Kimbell Royalty Partners’ $231 million deal to buy mineral and royalty interests in the Midland Basin in early January may presage a busy M&A year for mineral companies, according to a report from KeyBanc Capital Market analysts.

First up: An “imminent” $4 billion dropdown of Diamondback Energy to subsidiary Viper Energy, analysts Tim Rezvan and Jonathan Mardini wrote in a Jan. 12 research note.

“Diamondback management has been clear in messaging that it plans to do this drop early in 2025. Our December upgrade walked through a theoretical structure for a $4.5B drop,” the analysts said. “We did this work to assess management’s claim that a drop could be structured to send cash up to parent Diamondback, while also managing Viper’s leverage profile. We found that it was feasible, given the parameters management set.”

In the analysts’ “theoretical exercise,” a dropdown to Viper would funnel about $1.8 billion in cash to Diamondback, along with Viper shares. Diamondback’s net debt is currently forecast to end 2025 at $8.8 billion, or 0.8x leverage.

“Paying down $1.8B of debt would lower [Diamondback’s] YE25 leverage to 0.6x and should accrete more value to the equity,” the analyst said.

The valuation is based on limited detail of the minerals package: It generated $499 million in EBITDA in 2023.

“We believe the limited disclosure from Diamondback on this minerals package, both before and after closing the Endeavor merger, is intentional,” the analysts’ report said.

One impetus may be a flattish price for Viper shares and a fourth-quarter 2024 pullback in Diamondback shares, they said. Viper’s last deal was a $915 million acquisition of Midland Basin mineral and royalty interests from Tumbleweed Royalty IV LLC. Tumbleweed was founded in 2014 by Cody Campbell and John Sellers, the co-executives behind Permian E&P Double Eagle Energy.

Several other large minerals packages may also break free in 2025, the analysts said.

“We expect 2025 will be a year when several large minerals packages find their way into the hands of public minerals companies,” they said.

While 2024 proved to be a quiet year on the M&A front for most minerals companies under KeyBanc’s coverage, Viper was the only major acquirer. Overall, Viper did deals with Tumbleweed and its affiliates totaling about $1.1 billion.

“We expect to see transactions for multiple large minerals packages in/above the $500 [million] range get announced in 2025,” they said. “Recent discussions with industry participants highlighted multiple packages currently on the market. We believe Kimbell’s ability to win the bid for a $231 [million] Midland Basin minerals package may reflect conservatism by other industry participants who remain focused on larger deals.”

Kimbell’s successful equity issuance this January and Viper’s successful equity issuance last September show the marketplace is ready and willing to support companies making logically priced acquisitions, they said.

“We view Sitio as the most likely acquirer in 2025 (exViper dropdown), and we believe that the ‘scale begets scale’ thesis we have for growth-oriented coverage companies suggests that Kimbell may look to transact again in 2025, given its history of being aggressive when market opportunities present themselves,” the analysts said.

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