Analyst Note| Stephen Ellis |
After incorporating Viper's and Diamondback's third-quarter results into our Viper model, we've increased our fair value estimate to $26 per unit from $21. The main reason for the higher fair value estimate is a combination of higher expected production from Diamondback and thus higher royalties accruing to Viper, and stronger near-term oil and gas prices. Our narrow moat rating is unchanged. As a reminder, Viper reported strong third-quarter results, with adjusted EBITDA more than doubling to $93 million from $40 million last year, mainly due to higher pricing flowing through the financials. Viper also slightly boosted full-year 2021 production guidance to a midpoint of 27.5 thousand barrels of oil equivalent per day from a midpoint of 26.6 mboe/d in the prior quarter, reflecting the completed Swallowtail deal, and higher activity by operators across its acreage. For comparison, there are now 570 wells under active development this quarter compared with 467 last quarter. As a result, the uncertainty around Viper’s near-term production (six to eight months) across its acreage is declining. Diamondback remains the operator on 61% of Viper’s near-term well inventory.