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Viper Energy Partners First Quarter 2020 Results

Share Print Bookmark    |    Monday,May 04,2020

Viper Energy Partners LP reported its Q1 2020 results.

Highlights:

• Q1 2020 cash distribution of $0.10 per common unit; implies a 4.7% annualized yield based on the May 1, 2020 unit closing price of $8.60
• Due to the current uncertainty in the commodity markets, Viper is temporarily reducing its distribution policy to 25% of cash available for distribution from 100% previously with retained cash flow expected to be used to strengthen the balance sheet; the Board of Directors of Viper’s General Partner intends to review this distribution policy quarterly
• Q1 2020 consolidated net loss (including non-controlling interest) of $(123.9) million including a $142.5 million reduction of the Company’s deferred tax asset; adjusted net income (as defined and reconciled below) of $14.2 million
• Consolidated adjusted EBITDA (as defined and reconciled below) of $70.2 million and cash available for distribution to Viper’s common limited partner units (as reconciled below) of $26.2 million
• Q1 2020 average production of 17,441 bo/d (27,575 boe/d), an increase of 6% from Q4 2019 average daily oil production
• 192 total gross (4.6 net 100% royalty interest) horizontal wells turned to production on Viper’s acreage during Q1 2020 with an average lateral length of 9,306 feet
• Closed 35 acquisitions for an aggregate purchase price of approximately $63.4 million in Q1 2020, increasing Viper’s mineral and royalty interests to a total of 24,714 net royalty acres at March 31, 2020
• Initiating average production guidance for Q2 2020 and Q3 2020 of 13,500 to 15,000 bo/d (22,000 to 24,500 boe/d)
• Reaffirming previously revised full year 2020 average production guidance of 14,000 to 17,000 bo/d (22,500 to 27,000 boe/d)
• As of April 22, 2020, there were approximately 569 gross horizontal wells currently in the process of active development on Viper’s acreage, in which Viper expects to own an average 1.7% net royalty interest (9.5 net 100% royalty interest wells)
• Approximately 429 gross (8.2 net 100% royalty interest) line-of-sight wells which have not yet begun the process of active development, but for which we have visibility to the potential of future development in coming quarters, based on Diamondback’s current completion schedule and third party operators’ permits
• Q4 2019 and Q1 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

General Partner CEO Travis Stice said: “First of all, and most importantly, our thoughts and prayers go out to all of those affected by the COVID-19 pandemic. The first half of 2020 will be in the history books forever, for all of the wrong reasons, but our business must go on and we have taken swift and decisive action to adapt to rapidly changing circumstances and preserve our strength through this cycle.

"Viper’s business performed well in the first quarter, but that has been overshadowed by the dramatic decline in commodity prices that began in March and has continued through today.  Viper took action and hedged almost 100% of expected 2020 oil production and over 50% of expected 2021 oil production with collars, putting a floor under our future oil price realizations.  We have also made the decision to retain 75% of cash available for distribution to preserve balance sheet strength.  Viper is fortunate to have free cash flow even at these commodity prices and will take advantage of that free cash flow to fortify our balance sheet through these uncertain times.”

Financials

Viper’s first quarter 2020 average realized prices were $45.49 per barrel of oil, $0.13 per Mcf of natural gas and $8.94 per barrel of natural gas liquids, resulting in a total equivalent realized price of $30.62/boe.

During the first quarter of 2020, the Company recorded total operating income of $78.7 million and consolidated net loss (including non-controlling interest) of $(123.9) million.  The Company recorded a $142.5 million reduction to the valuation of its deferred tax asset due to the recent decline in commodity prices and the Company’s anticipated tax position based on its forward outlook.

As of March 31, 2020, the Company had a cash balance of $40.3 million and $601.5 million available under its revolving credit facility.  In connection with its Spring redetermination, expected to close in May 2020, Viper’s lead bank has recommended a reduction in the borrowing base to $580.0 million from the current $775.0 million. Pro forma for the reduction in its borrowing base, Viper would have had $406.5 million available under its revolving credit facility and $446.8 million in liquidity as of March 31, 2020.

FIRST QUARTER 2020 CASH DISTRIBUTION

The Board of Directors of Viper’s General Partner (“Board”) declared a cash distribution for the three months ended March 31, 2020 of $0.10 per common unit. The distribution is payable on May 21, 2020 to eligible common unitholders of record at the close of business on May 14, 2020.  This distribution represents 25% of total cash available for distribution with the remaining available cash from the first quarter of 2020 to be retained to strengthen the Company’s balance sheet. The Board will review this distribution policy quarterly.

On February 28, 2020, Viper made a cash distribution to its unitholders and subsequently has reasonably estimated that such distribution, as well as the distribution payable on May 21, 2020, 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 recipient’s ownership interest in Viper.

Ops & Acquisition Update

During the first quarter 2020, Viper estimates that 192 gross (4.6 net 100% royalty interest) horizontal wells with an average royalty interest of 2.4% had been turned to production on its existing acreage position with an average lateral length of 9,306 feet. Of these 192 gross wells, Diamondback is the operator of 78 with an average royalty interest of 3.8%, and the remaining 114 gross wells, which had an average royalty interest of 1.4%, are operated by third parties.

Additionally, during the first quarter of 2020, Viper acquired 410 net royalty acres for an aggregate purchase price of approximately $63.4 million. These transactions brought Viper’s footprint of mineral and royalty interests to a total of 24,714 net royalty acres. Viper funded these acquisitions with cash on hand and borrowings under its revolving credit facility.

In total, as of March 31, 2020, Viper estimates there were 2,454 vertical wells and 4,309 horizontal wells producing on its acreage with a combined average net royalty interest of 3.7%. Despite the dramatic decline in oil prices, there continues to be development of Viper’s asset base. However, near-term activity is expected to be driven primarily by Diamondback’s operations. To that end, there are 77 gross horizontal wells operated by Diamondback currently in the process of development on the Company’s royalty acreage, in which Viper expects to own an average 6.6% net royalty interest (5.1 net 100% royalty interest wells). Additionally, based on Diamondback’s current completion schedule, there is line-of-sight to a further 50 gross (4.1 net 100% royalty interest) wells for which the process of active development has not yet begun, but for which there is visibility to the potential of future development in coming quarters. There is currently less visibility into third party operators’ anticipated activity levels and well completion cadence given the current commodity price environment.  Existing permits or active development of Viper’s royalty acreage does not ensure that those wells will be turned to production given the current depressed oil prices. Notwithstanding the foregoing, third parties continue to operate on Viper’s asset base. There are 492 gross horizontal wells operated by third parties in the process of active development, in which the Company expects to own an average 0.9% net royalty interest (4.4 net 100% royalty interest wells). Additionally, there are 379 gross (4.2 net 100% royalty interest) wells operated by third parties that have been permitted but not yet begun the process of active development.  In total, between Diamondback and third party operators, there are 569 gross (9.5 net 100% royalty interest) wells currently in the process of active development including 37 active rigs and a further 429 gross (8.2 net 100% royalty interest) line-of-sight wells which have not yet begun the process of active development.

Guidance Update

Below is Viper’s revised guidance for the full year 2020, as well as average production guidance for Q2 2020 and Q3 2020.  Given the recent extreme weakness in commodity prices and forward pricing uncertainty, the Company’s current 2020 production guidance does not account for the potential effect of further production curtailments.

(a) Assumes Q1 actual interest expense plus interest expense for the remainder of 2020 assuming $500mm in principal of Sr. Notes and $175mm drawn on the revolver.
(b) Includes production taxes of 4.6% for crude oil and 7.5% for natural gas and NGLs and ad valorem taxes.