Comparing Royalty Interest Owner MLPs: VNOM and BSM

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Comparing Royalty Interest Owner MLPs: VNOM and BSM PART 1 OF 11

Behind Viper Energy’s Outperformance

Royalty interest MLPs

Royalty interest owners acquire and lease oil and gas resource to producers and receive, in return, a portion of the production or revenues. This saves the royalty owners from production costs. There are four royalty interest owners structured as MLPs (master limited partnerships) in the US: Viper Energy Partners (VNOM), Black Stone Minerals (BSM), Dorchester Minerals (DMLP), and Kimbell Royalty Partners (KRP).

DMLP and KRP are small-sized royalty owners with market capitalizations below $500 million. In this series, we’ll compare VNOM with BSM using market performances, royalty interests, production, operating performances, and financial positions. We’ll also look into growth prospects, distribution, valuation, technical indicators, institutional ownership, and analysts’ recommendations.

Behind Viper Energy&#8217;s Outperformance

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Recent market performance

Viper Energy Partners, the Texas-based royalty interest owner formed by Diamondback Energy (FANG), has risen 11.5% since the beginning of October, reaching new YTD (year-to-date) highs. By comparison, Black Stone Mineral (BSM) has fallen 1.3% during the same period.

Viper Energy’s recent rally can be attributed to its recent rating upgrades, the slight recovery in crude oil prices, and the partnership’s acquisition of royalty interest. (See the next part of this series for more.)

YTD market performance

VNOM’s YTD gains have reached 18.8% as of October 3, 2017, driven by recent rallies. By comparison, BSM has lost 10.2%. But VNOM and BSM are outperforming both the Alerian MLP ETF (AMLP) and the SPDR S&P Oil & Gas Exploration & Production ETF (XOP), which have fallen 11.2% and 18.4%, respectively, YTD, as of October 3.

VNOM is outperforming the above ETFs by 3,000 bps (basis points) and 3,720 bps, respectively, while BSM is outperforming them by 120 bps and 820 bps, respectively. VNOM’s outperformance can be attributed to its strong distribution growth and low leverage amid the challenging energy price environment.

Below, we’ll examine net royalty acres and mineral interest.


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