Viper Energy Partners LP (NASDAQ:VNOM) ("Viper" or the "Company"), a subsidiary of Diamondback Energy, Inc. (NASDAQ:FANG) ("Diamondback"), today announced financial and operating results for the second quarter ended June 30, 2020.
SECOND QUARTER HIGHLIGHTS
-- Q2 2020 consolidated net loss (including non-controlling interest) of $(33.1) million; adjusted net loss (as defined and reconciled below) of $(4.2) million
-- Consolidated Adjusted EBITDA (as defined and reconciled below) of $26.6 million and cash available for distribution to Viper's common limited partner units (as reconciled below) of $8.1 million
-- Q2 2020 average production of 14,453 bo/d (24,508 boe/d), an increase of 9% from Q2 2019 average daily oil production
-- Q2 2020 cash distribution of $0.03 per common unit
-- Due to the current uncertainty in the commodity markets, Viper has temporarily reduced its distribution to approximately 25% of cash available for distribution with the retained cash flow expected to be used to strengthen the balance sheet; the Board of Directors of Viper's General Partner reviews the distribution policy quarterly
-- 134 total gross (2.4 net 100% royalty interest) horizontal wells turned to production on Viper's acreage during Q2 2020 with an average lateral length of 8,648 feet
-- Initiating average production guidance for Q3 2020 and Q4 2020 of 14,750 to 16,000 bo/d (24,500 to 26,500 boe/d), the midpoint of which is up 6% from Q2 2020 average daily oil production
-- Narrowing full year 2020 average production guidance to 15,250 to 16,000 bo/d (25,250 to 26,250 boe/d)
-- As of July 14, 2020, there were approximately 485 gross horizontal wells currently in the process of active development on Viper's acreage, in which Viper expects to own an average 1.7% net royalty interest (8.1 net 100% royalty interest wells)
-- Approximately 440 gross (8.8 net 100% royalty interest) line-of-sight wells that are not currently in the process of active development, but for which we have visibility to the potential of future development in coming quarters, based on Diamondback's current completion schedule and third party operators' permits
-- Q1 2020 and Q2 2020 distributions reasonably estimated to not constitute dividends for U.S. federal income tax purposes; instead should generally constitute non-taxable reductions to the tax basis
"Viper's production in the second quarter was supported by 14 of Diamondback's 15 completions in the quarter having more than an 8% average royalty interest net to Viper, as third party activity was minimal and some operators curtailed existing production. Looking ahead to the second half of 2020, we expect Viper's production to grow sequentially through the end of the year supported by Diamondback's completion schedule which is focused on areas where Viper has significant mineral ownership, primarily in the Midland Basin. This activity should lead to strong fourth quarter 2020 exit rate production and demonstrates the differentiated relationship between Diamondback and Viper versus other mineral and royalty peers," stated Travis Stice, Chief Executive Officer of Viper's general partner.
Viper's second quarter 2020 average realized prices were $21.00 per barrel of oil, $0.46 per Mcf of natural gas and $7.69 per barrel of natural gas liquids, resulting in a total equivalent realized price of $14.55/boe.
During the second quarter of 2020, the Company recorded total operating income of $32.7 million and consolidated net loss (including non-controlling interest) of $(33.1) million.
As of June 30, 2020, the Company had a cash balance of $9.7 million and $426.5 million available under its revolving credit facility. During the second quarter, the Company repurchased $14.1 million of the outstanding principal of its 5.375% Senior Notes due 2027 (the "Notes) at a 1.5% to 2.5% discount to par value. Subsequent to the end of the second quarter, Viper has repurchased an additional $6.0 million of the outstanding notes at a 1.5% discount to par value. The aggregate repurchases brought the total outstanding principal amount of Notes down to $479.9 million as of July 23, 2020.
SECOND QUARTER 2020 CASH DISTRIBUTION
The Board of Directors of Viper's General Partner (the "Board") declared a cash distribution for the three months ended June 30, 2020 of $0.03 per common unit. The distribution is payable on August 20, 2020 to eligible common unitholders of record at the close of business on August 13, 2020. This distribution represents approximately 25% of total cash available for distribution with the remaining available cash flow from the second quarter of 2020 expected to be used to strengthen the Company's balance sheet. The Board reviews Viper's distribution policy quarterly.
On May 21, 2020, Viper made a cash distribution to its unitholders and subsequently has reasonably estimated that such distribution, as well as the distribution payable on August 20, 2020, should not constitute dividends for U.S. federal income tax purposes. Rather, these distributions should generally constitute non-taxable reductions to the tax basis of each distribution recipient's ownership interest in Viper. The Form 8937 containing additional information may be found on www.viperenergy.com under the "Investor Relations" section of the site.
OPERATIONS AND ACQUISITIONS UPDATE
During the second quarter 2020, there was limited completion activity on our mineral and royalty acreage as our operators reacted quickly to oil price volatility by cutting capital expenditures and mostly ceasing completion activity. As a result, during the second quarter, Viper estimates that 134 gross (2.4 net 100% royalty interest) horizontal wells with an average royalty interest of 1.8% were turned to production on its existing acreage position with an average lateral length of 8,648 feet. Of these 134 gross wells, Diamondback is the operator of 14 with an average royalty interest of 8.4%, and the remaining 120 gross wells, with an average royalty interest of 1.1%, are operated by third parties.
During the second quarter of 2020, Viper did not complete any acquisitions, leaving its footprint of mineral and royalty interests at a total of 24,714 net royalty acres.
The following table summarizes Viper's gross well information as of July 14, 2020:
As of July 14, 2020 Diamondback Operated Third Party Operated Total Horizontal wells turned to production: Gross wells 14 120 134 Net 100% royalty interest wells 1.2 1.3 2.4 Average percent net royalty interest 8.4% 1.1% 1.8% Horizontal producing well count: Gross wells 1,079 3,401 4,480 Net 100% royalty interest wells 84.4 51.8 136.2 Average percent net royalty interest 7.8% 1.5% 3.0% Horizontal active development well count: Gross wells 66 419 485 Net 100% royalty interest wells 5.2 2.9 8.1 Average percent net royalty interest 7.9% 0.7% 1.7% Line of sight wells: Gross wells 74 366 440 Net 100% royalty interest wells 4.3 4.5 8.8 Average percent net royalty interest 5.8% 1.2% 2.0%
Despite the continued depressed commodity price environment, there continues to be active development across Viper's asset base, however, near-term activity is expected to be driven primarily by Diamondback operations. The 485 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. The 440 line-of-sight wells are those that are not currently in the process of active development, but for which Viper has 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 current depressed oil prices.
Below is Viper's revised guidance for the full year 2020, as well as average production guidance for Q3 2020 and Q4 2020.
Viper Energy Partners Q3 2020 / Q4 2020 Net Production - MBo/d 14.75 - 16.00 Q3 2020 / Q4 2020 Net Production - MBoe/d 24.50 - 26.50 Full Year 2020 Net Production - MBo/d 15.25 - 16.00 Full Year 2020 Net Production - MBoe/d 25.25 - 26.25 Unit costs ($/boe) Depletion $9.50 - $11.50 Cash G&A $0.60 - $0.80 Non-Cash Unit-Based Compensation $0.10 - $0.25 Interest Expense (a) $3.25 - $3.75 Production and Ad Valorem Taxes (% of Revenue) (b) 7% - 8%
Assumes 1H2020 actual interest expense plus interest expense for the remainder of 2020 assuming $480mm in principal of Sr. Notes and $155mm drawn on the revolver.
Includes production taxes of 4.6% for crude oil and 7.5% for natural gas and NGLs and ad valorem taxes.
Viper will host a conference call and webcast for investors and analysts to discuss its results for the second quarter of 2020 on Tuesday, August 4, 2020 at 10:00 a.m. CT. Participants should call (844) 400-1537 (United States/Canada) or (703) 326-5198 (International) and use the confirmation code 6714088. A telephonic replay will be available from 1:00 p.m. CT on Tuesday, August 4, 2020 through Tuesday, August 11, 2020 at 1:00 p.m. CT. To access the replay, call (855) 859-2056 (United States/Canada) or (404) 537-3406 (International) and enter confirmation code 6714088. A live broadcast of the earnings conference call will also be available via the internet at www.viperenergy.com under the "Investor Relations" section of the site. A replay will also be available on the website following the call.
About Viper Energy Partners LP
Viper is a limited partnership formed by Diamondback to own, acquire and exploit oil and natural gas properties in North America, with a focus on owning and acquiring mineral and royalty interests in oil-weighted basins, primarily the Permian Basin and the Eagle Ford Shale. For more information, please visit www.viperenergy.com.
About Diamondback Energy, Inc.
Diamondback is an independent oil and natural gas company headquartered in Midland, Texas focused on the acquisition, development, exploration and exploitation of unconventional, onshore oil and natural gas reserves in the Permian Basin in West Texas. For more information, please visit www.diamondbackenergy.com.
This news release contains forward-looking statements within the meaning of the federal securities laws. All statements, other than historical facts, that address activities that Viper assumes, plans, expects, believes, intends or anticipates (and other similar expressions) will, should or may occur in the future are forward-looking statements. The forward-looking statements are based on management's current beliefs, based on currently available information, as to the outcome and timing of future events, including specifically the statements regarding the current adverse industry and macroeconomic conditions, depressed commodity prices, production levels on properties in which Viper has mineral and royalty interests, any potential regulatory action that may impose production limits on Viper's royalty acreage, the recent acquisitions, Diamondback's plans for the acreage discussed above, development activity by other operators, Viper's cash distribution policy and the impact of the ongoing COVID-19 pandemic. These forward-looking statements involve certain risks and uncertainties that could cause the results to differ materially from those expected by the management of Viper. Information concerning these risks and other factors can be found in Viper's filings with the Securities and Exchange Commission, including its Forms 10-K, 10-Q and 8-K, which can be obtained free of charge on the Securities and Exchange Commission's web site at http://www.sec.gov. Viper undertakes no obligation to update or revise any forward-looking statement.
Viper Energy Partners LP Consolidated Balance Sheets (unaudited, in thousands, except unit amounts) June 30, December 31, 2020 2019 Assets Current assets: Cash and cash equivalents $ 9,663 $ 3,602 Royalty income receivable (net of allowance for credit losses) 32,118 58,089 Royalty income receivable--related party 917 10,576 Other current assets 482 397 Total current assets 43,180 72,664 Property: Oil and natural gas interests, full cost method of accounting ($1,480,346 and $1,551,767 excluded from depletion at June 30, 2020 and December 31, 2019, respectively) 2,933,731 2,868,459 Land 5,688 5,688 Accumulated depletion and impairment (373,898 ) (326,474 ) Property, net 2,565,521 2,547,673 Deferred tax asset (net of allowance) -- 142,466 Other assets 15,572 22,823 Total assets $ 2,624,273 $ 2,785,626 Liabilities and Unitholders' Equity Current liabilities: Accounts payable $ 11 $ -- Accounts payable--related party -- 150 Accrued liabilities 12,439 13,282 Derivative instruments 33,956 -- Total current liabilities 46,406 13,432 Long-term debt, net 630,507 586,774 Derivative instruments 5,875 -- Total liabilities 682,788 600,206 Commitments and contingencies Unitholders' equity: General partner 849 889 Common units (67,831,342 units issued and outstanding as of June 30, 2020 and 67,805,707 units issued and outstanding as of December 31, 2019) 728,149 929,116 Class B units (90,709,946 units issued and outstanding June 30, 2020 and December 31, 2019) 1,080 1,130 Total Viper Energy Partners LP unitholders' equity 730,078 931,135 Non-controlling interest 1,211,407 1,254,285 Total equity 1,941,485 2,185,420 Total liabilities and unitholders' equity $ 2,624,273 $ 2,785,626
Viper Energy Partners LP Consolidated Statements of Operations (unaudited, in thousands, except per unit data) Three Months Ended June 30, Six Months Ended June 30, 2020 2019 2020 2019 Operating income: Royalty income $ 32,444 $ 70,442 $ 109,273 $ 130,870 Lease bonus income 23 1,749 1,645 2,909 Other operating income 202 3 443 5 Total operating income 32,669 72,194 111,361 133,784 Costs and expenses: Production and ad valorem taxes 3,110 4,389 9,257 8,081 Depletion 22,782 16,512 47,424 32,711 General and administrative expenses 1,683 1,723 4,349 3,418 Total costs and expenses 27,575 22,624 61,030 44,210 Income from operations 5,094 49,570 50,331 89,574 Other income (expense): Interest expense, net (7,669 ) (2,713 ) (16,632 ) (7,262 ) Loss on derivative instruments, net (34,443 ) -- (42,385 ) -- Gain (loss) on revaluation of investment 3,443 50 (6,677 ) 3,642 Other income, net 519 547 923 1,203 Total other expense, net (38,150 ) (2,116 ) (64,771 ) (2,417 ) (Loss) income before income taxes (33,056 ) 47,454 (14,440 ) 87,157 Provision for (benefit from) income taxes -- 180 142,466 (34,428 ) Net (loss) income (33,056 ) 47,274 (156,906 ) 121,585 Net (loss) income attributable to non-controlling interest (11,304 ) 45,009 7,015 85,541 Net (loss) income attributable to Viper Energy Partners LP $ (21,752 ) $ 2,265 $ (163,921 ) $ 36,044 Net (loss) income attributable to common limited partner units: Basic $ (0.32 ) $ 0.04 $ (2.42 ) $ 0.61 Diluted $ (0.32 ) $ 0.04 $ (2.42 ) $ 0.61 Weighted average number of common limited partner units outstanding: Basic 67,831 62,628 67,827 59,058 Diluted 67,831 62,664 67,827 59,094
Viper Energy Partners LP Consolidated Statements of Cash Flows (unaudited, in thousands) Six Months Ended June 30, 2020 2019 Cash flows from operating activities: Net (loss) income $ (156,906 ) $ 121,585 Adjustments to reconcile net (loss) income to net cash provided by operating activities: Provision for (benefit from) income taxes 142,466 (34,536 ) Depletion 47,424 32,711 Loss on derivative instruments, net 42,385 -- Net cash payments on derivatives (2,554 ) -- Gain on extinguishment of debt (14 ) -- Loss (gain) on revaluation of investment 6,677 (3,642 ) Amortization of debt issuance costs 1,152 441 Non-cash unit-based compensation 670 877 Changes in operating assets and liabilities: Royalty income receivable, net 25,971 (7,996 ) Royalty income receivable--related party 9,659 (5,549 ) Accounts payable and accrued liabilities (832 ) (2,238 ) Accounts payable--related party (150 ) -- Income tax payable -- 108 Other current assets (85 ) (41 ) Net cash provided by operating activities 115,863 101,720 Cash flows from investing activities: Acquisitions of oil and natural gas interests (65,272 ) (125,231 ) Funds held in escrow -- (13,215 ) Net cash used in investing activities (65,272 ) (138,446 ) Cash flows from financing activities: Proceeds from borrowings under credit facility 92,000 171,000 Repayment on credit facility (35,000 ) (369,500 ) Debt issuance costs (44 ) (258 ) Repayment of senior notes (13,787 ) -- Proceeds from public offerings -- 340,860 Public offering costs -- (221 ) Units purchased for tax withholding (383 ) (353 ) Distributions to General Partner (40 ) (40 ) Distributions to public (36,928 ) (49,491 ) Distributions to Diamondback (50,348 ) (65,143 ) Net cash (used in) provided by financing activities (44,530 ) 26,854 Net increase (decrease) in cash 6,061 (9,872 ) Cash and cash equivalents at beginning of period 3,602 22,676 Cash and cash equivalents at end of period $ 9,663 $ 12,804 Supplemental disclosure of cash flow information: Interest paid $ 17,918 $ 2,382
Viper Energy Partners LP Selected Operating Data (unaudited) Three Months Ended Three Months Ended Three Months Ended June 30, 2020 March 31, 2020 June 30, 2019 Production Data: Oil (MBbls) 1,315 1,587 1,202 Natural gas (MMcf) 2,685 2,658 1,640 Natural gas liquids (MBbls) 467 479 308 Combined volumes (MBOE) 2,230 2,509 1,783 Average daily oil volumes (BO/d) 14,453 17,441 13,205 Average daily combined volumes (BOE/d) 24,508 27,575 19,597 Average sales prices: Oil ($/Bbl) $ 21.00 $ 45.49 $ 54.81 Natural gas ($/Mcf) $ 0.46 $ 0.13 $ (0.65 ) Natural gas liquids ($/Bbl) $ 7.69 $ 8.94 $ 18.33 Combined ($/BOE) $ 14.55 $ 30.62 $ 39.50 Oil, hedged ($/Bbl) $ 22.39 $ 45.49 $ 54.81 Natural gas, hedged ($/Mcf) $ (1.01 ) $ (0.04 ) $ (0.65 ) Natural gas liquids ($/Bbl) $ 7.69 $ 8.94 $ 18.33 Combined price, hedged ($/BOE) $ 13.60 $ 30.44 $ 39.50 Average Costs ($/BOE): Production and ad valorem taxes $ 1.39 $ 2.45 $ 2.46 General and administrative - cash component 0.63 0.91 0.70 Total operating expense - cash $ 2.02 $ 3.36 $ 3.16 General and administrative - non-cash component $ 0.13 $ 0.15 $ 0.26 Interest expense, net $ 3.44 $ 3.57 $ 1.52 Depletion $ 10.21 $ 9.82 $ 9.26
Bbl equivalents are calculated using a conversion rate of six Mcf per one Bbl.
Realized price net of all deducts for gathering, transportation and processing.
Hedged prices reflect the effect of our matured commodity derivative transactions on our average sales prices. Our calculation of such effects includes realized gains and losses on cash settlements for commodity derivatives, which we do not designate for hedge accounting. We did not have any derivative contracts prior to February of 2020.
NON-GAAP FINANCIAL MEASURES
Adjusted EBITDA is a supplemental non-GAAP financial measure that is used by management and external users of our financial statements, such as industry analysts, investors, lenders and rating agencies. Viper defines Adjusted EBITDA as net income (loss) plus interest expense, net, non-cash unit-based compensation expense, depletion, loss (gain) on revaluation of investments, non-cash loss (gain) on derivative instruments, gain on extinguishment of debt and provision for (benefit from) income taxes. Adjusted EBITDA is not a measure of net income as determined by United States' generally accepted accounting principles ("GAAP"). Management believes Adjusted EBITDA is useful because it allows them to more effectively evaluate Viper's operating performance and compare the results of its operations from period to period without regard to its financing methods or capital structure. Adjusted EBITDA should not be considered as an alternative to, or more meaningful than, net income, royalty income, cash flow from operating activities or any other measure of financial performance or liquidity presented as determined in accordance with GAAP. Certain items excluded from Adjusted EBITDA are significant components in understanding and assessing a company's financial performance, such as a company's cost of capital and tax structure, as well as the historic costs of depreciable assets, none of which are components of Adjusted EBITDA. Viper defines cash available for distribution generally as an amount equal to its 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 Viper's general partner may deem appropriate, common units repurchased for tax withholding, dividend equivalent rights and preferred distributions. Viper's computations of Adjusted EBITDA and cash available for distribution may not be comparable to other similarly titled measures of other companies or to such measure in its credit facility or any of its other contracts.
The following tables present a reconciliation of the non-GAAP financial measures of Adjusted EBITDA and cash available for distribution to the GAAP financial measure of net loss.
Viper Energy Partners LP (unaudited, in thousands, except per unit data) Three Months Ended June 30, 2020 Net loss $ (33,056 ) Interest expense, net 7,669 Non-cash unit-based compensation expense 283 Depletion 22,782 Gain on revaluation of investment (3,443 ) Non-cash loss on derivative instruments, net 32,342 Gain on extinguishment of debt (14 ) Consolidated Adjusted EBITDA 26,563 Less: Adjusted EBITDA attributable to non-controlling interest 15,198 Adjusted EBITDA attributable to Viper Energy Partners LP $ 11,365 Adjustments to reconcile Adjusted EBITDA to cash available for distribution: Debt service, contractual obligations, fixed charges and reserves $ (3,261 ) Units - dividend equivalent rights (4 ) Preferred distributions (45 ) Cash available for distribution to Viper Energy Partners LP unitholders $ 8,055 Common limited partner units outstanding 67,831 Cash available for distribution per limited partner unit $ 0.12 Cash per unit approved for distribution $ 0.03
Adjusted net (loss) income is a non-GAAP financial measure equal to net income attributable to Viper adjusted for non-cash loss (gain) on derivative instruments, (gain) loss on revaluation of investments, gain on extinguishment of debt, valuation for deferred tax asset and related income tax adjustments. The Company's computation of adjusted net income may not be comparable to other similarly titled measures of other companies or to such measure in our credit facility or any of our other contracts.
The following table presents a reconciliation of adjusted net loss to net (loss) income:
Viper Energy Partners LP Adjusted Net Income (Loss) (unaudited, in thousands, except per unit data) Three Months Ended June 30, 2020 Net loss $ (33,056 ) Non-cash loss on derivative instruments, net 32,342 Gain on revaluation of investments (3,443 ) Gain on extinguishment of debt (14 ) Adjusted net loss (4,171 ) Less: Adjusted net loss attributed to non-controlling interests (1,341 ) Adjusted net loss attributable to Viper Energy Partners LP $ (2,830 ) Adjusted net loss attributable to limited partners per common unit $ (0.04 )
As of the filing date, the Company had the following outstanding derivative contracts. The Company's derivative contracts are based upon reported settlement prices on commodity exchanges, with crude oil derivative settlements based on New York Mercantile Exchange West Texas Intermediate pricing and Crude Oil Brent and with natural gas derivative settlements based on the New York Mercantile Exchange Henry Hub pricing. When aggregating multiple contracts, the weighted average contract price is disclosed.
Crude Oil (Bbls/day, $/Bbl) Q3 2020 Q4 2020 FY 2021 Swaps - WTI (Cushing) 1,000 1,000 -- $ 27.45 $ 27.45 $ -- Collars - WTI (Cushing) 14,000 14,000 10,000 Floor Price $ 28.86 $ 28.86 $ 30.00 Ceiling Price $ 32.33 $ 32.33 $ 43.05 Deferred Premium Call Options - WTI (Cushing) -- 8,000 -- Premium $ -- $ (1.89 ) $ -- Strike Price ($/Bbl) $ -- $ 45.00 $ -- Basis Swaps - WTI (Midland-Cushing) 4,000 4,000 -- $ (2.60 ) $ (2.60 ) $ --
Natural Gas (Mmbtu/day, $/Mmbtu) Q3 2020 Q4 2020 FY 2021 Natural Gas Basis Swaps - Waha Hub 25,000 25,000 -- $ (2.07 ) $ (2.07 ) $ --
Source: Viper Energy Partners LP; Diamondback Energy, Inc.