Diamondback’s Viper Energy Strikes Deal For Permian Mineral Rights

Almost two years after Diamondback Energy Inc.’s (NASDAQ: FANG) royalty business went public, the subsidiary is back with a series of deals for Midland and Delaware mineral acreage.

Viper Energy Partners LP (NASDAQ: VNOM) said July 25 it entered separate agreements with unrelated third-party sellers to acquire mineral rights across 8,137 gross (743 net) Permian Basin acres for about $111 million.

The deals equate to $120,000 per net royalty acre adjusted for production, said Gordon Douthat, senior analyst with Wells Fargo Securities. He added the valuation is below current trading levels of $247,000 per royalty acre.

The acquisitions are comprised of 7,487 gross (601 net) royalty acres in the Midland Basin and 650 gross (142 net) royalty acres in the Delaware. The acreage is primarily operated by Pioneer Natural Resources Co. (NYSE: PXD) and a private company.

Viper closed the Midland transaction on July 22, financed with borrowings under its revolving credit facility. The Delaware deal is expected to close in August and will be paid for through an equity offering. The offering is Viper’s first time to market since September 2014.

The two transactions include about 500 barrels of oil equivalent per day (boe/d) of aggregate net production estimated for August. Net proved developed reserves are about 1.6 MMboe, based on internal estimates.

Viper estimates the assets include 223 gross horizontal locations using 7,500-foot laterals across multiple development horizons. Further development potential might exist in the Spraberry, Wolfcamp and Bone Spring and through additional downspacing, according to a press release.

Since closing its IPO in 2014, Viper has acquired 1,464 net royalty acres for $177 million including its most recent acquisitions. The company’s footprint will total 5,357 net royalty acres in the Permian at the close of the Delaware deal.

During the second quarter, Viper said the operators of its Spanish Trail mineral interests brought eight gross horizontal wells online. The wells consisted of six Lower Spraberry and two Wolfcamp A completions.

The operators of Viper’s Spanish Trail acreage have built an inventory of 35 drilled but uncompleted wells as a result of low commodity prices during the first half of 2016, the release said.

Despite a decrease in completion activity through most of the first half of the year, Viper expects to exit 2016 in a “position of strength,” said Travis Stice, CEO of Viper’s general partner. Stice is also Diamondback’s president and CEO.

“We are excited about the recently announced acquisitions as Viper Energy Partners continues our track record of opportunistic expansion in the most actively developed areas of the Permian Basin. The assets are ideally suited for Viper’s blend of growth and yield, and are expected to be immediately accretive to cash flow,” Stice said in a statement.

Viper plans to maintain its full-year production guidance of 6 Mboe/d-6.5 Mboe/d for 2016.

The company's equity offering includes 7 million common units with a 1.05 million share greenshoe. Credit Suisse Securities (USA) LLC is the offering's sole book-running manager.

Diamondback said it will purchase up to 5 million units that are not bought in the offering. The company currently owns 88% of Viper's units.

The Delaware acquisition remains subject to completion of due diligence and satisfaction of other closing conditions. Should the transaction not close, equity offering proceeds will be used for general corporate purposes and to repay Viper's revolver which had $132.5 million drawn as of July 22.

Emily Moser can be reached at emoser@hartenergy.com.