Viper Energy Partners LP (NASDAQ:VNOM) Q4 2022 Earnings Call Transcript

Viper Energy Partners LP (NASDAQ:VNOM) Q4 2022 Earnings Call Transcript February 22, 2023

Operator: Good day and thank you for standing by. Welcome to the Viper Energy Partners Fourth Quarter 2022 Earnings Call. At this time, all participants are in listen-only mode. After the speaker presentation, there will be a question-and-answer session. Please be advised that today’s conference is being recorded. I would like to now hand the conference call over to your speaker — one of your speakers today that will be Mr. Adam Lawlis, Vice President of Investor Relations. Adam please go ahead.

Adam Lawlis: Thank you, Shannon. Good morning and welcome to Viper Energy Partners fourth quarter 2022 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 Travis Stice, CEO President. 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, 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 GAAP measures can be found in our earnings release issued yesterday afternoon. I’ll now turn the call over to Travis Stice.

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Travis Stice: Thank you, Adam. Welcome everyone and thank you for listening to Viper Energy Partners fourth quarter 202 conference call. The fourth quarter topped off a record year for Viper with quarterly ore production setting a company record on both an absolute and per unit basis for the third consecutive quarter. Additionally, as a result of our strong production and continued best-in-class margins, further supported by our disciplined capital allocation approach, we were able to deliver a multiple return of capital and financial initiatives during the quarter. During the fourth quarter, we reduced net debt by $100 million quarter-over-quarter, repurchased roughly 1 million units, and are scheduled to pay distribution that provides a greater than 6% annualized yield.

Looking ahead to 2023, we have initiated average production guidance for the full year that implies 8% year-over-year growth. Importantly, Viper can deliver this growth without spending a single dollar of capital and with most operators in the Permian maintaining roughly flat activity levels. Additionally, this production growth, even as we generated over $100 million in proceeds from non-core asset sales during 2022, including the sale of our Eagle Ford asset, which was producing roughly 250 barrels of oil per day or just over 1% of our current volumes. On the capital return front, Viper continued to execute on our opportunistic unit repurchase program during the fourth quarter, but at a slower pace than during the third quarter. As a result, we are set to pay $0.49 per unit distribution, which is flat quarter-over-quarter despite oil prices being down 10% over the same period.

Our combined base plus variable distribution represents a greater than 6% yield at today’s unit price. In conclusion, the fourth quarter was an outstanding quarter for Viper and the forward outlook continues to improve as our high-quality asset base continues to attract outsized activity levels. Viper remains differentially positioned to grow production without having to spend a single dollar of development of acquisition capital and with only limited operating costs we will be mostly insulated from continued inflationary cost pressures. Given the midpoint of our 2023 production guidance, and assuming $75 WTI, we are expected to deliver almost 10% annualized free cash flow yield. Operator, please open the line for questions.

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Q&A Session

Operator: Thank you. At this time, we will conduct the question-and-answer session. Our first question comes from the line of Mr. Neal Dingmann with Truist. Neal?

Neal Dingmann: Good morning, guys. Thanks, Travis. My first question just on shareholder distribution specifically, given now the low debt level in your current unit price, do you all think today any differently about unit buybacks going forward than you have in recent quarters. It continues to be a nice mix. I’m just wondering sort of how you think about today about buybacks versus the yield the distribution out there?

Travis Stice: Yes, Neal. Good question, Neal. It really comes down to can we buy minerals in the market cheaper than the combined minerals in the private market where we do deals. And it still seems that buying back units at a price per net-net acre that is competitive with lower-quality assets that are for sale in the basin seems like a good use of capital. We’ve been pretty aggressive since converting our capital return plan to more buybacks particularly in Q3, a little less so in Q4. I think that kind of mimics how we’re thinking about things where on a time period like today, or over the last couple of weeks we’ve got to sell off, and that’s when the buyback kicks in. But fundamentally, we run an NAV at Viper. We also look at what deals are trading for in the market versus what Viper is trading at. And quite frankly, we believe we have a far superior asset base that’s trading lower on a net-net acre basis than some of the stuff we’ve seen trade out in the market.

Neal Dingmann: Yeah. That make sense. And then just a quick follow-up. Just on that small Eagle Ford. I assume, again, just you didn’t see the growth there and you have better, I don’t know maybe call it better prospects for continued growth in the Permian? Is that the sort of rationale €“ and would €“ is there any €“ could we assume any upcoming non-core small Permian sales? I just maybe talk about that a little bit case?

Travis Stice: We’ve sold some non-core Permian assets. It’s usually from an operator that is going to develop those minerals very quickly. So they’re paying a number where it’s higher than our hold case, because they’re €“ if they get the deal, they’re going to develop the asset faster. So that’s kind of what’s happening in the Permian, I would call that, the exception versus the norm. With the Eagle Ford sale, we bought that deal in 2016, 2017 it’s been a good deal for us. Unfortunately, there’s not as much growth there as there was in years past. And we just thought that, that would be a very good use of proceeds to fund Permian acquisitions. And I think generally being able to sell that losing 250 to 300 barrels of oil a day, and still hit numbers in 2023 that we expected prior, just shows that we didn’t need that asset in the portfolio and instead we’re being we’re moving to 100% Permian and higher growth.

As we pointed out in Travis’ prepared remarks, right? This business even the Diamondback or other operators in the basin aren’t growing like they used to. The benefit of the mineral business is it can grow despite the parent company or other companies not growing as much.

Neal Dingmann: Yes, agree. I love the per unit growth obviously with the buybacks and the production growth. Nice job, guys. Thanks.

Travis Stice: Thank you.

Adam Lawlis: Thanks, Neal.

Operator: Our next call comes from the line of Derrick Whitfield with Stifel. Derek, please go ahead with your question.