Viper Energy Partners: Production Expectations Support Value

0

Ridwan Read/iStock via Getty Images

Viper Energy Partners (NASDAQ: VNOM) raised its full-year oil production forecast by about 4% as its royalty acreage saw strong activity from Diamondback and third-party operators.

Improved production Outlook helps to increase its value a bit compared to five months ago. I thought Viper was reasonably priced at the time for a $70 long-term WTI oil scenario. Viper appears to have a modest edge now that it is trading a little lower and has raised its production outlook.

I estimate the value of Viper (as a one-year target price) at $32 in a long-term $75 WTI oil scenario and $30 in a long-term $70 WTI oil scenario. Viper may also be able to set aside $3 per unit for distributions and unit redemptions over the next year, so its estimated total value (over one year) is approximately $33 to $35 per unit. .

Outlook 2022

Viper now expects average production of approximately 33,625 BOEPD (59% oil) in the second half of 2022. The midpoint of Viper’s forecast indicates roughly flat production growth from the second quarter. 2022.

This translates to a projection of $405 million in revenue (after hedging) at the current $91 WTI oil band for the second half of 2022.

viper hedges

Viper’s Hedges (viperenergy.com)

Viper’s covers for 2H 2022 have an estimated value of minus $15 million. This consists of $13 million in negative value from his natural gas collars and $2 million in premiums on his deferred premium put options.

Type

Barrels/Mcf

Realized $ per barrel/Mcf

Revenue (millions of dollars)

Oil (Barrels)

3,634,000

$89.00

$323

NGL (barrels)

1,225,440

$34.00

$42

Natural Gas (MCF)

7,965,360

$6.70

$53

Rental bonuses and other income

$2

Coverage value

-$15

Total

$405

This translates into a projection that Viper will have approximately $341 million in cash flow positive in the second half of 2022.

millions of dollars

Taxes on production and ad valorem

$29

G&A in cash

$4

Cash interest

$15

Cash taxes

$16

Total expenses

$64

Principal repayment

Viper has now increased its basic annualized distribution to $1.00 per unit. This translates to approximately $166 million per year, based on its combined total of common and Class B shares outstanding (as of the end of July 2022).

It also increased its capital repayment commitment to at least 75% of cash available for distribution. If Viper spent 25% on debt reduction, it would pay off its $85 million debt in the second half of 2022. This would also allow it to spend $173 million on unit buybacks and variable distributions after the $83 million. dollars for its basic distribution. . Thus, the total distribution for the second half of 2022 could reach $1.54 per unit.

Viper repurchased 1.0 million common units for $28.9 million (average price of $28.38 per unit) in the second quarter of 2022 and an additional 0.8 million common units for $20.1 million (average price of $26.51 per unit) in July 2022. It generally seems to reduce its number of units by an annualized rate of around 3% to 4%.

Notes on assessment

The increase in Viper’s production levels from the start of 2022 helps boost its value a bit. I now estimate the value of Viper at around $32 per unit (as a one-year target price) at $75 long-term WTI oil and $4.00 NYMEX gas. Since Viper may also invest approximately $3 per unit in stock distributions and buybacks over the next year (at a 75% return of capital rate), its total value is approximately $35 per unit. unity.

This assumes that Viper can maintain or slightly increase production levels from current 2H 2022 expectations for 33,625 BOEPDs in average production.

A $5 difference in long-term oil prices affects the estimated value of Viper by about $2 per unit. So, long-term at $70 WTI oil and $4.00 NYMEX gas, Viper’s one-year target price would instead be around $30 per unit, with distributions raising its total value to around $33 per unit. unity.

Natural gas prices have less impact on Viper’s valuation. A $1 change in long-term natural gas prices would change the estimated value of Viper by approximately $1 per unit.

Conclusion

Viper has increased its production guidance for 2022 due to strong activity on its royalty acreage. Rising production levels help support a value of around $30-32 per unit for Viper in a long-term WTI oil scenario of $70-75. In addition to the intrinsic value of the units, Viper should also have approximately $3 per unit to devote to distributions and unit redemptions over the next year, so this should factor into its value calculations. total.


Source link

Share.

Comments are closed.