Viper Energy Partners (VNOM)

[dan_s]

Viper is a partnership that has elected to be taxed as a C-Corp. (dividends are reported on Form 1099 and no K-1 to owners after May, 2018).

We are going to send out an updated profile on Viper this week. Based on my forecast/valuation model and the opinion of every analysts that has taken a hard look at it, VNOM is a BUY at today's unit price. VNOM closed today at $30.71.

In the last 3 months, 9 ranked analysts set 12-month price targets for VNOM. The average price target among the analysts is $46.11.
> They all rate it a BUY
> Their valuations range from $37 to $57. < If I assume WTI stays at $50 FOREVER, my valuation is still over $40/unit.

Viper is what I call a "variable rate" dividend paying machine.
> It has no drilling & completions costs, so drilling risk is virtually "nil".
> It has very low cash expenses. In Q3, Cash Flow From Operations was 87% of Gross Revenues.
> It pays out ~70% of cash flow from operations each quarter.
> Its growth is tied to the aggressive drilling program of Diamondback Energy (FANG), which owns a big chunk of VNOM.
> FANG is recently merged with Energen. That deal has HUGE UPSIDE for VNOM.
> None of Viper's production is hedged, therefore it has "Commodity Price Risk". This can be good and bad. If you believe oil prices will be moving higher, then NOW is the time to buy VNOM.

Start your due diligence by going through the most recent presentation on their website.

[ChuckGeb]

I don’t see how the FANG acquisition necessarily provides huge upside for Viper. Each drop down of new assets from FANG results in more shares being issued and one has to wonder is this deal more fair for FANG or Viper shareholders. I assume we will never know but what I do know is that FANG knows a heck of a lot more about the royalty acres than the average shareholder does. I subscribe to the theory that bigger does not make a better company eg Linn Energy totally destroyed by it’s Barry Petroleum acquisition. Going all the way back to Fidelity Magellan Fund, Peter Lynch could not match past performance once the fund grew too large.

I would be totally happy if Viper would stick to opportunistic acquisitions from unrelated parties.

[dan_s]

I have posted the updated profile and my forecast/valuation model for Viper to the EPG website.