Viper Energy Partners LP, the subsidiary and acquisition machine of Diamondback Energy in the minerals space, has entered into a definitive purchase and sale agreement on Aug. 9 to acquire certain mineral and royalty interests from Swallowtail Royalties LLC and Swallowtail Royalties II LLC in exchange for 15.25 million units of Viper common stock and $225 million of cash, subject to customary adjustments.
The cash portion of this transaction is expected to be funded through a combination of cash on hand and borrowings under the company’s credit facility.
The deal includes 2,302 net royalty acres primarily in the Northern Midland Basin; roughly 65% of acreage is operated by Diamondback. It will increase Viper’s Diamondback-operated acreage by over 10% to 14,191 net royalty acres.
The acquisition is expected to be accretive to near-term cash available for distribution per common unit and is anticipated to grow significantly over time as a result of accelerated development by Diamondback.
Viper will issue 15.25 million common units to the seller at closing, subject to certain closing adjustments. The company intends to finance the cash portion of the purchase price through a combination of cash on hand and existing borrowing capacity under its revolving credit facility.
Diamondback holds 1,450 net royalty acres located entirely in Martin County, with almost 75% of the acreage located in the Sale and Robertson ranches in Southeast Martin County. The acreage has about a 3.6% average net revenue interest that will provide concentrated exposure to contiguous acreage where Diamondback plans to run multiple rigs for the next several years.
Diamondback currently plans to complete over 70 gross wells on the acreage in 2022 with an additional 325 to 375 gross wells planned for the four years thereafter; represents over 17 net wells expected to be completed over the next five years.
The company anticipates an average net oil production of approximately 1,000 barrels of oil per day (bbl/d) in 2022 and expect production to exceed 5,000 bbl/d by 2024 based on Diamondback’s current development plan.
“This acquisition checks all the boxes in what we look for at Viper. The acreage is Tier 1 and primarily operated by Diamondback, we expect it to be accretive to near-term financial metrics, and there is significant long-term value to be created based on Diamondback’s expected multi-year forward development plan. The large, contiguous block of primarily undeveloped acreage in the Sale and Robertson ranches will drive oil production growth for Viper, which in addition to the strong current production levels on the third party operated acreage, will support our current strong free cash flow generation for the next several years,” Travis Stice, CEO of Viper’s general partner, said.
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