Viper's higher base dividend comes with a smaller check

Viper Energy has declared a $0.50 dividend per Class A share for the third quarter, its first under the cash-return policy announced in August. The base payment is higher, but the variable dividend is gone.

Research by Ticker Byline shows that the total declared dividend is about 25% below the previous quarter's $0.67. The new base is about 32% above the old $0.38 base; the previous payment also included a $0.29 variable dividend. The new dividend is payable November 19.

What the extra flexibility is buying

Viper owns mineral and royalty interests that generate income when operators produce oil and gas. In August, it removed its commitment to return at least 75% of quarterly cash available for distribution, giving it more room for acquisitions and buybacks.

Its latest purchase shows the kind of growth it is pursuing. In September, Viper completed the $529 million McElroy Ranch acquisition, including $49 million of deferred consideration payable through June 2029. The asset is 96% undeveloped. Viper forecasts peak production of about 5,000 barrels of oil a day over the next decade.

A separate Buckhorn agreement calls for $280 million in cash and about 1.8 million Class A shares. That asset is 61% undeveloped, and the deal is expected to close in the fourth quarter.

Borrowing rose alongside the purchases

Viper generated $447 million of operating cash in Q3 and spent $843 million on acquisitions. It also continued buying back shares, spending about $90 million during the quarter.

Debt principal rose by $715 million to $2.41 billion from June to September. Borrowings on its revolving credit line increased to $810 million from $95 million. At September 30, Viper had about $1.2 billion available for further borrowing.

The company's $520 million free-cash-flow figure excludes a $73 million working-capital outflow and does not deduct acquisition spending.

Oil output beat the earlier plan

The acquisitions are adding to a business that produced 69,076 barrels of oil a day in Q3, above the 67,500 to 68,500 range forecast in August. Viper raised its full-year oil-production forecast to 67,250 to 67,750 barrels a day, including the pending Buckhorn deal.

More output came with lower realized oil prices than in Q2. Consolidated adjusted EBITDA fell to $596 million from $642 million. That measure removes interest, taxes, depreciation, depletion, amortization and specified other items. Operating cash flow was also lower, at $447 million versus $487 million.

The smaller dividend leaves Viper more discretion over cash while it buys future production. The Viper company profile tracks the completed and pending deals, the changed dividend policy and the financial results behind that choice.