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Viper Energy Partners LP, A Subsidiary of Diamondback Energy, Inc., Reports First Quarter 2020 Financial and Operating Results
FIRST QUARTER HIGHLIGHTS
- Q1 2020 cash distribution of
$0.10 per common unit; implies a 4.7% annualized yield based on theMay 1, 2020 unit closing price of$8.60 - Due to the current uncertainty in the commodity markets, Viper is temporarily reducing its distribution policy to 25% of cash available for distribution from 100% previously with retained cash flow expected to be used to strengthen the balance sheet; the Board of Directors of Viper’s
General Partner intends to review this distribution policy quarterly - Q1 2020 consolidated net loss (including non-controlling interest) of
$(123.9) million including a$142.5 million reduction of the Company’s deferred tax asset; adjusted net income (as defined and reconciled below) of$14.2 million - Consolidated adjusted EBITDA (as defined and reconciled below) of
$70.2 million and cash available for distribution to Viper’s common limited partner units (as reconciled below) of$26.2 million - Q1 2020 average production of 17,441 bo/d (27,575 boe/d), an increase of 6% from Q4 2019 average daily oil production
- 192 total gross (4.6 net 100% royalty interest) horizontal wells turned to production on Viper’s acreage during Q1 2020 with an average lateral length of 9,306 feet
- Closed 35 acquisitions for an aggregate purchase price of approximately
$63.4 million in Q1 2020, increasing Viper’s mineral and royalty interests to a total of 24,714 net royalty acres atMarch 31, 2020 - Initiating average production guidance for Q2 2020 and Q3 2020 of 13,500 to 15,000 bo/d (22,000 to 24,500 boe/d)
- Reaffirming previously revised full year 2020 average production guidance of 14,000 to 17,000 bo/d (22,500 to 27,000 boe/d)
- As of
April 22, 2020 , there were approximately 569 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 (9.5 net 100% royalty interest wells) - Approximately 429 gross (8.2 net 100% royalty interest) line-of-sight wells which have not yet begun 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
- Q4 2019 and Q1 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
“First of all, and most importantly, our thoughts and prayers go out to all of those affected by the COVID-19 pandemic. The first half of 2020 will be in the history books forever, for all of the wrong reasons, but our business must go on and we have taken swift and decisive action to adapt to rapidly changing circumstances and preserve our strength through this cycle,” stated
FINANCIAL UPDATE
Viper’s first quarter 2020 average realized prices were
During the first quarter of 2020, the Company recorded total operating income of
As of
FIRST QUARTER 2020 CASH DISTRIBUTION
The Board of Directors of Viper’s
On
OPERATIONS AND ACQUISITIONS UPDATE
During the first quarter 2020, Viper estimates that 192 gross (4.6 net 100% royalty interest) horizontal wells with an average royalty interest of 2.4% had been turned to production on its existing acreage position with an average lateral length of 9,306 feet. Of these 192 gross wells, Diamondback is the operator of 78 with an average royalty interest of 3.8%, and the remaining 114 gross wells, which had an average royalty interest of 1.4%, are operated by third parties.
Additionally, during the first quarter of 2020, Viper acquired 410 net royalty acres for an aggregate purchase price of approximately
In total, as of
GUIDANCE UPDATE
Below is Viper’s revised guidance for the full year 2020, as well as average production guidance for Q2 2020 and Q3 2020. Given the recent extreme weakness in commodity prices and forward pricing uncertainty, the Company’s current 2020 production guidance does not account for the potential effect of further production curtailments.
Q2 2020 / Q3 2020 Net Production - MBo/d | 13.5 - 15.0 | |
Q2 2020 / Q3 2020 Net Production - MBoe/d | 22.0 - 24.5 | |
Full Year 2020 Net Production - MBo/d | 14.0 - 17.0 | |
Full Year 2020 Net Production - MBoe/d | 22.5 - 27.0 | |
Unit costs ($/boe) | ||
Depletion | ||
Cash G&A | ||
Non-Cash Unit-Based Compensation | ||
Interest Expense (a) | ||
Production and Ad Valorem Taxes (% of Revenue) (b) | 7% |
(a) Assumes Q1 actual interest expense plus interest expense for the remainder of 2020 assuming $500mm in principal of Sr. Notes and $175mm drawn on the revolver.
(b) Includes production taxes of 4.6% for crude oil and 7.5% for natural gas and NGLs and ad valorem taxes.
CONFERENCE CALL
Viper will host a conference call and webcast for investors and analysts to discuss its results for the first quarter of 2020 on
About
Viper is a limited partnership formed by Diamondback to own, acquire and exploit oil and natural gas properties in
About
Diamondback is an independent oil and natural gas company headquartered in
Forward-Looking Statements
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
Consolidated Balance Sheets | ||||||
(unaudited, in thousands, except unit amounts) | ||||||
2020 | 2019 | |||||
Assets | ||||||
Current assets: | ||||||
Cash and cash equivalents | $ | 40,271 | $ | 3,602 | ||
Royalty income receivable (net of allowance for doubtful accounts) | 37,960 | 58,089 | ||||
Royalty income receivable—related party | — | 10,576 | ||||
Derivative instruments | 776 | — | ||||
Other current assets | 334 | 397 | ||||
Total current assets | 79,341 | 72,664 | ||||
Property: | ||||||
Oil and natural gas interests, full cost method of accounting ( |
2,933,085 | 2,868,459 | ||||
Land | 5,688 | 5,688 | ||||
Accumulated depletion and impairment | (351,116 | ) | (326,474 | ) | ||
Property, net | 2,587,657 | 2,547,673 | ||||
Derivative instruments | 62 | — | ||||
Deferred tax asset (net of allowance) | — | 142,466 | ||||
Other assets | 12,421 | 22,823 | ||||
Total assets | $ | 2,679,481 | $ | 2,785,626 | ||
Liabilities and Unitholders’ Equity | ||||||
Current liabilities: | ||||||
Accounts payable | $ | 324 | $ | — | ||
Accounts payable—related party | — | 150 | ||||
Accrued liabilities | 16,623 | 13,282 | ||||
Derivative instruments | 7,362 | — | ||||
Total current liabilities | 24,309 | 13,432 | ||||
Long-term debt, net | 664,040 | 586,774 | ||||
Derivative instruments | 965 | — | ||||
Total liabilities | 689,314 | 600,206 | ||||
Commitments and contingencies | ||||||
Unitholders’ equity: | ||||||
General partner | 869 | 889 | ||||
Common units (67,831,342 units issued and outstanding as of |
756,408 | 929,116 | ||||
Class B units (90,709,946 units issued and outstanding |
1,105 | 1,130 | ||||
758,382 | 931,135 | |||||
Non-controlling interest | 1,231,785 | 1,254,285 | ||||
Total equity | 1,990,167 | 2,185,420 | ||||
Total liabilities and unitholders’ equity | $ | 2,679,481 | $ | 2,785,626 |
Consolidated Statements of Operations | ||||||
(unaudited, in thousands, except per unit data) | ||||||
Three Months Ended |
||||||
2020 | 2019 | |||||
Operating income: | ||||||
Royalty income | $ | 76,829 | $ | 60,428 | ||
Lease bonus income | 1,622 | 1,160 | ||||
Other operating income | 241 | 2 | ||||
Total operating income | 78,692 | 61,590 | ||||
Costs and expenses: | ||||||
Production and ad valorem taxes | 6,147 | 3,692 | ||||
Depletion | 24,642 | 16,199 | ||||
General and administrative expenses | 2,666 | 1,695 | ||||
Total costs and expenses | 33,455 | 21,586 | ||||
Income from operations | 45,237 | 40,004 | ||||
Other income (expense): | ||||||
Interest expense, net | (8,963 | ) | (4,549 | ) | ||
Loss on derivative instruments, net | (7,942 | ) | — | |||
(Loss) gain on revaluation of investment | (10,120 | ) | 3,592 | |||
Other income, net | 404 | 656 | ||||
Total other expense, net | (26,621 | ) | (301 | ) | ||
Income before income taxes | 18,616 | 39,703 | ||||
Expense (benefit) from income taxes | 142,466 | (34,608 | ) | |||
Net (loss) income | (123,850 | ) | 74,311 | |||
Net income attributable to non-controlling interest | 18,319 | 40,532 | ||||
Net (loss) income attributable to |
$ | (142,169 | ) | $ | 33,779 | |
Net (loss) income attributable to common limited partner units: | ||||||
Basic | $ | (2.10 | ) | $ | 0.61 | |
Diluted | $ | (2.10 | ) | $ | 0.61 | |
Weighted average number of common limited partner units outstanding: | ||||||
Basic | 67,822 | 55,448 | ||||
Diluted | 67,823 | 55,475 |
Consolidated Statements of Cash Flows | ||||||
(unaudited, in thousands) | ||||||
Three Months Ended |
||||||
2020 | 2019 | |||||
Cash flows from operating activities: | ||||||
Net (loss) income | $ | (123,850 | ) | $ | 74,311 | |
Adjustments to reconcile net (loss) income to net cash provided by operating activities: | ||||||
Provision for (benefit from) deferred income taxes | 142,466 | (34,655 | ) | |||
Depletion | 24,642 | 16,199 | ||||
Change in fair value of derivative instruments | 7,489 | — | ||||
Loss (gain) on revaluation of investment | 10,120 | (3,592 | ) | |||
Amortization of debt issuance costs | 574 | 216 | ||||
Non-cash unit-based compensation | 387 | 405 | ||||
Changes in operating assets and liabilities: | ||||||
Royalty income receivable | 20,129 | 740 | ||||
Royalty income receivable—related party | 10,576 | (3,887 | ) | |||
Accounts payable and accrued liabilities | 3,665 | (3,289 | ) | |||
Accounts payable—related party | (150 | ) | — | |||
Income tax payable | — | 47 | ||||
Other current assets | 63 | (44 | ) | |||
Net cash provided by operating activities | 96,111 | 46,451 | ||||
Cash flows from investing activities: | ||||||
Acquisitions of oil and natural gas interests | (64,626 | ) | (81,923 | ) | ||
Net cash used in investing activities | (64,626 | ) | (81,923 | ) | ||
Cash flows from financing activities: | ||||||
Proceeds from borrowings under credit facility | 92,000 | 59,500 | ||||
Repayment on credit facility | (15,000 | ) | (313,500 | ) | ||
Debt issuance costs | (26 | ) | (50 | ) | ||
Proceeds from public offerings | — | 340,860 | ||||
Public offering costs | — | (212 | ) | |||
Units purchased for tax withholding | (383 | ) | (353 | ) | ||
Distributions to |
(20 | ) | (20 | ) | ||
Distributions to public | (30,214 | ) | (25,970 | ) | ||
Distributions to Diamondback | (41,173 | ) | (37,326 | ) | ||
Net cash provided by financing activities | 5,184 | 22,929 | ||||
Net increase (decrease) in cash | 36,669 | (12,543 | ) | |||
Cash and cash equivalents at beginning of period | 3,602 | 22,676 | ||||
Cash and cash equivalents at end of period | $ | 40,271 | $ | 10,133 | ||
Supplemental disclosure of cash flow information: | ||||||
Interest paid | $ | 1,617 | $ | 4,908 |
Selected Operating Data | |||||||||||
(unaudited) | |||||||||||
Three Months Ended |
Three Months Ended |
Three Months Ended |
|||||||||
Production Data: | |||||||||||
Oil (MBbls) | 1,587 | 1,516 | 1,147 | ||||||||
Natural gas (MMcf) | 2,658 | 2,435 | 1,872 | ||||||||
Natural gas liquids (MBbls) | 479 | 483 | 254 | ||||||||
Combined volumes (MBOE)(1) | 2,509 | 2,405 | 1,714 | ||||||||
Average daily oil volumes (BO/d) | 17,441 | 16,476 | 12,750 | ||||||||
Average daily combined volumes (BOE/d) | 27,575 | 26,137 | 19,042 | ||||||||
Average sales prices: | |||||||||||
Oil ($/Bbl) | $ | 45.49 | $ | 53.90 | $ | 45.31 | |||||
Natural gas ($/Mcf) | $ | 0.13 | $ | 1.29 | $ | 2.05 | |||||
Natural gas liquids ($/Bbl) | $ | 8.94 | $ | 14.53 | $ | 18.09 | |||||
Combined ($/BOE)(2) | $ | 30.62 | $ | 38.20 | $ | 35.26 | |||||
Oil, hedged ($/Bbl)(3) | $ | 45.49 | $ | 53.90 | $ | 45.31 | |||||
Natural gas, hedged ($/MMbtu)(3) | $ | (0.04 | ) | $ | 1.29 | $ | 2.05 | ||||
Natural gas liquids ($/Bbl)(3) | $ | 8.94 | $ | 14.53 | $ | 18.09 | |||||
Combined price, hedged ($/BOE)(3) | $ | 30.44 | $ | 38.20 | $ | 35.26 | |||||
Average Costs ($/BOE): | |||||||||||
Production and ad valorem taxes | $ | 2.45 | $ | 2.60 | $ | 2.15 | |||||
General and administrative - cash component | 0.91 | 0.74 | 0.75 | ||||||||
Total operating expense - cash | $ | 3.36 | $ | 3.34 | $ | 2.90 | |||||
General and administrative - non-cash component | $ | 0.15 | $ | 0.21 | $ | 0.24 | |||||
Interest expense, net | $ | 3.57 | $ | 4.15 | $ | 2.65 | |||||
Depletion | $ | 9.82 | $ | 11.13 | $ | 9.45 |
(1) Bbl equivalents are calculated using a conversion rate of six Mcf per one Bbl.
(2) Realized price net of all deducts for gathering, transportation and processing.
(3) Hedged prices reflect the effect of our 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 and benefit from (provision for) income taxes. Adjusted EBITDA is not a measure of net income as determined by United States’ generally accepted accounting principles, or (“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 income.
(unaudited, in thousands, except per unit data) | |||
Three Months Ended 2020 |
|||
Net (loss) income | $ | (123,850 | ) |
Interest expense, net | 8,963 | ||
Non-cash unit-based compensation expense | 387 | ||
Depletion | 24,642 | ||
(Loss) gain on revaluation of investment | 10,120 | ||
Non-cash loss on derivative instruments, net | 7,489 | ||
Benefit from (provision for) income taxes | 142,466 | ||
Consolidated Adjusted EBITDA | 70,217 | ||
EBITDA attributable to non-controlling interest | (40,175 | ) | |
Adjusted EBITDA attributable to |
$ | 30,042 | |
Adjustments to reconcile Adjusted EBITDA to cash available for distribution: | |||
Income taxes payable | $ | — | |
Debt service, contractual obligations, fixed charges and reserves | (3,383 | ) | |
Units repurchased for tax withholding | (383 | ) | |
Units - dividend equivalent rights | (20 | ) | |
Preferred distributions | (45 | ) | |
Cash available for distribution to |
$ | 26,211 | |
Common limited partner units outstanding | 67,831 | ||
Cash available for distribution per limited partner unit | $ | 0.39 | |
Cash per unit approved for distribution | $ | 0.10 |
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, 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 income to net (loss) income:
Adjusted Net Income | |||||||
(unaudited, in thousands, except unit amounts and per unit data) | |||||||
Three Months Ended |
|||||||
Pre-Tax Amounts |
Amounts Per Unit |
||||||
Net (loss) income attributable to |
$ | (142,169 | ) | $ | (2.10 | ) | |
Non-cash loss on derivative instruments, net | 7,489 | 0.11 | |||||
Loss on revaluation of investments | 10,120 | 0.15 | |||||
Valuation allowance for deferred tax asset | 142,466 | 2.10 | |||||
Adjusted income excluding above items | 17,906 | 0.26 | |||||
Income tax adjustment for above items | (3,698 | ) | (0.05 | ) | |||
Adjusted net income attributable to |
$ | 14,208 | $ | 0.21 |
Derivatives
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
Crude Oil (Bbls/day, $/Bbl) | |||||||||||||||
Q2 2020 | Q3 2020 | Q4 2020 | FY 2021 | ||||||||||||
Swaps - WTI ( |
1,000 | 1,000 | 1,000 | — | |||||||||||
$ | 27.45 | $ | 27.45 | $ | 27.45 | $ | — | ||||||||
Collars - WTI ( |
14,000 | 14,000 | 14,000 | 10,000 | |||||||||||
Floor Price | $ | 28.86 | $ | 28.86 | $ | 28.86 | $ | 30.00 | |||||||
Ceiling Price | $ | 32.33 | $ | 32.33 | $ | 32.33 | $ | 43.05 | |||||||
Basis Swaps - WTI ( |
4,000 | 4,000 | 4,000 | — | |||||||||||
$ | (2.60 | ) | $ | (2.60 | ) | $ | (2.60 | ) | $ | — |
Natural Gas (Mmbtu/day, $/Mmbtu) | |||||||||||
Q2 2020 | Q3 2020 | Q4 2020 | |||||||||
Natural Gas Basis Swaps - |
25,000 | 25,000 | 25,000 | ||||||||
$ | (2.07 | ) | $ | (2.07 | ) | $ | (2.07 | ) |
Investor Contact:
+1 432.221.7467
alawlis@viperenergy.com
Source:
Source: Viper Energy Partners LP