Viper Energy Partners LP (VNOM) Update - Feb 5

[dan_s]

I have updated my forecast/valuation model for Viper and posted it to the EPG website. If oil, gas and NGLs prices just remain where they are today thru 2020, VNOM has a lot of upside for us.

Viper is a partnership, but it has elected to be treated as a C-Corp, so quarterly distributions are treated as regular dividends. It is suitable for an IRA account.

VNOM is trading at $14.78 at the time of this post.

Like most minerals companies, it has very low operating expenses and is committed to paying out a high percentage of its cash flow from operations. In 2020 they went into "hunker down mode" and used most of their free cash flow to pay down debt. Dividends totaled only $0.33/unit in 2020. If they return to paying out ~75% of cash flow, the dividends should more than triple this year. NOTE that in my last newsletter I show dividends of just $0.40/year. As of today, I am increasing that to an estimated dividend of $1.30 for 2021.

What I didn't like last year was that they hedged 10,000 barrels of oil per day for 2021 (~60% of oil production) with collars that have $43.05/bbl ceilings. None of their 2021 natural gas and NGLs are hedged and none of their production is hedged beyond this year.

Recent analysts price targets (all based on lower commodity prices than we have today):
$19.00 < Stifel 1/26/2021
$16.00 < KeyBanc 1/15/2021
$17.00 < RBC Capital 12/17/2020
$16.00 < Truist Fin 12/4/2020

My valuation of $17.00 will be going up if their guidance for 2021 confirms my forecast model assumptions.