425: Viper Energy to Acquire Sitio Royalties in $4.1 Billion All-Equity Deal, Boosting Permian Footprint and Dividend

Viper Energy, Inc. announced a definitive agreement to acquire Sitio Royalties Corp. in an all-equity transaction valued at approximately $4.1 billion, creating a leading North American mineral and royalty company with increased scale, financial accretion, and a higher base dividend.

Summary

• Viper Energy, Inc. (Viper) and Viper Energy Partners LLC (Viper Opco) have entered into an Agreement and Plan of Merger with Sitio Royalties Corp. (Sitio) and Sitio Royalties Operating Partnership, LP.
• Viper will acquire Sitio in an all-equity transaction valued at approximately $4.1 billion, which includes Sitio's net debt of approximately $1.1 billion as of March 31, 2025.
• Sitio Class A common stockholders will receive 0.4855 shares of Class A common stock of a new holding company (pro forma Viper) for each Sitio Class A share, representing an implied value of $19.41 per share based on Viper's June 2, 2025 closing price.
• Upon completion of the mergers, former Viper and Sitio stockholders will own approximately 80% and 20%, respectively, of the new parent company on a fully diluted basis.
• The transaction has been unanimously approved by the Boards of Directors of both companies and by Diamondback Energy, Inc. as Viper's majority stockholder.
• Stockholders representing approximately 48% of Sitio's outstanding voting power, including its largest stockholder Kimmeridge, have agreed to vote in favor of the transaction.
• The merger is subject to customary regulatory approvals and is anticipated to close in the third quarter of 2025.
• Viper's Board of Directors has approved a 10% increase to its base dividend, raising it to $1.32 per share annually ($0.33 per share quarterly).

Sentiment

Score: 9

Explanation: The document announces a major strategic acquisition that is highly accretive, increases shareholder returns (dividend increase, share repurchase program), improves financial metrics (lower breakeven, maintained investment grade, reduced leverage target), and significantly enhances the company's scale and market position in a key basin. The tone is overwhelmingly positive, highlighting numerous benefits and strategic advantages.

Positives

• The acquisition adds substantial scale and inventory depth, which is expected to support pro forma Viper's durable production profile and free cash flow growth over the next decade.
• The transaction is expected to be approximately 8-10% accretive to cash available for distribution per Class A share immediately upon closing.
• Pro forma Viper's base dividend breakeven is expected to decrease by approximately $2 per barrel to less than $20 WTI.
• Annual synergies are estimated to exceed $50 million, primarily from general and administrative (G&A) and cost of capital savings.
• Pro forma Viper is expected to maintain its Investment Grade status, with pro forma leverage anticipated to be approximately 1.2x at closing at strip pricing and decreasing thereafter.
• A near-term net debt target of $1.5 billion is set, which equates to less than 1.0x leverage at $60 WTI.
• Diamondback Energy, Inc. is expected to own approximately 41% of pro forma Viper's outstanding common stock after closing and will continue to drive meaningful long-term oil production growth from the company's acreage.
• The combined entity will have approximately 85,700 net royalty acres in the Permian Basin, with about 43% operated by Diamondback.
• Pro forma Viper will own an average 1.8% Net Revenue Interest (NRI) in approximately 33,300 gross producing horizontal wells (~608 net wells).
• The combined company will have approximately 75.4 existing net DUCs (Drilled Uncompleted) and permits with an average lateral length of ~10,800 feet, with Diamondback operating 41.1 of these.
• Estimated Q4 2025 average production for pro forma Viper is projected to be 64-68 mbo/d (122-130 mboe/d), with full year 2026 average production expected to increase by a mid-single digit percentage.
• The increased base dividend of $1.32/share represents approximately 45% of cash available for distribution at $50 WTI.
• Viper's Board authorized a share repurchase program of $750 million, with $325 million repurchased through May 2, 2025, demonstrating a commitment to shareholder returns.
• The company commits to returning at least 75% of cash available for distribution to equity holders, inclusive of base dividend, variable dividends, and opportunistic share repurchases.

Risks

• Risk associated with Sitio's ability to obtain the necessary approvals from its stockholders to consummate the Mergers.
• Risks related to the timing of the closing of the Mergers, including the possibility that conditions to the Mergers are not satisfied on a timely basis or at all, or the failure of the Mergers to close for any other reason or on the anticipated terms, including the anticipated tax treatment.
• The risk that any required regulatory approval, consent, or authorization for the Mergers is not obtained or is obtained subject to unanticipated conditions.
• Challenges in the post-combination company's ability to successfully integrate Viper's and Sitio's businesses and technologies.
• The risk that the expected benefits and synergies of the Mergers may not be fully achieved in a timely manner, or at all.
• The risk that Viper or Sitio will not, or that following the Mergers, the post-combination company will not, be able to retain and hire key personnel.
• Unanticipated difficulties or expenditures relating to the Mergers.
• Potential negative response from business partners and retention issues as a result of the announcement and pendency of the Mergers.
• Viper's ability to finance the combined company on acceptable terms or at all.
• Uncertainty regarding the long-term value of the post-combination company's common stock.
• Diversion of Viper's and Sitio's management's time on transaction-related matters.
• General risks described in Viper's and Sitio's periodic filings with the U.S. Securities and Exchange Commission (SEC), including in Item 1A of their Annual Reports on Form 10-K.
• The competitive and rapidly changing environment in which Viper and Sitio conduct their businesses, and the emergence of new risks from time to time.
• Inability to predict all risks or assess the impact of all factors on their businesses, which could cause actual results to differ materially from forward-looking statements.
• Production forecasts and expectations for future periods are dependent upon many assumptions, including estimates of production, decline rates from existing wells, and future drilling activity, which may be affected by significant commodity price declines or drilling cost increases.

Future Outlook

The combined entity, 'pro forma Viper,' is expected to achieve significant scale, enhance its production profile, and drive free cash flow growth over the next decade. Management anticipates mid-single digit percentage production growth in full year 2026 from Q4 2025 levels, assuming current commodity prices and industry activity. The company aims to maintain its Investment Grade status and reduce leverage, targeting net debt of $1.5 billion. It also commits to returning at least 75% of cash available for distribution to equity holders.

Management Comments

• "This combination creates a leader in size, scale, float, liquidity and access to investment grade capital in the highly fragmented minerals industry. Pro forma Viper is now clearly a must-own public mineral and royalty company in North America, with attractive size and scale in the Permian Basin." Kaes Vant Hof, Chief Executive Officer of Viper.
• "This transaction positions Viper to compete for capital with mid and large cap North American E&Ps; except with higher margins, minimal operating costs, and the lowest dividend breakeven in the space." Kaes Vant Hof, Chief Executive Officer of Viper.
• "While this transaction will reduce Diamondback's ownership in pro forma Viper to 41%, it does not reduce the significance of the relationship between Diamondback and Viper. The Diamondback drillbit remains Viper's biggest competitive advantage and the most visible source of long-term production growth at Viper." Kaes Vant Hof, Chief Executive Officer of Viper.
• "Mineral interests offer the highest form of security and upside in the oil field, and any and all benefits an operator manages to unlock accrues directly to the mineral holder without any capital risk, forever." Kaes Vant Hof, Chief Executive Officer of Viper.
• "We are excited to announce the combination of two leading minerals companies with a shared strategic vision of integrating the highest quality assets to create a truly differentiated investment opportunity for shareholders." Chris Conoscenti, CEO of Sitio.
• "This transaction provides Sitio's shareholders with exposure to an entity with significantly greater size, future development visibility, and all of the benefits of the economies of scale unique to the minerals business higher margins, lower cost of capital, strong positioning for future M&A opportunities, and the ability to return more capital to shareholders." Chris Conoscenti, CEO of Sitio.
• "This transaction is the next logical step in Sitio's evolution. By adding Sitio's coverage of the Delaware Basin to Viper's position in the Midland Basin, the combined company will be well positioned in the Permian for years to come." Noam Lockshin, Chairman of the Sitio Board of Directors.

Industry Context

The merger creates a significant player in the highly fragmented mineral and royalty interests sector within the North American oil and gas industry, particularly in the Permian Basin. It positions the combined entity to compete with larger E&P companies due to its enhanced scale, lower operating costs, and strong cash flow generation, while maintaining an investment-grade profile. The continued strong relationship with Diamondback Energy, a premier Permian operator, provides a competitive advantage and visible long-term production growth, solidifying its position as a leading pure-play mineral and royalty company.

Comparison to Industry Standards

• Pro forma Viper is positioned as 'a must-own public mineral and royalty company in North America' due to its attractive size, scale, float, liquidity, and access to investment-grade capital.
• The combined entity is expected to have 'higher margins, minimal operating costs, and the lowest dividend breakeven in the space' compared to mid and large cap North American E&Ps.
• Pro Forma Viper is highlighted as the 'only investment grade energy company with operations in the US or Canada with Market Capitalization > $5.0BN, total leverage < 1.5x, 5-year revenue CAGR > 10% and EBITDA margin >75%', indicating a superior financial and operational profile compared to a broad set of energy peers.

Related Party Transactions

• Diamondback Energy, Inc., Viper's parent company and majority stockholder, is expected to own approximately 41% of pro forma Viper's outstanding common stock after closing and will continue to drive meaningful long-term oil production growth from the combined company's acreage. This ongoing relationship is highlighted as a key competitive advantage.

Stakeholder Impact

• Shareholders (Viper & Sitio): Viper shareholders will own approximately 80% of the new entity, and Sitio shareholders approximately 20%. Sitio shareholders receive an implied value of $19.41 per share. Both sets of shareholders are expected to benefit from increased scale, financial accretion, higher cash returns, an increased base dividend, and potential for future M&A opportunities.
• Employees: The document mentions the risk that the post-combination company may not be able to retain and hire key personnel, implying potential impacts on employees, though no specific job changes or reductions are detailed. Sitio's CEO thanked the Sitio team members for their contributions.
• Business Partners: The document notes the risk of the response of business partners and retention issues as a result of the announcement and pendency of the Mergers.
• Creditors: The pro forma company is expected to maintain its Investment Grade status and target lower leverage (net debt target of $1.5 billion), which is generally positive for creditors.

Next Steps

• New Cobra Pubco, Inc. (New Parent) will file a registration statement on Form S-4 with the SEC, which will include a proxy statement of Sitio, an information statement of Viper, and a prospectus of New Parent.
• The Mergers will be submitted to Sitio's stockholders for their consideration and approval.
• Viper, Sitio, and New Parent may file other documents with the SEC regarding the Mergers.
• After the registration statement has been declared effective by the SEC, a definitive joint information statement/proxy statement/prospectus will be mailed to the stockholders of Viper and Sitio.
• The transaction is expected to close in the third quarter of 2025, subject to customary regulatory approvals, including HSR Act clearance.
• Viper will host a conference call and webcast for investors and analysts on Tuesday, June 3, 2025, at 7:00 a.m. CT to discuss the transaction.

Key Dates

Recommendation

Keywords

Viper Energy, Sitio Royalties, Merger, Acquisition, All-equity transaction, Permian Basin, Mineral and Royalty Interests, Oil and Gas, Dividend Increase, Synergies, Investment Grade, Diamondback Energy, Energy Sector, Corporate Governance, SEC Filing, Form 425, Oil Production, Net Royalty Acres, DUC, Permits, Free Cash Flow, Leverage, Share Repurchase