Viper Energy's 2026 Q2 Earnings Call: Dividend Strategy Shift and M&A-Buyback Prioritization Clash

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Date of Call: Aug 4, 2026

Guidance:

• Average production guidance for Q3 implies roughly 4.5% growth relative to Q2.
• Midpoint of Q3 guidance implies an approximate 15% annualized growth rate in oil production per share relative to Q4 2025.
• Continued strong organic growth expected to support modest growth off 2026 exit rate into 2027.
• High single-digit organic growth projected for 2026.

Business Commentary:

Production Growth and Development Activity:

• Viper Energy reported that operators turned 691 gross horizontal wells to production on its acreage in Q2, with Viper owning an average 3% net revenue interest.
• This activity supports the company's guidance for Q3, implying roughly 4.5% production growth and an approximate 15% annualized growth rate in oil production per share.
• The growth is driven by strong execution in development activities from both Diamondback and third-party operators.

Dividend Strategy and Capital Return:

• The company announced a 32% increase in its base dividend, now up to $2 per Class A share annually, leading to an implied annualized yield of approximately 4.5%.
• This strategic shift aims to highlight the security and attractiveness of Viper's dividend, which is protected at a $30 a barrel oil price.
• The move reflects a belief that the market does not adequately reward the company's growth prospects and cash distribution yield.

Share Repurchase and Market Valuation:

• Viper repurchased $132 million worth of shares in Q2, representing a significant portion of its available cash.
• The company plans to continue repurchasing shares if the market does not recognize its value, especially given its high base dividend and growth potential.
• This is part of a strategy to capitalize on what management perceives as a mispricing of the company relative to its growth profile.

Mergers and Acquisitions Strategy:

• Viper completed the Riverbend deal and sees a large number of attractive M&A opportunities, particularly in the Permian Basin.
• The company aims to leverage its strong balance sheet and dominant size to pursue accretive acquisitions.
• The strategy is supported by a favorable A&D market, allowing Viper to selectively invest in high-quality assets.

Third-Party Operator Activity and Leasing:

• There has been consistent third-party operator activity, with notable leasing efforts in the Woodford and Delaware areas, contributing $25 to $30 million in lease bonuses.
• This activity aligns with Viper's strategy to target high-quality undeveloped acreage across the Permian Basin.
• The increase in leasing is indicative of strong development plans that are expected to drive future production growth.

Sentiment Analysis:

Overall Tone: Positive

• Management emphasizes 'strong execution,' 'steady development activity,' and 'strong underlying organic growth.' The new capital allocation strategy is framed as an evolution to better showcase the company's value, with a '4.5% base dividend yield' described as 'about as secure a dividend as you could possibly find in the market.' Management believes the company is 'severely mispriced' and 'pounding the table' that it offers the 'best value proposition.'

Q&A:

• Question from Betty Jing (Barclays): Unpack the rationale for changing the cash return strategy and how it reflects Viper's value proposition and competitive advantage vs. EMps.
  Response: The shift to a high, secure base dividend (4.5% yield at current price) is intended to be rewarded by the market, as the company believes its valuation does not reflect its strong 17% CAGR in per-share growth. The new framework provides flexibility to allocate excess cash to share repurchases, M&A, or balance sheet fortification.

• Question from Betty Jing (Barclays): How has M&A financing strategy changed under the new capital allocation framework?
  Response: The company now has greater flexibility to self-fund deals using excess cash flow, reducing reliance on equity markets, as the base dividend provides a stable floor.

• Question from Neil Dingman (William Blair): What is the most appropriate percentage of cash available for distribution going forward? How can Viper leverage its size and balance sheet for future opportunities?
  Response: The company will distribute all free cash in some quarters via buybacks and the base dividend, especially if the market undervalues the stock. Viper plans to use its strong balance sheet and dominant position to pursue accretive M&A and take advantage of attractive investment opportunities.

• Question from Paul Diamond (Citi): Will the new base dividend lead to changes in the hedging framework?
  Response: The base dividend is designed to grow with production and share count, and the company still uses $50 puts to protect the extreme downside.

• Question from Paul Diamond (Citi): Update on new and emerging ventures (e.g., FANG) opportunity set.
  Response: Activity has increased in the Woodford and Delaware, with leasing bonuses now representing about a third of total leasing effort over recent periods. This should translate to more production growth over the next few years.

• Question from Paul Diamond (Citi): What does near-term inventory suggest about the underlying consolidated growth rate for 2027?
  Response: Strong organic growth is expected to continue, with high single-digit organic growth in 2026, supported by a robust development curve.

• Question from Jack Cavanoff (Goldman Sachs): How are you viewing the near-term outlook for opportunistic share repurchases?
  Response: The company plans to continue repurchasing shares aggressively, especially if the stock price remains below its intrinsic value, and will be back in the market 'aggressively' after the blackout window.

• Question from Jack Cavanoff (Goldman Sachs): What is the organic growth outlook beyond 2027? Could the structure shift to a higher yield scenario?
  Response: Organic growth potential exists beyond 2027, driven by Diamondback's Barnett development and broader basin growth. The focus remains on growing the base dividend and outperforming the basin.

• Question from Scott Hanold (RBC): What is driving the uptick in third-party operated development wells and line of sight wells?
  Response: Increased third-party activity aligns with Viper's acreage as operators target high-returning projects, reflecting Viper's focus on the highest-quality undeveloped acreage.

• Question from Scott Hanold (RBC): If buybacks don't lift the stock, what other alternatives are being evaluated?
  Response: The goal is to be included in the S&P 500 to attract a broader investor base and increase focus on the dividend yield.

• Question from Leo Mariani (Roth): What are you seeing with third-party operator activity trends and rig count?
  Response: Rig counts have trended up, and higher conversion rates of permits to production are beneficial. Viper benefits from this growth and third-party activity across the basin.

• Question from Leo Mariani (Roth): Can you provide more color on the M&A opportunity set?
  Response: The market has many attractive opportunities, ranging from smaller 'bite-sized' deals to larger packages. Viper has had higher success in converting ground game conversations into deals, and share repurchases are currently an attractive use of capital.

Contradiction Point 1

Capital Allocation and Dividend Strategy

Shift from a flexible return framework to a fixed base dividend, changing implications for cash distribution and shareholder returns.

What were the key points discussed by Betty Jing from Barclays during the earnings call? - Betty Jing (Barclays)

2026Q2: The board decided to shift to a high base dividend... This aims to highlight Viper’s durability and growth. - [Case Van Hoff](President)

Can you explain the rationale behind today's cash return strategy change and how it aligns with Viper’s long-term value proposition and competitive advantages against E&P peers? - Betty Jiang (Barclays)

2026Q1: Viper is primarily a distribution vehicle, aiming to return at least 75% of free cash flow each quarter... The framework allows flexibility between 75% and 90% based on market conditions. - [Kaes Van’t Hof](CEO)

Contradiction Point 2

M&A Market Activity and Deal Focus

Change in emphasis from active deal pursuit to focusing on share repurchases as the primary capital allocation tool.

What is Roth Capital Partners' assessment of the earnings report? - Leo Mariani (Roth)

2026Q2: Viper expects deals to come its way... However, the investment opportunity in share repurchases looks very attractive relative to M&A. - [Case Van Hoff](President)

Can you provide more color on the M&A opportunity set, particularly regarding the mix of small versus larger deals? - Greta Drefke (Goldman Sachs)

2026Q1: The opportunity set in both categories is ‘quite sizable’ and ‘quite massive.’ Viper is now positioned as the ‘buyer of choice’ for mid-sized to larger deals. - [Kaes Van’t Hof](CEO) & [Austen Gilfillian](President)

Contradiction Point 3

Third-Party Activity and Growth Visibility

Contradiction on the trend and strength of third-party drilling activity.

Scott Hanold (RBC) - Scott Hanold (RBC)

2026Q2: The increase in third-party activity is not a coincidence... This trend reflects Viper’s focus on acquiring high-quality, undeveloped acreage... and is consistent with the strong growth trends seen over the past few years. - [Case Van Hoff](President)

What is driving the uptick in third-party operated development wells and line of sight wells, and is this aligned with broader rig activity or another dynamic? - Wei Jiang (Barclays Bank PLC)

2025Q4: Third-party activity remains very strong with no slowdown, supported by large operators. - [Kaes Van't Hof](President)

Contradiction Point 4

Strategic Priority of Share Repurchases vs. M&A

Shift in emphasis from aggressive buybacks to evaluating M&A more highly.

Leo Mariani (Roth) - Leo Mariani (Roth)

2026Q2: Viper expects to play a significant role [in M&A], but currently, the investment opportunity in share repurchases looks very attractive relative to M&A. - [Case Van Hoff](President)

What is the current M&A opportunity set, and are there more small or larger deals in the pipeline? - Paul Diamond (Citigroup Inc.)

2025Q4: The larger authorization provides optionality. - [Kaes Van't Hof](President)

Contradiction Point 5

Capital Allocation Priority for Share Repurchases

Contradiction on whether buybacks are a primary tool or a secondary option.

Scott Hanold (RBC) - Scott Hanold (RBC)

2026Q2: While buybacks are a tool... Viper finds it puzzling that similar surface royalty assets trade at higher multiples. - [Case Van Hoff](President)

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2025Q3: Share repurchases are a third priority but signal that the stock is cheap. - [Kaes Van't Hof](President)

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