Earnings call transcript: Viper Energy Q2 2025 beats earnings expectations

Viper Energy reported a stronger-than-expected performance for the second quarter of 2025, with earnings per share (EPS) reaching $0.41, surpassing the forecasted $0.36 by 13.89%. The company’s revenue also exceeded expectations, coming in at $297 million compared to the anticipated $287.21 million. Despite these positive results, Viper Energy’s stock saw a slight decline in premarket trading, with a 0.67% drop to $37.25. According to InvestingPro data, the company maintains impressive profitability with a 100% gross margin and a healthy 21% return on equity over the last twelve months. The stock is currently trading slightly below its Fair Value, suggesting potential upside opportunity.

Key Takeaways

• Viper Energy’s EPS outperformed forecasts by 13.89%.
• Revenue exceeded expectations by 3.41%.
• Stock price saw a slight decline in premarket trading despite positive earnings.
• The company announced a significant acquisition of SITIO Royalties.
• Plans to increase oil production by mid-single digits in 2026.

Company Performance

Viper Energy’s performance in Q2 2025 reflects its strategic initiatives and operational efficiencies. The acquisition of SITIO Royalties is expected to enhance its scale and inventory, positioning the company for future growth. Despite a challenging market environment, Viper Energy has maintained stable operations, particularly in the Permian Basin, supported by its relationship with major operators like Exxon and Oxy. InvestingPro analysis reveals the company operates with a moderate debt level and maintains strong liquidity, with current assets exceeding short-term obligations by 8.7 times. For deeper insights into Viper Energy’s financial health and growth prospects, investors can access the comprehensive Pro Research Report, available exclusively on InvestingPro.

Financial Highlights

• Revenue: $297 million, a 3.41% increase over expectations.
• Earnings per share: $0.41, beating forecasts by 13.89%.
• Cash distribution: $0.56 per share returned to stockholders.

Earnings vs. Forecast

Viper Energy’s EPS of $0.41 surpassed the forecast of $0.36, marking a 13.89% positive surprise. This performance reflects the company’s ability to execute its strategy effectively, building on previous quarters’ results. Revenue also exceeded expectations, with a 3.41% surprise, indicating strong operational performance.

Market Reaction

Despite the positive earnings report, Viper Energy’s stock experienced a slight decline of 0.67% in premarket trading, dropping to $37.25. This movement could be attributed to broader market trends or investor caution following the announcement of the SITIO Royalties acquisition.

Outlook & Guidance

Looking ahead, Viper Energy expects its average production for 2026 to increase by mid-single digits. The company also plans to return 100% of excess cash to shareholders once its net debt target of $1.5 billion is achieved. The company currently offers an attractive dividend yield of 6.59%, with dividend growth of 34.24% over the last twelve months. InvestingPro subscribers can access additional insights through 8 more ProTips and detailed financial metrics that help evaluate the sustainability of these returns. Additionally, Viper Energy is considering non-core asset sales to accelerate debt reduction and is exploring the potential for a base dividend increase in the next quarter.

Executive Commentary

CEO Kay Spantoff emphasized the company’s focus on creating shareholder value through strategic growth and capital allocation. "Our job is to make the business look cheap by executing on either growth or reduction in share count," Spantoff stated. He also highlighted the importance of AI and machine learning in improving operational efficiency, stating, "The AI revolution and machine learning are going to be two very important pieces to review 35,000 wells a month to make sure you’re getting paid right."

Risks and Challenges

• Market volatility could affect stock performance despite strong earnings.
• Integration risks associated with the SITIO Royalties acquisition.
• Fluctuations in oil prices impacting revenue and profitability.
• Potential regulatory changes affecting the energy sector.
• Dependence on third-party operators for production growth.

Q&A

During the earnings call, analysts inquired about the company’s capital allocation strategy and potential for share buybacks. Viper Energy indicated a preference for buybacks given the current stock valuation. The company also discussed its interest in mineral asset acquisitions post-SITIO merger, emphasizing a patient approach.

Full transcript - Viper Energy Ut (VNOM) Q2 2025:

Conference Operator: Good day, and thank you for standing by. Welcome to the Piper Energy second quarter twenty twenty five earnings conference call. At this time, all participants are in a listen only mode. After the speakers’ presentation, there will be a question and answer session. To ask a question during the session, you will need to press 11 on your telephone.

You will then hear an automated message advising your hand is raised. To withdraw the question, please press 11 again. Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your first speaker today, Chip Seal, Investor Relations Director. Chip, please go ahead.

Chip Seal, Investor Relations Director, Viper Energy: Thank you, Felicia. Good morning, and welcome to Viper Energy’s second quarter twenty twenty five 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 Kay Spantoff, CEO and Austin Gilfillan, President. 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 will now turn the call over to Case.

Kay Spantoff, CEO, Viper Energy: Thank you, Chip. Welcome everyone and thank you for listening to Viper Energy’s second quarter twenty twenty five conference call. Despite oil price volatility in the second quarter, Viper delivered strong oil production growth both on an absolute and per share basis. After closing the transformative dropdown transaction from Diamondback on May 1, we remain excited and highly confident about the meaningful organic growth that Diamondback can drive on our concentrated royalty assets over both the short and the long term. This symbiotic relationship uniquely positions Viper as one of the few companies in North American energy that is expected to deliver organic growth over the coming quarters and years.

As previously announced, during the second quarter, we also announced a definitive agreement for Viper to acquire SITIO royalties in an all equity transaction. SITIO will be hosting their shareholder meeting to vote on a proposal to approve the merger on August 18. And if approved, we expect to close the merger shortly following the meeting. As a reminder, this transaction adds substantial scale and inventory depth for Viper that will support our production profile over the next decade, while also offering meaningful and immediate financial accretion. Following the expected close of the Sitio acquisition later this month, we remain highly confident in our organic growth trajectory that it will continue into 2026 at current prices, led by over 15% expected year over year growth in our Diamondback operated net oil production.

We expect full year 2026 average production to increase by a mid single digit percentage from our expected pro form a Q4 twenty twenty five production levels, which is the first quarter of Viper plus Citio consolidated. Importantly, based on this production outlook, we would expect our oil production per share for full year 2026 to be approximately 15% higher than full year 2025, highlighting the unique combination of organic growth and accretive acquisitions. Moving to return of capital, we are going to return $0.56 a share to stockholders this quarter, primarily in the form of our base plus variable dividend, which represents 75% of our cash available for distribution. As announced with the CTO acquisition, our pro form a net debt target is $1,500,000,000 which represents approximately one turn of leverage at $50 WTI based on expected pro form a production levels. We’re committed to maintaining a fortress balance sheet, but we see $1,500,000,000 as the right amount of permanent leverage for Viper as a royalty business given we have limited operating costs and no CapEx.

Therefore, in the coming quarters and years, should net debt be at or below $1,500,000,000 stockholders should expect us to return all excess cash up to 100% of available cash for distribution generated in a quarter. In conclusion, we continue to believe that Viper presents a differentiated investment opportunity within the broader energy space. Our relationship with Diamondback remains strong and a distinct competitive advantage for Viper. We believe Viper’s unique ability to deliver sustained per share growth with zero capital and only limited operating costs will result in a differential ability to return increasing amounts of capital to our shareholders over the long term. And the proposed Sitio acquisition only enhances our position as we look to compete with mid and large cap E and Ps for investor dollars, attention and access to capital.

Operator, please open the line for questions.

Conference Operator: Thank you. At this time, we’ll conduct the question and answer The first question comes from the line of Chris Baker of Evercore. Chris, please go ahead.

Chris Baker, Analyst, Evercore: Yes. Thanks. Kees, great to see the commitment to returning 100% of cash flow once you get to that $1,500,000,000 target. Maybe just help frame up the flexibility in terms of the path toward that target, whether it be organically or with perhaps non core asset sales?

Austin Gilfillan, President, Viper Energy: Yes, good question, Chris.

Kay Spantoff, CEO, Viper Energy: I think there are a couple of ways to go about that. I mean, the base case is the business can be generating a lot of free cash. If we split that return, 75,000,000,000, dollars 25,000,000,000 between equity and the balance sheet, we naturally get down to that $1,500,000,000 fairly quickly post CTO close. I think we’re probably we mentioned some of the non Permian assets could be considered non core to us and there’s been a lot of inbound interest that we haven’t been able to do anything about because the deal hasn’t closed yet. But I think it would be logical for us to look at an asset or two outside of the basin to kind of accelerate that.

I think we feel really good about the balance sheet where it is today. I think we’re also very cognizant of where the stock’s trading, and I think it’s extremely undervalued versus what we expect the growth profile to look like over the coming years. So I think we’re going to balance a mix of probably a couple of non core asset sales combined with free cash generation, but also a heavy dose of buybacks here when we’re permitted to post close.

Chris Baker, Analyst, Evercore: Yes, that’s great. And then I guess just hitting on that last point, how are you thinking about the mix of buyback versus variable on top of the base dividend? Is it fair to think that we could see most of that variable cut in favor of buybacks just given where the stock is today?

Kay Spantoff, CEO, Viper Energy: Yes. I mean, I think we’re going have to look at how many days we’re allowed to buy back before buyback window closes and when the Sitio deal actually does close, which we expect in the coming weeks. But yes, I mean, I think generally we prefer that Viper be a distribution vehicle. But when there are these dislocations, think it’s great to have a pure free cash flow vehicle to be able to allocate more cash to other forms of return of capital without worrying about CapEx commitments.

Chris Baker, Analyst, Evercore: Great. Thanks, guys.

Conference Operator: One moment for your next question. The next question comes from the line of Betty Jiang of Barclays. Betty, please go ahead.

Betty Jiang, Analyst, Barclays: Thank you. Good morning again. I want to ask about the third party operator activities. It’s quite impressive considering the broader industry slowdown that you’re seeing more activities running on the third party assets and increased backlog. Just want to see what you any color on that dynamic?

And do you think that level of activity is sustainable?

Executive, Viper Energy: Yeah, good question Betty. I think it’s a couple of things. One, going back to last quarter when we were kind of in the midst of some of the heightened volatility, we highlighted for standalone Viper what our exposure is to third party operators. And really the bulk of the existing production and activity is just a handful of really large caps, namely being Exxon, Oxy, EOG and Conoco. So I think those operators are folks that you would expect to stay pretty consistent with their development plan kind of through periods of volatility.

So that’s benefited us. Secondly, too, you’re kind of seeing some of these concentrated assets that we’ve acquired in some of the recent acquisitions of getting some activity on them. So it’s really been more of a drive in net activity while gross activity has been relatively flat. And then the third thing that I would flag, and you can kind of see it showing up in one of the pie charts on slide 12, is we’re starting to see some of the benefit in those numbers from the Double Eagle development on the Reagan County asset that they have that development agreement in place with Diamond Bag to drive some growth on what was a very concentrated asset in the dropdown.

Betty Jiang, Analyst, Barclays: Great color, thanks. So a follow-up to that is, if I look at your 2026 production growth outlook of the mid single digit growth, I believe that’s really underpinned by Diamondback operator activities. Based on what you currently see with a third party activity, do you think could there be upside to that growth trajectory in ’26?

Austin Gilfillan, President, Viper Energy: Yeah, think so. So that mid single digits is really 3,000

Executive, Viper Energy: or 4,000 barrels a day of growth if you’re thinking about it on an absolute basis, which is entirely driven by the growth that we see coming from the Diamondback operated side. So as we look at it today, if you maintain like historical permit conversions and timing and such, I think current activity on the third party side would be a little bit of growth actually relative to the baseline of being flat. But a lot of things can change and there’s certainly a lot of volatility in the market. So we’re still kind of guiding to third party volume staying flat, but we are really encouraged by the activity levels that we’ve seen over the past couple of months.

Betty Jiang, Analyst, Barclays: That’s great, thank you.

Conference Operator: One moment for your next question. The next question comes from the line of Neil Mehta of Goldman Sachs. Neil, please go ahead.

Neil Mehta, Analyst, Goldman Sachs: Yeah, good morning team. Just want your perspective on some of the non core or I should say non Permian stuff in the CTO portfolio. Your perspective on how are you evaluating how much of that ultimately stays versus gets monetized? This has historically been a Permian pure play asset. How important is that for you as you think about the long term of the business?

Kay Spantoff, CEO, Viper Energy: Neil, I mean, I think we still see our combined business as a long term Permian only business. But I think we’ve done a lot of deals over the past years and in some instances, we’ve sold assets immediately post close to pay down debt or just to clean up the asset base. I think in this situation, given that it’s minerals and it’s really heavily PDP weighted, we’re probably going to be pretty patient on some of the larger positions, particularly knowing that the buyer universe is strong, but the buyer universe is going to underwrite strip and with the strip weak, we don’t have to sell assets here and might be patient waiting to sell some of the larger positions over the next few years.

Neil Mehta, Analyst, Goldman Sachs: And then on the flip side of case, you’ve been very clear about using this asset to consolidate. You have an advantage cost of capital even if it’s undervalued and you are the logical acquirer of a lot of royalty acreage. Is the opportunity set available and interesting? And how do you weigh that against, you know, the intensity of integration around Sitio asset that you’ll need for the next couple of months?

Kay Spantoff, CEO, Viper Energy: Yes, I think the integration is going to go pretty quickly. I think Sitio had a very clean business and some of the key employees are hopefully going to join us at some point at Viper. And so I think the integration won’t necessarily be the problem, but I do think as you think about uses of capital, we want to be patient at the Viper level given that we’ve done two large deals in six months and we expect those deals to be accretive and we expect the market to reward those deals for being accretive and that hasn’t happened yet. And so I think we need to hit numbers and be aggressive on our buyback and let things settle out for a little bit before doing anything large or strategic right away. There certainly are packages we’re very interested in.

Most of those are held in private hands, so they’re pretty patient. And so I think we need to show some clean a clean quarter or two pro form a for the CTO and show that we’re hitting our synergies and hitting our production targets and reducing our share count, all while paying a very large dividend.

Neil Mehta, Analyst, Goldman Sachs: Awesome. All right. Thanks, Keith.

Kay Spantoff, CEO, Viper Energy: Thanks, Neal. Sorry.

Conference Operator: One moment for your next question. The next question comes from the line of Paul Diamond of Citi. Paul, please go ahead.

Paul Diamond, Analyst, Citi: Thank you. Good morning, all. Thanks for taking the call. Just wanted to quickly touch base on so the 1.5 net debt target, once once hit, you know, even without any asset dispositions, does that shift your hedge strategy at all? Do you feel a need to maintain current levels or could we see that moderate a little bit or how would you, I guess how do you think about that post hitting that target?

Executive, Viper Energy: Yes, Paul, we’ve always kind of thought about our hedging strategy as locking in a certain amount of downside protected cash flow that even if things really go south, you have some level of protection and leverage isn’t going to blow out on you. So I think we’ll continue to hedge probably in this consistent form of the deferred premium puts. So really just as debt goes down or net debt goes down, you just need to hedge less barrels to lock in the required amount of downside protected cash flow to solve for a cap on leverage.

Paul Diamond, Analyst, Citi: Got it, makes sense. Okay, and then just shifting a little bit, I know you talked about this a touch, but just in the back half of the year post CDO close, I guess how should we think about the that 75% of distributable cash to be split between the variable versus buybacks? I mean, there seems to be a pretty big dislocation in the equity right now. Are you thinking about leaning in more in that direction? Or I guess, how do you think about that for between now and year end?

Kay Spantoff, CEO, Viper Energy: Yes, I mean, I think it’s all going to be flexible, but there is a lot of cash and capacity to buy back shares here once we close the deal. I think we’re just going have to see how things unfold over the back half of the year. But that’s the beauty of a pure free cash flow business that’s actually growing is that there’s capacity to do both. I think today, think you’re hearing a strong message from us that we would lean into buybacks over a variable today.

Paul Diamond, Analyst, Citi: Understood. Appreciate the clarity I’ll leave it there.

Kay Spantoff, CEO, Viper Energy: Thanks, Paul.

Conference Operator: One moment for your next question. The next question comes from the line of Derek Whitfield of Texas Capital. Derek, please go ahead.

Derek Whitfield, Analyst, Texas Capital: Good morning all, and thanks again for your time.

Executive, Viper Energy: Thanks, Derek.

Derek Whitfield, Analyst, Texas Capital: For my first question, I wanted to focus on the CitiO acquisition. While it’s hard to fully attribute stock performance to any specific development, VIM has underperformed several of its peers since the announcement. Are there any aspects of the acquisition that you feel are unappreciated by investors?

Kay Spantoff, CEO, Viper Energy: Yeah, mean, listen, I think the size and scale of the combined businesses is misunderstood, right? It’s hard to model mineral businesses because of you have a small interest in a significant number of wells. But I think if you combine the visibility we have with the Diamondback drill bit and the financial accretion associated with the trade, you start to see numbers go up. Listen, our job is to make the business look cheap by executing on either growth or reduction in share count. And over time, the market’s a weighing machine versus a voting machine.

And these higher per share metrics tend to prove out to be the right way to run a business long term. So I think while we often get stuck in the malaise of the short term, the long term path is very bright.

Derek Whitfield, Analyst, Texas Capital: Great. And then, Kaes, in past calls, City of Management has highlighted the substantial investment it has made in back office efforts to identify underpayment of royalties. Kind of been thinking about the levers that you guys have to pull for accretion. How much of that exists within Venom?

Kay Spantoff, CEO, Viper Energy: They’ve done some pretty interesting things on the automation side that we’re really excited to bring into our business. I think they’ve had to do it out of necessity given the number of wells they have interest in and that’s why we have a lot of confidence that we’ll be able to integrate that very quickly. I mean, I think in general, right, a lot of the administrative functions throughout our business in E and P and in minerals. The AI revolution and machine learning are going to be two very important pieces to review 35,000 wells a month to make sure you’re getting paid right. And I think it’ll accrue to our shareholders’ benefit long term as well.

Derek Whitfield, Analyst, Texas Capital: That’s great. I’ll leave it there.

Conference Operator: One moment for your next question. The next question comes from the line of Aaron Zelkosky of TD Cowen. Aaron, please go ahead.

Austin Gilfillan, President, Viper Energy: Thanks. Good morning, guys. So your presentation outlines an expected 5.9% NRI in Diamondback operated wells through 2029. I guess my question is, do you expect that NRI to be fairly consistent across those years or do you anticipate a higher NRI in 2026 then see that taper off in the later years?

Executive, Viper Energy: Yeah, Aaron, think really the important metric is the net well count. And as we think about that on the Diamondback operated side, it’s really a function of two things. It’s one year exposure to total Diamondback gross activity levels. And then secondly, your NRI within those wells. So we kind of laid this detail out with the dropdown given we have such increased alignment with the Diamondback Development Plan over an extended period of time given the overlap of that dropdown acreage.

So you’ll kind of see on slide 11 thinking about around 25 net wells per year over this time period. I would say that that certainly will be a touch front weighted. So if you think about twenty six and twenty seven, that’ll be biased a touch higher than that and that’s really gonna drive the couple thousand barrels a day of growth that we’re talking about on an absolute basis. But really over a five year period it’s gonna be pretty consistent exposure to whatever DYNAVEX development plan is going to be. And that really underscores the confidence we have in the long term production growth outlook.

Austin Gilfillan, President, Viper Energy: Perfect. Thank you very much.

Conference Operator: One moment for our last question. The next question comes from the line of Leo Mariani of Roth. Leo, please go ahead.

Chip Seal, Investor Relations Director, Viper Energy0: Yes. I wanted to touch base on the debt target here. Do you guys anticipate hitting that? It sounds like in the relatively near future. Do you think that’s going to happen here in the ’26?

And then could you also just talk about the strategy of sort of dividends versus buybacks? Obviously, it sounds like you want to step up the buyback here given the weakness in the shares on a relative basis. But do you also see room for dividend increases in the back half of the year given the accretion from the mergers?

Kay Spantoff, CEO, Viper Energy: I mean, think it’s reasonable to expect that the Board will look at the base dividend and increasing that sometime in the next quarter or On top of that, just free cash flow growth overall from production growth and the accretion of the deal starts to roll through as well. And I think importantly, $1,500,000,000 net debt target and just saying, hey, we’re not going to hold on to a bunch of cash on top of that number. If we’re at that net debt number, we’re giving the cash back to shareholders. And I think that once that starts flowing through numbers, people are going realize how much cash they’re going get back from Viper over the next couple of years is going to be significant.

Chip Seal, Investor Relations Director, Viper Energy0: Okay. And then on the M and A side, obviously, sounds like you got a lot to still digest here. You haven’t closed CTO yet. You kind of made a comment here that perhaps you take it a little bit slower as you want to get maybe the stock price up a bit to kind of fully reflect the benefits of the acquisition. So I understand maybe you don’t have as much desire in the very near term, but can you

Kay Spantoff, CEO, Viper Energy: talk

Chip Seal, Investor Relations Director, Viper Energy0: about availability of deals out there? Are you seeing packages that are transacting? Obviously, oil prices have settled down a little bit after a pretty tumultuous second quarter.

Kay Spantoff, CEO, Viper Energy: Yes, it’s been pretty quiet for us, but it’s probably because we’ve been doing this large deal. I think most importantly, as I said earlier in the call, did two transformative deals in six months. We expect our investors to make money on those deals and that’s why we’re kind of signaling that we’d like to be patient on M and A and make sure our investors are made whole on the accretion that we all expect to come.

Derek Whitfield, Analyst, Texas Capital: Okay, thanks.

Kay Spantoff, CEO, Viper Energy: Thanks, Leo.

Conference Operator: This concludes the question and answer session. I would now like to turn it back over to management for closing remarks.

Kay Spantoff, CEO, Viper Energy: Well, thanks everybody for participating in today’s call, our second call without air conditioning, and I appreciate you making it shorter than the Diamondback call. Have a good day.

Conference Operator: Thank you for your participation in today’s conference. This does conclude the program. You may now disconnect.

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