Exhibit 99.2
Viper Energy Partners LP
Unaudited Pro Forma Combined Financial Information
On October 1, 2019, Viper Energy Partners LP (the "Partnership") completed the acquisition of certain mineral and royalty interests (the "Drop-Down Assets") from subsidiaries of Diamondback Energy, Inc. ("Diamondback") for approximately 18.3 million of its newly-issued Class B units, approximately 18.3 million newly-issued units of Viper Energy Partners LLC (the "Operating Company") and $190.2 million in cash, after giving effect to closing adjustments for net title benefits (the "Drop-Down Acquisition"). Based on the volume weighted average sales price of the Partnership's common units for the ten trading-day period ended July 26, 2019 of $30.07, the transaction was valued at $740.2 million. The Drop-Down Assets represent approximately 5,490 net royalty acres across the Midland and Delaware Basins, of which over 95% are operated by Diamondback, and have an average net royalty interest of approximately 3.2%. The Drop-Down Assets are concentrated in Diamondback’s seven core operating areas, with the largest exposure to Spanish Trail North and Pecos County. The Partnership completed the Drop-Down Acquisition on October 1, 2019 and funded the cash portion of the purchase price for the Drop-Down Assets through a combination of cash on hand and borrowings under the Operating Company’s revolving credit facility. In connection with the closing of the Drop-Down Acquisition, the borrowing base under the Operating Company’s revolving credit facility was increased by $125.0 million to $725.0 million from $600.0 million. Further, in connection with the acquisition, on October 16, 2019, the Partnership issued $500 million principal amount of 5.375% Senior Notes due 2027 and used the proceeds to pay down the revolving line of credit, including the portion used to fund the acquisition
The following unaudited pro forma combined financial information is based on the historical consolidated financial statements of the Partnership, adjusted to reflect the Drop-Down Acquisition.
The unaudited pro forma combined financial information gives effect to the Drop-Down Acquisition, as well as the issuance of the Class B units, borrowings under the Partnership's revolving credit facility and issuance of the $500 million principal amount of 5.375% Senior Notes due 2027, both of which were used to fund the Drop-Down Acquisition.
The unaudited pro forma combined balance sheet as of September 30, 2019 is derived from the unaudited consolidated balance sheet of the Partnership as of September 30, 2019, and gives effect to the Drop-Down Acquisition as if it had occurred on September 30, 2019.
The unaudited pro forma combined statement of operations for the nine months ended September 30, 2019 is based on the unaudited consolidated statement of operations of the Partnership for the nine months ended September 30, 2019. The unaudited pro forma combined statement of operations for the nine months ended September 30, 2019 has been adjusted to reflect the Drop-Down Acquisition and issuance of the $500 million principal amount of 5.375% Senior Notes due 2027 as if they had occurred on January 1, 2019.
The unaudited pro forma combined financial information is for informational purposes only and is not intended to represent or be indicative of the combined financial position or results of operations that the Partnership would have reported had the Drop-Down Acquisition been completed as of the dates set forth in this unaudited pro forma combined financial information and should not be taken as indicative of the Partnership's operations going forward because of the changes in the business, the omission of various operating expenses and the assumptions used to prepare the unaudited pro forma combined financial information and actual results.
The unaudited pro forma combined financial information should be read in conjunction with the audited consolidated financial statements and the notes thereto contained in the Partnership's Annual Report on Form 10-K for the year ended December 31, 2018, the unaudited consolidated financial statements and the notes thereto contained in the Partnership's Quarterly Report on Form 10-Q for the quarter ended September 30, 2019, and the audited statement of revenues and direct operating expenses and the notes thereto of the Drop-Down Assets as filed as Exhibit 99.1 herewith by the Partnership with the Securities and Exchange Commission (the "SEC").
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Viper Energy Partners LP
Unaudited Pro Forma Combined Balance Sheet
As of September 30, 2019 | |||||||||||
Partnership Historical | Pro Forma Adjustments | Partnership Pro Forma | |||||||||
(In thousands, except unit amounts) | |||||||||||
Assets | |||||||||||
Current assets: | |||||||||||
Cash and cash equivalents | $ | 19,952 | $ | 490,415 | (b) | $ | — | ||||
(190,200 | ) | (a) | |||||||||
250 | (a) | ||||||||||
(320,417 | ) | (c) | |||||||||
Royalty income receivable | 43,288 | — | 43,288 | ||||||||
Royalty income receivable—related party | 14,033 | — | 14,033 | ||||||||
Other current assets | 252 | — | 252 | ||||||||
Total current assets | 77,525 | (19,952 | ) | 57,573 | |||||||
Property: | |||||||||||
Oil and natural gas interests, full cost method of accounting | 2,036,561 | 740,200 | (a) | 2,776,761 | |||||||
Land | 5,688 | — | 5,688 | ||||||||
Accumulated depletion and impairment | (299,704 | ) | — | (299,704 | ) | ||||||
Property, net | 1,742,545 | 740,200 | 2,482,745 | ||||||||
Funds held in escrow | 7,500 | — | 7,500 | ||||||||
Deferred tax asset | 157,885 | — | 157,885 | ||||||||
Other assets | 21,483 | — | 21,483 | ||||||||
Total assets | $ | 2,006,938 | $ | 720,248 | $ | 2,727,186 | |||||
Liabilities and Unitholders’ Equity | |||||||||||
Current liabilities: | |||||||||||
Accounts payable | $ | — | $ | — | $ | — | |||||
Other accrued liabilities | 5,370 | — | 5,370 | ||||||||
Total current liabilities | 5,370 | — | 5,370 | ||||||||
Long-term debt | 409,500 | 490,415 | (b) | 579,498 | |||||||
(320,417 | ) | (c) | |||||||||
Total liabilities | 414,870 | 169,998 | 584,868 | ||||||||
Commitments and contingencies | |||||||||||
Unitholders’ equity: | |||||||||||
General partner | 1,000 | — | 1,000 | ||||||||
Common units | 774,815 | — | 774,815 | ||||||||
Class B units | 990 | 250 | (a) | 1,240 | |||||||
Total Viper Energy Partners LP unitholders’ equity | 776,805 | 250 | 777,055 | ||||||||
Non-controlling interest | 815,263 | 550,000 | (a) | 1,365,263 | |||||||
Total equity | 1,592,068 | 550,250 | 2,142,318 | ||||||||
Total liabilities and unitholders’ equity | $ | 2,006,938 | $ | 720,248 | $ | 2,727,186 |
See accompanying notes to unaudited pro forma combined financial information.
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Viper Energy Partners LP
Unaudited Pro Forma Combined Statement of Operations
Nine Months Ended September 30, 2019 | |||||||||||
Partnership Historical | Pro Forma Adjustments | Partnership Pro Forma | |||||||||
(In thousands, except per unit amounts) | |||||||||||
Operating income: | |||||||||||
Royalty income | $ | 201,950 | $ | 39,243 | (d) | $ | 241,193 | ||||
Lease bonus income | 3,607 | — | 3,607 | ||||||||
Lease bonus income - related party | — | — | — | ||||||||
Other operating income | 15 | — | 15 | ||||||||
Total operating income | 205,572 | 39,243 | 244,815 | ||||||||
Costs and expenses: | |||||||||||
Production and ad valorem taxes | 12,812 | 2,386 | (d) | 15,198 | |||||||
Depletion | 51,408 | 13,710 | (e) | 65,118 | |||||||
General and administrative expenses | 5,223 | — | 5,223 | ||||||||
Total costs and expenses | 69,443 | 16,096 | 85,539 | ||||||||
Income from operations | 136,129 | 23,147 | 159,276 | ||||||||
Other income (expense): | |||||||||||
Interest expense, net | (11,089 | ) | (20,156 | ) | (f) | (31,245 | ) | ||||
Gain on revaluation of investment | 3,978 | — | 3,978 | ||||||||
Other income, net | 1,756 | — | 1,756 | ||||||||
Total other expense, net | (5,355 | ) | (20,156 | ) | (25,511 | ) | |||||
Income before income taxes | 130,774 | 2,991 | 133,765 | ||||||||
Provision for (benefit from) income taxes | (41,908 | ) | 266 | (g) | (41,642 | ) | |||||
Net income | 172,682 | 2,725 | 175,407 | ||||||||
Net income attributable to non-controlling interest | 128,692 | 1,769 | (h) | 130,461 | |||||||
Net income attributable to Viper Energy Partners LP | $ | 43,990 | $ | 956 | $ | 44,946 | |||||
Net income attributable to common limited partners per unit: | |||||||||||
Basic | $ | 0.73 | $ | — | $ | 0.75 | |||||
Diluted | $ | 0.73 | $ | — | $ | 0.75 | |||||
Weighted average number of common limited partner units outstanding: | |||||||||||
Basic | 60,267 | — | (i) | 60,267 | |||||||
Diluted | 60,296 | — | (i) | 60,296 |
See accompanying notes to unaudited pro forma combined financial information.
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Viper Energy Partners LP
Unaudited Pro Forma Notes
1. BASIS OF PRESENTATION
On October 1, 2019, the Partnership completed the acquisition of certain mineral and royalty interests (the "Drop-Down Assets") from subsidiaries of Diamondback for approximately 18.3 million of its newly-issued Class B units, approximately 18.3 million newly-issued units of the Operating Company and $190.2 million in cash, after giving effect to closing adjustments for net title benefits (the ‘‘Drop-Down Acquisition’’). Based on the volume weighted average sales price of the Partnership's common units for the ten trading-day period ended July 26, 2019 of $30.07, the transaction was valued at $740.2 million. The Drop-Down Assets represent approximately 5,490 net royalty acres across the Midland and Delaware Basins, of which over 95% are operated by Diamondback, and have an average net royalty interest of approximately 3.2%. The Drop-Down Assets are concentrated in Diamondback’s seven core operating areas, with the largest exposure to Spanish Trail North and Pecos County. The Partnership completed the Drop-Down Acquisition on October 1, 2019 and funded the cash portion of the purchase price for the Drop-Down Assets through a combination of cash on hand and borrowings under the Operating Company’s revolving credit facility. In connection with the closing of the Drop-Down Acquisition, the borrowing base under the Operating Company’s revolving credit facility was increased by $125.0 million to $725.0 million from $600.0 million.
2. PRO FORMA ADJUSTMENTS AND ASSUMPTIONS
The unaudited combined pro forma financial information includes a pro forma combined balance sheet and pro forma combined statement of operations reflecting the pro forma effect of the Drop-Down Acquisition discussed above.
The related pro forma adjustments are described below. The unaudited pro forma condensed combined financial information has been prepared to reflect adjustments to our historical financial information that are (i) directly attributable to this transaction and (ii) factually supportable, and with respect to the unaudited pro forma condensed combined statement of operations, expected to have a continuing impact on our results.
The unaudited pro forma combined balance sheet and statement of operations are presented for illustrative purposes only, and do not purport to be indicative of the financial position or results of operations that would actually have occurred if the Drop-Down Acquisition had occurred as of the dates set forth in this unaudited pro forma financial information. In addition, future results may vary significantly from the results reflected in such statements due to factors described in "Risk Factors" included in the Partnership's Annual Report on Form 10-K for the year ended December 31, 2018 and elsewhere in the Partnership's reports and filings with the SEC. The unaudited pro forma combined balance sheet and statement of operations should be read in conjunction with the Partnership's historical consolidated financial statements and the notes thereto included in the Partnership's Annual Reports on Form 10-K for the year ended December 31, 2018 and the Partnership's Quarterly Report on Form 10-Q for the quarter ended September 30, 2019.
The unaudited pro forma combined financial information should also be read in conjunction with the historical statement of revenues and direct operating expenses and the notes thereto of the Drop-Down Assets reflected therein as filed as Exhibit 99.1 herewith by the Partnership with the SEC.
The unaudited pro forma combined financial information reflects the following adjustments:
(a) | To record the preliminary purchase price allocation and $0.3 million Class B Capital Contribution of the Drop-Down Assets, which is subject to change. The fair value of the Drop-Down Assets, funded with approximately 18.3 million Class B units, approximately 18.3 million Operating Company units and $190.2 million in cash, after giving effect to closing adjustments, is allocated as follows: |
Drop-Down Assets | |||
(in thousands) | |||
Oil and natural gas properties: | |||
Proved | $ | 198,400 | |
Unproved | $ | 541,800 | |
Net assets acquired | $ | 740,200 |
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Viper Energy Partners LP
Unaudited Pro Forma Notes
(b) | To record net proceeds of $490.4 million in connection with the issuance of $500 million principal amount of 5.375% Senior Notes due 2027. |
(c) | To record the partial repayment of $320.4 million of outstanding borrowings with proceeds from the issuance of the 5.375% Senior Notes due 2027. |
(d) | To reflect the historical revenues and production and ad valorem taxes related to the Drop-Down Assets. |
(e) | To reflect depletion attributable to the Drop-Down Assets. |
(f) | To reflect additional interest expense associated with the issuance of $500 million principal amount of 5.375% Senior Notes due 2027. |
(g) | To reflect income tax expense related to the pro forma change in net income. |
(h) | To reflect additional net income attributable to non-controlling interests related to the issuance of approximately 18.3 million Class B units and approximately 18.3 million Operating Company units. |
(i) | The Partnership accounted for the Class B units on an as-converted basis for the purposes of calculating diluted earnings per unit ("EPU"). For the nine months ended September 30, 2019, there were no common units related to the Partnership's Class B units included in the calculation of diluted EPU. |
3. SUPPLEMENTAL OIL AND NATRUAL GAS INFORMATION
Oil and Natural Gas Reserves
Proved oil and natural gas reserve estimates as of September 30, 2019 and December 31, 2018 were developed by the Partnership based on management estimates. Proved reserves were estimated in accordance with guidelines established by the SEC, which require that reserve estimates be prepared under existing economic and operating conditions based upon the 12-month unweighted average of the first-day-of-the-month prices.
There are numerous uncertainties inherent in estimating quantities of proved oil and natural gas reserves. Oil and natural gas reserve engineering is a subjective process of estimating underground accumulations of oil and natural gas that cannot be precisely measured and the accuracy of any reserve estimate is a function of the quality of available data and of engineering and geological interpretation and judgment. Results of drilling, testing and production subsequent to the date of the estimate may justify revision of such estimate. Accordingly, reserve estimates are often different from the quantities of oil and natural gas that are ultimately recovered.
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Viper Energy Partners LP
Unaudited Pro Forma Notes
The estimated proved reserves and changes in estimated proved reserves are as follows:
Crude Oil (Bbls) | ||||||||
Partnership Historical | Drop-Down Assets | Partnership Pro Forma | ||||||
(In thousands) | ||||||||
As of December 31, 2018 | 41,878 | 7,236 | 49,114 | |||||
Purchase of reserves in place | 1,776 | — | 1,776 | |||||
Extensions and discoveries | 6,992 | 1,739 | 8,731 | |||||
Revisions of previous estimates | (2,911 | ) | 230 | (2,681 | ) | |||
Production | (3,607 | ) | (703 | ) | (4,310 | ) | ||
As of September 30, 2019 | 44,128 | 8,502 | 52,630 | |||||
Proved Developed Reserves: | ||||||||
December 31, 2018 | 29,526 | 5,050 | 34,576 | |||||
September 30, 2019 | 32,248 | 5,841 | 38,089 | |||||
Proved Undeveloped Reserves: | ||||||||
December 31, 2018 | 12,352 | 2,186 | 14,538 | |||||
September 30, 2019 | 11,880 | 2,661 | 14,541 |
Natural Gas (Mcf) | ||||||||
Partnership Historical | Drop-Down Assets | Partnership Pro Forma | ||||||
(In thousands) | ||||||||
As of December 31, 2018 | 61,597 | 12,838 | 74,435 | |||||
Purchase of reserves in place | 2,592 | — | 2,592 | |||||
Extensions and discoveries | 9,207 | 3,779 | 12,986 | |||||
Revisions of previous estimates | 429 | 435 | 864 | |||||
Production | (5,222 | ) | (1,072 | ) | (6,294 | ) | ||
As of September 30, 2019 | 68,603 | 15,980 | 84,583 | |||||
Proved Developed Reserves: | ||||||||
December 31, 2018 | 49,681 | 9,393 | 59,074 | |||||
September 30, 2019 | 57,585 | 12,582 | 70,167 | |||||
Proved Undeveloped Reserves: | ||||||||
December 31, 2018 | 11,916 | 3,445 | 15,361 | |||||
September 30, 2019 | 11,018 | 3,398 | 14,416 |
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Viper Energy Partners LP
Unaudited Pro Forma Notes
Natural Gas Liquids (Bbls) | ||||||||
Partnership Historical | Drop-Down Assets | Partnership Pro Forma | ||||||
(In thousands) | ||||||||
As of December 31, 2018 | 10,992 | 2,622 | 13,614 | |||||
Purchase of reserves in place | 542 | — | 542 | |||||
Extensions and discoveries | 2,089 | 764 | 2,853 | |||||
Revisions of previous estimates | 2,875 | 276 | 3,151 | |||||
Production | (976 | ) | (195 | ) | (1,171 | ) | ||
As of September 30, 2019 | 15,522 | 3,467 | 18,989 | |||||
Proved Developed Reserves: | ||||||||
December 31, 2018 | 7,965 | 1,810 | 9,775 | |||||
September 30, 2019 | 12,780 | 2,576 | 15,356 | |||||
Proved Undeveloped Reserves: | ||||||||
December 31, 2018 | 3,027 | 812 | 3,839 | |||||
September 30, 2019 | 2,742 | 891 | 3,633 |
Revisions represent changes in previous reserves estimates, either upward or downward, resulting from new information normally obtained from development drilling and production history or resulting from a change in economic factors, such as commodity prices, operating costs or development costs.
During the nine months ended September 30, 2019, the Partnership’s extensions and discoveries of 13,748 MBOE resulted primarily from the drilling of 336 new wells and from 106 new proved undeveloped locations added. The Partnership’s positive revisions of previous estimated quantities of 614 MBOE were primarily due to changes in type curves and realized prices. The purchase of reserves in place of 2,750 MBOE were due to multiple acquisitions primarily located in Ward, Howard, Glasscock and Lea counties within the Permian Basin.
Standardized Measure of Discounted Future Net Cash Flows
The standardized measure of discounted future net cash flows is based on the unweighted average, first-day-of-the-month price. The projections should not be viewed as realistic estimates of future cash flows, nor should the “standardized measure” be interpreted as representing current value to the Partnership. Material revisions to estimates of proved reserves may occur in the future; development and production of the reserves may not occur in the periods assumed; actual prices realized are expected to vary significantly from those used; and actual costs may vary.
The following table sets forth the standardized measure of discounted future net cash flows attributable to the Partnership’s proved oil and natural gas reserves as of September 30, 2019 and December 31, 2018:
Nine Months Ended September 30, 2019 | |||||||||||
Partnership Historical | Drop-Down Assets | Partnership Pro Forma | |||||||||
(In thousands) | |||||||||||
Future cash inflows | $ | 2,761,913 | $ | 516,810 | $ | 3,278,723 | |||||
Future production taxes | (189,552 | ) | (35,978 | ) | (225,530 | ) | |||||
Future income tax expense | (167,266 | ) | (2,713 | ) | (169,979 | ) | |||||
Future net cash flows | 2,405,095 | 478,119 | 2,883,214 | ||||||||
10% discount to reflect timing of cash flows | (1,339,869 | ) | (259,439 | ) | (1,599,308 | ) | |||||
Standardized measure of discounted future net cash flows | $ | 1,065,226 | $ | 218,680 | $ | 1,283,906 |
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Viper Energy Partners LP
Unaudited Pro Forma Notes
Principal changes in the standardized measure of discounted future net cash flows attributable to the Partnership’s proved reserves are as follows:
Nine Months Ended September 30, 2019 | |||||||||||
Partnership Historical | Drop-Down Assets | Partnership Pro Forma | |||||||||
(In thousands) | |||||||||||
Standardized measure of discounted future net cash flows at the beginning of the period | $ | 1,139,382 | $ | 222,362 | $ | 1,361,744 | |||||
Purchase of minerals in place | 47,462 | — | 47,462 | ||||||||
Sales of oil and natural gas, net of production costs | (189,138 | ) | (37,250 | ) | (226,388 | ) | |||||
Extensions and discoveries | 200,021 | 48,597 | 248,618 | ||||||||
Net changes in prices and production costs | (246,466 | ) | (35,475 | ) | (281,941 | ) | |||||
Revisions of previous quantity estimates | (8,486 | ) | 8,683 | 197 | |||||||
Net changes in income taxes | (11,411 | ) | 18 | (11,393 | ) | ||||||
Accretion of discount | 126,650 | 22,362 | 149,012 | ||||||||
Net changes in timing of production and other | 7,212 | (10,617 | ) | (3,405 | ) | ||||||
Standardized measure of discounted future net cash flows at the end of the period | $ | 1,065,226 | $ | 218,680 | $ | 1,283,906 |
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