Summary
Viper looks capable of generating $464 million in positive cash flow in 2022 at $70 WTI oil.
It is helped by an improved hedging situation, as its realized hedging losses in 2021 may end up around $90 million.
At a 70% payout ratio, Viper may be able to distribute $1.92 per unit based on 2022 results.
I estimate Viper’s value at $23 per unit in a long-term $65 WTI oil and $3.25 gas scenario.
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Mark Kostich/iStock via Getty Images Viper Energy Partners ( VNOM ) looks to be a decent value at its current unit price. At $70 WTI oil in 2022, it may be able to generate around $2.75 per unit in distributable cash flow and pay out $1.92 per unit in distributions if it averages a 70% payout ratio.
Viper is attempting to reduce its credit facility borrowings after its Swallowtail acquisition (with cash consideration of $225 million), so its payout ratio may stay around 70% for a little while. There is room for an increased payout ratio in the longer-term with its note maturity not until 2027 and those notes likely easy to refinance with a lower interest rate anyway. 2022 Outlook
I am assuming that Viper can average around 18,000 barrels per day of oil production and 30,000 BOEPD in total production in 2022. This assumes a bit of growth from Viper’s expected Q1 2022 production , where it guided for 17,000 to 17,750 barrels per day of oil production and 28,250 to 29,500 BOEPD in total production.
At current strip of roughly $70 WTI oil, Viper is expected to generate $541 million in revenues after hedges. Source: Viper Energy Partners
Viper’s hedging situation is much improved in 2022, as it would only have $2 million in realized hedging losses (from its deferred put premiums) at $70 WTI oil. This compares to the near $90 million in realized hedging losses that is expected in 2021. Type Barrels/Mcf Realized $ Per Barrel/Mcf Revenue ($ Million) Oil (Barrels) 6,570,000 $67.50 $443 NGLs (Barrels) 2,085,714 $26.00 $54 Natural Gas [MCF] 13,765,714 $3.20 $44 Lease Bonus and Other Income $2 Hedge Value -$2 Total $541 Source: Author’s Work
Viper is expected to have $77 million in cash expenses in 2022, so it would end up with $464 million in positive cash flow. $ Million Production and Ad Valorem Taxes $38 Cash G&A $8 Cash Interest $31 Total Expenses $77 Source: Author’s Work Unit Count And Debt
At last report , Viper had 79.1 million common units outstanding and 90.7 million Class B units outstanding. Viper is now authorized to spend $150 million on its common unit repurchase program (of which it had $93 million remaining to spend at the end of September). At its current share price, it could repurchase another 4.5 million units with that $93 million.
Viper expects to keep its payout at around 70% of cash available for distribution while it pays down some of the debt it took on with the Swallowtail acquisition. This payout ratio would give it $325 million for distributions (or around $1.92 per unit) in 2022 and $139 million to put towards debt reduction and unit repurchases.
After its Swallowtail acquisition closed at the beginning of Q4 2021, Viper had approximately $280 million in credit facility borrowings as well as $480 million in 5.375% unsecured notes due 2027. Viper may be able to reduce its debt to around 1.2x EBITDAX by the end of 2022 if it does put 30% of its cash available for distribution towards debt reduction. Notes On Valuation
At long-term $65 WTI oil and $3.25 NYMEX gas, I now estimate that Viper is worth around $23 per unit, while at long-term $70 WTI oil and $3.50 NYMEX gas, I’d estimate that it is worth around $25.25 per unit.
This is based on Viper averaging around 18,000 barrels per day in oil production and around 30,000 BOEPD in total production.
At those unit and commodity prices, Viper’s distributable cash flow yield would be around 10.5% to 11.0%, although its actual distribution may be lower as it works on paying off part of its credit facility debt before increasing its payout ratio. Conclusion
Viper looks to be capable of generating approximately $2.75 per unit in distributable cash flow in 2022 and should still be able to generate around $2.50 per unit in distributable cash flow in a $65 WTI oil scenario with production at 30,000 BOEPD (60% […]
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