Introduction
Viper Energy, Inc. (VNOM) is a leading player in the lucrative mineral rights space, carving out a unique niche for itself within the booming Permian Basin. With a laser-sharp focus on acquiring and managing mineral and royalty interests, the company has strategically positioned itself as a key beneficiary of the resurgence in oil and gas exploration and production in one of North America's most prolific hydrocarbon-producing regions.
Company History
Established in 2013 as a subsidiary of Diamondback Energy, Inc. (FANG), Viper Energy has steadily grown its portfolio of mineral interests over the past decade. The company was formed as a publicly traded Delaware limited partnership with a focus on owning and acquiring mineral and royalty interests in oil and natural gas properties primarily in the Permian Basin. Viper began operations in 2014 after its initial public offering, and in its early years, grew primarily through acquisitions of mineral and royalty interests from third-party sellers. These acquisitions allowed Viper to build a portfolio of producing properties across the Permian Basin.
During the 2014-2016 downturn in commodity prices, Viper faced challenges that impacted the valuation and availability of acquisition opportunities. However, the company was able to continue acquiring new mineral and royalty interests by leveraging its relationship with Diamondback Energy. In 2018, Viper completed a significant acquisition of mineral and royalty interests from Diamondback's subsidiaries, known as the "2018 Drop Down," which further expanded its footprint in the Permian Basin and increased the alignment between Viper and Diamondback's development activities.
A notable milestone in Viper's history occurred in 2023 when Viper Energy Partners LP converted from a Delaware limited partnership into a Delaware corporation, becoming Viper Energy, Inc. This conversion provided Viper with a corporate structure more suitable for a publicly traded company. Additionally, the company strengthened its relationship with Diamondback through a services and secondment agreement, under which Diamondback continues to provide personnel and general administrative services to Viper.
Throughout its history, Viper has demonstrated resilience and adaptability in the face of industry challenges such as volatile commodity prices and competition for acquisition opportunities. The company's strategic relationship with Diamondback and its focus on high-quality mineral and royalty interests have been key factors in its ability to grow and strengthen its position in the Permian Basin.
Business Model and Strategy
Viper Energy's business model is predicated on a simple yet effective premise: acquiring high-quality mineral and royalty interests in the Permian Basin, the majority of which are operated by its parent company, Diamondback. This strategy has allowed the company to capitalize on the surge in drilling activity in the region, benefiting from the organic production growth on its mineral acreage without the need to allocate capital towards exploration and development expenses.
As of December 31, 2024, Viper Energy's mineral and royalty interests spanned approximately 987,860 gross acres, translating to 35,670 net royalty acres primarily located in the prolific Midland and Delaware basins. Impressively, Diamondback operated approximately 52% of this acreage, further solidifying the strong alignment between the two companies and Viper Energy's ability to leverage Diamondback's operational expertise and large-scale development programs.
Financials
Viper Energy's financial performance has been a testament to the success of this strategic approach. For the full year 2024, the company reported total revenue of $860.4 million, a 4.0% increase from the previous year. Net income attributable to Viper Energy for the year was $603.7 million, or $3.82 per diluted share. The company's robust cash flow generation capabilities were on full display, with operating cash flow of $619.6 million.
Net production during the fourth quarter of 2024 was approximately 56,110 BOE per day, and net production for the full year 2024 averaged 49,780 BOE per day. Royalty income generated from these mineral and royalty interests was $853.6 million, $717.1 million, and $838.0 million for the years ended December 31, 2024, 2023, and 2022, respectively.
In the most recent quarter (Q4 2024), Viper Energy reported revenue of $228.5 million, an 11.7% increase compared to Q4 2023. Net income for the quarter was $210.1 million, representing a 2.7% increase from the same period in the previous year.
Viper Energy's royalty income increased by $136.5 million or 19% in 2024 compared to 2023, driven by a 27% increase in production volumes partially offset by lower commodity prices. Depletion expense increased by $68.3 million in 2024 primarily due to the growth in production volumes and an increase in the depletion rate to $11.77 per BOE.
The company recorded an income tax benefit of $99.7 million in 2024, compared to an income tax expense of $46.0 million in 2023, primarily due to the release of its remaining $155.9 million valuation allowance on deferred tax assets. As of December 31, 2024, Viper had a net deferred tax asset of $184.8 million.
Liquidity
Importantly, Viper Energy has maintained a disciplined approach to capital allocation, with a focus on prudent balance sheet management and returning capital to shareholders. As of December 31, 2024, the company had total debt of $1.08 billion and a net debt to EBITDA ratio of 1.3x, providing ample financial flexibility to pursue strategic growth opportunities. In line with its commitment to shareholder returns, Viper Energy paid total dividends of $1.94 per share in 2024, consisting of a base dividend and a variable component tied to the company's free cash flow generation.
Viper Energy maintained a conservative capital structure, exiting 2024 with $26.9 million in cash and $989.0 million of availability under its revolving credit facility. The company's debt-to-equity ratio stood at 0.64, while its current ratio and quick ratio were both 4.89, indicating strong short-term liquidity. Viper Energy paid total dividends of $481.0 million to shareholders and the Operating Company's unitholders during 2024.
Future Growth Prospects
Looking ahead, Viper Energy's growth trajectory appears poised to accelerate further. In January 2025, the company announced a transformative $4.45 billion drop-down transaction with Diamondback, which will significantly expand its mineral and royalty interest footprint in the Permian Basin. Upon completion of this deal, expected in the second quarter of 2025, Viper Energy will own an interest in approximately 75% of Diamondback's expected completions over the next five years, with an average net revenue interest of 6%.
This strategic acquisition, coupled with the company's ongoing organic growth driven by Diamondback's development activities, positions Viper Energy for continued outperformance. The company's management team has articulated a clear vision to leverage its unique positioning as a Permian-focused mineral and royalty interests platform, with a stated goal of becoming the consolidator of choice in this highly fragmented market.
Viper Energy has provided guidance for the near future, expecting average daily production of 30,000 to 31,000 barrels of oil per day in Q1 2025. Upon closing of the drop-down transaction expected in Q2 2025, they anticipate a run rate daily average oil production of 48,000 barrels of oil per day. Looking further ahead to 2026, Diamondback-operated production is expected to increase to approximately 31,000 barrels per day, up from approximately 27,000 barrels per day in 2025. This 2026 production growth does not take into account any expected accelerated development of Diamondback's Southern Midland Basin acreage.
Additionally, Viper Energy expects at least $50 million of upside to their cash flow in 2026 at $70 oil from the Carty transaction with Double Eagle, with the potential for this number to grow further in the coming years.
Acquisitions and Divestitures
During 2024, Viper completed several acquisitions of mineral and royalty interests, including the Tumbleweed Acquisitions in September and October 2024 for a total purchase price of approximately $654.3 million. The Tumbleweed Acquisitions represented approximately 3,070 net royalty acres located primarily in the Permian Basin.
Viper also divested all of its non-Permian assets in the second quarter of 2024 for a purchase price of approximately $87.2 million. The divested properties consisted of approximately 2,710 net royalty acres with current production of approximately 450 barrels of oil per day.
After the Morita Ranches Acquisition completed in February 2025 and the pending Endeavor Mineral and Royalty Interests acquisition, Viper's total mineral and royalty interests footprint increased to approximately 60,210 net royalty acres, with 59% operated by Diamondback.
Reserves and Production
At December 31, 2024, Viper's estimated proved oil and natural gas reserves totaled 195.87 million BOE, with approximately 84% classified as proved developed producing reserves. Proved undeveloped reserves included in this estimate were from 837 gross horizontal well locations. Viper's proved reserves were approximately 48% oil, 27% natural gas liquids, and 25% natural gas.
As of the end of 2024, there were 14,710 gross productive wells on Viper's acreage, 3,710 of which were operated by Diamondback.
Risks and Considerations
Risks to Viper Energy's investment thesis include volatile commodity prices, potential regulatory changes impacting oil and gas operations, and the company's reliance on Diamondback as its primary operator. However, the company's proven ability to navigate industry cycles, its strong financial profile, and the inherent advantages of its business model suggest that Viper Energy is well-equipped to continue delivering value for its shareholders.
Conclusion
Overall, Viper Energy's compelling combination of organic growth, strategic acquisitions, and shareholder-friendly capital allocation makes it a compelling proposition for investors seeking exposure to the vibrant Permian Basin energy landscape. As the company continues to solidify its position as a leading mineral and royalty interests player, its long-term growth prospects remain promising. With a clear focus on the Permian Basin, a strong relationship with Diamondback Energy, and a robust pipeline of growth opportunities, Viper Energy is well-positioned to capitalize on the ongoing development of one of North America's most prolific oil and gas regions.