Viper Energy ready to strike on US oil exploration
While its stock ticker is enough to get your attention, Viper Energy Partners (NASDAQ: VNOM) has more than an unconventional acronym behind its stellar performance.
In its latest financial report, Viper reported some positive numbers that will make every investor take notice.
Consider these figures:
- Cash distribution (dividend) of US60c per share, up 25% quarter on quarter and up 81% 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 about $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 has been voted the No. 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, what is Viper Energy and what does it do to generate massive growth?
Viper is a big player in the oil and 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 that extract and pump out the black gold from the earth, Viper has a less labour-intensive operation. It 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 on rigs, exploration, extraction, processing and distribution and labour, Viper earns from every drop of oil extracted 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 US. It 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 and Concho Resources.
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 its clients are the oil explorers and producers, they have the financial capability to wear any fluctuation in oil price without affecting Viper's revenue.
Exceptional growth in 2018
In a recent company statement, Viper 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.
"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 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 predicting the oil price to reach $US80-$100 towards the end of this year (as the US sanctions on Iran oil kicks in next month), it seems that most of the analysts tracking Viper have the solid company performance to back their upbeat calls.
Most energy and oil analysts remain positive on Viper 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.