Diamondback Energy's Subsidiary Plans To Buy Stake In Permian Basin & More, Provides FY24 Outlook

Viper Energy Partners LP VNOM, a subsidiary of Diamondback Energy Inc FANG, disclosed a purchase and sale deal to acquire certain mineral and royalty interests from affiliates of Warwick Capital Partners and GRP Energy Capital.

The transaction is valued at $750 million of cash and around 9.02 million VNOM common units, with the valuation implying a more than 15% FY24 unlevered FCF yield at current strip prices.

The company expects to fund the cash portion of this transaction from cash balance, borrowings under its credit facility, and up to $200 million of committed equity from FANG.

The buyout includes about 4,600 net royalty acres in the Permian Basin and an additional ~2,700 in other major basins, totaling the acreage to roughly 7,300 net royalty acres. 

The transaction is effective October 1, 2023, and is projected to close by mid-Q4 FY23, subject to customary closing conditions.

"In addition to the immediate financial accretion, this deal sets Viper up with an unparalleled growth runway as highly concentrated undeveloped units are turned to production over the coming years. Pro forma for this transaction, Viper will own roughly 32,000 net royalty acres in the Permian Basin, and we believe the high quality nature of our assets will position us to capture an increasing amount of activity, particularly within the Northern Midland Basin, going forward. As we look ahead, the mineral market remains highly fragmented and Viper plans to play a meaningful role in consolidating this market as high value proposition opportunities present themselves," stated Travis Stice, CEO of Viper's General Partner.

Synergies: VNOM expects the production to increase to ~4,750 bo/d (~8,500 boe/d) for 2024 (vs. current production of about 4,000 bo/d (~7,000 boe/d)).

The company expects pro forma 2024 per unit return of capital to unitholders to boost by around 7%-8%.

Outlook: VNOM provided FY24 preliminary guidance, expecting average daily production guidance of 25,500 to 27,500 bo/d (44,500 to 48,000 boe/d), the midpoint 25% higher than Q2 FY23 average daily oil production of 21,143 bo/d (37,681 boe/d).

As of June 30, 2023, VNOM had a cash balance of $13.1 million, and Diamondback had $5 million in standalone cash and $343 million of borrowings outstanding under its revolving credit facility.

Price Action: VNOM shares are trading higher by 1.59% at $28.80, and FANG shares are up 0.51% at $155.46 on the last check Tuesday.