet, but...

Leo Mariani: Have y'all been able to kind of, you know, do some some prep work, you know, ahead of time to maybe try to get that, you know, deal to fruition a little sooner? I know there's kind of a lot of land work that needs to kind of get done in the background. Or do you really have to kind of wait for the deal to close to get on that? And then I guess just.

Leo Mariani: And then I guess just, you know, is there any kind of high level expectation about when that might happen? Do you guys anticipate that, you know, that big deal could happen kind of by the middle of next year?

Speaker Change: You know, is there any kind of high level expectation on, you know, when that might happen? Do you guys anticipate that, you know, that big deal could happen kind of by middle of next year?

Travis Stice: Yeah, Leo, this has been a pretty restrictive process, you know, with the FTC's second request at Diamondback, so we haven't been able to do much, if anything, at all. But we look forward to getting through that very quickly here and then hitting the ground running. You know, I think... If history is any guide, we don't move very slowly at Viper or Diamondback, and so we'll get to work on it right away. I think nothing's changed from our perspective on the sizing and potential opportunity set that we put in the merger deck at the Diamondback level.

Speaker Change: Yeah, Leo, this has been a pretty restrictive process, you know, with the FTC second request at Diamondback, so we haven't been able to do much of anything at all. You know, we look forward to getting through that.

Speaker Change: very quickly here and then and then hitting the ground running you know, I think

Speaker Change: You know, history is any guide. We don't move very slow at Viper or Diamondback, and so we'll get to work on it right away.

Speaker Change: You know, nothing's changed from our perspective on the sizing and potential opportunity set that we put in the, you know, the merger deck at the Diamondback level.

Leo Mariani: Okay, so that's helpful. Is it fair to say, just based on your kind of prepared comments that you walked through on some of the M&A stuff, that, you know, that the smaller deals, just kind of the little stuff, has kind of been a little more competitive, and it's really these, you know, really big deals that you might see out there that are third party, and then in kind of the drop down here from Endeavor, that's the type of things we should expect, you know, Venom to focus

Speaker Change: Okay.

Speaker Change: No, that's helpful. I mean, is it fair to say, just based on your kind of prepared comments that you walked through on some of the M&A stuff, that...

Speaker Change: The smaller deals, just kind of the little stuff has kind of been a little more competitive and it's really these really big deals that you might see out there that are third party and then in kind of the drop down here from Endeavor that's the type of things we should expect Venom to focus on.

Travis Stice: Yeah, I think certainly from an external perspective, that's what we're focused on. You know, we still try to get the little deals here and there, but, you know, I think you'd be shocked to see how many kind of $20 to $50 million mineral funds there are that, you know, you never see on the outside. So, you know, those competitors are very aggressive on smaller deals. They probably take a little more risk on undeveloped acreage and timing, and we kind of see our spot in the food chain as, you know, being the aggregator of those aggregators and being able to, you know, come to an opportunity with, you know, a real amount of cash, a real amount of market access, a real amount of liquidity, and so that's why we've been really trying to improve our liquidity and trading volume position over the last 12 months, and it's paid dividends for our unit holders.

Leo Mariani: Okay, thanks, guys.

Speaker Change: Yeah, I think certainly from an external perspective, that's what we're focused on. You know, we still try to get the little deals here and there, but I think you'd be...

Speaker Change: You'd be shocked to see how many kind of 20 to $50 million mineral funds there are that, you know, you never see on the outside. So, you know, those those those competitors are

Speaker Change: very aggressive on smaller deals, they probably take a little more risk on undeveloped acreage and timing. And we kind of see our spot in the food chain as, you know, being the aggregator of those aggregators, and being able to

Speaker Change: Okay, thanks guys.

Leo Mariani: Thanks, Leo.

Operator: This concludes the question and answer session. I would now like to turn it back to Travis Stice, CEO, for closing remarks. Thank you.

Leo Mariani: This concludes the question and answer session. I would now like to turn it back to Travis Stice, CEO, for closing remarks.

Travis Stice: Thank you. This call this morning is concluded, and thank you for attending. If you've got any questions, please reach out.

Travis Stice: Thank you. This call this morning is concluded and thank you for attending. If you've got any questions, please reach out. Thank you again and have a great day.

Operator: Thank you again and have a great day. This does conclude the program. You may now disconnect.

Speaker Change: This does conclude the program. You may now disconnect.

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Operator: Good day, and thank you for standing by. Welcome to the Viper Energy second quarter 2024 earnings call.

Speaker Change: Good day and thank you for standing by. Welcome to the Viper Energy second quarter 2024 earnings call.

Operator: 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. You will then hear an automated message advising that your hand is raised to withdraw your question. Please press star one one again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Adam Lawlis, Vice President of Investor Relations. Please go ahead. Thank you.

Speaker Change: At this time, all participants are in a listen-only mode.

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

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

Adam Lawlis: Thank you, Jill. Good morning, and welcome to Viper Energy's second quarter 2024 conference call. During our call today, we will reference an updated investor presentation, which can be found on Viper's website. Representing Viper today are Travis Stice, CEO, Kaye Svantoff, President, and Austen Gilfillian, Vice President.

Speaker Change: Thank you, Jill. Good morning, and welcome to Viper Energy's second quarter 2024 conference call. During our call today, we will reference an updated investor presentation, which can be found on Viper's website.

Speaker Change: Representing Viper today are Travis Stice, CEO, Kaye Svantoff, President, and Austin Gilfillan, Vice President. During this conference call, the participants may make certain forward-looking statements relating to the company's financial condition, results of operations, plans, objectives, future performance, and businesses.

Adam Lawlis: During this conference call, the participants may make certain forward-looking statements relating to the company's financial condition, results of operations, plans, objectives, future performance, and businesses. However, 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. In addition, we will make reference to certain non-GAAP measures. The reconciliations with the appropriate GAAP measures can be found in our earnings release issued yesterday afternoon. I'll now turn the call over to Travis Stice.

Speaker Change: 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.

Speaker Change: I'll now turn the call over to Travis Stice.

Travis Stice: Thank you, Adam. Welcome, everyone, and thank you for listening to Viper Energy's second quarter 2024 conference call.

Travis Stice: The second quarter was a strong quarter for Viper with oil production growing roughly 4% quarter over quarter.

Speaker Change: and our cash available for distribution increasing by almost 9% over the same period.

Travis Stice: In addition to updating our four-year guidance range, we've also provided guidance for Q3 that implies 1.5% growth relative to Q2, despite losing roughly 150 barrels of wool per day of quarterly production from the non-permian assets we divested during the second quarter.

Speaker Change: We have increased our production guidance for the full year 2024.

Speaker Change: In addition to updating our four-year guidance range,

Speaker Change: We've also provided guidance for Q3 that implies 1.5% growth relative to Q2, despite losing roughly 150 barrels of oil per day of quarterly production from the non-Permian assets we divested during the second quarter.

Speaker Change: Overall, we continue to see strong activity levels across our acreage position and benefit from Diamondback's continued large-scale development of Vipers High Concentration Royalty Anchorage.

Speaker Change: In addition to the strong operational and financial results announced yesterday,

Speaker Change: We also announced that Vipers Board of Directors has approved an 11% increase in our annual base dividend, which highlights the Board's belief that a sustainable and growing base dividend can be maintained through the cycle.

Speaker Change: This belief and commitment to our shareholders is supported by Viper's Strong Balance Sheet and Durable Cash Flow Profile.

Travis Stice: Relative to a year ago, when we last increased our base dividend, Viper has grown oil production per share by 14% while maintaining our cash margins and free cash flow conversion at around 80%. Importantly, at current production levels, the annual fixed amount of the increased base dividend represents roughly 50% of the expected free cash flow at $50 WTI and is fully protected down to below $30 WTI. Big picture, the second quarter was also an important quarter strategically for Viper Energy.

Speaker Change: Relative to a year ago, when we last increased our base pivot in, Viper has grown oil production per share by 14%.

Speaker Change: While maintaining our cash margins and free cash flow conversion at around 80%.

Speaker Change: Importantly, at current production levels, the annual fixed amount of the increased base dividend represents roughly 50% of the expected free cash flow at $50 WTI and is fully protected down to below $30 WTI.

Speaker Change: Bigger picture, the second quarter was also an important quarter strategically for VIPA.

Speaker Change: Following our conversion to a Delaware corporation late last year, we were added to several notable indices during the second quarter, including the Russell 1000.

Speaker Change: In addition to the increased governance rights that this conversion provided for our shareholders,

Speaker Change: It has so far also delivered on our expectations of providing an expanded investor base and improved trading liquidity.

Speaker Change: Fundamentally, we believe this conversion is just one step in the process of fully highlighting the advantaged nature of mineral ownership and the unique value proposition that VIPER presents within the space, as well as in the energy complex more broadly.

Operator: Thank you. At this time, we will conduct the question and answer session. As a reminder, to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster. The first question comes from Neal Dingmann with Truist. Go ahead, your line is open.

Speaker Change: Operator, please open the line for questions.

Speaker Change: Thank you. At this time, we will conduct the question and answer session.

Speaker Change: As a reminder, to ask a question, you will need to press star 1-1 on your telephone and wait for your name to be announced.

Neal Dingmann: Morning all, fantastic results. Travis, my first question is about your 2024 Guided Production Bump. Specifically, you all seem to be expecting some really notable upside, especially when you capture that asset, some of the asset sales. So I'm just wondering, are you assuming much, you know, kind of on a go forward or with this, with this forecast, are you assuming much change in rig count, or can we assume the majority of this upside is coming from the operational efficiencies like we're seeing over at FANG?

Speaker Change: First question comes from Neil Dingman with Truist. Go ahead, your line is open.

Neil Dingman: Good morning, all. Fantastic results. Travis, my first question is on your 2024 guided production bump. Specifically, you all seem to be expecting some really notable upside, especially when you capture some of the asset sales.

Speaker Change: So I'm just wondering, are you assuming much, you know, kind of on a go forward or with this, with this forecast, are you assuming much change in rig count? Or we can we assume the majority of this upside is coming from the operational efficiencies like we're seeing over at FANG?

Travis Stice: Yeah, good question, Neal. You know, I think high level, as you think about when we start the year, we don't have as much visibility on non-fang operated properties, and as the year goes on, that visibility increases. You know, I think part of it is, you know, the efficiency piece. I think we always kind of expected a pretty big ramp in the back half of the year with some significant fang wells or fang pads coming on, because that gives us a lot of confidence in the third quarter, and then we're starting to see more, you know, near-term activity, visibility, you know, in the fourth quarter, you know, showing that, you know, we're going to keep growing this business organically in the second half of the year versus the first half.

Neil Dingman: Good question, Neil. I think high level, as you think about when we start the year, we don't have as much visibility on non-FANG operated properties. As the year goes on, that visibility increases. I think part of it is the efficiency piece.

Neil Dingman: I think we always kind of expected a pretty big ramp in the back half of the year with some significant

Travis Stice: this is Travis Stice, and I'm going to talk about how we're going to be using the FANG wells or FANG pads coming on, and that gives us a lot of confidence in the third quarter. And then we're starting to see more near-term activity, visibility in the fourth quarter, showing that we're going to keep getting better and better results.

Austen Gilfillian: Yeah, on the divestiture, as a reminder, that was doing about 450 barrels, 4 per day, and that divestiture closed on May 1st. So we got one month of contribution in the second quarter, but, you know, we have updated the four-year guidance to reflect the loss of that production contribution. And to Kate's point, you know, we only guide to what we can see. So we have pretty good visibility to the back half of the year on the non-op side.

Austin: Growing this business organically in the second half of the year versus the first half. Austin, you want to add anything to that? Yeah, on the divestiture, as a reminder, that was doing about 450 barrels of ore per day, and that divestiture closed May 1st. So we got one month of contribution in the second quarter, but have updated the four-year guidance to reflect the loss of that production contribution. And to Kate's point, we only guide to what we can see, so we have pretty good visibility to the back half of the year on the non-off side. On the diamond bank operated side, you know, halfway through the year, we've only had about 40 to 45 percent of the net diamond bank locations turn to production. So we'll see a pretty significant ramp in activity and production there as we kind of progress to the next two quarters.

Austen Gilfillian: On the diamondback-operated side, you know, halfway through the year, we've only had about 40 to 45 percent of the net diamondback locations turn to production. So we'll see a pretty significant ramp in activity and production there as we progress through the next two quarters.

Travis Stice: You know, Neal, since you listened to the Diamondback call, you heard the commentary around improved efficiencies, and that's obviously a direct read-through for operators that are developing... Vipers Minerals, but also your Diamondback talk about these additional zones that we didn't formerly think were Tier 1 zones at the Diamondback level, but now we're confident, you know, in the upper Sprayberry and the Wolf Camp D that those zones are going All of those are positive read-throughs, you know, for Viper. And again... I emphasize it in my prepared remarks, but with Viper having below a $30 WTI breakeven price, that's a pretty stunning statistic.

Speaker Change: minerals, but also you heard Diamondback talk about these additional zones that we didn't formally think were Tier 1 zones at the Diamondback level, but now we're confident.

Speaker Change: I emphasize it in my prepared remarks, but with Viper having below a $30 WTI breakeven price, that's a pretty stunning statistic.

Travis Stice: Great, it's a great addition by Travis. And then my second question is just on capital allocation, specifically, do you view Venom's payout, you know, maybe for K's options as as opportunistic as Fang or, you know, given the mineral structure, are you more inclined to stick with a base of variable dividends? and.........

Speaker Change: Do you view Venom's payout, maybe for Kay's options, as opportunistic as Fang, or given the mineral structure, are you more inclined to stick with the base of variable dividends?

Speaker Change: Yeah, but I think the feedback from investors and our board has been to.

Speaker Change: lean more towards the cash distribution model, but also continuing to grow that base dividend. I think we moved to this base plus variable model two years ago now, and it's been a positive development. I think...

Speaker Change: Buybacks aren't out of the question at Viper, but they're probably

Speaker Change: Transcripts provided by Transcription Outsourcing, LLC.

Speaker Change: Thanks, guys.

Speaker Change: One moment for our next question.

Operator: One moment for our next question. The next question comes from Betty Yang with Barclays. Please go ahead.

Speaker Change: The next question comes from Betty Yang with Barclays. Go ahead, your line is open.

Betty Yang: Good morning. I actually have a follow-up. I would love to get more color on this. We did note that the recount of the mineral portfolio is down quarter-over-quarter.

Betty Yang: Good morning. I actually have a follow-up. I would love to get more color on the visibility on the activity trends that you're seeing.

Q2 2024 Viper Energy Inc Earnings Call

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