Viper Energy's Q3 2025 Earnings Call: Contradictions in Capital Allocation Strategy, Noncore Asset Sales, Mineral Acquisition Plans, AI Automation, and Cash Flow Projections

Guidance:

• Q4 2025 oil production guidance implies ~20% increase in oil production per share vs. Q4 2024.
• 2026: expect mid-single-digit organic oil production growth from Q4 2025 estimated production, implying double-digit YOY production-per-share growth vs. 2025.
• Plan to return nearly 100% of cash available for distribution once net debt reaches $1.5B; leaning into buybacks and continued cash distributions ahead of that milestone.
• Q4 midpoint (~66,000 bpd) includes ~5,000 bpd from non‑Permian assets; strip those for the 2026 go‑forward baseline.

Business Commentary:

* Dividend Increase and Share Repurchases: - Viper Energy returned 85% of cash available for distribution in Q3, leading to a combined base plus variable dividend that represents a greater than 6% annualized yield. - The dividend increase of almost 10% was accompanied by over $90 million in share repurchases, reflecting the company's commitment to returning capital to shareholders and enhancing growth in per-share metrics.

• Production Growth and Acquisition:
• The company's fourth quarter 2025 oil production guidance implies a 20% increase in oil production per share compared to the same quarter last year.
• This growth is bolstered by the closing of the Sitio acquisition and continued organic growth, positioning Viper for double-digit year-over-year growth in oil production per share relative to 2025.

• Asset Sale and Debt Reduction:
• Viper Energy is set to close a non-Permian asset sale with proceeds of $700 million, with net proceeds of approximately $610 million expected.

• This will enable the company to reduce its net debt significantly, moving closer to its long-term net debt target of $1.5 billion, enhancing financial flexibility.

• Operational and Strategic Execution:

• Viper showcased its differentiated return of capital profile, realizing high operating and free cash flow margins, and leveraging recent non-Permian asset sale proceeds.
• The company's strategy focuses on leveraging organic growth, strategic acquisitions, and a strong balance sheet to deliver sustained per-share growth and enhance shareholder value.

Sentiment Analysis:

Overall Tone: Positive

• Management highlighted execution on Sitio acquisition and a ~$700M non‑Permian asset sale, returning 85% of cash available for distribution in Q3, a combined base+variable dividend >6% yield, $90M+ buybacks in the quarter, and a stated plan to return nearly 100% of free cash when net debt reaches $1.5B.

Q&A:

• Question from Neal Dingmann (William Blair & Company L.L.C., Research Division): Given the nearly $700 million asset sale and what should be probably even over $1.5 billion of free cash flow next year, could you speak to near term and '26 capital allocation? Will you repay debt, bump distributions, do buybacks?
  Response: Sale proceeds give line of sight to $1.5B net debt target; expect to return nearly 100% of free cash early next year and accelerate buybacks while continuing cash distributions into year‑end.

• Question from Neal Dingmann (William Blair & Company L.L.C., Research Division): Could you speak to how activity outside of Diamondback is trending? It seems like things remain very active — can you confirm?
  Response: Third‑party activity remains strong; combined Viper+Sitio capture ~50% of Permian activity since 2023 with average NRI ≈1.5%, supporting confidence for 2026.

• Question from Wei Jiang (Barclays Bank PLC, Research Division): The backlog has continued to increase — how much of that is driven by the Sitio contribution versus a broader uplift across legacy assets?
  Response: Backlog growth is roughly evenly split between Sitio contribution and legacy Viper third‑party outperformance; both have exceeded underwriting assumptions.

• Question from Wei Jiang (Barclays Bank PLC, Research Division): How do you see AI/predictive tools impacting operations and M&A (e.g., automation, predictive activity)?
  Response: AI/automation will improve backend efficiency (automating tracking of ~35,000 wells); Sitio brought big‑data capabilities — focus is internal automation now with potential future monetization.

• Question from Neil Mehta (Goldman Sachs Group, Inc., Research Division): Regarding the cash coming in from the sale, are there offsets like taxes or other reductions we should expect?
  Response: Net proceeds ≈$610M after tax/adjustments; proceeds will pay revolver to zero and nearly eliminate the term loan, leaving a stronger balance sheet and flexibility.

• Question from Neil Mehta (Goldman Sachs Group, Inc., Research Division): How does the softer commodity price environment affect the A&D market for minerals — easier or harder to do deals over the next 6–12 months?
  Response: Softer prices make large mineral M&A harder; smaller bolt‑ons still occur but are tougher to scale; buybacks are a preferred near‑term deployment option.

• Question from Kaleinoheaokealaula Akamine (BofA Securities, Research Division): Your Permian volumes continue to grow despite basin flatness — how long can this favorable dynamic continue?
  Response: Advantaged Diamondback exposure should sustain growth for several years; Viper expects ~5–7% interest in Diamondback wells on average over the next five years.

• Question from Kaleinoheaokealaula Akamine (BofA Securities, Research Division): Would you consider using free cash on hand to repurchase VNOM shares?
  Response: Repurchasing VNOM shares is on the table; management may buy shares to reduce Viper's share count while the market remains dislocated.

• Question from Derrick Whitfield (Texas Capital Securities, Research Division): How are you thinking about price sensitivity for your 2026 soft guide from a Diamondback operating perspective?
  Response: 2026 guidance assumes Diamondback maintenance activity ('yellow light'); Viper is relatively insulated because lower activity prioritizes high‑return projects, raising Viper's average NRI.

• Question from Derrick Whitfield (Texas Capital Securities, Research Division): What synergy opportunity exists from Sitio's AI processes in terms of cash savings and ground‑game M&A?
  Response: Realized employee and debt cost synergies from Sitio; automation will reduce manual costs and deliver future savings, with benefits extending to Diamondback operations.

• Question from Leo Mariani (ROTH Capital Partners, LLC, Research Division): Clarify guidance — mid‑single‑digit growth next year versus Q4: is that unadjusted for the pending asset sale?
  Response: Q4 midpoint (~66,000 bpd) includes ~5,000 bpd from non‑Permian assets; strip those volumes for the 2026 starting point, then expect a couple thousand bpd of organic growth to reach mid‑single‑digit growth.

• Question from Leo Mariani (ROTH Capital Partners, LLC, Research Division): As debt is paid down in coming months, might you accelerate growth in the variable dividend component over the next few quarters?
  Response: Dividend changes are price‑dependent; priority remains base+variable cash returns, but buybacks will continue until valuation improves and allocation may shift if market re‑rates.

• Question from Timothy Rezvan (KeyBanc Capital Markets Inc., Research Division): Was this quarter's repurchase an extreme opportunistic move or would you go even bigger (at expense of variable dividend) if dislocation warranted?
  Response: Repurchases can increase if market dislocation continues; high operating margins give flexibility to buy back shares without compromising free cash flow or the balance sheet.

• Question from Timothy Rezvan (KeyBanc Capital Markets Inc., Research Division): Post‑Sitio there are new large holders (~13%) — have you engaged with them and would you act if they sold?
  Response: Management is engaged with new Sitio holders; if they choose to sell, Viper has the firepower and willingness to buy shares to mitigate any overhang.

Contradiction Point 1

Capital Allocation Strategy

It involves changes in the company's capital allocation strategy, which directly impacts investor expectations and the distribution of financial resources within the company.

With the $700 million asset sale and next year's free cash flow, how will capital be allocated in the near term and 2026? - Neal Dingmann (William Blair & Company L.L.C., Research Division)

2025Q3: We plan to lean into our return of capital commitment, returning almost 100% of free cash to shareholders by early next year. We feel compelled to buy back shares given the current market dislocation. - Kaes Van't Hof(CEO)

What is your view on the payout for Viper and the factors influencing it? - Neil Mehta (Goldman Sachs & Co.)

2024Q4: In a more compliant way, we could lean in above that, if there's extreme market volatility. We've been working with the Street and the rating agencies that we need a lot more flexibility. - Kaes Van't Hof(CEO)

Contradiction Point 2

Noncore Asset Disposition Strategy

It involves the company's approach to disposing of non-core assets, which impacts the financial structure and strategic focus, affecting investor expectations.

What considerations should we be aware of regarding non-Permian divestiture cash inflows? - Neil Mehta (Goldman Sachs Group, Inc., Research Division)

2025Q3: Net proceeds will be about $610 million after a tax hit. It will pay down the revolver to 0 and almost pay off the term loan, improving our balance sheet. - Kaes Van't Hof(CEO)

How do you evaluate which portions of the Sitio portfolio's noncore or non-Permian assets will remain versus be monetized? - Neil Singhvi Mehta (Goldman Sachs Group, Inc., Research Division)

2025Q2: 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. - Matthew Kaes Van’t Hof(CEO)

Contradiction Point 3

Mineral Acquisition Strategy and Market Conditions

It involves changes in the company's mineral acquisition strategy and its response to market conditions, which are crucial for investors understanding the company's growth and financial stability.

How do current commodity prices impact the M&A market? - Neil Mehta(Goldman Sachs Group, Inc., Research Division)

2025Q3: It makes mineral deals harder. However, we're positioning ourselves as a consolidator of choice and could still explore smaller acquisitions. - Kaes Van't Hof(CEO)

How are macroeconomic changes affecting your M&A strategy and assessment of future opportunities? - Greta Drefke(Goldman Sachs)

2025Q1: We continue to see consolidation opportunities in the minerals market since there is no CapEx involved in owning minerals. Deals may be harder to come by in volatile markets, but we're confident in finding opportunities after the current volatility subsides. - Kaes Van't Hof(CEO)

Contradiction Point 4

AI and Automation Impact on Operations and M&A

It involves the company's approach to AI and automation, which are critical for operational efficiency and potential growth through M&A.

How might AI impact your operations and M&A? - Wei Jiang(Barclays Bank PLC, Research Division)

2025Q3: In the near term, we're working to move everything from manual to automated. Beyond that, it's about finding ways to utilize and monetize all the data we have. - Kaes Van't Hof(CEO)

Could recent macroeconomic volatility affect your hedging strategy? - Paul Diamond(Citi)

2025Q1: We remain confident in our strategy of focusing on areas with high NRI. And I'd say in terms of innovation, we're always open to new technologies, obviously. So we could continue seeing advancements in the data analytics space, which could help us better understand what to focus on. - Kaes Van't Hof(CEO)

Contradiction Point 5

Non-Permian Asset Sale and Cash Inflows

It involves the company's plans for non-Permian asset sales and the expected cash inflows, which directly impacts the company's financial strategy and liquidity position.

Are there any considerations regarding non-Permian divestiture cash inflows? - Neil Mehta (Goldman Sachs Group, Inc., Research Division)

2025Q3: Net proceeds will be about $610 million after a tax hit. It will pay down the revolver to 0 and almost pay off the term loan, improving our balance sheet. - Kaes Van't Hof(CEO)

What is the potential upside from Double Eagle’s carry for Viper? - Neal Dingmann (Truist Securities)

2024Q4: The equity raise and the net proceeds of the stock drop down, after an estimated an estimated tax hit, we'll have a pretty healthy cash balance. - Kaes Van't Hof(CEO)