VNOM $4.1B Deal Echoes Permian Appeal: Time to Watch EPD & OXY too?

Viper Energy (VNOM) is acquiring Sitio Royalties for $4.1 billion in an all-stock deal, expanding its Permian Basin footprint to 85,700 net royalty acres and projecting production of 122,000-130,000 BOE per day by 4Q25. Despite recent declines in crude prices, the acquisition highlights the Permian Basin's continued profitability due to low break-even costs, potentially signaling a positive outlook for other Permian-focused companies like Occidental Petroleum (OXY) and Enterprise Products Partners (EPD). OXY's Permian operations have break-even costs below $50 per barrel, while EPD anticipates increased activity and earnings from new well connections in the Permian during the second half of 2025.

Analysis

Viper Energy's (VNOM) definitive agreement to acquire Sitio Royalties in a $4.1 billion all-stock transaction significantly expands its Permian Basin presence to 85,700 net royalty acres. This strategic move is projected to elevate VNOM's production to between 122,000 and 130,000 barrels of oil equivalent per day (BOE/day) by the fourth quarter of 2025, with further mid-single-digit percentage growth anticipated for 2026. The acquisition, expected to close in the third quarter, underscores the sustained economic viability of the Permian Basin, where break-even costs, particularly in the Delaware and Midland sub-basins, are reported to be well below $40 per barrel. This profitability persists even as average Cushing WTI spot prices declined from $75.74 per barrel in January to $62.17 in May, and WTI currently trades below $65 per barrel. The heightened activity in the Permian also signals a favorable outlook for other operators such as Occidental Petroleum (OXY), which holds 2.9 million net acres with numerous development locations having break-even costs below $40-$50 per barrel, and midstream entity Enterprise Products Partners (EPD), which connected over 1,000 new wells last year and expects a similar number this year, with most new connections planned for the second half, likely boosting earnings later in 2025. Notably, VNOM, OXY, and EPD all currently carry a Zacks Rank #3 (Hold).

Key Decisions for Investors

• Investors should assess opportunities in Permian-centric E&P and midstream companies, given the basin's demonstrated profitability and low break-even costs which support operations even amid fluctuating crude prices.
• Closely monitor Viper Energy's post-acquisition integration of Sitio Royalties following the anticipated Q3 deal completion, particularly its progress towards achieving the 122,000-130,000 BOE/day production target by 4Q25.
• Evaluate Occidental Petroleum for its significant low-cost Permian inventory and Enterprise Products Partners for potential earnings growth driven by increased well connections, especially in the latter half of 2025, while also considering their current Zacks Rank #3 (Hold) status.
• Anticipate potential for continued M&A activity in the Permian Basin as companies seek to consolidate high-quality, low-cost assets, which could present further investment catalysts or re-rating events for involved entities.