S&P upgrades Viper Energy outlook on parent’s cash flow

S&P Global Ratings upgraded its outlook on Viper Energy Inc. (VNOM) from stable to positive, reaffirming its BBB- credit rating. The decision follows a similar revision for Diamondback Energy Inc. (FANG), Viper's parent company, which was credited to their improved financial metrics, generating significant free cash flow and increased production.

The rating agency regards Viper as a strategic subsidiary, with Diamondback holding about 40% equity ownership and the right to designate up to three board members, provided it maintains at least 25% of outstanding common stock. VNOM's production is projected to rise to 132,500 to 135,000 barrels of oil equivalent per day in 2026, up from around 50,000 boe/d in 2024.

Reserves expanded to 406 million boe by the end of 2025, compared to 194 million boe at the end of 2024, driven by acquisitions like Riverbend Oil & Gas IX and assets ceded from FANG. Viper recently adjusted its capital return strategy, shifting from distributing a minimum of 75% of cash to shareholders to focusing on maintaining a fixed base dividend, eliminating the variable dividend, facilitating opportunistic share repurchases, and enhancing retained cash flow.

VNOM intends to keep funds from operations above debt levels, specifically above 100% debt to EBITDA, over the next two years. All of Viper's operations are situated in the Permian basin, with 106 active rigs as of July 1. Approximately 38% of the acreage is managed by Diamondback, accounting for the operations post recent transactions.

S&P predicts Diamondback will sustain production above 1 million boe/d, with a FFO debt ratio above 60%, while decreasing its total gross debt towards its $10 billion net debt target by the end of 2027.