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Diamondback's Viper Energy Acquires $1 Billion in Royalty Interests in the Permian Basin
09/25/2023
Viper Energy's deal, comprised of cash and equity, secures an additional 2,800 net royalty acres in the Midland Basin and 1,800 in the Delaware Basin.
Viper Energy Partners LP, a Diamondback Energy Inc. subsidiary, has inked a deal to acquire mineral and royalty interests in the Permian Basin. The deal, valued at around $1 billion, is with Warwick Capital Partners and GRP Energy Capital.
Viper was established by Diamondback with the purpose of owning, purchasing, and capitalizing on oil and natural gas assets in North America, specifically targeting mineral and royalty interests.
Deal Overview
Total Acquisition Value: Approximately $1 billion.
Payment Structure:
- $750 million in cash
- 9.02 million common units of Viper
- Subject to standard adjustments
Total Net Royalty Acres: 7,300 net royalty acres involved in the deal
Regional Focus:
- Permian Basin: Over 90% of deal's value and current production
- Midland Basin: 2,800 net royalty acres, primarily in Martin and Midland counties, Texas
- Delaware Basin: 1,800 net royalty acres, mainly in Reeves and Loving counties, Texas
Additional Acreage: 2,700 net royalty acres in other key basins, including the Denver-Julesburg
After the deal, Viper will control about 32,000 net royalty acres in the Permian Basin. Travis Stice, CEO of Viper’s general partner and Diamondback Energy, emphasized the acquisition's strategic value. He stated, "We believe the high-quality nature of our assets will position us to capture an increasing amount of activity, particularly within the Northern Midland Basin."
Market Outlook
Stice also mentioned Viper's intent to play a significant role in consolidating the fragmented mineral market. The deal is estimated to offer a greater than 15% 2024 unlevered free cash flow yield based on current strip prices and existing production.
Production Forecasts
The acquired interests currently yield an average production of 4,000 barrels per day (about 7,000 boe/d), with projections to rise to approximately 4,750 barrels per day (8,500 boe/d) by the full year 2024. These estimates are based on existing production and are considered more conservative than Viper's typical assumptions.
Financing Details
To finance the acquisition, Diamondback will purchase up to 7.22 million common units of Viper for $200 million. The remaining cash portion will be sourced from Viper's available cash, its revolving credit facility, and additional capital market transactions.
The acquisition is expected to close in the fourth quarter of 2023, with an effective date set for October 1, 2023. Stice highlighted the quality of the acquired assets and the opportunity for significant value for Viper and its unitholders.
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