Q4 2024 Viper Energy Inc Earnings Call
Speaker Change: Good day and thank you for standing by. Welcome to the Viper Energy 4th Quarter 2024 Earnings Call.
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. 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 your hand is raised.
Speaker Change: 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, Chip Steele, Director of Investor Relations. Please go ahead.
Chip Steele: Thank you, Lauren. Good morning and welcome to Viper Energy's fourth 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 Case Vantoff, CEO, and Austin Gilfillan, President.
Speaker Change: During this conference call, the participants may make certain forward-looking statements relating to the company's financial conditions, results of operations, plans, objectives, future performance in 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.
Speaker Change: Information concerning these factors can be found in the company's filings with the SEC.
Speaker Change: In addition, we will make reference to certain non-GAAP measures. The reconciliations with the appropriate GAAP measures can be found in our earnings release issued yesterday afternoon. I will now turn the call over to Kayce.
Kayce: Thank you, Chip. I'd like to also note that Travis Stice, outgoing CEO, is joining us for one more Viper call here, so it's good to have him in the room as well, but welcome everyone. Thanks for listening to our fourth quarter 2024 conference call.
Kayce: The fourth quarter concluded as a landmark year for Viper. For the full year, we continued to deliver strong organic production growth on our legacy assets and successfully executed on our differentiated acquisition strategy.
Kayce: Looking ahead, we continue to be excited about the transformative drop-down transaction between Viper and Diamondback that was previously announced.
Kayce: On the drop-down specifically, this transaction is unique in its value proposition to Viper, given the alignment it provides with Diamondback's expected development over the years to come and the resulting organic growth that can be driven by Diamondback's drill bit.
Kayce: Further on this point, on a pro forma basis, Viper expects to own an interest in approximately 75% of Diamondback's expected completions over the next five years, with an average 6% NRI within those walls.
Kayce: This is greater alignment than we have realized over the past eight years on average and is now going to be applied on a much larger scale.
Kayce: Looking at the forward outlook in more detail, we have initiated average daily production guidance for Q1.
Kayce: A 2025 of 30,000 to 31,000 barrels of oil per day.
And upon the assumed closing of the drop-down...
Kayce: Expected in Q2 of 2025, we expect run rate daily average oil production of 48,000 barrels of oil a day.
Kayce: Importantly, we also have the unique visibility to further growth in 2026, as our diamondback operated production is expected to increase to approximately 31,000 barrels a day, up from approximately 27,000 barrels a day in 2025.
Kayce: Of note, this production growth does not take into account the expected accelerated development of Diamondback Southern Midland Basin acreage that was agreed to in the recent double-equal acquisition of the Diamondback level.
Kayce: The pending drop-down includes a substantial amount of royalty acreage in Reagan County, mostly via concentrated interests and completely undeveloped units, so this acceleration would bring forward significant NAV for Viper.
Kayce: In conclusion, we continue to believe that Viper presents a differentiated
Investment opportunity with zero capital and operating costs.
Kayce: and a current size and scale that positions us to be the consolidator of choice in what we feel remains a highly fragmented minerals market, particularly in the Permian Basin.
Kayce: Proforma for the drop-down, Viper will rank amongst the largest U.S. independent EMPs and we believe the unique attributes of this business model will continue to be recognized by the market over time as our durable cash flow profile becomes increasingly differentiated.
Operator, please open the line for questions.
Kayce: 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 one one on your telephone and wait for your name to be announced.
Kayce: To withdraw your questions, please press star 11 again. Please stand by while we compile the Q&A roster.
Speaker Change: Morning guys, Kay has already congratulated you so I just want to congratulate Austin. Nice, well thought of. My first question guys is just on the announced Cary with Double Eagle. You mentioned this morning I think on the Diamondback call.
Speaker Change: is that I think you said, Kase, maybe around 50% of this plan could benefit Venom. I'm just wondering, could you discuss maybe anything around potential timing and just what you were meaning by the potential upside from this for Venom?
Speaker Change: Yeah, you know, we're still working out all the details and timing, you know, give me the pen and a paw.
Speaker Change: where the rigs get moving down there in the southern portion of our acreage, but you know, high level we expect at least
Adam Stice, Adam Lawlis
Speaker Change: I think we have an opportunity also to buy a lot of minerals down there in Regan County. It seems to be an emerging part of the basin where there hasn't been as many deals to date, so Austin and his team are actively looking at opportunities down there.
Speaker Change: Thank you, Case. And then maybe, Tribe, since your last call, I'd just love to hear for your last on this one, if you still believe...
Speaker Change: You know sort of the post large drop and just all the acquisitions you guys have been successful is Just wondering when you still look at venom, you know, do you still believe that the Opportunities are as good as ever and maybe what other incremental accomplishments. Do you think still lies ahead for frost and the team?
Speaker Change: Yeah, look, it's almost an embarrassment of riches the amount of talent that's assembled on this Viper team. But what's even more exciting than that is just the runway in front of these guys.
Speaker Change: You know, when we took this company public, guys, it's been...
A long time ago. That's 11 years.
Speaker Change: We always had a vision that it could be in the situation we're in today. It just took us a while to figure out what was the right structure to be able to get it there. But I think this is a category killing company and
Speaker Change: It's refreshing to see talent and opportunity coincide in the way that it's doing here at Viper Energy Partners. Thank you, Neil, for giving me the chance to mention that.
I couldn't agree more. Thank you all.
Thank you. One moment for our next question.
Speaker Change: Our next question comes from the line of Neil Mehta with Goldman Sachs & Co. Your line is now open.
Speaker Change: Just your perspective, given the strength of the balance sheet, where do you see the likely payout over the next couple of years, and what are the parameters that you're watching to be on the lower end or the higher end of that range?
Speaker Change: Neil, you know, that's a great question. When we started this business, it was 100% pass-through. We distributed every dollar we made every quarter. You know, what happened with that situation is that that made us rely on the capital markets.
Speaker Change: For doing deals, right? So we have to do equity deals You know the balance sheet anytime we wanted to do talking acquisitions
Speaker Change: And now since we've gone back to 75% of free cash return, it's still a very high number, but for a mineral business, I think it makes...
Speaker Change: A lot of sense, but that leaves 25% of our free cash flow, a number that's now growing pretty significantly with the drop down to continue to do deals, you know, the little deals that add up under the diving back drill bit.
So we don't have to go do a big marketed...
Speaker Change: I really like 75% for Viper, I mean we've certainly been vocal that
Speaker Change: The base dividend needs to grow, and we're prioritizing the variable dividend over repurchases. But, you know, there have been times over the past 10 years where repurchases made a lot of sense.
Speaker Change: So we have that ability. And in my mind, that would be an ability to lean in above 75% if there was.
Adam Lawlis, The Big Game Hunter, www.thebiggamehunter.com
Speaker Change: Double Eagle transaction done on the other side of the house, will that create some opportunities for potential drop downs here into Viper?
Speaker Change: Accelerated development of the large overrides we got from the drop-down, and then also kind of having a new playground down there to go poke around in and try to buy some minerals where there hasn't been much activity or buying over the course of the last, you know, really, you know, the history of the Permian with the horizontal development that's occurred down there.
All right. Thanks Austin. Thanks team.
Thank you.
Thank you.
Kaylee Ackermine: Our next question comes from the line of Kaylee Ackermine with Bank of America. Your line is now open.
Kaylee Ackermine: Hey, good morning, guys. Just one for me here. Kind of thinking about your data center plans and...
Kaylee Ackermine: That development is currently taking place at Deng, but wondering if you think that's the right vehicle to maximize the value of that development. When you kind of look at your peers in the royalty space, it seems like royalty with surface rights seems to be a business model that the market really likes here. Any thoughts on dropping that piece down in Venom?
Kaylee Ackermine: Yeah, you know, we're certainly not blind to the, you know, what's going on in the market on the surface side. You know, we kind of said it on the Dimeback call, in my mind the surface is the...
Speaker Change: Certainly has a different view You know I think for us You know there's more value in service being in the operators hands and being able to you know move things around and not worry about in our company relationships
Speaker Change: when trying to develop our assets. So it probably stays in Diamondback for now and we keep Viper as a pure play royalty company. You know, we went to three public snake companies once before and I think we're good at two. So we'll probably stay with Viper and Diamondback for now.
You got it. Thanks kids. Thank you
Thank you. One moment for our next question.
Speaker Change: Our next question comes from Paul Diamond with Citi. Your line is now open.
Paul Diamond: Thank you. Good morning. Thanks for taking the call. I just want to get an idea of what you guys kind of think about the right level and the split between FANG versus other operators in your long-term operational profile. Any shift in that after the recent drop downs or is it still pretty much opportunistic?
Paul Diamond: Yeah, you know, the fang relationship is certainly what differentiates Viper and it got significantly larger.
With the drop down, you know, I think
Paul Diamond: I think we want to continue to grow the Viper business, which is what we would like to do. It's naturally going to be harder to do it.
100% under the thing, drilled it.
Paul Diamond: But I think you know generally we'll always have the support system of
Paul Diamond: You know, knowing where the majority of our development is coming from, the timing of that development, which is...
Paul Diamond: I think the key differentiator at Viper, but I think over time some of these larger packages that might come available in the basin.
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Paul Diamond: It probably dissipates a bit, but that also means the multiple we should be paying for those assets is probably lower.
Speaker Change: Understood, makes perfect sense. And actually just to kind of put a tangent in my second question, given the increased scale, how do you all think about, or has there been any evolution how you think about kind of the correct balance sheet? Like any interest in de-levering quickly or more comfortable taking on a bit more debt? Just your thoughts around that.
Speaker Change: Yeah, I think the mineral business certainly has the capacity to take on.
Speaker Change: On more leverage, I just don't think the market or the rating agencies have come around to that idea, so I think we're still going to run the business.
you know, fairly lowly levered.
I think Viper's cost of capital overall has come down.
Speaker Change: Significantly, well, you know, it's the fact that we're able to do a
A $1.2 billion follow-on deal.
Speaker Change: Biber when when you know five or six years ago we could barely raise 100 million dollars
has helped us a lot, and so...
Speaker Change: You know, leverage plays a part, but we need the rating agency support to keep moving up the rating scale and have access to that capital.
while not getting over our skis on leverage.
Understood. Thanks for your time. I'll leave it there.
Thanks a lot.
Speaker Change: Our next question comes from the line of Derek Whitfield of Texas Capitol. Your line is now open.
Speaker Change: Okay, good morning again guys. Travis Kays, again, congrats on what you've built at Diamondback and Viper. Congrats, Austin, on the opportunity you have ahead of you.
Speaker Change: For my first question, I really wanted to kind of think through some of the deeper intervals and opportunities that you guys have across the basin.
Adam Lawlis
Speaker Change: While clearly the drop-downs and double-eagle acceleration are going to drive the near-term growth for Venom,
Speaker Change: Could you comment on how close the returns are with these deeper intervals versus the more traditional Wolf Camp and Sprayberry zones? And further, are there leasing and activity tailwinds over the next two years that you see forming?
Speaker Change: Yeah, Derek, I think, you know, when you think about the resource expansion story at Viper, you know, we definitely view that as...
You know a compelling story over the next few years
Speaker Change: In the next two to three years, you know, we think it's going to be pretty competitive with the core development that we're doing today.
Speaker Change: On the leasing front, it's definitely something that we've kind of seen across our acreage position. We signed a big lease on the Deep Rites with Diamondback for Spanish Trail a couple years ago. That was certainly unique given we owned 100% of the minerals and it was such a continuous block of acreage. Kind of what we've seen now is operators...
Adam Lawlis
Speaker Change: And then on my follow-up, I'm going to perhaps reframe the previous surface question.
Speaker Change: What are your thoughts on the opportunity in the Midland Basins for surface ownership where you have material upstream water enrollment assets? And while surface ownership definitely helps from a leasing perspective with data centers, the bigger opportunity that we see on the Delaware side is really on the water source and enrollment on water handling.
Speaker Change: Yeah, I mean, I think it's certainly another leg of the stool that people are playing in the basin.
You know, it's good to see the water business get...
Speaker Change: Natural, as the working interest gets consolidated, the minerals get consolidated, you know, people start to look for opportunities on the surface.
and, you know, royalties play an important part of that.
Speaker Change: For us, I think, you know, the important part of the business for us is to own the best rock and let, you know, activity and capital come to us as a result of that, right? So, you know, I think you can have your argument.
Thanks. Great update, guys.
Thank you.
Speaker Change: 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.
Speaker Change: Our next question comes from the line of Tim Resvin with KeyBank Capital Markets. Your line is now open.
Tim Resvin: Good morning, folks, and thanks for taking my question. And also, congrats to everybody on the.
Tim Resvin: On the news on the on the promotions and on the retirement, Travis.
I wanted to ask Kaye's on repurchases.
Tim Resvin: that you have over 400 million in capacity. I would argue you're basically gonna be there on the leverage side by the middle of 2025. So.
Tim Resvin: you know, amid a pretty tough cape for a lot of energy companies, you know.
Tim Resvin: Viper trading down to the mid 40s kind of what's what are the thoughts on on repurchases and you know, if we see more of a Downdraft in the stock for macro reasons, you know are you incentivized to get active?
Speaker Change: Yeah, Tim, good question. I think the repurchase plan is still there. There's still a lot of capacity, especially for Viper size.
Speaker Change: I think we've started to see some weakness or continued weakness to move away from the priority of returning cash to shareholders through the base plus variable, but it's there for a reason, and capital allocation is something we pride ourselves on, and I think we're going to...
You know we have
Speaker Change: I wouldn't call it a short-term holder in NCAP that may monetize at some point and you'd expect us to participate in that deal.
Speaker Change: The repurchase plan is there, we haven't really thought about it for a while at Viper, but it's certainly something to dust off if we continue to see weakness across the space.
Speaker Change: You've talked about, you know, a greater opportunity for consolidation in minerals versus EMPs. There's been a lot of chatter in the mineral space about large packages.
Speaker Change: kind of on the market. So I was curious kind of what what you're seeing from your seat that kind of you know drove that that commentary and is it fair to say, you know, Viper is going to be as active as anybody at this point?
Speaker Change: I think what we did in that deal was we put a pretty unique structure by giving them the Ofco units to defer their tax liability and that structure got a lot of attention from a lot of mineral portfolios around the basin.
Adam Stice, Adam Lawlis
Anyone?
Adam Stice, Adam Lawlis Adam Stice, Adam Lawlis
Okay, thanks for the comments.
Thanks, Tim.
Thank you.
Speaker Change: Our next question comes from the line of Leo Mariani with Roth. Your line is now open.
Speaker Change: Yeah, hi guys. Maybe just wanted to kind of ask the M&A question a little bit, you know, differently here. So,
Do you still see the mineral landscape as just...
Speaker Change: Smaller kind of, you know, owners of minerals kind of running around there that you guys see as an opportunity And obviously, you know, you've got a very strong balance sheet right now as you pointed out
Yeah, well, you know, I think, I think, um...
I think, from an eatings perspective...
Speaker Change: If you think about Viper, a proforma for the drop-down, Viper is going to do about, round number is 50,000 barrels of oil per day of production. If the Permian is producing 6 million barrels a day...
Speaker Change: of production at a 25% royalty, there's 1.5 million barrels per day of royalty barrels available to be consolidated.
public mineral holder from a production perspective.
Speaker Change: There's significant opportunity ahead, whereas on the upstream side, if you add the top five or six operators together from a gross production perspective, you're getting closer to 60, 65, 70 percent of the total production in the basin.
Speaker Change: Okay, those were very helpful stats, really much appreciate that. And obviously, you folks are getting the Endeavor deal, I'm sure, prosecuted right now, anticipating a...
The second quarter closed.
Speaker Change: Certainly, that deal is pretty creative. As I'm looking at the dividend for the company, if we assume that
Speaker Change: Well, prices don't really change much, you know, call them, you know, 70 bucks. I mean, it looks to me like we should get some nice accretion on the dividend, you know, post the close of that deal. Is that generally how you guys are looking at it as well?
Speaker Change: Yeah, we agree. You know, I think, I think the kind of the next
you know, on a normalized price basis.
Can we get to a dollar?
Speaker Change: per share of distributable cash flow each quarter. And I think, you know, with the dropdown, as well as the expected organic growth, I think that's a, you know, a near-term possibility. And 75% of that going back to shareholders is a, you know, is a nice yield today.
Very good. Thank you.
Thanks Leo. Thank you.
Speaker Change: This concludes the question and answer session. I would now like to turn it back to Kate Vantoff, CEO, for closing remarks.
Speaker Change: Thank you guys for joining the Viper call today. If you have any questions, you know where to find us and appreciate the time.
Thank you for your participation in
Thank you. Thank you.
Adam Lawlis: It's your boy, Mr. Lawlis And you're listening to Adam Lawlis Oh, yeah It's your boy, Mr. Lawlis And you're listening to Adam Lawlis And you're listening to Adam Lawlis
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