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Viper Energy Partners Second Quarter 2020 Results

Share Print Bookmark    |    Monday,August 03,2020

Viper Energy Partners LP reporte its Q2 2020 results.

Q2 Highlights:

• Q2 2020 consolidated net loss (including non-controlling interest) of $(33.1) million; adjusted net loss (as defined and reconciled below) of $(4.2) million
• Consolidated Adjusted EBITDA (as defined and reconciled below) of $26.6 million and cash available for distribution to Viper’s common limited partner units (as reconciled below) of $8.1 million
• Q2 2020 average production of 14,453 bo/d (24,508 boe/d), an increase of 9% from Q2 2019 average daily oil production
• Q2 2020 cash distribution of $0.03 per common unit
• Due to the current uncertainty in the commodity markets, Viper has temporarily reduced its distribution to approximately 25% of cash available for distribution with the retained cash flow expected to be used to strengthen the balance sheet; the Board of Directors of Viper’s General Partner reviews the distribution policy quarterly
• 134 total gross (2.4 net 100% royalty interest) horizontal wells turned to production on Viper’s acreage during Q2 2020 with an average lateral length of 8,648 feet
• Initiating average production guidance for Q3 2020 and Q4 2020 of 14,750 to 16,000 bo/d (24,500 to 26,500 boe/d), the midpoint of which is up 6% from Q2 2020 average daily oil production
• Narrowing full year 2020 average production guidance to 15,250 to 16,000 bo/d (25,250 to 26,250 boe/d)
• As of July 14, 2020, there were approximately 485 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 (8.1 net 100% royalty interest wells)
• Approximately 440 gross (8.8 net 100% royalty interest) line-of-sight wells that are not currently in 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
• Q1 2020 and Q2 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: “Viper’s production in the second quarter was supported by 14 of Diamondback’s 15 completions in the quarter having more than an 8% average royalty interest net to Viper, as third party activity was minimal and some operators curtailed existing production.  Looking ahead to the second half of 2020, we expect Viper’s production to grow sequentially through the end of the year supported by Diamondback’s completion schedule which is focused on areas where Viper has significant mineral ownership, primarily in the Midland Basin.  This activity should lead to strong fourth quarter 2020 exit rate production and demonstrates the differentiated relationship between Diamondback and Viper versus other mineral and royalty peers."

Financial Update

Viper’s second quarter 2020 average realized prices were $21.00 per barrel of oil, $0.46 per Mcf of natural gas and $7.69 per barrel of natural gas liquids, resulting in a total equivalent realized price of $14.55/boe.

During the second quarter of 2020, the Company recorded total operating income of $32.7 million and consolidated net loss (including non-controlling interest) of $(33.1) million.

As of June 30, 2020, the Company had a cash balance of $9.7 million and $426.5 million available under its revolving credit facility.  During the second quarter, the Company repurchased $14.1 million of the outstanding principal of its 5.375% Senior Notes due 2027 (the “Notes) at a 1.5% to 2.5% discount to par value.  Subsequent to the end of the second quarter, Viper has repurchased an additional $6.0 million of the outstanding notes at a 1.5% discount to par value.  The aggregate repurchases brought the total outstanding principal amount of Notes down to $479.9 million as of July 23, 2020.

Q2 2020 Results

The Board of Directors of Viper’s General Partner (the “Board”) declared a cash distribution for the three months ended June 30, 2020 of $0.03 per common unit.  The distribution is payable on August 20, 2020 to eligible common unitholders of record at the close of business on August 13, 2020.  This distribution represents approximately 25% of total cash available for distribution with the remaining available cash flow from the second quarter of 2020 expected to be used to strengthen the Company’s balance sheet.  The Board reviews Viper’s distribution policy quarterly.

On May 21, 2020, Viper made a cash distribution to its unitholders and subsequently has reasonably estimated that such distribution, as well as the distribution payable on August 20, 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 Updates

During the second quarter 2020, there was limited completion activity on our mineral and royalty acreage as our operators reacted quickly to oil price volatility by cutting capital expenditures and mostly ceasing completion activity.  As a result, during the second quarter, Viper estimates that 134 gross (2.4 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 8,648 feet. Of these 134 gross wells, Diamondback is the operator of 14 with an average royalty interest of 8.4%, and the remaining 120 gross wells, with an average royalty interest of 1.1%, are operated by third parties.

During the second quarter of 2020, Viper did not complete any acquisitions, leaving its footprint of mineral and royalty interests at a total of 24,714 net royalty acres.

The following table summarizes Viper’s gross well information as of July 14, 2020:

Despite the continued depressed commodity price environment, there continues to be active development across Viper’s asset base, however, near-term activity is expected to be driven primarily by Diamondback operations. The 485 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 440 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 our royalty acreage does not ensure that those wells will be turned to production given the current depressed oil prices.

GUIDANCE UPDATE

Below is Viper’s revised guidance for the full year 2020, as well as average production guidance for Q3 2020 and Q4 2020.

^(a) Assumes 1H2020 actual interest expense plus interest expense for the remainder of 2020 assuming $480mm in principal of Sr. Notes and $155mm 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.