UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the Quarterly Period Ended September 30, 2024
OR
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF SECURITIES EXCHANGE ACT OF 1934 | |||||
Commission File Number 001-36505
(Exact Name of Registrant As Specified in Its Charter)
| (State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification Number) | |||||||||||||||||||
| (Address of principal executive offices) | (Zip code) | |||||||||||||||||||
(432 ) 221-7400
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | |||||||||||||||
$0.000001 par value | |||||||||||||||||
| (NASDAQ Global Select Market) | |||||||||||||||||
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check One):
| ☒ | Accelerated Filer | ☐ | ||||||||||||||||||
| Non-Accelerated Filer | ☐ | Smaller Reporting Company | ||||||||||||||||||
| Emerging Growth Company | ||||||||||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of November 1, 2024, 102,977,142 shares of Class A Common Stock and 85,431,453 shares of Class B Common Stock of the registrant were outstanding.
VIPER ENERGY, INC.
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2024
TABLE OF CONTENTS
| Page | |||||
i
GLOSSARY OF OIL AND NATURAL GAS TERMS
The following is a glossary of certain oil and natural gas terms that are used in this Quarterly Report on Form 10-Q (this “report”):
| Argus WTI Midland | Grade of oil that serves as a benchmark price for oil at Midland, Texas. | ||||
| Basin | A large depression on the earth’s surface in which sediments accumulate. | ||||
| Bbl or barrel | One stock tank barrel, or 42 U.S. gallons liquid volume, used in this report in reference to crude oil or other liquid hydrocarbons. | ||||
| BO/d | One barrel of crude oil per day. | ||||
| BOE | One barrel of oil equivalent, with six thousand cubic feet of natural gas being equivalent to one barrel of oil. | ||||
| BOE/d | BOE per day. | ||||
| Completion | The process of treating a drilled well followed by the installation of permanent equipment for the production of natural gas or oil, or in the case of a dry hole, the reporting of abandonment to the appropriate agency. | ||||
| Crude oil | Liquid hydrocarbons retrieved from geological structures underground to be refined into fuel sources. | ||||
| Development well | A well drilled within the proved area of a natural gas or oil reservoir to the depth of a stratigraphic horizon known to be productive. | ||||
| Differential | An adjustment to the price of oil or natural gas from an established spot market price to reflect differences in the quality and/or location of oil or natural gas. | ||||
| Fracturing | The process of creating and preserving a fracture or system of fractures in a reservoir rock typically by injecting a fluid under pressure through a wellbore and into the targeted formation. | ||||
| Gross wells | The total wells, as the case may be, in which a working interest is owned. | ||||
| Henry Hub | Natural gas gathering point that serves as a benchmark price for natural gas futures on the NYMEX. | ||||
| Horizontal wells | Wells drilled directionally horizontal to allow for development of structures not reachable through traditional vertical drilling mechanisms. | ||||
| MBbl | One thousand barrels of crude oil and other liquid hydrocarbons. | ||||
| MBOE | One thousand barrels of crude oil equivalent, determined using a ratio of six Mcf of natural gas to one Bbl of crude oil, condensate or natural gas liquids. | ||||
| MBOE/d | One thousand BOE per day. | ||||
| Mcf | One thousand cubic feet of natural gas. | ||||
| Mineral interests | The interests in ownership of the resource and mineral rights, giving an owner the right to profit from the extracted resources. | ||||
| MMBtu | One million British Thermal Units. | ||||
| MMcf | Million cubic feet of natural gas. | ||||
| Net royalty acres | Net mineral acres multiplied by the average lease royalty interest and other burdens. | ||||
| Oil and natural gas properties | Tracts of land consisting of properties to be developed for oil and natural gas resource extraction. | ||||
| Operator | The individual or company responsible for the exploration and/or production of an oil or natural gas well or lease. | ||||
| Proved reserves | The estimated quantities of oil, natural gas and natural gas liquids which geological and engineering data demonstrate with reasonable certainty to be commercially recoverable in future years from known reservoirs under existing economic and operating conditions. | ||||
ii
| Reserves | The estimated remaining quantities of oil and natural gas and related substances anticipated to be economically producible, as of a given date, by application of development projects to known accumulations. In addition, there must exist, or there must be a reasonable expectation that there will exist, the legal right to produce or a revenue interest in the production, installed means of delivering oil and natural gas or related substances to the market and all permits and financing required to implement the project. Reserves are not assigned to adjacent reservoirs isolated by major, potentially sealing, faults until those reservoirs are penetrated and evaluated as economically producible. Reserves should not be assigned to areas that are clearly separated from a known accumulation by a non-productive reservoir (i.e., absence of reservoir, structurally low reservoir or negative test results). Such areas may contain prospective resources (i.e., potentially recoverable resources from undiscovered accumulations). | ||||
| Royalty interest | An interest that gives an owner the right to receive a portion of the resources or revenues without having to carry any costs of development, which may be subject to expiration. | ||||
| Spud | Commencement of actual drilling operations. | ||||
| Waha Hub | Natural gas gathering point that serves as a benchmark price for natural gas at western Texas and New Mexico. | ||||
| WTI | West Texas Intermediate, a light sweet blend of oil produced from fields in western Texas and is a grade of oil that serves as a benchmark for oil on the NYMEX. | ||||
| WTI Cushing | Grade of oil that serves as a benchmark price for oil at Cushing, Oklahoma. | ||||
iii
GLOSSARY OF CERTAIN OTHER TERMS
The following is a glossary of certain other terms that are used in this report:
| Adjusted EBITDA | Consolidated Adjusted EBITDA, a non-GAAP measure, generally equals net income (loss) attributable to Viper Energy, Inc. plus net income (loss) attributable to non-controlling interest before interest expense, net, non-cash share-based compensation expense, depletion expense, non-cash (gain) loss on derivative instruments, other non-cash operating expenses, other non-recurring expenses and provision for (benefit from) income taxes, which measure is used by management to more effectively evaluate the operating performance and determine dividend amounts for purposes of the dividend policy. | ||||
| ASU | Accounting Standards Update. | ||||
| Class A Common Stock | Class A Common Stock, $0.000001 par value per share of Viper Energy, Inc. | ||||
| Class B Common Stock | Class B Common Stock, $0.000001 par value per share of Viper Energy, Inc. | ||||
| Common Stock | Collectively, Class A Common Stock and Class B Common Stock. | ||||
| Diamondback | Diamondback Energy, Inc., a Delaware corporation. | ||||
| Exchange Act | The Securities Exchange Act of 1934, as amended. | ||||
| FASB | Financial Accounting Standards Board. | ||||
| GAAP | Accounting principles generally accepted in the United States. | ||||
| General Partner | Viper Energy Partners GP LLC, a Delaware limited liability company, and the General Partner of the Partnership. | ||||
| LTIP | Viper Energy, Inc. Amended and Restated 2014 Long Term Incentive Plan, as amended and restated by Viper Energy, Inc. 2024 Amended and Restated Long Term Incentive Plan, and as may be further amended or restated from time to time. | ||||
| Nasdaq | The Nasdaq Global Select Market. | ||||
| Notes | The outstanding senior notes of Viper Energy, Inc. issued under indentures where Viper Energy Partners LLC is the sole guarantor, consisting of the 5.375% Senior Notes due 2027 and the 7.375% Senior Notes due 2031. | ||||
| OPEC | Organization of the Petroleum Exporting Countries. | ||||
| Operating Company | Viper Energy Partners LLC, a Delaware limited liability company and a consolidated subsidiary of Viper Energy, Inc. | ||||
| Partnership | Viper Energy Partners LP, the predecessor of the Company, which converted into the Company in the Conversion. | ||||
| SEC | United States Securities and Exchange Commission. | ||||
| Securities Act | The Securities Act of 1933, as amended. | ||||
| SOFR | The secured overnight financing rate. | ||||
iv
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Various statements contained in this report are “forward-looking statements” within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act, which involve risks, uncertainties, and assumptions. All statements, other than statements of historical fact, including statements regarding our: future performance; business strategy; future operations; estimates and projections of operating income, losses, costs and expenses, returns, cash flow, and financial position; production levels on properties in which we have mineral and royalty interests, developmental activity by other operators; reserve estimates and our ability to replace or increase reserves; anticipated benefits or other effects of strategic transactions (including the recently completed TWR Acquisition discussed in Note 13—Subsequent Events and other acquisitions or divestitures); and plans and objectives of management (including Diamondback’s plans for developing our acreage and our cash dividend policy and repurchases of our Class A Common Stock and/or senior notes) are forward-looking statements. When used in this report, the words “aim,” “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “forecast,” “future,” “guidance,” “intend,” “may,” “model,” “outlook,” “plan,” “positioned,” “potential,” “predict,” “project,” “seek,” “should,” “target,” “will,” “would,” and similar expressions (including the negative of such terms) as they relate to us are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words. In particular, the factors discussed in this report and detailed under Part II. Item 1A. Risk Factors, and our Annual Report on Form 10-K for the year ended December 31, 2023, could affect our actual results and cause our actual results to differ materially from expectations, estimates or assumptions expressed, forecasted or implied in such forward-looking statements. Unless the context requires otherwise, references to “we,” “us,” “our” or the “Company” are intended to mean the business and operations of the Company and the Operating Company.
Factors that could cause the outcomes to differ materially include (but are not limited to) the following:
•changes in supply and demand levels for oil, natural gas, and natural gas liquids and the resulting impact on the price for those commodities;
•the impact of public health crises, including epidemic or pandemic diseases and any related company or government policies or actions;
•actions taken by the members of OPEC and Russia affecting the production and pricing of oil, as well as other domestic and global political, economic, or diplomatic developments;
•changes in general economic, business or industry conditions, including changes in foreign currency exchange rates, interest rates, inflation rates, instability in the financial sector;
•regional supply and demand factors, including delays, curtailment delays or interruptions of production on our mineral and royalty acreage, or governmental orders, rules or regulations that impose production limits on such acreage;
•federal and state legislative and regulatory initiatives relating to hydraulic fracturing, including the effect of existing and future laws and governmental regulations;
•physical and transition risks relating to climate change;
•restrictions on the use of water, including limits on the use of produced water by our operators and a moratorium on new produced water well permits recently imposed by the Texas Railroad Commission in an effort to control induced seismicity in the Permian Basin;
•significant declines in prices for oil, natural gas, or natural gas liquids, which could require recognition of significant impairment charges;
•changes in U.S. energy, environmental, monetary and trade policies;
•conditions in the capital, financial and credit markets, including the availability and pricing of capital for drilling and development by our operators and environmental and social responsibility projects undertaken by Diamondback and our other operators;
•changes in availability or cost of rigs, equipment, raw materials, supplies and oilfield services impacting our operators;
•changes in safety, health, environmental, tax, and other regulations or requirements impacting us or our operators (including those addressing air emissions, water management, or the impact of global climate change);
•security threats, including cybersecurity threats and disruptions to our business from breaches of Diamondback’s information technology systems, or from breaches of information technology systems of our operators or third parties with whom we transact business;
v
•lack of, or disruption in, access to adequate and reliable transportation, processing, storage and other facilities impacting our operators;
•severe weather conditions and natural disasters;
•acts of war or terrorist acts and the governmental or military response thereto;
•changes in the financial strength of counterparties to the credit facility and hedging contracts of our operating subsidiary;
•changes in our credit rating; and
•other risks and factors disclosed in this report.
In light of these factors, the events anticipated by our forward-looking statements may not occur at the time anticipated or at all. Moreover, new risks emerge from time to time. We cannot predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those anticipated by any forward-looking statements we may make. Accordingly, you should not place undue reliance on any forward-looking statements made in this report. All forward-looking statements speak only as of the date of this report or, if earlier, as of the date they were made. We do not intend to, and disclaim any obligation to, update or revise any forward-looking statements unless required by applicable law.
vi
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Viper Energy, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
| September 30, | December 31, | ||||||||||
| 2024 | 2023 | ||||||||||
(In thousands, except share amounts) | |||||||||||
| Assets | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Royalty income receivable (net of allowance for credit losses) | |||||||||||
| Royalty income receivable—related party | |||||||||||
| Income tax receivable | |||||||||||
| Derivative instruments | |||||||||||
| Prepaid expenses and other current assets | |||||||||||
| Total current assets | |||||||||||
| Property: | |||||||||||
Oil and natural gas interests, full cost method of accounting ($ | |||||||||||
| Land | |||||||||||
| Accumulated depletion and impairment | ( | ( | |||||||||
| Property, net | |||||||||||
| Funds held in escrow | |||||||||||
| Derivative instruments | |||||||||||
| Deferred income taxes (net of allowances) | |||||||||||
| Other assets | |||||||||||
| Total assets | $ | $ | |||||||||
Liabilities and Stockholders’ Equity | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable | $ | $ | |||||||||
| Accounts payable—related party | |||||||||||
| Accrued liabilities | |||||||||||
| Derivative instruments | |||||||||||
| Income taxes payable | |||||||||||
| Total current liabilities | |||||||||||
| Long-term debt, net | |||||||||||
| Derivative instruments | |||||||||||
| Other long-term liabilities | |||||||||||
| Total liabilities | |||||||||||
| Commitments and contingencies (Note 12) | |||||||||||
| Stockholders’ equity: | |||||||||||
Class A Common Stock, $ | |||||||||||
Class B Common Stock, $ | |||||||||||
| Additional paid-in capital | |||||||||||
| Retained earnings (accumulated deficit) | ( | ( | |||||||||
| Total Viper Energy, Inc. stockholders’ equity | |||||||||||
| Non-controlling interest | |||||||||||
| Total equity | |||||||||||
| Total liabilities and stockholders’ equity | $ | $ | |||||||||
See accompanying notes to condensed consolidated financial statements.
1
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
(In thousands, except per share amounts) | |||||||||||||||||||||||
| Operating income: | |||||||||||||||||||||||
| Oil income | $ | $ | $ | $ | |||||||||||||||||||
| Natural gas income | |||||||||||||||||||||||
| Natural gas liquids income | |||||||||||||||||||||||
| Lease bonus income—related party | |||||||||||||||||||||||
| Lease bonus income | |||||||||||||||||||||||
| Other operating income | |||||||||||||||||||||||
| Total operating income | |||||||||||||||||||||||
| Costs and expenses: | |||||||||||||||||||||||
| Production and ad valorem taxes | |||||||||||||||||||||||
| Depletion | |||||||||||||||||||||||
| General and administrative expenses—related party | |||||||||||||||||||||||
| General and administrative expenses | |||||||||||||||||||||||
| Other operating (income) expense | ( | ( | |||||||||||||||||||||
| Total costs and expenses | |||||||||||||||||||||||
| Income (loss) from operations | |||||||||||||||||||||||
| Other income (expense): | |||||||||||||||||||||||
| Interest expense, net | ( | ( | ( | ( | |||||||||||||||||||
| Gain (loss) on derivative instruments, net | ( | ( | |||||||||||||||||||||
| Other income, net | |||||||||||||||||||||||
| Total other expense, net | ( | ( | ( | ( | |||||||||||||||||||
| Income (loss) before income taxes | |||||||||||||||||||||||
| Provision for (benefit from) income taxes | |||||||||||||||||||||||
| Net income (loss) | |||||||||||||||||||||||
| Net income (loss) attributable to non-controlling interest | |||||||||||||||||||||||
| Net income (loss) attributable to Viper Energy, Inc. | $ | $ | $ | $ | |||||||||||||||||||
| Net income (loss) attributable to common shares: | |||||||||||||||||||||||
| Basic | $ | $ | $ | $ | |||||||||||||||||||
| Diluted | $ | $ | $ | $ | |||||||||||||||||||
| Weighted average number of common shares outstanding: | |||||||||||||||||||||||
| Basic | |||||||||||||||||||||||
| Diluted | |||||||||||||||||||||||
See accompanying notes to condensed consolidated financial statements.
2
Viper Energy, Inc.
Condensed Consolidated Statements of Changes to Stockholders' Equity
(Unaudited)
Common Stock(1) | |||||||||||||||||||||||||||||||||||
| Additional Paid-in Capital | Retained Earnings (Accumulated Deficit) | Non-Controlling Interest | Total | ||||||||||||||||||||||||||||||||
| Class A Shares | Class B Shares | ||||||||||||||||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||||||||||||||
| Balance at December 31, 2023 | $ | $ | ( | $ | $ | ||||||||||||||||||||||||||||||
| Common shares issued to related party | ( | — | — | — | — | ||||||||||||||||||||||||||||||
| Equity-based compensation | — | — | — | — | |||||||||||||||||||||||||||||||
| Issuance of shares upon vesting of equity awards | — | — | — | — | — | ||||||||||||||||||||||||||||||
| Distribution equivalent rights payments | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||
| Dividends to stockholders | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||
| Dividends to Diamondback | — | — | ( | ( | ( | ||||||||||||||||||||||||||||||
| Change in ownership of consolidated subsidiaries, net | — | — | — | ( | |||||||||||||||||||||||||||||||
| Cash paid for tax withholding on vested equity awards | — | — | ( | — | — | ( | |||||||||||||||||||||||||||||
| Net income (loss) | — | — | — | ||||||||||||||||||||||||||||||||
| Balance at March 31, 2024 | ( | ||||||||||||||||||||||||||||||||||
| Equity-based compensation | — | — | — | — | |||||||||||||||||||||||||||||||
| Distribution equivalent rights payments | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||
| Dividends to stockholders | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||
| Dividends to Diamondback | — | — | — | ( | ( | ( | |||||||||||||||||||||||||||||
| Change in ownership of consolidated subsidiaries, net | — | — | — | ( | — | ||||||||||||||||||||||||||||||
| Net income (loss) | — | — | — | ||||||||||||||||||||||||||||||||
| Balance at June 30, 2024 | ( | ||||||||||||||||||||||||||||||||||
| Net proceeds from the issuance of common stock | — | — | — | ||||||||||||||||||||||||||||||||
| Equity-based compensation | — | — | — | — | |||||||||||||||||||||||||||||||
| Distribution equivalent rights payments | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||
| Dividends to stockholders | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||
| Dividends to Diamondback | — | — | — | ( | ( | ( | |||||||||||||||||||||||||||||
| Change in ownership of consolidated subsidiaries, net | — | — | ( | — | |||||||||||||||||||||||||||||||
| Net income (loss) | — | — | — | ||||||||||||||||||||||||||||||||
| Balance at September 30, 2024 | $ | $ | ( | $ | $ | ||||||||||||||||||||||||||||||
(1) The par values of the outstanding shares of Class A Common Stock and Class B Common Stock each round to zero during the periods presented.
See accompanying notes to condensed consolidated financial statements.
3
Viper Energy, Inc.
Condensed Consolidated Statements of Changes to Stockholders' Equity - (Continued)
(Unaudited)
| General Partner | Non-Controlling Interest | Total | |||||||||||||||||||||||||||||||||||||||
| Limited Partners | |||||||||||||||||||||||||||||||||||||||||
| Common Units | Amount | Class B Units | Amount | Amount | Amount | ||||||||||||||||||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2022 | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||
| Unit-based compensation | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| Issuance of shares upon vesting of equity awards | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||
| Distribution equivalent rights payments | — | ( | — | — | — | — | ( | ||||||||||||||||||||||||||||||||||
| Distributions to public | — | ( | — | — | — | — | ( | ||||||||||||||||||||||||||||||||||
| Distributions to Diamondback | — | ( | — | ( | — | ( | ( | ||||||||||||||||||||||||||||||||||
| Distributions to General Partner | — | — | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||||
| Change in ownership of consolidated subsidiaries, net | — | — | — | — | ( | ||||||||||||||||||||||||||||||||||||
| Repurchased units as part of unit buyback | ( | ( | — | — | — | — | ( | ||||||||||||||||||||||||||||||||||
| Net income (loss) | — | — | — | — | |||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2023 | |||||||||||||||||||||||||||||||||||||||||
| Unit-based compensation | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| Distribution equivalent rights payments | — | ( | — | — | — | — | ( | ||||||||||||||||||||||||||||||||||
| Distributions to public | — | ( | — | — | — | — | ( | ||||||||||||||||||||||||||||||||||
| Distributions to Diamondback | — | ( | — | ( | — | ( | ( | ||||||||||||||||||||||||||||||||||
| Distributions to General Partner | — | — | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||||
| Change in ownership of consolidated subsidiaries, net | — | — | — | — | ( | ||||||||||||||||||||||||||||||||||||
| Repurchased units as part of unit buyback | ( | ( | — | — | — | — | ( | ||||||||||||||||||||||||||||||||||
| Net income (loss) | — | — | — | — | |||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2023 | |||||||||||||||||||||||||||||||||||||||||
| Unit-based compensation | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| Issuance of shares upon vesting of equity awards | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||
| Distribution equivalent rights payments | — | ( | — | — | — | — | ( | ||||||||||||||||||||||||||||||||||
| Distributions to public | — | ( | — | — | — | — | ( | ||||||||||||||||||||||||||||||||||
| Distributions to Diamondback | — | ( | — | ( | — | ( | ( | ||||||||||||||||||||||||||||||||||
| Distributions to General Partner | — | — | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||||
| Change in ownership of consolidated subsidiaries, net | — | — | — | — | ( | ||||||||||||||||||||||||||||||||||||
| Repurchased units as part of unit buyback | ( | ( | — | — | — | — | ( | ||||||||||||||||||||||||||||||||||
| Net income (loss) | — | — | — | — | |||||||||||||||||||||||||||||||||||||
| Balance at September 30, 2023 | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||
See accompanying notes to condensed consolidated financial statements.
4
| Nine Months Ended September 30, | |||||||||||
| 2024 | 2023 | ||||||||||
| (In thousands) | |||||||||||
| Cash flows from operating activities: | |||||||||||
| Net income (loss) | $ | $ | |||||||||
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | |||||||||||
| Provision for (benefit from) deferred income taxes | ( | ||||||||||
| Depletion | |||||||||||
| (Gain) loss on derivative instruments, net | ( | ||||||||||
| Net cash receipts (payments) on derivatives | ( | ( | |||||||||
| Other | |||||||||||
| Changes in operating assets and liabilities: | |||||||||||
| Royalty income receivable | ( | ||||||||||
| Royalty income receivable—related party | ( | ( | |||||||||
| Accounts payable and accrued liabilities | |||||||||||
| Accounts payable—related party | ( | ( | |||||||||
| Income taxes payable | ( | ||||||||||
| Other | ( | ||||||||||
| Net cash provided by (used in) operating activities | |||||||||||
| Cash flows from investing activities: | |||||||||||
| Acquisitions of oil and natural gas interests—related party | ( | ||||||||||
| Acquisitions of oil and natural gas interests | ( | ( | |||||||||
| Proceeds from sale of oil and natural gas interests | ( | ||||||||||
| Net cash provided by (used in) investing activities | ( | ( | |||||||||
| Cash flows from financing activities: | |||||||||||
| Proceeds from borrowings under credit facility | |||||||||||
| Repayment on credit facility | ( | ( | |||||||||
| Net proceeds from public offering | |||||||||||
| Repurchased shares/units under buyback program | ( | ||||||||||
| Dividends/distributions to stockholders | ( | ( | |||||||||
| Dividends/distributions to Diamondback | ( | ( | |||||||||
| Other | ( | ( | |||||||||
| Net cash provided by (used in) financing activities | ( | ( | |||||||||
| Net increase (decrease) in cash and cash equivalents | |||||||||||
| Cash, cash equivalents and restricted cash at beginning of period | |||||||||||
| Cash, cash equivalents and restricted cash at end of period | $ | $ | |||||||||
| Supplemental disclosure of cash flow information: | |||||||||||
| Interest paid | $ | ( | $ | ( | |||||||
| Cash (paid) received for income taxes | $ | ( | $ | ( | |||||||
See accompanying notes to condensed consolidated financial statements.
5
Viper Energy, Inc.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
1. ORGANIZATION AND BASIS OF PRESENTATION
Organization
Effective November 13, 2023 (the “Effective Time”), Viper Energy Partners LP (the “Partnership”) converted from a publicly traded Delaware limited partnership to a Delaware corporation pursuant to a plan of conversion (the “Conversion”) and changed names from Viper Energy Partners LP to Viper Energy, Inc. This report includes the results for the Partnership prior to the Conversion and Viper Energy, Inc. (the “Company”) following the Conversion. References to the “Company” refer to (i) Viper Energy, Inc. and its consolidated subsidiaries following the Conversion, and (ii) the Partnership and its consolidated subsidiaries prior to the Conversion. References to shares or per share amounts prior to the Conversion refer to units or per unit amounts. Unless otherwise noted, all references to shares or per share amounts following the Conversion refer to shares or per share amounts of the Company’s Common Stock. References to dividends prior to the Conversion refer to distributions. There were no tax impacts resulting from the Conversion as the Partnership was treated as a corporation for tax purposes.
The Company is a publicly traded Delaware corporation focused on owning and acquiring mineral interests and royalty interests in oil and natural gas properties primarily in the Permian Basin. As of September 30, 2024, Viper Energy, Inc. owned approximately 55 % of the units representing limited liability company interests in its operating subsidiary Viper Energy Partners LLC (the “Operating Company”) and was the managing member of the Operating Company.
Prior to March 8, 2024, the Company was a “controlled company” under the rules of the Nasdaq Stock Market LLC (the “Nasdaq Rules”). On March 8, 2024, the Company’s parent, Diamondback, completed an underwritten public offering in which it sold approximately 13.2 million shares of the Company’s Class A Common Stock (the “Diamondback Offering”). Following the Diamondback Offering, Diamondback owned no shares of the Company’s Class A Common Stock and owned 85,431,453 shares of the Company’s Class B Common Stock, reducing its beneficial ownership to less than 50 % of the Company’s total Common Stock outstanding. As such, the Company ceased to be a “controlled company” under the Nasdaq Rules. Prior to the Diamondback Offering, the Company’s board of directors had a majority of independent directors and a standing audit committee comprised of all independent directors but had elected to take advantage of certain exemptions from corporate governance requirements applicable to controlled companies under the Nasdaq Rules and, until March 8, 2024, did not have a compensation committee or a committee of independent directors that selects director nominees.
Effective as of March 8, 2024, the Company’s board of directors formed (i) the compensation committee for purposes of making certain executive and other compensation decisions, and (ii) the nominating and corporate governance committee for purposes of making certain nominating and corporate governance decisions, with each such committee’s rights and obligations being subject to the terms and conditions of (x) the Company’s certificate of incorporation, (y) such committee’s charter as adopted by the board, and (z) the services and secondment agreement, dated as of November 2, 2023, pursuant to which Diamondback provides personnel and general and administrative services to us, including the services of the executive officers and other employees, substantially in the same manner as those provided to the Company by the former General Partner prior to the Conversion (the “Services and Secondment Agreement”).
As of September 30, 2024, Diamondback beneficially owned approximately 45 % of the Company’s total Common Stock outstanding.
Basis of Presentation
The accompanying condensed consolidated financial statements and related notes thereto were prepared in accordance with GAAP. All material intercompany balances and transactions have been eliminated upon consolidation. The Company reports its operations in one reportable segment.
These condensed consolidated financial statements have been prepared by the Company without audit, pursuant to the rules and regulations of the SEC. They reflect all adjustments that are, in the opinion of management, necessary for a fair statement of the results for interim periods, on a basis consistent with the annual audited financial statements. All such adjustments are of a normal recurring nature. Certain information, accounting policies and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been omitted pursuant to SEC rules and regulations, although the Company believes the disclosures are adequate to make the information presented not misleading. This report
6
Viper Energy, Inc.
Notes to the Condensed Consolidated Financial Statements - (Continued)
(Unaudited)
should be read in conjunction with the Company’s most recent Annual Report on Form 10–K for the fiscal year ended December 31, 2023, which contains a summary of the Company’s significant accounting policies and other disclosures.
Reclassifications
Certain prior period amounts have been reclassified to conform to the current period financial statement presentation. These reclassifications had no effect on the previously reported total assets, total liabilities, stockholders’ equity, results of operations or cash flows.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
Certain amounts included in or affecting the Company’s financial statements and related disclosures must be estimated by management, requiring certain assumptions to be made with respect to values or conditions that cannot be known with certainty at the time the financial statements are prepared. These estimates and assumptions affect the amounts the Company reports for assets and liabilities and the Company’s disclosure of contingent assets and liabilities as of the date of the financial statements.
Making accurate estimates and assumptions is particularly difficult in the oil and natural gas industry given the challenges resulting from volatility in oil and natural gas prices. For instance, the war in Ukraine, the Israel-Hamas war and other conflicts in the Middle East, higher interest rates, global supply chain disruptions and recent measures to combat persistent inflation and instability in the financial sector have contributed to recent pricing and economic volatility. The financial results of companies in the oil and natural gas industry have been and may continue to be impacted materially as a result of changing market conditions. Such circumstances generally increase uncertainty in the Company’s accounting estimates, particularly those involving financial forecasts.
The Company evaluates these estimates on an ongoing basis, using historical experience, consultation with experts and other methods the Company considers reasonable in each particular circumstance. Nevertheless, actual results may differ significantly from the Company’s estimates. Any effects on the Company’s business, financial position or results of operations resulting from revisions to these estimates are recorded in the period in which the facts that give rise to the revision become known. Significant items subject to such estimates and assumptions include estimates of proved oil and natural gas reserves and related present value estimates of future net cash flows therefrom, the carrying value of oil and natural gas interests, estimates of third party operated royalty income related to expected sales volumes and prices, the recoverability of costs of unevaluated properties, the fair value determination of assets and liabilities, including those acquired by the Company, fair value estimates of commodity derivatives and estimates of income taxes, including deferred tax valuation allowances.
Related Party Transactions
Royalty Income Receivable
As of September 30, 2024 and December 31, 2023, Diamondback, either directly or through its consolidated subsidiaries, owed the Company $36.0 million and $3.3 million, respectively, for royalty income received from third parties for the Company’s production, which had not yet been remitted to the Company.
Lease Bonus Income
During the three and nine months ended September 30, 2024 and 2023, Diamondback paid the Company $0.1 million, $0.2 million, $97.2 million and $105.6 million, respectively, of lease bonus income primarily related to new leases in the Midland Basin.
Other Related Party Transactions
See Note 4—Acquisitions and Divestitures for significant related party acquisitions of oil and natural gas interests.
See Note 7—Stockholder's Equity for further details regarding equity transactions with related parties.
7
Viper Energy, Inc.
Notes to the Condensed Consolidated Financial Statements - (Continued)
(Unaudited)
All other significant related party transactions with Diamondback or its affiliates have been stated on the face of the condensed consolidated financial statements.
Accrued Liabilities
Accrued liabilities consist of the following as of the dates indicated:
| September 30, | December 31, | ||||||||||
| 2024 | 2023 | ||||||||||
| (In thousands) | |||||||||||
| Interest payable | $ | $ | |||||||||
| Ad valorem taxes payable | |||||||||||
| Derivatives instruments payable | |||||||||||
| Other | |||||||||||
| Total accrued liabilities | $ | $ | |||||||||
Recent Accounting Pronouncements
Recently Adopted Pronouncements
There are no recently adopted pronouncements.
Accounting Pronouncements Not Yet Adopted
In November 2023, the FASB issued ASU 2023-07, “Segment Reporting (Topic 280) – Improvements to Reportable Segment Disclosures,” which updates reportable segment disclosure requirements primarily through enhanced disclosures about significant segment expenses and information used to assess segment performance. The amendments are effective for annual periods beginning after December 15, 2023, and for interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The amendments should be applied retrospectively to all prior periods presented in the financial statements. Management is currently evaluating this ASU to determine its impact on the Company's disclosures. Adoption of the update will not impact the Company’s financial position, results of operations or liquidity.
In December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740) – Improvements to Income Tax Disclosures,” which requires that certain information in a reporting entity’s tax rate reconciliation be disaggregated, and provides additional requirements regarding income taxes paid. The amendments are effective for annual periods beginning after December 15, 2024, with early adoption permitted, and should be applied either prospectively or retrospectively. Management is currently evaluating this ASU to determine its impact on the Company’s disclosures. Adoption of the update will not impact the Company’s financial position, results of operations or liquidity.
In November 2024, the FASB issued ASU 2024-03, “Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40) – Disaggregation of Income Statement Expenses,” which requires additional disclosure about specified categories of expenses included in relevant expense captions presented on the income statement. The amendments are effective for annual periods beginning after December 15, 2026, and for interim periods within fiscal years beginning after December 15, 2027. Early adoption is permitted. The amendments may be applied either prospectively or retrospectively. Management is currently evaluating this ASU to determine its impact on the Company’s disclosures. Adoption of the update will not impact the Company’s financial position, results of operations or liquidity.
The Company considers the applicability and impact of all ASUs. ASUs not discussed above were assessed and determined to be either not applicable, previously disclosed, or not material upon adoption.
8
Viper Energy, Inc.
Notes to the Condensed Consolidated Financial Statements - (Continued)
(Unaudited)
3. REVENUE FROM CONTRACTS WITH CUSTOMERS
Royalty income represents the right to receive revenues from oil, natural gas and natural gas liquids sales obtained from third party purchasers by the operator of the wells in which the Company owns a royalty interest. Royalty income is recognized at the point control of the product is transferred to the purchaser at the wellhead or at the gas processing facility based on the Company’s percentage ownership share of the revenue, net of any deductions for gathering and transportation. Virtually all of the pricing provisions in the Company’s contracts are tied to a market index.
The following table disaggregates the Company’s revenue from oil, natural gas and natural gas liquids by revenue generated from production on properties operated by Diamondback and revenue generated from production on properties operated by third parties:
| Three Months Ended September 30, | |||||||||||||||||||||||||||||||||||
| 2024 | 2023 | ||||||||||||||||||||||||||||||||||
Revenue Generated from Diamondback Operated Properties | Revenue Generated from Third Party Operated Properties | Total | Revenue Generated from Diamondback Operated Properties | Revenue Generated from Third Party Operated Properties | Total | ||||||||||||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||||||||||||||
| Oil income | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Natural gas income | ( | ||||||||||||||||||||||||||||||||||
| Natural gas liquids income | |||||||||||||||||||||||||||||||||||
| Total royalty income | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Nine Months Ended September 30, | |||||||||||||||||||||||||||||||||||
| 2024 | 2023 | ||||||||||||||||||||||||||||||||||
Revenue Generated from Diamondback Operated Properties | Revenue Generated from Third Party Operated Properties | Total | Revenue Generated from Diamondback Operated Properties | Revenue Generated from Third Party Operated Properties | Total | ||||||||||||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||||||||||||||
| Oil income | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Natural gas income | |||||||||||||||||||||||||||||||||||
| Natural gas liquids income | |||||||||||||||||||||||||||||||||||
| Total royalty income | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
4. ACQUISITIONS AND DIVESTITURES
2024 Activity
Acquisitions
Q Acquisition
On September 3, 2024 (the “Q Closing Date”), the Company and the Operating Company acquired all of the issued and outstanding equity interests in Tumbleweed-Q Royalties, LLC (the “Q Acquisition”), pursuant to a definitive purchase and sale agreement for consideration consisting of (i) approximately $113.6 million in cash, subject to transaction costs and customary post-closing adjustments, and (ii) contingent cash consideration of up to $5.4 million, payable in January of 2026, based on the average price of WTI sweet crude oil prompt month futures contracts for the calendar year 2025 (the “WTI 2025 Average”). The contingent cash consideration payment will be (i) $2.2 million if the WTI 2025 Average is between $60.00 and $65.00 , (ii) $3.2 million if the WTI 2025 Average is between $65.00 and $75.00 , or (iii) $5.4 million if the WTI 2025 Average is greater than $75.00 . The Company recorded the contingent cash consideration at its fair value of $2.9 million on the Q
9
Viper Energy, Inc.
Notes to the Condensed Consolidated Financial Statements - (Continued)
(Unaudited)
Closing Date (the “Q Contingent Liability”). The mineral and royalty interests acquired in the Q Acquisition represent approximately 406 net royalty acres located primarily in the Permian Basin. The Company funded the cash consideration, and intends to fund the contingent cash consideration, for the Q Acquisition through a combination of cash on hand and borrowings under the Operating Company’s revolving credit facility.
M Acquisition
On September 3, 2024 (the “M Closing Date”), the Company and the Operating Company acquired all of the issued and outstanding equity interests in MC TWR Royalties, LP and MC TWR Intermediate, LLC (the “M Acquisition”), pursuant to a definitive purchase and sale agreement for consideration consisting of (i) approximately $75.8 million in cash, subject to transaction costs and customary post-closing adjustments, and (ii) contingent cash consideration of up to $3.6 million, payable in January of 2026, based on the WTI 2025 Average. The contingent cash consideration payment will be (i) $1.4 million if the WTI 2025 Average is between $60.00 and $65.00 , (ii) $2.2 million if the WTI 2025 Average is between $65.00 and $75.00 , or (iii) $3.6 million if the WTI 2025 Average is greater than $75.00 . The Company recorded the contingent cash consideration at its fair value of $1.9 million on the M Closing Date (the “M Contingent Liability”). The mineral and royalty interests acquired in the M Acquisition represent approximately 267 net royalty acres located primarily in the Permian Basin. The Company funded the cash consideration, and intends to fund the contingent cash consideration, for the M Acquisition through a combination of cash on hand and borrowings under the Operating Company’s revolving credit facility.
See Note 11—Fair Value Measurements for further discussion of the fair value of the Q Contingent Liability and the M Contingent Liability, (collectively, the “2026 WTI Contingent Liability“).
Other Acquisitions
During the nine months ended September 30, 2024, the Company acquired, in individually insignificant transactions from unrelated third-party sellers, mineral and royalty interests representing 256 net royalty acres in the Permian Basin for an aggregate purchase price of approximately $52.0 million, subject to customary post-closing adjustments.
Divestitures
In the second quarter of 2024, the Company divested all of its non-Permian assets for a purchase price of approximately $87.2 million, including transaction costs and customary post-closing adjustments. The divested properties consisted of approximately 2,713 net royalty acres with current production of approximately 450 BO/d. The Company recorded the proceeds as a reduction of its full cost pool with no gain or loss recognized on the sale.
2023 Activity
Acquisitions
GRP Acquisition
On November 1, 2023, the Company and the Operating Company acquired certain mineral and royalty interests from Royalty Asset Holdings, LP, Royalty Asset Holdings II, LP and Saxum Asset Holdings, LP, affiliates of Warwick Capital Partners and GRP Energy Capital (collectively, “GRP,”) pursuant to a definitive purchase and sale agreement for approximately 9.02 million common units and $747.6 million in cash, including transaction costs and customary post-closing adjustments (the “GRP Acquisition”). The mineral and royalty interests acquired in the GRP Acquisition represent approximately 4,600 net royalty acres in the Permian Basin, plus approximately 2,700 additional net royalty acres in other major basins. The cash consideration for the GRP Acquisition was funded through a combination of cash on hand and held in escrow, borrowings under the Operating Company’s revolving credit facility, proceeds from the issuance of the 7.375 % Senior unsecured notes due 2031 and proceeds from the $200.0 million common unit issuance to Diamondback, as discussed further in Note 7—Stockholders’ Equity.
10
Viper Energy, Inc.
Notes to the Condensed Consolidated Financial Statements - (Continued)
(Unaudited)
Drop Down Transaction
On March 8, 2023, the Company acquired certain mineral and royalty interests from subsidiaries of Diamondback for approximately $74.5 million in cash, including customary closing adjustments for net title benefits (the ‘‘Drop Down’’). The mineral and royalty interests acquired in the Drop Down represent approximately 660 net royalty acres in Ward County in the Southern Delaware Basin, 100 % of which are operated by Diamondback, and have an average net royalty interest of approximately 7.2 % and production of approximately 300 BO/d. The Company funded the Drop Down through a combination of cash on hand and borrowings under the Operating Company’s revolving credit facility. The Drop Down was accounted for as a transaction between entities under common control with the properties acquired recorded at Diamondback’s historical carrying value in the Company’s condensed consolidated balance sheet. The historical carrying value of the properties approximated the Drop Down purchase price.
Other Acquisitions
Additionally, during the year ended December 31, 2023, the Company acquired, in individually insignificant transactions from unrelated third-party sellers, mineral and royalty interests representing 286 net royalty acres in the Permian Basin for an aggregate purchase price of approximately $70.4 million, including customary closing adjustments. The Company funded these acquisitions with cash on hand and borrowings under the Operating Company’s revolving credit facility.
5. OIL AND NATURAL GAS INTERESTS
Oil and natural gas interests include the following for the periods presented:
| September 30, | December 31, | ||||||||||
| 2024 | 2023 | ||||||||||
| (In thousands) | |||||||||||
| Oil and natural gas interests: | |||||||||||
| Subject to depletion | $ | $ | |||||||||
| Not subject to depletion | |||||||||||
| Gross oil and natural gas interests | |||||||||||
| Accumulated depletion and impairment | ( | ( | |||||||||
| Oil and natural gas interests, net | |||||||||||
| Land | |||||||||||
| Property, net of accumulated depletion and impairment | $ | $ | |||||||||
As of September 30, 2024 and December 31, 2023, the Company had mineral and royalty interests representing approximately 32,567 and 34,217 net royalty acres, respectively.
11
Viper Energy, Inc.
Notes to the Condensed Consolidated Financial Statements - (Continued)
(Unaudited)
6. DEBT
Long-term debt consisted of the following as of the dates indicated:
| September 30, | December 31, | ||||||||||
| 2024 | 2023 | ||||||||||
| (In thousands) | |||||||||||
| $ | $ | ||||||||||
| Revolving credit facility | |||||||||||
| Unamortized debt issuance costs | ( | ( | |||||||||
| Unamortized discount | ( | ( | |||||||||
| Total long-term debt | $ | $ | |||||||||
The Operating Company’s Revolving Credit Facility
The Operating Company’s credit facility, as amended to date, provides for a revolving credit facility in the maximum credit amount of $2.0 billion and a borrowing base of $1.3 billion. The borrowing base is scheduled to be redetermined semi-annually in May and November. As of September 30, 2024, the Operating Company had elected a commitment amount of $850.0 million, with no outstanding borrowings and $850.0 million available for future borrowings. During the three and nine months ended September 30, 2024 and 2023, the weighted average interest rates on the Operating Company’s revolving credit facility were 7.51 %, 7.52 %, 7.58 % and 7.37 %, respectively. The revolving credit facility will mature on September 22, 2028.
As of September 30, 2024, the Operating Company was in compliance with the financial maintenance covenants under its credit facility.
7. STOCKHOLDERS’ EQUITY
At September 30, 2024, the Company had a total of 102,947,008 85,431,453 45 % of the Company’s total shares outstanding. Diamondback also beneficially owned 85,431,453 Operating Company units, representing a 45 % non-controlling ownership interest in the Operating Company, and the Company owned the remaining 102,947,008 Operating Company units. The Operating Company units and the Company’s Class B Common Stock beneficially owned by Diamondback are exchangeable from time to time for the Company’s Class A Common Stock (that is, one Operating Company unit and one share of the Company’s Class B Common Stock, together, are exchangeable for one share of the Company’s Class A Common Stock).
2024 Equity Offering
On September 13, 2024, the Company completed an underwritten public offering of approximately 11.50 million shares of its Class A Common Stock, which included 1.50 million shares issued pursuant to an option to purchase additional shares of Class A Common Stock granted to the underwriters, at a price to the public of $42.50 per share for total net proceeds of approximately $475.9 million, after the underwriters’ discount and transaction costs (the “2024 Equity Offering”). The net proceeds were used to fund a portion of the cash consideration for the TWR Acquisition as defined below in Note 13—Subsequent Events. Pending closing of the TWR Acquisition, the Company temporarily repaid all of the amounts outstanding under the Operating Company’s revolving credit facility with a portion of the net proceeds from the 2024 Equity Offering.
2023 Viper Issuance of Common Units to Diamondback
In October 2023, the Company issued approximately 7.22 million of its common units to Diamondback at a price of $27.72 per unit for total net proceeds of approximately $200.0 million. The net proceeds were used to fund a portion of the cash consideration for the GRP Acquisition.
12
Viper Energy, Inc.
Notes to the Condensed Consolidated Financial Statements - (Continued)
(Unaudited)
Common Stock Repurchase Program
The Company’s board of directors has authorized a $750.0 million common stock repurchase program, with respect to the repurchase of the Company’s Class A Common Stock, excluding excise tax, over an indefinite period of time. The Company has and intends to continue to purchase shares of Class A Common Stock under the repurchase program opportunistically with funds from cash on hand, free cash flow from operations and potential liquidity events such as the sale of assets. This repurchase program may be suspended from time to time, modified, extended or discontinued by the Company’s board of directors at any time.
There were no 9.6 million and $66.5 million common units under the repurchase program, respectively. As of September 30, 2024, approximately $434.2 million remains available under the repurchase program, excluding excise tax.
Cash Dividends
The board of directors of the Company has established a dividend policy, whereby the Operating Company distributes all or a portion of its available cash on a quarterly basis to its unitholders (including Diamondback, the Company and, following the TWR Acquisition completed on October 1, 2024, TWR IV). The Company in turn distributes all or a portion of the available cash it receives from the Operating Company to holders of its Class A Common Stock through base and variable dividends that take into account capital returned to stockholders via its stock repurchase program. The Company’s available cash and the available cash of the Operating Company for each quarter is determined by the board of directors following the end of such quarter.
The cash available for distribution by the Operating Company, a non-GAAP measure, generally equals the Company’s consolidated Adjusted EBITDA for the applicable quarter, less cash needed for income taxes payable, debt service, contractual obligations, fixed charges and reserves for future operating or capital needs that the board of directors of the Company deems necessary or appropriate, lease bonus income (net of applicable taxes), distribution equivalent rights payments, preferred dividends, and an adjustment for changes in ownership interests that occurred subsequent to the quarter, if any. For a detailed description of the Company’s and the Operating Company’s dividend policy, see Note 7—Stockholders’ Equity—Cash Dividends in the Company's Annual Report on Form 10-K for the year ended December 31, 2023.
The percentage of cash available for distribution by the Operating Company pursuant to its distribution policy may change quarterly to enable the Operating Company to retain cash flow to help strengthen the Company’s balance sheet while also expanding the return of capital program through the Company’s stock repurchase program. The Company is not required to pay dividends to its Class A Common stockholders on a quarterly or other basis.
The following table presents information regarding cash dividends paid during the periods presented (in thousands, except for per share amounts):
| Distributions | ||||||||||||||||||||||||||||||||||||||||||||
| (In thousands, except share amounts) | ||||||||||||||||||||||||||||||||||||||||||||
| Period | Amount per Operating Company Unit | Operating Company Distributions to Diamondback | Amount per Common Share | Common Stockholders(1)(2) | Declaration Date | Stockholder Record Date | Payment Date | |||||||||||||||||||||||||||||||||||||
| 2024 | ||||||||||||||||||||||||||||||||||||||||||||
| Q4 2023 | $ | $ | $ | $ | February 15, 2024 | March 5, 2024 | March 12, 2024 | |||||||||||||||||||||||||||||||||||||
| Q1 2024 | $ | $ | $ | $ | April 25, 2024 | May 15, 2024 | May 22, 2024 | |||||||||||||||||||||||||||||||||||||
| Q2 2024 | $ | $ | $ | $ | August 1, 2024 | August 15, 2024 | August 22, 2024 | |||||||||||||||||||||||||||||||||||||
| 2023 | ||||||||||||||||||||||||||||||||||||||||||||
Q4 2022 | $ | $ | $ | $ | February 15, 2023 | March 3, 2023 | March 10, 2023 | |||||||||||||||||||||||||||||||||||||
| Q1 2023 | $ | $ | $ | $ | April 26, 2023 | May 11, 2023 | May 18, 2023 | |||||||||||||||||||||||||||||||||||||
Q2 2023 | $ | $ | $ | $ | July 25, 2023 | August 10, 2023 | August 17, 2023 | |||||||||||||||||||||||||||||||||||||
13
Viper Energy, Inc.
Notes to the Condensed Consolidated Financial Statements - (Continued)
(Unaudited)
(1)Dividends paid in the first quarter of 2024 include amounts paid to Diamondback for the 7,946,507 shares of Class A Common Stock then beneficially owned by Diamondback and distribution equivalent rights payments. As of March 31, 2024, Diamondback did not beneficially own any shares of Class A Common Stock. See Note 1—Organization and Basis of Presentation for further details.
(2)For distributions paid in 2023, includes amounts paid to Diamondback for the 731,500 common units then beneficially owned by Diamondback.
Cash dividends will be made to the common stockholders of record on the applicable record date, generally within 60 days after the end of each quarter.
Change in Ownership of Consolidated Subsidiaries
Non-controlling interest in the accompanying condensed consolidated financial statements represents Diamondback’s ownership in the net assets of the Operating Company. Diamondback’s relative ownership interest in the Operating Company can change due to its purchase or sale of the Company’s Common Stock, the Company’s public offerings of shares of Class A Common Stock, issuance of shares of Class A Common Stock or Operating Company units for acquisitions, share-based compensation, repurchases of shares of Class A Common Stock and distribution equivalent rights paid on the Company’s Class A Common Stock. These changes in ownership percentage result in adjustments to non-controlling interest and stockholders’ equity, tax effected, but do not impact earnings.
The following table summarizes the changes in stockholders’ equity due to changes in ownership interest during the period:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||
| Net income (loss) attributable to the Company | $ | $ | $ | $ | |||||||||||||||||||
| Change in ownership of consolidated subsidiaries | ( | ( | |||||||||||||||||||||
| Change from net income (loss) attributable to the Company's stockholders and transfers with non-controlling interest | $ | ( | $ | $ | $ | ||||||||||||||||||
8. EARNINGS PER COMMON SHARE
The net income (loss) per common share on the condensed consolidated statements of operations is based on the net income (loss) attributable to the Company’s Class A Common Stock or common units for the three and nine months ended September 30, 2024 and 2023, respectively.
Basic and diluted earnings per common share are calculated using the two-class method. The two-class method is an earnings allocation proportional to the respective ownership among holders of Class A Common Stock and participating securities. Basic net income (loss) per common share is calculated by dividing net income (loss) by the weighted-average shares of Class A Common Stock or common units outstanding during the period. Diluted net income (loss) per common share gives effect, when applicable, to unvested shares of Class A Common Stock granted under the LTIP.
14
Viper Energy, Inc.
Notes to the Condensed Consolidated Financial Statements - (Continued)
(Unaudited)
A reconciliation of the components of basic and diluted earnings per common share is presented in the table below:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| (In thousands, except per share amounts) | |||||||||||||||||||||||
| Net income (loss) attributable to the period | $ | $ | $ | $ | |||||||||||||||||||
Less: distributed and undistributed earnings allocated to participating securities(1) | |||||||||||||||||||||||
| Net income (loss) attributable to common stockholders | $ | $ | $ | $ | |||||||||||||||||||
| Weighted average common shares outstanding: | |||||||||||||||||||||||
| Basic weighted average common shares outstanding | |||||||||||||||||||||||
| Effect of dilutive securities: | |||||||||||||||||||||||
Potential common shares issuable(2) | |||||||||||||||||||||||
| Diluted weighted average common shares outstanding | |||||||||||||||||||||||
| Net income (loss) per common share, basic | $ | $ | $ | $ | |||||||||||||||||||
| Net income (loss) per common share, diluted | $ | $ | $ | $ | |||||||||||||||||||
(1) Unvested restricted stock units and performance restricted stock units that contain non-forfeitable distribution equivalent rights are considered participating securities and are therefore included in the earnings per share calculation pursuant to the two-class method.
(2) For the three and nine months ended September 30, 2024 and 2023, there were no
9. INCOME TAXES
The following table provides the Company’s provision for (benefit from) income taxes and the effective income tax rate for the dates indicated:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| (In thousands, except for tax rate) | |||||||||||||||||||||||
| Provision for (benefit from) income taxes | $ | $ | $ | $ | |||||||||||||||||||
| Effective tax rate | % | % | % | % | |||||||||||||||||||
The Company’s effective income tax rates for the three and nine months ended September 30, 2024 and 2023 differed from the amounts computed by applying the United States federal statutory tax rate to pre-tax income for the periods primarily due to net income attributable to the non-controlling interest.
As of September 30, 2024 and 2023, the Company maintained a partial valuation allowance against its deferred tax assets considered not more likely than not to be realized, based on its assessment of all available evidence, both positive and negative as required by applicable accounting standards. In March 2024, Diamondback converted approximately 5.28 5.28 28.2 million increase in its deferred tax asset and a $10.8 million increase in its valuation allowance through additional paid-in capital.
The Company incurred no excise tax on repurchases of Class A Common Stock during the three and nine months ended September 30, 2024 and an immaterial amount of excise tax for the three and nine months ended September 30, 2023.
15
Viper Energy, Inc.
Notes to the Condensed Consolidated Financial Statements - (Continued)
(Unaudited)
10. DERIVATIVES
All derivative financial instruments are recorded at fair value. The Company has not designated its derivative instruments as hedges for accounting purposes and, as a result, marks its derivative instruments to fair value and recognizes the cash and non-cash changes in fair value in the condensed consolidated statements of operations under the caption “Gain (loss) on derivative instruments, net.”
Commodity Contracts
The Company historically has used fixed price swap contracts, fixed price basis swap contracts and costless collars with corresponding put and call options to reduce price volatility associated with certain of its royalty income. At September 30, 2024, the Company has put options, costless collars and fixed price basis swaps outstanding.
The Company’s derivative contracts are based upon reported settlement prices on commodity exchanges, with put contracts for oil based on WTI Cushing and fixed price basis swaps for oil based on the spread between the WTI Cushing crude oil price and the Argus WTI Midland crude oil price. The Company’s fixed price basis swaps for natural gas are for the spread between the Waha Hub natural gas price and the Henry Hub natural gas price. The weighted average differential represents the amount of reduction to the WTI Cushing oil price and the Waha Hub natural gas price for the notional volumes covered by the basis swap contracts. Under the Company’s costless collar contracts, each collar has an established floor price and ceiling price. When the settlement price is below the floor price, the counterparty is required to make a payment to the Company, and when the settlement price is above the ceiling price, the Company is required to make a payment to the counterparty. When the settlement price is between the floor and the ceiling, there is no payment required.
By using derivative instruments to economically hedge exposure to changes in commodity prices, the Company exposes itself to credit risk and market risk. Credit risk is the failure of the counterparty to perform under the terms of the derivative contract. When the fair value of a derivative contract is positive, the counterparty owes the Company, which creates credit risk. The Company’s counterparties are all participants in the amended and restated credit facility, which is secured by substantially all of the assets of the Operating Company; therefore, the Company is not required to post any collateral. The Company’s counterparties have been determined to have an acceptable credit risk; therefore, the Company does not require collateral from its counterparties.
As of September 30, 2024, the Company had the following outstanding derivative contracts. When aggregating multiple contracts, the weighted average contract price is disclosed.
| Swaps | Collars | Puts | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Settlement Month | Settlement Year | Type of Contract | Bbls/MMBtu Per Day | Index | Weighted Average Differential | Weighted Average Floor Price | Weighted Average Ceiling Price | Strike Price | Deferred Premium | |||||||||||||||||||||||||||||||||||||||||||||||
| OIL | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Oct. - Dec. | 2024 | Puts | WTI Cushing | $ | $ | $ | $ | $( | ||||||||||||||||||||||||||||||||||||||||||||||||
Oct. - Dec. | 2024 | Costless Collar | WTI Cushing | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||
Jan. - Mar. | 2025 | Puts | WTI Cushing | $ | $ | $ | $ | $( | ||||||||||||||||||||||||||||||||||||||||||||||||
Apr. - Jun. | 2025 | Puts | WTI Cushing | $ | $ | $ | $ | $( | ||||||||||||||||||||||||||||||||||||||||||||||||
| NATURAL GAS | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Oct. - Dec. | 2024 | Basis Swaps | Waha Hub | $( | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||
Jan. - Dec. | 2025 | Basis Swaps | Waha Hub | $( | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||
Jan. - Dec. | 2025 | Costless Collar | Henry Hub | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||
16
Viper Energy, Inc.
Notes to the Condensed Consolidated Financial Statements - (Continued)
(Unaudited)
Balance Sheet Offsetting of Derivative Assets and Liabilities
The fair value of derivative instruments is generally determined using established index prices and other sources which are based upon, among other things, futures prices and time to maturity. These fair values are recorded by netting asset and liability positions, including any deferred premiums, that are with the same counterparty and are subject to contractual terms which provide for net settlement. See Note 11—Fair Value Measurements for further details.
Gains and Losses on Derivative Instruments
The following table summarizes the gains and losses on derivative instruments included in the condensed consolidated statements of operations and the net cash receipts (payments) on derivatives for the periods presented:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||
| Gain (loss) on derivative instruments | $ | $ | ( | $ | $ | ( | |||||||||||||||||
| Net cash receipts (payments) on derivatives | $ | $ | ( | $ | ( | $ | ( | ||||||||||||||||
11. FAIR VALUE MEASUREMENTS
Assets and Liabilities Measured at Fair Value on a Recurring Basis
As discussed in Note 11—Fair Value Measurements in the Company's Annual Report on Form 10-K for the year ended December 31, 2023, certain assets and liabilities are reported at fair value on a recurring basis on the Company’s condensed consolidated balance sheets, including the Company’s derivative instruments and the 2026 WTI Contingent Liability. The 2026 WTI Contingent Liability is recorded in “Other long-term liabilities” on the Company’s condensed consolidated balance sheet at September 30, 2024, with the change in fair value being recognized in “Gain (loss) on derivative instruments, net” on the Company’s condensed consolidated statements of operations for the three and nine months ended September 30, 2024.
The fair values of the Company’s derivative contracts are measured internally using established commodity futures price strips for the underlying commodity provided by a reputable third party, the contracted notional volumes, and time to maturity. The net amounts are classified as current or noncurrent based on their anticipated settlement dates. The fair value of the 2026 WTI Contingent Liability is estimated using observable market data and a Monte Carlo pricing model, which are considered Level 2 inputs in the fair value hierarchy.
17
Viper Energy, Inc.
Notes to the Condensed Consolidated Financial Statements - (Continued)
(Unaudited)
The following table provides (i) fair value measurement information for financial assets and liabilities measured at fair value on a recurring basis, (ii) the gross amounts of recognized derivative assets and liabilities, (iii) the amounts offset under master netting arrangements with counterparties, and (iv) the resulting net amounts presented in the Company’s condensed consolidated balance sheets as of September 30, 2024 and December 31, 2023:
| As of September 30, 2024 | |||||||||||||||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total Gross Fair Value | Gross Amounts Offset in Balance Sheet | Net Fair Value Presented in Balance Sheet | ||||||||||||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||||||||||||||
| Assets: | |||||||||||||||||||||||||||||||||||
| Current: | |||||||||||||||||||||||||||||||||||
| Derivative instruments | $ | $ | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||||
| Non-current: | |||||||||||||||||||||||||||||||||||
| Derivative instruments | $ | $ | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||||
| Liabilities: | |||||||||||||||||||||||||||||||||||
| Current: | |||||||||||||||||||||||||||||||||||
| Derivative instruments | $ | $ | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||||
| Non-current: | |||||||||||||||||||||||||||||||||||
| Derivative instruments | $ | $ | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||||
| 2026 WTI Contingent Liability | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| As of December 31, 2023 | |||||||||||||||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total Gross Fair Value | Gross Amounts Offset in Balance Sheet | Net Fair Value Presented in Balance Sheet | ||||||||||||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||||||||||||||
| Assets: | |||||||||||||||||||||||||||||||||||
| Current: | |||||||||||||||||||||||||||||||||||
| Derivative instruments | $ | $ | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||||
| Non-current: | |||||||||||||||||||||||||||||||||||
| Derivative instruments | $ | $ | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||||
| Liabilities: | |||||||||||||||||||||||||||||||||||
| Current: | |||||||||||||||||||||||||||||||||||
| Derivative instruments | $ | $ | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||||
| Non-current: | |||||||||||||||||||||||||||||||||||
| Derivative instruments | $ | $ | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||||
18
Viper Energy, Inc.
Notes to the Condensed Consolidated Financial Statements - (Continued)
(Unaudited)
Assets and Liabilities Not Recorded at Fair Value
The following table provides the fair value of financial instruments that are not recorded at fair value in the condensed consolidated balance sheets:
| September 30, 2024 | December 31, 2023 | ||||||||||||||||||||||
| Carrying Value | Fair Value | Carrying Value | Fair Value | ||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||
| Debt: | |||||||||||||||||||||||
| Revolving credit facility | $ | $ | $ | $ | |||||||||||||||||||
| $ | $ | $ | $ | ||||||||||||||||||||
| $ | $ | $ | $ | ||||||||||||||||||||
(1) The carrying value includes associated deferred loan costs and any discount.
The fair value of the Operating Company’s revolving credit facility approximates the carrying value based on borrowing rates available to the Company for bank loans with similar terms and maturities and is classified as Level 2 in the fair value hierarchy. The fair value of the Notes was determined using the quoted market price at each period end, a Level 1 classification in the fair value hierarchy.
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
Certain assets and liabilities are measured at fair value on a nonrecurring basis in certain circumstances. These assets and liabilities can include mineral and royalty interests acquired in asset acquisitions and subsequent write-downs of the Company’s proved oil and natural gas interests to fair value when they are impaired or held for sale.
Fair Value of Financial Assets
The Company has other financial instruments consisting of cash and cash equivalents, royalty income receivable, income tax receivable, funds held in escrow, prepaid expenses and other current assets, accounts payable, accrued liabilities and income taxes payable. The carrying value of these instruments approximate their fair value because of the short-term nature of the instruments.
12. COMMITMENTS AND CONTINGENCIES
The Company is a party to various routine legal proceedings, disputes and claims from time to time arising in the ordinary course of its business. While the ultimate outcome of the pending proceedings, disputes or claims, and any resulting impact on the Company cannot be predicted with certainty, the Company’s management believes that none of these matters, if ultimately decided adversely, will have a material adverse effect on the Company’s financial condition, results of operations or cash flows. The Company’s assessment is based on information known about the pending matters and its experience in contesting, litigating and settling similar matters. Actual outcomes could differ materially from the Company’s assessment. The Company records reserves for contingencies related to outstanding legal proceedings, disputes or claims when information available indicates that a loss is probable and the amount of the loss can be reasonably estimated.
19
Viper Energy, Inc.
Notes to the Condensed Consolidated Financial Statements - (Continued)
(Unaudited)
13. SUBSEQUENT EVENTS
TWR Acquisition
On October 1, 2024, the Company and the Operating Company acquired all of the issued and outstanding equity interests in TWR IV, LLC and TWR IV SellCo, LLC from Tumbleweed Royalty IV, LLC (“TWR IV”) and TWR IV SellCo Parent, LLC (the “TWR Acquisition”), pursuant to a definitive purchase and sale agreement for consideration consisting of approximately (i) $458.9 million in cash, subject to transaction costs and customary post-closing adjustments, (ii) 10.09 million Operating Company units to TWR IV, (iii) an option (the “TWR Class B Option”) granted to TWR IV to acquire up to 10.09 million shares of the Company’s Class B Common Stock, and (iv) contingent cash consideration of up to $41.0 million, payable in January of 2026, based on the WTI 2025 Average. The contingent cash consideration payment will be (i) $16.4 million if the WTI 2025 Average is between $60.00 and $65.00 , (ii) $24.6 million if the WTI 2025 Average is between $65.00 and $75.00 , or (iii) $41.0 million if the WTI 2025 Average is greater than $75.00 .
TWR IV can exchange some or all of the Operating Company units received for an equal number of shares of Class A Common Stock upon expiration of a six month lockup period, and any Operating Company units so exchanged will reduce the number of shares of Class B Common Stock subject to the TWR Class B Option. The mineral and royalty interests acquired in the TWR Acquisition represent approximately 3,067 net royalty acres located primarily in the Permian Basin. The Company funded the cash consideration through a combination of cash on hand, borrowings under the Operating Company’s revolving credit facility and proceeds from the 2024 Equity Offering.
Following the completion of the TWR Acquisition, as of October 1, 2024, Viper Energy, Inc. owned approximately 52 % of the Operating Company units and remained the managing member of the Operating Company.
Cash Dividend
On October 31, 2024, the board of directors of the Company approved a cash dividend for the third quarter of 2024 of $0.61 per share of Class A Common Stock and $0.73 per Operating Company unit, in each case, payable on November 21, 2024, to holders of record at the close of business on November 14, 2024. The dividend on Class A Common Stock consists of a base quarterly dividend of $0.30 per share and a variable quarterly dividend of $0.31 per share. The dividend declared on the Operating Company units gives effect to the Operating Company units issued to TWR IV on October 1, 2024, as discussed above.
20
ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
On November 13, 2023, we converted from a Delaware limited partnership to a Delaware corporation. See Note 1—Organization and Basis of Presentation of the notes to the condensed consolidated financial statements for additional discussion of the Conversion. The following discussion and analysis should be read in conjunction with our unaudited condensed consolidated financial statements and notes thereto presented in this report as well as our audited financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2023. The following discussion contains “forward-looking statements” that reflect our future plans, estimates, beliefs and expected performance. Actual results and the timing of events may differ materially from those contained in these forward-looking statements due to a number of factors. See Part II. Item 1A. Risk Factors and Cautionary Statement Regarding Forward-Looking Statements.
Overview
We are a publicly traded Delaware corporation focused on owning and acquiring mineral and royalty interests in oil and natural gas properties primarily in the Permian Basin. We operate in one reportable segment.
Recent Developments
TWR Acquisition
On October 1, 2024, we completed the TWR Acquisition for approximately $458.9 million in cash and 10.09 million Operating Company units, subject to transaction costs and customary post-closing adjustments. Additionally, up to $41.0 million in contingent consideration may be payable in January of 2026 based on the WTI 2025 Average. The mineral and royalty interests acquired in the TWR Acquisition represent approximately 3,067 net royalty acres located primarily in the Permian Basin. See Note 13—Subsequent Events of the notes to the condensed consolidated financial statements for further details.
2024 Equity Offering
On September 13, 2024, we completed an underwritten public offering of approximately 11.50 million shares of our Class A Common Stock, which included 1.50 million shares issued pursuant to an option to purchase additional shares of Class A Common Stock granted to the underwriters, at a price to the public of $42.50 per share for total net proceeds of approximately $475.9 million, after the underwriters’ discount and transaction costs.
Q3 2024 Acquisitions
On September 3, 2024, we completed the Q Acquisition, which consisted of approximately 406 net royalty acres primarily in the Permian Basin for a purchase price of $113.6 million in cash, subject to transaction costs and customary post-closing adjustments, and contingent cash consideration of up to $5.4 million payable in January of 2026.
On September 3, 2024, we completed the M Acquisition, which consisted of approximately 267 net royalty acres primarily in the Permian Basin for a purchase price of $75.8 million in cash, subject to transaction costs and customary post-closing adjustments, and contingent cash consideration of up to $3.6 million payable in January of 2026.
See Note 4—Acquisitions and Divestitures of the notes to the condensed consolidated financial statements for further discussion of the acquisitions.
After giving effect to the Q Acquisition and M Acquisition (collectively, the “Q&M Acquisitions”) and the recently completed TWR Acquisition (together with the Q&M Acquisitions, the “Tumbleweed Acquisitions”), our footprint of mineral and royalty interests totals approximately 35,634 net royalty acres, approximately 54% of which are operated by Diamondback.
Cash Dividend Update
On August 1, 2024, our board of directors approved increasing our annual base dividend to $1.20 per share of Class A Common Stock beginning with our dividend payable for the second quarter of 2024. On October 31, 2024, we declared a combined base and variable cash dividend of $0.61 per share of Class A Common Stock and $0.73 per Operating Company unit
21
payable in the fourth quarter of 2024. The dividend declared on the Operating Company units gives effect to the Operating Company units issued to TWR IV on October 1, 2024, as discussed above.
Commodity Prices
Prices for oil, natural gas and natural gas liquids are determined primarily by prevailing market conditions. Regional and worldwide economic activity, extreme weather conditions and other substantially variable factors influence market conditions for these products. These factors are beyond our control and are difficult to predict. OPEC and its non-OPEC allies, known collectively as OPEC+, continue to meet regularly to evaluate the state of global oil supply, demand and inventory levels and can heavily influence volatility in oil prices. During the nine months ended 2024 and 2023, WTI prices averaged $77.61 and $77.28 per Bbl, respectively, and Henry Hub prices averaged $2.22 and $2.58 per MMBtu, respectively.
For additional information around risks related to commodity prices, see Part II. Item 3. Quantitative and Qualitative Disclosures About Market Risk—Commodity Price Risk.
Guidance
We increased our production guidance for full year 2024 to give effect to the impact of acquisitions in the second half of the year. The following table presents our current estimates of certain financial and operating results for the full year, as well as production and cash tax guidance for the fourth quarter of 2024. These estimates assume no additional acquisitions or divestitures in 2024.
| 2024 Guidance | |||||
Q4 2024 net production - MBO/d | 29.25 - 29.75 | ||||
Q4 2024 net production - MBOE/d | 52.50 - 53.00 | ||||
Full year 2024 net production - MBO/d | 27.00 - 27.25 | ||||
Full year 2024 net production - MBOE/d | 48.75 - 49.25 | ||||
Costs ($/BOE) | |||||
| Depletion | $11.50 - $12.00 | ||||
Cash general and administrative expenses | $0.80 - $1.00 | ||||
Non-cash share-based compensation | $0.10 - $0.20 | ||||
Interest expense | $4.00 - $4.25 | ||||
Production and ad valorem taxes (% of revenue) | ~7% | ||||
Cash tax rate (% of pre-tax income attributable to Viper Energy, Inc.) | 20% - 22% | ||||
Q4 2024 cash taxes (In millions)(1) | $13.0 - $18.0 | ||||
(1)Attributable to Viper Energy, Inc.
Production and Operational Update
There are currently 60 rigs operating on our mineral and royalty acreage, seven of which are operated by Diamondback. We continue to see strong activity levels across our acreage position and benefit from Diamondback’s continued large-scale development of our high concentration royalty acreage.
22
The following table summarizes our gross well information as of October 1, 2024, after giving effect to the Tumbleweed Acquisitions:
| Diamondback Operated | Third Party Operated | Total | |||||||||||||||
Horizontal wells turned to production(1): | |||||||||||||||||
| Gross wells | 81 | 249 | 330 | ||||||||||||||
| Net 100% royalty interest wells | 4.1 | 2.7 | 6.8 | ||||||||||||||
| Average percent net royalty interest | 5.1 | % | 1.1 | % | 2.1 | % | |||||||||||
| Horizontal producing well count: | |||||||||||||||||
| Gross wells | 2,755 | 7,969 | 10,724 | ||||||||||||||
| Net 100% royalty interest wells | 150.1 | 102.0 | 252.1 | ||||||||||||||
| Average percent net royalty interest | 5.4 | % | 1.3 | % | 2.4 | % | |||||||||||
Horizontal active development well count(2): | |||||||||||||||||
| Gross wells | 179 | 624 | 803 | ||||||||||||||
| Net 100% royalty interest wells | 10.4 | 7.3 | 17.7 | ||||||||||||||
| Average percent net royalty interest | 5.8 | % | 1.2 | % | 2.2 | % | |||||||||||
Line of sight wells(3): | |||||||||||||||||
| Gross wells | 266 | 859 | 1,125 | ||||||||||||||
| Net 100% royalty interest wells | 8.6 | 13.4 | 22.0 | ||||||||||||||
| Average percent net royalty interest | 3.2 | % | 1.6 | % | 2.0 | % | |||||||||||
(1) Average lateral length of 11,866.
(2) The total 803 gross wells currently in the process of active development are those wells that have been spud and are expected to be turned to production within approximately the next six to eight months.
(3) The total 1,125 gross line-of-sight wells are those that are not currently in the process of active development, but for which we have reason to believe that they will be turned to production within approximately the next 15 to 18 months. The expected timing of these line-of-sight wells is based primarily on permitting by third party operators or Diamondback’s current expected completion schedule. Existing permits or active development of our royalty acreage does not ensure that those wells will be turned to production given the volatility in oil prices.
23
Comparison of the Three Months Ended September 30, 2024 and June 30, 2024
Results of Operations
The following table summarizes our income and expenses for the periods indicated:
| Three Months Ended | |||||||||||
| September 30, 2024 | June 30, 2024 | ||||||||||
| (In thousands) | |||||||||||
| Operating income: | |||||||||||
| Oil income | $ | 186,750 | $ | 194,335 | |||||||
| Natural gas income | 823 | 1,143 | |||||||||
| Natural gas liquids income | 20,585 | 20,008 | |||||||||
| Royalty income | 208,158 | 215,486 | |||||||||
| Lease bonus income—related party | 107 | — | |||||||||
| Lease bonus income | 1,143 | 1,096 | |||||||||
| Other operating income | 180 | 126 | |||||||||
| Total operating income | 209,588 | 216,708 | |||||||||
| Costs and expenses: | |||||||||||
| Production and ad valorem taxes | 15,113 | 15,201 | |||||||||
| Depletion | 54,528 | 48,360 | |||||||||
| General and administrative expenses—related party | 2,569 | 2,436 | |||||||||
| General and administrative expenses | 2,046 | 2,019 | |||||||||
| Other operating expense | (236) | 139 | |||||||||
| Total costs and expenses | 74,020 | 68,155 | |||||||||
| Income (loss) from operations | 135,568 | 148,553 | |||||||||
| Other income (expense): | |||||||||||
| Interest expense, net | (16,739) | (18,667) | |||||||||
| Gain (loss) on derivative instruments, net | 7,410 | 5,346 | |||||||||
| Total other expense, net | (9,329) | (13,321) | |||||||||
| Income (loss) before income taxes | 126,239 | 135,232 | |||||||||
| Provision for (benefit from) income taxes | 17,194 | 13,006 | |||||||||
| Net income (loss) | 109,045 | 122,226 | |||||||||
| Net income (loss) attributable to non-controlling interest | 60,128 | 65,325 | |||||||||
| Net income (loss) attributable to Viper Energy, Inc. | $ | 48,917 | $ | 56,901 | |||||||
24
The following table summarizes our production data, average sales prices and average costs for the periods indicated:
| Three Months Ended | |||||||||||
| September 30, 2024 | June 30, 2024 | ||||||||||
| Production data: | |||||||||||
| Oil (MBbls) | 2,482 | 2,398 | |||||||||
| Natural gas (MMcf) | 6,150 | 5,631 | |||||||||
| Natural gas liquids (MBbls) | 1,035 | 983 | |||||||||
Combined volumes (MBOE)(1) | 4,542 | 4,320 | |||||||||
| Average daily oil volumes (BO/d) | 26,978 | 26,352 | |||||||||
| Average daily combined volumes (BOE/d) | 49,370 | 47,473 | |||||||||
| Average sales prices: | |||||||||||
| Oil ($/Bbl) | $ | 75.24 | $ | 81.04 | |||||||
| Natural gas ($/Mcf) | $ | 0.13 | $ | 0.20 | |||||||
| Natural gas liquids ($/Bbl) | $ | 19.89 | $ | 20.35 | |||||||
Combined ($/BOE)(2) | $ | 45.83 | $ | 49.88 | |||||||
Oil, hedged ($/Bbl)(3) | $ | 74.27 | $ | 80.24 | |||||||
Natural gas, hedged ($/Mcf)(3) | $ | 0.56 | $ | 0.64 | |||||||
Natural gas liquids ($/Bbl)(3) | $ | 19.89 | $ | 20.35 | |||||||
Combined price, hedged ($/BOE)(3) | $ | 45.87 | $ | 50.00 | |||||||
| Average costs ($/BOE): | |||||||||||
| Production and ad valorem taxes | $ | 3.33 | $ | 3.52 | |||||||
| General and administrative - cash component | 0.83 | 0.84 | |||||||||
| Total operating expense - cash | $ | 4.16 | $ | 4.36 | |||||||
| General and administrative - non-cash stock compensation expense | $ | 0.19 | $ | 0.19 | |||||||
| Interest expense, net | $ | 3.69 | $ | 4.32 | |||||||
| Depletion | $ | 12.01 | $ | 11.19 | |||||||
(1)Bbl equivalents are calculated using a conversion rate of six Mcf per one Bbl.
(2)Realized price net of all deducts for gathering, transportation and processing.
(3)Hedged prices reflect the impact of cash settlements of our matured commodity derivative transactions on our average sales prices.
Royalty Income
Our royalty income is a function of oil, natural gas and natural gas liquids production volumes sold and average prices received for those volumes.
Royalty income decreased by $7.3 million during the third quarter of 2024 compared to the second quarter of 2024. This net decrease consisted of a $15.3 million reduction attributable to lower average oil, natural gas and natural gas liquids prices received for our production during the third quarter of 2024 compared to the second quarter of 2024, partially offset by an increase of $8.0 million attributable to the 5% growth in production volumes.
Approximately 15% of the overall increase in production is attributable to the GRP Acquisition and approximately 11% is attributable to the Q&M Acquisitions. The remainder of the growth is from new wells added between periods.
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Production and Ad Valorem Taxes
The following table presents production and ad valorem taxes for the periods indicated:
| Three Months Ended | |||||||||||||||||||||||||||||||||||
| September 30, 2024 | June 30, 2024 | ||||||||||||||||||||||||||||||||||
| Amount (In thousands) | Per BOE | Percentage of Royalty Income | Amount (In thousands) | Per BOE | Percentage of Royalty Income | ||||||||||||||||||||||||||||||
| Production taxes | $ | 10,351 | $ | 2.28 | 5.0 | % | $ | 10,597 | $ | 2.45 | 5.0 | % | |||||||||||||||||||||||
| Ad valorem taxes | 4,762 | 1.05 | 2.3 | 4,604 | 1.07 | 2.1 | |||||||||||||||||||||||||||||
| Total production and ad valorem taxes | $ | 15,113 | $ | 3.33 | 7.3 | % | $ | 15,201 | $ | 3.52 | 7.1 | % | |||||||||||||||||||||||
In general, production taxes are directly related to production revenues and are based upon current year commodity prices. Production taxes as a percentage of royalty income for the third quarter of 2024 were relatively consistent with the second quarter of 2024.
Ad valorem taxes are based, among other factors, on property values driven by prior year commodity prices. Ad valorem taxes in total and per BOE for the third quarter of 2024 were relatively consistent with the second quarter of 2024.
Depletion
The increase in depletion expense of $6.2 million for the third quarter of 2024 compared to the second quarter of 2024 consists primarily of (i) $3.7 million due to an increase in the depletion rate to $12.01 per BOE for the third quarter of 2024, resulting primarily from the addition of higher values of proved reserves from the Q&M Acquisitions compared to $11.19 per BOE for the second quarter of 2024, and (ii) $2.5 million from growth in production volumes.
Derivative Instruments
The following table shows the net gain (loss) on derivative instruments and the net cash receipts (payments) on derivatives for the periods presented:
| Three Months Ended | |||||||||||
| September 30, 2024 | June 30, 2024 | ||||||||||
| (In thousands) | |||||||||||
| Gain (loss) on derivative instruments | $ | 7,410 | $ | 5,346 | |||||||
| Net cash receipts (payments) on derivatives | $ | 187 | $ | 529 | |||||||
See Note 10—Derivatives of the notes to the condensed consolidated financial statements for additional discussion of our open contracts at September 30, 2024.
Provision for (Benefit from) Income Taxes
The $4.2 million increase in income tax expense for the third quarter of 2024 compared to the second quarter of 2024 primarily resulted from additional income before income taxes being attributed to Viper Energy, Inc. in the third quarter of 2024 due to higher ownership interest in the Operating Company following the completion of the 2024 Equity Offering. See Note 9—Income Taxes of the notes to the condensed consolidated financial statements for further discussion of income tax expense.
Net Income (Loss) Attributable to Non-controlling Interest
The $5.2 million decrease in net income attributable to non-controlling interest for the third quarter of 2024 compared to the second quarter of 2024 is primarily due to (i) a decrease in net income, (ii) a decrease in Diamondback’s ownership of our common stock in the first quarter of 2024 following the completion of the Diamondback Offering, and (iii) a decrease in Diamondback’s ownership of our common stock in the third quarter of 2024 following the completion of the 2024 Equity Offering.
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Comparison of the Nine Months Ended September 30, 2024 and 2023
Results of Operations
The following table summarizes our income and expenses for the periods indicated:
| Nine Months Ended September 30, | |||||||||||
| 2024 | 2023 | ||||||||||
(In thousands) | |||||||||||
| Operating income: | |||||||||||
| Oil income | $ | 558,203 | $ | 443,927 | |||||||
| Natural gas income | 8,763 | 22,974 | |||||||||
| Natural gas liquids income | 61,745 | 47,995 | |||||||||
| Royalty income | 628,711 | 514,896 | |||||||||
| Lease bonus income—related party | 227 | 105,585 | |||||||||
| Lease bonus income | 2,289 | 1,730 | |||||||||
| Other operating income | 461 | 774 | |||||||||
| Total operating income | 631,688 | 622,985 | |||||||||
| Costs and expenses: | |||||||||||
| Production and ad valorem taxes | 44,720 | 37,794 | |||||||||
| Depletion | 149,821 | 101,331 | |||||||||
| General and administrative expenses—related party | 7,391 | 2,772 | |||||||||
| General and administrative expenses | 6,712 | 3,880 | |||||||||
| Other operating expense | (3) | — | |||||||||
| Total costs and expenses | 208,641 | 145,777 | |||||||||
| Income (loss) from operations | 423,047 | 477,208 | |||||||||
| Other income (expense): | |||||||||||
| Interest expense, net | (54,736) | (31,636) | |||||||||
| Gain (loss) on derivative instruments, net | 5,264 | (30,685) | |||||||||
| Other income, net | — | 258 | |||||||||
| Total other expense, net | (49,472) | (62,063) | |||||||||
| Income (loss) before income taxes | 373,575 | 415,145 | |||||||||
| Provision for (benefit from) income taxes | 42,729 | 39,735 | |||||||||
| Net income (loss) | 330,846 | 375,410 | |||||||||
| Net income (loss) attributable to non-controlling interest | 181,668 | 232,294 | |||||||||
| Net income (loss) attributable to Viper Energy, Inc. | $ | 149,178 | $ | 143,116 | |||||||
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The following table summarizes our production data, average sales prices and average costs for the periods indicated:
| Nine Months Ended September 30, | |||||||||||
| 2024 | 2023 | ||||||||||
| Production data: | |||||||||||
| Oil (MBbls) | 7,192 | 5,771 | |||||||||
| Natural gas (MMcf) | 17,370 | 13,809 | |||||||||
| Natural gas liquids (MBbls) | 2,972 | 2,224 | |||||||||
Combined volumes (MBOE)(1) | 13,059 | 10,297 | |||||||||
| Average daily oil volumes (BO/d) | 26,248 | 21,139 | |||||||||
| Average daily combined volumes (BOE/d) | 47,661 | 37,718 | |||||||||
| Average sales prices: | |||||||||||
| Oil ($/Bbl) | $ | 77.61 | $ | 76.92 | |||||||
| Natural gas ($/Mcf) | $ | 0.50 | $ | 1.66 | |||||||
| Natural gas liquids ($/Bbl) | $ | 20.78 | $ | 21.58 | |||||||
Combined ($/BOE)(2) | $ | 48.14 | $ | 50.00 | |||||||
Oil, hedged ($/Bbl)(3) | $ | 76.70 | $ | 75.85 | |||||||
Natural gas, hedged ($/Mcf)(3) | $ | 0.77 | $ | 1.39 | |||||||
Natural gas liquids ($/Bbl)(3) | $ | 20.78 | $ | 21.58 | |||||||
Combined price, hedged ($/BOE)(3) | $ | 47.99 | $ | 49.03 | |||||||
| Average costs ($/BOE): | |||||||||||
| Production and ad valorem taxes | $ | 3.42 | $ | 3.67 | |||||||
| General and administrative - cash component | 0.91 | 0.55 | |||||||||
| Total operating expense - cash | $ | 4.33 | $ | 4.22 | |||||||
| General and administrative - non-cash stock compensation expense | $ | 0.17 | $ | 0.10 | |||||||
| Interest expense, net | $ | 4.19 | $ | 3.07 | |||||||
| Depletion | $ | 11.47 | $ | 9.84 | |||||||
(1)Bbl equivalents are calculated using a conversion rate of six Mcf per one Bbl.
(2)Realized price net of all deducts for gathering, transportation and processing.
(3)Hedged prices reflect the impact of cash settlements of our matured commodity derivative transactions on our average sales prices.
Royalty Income
Our royalty income is a function of oil, natural gas and natural gas liquids production volumes sold and average prices received for those volumes.
Royalty income increased $113.8 million during the nine months ended September 30, 2024 compared to the same period in 2023. This net increase consisted of an additional $131.4 million in royalty income from the 27% growth in production, partially offset by a decrease of $17.6 million due to lower average natural gas and natural gas liquids prices received for our production during 2024 compared to the same period in 2023.
Approximately 85% of the overall increase in production is attributable to the GRP Acquisition, approximately 6% is attributable to the Drop Down and approximately 1% is attributable to the Q&M Acquisitions. The remainder of the growth comes from new wells added between periods.
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Lease Bonus Income—Related Party
Lease bonus income from Diamondback decreased by $105.4 million due to receiving payment for three new leases covering approximately 85 acres in Martin County Texas, for the nine months ended September 30, 2024, compared to receiving payment for five new leases and two lease extensions covering approximately 13,341 acres in Martin, Midland, Pecos and Wheeler Counties, Texas, during the same period in 2023. See Note 2—Summary of Significant Accounting Policies of the notes to the condensed consolidated financial statements for further details.
Production and Ad Valorem Taxes
The following table presents production and ad valorem taxes for the periods indicated:
| Nine Months Ended September 30, | |||||||||||||||||||||||||||||||||||
| 2024 | 2023 | ||||||||||||||||||||||||||||||||||
| Amount (In thousands) | Per BOE | Percentage of Royalty Income | Amount (In thousands) | Per BOE | Percentage of Royalty Income | ||||||||||||||||||||||||||||||
| Production taxes | $ | 31,292 | $ | 2.40 | 5.0 | % | $ | 25,876 | $ | 2.51 | 5.0 | % | |||||||||||||||||||||||
| Ad valorem taxes | 13,428 | 1.02 | 2.1 | 11,918 | 1.16 | 2.3 | |||||||||||||||||||||||||||||
| Total production and ad valorem taxes | $ | 44,720 | $ | 3.42 | 7.1 | % | $ | 37,794 | $ | 3.67 | 7.3 | % | |||||||||||||||||||||||
In general, production taxes are directly related to production revenues and are based upon current year commodity prices. Production taxes as a percentage of royalty income for the nine months ended September 30, 2024 remained consistent with the same period in 2023.
Ad valorem taxes are based, among other factors, on property values driven by prior year commodity prices. Ad valorem taxes for the nine months ended September 30, 2024 as compared to the same period in 2023 increased by $1.5 million primarily due to an increase in the expected ad valorem tax rates for 2024 compared to the expected rates in the third quarter of 2023.
Depletion
The increase in depletion expense of $48.5 million for the nine months ended September 30, 2024 compared to the same period in 2023 consisted primarily of (i) $27.2 million from growth in production volumes, and (ii) $21.3 million due to an increase in the depletion rate to $11.47 per BOE for the nine months ended September 30, 2024, resulting primarily from the addition of leasehold costs and reserves from the GRP Acquisition and the Q&M Acquisitions compared to $9.84 per BOE for the same period in 2023.
General and Administrative Expenses
The following table shows general and administrative expenses for the periods presented:
| Nine Months Ended September 30, | |||||||||||
| 2024 | 2023 | ||||||||||
(In thousands, except per BOE amounts) | |||||||||||
| General and administrative expenses—related party | $ | 7,391 | $ | 2,772 | |||||||
| General and administrative expenses | 6,712 | 3,880 | |||||||||
| General and administrative expenses | $ | 14,103 | $ | 6,652 | |||||||
General and administrative expenses ($ per BOE) | $ | 1.08 | $ | 0.65 | |||||||
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The $7.5 million increase in general and administrative expenses for the nine months ended September 30, 2024 compared to the same period in 2023 consists of (i) a $4.6 million increase in expenses billed by Diamondback as discussed below, (ii) approximately $1.9 million in legal expenses primarily related to the Diamondback Offering, and (iii) other individually insignificant changes.
Prior to 2024, we reimbursed Diamondback a flat quarterly fee for management and administrative services provided to us by Diamondback. Beginning in 2024, Diamondback began billing us for estimated actual salary and benefit costs incurred for services provided to us by seconded employees under the Services and Secondment Agreement during the quarter.
Derivative Instruments
The following table shows the net gain (loss) on derivative instruments and the net cash receipts (payments) on derivatives for the periods presented:
| Nine Months Ended September 30, | |||||||||||
| 2024 | 2023 | ||||||||||
| (In thousands) | |||||||||||
| Gain (loss) on derivative instruments | $ | 5,264 | $ | (30,685) | |||||||
| Net cash receipts (payments) on derivatives | $ | (2,038) | $ | (10,019) | |||||||
The change to a gain on derivative instruments from a loss on derivative instruments for the nine months ended September 30, 2024 compared to the same period in 2023 is primarily due to an increase in the differential between prices for Waha Hub and Henry Hub resulting in a gain on our natural gas basis swaps in the nine months ended September 30, 2024 compared to a loss in 2023. See Note 10—Derivatives of the notes to the condensed consolidated financial statements for additional discussion of our open contracts at September 30, 2024.
Provision for (Benefit from) Income Taxes
The $3.0 million increase in income tax expense for the nine months ended September 30, 2024 compared to the same period in 2023 primarily resulted from additional income before income taxes being attributed to Viper Energy, Inc. in the third quarter of 2024 due to higher ownership interest in the Operating Company following the completion of the 2024 Equity Offering. See Note 9—Income Taxes of the notes to the condensed consolidated financial statements for further discussion of income tax expense.
Net Income (Loss) Attributable to Non-controlling Interest
The $50.6 million decrease in net income attributable to non-controlling interest for the nine months ended September 30, 2024 compared to the same period in 2023 is primarily due to (i) a decrease in net income, (ii) a decrease in Diamondback’s ownership of our common stock in the first quarter of 2024 following the completion of the Diamondback Offering, and (iii) a decrease in Diamondback’s ownership of our common stock in the third quarter of 2024 following the completion of the 2024 Equity Offering.
Liquidity and Capital Resources
Overview of Sources and Uses of Cash
As we pursue our business and financial strategy, we regularly consider which capital resources, including cash flow, equity and debt financings are available to meet our future financial obligations and liquidity requirements. Our future ability to grow proved reserves will be highly dependent on the capital resources available to us. Our primary sources of liquidity have been cash flows from operations, proceeds from sales of non-core assets, equity and debt offerings and borrowings under the Operating Company’s revolving credit facility. Our primary uses of cash have been dividends to our stockholders, Operating Company distributions to the holders of Operating Company units, repayments of debt, capital expenditures for the acquisition of our mineral and royalty interests in oil and natural gas properties, including the Tumbleweed Acquisitions and repurchases of our Class A Common Stock. At September 30, 2024, we had approximately $1.0 billion of liquidity consisting of $168.6 million in cash and cash equivalents and $850.0 million available under the Operating Company’s revolving credit facility. See further discussion of changes in our sources of cash in “—Capital Resources” below.
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Our working capital requirements are supported by our cash and cash equivalents and the Operating Company’s revolving credit facility. We may draw on the Operating Company’s revolving credit facility to meet short-term cash requirements, or issue debt or equity securities as part of our longer-term liquidity and capital management program. Because of the alternatives available to us as discussed above, we believe that our short-term and long-term liquidity are adequate to fund not only our current operations, but also our near-term and long-term funding requirements including future acquisitions of mineral and royalty interests, dividends, debt service obligations, repayment of debt maturities, repurchases of our Class A Common Stock and one or more series of the Notes and any amounts that may ultimately be paid in connection with contingencies.
In order to mitigate volatility in oil and natural gas prices, we have entered into commodity derivative contracts as discussed further in Part II. Item 3. Quantitative and Qualitative Disclosures About Market Risk—Commodity Price Risk.
Continued prolonged volatility in the capital, financial and/or credit markets due to the war in Ukraine, the Israel-Hamas war and other conflicts in the Middle East, and/or adverse macroeconomic conditions, including higher interest rates, global supply chain disruptions and actions taken by OPEC members and other exporting nations may limit our access to, or increase our cost of, capital or make capital unavailable on terms acceptable to us or at all. Although we expect that our sources of funding will be adequate to fund our short-term and long-term liquidity requirements, we cannot assure you that the needed capital will be available on acceptable terms or at all.
Cash Flows
The following table presents our cash flows for the periods indicated:
| Nine Months Ended September 30, | |||||||||||
| 2024 | 2023 | ||||||||||
| (In thousands) | |||||||||||
Cash flow data: | |||||||||||
| Net cash provided by (used in) operating activities | $ | 461,700 | $ | 492,397 | |||||||
| Net cash provided by (used in) investing activities | (183,378) | (176,749) | |||||||||
| Net cash provided by (used in) financing activities | (135,542) | (187,013) | |||||||||
| Net increase (decrease) in cash and cash equivalents | $ | 142,780 | $ | 128,635 | |||||||
Operating Activities
Our operating cash flow is sensitive to many variables, the most significant of which are the volatility of prices for oil and natural gas and the volumes of oil and natural gas sold by our producers. The decrease in net cash provided by operating activities during the nine months ended September 30, 2024 compared to the same period in 2023 was primarily driven by (i) a reduction in related party lease bonus income, (ii) an increase in cash paid for interest expense due to the issuance of our 7.375% Senior unsecured notes due 2031 in the fourth quarter of 2023, (iii) an increase in cash paid for taxes, and (iv) an increase in cash costs for production and ad valorem taxes and payments to Diamondback related to the change in reimbursement methodology under the Services and Secondment Agreement. These decreases in cash flow were offset by (i) an increase in royalty income, (ii) a decrease in cash paid for derivatives, and (iii) other changes in our working capital accounts. See “—Results of Operations” for discussion of significant changes in our revenues and expenses.
Investing Activities
Net cash used in investing activities during the nine months ended September 30, 2024 primarily related to the Q&M Acquisitions and acquisitions of oil and natural gas interests from third parties, partially offset by proceeds from the divestiture of our non-Permian assets.
Net cash used in investing activities during the nine months ended September 30, 2023 primarily related to acquisitions of oil and natural gas interests from third parties and in the Drop Down.
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Financing Activities
Net cash used in financing activities during the nine months ended September 30, 2024 was primarily attributable to $348.4 million of dividends paid to stockholders and net repayments of $263.0 million on the Operating Company’s revolving credit facility, offset by proceeds of $475.9 million from the 2024 Equity Offering.
Net cash used in financing activities during the nine months ended September 30, 2023 primarily resulted from distributions of $212.1 million and common unit repurchases of $67.2 million. These cash outflows were partially offset by net borrowings of $98.0 million under the Operating Company’s revolving credit facility.
Capital Resources
The Operating Company’s Revolving Credit Facility
At September 30, 2024, the Operating Company’s credit facility, which matures on September 22, 2028, had an elected commitment amount of $850.0 million, with no outstanding borrowings and $850.0 million of availability. See Note 6—Debt of the notes to the condensed consolidated financial statements included elsewhere in this report for additional discussion of our outstanding debt at September 30, 2024.
On October 1, 2024, we completed the TWR Acquisition as discussed in Note 13—Subsequent Events of the notes to the condensed consolidated financial statements. Approximately $280.0 million of the cash consideration for this transaction was funded through borrowings under the Operating Company’s credit facility, reducing the amount that remained available for future borrowings under this facility to $570.0 million as of October 1, 2024.
Capital Requirements
Repurchases of Securities
Under our current common stock repurchase program, the board of directors has authorized us to acquire up to $750.0 million of our Class A Common Stock, excluding excise tax. As of September 30, 2024, $434.2 million remains available for use to repurchase shares under this repurchase program.
We may also from time to time opportunistically repurchase some of the outstanding Notes in open market purchases or in privately negotiated transactions.
Cash Dividends
The Operating Company will pay a cash distribution for the third quarter of 2024 in accordance with its distribution policy of 0.73 per Operating Company unit on November 21, 2024 to eligible holders of record at the close of business on November 14, 2024. The dividend declared on the Operating Company units gives effect to the Operating Company units issued to TWR IV on October 1, 2024, as discussed above in “—Recent Developments”.
We will pay a cash dividend for the third quarter of 2024 in accordance with our dividend policy of $0.61 per share of Class A Common Stock on November 21, 2024 to eligible holders of record at the close of business on November 14, 2024. The dividend to stockholders consists of a base quarterly dividend of $0.30 per share of Class A Common Stock and a variable quarterly dividend of $0.31 per share of Class A Common Stock. Future base and variable dividends are at the discretion of the board of directors.
See Note 7—Stockholders' Equity of the notes to the condensed consolidated financial statements for further discussion of the repurchase program and dividends.
Critical Accounting Estimates
There have been no changes to our critical accounting estimates from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2023.
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Recent Accounting Pronouncements
See Note 2—Summary of Significant Accounting Policies included in the notes to the condensed consolidated financial statements for recent accounting pronouncements not yet adopted, if any.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risk, including the effects of adverse changes in commodity prices and interest rates as described below. The primary objective of the following information is to provide quantitative and qualitative information about our potential exposure to market risks. The term “market risk” refers to the risk of loss arising from adverse changes in oil and natural gas prices and interest rates. The disclosures are not meant to be precise indicators of expected future losses, but rather indicators of reasonably possible losses.
Commodity Price Risk
Our major market risk exposure is in the pricing applicable to the oil and natural gas production of our operators. Realized prices are driven primarily by the prevailing worldwide price for crude oil and prices for natural gas in the United States. Both crude oil and natural gas realized prices are also impacted by the quality of the product, supply and demand balances in local physical markets and the availability of transportation to demand centers. Pricing for oil and natural gas production has been historically volatile and unpredictable and the prices that our operators receive for production depend on many factors outside of our or their control, as discussed in Item 2. Liquidity and Capital Resources—Overview of Sources and Uses of Cash. We cannot predict events that may lead to future price volatility and the near term energy outlook remains subject to heightened levels of uncertainty.
We historically have used fixed price swap contracts, fixed price basis swap contracts and costless collars with corresponding put and call options to reduce price volatility associated with certain of our royalty income as discussed in Note 10—Derivatives of the notes to the condensed consolidated financial statements.
At September 30, 2024, we had a net asset derivative position related to our commodity price derivatives of $4.6 million. Utilizing actual derivative contractual volumes under our contracts as of September 30, 2024, a 10% increase in forward curves associated with the underlying commodity would have decreased the net asset position by $2.6 million to approximately $2.0 million, while a 10% decrease in forward curves associated with the underlying commodity would have increased the net asset derivative position by $5.0 million to approximately $9.6 million. However, certain cash derivative gains or losses may be partially offset by a decrease or increase, respectively, in the actual sales value of production covered by the derivative instrument.
Credit Risk
We are subject to risk resulting from the concentration of royalty income in producing oil and natural gas interests and receivables with a limited number of significant purchasers and producers. We do not require collateral and the failure or inability of our significant purchasers to meet their obligations to us due to their liquidity issues, bankruptcy, insolvency or liquidation may adversely affect our financial results. Volatility in the commodity pricing environment and macroeconomic conditions may enhance our purchaser credit risk.
Interest Rate Risk
We are subject to market risk exposure related to changes in interest rates on our indebtedness under the Operating Company’s revolving credit facility. The terms of the credit facility provide for interest on borrowings at a floating rate equal to (i) term SOFR plus 0.10% (“Adjusted Term SOFR”), or (ii) an alternate base rate (which is equal to the greatest of the prime rate, the Federal Funds effective rate plus 0.50%, and 1-month Adjusted Term SOFR plus 1.00%), in each case plus the applicable margin. The applicable margin ranges from 1.00% to 2.00% per annum in the case of the alternative base rate and from 2.00% to 3.00% per annum in the case of Adjusted Term SOFR, in each case depending on the amount of the loans outstanding in relation to the commitment, which is calculated using the least of the maximum credit amount, the aggregate elected commitment amount and the borrowing base. We are obligated to pay a quarterly commitment fee ranging from 0.375% to 0.500% per year on the unused portion of the commitment. As of September 30, 2024, we had no outstanding borrowings. During the three and nine months ended September 30, 2024, the weighted average interest rate on the Operating Company’s revolving credit facility was 7.51% and 7.52%, respectively.
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ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures. Under the direction of our Chief Executive Officer and Chief Financial Officer, we have established disclosure controls and procedures, as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act, that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. The disclosure controls and procedures are also intended to ensure that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.
As of September 30, 2024, an evaluation was performed under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15(b) under our Exchange Act. Based upon our evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that as of September 30, 2024, our disclosure controls and procedures are effective.
Changes in Internal Control over Financial Reporting. Management’s assessment of, and conclusion on, the effectiveness of internal control over financial reporting did not include the internal controls of the entities acquired in the Q&M Acquisitions on September 3, 2024. Under guidelines established by the SEC, companies are permitted to exclude acquisitions from their assessment of internal control over financial reporting during the first year of an acquisition while integrating the acquired company. The Company is in the process of integrating the entities acquired in the Q&M Acquisitions and our internal controls over financial reporting. As a result of these integration activities, certain controls will be evaluated and may be changed. Except as noted above, there were no changes in our internal control over financial reporting that occurred during the third quarter of 2024 that have materially affected, or are reasonably likely to materially affect, internal controls over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Due to the nature of our business, we are, from time to time, involved in routine litigation or subject to disputes or claims related to our business activities. In the opinion of our management, none of the pending litigation, disputes or claims against us, if decided adversely, will have a material adverse effect on our financial condition, cash flows or results of operations. See Note 12—Commitments and Contingencies of the notes to the condensed consolidated financial statements.
ITEM 1A. RISK FACTORS
Our business faces many risks. Any of the risks discussed in this report and our other SEC filings could have a material impact on our business, financial position or results of operations. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may also materially impair our business operations, financial condition or future results.
As of the date of this filing, we continue to be subject to the risk factors previously disclosed in Part I, Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on February 22, 2024, and in subsequent filings we make with the SEC. Except as discussed below, there have been no material changes in our risk factors from those described in our Annual Report on Form 10-K for the year ended December 31, 2023.
We may be unable to realize anticipated cash flows or other benefits from the Tumbleweed Acquisitions.
Our ability to achieve the anticipated benefits from the Tumbleweed Acquisitions will depend in part upon an assessment of several factors, including:
•recoverable reserves;
•future natural gas and oil prices and their appropriate differentials;
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•existing and future production on the mineral and royalty acreage subject to the Tumbleweed Acquisitions and the operators’ plans with respect to such acreage;
•any title defects; and
•environmental and other regulatory, permitting and similar matters.
The accuracy of these assessments is inherently uncertain. In connection with these assessments, we have performed a review of the subject properties that we believe to be generally consistent with industry practices. Our review may not reveal all existing or potential problems or permit us to become sufficiently familiar with the assets to fully assess their deficiencies and potential recoverable reserves. Inspections will not always be performed on every well, and structural and environmental problems are not necessarily observable even when an inspection is undertaken. The integration process may be subject to delays or changed circumstances, and we can give no assurance that the acquired mineral and royalty interests will generate cash flow in accordance with our expectations. Significant acquisitions, including the Tumbleweed Acquisitions, and other strategic transactions may involve other risks that may cause our business to be adversely impacted, including:
•diversion of our management’s attention to evaluating and negotiating significant acquisitions and strategic transactions; and
•the failure to realize the full benefit that we expect in estimated proved reserves, production volume or other benefits anticipated from an acquisition, or to realize these benefits within the expected time frame.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Unregistered Sales of Equity Securities
None.
Issuer Repurchases of Equity Securities
Our common share repurchase activity for the three months ended September 30, 2024 was as follows:
| Period | Total Number of Shares Purchased | Average Price Paid Per Share(1)(2) | Total Number of Shares Purchased as Part of Publicly Announced Plan | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plan(1)(2) | ||||||||||||||||||||||
| (In thousands, except share amounts) | ||||||||||||||||||||||||||
| July 1, 2024 - July 31, 2024 | — | $ | — | — | $ | 434,161 | ||||||||||||||||||||
| August 1, 2024 - August 31, 2024 | — | $ | — | — | $ | 434,161 | ||||||||||||||||||||
| September 1, 2024 - September 30, 2024 | — | $ | — | — | $ | 434,161 | ||||||||||||||||||||
| Total | — | $ | — | — | ||||||||||||||||||||||
(1)On July 26, 2022, the board of directors increased the authorization under our then-in-effect repurchase program from $250.0 million to $750.0 million. This repurchase program has no expiration date and remains subject to market conditions, applicable legal requirements, contractual obligations and other factors and may be suspended from time to time, modified, extended or discontinued by the board of directors at any time.
(2)All dollar amounts presented exclude excise taxes, as applicable.
ITEM 5. OTHER INFORMATION
None of the Company’s directors or officers adopted terminated
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ITEM 6. EXHIBITS
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Exhibit Number | Description | |||||||
| 32.1** | ||||||||
| 101 | The following financial information from the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2024, formatted in Inline XBRL: (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations, (iii) Condensed Consolidated Statement of Changes in Stockholders’ Equity, (iv) Condensed Consolidated Statements of Cash Flows, and (v) Notes to the Condensed Consolidated Financial Statements. | |||||||
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). | |||||||
______________
# | Schedules (or similar attachments) have been omitted pursuant to Item 601(a)(5) of Regulation S-K and will be provided to the Securities and Exchange Commission upon request. | ||||
| + | This exhibit has been re-filed with the Securities and Exchange Commission to correct an inadvertent error in Exhibit A thereto and hereby supersedes and replaces Exhibit 3.1 filed with the Company’s Current Report on Form 8-K (File 001-36505) on October 2, 2024 in its entirety. | ||||
| * | Filed herewith. | ||||
| ** | The certifications attached as Exhibit 32.1 accompany this Quarterly Report on Form 10-Q pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, and shall not be deemed “filed” by the Registrant for purposes of Section 18 of the Securities Exchange Act of 1934, as amended. | ||||
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SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
VIPER ENERGY, INC. | |||||||||||
| By: | VIPER ENERGY, INC. | ||||||||||
| Date: | November 7, 2024 | By: | /s/ Travis D. Stice | ||||||||
| Travis D. Stice | |||||||||||
| Chief Executive Officer | |||||||||||
| Date: | November 7, 2024 | By: | /s/ Teresa L. Dick | ||||||||
| Teresa L. Dick | |||||||||||
| Chief Financial Officer | |||||||||||
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