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spk03: Welcome to the Viper Energy third quarter 2024 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Adam Wallace, VP of Investor Relations. Please go ahead.
spk04: Thank you, Stephen. Good morning, and welcome to Viper Energy Partners' third quarter 2024 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 Travis Tsai, CEO of Case Vantoff President, and Austin Gilfillan, Vice President. During this conference call, the participants may make certain forward-looking statements relating to the company's financial condition, 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'll now turn the call over to Travis Dice.
spk05: Thank you, Adam. Welcome, everyone, and thank you for listening to Viper Energy's third quarter 2024 conference call. The third quarter marked a continuation of Viper delivering on its differentiated strategy and value proposition and was highlighted by both continued organic production growth on our legacy asset base and the closing of the tumbleweed acquisitions. As we prepare to head into 2025, we look forward to further delivering on our strategy of consolidating high quality mineral and royalty assets through a disciplined and focused approach. Looking specifically at current operations, activity remains strong across our acreage position as represented by the substantial amount of work in progress and line of site wells. and we continue to benefit from Diamondback's large-scale development of our high-concentration royalty acreage. Importantly, Diamondback's merger with Endeavor, which closed during the third quarter, only enhanced this alignment as Endeavor was previously the second-largest third-party operator on VIPER's royalty assets in terms of both production and acreage. Bigger picture, We continue to believe that Viper presents a differentiated investment opportunity with zero capital or operating costs, alignment with a parent operating company that has helped Viper deliver consistent organic growth, and a current size and scale that positions us as a strategic consolidator in what remains a highly fragmented minerals and royalty space. In addition to these attributes, Our market presence and acquisition strategy has been greatly enhanced now that we are one year post-conversion to a Delaware corporation. Looking back 12 months later, we've witnessed a dramatic change in our investor base and trading liquidity. On this point, Viper was added to the S&P MidCap 400 in September following being added to the Russell 1000 during the second quarter. both of which are milestones that demonstrate the continued execution of our strategy in highlighting the advantage nature of mineral ownership and the unique value proposition that Viper presents within the space, as well as in the energy complex more broadly. Operator, please open the line for questions.
spk03: Thank you. At this time, we will conduct the question and answer session. As a reminder, to ask a question, you'll need to press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 again. Please stand by. We will compile the Q&A roster. Our first question comes from the line of Neil Dingman of Truist Securities. Your line is now open.
spk02: All right, Travis. Thanks for the time. Travis, my question for you and the team is on your future well activity, specifically last quarter. You know, you guys talked about it. I think 81 gross FANG wells with a 5.1% royalty interest and then 249 remaining with a 1.1. So my question is, when you look at your fourth quarter guide, excuse me, of the 29.5 deal per day, and then you think about 25 production, I'm just wondering, is this based on sort of a similar FANG versus other operators split? And, you know, would you anticipate the royalty interest of either of these changing much next year?
spk01: A couple points on that, really as it relates to the work in progress and line of site wells that we disclose. As you can see in the current stats with activity, we had a pretty material step up in the work in progress wells on the Dynabac operated side. That's really the legacy Dynabac and legacy Viper acreage, particularly selling Robertson Ranch there. northeast martin county um so that's going to drive a lot of the growth that we're going to see over the next two or three quarters um and then you kind of on the tail end of that have a big step up on the line of fight wells on the third party side you know so we added about five to six net wells in that bucket from the tumbleweed acquisition so we've got a pretty good portfolio effect now you know kind of following that growth on the diamondback side it's going to see a pretty big step up in the third party side um you know so overall feeling pretty good about activity and then you know not to mention As DynaVac continues to hire great activity plans post-Endeavor and post-Tumbleweed, we have a lot of that growth coming in 2026 that we talked about along with the Tumbleweed acquisition.
spk02: I look forward to that activity. Thanks, Austin. And then second question, just quickly on shareholder return and capital allocation specifically, is the goal to continue to pay out roughly around 85% of cash available for distribution? And I'm just wondering, how do you pair this with what you consider the sort of appropriate debt repayment quarterly?
spk04: Good question. I think the third quarter was a little unique because of the amount of shares added for the tumbleweed acquisition, particularly a good amount of shares added on October 1st in early Q4. I think what we decided to do as a board and a management team was to continue to be shareholder friendly and make our shareholders whole for you know, their participation in ownership of Viper through the third quarter. So, you know, the 83% was kind of a one-off. It's 8% higher than the 75% minimum commitment, but we felt it was necessary, you know, particularly for the added 10 million shares in October to make our Q3 investors whole. So sticking with 75, I think it's a really good number for this business. You know, the base dividend, well-protected, down to $30 a barrel, which is as low as anything in the space. you know, that's going to continue to grow. And, you know, our breakeven at Viper is going to continue to decrease as well as we continue to build, size, and scale and grow this business.
spk02: Makes sense. Thanks, guys.
spk04: Thank you, Neil.
spk03: Thank you. Our next question comes from the line of Betty Chiang of Barclays. Your line is now open.
spk00: Hello. Good morning again. I wanted to ask about the Endeavor mineral drop-down, just given it's such a significant event for Viper. Can we just talk through the timing and how you're thinking about the funding of that drop? How much debt could you take on at the Viper level? And how should we be thinking about Diamondback's share of exposure on that mineral activity side and the implication on growth from there.
spk04: Yeah, Betty, good question. You know, I think there's some things we can say as we continue to do a lot of work on the drop-down. I don't think we can give you perfect detail on everything. I think that's going to be up to the two boards to decide, you know, cash-stock mix. I do think overall, though, Both boards and management teams are very aligned that it's not prudent to lever up the sub in exchange for cash upstairs at the parent. I think you can assume a modest leverage increase that gets paid down very quickly on the cash side. I also think you can assume that Viper's done a lot of cap raises over the last year and a half and has continued to build its float in the ability to raise equity capital in the market and also reward those investors that participated in those capital raises. We've had three successful deals here over the last year and that momentum is very important for future success. And I think we also recognize the size of the trade means Diamondback's going to have to take back some equity, but taking back equity has been well rewarded for Diamondback shareholders as well. So I think that mix is going to stay. It's going to be a mix of those three things. I think there's work to do on value and accretion. And as we said on the Diamondback call, this is the number one priority. for both businesses to get this done and move on to more corporate development opportunities after that.
spk00: I appreciate that. I look forward to more details around that. My follow-up is thinking through the impact of the Endeavor merger on the visibility Viber has on Diamondback activity. I think the tumbleweed acquisition really highlighted the power of the symbiotic relationship with Diamondback and providing that visibility out to 2026 onward. With the Endeavor merger, how much work have you guys done so far in optimizing the Diamondback activity to give more visibility on the Viper mineral assets.
spk01: Yeah, Betty, it's definitely been a work in progress kind of with the Viper land and business development teams stacking hands with the Dimebag land and planning teams to see where Viper owns kind of concentrated interest in undeveloped units and kind of see where those can slot into the pro forma development plan and also how that might impact future acquisition opportunities, which is what we highlighted in the tumbleweed deal. So kind of as I was mentioning to Emil's question, you haven't really seen those show up in either what's classified as work in progress or line of sight wells yet, just given the lead times on the project size. Um, but you know, it's definitely something that the teams are working on together and I think would, would be a toe wind to 2026 and beyond, because as we mentioned, you know, Endeavor was previously the second largest third party operator on Vipers, uh, acres position. So definitely a sizeable opportunity set to kind of, um, high, high grade development plans.
spk00: I appreciate that. Thank you. Thanks, Betty.
spk03: Thank you. As a reminder to ask a question, you will need to press star one, one. Our next question comes from the line of Leo Mariani of Roth. Your line is now open.
spk06: Hi, guys. Totally appreciate that it's going to take some time for you guys to figure out the consideration in terms of cash stock mix for the endeavor drop-down. But I guess I just wanted to talk about sort of leverage parameters. I mean, you did mention you will increase leverage at Venom somewhat and then attempt to kind of quickly pay that down over time to kind of get back in line. Is there kind of like a – a max leverage number you think about, you know, for Venom as you're kind of working through some of that math and calculation?
spk04: Yeah, Leo, you know, I think, you know, a turn and a half on a pro forma basis seems reasonable. You know, we can debate what oil price that needs to be at, but, you know, somewhere around there because, you know, you think about the size of the business pro forma and the ability of the business to de-lever both from either growth or, you know, debt pay down is pretty unique, right? 75% of free cash goes to equity, 25% goes to the balance sheet, but at the end of the day, that cash flow stream is 100% free cash. I'm like an EMP that has a reinvestment rate. I think a turn and a half-ish on a pro forma basis that can come down very quickly makes a ton of sense. I think with Viper's increased size and scale, we're starting to get more attention from the rating agencies. appropriately so, moving up the rating scale and improving our overall cost of capital. So, you know, Viper is going to be a big business with a lot of free cash. And I think we, you know, have a goal of this business being a comp to, you know, mid-cap E&Ps as the E&P universe continues to shrink. You know, there's less and less Permian pure plays. Well, Look at this business called Viper with, you know, no CapEx, but exposure to some of the best rock in North America and the best operators in North America.
spk06: Okay, now that makes a lot of sense for sure. And obviously just looking at the Endeavor, you know, deal, obviously it looks like it will be the largest, you know, transaction in Viper history. Obviously the plan will be to pay down debt, you know, shortly after that. But you guys also mentioned that, you know, this will just continue to increase the, the size and scale of Venom and maybe make the company in an even better position to do more consolidation, you know, over time. So just kind of curious, you know, if the drop happens sometime in the first part of 25, do you envision that, you know, Venom will be in a position to look at other deals as we get later on in 25? And, you know, you obviously have a nice multiple advantage, I think, versus the other, you know, public, you know, equities, you know, in the mineral space. But Just wanted to see if you could give us kind of an update on how do you think about other deals, you know, post-drop, and do you think there's still a lot out there available, and, you know, what's the landscape, you know, for other deals in the space?
spk04: Yeah, I mean, I think, you know, I think certainly the business has been rewarded this year, and rightfully so. And, you know, while I won't comment on specific opportunities, I will say that there is a opportunity set out there for high quality mineral assets to be consolidated. I'll also say that, you know, our unique size and structural advantages that we offer tumbleweed caught the attention of a lot of significant mineral holders around the basin that, you know, recognize the viper can raise a good amount of cash but also give them something in the form of, you know, like we gave the OPCO units where they can defer taxes and still, you know, essentially hold an interest in mineral rights, but, you know, in a public setting where they can get liquidity. So I think those deals sparked a lot of interest. We're going to be picky. You know, I think we have a very unique market position, and we don't take that for granted.
spk06: Okay. I appreciate that. Thanks Leo.
spk03: Thank you. I am showing no further questions at this time. I would now like to turn it back to Travis Stice, CEO, for closing remarks.
spk05: Thank you again to everyone participating in today's call. If you have any questions, please contact us using the information provided.
spk03: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
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