Viper Energy Partners LP, a subsidiary of Diamondback Energy, Inc. announced financial and operating results for the fourth quarter and the full year ended December 31, 2020.
FOURTH QUARTER HIGHLIGHTS
- Q4 2020 average production of 17,359 bo/d (27,699 boe/d), an increase of 10% from Q3 2020 average daily oil production and 5% year over year
- Q4 2020 cash distribution of $0.14 per common unit, representing approximately 50% of cash available for distribution; $0.28 per unit of cash available for distribution implies a 7.0% annualized distributable cash flow yield based on the February 19, 2021 unit closing price of $15.96
- Q4 2020 consolidated net loss (including non-controlling interest) of $(52.7) million; adjusted net income (as defined and reconciled below) of $14.2 million
- Consolidated adjusted EBITDA (as defined and reconciled below) of $51.0 million and cash available for distribution to Viperís common units (as reconciled below) of $18.4 million
- Repurchased 2,045,000 common units in Q4 2020 for an aggregate of $24.0 million
- Generated $42.0 million in one-time proceeds from asset sales during the fourth quarter of 2020, including the divestiture of 352 net royalty acres for an aggregate of $36.3 million
- Ended the fourth quarter of 2020 with net debt of $544.8 million (as defined and reconciled below); total debt down $109.6 million since March 31, 2020, or a 16% reduction over the past nine months
- 80 total gross (2.1 net 100% royalty interest) horizontal wells turned to production on Viperís acreage during Q4 2020 with an average lateral length of 10,012 feet
- Q3 2020 and Q4 2020 distributions reasonably estimated to not constitute dividends for U.S. federal income tax purposes; instead should generally constitute non-taxable reductions to the tax basis
FULL YEAR 2020 HIGHLIGHTS
- Full year 2020 average production of 16,272 bo/d (26,551 boe/d), an increase of 16% from full year 2019 average daily oil production
- Proved reserves as of December 31, 2020 of 99,392 Mboe (73% PDP, 57,530 Mbo), up 12% year over year with oil up 6% from year end 2019
- 514 total gross (13.8 net 100% royalty interest) horizontal wells turned to production during 2020 with an average lateral length of 9,395 feet
- Generated $49.4 million in one-time proceeds from asset sales during 2020
- All 2020 quarterly distributions reasonably estimated to not constitute dividends for U.S. federal income tax purposes; instead should generally constitute non-taxable reductions to the tax basis
2021 OUTLOOK AND FIRST QUARTER UPDATE
- Viper expects the production impact from the recent winter storms in the Permian Basin will be in the range of four to five days of total net production lost during February for Diamondback operated properties, with a slightly greater negative impact expected for third party operated properties. As a result, Viper has adjusted its guidance accordingly.
- As of February 8, 2021, there were approximately 529 gross horizontal wells in the process of active development on Viperís acreage, in which Viper expects to own an average 1.5% net royalty interest (8.2 net 100% royalty interest wells)
- Approximately 538 gross (9.0 net 100% royalty interest) line-of-sight wells that are not currently in the process of active development, but for which Viper has visibility to the potential of future development in coming quarters, based on Diamondbackís current completion schedule and third party operatorsí permits
- Initiating average daily production guidance for the first half of 2021 of 14,250 to 15,750 bo/d (23,750 to 26,250 boe/d)
- Initiating full year 2021 average production guidance of 14,750 to 16,000 bo/d (24,500 to 26,500 boe/d)
ďViperís business has rebounded strongly from the unprecedented volatility experienced throughout 2020 as commodity prices have increased and activity has returned to Viperís acreage. This recovery again highlights both the advantaged nature of the royalty business model, as well as the benefit of Viperís symbiotic relationship with Diamondback. During the fourth quarter of 2020, we were able to generate more than $40 million in one-time proceeds from asset sales, which, in addition to the roughly $50 million in net cash provided by operating activities that the business delivered, helped accelerate our debt reduction and kick start our common unit repurchase program. We have now reduced total debt by 16% over the past nine months and have repurchased more than 2.5 million common units in the last three months, or a repurchase of 1.6% of our previous total units outstanding,Ē stated Travis Stice, Chief Executive Officer of Viperís General Partner.
Mr. Stice continued, ďViperís 10% quarter over quarter increase in oil production was driven primarily by Viper having an interest in 21 of Diamondbackís 35 completions in the fourth quarter of 2020, with well performance exceeding internal expectations. Viper also benefited from third party well performance and timing of wells being turned to production that exceeded our prior conservative expectations that were lowered due to the uncertainty presented by the volatile oil prices experienced in 2020. Looking ahead to 2021, Diamondbackís continued focus on developing Viperís acreage, as well as exposure to other well-capitalized operators in the Permian Basin, underscores our confidence in Viperís forward production and free cash flow outlook, even considering the impact of the recent winter storms in the Permian Basin.Ē
Viperís fourth quarter 2020 average unhedged realized prices were $40.36 per barrel of oil, $1.36 per Mcf of natural gas and $14.71 per barrel of natural gas liquids, resulting in a total equivalent realized price of $29.48/boe.
During the fourth quarter of 2020, the Company recorded total operating income of $76.3 million and a consolidated net loss (including non-controlling interest) of $(52.7) million. The fourth quarter net loss includes a non-cash impairment charge of $69.2 million as a result of lower SEC pricing because of the sharp decline in commodity prices.
As of December 31, 2020, the Company had a cash balance of $19.1 million. During the fourth quarter of 2020, Viper repaid $42.5 million of outstanding borrowings under its revolving credit facility and, as of December 31, 2020, had $496.0 million available for borrowing under this facility. Since the end of the first quarter of 2020, Viper reduced total debt by $109.6 million, or a 16% reduction over this time period.
FOURTH QUARTER 2020 CASH DISTRIBUTION & CAPITAL RETURN PROGRAM
The Board of Directors of Viperís General Partner declared a cash distribution for the three months ended December 31, 2020 of $0.14 per common unit. The distribution is payable on March 11, 2021 to eligible common unitholders of record at the close of business on March 4, 2021. This distribution represents approximately 50% of total cash available for distribution.
On November 19, 2020, Viper made a cash distribution to its common unitholders and subsequently has reasonably estimated that such distribution, as well as the distribution payable on March 11, 2021, should not constitute dividends for U.S. federal income tax purposes. Rather, these distributions should generally constitute non-taxable reductions to the tax basis of each distribution recipientís ownership interest in Viper.
During the fourth quarter of 2020, Viper repurchased 2,045,000 common units for an aggregate of $24.0 million. From the end of the fourth quarter through February 12, 2021, Viper repurchased an additional 488,453 common units for an aggregate of $7.0 million. In total through February 12, 2021, the Company repurchased 2,533,453 common units, utilizing approximately 30.9% of the $100.0 million approved by the Board for the repurchase program.
The repurchase program is authorized to extend through December 31, 2021 and the Company intends to purchase common units under the repurchase program opportunistically with cash on hand, free cash flow from operations and proceeds from potential liquidity events such as the sale of assets. This repurchase program may be suspended from time to time, modified, extended or discontinued by the Board at any time. Purchases under the repurchase program may be made from time to time in open market or privately negotiated transactions in compliance with Rule 10b-18 under the Securities Exchange Act of 1934, as amended, and will be subject to market conditions, applicable legal requirements, contractual obligations and other factors. Any common units purchased as part of this program will be retired.
OPERATIONS AND ACQUISITIONS UPDATE
During the fourth quarter of 2020, Viper estimates that 80 gross (2.1 net 100% royalty interest) horizontal wells with an average royalty interest of 2.6% were turned to production on its existing acreage position with an average lateral length of 10,012 feet. Of these 80 gross wells, Diamondback is the operator of 21 with an average royalty interest of 5.6%, and the remaining 59 gross wells, with an average royalty interest of 1.6%, are operated by third parties.
During the fourth quarter of 2020, Viper acquired seven net royalty acres for an aggregate purchase price of $0.8 million. Additionally during the fourth quarter, the Company sold 352 net royalty acres in the Permian Basin for an aggregate of approximately $36.3 million, subject to post-closing adjustments. As a result of these acquisitions and divestitures, Viperís footprint of mineral and royalty interests as of December 31, 2020 was 24,350 net royalty acres.
There continues to be active development across Viperís asset base with near-term activity expected to be driven primarily by Diamondback operations. The 529 gross wells currently in the process of active development are those wells that have been spud and are expected to be turned to production within approximately the next six to eight months. The 538 line-of-sight wells are those that are not currently in the process of active development, but for which Viper has reason to believe that they will be turned to production within approximately the next 15 to 18 months. The expected timing of these line-of-sight wells is based primarily on permitting by third party operators or Diamondbackís current expected completion schedule. Existing permits or active development of Viperís royalty acreage does not ensure that those wells will be turned to production.
YEAR END RESERVES UPDATE
Ryder Scott Company, L.P. prepared an estimate of Viperís proved reserves as of December 31, 2020. Reference prices of $39.57 per barrel of oil and natural gas liquids and $1.99 per MMbtu of natural gas were used in accordance with applicable rules of the Securities and Exchange Commission. Realized prices with applicable differentials were $37.61 per barrel of oil, $0.34 per Mcf of natural gas and $11.65 per barrel of natural gas liquids.
Proved reserves at year-end 2020 of 99,392 Mboe (57,530 Mbo) represent a 12% increase over year-end 2019 reserves. The year-end 2020 proved reserves have a PV-10 value (as defined and reconciled below) of approximately $1.0 billion.
Proved developed reserves increased by 5% year over year to 72,547 Mboe (40,220 Mbo) as of December 31, 2020, reflecting continued horizontal development by the operators of Viperís acreage.
Net proved reserve additions of 20,163 Mboe resulted in a reserve replacement ratio of 207% (defined as the sum of extensions, discoveries, revisions, purchases and divestitures, divided by annual production). The organic reserve replacement ratio was 203% (defined as the sum of extensions, discoveries and revisions, divided by annual production).
Extensions and discoveries of 23,836 Mboe are primarily attributable to the drilling of 652 new wells and from 299 new proved undeveloped locations added. The Companyís negative revisions of previous estimated quantities of 4,082 Mboe were primarily due to negative price revisions and PUD downgrades. 114 Mboe of PUDs were downgraded from non-operated properties and 804 Mboe of PUDs were downgraded from Diamondback-operated properties, with the Diamondback-operated downgrades due to changes in the development plan and optimization of the inventory. The purchase of reserves in place of 689 Mboe was due to multiple acquisitions of certain mineral and royalty interests.