Q2 2025 Viper Energy Inc Earnings Call

Good day and thank you for standing by. Welcome to the Viper energy. Second 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 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.

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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 seal investor relations director chip, please. Go ahead.

Thank you, Felicia. Good morning and welcome to Viper. Energies second quarter 2025 conference call.

During our call today, we will reference an updated investor presentation, which can be found on Viper's website. Representing Viper today. Our case ban off CEO and Austin gilfillan 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 performances, and businesses.

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 Gap measures can be found in our earnings release issued yesterday afternoon. I will now turn the call over to case.

Thank you, Chip. Welcome, everyone, and thank you for listening to Viper Energy's second quarter 2025 conference call.

Despite oil price volatility. In the second quarter, Viper delivered, strong oil, production growth both on an absolute and per share basis after closing. The transformative drop down transaction from Diamond. Back on May 1st, we remain excited and highly confident about the meaningful organic growth. That Diamondback can drive on our concentrated royalty assets over both the short and the long term

This symbiotic relationship uniquely positions Viper as 1 of the few companies in North American energy that is expected to deliver organic growth, over the coming quarters and years.

As previously announced during the second quarter, we also announced a definitive, a definitive agreement for Viper to acquire sitio, royalties in an all Equity transaction.

Tito will be hosting their shareholder meeting to vote on a proposal. To approve. The merger on August 18th, and if approved we expect to close the merger shortly following the meeting,

As a reminder, this transaction adds substantial scale and inventory depth, providing support for our production profile over the next decade while also offering meaningful and immediate financial accretion.

this month, we remain highly confident in our organic growth trajectory that it will continue into 2026 at current prices led by over 15% expected year-over-year growth in our Diamondback operated, net oil production

We expect full year 2026 average production to increase by mid single digit percentage from our expected proforma, Q4 2025 production levels, which is the first quarter of uh Viper plus sitio consolidated.

importantly, based on this production Outlook, we would expect our oil production per share for full year 2026 to be approximately 15% higher than full year, 2025 highlighting the unique combination of organic growth and accretive acquisitions

Moving to return of capital, we are going to return 56 cents. A share to stockholders this quarter primarily in the form of our base, plus variable dividend, which represents 75% of our cash available for distribution. As announced with the CTO acquisition, our pro-forma. Net debt Target is 1.5 billion dollars which represents approximately 1 turn of Leverage at $50 WTI based on expected proformer production levels.

We're committed to maintaining a fortress balance sheet, but we see 1.5 billion as the right amount of permanent leverage for Viper as a royalty business. Give given we have limited operating costs and no capex.

Therefore, in the coming quarters and years, should net debt be at or below 1.5 billion stockholders should expect us to return. All excess cash up to 100% of available cash for distribution generated in a quarter.

Advantage for Viper.

We believe Viper's unique ability delivers sustained per-share growth with zero capital and only limited operating costs. This will result in a differential ability to return increasing amounts of capital to our shareholders over the long term.

And the proposed sitio acquisition only enhances our position as we look to compete with mid and large cap entps for investor dollars, attention and access to Capital.

Operator, please open the line for questions.

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 1, again please, stand by while we compile the Q&A roster,

The first question comes from the line of Chris Baker of evercore. Chris, please go ahead.

Yeah, thanks. Um K's um you know, great to see you as a commitment to returning 100% uh of cash flow. Once you get to that 1.5 billion dollar Target, maybe just help, uh, frame up the the flexibility in terms of, you know, the path toward that Target. Um, you know, whether it be organically or um you know with perhaps non-core asset sales

Yeah, good question, Chris. You know, I think they're, they're, uh, they're a couple ways to go to go about that. I mean, the the, the base case is

You know, the business is going to be generating a lot of free cash if we you know, split that uh that return 75.25 between equity and and the balance sheet, you know, we naturally get down to that 1.5 billion, you know fairly quickly post.

Sitio close. Um, you know I think we're we're probably you know, we mentioned some of the non-permanent assets could be considered non-court us and you know, there's been a lot of inbound interest uh that we you know haven't been able to do anything about because the deal is enclosed yet. But I think it would be logical for us to to look at an asset or to uh outside of the Basin to um to kind of accelerate that, you know, I think we

Uh, you know, feel really good about the balance sheet where it is today. I think we're, we're also very cognizant of, uh, you know, where the Stock's trading and I think it's, um, extremely undervalued versus what we expect, uh, the growth profile to look like, over the coming years. So I think we're going to balance a mix of um, probably a couple non-core asset sales combined with free cash generation. But but also a heavy dose of BuyBacks here. Uh, when we're permitted to post, uh, post close

Yeah, it's great. And then I guess just um heading on that last point. You know how are you thinking about the the mix of of buyback versus variable on top of the base dividend? Is it fair to think that? Um you know, we could see most of that variable cut in in favor of buyback just giving where the stock is today

Yeah. I mean, I

Back before, you know, a buyback window closes and and when the you know, the sitio deal actually actually does close uh, which we expect in, you know, in the coming weeks. But um,

Yeah. I mean, I I think I think generally we, we prefer that Viper be a distribution vehicle, but, you know, when there are these dislocations, I think it's great to have, you know, a pure free cash flow vehicle to be able to allocate more cash to other forms of Return of capital without worrying about, you know, capex commitments.

Right. Thanks guys.

1 moment for your next question.

The next question comes from the line of Betty Jiang of

Barclays Betty. Please go ahead.

Thank you. Um, good morning again. Um, I want to ask about the Third

Third-party, operator activities, it's quite impressive, considering the broader industry slowdown that you're seeing more activities running on the third-party assets and increased backlog.

Just want to see what you, um, any color on that Dynamic and do you think that level of of activity is sustainable?

Yeah, good question.

Um, you know, secondly, to your, your kind of seeing some of these concentrated assets that we've acquired in some, of the recent acquisitions of getting some, some activity on them. So it's, it's really been more of a drive and, and net activity while gross activities in relatively flat. And then the third thing that I would flag. Um, and you can kind of see it showing up in 1 of the pie. Charts on. Slide 12 is we're starting to see some of the benefits. Um, in those numbers from the double legal development, on the Reagan, County asset that, you know, they they have that development agreement in place with, with Diamondback to drive some growth on what was a very concentrated asset in the drop down.

Great color, thanks. So a follow-up to that is um, if I look at your 2026 production growth Outlook of the mid single digit growth, I was under the I I believe that's really underpinned by Diamondback operator activities, based on what you currently see with a third party activity. Do you think? Could there be upside to that growth trajectory in 26?

Yeah, I think so. So that

single digits is really 3 or 4 thousand barrels a day of growth. If you're thinking about it on an absolute basis, which is, you know, entirely driven by the growth that we see, um, coming from the Diamondback operated side. So, as we look at it today, if, if you maintain like historical permit, conversions and, and timing and such, um, I think current activity on the third party side, which would be a little bit of growth actually relative to the Baseline of of being flat. Um, but, you know, a lot of things can change. And, and there's certainly a lot of volatility in the market

Market. So we're we're still kind of guiding to third party volume staying flat. Um, but we're we're we are really encouraged by the activity levels that we've seen over the past couple months.

That's great. Thank you.

1 moment for your next question.

The next question comes from the line of Neil Mehta of Goldman Sachs. Neil, please, go ahead. Yeah, good. Good morning, team. I just want your perspective on some of the non-core, or I should say non-permanent, stuff in the City of portfolio. Your perspective on, you know,

How are you evaluating how much of that ultimately stays versus gets monetized? And um, you know this has historically been a permanent pure play asset. How important is that for you, as you think about the long term of the business?

Yeah. And, you know, I think, um, I think we still see our combined business as a long-term.

Permanent only business. Um, but I, I think, you know, we've done a lot of deals over the over the past years and in some instances we've, you know,

assets immediately post close, uh, to pay down debt or just to clean up the, the asset base, I think in this situation given that its minerals and it's, you know,

Really, you know heavily PDP weighted.

We're probably going to be pretty patient um on some of the larger uh positions. Particularly you know knowing that the buyer universe is is strong but you know, the bar universe is going to underwrite strip and and with the strip weak, we don't have to sell assets here.

it might be, uh,

Might be patient waiting to sell some of the some of the larger positions over over the next few years.

And then on the flip side, in case you've been very clear about using this asset to to consolidate. You have an advantage across the capitol even if it's undervalued and um you are The Logical acquirer of of law of royalty acreage. Um,

Is the opportunity that uh, available and interesting. Um, and how do you weigh that against uh, you know, the the intensity of integration around the the city. Oh asset? Uh, that you'll need to you'll need for the next couple of months.

yeah, you know, I think I think um,

I think the integration is going to go pretty quickly, um, you know, I think sitio had a very clean business and, and some of the, you know, key employees are are hopefully going to join us at at some point at at Viper. And so, you know, I think the integration won't necessarily be the problem, but but I do think, as you think about uses of capital, you know, we want to be, you know, patient at the Viper level. Given that, you know, we've done 2, large deals in in 6 months. And, um, you know, we expect those deals to be accretive. And we expect the market to reward those deals for being at creative and that hasn't happened yet. And so I think we need to, uh, hit numbers and and um, you know, be aggressive on our, on our buyback and and let things settle out for for a little bit before doing anything, you know, large or strategic, uh, right away. Um,

I think um I think we need to show some clean a clean quarter or 2 Pro for the CTO and show that we're hitting our synergies and hitting our production targets and and reducing our share count all while paying a very large dividend.

Awesome. All right. Thanks case.

Sorry, 1 moment for your next question.

The next question comes from the line of Paul Diamond of City Paul. Please go ahead.

Uh, thank you. Good morning y'all. Thank you for taking the call. Just wanted to quickly touch base on so the 1.5 net debt Target once once hit, you know, even without any asset disposition, does that shift your head strategy at all? Do you feel the need to maintain?

Current levels. Or could we see that moderate a little bit or how would you guess, how do you think about that post hitting that Target?

Yeah, Paul. We we've always kind of thought about our hedging strategy is, you know, locking in a certain amount of downside protected, cash flow that even if things really go south, um, you have some level of protection and and leverage isn't going to going to blow out on you. Um, so I I think we'll continue to head to probably in this consistent form of the, the Deferred premium put. So, so really just as that goes down or or net debt goes down, you just need to hedge, less barrels, um, to lock in, you know, the, the required amount of downside protection cash flow to, to solve for a cap on Leverage

Yeah, that makes sense. Um, okay and then just shifting a little bit. I know you talked about this a touch but just in the back, half of the Year post video close, I guess, how should we think about the at 75% of distributable cash to be split between the variable versus versus BuyBacks? I mean there seems to be pretty big dislocation in the equity right now. Um, is there 1? Are you thinking about winning in more in that direction? Or I guess, how do you think about that for between now and urine?

Yeah, I mean I think it’s all going to be flexible, but there is a lot of cash and capacity to...

Uh, to buy back shares here, you know, once we once we close the deal. Um, you know, I think we're just going to have to see how how things unfold over the back half of the year. But that's the beauty of a, a pure free cash flow business. That's actually, you know, growing is that um, you know, there's capacity to do to do both, but but I think today, I think you're hearing a strong message from us that we would lean into BuyBacks over over a variable today.

Understood appreciate the clarity today.

Thanks Paul.

1 moment for your next question.

The next question comes from the line of Derek Whitfield of Texas Capitol Derek. Please go ahead.

Good morning all and thanks again for your time.

Thanks Derek.

But my first question, I wanted to focus on the city of acquisition, while it's hard to fully attribute stock performance to any specific development, Zim has as a performed several of its peers since the announcement are there any aspects of the acquisition that you feel are underappreciated by investors?

Right? It's, it's hard to it's hard to model, uh, mineral businesses, because of you have a small interest in a significant number of Wells. But, you know, I think, um,

If you combine, you know, the visibility we have with the Diamondback drill bit and the financial accretion associated with the trade, you know, you start to see numbers go up. And, um, you know, listen, our job is uh to make.

the business look cheap by executing on either growth or reduction in in share count and, you know, over time the Market's a weighing machine versus a, a voting machine. And um, you know, these higher per share metrics tend to tend to prove out to be um,

The right way to run a business long term. So I think, um, well, we, uh, we often get stuck in the malaise of the short term. The long term path is, uh, is, is, is very bright

Great. And then um and past calls uh the city of management is highlighted the substantial investment. It is made in back office efforts to identify underpayment of royalties. Kind of been thinking about the levers that you guys have to pull for accretion how much of that exists within them.

well, you know

Really excited to to bring into our business. Um,

you know, I think uh, I think they've had to do it out of necessity given the number of Wells they have interest in and and uh, that's why we have a lot of confidence that um,

Functions throughout our business in EMP, and

Uh, minerals. Uh, you know, the AI Revolution and machine learning are going to be 2, very important pieces to um, you know, review 35,000 Wells, uh, a month to make sure you're getting paid, right? And I think it'll be it'll crew to our our shareholders benefit long term as well.

It's great. I'll leave it there.

1 moment for your next question.

The next question comes from the line of Aaron. Belkovsky of, TD Cowen Aaron. Please go ahead.

Good morning guys. So your presentation outlines an expected 5.9% NRI in Diamondback operated Wells through 2029. I guess my question is, do you expect that NRI to be fairly consistent across those years or even anticipate a higher NRA, NRI in 2026 than see that taper off in the later years?

Yeah, and I think really the important metric is the net well count, you know,

It's really a function of 2 things. It's 1 year. Exposure to Total Dynamic growth activity levels. And then, secondly, you're you're in our eye within those Wells. Um, so we kind of laid the detail out with, with the drop down given. We have such increased alignment with the dynamic development plan over an extended period of time, given the overlap of that drop down acreage. Um so you'll kind of see on Friday 11 think about around 25 net loss per year over this time period

I would say that that certainly will be a touch front weighted. Um, so if you think about 26 and 27, that that'll be biased to touch higher than that, and that's really going to drive a couple thousand barrels a day of growth that we're talking about on an absolute basis. But really over a 5 year, period is going to be pretty consistent, exposure, to whatever diet of X development plan is going to be. And, and that really underscores the confidence. We have in the long term production growth Outlook.

Perfect, thank you very much.

1 moment for our last question.

The next question comes from the line of Leo. Mariani of Ross, Leo, please, go ahead.

Yeah, I wanted to uh, touch base on the debt Target here.

It sounds like in the relatively near future. Uh, do you think that's going to happen here in the in the first half of of 26? Uh, and then could you also uh, just talk about the strategy of of sort of dividends uh, you know versus BuyBacks obviously. It sounds like you want to step up the buyback here uh given the weakness uh and the shares in a relative basis. But do you also see room for dividend increases in the back half of the Year? Given the accretion from the mergers?

Yeah, yeah. I mean, I think, um, I think it's reasonable to to expect that the board will look at the base dividend and and increasing that, you know, sometime in the next quarter or 2. Um, you know, on top of that just free cash flow growth overall from you know production growth in the accretion of the of the deal starts to roll through as well and um

You know, I think importantly this.

1.5 billion dollar, net debt, Target and just saying, hey, we're not going to hold on to a bunch of cash on top of that. That number, if we're at, if we're at that net debt number, we're, you know, giving the cash back to to shareholders. And, um, you know, I think that once that starts flowing, through numbers, people are going to realize how much cash they're going to get back from Viper. Over the next, you know, couple years is going to be significant

Okay. Um, and then on the m&a side obviously, it sounds like you know, you got a lot to still digest here, you haven't closed toio yet. Uh, you you kind of made a comment here that perhaps, you take it a little bit slower. As you want to get, maybe the stock price up a bit to kind of fully reflect the benefits of the acquisition. So I understand maybe you don't have as much desire in the very near term. But uh could you talk about availability uh of deals out? There are you seeing packages that are transacting obviously? Well, prices have settled down a little bit after a pretty tumultuous. Second quarter.

Yeah, it's been pretty quiet for us, but you know, it's probably because we've been doing this, you know, this large deal. Um, you know, I think most importantly, you know,

as I said earlier in the call we, you know, we did.

We did 2 transformative deals in 6 months. We expect um, our investors to make money on those deals and that's why we're kind of signaling that we'd like to be patient on m&a and um,

And make sure our investors are made whole on the, uh, accretion that we all expect to come.

Okay, thanks.

Thanks Leo.

This concludes the question-and-answer session. I would now like to turn it back over to management for closing remarks.

Call our second call without air conditioning and I appreciate you making it shorter than the Diamondback call.

Have a good day.

Thank you for your participation. In today's conference, this does conclude the program. You may now disconnect