Viper Energy (VNOM) Q2 FY26 earnings call: guidance and Q&A

Unpack the rationale for changing the cash return strategy and how it reflects Viper's long-term value proposition and competitive advantage against E&P peers.

Kaes Van't Hof explained that the market wasn't rewarding the variable dividend yield, so they opted for a high, secure base dividend (4.5% yield, protected to $30/barrel WTI) to highlight Viper's unique position. This allows flexibility for share repurchases or M&A, addressing the market's mispricing of Viper's 17% CAGR in per-share growth and 15% annualized oil production growth.

“We kind of all came to the conclusion that the cash distribution yield was not being rewarded by the market. And instead, we figured that a very high base dividend yield that is higher than higher than majors, higher than our E&P competitors higher than mid-cap E&Ps, higher than utilities, but with a utility level of protection, should be something that gets rewarded by the market.”

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

How has M&A financing changed, moving towards self-funding deals instead of public market taps?

Kaes stated that the new framework, by retaining excess cash, gives Viper the flexibility to allocate capital to deals without needing to tap equity markets for every transaction. This reflects Viper "growing up" into a real company with more control over its capital.

“The company now has flexibility to allocate the rest of the free cash to either deals or repurchase shares or the balance sheet depending on which is the best value creation opportunity for the business.”

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

How can Viper continue to leverage its dominant size and strong balance sheet for future opportunities?

Kaes emphasized that if the market doesn't recognize Viper's value, they will continue aggressive share buybacks, treating the share count. He highlighted Diamondback's large ownership in Viper and its potential to buy more Viper shares, believing it's the best value proposition in the Permian.

“If the market doesn't realize the value, we're just going to keep buying them back. And that also applies to Diamondback. Diamondback is a large shareholder of Viper and Diamondback has a lot of free cash to do things with, too. And that could be buying more Viper because I just think we're pounding the table that relative to what else is out there, this is the best value proposition in E&P.”

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

Will the new base dividend framework shift Viper's hedging strategy, particularly regarding volatility?

Kaes stated they still like buying $50 puts to protect extreme downside, noting the base dividend is protected to $30 oil. He clarified that the base dividend is expected to grow meaningfully over time as production grows, share count shrinks, and debt is reduced, providing more capacity for dividend growth.

“I think generally, we like having buying these $50 puts just to protect the extreme downside Obviously, there's a huge gap between $50 and $30 oil where the base dividend is protected today. But we set the base dividend to grow and to grow meaningfully on a percentage basis.”

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

Any update on the opportunity set in new and emerging benches, particularly from leasing or third-party activity?

Kaes highlighted significant emergence in leasing on the Woodford and Delaware benches over the last couple of quarters. Viper has spent $25 million to $30 million on lease bonuses for deep pay, which typically implies a 3-year clock for operators to start development, leading to future production growth.

“I think the big emergence over the last couple of quarters has been, at least from a leasing perspective on the Woodford and the Delaware. So we've had five or six quarters now where we've been extremely active letting the Barnett and the Midland Basin. But the Woodford on the Delaware side as just really picked up over the last couple of quarters.”

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

How much activity does Diamondback have planned in high NRI areas like the Barnett and Spanish Trail?

Austen Gilfillian stated that if the upcoming pad in Spanish Trail/Barnett performs as expected, it will likely move to the top decile of their combined inventory for return and NPV. This would lead to rapid development of Spanish Trail in the Barnett. Kaes added that Viper consistently captures 75-80% of Diamondback's gross activity with a 6% average NRI.

“If that pad produces how we expect and the costs come in, how we expect, particularly since Diamondback not only has a high working interest in Spanish Trail, but Viper has the high NRI, full section development in the Barnett will probably move to the top decile of our combined inventory in terms of way to return plus NPV. So should the results be what we expect, we're going to mow down Spanish Trail very, very quickly in the Barnett.”

asked by Derrick Whitfield · answered by Austen Gilfillian

Beyond 2027, does Viper see potential for continued organic growth, or will the structure shift to higher returns/yield?

Kaes believes there's organic growth potential beyond 2027, primarily driven by Diamondback's development of the Barnett. He also noted that Viper aims to outperform basin growth by acquiring minerals in areas that get developed first.

“I think for what we can see there's certainly organic growth potential beyond 2027, particularly led by Diamondback development of kind of the Barnett, right? That that's going to drive the stuff we can see.”

asked by Jack Kavanagh · answered by Kaes Van't Hof

If stock buybacks don't effectively push Viper's stock higher, what would be the next steps or alternatives?

Kaes mentioned aiming for S&P 500 inclusion to broaden the investor universe. He reiterated that buying back shares below NAV at a reasonable rate of return should still create value for shareholders, regardless of immediate stock price movement. He expressed frustration with Viper's valuation compared to other royalty models.

“We have our sights set and obviously, you guys dream big. We'd like to get into the S&P 500 as a goal at some point. I think that opens us up to a broader investor universe.”

asked by Scott Hanold · answered by Kaes Van't Hof