Q1 2025 Viper Energy Inc Earnings Call
Good day and thank you for standing by. Welcome to the Viper Energy First Quarter 2025 earnings conference call.
At this time, all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session.
To ask a question during this session, you will need a press star 1-1 on your telephone. You will then hear an automated message advising you your hand is raised. 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 speaker today, Chip Seal, investor, relations director. Please go ahead.
Chip Seale: Thank you, Michelle. Good morning and welcome to Viper Energy's first quarter 2025 conference call. During our call today we will reference an updated investor presentation which can be found on Viper's website.
Case Vantoff: Representing Viper today are Case Bantop, CEO , and Austen Gilfillian President.
Case Vantoff: 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.
Case Vantoff: 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.
Case Vantoff: In addition, we will make reference to certain non-GAAP measures . The reconciliations with these appropriate GAAP measures can be found in our earnings release issued yesterday afternoon. I will now turn the call over to Case.
Kayce: Thank you, Chip. Welcome everyone, and thank you for listening to Viper Energy's first quarter 2025 conference call. The first quarter was a strong quarter for Viper with both oil and total production above the high end of their respective guides ranges.
Kayce: Unfortunately, since the end of the first quarter, you've entered a period of lower commodity prices and significant market volatility. With that said, Viper is very well positioned to endure this period of volatility given our high free cash flow margins and high quality assets.
Kayce: As previously announced, we are excited that transformative drop down transaction between Viper and Diamond Back closed on May 1st.
Kayce: As a result of the conservative financing of this transaction, as well as Viper's continued strong financial and operating results, we expect Roberts to remain below one time, even in a sustained $50 per barrel of the VTI environment.
Kayce: Given the strength of our balance sheet, we will look to use this period of volatility to our advantage where we can, with highlighted by the opportunistic share repurchases, we have been able to make so far this quarter.
Kayce: As a reminder, we issued approximately 28 million shares in a primary equity offering in January to fund the cash consideration of the drop down.
Kayce: Well, the net proceeds of roughly $1.3 billion from the offering resulted in a meaningfully deliveraging transactions for Viper. We didn't receive any of the products for cash flow from the acquired assets.
Kayce: during the quarter given the timing of the closing of the drop down this quarter.
Kayce: So as a result, our Q1 dividend of 57 cents was roughly 7 cents lower than it would have been otherwise in our prior share count.
Kayce: While in previous situations, we, similar situations, we have decided to true up the dividend for the share issuance.
Kayce: In this quarter, given the current market volatility, we have decided to retain the roughly $25 million.
Kayce: in Criminal Capital to keep on a balance sheet and apply to future capital allocation decisions.
Looking ahead.
Kayce: Despite the potential for sustained weakness in commodity prices and reduced activity levels
Kayce: We expect Bipers production to remain durable and as such we are maintaining our previous guidance for oil production for the back up 2025.
Kayce: This symbiotic relationship between Diamondback and Viper is highlighted during times like these where Diamondback continues to focus on its development, focuses development on wells where Viper owns high-roads the interest and therefore enhances Diamondback's consolidated capital efficiency.
Kayce: Further, the roughly 45% of Iper's current production that is operated by third parties is predominantly exposed to well-capitalized operators in the best parts of the Permian Basin, led by X-Hum mobile operating almost half of our third party production.
Kayce: In conclusion, we continue to believe that Viper presented differentiated investment opportunity with zero capital and operating costs, a line up with a parent company that has helped Viper deliver consistent organic growth and a current side of the scale that positions as a consolidate or choice.
and what remains a highly fragmented minerals and royalty space.
Kayce: Following the recent closing of the drop down, Viper now ranks amongst the largest US independent ENPs, and we believe the unique attributes of the business model will continue to be recognized by the market over time as our uniquely durable cash flow profile becomes increasingly differentiated.
Operator now, open the line for questions.
Speaker Change: Thank you. As a reminder to ask a question if you would like to, please press star 11 on your telephone. If you would like to remove yourself, please press star 11 again. One moment for our first question.
Speaker Change: Our first question is going to come from the line of Greta Dureford with Goldman Sachs. Your line is open. Please go ahead.
Speaker Change: Good morning, Adam. Thank you for taking my questions. My first is on M&A. You know, Viper has continued to lean into M&A this year, alongside the drop down. Do the changes to the broader macro environment influence through willingness to lean into M&A at this point, or do they change your view on the opportunity set for incremental M&A from here?
Speaker Change: I wouldn't say the macro impacts are desired to continue to consolidate the minerals market, you know, I think what happens in minerals is you know because there's no CapEx.
Speaker Change: associated with the development of minerals or owning minerals. Sometimes deals are harder to come by in more [inaudible]
Speaker Change: We've been able to do some pretty large deals through pass down cycles. You know, notably we did the small sale deal in 2022, which had a lot of diamond back, or sorry, 2021, which had a lot of diamond back operated production.
Speaker Change: It feels like that make a lot of sense, but I think we're going to kind of sit through this volatility here for a couple months and then see who's willing to transact on the other side of it.
Speaker Change: Great, thank you. And then for my second question, just following up on the updated Fanged Guidance and the closing of the drop down, have the activity assumptions and rigging county following the job will equal acquisition change at all? And if so, could you speak to potential differences in your cash flow assumptions from that development opportunity?
Speaker Change: Yeah, you know, we really started to model completions in that area starting in 2026. So I don't think it's time to change that development program yet.
You know, core off the assets and start killing walls.
Yeah, they're going to spend a lot of time. [inaudible]
Drilling here in the back half of the year
leading to completions and...
Speaker Change: 2026. So, you know, if the quality market is still weak, you know, sub-60, certainly sub-50 environment, you know, I would expect that to get pushed out to the right, like many projects in the basin, but, you know, I think in a normalized 60 plus environment, we expect that development to occur.
Thank you.
Speaker Change: Thank you. Thank you, one moment for our next question. And our next question is going to come from the line of Paul Diamond with City. Your line is open, please go ahead.
Speaker Change: Footprint across Midwin, Delaware, getting pretty volumistic. It's one of getting the idea of, you know, where I guess that next leg of opportunities lay, like once the volatility settles down. And that midwin is that Delaware or potentially elsewhere.
Speaker Change: Well, yeah, I don't think we're pretty much agnostic on terms of, in terms of M&A opportunities between the Bill and the Delaware. I think what you've seen over the past 18 lines with GRP first and then Tumbleweed and then now also the drop-down it was.
Adam Lawlis, Matthew Hof, Unknown Executive
Adam Lawlis, Unknown Executive
Speaker Change: But, you know, I think we like to Delaware as well, you know, especially not having to put up the capital on what could be some more sense of laws. There's still a lot of resource available there, and there could be some size law opportunities there as well. So for us, it's going to be more about price than an opportunity set, but to cases that earlier point right, we're just going to have to step through the volatility and see what becomes available during this volatility or after when we hopefully have more criminalized times. [inaudible]
Speaker Change: understood preciptic clarity, just one quick one on hedging. You guys have been pretty consistent on that through, you know, the last several years, but it's also been in a relatively directionally stable environment. Does the reason volatility in the macro side could that potentially shift that, you know, overall strategy years, it's still pretty locked in and you're comfortable with the current plan.
Speaker Change: No, we're so comfortable with the current plan. I mean, the philosophy has always been why and have a fortress balance sheet so, you know, you don't have to...
Speaker Change: Do a ton of hedging or anything drastic right with swather or collars or anything like that. So, I think we'll still look to use these deferred premium puts.
Speaker Change: You know, still have the unlimited upside and try to protect against the extreme downsides but having the balance sheet that we have today, you know, we look to try to lock in a certain amount of downside protected cashflow so that leverage doesn't kind of blow out in a low commodity price environment. So we're in a great position today and I think we'll stay true to what that strategy has been over the last couple of years. [inaudible] We're in a great position today and we're in a great position today and we're in a great position
Understood, appreciate the clarity, I'll give it there.
Thanks, Paul.
Speaker Change: Thank you and one moment for our next question and our next question comes from the line of Derek Wakefield with Texas Capital. Your line is open. Please go ahead.
Good morning all and thanks again for your time.
Peter Egg
Speaker Change: Regarding the Diamond Back Investor Lutter from this morning, you highlighted industry concerns with development at current prices. As you guys think about Viper's exposure, how much of that 10% decrease would you have exposure to assuming that backdrop?
Speaker Change: Yeah, I think on a net well basis, it's very minimal, you know, we still see...
Speaker Change: The majority of the wealth is for projects where Viper has that high interest getting completed today.
Speaker Change: at the Biber level now. You know, I think if this persists, you know, much longer, you know, at the different story, but, you know, I think...
Speaker Change: I think generally in these times we look at consolidated NRIs at the diving back level and that includes what Viper has been able to pick up over the years and usually those projects given the area that they are in move to the top of the list.
Speaker Change: You know, I would say no impact for now, which was why we, you know, held guidance where it was.
Speaker Change: But, you know, listen Derek, we see a sub-50 dollar well environment and diamondback and others are are cutting more than that it's going to hit Viper towards the back half of the year and into next year, but I think what we think is, you know,
Speaker Change: It's going to be a tough couple of quarters for the industry. I think price is going to react at some point, you know, due to lower U.S. oil production and owning assets in the lowest break-even parts of the U.S. is going to be a strategy that pays off for Viper shareholders.
Absolutely agree case. And then with my second question.
Speaker Change: I just wanted to get a better sense on the quarter-over-quarter change in activity. If we were to include the acquisition and drops of your 4p disclosure,
Speaker Change: Do you have a sense on whether working progress in monocyte wealth increased quarter of a quarter or kind of were flatish?
Speaker Change: Yeah, activity is certainly increasing, especially when we're dying to exit it, as we roll forward and start getting that visibility into what, 2026, it's going to look like, you know, I mean, notwithstanding some of the pending changes of efficacious outlines. But overall, I would say, you know, going through the first quarter into April , you know, we're having pretty strong activity levels on the third party side, mainly being led by Exxon, EOG and Austin.
Speaker Change: And then Dynavac, you know, production is really strong today. And we kind of outlined it with a drop down, but it has some really concentrated projects there that Dynavac can prioritize. And it probably can stick hanging there, you know, will certainly lead to some pretty strong growth through 2026.
Grace, I'll turn it back to the operator.
Speaker Change: Thank you one moment for our next question. Our next question is going to come from the line of Arun Jamarang with JP Morgan Securities. Your line is open, please go ahead.
Speaker Change: Yeah, this is Zach on for a rune. Just wanted to follow up on on your prior answer. When the endeavor dropped down with the announced Viper, he talked about 4,000 barrels a day of volume growth on.
Diamondback Operated Properties in 2026. Given those changes, Diamondback made last night, do you expect any changes to those growth volumes at Viper?
Speaker Change: Yes, I don't see any changes today, right? You know, I still think there's a strong chance that 2026 is stronger than
Speaker Change: Then, you know, everybody is thinking today, you know, we kind of signal the message that, you know, it's like it will happen, happen quickly, and hopefully it will hire a low on commodity price but
Speaker Change: You know, if we do persist in the 2026, we are going to continue to focus on areas where, you know, Diamond Back and Viper have high enterprise. So, you know, I see no reason to change the thought process on 2026 growth, you know, particularly with what we're doing on, you know, Quinn Ranch which we bought earlier this year.
Speaker Change: and some of the high, or sorry, yeah, Quinn Randson, we bought earlier this year and some of the high NRI projects from both Humbleweed and you know the drop down.
Speaker Change: Thank you, guys. I follow up. I know Exxon is your largest third party operator, but can you talk about what you're seeing for some of your smaller third parties? Just in light of the commodity price volatility and you started to see some some things get pushed in the right there. [inaudible]
Speaker Change: I hadn't seen it at the vetum level, the Viper level directly, right? I think what we've seen is more of the anecdotes in the field of particularly private operators.
You know, pushing completions out or dropping track crews.
Speaker Change: and, you know, riding this out. So, you know, we, we, as far from we try to buy assets under, you know, acreage positions that we covet, and that tends to be the higher quality positions operated by, by large operators like, you know, Diamondback Exxon Oxy.
Speaker Change: EOG, Conoco, and in our mind those are probably the stickier barrels in the basin, but the comments we made earlier were more anecdotes about the smaller operators in the field, you know, making
You know, single unit capital allocation decision.
Got it. Thank you.
Speaker Change: Thank you and one moment for our next question. Our next question is going to come from the line of Leo Mariani with Ross, your line is open, please go ahead.
Speaker Change: Yeah, I mean, obviously we're running it, you know, kind of weaker oil market conditions and I guess we'll see how it plays out. Obviously you guys mentioned that you kind of held back, you know, some of the first quarter dividend given the wheat market conditions.
Speaker Change: obviously looks like there's significant accretion that's coming from the endeavor drop-down
Speaker Change: Yeah, I think I think at 60 you know we're a flat commodity price if you're on the flat commodity price Q2 to Q4 whatever that is
Distributions are going to grow. You know, I obviously...
from the drop down, I think, you know, also importantly... [inaudible]
We have found she can pass the need to do.
Speaker Change: You know almost anything we want on the acquisition side.
Speaker Change: You know, lastly, we didn't mention it in the prepared remarks, but, you know, Viper was upgraded to investment grade.
Speaker Change: last week which is by Fitch, so now we have two investment grade ratings and so you know access to capital.
Speaker Change: Viper today is kinda unmatched in the mineral space. [inaudible]
Speaker Change: and something we've been working on for a really long time and it's good to see that come to fruition, particularly when capital access is scarce today.
Speaker Change: I appreciate that. Let me just have a couple quick ones on some of the numbers here. So see in it.
Quarter quarter, you know, Tweets there, there's anything to kind of read into a lower tax rate with, you know, lower all prices here and then on.
Speaker Change: on GNA. Presumably you guys aren't adding a whole lot of, you know, GNA as a result of the the endeavor deal, but correct me if I'm wrong. And you're obviously getting significant production, so just trying to get a sensitive GNA, where barrel should come down nicely.
Speaker Change: Yeah, you know, I've looked at sadly taxes are down to the oil down, that's as simple as, uh...
Speaker Change: Helmet, GNA side, usually Q1, it's kind of the peak on GNA and it comes down.
We've got it modeled coming down.
Speaker Change: We run a pretty lean organization at Viper. We are adding some people here and there to help with the administrative side of our business. But I think you can expect GNA to come down per B O E post drop down.
Thank you.
Speaker Change: Thank you. Thank you. And again, if you would like to ask a question at this time, please press your star 1-1 on your telephone.
Speaker Change: Our next question is going to come from the line of Tim Rezvan with Keybank Capital Market. Your line is open. Please go ahead.
Tim Rison: Good morning folks. I wanted to ask on on repurchases. I saw that you bought on tick things pretty well in the second quarter, buy in below 38. And I know commodity prices are as big a factor as share prices probably in the decision making process but
Speaker Change: Can you give any more color on sort of the timing or the intensity I know you with shares of 40. It's back on the table in a big way so I'm just curious any more details you can provide on your appetite for more this year. Thank you.
Speaker Change: Yes, I think we've always tried to err on the side of cautionary purchases of Viper, you know, tried to lean more towards being a distribution vehicle, which it seems our investors want.
Speaker Change: You know, I think the benefit for Viper is, you know, we still generate a lot of free cash at lower oil prices.
Speaker Change: I think we have a balance sheet where we wouldn't be afraid to go above 75% of free cash distributed in a quarter to lean into buybacks [inaudible]
You know, again, I hope that that doesn't happen, but um-
Speaker Change: I think we're prepared. I think COVID has taught us a lot about our balance sheet, our hedging structure, how we do things.
Speaker Change: You know, we're prepared this time around to lean in if there's continued volatility.
Okay. Okay. That's helpful. And then...
Speaker Change: Just talking about the balance sheet, do you have a target debt number you want to get to because I want with your hedge profile you can't control leverage as much but how do you think about the right debt load, you know post the drop down. Thanks.
Speaker Change: Yeah, I don't like saying we're underrunner because I do think, you know, there will be opportunities to use cash in deals, but
Speaker Change: You know, I think a ton of leverage is that $50 oil feels pretty pristine for Viper, but you know, we can lean in a little bit. Should there be opportunities, you know, to buy deals with cash in these commodity prices? You know, it tends to be harder to get deals done.
Speaker Change: on the mineral side over upstream when commodity prices are lower, but we're certainly going to keep trying.
Tim Rison: Thank you. I think, you know, I think the last thing Tim would say on balance sheet [inaudible]
Tim Rison: opportunity set for our access to capital and what we can do. We have our 27 notes outstanding that are essentially gullible today. We've been buying back some of them in the market. We've got a small balance on the revolver. I think it's the appropriate time.
Wait and see on that.
Okay. Thank you.
Tim Rison: Thank you and I would now like to hand the conference back over to Case Van Toff CEO for closing remarks.
Tim Rison: Thanks everybody for taking the time to listen to our call today. If you have any questions, please reach out. We're always available.
Tim Rison: This concludes today's conference call. Thank you for participating and you may now disconnect. Everyone, have a great day.
Speaker Change: Paul Diamond, Matthew Hof, Austen Gilfillian, Neal Dingmann, Matthew Hof, Austen Gilfillian, Neal Dingmann, Matthew Hof, Austen Gilfillian
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Paul Diamond, Timothy Rezvan, Adam Lawlis, David
Speaker Change: Paul Diamond, Timothy Rezvan, Adam Lawlis, Paul Diamond,
Speaker Change: Paul Diamond, Derrick Whitfield, Paul Diamond, Paul Diamond, Paul Diamond