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Presentation

Operator: Good day, and thank you for standing by. Welcome to the Viper Energy First Quarter 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your speaker today, Chip Seale, Investor Relations, Director. Please go ahead.

Chip Seale: Thank you, Michelle. Good morning, and welcome to Viper Energy’s first quarter 2025 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 Kaes Van’t Hof, CEO; and Austen Gilfillian, 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 will now turn the call over to Kaes.

Kaes Van’t Hof: Thank you, Chip. Welcome, everyone, and thank you for listening to Viper Energy’s first quarter 2025 conference call. The first quarter was a strong quarter for Viper with both oil and total production above the high end of their respective guidance ranges. Unfortunately, since the end of the first quarter, we have entered a period of lower commodity prices and significant market volatility. With that said, Viper is very well positioned to endure this period of volatility given our high free cash flow margins and high-quality assets. As previously announced, we are excited the transformative drop-down transaction between Viper and Diamondback closed on May 1. As a result of the conservative financing of this transaction as well as Viper’s continued strong financial and operating results, we expect leverage to remain below one times even in a sustained $50 per barrel WTI environment.

Given the strength of our balance sheet, we will look to use this period of volatility to our advantage where we can, as highlighted by the opportunistic share repurchases we have been able to make so far this quarter. As a reminder, we issued approximately 28 million shares in a primary equity offering in January to fund the cash consideration of the dropdown. While the net proceeds of roughly $1.3 billion from the offering resulted in a meaningfully deleveraging transaction for Viper, we didn’t receive any of the production or cash flow from the acquired assets during the quarter, given the timing of the closing of the drop-down this quarter. So as a result, our Q1 dividend of $0.57 was roughly $0.07 lower than it would have been otherwise in our prior share count.

While in previous situations, we had — similar situations, we have decided to true up the dividend for the share issuance this quarter given the current market volatility, we have decided to retain the roughly $25 million of incremental capital to keep on the balance sheet and apply to future capital allocation decisions. Looking ahead, despite the potential for sustained weakness in commodity prices and reduced activity levels, we expect Viper’s production to remain durable. And as such, we are maintaining our previous guidance for oil production for the back half of 2025. The symbiotic relationship between Diamondback and Viper is highlighted during times like these, where Diamondback continues to focus on its development, focuses development on wells, where Viper runs high royalty interest and therefore, enhances Diamondback’s consolidated capital efficiency.

Further, the roughly 45% of Viper’s current production that is operated by third-parties is predominantly exposed to well-capitalized operators in the best parts of the Permian Basin, led by ExxonMobil operating almost half of our third-party production. In conclusion, we continue to believe that Viper presents a differentiated investment opportunity with zero capital and operating costs, alignment with the parent company that has helped Viper deliver consistent organic growth and the current size of scale that positions us as a consolidator of choice in what remains a highly fragmented minerals and royalty space. Following the recent closing of the drop-down, Viper now ranks amongst the largest US independent E&Ps, and we believe the unique attributes of the business model will continue to be recognized by the market over time as our uniquely durable cash flow profile becomes increasingly differentiated.

Operator, now open the line for questions.

Operator: Thank you. [Operator Instructions] Our first question is going to come from the line of Greta Drefke with Goldman Sachs. Your line is open. Please go ahead.

Greta Drefke: Good morning. Thank you for taking my questions. My first is on M&A. Viper has continued to lean into M&A this year alongside the dropdown. Do the changes to the broader macro environment influence your willingness to lean into M&A at this point? Or do they change your view on the opportunity set for incremental M&A from here?

Kaes Van’t Hof: I wouldn’t say the macro impacts our desire to continue to consolidate the minerals market. I think what happens in minerals is because there’s no CapEx associated with the development of minerals or owning minerals, sometimes deals are harder to come by in more volatile environments on the mineral side. So I think we’ve been able to do some pretty large deals through past down cycles. Notably, we did the swallow sale deal in 2021, which had a lot of Diamondback operating production. Deals like that make a lot of sense. But I think we’re going to sift through this volatility here for a couple of months and then see who’s willing to transact on the other side of it.

Greta Drefke: Great. Thank you. And then for my second question, just following up on the updated FANG guidance and the closing of the dropdown, have the activity assumptions in Reagan County following the Double Eagle acquisition changed at all? And if so, could you speak to differences in your cash flow assumptions from that development opportunity?

Kaes Van’t Hof: We really started to model completions in that area starting in 2026. So I don’t think it’s time to change that development program yet. I mean, in talking to the Double Eagle team, we’re working with closely to core up the assets and start drilling wells. They’re going to spend a lot of time drilling here in the back half of the year, leading to completions in 2026. So if the commodity market is still weak, sub-60, certainly sub-50 environment. I would expect that to get pushed out to the right, like many projects in the basin. But I think in a normalized 60-plus environment, we expect that development to occur.

Greta Drefke: Thank you.

Kaes Van’t Hof: Thank you.

Operator: Thank you. One moment for our next question. And our next question is going to come from the line of Paul Diamond with Citi. Your line is open. Please go ahead.

Paul Diamond: Good morning, all. Thanks for taking the call. Just want to touch on a quick one, sitting on the third-party opportunity set. I mean given you guys footprint across Midland and Delaware, getting pretty volume. I just want to get an idea of where, I guess, the — that next leg of opportunities lay, like, once the volatility settles down. Is that Midland, is that Delaware or potentially elsewhere?

Kaes Van’t Hof: Hey, Paul, yeah, I think we’re pretty much agnostic in terms of M&A opportunities between the Midland and the Delaware. I think what you’ve seen over the past 18 months with GRP first and then Tumbleweed and then now also the drop-down, it was certainly weighted to the Midland Basin. And I think we know the asset really well. We were fortunate to get some pretty highly undeveloped assets that I think are going to support the longer-term growth profile. But I think we like the Delaware as well, especially not having to put up the capital on what could be some more set of wells. There’s still a lot of resource available there, and there could be some sizable opportunities there as well. So, for us, it’s going to be more about price an opportunity set. But to Kaes’ earlier point, right, we’re just going to sit through the volatility and see what becomes available during this volatility or after when we hopefully have more normalized times.

Paul Diamond: Understood. Appreciate the clarity. Just one quick one on hedging. You guys have been pretty consistent on that. through the last several years, but also been in a relatively directionally stable environment. Does the recent volatility in the macro side, could that potentially shift that overall strategy? Or is it still pretty locked in and you’re comfortable with the current plan?

Austen Gilfillian: No, we’re still comfortable with the current plan. I mean the philosophy has always been, one, have fortress balance sheet. So, you don’t have to do a ton of hedging or anything drastic right, with swaps or collars or anything like that. So, I think we’ll still look to use these deferred premium puts, still have the unlimited upside and try to protect against extreme downside, but having the balance sheet that we have today, we look to try to lock in a certain amount of downside protected cash flow, so that leverage doesn’t kind of blow out in a low commodity price environment. So, we’re in a great position today. And I think we’ll stay true to what that strategy has been over the last couple of years.

Paul Diamond: Understood. Appreciate the clarity. I’ll leave it there.

Kaes Van’t Hof: Thanks Paul.

Operator: Thank you. And our next question comes from the line of Derrick Whitfield with Texas Capital. Your line is open, please go ahead.

Derrick Whitfield: Good morning all and thanks again for your time.

Kaes Van’t Hof: Hey Derrick.

Derrick Whitfield: Regarding the Diamondback investor letter from this morning, you highlighted industry concerns with development at current prices. As you guys think about Viper’s exposure, how much of that 10% decrease would you have exposure to assuming that backdrop?

Kaes Van’t Hof: Yes, I think on a net well basis, it’s very minimal. We still see the majority of the wells are projects where Viper has a high interest getting completed today at the Viper level. Now I think if this persists much longer, it’s a different story. But I think generally, in these times, we look at consolidated in our eyes at the Diamondback level, and that includes what Viper has been able to pick up over the years. And usually, those projects, given the areas that they’re in, move to the top of the list. So, I would say no impact for now, which is why we held guidance where it was. But listen, Derrick, we see a sub-$50 oil environment and Diamondback and others are cutting more than it’s going to hit Viper towards the back half of the year and into next year.

But I think what we think is it’s going to be a tough couple of quarters for the industry. I think price is going to react at some point due to lower U.S. oil production and owning assets in the lowest breakeven parts of the U.S. is going to be a strategy that pays off for Viper’s shareholders.

Derrick Whitfield: And then with my second question, just wanted to get a better sense on the quarter-over-quarter change in activity. If we were to include the acquisition and drops in your 4Q disclosure, do you have a sense on whether work in progress and line of sight wells increased quarter-over-quarter or kind of were flattish?

Austen Gilfillian : Yes. Activity is certainly increasing, especially on the Diamondback side as we roll forward and start getting that visibility into what 2026 is going to look like, I mean, notwithstanding right, some of the pending changes that Kaes just outlined. But overall, I would say, going through the first quarter into April, we were having pretty strong activity levels on the third-party side, mainly being led by Exxon, EOG and Occi. And then Diamondback production is really strong today, and we kind of outlined it with the drop-down, but have some really concentrated projects there that Diamondback can prioritize and if commodities can hang in there, will certainly lead to some pretty strong growth through 2026.

Derrick Whitfield: Great. I’ll turn it back to the operator.

Austen Gilfillian : Thanks, Derrick.

Operator: Thank you. One moment for the next question. Our next question is going to come from the line of Arun Jayaram with JPMorgan Securities. Your line is open. Please go ahead.

Unidentified Analyst: Hi. This is Zack [ph] on for Arun. Just wanted to follow up on your prior answer. When the Endeavor drop-down with amounts, Viper talked about 4,000 barrels a day of volume growth on Diamondback-operated properties in 2026. Given those changes Diamondback made last night, do you expect any changes to those growth volumes at Viper?

Kaes Van’t Hof : Yes. Zavk, I don’t see any changes today, right? I still think there’s a strong chance that 2026 is stronger than everybody is thinking today. We’ve kind of signaled the message that these down cycles tend to happen quickly and hopefully higher low on commodity price. But if we do persist into 2026, we are going to continue to focus on areas where Diamondback and Viper have high NRI. So I see no reason to change the thought process on 2026 growth, particularly with what we’re doing on Quinn Ranch which we bought earlier this year and some of the high — or sorry, yes, Quinn Ranch that we bought earlier this year and some of the high NRI projects from both Tumbleweed and the drop down.

Unidentified Analyst: Thanks, Kaes. And my follow-up, I know Exxon is your largest third-party operator. But can you talk about what you’re seeing for some of your smaller third parties just in light of the commodity price volatility, have you started to see some things get pushed to the right there?

Kaes Van’t Hof : I haven’t seen it at the Venom level — the Viper level directly, right? I think what we’ve seen is more of the anecdotes in the field of particularly private operators pushing completions out or dropping frac crews and riding this out. So we — at Viper, we try to buy assets under acreage positions that we covet and that tends to be the higher quality positions operated by large operators like Diamondback, Exxon, Occi, EOG, Conoco. And in our mind, those are probably the stickier barrels in the basin. But the comments we made earlier were more anecdotes about smaller operators in the field, making single unit capital allocation decisions.

Unidentified Analyst: Got it. Thanks, Kaes.

Operator: Thank you. And one moment for our next question. Our next question is going to come from the line of Leo Mariani with ROTH. Your line is open. Please go ahead.

Leo Mariani : Yes. Again, obviously, we’re looking at kind of weaker oil market conditions, and I guess we’ll see how it plays out. Obviously, you guys mentioned that you kind of held back some of the first quarter dividend given the weak market conditions. Obviously, it looks like there’s significant accretion that’s coming from the Endeavor drop-down. You also envision being able to kind of increase the dividend here over the next couple of quarters, even in this kind of $60-ish oil world today, just given the accretion on production and cash flow.

Kaes Van’t Hof: Yeah. I think at $60 or a flat commodity price. If you run the flat commodity price Q2 to Q4, whenever that is, distributions are going to grow. Obviously, a $5 move in oil price can change that pretty quickly. But the accretion still stands from the drop-down. I think also importantly, we have balance sheet capacity to do almost anything we want on the acquisition side. Lastly, we didn’t mention it in the prepared remarks, but Viper was upgraded to investment grade last week, which is by Fitch. So now we have two investment-grade ratings. And so access to capital at Viper today is kind of unmatched in the mineral space and something we’ve been working on for a really long time. And it’s good to see that come to fruition, particularly when capital access is scarce today.

Leo Mariani: Okay. Appreciate that. Maybe just a couple quick ones on some of the numbers here. So seeing that your kind of cash tax guidance is coming down a little bit in the second quarter versus where it was in 1Q. So, just kind of curious maybe there’s just some quarter-to-quarter tweaks there, if there’s anything to kind of read into a lower cash tax rate with lower oil prices here. And then on G&A, presumably, you guys aren’t adding a whole lot of G&A as a result of the Endeavor deal, but correct me if I’m wrong, and you’re obviously getting significant production. So just trying to get a sense of G&A per barrel should come down nicely here.

Kaes Van’t Hof: Yeah. Listen, sadly taxes are down because oil is down. That’s as simple as I can frame it. We look forward to paying more taxes when oil goes back up, but on the G&A side, usually, Q1 is kind of the peak on G&A, and it comes down. We’ve got models coming down. We run a pretty lean organization at Viper. We are adding some people here and there to help with the administrative side of our business. But I think you could expect G&A to come down per BOE post drop down.

Operator: Thank you. [Operator Instructions] And our next question is going to come from the line of Tim Rezvan with KeyBanc Capital Markets. Your line is open. Your line is open. Please go ahead.

Tim Rezvan: Good morning, folks. I wanted to ask on repurchases. I saw that you bottom-ticked things pretty well in the second quarter, buying below $38 and I know commodity prices are as big a factor share price is probably in the decision-making process. But can you give any more color on sort of the timing or the intensity. I know with shares of 40, it’s back on the table in a big way. So I’m just curious any more details you can provide on your appetite for more this year? Thank you.

Kaes Van’t Hof: Yes, Tim, I think we’ve always tried to err on the side of caution on repurchases at Viper, try to lean more towards being a distribution vehicle, which it seems our investors want. But the volatility here allowed us to kick back into the buyback. And I think the benefit for Viper is we still generate a lot of free cash at lower oil prices. I think we have a balance sheet where we wouldn’t be afraid to go above 75% of free cash distributed in the quarter to lean into buybacks. Again, I hope that, that doesn’t happen, but I think we’re prepared. I think COVID has taught us a lot about our balance sheet, our hedging structure, how we do things, and we’re prepared this time around to lean in if there’s continued volatility.

Tim Rezvan: Okay. Okay. That’s helpful. And then just talking about the balance sheet. Do you have a target debt number you want to get to? Because I know with your hedge profile, you can’t control leverage as much. But how do you think about the right debt load post the drop-down? Thanks.

Kaes Van’t Hof: Yes. I would — I don’t like saying, we’re underlevered because I do think there will be opportunities to use cash in deals. But I think the turn of leverage at $50 oil feels pretty pristine for Viper, but we could lean in a little bit, should there be opportunities to buy deals with cash in these commodity prices. It tends to be harder to get deals done on the mineral side over upstream when commodity prices are lower, but we’re certainly going to keep trying. I think the last thing, Tim, I would say on balance sheet, being investment grade now opens up a whole different opportunity set for our access to capital and what we can do we have our 2027 notes outstanding that are essentially callable today. We’ve been buying back some of them in the market.

We’ve got a small balance on the revolver. I think at the appropriate time, it’s going to make sense for us to do a more longer-dated debt transaction at Viper without the call protections that you normally get in the high-yield market. So wait and see on that.

Tim Rezvan: Okay. Thank you.

Operator: Thank you. And I would now like to hand the conference back over to Kaes Van’t Hof, CEO, for closing remarks.

Kaes Van’t Hof: Thanks, everybody, for taking the time to listen to our call today. If you have any questions, please reach out. We’re always available.

Operator: This concludes today’s conference call. Thank you for participating, and you may now disconnect. Everyone, have a great day.