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Comparing Royalty Interest Owner MLPs: VNOM and BSM

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Part 7
Comparing Royalty Interest Owner MLPs: VNOM and BSM PART 7 OF 11

Why High Leverage Is Not a Concern for VNOM and BSM

Total outstanding debt

Black Stone Minerals (BSM) had $393 million in long-term debt on its balance sheet, and its debt rose 24% in 1H17—likely due to its acquisition of royalty interest. By comparison, Viper Energy Partners (VNOM) had $81.5 million in debt, which represents a 32.3% YoY (year-over-year) fall.

Why High Leverage Is Not a Concern for VNOM and BSM

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Net-debt-to-adjusted EBITDA

Both VNOM and BSM are both in comfortable positions in terms of leverage, with leverage ratios (or net-debt-to-adjusted EBITDA [earnings before interest, tax, depreciation, and amortization]) of 0.7x and 1.4x, respectively, as of June 30, 2017. These ratios are within industry standards.

The low leverages of these royalty owners could be attributed to their low capital-spending requirements, which provide an advantage over most upstream MLPs (master limited partnerships) and companies, many of which have been suffering from high leverage.

For details on the leverage position of Chesapeake Energy (CHK)—one of the largest US drillers—check out Market Realist’s “How Far Has Chesapeake Energy Come in Debt Reduction Efforts?

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