Viper Energy Partners LP, a subsidiary of Diamondback Energy, Inc. announced financial and operating results for the second quarter ended June 30, 2021.
SECOND QUARTER HIGHLIGHTS
• Q2 2021 average production of 16,516 bo/d (27,352 boe/d)
• Q2 2021 consolidated net income (including non-controlling interest) of $42.4 million; adjusted net income (as defined and reconciled below) of $51.0 million
• Q2 2021 cash distribution of $0.33 per common unit, representing approximately 70% of total cash available for distribution of $0.47 per common unit; $0.33 distribution implies a 7.3% annualized yield based on the July 30, 2021 unit closing price of $18.01
• Consolidated adjusted EBITDA (as defined and reconciled below) of $83.3 million and cash available for distribution to Viper’s common units (as reconciled below) of $30.3 million
• Repurchased 403,163 common units in Q2 2021 for an aggregate of $6.8 million; from the end of the second quarter through July 30, 2021, Viper repurchased an additional 294,921 common units for an aggregate of $5.1 million
• Ended the second quarter of 2021 with total long-term debt of $541.9 and net debt of $499.5 million (as defined and reconciled below); net debt down $130.3 million since June 30, 2020, or an approximately 21% reduction over the past twelve months
• 184 total gross (3.3 net 100% royalty interest) horizontal wells turned to production on Viper’s acreage during Q2 2021 with an average lateral length of 8,638 feet
• Initiating average daily production guidance for the second half of 2021 of 15,500 to 16,250 bo/d (25,750 to 27,000 boe/d)
• Increasing full year 2021 average daily production guidance to 15,750 to 16,250 bo/d (26,250 to 27,000 boe/d), an increase of approximately 2% at the midpoint
• As of July 12, 2021, there were approximately 467 gross horizontal wells in the process of active development on Viper’s acreage in which Viper expects to own an average 1.8% net royalty interest (8.3 net 100% royalty interest wells)
• Approximately 496 gross (7.2 net 100% royalty interest) line-of-sight wells on Viper’s acreage 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 Diamondback’s current completion schedule and third party operators’ permits
• A portion of distributions paid in 2021 are reasonably estimated to not constitute dividends for U.S. federal income tax purposes. Approximately 80% are estimated to constitute non-taxable reductions to tax basis.
“Viper’s production during the second quarter was supported by concentrated exposure to Diamondback’s Midland Basin development plan, as well as increasing activity from third party operators. As a result of this strong production, and enhanced by our best-in-class cost structure, Viper generated over $75 million in net cash from operating activities during the quarter. This strong cash flow generation, and the resulting continued decrease in net debt, has enabled Viper to increase our distribution to common unitholders to 70% of cash available for distribution. This increase in our distribution marks the second consecutive quarter of increasing return of capital to unitholders, and the $0.33 per common unit distribution represents a 32% increase from the first quarter distribution,” stated Travis Stice, Chief Executive Officer of Viper’s General Partner.
Mr. Stice continued, “Looking ahead, Viper has increased its production outlook for 2021 and continues to maintain visibility into Diamondback’s expected forward development plan that includes several large pads where Viper will own a significant royalty interest. With the balance sheet in strong shape and the current distribution representing a greater than 7% yield, Viper plans to retain 30% of its cash flow during the coming quarters to focus primarily on acquiring additional royalty interests that are operated by Diamondback as well as continuing to repurchase common units under our repurchase program approved by the Board. Viper’s acquisition strategy is unique in the minerals industry in that we have a clear understanding of our parent company’s expected development plans, where others must rely on existing permits or other signs of development to give confidence in future cash flows.”
Viper’s second quarter 2021 average unhedged realized prices were $62.51 per barrel of oil, $2.96 per Mcf of natural gas and $22.21 per barrel of natural gas liquids, resulting in a total equivalent realized price of $45.58/boe.
During the second quarter of 2021, the Company recorded total operating income of $114.2 million and consolidated net income (including non-controlling interest) of $42.4 million.
As of June 30, 2021, the Company had a cash balance of $42.4 million and total long-term debt outstanding (excluding debt issuance, discounts and premiums) of $541.9 million, resulting in net debt (as defined and reconciled below) of $499.5 million. Viper’s outstanding long-term debt as of June 30, 2021 consisted of $479.9 million in aggregate principal amount of its 5.375% Senior Notes due 2027 and $62.0 million in borrowings on its revolving credit facility, leaving $438.0 million available for future borrowings and $480.4 million of total liquidity.
Viper entered into an amendment to its revolving credit facility in June 2021 where its borrowing base of $580.0 million was reaffirmed and the Company elected a commitment amount of $500.0 million. Additionally, the facility’s maturity date was extended to June 2025 from November 2022.
SECOND QUARTER 2021 CASH DISTRIBUTION & CAPITAL RETURN PROGRAM
The Board of Directors of Viper’s General Partner declared a cash distribution for the three months ended June 30, 2021 of $0.33 per common unit. The distribution is payable on August 19, 2021 to eligible common unitholders of record at the close of business on August 12, 2021. This distribution represents approximately 70% of total cash available for distribution.
On March 11, 2021, and May 20, 2021, Viper made a cash distribution to its common unitholders and subsequently has reasonably estimated that a portion of such distribution, as well as the distribution payable on August 19, 2021, should not constitute dividends for U.S. federal income tax purposes. Rather, approximately 80% of these distributions are estimated to constitute non-taxable reductions to the tax basis of each distribution recipient’s ownership interest in Viper.
During the second quarter of 2021, Viper repurchased 403,163 common units for an aggregate of $6.8 million. From the end of the second quarter through July 30, 2021, Viper repurchased an additional 294,921 common units for an aggregate of $5.1 million. In total through July 30, 2021, the Company had repurchased 3,613,049 common units at an average price of $13.54 per unit, utilizing approximately 49% 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 second quarter of 2021, Viper estimates that 184 gross (3.3 net 100% royalty interest) horizontal wells with an average royalty interest of 1.8% were turned to production on its existing acreage position with an average lateral length of 8,638 feet. Of these 184 gross wells, Diamondback is the operator of 24 gross wells with an average royalty interest of 10.9%, and the remaining 160 gross wells, with an average royalty interest of 0.4%, are operated by third parties.
During the second quarter of 2021, Viper had immaterial acquisitions or divestitures of mineral and royalty interests, bringing the Company’s footprint of mineral and royalty interests as of June 30, 2021 to a total of 24,341 net royalty acres.
There continues to be active development across Viper’s asset base with near-term activity expected to be driven primarily by Diamondback operations. The 467 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 496 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 Diamondback’s current expected completion schedule. Existing permits or active development of Viper’s royalty acreage does not ensure that those wells will be turned to production.