Viper Energy Partners LP Stock

Good day, and thank you for standing by. Welcome to the Viper Energy Second Quarter 2026 Earnings Conference Call. [Operator Instructions]

Please be advised that today's conference is being recorded. I would now like to hand it over to your first speaker today, Chip Seale, Investor Relations Director. Please go ahead.

Thank you, Amber. 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 previously -- 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 breakevens -- dividend breakevens in the sector. Given our 0 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, we 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.

[Operator Instructions] Our first question comes from Betty Jiang of Barclays.

Clearly, today's big news is the change in the cash return strategy. And I think it really reflects how the royalty model and business has evolved over the last many years. It started as a distribution vehicle, but Viper has shown growth, both organic and inorganic and while distributing strong cash flow through the years. I just want to unpack sort of your -- the rationale to change the cash return strategy today and how that's reflective of the value proposition that you see Viper offering in the long term? And then how do you think about Viper's competitive advantage against an E&P going forward?

Yes, Betty, a lot in that question. I'll start with the base dividend move. Certainly not something we take lightly, and the Board looked at this and the data surrounding this decision in great detail. And we kind of all came to the conclusion that the cash distribution yield was not being rewarded by the market. And instead, we figured that a very high base dividend yield that is higher than majors, higher than our E&P competitors, higher than mid-cap E&Ps, higher than utilities, but with a utility level of protection should be something that gets rewarded by the market.

And 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. And I think what's interesting is that Viper is a business here that if you look at Slide 4, has had a 17% CAGR in per share growth. And that excludes price impacts, right? This is just production per million shares. And Viper's valuation today absolutely does not reflect that reality.

And 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 0 reward from the market on that growth. So 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 or if the multiple goes up and the stock performs well, we pull back and use cash for deals or to fortify the balance sheet. But 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.

Yes. No, that makes a lot of sense and I do agree that a lot of the value is not getting recognized by the market and having more share buyback would be good. My follow-up will be sort of on the M&A strategy and funding of M&A. I think given the shift, there's also a move towards potentially self-funding deals going forward. And that's a difference from -- in the past where you guys have tapped into the public market. So how do you think about M&A financing have changed under this new framework?

Yes. So let me add a couple of things to the rest of the original comments I made. I think the other point of this evolution is this is -- Viper is growing up into a real company and a real business that should be valued relative to S&P 500 comps. And that's our stated goal. And I think it's just a natural evolution from -- and this ties to your other question, but the 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. But these guys -- the company now has flexibility to allocate the rest of the free cash to either deals or repurchase shares or balance sheet, depending on which is the best value creation opportunity for the business. And that kind of ties to the market we're in today. I've never seen an A&D market, certainly on the larger side of deals, that's been more available and the opportunity set is so large. So we obviously did the Riverbend deal. There's a lot of deals in the market.

We don't need to buy all these deals. But naturally, if we have an advantage in our modeling or what we see in the asset base, I think those deals should naturally come to us. And I think this flexibility in terms of base dividend going up, but less -- more cash to play around with gives us an opportunity to put more cash in deals or not have to tap the equity markets for every deal.

Our next question comes from Neal Dingmann of William Blair.

Maybe I'll just hit you with both since my first is pretty quick. My first quick one is just on the payout that you talked about, specifically, what percent do you believe is the most appropriate cash available for distribution kind of on a go forward? I mean I know that's been a little bit flexible, but what we think is most appropriate. And maybe just secondly, it's a little bit like Betty's second question, just on future strategy and more specifically, how do you all believe you can continue to take advantage of Viper's dominant size and strong balance sheet for opportunities going forward?

Yes. I mean, listen, I think there's going to be quarters where we distribute all of our free cash in the form of buying back shares plus a big base dividend when the market isn't rewarding Viper for the growth prospects we put out there. I think this is a market today where we've been in the market almost every day since over the last 2 or 3 months buying back shares. And if the stock doesn't respond, we're going to keep buying back and shrink the share count. So tying to the other side of the equation, it's been frustrating to watch Viper's valuation versus other royalty-like models in the basin, right?

This is a pure free cash flow stream. It's a bet on Permian Basin technology, productivity, activity and growth. And to see Viper trade where it trades relative to some of the non-commodity exposed royalty streams in this basin is flummoxing to me. So our mindset was basically let's put a big base dividend in place and let's buy back shares. If the market doesn't realize the value, we're just going to keep buying them back.

And that also applies to Diamondback. Diamondback is a large shareholder of Viper and Diamondback has a lot of free cash to do things with, too. And that could be buying more Viper because I just think we're pounding the table that relative to what else is out there, this is the best value proposition in E&P land or in the Permian in general.

Our next question comes from Paul Diamond of Citi.

Just wanted to touch base on -- so the new base dividend, does that over time -- is there any level of volatility over time that, that would really shift your hedging framework at all? Is there a level you would ramp up given concrete nature of the distribution now versus a relative one previously?

I think generally, we like having -- buying these $50 puts just to protect the extreme downside. Obviously, there's a huge gap between $50 and $30 oil where the base dividend is protected today. But we set the base dividend to grow and to grow meaningfully on a percentage basis. And I think as production grows, as share count shrinks, as debt gets reduced or as we do deals that are accretive, that provides more capacity for the base dividend to grow. So I think two different sides of the equation, but generally, the base dividend needs to grow, and we still like the puts in place to protect that extreme downside.

Got it. Makes perfect sense. And just one more, I guess, high-level strategic question. I talked in previous calls a bit about the opportunity set in your acreage from new and emerging benches. Is there any update there? Is there any more work done either at FANG level or some of the third-party stuff that would shift your view there? Or is that more just an emerging opportunity set?

Yes, Paul, I think the big emergence over the last couple of quarters has been, at least from a leasing perspective, on the Woodford and the Delaware. So we've had five or six quarters now where we've been extremely active leasing the Barnett and the Midland Basin. But the Woodford on the Delaware side has really picked up over the last couple of quarters. And I think if you look from probably the early part of 2025 to what we've done in the first half of 2026, it's pretty evenly split.

I think everything in the door now, we're probably $25 million to $30 million of lease bonuses just on deep rights there, which is about 1/3 of our total leasing effort over that time period. And that money upfront is good, but that also typically means a 3-year clock for operators to go start developing those minerals. So I think it's going to equate to more production growth over that time period as well.

Our next question comes from Derrick Whitfield of Texas Capital.

I wanted to start first with your production outlook. When you think about the growth in your net or in your near-term inventory in your line of sight wells and compare that to the amount of wells required to hold your production flat, what does that suggest about the underlying growth rate of the business on a consolidated basis as you look out to 2027?

Yes, Derrick, it's certainly strong. So if you just look at Q2 and then compare that to the guide for Q3, we incorporate the 2,000 barrels a day of production contribution from the Riverbend assets. But that still implies 1,000 barrels a day of quarter-over-quarter growth on purely an organic basis. I mean you can kind of do the math as well on what might be implied in Q4. And I think the takeaway there will be continued organic growth. So I think it sets us up for a really strong second half of the year.

And I think Slide 5 of the investor presentation for the first time lays out explicitly what Permian production was for Viper going back to the fourth quarter of last year as well as the first quarter of this year, stripping out the noise associated with the non-Permian divestiture, all in, you're looking at about high single-digit organic growth in 2026. I don't know if we'll maintain that level on a percentage basis going into next year. But certainly, the line of sight we have in terms of activity is going to support some modest growth off the exit rate this year.

Great. Certainly makes sense. And then maybe referencing an earlier call, the Diamondback call, you guys noted a four-well pad targeting the Barnett and Spanish Trail, which, again, exceptionally high NRI area for you. As you look further on the development curve, how much activity does Diamondback have planned there or other areas with very high NRIs?

I think generally, it's pretty consistent. There's really three parts of the equation. One is what is Diamondback gross activity levels; two, what is Viper's exposure to that gross activity levels; and three, what is our average NRI within those wells. So we've been extremely consistent going back over 5 years now of capturing about 75% to 80% of Diamondback's gross activity with around a 6% average NRI. I mean that gets skewed and you benefit from certain wells where you own the full royalty and get a 25% NRI.

So I think we still feel confident in maintaining that alignment with Diamondback here for the next couple of years. And hopefully, we'll have some encouraging results, which we expect to on that first Spanish Trail-Barnett development. And as you get more gross wells there with those high NRIs, that helps the net exposure quite significantly.

And here's what I'll add, we're wearing kind of two hats here, Derrick, is that if that pad produces how we expect and the costs come in how we expect, particularly since Diamondback not only has a high working interest in Spanish Trail, but Viper has the high NRI full section development in the Barnett will probably move to the top decile of our combined inventory in terms of rate of return plus NPV. So should the results be what we expect, we're going to mow down Spanish Trail very, very quickly in the Barnett.

Our next question comes from Jack Cavanagh of Goldman Sachs.

I appreciate your comments on the market not maybe rewarding Viper's value proposition at this point. And so I was just wondering if you could kind of overlay those comments with how you're viewing maybe the near-term outlook for opportunistic repurchases maybe relative to what we've seen this quarter and what we've seen historically from you guys and kind of what those levels could look like in the second half of this year?

Yes. I mean I think we did a little under $150 million in Q2. We've kind of continued at a similar daily pace. Obviously, it's hard during the blackout window to alter your pace much. But after the window opens, we'll see where the stock is in the next couple of days and be back in the market aggressively. I just -- I think we just fundamentally disagree that this should be a double-digit type yield, low double-digit type yield. And I recognize that oil prices were well above mid-cycle in Q2. But even if you look at a normalized price environment, which is how we look at everything, both Diamondback and Viper, the value proposition is pretty obvious. So I think generally, we'll be ready to step in here in a couple of days.

Got it. Appreciate that. And then maybe for my follow-up, just looking at 2027, obviously, really strong on the organic growth side. And then you've obviously mentioned there's maybe potential for inorganic opportunities as well. Beyond that, I'm wondering if there -- like beyond 2027, if you see the potential for continued organic growth or if you think the structure could shift more to a higher returns, higher yield scenario or kind of what you're kind of seeing as the organic volume growth outlook beyond 2027?

I think for what we can see, there's certainly organic growth potential beyond 2027, particularly led by Diamondback development of kind of the Barnett, right? That's going to drive the stuff we can see. I guess the bet on the rest of the basin is that the basin continues to grow and that we grow relatively higher to the rest of the basin. I think as we do our underwriting process for third-party acquisitions, that third party's inventory and the quality of their inventory goes into our calculus for what we want to buy and what we don't buy. And generally, we've outperformed the growth in the basin by buying minerals in the places that get developed first.

Our next question comes from Scott Hanold of RBC.

It looks like your development wells and line of sight wells stepped up pretty nicely this quarter, and a lot of it looks like third-party operated stuff. Can you give us some sense and color on what you're seeing there? Is it just the uptick in rig activity is aligning with the Viper acreage? Or is there some other dynamic there?

No, that's it, Scott. I mean, I would say, generally, third-party activity has been pretty consistent from a gross perspective. It kind of moves around from quarter-to-quarter on a net basis. But as Kaes just mentioned, we spend a lot of time and effort thinking about it from an operator's perspective of what is the highest returning projects they have ahead of them and how do we get exposure to that. So I think it's certainly not a coincidence in how you've seen our third-party activity trend over the last couple of years, and it's just representative of us targeting the highest quality undeveloped acreage that we can in the Permian Basin regardless of the operator.

Got it. Okay. And then I guess this one is for you, Kaes. Obviously, you're pivoting more to stock buybacks and you -- it feels like you all have some frustration on the Viper valuation -- if you step back and look at stock buybacks, whether it's in E&P or even with Viper, it doesn't seem that it quite move the needle. I mean I get the fact that there's more production or EPS per share for existing shareholders. But what would be the next step if buybacks don't do the trick in pushing Viper stock higher? Are there other alternatives you're evaluating?

Well, I mean, clearly, the move to more index inclusion was a big benefit to Viper a couple of years ago. We have our sights set and we -- obviously, you got to dream big. We'd like to get into the S&P 500 as a goal at some point. I think that opens us up to a broader investor universe. People start to pay more attention to the dividend yield and the size of the company. I understand the concept that stock buybacks, while a tool may not be a silver bullet.

But I think if you firmly believe you're buying back shares below NAV at a mid-cycle price and a reasonable rate of return, then whether someone buys the stock or not should result in value accretion to the rest of the shareholder base, of which Diamondback is a significant shareholder. So there's obviously other tools in the toolkit, but I think being a pure-play mineral company today is still the best position for Viper. I just think it's interesting to see people or investors pay 20-plus times for surface right royalties in the basin when the biggest mineral owner in the public space that's growing 15% a year trades at half that. And I just don't think that, that makes sense.

Our next question comes from Leo Mariani of ROTH.

I was hoping you could talk a bit more about what you're seeing with third-party operator activity trends. I think you mentioned on the call that you think the rig count in the Permian Basin is going to continue to sort of grow as we get kind of later in the year. So maybe you can provide a little bit more color around what you're seeing there.

Yes. We've seen rig count trend up. We've seen that in the basin, and we've seen that specific to Viper as well. And really, that gets reflected in the work in progress in line of sight wells. I talked about this pretty consistently, but really what's most impactful for Viper is the conversion rates of those, what percentage of the permits or the DUCs get converted to production and then also how quickly they do that. I think as rig count trends up, those existing permits get converted to production more quickly than potentially we underwrite, and that just brings forward some volume.

So I think we've positioned this business really well where we benefit from the growth of Diamondback and their focus on Viper's concentrated mineral interest and then also kind of a broad basin exposure to other third-party operators and whatever their activity levels may be and also whatever learnings they might have across the entire Permian Basin. So yes, we feel good about the third-party asset base and how it's performing, especially here recently with kind of where commodity prices have been.

Okay. I wanted to expand a bit more on the M&A side. It looks like you guys did about $103 million in M&A in the quarter, then you announced kind of $160-ish million drop-down from FANG. You talked about a pretty robust kind of M&A opportunity set. Can you provide a little bit more color about what you're seeing? Is it kind of a lot of smaller bite-sized deals? Are there bigger deals kind of starting to get floated? Just any more color on that would be helpful.

I think it's a combination of both. We really have gained a lot of traction over the last quarter or 2 on the ground game. Those are conversations we've always had. I think we've just had a little bit higher success rate on converting those into deals we're closing. So that's exciting, and it's a pretty core part of our business of bulking up and netting up and adding value around the edges. On the bigger packages, there were certainly a lot of calls over the last couple of months with sellers seeing where oil prices were or at least potential sellers.

I think Riverbend is reflective of a good type of deal that Viper can do pretty easily now. The volatility has not been helpful. That's for sure. But I think there's still a really constructive A&D market out there and Viper expects to play a very significant role within that. But as part of allocating capital today, if you think about all of the different uses, the investment opportunity in buying back shares looks pretty attractive relative to even what M&A might look like.

This concludes the question-and-answer session. I would now like to turn it back over to the CEO, Kaes Van't Hof, for closing remarks.

Thanks, everybody, for your interest in Viper Energy. I think we laid out a very clear future value proposition for our shareholders, and we look forward to delivering on it. So thank you.

Thank you for your participation in today's conference. This does conclude the program, and you may now disconnect.

Hello, and welcome to the Viper Energy First Quarter 2026 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. It is now my pleasure to introduce Director of Investor Relations, Chip Seale.

Thank you, Andrew. Good morning, and welcome to Viper Energy's First 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 Energy's First Quarter 2026 Conference Call. The first quarter marked a strong start to the year as production exceeded our expectations, and that momentum is carrying into an increased growth outlook for the remainder of 2026. And -- during the quarter, operators in our acreage turned more than 650 gross horizontal wells to production, led by Diamondback's 114 gross wells in the Midland Basin, with meaningful contributions from leading third-party operators across both the Midland and Delaware Basins.

Based on first quarter results and continued strong activity across our acreage, we are increasing the midpoint of our full year oil production guidance by roughly 2.5%. We expect growth to be driven primarily by Diamondback's acceleration of near-term activity and continued development of Viper's high-concentration royalty interest throughout the basin. Importantly, this increased production outlook represents over 5% organic growth relative to our pro forma 2025 exit rate. In addition to this organic growth, Fiber also continues to execute on our differentiated inorganic growth strategy. Yesterday, we announced the Riverbend acquisition in which Viper will acquire over 3,000 net royalty acres and approximately 2,000 barrels of oil production per day for $337 million in cash and 3.7 million Class A shares. These assets are highly complementary to our portfolio with roughly 75% overlap on our existing acreage and further increase our exposure to high-quality third-party public operators.

Turning to capital allocation. Our first quarter return of capital of $0.94 represents 90% of our cash available for distribution, and this is comprised of a $0.68 per share dividend and $0.28 per share of stock repurchases executed in the quarter. As we've outlined, we are committed to returning at least 75% of cash available for distribution, and our return of capital framework is designed to be both disciplined and flexible to fit the needs of our business.

Prior to the Riverbend acquisition, we had a further commitment to return 100% of cash available for distribution if we were at or below $1.5 billion of net debt. On that point, it's important to note that $1.5 billion net debt is not a static amount, but instead represents a capitalization mix designed to evolve with the continued growth of the business. Within our broader capital allocation strategy, we continue -- we will continue to invest in growing our business when the right opportunities present themselves. However, in periods where we are closer to our minimum debt mix, we will provide all that cash back to our stockholders.

In closing, Viper offers a differentiated investment opportunity within the energy sector. Our mineral and royalty model, deep inventory position in alignment with Diamondback support durable organic growth and strong free cash flow generation. Combined with disciplined capital allocation, we are well positioned to deliver sustainable per share growth and attractive long-term stockholder returns.

Operator, please open the line for questions.

[Operator Instructions] Our first question comes from the line of Greta Drefke with Goldman Sachs.

First off, I was just wondering if you could speak to the number of and scale of remaining pure-play packages available that Viper could potentially consolidate over time. Do you expect Viper's consolidation strategy to be the roll-up of smaller positions? Or are there positions with meaningful scale that Viper could evaluate over time?

Greta, thanks for the question. I think it's going to be both. This deal with Riverbend and kind of the first deal in this size range that we've executed in Viper's new pro forma size and scale, meaning post video and post drop down. I think it's a nice tuck-in acquisition, and we can execute on these very seamlessly. When you think about the opportunity size or opportunity set of deals in this size range, it's quite sizable, actually. And then in addition to that, there's a handful of larger opportunities. So we'll see how things play out. It's still tough to get deals done in this market, I would say. But as we've showed yesterday, there are ways for buyers and sellers to come together with the volatility to still get yields done. So I would say I'm cautiously optimistic, but the opportunity set both medium-sized and larger really by massive provider.

Yes. I'd say we think we've positioned ourselves to be the buyer of choice for those midsized to larger deals. I mean a deal like Riverbend would have been a very large deal for Viper 3 or 4 years ago, and now we're able to do it, able to finance it without going to the market. able to pay down that financing very, very quickly and not have a huge overhang on our stock. So very excited with the position that we're in I think it's pretty clear that any large private equity-backed mineral position that has been built over the last kind of 5 plus years is now considering an exit with oil prices where they are, I think we're clearly the buyer of choice but need to be disciplined in terms of our valuation framework. And getting this deal done with Riverbend is a good example of that, and then -- and hopefully more to come.

Great, that's very helpful. And then for my second question, I just wanted to follow up a bit more on Riverbend specifically. You outlined that about 75% of the asset base overlaps of the Viper's existing assets. I was wondering if you could provide any more detail on the quality and/or geological differences of the other 25% relative to Viper's position.

Yes. So the middle basin is going to be a lot of overlap. It's Midland Basin is almost 3 quarters, cost 70% operated by Exxon and Diamondback really kind of in the Midland glass Upton-Reagan area and a lot of undeveloped acreage, particularly under Exxon. So I would say that looks a lot like Viper desk today. The Delaware, the Texas Delaware looks pretty similar with some of the Reeves County assets under Permian Resources. For example, I would say what's different is probably some of the New Mexico assets. and that's the exposure that we outlined in our Conoco Oxy and EOG. So it's really a balanced mix. It gets a lot of what we like in the Midland Basin and get kind of some new exciting exposure in New Mexico that Viper historically hasn't had a huge presence in.

Our next question comes from the line of Betty Jiang with Barclays.

So I want to ask about capital allocation, given Diamondback is taking a more opportunistic approach on buyback. So can you speak to the capital allocation process decision-making for Viper in terms of both percentage of free cash flow being returned and the allocation of that cash return in the form of buyback versus variable dividend?

Yes, Betty, good question. I would say the difference between Viper and Diamondback still remains that because of the low cap versus 0 CapEx at Viper and the fact that this was taken public as a distribution vehicle, we still want it to be primarily a distribution vehicle where share repurchases are brought into the equation when we have a unique situation with unorthodox seller or a non-long-term holder of the stock or the stocks significantly depressed in terms of valuation versus Diamondback where you have an E&P business with CapEx and the different priorities in terms of free cash generation.

So we kind of went to this number where we're going to distribute at least 75% of our free cash every quarter. This quarter, we went with 90% because the balance sheet is in really, really good shape. And we'll see what happens in Q2. If we have this significantly higher prices throughout the quarter. I think we have flexibility to kind of return anywhere between 75% and 90% of free cash because we know that the excess free cash flow is going to pay down the Riverbend deal very, very quickly. So Viper's in a really good spot. But I would say overall, focused on more cash going out the door than repurchases and less need for debt reduction given the position of the business.

Right. That makes sense. My follow-up is actually something that you mentioned on the Diamondback call on sort of this resource recovery that we are on the cusp of a technical breakthrough that we could see reserve recovery increasing in the Permian. Clearly, that's beneficial for Viper -- yes, beneficial for Viper. Maybe just speak to, are you seeing any -- where are you seeing the productivity trends across Midland and Delaware? And whether -- how that potentially higher research recovery could help to drive Viper production growth in the future down the road as well.

Yes. Listen, this is, I think, a long-term mega theme, right? I don't have a ton of concrete examples today. Obviously, we've done some tests at the Diamondback level of surfactants and advanced chemicals, and those have been done on areas where we do have Viper interest. So Viper does get that benefit. It's immaterial today. But just using the crystal ball 4, 5, 6 years down the road here, could that be a material part of Diamondback's capital plan and therefore, Viper's production profile, I think that's entirely possible.

The other thing that is the key advantage that Viper has is being in 50% of the wells in this basin, we have a differential knowledge as to what everybody is trying across both sides of the basin. So as these tests continue, we will have differential information at Viper and hopefully leverage that to improve returns across both net companies.

And our next question comes from the line of Neal Dingmann with William Blair. .

My first question just on production guide. Besides the boost in Diamondback, could you just talk about what other sort of upside in third-party activity you're assuming?

Yes. I mean I'll give you a high level. We haven't booked a ton of third-party acceleration or faster development yet in our guide. I think I think it's likely to come, but we haven't seen -- we've seen the leading indicators. We haven't seen them kind of convert into DUCs and wells turning online. But I think if I was a betting man, today at these oil prices, things are going to accelerate throughout the basin.

Yes. I'd say it's 2 parts to the equation. One is the absolute amount of docs and permits that we have. And then the second part is how quickly those get converted to production. So it's easy to see in real time any increase that happens in the [indiscernible] and permit town. It's harder to get a deal for the quicker conversion rate. So right now, I would say we're getting the benefit of any increased permitting activity, but we haven't modeled increased rates of conversion. And really, that's going to be the biggest driver as you think how it impacts the next 6 months. So we're watching and monitoring things as they evolve, and we expect some things to come our way, but probably haven't fully baked in the acceleration benefit from third-party operators across the basin.

And then just secondly, just on the M&A side, case, wondering is after the -- what was it, I forget earlier this year, the prior sale, are you holding much that your Austen now would consider noncore at this time?

No. We cleaned up all the non-Permian assets and use that to put the balance sheet in perfect shape. And I think we kind of see a wave of private equity backed mineral companies going to at least try to test the market here over the next couple of quarters to a year. And I think we're pretty prime from a positioning perspective to take advantage of that.

Our next question comes from the line of Paul Diamond with Citi.

Just a quick touch on plus river bend in the M&A outlook. I know you guys talked about the availability of deals -- but I guess how much recent volatility really impacted the bid asks that the deals are different sizes? Are you seeing a bit more convergence to those large deals, which were the view as an example or as what you've seen on the volatility that be asked there?

We only have really 1 good data point with the Riverbend deal. And I think what's interesting about that deal is the strip is so backwardated that we can actually underwrite a relatively moderate flat oil price scenario for the NAV of that deal, call it, $65, $70 a barrel, and that actually isn't too far off from where the strip is. So you have the front end that's so high. So yes, we're paying a lower front year cash flow multiple, but we're not breaking our pick on NAV because the NAV is pretty tied to that long-term mid-cycle price that we're underwriting. So that's kind of a unique situation. I think Riverbend had on this position for a while, and they were looking for an exit. And and the stars aligned, and they were the first to make the move and credit to them, right? They've now got 3 million shares with stock that's up 8% to 10% from where we did the deal. And that's call a win-win. But the rest, I haven't seen anything else hit the market yet. I just know that it seems like the bankers phones are ringing off the hook to try to learn about what the market looks like versus hitting the market actively. .

Got it. perfect sense. Just 1 quick piece on cleaning up for housekeeping, I guess. Cash taxes a bit of run up with recent pricing at what point do you guys see? Is it still like a '27/'28 where things kind of kind of settled down like run rate out? Or is there, I guess, how much should that current volatility pulled back straight forward?

Yes. So the rate is not changing that much in itself. We still have the 27% to 30% of pretax income -- and that's really your kind of 21% statutory rate and you're just getting gained higher on an income basis, given you have a higher depletion rate from an income perspective than you do from a tax perspective. So first quarter taxes were higher as an absolute dollar amount than we guided to just because income was up. But we kind of expect that 27% to 30% to be a pretty steady rate going forward.

Our next question comes from the line of Derrick Whitfield with Texas Capital. .

Kaes, perhaps for you, just I guess more broadly, as you think about the green line environment for Diamondback, what degree of flexibility do you have in the development plan at Diamondback to lean more into the areas where Venom has higher NRIs for both '26 and '27.

Yes. I mean listen, I think the way we look at it remains the same. We do look at all of our inventory on a consolidated basis for the portion of Viper that Diamondback owns that moves the high interest area to the front of the development plan. I think if anything, over the next couple of years, given the quality of what we've seen in the Barnett, in your Spanish Trail I'd probably bet that, that area gets accelerated versus expectations over the next kind of 18 to 24 months as one of our best for net wells right offset Spanish Trail and it's very unique to have an area where you own 100% of the minerals.

So I think we have a 2-well tests coming on. It's been a 4-well test coming on in Spanish Trail -- later this year. But if I was a betting man, I would say that that's going to result in accelerated development of the rest of that ranch.

Great. That makes sense. And then maybe just more specific on 2026 guidance. Is it fair to think about the cadence of growth beyond 2Q as a steady build of maybe $1,000 per quarter to get to the average of $65 million.

Yes, I think that's directionally right. I mean, we'll see how things trend and if activity gets brought forward, that could move things a little bit. But I mean as we see things today, that seems directionally right.

Our next question comes from the line of Leo Mariani with ROTH.

I just wanted to revisit the question of sort of variable dividend versus buybacks. On the FANG call, you guys were pretty clear that you wanted to take more of a countercyclical approach. And when we're well above mid-cycle oil prices, which we certainly probably likely are here today that you would certainly lean more on paying down debt. Obviously, you don't really need to do that here at Advent. Should we be thinking about that similarly where at a higher mid-cycle oil price, you're much more likely to just push money to the variable dividend and the buyback could be a little bit more muted in the near term? Just any color on that would be great.

Yes. Leo, I think generally, you're correct. We're going to lean more towards cash returns at Viper. It's kind of how the business was set up. We haven't used a ton of leverage in deals particularly the drop-down [indiscernible], we pay off most of that [indiscernible] debt with the noncore asset sales. So in kind of the uses of free cash flow, Viper, obviously, base dividend, that's going to continue to grow. I put the variable dividend probably a little bit above repurchases just because that's how the business was set up. And I don't think we're going to sit on a bunch of cash at Viper given the strength of the balance sheet. So the decision tree becomes easier when you're a distribution vehicle versus kind of an overall NAV growth vehicle at Diamondback, where we're going to keep distributing cash. We're going to grow these per share metrics, and that should result in a higher stock price but also higher distributions.

Yes, Len, I think it really shines the advantage of the business model, too. When you have 90% free cash flow margins, it really allows you to do all of the above, right? You can pay a big dividend with a base plus variable, you can opportunistically invest in the business, whether that's buybacks or acquisitions. And then you could have targeted debt reductions, especially in times of higher commodity prices and you don't have to sit around as much and wonder which those options you choose, you can do all of them because when you look at your investment as a percentage of your operating cash flow, it's pretty low just given your margins.

Yes, it certainly makes sense. I wanted to jump back over to the Riverbend deal here. So you kind of did a good job kind of talking about where the acreage was in terms of the key operators remaining there. You kind of made a bit of a callable comment that some of the stuff under Exxon was a little bit more underdeveloped. I just wanted to get maybe a little sense of just kind of the overall flavor of the inventory there. Is it going to be a little bit more geared towards the emerging zones? Or is there still substantial, let's call it, core kind of legacy zones, Wolfcamp A, Wolfcamp B and whatever on the acreage. So just any color there would be great.

Yes. Most of the value will come from your core zones being undeveloped, especially in New Mexico and in the Midland piece. If you kind of look at a map and you look at the Midland glass cost line kind of in that what we call the Four Corners area there. There's a big chunk of legacy Pioneer now Exxon completely up acreage that I think will be the primary acreage that supports the production profile over the coming years. But as you dig in and you think about some of the unquantified zones that we didn't have to pay for, certainly, you're getting the emergence of the Barnett and the Midland and also the Woodford and the Delaware, kind of on the eastern edge of the Delaware Basin getting pretty excited about that now. So I think it's a good mix of existing production and also core undeveloped zones that you get the kind of quantified upside to go along with it. And that's kind of the beauty of the mineral business model.

Yes. No, that makes sense. And then just a follow-up there. So I know you gave some production numbers over the next 12 months, but just based on what you're describing, would you expect that if we kind of hang out at these oil prices that perhaps that production grows a bit over time? It sounds like there's enough inventory there to publicly grow that individual piece. Is that fair?

Yes. I think 27 probably grows and it's got a couple of years of slight growth. And then generally, if you zoom out and look over a 5- to 10-year period, it looks pretty flat. But certainly looks at higher than what the NTM production number that we put out.

Our next question comes from the line of Tim Rezvan with KeyBanc Capital Markets.

Some mine have been answered. So I just had 1 for you. we were a little surprised that the Fibers sale earlier this year was mostly Diamondback selling and not as many unnatural. So that overhang is still out there a bit. I'm just curious, is there a price at which you potentially wouldn't participate if some of these unnatural holders to come to market? Or how do you think about kind of dampening volatility, should they look to sell because shares are back up to about $50.

Yes. I mean it's a good question. I mean I think it kind of depends on the size of the deal and the nature of the trade. I think if it's a sizable deal and we need to participate to make sure it goes smoothly with public shareholders, then we want the long-term holders of the stock to win long term. So we know that, that's probably a good use of capital. If it's smaller one-offs, we probably don't need to support it given the higher float and liquidity of the business. So I think flexibility is key, size of the prize is also key. And we're well on our way to port continuing towards that goal, the S&P 500 as the business gets bigger, that's going to only help flow liquidity, ability to exit and ability to get deals done.

Okay. I appreciate the comment. If I could take a quick follow-up. You gave some comments Austen, on sort of the M&A outlook. We've heard from some minerals peers that all else equal, a higher strip is bringing sellers to market. So are you seeing that dynamic as well? Or are you facing a different dynamic because you're sort of elephant hunting with a couple of the very large packages out there?

No. I mean we've seen it on both levels. So we're still actively engaged in our ground game. And I think calls have picked up on that front. you would think surely as a result of where oil prices have moved. So we've seen it there on the smaller deals. And then we've also seen it, Kaes was mentioning before, the phones are definitely bringing on some of these mid to larger packages. I just can't predict yet today was the higher script or what the volatility means in terms of the ability to get deals done, but I think the supply is going to be there. So it's just key for us to stay disciplined. And we enter right deals where we can generate good returns. And I think if we do that, things will come our way over time.

Thank you. I'll now hand the call back over to CEO, Kaes Van’t Hof for closing remarks.

Well, thanks, everybody, for your time. A busy week, and thanks for your support of Viper Energy and the future is bright. .

Ladies and gentlemen, thank you for participating. This does conclude today's program, and you may now disconnect.

Good day, and thank you for standing by. Welcome to the Viper Energy Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions]. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] 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 Seale, Investor Relations Director. Please go ahead.

Thank you, Britney. Good morning, and welcome to Viper Energy's Fourth Quarter 2025 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 Kaes Van't Hof, 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 Kaes.

Thank you, Chip. Welcome, everyone, and thank you for listening to Viper's Fourth Quarter 2025 Conference Call. The fourth quarter capped a transformational year for Viper highlighted by more than $8 billion of mineral acquisitions and meaningful growth in both absolute and per share metrics.

Year-over-year, we grew our Permian Basin acreage by nearly 2.5x and our oil production per share by 7%. Activity across our Permian acreage remains strong, supported by Diamondback and third-party operators focused on development of long lateral high-quality inventory. Looking ahead, we've initiated average daily production guidance for the full year 2026 that implies mid-single-digit organic production growth from our Q4 2025 exit rate.

The Diamondback relationship continues to be strategic and meaningful to Viper's growth even after 2 significant acquisitions in 2025 and greater exposure to other leading operators in the Permian Basin. Beyond visible near-term growth, Viper is better positioned today than we ever have been in terms of the scale, longevity and overall quality of our asset base and future inventory.

Another significant achievement was the work we did on our balance sheet. Following our non-Permian divestiture, we fully repaid our $500 million term loan and outstanding revolver balance resulting in pro forma net debt of roughly $1.6 billion, just over 1 turn of leverage.

Now turning to return of capital. Our Board approved a 15% increase to our base dividend and a $1 billion increase to our share repurchase authorization reflecting confidence in our long-term cash-generating ability and disciplined capital allocation approach.

This base dividend represents approximately 50% of estimated 2026 free cash flow at $50 WTI and is fully covered below $30 WTI. This increased base dividend provides an attractive yield while also allowing us continued financial flexibility to optimize capital allocation through additional returns via a combination of our variable dividend and opportunistic share repurchases. Given the strength of our balance sheet, we returned 90% of available cash during the fourth quarter.

And now following the closing of our non-Permian divestiture, we are well positioned to increase our return of capital saw upwards of 100% of cash available for distribution. Importantly, we expect to execute on this comprehensive return of capital strategy while also continuing to deliver on differentiated growth in per share metrics.

I'm pleased with our accomplishments in 2025 and the strong position Viper is in today, but there's still much to achieve. Looking ahead, Viper is well positioned to generate strong free cash flow deliver attractive shareholder returns and continue to pursue accretive Permian consolidation opportunities as they arise.

Operator, please open the line for questions.

At this time, we will conduct the question-and-answer session. [Operator Instructions]. Our first question comes from the line of Neil Dingmann with William Blair.

Kaes, my first question for you, Austin is just on the Barnett specifically last night and this morning, things Barnett update really seem to be positive and certainly, I think, positive for Venom.

I'm just wondering, could you give any color on how Venom's ownership translates across Bain's Barnett position.

Yes. I'll give you some of the high level. I mean, I think that's what we continue to try to preach at Viper is the benefits of mineral ownership and you own from the surface of the earth to the center of the earth and perpetuity and as operators try new things or try new zones or try new techniques.

The benefit of that accrues to the mineral owner without the need to spend capital or take too much risk. So pretty exciting for Viper. We kind of kicked this off a couple of years ago in terms of leasing, but also going to give some color on where we are today and what we're seeing.

Yes. No, we're still early stages on the actual leasing program. So Diamondback directly and also in some of the JVs that they've done have been very active in taking new leases from by Vertiv to give them the right to to develop those deeper zones in the Midland Basin.

Now Spanish Troll was a big chunk of that. that we leased with Diamondback back in 2023. But as we sit here today, I would say we're still only at least about 10% to 15% of the acreage that would potentially be open in the Midland Basin. So that should be a tailwind to come both from a refonus perspective, but also new inventory locations that are going to come into play and kind of support the production profile over the years to come.

Great point, Austin. And then second question, just on return of capital. Specifically, now you've mentioned that you're positioned to return upwards to 100% of cash available from distribution in addition to the share growth. And I'm just wondering, it looks like last quarter, about 41% of the cash build for distribution with base dividend and then followed by what was it, 27 buyback, 23 variable and 9% debt repayment.

How -- will this stay in this range or Austin, is this just largely share price dependent? Or I mean I'm just thinking more on sort of broad terms and ranking should we -- will we see the base dividend still probably be the highest? Or how should we think about it?

Yes. I mean, listen, the Board decided to increase the base dividend by 15%. I think that's a meaningful number. I think it shows that we've done a good amount of accretive deals, balance sheet is strong, that's always going to be the first call on capital. We've also said, "Hey, when we get to $1.5 billion or $1.6 billion of net debt, we're going to ramp the shareholder returns to almost 100%."

And I think we're there. I think it all depends on the market and the stock price and where things are headed. Obviously, the decision to buy back shares is less obvious today than it was $37 a share. But we think we recognize that -- we have done a lot of accretive buybacks at Viper. We'll probably be ready should any of our non-traditional holders like the private equity owners want to sell, and we'll help them get out like we did in Q4, we bought back 1 million shares directly from 1 of the private equity holders.

So just having that flexibility is key. But in general, I think shareholders still want a lot of cash back. And at these prices with commodity improving and the stock price improving, would probably lean more towards cash return outside of unique situations.

Our next question comes from the line of Betty Jiang with Barclays.

My question is on the third-party activity outlook that you're seeing there. I think given the rig count declines in the Permian, it's notable how resilient Diamondback or Viper third-party activity has been holding up fairly well in the last few quarters. Where are you seeing today in terms of your activity backlog? Are you seeing any slowdown at all? Or could this be another area that perhaps it's enhancing the production growth that you might see this year?

Yes. Good question, Betty. We really haven't seen much of a slowdown at all across the third-party activity. We've got some new disclosures in this quarter on Pages 14 and 15 of the day that break down kind of some of the key third-party operators by both the Midland and Delaware Basin. And kind of as you look through that list, right, it's dominated by some of the larger players in the industry. So I think that's really helped.

I think also it's just kind of supportive of the view that we've had of trying to acquire high-quality royalty interest. And as you look at the amount of activity that our acreage position is captured over the years, it's -- it's really been consistent in capturing pretty much 50% of everything that happens by third parties across the entire basin and then you get the kicker of the concentrated development by Diamondback as well.

So -- we'll see what happens over the course of the year. Right now, the guidance when it takes into account what we can see, meaning existing doses and permits. So if activity holds like it can today, that might help with it on the production outlook. But overall, I would say that the key takeaway is the third-party activity continues to be very strong.

Yes. Betty, we always put our operator hat on when we're buying minerals. So we always bought under well-capitalized operators from a third-party side in acreage that we cover. And that usually means that acreage that we cottages developed first, which is why we've had such strong activity levels on the third-party side. .

Yes. No, that makes sense. And I can't really see how resilient activity broadly despite the basin overall levels. A follow-up on the lease bonus. And it's related to the Barnett or the deeper zones as well, lease bonus have been coming in fairly strong in 2025 and got another decent quarter in 4Q. As the basin continue to chase deeper zones, how does that benefit you guys from the lease bonus income perspective?

Yes. I mean it's any time of lease comes available, whether it be because of a vertical well doesn't hold down to these new emerging deep rights or an operator fails to fulfill some of the requirements in the lease, meaning drilling well by a certain day or producing a certain amount of production, that lease would terminate and those rights revert back to us as the mineral owner and then we can go take a new lease and did that lease bonus and kind of set the clock again on the development requirements.

We've spent a lot of time and effort building teams and systems and processes here to manage all of those tens of thousands of leases and the production data associated with that, so we can really proactively manage that and have an active leasing program. I think you're seeing that benefit play out with the lease bonus that we achieved last year and really over the last couple of years. I think that's going to be a continuing theme, both from a deep rich perspective as well as just operators needing to meet continuous drilling requirements and overall, the rig count being lower, so that being harder for certain operators to fill.

Our next question comes from the line of Neil Mehta with Goldman Sachs.

What's the environment out there right now in terms of the bid-ask for other royalty assets? Is there another city in and out there or a lot of the big price has already been taken?

Yes. I mean it's a good question. Minerals are interesting. When commodity prices are lower, there's not really a need to sell unless there's some other use of proceeds that the seller has. So there hasn't been a ton of large deals for us to look at over the last 6 months or so.

And I think, generally, investors wanted a little bit of a break from deals at Viper, big deals in particular and proved that we could integrate Cito and the drop-down and we've done that. But I'd say we're ready to look at and larger deals. They're just kind of hard to get done at these prices. And Neil, that kind of ties to the thesis around the fiber balance sheet and return of capital. We kind of said, "Hey, listen, debt-to-EBITDA at Viper is very close to debt to free cash flow and $1.5 billion of debt, we're well protected at $50 oil, but also at $50 oil, we don't need a ton of cash for deals, because it's harder to get them done.

So that's kind of why we set that debt target. And as you think about going above that, as prices recover, I think the psyche for sellers changes, and we might be able to get some deals done. But -- from a size perspective, it's been hard to get really big deals done over the last few quarters.

We've done a couple of small things that add up over time. But that's kind of how I see the market. Austen, do you want to add anything?

No, I agree. The ground game, as we call it, it's tough off here, but we have a team dedicated to that. And I think we have the relationships in the basin to get some some good value adds that help on the margin. I think to case's point there are bigger strategic deals to be done. When the time is right, we just haven't seen those over the last couple of quarters, more so because of the commodity price environment.

That's great, guys. And then the follow-up is just geography. I mean it seems like the position is certainly more concentrated on the Midland side, and that's where you have the asset overlap. But with the parent how does Delaware fit into the portfolio? Where specifically could you see yourselves leaning in from an activity perspective? And then I think I know the answer to this, but this is a Permian pure-play story, right? We would be surprised if you try to diversify outside of that.

Yes, it's difficult story. I think the unique attributes of the Permian with the stack pay and the emerging zones and kind of also some of the modern lease causes really benefits you more as a mineral owner even more so than some of the obvious things that you would appreciate from the operating perspective. It's so we know it's what we know, and I think most of the sizable deals here exists in the Permian, given the still very highly fragmented royalty ownership across Texas and New Mexico.

For us on the royalty side, I think we still see a lot of value in the Delaware Basin. It's a little bit of a different story, given that you're not going to be able to rely on the Diamondback drill bit to drive that visible growth. But as we dig in, there's still some really high-quality unbilled locations there and that exist under well-capitalized operators.

And that's kind of how we view it, right, just like what is the likelihood of that next inventory location getting developed. And for us, we get that confidence to either be a knowing buying-back development plan or by just looking at what the operator economics are. And I think a lot of that exists today, and especially in the Northern Delaware. So we'll focus there where we can. But for us, rock is rock and value is value. So it will just kind of be depending on the assets that are available.

Our next question comes from the line of Kalei Akamine with Bank of America.

My first question is on the 2026 oil guide. It's quite wide. Wondering what that reflects. Is it visibility that you have on the activity? Or is it performance related as person the basin are trying out new stuff -- and if it's visibility related, is it fair to say that visibility is better near term and less so in the second half of the year? .

That's right, Kalei. Mainly on the second point. So -- on the third-party operative side, we have the same visibility that you do really being that is limited to existing DUCs and permits. If you look at conversion rates and also the conversion time lines on wells that have been drilled currently that those typically get converted to production within about 5 to 6 months.

So we feel very good about the first half of the year and what that growth outlook looks like. As we move to the second half of the year, it becomes a little bit more tricky cash list. And having conversion rates and time lines on permits. So we've modeled the permits that we can see today. But as we progress through the year and potentially activity gets brought forward or new wells get permitted that are included in the guide. -- that could help move you up to the higher end of the range. And really, the wide guide right now is just that we can only guide to what we see today. And a lot will happen that we don't know about today in the back half of the year. .

My second question is on the gas contracts that were announced at Diamondback that are starting up later this year. To the extent that secures higher gas realizations, wondering if that also benefits Viper on the revenue side? .

Yes. We do everything essentially heads up between Viper and Diamondback. So any marketing contract benefit rolls through. It won't be for all of all of Viper's production, but for a good majority, the gas realization thesis works pretty well for Viper. Particularly now on the third-party side, debottleneck Permian, given the Viper Delaware exposure, it could be a good positive rate of change story as well.

I hope you guys don't mind me trying the third question, but I imagine that there's a portfolio of lower zone rights at Viper. Maybe not all of that is viewed as being competitive today, given where the activity on the Midland side of the basin has been, but the proportion that is competitive, should we assume that's already been transferred to Diamondback? .

Not all of it has been leased yet. There's still a lot of unleased deep rights that diver. And as we get closer to development at Diamondback, it's logical that Viper will be a first call. We got do things on a market basis and a heads-up basis, but this relationship between parent and sub, mineral owner and operator, I think, is going to pay some long-term dividends with with deeper zone development.

I think the great example was we leased Spanish Trail, which is 100% of the minerals are owned by Viper. That's what started this business 15 or 11 years ago. going public. And a 10,000-acre block and 100% NRI is as good as it gets in the Permian Basin. .

Our next question comes from the line of Derrick Whitfield with Texas Capital.

I wanted to start on the Barnett. Regarding the interval and the 200,000 net acres you referenced for Diamondback earlier today, how much coverage do you specifically have with Viper? And does Diamondback have any activity planned at Spanish Trail, the area you were just mentioning, which you guys have a very high NRI for.

Yes. So without getting into the specifics, I would say a lot of the work that Dynatec has done has kind of been with third-party -- we had a big chunk kind of in the 10,000 to 15,000 acre block in San to, which is going to provide a great alignment between Diamondback and Viper.

I think Dynatec had a little bit more flexibility to to handle the leases with Viper as they come up and a bit more term on the development plan, whereas a lot of what they've done has kind of been more bigger strategic options. So I think you'll see the alignment continue to improve as we progress through the year. And then on mantra, I think if you listen to the Dynatec call, there's been some references some offset test, but the first 2 wells that are going to be tested on Spanish truck proper, -- those wells have been permitted and should have production kind of in the mid-part of this year.

So very excited to see those results and see what that might mean for going back to apply more for full-scale development approach where Viper owns 100% of generals.

Yes. No question, great development for Viper. And maybe just going back to some of your M&A comments earlier on the ground game. With the inclusion of the Cito guys who had really focused on the ground game, I guess how would you characterize the growth you're seeing in organic additions throughout 2025 and kind of what you see ahead for you in 2026.

Yes. I mean listen, we're continuing to look at every deal that crosses our desk, right? We're in the flow. We know everybody. They're bringing us deals. I could say it not that we're not getting anything done. It's just that from a materiality perspective, it takes a lot more effort on the ground game to equal something of the scale that we did last year.

So don't count out the ground game. I think that's still going to be an important part of the story. It's just going to have to add up over time. And then you have the big deals really moving the needle from a size, scale and flow and liquidity perspective.

Our next question comes from the line of Paul Diamond with Citi.

So 1 sticking on M&A. You guys have been kind of progressing towards that $1 billion have net debt number, 1 turn in leverage I guess, in the presence of the potential you're potentially larger deals is how much are you with increased scale, how much you will flex that out? .

Yes. I mean, I think we probably feel like a little bit 1.5 turns, a little bit above that as a stretch and then you pay it down wouldn't hurt. I think we're very cognizant of maintaining and improving our ratings profile. Getting to investment grade was a big deal for us last year. Pretty unique access to capital at Viper versus peers in the space. So I wouldn't want to stretch the balance sheet. And I think our currency offers a very unique opportunity for sellers as well. We've done a few of these deals with OpCo units where taxes can be deferred and a lot of large mineral owners -- mineral owners have very little basis in their -- in their minerals and like that tax deferred status. So we stretch a little bit. I think half a turn of leverage is a big number now, which is a good thing. And any deal that we do is going to come with significant cash flow. So that's how I'd frame it.

Got it. Understood. And then just a housekeeping question on hedge plan. 2026 looks pretty well locked in. Is there any volatility level that would really move off these marks? Or are you guys comfortable with the current levels? .

We're comfortable with it. We had this approach for a while now where we just try to protect against the extreme downside through deferred premium puts -- so we've been able to take advantage of some of volatility over the last couple of quarters and have a good position built through Q3, which especially given where the debt level is, I don't feel like we need to do much more there. as we continue to progress through time and if you see debt levels stay low like they are now, you probably just need less protection, meaning either the lower percentage of our volumes heads or potentially a lower strike price on a put meat and you can get them for a little bit cheaper.

But in general, we just want to protect against the extreme downside ensure that we can continue to pay out a lot of our capital and not have to panic if things goes out quickly again and try to start working cash. So I think it's just a prudent approach that we've had that worked well for us the last couple of years.

Our next question comes from the line of Leo Mariani with ROTH.

I wanted to follow up on lease bonus income. Obviously, that popped a bit in 2025. I know it's difficult to kind of have any precision guide, but -- would it be fair to assume that maybe 26% is not dramatically different in terms of lease bonus income? Or are we kind of in a bit of an up cycle versus kind of a handful of years ago? Obviously, there are some new zones that are coming to bear as you guys have described on both this and the fan call.

We'll see. I mean it's a little bit out of our control, given it's dependent on operators typically filling to meet certain lease provisions or lease requirements or partly having deep price being open. I mean I think we are seeing the deep right story play out in both the Midland and Delaware side. For Viper in terms of the ground leasing that's happening. I think something also that's going to be interesting to happen, especially Posidiois as you move into 2027 and gas takeaway gets better, we'll be able to explore what what new development areas might look a little bit better with higher gas realizations, and that could help as well.

So maybe it's being optimistic, but I think we can have 2026 look similar to 2025. And really, it is going to be the benefit of having a much larger asset base today and a team fully dedicated to proactively managing the position.

Yes. I mean that's the key. We're getting a lot better at proactively managing our position despite its size, and that's where some of the Citi team members that are focused on automation, reviewing title or viewing leases. This is where I think I think AI is going to be important for Viper. We don't have a ton of manpower to study 50,000 wellbores and 40,000 leases, but a machine can do it. And I think that's going to make our shareholders more money.

All right. That's good color there. And just wanted to ask on kind of oil cut. Your oil cut here was kind of mid-50s several quarters ago, it's kind of trending a little bit more towards low 50s. What do you attribute this to? Is it just more secondary zone development and, of course, just wells get older, GOR sort of increases.

I mean I think if you think about Viper as a bond for the Permian Basin, it actually kind of gives you a good look into where GORs are headed throughout the basin. And -- last year, we added a lot of Delaware exposure through CIT. So that's part of the equation. But I think outside of that, we've seen these gas systems and gas plants operate a lot more efficiently in both basins.

So you've seen just the gas and the NGL beats be pretty dramatic across the board. And I think that's telling you something about the basin. It's not necessarily just secondary zones, I think it's all of the above.

Our next question comes from the line of Tim Rezvan KeyBanc Capital Markets.

Thanks, folks. I appreciate you let me on here. I want to kind of circle back on the repurchase comments. It sounds like case in your comments, that $1 billion authorization may be as much focused on liquidity for the natural holders as it is to open market repurchases today. So I'm just trying to kind of -- I know you can't show your cards too much, but shares are up 17% year-to-date, you're still well below where shares traded in '24 and '25 at a higher oil price. -- just trying to kind of get your arms around the attractiveness of open market repurchases today.

Yes. I mean it's a good question, Tim. I mean it's a relative question, too, right? Obviously, open market repurchases are were more obvious in Q4 than they are today. And so we're trying to walk this balancing act of how to return capital to shareholders. And with the balance sheet where it is, we do have more cash that can go to shareholders in the form of the distribution or repurchases.

So I think you should expect us to continue to be flexible. I don't think we need to spend every dollar we make on, on repurchases at these levels, but it's still a part of the story. I just think the bigger slugs could come from unnatural holders that want to get out and just having that ability to make sure the stock is not heavy and have the repurchase in place -- I think is a good thing for Viper shareholders.

So I'm talking on the buyback a little bit relative to Q4 because Q4 was a much different environment than where we are today. But no, I mean, we could drop from here, and that's why the authorization is there to lean in.

Okay. That's good context. I appreciate that. And then, Kate, if I could quickly ask a macro question. We saw pretty strong third-party turn-in-lines in the fourth quarter relative to the full year run rate. I know some of that is probably due to the Sitio acquisitions. But it seems like industry-wide concerns on Permian oil rolling over, those concerns seem to be fading -- so given the lens into aggregate activity that you have through Viper, do you expect Permian oil to grow this year?

Yes. I mean we've been very vocal on the Diamondback side about production and U.S. production. I think the Permian has always kind of been an outlier. I would say these oil prices, I haven't heard about operators dropping a rig since kind of the first week of the year, we had the Venezuela noise. So I mean since then, that's gone very quiet. I think overall, Permian probably grows here and some of the larger operators, the majors are continuing to grow.

Some of the privates still have deals to do here and there. So in general, I think the Permian looks strong relative to the rest of North America. And the conversations about reductions in activity have gone very quiet.

I'm showing no further questions at this time. I would now like to turn it back to Kaes Van't Hof, for closing remarks.

Thanks, everybody, for taking the time to listen in today. If you have any questions, please reach out, and we'll talk soon. Thank you.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.

Good day, and thank you for standing by. Welcome to the Viper Energy Third Quarter 2025 Earnings Conference Call. [Operator Instructions] 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 Seale, Investor Relations Director. Please go ahead.

Thank you, Amber. Good morning, and welcome to Viper Energy's Third Quarter 2025 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 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 Energy's Third Quarter 2025 Conference Call. During the third quarter, Viper continued to execute on our growth strategy, bolstered by the closing of the Sitio acquisition and continued organic growth. Our fourth quarter 2025 oil production guidance implies a roughly 20% increase in oil production per share compared to the same quarter last year.

Looking ahead to next year, 2026, we continue to anticipate mid-single-digit organic oil production growth from fourth quarter 2025 estimated production. This implies double-digit year-over-year growth in oil production per share relative to 2025.

Viper also showcased our differentiated return of capital profile in the third quarter. Because of our high operating and free cash flow margins, strong balance sheet and recent signing of our non-Permian asset sale, we felt it appropriate to lean into our return of capital commitment and returned 85% of cash available for distribution in the third quarter to stockholders.

As a result, Viper is delivering on multiple strategic capital allocation fronts this quarter. Our combined base plus variable dividend represents a greater than 6% annualized yield and an increase of almost 10% relative to our dividend from last quarter. This dividend increase is combined with over $90 million of share repurchases completed during the quarter and an incremental $60 million being retained to the balance sheet. In total, third quarter return of capital per Class A share represents a 48% increase versus the second quarter.

Looking ahead, as we move to close our non-Permian asset sale, and as a result, move closer to our long-term net debt target of $1.5 billion, we will have line of sight to return nearly 100% of cash available for distribution to stockholders. We continue -- expect to continue to allocate the majority of our cash for distribution to our base plus variable dividend, but feel compelled to buy back shares in today's market given the current market dislocation and unique opportunity to invest countercyclically by increasing our ownership in our high -- existing high-quality mineral royalty assets. Importantly, the share repurchases done today will further enhance our growth in per share metrics and allow us to distribute more through our base plus variable dividend over the long term.

On the operational front, we continue to see strong activity levels across our asset base, and as a result, continue to expect mid-single-digit organic growth in 2026 despite the commodity price volatility we have seen over the past several quarters. Following the closing of the Sitio acquisition, Viper is positioned to benefit from a best of both worlds situation.

Viper continues to own concentrated interests under Diamondback's core Midland Basin development, which is expected to drive meaningful long-term oil production growth. In addition, Viper now has broad exposure to leading third-party operators across both the Midland and Delaware basins. And our current acreage position has consistently captured almost half of all third-party activity in the Permian. Beyond this, the 25,000 existing horizontal wells in the Permian Basin in which Viper owns an interest provides an invaluable information advantage.

In conclusion, we continue to believe that Viper presents a differentiated investment opportunity within the broader energy space. Viper's unmatched ability to deliver sustained per share growth with 0 capital and limited operating costs should result in a differential ability to return increasing amounts of capital to stockholders over the long term. Additionally, given our extremely low breakeven, our business model should provide a more consistent cash flow returns profile during times of overall market volatility.

Operator, please open the line for questions.

[Operator Instructions] Our first question comes from Neal Dingmann of William and Blair.

Great free cash flow story, obviously. My first question, just turning to -- given the nearly $700 million asset sale and what should be probably even over $1.5 billion of free cash flow next year, could you speak to sort of near term and '26 at capital allocation? I mean as I see it, I mean it seems like you'll not only quickly repay that debt, but you could bump distributions up materially and potentially do some buybacks. Would love to hear how you're thinking of it.

Yes, Neal, I feel like we got a great number on that asset sale, and we debated internally if we should wait or execute on the sale. We decided to execute. And the reason being -- you recall, last quarter, we came out and said when Viper gets to $1.5 billion of net debt, we're going to return 100% of free cash back to shareholders. And with this asset sale proceeds coming in, we feel like we have line of sight to that goal. And so therefore, we're going to lean in ahead of that by adding some repurchases to our story, just given how much the market dislocation has widened between Viper and where it should trade.

So high level, I think by the beginning of the year next year, we'll be ready to consistently return almost 100% of free cash to shareholders, but we're not going to stop now. We're going to be a little aggressive as we head into year-end with the buybacks, plus a significant continued cash distribution story.

And that kind of leads to my second question. Is that predicated, I guess -- or maybe asked another way, could you just speak to how activity outside of Diamondback is trending? It seems like judging by last quarter, things still appear very active, even more active than what we're seeing from some of these operators out there, but really just want to confirm that's still the case?

Yes, I think it's really strong. I'll let Austen give some more detail, but this is the first quarter we're looking at a combined Viper and Sitio together, and we think that gives us a broad exposure to a lot of the Permian.

Yes, I mean, we put some new details in the deck, Page 11 being one of those. And what this really does is go back to the beginning of 2023, and it looks at all of the wells drilled across the Permian Basin excluding Diamondback and what percentage of those -- Viper's current asset base would have an interest in. And what you'll see is that we've just captured almost half of all activity across the basin over this time period with a pretty consistent average NRI at around 1.5%.

So it will trend up and down kind of with activity a bit. But I really think it speaks to the quality of the acreage and the operators that we have outside of Diamondback deploying consistent capital to this position. That gives us a lot of confidence to the forecast in 2026 and really even beyond that.

Our next question comes from Betty Jiang of Barclays.

I wanted to ask about the third-party activity. Also, just on the -- the backlog has continued to increase. But even -- I want to understand how much of that increase is driven by the Sitio contribution? And how much is seeing a broader constructive uplift that you're seeing across from the legacy assets from other operators across the Permian?

Yes, Betty, I would say it's pretty evenly mixed. I think being a couple of months in post Sitio closing, that asset base has outperformed the underwriting assumptions. But really, legacy Viper's third-party operating position has continued to outperform as well, mainly as a result of some of the higher NRIs, and you can kind of see that showing up on Slide 11, as I mentioned.

So as we look at it today, right, we don't have full visibility into what will happen for the full year 2026, especially in the back half of the year. And we'll continue to monitor new activity as it shows up and the conversion of those permits and those wells that have been spud. But I would say, generally, we're extremely pleased with the third-party exposure and especially the complement that, that provides to the concentrated exposure through the Diamondback drill bit.

Yes. Those are really encouraging signs to see. My second question is on AI. It strikes me that the royalty model is ideally positioned to benefit from AI integration. And thinking about the impact of predictive nature of future activity, maybe the organization, can you just speak to how you see the tools that are available today could potentially impact your operations and M&A?

Yes, Betty, I mean, I would say generally, you're correct, right? There's a lot of data flowing through the mineral business. There's a lot of data on 35,000 wells throughout the Permian that can be utilized for a lot of things, right? We can use that data to make operational changes to buy more minerals in areas where something is emerging.

But I think in the near term, some of the benefits of AI and automation and machine learning is really to make our business more efficient on the back end, right? Tracking 35,000 wells every month is not -- should not be a manual process. And so we're working to move everything from manual to automated.

And then beyond that, it's about finding a way to utilize all this data effectively and efficiently and even potentially monetize it. Should we not see that it provides us a differential advantage, I think it can provide a lot of data to the market. But for now, we're going to keep it all internal and I think focus on some of the automation, and that's actually one of the synergies that the Sitio team brought to the table that we hadn't developed ourselves at Viper. So with all these deals, we end up learning something. And I'd say the biggest thing from the Sitio team has been big data and automation.

Our next question comes from Neil Mehta of Goldman Sachs and company.

Yes. Just -- congrats on some of these non-Permian divestitures. And it's good to see the business kind of core up around the Permian again. As we think about the cash that's coming in, Kaes, are there any considerations we should be mindful of in terms of the number that's coming in? Are there any offsets, whether it's taxes or anything else around these inflows?

Yes, we kind of highlighted that there would be a little bit of a tax hit. So I think our net proceeds will be about $610 million. There will be some reduction between effective date and close date. But all in all, I think generally, the proceeds are going to pay down essentially the revolver to 0 as well as almost pay our term loan down to essentially 0. And that would put essentially a balance sheet I define as an almost perfect position with 1 5-year note, 1 10-year note that we executed over the summer, leaving us a lot of optionality and flexibility to buy little deals, but also return a lot of cash to shareholders.

Yes. And Kaes, can you talk about the A&D market? That's been kind of a hallmark of the broader Diamondback complex is finding those bolt-on opportunities. We think, especially given the softer commodity price environment, that's going to -- does that make it easier or harder to get deals done here over the next 6 to 12 months?

Yes. Traditionally, it makes mineral deals harder to get done. It's -- you see a lot more upstream deals lower in the cycle than minerals just because of the 0 CapEx nature of minerals. So I think we're probably on a bit of a pause at Viper for now and waiting for what we see is still a significant opportunity set to come our way in the coming years. But Austen, anything else you want to add?

Yes. I think that's certainly the case on the larger, more strategic acquisitions. We've tried to position ourselves to be the consolidator of choice on the $1 billion-plus type opportunities. And it's tough to see those transacting with where commodity prices are today.

I would say it's a little bit different on kind of the smaller ground game-type acquisitions. We've had some success in some of those owners might see the royalty checks go down and see that as an opportunity to liquidate it. But that's tougher to scale today relative to the size of the enterprise value at least. So part of our thinking additionally is with the buyback, that's an effective way to buy really high-quality assets that we know and that [ have grown ] the assets today. So it's kind of a combined strategy of how to deploy capital for us today.

Our next question comes from Kalei Akamine of Bank of America.

Kaes, in your opening remarks, you called out that Viper has been exposed to about half of all third-party activity in the Permian Basin over the last 3 years. In the basin this year, there has been a reduction in activity because of oil price uncertainty. The market expects maybe 0 oil growth in the Permian Basin next year, yet your Permian volumes continue to grow. That's a favorable dynamic. How long do you expect that it can continue?

Yes. I mean, I think the advantaged nature of the Diamondback-Viper relationship probably drives that growth for at least the next couple of years, if not longer. I think we have somewhere between a 5% and 7% interest expected in all of Diamondback's wells on average for the next 5 years. So that's a pretty unique position to be in. And I think that, combined with -- in our remarks, we kind of highlighted that, that, combined with the broad exposure, otherwise puts us in a pretty good spot here for the next few years.

I appreciate that. For my next question, one question that we get from investors considers the valuation of Viper. It's the best risk-adjusted return in the Permian, in our view. Another way to look at it is that VNOM shares are trading with great value today. So my question is, would you ever consider using free cash at bank to purchase more interest in VNOM shares?

Yes, it's certainly on the table. I think Diamondback has some strategic priorities that they need to continue to execute on, mainly reducing its share count as well. But we certainly are kind of trying to pound the table on VNOM's valuation. And also, I think as part of the rationale for the non-Permian asset sale getting executed so quickly is that we can lean in at the Viper level and reduce that Viper per share count. Because I think until the market wakes up to the free cash flow yield plus growth story, we're going to try to take advantage of it as a complex.

Our next question comes from Derrick Whitfield of Texas Capital.

For my first question, I wanted to start with your guidance regarding the soft guide for 2026. How are you thinking about the price sensitivity associated with that guidance from a Diamondback operating perspective?

Yes. So that really contemplates the base case of Diamondback's current activity levels, right, and really maintaining that more maintenance level through 2026. So to draw on their analogy being the yellow light scenario, that's kind of what's underwritten here. Things could flex up or down.

I think the beauty of the relationship that Kaes was hitting on it earlier, to the extent that it flexes down, Diamondback will really be prioritizing the highest returning projects in the lower commodity price environment. So Viper tends to be insulated at least in gross reductions in Diamondback activity level and just kind of gives a higher percent exposure and a higher average NRI.

Got it. Makes sense. And then maybe just to build on an earlier question. With the benefit of more time with the Sitio team and their approach, could you guys elaborate on the synergy opportunity you see from a cash savings perspective on just implementing some of the AI processes? And then the opportunity it could generate from a ground game perspective?

Yes. I would say, obviously, the employee aspect of the deal and those synergies have been realized, and we brought over some select high performers from Sitio that are helping us out today. Second to that, one of the big synergies was cost of capital savings on the debt, on both their debt and ours. And it's clear that Viper got upgraded to investment grade and was able to execute its first investment-grade deal in the quarter in July. And so that sets us up from a balance sheet perspective.

And then I think on the automation side, there's certainly benefits to automating the processes that -- at Viper, I think over time, those same people that are working on automating those processes at Viper will then move to automate more at Diamondback. So it's kind of a synergy to the parent co as well. I can't tell you exactly what that number is going to be today, but I think a lot of our business is going to be moving towards less manual entry and more observing by exception versus doing things by hand. So I think a lot to come there. I think the whole industry is working to continue to automate, but you can expect us to be on our front foot.

And then on the deal side, I think we -- being in Midland, we have pretty good access to all the deals. There's a saying out here that if a deal leaves Midland, I mean, it might not be a good deal. So we're on the front foot here in the mix, and we have a really good deal flow.

Our next question comes from Leo Mariani of ROTH.

I just wanted to clarify on the guidance here. I know it's a soft guide for '26. When you guys talk about mid-single-digit growth next year versus 4Q, I assume that's kind of unadjusted for the pending asset sale. So clearly, as we strip those volumes out, then you kind of wouldn't quite hit that mid-single digit growth to be a little bit lower as kind of a pre-asset sale guide here?

Yes. I mean, it's either -- if you look at Q4 being pro forma, right, really, the way to look at it is you're going to have a couple of thousand barrels a day of growth on an absolute basis on the assets that we'll retain. So the Q4 guidance of 66,000 a day of oil at the midpoint, that includes about 5,000 a day of contributions to the non-Permian assets. So if you strip that out, that will be your go-forward starting point for 2026, and then you'll grow a couple of thousand barrels from there, which kind of gets you to that mid-single-digit level.

Okay. Appreciate that clarification. And obviously, you've got the asset sale done and you certainly spoke to returning a greater percentage of capital to shareholders. You clearly leaned into the buyback pretty heavily. But just trying to get a sense as that debt is paid off, as you kind of spoke to, it sounds like in the next handful of months, are your eyes also looking to maybe kind of accelerate the growth in the variable dividend component as well over the next few quarters? Is that something that investors should also be looking forward to?

Yes. I mean, I think it's all price related, right? And the key point here on the buyback, which is, in our mind, our third priority return of capital behind the base dividend and the variable dividend, leaning into that buyback sends a pretty strong message that we think the stock is cheap. We do agree with a lot of our large shareholders, Diamondback being the largest, that we want a majority of the return of capital in the form of cash.

But I think what's interesting about Viper with the debt position it's in, the balance sheet position it's in is that it can do both. And I think we would, at some point, tap the brakes on the buyback if the market wakes up to this story. But until then, we're going to keep reducing the share count.

Our next question comes from Tim Rezvan from KeyBanc Capital Markets.

I don't mean to beat the dead horse here, but the repurchase news was really notable. It was equal to your prior 2 biggest quarters combined. So is it safe to say this was more of kind of an extreme quarter given shares at the $37, $38 level? Or would you potentially look to go even bigger at the expense of the variable dividend if you thought the dislocation warranted that?

Yes. I mean -- so I think it depends, right? But I think what's interesting about -- again, about Viper, here we are at $60 oil, generating 92%, 93% margins. There's a lot of flexibility to do a lot of things with cash, right? I think if you put your E&P hat on, you're restricted by how much capital you need to spend to maintain your production base. And here, other people are spending capital for you to maintain your production base. And so that frees up a lot of free cash to do different things with.

I think if the market dislocates further, we can just -- we can lean in further without compromising free cash flow generation or the balance sheet. So it's truly -- in my mind, it should theoretically be a lower cost of capital business than where it's trading today.

Okay. Okay. I appreciate that response. And then on the topic of repurchases, there's been some market consternation perhaps overdue about these new holders that you have following the Sitio closing. And I believe there's 4, what people would call unnatural holders at about 13% of shares. Can you talk, Kaes, about any dialogue you've had with any of them? And how high that is on your sort of kind of maybe removing that overhang or sort of addressing that as they look to sell?

Yes. We'll be prepared to address it should they make the decision to sell. But I'm talking to a lot of them with -- particularly with respect to the Sitio merger, they merged their stock into ours knowing that there's a lot of long-term upside to the combined business. So I can't comment on if they want to or not -- don't want to sell because that's their decision. But I will say we have the firepower to aid that if that ever happened. Just like any other shareholder, right? If there are any other large shareholders looking to sell here, we've got the firepower to buy those shares back.

Thank you. I am showing no further questions at this time. I would now like to turn it back to the CEO, Kaes Van't Hof, for closing remarks.

Well, thanks, everybody, for participating today. And please reach out if you have any questions, and we'll talk to you in 1 quarter.

Thank you for your participation in today's conference. This does conclude the program, and you may now disconnect.