Uncoiled: Viper Energy Rides Investor, M&A Wave to New Heights in ‘24

In a sector gaining favor among generalist investors, Viper Energy sticks out in the public minerals and royalties space.

Viper, a subsidiary of Permian Basin E&P Diamondback Energy, is coming off a banner year that saw its stock hit an all-time high. And the company is already off to the races in 2025, inking a $4.45 billion drop-down acquisition from Diamondback, the largest transaction ever seen in the oil and gas minerals and royalties space.

Today, Viper is one of only two publicly traded minerals and royalties companies with a market value in the range of $10 billion.

Over the past year, Viper shares—up over 31% year over year—have outperformed the S&P 500 index (up ~19% YOY) and the E&P-weighted XOP index (down ~3% YOY).

“Really over the last 18 months, the story that we always saw has started to play out,” said Austen Gilfillian, who was promoted to president of Viper in late February.

Despite its outsize size and stature, Viper is a public company with no full-time staff itself. It’s managed by 25 or so Diamondback employees dedicating 100% of their time to Viper’s operations.

Viper’s existence is closely tied to Diamondback’s success. As of year-end 2023, Diamondback was the operator across 49% of Viper’s net royalty acreage.

Of Viper’s 381 gross horizontal wells turned to production in the fourth quarter, nearly a quarter were operated by Diamondback.

Viper’s unique relationship with a top-tier Permian operator like Diamondback gives investors certainty over the pace of future development.

Investors enjoy that certainty. They also like that minerals and royalties stocks are less exposed to drilling and completion costs, lease expenses and other pesky line items that pile up for E&Ps.

As investors have caught on, the public minerals market has grown notably in just the past few years. Viper has been one of the biggest beneficiaries.

But Viper’s outlook hasn’t always looked this strong. Minerals and royalties companies, like their E&P cousins, have fought arduously to regain attention—and dollars—from investors in the public markets.

Viper, much like its slithery namesake, has lied in wait for this window since being spun-out of Diamondback into its own publicly traded company in June 2014.

“I think you didn’t see the success for a long time, necessarily,” Gilfillian said.

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Unlocking value

Viper is among the most investible mineral and royalty stocks today, but that wasn’t always the case.

The company was formed in 2013—early in both Diamondback’s corporate history and in the horizontal development of the Permian Basin itself.

At that time, Diamondback’s core asset was Spanish Trail in western Midland County, Texas, near the Midland airport. When Diamondback began developing the Spanish Trail asset, there was one owner of the surface and mineral interests for the massive, contiguous, 10,000-plus-acre block of land.

“As Diamondback started developing it, the mineral owner, frankly, approached Diamondback,” Gilfillian said. “They said, ‘If you’re going to do this, does it make sense for you to just buy the minerals and the surface?”

Diamondback did just that in September 2013, signing a $440 million acquisition of mineral interests under 12,500 net (15,000 gross) acres in Midland County. Over half were operated by Diamondback.

A small portion of the deal’s value went to surface, with the vast majority dedicated to buying 100% of the mineral rights under the Spanish Trail asset, Gilfillian said.

But Diamondback, coming off its own IPO a year before, felt the public markets were ignoring the increased capital efficiency of having a 100% net royalty interest (NRI) under its core asset.  Operators typically retain around a 75% average NRI across their portfolios and have a 25% royalty they have to pay out.

Diamondback wanted a vehicle with access to public markets currency that could consolidate what executives saw as a tremendously fragmented minerals and royalties space, Gilfillian said. It also wanted the market to recognize the underlying value of its Permian mineral and royalty interests.

So, the Viper thesis was born and Diamondback’s den of snakes grew larger.

Viper made its IPO in summer 2014 with a portfolio of about 14,804 gross (12,687 net) acres in Midland County.

“That $440 million [Spanish Trails] purchase was spun-out in June 2014, a mere nine months later, for a $2.5 billion IPO,” Gilfillian said.

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Adjusting strategies

In hindsight, mid-2014 may not have been the best time for Viper to launch an IPO.

WTI prices collapsed over the next 12 months, dropping more than 47% from an average of $93.17/bbl in 2014 to $48.66/bbl in 2015, according to U.S. Energy Information Administration (EIA) data.

Crude oil prices ended 2015 below $40/bbl, the lowest levels since early 2009 during the onset of the global financial crisis.

The reverberating shockwave sent through the entire oil and gas economy spared few. Dozens of U.S. producers worked their ways through bankruptcy court proceedings in the following years. The downturn eroded investor capital, and investor faith, in the U.S. onshore oil and gas business.

Despite the macroeconomic complications surrounding its launch window, Viper Energy closed its IPO on June 23, 2014, at $34.23 per common unit. By December, Viper (VNOM) units had lost over half their market value. Viper units closed at $14.44 per unit on Dec. 5, 2014.

The units hovered in the range of $16.50 to $18 per unit for the next three years.

But factors other than low commodity prices were also holding Viper back, Gilfillian said.

When spinning out Viper through an IPO, Diamondback only sold 7% of the company to public investors. Diamondback retained the other 93% limited partnership interest.

But big, institutional investors and wealth managers need stocks with a lot of trading volume, or a “higher float,” so they can get in and out of a stock as needed without significantly affecting the share price.

Viper was still too small to be a blip on most investors’ radars.

“There was one day [in 2016] where Viper only traded 7,000 shares,” Gilfillian said. “Although you’re a public entity, that’s not a currency that actually works, right?”

“It’s hard for investors to get excited about buying a stock that has no liquidity, no float,” he said.

Viper had launched originally as a master limited partnership (MLP). But in May 2018, the company converted from a pass-through partnership into a taxable entity.

The change broadened Viper’s investor base quite a bit, Gilfillian said.

“It opened it up to some of the big mutual funds, the Wellingtons and Fidelitys of the world that you always hear about,” he said.

Other benefits from the change included income tax efficiencies and flexibility in planning A&D transactions. The move shielded Viper from certain taxes that would have been an increased burden after converting from an MLP, Gilfillian said.

Viper units saw a notable uptick in value and trading volume after the conversion in 2018, while the broader industry continued to weather through a downturn of low prices.

But there were still limitations after the change. Viper shares still couldn’t be included on key stock indexes and benchmarks.

And the gains Viper had made by converting into a taxable partnership were ultimately wiped out by the COVID-19 pandemic. On March 23, 2020, Viper units hit an all-time low of $5.18 per unit.

The pandemic was a time of resetting priorities for the U.S. upstream sector. Producers began to prioritize shareholder returns instead of spending cash flow to grow production.

E&Ps like Diamondback have benefitted from this post-pandemic “capital discipline” model. As investors came back to E&P stocks, they also warmed up to mineral and royalty stocks like Viper.

E&Ps were some of the best-performing stocks emerging from the pandemic. But the value of the minerals and royalties market grew at a similar clip, according to an RBC analysis.

Riding momentum from Diamondback and the Permian’s red-hot development, Viper converted from a taxable partnership into a Delaware state corporation in 2023.

It’s one of Viper’s most significant changes in recent years, Gilfillian said.

Converting into a corporation was aimed at growing Viper’s investor pool and trading liquidity, among other benefits like increased governance rights for limited partners.

Before changing to a corporation, Viper’s index ownership was less than 1%.

“As we sit here today, it’s north of 20%,” Gilfillian said.

Viper’s shares have since been added to the Russell 1000 and S&P 400 indexes.

“We’re in all of these indices that manage this passive money, and that’s what creates a lot of the churn in terms of liquidity,” he said. “So, now we have a real currency that works.”

Viper announced its intent to convert into a Delaware corporation on July 31, 2023; VNOM units traded at $27.12 per unit.

They were up about 60% as of closing on March 14.

“You just have a much more investible security as a corporation versus the partnership,” Gilfillian said.

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M&A mayhem

Viper has been one of the most active consolidators of mineral and royalty interests in the Permian Basin.

The company’s footprint of mineral and royalty interests was 35,671 NRA as of year-end 2024, entirely within the basin. Diamondback operated around 52% of Viper’s NRA footprint.

Viper remains wholly focused on the Permian right now.

In 2023, Viper spent around $1 billion in cash and equity to acquire mineral and royalty interests, mostly in the Permian, from GRP Energy Capital and Warwirk Capital Partners.

The GRP transaction added approximately 4,900 NRA in the Permian, and around 90% of the deal’s value was allocated to the Permian assets, Gilfillian said.

But the GRP deal also included 2,700 NRA in some other basins, including Colorado’s Denver-Julesburg (D-J) Basin.

“We were able to sell those other assets,” Gilfillian said. “For us right now, the opportunity in the Permian is so large that we don’t have a need to look anywhere else.”

Last fall, Viper agreed to spend about $1.1 billion for Permian mineral and royalty interests from subsidiaries of Tumbleweed Royalty IV.

Combined, the acquisitions represent approximately 3,727 net royalty acres in the Permian Basin—3,237 in the Midland and 490 in the Delaware.

Tumbleweed Royalty was founded by Cody Campbell and John Sellers, the co-executives behind Permian E&P Double Eagle Energy.

In February, Double Eagle IV agreed to a $4.1 billion sale to Diamondback.

The GRP and Tumbleweed acquisitions were both considered huge in the minerals and royalties realm. But those transactions pale in comparison to the transformational drop-down deal.

Diamondback’s $26 billion acquisition of Endeavor Energy Resources included a significant amount of mineral and royalty interests picked up over the years by Endeavor founder Autry Stephens. 

To reduce debt after the deal, Diamondback agreed to sell mineral and royalty interests associated with the Endeavor deal to Viper for $4.45 billion in cash and equity.

Alongside the Endeavor drop-down, Viper announced a smaller $330 million acquisition from Morita Ranches Minerals.

Collectively, the Diamondback drop-down deal and Morita acquisitions will add 23,100 NRA to Viper’s portfolio. Diamondback will operate over 70% of the incremental Midland Basin acreage.

Truist Securities analysts expect Viper’s 2025 production to grow nearly 60% year over year as it sees material upside from the drop-down deal and organic volume growth.

After the drop-down deal closes in the second quarter, Viper’s daily production will average around 48,000 bbl/d. Diamondback is expected to account for 31,000 net bbl/d of Viper’s oil production in 2026.

Gilfillian thinks Viper will see more interesting M&A opportunities this year. But the company is currently focused on closing the Endeavor drop-down.

“Right now, we’ve got our hands full,” he said.

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Emerging zones

Permian Basin mineral rights are the gift that keeps on giving.

Experts anticipate the Permian, with its layers and layers of stacked pay, will continue producing oil and gas from different benches for decades to come. Permian operators are in full manufacturing mode across the basin’s most popular Spraberry, Wolfcamp and Bone Spring benches.

But producers are also landing laterals in less developed Permian zones—like the deeper Barnett and Woodford intervals, or the shallower Upper Spraberry.

“I think we all feel really good about the productivity of the Woodford and Barnett,” Gilfillian said. “It’s really just the questions of cost and economics.”

The beauty of the minerals and royalties business model is that the mineral owner owns all depths in perpetuity, he said.

In the Permian Basin, mineral owners can have pretty good certainty that operators will eventually come back to develop those less popular zones. It’s just a matter of timing.

A good case study is when Diamondback looked to drill the Barnett bench underneath the heavily developed Spanish Trail asset—Viper’s original flagship asset.

Come 2023, Diamondback had effectively developed Spanish Trail from the Middle Spraberry all the way down to the Wolfcamp B.

“But the operators only maintain rights to how deep they’ve developed,” Gilfillian said. “And if you don’t meet a continuous development clause or whatever it is, the rest of the zones become available.”

So, Viper was able to lease Diamondback the rights to the deep zones below the Wolfcamp D, effectively just the Barnett and Woodford, for $100 million.

It’s just another added benefit of being a mineral owner in the mighty Permian.

“Whatever happens in the Permian Basin as we’re continuing to advance the science and learn more and find new zones, we’re going to get the benefit of that,” Gilfillian said.

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