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Comparing Royalty Interest Owner MLPs: VNOM and BSM

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Part 4
Comparing Royalty Interest Owner MLPs: VNOM and BSM PART 4 OF 11

Why VNOM Has Higher Margins than BSM

Revenue growth

Viper Energy Partners (VNOM) posted a strong 113.4% YoY (year-over-year) rise in revenues in 2Q17, mainly driven by higher royalty income, which resulted from higher production and higher realized commodity prices. The average realized price for VNOM was $37.64 per boe (barrel of oil equivalent) in 2Q17, compared with $34.4 per boe in 2Q16.

Why VNOM Has Higher Margins than BSM

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By comparison, Black Stone Minerals (BSM) posted a 197% YoY rise in revenues in 2Q17, mainly driven by higher natural gas and NGLs (natural gas liquids) revenues, which resulted from higher production.

Notably, BSM’s revenues in 2Q16 were impacted by a $30.7-million loss on derivative instruments. The average realized price for BSM was $25.67 per boe in 2Q17, compared with $19.55 per boe in 2Q16.

Adjusted EBITDA growth and margins

BSM posted an almost flat adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) in 2Q17, while VNOM saw a 115% YoY growth in adjusted EBITDA. VNOM’s adjusted EBITDA margin was 90.6% in 2Q17.

At the same time, BSM’s margin was 61.9%. One of the major reasons that VNOM’s adjusted margin was higher than that of BSM was its 100% royalty income revenue. This saves VNOM from any production-related costs that could drive margins higher. VNOM had no lease operating expenses in 2Q17, while BSM reported $4.1 million in lease operating expenses.

In the next part, we’ll compare the growth prospects for these two royalty owners.

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