Viper Energy, Inc. (VNOM) Q2 2026 Earnings Call Transcript

Good day and thank you for standing by. Welcome to the Viper Energy second quarter 2026 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a Q&A session. To ask a question during your session, you will need to press star 11 on your telephone. You will then hear an automated message advising that your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand it over to your first speaker today, Chip Steele, Investor Relations Director. Please go ahead.

Good morning and welcome to Viper with the appropriate gap measures can be found in our

Thank you, Chip. Welcome, everyone, and thank you for listening to Viper's second quarter 2026 conference The second quarter continued the trend of strong execution for Viper, highlighted by steady development activity from both Diamondback and our third-party operators across our asset base. Gross horizontal wealth to production on our acreage, in which Viper owned an average 3% net revenue interest. As well as our continued execution on our acquisition strategy, we have initiated average production guidance for the third quarter that implies roughly 4.5% growth relative to the second quarter. Importantly, the midpoint of our third quarter guidance implies an approximate 15% annualized growth rate in oil production per share relative to the fourth quarter of 2025. Strong underlying organic growth combined with accretive acquisitions and opportunistic share repurchases turning 75% of available cash for distribution to stockholders and share repurchases completing during the quarter as well as a combined base plus variable dividend of 67 cents a share in our return of capital strategy to a framework which includes a high base dividend and greater flexibility in how we approved a 32% increase to our base dividend, now up to $2 per Class A share on an annual basis. With this increase to the base dividend, we also announced that beginning in the third quarter, we will be removing our previous quarterly commitment to return at least 75% of cash available for district size base dividend that fluctuates with commodity prices best showcases what is truly unique about Viper. At our current share price, the increased base dividend implies an annualized yield of approximately four and a half percent. This yield remains meaningfully above the average of our E&P peers and is underpinned by one of the lowest break-evens, dividend break-evens in the sector. Our capital expenditures and long-lived asset base, we believe the durability of this dividend should be compared to the most durable business models in the market, not just our energy peers. The base dividend is sacrosanct. Committed to returning a significant amount of capital to our shareholders through the cycle. While we are removing the quarterly commitment to return at least 75% of cash available for distribution, there's a solid floor under our returns given the increased base dividend represents approximately 50% of free cash flow at $70 a barrel WTI. Retaining excess cash flow during periods of higher commodity prices will allow us to opportunistically repurchase shares, reduce debt, or pursue a disciplined M&A strategy. We have extremely attractive investment opportunities ahead today for Viper, and we believe that allocating incremental capital through a cyclical lens will create long-term stockholder value. In short, we do not believe the market is currently valuing the variable dividend framework, and as such, have put that mechanism aside for now. In its place, we believe our new capital allocation framework will better highlight the attractiveness of VIPER's dividend and enable a more compelling growth outlook to be paired with the existing yield.

Thank you. At this time, we will conduct the question and answer session. As a reminder, to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster. Our first question comes from Betty Jing of Barclays. Your line is now open. Hi. Good morning.

Clearly, today's big news is the change in the cash return strategy, and I think it really reflects how the royalty model and business has evolved over the last many years. It started as a distribution vehicle, but Viper has shown growth, both organic and inorganic, and while distributing strong cash flow through the years. I just want to unpack sort of your rationale to change the cash return strategy today and how that's reflective of the value proposition that you see a Viper offering in the long term and and then how do you think about Viper's competitive advantage against an EMP going forward you know we balance sheet yeah no that makes a lot of sense and do you agree that a lot of the value is not getting recognized by the market and and having more shared buyback would be good my follow-up will be sort of on the M&A strategy and funding of M&A I think given this shift there's also a move towards potentially self-funding deals in going forward and that's a difference from in the past where you guys have tapped into the public market so how do you think about M&A financing have changed under this new framework Yeah, so let me add a couple of things, I think, of those deals.

That makes sense. Thank you. Our next question comes from Neil Dingman of William Blair. Your line is open.

Maybe I'll just hit you with both since my first is pretty quick. My first quick one is just on the payout that you've talked about specifically, what percent do you believe is the most appropriate cash available for distribution kind of on a go forward? I mean, I know that's been a little bit flexible, but it's one we think is most appropriate. And maybe just secondly, it's all a little bit like Betty's. Second question, just on future strategy and what most specifically, how do you all believe you can continue to take advantage of, you know, Vipers' dominant size and strong balance sheet for opportunity that's going forward?

Where we distribute all of our free cash in the form of, you know, buying back shares plus a big base dividend.

Thank you. Our next question comes from Paul Diamond of Citi. Your line is now open.

Thank you. Good morning, Alex, for taking the call. Just wondering if you based on some of the new base dividends, is that over time, and is there any level of volatility over time that would really shift your hedging framework at all? Is there a level you would wrap up, given the concrete nature of the distribution now versus the relative one previously? Got it. make perfect sense and just one more i guess high level strategic question i talked in previous calls a bit about the opportunity set in your acreage from new and emerging ventures you know is there any update there is there any more work done on either at fang's level or some of the third-party stuff that would you know ship your view there or is that more of just an emerging opportunity set on the the woodford and the delaware so we've had you know five or six quarters now where we've been extremely active leasing the barnet and the midland basin um but But the Woodford on the Delaware side has really picked up over the last couple quarters.

And I think if you look, you know, from probably the early part of 2025 to what we've done in the first half of 2026, it's pretty evenly split. You know, I think everything in the door now, we're probably $25 to $30 million of lease bonuses just on deep price there, which is about a third of our total leasing effort over that time period. And, you know, that money up front is good, but that also typically means a three-year clock for operators to go start developing those minerals. So I think it's going to equate to more production growth over that time period Like I said, there's a disparity over there.

Thank you. Our next question comes from Derek Whitfield of Texas Capital. Your line is open.

Good morning again, guys. I wanted to start first with your production outlook.

When you think about the growth in your net or in your near-term inventory in your line-of-sight wells and compare that to the amount of wells required to hold your production flat, what does that suggest about the underlying growth rate of the business on a consolidated basis as you look out for 2027?

We incorporate the 2,000 barrels a day of production and contribution from the riverbend assets, but that still implies 1,000 barrels a day of organic basis. You know, I mean, you can kind of do the math as well on what might be implied in Q4, and I think the takeaway there will be continued organic growth. So I think it sets us up for a really strong second half of the year, and I think slide five of the investor presentation for the first time lays out explicitly what Permian production was for Viper. Going back to the fourth quarter of last year as well as the first quarter of this year, stripping out the noise associated with the non-permean divestiture on you know all in you're looking at about high single-digit organic growth in 2026 now I don't know if we'll maintain that level on a percentage basis going into next year but certainly the the line of sight we have in terms of activity is going to support some some modest growth off the exit rate this year great certainly makes sense and then maybe referencing the an earlier call the diamondback call um you guys noted a full little pad targeting the barnett and spanish trail which again exceptionally high nri area for you as you look further on the on the development curve how much activity does diamondback have planned there are other areas with very high nris 75 to 80 per activity i mean that that gets skewed and you benefit from certainly 25 nri um so i think we still feel confident in maintaining that alignment with Diamondback here for the next couple years. And, you know, hopefully we'll have some encouraging results, which we expect to, on that first Spanish Trail Barnett development. And as you get, you know, more gross wells there with those high NRIs, that helps the net exposure quite significantly.

You know, wearing kind of two hats here, Derek, is that, you know, if that pad produces how we expect and the cost but decile of our combined inventory in terms of rate of return.

Sounds very promising for Viper. Nice order, guys.

Next question comes from Jack Kavanaugh of Goldman Sachs. Your line is now open.

Thanks, guys, for taking my question. I appreciate your comments on the market not maybe rewarding Venom's value proposition at this point. And so I was just wondering if you could kind of overlay those comments with how you're viewing, you know, maybe the near-term outlook for opportunistic repurchases, you know, maybe relative to what we've seen this quarter and what we've seen historically from you guys and kind of what those levels could look like in the second half of this year?

Yeah, I mean, I think, you know, we did a little Q2. You know, we've kind of continued at a similar daily pace.

Appreciate that. And then maybe for my follow-up, you know, just looking at 2027, obviously really strong on the organic growth side. And then you've obviously mentioned there's, you know, maybe potential for inorganic opportunities as well. Beyond that, I'm wondering if they're like, you know, beyond 2027, if you see, you know, the potential for continued organic growth or if you think, you know, the structure could shift more to a higher returns, higher yield scenario or kind of what you're kind of seeing as the organic, you know, volume growth outlook beyond 2027.

I think for what we can see, you know, there's certainly organic growth potential, you know, beyond 2027, particularly led by, and generally we've outperformed.

Appreciate that. Thank you.

Our next question comes from Scott Hanold of RBC. Your line is open.

Yeah, thanks. You know, it looks like your development wells and line of sight wells, you know, stepped up pretty nicely this quarter, and a lot of it looks like third-party operated stuff. Can you give us some sense in color on what you're seeing there? Is it just the uptick in rig activity is aligning with the Viper acreage, or is there some other dynamic there?

Projects they have ahead of them, and how do we get exposure to that? So I think it's certainly not a coincidence in how you've seen our third-party activity trend over the last couple of years, and it's just representative of us targeting the highest quality undeveloped acreage that we can in the Permian Basin, regardless of the operator.

Got it. Okay, and then, you know, I guess this one's, you know, for you, Case, you know, obviously you're pivoting more to stock buybacks, and it feels like you all have some frustration on the Viper valuation. And, you know, if you step back and look at stock buybacks, whether it's an E&P or even with Viper, it doesn't seem that it quite moved the needle. I mean, I get the fact that, you know, there's more production or EPS per share for existing shareholders. But, you know, what would be the next step if buybacks, you know, don't do the trick in, you know, pushing Viper stock, you know, higher? Are there other alternatives you're evaluating?

Well, I mean, clearly at some point, I think that...

Thank you.

Thank you. Our next question comes from Leo Mariani of Roth. Your line is open.

I was hoping you could talk a bit more about what you're seeing with third-party operator activity trends. I think you mentioned on the fan call that you think the rig count in the Permian Basin is going to continue to sort of grow as we get kind of later in the year. So maybe you can provide a little bit more color around what you're seeing there.

We've seen that in the basin, and we've seen that specific to Viper as well, and really that gets reflected, and we're about this pretty consistently, but really what's most impactful for Viper is the conversion rate for those, what percentage of the permits or the doves get converted to production, and then also how quickly they do that. I think as rig count trends up, those existing permits get converted to production more quickly than potentially we underwrite, and that just brings forward some volume. So, you know, I think we've positioned this business really well, where we benefit from the growth of Diamondback and their focus on Vipers concentrated mineral interest, and then also kind of a broad base and exposure to other third-party operators and whatever their activity levels may be, and also whatever learnings they might have across the entire Permian Basin. So, yeah, I feel good about third-party asset base and how it's performing, especially here recently with kind of where commodity prices have been.

I wanted to expand a bit more on the M&A side. It looks like you guys did about $103 million in M&A in the quarter. Then you announced kind of $160-ish million drop down from Fang. You talked about a pretty robust kind of M&A opportunity set. Can you provide a little bit more color about what you're seeing? Is there kind of a lot of smaller, bite-sized deals? Are there bigger deals kind of starting to get floated? Just any more color on that would be helpful.

I think it's a combination of both. We really have gained a lot of traction over the last quarter or two on the ground game. Those are conversations we've always had. I think we've just had a little bit higher success rate on converting those into deals we're closing. So that's exciting, and it's a pretty core part of our business of bulging up and netting up and adding value around the edges. There's certainly a lot of calls over the last couple months with sellers seeing where oil prices were, or at least potential sellers. I think Riverbend is reflective of a good type of deal that Viber can do pretty easily now. The volatility has not been helpful, that's for sure. But I think there's still a really constructive A&D market out there, and Viber expects to play a very significant role within that. allocating capital today, if you think about all of the different uses, the investment opportunity in buying back shares looks pretty attractive relative to even what M&A might look like.

Okay.

Thank you.

Thank you. This concludes the question and answer session. I would now like to turn it back over to the CEO, Case Vanhoef, for closing remarks. Thank you for your participation in today's conference. This does conclude the program, and you may now disconnect.