MIDLAND, Texas - Viper Energy, Inc. (NASDAQ:VNOM), a subsidiary of Diamondback (NASDAQ:FANG) Energy, Inc. (NASDAQ:FANG), has entered into a definitive agreement to acquire mineral and royalty interest-owning subsidiaries of Tumbleweed Royalty IV, LLC. The transaction, valued at $650 million, includes $461 million in cash and approximately 10.1 million units of Viper Energy Partners LLC (OpCo), with an additional contingent cash consideration of up to $41 million based on 2025 oil prices.
The cash portion of the purchase will be financed through cash on hand, borrowings, and potentially capital markets transactions. The deal also involves an option to purchase an equal number of shares of Class B common stock of Viper Energy. The acquisition is expected to close early in the fourth quarter of 2024, subject to customary closing conditions.
Viper Energy also announced the completion of two related acquisitions earlier this month, totaling $189 million in cash, from Tumbleweed-Q Royalty Partners, LLC and MC Tumbleweed Royalty, LLC, with additional contingent payments tied to future oil prices.
The assets in question span approximately 3,727 net royalty acres in the Permian Basin, with a focus on the Midland Basin's core. The current production of around 2,500 barrels of oil per day (Bo/d) is projected to increase to about 4,500 Bo/d by 2025. Additionally, the development plan includes the completion of 120-140 gross locations by the end of 2026, which is expected to enhance Diamondback-operated production significantly.
The acquisitions are part of Viper's strategy to consolidate mineral and royalty assets, aiming to boost financial performance and long-term production growth. The acquired assets are expected to increase Viper's pro forma 2025 per share return of capital to Class A shareholders by an estimated 4-5%.
Travis Stice, CEO of Viper, expressed confidence in the transaction, citing the visibility into Diamondback's development plan and the anticipated production growth. Grant Wright, President of Tumbleweed Royalty, noted the natural fit of the assets with Viper's portfolio.
Financial advisory services for the transaction were provided by Intrepid Partners, LLC, with legal counsel from Akin Gump Strauss Hauer & Feld LLP and Wachtell, Lipton, Rosen & Katz. The sellers were advised by Vinson & Elkins LLP and Kirkland & Ellis LLP.
This acquisition is based on a press release statement and is expected to enhance Viper Energy's position in the Permian Basin by adding quality assets to its portfolio.
In other recent news, Viper Energy Inc. announced a public offering of 8.5 million shares of its Class A common stock to fund the acquisition of subsidiaries from Tumbleweed Royalty IV, LLC. Goldman Sachs & Co. LLC, BofA Securities, and Truist Securities are managing the offering. This acquisition is intended to expand Viper's asset portfolio in the Permian Basin.
Meanwhile, Diamondback Energy completed its merger with Endeavor Energy Resources, expanding its operational footprint in the Permian Basin. The merger is expected to enhance Diamondback's position in the North American oil market.
In terms of analyst ratings, KeyBanc Capital Markets maintained its Overweight rating on Diamondback Energy shares, citing the company's completed acquisition of Endeavor Energy Resources. The firm has updated its financial model for Diamondback, resulting in an increased estimated EBITDA for 2024.
In recent developments, U.S. shale companies, including Diamondback Energy, have been achieving higher crude oil production levels despite using fewer rigs. This trend is expected to contribute to an increase in global oil market supplies.
Finally, in its second quarter 2024 earnings call, Diamondback Energy emphasized operational efficiencies and financial flexibility, announcing increased production guidance and a raised capital expenditure budget. The company also detailed its strategy to manage gas price volatility in the Permian Basin and plans to reduce net debt through asset sales and organic cash flow.
InvestingPro Insights
As Viper Energy, Inc. strengthens its position in the Permian Basin through strategic acquisitions, its parent company Diamondback Energy, Inc. (NASDAQ:FANG) showcases a robust financial and operational status that could impact the long-term success of such ventures. According to InvestingPro data, Diamondback Energy has a market capitalization of $30.14 billion, indicating a strong presence in the market. The company's P/E ratio stands at 8.72, suggesting that the stock may be trading at a reasonable valuation relative to its earnings.
InvestingPro Tips highlight that Diamondback Energy has maintained dividend payments for seven consecutive years, which could appeal to investors seeking steady income streams. Additionally, the company's liquid assets exceed its short-term obligations, providing financial flexibility to pursue growth opportunities like the recent acquisition by Viper Energy.
On the operational side, Diamondback Energy's revenue growth over the last twelve months as of Q2 2024 stands at 11.34%, with an even more impressive quarterly revenue growth rate of 25.05% for Q2 2024. Such growth metrics underscore the company's ability to expand its operations effectively. It's worth noting that Diamondback Energy operates with a moderate level of debt and analysts predict the company will be profitable this year, which is consistent with the company's profitable performance over the last twelve months.
For readers interested in deeper analysis, InvestingPro offers additional tips for Diamondback Energy, providing insights into stock performance, financial health, and future earnings potential. More InvestingPro Tips can be found at: https://www.investing.com/pro/FANG.
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