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Viper Energy (VNOM) Down Nearly 9% Post Strong Q3 Earnings

Viper Energy Partners LP’s VNOM shares declined nearly 9%, despite strong third-quarter 2019 earnings, announced on Oct 29. The outperformance failed to lift the stock, since the company downwardly revised its 2019 production guidance amid a weak oil price scenario. Notably, oil prices are unlikely to recover in the near term as energy demand is expected to remain low, in response to uncertainty in global economic growth.

Viper Energy Partners LP Price and EPS Surprise

Viper Energy Partners LP Price and EPS Surprise

Viper Energy Partners LP price-eps-surprise | Viper Energy Partners LP Quote

Let’s delve deeper.

Viper Energy reported third-quarter 2019 earnings per unit of 13 cents, beating the Zacks Consensus Estimate of 6 cents and rising from the year-ago figure of 5 cents.  

The partnership generated operating income of $71.8 million, which missed the Zacks Consensus Estimate of $74 million. Also, the top line declined from the year-ago level of $77.7 million.

The strong earnings can be attributed to higher production volumes and lower average operating expenses, partially offset by a decline in realized oil prices.

In third-quarter 2019, the partnership closed 25 acquisitions for $193.6 million. These acquisitions boosted its mineral interests by 23% from the year-ago level to a total of 17,151 net royalty acres.

Cash Distribution

The partnership was authorized by the board of directors of its general partner to make cash distribution of 46 cents per common unit for the September quarter of 2019.  The new distribution reflects a sequential decrease of 2.1%.

It generated $164.2 million of net cash from operating activities in the first nine months of 2019, lower than the year-ago comparable period’s $176.4 million.

Production Rises

The resources wherein the partnership has mineral interest produced 1,956 thousand oil equivalent barrels (MBoe) in the September quarter of 2019, up from 1,691 MBoe a year ago owing to Midland Basin strength. Of the total volumes, oil accounted for 64%. Production of crude oil, natural gas and natural gas liquids rose in the quarter under review from the year-ago levels.

Average Realized Prices Decline

Average realized oil prices during the quarter were recorded at $51.53 per barrel, down from $54.30 a year ago. Natural gas prices were recorded at $$1.28 per thousand cubic feet, lower than the year-ago quarter’s $2.22. The price of natural gas liquids was $9.84 a barrel, down from the year-ago quarter’s $25.75.

Cost & Expenses

Total expenses in the quarter under review amounted to $25.2 million, higher than $22.9 million in the prior-year period. However, on a per BOE basis, total operating expenses were recorded at $3.11, lower than $3.49 in the year-ago period.

Balance Sheet

As of Sep 30, 2019, the partnership’s cash and cash equivalents were recorded at $20 million. The partnership reported long-term debt of $409.5 million, representing a debt-to-capitalization ratio of roughly 20.5%.

Guidance

The partnership upwardly revised its fourth-quarter 2019 projection of daily net production in the band of 25-27 MBoe from the previous estimate of 23-25 MBoe. It expects first-quarter 2020 production to be flat with the fourth-quarter 2019 level.

However, for full-year 2019, Viper Energy reduced its daily net production guidance from the range of 21.5-22 MBoe to 21-21.5 MBoe. The partnership added that the proportion of oil in total production volumes is projected in the band of 66-67%.

Zacks Rank and Stocks to Consider

Currently, Viper Energy has a Zacks Rank #3 (Hold). Some better-ranked players in the energy space are Lonestar Resources US Inc. LONE, CNX Resources Corporation CNX and Contango Oil & Gas Company MCF. All these companies carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Lonestar’s 2020 earnings per share are expected to rise 77% year over year.

CNX Resources’ 2019 earnings per share have witnessed two upward movements and no downward revision in the past 30 days.

Contango Oil & Gas’ bottom line for the current year is expected to rise around 87% year over year.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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