Monex News

Viper Energy Partners LP Is A Strong Alternative To Exxon, Chevron & Apache

24 October 2018  |  Trading Ideas
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In its latest financial report, Viper Energy Partners LP (NASDAQ: VNOM) reported some positive numbers that should make every investor sit up and take notice.

While its stock ticker – VNOM – is enough to get your attention, Viper Energy Partners has more than an unconventional acronym behind its stellar performance.

Let’s consider some of these figures:

・Cash distribution (dividend) of US$0.60 cents per share, up 25% quarter-on-quarter and 81% up year-on-year. 

・Production is up 16% quarter-on-quarter and 56% higher year-on-year 

・Acquired or entered into 557 definitive purchase agreements worth approximately $61 million 

・32 active rigs on the company’s mineral acreage and 367 active permits in the past six months

Given these impressive numbers, it’s not surprising that Viper Energy has been voted the Number 1 stock in the latest IBD 50 stocks in the US. The ranking took into consideration both fundamental and technical metrics designed to gauge a stock’s leadership potential.

So, who is Viper Energy and what does it do to generate massive growth?

Viper Energy Partners is a big player in the Oil & Gas industry. Based in Texas, the company operates in one of the richest oil and mineral producing regions in America.

But unlike other oil giants – Exxon Mobil Corporation (NYSE: XOM), Chevron Corporation (NYSE: CVX) or Apache Corporation (NYSE: APA) – that extract and pump out the black gold from the earth, Viper Energy has a less labour-intensive operation. Another way of looking at it is to see Viper as one of the giants in the oil industry without having to get dirty their hands in the physical extraction of the liquid gold.

Viper Energy earns royalties on assets instead of doing the exploration and production itself. This means the company doesn’t need enormous capital/equipment outlay nor a massive operational budget to run.

While the big oil mining companies spend millions in rigs, exploration, extraction, processing and distribution and labour, Viper Energy earns from every drop of oil that other companies extract from its expanding oil-rich acreage.

Permian Basin presence

The company mainly operates in the Permian Basin, which is part of the western portion of the US Mid-Continental Oilfield. It is located in Western Texas.

The Permian Basin has been described as one of the most prolific oil and natural gas geologic basins in the United States. The basin holds the largest crude oil fields in the US, including more than 20 of the nation’s top 100 oil fields.

Given its rich oil and mineral deposit plus its massive area, the Permian Basin hosts some of the top oil mining companies including:

・Chevron 

・Apache 

・Exxon Mobil 

Occidental Petroleum (NYSE: OXY)

Concho Resources Inc (NYSE: CXO)

In terms of revenue generation, Viper Energy is assured of payments from the big oil companies that operate in the Permian Basin. An oil analyst recently pointed out that given Viper Energy’s clients are the oil explorers and producers, they have the financial capability to wear any fluctuation in oil price without affecting Viper Energy’s revenue.

Exceptional growth in 2018

In a recent company statement, Viper Energy CEO Travis Stice said: “2018 has been an exceptional year so far for Viper as we have continued to grow production at industry-leading rates due to robust growth on our legacy assets as well as outperformance on our recent acquisitions.”

He added: “Viper’s focus on accretive acquisitions combined with our best-in-class cost structure has directly led to seven consecutive Company record distributions. Looking forward, we now have the conviction to raise the midpoint of our full year production guidance by 5%, which will represent annualised production growth of over 50% for the full year 2018.”

Positive outlook for the US oil industry

Another big factor in Viper Energy’s positive outlook is the state of oil exploration and production in the US. According to a recent report by Rystad Energy, an independent energy consulting company, the US now sits at an estimated 264 billion barrels of oil reserves. This estimate includes existing oil fields, new projects and recent discoveries.

This means the US now stands above other major oil-producing countries including Russia (256 billion barrels), Saudi Arabia (212 billion barrels), Canada (167 billion barrels) and Iran (143 billion barrels).

This also means Viper Energy will continue to be busy servicing and collecting royalties from the world’s largest oil miners and producers.

With a number of major investment houses calling oil price to reach US$ 80-100 towards the end of this year (as the US sanctions on Iran oil kicks in this November), it seems that most of the analysts tracking Viper Energy have the solid company performance to back their upbeat calls.

Most energy and oil analysts remain positive on Viper Energy and have recommended buying the stock on any dip in price.

So, if you’re on the lookout for exposure in the oil and mining industry but not keen on the explorers and producers, Viper Energy may be the next best thing to include in your portfolio.




This article was written by Alex Douglas, Managing Director of  Monex Securities Australia (AFSL: 363 972), part of the Monex Group Inc. and published by Rask Media (https://www.raskmedia.com.au) on 23/10/2018


The content of this article is given for general information only. As general information, no consideration or evaluation is given to the investment objectives or financial situation of any particular person. Trading and investing involve substantial financial risk. All readers of this article should make their own evaluation of the merits and suitability of any financial products and/or advice or seek specific personal advice as to the appropriateness of engaging in any activity referred to in this article in light of their own particular financial circumstances and objectives. 




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