Viper Energy Inc (VNOM) 2025 Q4 法說會逐字稿

Good day, and thank you for standing by. Welcome to the Viper Energy fourth-quarter 2025 earnings conference Call. (Operator Instructions). After the speakers' presentation, there will be a question-and-answer session. (Operator Instructions). Please be advised that today's conference is being recorded.

I would now like to hand the conference over to your first speaker today, Chip Seale, Investor Relations Director. Please go ahead.

Thank you, Britney. Good morning, and welcome to Viper Energy's fourth-quarter 2025 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 Kaes Van't Hof, CEO; and Austin Gilfillan, 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 will now turn the call over to Kaes.

Thank you, Chip. Welcome, everyone, and thank you for listening to Viper's fourth-quarter 2025 conference call. The fourth-quarter capped a transformational year for Viper highlighted by more than $8 billion of mineral acquisitions and meaningful growth in both absolute and per share metrics.

Year-over-year, we grew our Permian Basin acreage by nearly 2.5 times and our oil production per share by 7%. Activity across our Permian acreage remains strong, supported by Diamondback and third-party operators focused on development of long lateral high-quality inventory. Looking ahead, we've initiated average daily production guidance for the full year 2026 that implies mid-single-digit organic production growth from our Q4 2025 exit rate.

The Diamondback relationship continues to be strategic and meaningful to Viper's growth even after two significant acquisitions in 2025 and greater exposure to other leading operators in the Permian Basin. Beyond visible near-term growth, Viper is better positioned today than we ever have been in terms of the scale, longevity and overall quality of our asset base and future inventory.

Another significant achievement was the work we did on our balance sheet. Following our non-Permian divestiture, we fully repaid our $500 million term loan and outstanding revolver balance resulting in pro forma net debt of roughly $1.6 billion, just over one turn of leverage.

Now turning to return of capital. Our Board approved a 15% increase to our base dividend and a $1 billion increase to our share repurchase authorization reflecting confidence in our long-term cash-generating ability and disciplined capital allocation approach.

This base dividend represents approximately 50% of estimated 2026 free cash flow at $50 WTI and is fully covered below $30 WTI. This increased base dividend provides an attractive yield while also allowing us continued financial flexibility to optimize capital allocation through additional returns via a combination of our variable dividend and opportunistic share repurchases. Given the strength of our balance sheet, we returned 90% of available cash during the fourth-quarter. And now following the closing of our non-Permian divestiture, we are well positioned to increase our return of capital saw upwards of 100% of cash available for distribution.

Importantly, we expect to execute on this comprehensive return of capital strategy while also continuing to deliver on differentiated growth in per share metrics.

I'm pleased with our accomplishments in 2025 and the strong position Viper is in today, but there's still much to achieve. Looking ahead, Viper is well positioned to generate strong free cash flow deliver attractive shareholder returns and continue to pursue accretive Permian consolidation opportunities as they arise.

Operator, please open the line for questions.

At this time, we will conduct the question-and-answer session.

(Operator Instructions)

Neil Dingmann, William Blair.

Kaes, my first question for you, Austin is just on the Barnett specifically last night and this morning, things Barnett update really seem to be positive and certainly, I think, positive for Venom. I'm just wondering, could you give any color on how Venom's ownership translates across Bain's Barnett position.

Yes. I'll give you some of the high level. I mean, I think that's what we continue to try to preach at Viper is the benefits of mineral ownership and you own from the surface of the earth to the center of the earth and perpetuity and as operators try new things or try new zones or try new techniques. The benefit of that accrues to the mineral owner without the need to spend capital or take too much risk. So pretty exciting for Viper. We kind of kicked this off a couple of years ago in terms of leasing but also going to give some color on where we are today and what we're seeing.

Yes. No, we're still early stages on the actual leasing program. So Diamondback directly and also in some of the JVs that they've done have been very active in taking new leases from by Vertiv to give them the right to develop those deeper zones in the Midland Basin.

Now Spanish Troll was a big chunk of that. that we leased with Diamondback back in 2023. But as we sit here today, I would say we're still only at least about 10% to 15% of the acreage that would potentially be open in the Midland Basin. So that should be a tailwind to come both from a refocus perspective, but also new inventory locations that are going to come into play and kind of support the production profile over the years to come.

Great point, Austin. And then second question, just on return of capital. Specifically, now you've mentioned that you're positioned to return upwards to 100% of cash available from distribution in addition to the share growth. And I'm just wondering, it looks like last quarter, about 41% of the cash build for distribution with base dividend and then followed by what was it, 27 buyback, 23 variable and 9% debt repayment.

How -- will this stay in this range or Austin, is this just largely share price dependent? Or I mean I'm just thinking more on sort of broad terms and ranking should we -- will we see the base dividend still probably be the highest? Or how should we think about it?

Yes. I mean, listen, the Board decided to increase the base dividend by 15%. I think that's a meaningful number. I think it shows that we've done a good amount of accretive deals, balance sheet is strong, that's always going to be the first call on capital. We've also said, "hey, when we get to $1.5 billion or $1.6 billion of net debt, we're going to ramp the shareholder returns to almost 100%."

And I think we're there. I think it all depends on the market and the stock price and where things are headed. Obviously, the decision to buy back shares is less obvious today than it was $37 a share. But we think we recognize that -- we have done a lot of accretive buybacks at Viper. We'll probably be ready should any of our non-traditional holders like the private equity owners want to sell, and we'll help them get out like we did in Q4, we bought back 1 million shares directly from one of the private equity holders.

So just having that flexibility is key. But in general, I think shareholders still want a lot of cash back. And at these prices with commodity improving and the stock price improving, would probably lean more towards cash return outside of unique situations.

Betty Jiang, Barclays.

My question is on the third-party activity outlook that you're seeing there. I think given the rig count declines in the Permian, it's notable how resilient Diamondback or Viper third-party activity has been holding up fairly well in the last few quarters. Where are you seeing today in terms of your activity backlog? Are you seeing any slowdown at all? Or could this be another area that perhaps it's enhancing the production growth that you might see this year?

Yes. Good question, Betty. We really haven't seen much of a slowdown at all across the third-party activity. We've got some new disclosures in this quarter on pages 14 and 15 of the day that break down kind of some of the key third-party operators by both the Midland and Delaware Basin. And kind of as you look through that list, right, it's dominated by some of the larger players in the industry.

So I think that's really helped. I think also it's just kind of supportive of the view that we've had of trying to acquire high-quality royalty interest. And as you look at the amount of activity that our acreage position is captured over the years, it's -- it's really been consistent in capturing pretty much 50% of everything that happens by third parties across the entire basin and then you get the kicker of the concentrated development by Diamondback as well.

So -- we'll see what happens over the course of the year. Right now, the guidance when it takes into account what we can see, meaning existing doses and permits. So if activity holds like it can today, that might help with it on the production outlook. But overall, I would say that the key takeaway is the third-party activity continues to be very strong.

Yes. Betty, we always put our operator hat on when we're buying minerals. So we always bought under well-capitalized operators from a third-party side in acreage that we cover. And that usually means that acreage that we cottages developed first, which is why we've had such strong activity levels on the third-party side.

Yes. No, that makes sense. And I can't really see how resilient activity broadly despite the basin overall levels. A follow-up on the lease bonus. And it's related to the Barnett or the deeper zones as well; lease bonus have been coming in fairly strong in 2025 and got another decent quarter in 4Q. As the basin continue to chase deeper zones, how does that benefit you guys from the lease bonus income perspective?

Yes. I mean it's any time of lease comes available, whether it be because of a vertical well doesn't hold down to these new emerging deep rights or an operator fails to fulfil some of the requirements in the lease, meaning drilling well by a certain day or producing a certain amount of production, that lease would terminate and those rights revert back to us as the mineral owner and then we can go take a new lease and did that lease bonus and kind of set the clock again on the development requirements.

We've spent a lot of time and effort building teams and systems and processes here to manage all of those tens of thousands of leases and the production data associated with that, so we can really proactively manage that and have an active leasing program. I think you're seeing that benefit play out with the lease bonus that we achieved last year and really over the last couple of years.

I think that's going to be a continuing theme, both from a deep rich perspective as well as just operators needing to meet continuous drilling requirements and overall, the rig count being lower, so that being harder for certain operators to fill.

Neil Mehta, Goldman Sachs.

What's the environment out there right now in terms of the bid-ask for other royalty assets? Is there another city in and out there or a lot of the big price has already been taken?

Yes. I mean it's a good question. Minerals are interesting. When commodity prices are lower, there's not really a need to sell unless there's some other use of proceeds that the seller has. So there hasn't been a ton of large deals for us to look at over the last six months or so.

And I think, generally, investors wanted a little bit of a break from deals at Viper, big deals in particular and proved that we could integrate Cito and the drop-down and we've done that. But I'd say we're ready to look at and larger deals, they're just kind of hard to get done at these prices. And Neil, that kind of ties to the thesis around the fibre balance sheet and return of capital. We kind of said, "hey, listen, debt-to-EBITDA at Viper is very close to debt to free cash flow and $1.5 billion of debt, we're well protected at $50 oil, but also at $50 oil, we don't need a ton of cash for deals, because it's harder to get them done.

So that's kind of why we set that debt target. And as you think about going above that, as prices recover, I think the psyche for sellers changes, and we might be able to get some deals done. But -- from a size perspective, it's been hard to get really big deals done over the last few quarters. We've done a couple of small things that add up over time. But that's kind of how I see the market. Austen, do you want to add anything?

No, I agree. The ground game, as we call it, it's tough off here, but we have a team dedicated to that. And I think we have the relationships in the basin to get some good value adds that help on the margin. I think to case's point there are bigger strategic deals to be done. When the time is right, we just haven't seen those over the last couple of quarters, more so because of the commodity price environment.

That's great, guys. And then the follow-up is just geography. I mean it seems like the position is certainly more concentrated on the Midland side, and that's where you have the asset overlap. But with the parent how does Delaware fit into the portfolio? Where specifically could you see yourselves leaning in from an activity perspective?

And then I think I know the answer to this, but this is a Permian pure-play story, right? We would be surprised if you try to diversify outside of that.

Yes, it's difficult story. I think the unique attributes of the Permian with the stack pay and the emerging zones and kind of also some of the modern lease causes really benefits you more as a mineral owner even more so than some of the obvious things that you would appreciate from the operating perspective. It's so we know it's what we know, and I think most of the sizable deals here exists in the Permian, given the still very highly fragmented royalty ownership across Texas and New Mexico.

For us on the royalty side, I think we still see a lot of value in the Delaware Basin. It's a little bit of a different story, given that you're not going to be able to rely on the Diamondback drill bit to drive that visible growth. But as we dig in, there's still some really high-quality unbilled locations there and that exist under well-capitalized operators.

And that's kind of how we view it, right, just like what is the likelihood of that next inventory location getting developed. And for us, we get that confidence to either be a knowing buying-back development plan or by just looking at what the operator economics are. And I think a lot of that exists today, and especially in the Northern Delaware. So we'll focus there where we can. But for us, rock is rock and value is value. So it will just kind of be depending on the assets that are available.

Kalei Akamine, Bank of America.

My first question is on the 2026 oil guide. It's quite wide. Wondering what that reflects. Is it visibility that you have on the activity? Or is it performance related as person the basin are trying out new stuff -- and if it's visibility related, is it fair to say that visibility is better near term and less so in the second half of the year?

That's right, Kalei. Mainly on the second point. So -- on the third-party operative side, we have the same visibility that you do really being that is limited to existing DUCs and permits. If you look at conversion rates and also the conversion timelines on wells that have been drilled currently that those typically get converted to production within about five to six months.

So we feel very good about the first half of the year and what that growth outlook looks like. As we move to the second half of the year, it becomes a little bit more tricky cash list. And having conversion rates and timelines on permits. So we've modelled the permits that we can see today. But as we progress through the year and potentially activity gets brought forward or new wells get permitted that are included in the guide -- that could help move you up to the higher end of the range. And really, the wide guide right now is just that we can only guide to what we see today. And a lot will happen that we don't know about today in the back half of the year.

My second question is on the gas contracts that were announced at Diamondback that are starting up later this year. To the extent that secures higher gas realizations, wondering if that also benefits Viper on the revenue side?

Yes. We do everything essentially heads up between Viper and Diamondback. So any marketing contract benefit rolls through. It won't be for all of all of Viper's production, but for a good majority, the gas realization thesis works pretty well for Viper too. Particularly now on the third-party side, debottleneck Permian, given the Viper Delaware exposure, it could be a good positive rate of change story as well.

I hope you guys don't mind me trying the third question, but I imagine that there's a portfolio of lower zone rights at Viper. Maybe not all of that is viewed as being competitive today, given where the activity on the Midland side of the basin has been, but the proportion that is competitive, should we assume that's already been transferred to Diamondback?

Not all of it has been leased yet. There's still a lot of unleased deep rights that diver. And as we get closer to development at Diamondback, it's logical that Viper will be a first call. We got do things on a market basis and a heads-up basis, but this relationship between parent and sub, mineral owner, and operator, I think, is going to pay some long-term dividends with deeper zone development.

I think the great example was we leased Spanish Trail, which is 100% of the minerals are owned by Viper. That's what started this business 15 or 11 years ago going public. And a 10,000-acre block and 100% NRI is as good as it gets in the Permian Basin.

Derrick Whitfield, Texas Capital.

I wanted to start on the Barnett. Regarding the interval and the 200,000 net acres you referenced for Diamondback earlier today, how much coverage do you specifically have with Viper? And does Diamondback have any activity planned at Spanish Trail, the area you were just mentioning, which you guys have a very high NRI for.

Yes. So without getting into the specifics, I would say a lot of the work that Dynatec has done has kind of been with third-party -- we had a big chunk kind of in the 10,000 to 15,000 acre block in San to, which is going to provide a great alignment between Diamondback and Viper. I think Dynatec had a little bit more flexibility to handle the leases with Viper as they come up and a bit more term on the development plan, whereas a lot of what they've done has kind of been more bigger strategic options.

So I think you'll see the alignment continue to improve as we progress through the year. And then on mantra, I think if you listen to the Dynatec call, there's been some references some offset test, but the first two wells that are going to be tested on Spanish truck proper, -- those wells have been permitted and should have production kind of in the mid-part of this year.

So very excited to see those results and see what that might mean for going back to apply more for full-scale development approach where Viper owns 100% of generals.

Yes. No question, great development for Viper. And maybe just going back to some of your M&A comments earlier on the ground game. With the inclusion of the Cito guys who had really focused on the ground game, I guess how would you characterize the growth you're seeing in organic additions throughout 2025 and kind of what you see ahead for you in 2026.

Yes. I mean listen, we're continuing to look at every deal that crosses our desk, right? We're in the flow. We know everybody. They're bringing us deals. I could say it not that we're not getting anything done. It's just that from a materiality perspective; it takes a lot more effort on the ground game to equal something of the scale that we did last year.

So don't count out the ground game. I think that's still going to be an important part of the story. It's just going to have to add up over time. And then you have the big deals really moving the needle from a size, scale and flow and liquidity perspective.

Paul Diamond, Citi.

So one sticking on M&A. You guys have been kind of progressing towards that $1 billion have net debt number, one turn in leverage. I guess, in the presence of the potential you're potentially larger deals is how much are you with increased scale, how much you will flex that out?

Yes. I mean, I think we probably feel like a little bit 1.5 turns, a little bit above that as a stretch and then you pay it down wouldn't hurt. I think we're very cognizant of maintaining and improving our ratings profile. Getting to investment grade was a big deal for us last year. Pretty unique access to capital at Viper versus peers in the space.

So I wouldn't want to stretch the balance sheet. And I think our currency offers a very unique opportunity for sellers as well. We've done a few of these deals with OpCo units where taxes can be deferred and a lot of large mineral owners -- mineral owners have very little basis in their -- in their minerals and like that tax deferred status. So we stretch a little bit. I think half a turn of leverage is a big number now, which is a good thing. And any deal that we do is going to come with significant cash flow. So that's how I'd frame it.

Got it. Understood. And then just a housekeeping question on hedge plan. 2026 looks pretty well locked in. Is there any volatility level that would really move off these marks? Or are you guys comfortable with the current levels?

We're comfortable with it. We had this approach for a while now where we just try to protect against the extreme downside through deferred premium puts -- so we've been able to take advantage of some of volatility over the last couple of quarters and have a good position built through Q3, which especially given where the debt level is, I don't feel like we need to do much more there.

As we continue to progress through time and if you see debt levels stay low like they are now, you probably just need less protection, meaning either the lower percentage of our volumes heads or potentially a lower strike price on a put meat and you can get them for a little bit cheaper.

But in general, we just want to protect against the extreme downside ensure that we can continue to pay out a lot of our capital and not have to panic if things goes out quickly again and try to start working cash. So I think it's just a prudent approach that we've had that worked well for us the last couple of years.

Leo Mariani, ROTH.

I wanted to follow up on lease bonus income. Obviously, that popped a bit in 2025. I know it's difficult to kind of have any precision guide, but -- would it be fair to assume that maybe 26% is not dramatically different in terms of lease bonus income? Or are we kind of in a bit of an up cycle versus kind of a handful of years ago? Obviously, there are some new zones that are coming to bear as you guys have described on both this and the fan call

We'll see. I mean it's a little bit out of our control, given it's dependent on operators typically filling to meet certain lease provisions or lease requirements or partly having deep price being open. I mean I think we are seeing the deep right story play out in both the Midland and Delaware side. For Viper in terms of the ground leasing that's happening. I think something also that's going to be interesting to happen, especially Posidiois as you move into 2027 and gas takeaway gets better, we'll be able to explore what new development areas might look a little bit better with higher gas realizations, and that could help as well.

So maybe it's being optimistic, but I think we can have 2026 look similar to 2025. And really, it is going to be the benefit of having a much larger asset base today and a team fully dedicated to proactively managing the position.

Yes. I mean that's the key. We're getting a lot better at proactively managing our position despite its size, and that's where some of the Citi team members that are focused on automation, reviewing title or viewing leases. This is where I think I think AI is going to be important for Viper. We don't have a ton of manpower to study 50,000 wellbores and 40,000 leases, but a machine can do it. And I think that's going to make our shareholders more money.

All right. That's good color there. And just wanted to ask on kind of oil cut. Your oil cut here was kind of mid-50s several quarters ago, it's kind of trending a little bit more towards low 50s. What do you attribute this to? Is it just more secondary zone development and, of course, just wells get older, GOR sort of increases.

I mean I think if you think about Viper as a bond for the Permian Basin, it actually kind of gives you a good look into where GORs are headed throughout the basin. And last year, we added a lot of Delaware exposure through CIT. So that's part of the equation. But I think outside of that, we've seen these gas systems and gas plants operate a lot more efficiently in both basins.

So you've seen just the gas and the NGL beats be pretty dramatic across the board. And I think that's telling you something about the basin. It's not necessarily just secondary zones, I think it's all of the above.

Tim Rezvan, KeyBanc Capital Markets.

Thanks, folks. I appreciate you let me on here. I want to kind of circle back on the repurchase comments. It sounds like case in your comments, that $1 billion authorization may be as much focused on liquidity for the natural holders as it is to open market repurchases today.

So I'm just trying to kind of -- I know you can't show your cards too much, but shares are up 17% year-to-date, you're still well below where shares traded in '24 and '25 at a higher oil price -- just trying to kind of get your arms around the attractiveness of open market repurchases today.

Yes. I mean it's a good question, Tim. I mean it's a relative question, too, right? Obviously, open market repurchases are were more obvious in Q4 than they are today. And so we're trying to walk this balancing act of how to return capital to shareholders.

And with the balance sheet where it is, we do have more cash that can go to shareholders in the form of the distribution or repurchases.

So I think you should expect us to continue to be flexible. I don't think we need to spend every dollar we make on, on repurchases at these levels, but it's still a part of the story. I just think the bigger slugs could come from unnatural holders that want to get out and just having that ability to make sure the stock is not heavy and have the repurchase in place -- I think is a good thing for Viper shareholders.

So I'm talking on the buyback a little bit relative to Q4 because Q4 was a much different environment than where we are today. But no, I mean, we could drop from here, and that's why the authorization is there to lean in.

Okay. That's good context. I appreciate that. And then, Kate, if I could quickly ask a macro question. We saw pretty strong third-party turn-in-lines in the fourth-quarter relative to the full year run rate. I know some of that is probably due to the Sitio acquisitions. But it seems like industry-wide concerns on Permian oil rolling over, those concerns seem to be fading -- so given the lens into aggregate activity that you have through Viper, do you expect Permian oil to grow this year?

Yes. I mean we've been very vocal on the Diamondback side about production and US production. I think the Permian has always kind of been an outlier. I would say these oil prices, I haven't heard about operators dropping a rig since kind of the first week of the year, we had the Venezuela noise.

So I mean since then, that's gone very quiet. I think overall, Permian probably grows here and some of the larger operators, the majors are continuing to grow. Some of the privates still have deals to do here and there. So in general, I think the Permian looks strong relative to the rest of North America and the conversations about reductions in activity have gone very quiet.

I'm showing no further questions at this time. I would now like to turn it back to Kaes Van't Hof, for closing remarks.

Thanks, everybody, for taking the time to listen in today. If you have any questions, please reach out, and we'll talk soon. Thank you.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.