Viper Energy (VNOM) Q3 2026 earnings review
Viper Energy lifts its oil plan, but deal debt climbs
Viper Energy, which collects royalties from Permian Basin oil wells without paying to drill them, pumped more oil while signing two new land deals. Daily oil volumes rose 6% from last quarter to 69,076 barrels, and by our math half of that gain came from existing land rather than the July Riverbend acquisition. Chief executive Kaes Van’t Hof raised the full-year oil outlook again, though a 11% drop in oil prices from last quarter nudged revenue down slightly.
| Daily oil production | 69,076 bo/d +6.1% from last quarter (+3.1% excluding Riverbend) |
|---|---|
| Total operating income | $661M +58% from a year ago (−2.4% from last quarter) |
| Net debt | $2.40B up from $1.62B last quarter |
| Full-year oil production outlook | Raised 875 bo/d middle of the range: 67,500 bo/d |
⚖️ Verdict: ⚪ Neutral
The story is unchanged because deal-making and higher debt offset a strong quarter on existing wells. Beating what the third-quarter outlook implied for underlying gas and liquids shows the prior plan was cautious, and the fourth-quarter oil plan of 70,500 barrels a day leans on new acquisitions as net wells being drilled stayed near 39. One caution: funding McElroy Ranch and Riverbend in cash pushed net debt up by $782 million to $2.4 billion while share buybacks slowed.
The question now is whether Viper can keep growing oil per share without leaning on its balance sheet. One view is that Diamondback's high-royalty completions and the 58 new McElroy and Buckhorn drilling locations will lift production on their own; the other is that flat net wells in the drilling pipeline mean growth requires constant deal-making. Management's first 2027 production plan next quarter will settle it.
🐂 Bull Case
Underlying Oil and Gas Volumes Beat the Plan
Viper Energy owns mineral and royalty interests in the Permian Basin, meaning it collects a share of revenue from oil and gas wells without paying to drill them. Chief executive Kaes Van’t Hof said "Viper’s momentum carried through the third quarter, with average daily oil production growing more than six percent quarter over quarter". That total includes Riverbend, an acquisition that closed on July 1.
- Daily oil production: 69,076 barrels, up 6.1% from last quarter and 1.6% above the middle of the outlook
- Daily oil growth excluding Riverbend: about 2,000 barrels, or 3.1% from last quarter by our math
- Combined oil, gas and liquids: 141,152 barrels of oil equivalent a day, 4.9% above the middle of the outlook
- New wells from parent company Diamondback Energy: 11.6 net wells at a 9.4% average royalty share, up from 10.2 net wells at 7.0% last quarter
Because Riverbend added about 2,000 barrels of oil a day, the remaining 2,000 barrels of growth came from drilling on land Viper already owned, double its usual quarterly pace. Underlying combined volumes also grew 2.1% from last quarter by our math, beating an outlook that pointed to a decline.
What to watch: Diamondback's average royalty share on new wells next quarter. Active wells currently being drilled carry a 5.8% Diamondback royalty share, so the boost from 9.4% wells will fade unless high-royalty completions continue.
Two Mostly Cash Deals Add 58 Net Drilling Locations
Viper expands its drilling backlog by buying mineral acres across West Texas. Van’t Hof said the newly announced McElroy Ranch and Buckhorn deals follow Viper's plan to "pursue accretive M&A with minimal reliance on equity". The Permian royalty owner also closed its previously announced drop-down of about 1,000 net royalty acres from Diamondback on September 1 for 3.8 million operating units.
In September, the group bought McElroy Ranch for $529 million in cash and deferred payments, adding 7,359 net royalty acres in an "expected core geologic fairway of Barnett development in the western Midland Basin". It also agreed to buy Buckhorn Minerals for $280 million in cash and 1.8 million shares. Together, "The acquisitions combine to extend the quality and duration of our inventory, adding nearly 60 net locations across two largely undeveloped assets."
What to watch: closing of the Buckhorn deal in the fourth quarter and future acreage swaps on McElroy Ranch, where concentrated ownership should "enable potential trades to accelerate development in the coming years". Faster operator drilling on that 96%-undeveloped land would bring its 5,000-barrel-a-day peak production forward.
🐻 Bear Case
Development Well Growth Is Still Flat on a Net Basis
Viper tracks two groups of future wells on its land: active development wells already being drilled, which turn to production in six to eight months, and line-of-sight wells with permits for the next 15 to 18 months. Management highlighted momentum from both Diamondback and third-party operators, and gross active wells jumped from 1,798 on July 1 to 1,965 at quarter-end.
Once adjusted for Viper's ownership share in each well, the near-term drilling backlog did not grow. Net active wells having a 100% royalty interest edged down from 39.1 on July 1 to 38.9 at September 30, because the average royalty share fell from 2.2% to 2.0%. Furthermore, the fourth-quarter oil plan of 70,500 barrels a day at the middle of the range is up 1,424 barrels from the third quarter, which mostly reflects Buckhorn's expected 1,500 barrels a day.
What to watch: first-quarter 2027 oil production outlook on the next report. If the net well count stays near 39, underlying oil growth will slow after the new acquisitions are absorbed.
Cash Deals Push Net Debt Up $782 Million
Last quarter, Viper dropped its commitment to pay out at least 75% of available cash, raising its base dividend to $0.50 per share while freeing cash for share buybacks and acquisitions. In the third quarter, the mineral company spent $843 million in cash on acquisitions, covering the July 1 Riverbend closing and McElroy Ranch.
- Net debt: $2.40 billion at September 30, up 48% from $1.62 billion in June
- Credit facility borrowings: $810 million, cutting total liquidity from $2.0 billion to $1.2 billion
- Third-quarter Class A share buybacks: 2.1 million shares for $90 million ($43.01 average), down from $132 million last quarter
- New shares and units committed in Q3: 3.8 million units for the Diamondback drop-down and 1.8 million shares for Buckhorn
Paying cash for deals prevented large share dilution, but it pushed net debt $900 million above Viper's earlier $1.5 billion debt target. Meanwhile, the 5.6 million shares and units committed to the two other deals exceeded the 2.5 million shares bought back across the third quarter and October.
What to watch: fourth-quarter share buybacks after the $280 million cash payment for Buckhorn closes. Viper expects year-end net debt to stay near $2.4 billion, which limits the cash left over for buybacks.
Lower Oil Prices Cut Revenue Despite Record Volumes
Because Viper pays no drilling capital, its revenue and cash flow track oil and gas prices directly. In the third quarter, Viper's unhedged oil price fell 10.8% from last quarter to $87.65 a barrel, and its hedged price fell 10.2% to $86.55.
That price drop outweighed the 6.1% jump in oil volumes, pulling total operating income down 2.4% from last quarter to $661 million. Oil also made up 48.9% of total production, down from 51.5% a year ago. While unhedged natural gas prices recovered from $0.05 per thousand cubic feet in the second quarter to $0.96, losses on gas price hedges cut the hedged gas price from $1.48 to $0.66.
What to watch: fourth-quarter oil prices and cash available after the $0.50 base dividend. Because Viper must fund Buckhorn and pay higher interest on its $2.4 billion debt, a drop toward $70 oil would squeeze cash available for debt paydown.
Risks this quarter didn't answer
Three standing concerns from prior quarters received no new details in the third-quarter earnings release.
- Spanish Trail Barnett well results: no production rates from Diamondback's first deep-bench pad appeared in the release; the conference call or quarterly filing may address them.
- Related-party drop-down pricing: the 2026 Drop Down closed for 3.8 million operating units, but the release gave no production or cash flow figures for those 1,000 acres.
- Former Sitio shareholder ownership: the release did not update how much stock former Sitio owners still hold; the quarterly filing will update the share register.
👓 Other Themes
Lower Depletion Costs Lifted the Operating Margin
Viper posted $399 million in operating profit, or 60.4% of revenue, reversing a $176 million operating loss a year ago caused by a $360 million property write-down. Excluding that one-off charge, operating margin rose 16.3 percentage points from a year ago by our math, because depletion expense — the accounting cost of oil and gas pumped from the ground — fell 12.4 percentage points of revenue to $15.86 per barrel.
💲 Other KPIs
Viper's free cash flow — operating cash flow before working capital changes, since a royalty owner has no drilling capital — reached 79% of revenue. Cash flow from operating activities rose 59% from a year ago to $447 million, held back by a $73 million working capital build.
Money owed to Viper by well operators — combining $496 million from third parties and $19 million from Diamondback — rose 47% from $350 million at year-end 2025 by our math, outpacing revenue growth as newly acquired properties entered the billing cycle.
Weighted average Class A shares rose 30.3% from a year ago because Viper issued stock to buy Sitio Royalties in August 2025. Compared with the second quarter, the count ticked up 0.1%, as third-quarter buybacks of 2.1 million shares offset the 3.7 million shares issued for Riverbend.
🔮 Guidance
New. The plan calls for 70,500 barrels of oil a day at the middle of the range, up 2.1% from the third quarter and 6.2% from a year ago. It includes the pending Buckhorn deal, which adds about 1,500 barrels a day over the next year. Viper has beaten its quarterly oil outlook four quarters in a row; if that 1.4% average beat holds, Q4 oil would reach about 71,466 barrels a day by our math.
New. The outlook points to 142,500 barrels of oil equivalent a day at the middle of the range, up 1.0% from the third quarter. The Permian royalty company has beaten the top of its combined volume plan for four straight quarters by an average of 5.6% vs the middle of the range; if that pattern holds, Q4 volumes would reach about 150,523 barrels of oil equivalent a day by our math.
Raised. The middle of the full-year range moved up by 875 barrels a day to 67,500, folding in the third-quarter beat, McElroy Ranch, the Diamondback drop-down and Buckhorn. It is the third raise this year, and each raise has been smaller than the last: +1,500, +1,125, and +875 barrels a day.
Raised. The middle of the range rose by 3,750 barrels of oil equivalent a day to 137,500. That follows raises of +2,000 and +5,750 barrels of oil equivalent a day in the prior two quarters as natural gas and liquids volumes kept beating expectations.
Unchanged. The full-year depletion cost plan stays at $16.00 per barrel of oil equivalent at the middle of the range, matching the third-quarter rate of $15.86.
Unchanged. Cash general and administrative overhead stays at $0.80 per barrel of oil equivalent at the middle of the range, after printing $0.69 in the third quarter.
Unchanged. Stock-based pay for the year remains at $0.15 per barrel of oil equivalent at the middle of the range, slightly below the $0.23 third-quarter reading.
Unchanged. The full-year range held at $2.15 at the middle, even though third-quarter interest costs rose from $1.96 to $2.31 per barrel of oil equivalent on higher credit facility borrowings.
Unchanged. Production and property taxes remain near 7% of revenue for the full year, compared with 6.7% in the third quarter.
Unchanged. The cash tax rate on pre-tax income attributable to Viper stays at 27% to 30%, and the third-quarter rate fell back inside the range to 27.4% after printing 30.4% in the second quarter.
❓ Key Questions
Why does the Q4 oil plan imply flat underlying volumes?
The fourth-quarter oil outlook of 70,500 barrels a day at the middle of the range is up 1,424 barrels from the third quarter. Because McElroy Ranch adds 400 barrels a day and Buckhorn adds 1,500 over the next year, how much underlying growth is inside the Q4 plan?
How will Viper split cash between debt and buybacks?
Net debt jumped by $782 million to $2.4 billion, and the Buckhorn deal requires another $280 million in cash. Will management pause share buybacks to pay down its $810 million credit facility balance, or is 1.0x leverage the new permanent ceiling?
What are the early rates from Spanish Trail Barnett wells?
Viper just spent $529 million on McElroy Ranch to target the Barnett shale formation, citing 80 barrels per foot on nearby third-party wells. How are Diamondback's own Spanish Trail Barnett pads performing against that benchmark?
Why did third-party gas and NGL volumes beat again?
Combined production beat the top of the outlook for a fourth straight quarter, coming in 5,652 barrels of oil equivalent a day above the range. Did prior-period operator payments drive that gap, or are Permian wells producing more gas over time?