Viper(US:VNOM)2023-05-02 19:23Financial Data and Key Metrics Changes - Viper Energy Partners reported a record oil production for the fourth consecutive quarter, highlighting strong free cash flow conversion despite commodity price volatility [5] - The company maintained over 80% conversion of operating cash flow into free cash flow during the quarter, significantly higher than the industry average of around 40% [5] - The drop-down transaction of certain royalty interests from Diamondback was valued at $75 million, with production from the acquired asset expected to increase from 300 barrels of oil per day to over 500 barrels per day for the full year 2023 [6] Business Line Data and Key Metrics Changes - The company initiated average production guidance for Q2 and Q3 2023, implying over 8% growth compared to Q1, with organic growth (excluding the drop-down acquisition) at over 5% [7] - Viper repurchased over 1 million units during the quarter, totaling over 11 million units repurchased since the program's inception, reflecting an average price of under $23 per unit [8] Market Data and Key Metrics Changes - The management indicated that the public markets are mispricing mineral interests relative to upstream assets, leading to a strategic shift in capital allocation towards acquiring more mineral interests [14] - The company noted that it is significantly undervalued relative to its net asset value (NAV) at mid-cycle prices, which are estimated at $60 per barrel [15] Company Strategy and Development Direction - Viper Energy aims to grow production without capital expenditures, leveraging its royalty business model to maintain low operating costs [5][9] - The management emphasized the importance of retaining flexibility in capital allocation between unit buybacks and variable dividends, adapting to market conditions [14] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the growth potential of the mineral business, indicating that the majority of the acquired acreage remains undeveloped, allowing for significant future growth [12] - The company anticipates that public operators will remain flat while private operators slow down, positioning Viper to benefit from increased activity with Diamondback [24] Other Important Information - The company completed $41 million in additional acquisitions, focusing on smaller deals and ground game acquisitions, while facing competition in the middle market [26][27] - Management highlighted the unique advantage of Viper in competing for larger mineral deals due to its size and scale [18] Q&A Session Summary Question: Future activity and undeveloped acreage - Management confirmed that most of the Diamondback operated position remains undeveloped, indicating significant growth potential over the next few years [12] Question: Capital allocation and shareholder return - Management discussed the importance of retaining flexibility in capital allocation, balancing between buybacks and dividends based on market conditions [14] Question: Market trends and acquisition strategy - Management acknowledged challenges in acquiring third-party minerals due to pricing but emphasized the focus on operated positions where they have better insight [33] Question: Role of Viper in the market and yield considerations - Management stated that the primary goal is to create value, and currently, the best approach is to repurchase units rather than distribute cash [35]