Q3 2024 Viper Energy Inc Earnings Call
[inaudible]
Speaker Change: Good day and thank you for standing by. Welcome to the Viper Energy 3rd Quarter 2024 earnings conference call.
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. 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 your hand is raised.
Speaker Change: To withdraw your question, please press star on one again. Please be advised that today's conference is being recorded.
Speaker Change: Hope now I like to hand the conference over to your first speaker today, Adam Lawlis, VP of Investor Relations, please go ahead.
Speaker Change: Thank you, Adam. Good morning and welcome to Viper Energy Partners 3rd quarter 2024 conference call.
Do you ever call today a reference and update an investor presentation which can be found on life or's website?
River attending Viper today or Travis Stice, the K-Smanthouse President, an Austin Gillesville and 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.
Speaker Change: We caution you that actual results could differ materially from those that are indicating these sports-looking statements due to variety of factors.
Speaker Change: Information Concert and these factors can be found in the company's findings with SET
Speaker Change: In addition, we will make reference to certain non-GAP measures. Reconciliations with the appropriate GAP measures can be found in our earnings release issued yesterday afternoon.
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 third quarter 2024 conference call.
Travis Stice: The third quarter marked a continuation of Viper delivering on its differentiated strategy and value proposition, and was highlighted by both continued organic production growth on our legacy asset base.
Travis Stice: and the closing of the tumbleweed acquisition.
Travis Stice: As we prepare to head into 2025, we look forward to further delivering on our strategy of consolidating high-quality mineral and royalty assets through a disciplined and focused approach.
Travis Stice: Looking specifically at current operations, activity remains strong across our acreage position as represented by the substantial amount of work-in-progress and line-of-sight wells.
Travis Stice: And we continue to benefit from Diamondback's large-scale development of our high-concentration royalty acreage.
Travis Stice: Importantly, Diamondback's merger with Endeavor, which closed during the third quarter, only enhanced this alignment as Endeavor was previously the second largest third-party operator on Viper's royalty assets in terms of both production and acreage.
Travis Stice: Bigger picture, we continue to believe that VIPER presents a differentiated investment opportunity with zero capital or operating costs.
Travis Stice: Alignment with a parent operating company that has helped Viper deliver consistent organic growth.
Travis Stice: In addition to these attributes,
Travis Stice: Our market presence and acquisition strategy has been greatly enhanced now that we are one year post-conversion to a Delaware corporation.
Travis Stice: Looking back 12 months later, we've witnessed a dramatic change in our investor base and trading liquidity.
Travis Stice: Both of which are milestones that demonstrate the continued execution of our strategy in highlighting the advantaged nature of mineral ownership and the unique value proposition that VIFR presents within the space, as well as in the energy complex more broadly.
Speaker Change: Thank you. At this time, we will conduct the question and answer session. As a reminder, to ask a question, you'll need to press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 again.
Speaker Change: Please stand by, we will compile the Q&A roster.
Speaker Change: Our first question comes from the line of Neil Dingman of Truist Securities. Your line is now open.
Neil Dingman: All right, Travis, thanks for the time. Travis, my question for you and the team...
Neil Dingman: is on your future well activity. Specifically, last quarter, you know, you guys talked about it. I think 81 gross fanning wells with a 5.1 percent royalty interest and then 249 remaining with a 1.1. So my question is, when you look at your fourth quarter guide, excuse me, of the 29.5,
Neil Dingman: deal per day and then you think about 25 production. I'm just wondering is this is this based on sort of a similar Fang versus other operators split and you know would you anticipate the royalty interest of either of these changing much next year?
Speaker Change: So, that's really the Legacy Dynavac and Legacy Viper acreage.
Neil Dingman: Particularly Sel and Robertson Ranch there.
Speaker Change: in Northeast Barton County. So that's going to drive a lot of the growth that we're going to see over the next two or three quarters. And then you kind of on the tail end of that have a big step up on the line of site wells on the third party side. You know, so we added about five to six net wells in that bucket from the tumbleweed acquisition.
Neil Dingman: So we've got a pretty good portfolio effect now, you know, kind of following that growth on the DimeVec side, it's going to see a pretty big step up in the third-party side, you know, so overall feeling pretty good about activity. And then, you know, not to mention...
Neil Dingman: As Dynoday continues to high-grade the Activity Plan, post-Endeavor and post-Tumbleweed, we have a lot of that growth coming in 2026 that we talked about along with the Tumbleweed Acquisition.
Speaker Change: Good question. I think the third quarter was a little unique because of the amount of shares added.
Neil Dingman: for the Tumbleweed Acquisition.
Neil Dingman: Particularly, you know, a good amount of shares added.
Neil Dingman: On October 1st in early Q4, I think what we decided to do as a board and a management team was to continue to be shareholder friendly and make our shareholders whole for their participation in ownership of Viper through the third quarter.
Neil Dingman: You know, the 83% was kind of a one-off. It's 8% higher than the 75% minimum commitment, but we felt it was necessary, you know, particularly for the added 10 million shares in October to make our Q3 investors whole. So.
Neil Dingman: Sticking with 75, I think it's a really good number for this business. You know, the base dividend, well-protected, down to $30 a barrel, which is as low as anything in the space. You know, that's going to continue to grow.
Neil Dingman: And, you know, our break-even at Viper is going to continue to decrease as well as we continue to build size and scale and grow this business.
Speaker Change: Makes sense. Thanks, guys.
Speaker Change: Thank you, Neal.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Betty Jiang of Barclays. Your line is now open.
Betty Jiang: Hello, good morning again.
Betty Jiang: Viper, can we just talk through the timing and how you're thinking about
Betty Jiang: and how she'll be thinking about diamondbacks, share, exposure on that mineral activity side and the implication on growth from there.
Speaker Change: Yeah, Betty, good question. You know, I think there's some things we can say as we continue to do a lot of work on...
Neil Dingman: On the drop-down, I don't think we can give you perfect detail on everything. I think that's going to be up to the two boards to decide, you know, cash-stock mix. I do think overall, though, you know, both boards and management teams are very aligned, that it's not – it's not –
Neil Dingman: Produced to level up the SOB in exchange for cash upstairs at the parent. So, you know, I think
Neil Dingman: You know a modest leverage increase that gets paid down very quickly On the on the cash side. I also think you can assume that you know Vipers done a lot of cap raises over the last
Neil Dingman: over the last year and a half and has continued to build its float in the ability to raise equity capital in the market and also reward those investors that participated in those capital raises. You know, we've had three successful deals here over the last,
Neil Dingman: Over the last year and that momentum is very important for future success and
Neil Dingman: And I think, you know, we also recognize the size of the trade means Diamondback is going to have to take back some...
Neil Dingman: Adam Lawlis, Ph.D.: Some equity, but, you know, taking back equity has been
Neil Dingman: well-rewarded for Diamondback shareholders as well. So, I think that mix is going to stay, it's going to be a mix of those three things.
Neil Dingman: I think there's work to do on value and accretion, and as we said on the Diamondback call, this is the number one priority for both businesses to get this done and move on to more corporate development opportunities after that.
Speaker Change: I appreciate that and look forward to more details around that. My follow-up is thinking through the impact of the Endeavor merger on the visibility Viber has on
Neil Dingman: Diamondback Activity I think the
Neil Dingman: The tumbleweed acquisition really highlighted the power of the symbiotic relationship with Diamondback and providing that visibility out to 2026 onward.
Speaker Change: With the Endeavor merger, how much work have you guys done so far in optimizing the diamondback activity to give more visibility on the Viper mineral assets?
Speaker Change: Yeah, but it's definitely, you know, been a work in progress kind of with the Blackbird Land and business development teams.
Speaker Change: to see where Viper owns concentrated interest in undeveloped units and see where those can slot into the proforma development plan and also how that might impact future acquisition opportunities, which is what we highlighted in the Tumbleweed deal. As I was mentioning to Neil's question, you haven't really seen those show up in either what's classified as work in progress or line of sight wells yet, just given the lead times on the project size.
Speaker Change: But, you know, it's definitely something that the teams are working on together, and I think would be a tailwind to 2026 and beyond, because as we mentioned, you know, Endeavor was previously the second largest third-party operator on Vipers.
Speaker Change: Anchor's position, so definitely a sizable opportunity set to kind of high-grade development plans.
Speaker Change: I appreciate that. Thank you.
Speaker Change: Thanks, Betty.
Speaker Change: Thank you. As a reminder, to ask a question, you'll need to press star 11. Our next question comes from the line of Leo Mariani of Roth. Your line is now open.
Leo Mariani: Hi guys, totally appreciate that it's going to take some time for you guys to figure out the consideration in terms of cash stock mix.
Speaker Change: For the endeavor drop down, but I guess I just wanted to you know, talk about you know, sort of leverage parameters I mean you did mention you will increase leverage at Venom somewhat and then attempt to kind of quickly You know pay that down over time to kind of get back in line. Is there kind of like a
Speaker Change: Max leverage number you think about you know for venom as you're kind of working through some of that math and calculation
Speaker Change: Yeah, Leo, I think a turn and a half on a pro forma basis seems reasonable. We can debate what oil price that needs to be at, but...
Speaker Change: Page PAGE of NUMPAGES www.verbalink.com
Speaker Change: So it's the balance sheet, but at the end of the day...
Speaker Change: That cash flow stream is 100% free cash, unlike an EMP that has a reinvestment rate.
Speaker Change: I think it's turning a half-ish.
Speaker Change: On a pro forma basis, that can come down very quickly, makes a ton of sense. I think with IFRS increased size and scale, we're starting to get more attention from rating agencies, appropriately so, moving up the rating scale and improving our overall cost of capital.
Speaker Change: You know, Viper's going to be a big business with a lot of free cash, and I think we...
Speaker Change: You know, have a goal of this business being a cop to, you know, mid-cap E&Ps as the E&P universe continues to shrink.
Speaker Change: Okay, now that makes a lot of sense for sure.
Speaker Change: The largest, you know, transaction in Viper history.
Speaker Change: Obviously, the plan will be to pay down debt shortly after that, but you guys also mentioned that this will just continue to increase the...
Speaker Change: the size and scale of Venom and maybe make the company in an even better position to do more consolidation, you know, over time. So, just kind of curious, you know, if the drop happens sometime in the first part of 25.
Speaker Change: Do you envision that, you know, Venom will be in a position to look at other deals as we get later on in 25 and, you know, you obviously have a nice multiple advantage, I think, versus the other, you know, public, you know, equities, you know, in the mineral space, but.
Speaker Change: Just wanted to see if you could give us kind of an update on how do you think about other deals, you know, post-drop? And do you think there's still a lot out there available? And, you know, what's the landscape, you know, for other deals in the space?
Speaker Change: I think certainly the business has been rewarded this year, and rightfully so.
Speaker Change: You know, while I won't comment on specific opportunities, I will say that there is a larger...
Speaker Change: opportunity set out there for high quality mineral assets to be consolidated.
Speaker Change: I'll also say that...
Speaker Change: Adam Stice, Adam Lawlis
Speaker Change: You know, essentially holding interest in mineral rights, but...
Speaker Change: you know, a public setting where they can get liquidity. So, I think those deals sparked a lot of interest. We're going to be...
Speaker Change: We're going to be picky. I think we have a very unique market position and we don't take that for granted.
Speaker Change: Okay, I appreciate that.
Speaker Change: Thanks, Leo.
Leo Mariani: Thank you.
Speaker Change: I am showing no further questions at this time. I would now like to turn it back to Travis Stice, CEO, for closing remarks.
Travis Stice: Thank you again to everyone participating in today's call. If you have any questions, please contact us using the information provided.
Speaker Change: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Travis Stice: Thank you for watching!
Speaker Change: Paul Diamond, Adam Lawlis, Thomas [inaudible]
Travis Stice: Thanks for watching!
Travis Stice: Thanks for watching!
Speaker Change: Good day and thank you for standing by. Welcome to the Viper Energy 3rd Quarter 2024 Earnings Conference Call.
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. 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 your hand is raised.
Travis Stice: To withdraw your question, please press star 1 again. Please be advised that today's conference is being recorded.
Speaker Change: I would now like to hand the conference over to your first speaker today, Adam Lawlis, VP of Investor Relations. Please go ahead. Thank you.
Adam Lawlis: Thank you, Stephen. Good morning and welcome to Viper Energy Partners third quarter 2024 conference call.
Speaker Change: 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 of Case Vantage President, and Austin Gilfillan, Vice President.
Speaker Change: 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.
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.
Travis Stice: Information concerning these factors can be found in the company's filings with the SEC.
Travis Stice: In addition, we will make reference to certain non-GAAP measures. Reconciliations with the appropriate GAAP measures can be found in our earnings release issued yesterday afternoon.
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 third quarter 2024 conference call.
Travis Stice: The third quarter marked a continuation of Viper delivering on its differentiated strategy and value proposition, and was highlighted by both continued organic production growth on our legacy asset base.
Travis Stice: and the closing of the tumbleweed acquisition.
Travis Stice: As we prepare to head into 2025, we look forward to further delivering on our strategy of consolidating high-quality mineral and royalty assets.
Travis Stice: through a disciplined and focused approach.
Travis Stice: Looking specifically at current operations, activity remains strong across our acreage position as represented by the substantial amount of work-in-progress and line-of-sight wells.
Travis Stice: And we continue to benefit from Diamondback's large-scale development of our high-concentration royalty acreage.
Travis Stice: Importantly, Diamondback's merger with Endeavor, which closed during the third quarter, only enhanced this alignment as Endeavor was previously the second largest third-party operator on Viper's royalty assets in terms of both production and acreage.
Travis Stice: Bigger picture, we continue to believe that VIPER presents a differentiated investment opportunity with zero capital or operating costs.
Travis Stice: and a current size and scale that positions us as a strategic consolidator in what remains a highly fragmented minerals and royalty space.
Travis Stice: In addition to these attributes,
Travis Stice: Our market presence and acquisition strategy has been greatly enhanced now that we are one year post-conversion to a Delaware corporation.
Travis Stice: Looking back 12 months later, we've witnessed a dramatic change in our investor base and trading liquidity.
Travis Stice: On this point, VIPER was added to the S&P MidCap 400 in September following being added to the Russell 1000 during the second quarter.
Travis Stice: Operator, please open the line for questions.
Speaker Change: Thank you. At this time, we will conduct the question and answer session. As a reminder, to ask a question, you'll need to press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 again.
Speaker Change: Our first question comes from the line of Neil Dingman of Truist Securities. Your line is now open.
Neil Dingman: All right, Travis, thanks for the time. Travis, my question for you and the team.
Neil Dingman: is on your future well activity. Specifically, last quarter, you know, you guys talked about it, I think 81 gross fang wells with a 5.1 percent Royalty interest and then 249 remaining with the 1.1. So, my question is, when you look at your fourth quarter guide, excuse me, of the 29.5,
Neil Dingman: Bill per day and then you think about 25 production. I'm just wondering is this is this based on sort of a similar Fang versus other operators split and you know would you anticipate the royalty interest of either of these changing much next year?
Speaker Change: Hey Neal, this is Austin. So, a couple points on that, really as it relates to the work in progress and line-of-sight welds that we disclose.
Travis Stice: So, you know, as you can see in the kind of in the current stats with activity,
Travis Stice: We had a pretty material step-up in the work-in-progress, as well as on the Dynabank-operated side.
Travis Stice: So, that's really the Legacy Dynavac and Legacy Viper acreage, you know, particularly so in Rockerton Ranch there.
Travis Stice: in Northeast Barton County. So that's going to drive a lot of the growth that we're going to see over the next two or three quarters. And then you kind of on the tail end of that have a big step up on the line of site wells on the third party side. You know, so we added about five to six net wells in that bucket from the tumbleweed acquisition.
Travis Stice: So we've got a pretty good portfolio effect now, you know, kind of following that growth on the DimeVec side, going to see a pretty big step up in the third party side, you know, so overall feeling pretty good about activity. And then, you know, not to mention,
Travis Stice: As Dynaday continues to high-grade that activity plan, post-Endeavor and post-Tumbleweed, we have a lot of that growth coming in 2026 that we talked about along with the Tumbleweed acquisition.
Speaker Change: They'll look for that activity. Thanks, Austin. And second question, just...
Speaker Change: quickly on shareholder return and capital allocation specifically, is the goal to continue to pay out, you know, roughly around 85% of cash available for distribution and, you know, I'm just wondering how do you pair this with what you consider to be sort of appropriate debt repayment quarterly?
Speaker Change: Good question. I think the third quarter was a little unique because of the amount of shares added.
Speaker Change: for the Tumbleweed Acquisition.
Speaker Change: Particularly, you know, a good amount of shares added.
Speaker Change: on October 1st in early Q4.
Speaker Change: And I think, you know, what we decided to do as a board and a management team was to continue to be shareholder friendly.
Speaker Change: and make our shareholders whole for their participation in ownership of Viper through the third quarter. So the 83% was kind of a one-off. It's 8% higher than the 75% minimum commitment, but we felt it was necessary, particularly for the added 10 million shares in October, to make our two, three investors whole.
Speaker Change: Sticking with 75, I think it's a really good number for this business. You know, the base dividend, well-protected, down to $30 a barrel, which is as low as anything in the space. You know, that's going to continue to grow.
Speaker Change: And, you know, our break-even at Viper is going to continue to decrease as well as we continue to build size and scale and grow this business.
Speaker Change: Makes sense. Thanks, guys.
Speaker Change: Thank you, Neal.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Betty Jiang of Barclays. Your line is now open.
Betty Jiang: Hello, good morning again.
Betty Jiang: I wanted to ask about the Endeavor mineral drop-down just given it's such a significant event for Viper. Can we just talk through the timing and how you're thinking about the funding of that drop, how much debt could you take on at the Viper level and
Betty Jiang: and how does that change, how should we be thinking about diamondbacks, share, exposure on that mineral activity side and the implication on growth from there.
Speaker Change: Yeah, good question. You know, I think there's some things we can say as we continue to do a lot of work on
Betty Jiang: On the dropdown, I don't think we can give you a perfect detail on everything. I think that's going to be up to the two boards to decide, you know, cash-stock mix. I do think overall, though, you know, both boards and management teams are very aligned that it's not, it's not.
Adam Lawlis: Adam Lawlis
Betty Jiang: Produce to lever up the sub in exchange in exchange for cash upstairs at the parent
Betty Jiang: So, you know, I think you can assume a...
Betty Jiang: a modest leverage increase that gets paid down very quickly on the cash side. I also think you can assume that, you know, Viper's done a lot of cap raises over the last
Betty Jiang: last year and a half and has continued to build its float and the ability to raise equity capital in the market and also reward those investors that participated in those capital raises. We've had three successful deals here over the last year.
Betty Jiang: Over the last year and that momentum is very important for future success and
Speaker Change: And I think, you know, we also recognize the size of the trade means Diamondback is going to have to take back some...
Betty Jiang: Adam Lawlis, The Big Game Hunters, www.TheBigGameHunters.com
Betty Jiang: I think there's work to do on value and accretion. And as we said on the Diamondback call, this is the number one priority for both businesses to get this done and move on to...
Betty Jiang: You know more corporate development opportunities after that
Speaker Change: I appreciate that. I look forward to more details around that. My follow-up is thinking through the impact of the Endeavor merger on the visibility Viber has on...
Betty Jiang: Diamondback activity. I think the...
Betty Jiang: The Tumbleweed acquisition really highlighted the power of the symbiotic relationship with Diamondback and providing that visibility out to 2026 onward.
Betty Jiang: With the Endeavor merger, how much work have you guys done so far in optimizing the Diamondback activity to give more visibility on the Viper mineral assets?
Speaker Change: Yeah, but it's definitely, you know, been a work in progress, kind of, with the WIPR land and business development teams.
Speaker Change: Spacking Hands with the Dimeback Land and Planning Team for ISIS.
Betty Jiang: to see where Viper owns concentrated interest in undeveloped units and see where those can slot into the proforma development plan and also how that might impact future acquisition opportunities which is what we highlighted in the tumbleweed deal. As I was mentioning to Neil's question, you haven't really seen those show up in either what's classified as work in progress or line of sight wells yet just given the lead times on the project size.
Betty Jiang: But, you know, it's definitely something that the teams are working on together, and I think would be a tailwind to 2026 and beyond, because as we mentioned, you know, Endeavor was previously the second largest third-party operator on Vipers.
Betty Jiang: ACRS position so definitely a sizable opportunity set to kind of high-grade development plans.
Speaker Change: I appreciate that. Thank you.
Speaker Change: Thanks, buddy.
Speaker Change: Thank you. As a reminder, to ask a question, you will need to press star 11. Our next question comes from the line of Leo Mariani of Roth. Your line is now open.
Leo Mariani: I totally appreciate it. It's going to take some time for you guys to figure out the consideration in terms of cash stock mix.
Leo Mariani: For the endeavor drop down, but I guess I just wanted to you know, talk about you know, sort of leverage parameters I mean you did mention you will increase leverage at Venom somewhat and then attempt to kind of quickly You know pay that down over time to kind of get back in line. Is there kind of like a
Leo Mariani: Max leverage number you think about you know for venom as you're kind of working through some of that math and calculation
Speaker Change: You know, it's pretty unique, right? 75% of free cash goes to equity, 25% goes to...
Speaker Change: Those are the balance sheets, but at the end of the day...
Speaker Change: That cash flow stream is 100% free cash. I'm like an EMP that has a reinvestment rate.
Leo Mariani: You know, I think it's turning a half-ish.
Leo Mariani: on a pro forma basis that can come down very quickly makes a ton of sense.
Leo Mariani: I think with vipers.
Betty Jiang: We're starting to get more attention from rating agencies, appropriately so, moving up the rating scale and improving our overall cost of capital.
Betty Jiang: You know, Viper's going to be a big business with a lot of free cash, and I think we...
Speaker Change: You have a goal of this business being a cop to...
Betty Jiang: you know, mid-cap E&Ps as the E&P universe continues to shrink.
Betty Jiang: you know, there's less and less Permian Pure Plays, well...
Betty Jiang: Look at this business called Viper with, you know, no CapEx, but exposure to some of the best rock in North America and the best operators in North America.
Betty Jiang: The largest transaction in Viper history. Obviously the plan will be to pay down debt shortly after that.
Speaker Change: You guys also mentioned that, you know, this will just continue to increase the...
Speaker Change: the size and scale of Venom and maybe make the company in an even better position to do more consolidation over time.
Speaker Change: Just wanted to see if you could give us kind of an update on how do you think about other deals, you know, post-drop? And do you think there's still a lot out there available? And, you know, what's the landscape, you know, for other deals in the space?
Speaker Change: Yeah, I mean, I think, you know, I think certainly the business has been rewarded this year, and rightfully so.
Speaker Change: You know, while I won't comment on specific opportunities, I will say that there is a larger...
Speaker Change: opportunity set out there for high quality mineral assets to be consolidated.
Speaker Change: recognize a biodiversity issue. The offer units to taxes and still and the interest.
Speaker Change: Adam Stice, Adam Lawlis
Speaker Change: Okay, I appreciate that.
Adam Lawlis: Thanks, Leo.
Speaker Change: Thank you.
Speaker Change: I am showing no further questions at this time. I would now like to turn it back to Travis Stice, CEO, for closing remarks.
Travis Stice: Thank you again to everyone participating in today's call. If you have any questions, please contact us using the information provided.
Speaker Change: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.