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VNOM and BSM: A Comparative Analysis of Two Mineral Interest MLPs

Kurt Gallon - Author

Jul. 23 2018, Published 8:10 a.m. ET

Mineral interest MLPs

Mineral interest MLPs own mineral and royalty interests in oil and gas properties. These MLPs receive an upfront cash payment, or lease bonus, on the land leased for exploration and production to the third parties. Moreover, they receive a portion of the production or revenues on mineral royalties and other royalty interests.

Currently, there are four royalty interest owners structured as MLPs in the United States—Black Stone Minerals (BSM), Viper Energy Partners (VNOM), Dorchester Minerals (DMLP), and Kimbell Royalty Partners (KRP). Out of these, DMLP and KRP are small royalty owners and are thinly traded.

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In this series, we’ll perform a comparative analysis of Viper Energy Partners (VNOM) and Black Stone Minerals (BSM). This review includes an analysis of their recent market performance, operating performance, financial positions, and distributions. Moreover, we’ll look into their valuations, technical indicators, institutional ownership, and analyst ratings. Let’s start with a look into their assets and basin exposure.

Oil and gas properties

Viper Energy Partners, a subsidiary of Diamondback Energy (FANG), had 10,537 net royalty acres by the end of the first quarter, which is a 62.0% YoY (year-over-year) increase compared to the same quarter in 2017. Diamondback Energy operates on ~36.0% of these net royalty acres, representing a percentage of the royalty interest in the gross mineral acreage.

In comparison, Black Stone Minerals (BSM) had 56,000 net royalty acres by the end of the first quarter. The majority of VNOM’s revenues come from royalty income. On the other hand, Black Stone Minerals derives revenues from both royalty income and production activity. About 40.0% of the partnership’s total production originated from working interest participation during 2017.

Basin exposure

Viper Energy Partners has high exposure to the Permian region, including the Delaware and Midland basins. In comparison, BSM has high exposure to the Haynesville/Bossier shale play. About 40.0% of the partnership’s total production in the first quarter originated from the Haynesville/Bossier shale play. This is followed by other regions (39.0%) and Bakken/Three Fork (12.0%). BSM has only 6.0% exposure to the Permian region.

We’ll analyze the recent market performance for VNOM and BSM in the next article.


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