Viper Energy Partners for Growth + Yield

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dan_s
Posts: 34471
Joined: Fri Apr 23, 2010 8:22 am

Viper Energy Partners for Growth + Yield

Post by dan_s »

Proved reserves as of December 31, 2018 of 63.1 MMboe (72% PDP, 66% oil), up 65% year over year
Full year 2019 production guidance of 20,000 to 23,000 boe/d (67% - 71% oil), up ~24% at the midpoint from full year 2018 production

Q4 2018 cash distribution of $0.51 per common unit , up 11% year over year
2018 full year distribution of $2.17, up 52% from full year 2017

VNOM is a "variable rate" company that has elected to be taxed as a C-Corp. It pays out most of its DCF each quarter.

Based on my forecast model, Viper's distributions should be approximately $2.25/unit in 2019.

NONE OF VIPER'S PRODUCTION IS HEDGED.
Dan Steffens
Energy Prospectus Group
dan_s
Posts: 34471
Joined: Fri Apr 23, 2010 8:22 am

Re: Viper Energy Partners for Growth + Yield

Post by dan_s »

New analysts updates. They all rate VNOM a BUY. VNOM closed today at $34.28

Price Targets:
$53.00 < Raymond James 2/7/2019
$49.00 < Oppenheimer on 2/7/2019
$40.00 < SunTrust Robinson on 2/7/2019
Dan Steffens
Energy Prospectus Group
jb2257
Posts: 199
Joined: Sat Apr 20, 2013 8:12 pm

Re: Viper Energy Partners for Growth + Yield

Post by jb2257 »

I am doing some research on VNOM and noticed that they missed the earnings reporting -.01 versus the estimate of 0.19 and the earnings for this year are lower than last year. Do you know why?
dan_s
Posts: 34471
Joined: Fri Apr 23, 2010 8:22 am

Re: Viper Energy Partners for Growth + Yield

Post by dan_s »

I just spent 30 minutes on the phone with Viper's IR department. Without getting into the "weeds" of why they report it this way, the most accurate way to look at Viper's Net Income is to look at Net Income before the "Net Income attributable to non-controlling interest". It is Diamondback's 59% ownership interest in Viper.

They have to report it this way since the election to be a C-Corp. In a nutshell, it eliminates current income tax expense for Viper.

So...
> I am going to remove that line item from my forecast/valuation model
> Net Income and Cash Flow From Operations will then be shown based on 100% of the units, including Diamondback's Class B units.
> I will repost my forecast/valuation model for Viper to the EPG website.

> Q4 2018 consolidated net income (including non-controlling interest) of $40.7 million, consolidated adjusted EBITDA of $68.1 million and cash available for distribution to Class A Limited Partner units (51,654,000 units) of $26.5 million.

For the year 2018
$262.9 million Net Income (including FANG's share)
$266.5 million EBITDA (including FANG's share)
$136.3 million cash available for distribution to Class A unit holders / 51,654,000 units (this excludes FANG's share)
Actual payments to the Class A unit holders for 2018 was $2.17/unit.

During the chat, they told me that all of Viper's production is sold through FANG, which is getting a very good oil price. Their marketing arrangement eliminates a big chunk of the differential of the Midland Basin oil price to WTI. Today they are getting a slight premium to WTI. Based on my forecast model, if WTI $60/bbl Viper should be able to distribute approximately $0.70/Qtr to Class A unit holders in Q4 2019.
Dan Steffens
Energy Prospectus Group
jb2257
Posts: 199
Joined: Sat Apr 20, 2013 8:12 pm

Re: Viper Energy Partners for Growth + Yield

Post by jb2257 »

Thank you for clarifying that. It can be very difficult to analyze.
dan_s
Posts: 34471
Joined: Fri Apr 23, 2010 8:22 am

Re: Viper Energy Partners for Growth + Yield

Post by dan_s »

Download my forecast model to Excel and take about 30 minutes to study it. Viper is actually a fairly simple company with extremely low overhead. I think the conversion to a C-Corp. has caused some misunderstanding, which IMO creates a buying opportunity for us.

NONE of their production is hedged, so if you think oil prices are going up, VNOM is a heck of a buy at today's unit price.

VNOM is still a partnership, but in May they elected to be taxed as a C-Corp. NO K-1 for new unit holders.
> Quarterly dividends are "variable", going up and down with oil prices.

What makes it attractive is the relationship that they have with Diamondback Energy (FANG), one of the Top Picks in our Sweet 16 portfolio. FANG is a very aggressive growth company that has a lot of rigs running on leasehold where VNOM owns the minerals / royalty interest.
Dan Steffens
Energy Prospectus Group
ChuckGeb
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Joined: Thu Nov 21, 2013 2:46 pm

Re: Viper Energy Partners for Growth + Yield

Post by ChuckGeb »

Please note that the distributions since Viper became a C Corp and for the foreseeable future are treated as a tax free return of capital to its shareholders. When this sinks in with the Wall Street gang I think you are going to see a markedly increased level of interest and increase in price. As a matter of fact it has received a nice bump the last couple of days.
dan_s
Posts: 34471
Joined: Fri Apr 23, 2010 8:22 am

Re: Viper Energy Partners for Growth + Yield

Post by dan_s »

Excellent point.

Lots of MLPs (including HCLP) are converting to C-Corps because it significantly increases the funds that can own them.

Owning VNOM is like owning oil and you get regular dividends.

BTW I expect Continental Resources (CLR) to very soon spin off their mineral interests into a new public company just like VNOM.
Dan Steffens
Energy Prospectus Group
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