Good day, and thank you for standing by. Welcome to the Viper Energy Fourth Quarter 2024 Earnings Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Chip Seale, Director of Investor Relations. Please go ahead.

Thank you, Lauren. Good morning, and welcome to Viper Energy's fourth quarter 2024 conference call. During our call today, we will reference an updated investor presentation, which can be found on Viper's website. Representing Viper today are Kaes Van't Hof, CEO; and Austin Gilfillan, President. During this conference call, the participants may make certain forward-looking statements relating to the company's financial conditions, results of operations, plans, objectives, future performance and businesses. We caution you that actual results could differ materially from those that are indicated in these forward-looking statements due to a variety of factors. Information concerning these factors can be found in the company's filings with the SEC. In addition, we will make reference to certain non-GAAP measures. The reconciliations with the appropriate GAAP measures can be found in our earnings release issued yesterday afternoon. I will now turn the call over to Kaes.

Thank you, Chip. I'd like to also note that Travis Stice, our outgoing CEO, is joining us for one more Viper call here. So it's good to have him in the room as well. But welcome, everyone. Thanks for listening to our fourth quarter 2024 conference call. The fourth quarter concluded a landmark year for Viper. For the full year, we continue to deliver strong organic production growth on our legacy assets and successfully executed on our differentiated acquisition strategy. Looking ahead, we continue to be excited about the transformative drop-down transaction between Viper and Diamondback that was previously announced. And we recently closed the separate Quinn Ranch acquisition a couple of Fridays ago. On the drop-down, specifically, this transaction is unique in its value proposition to Viper given the alignment it provides with Diamondback's expected development over the years to come and the resulting organic growth that can be driven by Diamondback's drill bit. Further on this point, on a pro forma basis, Viper expects to own an interest in approximately 75% of Diamondback's expected completions over the next five years with an average 6% NRI within those wells. This is greater alignment than we have realized over the past eight years on average and is now going to be applied on a much larger scale. Looking at the forward outlook in more detail, we have initiated average daily production guidance for Q1 of 2025 of 30,000 to 31,000 barrels of oil per day. And upon the assumed closing of the drop-down expected in Q2 of 2025, we expect run rate daily average oil production of 48,000 barrels per day. Importantly, we also have unique visibility to further growth in 2026 as our Diamondback operated production is expected to increase to approximately 31,000 barrels per day, up from approximately 27,000 barrels per day in 2025. This production growth does not take into account the expected accelerated development of Diamondback's Southern Midland Basin acreage that was agreed to in the recent acquisition of the Diamondback level. The pending drop down includes substantial non-royalty acreage in Reagan County, mostly via concentrated interests and completely undeveloped units. So this acceleration would bring forward significant NAV for Viper. In conclusion, we continue to believe that Viper presents a differentiated investment opportunity with zero capital and operating costs alignment with our parent operating company that has helped us deliver consistent organic growth and a current size of scale that positions us to be the consolidator of choice in what we feel remains a highly fragmented minerals market, particularly in the Permian Basin. Pro forma from the drop down, Viper will rank amongst the largest U.S. independent E&Ps, and we believe the unique attributes to this business model will continue to be recognized by the market over time as our durable cash flow profile becomes increasingly differentiated.

Thank you. At this time, we will conduct the question-and-answer session. Our first question comes from the line of Neal Dingmann with Truist Securities. Your line is now open.

Good morning, guys. Kaes, congratulations on a well-thought-out strategy. My first question is just on the announced collaboration with Double Eagle. You mentioned this morning, I think, on the Diamondback call that maybe around 50% of this plan could benefit Viper. I'm just wondering if you could discuss maybe anything around potential timing and just what you mean by the potential upside from this for VNOM?

Yeah, we're still working out all the details and timing, which is dependent upon where the rigs get moving down there in the southern portion of our acreage. But at a high level, we expect at least $50 million of upside to Viper from a cash flow perspective at, let's say, $70 oil in 2026. I expect that number probably grows a bit in the coming years. But as we start to get more clarity on timing and interests, we'll update the market. I think we have an opportunity also to buy a lot of minerals down there in Reagan County. It seems to be an emerging part of the basin where there haven't been as many deals done to date. So Austin and his team are actively looking at opportunities down there.

Thank you, guys. And then maybe Travis, since our last call, I'd love to hear your thoughts on this one. If you still believe that post-large drop and just all the acquisitions you guys have been successful with, do you still believe that the opportunities for VNOM are as good as ever? And what other incremental accomplishments do you think still lie ahead for us and the team?

Yeah. Look, it's almost an embarrassment of riches the amount of talent that's assembled on this Viper team. But what's even more exciting than that is just the runway in front of these guys. When we took this company public, it has been a long time ago, 10-11 years. We always had a vision that it could be in the situation we're in today. It just took us a while to figure out what was the right structure to be able to get it there. But I think this is a category-killing company, and it's refreshing to see talent and opportunity coincide in the way that it's doing here at Viper Energy Partners. Thank you, Neal, for giving me the chance to mention that.

I couldn't agree more. Thank you all.

Thank you. One moment for our next question. Our next question comes from the line of Neil Mehta with Goldman Sachs & Co. Your line is now open.

Yeah, lucky me here. So Kaes, Travis, I'm curious about your perspective on the payout. You have the guidance for 75% to 100%, and I want your perspective, given the strength of the balance sheet, on the likely payout over the next couple of years. And what parameters are you watching to be on the lower end or the higher end of that range?

Yeah, Neil, that's a great question. When we started this business, it was a 100% pass-through, and we distributed every dollar we made every quarter. What happened with that situation was that it made us rely on the capital markets for doing deals. We had to do equity deals and lean on the balance sheet anytime we wanted to do tuck-in acquisitions. And now, since we've gone back to 75% of free cash returns, it's still a very high number. But for a mineral business, I think it makes a lot of sense. But that leaves 25% of our free cash flow, a number that's now growing pretty significantly with the drop-down to continue to do deals, the little deals that add up under the Diamondback drill bit, and we don't have to do a big marketed trade to get those deals done. So I really like 75% for Viper. We've certainly been vocal that the base dividend needs to grow, and we're prioritizing the variable dividend over repurchases. But there have been times over the past 10 years where repurchases made a lot of sense for Viper. So we have that ability. And in my mind, that would be the ability to lean in above 75% if there was extreme volatility in the market. So it's really a very flexible business model. I think after the large equity raise for the drop-down, the balance sheet is in a really good position to either grow the business or keep returning more capital.

Okay. Thanks. And then obviously, the Double Eagle transaction is done on the other side of the house. Will that create some opportunities for potential drop-downs here into Viper?

Yeah, the drop-down opportunity is probably small in that. I think they have a 76% effect. So we could do what we did with Endeavor where we carve out the SRI and create an override for Viper. So I would say it's a smaller opportunity. What's more exciting probably for us is the Reagan County opportunity that Kaes outlined with accelerated development of the large overrides we received from the drop-down and also kind of having a new playground down there to go around it and try to buy some minerals where there hasn't been much activity or buying over the course of the last, really, the history that the Permian with the horizontal development.

All right. Thanks, all. Thanks, team.

Thanks, Neil.

Thank you. One moment for our next question. Our next question comes from the line of Kalei Akamine with Bank of America. Your line is now open.

Hey, good morning, guys. Just one for me here. I am thinking about your data center plans and that development currently taking place. But I'm wondering if you think that's the right vehicle to maximize the value of that development when you look at your peers in the royalty space; it seems like royalty with surface rights is a business model that the market really likes here. Any thoughts on dropping that piece down too?

Yeah, we're certainly aligned with what's going on in the market on the surface side. We kind of said it on the Diamondback call. In my mind, the surface is the smallest piece of the value chain of a data center developer in the basin. But I think the market certainly has a different view. I think for us, there's more value in surface being in the operators' hands and being able to move things around and not worry about intercompany relationships when trying to develop our assets. So it probably stays with Diamondback for now, and we keep Viper as a pure-play royalty company. We went to three public state companies once before, and I think we're good at two. So we'll probably stay with Viper and Diamondback for now.

Got it. Thanks, guys.

Thank you.

Thank you. One moment for our next question. Our next question comes from Paul Diamond with Citi. Your line is now open.

Thank you. Good morning. Thanks for taking the call. I just want to get an idea of where you guys think about the right level and the split between FANG versus other operators in your long-term operational profile. Is it still pretty much opportunistic?

Yeah, the paying relationship is certainly what differentiates Viper, and it got significantly larger with the drop-down. I think we want to continue to grow the Viper business, which is what we would like to do. It's going to be naturally harder to do it 100% under the paying drill bit. But I think generally, we'll always have the support system of knowing where the majority of our development is coming from and the timing of that development, which I think is the key differentiator at Viper. I think over time, some of these larger packages that might come available in the basin, we'll have a piece of operations through Diamondback, but not the majority like the drop-down. So I think over time, it probably dissipates a bit, but that also means the multiple we should be paying for those assets is probably lower.

Understood. Makes perfect sense. Just to portend my second question, given the increased scale, how do you think about or has there been any evolution in how you think about the correct balance sheet? Any interest in deleveraging quickly or are you more comfortable taking on a bit more debt? Just your thoughts around that.

Yeah. I think the mineral business certainly has the capacity to take on more leverage. I just don't think the market or the rating agencies have come around to that idea. So I think we're still going to run the business fairly lowly leveraged. I think Viper's overall cost of capital has come down significantly. The fact that we're able to do a $1.2 billion follow-on deal when five or six years ago, we could barely raise $100 million has helped us a lot. Leverage plays a part, but we need the rating agency support to move up the rating scale and have access to that capital while not getting over our skis on leverage.

Understood. Thanks for the time. I'll leave it there.

Thanks, Paul. Our next question comes from the line of Derrick Whitfield with Texas Capital. Your line is now open.

Hey, good morning. Travis, Kaes again, congrats on what you've built with Diamondback and Viper, and congrats Austin on the opportunity you have ahead of you. For my first question, I really wanted to think through some of the deeper intervals and opportunities you have across the basin. While clearly, the drop-downs and Double Eagle acceleration are going to drive the near-term growth for VNOM, could you comment on how close the returns are with these deeper intervals versus the more traditional Wolfcamp and Spraberry zones? And further, are there leasing and activity tailwinds over the next two years that you see?

Yeah, Derrick. I think when you think about the resource expansion story at Viper, we definitely view that as a compelling story over the next few years. Looking at the returns kind of at the parent company, I think we've moved in the right direction on the cost side, and probably in the next two to three years, we think it's going to be pretty competitive with the core development that we're doing today.

And Derrick, on the leasing front, it's definitely something we've seen across our position. We signed a big lease on the deep rights with Diamondback a couple of years ago that was certainly unique given we owned 100% of the minerals, and it was such a contiguous block of acreage. What we've seen now is operators leasing the acreage or putting it together on an ASME basis. Not too many people want to get too much acreage aggregated and have the clock running with the lease expirations and such on that front. I think it will be a story that we see play out over the next couple of years, and the lease bonus we have with the modern-day lease could be a slight enhancement to the story and the normal royalty stream that we receive.

And then on my follow-up, I’ll perhaps reframe the previous surface question. What are your thoughts on the opportunity in the Midland Basin for service ownership, where you have material upstream water and royalty assets? While surface ownership definitely helps from a leasing perspective with data centers, the bigger opportunity we see on the Delaware side is really on water sourcing and royalty on water handling.

Yeah, I mean, I think it's certainly another leg of the stool that people are playing in the basin. It's good to see the water business get perhaps more attention than it used to get. We used to have a public subsidiary that was a water business, which had a hard time getting people on the calls for. But I think it's just natural that as the working interest gets consolidated, the minerals get consolidated. People start to look for opportunities on the surface, and royalties play an important part in that. For us, the important part of the business is to own the best rock and let activity and capital come to us as a result of that. So, I think you can argue that water on the service side can help you on the mineral side, and maybe that's true to an extent. But for us, with our relationship with Diamondback, and then just trying to own the highest quality rock in the basin, I think we feel very confident in the activity levels that we'll be able to generate just by focusing on that element.

Thanks. Great update, guys.

Thanks, Derrick.

Thank you. One moment for our next question. Our next question comes from the line of Tim Rezvan with KeyBanc Capital Markets. Your line is now open.

Good morning, folks. Thanks for taking my question, and also congrats to everybody on the news on the promotions and on Travis' retirement. I wanted to ask Kaes, on repurchase, you have over $400 million of capacity. I would argue you're basically going to be there on the leverage side by the middle of 2025. Amid a pretty tough tape for a lot of energy companies, with Viper trading down to the mid-40s, what are your thoughts on repurchases, and if we see more of a downdraft in the stock for macro reasons, are you incentivized to get active?

Yeah. Tim, good question. I think the repurchase plan is still there. There's still a lot of capacity, especially for Viper's size. If we start to see some weakness or continued weakness, we might shift away from the priority of returning cash to shareholders through the base plus variable. But it's there for a reason, and capital allocation is something we pride ourselves on. I think we're going to — I wouldn't call it a short-term holder in end cap, but we may monetize at some point. You'd expect us to participate in that deal. The repurchase plan is there. I haven't really thought about it for a while, but it's certainly something to dust off if we continue to see weakness across the space.

Okay. Appreciate that response. And then my follow-up, Kaes, on the FANG call and in prepared comments, you talked about a greater opportunity for consolidation in minerals versus E&Ps. There's been a lot of chatter in the mineral space about large packages kind of on the market. So I was just curious kind of what you're seeing from your seat that drove that commentary. Is it fair to say Viper is going to be as active as anybody at this point?

Yeah. I think Viper is in a really good position. The last two years, we've done $2 billion and $1 billion deals that I think surprised the market and our competitors, one of which had a lot of Diamondback activity that we could draw our drill bit buy down the multiple. What we did in that deal was we put a unique structure in place by giving them opco units to defer their tax liability. That structure got a lot of attention from a lot of mineral portfolios around the basin that had thought about it as their potential exit. What Viper offers now is an ability to give someone a significant amount of cash without compromising our balance sheet. Additionally, if we do give out equity, it could be in the form of a deferred tax format through the opco structure.

No, that's right. The position we're in, Tim, is that we also don't have to buy every deal. There are quite a few sizable packages. We've seen the size of the packages get bigger over the last couple of years. But we've been opportunistic, and we've been able to buy packages better from day one, while also adding duration to the cash flow profile as we see it. Given the organic growth that we see over the next couple of years, mainly driven by the Diamondback drill bit, we don't feel the need to redeem, and with the balance sheet where it is today, that just allows us to be opportunistic for the right opportunity when it comes available.

Okay. Thanks for the comments.

Thanks, Tim.

Thank you. Our next question comes from the line of Leo Mariani with ROTH. Your line is now open.

Yeah, hi, guys. I wanted to ask the M&A question a little differently here. Do you see significant opportunities out there today in the space? Do you still perceive the mineral landscape as incredibly fragmented? You've pointed out there has been significant consolidation on the upstream operator side, but I’m trying to get a better sense of that landscape. I mean are we like 5% into the consolidation? Are there still a lot of smaller owners of minerals that you see as an opportunity, given your strong balance sheet?

Yes. I think from an innings perspective, if you think about Viper, pro forma for the drop-down, Viper is going to do around 50,000 barrels of oil per day in production. If the Permian is producing 6 million barrels a day at a 25% royalty, there are 1.5 million barrels per day of royalty barrels available to be consolidated. We're the largest public mineral holder from a production perspective, and we're only 3.3% of the total Permian. So there's certainly some minerals that will never sell or turn over. However, if you just think about the size of the prize in this basin, there's significant opportunity ahead. This contrasts with the upstream side, where if you add the top five or six operators together from a gross production perspective, you're nearing 60%, 65%, or 70% of the total production in the basin.

Those were very helpful stats; they’re really much appreciated. Your folks are getting the Endeavor deal, and I’m sure it's being prosecuted right now, anticipating a second quarter close. It seems to me that deal is quite accretive. As I look at the dividend for the company, if we assume that oil prices don't really change much, around $70, it looks like we should see some nice accretion on the dividend post the close of that deal. Is that how you guys view it as well?

Yeah, we agree. I think the next goal for Viper is, on a normalized price basis, can we get to $1 per share of distributable cash flow each quarter? With the drop down as well as the expected organic growth, I think that's a near-term possibility, and 75% of that going back to shareholders represents a nice yield today. Thank you all for joining the Viper call today. If you have any questions, you know where to find us. We appreciate your time.

Thank you for your participation in today's conference. This concludes the program. You may now disconnect.