Viper Energy NASDAQ: VNOM said steady development activity across its mineral and royalty acreage supported second-quarter execution and prompted the company to initiate third-quarter average production guidance implying roughly 4.5% growth from the second quarter.
Chief Executive Officer Kaes Van’t Hof said operators brought 691 gross horizontal wells online during the quarter on Viper’s acreage, where the company held an average 3% net revenue interest. The midpoint of third-quarter guidance implies an approximately 15% annualized increase in oil production per share compared with the fourth quarter of 2025, he said.
The company also announced a revised capital-return framework centered on a higher fixed dividend and more discretion over the use of remaining cash flow. Viper raised its annual base dividend by 32% to $2 per Class A share, effective in the third quarter, while ending its prior commitment to return at least 75% of quarterly cash available for distribution.
Higher Base Dividend, More Flexible Capital Allocation
For the second quarter, Viper returned 75% of cash available for distribution to stockholders, including $132 million of share repurchases and a combined base and variable dividend of $0.67 per share.
Under the new framework, the company intends to prioritize a larger and more durable base dividend rather than a variable distribution tied to commodity prices. At the company’s current share price, Van’t Hof said the new annualized base dividend represents an approximately 4.5% yield.
“The base dividend is sacrosanct,” Van’t Hof said, adding that management is committed to steadily growing it over time. He said the increased dividend represents about 50% of free cash flow at $70 per barrel West Texas Intermediate crude.
Viper said it will retain flexibility to use cash beyond the dividend for share repurchases, debt reduction and acquisitions. Van’t Hof told analysts the company had concluded that the market was not adequately valuing its former variable-dividend approach.
“We do not believe the market is currently valuing the variable dividend framework,” Van’t Hof said. “In its place, we believe our new capital allocation framework will better highlight the attractiveness of Viper’s dividend and enable a more compelling growth outlook to be paired with the existing yield.”
Share Repurchases and Acquisition Funding
Management emphasized buybacks as a key use of capital while Viper believes its shares are undervalued. Van’t Hof said Viper repurchased slightly less than $150 million of stock during the second quarter and had continued buying shares at a similar daily pace before its blackout period.
He said there could be quarters in which the company returns all of its free cash flow through a combination of the base dividend and stock repurchases. If the market does not recognize Viper’s growth prospects, “we’re going to keep buying back and shrink the share count,” he said.
The updated framework also gives Viper more capacity to self-fund acquisitions rather than relying on equity markets for every transaction, Van’t Hof said. He described the larger asset-and-development market as unusually active, noting that Viper recently completed the Riverbend transaction and sees a broad set of potential opportunities.
President Austen Gilfillian said the company completed about $103 million of acquisitions during the quarter and announced an approximately $160 million dropdown from Diamondback Energy. He said Viper has gained traction in smaller “ground game” transactions while also evaluating larger packages.
- Viper sees a constructive acquisitions-and-divestitures market despite commodity-price volatility.
- Management said buying back Viper shares currently appears attractive relative to some acquisition opportunities.
- The company intends to allocate capital among deals, repurchases and balance-sheet management based on relative value.
Organic Growth and Permian Development
Gilfillian said the third-quarter production outlook incorporates approximately 2,000 barrels per day from Riverbend assets but still implies about 1,000 barrels per day of quarter-over-quarter organic growth. He characterized Viper’s overall 2026 organic growth outlook as high single digits after excluding effects from a non-Permian divestiture.
While he did not project a specific growth rate for 2027, Gilfillian said the company’s visible activity supports “some modest growth” from this year’s exit rate. Van’t Hof said Viper sees organic growth potential beyond 2027, particularly from Diamondback’s development of the Barnett formation.
Viper has historically captured roughly 75% to 80% of Diamondback’s gross activity, with an average net revenue interest of about 6%, Gilfillian said. Certain areas can carry substantially higher interests; he noted that some wells can have a 25% net revenue interest where Viper owns the full royalty.
Management highlighted Diamondback’s planned full-well-pad development targeting the Barnett formation in the Spanish Trail area. Van’t Hof said that if well performance and costs meet expectations, full-section Barnett development at Spanish Trail could rank in the top decile of Diamondback’s combined inventory based on returns and net present value.
Third-Party Activity and Emerging Formations
Gilfillian said third-party operator activity has remained generally consistent on a gross basis, though quarterly net results can vary. The company is focused on acquiring exposure to high-returning undeveloped Permian acreage regardless of operator, he said.
He added that rising Permian rig activity can accelerate the conversion of permits and drilled-but-uncompleted wells into production, bringing volumes forward for Viper. Management said the company benefits both from Diamondback’s development of Viper’s concentrated mineral interests and from broad exposure to other operators across the basin.
Viper has also seen increased leasing activity for deep rights in the Woodford formation in the Delaware Basin. Gilfillian said the company had spent approximately $25 million to $30 million on lease bonuses for deep rights, representing about one-third of its total leasing effort since early 2025. Such leases typically provide operators with a three-year development window, which management said could support future production growth.
About Viper Energy (NASDAQ:VNOM)
Viper Energy Partners LP is a publicly traded master limited partnership that owns and intends to acquire mineral and royalty interests in oil and natural gas properties. As a pass-through entity, Viper Energy Partners does not engage in drilling or production operations directly; instead, it generates revenues by holding overriding royalty interests, mineral fee interests and royalty fee interests. These interests entitle the partnership to receive a percentage of the proceeds from hydrocarbons produced and sold by third-party operators.
The partnership's assets are concentrated in the Permian Basin, with a primary focus on the Delaware Basin region of West Texas and southeastern New Mexico.
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