In a Feb. 6 research note, analyst John Freeman reported that Raymond James increased its target price on Viper Energy Partners LP (VNOM:NASDAQ) to $53 per share from $52 after accounting for newly released 2019 guidance and an updated number of undrilled locations.
Freeman highlighted that activity on Viper's acreage has increased. Currently, 40 rigs are at work versus 24 in November 2018. Further, 619 active drilling permits were filed in the last six months.
The number of Viper's undeveloped net revenue interest (NRI) locations also rose, and now is an estimated 140 in the Midland Basin and 180 in the Delaware Basin. That total of 320 compares to Raymond James' estimated 270 NRI locations.
The robust activity is expected to continue, Freeman noted. Management of the limited partnership (LP) guided to production of 20,500–22,000 barrels of oil equivalent per day (Mboe/d) in H1/19 and initiated full-year 2019 guidance at 20–23 Mboe/d.
There also remains potential for the dropdown of additional acreage to Viper from, for instance, Diamondback and Brigham Resources, Freeman pointed out. "We conservatively model ~$200 million of annual acquisitions through 2025, which comprises ~$9 per unit of our full company net asset value." Absent any acquisitions, Viper "likely has over 15 years of drilling inventory on its acreage," the analyst added.
In light of that acquisition potential, along with the LP's "attractive and extensive asset base and extremely low financial and operating leverage," Raymond James maintains its Strong Buy on Viper.[NLINSERT]
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Disclosures from Raymond James, Viper Energy Partners LP, February 6, 2019
Analysts Holdings and Compensation: Equity analysts and their staffs at Raymond James are compensated based on a salary and bonus system. Several factors enter into the bonus determination, including quality and performance of research product, the analyst's success in rating stocks versus an industry index, and support effectiveness to trading and the retail and institutional sales forces. Other factors may include but are not limited to: overall ratings from internal (other than investment banking) or external parties and the general productivity and revenue generated in covered stocks.
The analyst John Freeman, primarily responsible for the preparation of this research report, attests to the following: (1) that the views and opinions rendered in this research report reflect his or her personal views about the subject companies or issuers and (2) that no part of the research analyst’s compensation was, is, or will be directly or indirectly related to the specific recommendations or views in this research report. In addition, said analyst(s) has not received compensation from any subject company in the last 12 months.
RAYMOND JAMES RELATIONSHIP DISCLOSURES
Certain affiliates of the RJ Group expect to receive or intend to seek compensation for investment banking services from all companies under research coverage within the next three months.
Limited Partnerships may generate unrelated business taxable income (UBTI), which can create a tax liability that must be paid from a retirement account. To the extent that Raymond James is your IRA custodian, and there is potential tax liability for UBTI generated by the fund, Raymond James will take the necessary steps to pay the tax from the retirement account by working with a third party to compute the tax liability and prepare the IRS form 990-T for submission to the IRS
Raymond James & Associates has managed or co-managed an offering of securities for Viper Energy Partners LP within the past 12 months.
Raymond James & Associates, Inc. makes a market in the shares of Viper Energy Partners LP and Diamondback Energy, Inc.