Drilling & Completions | Quarterly / Earnings Reports | Fourth Quarter (4Q) Update | Financial Results | Capital Markets | Drilling Activity | Capital Expenditure - 2022

Viper Energy Partners Fourth Quarter, Full Year 2021 Results

Share Print Bookmark    |    Tuesday,February 22,2022

Viper Energy Partners LP announced financial and operating results for the fourth quarter and the full year ended December 31, 2021.

4Q21 Highlights:

• Q4 2021 average production of 18,370 bo/d (31,359 boe/d)
• Q4 2021 consolidated net income (including non-controlling interest) of $117.0 million; net income attributable to Viper Energy Partners LP of $39.5 million, or $0.50 per common unit
• Adjusted net income (as defined and reconciled below) of $84.4 million, or $1.07 per common unit
• Q4 2021 cash distribution of $0.47 per common unit, representing approximately 70% of total cash available for distribution; $0.47 distribution is up 24% quarter over quarter and implies a 7.2% annualized yield based on the February 18, 2022 unit closing price of $26.21
• Q4 2021 cash available for distribution of $0.67 per common unit represents a Company record; 12% higher than the previous record of $0.60 per common unit generated in Q2 2018
• Repurchased 574,200 common units in Q4 2021 for an aggregate of $12.4 million; from the end of the fourth quarter through January 31, 2022, Viper repurchased an additional 1,580,200 common units for an aggregate of $39.3 million
• Consolidated adjusted EBITDA (as defined and reconciled below) of $123.9 million and cash available for distribution to Viper's common units (as reconciled below) of $52.8 million
• Ended the fourth quarter of 2021 with total long-term debt of $783.9 million and net debt of $744.5 million (as defined and reconciled below)
• 179 total gross (5.1 net 100% royalty interest) horizontal wells turned to production on Viper's acreage during Q4 2021 with an average lateral length of 10,048 feet
• As previously announced, completed acquisition of certain mineral and royalty interests from Swallowtail Royalties LLC and Swallowtail Royalties II LLC ("Swallowtail"); added approximately 2,313 net royalty acres primarily in the Northern Midland Basin, roughly 62% of which are operated by Diamondback
• In addition to the Swallowtail acquisition, acquired 350 Diamondback-operated net royalty acres for an aggregate purchase price of $49.1 million during Q4 2021
• Subsequent to the end of the fourth quarter of 2021, divested 325 net royalty acres for cash consideration of $29.3 million, subject to post-close adjustments; represents third party operated acreage located entirely in Upton and Reagan counties

Full Year 2021 Highlights:

• Full year 2021 average production of 16,625 bo/d (28,110 boe/d)
• Full year 2021 consolidated net income (including non-controlling interest) of $256.7 million; net income attributable to Viper Energy Partners LP of $57.9 million, or $0.85 per common unit
• Declared distributions of $1.43 per common unit during full year 2021; generated $2.10 per common unit of total cash available for distribution
• Repurchased 2,612,840 units during full year 2021 for an aggregate of $46.0 million, representing an average price of $17.60 per unit
• Generated full year 2021 consolidated adjusted EBITDA (as defined and reconciled below) of $373.2 million
• Proved reserves as of December 31, 2021 of 127,888 Mboe (71% PDP, 69,240 Mbo), up 29% year over year with oil up 20% from year end 2020
• 720 total gross (14.0 net 100% royalty interest) horizontal wells turned to production during 2021 with an average lateral length of 9,823 feet
• Acquired approximately 2,706 net royalty acres for an aggregate purchase price of $617.0 million; increased Diamondback-operated acreage by 1,835 net royalty acres
• Approximately 60% of distributions paid in 2021 are reasonably estimated to constitute non-taxable reductions to the tax basis, and not dividends, for U.S. federal income tax purposes

2022 Outlook

• Initiating average daily production guidance for the first half of 2022 of 17,750 to 18,500 bo/d (29,500 to 30,750 boe/d)
• Initiating full year 2022 average production guidance of 17,750 to 19,000 bo/d (29,500 to 31,500 boe/d)
• As of February 8, 2022, there were approximately 618 gross horizontal wells in the process of active development on Viper's acreage, in which Viper expects to own an average 1.7% net royalty interest (10.6 net 100% royalty interest wells)
• Approximately 563 gross (11.6 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 Diamondback's current completion schedule and third party operators' permits
• Approximately 90% of distributions paid in 2022 are expected to be reasonably estimated to constitute non-taxable reductions to the tax basis, and not dividends, for U.S. federal income tax purposes

Travis Stice, Chief Executive Officer of Viper's General Partner, said: "During the fourth quarter, Viper generated record financial and operating results, highlighted by the $0.67 per common unit of cash available for distribution, exceeding our previous record by over 10%. Importantly, production outperformed expectations during the quarter following the closing of the Swallowtail acquisition as third party operated activity levels exceeded our conservative acquisition assumptions and Diamondback continued to focus its activity on Viper's concentrated royalty acreage.

Mr. Stice continued, "Looking ahead to 2022, Viper is uniquely positioned within the industry to be able to capture numerous tailwinds and return substantial amounts of cash back to our unitholders. With zero capital requirements and only limited operating costs, royalty companies will be advantaged in 2022 as we will not face inflationary cost pressures. For Viper specifically, as our defensive hedges placed in 2020 rolled off at the end of 2021, our industry leading cash margins will now be further enhanced by mostly uncapped exposure to strength in commodity prices. Lastly, Viper continues to have unmatched, high confidence visibility into Diamondback's expected forward plan to support our production profile, with additional upside from third party operated production continuing to exceed our conservative activity and timing assumptions."

Management Changes

Austen Gilfillian, currently Senior Finance Associate, has been promoted to General Manager of Viper. Mr. Gilfillian's additional responsibilities will include both the Viper land and business development functions reporting to him, along with his existing responsibilities of finance and investor relations. Mr. Gilfillian will continue to report to Kaes Van't Hof, President of Viper's General Partner.

Financial Update

Viper's fourth quarter 2021 average unhedged realized prices were $74.00 per barrel of oil, $4.82 per Mcf of natural gas and $36.65 per barrel of natural gas liquids, resulting in a total equivalent realized price of $56.82/boe.

During the fourth quarter of 2021, the Company recorded total operating income of $165.8 million and consolidated net income (including non-controlling interest) of $117.0 million.

As of December 31, 2021, the Company had a cash balance of $39.4 million and total long-term debt outstanding (excluding debt issuance, discounts and premiums) of $783.9 million, resulting in net debt (as defined and reconciled below) of $744.5 million. Viper's outstanding long-term debt as of December 31, 2021 consisted of $479.9 million in aggregate principal amount of its 5.375% Senior Notes due 2027 and $304.0 million in borrowings on its revolving credit facility, leaving $196.0 million available for future borrowings and $235.4 million of total liquidity.

4Q21 Cash Distribution & Capital Return

The Board of Directors of Viper's General Partner declared a cash distribution for the three months ended December 31, 2021 of $0.47 per common unit. The distribution is payable on March 11, 2022 to eligible common unitholders of record at the close of business on March 4, 2022. This distribution represents approximately 70% of total cash available for distribution.

On August 19, 2021 and November 18, 2021, Viper made cash distributions to its common unitholders and subsequently has reasonably estimated that a portion of such distributions, as well as a portion of the distribution payable on March 11, 2022, should not constitute dividends for U.S. federal income tax purposes. Rather, approximately 90% of distributions expected to be paid in 2022 and 60% of distributions paid in 2021 are estimated to constitute non-taxable reductions to the tax basis of each distribution recipient's ownership interest in Viper. The Form 8937 containing additional information may be found on www.viperenergy.com under the "Investor Relations" section of the site.

During the fourth quarter of 2021, Viper repurchased 574,200 common units for an aggregate of $12.4 million. In total through December 31, 2021, the Company had repurchased 4,657,840 common units for an aggregate of $70.0 million, reflecting an average price of $15.01 per unit.

From the end of the fourth quarter through January 31, 2022, Viper repurchased an additional 1,580,200 units for an aggregate of approximately $39.3 million, including a privately negotiated transaction for 1,500,000 units with an affiliate of Blackstone, Inc. In total through January 31, 2022, the Company had repurchased 6,238,040 common units at an average price of $17.50 per unit, utilizing approximately 72.9% of the $150.0 million approved by the Board for the repurchase program.

Operations & Acquisitions Update

During the fourth quarter of 2021, Viper estimates that 179 gross (5.1 net 100% royalty interest) horizontal wells with an average royalty interest of 2.9% were turned to production on its acreage position with an average lateral length of 10,048 feet. Of these 179 gross wells, Diamondback is the operator of 40 gross wells with an average royalty interest of 9.3%, and the remaining 139 gross wells, with an average royalty interest of 1.0%, are operated by third parties.

As previously announced, on October 1, 2021, Viper completed the acquisition of certain mineral and royalty interests from Swallowtail for approximately 15.25 million of our common units and approximately $225.3 million in cash. The mineral and royalty interests acquired in the Swallowtail acquisition represent approximately 2,313 net royalty acres primarily in the Northern Midland Basin, of which approximately 62% are operated by Diamondback.

In addition to the Swallowtail acquisition, during the fourth quarter of 2021 Viper acquired 350 net royalty acres for an aggregate of approximately $49.1 million, 100% of which are operated by Diamondback. These acquisitions were funded through a combination of cash on hand and borrowings under the Company's credit facility.

As a result of the acquisitions completed during the fourth quarter of 2021, the Company's footprint of mineral and royalty interests as of December 31, 2021 was 27,027 net royalty acres.

Subsequent to the end of the fourth quarter, Viper completed a divestiture of approximately 325 net royalty acres for total proceeds of approximately $29.3 million, subject to post-closing adjustments. The mineral and royalty interests included in the divestiture represent third party operated acreage located entirely in Upton and Reagan counties.

The following table summarizes Viper's gross well information:

The 618 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. Further in regard to the active development on Viper's asset base, there are currently 39 gross rigs operating on Viper's acreage, six of which are operated by Diamondback. The 563 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.

Reserves

Ryder Scott Company, L.P. prepared an estimate of Viper's proved reserves as of December 31, 2021. Reference prices of $66.56 per barrel of oil and natural gas liquids and $3.59 per MMbtu of natural gas were used in accordance with applicable rules of the Securities and Exchange Commission. Realized prices with applicable differentials were $64.87 per barrel of oil, $2.97 per Mcf of natural gas and $25.93 per barrel of natural gas liquids.

Proved reserves at year-end 2021 of 127,888 Mboe (69,240 Mbo) represent a 29% increase over year-end 2020 reserves. The year-end 2021 proved reserves have a PV-10 value (as defined and reconciled below) of approximately $2.3 billion and a standardized measure of discounted future net cash flows of $2.1 billion.

Proved developed reserves increased by 26% year over year to 91,170 Mboe (49,280 Mbo) as of December 31, 2021, reflecting continued horizontal development by the operators of Viper's acreage.

Net proved reserve additions of 38,756 Mboe resulted in a reserve replacement ratio of 378% (defined as the sum of extensions, discoveries, revisions, purchases and divestitures, divided by annual production). The organic reserve replacement ratio was 293% (defined as the sum of extensions, discoveries and revisions, divided by annual production).

Extensions and discoveries of 30,981 Mboe are primarily attributable to the drilling of 407 new wells and from 336 new proved undeveloped locations added. The Company's negative revisions of previous estimated quantities of 918 Mboe were driven primarily by a reassessment of Diamondback's expected development plan following two large acquisitions. There were offsetting positive revisions due to price increases and improved well performance. The purchase of reserves in place of 9,102 Mboe was due to multiple acquisitions of certain mineral and royalty interests, primarily the Swallowtail acquisition.

Guidance Update

Below is Viper's preliminary guidance for the full year 2022, as well as average production guidance for the first half of 2022.