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Summary

  • Limited partnership formed by Diamondback, which has a $4.5 billion market cap, to own, acquire and exploit oil and natural gas properties in North America.
  • Scheduled to pay out 100% of its project EBITDA for the 12 months ended June 15, 2015. The projected yield is 5.5% at the price range mid-point of $20.
  • FANG will own 93% of VNOM post IPO.

Based in Midland, TX, Viper Energy Partners LP (NASDAQ:VNOM) scheduled a $100 million IPO on the Nasdaq with a market capitalization of $1.5 billion at a price range midpoint of $20 for Wednesday, June 18, 2014.

The full IPO calendar is available at IPOpremium

SEC Documents

Manager, Joint managers: Barclays, Credit Suisse, Wells Fargo Securities

Co-Managers: Baird, Raymond James, Scotiabank - Howard Weil, Simmons, Stifel, Tudor, Pickering, Holt, Northland Capital Markets, Sterne Agee, Wunderlich Securities

End of lockup (180 days): Monday, December 15, 2014

End of 25-day quiet period: Monday, July 14, 2014

Summary

VNOM is a Delaware limited partnership formed by Diamondback to own, acquire and exploit oil and natural gas properties in North America.

VNOM's initial assets consist of mineral interests in oil and natural gas properties in the Permian Basin in West Texas, substantially all of which are leased to working interest owners who bear the costs of operation and development.

The parent is Diamondback (NASDAQ:FANG), with a $4.1 billion market cap.

FANG is a publicly traded independent oil and natural gas company currently focused on the acquisition, development, exploration and exploitation of unconventional, onshore oil and natural gas reserves in the Permian Basin.

VNOM is scheduled to pay out 100% of its project EBITDA for the 12 months ended June 15, 2015. The projected yield is 5.5% at the price range mid-point of $20.

Valuation

Glossary

Valuation Ratios

Mrkt Cap (MM)

Price /Sls

Price /Erngs

Price /BkVlue

Price /TanBV

% offered in IPO

.

Viper Energy Partners LP

$1,524

4.1

21.8

3.5

3.4

7%

Conclusion

The rating on VNOM is neutral plus.

To put the conclusions and observations in context, the following is reorganized, edited and summarized from the full S-1 referenced above.

Business

VNOM is a Delaware limited partnership formed by Diamondback to own, acquire and exploit oil and natural gas properties in North America.

VNOM's primary business objective is to provide an attractive return to unitholders by focusing on business results, maximizing distributions through organic growth and pursuing accretive growth opportunities through acquisitions of mineral interests from Diamondback and from third parties.

VNOM's initial assets consist of mineral interests in oil and natural gas properties in the Permian Basin in West Texas, substantially all of which are leased to working interest owners who bear the costs of operation and development.

Diamondback will contribute these assets, which it acquired in September 2013 from a third party for cash, to VNOM upon the closing of this offering.

Like Diamondback, VNOM expects its initial focus will concentrate on the Permian Basin, which is one of the oldest and most prolific producing basins in North America.

Parent: Diamondback , $4.1 billion market cap

FANG is a publicly traded independent oil and natural gas company currently focused on the acquisition, development, exploration and exploitation of unconventional, onshore oil and natural gas reserves in the Permian Basin.

FANG itself pays no dividends.

Upon the completion of this offering, Diamondback will own and control its general partner, and will own approximately 93% of its outstanding common units.

Permian Basin

The Permian Basin, which consists of approximately 85,000 square miles centered around Midland, Texas, has been a significant source of oil production since the 1920s.

The Permian Basin is known to have a number of zones of oil and natural gas bearing rock throughout.

However, because of the nature of the rock in many of the potentially productive zones, historically it was not economic to exploit these zones.

As a result, exploration and development was limited until recently when higher oil prices and more advanced completion techniques, including hydraulic fracturing, changed the economics of drilling and development of these zones and greatly increased the oil and natural gas industry's interest in the Permian Basin.

Oil production in the Permian Basin has grown from 850,000 barrels per day in 2008 to 1.3 million barrels per day in 2013.

Based on public statements made by a number of publicly traded oil and natural gas companies, and the successful horizontal well results of the industry, VNOM believes that drilling activity in the Permian Basin is likely to continue to grow at least for several more years.

Dividend Policy

Within 60 days after the end of each quarter, VNOM expects to make distributions, as determined by the board of directors of its general partner, to unitholders of record on the applicable record date. Its first distribution will include available cash for the period from the closing of this offering through September 30, 2014.

The expected payout rate is $1.10 per year or 5.5% on an annual basis at $20, the price range mid-point.

Post-IPO stockholders

Public Common Units: 5,000,000 - 7%

Interests of Diamondback:

Common Units: 71,200,000 - 93%

Use of proceeds

VNOM expects to net $91 million from its IPO. Proceeds are allocated as follows: to make a distribution to Diamondback. Affiliates of certain of the underwriters are lenders under Diamondback's revolving credit facility. Diamondback may, but is not required to, apply the distribution that it receives from VNOM to repay amounts outstanding under its revolving credit facility. Accordingly, affiliates of certain of the underwriters may indirectly receive a portion of the proceeds from this offering in the form of repayment of debt by Diamondback.

Disclaimer: This VNOM IPO report is based on a reading and analysis of VNOM's S-1 filing, which can be found here, and a separate, independent analysis by IPOdesktop.com. There are no unattributed direct quotes in this article.

Source: IPO Preview: Viper Energy Partners LP