Viper Energy's Q3 2025: Contradictions Emerge on Debt Reduction, Non-Permian Strategy, and M&A Outlook

Guidance:

• Q4 2025 oil production guidance implies roughly a 20% increase in oil production per share vs. Q4 2024.
• 2026 is expected to deliver mid-single-digit organic oil production growth measured from estimated Q4 2025 production, implying double-digit YOY growth in oil production per share vs. 2025.
• Expect to return nearly 100% of cash available for distribution once net debt reaches ~$1.5 billion; will continue to prioritize base + variable dividend while opportunistically repurchasing shares.

Business Commentary:

* Oil Production Growth and Strategic Acquisitions: - Viper Energy reported a planned 20% increase in oil production per share in Q4 2025 compared to the same period last year, with mid-single-digit organic oil production growth anticipated for 2026. - - The growth is attributed to the successful closing of the CTO acquisition and continued organic growth, which provides Viper with broad exposure to leading third-party operators across the Midland and Delaware basins.

• Capital Allocation and Return of Capital:
• In Q3 2025, Viper Energy returned 85% of cash available for distribution to stockholders, including a combined base and variable dividend, and over $150 million in share repurchases.

• This strategic capital allocation is driven by Viper's high operating and free cash flow margins, strong balance sheet, and the recent signing of a non-Permian asset sale, positioning the company for increased dividends and buybacks.

• Asset Sales and Debt Reduction:

• Viper Energy's near-term and 2026 capital allocation plans include a nearly $700 million asset sale and anticipated over $1.5 billion of free cash flow in 2026.

• The asset sale proceeds are aimed at quickly repaying debt and potentially accelerating distributions, as the company targets a long-term net debt goal of $1.5 billion.

• Operational Activity and Mineral Royalties:

• Viper Energy's operational activity continues to show strong levels, with nearly half of all third-party activity in the Permian Basin capturing interest for the company.
• This is due to the unique relationship with Diamondback, providing Viper with concentrated interests in Diamondback's core Midland Basin development and broad exposure to leading third-party operators.

  Sentiment Analysis:

  Overall Tone: Positive

  • Management highlighted execution on growth (CTO acquisition), returning 85% of cash available for distribution in Q3, >$90M repurchases, retained $60M to the balance sheet, and commentary that by early next year they expect to consistently return almost 100% of free cash to shareholders.

Q&A:

• Question from Neal Dingmann (William Blair): Given the nearly $700 million asset sale and over $1.5 billion of expected free cash flow next year, how are you thinking about near-term and 2026 capital allocation (debt repayment, distributions, buybacks)?
  Response: Lean into buybacks now while maintaining significant cash distributions; expect to consistently return nearly 100% of free cash to shareholders by early next year.

• Question from Neal Dingmann (William Blair): How is activity outside of Diamondback trending post-CTO close—do you still see strong third-party activity?
  Response: Third-party activity is strong; combined Viper+CTO captures nearly half of Permian activity since 2023 with average NRI ~1.5%.

• Question from Betty Jiang (Barclays): How much of the backlog increase is driven by the CTO contribution versus a broader uplift across legacy assets?
  Response: It's roughly evenly mixed: CTO has outperformed underwriting and legacy third-party positions continue to outperform, boosting backlog.

• Question from Betty Jiang (Barclays): How do you see AI/automation impacting operations, predictive activity, deal valuation, and M&A?
  Response: Near-term focus on automation and backend efficiency; CTO brought big-data capabilities, and data will be kept internal to improve operations and potentially monetize later.

• Question from Neil Mehta (Goldman Sachs & Company): Any offsets (taxes or other) to the asset sale proceeds we should be mindful of?
  Response: Expect a tax hit reducing proceeds to roughly $610M; proceeds will pay revolver and nearly pay the term loan to zero, leaving a streamlined balance sheet.

• Question from Neil Mehta (Goldman Sachs & Company): How do you view the A&D market and the ability to execute bolt-on mineral deals in the current commodity environment?
  Response: Large mineral deals are harder in this cycle; focus on being consolidator for big opportunities when they arise and supplement with smaller ground-game buys and buybacks today.

• Question from Kailey Akamine (Bank of America): Your Permian volumes keep growing despite basin-wide flat growth—how long can that continue?
  Response: Advantage from Diamondback relationship supports growth for at least the next few years; we expect ~5–7% interest in Diamondback wells on average for five years.

• Question from Kailey Akamine (Bank of America): Would FANG consider using free cash to purchase more VNOM shares?
  Response: It's on the table; Diamondback has priorities, but Viper plans to reduce share count where attractive and will pursue value-accretive actions at the complex level.

• Question from Derrick Whitfield (Texas Capital): How does price sensitivity factor into your 'soft' 2026 guidance from a Diamondback operator perspective?
  Response: Guidance uses Diamondback's maintenance-level activity (yellow-light) as base; if activity declines, Viper is relatively insulated and may see higher % exposure and NRI.

• Question from Derrick Whitfield (Texas Capital): Can you quantify synergies from CTO's AI/process automation and the ground-game opportunity?
  Response: Employee and capital-cost synergies realized; cost-of-capital improved; automation will reduce manual work and drive efficiencies, though no precise savings number given yet.

• Question from Leo Mariani (Roth): Is the mid-single-digit 2026 growth vs. Q4 guidance pre-asset-sale (i.e., does Q4 include non-Permian volumes)?
  Response: Q4 midpoint of ~66,000 b/d includes ~5,000 b/d from non-Permian assets; strip those volumes out for the go-forward base and then grow a couple thousand b/d to reach mid-single digits.

• Question from Leo Mariani (Roth): As debt is paid down, will you accelerate the variable dividend in coming quarters?
  Response: Dividend sizing is price-dependent; majority of return will remain cash (base + variable) but buybacks are being used now; they may slow buybacks if the market re-rates the stock.

• Question from Tim Rezvan (KeyBanc Capital Markets): Was the recent repurchase an extreme one-off at low share prices, or would you go even bigger at expense of the variable dividend if dislocation widened?
  Response: Potential to lean in further if dislocation persists—the model generates high free cash with low maintenance capex, giving flexibility to increase buybacks without harming the balance sheet.

• Question from Tim Rezvan (KeyBanc Capital Markets): How are you engaging with recent CTO-era holders (~13%) who might be an overhang if they sell?
  Response: Many merged knowing long-term upside; management is prepared to address any selling and has the firepower to repurchase large blocks if necessary.

Contradiction Point 1

Debt Reduction and Capital Allocation Strategy

It involves the company's strategy for debt reduction and capital allocation, which directly impacts financial health and shareholder value.

Could you discuss your near-term and 2026 capital allocation plans, including debt repayment, distribution increases, and potential share repurchases? - Neal Dingmann (William Blair)

2025Q3: We decided to execute on the asset sale, and with these proceeds, we have line of sight to our long-term net debt target of $1.5 billion. We will lean in ahead of that by adding some repurchases. By the beginning of the year next year, we’ll be ready to consistently return almost 100% of free cash to shareholders. - Kaes Van’t Hof(CEO)

Can you clarify the flexibility in reaching the $1.5 billion target through either organic growth or non-core asset sales? - Christopher Moore Baker (Evercore ISI Institutional Equities, Research Division)

2025Q2: I think we're probably going to look at an asset or two outside of the basin to kind of accelerate that... I think we're going to balance a mix of probably a couple of noncore asset sales combined with free cash generation, but also a heavy dose of buybacks here when we're permitted to post, post close. - Matthew Kaes Van’t Hof(CEO & Director of Viper Energy Partners GP LLC)

Contradiction Point 2

Non-Permian Assets and Strategic Focus

It highlights the company's strategic focus on Permian assets versus non-Permian assets, which can impact growth expectations and investor perceptions.

Would you consider using FANG's free cash to purchase additional VNOM shares? - Kailey Akamine (Bank of America)

2025Q3: It’s certainly on the table. We’re trying to take advantage of the current valuation of Viper. The non-Permian asset sale was executed quickly so we can lean in at the Viper level and reduce the Viper share count. - Kaes Van’t Hof(CEO)

How are you assessing which non-Permian assets in the Sitio portfolio to retain versus monetize? How critical is maintaining a Permian focus for the company's long-term strategy? - Neil Singhvi Mehta (Goldman Sachs Group, Inc., Research Division)

2025Q2: I mean, I think we still see our combined business as a long-term Permian-only business, but I think we've done a lot of deals over the past years, and in some instances, we've sold assets immediately post close to pay down debt or just to clean up the asset base... I think in this situation, given that it's minerals and it's really heavily PDP weighted, we're probably going to be pretty patient on some of the larger positions, particularly knowing that the buyer universe is strong, but the buyer universe is going to underwrite strip, and with the strip weak, we don't have to sell assets here and might be patient waiting to sell some of the larger positions over the next few years. - Matthew Kaes Van’t Hof(CEO & Director of Viper Energy Partners GP LLC)

Contradiction Point 3

M&A Activity and Market Conditions

It involves the company's stance on M&A activity in relation to macroeconomic conditions, which could impact strategic decisions and investor expectations.

How will the A&D market affect the ability to complete deals over the next 6-12 months? - Neil Mehta(Goldman Sachs & Company)

2025Q3: It’s probably on a bit of a pause for now and waiting for opportunities. Our focus is on the ground game type acquisitions. - Kaes Van’t Hof(CEO)

Does the macroeconomic environment affect your current M&A strategy or your assessment of new M&A opportunities? - Greta Drefke(Goldman Sachs)

2025Q1: I wouldn't say the macro impacts our desire to continue to consolidate the minerals market. We've done deals in past down cycles, like the Swallow deal in 2021. We'll sift through this volatility and see who's willing to transact on the other side. - Kaes Van’t Hof(CEO)

Contradiction Point 4

Capital Allocation and Shareholder Returns

It involves changes in the company's strategy regarding capital allocation and returning capital to shareholders, which is crucial for investor expectations and financial planning.

Could you discuss your near-term and 2026 capital allocation, including plans to repay debt quickly, increase distributions significantly, and potentially repurchase shares? - Neal Dingmann (William Blair)

2025Q3: We decided to execute on the asset sale, and with these proceeds, we have line of sight to our long-term net debt target of $1.5 billion. We will lean in ahead of that by adding some repurchases. By the beginning of the year next year, we’ll be ready to consistently return almost 100% of free cash to shareholders. The market dislocation has widened between Viper and where it should trade, so we’re going to be aggressive with buybacks and cash distributions. - Kaes Van’t Hof(CEO)

What is your outlook for payouts over the next few years? - Neil Mehta (Goldman Sachs & Co.)

2024Q4: With 75% of free cash flow distributed, we prioritize variable over repurchases. The balance sheet is in good position to either grow or return more capital. There's capacity for repurchases if market conditions warrant, but our focus remains on returning capital to shareholders. - Kaes Van’t Hof(CEO)

Contradiction Point 5

Outlook for Growth and Activity Levels

It involves the company's expected growth trajectory and activity levels, which are crucial for investor forecasting and strategic planning.

How do you plan to allocate capital in the near-term and 2026, particularly regarding debt repayment, distribution increases, and potential buybacks? - Neal Dingmann(William Blair)

2025Q3: We have strong activity levels across our asset base, and we expect mid-single-digit organic growth in 2026. - Kaes Van’t Hof(CEO)

Do you expect any changes in Viper's growth volumes with recent changes? - Unidentified Analyst(JPMorgan Securities)

2025Q1: We still expect strong growth in 2026, focusing on areas with high NRI on Diamondback and Viper. No changes based on recent news. - Kaes Van’t Hof(CEO)