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Behind VNOM’s and BSM’s Net Royalty Acres

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Oct. 6 2017, Updated 4:06 p.m. ET

Net royalty acres

Net royalty acres are an important metric for royalty interest MLPs (master limited partnerships). The metric represents an owners’ share of production from mineral interest and is calculated as the percentage of mineral interest based on the royalty an owner receives on the mineral interest—usually one-eighth of the mineral interest.

Viper Energy Partners (VNOM) had 8,963 pro forma net royalty acres at the end of 2Q17, including the 2,446 net royalty acres acquired since the end of 1Q17. VNOM expects to complete the remainder of these transactions in 3Q17.

These acquisitions resulted in a 101% YoY (year-over-year) increase in the partnership’s net royalty acres. About 24% of these acquired net royalty acres are operated by Diamondback Energy (FANG), which would increase the share of FANG’s operated net royalty acres to ~36%.

By comparison, Black Stone Minerals (BSM) had 465,911 net royalty acres at the end of last year. BSM has completed acquisitions worth $1.8 billion since its inception.

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Basin exposure

Viper Energy Partners has high exposure to the Permian Basin, including the Delaware and Midland Basins. The partnership had over 70 wells in the Midland Basin and over 80 well in the Delaware Basin on its mineral acreage as of June 30, 2017.

By comparison, BSM has high exposure to the Haynesville-Bossier Shale play. Notably, 49% of the partnership’s 2Q17 production came from the Haynesville-Bossier Shale play, compared with 9% from the Bakken-Three Fork Shale and 6% from the Wilcox Shale. BSM has only 5% exposure to the Permian Basin.

Despite the huge difference in BSM’s and VNOM’s net royalty acres, the difference in production is not that high—likely due to the Permian Basin’s strong well economics.

In the next part, we’ll analyze VNOM’s and BSM’s production data.

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