Viper Energy Partners LP, a subsidiary of Diamondback Energy Inc., expects to increase 2019 production by 26% year/year to 21,500-22,000 boe/d as activity accelerates in the Permian Basin.
During the second quarter the partnership completed 35 acquisitions in the Permian for an aggregate purchase price of $44.2 million, which increased its mineral interests by 39% year/year to 15,870 net royalty acres.
Viper experienced “record levels of gross activity across our acreage position as represented by nearly 200 wells being turned to production with an average lateral length of almost 9,000 feet,” said general partner CEO Travis Stice. “This activity speaks to the quality of Viper's premium acreage position in the Permian and is highlighted by our 20% year/year production growth and 377 wells currently in the process of active development.”
In July, Diamondback turned to production 10 wells in the Spanish Trail formation, in which Viper has an average net royalty interest of 22%. That development “should drive strong organic growth in the second half of the year.”
The partnership also exchanged units and $150 million to acquire some of Diamondback’s mineral and royalty interests in a transaction valued at $700 million. The drop-down included 5,090 net royalty acres across the Midland and Delaware sub-basins; more than 95% is operated by Diamondback. Once completed, Viper’s mineral interests would total 20,960 royalty acres.
The acreage acquired has a 3.2% average net revenue interest that provides exposure to Diamondback's operations in each of its six core operating areas. The largest exposure is in Spanish Trail North, where Diamondback is running two rigs, as well as Pecos County, TX, where the producer is running six rigs.
“The recently approved drop down from Diamondback, which will be immediately accretive upon closing, is the largest deal Viper has done to date, and will increase production by over 20%, total acreage by over 30% and total acreage operated by Diamondback at Viper to roughly 50%,” Stice said.
During the second quarter, 198 gross horizontal wells with an average royalty interest of 2.1% were turned to production on Viper’s existing acreage position. Average laterals were 8,849 feet. Diamondback operates 54 of the wells, while 144 are operated by third parties.
At the end of June, Viper had 1,212 vertical wells and 2,889 horizontal wells producing on its acreage.
Average realized prices received in 2Q2019 were $54.81/bbl oil, minus 65 cents/Mcf natural gas and $18.33/bbl natural gas liquids.
“Realized oil prices improved in the second quarter of 2019 compared to the first quarter of 2019 as some of Diamondback's fixed differential contracts began to roll off and others moved closer to current Midland market prices,” management noted.
Based on current market differentials and estimated in-basin gathering costs, Viper expects to realize 88-92% of West Texas Intermediate oil prices for the remainder of 2019 and 100% in 2020.
Net income fell to $47.27 million (4 cents/unit) in 2Q2019 from year-ago profits of $128.46 million ($1.36). Net cash from operating activities declined to $101.7 million from $112.2 million.