Viper Energy, Inc. Class A Common Stock 2026 Q2 Earnings Call

Good morning and welcome to Viper Energy's second quarter 2026 conference call. During our call today, we may reference an updated investor presentation which can be found on Viper's website. Representing Viper today are Kaes Van't Hof, CEO, and Austen Gilfillian, 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 Kaes.

Thank you, Chip. Welcome everyone, and thank you for listening to Viper's second quarter 2026 conference call. The second quarter continued the trend of strong execution for Viper, highlighted by steady development activity from both Diamondback and our third-party operators across our asset base. During the quarter, operators turned 691 gross horizontal wells to production on our acreage, in which Viper owned an average 3% net revenue interest. As a result of this strong activity, as well as our continued execution on our acquisition strategy, we have initiated average production guidance for the third quarter that implies roughly 4.5% growth relative to the second quarter. Importantly, the midpoint of our third quarter guidance implies an approximate 15% annualized growth rate in oil production per share relative to the fourth quarter of 2025.

Strong underlying organic growth, combined with accretive acquisitions and opportunistic share repurchases, is fundamental to Viper's value creation proposition. Turning to return of capital, for the second quarter, we are returning 75% of available cash for distribution to stockholders. This return of capital includes $132 million in share repurchases completing during the quarter, as well as a combined base plus variable dividend of $0.67 a share. Looking ahead, yesterday we announced an important evolution in our return of capital strategy. Going forward, we will be shifting to a framework which includes a high base dividend and greater flexibility in how we allocate the balance of cash available for distribution. Effective beginning in the third quarter, our board approved a 32% increase to our base dividend, now up to $2 per Class A share on an annual basis.

With this increase to the base dividend, we also announced that beginning in the third quarter, we will be removing our previous quarterly commitment to return at least 75% of cash available for distribution. First and foremost, we believe this new outsized base dividend, rather than a variable payout that fluctuates with commodity prices, best showcases what is truly unique about Viper. At our current share price, the increased base dividend implies an annualized yield of approximately 4.5%. This yield remains meaningfully above the average of our E&P peers and is underpinned by one of the lowest dividend breakevens in the sector. Given our zero required capital expenditures and long-lived asset base, we believe the durability of this dividend should be compared to the most durable business models in the market, not just our energy peers.

The base dividend is sacrosanct, and we are committed to prioritizing steady growth of this base dividend over time. Beyond the increased base dividend, we remain committed to returning a significant amount of capital to our shareholders through the cycle. While we are removing the quarterly commitment to return at least 75% of cash available for distribution, there's a solid floor under our returns, given the increased base dividend represents approximately 50% of free cash flow at $70 a barrel WTI. However, the flexibility created by retaining excess cash flow during periods of higher commodity prices will allow us to opportunistically repurchase shares, reduce debt, or pursue a disciplined M&A strategy. There are extremely attractive investment opportunities ahead today for Viper, and we believe that allocating incremental capital through a cyclical lens will create long-term stockholder value.

In short, we do not believe the market is currently valuing the variable dividend framework, and as such, have put that mechanism aside for now. In its place, we believe our new capital allocation framework will better highlight the attractiveness of Viper's dividend and enable a more compelling growth outlook to be paired with the existing yield. Operator, please open the line for questions.

Yeah, Betty, a lot in that question. I'll start with the base dividend move. Certainly not something we take lightly. The board looked at this and the data surrounding this decision in great detail. We kind of all came to the conclusion that the cash distribution yield was not being rewarded by the market. Instead, we figured that a very high base dividend yield that is higher than majors, higher than our E&P competitors, higher than midcap E&Ps, higher than utilities, but with a utility level of protection, should be something that gets rewarded by the market. For us to have a 4.5% base dividend yield today, at today's stock price, that's protected to $30 a barrel, that's about as secure a dividend as you could possibly find in the market, and certainly the most secure you can find in oil and gas.

I think what's interesting is that Viper is a business here that, if you look at slide four, has had a 17% CAGR in per share growth. That excludes price impacts, right? This is just production per million shares. Viper's valuation today absolutely does not reflect that reality. I think the other interesting thing is, in a year where people are questioning shale growth and how much longer can the Permian grow, you got Viper growing 15% in 2026 with zero reward from the market on that growth. What we decided is, okay, let's have a big base dividend and let's be able to repurchase a lot of shares at these levels. If the multiple goes up and the stock performs well, we pull back and use cash for deals or to fortify the balance sheet.

At the end of the day, this is about freely allocating capital to a business that I think is severely mispriced, particularly relative to its growth profile.

Yeah. Let me add a couple things to the rest of the original comments I made. I think the other point of this evolution is Viper's growing up into a real company and a real business that should be valued relative to S&P 500 comps. That's our stated goal, and I think it's just a natural evolution from the distribution model where we distributed all of our cash every quarter and needed to rely on equity financing to grow the business. Well, now, as an investor, you can say my 4.5% base dividend is set and growing and safe. The company now has flexibility to allocate the rest of the free cash to either deals or repurchase shares or the balance sheet, depending on which is the best value creation opportunity for the business.