Viper Energy (VNOM) Q1 FY26 earnings call: guidance and Q&A

What is the scale of remaining pure-play packages available for consolidation, and will Viper focus on smaller roll-ups or larger opportunities?

Viper expects to pursue both medium-sized tuck-in acquisitions, like Riverbend, and larger opportunities. The company is positioned as the buyer of choice for private equity-backed mineral positions, emphasizing discipline in valuation.

“I think we think we've positioned ourselves to be the buyer of choice for those midsized to larger deals.”

asked by Margaret Drefke · answered by Kaes Van't Hof

Can you provide more detail on the quality and geological differences of the 25% of Riverbend's asset base that does not overlap with Viper's existing assets?

The non-overlapping assets include new exposure in New Mexico with operators like Conoco, Oxy, and EOG, which Viper historically had less presence in. The Midland Basin overlap is primarily with Exxon and Diamondback in the Upton-Reagan area, with significant undeveloped acreage.

“So it's really a balanced mix. It gets a lot of what we like in the Midland Basin and get kind of some new exciting exposure in New Mexico that Viper historically hasn't had a huge presence in.”

asked by Margaret Drefke · answered by Kaes Van't Hof

How does Viper's capital allocation process differ from Diamondback's, particularly regarding the percentage of free cash flow returned and the allocation between buybacks and variable dividends?

Viper, as a distribution vehicle with low CapEx, prioritizes cash distributions (variable dividend) over share repurchases, which are used opportunistically. The company aims to distribute at least 75% of free cash, with flexibility up to 90% depending on commodity prices and debt reduction needs for acquisitions.

“We're going to lean more towards cash returns at Viper. It's kind of how the business was set up. I put the variable dividend probably a little bit above repurchases just because that's how the business was set up.”

asked by Wei Jiang · answered by Kaes Van't Hof

Can you elaborate on the potential for technical breakthroughs in reserve recovery in the Permian and how that might impact Viper's production growth?

While currently immaterial, advanced chemicals and surfactants could become a material part of Diamondback's capital plan and Viper's production profile in 4-6 years. Viper's broad acreage provides unique insights into various operator tests, which can be leveraged for improved returns across both companies.

“But just using the crystal ball 4, 5, 6 years down the road here, could that be a material part of Diamondback's capital plan and therefore, Viper's production profile, I think that's entirely possible.”

asked by Wei Jiang · answered by Kaes Van't Hof

Beyond Diamondback's boost, what other upside from third-party activity is assumed in the production guide?

The current guide does not bake in significant third-party acceleration, but leading indicators (permits, DUCs) suggest it's likely to come, especially with current oil prices. The biggest driver will be the conversion rate of permits and DUCs to production.

“We haven't booked a ton of third-party acceleration or faster development yet in our guide. I think I think it's likely to come, but we haven't seen -- we've seen the leading indicators.”

asked by Neal Dingmann · answered by Kaes Van't Hof

How has recent volatility impacted the bid-ask spread for M&A deals, particularly for larger packages?

The Riverbend deal is the only recent data point. The backwardated strip allows underwriting deals at moderate flat oil prices ($65-$70/barrel), aligning NAV with mid-cycle prices despite high front-end cash flow multiples. While bankers are actively exploring the market, no other deals have hit the market yet.

“I think what's interesting about that deal is the strip is so backwardated that we can actually underwrite a relatively moderate flat oil price scenario for the NAV of that deal, call it, $65, $70 a barrel, and that actually isn't too far off from where the strip is.”

asked by Paul Diamond · answered by Kaes Van't Hof

Given the prior sale was mostly Diamondback, is there a price at which Viper would not participate if unnatural holders come to market, and how does the company manage volatility from such sales?

Viper's participation depends on the deal size and nature. For sizable deals, the company would participate to ensure a smooth process for public shareholders. For smaller, one-off sales, it may not be necessary given increased float and liquidity. Flexibility and the 'size of the prize' are key considerations.

“I think if it's a sizable deal and we need to participate to make sure it goes smoothly with public shareholders, then we want the long-term holders of the stock to win long term. So we know that, that's probably a good use of capital.”

asked by Timothy Rezvan · answered by Kaes Van't Hof