Quarterly / Earnings Reports | Third Quarter (3Q) Update

Viper Energy Partners Reports Q3 2019 Results

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Viper Energy Partners LP reported its Q3 2019 results.

Highlights:

• Q3 2019 cash distribution of $0.46 per common unit; implies a 6.8% annualized yield based on the October 25, 2019 unit closing price of $27.04
• Q3 2019 consolidated net income (including non-controlling interest) of $51.1 million, consolidated adjusted EBITDA (as defined and reconciled below) of $66.3 million and cash available for distribution to Limited Partner units (as defined below) of $29.0 million
• Q3 2019 production of 21,266 boe/d (64% oil), an increase of 9% from Q2 2019 and 16% year over year
• 171 total gross (4.7 net 100% royalty interest) horizontal wells turned to production during Q3 2019 on existing acreage with an average lateral length of 8,898 feet; acquired interests in an additional 240 gross (1.9 net 100% royalty interest) producing horizontal wells during the quarter
• Closed 25 acquisitions for an aggregate purchase price of approximately $193.6 million in Q3 2019, increasing Viper's mineral interests to a total of 17,151 net royalty acres at September 30, 2019, up 23% year over year; during first nine months of 2019, have closed 99 acquisitions for an aggregate purchase price of approximately $320.5 million, increasing Viper's acreage position by 2,309 net royalty acres
• Pro forma asset base as of October 17, 2019 of 23,999 net royalty acres (51% of which are operated by Diamondback), after giving effect to the recently closed drop down transaction ("Drop Down") and pending acquisition from Santa Elena Minerals, LP ("Santa Elena")
• On October 16, 2019, closed $500.0 million 5.375% notes due 2027 with proceeds used to pay down borrowings on revolving credit facility
• Initiating average production guidance for Q4 2019/Q1 2020 of 25,000 to 27,000 boe/d (65% - 68% oil), the midpoint of which is up 22% from Q3 2019 production
• As of October 17, 2019, there were approximately 445 gross horizontal wells currently in the process of active development on Viper's pro forma acreage, in which Viper expects to own an average 1.9% net royalty interest (8.6 net 100% royalty interest wells)
• Approximately 326 gross (9.3 net 100% royalty interest) line-of-sight wells which are expected to be turned to production within the next 12 months, but which have not yet begun the process of active development; based on Diamondback's current completion schedule and third party operators' permits
• Q2 2019 and Q3 2019 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

Travis Stice, Chief Executive Officer of Viper's general partner, said: "During the third quarter, Viper continued to expand its footprint in the most attractive areas of the Permian Basin via multiple large strategic acquisitions and, after giving pro forma effect to the Santa Elena acquisition, will have acquired over 9,000 net royalty acres to date in 2019. We believe these assets, due to their tier one location and active, well-capitalized operators, will enhance the durability of Viper's asset base and drive sustained long-term production growth. However, in the near-term, activity on Viper's asset base is expected to be driven primarily by Diamondback operations as growth across the Permian Basin has slowed. As a result of this broad slowdown, as well as operators now preparing their budgets for 2020, there is currently less visibility into third party operators' activity levels than in previous quarters and, therefore, Viper is guiding conservatively until we see more clarity on the completion cadence across the basin.

"Importantly, with the Drop Down closed on October 1 and the Santa Elena acquisition expected to close on October 31, Viper will have materially increased its exposure to Diamondback operations in both the Midland and Delaware Basins. Looking ahead to 2020, Viper expects to have a mineral interest in approximately 70% of Diamondback's planned gross completions, including large scale projects on both ranches to be acquired in the pending Santa Elena acquisition which are expected to begin production in the middle of 2020. Diamondback's continued focus on developing Viper's acreage due to the enhanced consolidated returns underscores our confidence in Viper being able to generate sustainable production and distribution growth for the long-term."

Operations / Acquisitions Update

During the third quarter 2019, Viper estimates that 171 gross (4.7 net 100% royalty interest) horizontal wells with an average royalty interest of 2.7% had been turned to production on its existing acreage position with an average lateral of 8,898 feet. Of these 171 gross wells, Diamondback is the operator of 41 with an average royalty interest of 8.1%, and the remaining 130 gross wells, which had an average royalty interest of 1.0%, are operated by third parties.

Additionally, during the third quarter 2019, Viper acquired 1,281 net royalty acres for an aggregate purchase price of approximately $193.6 million. These transactions brought Viper's footprint of mineral interests to a total of 17,151 net royalty acres. Viper funded these acquisitions with cash on hand and borrowings under its revolving credit facility. These acquisitions added an additional 240 producing gross horizontal wells with an average royalty interest of 0.8%.

During the first nine months of 2019, Viper acquired 2,309 net royalty acres for an aggregate purchase price of approximately $320.5 million across 99 separate transactions. These acquisitions contributed a total of 313 gross horizontal producing wells with an average royalty interest of 1.4%.

In total, as of September 30, 2019, Viper had 1,682 vertical wells and 3,166 horizontal wells producing on its acreage with a combined average net royalty interest of 3.6%. There continues to be active development on Viper's mineral acreage as represented by approximately 445 gross horizontal wells currently in the process of active development, in which Viper expects to own an average 1.9% net royalty interest (8.6 net 100% royalty interest wells). These wells currently in the process of active development include wells currently being drilled by the 57 active rigs that were on the Company's mineral acreage as of October 15, 2019, in addition to other wells currently waiting to be completed, actively in the process of being completed or waiting to be turned to production. Additionally, based on Diamondback's current completion schedule and third party operators' permits, there is line-of-sight to a further 326 gross (9.3 net 100% royalty interest) wells which Viper expects to be turned to production within the next 12 months, but which have not yet begun the process of active development.

Guidance Update

Below is Viper's updated guidance for the full year 2019, as well as average production guidance for Q4 2019 and Q1 2020.

(a) Includes production taxes of 4.6% for crude oil and 7.5% for natural gas and NGLs and ad valorem taxes.

Financials

Viper's third quarter 2019 average realized prices were $51.53 per barrel of oil, $1.28 per Mcf of natural gas and $9.84 per barrel of natural gas liquids, resulting in a total equivalent realized price of $36.33/boe. Based on current market differentials and estimated in-basin gathering costs, Viper continues to expect to realize approximately 88% to 92% of WTI for the remainder of 2019 and close to 100% of WTI in 2020.

During the third quarter of 2019, the Company recorded total operating income of $71.8 million and consolidated net income (including non-controlling interest) of $51.1 million.

As of September 30, 2019, the Company had a cash balance of $20.0 million and $190.5 million available under its revolving credit facility. In connection with the closing of the Drop Down, completed on October 1, 2019, Viper's borrowing base increased to $725.0 million from $600.0 million. Pro forma for this increase in the borrowing base and the $190.2 million cash component of the Drop Down paid to Diamondback, Viper would have had $138.5 million available under the revolving credit facility as of September 30, 2019.

On October 16, 2019, Viper completed its offering of $500.0 million aggregate principal amount of its Senior Notes due 2027 and received a total of approximately $492.0 million in net proceeds. Viper loaned the gross proceeds from its senior notes offering to its operating subsidiary, which used it to pay down borrowings under the revolving credit facility. Additionally, in connection with its Fall redetermination, expected to close in November 2019, Viper's lead bank has recommended a borrowing base increase to $775.0 from the current $725.0 million, resulting in $679.0 million of pro forma credit facility availability and pro forma liquidity.

Cash Distribution

The Board of Directors of Viper's General Partner declared a cash distribution for the three months ended September 30, 2019 of $0.46 per common unit. The distribution is payable on November 15, 2019 to eligible common unitholders of record at the close of business on November 8, 2019. Diamondback received Class B units and units in Viper's operating subsidiary upon the closing of the Drop Down on October 1, 2019 and Viper will issue common units to Santa Elena at the closing of the pending Santa Elena acquisition. Each of Diamondback and Santa Elena has waived its right to receive distributions for the third quarter of 2019 in respect of the equity interests issued in these transactions and the cash distribution for the third quarter of 2019 has been calculated on this basis.

On August 21, 2019, Viper made a cash distribution to its unitholders and subsequently has reasonably estimated that such distribution, as well as the distribution payable on November 15, 2019, 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. The Form 8937 containing additional information may be found on www.viperenergy.com under the "Investor Relations" section of the site.