Viper Energy Partners' Q4 2024: Contradictions in Payout Guidance, Acquisition Opportunities, and Production Drivers

These are the key contradictions discussed in Viper Energy Partners' latest 2024 Q4 earnings call, specifically including: Payout Guidance, Opportunity Set for Mineral Acquisitions, Production Increase Drivers, and Surface Ownership Strategy:



Production Growth and Strategic Acquisitions:
- Viper Energy reported strong organic production growth on its legacy assets and successfully executed a differentiated acquisition strategy, resulting in a record average daily production of 30,000 to 31,000 barrels of oil per day for Q1 2025.
- This growth was driven by strategic acquisitions such as the Drop Down transaction with Diamondback, which aligned Viper's assets with Diamondback's development plans and provided access to organic growth opportunities driven by Diamondback's drill bit.

Drop Down Transaction and Alignment with Diamondback:
- Viper anticipates a run rate daily average oil production of 48,000 barrels of oil a day upon the expected closing of the Drop Down transaction in Q2 2025.
- This significant increase in production is attributed to the strategic alignment with Diamondback's expected development over the next five years, which will result in Viper owning an interest in approximately 75% of Diamondback's expected completions.

Payout and Capital Allocation:
- Viper maintains a payout range of 75% to 100% of free cash flow, with a current target of 75%, indicating a balance between distributing cash to shareholders and reinvesting in growth.
- The company prioritizes a base dividend growth and has retained flexibility to lean in above 75% for extreme market volatility, while maintaining a strong balance sheet and access to capital.

Mineral Market Consolidation:
- Viper sees significant consolidation opportunities in the mineral market, with Viper pro forma for the Drop Down representing only 3.3% of the total Permian production, while the top five upstream operators control 60% to 70% of production.
- The company plans to remain active in consolidating minerals in the Permian Basin, leveraging its strong balance sheet and unique acquisition structures to attract mineral portfolios.