Good day and thank you for standing by. Welcome to the Viper Energy Partners Third Quarter 2022 Earnings Conference Call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Adam Lawlis, Vice President of Investor Relations. Please go ahead.

Thank you, Grishka. Good morning and welcome to Viper Energy Partners’ third quarter 2022 conference call. During our call today, we will reference an updated investor presentation, which can be found on Viper’s website. Representing Viper today are Travis Stice, CEO and Kaes Van’t Hof, President. During this conference call, the participants may make certain forward-looking statements related to the company’s financial condition, results of operations, plans, objectives, future performance and businesses. We caution you that actual results could differ materially from those that are indicated in these forward-looking statements due to a variety of factors. Information concerning these factors can be found in the company’s filings with the SEC. In addition, we will make reference to certain non-GAAP measures. The reconciliations with the appropriate GAAP measures can be found in our earnings release issued yesterday afternoon. I will now turn the call over to Travis Stice.

Thank you, Adam. Welcome, everyone, and thank you for listening to Viper Energy Partners third quarter 2020 conference call. The third quarter was another strong quarter for Viper. Oil production set a company record for the second consecutive quarter on both an absolute and per unit basis. Importantly, this quarter marks our first quarter with our enhanced capital return program in place. And with the flexibility we now have in returning capital, we repurchased over 1.8 million units during the quarter at an average price of just below $28 per unit. With our focus on increasing per unit metrics, these opportunistic repurchases helped drive oil production per unit, up 2% quarter-over-quarter despite absolute production staying relatively flat. On a year-over-year basis, oil production per unit has increased over 15%, further highlighting the success of both our unit repurchase program and the Swallowtail acquisition that we completed during the fourth quarter of last year. Since authorizing the unit repurchase program in Q4 2020, we've now repurchased over nine million units or almost 6% of our starting unit count at an average price of roughly $21 per unit. The optionality provided by our enhanced capital return program allows greater flexibility and taking advantage of the extreme market volatility that we have seen over the past several quarters. But we also remain committed to returning a meaningful amount of capital to unitholders through our base plus variable distribution. Although our distribution went down from previous quarters as we allocated more capital to unit repurchases, we will still be paying a distribution for the third quarter of $0.49 a unit, which provides a competitive annualized yield of almost 6% at today's unit price. Looking ahead, Viper has initiated average production guidance for Q4 2022 and Q1 2023 that implies roughly flat volumes relative to the third quarter. As operators move to developing larger pads, royalty volumes can now be subject to somewhat uneven volumes from quarter-to-quarter. It is important to note, however, that Viper continues to expect Diamondback to focus on developing Viper's high concentration royalty acreage in the Northern Midland Basin and as a result, growing Viper's 2023 Diamondback-operated net oil volumes by roughly 10% year-over-year. Given that Diamondback-operated roughly 60% of Viper's total production, we still anticipate meaningful production growth in 2023. In conclusion, the third quarter was an outstanding quarter for Viper. Viper remains differentially positioned to grow production without having to spend a single dollar of development or acquisition capital and with only limited operating costs will mostly be insulated from the inflationary cost pressures faced by operators. Going forward, our focus remains on increasing long-term per unit growth and returns. As we continue to focus on creating value through our core business, we will also look to generate the highest value proposition for our unitholders in returning capital, whether that be allocating capital beyond our base distribution to variable distributions or opportunistic unit repurchases. Operator, please open the line for questions.

Thank you. At this time, we will conduct a question-and-answer session [Operator Instructions] Our first question comes from the line of Neal Dingmann from Truist Securities. Your line is now open.

Good morning. Thanks, Travis. My first question is on some of you just talked about Travis on that new enhanced return program. And I'm specifically, I'm just wondering what would determine the sort of typical quarterly unit repurchase above that 75% return to capital? Really what I'm trying to get a sense of is how commodity prices and maybe your unit price will impact this?

Yes, Neil, good question. It's really the same program we have at Diamondback. I would just say it's probably more heavily weighted towards distributions over buybacks. But given the volatility we saw in the quarter, Viper was very aggressive on the buyback, particularly between the time of announcing our distribution and paying it at some weakness there that allow us to be aggressive and buyback the units at that point in the quarter. I think going forward, like I said, we like kind of allocating more cash to return of capital from a cash perspective here. But the buyback is there to support the stock in any form of weakness. And as we showed in Q1, we negotiated a deal with Blackstone as a large holder of our shares to buy some of their units outright and reduce that position. So those conversations still happen. We started to be able to get any more repurchase since Q1.

No that's great. I'm glad you all are willing to step into it like that. And then secondly, just on activity, specifically you outlined pretty nicely on Slide 9, some strong near-term inventory given not only that work in progress but obviously the line of sight. So I'm just wondering is it fair to say that Travis you mentioned, I think kind of in broad terms about the – my question is on 2023, should you continue to have a – let's call it an active year assuming that Diamondback and your third-party operators continue with their intended plans, or I'm just wondering is there anything that you see that could disrupt this?

Yes. No, this is Austen. I mean really for the past four quarters, activity levels, as we report by work in progress and line of sight have stayed relatively consistent. As we look at the next two quarters, with the guidance that we put out but more importantly for the full year 2023. Right now, we don't have so much visibility with the growth that's going to come through the Diamondback drill bit really the only nuance there is just kind of the timing of some of those larger pads and we outlined some that detail on slide 11. So that's about 50% of our production growth, and with that plan that's pretty set in place that's going to drive about 10% of production growth on that portion of production. And then on the third-party portion with what we can see today not a full picture for 2023 yet, given still needing to see some permits coming in throughout the year, I would expect activity levels to be at least flat year-over-year. So overall, we're feeling really good about the 2023 outlook. Just going to have flattish volumes here for the next two quarters.

Yeah. I mean high level, Neal, 10% Diamondback growth. Diamondback to 60% of production, we're not going to commit to not of growth yet. So you kind of get to mid-to high single digits total company oil growth without any reduction in the unit count.

Yeah. I really like the set-up. Thanks. It’s a great set-up. Thanks, guys.

Thanks, Neal.

Thanks, Neal.

Please standby for our next question. Question comes from the line of Tim Rezvan of KeyBanc Capital Markets. Your line is now open.

Hi. Good morning, everyone. We were a bit surprised by the skew towards repurchases over the variable in the third quarter, but we recognize the volatility in Viper units maybe warranted that action. Is it fair to say that, that was kind of an extreme skew in terms of kind of percentage of allocations? And I guess another way what I'm trying to get at is how do you think about the importance of a competitive yield as a component to driving the unit price higher?

Yeah. Good question, Tim. I would say a competitive free cash flow yield is probably more important in our mind than a competitive return of capital yield, because the free cash flow – the present value of the free cash flows of the business is what drives value. I just think we want some flexibility on how we can return that value to shareholders, and unitholders. And like I said on the question before, I think generally Viper we are more focused on being a distribution vehicle. But, when we can buy minerals in the market much cheaper than we can buy minerals in the private markets, we've seen some astronomical valuations on deals sold of lower quality than what Viper has that calls us – it sounds to probably up and buy our unit factor that's a better deal than trying to grow the business by buying external minerals.

Okay. Okay. Yes that's good color. Thank you. And then I guess transitioning from that based on your comments. Obviously, there's been a couple of large Permian packages transacting here in recent months. You obviously passed on them. You have a new sandbox to attack in Ector County with the FireBird acreage. As you look forward are you agnostic to Diamondback for third-party operator, or kind of – how do you think about kind of the ground game going forward when you look to add on? Do you want to grow that 60% Diamondback operator exposure, or I'm just trying to understand kind of your plan going forward?

Yeah. Primary goal as it has been for the last couple of years is to continue to grow that Diamondback operated peak. It's harder to do, given that we've been trying to buy minerals under Diamondback for years now. Certainly, the FireBird assets provide a new sandbox for the Viper team to start buying. And we got some deals done in the quarter more than the quarter before. And some of those were packages where half or a majority of the minerals were Diamondback, but we took the non-minerals with the package. So, certainly still a preference for Diamondback operated, given we know the plan, we know the schedule, we know the value. On the non-op side, yes, you're starting to see deals with more cash flow. But in our mind, we would pay a lower multiple for that than what Viper has worked today.

Thank you for the comments.

Thank you, Tim.

Our next question comes from the line of Leo Mariani of MKM Partners. Your line is now open.

Hey. Just wanted to follow up a little bit on the FireBird asset. Wanted to see are there any kind of visible mineral dropdowns that may come from there in the near term? And then could you just speak to drop-downs in general? I think it's been a little while since VNOM has received anything from FANG. Is that something that we might foresee as you work our way into the 2023?

Yes. I wouldn't expect anything from the FireBird asset. A couple of quarters ago Diamondback did a smaller deal kind of in the reward area that had a couple of extra NRI points. So that's something that we have on the radar that we could do, maybe, we'll do, but it's just more of a time -- matter of timing. So that asset is on the schedule and as it starts to get developed, it has a little bit more cash flow on it, but that's something that we could look to do. But really nothing meaningful, especially, as it compares to two of the larger drop-downs that we have done in years past.

Okay. That's helpful. And then, just wanted to follow up on your comments around a little bit flatter production over the next few quarters. I just want to make sure I sort of understood that. Are you guys basically saying that, it's not really due to a slowdown in FANG operating activity? It's more just due to timing of some of these larger pads happening a little bit later, as we look out over the next couple of quarters that kind of means that, I guess, we'll see more of that production growth as we get into 2Q 2023 and beyond?

Yes, I think, just generally we see some large pads coming on Q2 and beyond. And in the quote in the press release and what we said earlier is the Diamondback piece, which we have 100% visibility on, will grow 10%, it's just going to start growing in Q2 and Q3. And then, if not accelerates, which, it's kind of budget season, we'll see what happens on the non-op side that would be gravy. But the way we see it right now is basically flat oil from Q3, which was an all-time high into Q4 and Q1 and then the ramp starts to begin again in Q3 of next year -- sorry, Q2 of next year.

All right. Thank you.

Thank you, Leo.

At this time, I'm showing no further questions. So I'd now like to turn it back to Travis Stice, CEO, for closing remarks.

Thank you, again, to everyone for this call. If you have any questions, please contact us using the contact information provided.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.