8-K: Viper Energy Reports Strong Q4 and Full Year 2023 Results, Announces Dividends and Production Guidance

Viper Energy, a subsidiary of Diamondback Energy, announced its fourth quarter and full year 2023 financial and operating results, highlighted by increased production, strategic acquisitions, and significant capital returns to shareholders.

Summary

• Viper Energy reported its financial and operating results for the fourth quarter and full year ended December 31, 2023.
• The company achieved an average Q4 production of 24,533 barrels of oil per day (bo/d) and 43,783 barrels of oil equivalent per day (boe/d).
• For the full year 2023, average production was 21,995 bo/d and 39,244 boe/d.
• Viper's Q4 consolidated net income was $125.9 million, with $57.0 million attributable to Viper Energy, Inc., or $0.70 per common share.
• Full year 2023 consolidated net income was $501.3 million, with $200.1 million attributable to Viper Energy, Inc., or $2.69 per share.
• The company declared a Q4 base cash dividend of $0.27 per share and a variable cash dividend of $0.29 per share, totaling $0.56 per share.
• Viper repurchased 1.0 million Class A common shares in Q4 for $28.7 million and 3.4 million shares for $95.2 million during the full year.
• Proved reserves at year-end 2023 were 179,249 Mboe, a 20% increase year-over-year.
• The company has initiated Q1 2024 production guidance of 25,000 to 25,500 bo/d and full year 2024 guidance of 25,500 to 27,500 bo/d.
• Viper completed the acquisition of mineral and royalty interests from affiliates of Warwick Capital Partners and GRP Energy Capital on November 1, 2023.
• The company also completed its conversion from a Delaware limited partnership to a Delaware corporation on November 13, 2023.

Sentiment

Score: 8

Explanation: The document conveys a positive sentiment due to strong production growth, increased reserves, strategic acquisitions, and significant capital returns to shareholders. The company's future outlook is also positive, with expected growth throughout 2024.

Positives

• Viper experienced a 13% increase in average oil production for the full year 2023 compared to the previous year.
• The company's share count was reduced by one percent over the same period.
• Viper achieved its eighth consecutive quarter of increased production per share.
• The GRP acquisition was accretive on all relevant financial metrics and provided high-quality undeveloped inventory.
• The conversion to a Delaware corporation is expected to provide increased governance rights for shareholders.
• The company has a strong cost structure, which should enable continued capital returns to shareholders.
• Viper's proved developed reserves increased by 34% year over year to 143,371 Mboe.
• The company's reserve replacement ratio was 312%.

Negatives

• Q1 2024 is expected to be the weakest quarter of the year due to the timing of large pads.
• The company has a net debt of $1.1 billion as of December 31, 2023.
• The company's Q4 2023 average hedged realized price was $49.38/boe, lower than the unhedged price of $50.20/boe.

Risks

• Changes in supply and demand levels for oil, natural gas, and natural gas liquids could impact commodity prices.
• Public health crises, such as pandemics, could affect operations.
• Actions by OPEC and Russia could influence oil production and pricing.
• Instability in the financial sector and concerns over economic slowdown or recession could pose challenges.
• Rising interest rates could increase the cost of capital.
• Regional supply and demand factors, including delays or interruptions of production, could impact results.
• Federal and state legislative and regulatory initiatives relating to hydraulic fracturing could affect operations.
• Physical and transition risks relating to climate change could pose challenges.

Future Outlook

Viper has initiated production guidance for Q1 2024 and the full year 2024, expecting significant growth throughout the year with Q4 2024 at or above the high end of guidance. The company anticipates continued capital returns to shareholders through its base-plus-variable dividend.

Management Comments

• Travis Stice, Chief Executive Officer of Viper, stated that the fourth quarter of 2023 represented the eighth consecutive quarter of increased production per share.
• Mr. Stice highlighted the GRP acquisition as accretive on all relevant financial metrics and providing high-quality undeveloped inventory.
• Mr. Stice also noted that the conversion to a Delaware corporation has delivered increased governance rights for shareholders.
• Mr. Stice mentioned that while Q1 2024 is expected to be the weakest quarter, strong activity levels are expected to drive significant growth throughout the year.

Industry Context

This announcement reflects the ongoing trend of consolidation and strategic acquisitions in the oil and gas industry, particularly in the Permian Basin. Viper's focus on mineral and royalty interests aligns with a strategy to capitalize on production growth without incurring direct exploration and development costs. The company's emphasis on returning capital to shareholders through dividends and share repurchases is also a common practice among mature energy companies.

Comparison to Industry Standards

• Viper's production growth of 13% year-over-year is strong compared to many peers in the royalty space, such as Texas Pacific Land Corporation (TPL) which has seen more modest growth.
• The company's reserve replacement ratio of 312% is significantly higher than the industry average, indicating strong organic growth and successful acquisitions.
• The dividend yield of 6.3% is competitive with other yield-focused energy companies, such as Enterprise Products Partners (EPD).
• The company's focus on the Permian Basin is consistent with the industry's focus on high-return shale plays.
• The conversion to a corporation is a move towards more standard corporate governance, similar to other publicly traded energy companies.

Related Party Transactions

• Viper received $2.4 million in lease bonus income from a related party in Q4 2023 and $107.8 million for the full year 2023.
• There were related party transactions for acquisitions of oil and natural gas interests.

Stakeholder Impact

• Shareholders will benefit from increased dividends and share repurchases.
• Employees will benefit from the company's continued growth and success.
• Customers will benefit from the company's continued production of oil and natural gas.
• Suppliers will benefit from the company's continued operations.
• Creditors will benefit from the company's strong financial position.

Next Steps

• Viper will host a conference call and webcast on February 21, 2024, to discuss the results.
• The company will continue to execute its production and development plans.
• Viper will continue to evaluate potential acquisitions.
• The company will continue to return capital to shareholders through dividends and share repurchases.

Key Dates

Keywords

Viper Energy, Diamondback Energy, Oil and Gas, Production, Dividends, Share Repurchase, Reserves, Permian Basin, Acquisition, EBITDA