Viper Energy, Inc. Q2 FY2025 earnings call

• Viper delivered strong oil production growth in Q2 2025 despite oil price volatility, with confidence in organic growth from Diamondback and expected benefits from Sitio acquisition.
• Announced return of $0.56 per share to stockholders this quarter, primarily as base plus variable dividend, representing 75% of cash available for distribution.
• Committed to $1.5 billion net debt target, with plan to return all excess cash to shareholders once net debt is at or below this target.
• Third-party operator activities benefited from consistent development plans of large cap operators like Exxon, Oxy, EOG, and Conoco, with net activity increasing while gross activity was relatively flat.

No detailed product segment financials discussed; focus on overall company performance including oil production growth post-Diamondback drop-down and Sitio acquisition impact.

• Expect full year 2026 average production to increase by mid-single-digit percentage from pro forma Q4 2025 levels.
• Oil production per share for full year 2026 expected to be approximately 15% higher than full year 2025.
• Committed to returning all excess cash up to 100% of available cash for distribution generated in a quarter once net debt is at or below $1.5 billion.

• Potential oil price volatility could impact production levels and return of capital plans.

Q: Chris Baker of Evercore asked about flexibility in path toward $1.5 billion net debt target, including noncore asset sales and mix of buyback vs variable dividend.

A: Matthew Kaes Van’t Hof responded that base case is free cash flow leading to net debt target, considering noncore asset sales and mix of buybacks and free cash generation, with preference for buybacks when permitted post-Sitio close.

Q: Betty Jiang of Barclays inquired about third-party operator activities, sustainability of activity, and potential upside to 2026 production growth.

A: Austen Gilfillian replied that third-party activity is benefited by large cap operators' consistent plans, net activity increase with flat gross activity, and potential upside based on Diamondback operated growth but noting market volatility.

Q: Neil Mehta of Goldman Sachs asked about evaluation of noncore/Permian assets in Sitio portfolio and integration intensity vs opportunity set for M&A.

A: Matthew Kaes Van’t Hof stated patience on noncore asset sales due to strip weakness, integration of Sitio expected to be quick, but need to show pro forma performance before large M&A moves.

Q: Paul Diamond of Citi asked about hedge strategy post hitting $1.5 billion net debt target.

A: Austen Gilfillian responded that hedging strategy will continue to lock in downside protected cash flow, consistent with maintaining protection regardless of debt target.

Q: Derrick Whitfield of Texas Capital asked about Sitio acquisition underappreciation by investors and levers for accretion from Sitio's back-office efforts.

A: Matthew Kaes Van’t Hof noted size and scale of combined business being misunderstood, with confidence in integrating Sitio's automation efforts for shareholder benefit.

Q: Aaron Bilkoski of TD Cowen asked about consistency of NRI in Diamondback-operated wells through 2029.

A: Austen Gilfillian explained NRI is a function of Diamondback's gross activity levels and Viper's NRI within those wells, with net well count driving growth, front-weighted in early years.

Q: Leo Mariani of ROTH asked about hitting net debt target, strategy of dividends vs buybacks, and M&A availability.

A: Austen Gilfillian expected base dividend increase and free cash flow growth from production and acquisition accretion, with Matthew Kaes Van’t Hof noting patience on M&A to ensure investor accretion from deals.