Viper CEO Says Diamondback's March Share Sale 'Sent The Wrong Message'
Kaes Van't Hof also called Viper a "grow or die business" and said it will buy back stock if the shares weaken.
Viper Energy CEO Kaes Van't Hof said on the company's third-quarter earnings call that Diamondback's sale of Viper shares in March was a mistake. Speaking with what he called his "Diamondback hat" on, he said "in retrospect, that probably sent the wrong message to the street."
A mistake, in his own words
Viper owns mineral and royalty interests, mostly in the Permian Basin, and collects royalties from operators who drill on the land. Diamondback provides its management and administrative services. A Goldman Sachs analyst asked whether the stock's performance this year had changed how management sees the relationship with Diamondback.
Van't Hof said he had been "very reflective this year on stock price performance relative to peers." He said Diamondback sold some Viper shares in March when oil prices spiked. "I'm not afraid to admit some mistakes," he said, adding that selling Viper "didn't make sense then."
He pointed to the September 1 drop-down, a deal in which Diamondback took its consideration entirely in equity and raised its stake in Viper, as the way the companies have tried to reframe their commitment to Viper ownership. He said the relationship "is strong and probably getting stronger," and that Diamondback could buy Viper shares when it is not blacked out from trading. Viper can do deals, buy back stock or hold cash, he said.
Cash deals and a promise on buybacks
Van't Hof described the royalty business as a "grow or die business." Under the return-of-capital framework Viper revised last quarter, he said, it has done over a billion dollars of cash deals this year and still expects to exit the year below one times leverage.
The company announced a deal with Buckhorn Minerals for nearly 1,600 net royalty acres in the Midland Basin. It will pay $280 million in cash plus 1.8 million Class A shares. In September it closed the McElroy Ranch purchase for $529 million, adding about 7,400 net royalty acres.
A Roth Capital analyst asked whether paying down debt from those deals would crowd out buybacks. "If we see weakness in the stock price, we're going to lean in and buy back shares," Van't Hof said. Viper repurchased $90 million of stock last quarter, and he said its debt relative to free cash flow is "second to none."
Guidance up, stock at $45.02
Van't Hof said oil production averaged over 69,000 barrels a day in the quarter, up more than 6% from the prior quarter. Viper again raised its 2026 oil production guidance, to a new midpoint of 67,500 barrels a day. It set fourth-quarter guidance of 70,000 to 71,000 barrels a day.
Free cash flow was $520 million, a margin of almost 80%, and the company declared a base dividend of 50 cents a share.
Viper shares traded at $45.02, down about 1.5%, in Tuesday trading as of 11:46 a.m. ET, for a market value of about $8.9 billion.
Viper plans to keep part of its free cash to pay down debt from the McElroy Ranch and Buckhorn deals, with buybacks tied to how the stock trades.
Sources
- Document — sec.gov
- Viper Energy GAAP EPS of $0.72 beats by $0.03, revenue of $661M (NASDAQ:VNOM) | Seeking Alpha — seekingalpha.com
- Viper Energy: Q3 Earnings Snapshot | 9news.com — Associated Press
- Document — sec.gov
- Viper Energy, Inc., a Subsidiary of Diamondback Energy, — globenewswire.com
