Viper Energy, Inc. Q2 FY2026 earnings call

• Capital Allocation Strategy Update

  • The company announced a revised return of capital framework effective Q3 2026, replacing the prior requirement of returning at least 75% of available cash to shareholders with a higher fixed base dividend model.
  • The board approved a 32% increase to the annual base dividend, raising it to $2 per Class A share, which translates to a ~4.5% annualized yield at the current share price, underpinned by one of the lowest dividend break-evens in the energy sector (protected down to $30 per barrel WTI).
  • The increased base dividend equals approximately 50% of free cash flow at $70 per barrel WTI, creating a floor for shareholder returns while providing management flexibility to allocate excess cash to opportunistic M&A, debt reduction, or share repurchases based on which option delivers the highest long-term value.
  • Management notes the market was not valuing the prior variable dividend framework, and the new model better highlights VIPER's unique durable cash flow profile.

• Operational Activity

  • Operators turned 691 gross horizontal wells to production on VIPER's acreage during Q2 2026, maintaining the company's trend of strong operational execution.
  • Leasing activity for deep rights in the Woodford (Delaware Basin) has accelerated, with $25-$30 million invested in lease bonuses for this play (equal to ~1/3 of total leasing spend from early 2025 through H1 2026), which is expected to drive future production growth once operators begin development (typically within a 3-year window).
  • VIPER maintains a consistent 75-80% exposure to Diamondback's gross activity, with an average 6% NRI, reaching as high as 25% NRI for full royalty-owned wells in high-value areas like Spanish Trail in the Barnett.
  • VIPER has completed the Riverbend acquisition and maintains an active pipeline of potential M&A opportunities, with a currently robust A&D market.

• Production Growth

  • Strong well activity and accretive acquisitions have driven consistent per share production growth, with a 17% CAGR in per-share production (excluding price impacts).

No segmented financial performance data for distinct product or business segments was provided in this transcript. Overall aggregate operational results for Q2 2026 include 691 gross horizontal wells turned to production on VIPER's acreage (with VIPER holding an average 3% net revenue interest), and the company completed $132 million in share repurchases during the quarter, with $103 million in M&A activity completed. There is no revenue contribution percentage breakdown by segment available from the provided transcript.

• Third quarter 2026 average production guidance implies ~4.5% growth relative to Q2 2026. The midpoint of guidance implies a ~15% annualized growth rate in oil production per share relative to Q4 2025.
  • 2026 full-year organic production growth is expected to reach the high single-digit range. Modest organic growth is projected for 2027 off of the 2026 exit rate, with continued organic growth potential beyond 2027 driven primarily by Barnett development.
  • The base dividend is intended to grow steadily over time, with capacity for increases driven by production growth, share count reduction, debt paydown, and accretive acquisitions.

• Actual results could differ materially from forward-looking projections due to unstated risk factors outlined in the company's SEC filings, including commodity price volatility.
  • The company's current valuation does not reflect its production growth profile and value proposition, which creates pressure to return capital via buybacks to enhance per-share value for remaining investors.
  • Market volatility can complicate execution of larger M&A transactions.

Q: What is the rationale for the shift in capital allocation strategy, and how does this position Viper versus E&P peers? / A: Management determined the market was not rewarding the prior variable dividend framework. A high, very secure base dividend (protected to $30/bbl WTI yielding 4.5% at current prices, higher than most peers and even utilities) is expected to be recognized by the market. Viper has delivered 17% CAGR per share production growth and 15% growth in 2026 that is currently unreflected in its valuation, and the new framework allows opportunistic capital allocation to the most value-creating uses at current mispriced levels.

Q: How has the M&A financing strategy changed under the new framework? / A: The new framework represents a natural evolution from the original distribution model that relied on equity financing for acquisitions. Now, the flexible excess capital allows Viper to self-fund deals without tapping public equity markets for every transaction. The current A&D market has an unusually large set of attractive opportunities, and the new flexibility lets Viper pursue qualified deals that come to it, rather than being forced to access external capital.

Q: What is the outlook for organic growth beyond 2027? / A: There is visible organic growth potential beyond 2027, primarily driven by Diamondback's development of the Barnett shale. Viper's strategy of acquiring mineral interests in the highest-priority development areas across the Permian has allowed it to outpace basin average growth historically, and this trend is expected to continue as the basin grows.

Q: If share repurchases fail to move the Viper stock price, what other alternatives are management considering? / A: Management's long-term goal is to gain inclusion into the S&P 500, which would open the stock to a much broader base of institutional investors and increase visibility for Viper's dividend yield and growth profile. While buybacks are not a silver bullet, buying shares below NAV at mid-cycle prices still accretes value for remaining shareholders, including large shareholder Diamondback. Management continues to believe the pure-play mineral model is the best structure for Viper, and notes the current valuation disconnect relative to smaller, lower-growth royalty players in the basin is unjustified.