Viper Energy Q3 Earnings Call Highlights

Key Points

• Production exceeded expectations: Third-quarter oil output averaged more than 69,000 barrels per day, up over 6% sequentially. Viper raised its 2026 production guidance midpoint to 67,500 barrels per day and forecast fourth-quarter output of 70,000–71,000 barrels per day.
• Strong cash generation supported shareholder returns: Viper generated $520 million in free cash flow in the quarter, declared a $0.50-per-share base dividend and repurchased $90 million of shares.
• Acquisitions expanded undeveloped inventory: The McElroy Ranch purchase and proposed Buckhorn deal add nearly 60 net locations across largely undeveloped acreage. Viper said it is funding growth primarily with cash, while aiming to reduce acquisition-related debt and retain flexibility for share repurchases.

Viper Energy NASDAQ: VNOM reported third-quarter oil production above the high end of its guidance range and raised its full-year 2026 outlook, citing contributions from recent acquisitions and continued development activity across its Permian Basin acreage.

Chief Executive Officer Kaes Van’t Hof said oil production averaged more than 69,000 barrels per day during the third quarter, representing growth of more than 6% from the prior quarter. Operators brought 689 gross horizontal wells online across Viper’s acreage during the period, including 123 wells operated by Diamondback with an average net revenue interest exceeding 9%.

The company generated $520 million in free cash flow during the quarter, equal to a free-cash-flow margin of nearly 80%, according to Van’t Hof. Viper declared a base dividend of $0.50 per share and repurchased $90 million of shares during the period.

Production Guidance Raised

Viper raised its full-year 2026 oil-production guidance to a midpoint of 67,500 barrels per day. It also initiated fourth-quarter guidance of 70,000 to 71,000 barrels per day, which would be roughly 1,500 barrels per day above third-quarter actual production and includes a partial-quarter contribution from the pending Buckhorn Minerals acquisition.

Van’t Hof said organic momentum continued even after accounting for acquired production. President Austen Gilfillian said Diamondback’s concentrated activity on Viper’s acreage remains a major contributor to growth and is expected to continue “for the foreseeable future,” though the company said it does not yet have extensive visibility into third-party operators’ plans for 2027.

Management also pointed to development in new zones, including the Barnett-Woodford interval, as a potential long-term driver of value. Van’t Hof said the company has generally acquired assets that it believes can outperform broader basin growth.

Acquisition Activity Expands Undeveloped Inventory

During the quarter, Viper closed the previously announced Riverbend transaction on July 1 and a drop-down transaction from Diamondback on Sept. 1. Diamondback accepted its consideration for the drop-down entirely in equity, increasing its ownership stake in Viper.

Viper also closed its acquisition of McElroy Ranch in September for $529 million. The deal added approximately 7,400 net royalty acres in Upton and Crane counties, with concentrated ownership of roughly a 12% net revenue interest across 60,000 gross acres in the western Midland Basin.

The McElroy Ranch acreage is more than 95% undeveloped and includes more than 40 net inventory locations, Viper said. Management expects the acreage to support its production profile and growth outlook over the next decade. Gilfillian said Chevron is the largest operator in the Barnett area associated with the acreage, although Viper does not have specific visibility into Chevron’s development schedule.

“We didn’t underwrite it to happen today or tomorrow,” Gilfillian said of expected development. “But over the next decade, as these inventory locations start to get developed, I think that’s going to create a lot of value for our shareholders.”

On the day of the call, Viper also announced an agreement to acquire nearly 1,600 net royalty acres in the Midland Basin from Buckhorn Minerals for $280 million in cash and 1.8 million Class A shares. About 80% of the Buckhorn acreage overlaps with Viper’s existing footprint, and the property is roughly 60% undeveloped, including exposure to the Driver Unit.

Van’t Hof said Viper estimates that nearly half of Buckhorn’s remaining inventory ranks in the top quartile of remaining Midland Basin inventory, while 70% ranks in the top half. Combined, the McElroy Ranch and Buckhorn transactions add nearly 60 net locations across largely undeveloped assets, according to the company.

Capital Allocation Emphasizes Cash-Funded Growth

Management said the acquisitions were funded primarily with cash, reflecting Viper’s revised capital-allocation framework. Van’t Hof said the company has completed more than $1 billion of transactions using cash during 2026 and expects to exit the year at approximately one-times leverage.

The company plans to retain a significant portion of incremental cash flow to reduce debt associated with the acquisitions. However, management said it intends to remain flexible with repurchases if it sees weakness in Viper’s stock price.

“If we see weakness in the stock price, we’re going to lean in and buy back shares,” Van’t Hof said, adding that the company’s free-cash-flow generation gives it flexibility to support dividends, repurchases, acquisitions and debt reduction.

Van’t Hof characterized Viper’s mineral and royalty business as one that needs continued growth opportunities, saying its revised framework was designed to preserve cash for accretive acquisitions rather than distribute all free cash flow each quarter. The company said it seeks to pair a high base dividend with longer-term growth in the dividend through expansion of its royalty asset base.

Surface and Infrastructure Opportunities Under Review

During the question-and-answer session, management also discussed possible opportunities involving surface acreage and Permian Basin infrastructure. Van’t Hof said Viper and Diamondback have completed the drop-down of the mineral assets currently known to sit at Diamondback, aside from potential smaller cleanup transactions.

He said the companies are evaluating the value and potential placement of Diamondback’s surface-related cash flows, while noting there was nothing to announce. Management said it has become more constructive on surface acreage opportunities, particularly properties with potential uses in oil-field development, data-center development or power generation.

Van’t Hof said Viper and Diamondback intend to remain active across “infrastructure, surface, minerals, midstream, upstream,” while maintaining flexibility in capital allocation at both companies.

About Viper Energy (NASDAQ:VNOM)

Viper Energy, Inc NASDAQ: VNOM owns mineral and royalty interests in oil and natural gas properties, primarily in the Permian Basin of West Texas and New Mexico. The company's interests are concentrated in the Midland and Delaware basins, two of the most active producing regions in the United States.

Viper generally does not operate wells or directly conduct drilling and completion activities. Instead, it leases its mineral interests to exploration and production companies and receives royalty, overriding royalty and other mineral-related payments from the sale of hydrocarbons produced on those properties.

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