Earnings call transcript: Viper Energy beats Q1 2025 forecasts but stock dips

Viper Energy reported a stronger-than-expected performance in Q1 2025, with earnings per share (EPS) of $0.54, surpassing the forecast of $0.45. Revenue also exceeded expectations, coming in at $245 million compared to the anticipated $234.79 million. According to InvestingPro analysis shows the company maintains a moderate debt level with a debt-to-equity ratio of 0.64, while its overall financial health score of 2.93 is rated as "GOOD". The company's strong balance sheet is further evidenced by its Altman Z-Score of 5.3, indicating minimal bankruptcy risk. Viper Energy continues to explore merger and acquisition opportunities in the minerals market, with potential for dividend growth in a $60 oil environment.

Executive Commentary

CEO Case Vantoff emphasized the company's strategic focus on assets in the lowest breakeven parts of the U.S., stating, "Owning assets in the lowest breakeven parts of The U.S. is going to be a strategy that pays off for Viper shareholders." Vantoff also highlighted the importance of the company's recent investment grade upgrade: "Being investment grade now opens up a whole different opportunity set for our access to capital."

Risks and Challenges

• Market volatility and lower commodity prices could impact financial performance.
• Potential reduction in U.S. oil production may affect future revenue.
• Lower-than-expected dividend payouts could deter income-focused investors.
• Retention of capital due to market volatility suggests cautious financial management.
• Dependence on third-party operators, such as ExxonMobil, for a significant portion of production.

Q&A

During the earnings call, analysts inquired about Viper Energy's M&A strategy amidst market volatility. The company reiterated its commitment to seeking opportunities in the minerals market. Questions also focused on the potential impact of current commodity prices, with management expressing confidence in their ability to navigate the challenging environment.

Full transcript - Viper Energy Ut (VNOM) Q1 2025:

Conference Operator: and thank you for standing by. Welcome to the Viper Energy First Quarter twenty twenty five Earnings Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. 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 Seal, Investor Relations Director, Viper Energy: Thank you, Michelle. Good morning, and welcome to Viper Energy's first quarter twenty twenty five conference call. 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 Gilchbillon, 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.

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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 these appropriate GAAP measures can be found in our earnings release issued yesterday afternoon. I will now turn the call over to Case.

Case Vantoff, CEO, Viper Energy: Thank you, Chip. Welcome everyone and thank you for listening to Viper Energy's first quarter twenty twenty five conference call. The first quarter was a strong quarter for Viper with both oil and total production above the high end of their respective guidance ranges. Unfortunately, since the end of the first quarter, we'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.

As previously announced, we are excited the transformative dropdown transaction between Viper and Diamondback closed on May 1. As a result of the conservative financing of this transaction as well as Viper's continued strong financial and operating results, we expect leverage to remain below one times even in a sustained $50 per barrel WTI environment. Given the strength of our balance sheet, we will look to use this period of volatility to our advantage where we can, as highlighted by the opportunistic share repurchases we have been able to make so far this quarter. As a reminder, we issued approximately 28,000,000 shares in a primary equity offering in January to fund the cash consideration of the dropdown. While the net proceeds of roughly $1,300,000,000 from the offering resulted in a meaningfully deleveraging transaction for Viper, we didn't receive any of the production or cash flow from the acquired assets during the quarter given the timing of the closing of the dropdown this quarter.

So as a result, our Q1 dividend of $0.57 was roughly $07 lower than it would have been otherwise in our prior share count. While in previous situations, we had similar situations, we have decided to true up the dividend for the share issuance, this quarter given the current market volatility, we have decided to retain the roughly $25,000,000 of incremental capital to keep on the balance sheet and apply to future capital allocation decisions. Looking ahead, despite the potential for sustained weakness in commodity prices activity levels, we expect Viper's production to remain durable. And as such, we are maintaining our previous guidance for oil production for the back half of twenty twenty five. The 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 royalty interest and therefore enhances Diamondback's consolidated capital efficiency.

Further, the roughly 45% of Viper'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 ExxonMobil operating almost half of our third party production. In conclusion, we continue to believe that Viper presents a differentiated investment opportunity with zero capital and operating costs, alignment with a parent company that has helped Viper deliver consistent organic growth and a current size and scale that positions us as a consolidator of choice in what remains a highly fragmented minerals and royalty space. Following the recent closing of the dropdown, Viper now ranks amongst the largest U. S. Independent E and Ps 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.

Conference Operator: Thank you. Our first question is going to come from the line of Greta Drifovic with Goldman Sachs. Your line is open. Please go ahead.

Greta Drifovic, Analyst, Goldman Sachs: Good morning all and thank you for taking my questions. My first is on M and A. Viper has continued to lean into M and A this year alongside the dropdown. Do the changes to the broader macro environment influence your willingness to lean into M and A at this point? Or do they change your view on the opportunity set for incremental M and A from here?

Case Vantoff, CEO, Viper Energy: I wouldn't say the macro impacts our desire to continue to consolidate the minerals market. I think what happens in minerals is because there's no CapEx associated with the development of minerals or owning minerals, sometimes deals are harder to come by in more volatile environments on the mineral side. So I think we've been able to do some pretty large deals through past down cycles. Notably, we did the Swallowtail deal in 2022, which had a lot of Diamondback sorry, 2021, which had a lot of Diamondback operated production. Deals like that make a lot of sense, but I think we're going to kind of sift through this volatility here for a couple of months and then see who's willing to transact on the other side of it.

Greta Drifovic, Analyst, Goldman Sachs: Great. Thank you. And then for my second question, just following up on the updated FANG guidance and the closing of the dropdown, have the activity assumptions in Reagan County following the Drobble Eagle acquisition changed at all? And if so, could you speak to potential differences in your cash flow assumptions from that development opportunity?

Case Vantoff, CEO, Viper Energy: Yes. We really started to model the completions in that area starting in 2026. So I don't think it's time to change that development program yet. I mean, in talking to the Double Eagle team we're working with closely to core up the assets and start drilling wells, they're going to spend a lot of time drilling here in the back half of the year leading to completions in 2026. So if commodity market is still weak, sub-sixty, certainly sub-fifty environment, I would expect that to get pushed out to the right like many projects in the basin.

But I think in a normalized 60 plus environment, we expect that development to occur.

Greta Drifovic, Analyst, Goldman Sachs: Thank you.

Case Vantoff, CEO, Viper Energy: Thank you.

Conference Operator: Thank you. One moment for our next question. And our next question is going to come from the line of Paul Diamond with Citi. Your line is open. Please go ahead.

Paul Diamond, Analyst, Citi: Good morning, all. Thanks for taking the call. Just wanted to touch on a quick one sitting on the third party opportunity set. I mean, given you guys footprint across Midland and Delaware, it's getting pretty voluminous. I just wanna get an idea of, you know, where, I guess, the that next leg of opportunities lay, like once the volatility settles down.

Is that Midland? Is that Delaware or potentially elsewhere?

Austin Gilchbillon, President, Viper Energy: Hey, Paul. Yes, think we're pretty much agnostic in terms of M and A opportunities between the Midland and the Delaware. I think what you've seen over the past eighteen months with GRP first and then Tumbleweed and then now also the dropdown, it was certainly weighted to the Midland Basin. And I think we know the asset really well. We fortunate to get some pretty highly undeveloped assets that I think are going to support the longer term growth profile.

But I think we like the Delaware as well, especially not having to put up the capital on what could be some more expensive wells. There's still a lot of resource available there. And there could be some sizable opportunities there as well. So for us, it's gonna be more about price and opportunity set. But to Casey's earlier point, we're just gonna have to sift through the volatility and see what becomes available during this volatility or after when we hopefully have more normalized times.

Paul Diamond, Analyst, Citi: Understood, appreciate the clarity. Just one quick one on hedging. You guys have been pretty consistent on that through the last several years, but it's also been in a relatively directionally stable environment. Does the recent volatility in the macro side, could that potentially shift that overall strategy? Or is it still pretty locked in and you're comfortable with the current plan?

Austin Gilchbillon, President, Viper Energy: No, we're still comfortable with the current plan. I mean, the philosophy has always been one, have a fortress balance sheet. So you don't have to do a ton of hedging or anything drastic, with swaps or collars or anything like that. So I think we'll still look to use these deferred premium puts, still have the unlimited upside and try to protect against the extreme downside. But having the balance sheet that we have today, we look to try to lock in a certain amount of downside protected cash flow 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.

Paul Diamond, Analyst, Citi: Understood. Appreciate the clarity. I'll leave it there.

Case Vantoff, CEO, Viper Energy: Thanks, Paul.

Conference Operator: 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.

Derek Wakefield, Analyst, Texas Capital: Good morning all and thanks again for your time.

Case Vantoff, CEO, Viper Energy: Hey Derek.

Derek Wakefield, Analyst, Texas Capital: Regarding the Diamondback investor letter 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?

Case Vantoff, CEO, Viper Energy: Yes, think on a net well basis, it's very minimal. We still see the majority of the wells for projects where Viper has a high interest getting completed today at the Viper level. I think if this persists much longer, it's a different story. But I think generally in these times, we look at consolidated NRIs at the Diamondback level and that includes what Viper has been able to pick up over the years. And usually those projects, given the area that they're in, move to the top of the list.

I would say no impact for now, which is why we held guidance where it was. But listen, Derek, we see a sub-fifty dollars oil environment and Diamondback and others are cutting more than it's going to hit Viper towards the back half of the year and into next year. But I think what we think is it's going to be a tough couple of quarters for the industry. I think price is going to react at some point due to lower U. S.

Oil production owning assets in the lowest breakeven parts of The U. S. Is going to be a strategy that pays off for Viper shareholders.

Derek Wakefield, Analyst, Texas Capital: Absolutely agree, Kaes. And then with my second question, just wanted to get a better sense on the quarter over quarter change in activity. If we were to include the acquisition and drops in your 4Q disclosure, do have a sense on whether work in progress and line of sight wealth increased quarter over quarter or kind of were flattish?

Austin Gilchbillon, President, Viper Energy: Yeah, activity certainly increasing, especially on the Dynevak side as we roll forward and start getting that visibility into what 2026 is going to look like. Mean, notwithstanding, right, some of the pending changes that as case just outlined. But overall, would say, going through the first quarter into April, we were having pretty strong activity levels on the third party side, mainly being led by Exxon, EOG and Oxy. And then Diamondback, production is really strong today and we kind of outlined it with a dropdown, but have some really concentrated projects there that Diamondback can prioritize. Commodity can stick, hang in there, we'll certainly lead to some pretty strong growth through 2026.

Derek Wakefield, Analyst, Texas Capital: Great. I'll turn it back to the operator.

Austin Gilchbillon, President, Viper Energy: Thanks, Derek.

Conference Operator: Thank you. One moment for our next question. Our next question is gonna come from the line of Arun Jemirin with JPMorgan Securities. Your line is open. Please go ahead.

Zach, Analyst, JPMorgan Securities: Yes. This is Zach on for Arun. Just wanted to follow-up on your prior answer. When the Endeavor dropped down with amounts, Viper had 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?

Case Vantoff, CEO, Viper Energy: Yes, Zach, I don't see any changes today, right? I still think there's a strong chance that 2026 is stronger than everybody is thinking today. We've kind of signaled the message that these down cycles tend to happen quickly and hopefully at a higher low on commodity price. But if we do persist into 2026, we are going to continue to focus on areas where Diamondback and Viper have high NRIs. So I see no reason to change the thought process on 2026 growth, particularly with what we're doing on Quinn Ranch, which we bought earlier this year and some of the high NRI projects from both Tumbleweed and the dropdown.

Zach, Analyst, JPMorgan Securities: Thanks, guys. My 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? Have you started to see some things get pushed to the right there?

Case Vantoff, CEO, Viper Energy: I haven't seen it at the VITRM level, the VIPER level directly, right? I what we've seen is more of the anecdotes in the field of particularly private operators pushing completions out or dropping frac crews and riding this out. So at Viper, we try to buy assets under acreage positions that we covet and that tends to be the higher quality positions operated by large operators like Diamondback, Exxon, Oxy, EOG, Conoco. And in our mind, are probably the stickier barrels in the basin. But the comments we made earlier were more anecdotes about the smaller operators in the field making single unit capital allocation decisions.

Zach, Analyst, JPMorgan Securities: Got it. Thanks, Jason.

Conference Operator: Thank you. And one moment for our next question. Our next question is going to come from the line of Leo Mariani with ROTH. Your line is open. Please go ahead.

Leo Mariani, Analyst, ROTH: Yes. Hi, guys. Obviously, we're looking at kind of weaker oil market conditions, and I guess we'll see how it plays out. Obviously, guys mentioned that you kind of held back some of the first quarter dividend given the weak market conditions. Obviously, it looks like there's significant accretion that's coming from the Endeavor dropdown.

You also envision being able to kind of increase the dividend here over the next couple of quarters, even in this kind of $60 ish oil world today, just given the accretion on production and cash flow?

Case Vantoff, CEO, Viper Energy: Yes, I think at $60 or a flat commodity price, if you run the flat commodity price Q2 to Q4, whatever that is, distributions are going to grow. Obviously, a $5 move in oil price can change that pretty quickly, but the accretion still stands from the dropdown. I think also importantly, we have balance sheet capacity to almost anything we want on the acquisition side. And lastly, we didn't mention it in the prepared remarks, but Viper was upgraded to investment grade last week, which is by Fitch. So now we have two investment grade ratings.

And so access to capital at Viper today is kind of unmatched in the mineral space 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.

Leo Mariani, Analyst, ROTH: Okay. Appreciate that. Maybe just a couple of quick ones on some of the numbers here. So seeing that your kind of cash tax guidance is coming down a little bit in the second quarter versus where it was in 1Q. So just kind of curious, I don't maybe there's just some quarter to quarter tweaks there.

If there's anything to kind of read into a lower cash tax rate with lower oil prices here. And then on G and A, presumably you guys aren't adding a whole lot of G and A as a result of the Endeavor deal, but correct me if I'm wrong. And you're obviously getting significant production, so just trying to get a sense of G and A per barrel should come down nicely here.

Case Vantoff, CEO, Viper Energy: Yes. Listen, sadly taxes are down because oil is down. That's as simple as I can frame it. We look forward to paying more taxes when oil goes back up. But on the G and A side, usually Q1 is kind of the peak on G and A and it comes down.

We've got models coming down. 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 could expect G and A to come down per BOE post dropdown.

Tim Rezvan, Analyst, KeyBanc Capital Markets: Thank you. Thanks, Leo.

Conference Operator: Thank you. And our next question is going to come from the line of Tim Rezvan with KeyBanc Capital Markets. Your line is open. Please go ahead.

Tim Rezvan, Analyst, KeyBanc Capital Markets: Good morning, folks. I wanted to ask on repurchases. I saw that you bottomed things pretty well in the second quarter buying below 38. And I know commodity prices are as big a factor as share prices probably in the decision making process. But 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.

Case Vantoff, CEO, Viper Energy: Tim. I think we've always tried to on the side of caution on repurchases at Viper, try to lean more towards being a distribution vehicle, which it seems our investors want. But the volatility here allowed us to kick back into the buyback. I think the benefit for Viper is we still generate a lot of free cash at lower oil prices. 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.

Again, I hope that doesn't happen, but I think we're prepared. I think COVID taught us a lot about our balance sheet, our hedging structure, how we do things, and we're prepared this time around to lean in if there's continued volatility.

Tim Rezvan, Analyst, KeyBanc Capital Markets: Okay. Okay. That's helpful. And then just talking about the balance sheet, do you have a target debt number you want to get to? Because I know with your hedge profile, you can't control leverage as much, but how do you think about the right debt load post the dropdown?

Thanks.

Case Vantoff, CEO, Viper Energy: Yes, I don't like saying we're under levered because I do think there will be opportunities to use cash in deals. But I think a turn of leverage at $50 oil feels pretty pristine for Viper. But we could lean in a little bit should there be opportunities to buy deals with cash in these commodity prices. It tends to be harder to get deals done on the mineral side over upstream when commodity prices are lower. But we're certainly going to keep trying.

Tim Rezvan, Analyst, KeyBanc Capital Markets: Thank you.

Case Vantoff, CEO, Viper Energy: And I think the last thing, I'd say on balance sheet, being investment grade now opens up a whole different opportunity set for our access to capital and what we can do. We have our 27 notes outstanding that are essentially callable today. We've been buying back some of them in the market. We've a small balance on the revolver. Now think at the appropriate time, it's going to make sense for us to do a more longer dated debt transaction at Viper without the call protections that you normally get in the high yield market.

So wait and see on that.

Tim Rezvan, Analyst, KeyBanc Capital Markets: Okay. Thank you.

Conference Operator: Thank you. And I would now like to hand the conference back over to Case Van Toff, CEO for closing remarks.

Case Vantoff, CEO, Viper Energy: Thanks everybody for taking the time to listen to our call today. If you have any questions, please reach out. We're always available.

Conference Operator: This concludes today's conference call. Thank you for participating, and you may now disconnect. Everyone, have a great day.

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