8-K: Viper Energy to Acquire Tumbleweed Royalty Assets in $861 Million Deal

Viper Energy, Inc. has agreed to acquire mineral and royalty interests from Tumbleweed Royalty IV, LLC for $461 million in cash, 10.1 million OpCo units, and a potential $41 million contingent payment.

Summary

• Viper Energy, Inc. and its subsidiary, Viper Energy Partners LLC, have entered into a definitive agreement to acquire certain mineral and royalty interests from Tumbleweed Royalty IV, LLC.
• The purchase price includes $461 million in cash, the issuance of 10,093,670 OpCo units, and a potential contingent cash payment of up to $41 million in January 2026, based on 2025 WTI crude oil prices.
• The acquisition is expected to close on October 1, 2024, and includes approximately 3,727 net royalty acres primarily in the Permian Basin.
• The acquired assets had a net production of approximately 3,523 BOE/d during the second quarter of 2024.
• Viper also completed two related acquisitions on September 3, 2024, acquiring assets from Tumbleweed-Q Royalty Partners, LLC and MC Tumbleweed Royalty, LLC for a combined $189 million in cash and up to $9 million in contingent payments.
• These earlier acquisitions included approximately 672 net royalty acres with a net production of approximately 787 BOE/d in the second quarter of 2024.
• The cash portion of the Tumbleweed Royalty IV acquisition is expected to be funded through a combination of cash on hand, borrowings under OpCo's revolving credit facility, and proceeds from one or more capital markets transactions.

Sentiment

Score: 8

Explanation: The document conveys a positive outlook due to the accretive nature of the acquisitions, the potential for future production growth, and the strategic fit of the assets. The management commentary is also optimistic, further boosting the positive sentiment.

Positives

• The acquisitions are expected to be accretive to all relevant financial metrics.
• The acquired assets are highly undeveloped, providing significant potential for future production growth.
• The acquisitions increase Viper's exposure to the core of the Midland Basin.
• The acquisitions are expected to increase Viper's 2025 per share return of capital to Class A shareholders by an estimated 4-5%.
• The acquisitions provide a high level of confidence to the implied valuation metrics and expected accretion beyond just the next twelve months of visibility.

Negatives

• The cash portion of the acquisition is expected to be funded through a combination of cash on hand, borrowings under OpCo's revolving credit facility, and proceeds from one or more capital markets transactions, subject to market conditions and other factors.

Risks

• The closing of the Tumbleweed Royalty IV acquisition is subject to customary closing conditions and adjustments.
• The cash consideration is subject to market conditions and other factors.
• The contingent cash consideration is dependent on the average price of WTI crude oil in 2025.
• The success of the acquisitions is dependent on Diamondback's development plan.

Future Outlook

Viper expects the acquisitions to provide significant production growth over the coming years, with Diamondback-operated production increasing from an average of roughly 1,000 Bo/d in 2025 to approximately 3,000 Bo/d in 2026. Preliminary full year 2025 average daily production guidance of 30,000 to 33,000 Bo/d (53,000 to 58,000 Boe/d).

Management Comments

• Travis Stice, Chief Executive Officer of Viper, stated that the acquisitions are a continuation of Viper's strategy to consolidate high-quality mineral and royalty assets.
• Mr. Stice also noted that the acquisitions provide significant undeveloped inventory that supports Viper's long-term production profile.
• Grant Wright, President of Tumbleweed Royalty, stated that the assets are a natural fit for Viper.

Industry Context

This announcement reflects a trend of consolidation in the oil and gas industry, with companies seeking to acquire high-quality assets in core producing areas like the Permian Basin. The focus on undeveloped acreage suggests a long-term growth strategy.

Comparison to Industry Standards

• The acquisition of 3,727 net royalty acres in the Permian Basin is a significant transaction, comparable to other recent deals in the region.
• The production of 3,523 BOE/d from the acquired assets is a substantial contribution to Viper's overall production profile.
• The contingent payment structure based on WTI prices is a common practice in the industry, aligning the interests of both parties.
• The expected increase in Diamondback-operated production from 1,000 Bo/d in 2025 to 3,000 Bo/d in 2026 is a significant growth projection, indicating a strong development plan.
• The estimated 4-5% increase in per share return of capital to Class A shareholders is a positive metric, demonstrating the accretive nature of the acquisition.

Stakeholder Impact

• Shareholders are expected to benefit from the accretive nature of the acquisitions and the potential for increased returns.
• Employees may see increased opportunities as the company grows.
• Customers may benefit from increased production and supply.
• Suppliers may see increased demand for their services.
• Creditors may see increased security due to the company's growth and asset base.

Next Steps

• The Tumbleweed Royalty IV acquisition is expected to close on October 1, 2024, subject to customary closing conditions.
• Viper will need to complete the funding for the acquisition, which may include a capital raise.
• Viper will need to integrate the acquired assets into its operations and execute on Diamondback's development plan.

Key Dates

Keywords

Viper Energy, Tumbleweed Royalty, Acquisition, Permian Basin, Mineral Interests, Royalty Interests, Oil and Gas, Production, OpCo Units, Diamondback Energy