Viper Energy (VNOM) Valuation Update - Feb 21

[dan_s]

My updated valuation of VNOM is now $41/share.

I will be interviewed on a monthly investment show called the Kereport today. I am going to highlight FANG and VNOM.
Here are the notes that I will be speaking from today.

Viper Energy (VNOM) is a publicly traded C-Corp. that was created by Diamondback to hold minerals. Diamondback owns ~51.2% of Vipers outstanding common stock.
After Endeavor merges into Diamondback in Q4 2024, its current minerals will be dropped down into Viper. It is estimated that the dropdowns will increase Viper’s production by ~60%.

 Q4 2023 production of 43,783 Boepd (~56% oil & ~22% high-value NGLs)
 VNOM currently trades at $36 per share. My current valuation is $41 per share.
 It pays variable dividends. $2.46 in 2022, $1.82 in 2023 (5.2%). My forecast is that Viper’s 2024 dividends will be $2.35 (6.5%) and within the range of $3.50 to $4.00 per share in 2025.
 If all of Endeavor’s minerals are dropped down into Viper, Viper’s production will be close to 75,000 Boepd in 2025.
 Viper should generate over $1 billion of operating cash flow in 2025, with a high percentage of free cash flow.
 Viper’s production growth is tied to Diamondback’s aggressive drilling program and high-quality development drilling inventory.
 Post-merger, Diamondback will have ~20 operated drilling rigs running in the Permian Basin and most of them will be drilling wells on minerals that are owned by Viper. This means that Viper will have steady production growth for many years.

Conclusion: FANG and VNOM will be very attractive to Growth + Income funds.