VNOM - NASDAQ

Good day, and thank you for standing by. Welcome to the Viper Energy Partners' First Quarter 2023 Earnings Conference Call. [Operator Instructions]. Please be advised that today's conference is being recorded. And I would now like to hand the conference over to your speaker today, Mr. Adam Lawlis, Vice President of Investor Relations. Sir, please go ahead.

Thank you, Chris. Good morning, and welcome to Viper Energy Partners' First Quarter 2023 Conference Call. During our call today, we will reference an updated investor presentation, which can be found on Viper's website. Representing Viper today are Travis Stice, CEO; Kaes Van't Hof, President; and Austen Gilfillian, General Manager. During this conference call, the participants may make certain forward-looking statements relating to the company's financial condition, results of operations, plans, objectives, future performance and businesses. We caution you that actual results could differ materially from those that are indicated in these forward-looking statements due to a variety of factors. Information concerning these factors can be found in the company's filings with the SEC. In addition, we will make reference to certain non-GAAP measures. The reconciliations with the appropriate GAAP measures can be found in our earnings release issued yesterday afternoon. I'll now turn the call over to Travis Stice.

Thank you, Adam. Welcome, everyone, and thank you for listening to Viper Energy Partners' First Quarter 2023 Conference Call. The first quarter was a strong start for the year as Viper's oil production set a company record for a fourth consecutive quarter. The advantaged nature of this royalty business model was highlighted during the quarter as we maintained our strong free cash flow conversion despite the volatility in commodity prices. Further on that point, Viper's low operating costs and 0 capital requirements allow us to convert over 80% of our operating cash flow into free cash flow during the quarter. This measure compares favorably to many operators at around a 40% free cash flow conversion and insulates Viper's free cash flow profile in return of capital during times of commodity price volatility. Additionally, Viper announced it completed the drop-down transaction of certain royalty interests from Diamondback on operated properties located in Ward County. This transaction was a $75 million acquisition of an overriding royalty interest, representing 660 net royalty acres that will provide high NRI exposure to Diamondback's expected development plan in the Southern Delaware Basin. Production on the acquired asset was roughly 300 barrels of oil per day during the first quarter and is expected to increase through the remainder of the year to average over 500 barrels of oil per day for the full year 2023. Looking ahead, we have initiated average production guidance for Q2 and Q3 2023 that implies over 8% growth relative to the first quarter. Importantly, on an organic basis, so excluding the impact of the drop-down acquisition, production is growing at over 5% in this period, primarily as a result of large Diamondback operated ads with high Viper NRIs being turned to production. On the capital return front, Viper took advantage of the volatility experienced during the quarter due to our flexible return of capital program by opportunistically repurchasing over 1 million units. Since the inception of our unit repurchase program, we have now repurchased over 11 million units for an aggregate of roughly $250 million, reflecting an average price of under $23 per unit. In addition to the unit repurchases, our return of capital program during the quarter is going to also deliver a distribution that represents a roughly 5% annualized yield at today's price. In conclusion, the first quarter was an outstanding quarter for Viper and the forward outlook continues to improve as our high-quality asset base continues to attract outsized activity levels. Viper remains differentially positioned to grow production without having to spend a single dollar capital and with only limited operating costs. And as a result, we look forward to continuing to efficiently return substantial amounts of capital back to our unitholders. Operator, please open the line for questions.

[Operator Instructions]. Our first question will come from Neal Dingmann of Truist Securities.

Yes, I agree. Glad to see you all lean into the unit repurchase.

[Operator Instructions]. Our next question will come from Paul Diamond of Citi.

[Operator Instructions]. Our next question will come from Derrick Whitfield of Stifel.

No, that's right. I mean we got it done right around the ramp-up in production and then still quite a bit of visibility to some high-interest pads over the next couple of years. So it made a lot of sense for Viper, and I think Diamondback, to do a deal here this past quarter.

Our next question will come from Leo Mariani of ROTH MKM.

I was hoping you provide a little bit more color around this kind of additional $41 million of acquisitions that you guys did kind of apart from the $75 million drop down, was that just kind of a bunch of little stuff? In the aggregate, obviously, you commented that it's kind of hard to get deals these days given the overpricing in the markets. So maybe just some color around the recent $41 million of activity.

Yes, Leo, that was mainly a result of what we call -- kind of call our ground game acquisitions. So we're constantly out there talking to smaller mineral owners. We've seen a lot of competition on more than marketed deals like Kaes mentioned, on the middle market side. But on the smaller deals, kind of the nuts and bolts, picking up little pieces here and there. We've had a couple of more deals here. So we've been focused on areas where we like the rock, whether Diamondback is the operator or it's an active operator in the area. The [indiscernible] are mainly Pioneer, Exxon and Martin County. So still rock that we feel really good about and have a lot of confidence in what that forward outlook looks like. But certainly differentiated subset of deals than -- than the deals where we've seen so much competition.

[Operator Instructions]. Our next question will come from Tim Rezvan of KeyBanc Capital Markets.

And I'm seeing no further questions in the queue. I would now like to turn the conference back over to the CEO, Travis Stice, for closing remarks.

Thanks again for everyone participating in today's call. If you've got any questions, don't hesitate to reach out using the numbers we provided. Thank you again. Have a great day.