Viper Energy, Inc. (VNOM): A Bull Case Theory

We came across a bullish thesis on Viper Energy, Inc. on LLVI Capital’s Substack. In this article, we will summarize the bulls’ thesis on VNOM. Viper Energy, Inc.’s share was trading at $37.63 as of January 13th. VNOM’s trailing and forward P/E were 15.49 and 55.25 respectively according to Yahoo Finance.

Viper Energy Partners, now operating as VNOM, represents a unique, Permian focused energy royalty business that generates exceptionally high cash flow with limited operational risk. VNOM owns subsurface mineral rights across approximately 86,000 net royalty acres in the Permian Basin and functions more like an upstream capital provider than a traditional producer, benefiting from production volumes and commodity prices without bearing operating or capital costs.

This structure enables EBITDA margins above 90% and fully taxed free cash flow margins exceeding 70% even in lower commodity price environments. At roughly $60 per barrel, VNOM offers a more than 10% cash-on-cash free cash flow yield, with an estimated in-place payback period of around ten to eleven years, supported by approximately seven years of proved reserves at current production rates. Importantly, this valuation understates the true embedded value, as only a portion of VNOM’s acreage is currently producing, leaving meaningful upside from future development, non-producing acreage, technological improvements, and commodity price recovery.

VNOM maintains low leverage at roughly 1x net debt to EBITDA and covers interest expense many times over, giving it flexibility to compound value through counter cyclical mineral acquisitions, share buybacks, and disciplined capital returns.

The company has committed to returning at least 75% of cash available for distribution to shareholders through dividends and repurchases, translating into an approximately 8% current cash yield, while retaining ample liquidity for growth. Its relationship with sponsor Diamondback Energy provides a steady pipeline of potential mineral dropdowns, reinforcing VNOM’s role as a natural consolidator in the Permian.

Despite executing well in a challenging environment and achieving greater scale through the Sitio merger, VNOM trades at a valuation discount to comparable royalty businesses, particularly PrairieSky in Canada. This disconnect, combined with strong free cash flow generation and declining share count over time, creates a compelling long term compounding opportunity with attractive downside protection and meaningful upside potential.

Previously, we covered a bullish thesis on LandBridge Company (LB) by Six Bravo in September 2024, which highlighted regulatory arbitrage in produced water, long dated data center optionality, and infrastructure driven land monetization in the Permian. LB’s stock price has appreciated by approximately 59.41% since our coverage. This is because the thesis played out as investors began pricing in long term infrastructure value. LLVI Capital shares a similar thesis on Viper Energy but emphasizes cash yielding mineral royalties, capital returns, and near-term free cash flow compounding.

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Disclosure: None.