Viper Energy Partners to acquire major mineral interests in $750m deal to boost production and returns
Viper Energy Partners LP (NASDAQ:VNOM), a subsidiary of Diamondback Energy, Inc. (NASDAQ:FANG), has entered into a definitive agreement to acquire valuable mineral and royalty interests from affiliates of Warwick Capital Partners and GRP Energy Capital. The acquisition includes approximately 7,300 net royalty acres, most notably 4,600 acres in the oil-rich Permian Basin. Funded by a mix of 9.02 million Viper common units and $750 million in cash, the deal promises immediate and future accretion to key financial metrics.
Acquisition Highlights: Focusing on Permian Basin and Increased Production
The transaction features 4,600 net royalty acres in the Permian Basin, which comprises over 90% of the current production and total deal value. This acquisition is expected to boost Viper Energy Partners’ current production from 4,000 bo/d (~7,000 boe/d) to an estimated 4,750 bo/d (~8,500 boe/d) by 2024. It also implies a greater than 15% 2024 unlevered free cash flow yield, enhancing Viper Energy Partners’ pro forma 2024 per unit return of capital to unitholders by an estimated 7-8%.
Financing the Deal: Diamondback’s Equity and Multiple Funding Avenues
Diamondback Energy has granted Viper Energy Partners the right to leverage up to $200 million in committed equity to partially finance the transaction. The remaining cash portion will be financed through a combination of cash reserves, credit facilities, and possibly capital market transactions like a bond offering, all subject to market conditions. The deal is set to close by mid-Q4 2023, with an effective date of October 1, 2023.
Long-term Growth and Market Consolidation: CEO Comments
Travis Stice, CEO of Viper Energy Partners’ General Partner, emphasized the deal’s value proposition for Viper and its unitholders, stating that it offers an “unparalleled growth runway” as undeveloped units are turned into production in coming years. Ken Willey, CEO of GRP Energy Capital, and Alfredo Mattera, Co-Founder & Managing Partner at Warwick Capital Partners, also endorsed the transaction, praising the asset’s quality and scale.
Leverage and Commitment to Unitholders
The transaction is expected to place Viper Energy Partners’ leverage at around 1.3x by the end of 2023, based on estimated pro forma Q4 2023 annualized EBITDA. The company still plans to maintain its commitment to return 75% of available cash for distribution to its unitholders.
With this acquisition, Viper Energy Partners not only increases its hold on the lucrative Permian Basin but also secures a strong financial future, promising both immediate and long-term accretion in key financial metrics. The deal places Viper in a strong position for market consolidation, ensuring high returns and sustained growth in the fragmented mineral market.