Viper Energy, Inc. Q4 FY2025 Earnings Call

Good day, and thank you for standing by. Welcome to the Viper Energy Fourth Quarter 2025 Earnings Conference Call. 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, Investor Relations Director. Please go ahead.

Thank you, Britney. Good morning, and welcome to Viper Energy's Fourth Quarter 2025 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 Austen Gilfillian, President. During this conference call, the participants may make certain forward-looking statements relating to the company's financial condition, 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. Welcome, everyone, and thank you for listening to Viper's Fourth Quarter 2025 Conference Call. The fourth quarter capped a transformational year for Viper highlighted by more than $8 billion of mineral acquisitions and meaningful growth in both absolute and per share metrics. Year-over-year, we grew our Permian Basin acreage by nearly 2.5x and our oil production per share by 7%. Activity across our Permian acreage remains strong, supported by Diamondback and third-party operators focused on the development of long lateral high-quality inventory. Looking ahead, we've initiated average daily production guidance for the full year 2026 that implies mid-single-digit organic production growth from our Q4 2025 exit rate. The Diamondback relationship continues to be strategic and meaningful to Viper's growth even after two significant acquisitions in 2025 and greater exposure to other leading operators in the Permian Basin. Beyond visible near-term growth, Viper is better positioned today than we ever have been in terms of the scale, longevity, and overall quality of our asset base and future inventory. Another significant achievement was the work we did on our balance sheet. Following our non-Permian divestiture, we fully repaid our $500 million term loan and outstanding revolver balance resulting in pro forma net debt of roughly $1.6 billion, just over one turn of leverage. Now turning to the return of capital. Our Board approved a 15% increase to our base dividend and a $1 billion increase to our share repurchase authorization reflecting confidence in our long-term cash-generating ability and disciplined capital allocation approach. This base dividend represents approximately 50% of estimated 2026 free cash flow at $50 WTI and is fully covered below $30 WTI. This increased base dividend provides an attractive yield while also allowing us continued financial flexibility to optimize capital allocation through additional returns via a combination of our variable dividend and opportunistic share repurchases. Given the strength of our balance sheet, we returned 90% of available cash during the fourth quarter. And now following the closing of our non-Permian divestiture, we are well positioned to increase our return of capital upwards of 100% of cash available for distribution. Importantly, we expect to execute on this comprehensive return of capital strategy while also continuing to deliver on differentiated growth in per share metrics. I'm pleased with our accomplishments in 2025 and the strong position Viper is in today, but there's still much to achieve. Looking ahead, Viper is well positioned to generate strong free cash flow, deliver attractive shareholder returns and continue to pursue accretive Permian consolidation opportunities as they arise. Operator, please open the line for questions.

At this time, we will conduct the question-and-answer session. Our first question comes from the line of Neal Dingmann with William Blair.

Kaes, my first question for you, Austen, is just on the Barnett specifically, last night and this morning, Barnett update really seems to be positive and certainly, I think, positive for Venom. I'm just wondering, could you give any color on how Venom's ownership translates across Barnett's position?

Yes, Neal, I'll give you some of the high level. I mean, I think that's what we've continued to try to preach at Viper is the benefits of mineral ownership and you own from the surface of the earth to the center of the earth in perpetuity. And as operators try new things or try new zones or new techniques, the benefit of that accrues to the mineral owner without the need to spend capital or take too much risk. So pretty exciting for Viper. We kind of kicked this off a couple of years ago in terms of leasing, but Austen is going to give some color on where we are today and what we're seeing.

Yes. No, we're still in the early stages on the actual leasing program. So Diamondback directly and also in some of the JVs that they've done have been very active in taking new leases from Viper to give them the right to develop those deeper zones in the Midland Basin. Spanish Trail was a big chunk of that, that we leased with Diamondback back in 2023. But as we sit here today, I would say we still only lease about 10% to 15% of the acreage that would potentially be open in the Midland Basin. So that should be a tailwind to come both from a lease bonus perspective, but also new inventory locations that are going to come into play and kind of support the production profile over the years to come.

Great point, Austen. Regarding the return of capital, you've indicated that you are prepared to return up to 100% of the cash available for distribution in addition to share growth. I'm curious about the last quarter where 41% of the cash available for distribution was allocated to the base dividend, followed by a buyback in 2027, variable distribution for 2023, and 9% for debt repayment. Will this proportion remain consistent, or is it largely influenced by the share price? I'm considering the broader context and ranking; should we expect the base dividend to remain the largest portion? How should we approach this?

Yes. I mean, listen, the Board decided to increase the base dividend by 15%. I think that's a meaningful number. I think it shows that we've done a good amount of accretive deals. Our balance sheet is strong. That's always going to be the first call on capital. We've also said, hey, when we get to $1.5 billion or $1.6 billion of net debt, we're going to ramp the shareholder returns to almost 100%. And I think we're there. I think it all depends on the market and the stock price and where things are headed. Obviously, the decision to buy back shares is less obvious today than it was at $37 a share. But we think we recognize that we have done a lot of accretive buybacks at Viper. We'll probably be ready should any of our nontraditional holders like the private equity owners want to sell, we'll help them get out like we did in Q4, we bought back 1 million shares directly from one of the private equity holders. So I just think having that flexibility is key. But in general, I think shareholders still want a lot of cash back. And at these prices with commodity improving and the stock price improving, we probably lean more towards cash return outside of unique situations.

Our next question comes from the line of Betty Jiang with Barclays.

My question is on the third-party activity outlook that you're seeing there. I think given the rig count declines in the Permian, it's notable how resilient Diamondback's or Viper's third-party activity has been holding up fairly well in the last few quarters. Where are you seeing today in terms of your activity backlog? Are you seeing any slowdown at all? Or could this be another area that perhaps is enhancing the production growth that you might see this year?

Yes. Good question, Betty. We really haven't seen much of a slowdown at all across the third-party activity. We put some new disclosures in this quarter on Pages 14 and 15 of the deck that breaks down kind of some of the key third-party operators by both the Midland and Delaware Basin. And kind of as you look through that list, right, it's dominated by some of the larger players in the industry. So I think that's really helped. I think also it's just kind of supportive of the view that we've had of trying to acquire high-quality royalty interest. And as you look at the amount of activity that our acreage position has captured over the years, it's really been consistent in capturing pretty much 50% of everything that happens by third parties across the entire basin and then you get the kicker of the concentrated development by Diamondback as well. So we'll see what happens over the course of the year. Right now, the guidance only takes into account what we can see, meaning existing DUCs and permits. So if activity holds like it can today, that might help a bit on the production outlook. But overall, I would say the key takeaway is that third-party activity continues to be very strong.

Yes. And Betty, we always put our operator hat on when we're buying minerals. So we always buy under well-capitalized operators on the third-party side in acreage that we covet. And that usually means that acreage that we covet gets developed first, which is why we've had such strong activity levels on the third-party side.

Yes. No, that makes sense and can really see how resilient that activity is broadly, despite the basin's overall levels. A follow-up on the lease bonus. And it's related to the Barnett for the deeper zones as well. Lease bonuses have been coming in fairly strong in 2025 and got another decent quarter in 4Q. As the basin continues to chase deeper zones, how does that benefit you guys from a lease bonus income perspective?

Yes. Any lease that becomes available, whether due to a vertical well that doesn't maintain the new deep rights or an operator failing to meet lease obligations like drilling a well by a specific date or producing a required amount, will terminate, and those rights will revert to us as the mineral owner. We can then secure a new lease, receive a lease bonus, and reset the development clock. We have invested significant time and resources in building teams, systems, and processes to manage the vast number of leases and the associated production data. This allows us to proactively manage and maintain an active leasing program. The benefits of this strategy were evident in the lease bonuses we earned last year and over the past few years. I believe this will continue, given both the pricing dynamics and the necessity for operators to comply with ongoing drilling requirements, especially with the lower rig count making it more challenging for some operators.

Our next question comes from the line of Neil Mehta with Goldman Sachs & Company.

Kaes, what's the environment out there right now in terms of the bid ask for other royalty assets? Is there another Sitio waiting out there? Or a lot of the big prizes have already been taken?

Yes. I mean it's a good question. Minerals are interesting. When commodity prices are lower, there's not really a need to sell unless there's some other use of proceeds that the seller has. So there hasn't been a ton of large deals for us to look at over the last six months or so. And I think generally, investors wanted a little bit of a break from deals at Viper, big deals in particular, and proved that we could integrate Sitio and the drop-down, and we've done that. But I'd say we're ready to look at larger deals. They're just kind of hard to get done at these prices. And that kind of ties to the thesis around the Viper balance sheet and return of capital. We've kind of said, hey, listen, debt-to-EBITDA at Viper is very close to debt to free cash flow and at $1.5 billion of debt, we're well protected at $50 oil. And also at $50 oil, we don't need a ton of cash for deals because it's harder to get them done. So that's kind of why we set that debt target. And as you think about going above that, as prices recover, I think the psyche for sellers changes, and we might be able to get some deals done. But from a size perspective, it's been hard to get really big deals done over the last few quarters. We've done a couple of small things that add up over time, but that's kind of how I see the market. Austen, do you want to add anything?

No, I agree. The ground game, as we call it, is tough off here, but we have a team dedicated to that. And I think we have the relationships in the basin to get some good value adds that help on the margin. I think to Kaes' point, there are bigger strategic deals to be done when the time is right. We just haven't seen those over the last couple of quarters more so because of the commodity price environment.

That's great. And then the follow-up is just geography. I mean it seems like the position is certainly more concentrated on the Midland side, and that's where you have the asset overlap with the parent. How does Delaware fit into the portfolio? Where specifically could you see yourselves leaning in from an activity perspective? And then I think I know the answer to this, but this is a Permian pure-play story, right? We wouldn't be surprised if you try to diversify outside of that.

Yes. It's definitely a Permian pure-play story. I think the unique attributes of the Permian with the stacked pay and the emerging zones and also some of the modern lease clauses really benefits you more as a mineral owner, even more so than some of the obvious things that you would appreciate from the operated perspective. It's who we know, it's what we know, and I think most of the sizable deals here exist in the Permian, given the still very highly fragmented royalty ownership across Texas and New Mexico. For us, on the royalty side, I think we still see a lot of value in the Delaware Basin. It's a little bit of a different story given that you're not going to be able to rely on the Diamondback drill bit to drive that visible growth. But as we dig in, there's still some really high-quality unbilled locations there that exist under well-capitalized operators. And that's kind of how we view it, right? It's like what is the likelihood of that next inventory location getting developed. And for us, we get that confidence either via knowing Diamondback's development plan or by just looking at what the operator economics are. And I think a lot of that exists today, especially in the Northern Delaware. So we'll focus there where we can. But for us, rock is rock and value is value. So it will just kind of be depending on the assets that are available.

Our next question comes from the line of Kalei Akamine with Bank of America.

My first question is on the 2026 oil guide. It's quite wide. Wondering what that reflects. Is it visibility that you have on the activity? Or is it performance related as third parties in the basin are trying out new stuff? And if it's visibility related, is it fair to say that visibility is better near term and less so in the second half of the year?

That's right, Kalei. Maybe on the second point. So on the third-party operated side, we have the same visibility that you do really being that it's limited to existing DUCs and permits. If you look at conversion rates and also the conversion timelines on wells that have been drilled currently, those typically get converted to production within about 5 to 6 months. So we feel very good about the first half of the year and what that growth outlook looks like. As we move to the second half of the year, it becomes a little bit trickier calculus having conversion rates and timelines on permits. So we've modeled the permits that we can see today. But as we progress through the year and potentially activity gets brought forward or new wells get permitted that are included in the guide, that could help move you up to the higher end of the range. And really, the wide guide right now is just that we can only guide to what we see today, and a lot will happen that we don't know about today in the back half of the year.

My second question is on the gas contracts that were announced at Diamondback that are starting up later this year. To the extent that that secures higher gas realizations, wondering if that also benefits Viper on the revenue side?

Yes. We do everything essentially heads up between Viper and Diamondback. So any marketing contract benefit rolls through; it won't be for all of Viper's production, but for a good majority, the gas realization thesis works pretty well for Viper too, particularly now on the third-party side, a debottlenecked Permian, given the Viper Delaware exposure could be a good positive rate of change story as well.

I hope you guys don't mind me trying the third question, but I imagine that there's a portfolio of lower zone rights at Viper. Maybe not all of that is viewed as being competitive today, given where the activity on the Midland side of the basin has been, but the proportion that is competitive, should we assume that's already been transferred to Diamondback?

Yes. Not all of it has been leased yet. There's still a lot of unleased deep rights at Viper. And as we get closer to development at Diamondback, it's logical that Viper will be the first call. We got to do things on a market basis and a heads-up basis, but this relationship between parent and sub, mineral owner and operator, I think, is going to pay some long-term dividends with deeper zone development. I think the great example was we leased Spanish Trail, which is 100% of the minerals owned by Viper, and that's what started this business 15 or 11 years ago going public. And a 10,000-acre block at 100% NRI is as good as it gets in the Permian Basin.

Our next question comes from the line of Derrick Whitfield with Texas Capital.

I wanted to start on the Barnett. Regarding the interval and the 200,000 net acres you referenced for Diamondback earlier today, how much coverage do you specifically have with Viper? And does Diamondback have any activity planned at Spanish Trail, the area you were just mentioning, where you guys have a very high NRI for?

Yes. So without getting into the specifics, I would say a lot of the work that Diamondback has done has kind of been with third parties. We had the big chunk, kind of the 10,000 to 15,000 acre block in Spanish Trail, which is going to provide the great alignment between Diamondback and Viper. I think Diamondback had a little bit more flexibility to handle the leases with Viper as they come up and a bit more term on the development plan, where a lot of what they've done has kind of been more bigger strategic options. So I think you'll see the alignment continue to improve as we progress through the year. And then on Spanish Trail, I think if you listened to the Diamondback call, there have been some references to some offset tests, but the first 2 wells that are going to be tested on Spanish Trail proper, those wells have been permitted and should have production kind of in the mid-part of this year. So very excited to see those results and see what that might mean for Diamondback to apply more of a full-scale development approach where Viper owns 100% of minerals.

Yes. No question, great development for Viper. And maybe just going back to some of your M&A comments earlier on the ground game. With the inclusion of the Sitio guys who had really focused on the ground game, I guess how would you characterize the growth you're seeing in organic additions throughout 2025 and kind of what you see ahead for you in 2026?

Yes. I mean, listen, we're continuing to look at every deal that crosses our desk, right? We're in the flow. We know everybody. They're bringing the deals. I'd just say it's not that we're not getting anything done. It's just that from a materiality perspective, it takes a lot more effort on the ground game to equal something of the scale that we did last year. So don't count on the ground game. I think that's still going to be an important part of the story. It's just going to have to add up over time. And then you have the big deals really moving the needle from a size, scale and flow liquidity perspective.

Our next question comes from the line of Paul Diamond with Citi.

So focusing on M&A, you are making progress toward that $1.5 billion net debt figure with one turn of leverage. In light of potentially larger deals, how much are you prepared to increase that amount?

Yes. I mean I think we probably feel like a little bit of 1.5 turns, a little bit above that as a stretch and then you pay it down, wouldn't hurt. I think we're very cognizant of maintaining and improving our ratings profile, getting to investment grade was a big deal for us last year, pretty unique access to capital at Viper versus peers in the space. So I wouldn't want to stretch the balance sheet. And I think our currency offers a very unique opportunity for sellers as well. We've done a few of these deals with OpCo units where taxes can be deferred, and a lot of large mineral owners have very little basis in their minerals and like that tax-deferred status. So we stretched a little bit. I think half a turn of leverage is a big number now, which is a good thing. And any deal that we do is going to come with significant cash flow. So that's how I would frame it.

Got it. Understood. And then just a housekeeping question on hedge plan. 2026 looks pretty well locked in. Is there any volatility level that would really move off these marks? Or are you guys comfortable with the current levels?

We're comfortable with it. We've had this approach for a while now where we just try to protect against the extreme downside through deferred premium puts. So we've been able to take advantage of some of the volatility over the last couple of quarters and have a good position built through Q3, which especially given where the debt level is, I don't feel like we need to do much more there. As we continue to progress through time and if you see debt levels stay low like they are now, you can probably just see less protection, meaning either a lower percentage of our volumes hedged or potentially a lower strike price on the put and you can get them for a little bit cheaper. But in general, we just want to protect against the extreme downside, ensure that we can continue to pay out a lot of our capital and not have to panic if things go south quickly again and try to start working cash. So I think it's just a prudent approach that we've had that's worked well for us the last couple of years.

Our next question comes from the line of Leo Mariani with ROTH Capital.

I wanted to follow up on lease bonus income. Obviously, that popped a bit in 2025. I know it's difficult to kind of have any precision guide, but would it be fair to assume that maybe 2026 is not dramatically different in terms of lease bonus income? Are we kind of in a bit of an upcycle versus a handful of years ago? Obviously, there's some new zones that are coming to bear as you guys have described on both this and the fan call.

We'll see. I mean it's a little bit out of our control, given it's dependent on operators typically filling to meet certain lease provisions or lease requirements or alternatively having deep rights being open. I think we are seeing the deep right story play out on both the Midland and Delaware sides for Viper in terms of the ground leasing that's happening. I think something also that's going to be interesting to happen, especially post-Sitio as you move into 2027 and gas takeaway gets better, we'll be able to explore what new development areas might look a little bit better with higher gas realizations, and that could help as well. So maybe it's being optimistic, but I think we can have 2026 look similar to 2025. And really, it's going to be the benefit of having a much larger asset base today and a team fully dedicated to proactively managing the position.

Yes, that's the key. We're improving our ability to manage our position proactively despite its size, and this is where some of the Sitio team members focus on automation, title reviews, and lease reviews. I believe AI will be significant for Viper. We don't have enough manpower to analyze 50,000 wellbores and 40,000 leases, but a machine can handle it. I think this will generate more revenue for our shareholders.

All right. That's good color there. And I just wanted to ask on kind of oil cut. Your oil cut here was kind of mid-50s several quarters ago. It's kind of trending a little bit more towards low 50s. What do you attribute this to? Is this just more secondary zone development and, of course, just wells get older, GOR sort of increases?

Yes. I mean I think if you think about Viper as a bond for the Permian Basin, it actually kind of gives you a good look into where GORs are headed throughout the basin. Last year, we added a lot of Delaware exposure through Sitio. So that's part of the equation. But I think outside of that, we've seen these gas systems and gas plants operate a lot more efficiently in both basins. So you've seen just the gas and the NGL beats be pretty dramatic across the board. And I think that's telling you something about the basin. It's not necessarily just secondary zones. I think it's all of the above.

Our next question comes from the line of Tim Rezvan with KeyBanc Capital Markets.

I appreciate being included in this discussion. I want to revisit the topic of share repurchases. It seems, Kaes, from your remarks that the $1 billion authorization may be geared more towards providing liquidity for the current shareholders rather than primarily for open market repurchases at this time. So I'm just trying to understand, while I know you can't reveal too much, shares have increased by 17% year-to-date, but they’re still significantly below the levels seen in 2024 and 2025 when oil prices were higher. I'm trying to gauge the appeal of open market repurchases right now.

Yes, that’s a great question, Tim. It's a subjective matter as well. Clearly, open market repurchases were more pronounced in the fourth quarter compared to now. We're trying to navigate the best way to return capital to shareholders. Given our current balance sheet, we do have additional cash available for shareholder returns, whether through distributions or repurchases. You can expect us to remain flexible. While we don’t need to allocate every dollar for repurchases at current levels, it's still a significant aspect of our strategy. I believe larger sell-offs may come from those looking to exit, and maintaining the ability to prevent excessive stock pressure while having the repurchase program is beneficial for Viper shareholders. I'm addressing the buyback in relation to Q4 since the circumstances then were quite different from now. However, anything is possible; we could see a decline from here, which is why the authorization exists for us to act if needed.

That's good context. I appreciate that. And then, Kaes, if I could quickly ask a macro question. We saw pretty strong third-party turn-in-lines in the fourth quarter relative to the full year run rate. I know some of that is probably due to the Sitio acquisitions. But it seems like industry-wide concerns on Permian oil rolling over, those concerns seem to be fading. So given the lens into aggregate activity that you have through Viper, do you expect Permian oil to grow this year?

Yes. I mean we've been very vocal on the Diamondback side about production and U.S. production. I think the Permian has always kind of been an outlier. I would say at these oil prices, I haven't heard about operators dropping a rig since kind of the first week of the year we had the Venezuela noise. So I mean, since then, that's gone very quiet. I think overall, Permian probably grows here, and some of the larger operators, the majors are continuing to grow. Some of the privates still have deals to do here and there. So in general, I think the Permian looks strong relative to the rest of North America, and the conversations about reductions in activity have gone very quiet.

I'm showing no further questions at this time. I would now like to turn it back to Kaes Van't Hof, CEO, for closing remarks.

Thanks, everybody, for taking the time to listen in today. If you have any questions, please reach out, and we'll talk soon. Thank you.

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