Viper Energy Partners LP, a subsidiary of Diamondback Energy Inc., has entered an agreement to buy mineral and royalty interests in the Permian Basin from Warwick Capital Partners and GRP Energy Capital in a deal worth roughly $1 billion.
The deal also adds about 2,700 net royalty acres in other major basins, including the Denver-Julesburg, for a total of 7,300 net royalty acres, according to a Sept. 5 news release. Viper agreed to pay $750 million in cash and 9.02 million of its common units, subject to customary adjustments. Viper’s units closed at $28.35 on Sept.1.
The Permian interests represent more than 90% of the deal’s current production and deal value, Viper said in a Sept. 5 news release. In the Midland Basin, acquisition adds 2,800 net royalty acres with about 60% in Martin and Midland counties, Texas. In the Delaware, Viper will add 1,800 net royalty acres with about two-thirds in Reeves and Loving counties, Texas.
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” said Travis Stice, CEO of Viper's general partner. Stice is also CEO of Diamondback Energy.
“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," Stice said.
The valuation “implies a greater than 15% 2024 unlevered free cash flow yield at current strip prices giving credit to only existing PDP, DUCs and permits,” Viper said in a Sept. 5 news release.
The interests’ production averages 4,000 bbl/d (about 7,000 boe/d), which is expected to increase to about 4,750 bbl/d (8,500 boe/d) for full year 2024. Viper said those assumptions are based on existing production and timing on current work-in-progress locations that are more conservative than Viper's typical base assumptions.
As part of the financing for the deal, Diamondback will purchase up to 7.22 million common units of Viper for an aggregate of $200 million. Viper will finance the reaming cash portion through a combination fo cash on hand, its revolving credit facility and proceeds from “one more capital markets transactions.”
The is expected to close by fourth-quarter 2023 and will have an effective date of Oct. 1, 2023.
"This acquisition of high quality mineral and royalty assets is a truly differentiated opportunity that represents a significant value proposition for Viper and its unitholders,” Stice said. “The high confidence near-term production outlook results in meaningful and immediate accretion to all relevant financial metrics, including an estimated increase of 7-8% to our expected 2024 return of capital program. Equally as important, and what truly differentiates this opportunity, however, is both the quantity and quality of the undeveloped acreage position,” he said. “Credit is due to the GRP Energy Capital team for building an asset of this size, scale and overall quality that cannot be replicated in the private minerals market today.”
Evercore is serving as financial adviser to Viper and Akin Gump Strauss Hauer & Feld LLP is serving as its legal adviser.
Barclays is serving as financial adviser to the Seller and Kirkland & Ellis LLP is serving as its legal adviser.