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How Weak Crude Oil Prices Could Affect Viper Energy Partners

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VNOM is ~115% higher than its 52-week low

So far in this series, we’ve looked at Northern Oil & Gas (NOG), Denbury Resources (DNR), California Resources (CRC), W&T Offshore (WTI), Whiting Petroleum (WLL), and Penn Virginia (PVAC). In this article, we’ll focus on Viper Energy Partners (VNOM).

Viper Energy Partners, a royalty and mineral interest MLP, saw its stock fall sharply with weakness in the US upstream energy sector. Despite the fall, VNOM is still ~115% higher than its 52-week low. Weak crude oil prices and VNOM’s minimal hedging program and high valuation could affect its stock significantly.

VNOM’s forward price-to-CFFO[1.cash flow from operations] ratio was 16.3x as of October 12, significantly higher than the industry median of 5.1x. The partnership’s premium valuation reflects its strong presence in the prolific Permian Basin and industry-leading production guidance. VNOM’s strong production guidance and wide operating margin could drive its return on capital employed, boosting its distribution growth.

VNOM is currently one of analysts’ favorite upstream stocks. For details, read Which Upstream Companies Do Wall Street Analysts Like the Most? Next, we’ll look at WildHorse Resource Development (WRD).

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