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Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 2021
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF SECURITIES EXCHANGE ACT OF 1934
Commission File Number 001-36505
 
Viper Energy Partners LP
(Exact Name of Registrant As Specified in Its Charter)
DE
46-5001985
(State or Other Jurisdiction of Incorporation or Organization)
(I.R.S. Employer Identification Number)
500 West Texas
Suite 1200
Midland,TX
79701
(Address of principal executive offices)
(Zip code)
(432) 221-7400
(Registrant's telephone number, including area code)
 
Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common UnitsVNOMThe Nasdaq Stock Market LLC
(NASDAQ Global Select Market)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check One):
Large Accelerated FilerAccelerated Filer
Non-Accelerated FilerSmaller Reporting Company
Emerging Growth Company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes       No   

As of July 30, 2021, the registrant had outstanding 64,301,306 common units representing limited partner interests and 90,709,946 Class B units representing limited partner interests.


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VIPER ENERGY PARTNERS LP
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2021
TABLE OF CONTENTS
Page

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GLOSSARY OF OIL AND NATURAL GAS TERMS
The following is a glossary of certain oil and natural gas terms that are used in this Quarterly Report on Form 10-Q (this “report”):
BasinA large depression on the earth’s surface in which sediments accumulate.
Bbl or barrelOne stock tank barrel, or 42 U.S. gallons liquid volume, used in this report in reference to crude oil or other liquid hydrocarbons.
BOOne barrel of oil.
BO/dBO per day.
BOEOne barrel of oil equivalent, with six thousand cubic feet of natural gas being equivalent to one barrel of oil.
BOE/dBOE per day.
British Thermal Unit or BtuThe quantity of heat required to raise the temperature of one pound of water by one degree Fahrenheit.
CondensateLiquid hydrocarbons associated with the production of a primarily natural gas reserve.
Horizontal wellsWells drilled directionally horizontal to allow for development of structures not reachable through traditional vertical drilling mechanisms.
MBblsThousand barrels of crude oil or other liquid hydrocarbons.
MBOEOne thousand barrels of crude oil equivalent, determined using a ratio of six Mcf of natural gas to one Bbl of crude oil, condensate or natural gas liquids.
McfOne thousand cubic feet of natural gas.
Mineral interestsThe interests in ownership of the resource and mineral rights, giving an owner the right to profit from the extracted resources.
MMBtuOne million British Thermal Units.
Net royalty acresGross acreage multiplied by the average royalty interest.
Oil and natural gas propertiesTracts of land consisting of properties to be developed for oil and natural gas resource extraction.
OperatorThe individual or company responsible for the exploration and/or production of an oil or natural gas well or lease.
ProspectA specific geographic area which, based on supporting geological, geophysical or other data and also preliminary economic analysis using reasonably anticipated prices and costs, is deemed to have potential for the discovery of commercial hydrocarbons.
Proved reservesThe estimated quantities of oil, natural gas and natural gas liquids which geological and engineering data demonstrate with reasonable certainty to be commercially recoverable in future years from known reservoirs under existing economic and operating conditions.
ReservesThe estimated remaining quantities of oil and natural gas and related substances anticipated to be economically producible, as of a given date, by application of development projects to known accumulations. In addition, there must exist, or there must be a reasonable expectation that there will exist, the legal right to produce or a revenue interest in the production, installed means of delivering oil and natural gas or related substances to the market and all permits and financing required to implement the project. Reserves are not assigned to adjacent reservoirs isolated by major, potentially sealing, faults until those reservoirs are penetrated and evaluated as economically producible. Reserves should not be assigned to areas that are clearly separated from a known accumulation by a non-productive reservoir (i.e., absence of reservoir, structurally low reservoir or negative test results). Such areas may contain prospective resources (i.e., potentially recoverable resources from undiscovered accumulations).
ReservoirA porous and permeable underground formation containing a natural accumulation of producible natural gas and/or crude oil that is confined by impermeable rock or water barriers and is separate from other reservoirs.
Royalty interestAn interest that gives an owner the right to receive a portion of the resources or revenues without having to carry any costs of development, which may be subject to expiration.
SpudCommencement of actual drilling operations.
WTIWest Texas Intermediate.
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GLOSSARY OF CERTAIN OTHER TERMS
The following is a glossary of certain other terms that are used in this report:
ASUAccounting Standards Update.
DiamondbackDiamondback Energy, Inc., a Delaware corporation.
Exchange ActThe Securities Exchange Act of 1934, as amended.
GAAPAccounting principles generally accepted in the United States.
General PartnerViper Energy Partners GP LLC, a Delaware limited liability company, and the General Partner of the Partnership.
LIBORThe London interbank offered rate.
LTIPViper Energy Partners LP Long Term Incentive Plan.
NYMEXNew York Mercantile Exchange.
OPECOrganization of the Petroleum Exporting Countries.
Operating CompanyViper Energy Partners LLC, a Delaware limited liability company and a consolidated subsidiary of Viper Energy Partners LP.
PartnershipViper Energy Partners LP, a Delaware limited partnership.
SECUnited States Securities and Exchange Commission.
The Notes
The 5.375% Senior Notes due 2027 issued on October 16, 2019.

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

Various statements contained in this report are “forward-looking statements” as defined by the SEC. These forward-looking statements are subject to a number of risks, uncertainties and assumptions, many of which are beyond our control. All statements, other than statements of historical fact, regarding our strategy, future operations, financial position, estimated revenues and losses, projected costs, prospects, plans and objectives of management are forward-looking statements. When used in this report, the words “could,” “believe,” “anticipate,” “intend,” “estimate,” “expect,” “may,” “continue,” “predict,” “potential,” “project,” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words. In particular, the factors discussed in this report and our Annual Report on Form 10-K for the year ended December 31, 2020 could affect our actual results and cause our actual results to differ materially from expectations, estimates or assumptions expressed, forecasted or implied in such forward-looking statements. Unless the context requires otherwise, references to “we,” “us,” “our” or “the Partnership” are intended to mean the business and operations of the Partnership and the Operating Company.

Forward-looking statements may include statements about:
the amounts or volatility of realized oil and natural gas prices;
the implications and logistical challenges of epidemic or pandemic diseases, including the COVID-19 pandemic and its impact on the oil and natural gas industry, pricing and demand for oil and natural gas and the supply chain disruptions;
changes in general economic, business or industry conditions, including conditions of the U.S. oil and natural gas industry and the effect of U.S. energy, environmental, monetary and trade policies on our industry and business;
conditions in the capital, financial and credit markets and our ability to obtain capital on favorable terms or at all;
our ability to execute our business and financial strategies;
the level of production on our properties;
the impact of reduced drilling activity on our exploration and development drilling prospects, inventories, projects and programs;
regional supply and demand factors, any delays, curtailments or interruptions of production, and any government order, rule or regulation that may impose production limits on properties in which we have mineral and royalty interest;
actions taken by third party operators on our mineral and royalty acreage;
our ability to replace our oil and natural gas reserves;
our ability to identify, complete and effectively integrate acquisitions of properties or businesses;
competition in the oil and natural gas industry;
the ability of our operators to obtain capital or financing needed for development and exploration operations;
uncertainties with respect to identified drilling locations and estimates of reserves;
the impact of extreme weather conditions, including the February 2021 winter storms in the Permian Basin, on production volumes on our mineral and royalty acreage;
the ability of our operators to comply with applicable governmental laws and regulations and to obtain permits and governmental approvals;
future operating results;
future distributions to eligible unitholders;
impact of potential impairment charges;
the effects of future litigation; and
certain other factors discussed elsewhere in this report.


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All forward-looking statements speak only as of the date of this report or, if earlier, as of the date they were made. We do not intend to, and disclaim any obligation to, update or revise any forward-looking statements unless required by securities laws. You should not place undue reliance on these forward-looking statements. These forward-looking statements are subject to a number of risks, uncertainties and assumptions. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. Although we believe that our plans, intentions and expectations reflected in or suggested by the forward-looking statements we make in this report are reasonable, we can give no assurance that these plans, intentions or expectations will be achieved or occur, and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.
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PART I. FINANCIAL INFORMATION


ITEM 1.     CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Viper Energy Partners LP
Condensed Consolidated Balance Sheets
(Unaudited)
June 30,December 31,
20212020
(In thousands, except unit amounts)
Assets
Current assets:
Cash and cash equivalents$42,422 $19,121 
Royalty income receivable (net of allowance for credit losses)42,011 32,210 
Royalty income receivable—related party3,679 1,998 
Other current assets658 665 
Total current assets88,770 53,994 
Property:
Oil and natural gas interests, full cost method of accounting ($1,319,256 and $1,364,906 excluded from depletion at June 30, 2021 and December 31, 2020, respectively)
2,896,361 2,895,542 
Land5,688 5,688 
Accumulated depletion and impairment(545,040)(496,176)
Property, net2,357,009 2,405,054 
Other assets4,383 2,327 
Total assets$2,450,162 $2,461,375 
Liabilities and Unitholders’ Equity
Current liabilities:
Accounts payable$39 $43 
Accrued liabilities17,159 18,262 
Derivative instruments51,762 26,593 
Total current liabilities68,960 44,898 
Long-term debt, net534,180 555,644 
Total liabilities603,140 600,542 
Commitments and contingencies (Note 12)
Unitholders’ equity:
General partner769 809 
Common units (64,546,377 units issued and outstanding as of June 30, 2021 and 65,817,281 units issued and outstanding as of December 31, 2020)
594,777 633,415 
Class B units (90,709,946 units issued and outstanding as of June 30, 2021 and December 31, 2020)
981 1,031 
Total Viper Energy Partners LP unitholders’ equity596,527 635,255 
Non-controlling interest1,250,495 1,225,578 
Total equity1,847,022 1,860,833 
Total liabilities and unitholders’ equity$2,450,162 $2,461,375 







See accompanying notes to condensed consolidated financial statements.
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Viper Energy Partners LP
Condensed Consolidated Statements of Operations
(Unaudited)
Three Months Ended June 30,Six Months Ended June 30,
2021202020212020
(In thousands, except per unit amounts)
Operating income:
Royalty income$113,458 $32,444 $209,970 $109,273 
Lease bonus income484 23 809 1,645 
Other operating income208 202 347 443 
Total operating income114,150 32,669 211,126 111,361 
Costs and expenses:
Production and ad valorem taxes8,152 3,110 14,801 9,257 
Depletion23,978 22,782 48,864 47,424 
General and administrative expenses2,162 1,683 4,383 4,349 
Total costs and expenses34,292 27,575 68,048 61,030 
Income (loss) from operations79,858 5,094 143,078 50,331 
Other income (expense):
Interest expense, net(7,973)(7,669)(15,833)(16,632)
Gain (loss) on derivative instruments, net(29,546)(34,443)(61,050)(42,385)
Gain (loss) on revaluation of investment 3,443  (6,677)
Other income, net39 519 77 923 
Total other expense, net(37,480)(38,150)(76,806)(64,771)
Income (loss) before income taxes42,378 (33,056)66,272 (14,440)
Provision for (benefit from) income taxes  35 142,466 
Net income (loss)42,378 (33,056)66,237 (156,906)
Net income (loss) attributable to non-controlling interest37,716 (11,304)64,595 7,015 
Net income (loss) attributable to Viper Energy Partners LP$4,662 $(21,752)$1,642 $(163,921)
Net income (loss) attributable to common limited partner units:
Basic$0.07 $(0.32)$0.03 $(2.42)
Diluted$0.07 $(0.32)$0.03 $(2.42)
Weighted average number of common limited partner units outstanding:
Basic64,672 67,831 65,014 67,827 
Diluted64,795 67,831 65,151 67,827 















See accompanying notes to condensed consolidated financial statements.
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Viper Energy Partners LP
Condensed Consolidated Statements of Changes to Unitholders' Equity
(Unaudited)

Limited PartnersGeneral PartnerNon-Controlling Interest
CommonClass B AmountAmount
UnitsAmountUnitsAmountTotal
(In thousands)
Balance at December 31, 202065,817 $633,415 90,710 $1,031 $809 $1,225,578 $1,860,833 
Unit-based compensation— 315 — — — — 315 
Issuance of common units3 — — — — — — 
Distribution equivalent rights payments— (24)— — — — (24)
Distributions to public— (9,036)— — — — (9,036)
Distributions to Diamondback— (102)— (25)— (12,699)(12,826)
Distributions to General Partner— — — — (20)— (20)
Change in ownership of consolidated subsidiaries, net— 2,687 — — (2,687) 
Cash paid for tax withholding on vested common units— (20)— — — — (20)
Repurchased units as part of unit buyback(870)(13,043)— — — — (13,043)
Net income (loss)— (3,020)— — — 26,879 23,859 
Balance at March 31, 202164,950 611,172 90,710 1,006 789 1,237,071 1,850,038 
Unit-based compensation— 338 — — — — 338 
Distribution equivalent rights payments— (55)— — — — (55)
Distributions to public— (15,992)— — — — (15,992)
Distributions to Diamondback— (183)— (25)— (22,678)(22,886)
Distributions to General Partner— — — — (20)— (20)
Change in ownership of consolidated subsidiaries, net— 1,614 — — (1,614) 
Repurchased units as part of unit buyback(404)(6,779)— — — — (6,779)
Net income (loss)— 4,662 — — — 37,716 42,378 
Balance at June 30, 202164,546 $594,777 90,710 $981 $769 $1,250,495 $1,847,022 

















See accompanying notes to condensed consolidated financial statements.
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Viper Energy Partners LP
Condensed Consolidated Statements of Changes to Unitholders' Equity - Continued
(Unaudited)

Limited PartnersGeneral PartnerNon-Controlling Interest
CommonClass B AmountAmount
UnitsAmountUnitsAmountTotal
(In thousands)
Balance at December 31, 201967,806 $929,116 90,710 $1,130 $889 $1,254,285 $2,185,420 
Unit-based compensation— 387 — — — — 387 
Issuance of common units25 — — — — — — 
Distribution equivalent rights payments— (20)— — — — (20)
Distributions to public— (30,194)— — — — (30,194)
Distributions to Diamondback— (329)— (25)— (40,819)(41,173)
Distributions to General Partner— — — — (20)— (20)
Cash paid for tax withholding on vested common units— (383)— — — — (383)
Net income (loss)— (142,169)— — — 18,319 (123,850)
Balance at March 31, 202067,831 756,408 90,710 1,105 869 1,231,785 1,990,167 
Unit-based compensation— 283 — — — — 283 
Distribution equivalent rights payments— (4)— — — — (4)
Distributions to public— (6,710)— — — — (6,710)
Distributions to Diamondback— (76)— (25)— (9,074)(9,175)
Distributions to General Partner— — — — (20)— (20)
Net income (loss)— (21,752)— — — (11,304)(33,056)
Balance at June 30, 202067,831 $728,149 90,710 $1,080 $849 $1,211,407 $1,941,485 

























See accompanying notes to condensed consolidated financial statements.
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Viper Energy Partners LP
Condensed Consolidated Statements of Cash Flows
(Unaudited)

Six Months Ended June 30,
20212020
(In thousands)
Cash flows from operating activities:
Net income (loss)$66,237 $(156,906)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Deferred income tax expense (benefit) 142,466 
Depletion48,864 47,424 
(Gain) loss on derivative instruments, net61,050 42,385 
Net cash receipts (payments) on derivatives(35,882)(2,554)
(Gain) loss on revaluation of investment 6,677 
Other1,992 1,808 
Changes in operating assets and liabilities:
Royalty income receivable(9,801)25,971 
Royalty income receivable—related party(1,681)9,659 
Other(1,099)(1,067)
Net cash provided by (used in) operating activities129,680 115,863 
Cash flows from investing activities:
Acquisitions of oil and natural gas interests(819)(65,272)
Net cash provided by (used in) investing activities(819)(65,272)
Cash flows from financing activities:
Proceeds from borrowings under credit facility25,000 92,000 
Repayment on credit facility(47,000)(35,000)
Repayment of senior notes (13,787)
Repurchased units as part of unit buyback(19,822) 
Distributions to public (25,107)(36,928)
Distributions to Diamondback (35,712)(50,348)
Other(2,919)(467)
Net cash provided by (used in) financing activities(105,560)(44,530)
Net increase (decrease) in cash23,301 6,061 
Cash and cash equivalents at beginning of period19,121 3,602 
Cash and cash equivalents at end of period$42,422 $9,663 
















See accompanying notes to condensed consolidated financial statements.
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Viper Energy Partners LP
Condensed Notes to Consolidated Financial Statements
(Unaudited)


1.    ORGANIZATION AND BASIS OF PRESENTATION

Organization

Viper Energy Partners LP (the “Partnership”) is a publicly traded Delaware limited partnership focused on owning and acquiring mineral interests and royalty interests in oil and natural gas properties primarily in the Permian Basin.

As of June 30, 2021, Viper Energy Partners GP LLC (the “General Partner”) held a 100% general partner interest in the Partnership and Diamondback Energy, Inc. (“Diamondback”) beneficially owned an approximate 59% of the Partnership’s total limited partner units outstanding. Diamondback owns and controls the General Partner.

Basis of Presentation

The accompanying condensed consolidated financial statements and related notes thereto were prepared in accordance with GAAP. All material intercompany balances and transactions have been eliminated upon consolidation. We report our operations in one reportable segment.

These condensed consolidated financial statements have been prepared by the Partnership without audit, pursuant to the rules and regulations of the SEC. They reflect all adjustments that are, in the opinion of management, necessary for a fair statement of the results for interim periods, on a basis consistent with the annual audited financial statements. All such adjustments are of a normal recurring nature. Certain information, accounting policies and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been omitted pursuant to SEC rules and regulations, although the Partnership believes the disclosures are adequate to make the information presented not misleading. This report should be read in conjunction with the Partnership’s most recent Annual Report on Form 10–K for the fiscal year ended December 31, 2020, which contains a summary of the Partnership’s significant accounting policies and other disclosures.

Reclassifications

Certain prior period amounts have been reclassified to conform to the current period financial statement presentation. These reclassifications had no effect on the previously reported total assets, total liabilities, unitholders’ equity, results of operations or cash flows.

2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Use of Estimates

Certain amounts included in or affecting the Partnership’s financial statements and related disclosures must be estimated by management, requiring certain assumptions to be made with respect to values or conditions that cannot be known with certainty at the time the financial statements are prepared. These estimates and assumptions affect the amounts the Partnership reports for assets and liabilities and the Partnership’s disclosure of contingent assets and liabilities as of the date of the financial statements.

Making accurate estimates and assumptions is particularly difficult in the oil and natural gas industry given the challenges resulting from volatility in oil and natural gas prices. For instance, in 2020, the effects of COVID-19 and actions by OPEC members and other exporting nations on the supply and demand in global oil and natural gas markets resulted in significant negative pricing pressure in the first half of 2020, followed by a recovery in pricing and an increase in demand in the second half of 2020 and into 2021. The financial results of companies in the oil and natural gas industry have been impacted materially as a result of changing market conditions. Such circumstances generally increase uncertainty in the Partnership’s accounting estimates, particularly those involving financial forecasts.

The Partnership evaluates these estimates on an ongoing basis, using historical experience, consultation with experts and other methods the Partnership considers reasonable in each particular circumstance. Nevertheless, actual results may differ significantly from the Partnership’s estimates. Any effects on the Partnership’s business, financial position or results of operations resulting from revisions to these estimates are recorded in the period in which the facts that give rise to the revision become known. Significant items subject to such estimates and assumptions include estimates of proved oil and natural gas reserves and related present value estimates of future net cash flows therefrom, the carrying value of oil and natural gas
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Viper Energy Partners LP
Condensed Notes to Consolidated Financial Statements - (Continued)
(Unaudited)
interests, the recoverability of costs of unevaluated properties, the fair value determination of assets and liabilities, fair value estimates of commodity derivatives and estimates of income taxes.

Accrued Liabilities

Accrued liabilities consist of the following:
June 30,December 31,
20212020
(In thousands)
Interest payable$4,321 $4,311 
Ad valorem taxes payable4,018 6,501 
Derivatives instruments payable8,489 7,392 
Other331 58 
Total accrued liabilities$17,159 $18,262 

Recent Accounting Pronouncements

Recently Adopted Pronouncements

In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740) - Simplifying the Accounting for Income Taxes”. This update is intended to simplify the accounting for income taxes by removing certain exceptions and by clarifying and amending existing guidance and is effective for public business entities beginning after December 15, 2020 with early adoption permitted. The Partnership adopted this update effective January 1, 2021. The adoption of this update did not have a material impact on its financial position, results of operations or liquidity.

The Partnership considers the applicability and impact of all ASUs. ASUs not discussed above were assessed and determined to be either not applicable, previously disclosed, or not material upon adoption.

3.    REVENUE FROM CONTRACTS WITH CUSTOMERS

Royalty income represents the right to receive revenues from oil, natural gas and natural gas liquids sales obtained by the operator of the wells in which the Partnership owns a royalty interest. Royalty income is recognized at the point control of the product is transferred to the purchaser at the wellhead or at the gas processing facility based on the Partnership’s percentage ownership share of the revenue, net of any deductions for gathering and transportation. Virtually all of the pricing provisions in the Partnership’s contracts are tied to a market index.

The following table disaggregates the Partnership’s total royalty income by product type:

Three Months Ended June 30,Six Months Ended June 30,
2021202020212020
(In thousands)
Oil income$93,952 $27,617 $172,296 $99,817 
Natural gas income9,533 1,234 18,577 1,578 
Natural gas liquids income9,973 3,593 19,097 7,878 
Total royalty income$113,458 $32,444 $209,970 $109,273 

4.    ACQUISITIONS

2021 Activity

The Partnership had no significant acquisition or divestiture activity during the six months ended June 30, 2021.

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Condensed Notes to Consolidated Financial Statements - (Continued)
(Unaudited)
2020 Activity

During the six months ended June 30, 2020, the Partnership acquired, from unrelated third-party sellers, mineral and royalty interests representing 4,948 gross (410 net royalty) acres in the Permian Basin for an aggregate purchase price of approximately $63.4 million, including post-closing adjustments. The Partnership funded these acquisitions with cash on hand and borrowings under the Operating Company’s revolving credit facility.

5.    OIL AND NATURAL GAS INTERESTS

Oil and natural gas interests include the following:

June 30,December 31,
20212020
(In thousands)
Oil and natural gas interests:
Subject to depletion$1,577,105 $1,530,636 
Not subject to depletion1,319,256 1,364,906 
Gross oil and natural gas interests2,896,361 2,895,542 
Accumulated depletion and impairment(545,040)(496,176)
Oil and natural gas interests, net2,351,321 2,399,366 
Land5,688 5,688 
Property, net of accumulated depletion and impairment$2,357,009 $2,405,054 

As of June 30, 2021 and December 31, 2020, the Partnership had mineral and royalty interests representing 24,341 and 24,350 net royalty acres, respectively.

No impairment expense was recorded on the Partnership’s oil and gas properties for the three and six months ended June 30, 2021 and 2020 based on the results of the respective quarterly ceiling tests. In addition to commodity prices, the Partnership’s production rates, levels of proved reserves, transfers of unevaluated properties and other factors will determine its actual ceiling test limitations and impairment analysis in future periods. If the trailing 12-month commodity prices decline as compared to the commodity prices used in prior quarters, the Partnership will have write-downs in subsequent quarters, which may be material.

6.    DEBT

Long-term debt consisted of the following as of the dates indicated:

June 30,December 31,
20212020
(In thousands)
5.375% senior notes due 2027
$479,938 $479,938 
Revolving credit facility62,000 84,000 
Unamortized debt issuance costs(1,907)(2,058)
Unamortized discount(5,851)(6,236)
Total long-term debt$534,180 $555,644 


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Viper Energy Partners LP
Condensed Notes to Consolidated Financial Statements - (Continued)
(Unaudited)
The Operating Company’s Revolving Credit Facility

On June 2, 2021, the Operating Company entered into the seventh amendment to the existing credit agreement, which maintained the maximum amount of the revolving credit facility at $2.0 billion and reaffirmed the borrowing base of $580.0 million based on the Operating Company’s oil and natural gas reserves and other factors, and added new provisions that allow the Operating Company to elect a commitment amount that is less than its borrowing base as determined by the lenders. The borrowing base is scheduled to be redetermined semi-annually in May and November. As of June 30, 2021, the Operating Company had elected a commitment amount of $500.0 million, with $62.0 million of outstanding borrowings and $438.0 million available for future borrowings under the Operating Company’s revolving credit facility. The revolving credit facility will mature on June 2, 2025.

The outstanding borrowings under the credit agreement bear interest at a rate elected by the Operating Company that is equal to an alternative base rate (which is equal to the greatest of the prime rate, the Federal Funds effective rate plus 0.50% and 3-month LIBOR plus 1.0%) or LIBOR, in each case plus the applicable margin. The applicable margin ranges from 1.00% to 2.00% per annum in the case of the alternative base rate and from 2.00% to 3.00% per annum in the case of LIBOR, in each case depending on the amount of the loans outstanding in relation to the commitment, which is calculated using the least of the maximum credit amount, the aggregate elected commitment amount and the borrowing base. The Operating Company is obligated to pay a quarterly commitment fee ranging from 0.375% to 0.500% per year on the unused portion of the commitment. Loan principal may be optionally repaid from time to time without premium or penalty (other than customary LIBOR breakage), and is required to be repaid (a) to the extent the loan amount exceeds the commitment or the borrowing base, whether due to a borrowing base redetermination or otherwise (in some cases subject to a cure period), (b) in an amount equal to the net cash proceeds from the sale of property when a borrowing base deficiency or event of default exists under the credit agreement and (c) at the maturity date. The loan is secured by substantially all the assets of the Partnership and the Operating Company. During the three and six months ended June 30, 2021 and 2020, the weighted average interest rate on the Operating Company’s revolving credit facility was 1.93%, 1.90%, 2.41% and 2.82%, respectively.

The credit agreement contains various affirmative, negative and financial maintenance covenants. These covenants, among other things, limit additional indebtedness, additional liens, sales of assets, mergers and consolidations, dividends and distributions, transactions with affiliates, excess cash and entering into certain swap agreements and require the maintenance of the financial ratios described below. The amendment to the credit agreement added a financial covenant requirement for the ratio of secured debt to EBITDAX as included below.
Financial CovenantRequired Ratio
Ratio of total net debt to EBITDAX, as defined in the credit agreement
Not greater than 4.0 to 1.0
Ratio of current assets to liabilities, as defined in the credit agreement
Not less than 1.0 to 1.0
Ratio of secured debt to EBITDAX, as defined in the credit agreement
Not greater than 2.5 to 1.0

The covenant prohibiting additional indebtedness allows for the issuance of unsecured debt of up to $1.0 billion in the form of senior unsecured notes and, in connection with any such issuance, the reduction of the borrowing base by 25% of the stated principal amount of each such issuance. A borrowing base reduction in connection with such issuance may require a portion of the outstanding principal of the loan to be repaid.

As of June 30, 2021, the Operating Company was in compliance with the financial maintenance covenants under its credit agreement. The lenders may accelerate all of the indebtedness under the Operating Company’s revolving credit facility upon the occurrence and during the continuance of any event of default. The credit agreement contains customary events of default, including non-payment, breach of covenants, materially incorrect representations, cross-default, bankruptcy and change of control. With certain specified exceptions, the terms and provisions of the credit agreement generally may be amended with the consent of the lenders holding a majority of the outstanding loans or commitments to lend.

2027 Senior Notes

The Partnership’s 5.375% senior notes due 2027 (the “Notes”) are senior unsecured obligations of the Partnership and are initially guaranteed on a senior unsecured basis by the Operating Company and pay interest semi-annually. Neither Diamondback nor the General Partner guarantees the Notes. In the future, each of the Partnership’s restricted subsidiaries that either (i) guarantees any of its or a guarantor’s other indebtedness or (ii) is a domestic restricted subsidiary and is an obligor with respect to any indebtedness under any credit facility will be required to guarantee the Notes. The Notes will mature on November 1, 2027. As of June 30, 2021, $479.9 million in aggregate principal amount of the Notes was outstanding. The
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Viper Energy Partners LP
Condensed Notes to Consolidated Financial Statements - (Continued)
(Unaudited)
Partnership did not repurchase any Notes during the three or six months ended June 30, 2021, but may do so opportunistically from time to time in future periods.

7.    UNITHOLDERS’ EQUITY AND DISTRIBUTIONS

The Partnership has general partner and limited partner units. At June 30, 2021, the Partnership had a total of 64,546,377 common units issued and outstanding and 90,709,946 Class B units issued and outstanding, of which 731,500 common units and 90,709,946 Class B units were beneficially owned by Diamondback, representing approximately 59% of the Partnership’s total units outstanding. At June 30, 2021, Diamondback also beneficially owns 90,709,946 Operating Company units, representing a 58% non-controlling ownership interest in the Operating Company. The Operating Company units and the Partnership’s Class B units beneficially owned by Diamondback are exchangeable from time to time for the Partnership’s common units (that is, one Operating Company unit and one Partnership Class B unit, together, will be exchangeable for one Partnership common unit).

Common Unit Repurchase Program

On November 6, 2020, the board of directors of the General Partner approved an expansion of the Partnership’s return of capital program with the implementation of a common unit repurchase program to acquire up to $100.0 million of the Partnership’s outstanding common units. During the three and six months ended June 30, 2021, the Partnership repurchased approximately $6.8 million and $19.8 million, respectively, of common units under the repurchase program. As of June 30, 2021, $56.2 million remains available for use under the repurchase program. The common unit repurchase program is authorized to extend through December 31, 2021 and the Partnership intends to purchase common units under the repurchase program opportunistically with funds from cash on hand, free cash flow from operations and potential liquidity events, such as the sale of assets. The repurchase program may be suspended from time to time, modified, extended or discontinued by the board of directors of the General Partner at any time.

Cash Distributions on Common Units

The board of directors of the General Partner has established a distribution policy whereby the Operating Company distributes all or a portion of its available cash on a quarterly basis to its unitholders (including Diamondback and the Partnership). The Partnership in turn distributes all of the available cash it receives from the Operating Company to its common unitholders. The Partnership’s available cash and the available cash of the Operating Company for each quarter is determined by the board of directors of the General Partner following the end of such quarter. The Operating Company’s available cash generally equals its Adjusted EBITDA for the quarter, less cash needed for debt service and other contractual obligations, fixed charges and reserves for future operating or capital needs that the board of directors of the General Partner deems necessary or appropriate, if any. The Partnership’s available cash for each quarter generally equals the Partnership’s proportional share of the Operating Company’s available cash for the quarter, less cash needed for the payment of income taxes, if any, and the preferred distribution. The percentage of available cash distributed pursuant to the distribution policy discussed above may change quarterly to enable the Operating Company to retain cash flow to help strengthen the Partnership’s balance sheet while also expanding the return of capital program through the Partnership’s common unit repurchase program. The Partnership is not required to pay distributions to its common unitholders on a quarterly or other basis.

The following table presents information regarding cash distributions approved by the board of directors of the General Partner for the periods presented:

Distributions
(In thousands)
PeriodAmount per Unit
Operating Company Distributions to Diamondback
Common Unitholders(1)
Declaration DateUnitholder Record DatePayment Date
Q4 2020$0.14 $12,699 $9,162 February 19, 2021March 4, 2021March 11, 2021
Q1 2021$0.25 $22,678 $16,230 April 27, 2021May 13, 2021May 20, 2021
(1)Includes $0.1 million and $0.2 million paid to Diamondback for the fourth quarter of 2020 and the first quarter of 2021 distributions, respectively.

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Viper Energy Partners LP
Condensed Notes to Consolidated Financial Statements - (Continued)
(Unaudited)
Cash distributions will be made to the common unitholders of record on the applicable record date, generally within 60 days after the end of each quarter.

Change in Ownership of Consolidated Subsidiaries

Non-controlling interest in the accompanying condensed consolidated financial statements represents Diamondback’s ownership in the net assets of the Operating Company. Diamondback’s relative ownership interest in the Operating Company can change due to the Partnership’s public offerings, issuance of units for acquisitions, issuance of unit-based compensation, repurchases of common units and distribution equivalent rights paid on the Partnership’s units. These changes in ownership percentage and the disproportionate allocation of net income (loss) to Diamondback discussed below result in adjustments to non-controlling interest and common unitholder equity, tax effected. The following table summarizes the changes in common unitholder equity due to changes in ownership interest during the period:

Three Months Ended June 30, 2021Six Months Ended June 30, 2021
(In thousands)
Net income (loss) attributable to the Partnership$4,662 $1,642 
Change in ownership of consolidated subsidiaries 1,614 4,301 
Change from net income (loss) attributable to the Partnership's unitholders and transfers to non-controlling interest$6,276 $5,943 

There were no changes in ownership of consolidated subsidiaries during the three and six months ended June 30, 2020.

Allocation of Net Income

The Partnership, as managing member of the Operating Company, has entered into an agreement whereby special allocations of the Operating Company’s income and gains over losses and deductions (but before depletion) are to be made to Diamondback through 2023. These special income allocations will reduce the taxable income allocated to the Partnership’s common unitholders.

8.    EARNINGS PER COMMON UNIT

The net income (loss) per common unit on the condensed consolidated statements of operations is based on the net income (loss) of the Partnership for the three and six months ended June 30, 2021 and 2020, which is the amount of net income (loss) attributable to the Partnership’s common units.

The Partnership’s net income (loss) is allocated wholly to the common units, as the General Partner does not have an economic interest. Payments made to the Partnership’s unitholders are determined in relation to the cash distribution policy described in Note 7—Unitholders' Equity and Partnership Distributions.

Basic net income (loss) per common unit is calculated by dividing net income (loss) by the weighted-average number of common units outstanding during the period. Diluted net income (loss) per common unit gives effect, when applicable, to unvested common units granted under the LTIP.


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Viper Energy Partners LP
Condensed Notes to Consolidated Financial Statements - (Continued)
(Unaudited)
A reconciliation of the components of basic and diluted earnings per common unit is presented in the table below:

Three Months Ended June 30,Six Months Ended June 30,
2021202020212020
(In thousands, except per unit amounts)
Net income (loss) attributable to the period$4,662 $(21,752)$1,642 $(163,921)
Less: net income (loss) allocated to participating securities(1)
(55)(4)(79)(24)
Net income (loss) attributable to common unitholders$4,607 $(21,756)$1,563 $(163,945)
Weighted average common units outstanding:
Basic weighted average common units outstanding64,672 67,831 65,014 67,827 
Effect of dilutive securities:
Potential common units issuable(2)
123  137  
Diluted weighted average common units outstanding64,795 67,831 65,151 67,827 
Net income (loss) per common unit, basic$0.07 $(0.32)$0.03 $(2.42)
Net income (loss) per common unit, diluted$0.07 $(0.32)$0.03 $(2.42)
(1)    Distribution equivalent rights granted to employees are considered participating securities.
(2) For the three and six months ended June 30, 2021, 39 and 4,974 potential common units, respectively, were excluded from the computation of diluted earnings per common unit because their inclusion would have been anti-dilutive. For the three and six months ended June 30, 2020, no potential common units were included in the computation of diluted earnings per common unit because their inclusion would have been anti-dilutive as a result of recording a net loss attributable to the common unitholders for the period.

9.    INCOME TAXES

The following table provides the Partnership’s provision for (benefit from) income taxes and the effective income tax rate for the dates indicated:

Three Months Ended June 30,Six Months Ended June 30,
2021202020212020
(In thousands, except for tax rate)
Provision for (benefit from) income taxes$ $ $35 $142,466 
Effective tax rate % %0.1 %(986.6)%

The Partnership’s effective income tax rates for the three and six months ended June 30, 2021 and 2020 differed from amounts computed by applying the United States federal statutory tax rate to pre-tax income for the period primarily due to net income attributable to the non-controlling interest and the impact of maintaining a valuation allowance on the Partnership’s deferred tax assets. For the six months ended June 30, 2020, the Partnership also recorded discrete income tax expense of approximately $142.5 million related to application of a valuation allowance on the Partnership’s beginning-of-year deferred tax assets.

As of June 30, 2021 and 2020, the Partnership maintained a full valuation allowance against its deferred tax assets, based on its assessment of all available evidence, both positive and negative, supporting realizability of the Partnership’s deferred tax assets.

10.    DERIVATIVES

All derivative financial instruments are recorded at fair value. The Partnership has not designated its derivative instruments as hedges for accounting purposes and, as a result, marks its derivative instruments to fair value and recognizes the cash and non-cash changes in fair value in the condensed consolidated statements of operations under the caption “Gain (loss) on derivative instruments, net.”

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Viper Energy Partners LP
Condensed Notes to Consolidated Financial Statements - (Continued)
(Unaudited)
Commodity Contracts

The Partnership historically has used fixed price swap contracts, fixed price basis swap contracts and costless collars with corresponding put and call options to reduce price volatility associated with certain of its royalty income. Under the Partnership’s costless collar contracts, each collar has an established floor price and ceiling price. When the settlement price is below the floor price, the counterparty is required to make a payment to the Partnership and when the settlement price is above the ceiling price, the Partnership is required to make a payment to the counterparty. When the settlement price is between the floor and the ceiling, there is no payment required.

The Partnership’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 (Cushing) and with natural gas derivative settlements based on the New York Mercantile Exchange Henry Hub pricing.

By using derivative instruments to economically hedge exposure to changes in commodity prices, the Partnership exposes itself to credit risk and market risk. Credit risk is the failure of the counterparty to perform under the terms of the derivative contract. When the fair value of a derivative contract is positive, the counterparty owes the Partnership, which creates credit risk. The Partnership’s counterparties are all participants in the amended and restated credit agreement, which is secured by substantially all of the assets of the guarantor subsidiaries; therefore, the Partnership is not required to post any collateral. The Partnership’s counterparties have been determined to have an acceptable credit risk; therefore, the Partnership does not require collateral from its counterparties.

As of June 30, 2021, the Partnership had the following outstanding derivative contracts. When aggregating multiple contracts, the weighted average contract price is disclosed.

SwapsCollarsPuts
Settlement MonthSettlement YearType of ContractBbls/Mcf Per DayIndexWeighted Average DifferentialWeighted Average Fixed PriceWeighted Average Floor PriceWeighted Average Ceiling PriceStrike Price
OIL
Jul. - Dec.2021Collars10,000WTI Cushing$$$30.00$43.05$
Jan. - Mar.2022Collars2,500WTI Cushing$$$45.00$79.55$
Jan. - Mar.2022
Puts(1)
5,000WTI Cushing$$$$$47.52
NATURAL GAS
Jan. - Dec.2022Collars20,000Henry Hub$$$2.50$4.62$
(1) Includes immaterial deferred premiums.

Balance Sheet Offsetting of Derivative Assets and Liabilities

The fair value of derivative instruments is generally determined using established index prices and other sources which are based upon, among other things, futures prices and time to maturity. These fair values are recorded by netting asset and liability positions, including any deferred premiums, that are with the same counterparty and are subject to contractual terms which provide for net settlement. See Note 11—Fair Value Measurements for further details.

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Viper Energy Partners LP
Condensed Notes to Consolidated Financial Statements - (Continued)
(Unaudited)
Gains and Losses on Derivative Instruments

The following table summarizes the gains and losses on derivative instruments included in the condensed consolidated statements of operations and the net cash receipts (payments) on derivatives for the periods presented:

Three Months Ended June 30,Six Months Ended June 30,
2021202020212020
(In thousands)
Gain (loss) on derivative instruments$(29,546)$(34,443)$(61,050)$(42,385)
Net cash receipts (payments) on derivatives$(20,940)$(2,101)$(35,882)$(2,554)

11.    FAIR VALUE MEASUREMENTS

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs.

The fair value hierarchy is based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value. The Partnership’s assessment of the significance of a particular input to the fair value measurements requires judgment and may affect the valuation of the assets and liabilities being measured and their placement within the fair value hierarchy. The Partnership uses appropriate valuation techniques based on available inputs to measure the fair values of its assets and liabilities.
Level 1 - Observable inputs that reflect unadjusted quoted prices for identical assets or liabilities in active markets as of the reporting date.

Level 2 - Observable market-based inputs or unobservable inputs that are corroborated by market data. These are inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date.

Level 3 - Unobservable inputs that are not corroborated by market data and may be used with internally developed methodologies that result in management’s best estimate of fair value.

Financial assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurement.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

Certain assets and liabilities are reported at fair value on a recurring basis, including the Partnership’s derivative instruments. The fair values of the Partnership’s derivative contracts are measured internally using established commodity futures price strips for the underlying commodity provided by a reputable third party, the contracted notional volumes, and time to maturity. These valuations are Level 2 inputs.

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Viper Energy Partners LP
Condensed Notes to Consolidated Financial Statements - (Continued)
(Unaudited)
The following table provides (i) fair value measurement information for financial assets and liabilities measured at fair value on a recurring basis, (ii) the gross amounts of recognized derivative assets and liabilities, (iii) the amounts offset under master netting arrangements with counterparties, and (iv) the resulting net amounts presented in the Partnership’s condensed consolidated balance sheets as of June 30, 2021 and December 31, 2020. The net amounts are classified as current or noncurrent based on their anticipated settlement dates.

As of June 30, 2021
Level 1Level 2Level 3Total Gross Fair ValueGross Amounts Offset in Balance SheetNet Fair Value Presented in Balance Sheet
(In thousands)
Assets:
Current:
Derivative instruments$ $758 $ $758 $(758)$ 
Liabilities:
Current:
Derivative instruments$ $52,520 $ $52,520 $(758)$51,762 

As of December 31, 2020
Level 1Level 2Level 3Total Gross Fair ValueGross Amounts Offset in Balance SheetNet Fair Value Presented in Balance Sheet
(In thousands)
Assets: