8-K: Viper Energy Reports Strong Q1 2024 Results, Announces Dividends and Non-Permian Asset Sale

Viper Energy, a subsidiary of Diamondback Energy, announced solid first-quarter 2024 financial and operating results, including a base and variable dividend, and the sale of its non-Permian assets.

Summary

• Viper Energy reported a net income of $43.4 million, or $0.49 per share, for the first quarter of 2024.
• The company's average production was 25,407 barrels of oil per day (bo/d) and 46,132 barrels of oil equivalent per day (boe/d).
• Cash available for distribution to shareholders was $72.1 million, or $0.79 per share.
• Viper declared a base dividend of $0.27 per share and a variable dividend of $0.32 per share, totaling $0.59 per share.
• The company sold its non-Permian assets for approximately $90.3 million, with the sale expected to close on May 1, 2024.
• Viper has initiated Q2 2024 production guidance of 26,000 to 26,500 bo/d and narrowed full-year 2024 guidance to 25,750 to 26,750 bo/d, reflecting the divestiture of non-Permian assets.
• The company had a cash balance of $20 million and total long-term debt of $1.1 billion as of March 31, 2024.
• 375 gross horizontal wells were turned to production on Viper's acreage during the quarter, with an average lateral length of 10,872 feet.

Sentiment

Score: 7

Explanation: The document presents a positive outlook with strong production and dividend announcements, but the impact of the asset sale and debt levels temper the overall sentiment.

Positives

• Viper Energy demonstrated strong production growth and a solid financial performance in Q1 2024.
• The company increased cash available for distribution per share quarter over quarter.
• The declared base and variable dividends provide a significant return to shareholders.
• The sale of non-Permian assets for $90.3 million will allow the company to focus on its core Permian assets.
• The company has a strong balance sheet with $20 million in cash and $597 million of total liquidity.
• The company has a large number of wells in active development and line of sight for future production.

Negatives

• The sale of non-Permian assets will result in a reduction of approximately 450 bo/d in production for the remaining seven months of 2024.
• The company's net income attributable to Viper Energy, Inc. was $43.4 million, which is lower than the consolidated net income of $99.6 million due to non-controlling interests.
• The company has a significant amount of long-term debt at $1.1 billion.
• The company's hedged realized price of $48.19/boe is lower than the unhedged realized price of $48.85/boe.

Risks

• Changes in supply and demand for oil, natural gas, and natural gas liquids could impact commodity prices and the company's profitability.
• Global political and economic instability, including the war in Ukraine and the Israel-Hamas war, could affect energy markets.
• Rising interest rates could increase the company's cost of capital.
• Delays or interruptions in production on Viper's mineral and royalty acreage could impact the company's financial results.
• Federal and state regulations related to hydraulic fracturing could impact the company's operations.
• Climate change and related risks could affect the company's business.

Future Outlook

Viper expects continued strong operational performance and production growth, with Q2 2024 production guidance set at 26,000 to 26,500 bo/d and full-year 2024 guidance narrowed to 25,750 to 26,750 bo/d, reflecting the divestiture of non-Permian assets.

Management Comments

• The first quarter was a strong start to the year for Viper and a period which uniquely highlighted the benefits of Vipers business model and high quality assets.
• Despite commodity prices declining during the quarter, Vipers continued production growth, along with our best-in-class cost structure, allowed for us to increase to our cash available for distribution per share quarter over quarter.
• Looking ahead, we have initiated production guidance for Q2 and revised our guidance for the full year 2024 that reflects continued strong operational performance as well as the pending divestiture of the non-Permian assets we acquired in the GRP acquisition last year.
• Based on the midpoint of the guidance range for Q2, oil production is expected to grow over three percent relative to Q1 2024, despite losing almost 300 bo/d of quarterly production contribution from the non-Permian assets.
• We continue to see strong activity levels across our acreage position and expect that production growth will continue beyond the second quarter, as is reflected in our full year guidance.

Industry Context

This announcement reflects the ongoing trend of oil and gas companies focusing on core assets and divesting non-core holdings. Viper's sale of non-Permian assets aligns with this strategy, allowing the company to concentrate on its Permian Basin operations, which are known for their high production potential.

Comparison to Industry Standards

• Viper's production growth of 25,407 bo/d is comparable to other Permian Basin focused royalty companies such as Texas Pacific Land Corporation (TPL) and Brigham Minerals (MNRL).
• The company's dividend yield of 5.9% is competitive with other yield-focused energy companies.
• The sale of non-Permian assets is a common strategy in the industry, similar to moves by companies like ConocoPhillips (COP) and Occidental Petroleum (OXY) to streamline their portfolios.
• Viper's focus on the Permian Basin is consistent with the industry trend of concentrating on high-return, low-cost production areas.
• The company's debt level of $1.1 billion is within the range of other companies of similar size in the sector, but will need to be monitored.

Related Party Transactions

• The document mentions royalty income receivable and accounts payable with related parties, but does not provide specific details of the transactions.

Stakeholder Impact

• Shareholders will benefit from the declared dividends and the potential for future growth.
• Employees may be impacted by the sale of non-Permian assets, but the company's focus on the Permian Basin may provide new opportunities.
• Customers will continue to receive oil and gas production from Viper's assets.
• Suppliers will continue to provide services to Viper's operations.
• Creditors will be impacted by the company's debt levels, but the company's strong cash flow should mitigate concerns.

Next Steps

• The sale of non-Permian assets is expected to close on May 1, 2024.
• Viper will host a conference call on May 1, 2024, to discuss the results.
• The company will continue to focus on its Permian Basin operations and production growth.
• The company will pay the declared base and variable dividends on May 22, 2024.

Key Dates

Keywords

Viper Energy, Diamondback Energy, Oil and Gas, Production, Dividends, Permian Basin, Asset Sale, Financial Results, Net Income, Cash Flow, Royalty Interests