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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 2022
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF SECURITIES EXCHANGE ACT OF 1934
Commission File Number 001-36505
 
Viper Energy Partners LP
(Exact Name of Registrant As Specified in Its Charter)
DE
46-5001985
(State or Other Jurisdiction of Incorporation or Organization)
(I.R.S. Employer Identification Number)
500 West Texas Ave.
Suite 100
Midland, TX
79701
(Address of principal executive offices)(Zip code)
(432) 221-7400
(Registrant's telephone number, including area code)
 
Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common UnitsVNOMThe Nasdaq Stock Market LLC
(NASDAQ Global Select Market)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check One):
Large Accelerated FilerAccelerated Filer
Non-Accelerated FilerSmaller Reporting Company
Emerging Growth Company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes       No   

As of November 4, 2022, the registrant had outstanding 74,185,141 common units representing limited partner interests and 90,709,946 Class B units representing limited partner interests.




VIPER ENERGY PARTNERS LP
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2022
TABLE OF CONTENTS
Page

i

GLOSSARY OF OIL AND NATURAL GAS TERMS
The following is a glossary of certain oil and natural gas terms that are used in this Quarterly Report on Form 10-Q (this “report”):
BasinA large depression on the earth’s surface in which sediments accumulate.
Bbl or barrelOne stock tank barrel, or 42 U.S. gallons liquid volume, used in this report in reference to crude oil or other liquid hydrocarbons.
BOOne barrel of oil.
BO/dBO per day.
BOEOne barrel of oil equivalent, with six thousand cubic feet of natural gas being equivalent to one barrel of oil.
BOE/dBOE per day.
British Thermal Unit or BtuThe quantity of heat required to raise the temperature of one pound of water by one degree Fahrenheit.
CondensateLiquid hydrocarbons associated with the production of a primarily natural gas reserve.
Horizontal wellsWells drilled directionally horizontal to allow for development of structures not reachable through traditional vertical drilling mechanisms.
MBblsThousand barrels of crude oil or other liquid hydrocarbons.
MBOEOne thousand barrels of crude oil equivalent, determined using a ratio of six Mcf of natural gas to one Bbl of crude oil, condensate or natural gas liquids.
McfOne thousand cubic feet of natural gas.
Mineral interestsThe interests in ownership of the resource and mineral rights, giving an owner the right to profit from the extracted resources.
MMBtuOne million British Thermal Units.
MMcfMillion cubic feet of natural gas.
Net royalty acresNet mineral acres multiplied by the average lease royalty interest and other burdens.
Oil and natural gas propertiesTracts of land consisting of properties to be developed for oil and natural gas resource extraction.
OperatorThe individual or company responsible for the exploration and/or production of an oil or natural gas well or lease.
ProspectA specific geographic area which, based on supporting geological, geophysical or other data and also preliminary economic analysis using reasonably anticipated prices and costs, is deemed to have potential for the discovery of commercial hydrocarbons.
Proved reservesThe estimated quantities of oil, natural gas and natural gas liquids which geological and engineering data demonstrate with reasonable certainty to be commercially recoverable in future years from known reservoirs under existing economic and operating conditions.
ReservesThe estimated remaining quantities of oil and natural gas and related substances anticipated to be economically producible, as of a given date, by application of development projects to known accumulations. In addition, there must exist, or there must be a reasonable expectation that there will exist, the legal right to produce or a revenue interest in the production, installed means of delivering oil and natural gas or related substances to the market and all permits and financing required to implement the project. Reserves are not assigned to adjacent reservoirs isolated by major, potentially sealing, faults until those reservoirs are penetrated and evaluated as economically producible. Reserves should not be assigned to areas that are clearly separated from a known accumulation by a non-productive reservoir (i.e., absence of reservoir, structurally low reservoir or negative test results). Such areas may contain prospective resources (i.e., potentially recoverable resources from undiscovered accumulations).
ReservoirA porous and permeable underground formation containing a natural accumulation of producible natural gas and/or crude oil that is confined by impermeable rock or water barriers and is separate from other reservoirs.
Royalty interestAn interest that gives an owner the right to receive a portion of the resources or revenues without having to carry any costs of development, which may be subject to expiration.
SpudCommencement of actual drilling operations.
WTIWest Texas Intermediate.
ii

GLOSSARY OF CERTAIN OTHER TERMS
The following is a glossary of certain other terms that are used in this report:
ASUAccounting Standards Update.
Adjusted EBITDA
Consolidated Adjusted EBITDA, a non-GAAP measure, generally equals its net income (loss) plus net income (loss) attributable to non-controlling interest before interest expense, net, non-cash unit-based compensation expense, depletion expense, non-cash (gain) loss on derivative instruments and provision for (benefit from) income taxes, which measure is used by management to more effectively evaluate the operating performance and determine distributable amounts for purposes of the distribution policy.
DiamondbackDiamondback Energy, Inc., a Delaware corporation.
Exchange ActThe Securities Exchange Act of 1934, as amended.
GAAPAccounting principles generally accepted in the United States.
General PartnerViper Energy Partners GP LLC, a Delaware limited liability company, and the General Partner of the Partnership.
LIBORThe London interbank offered rate.
LTIPViper Energy Partners LP Long Term Incentive Plan.
NYMEXNew York Mercantile Exchange.
OPECOrganization of the Petroleum Exporting Countries.
Operating CompanyViper Energy Partners LLC, a Delaware limited liability company and a consolidated subsidiary of Viper Energy Partners LP.
PartnershipViper Energy Partners LP, a Delaware limited partnership.
SECUnited States Securities and Exchange Commission.
Notes
The 5.375% Senior Notes due 2027 issued on October 16, 2019.

iii

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

Various statements contained in this report are “forward-looking statements” within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act, which involve risks, uncertainties, and assumptions. All statements, other than statements of historical fact, including statements regarding our: future performance; business strategy; future operations; estimates and projections of operating income, losses, costs and expenses, returns, cash flow, and financial position; production levels on properties in which we have mineral and royalty interests, developmental activity by other operators; reserve estimates and our ability to replace or increase reserves; anticipated benefits of strategic transactions (including acquisitions and divestitures); and plans and objectives of management (including Diamondback’s plans for developing our acreage and our cash distribution policy and repurchases of our common units and/or senior notes) are forward-looking statements. When used in this report, the words “aim,” “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “forecast,” “future,” “guidance,” “intend,” “may,” “model,” “outlook,” “plan,” “positioned,” “potential,” “predict,” “project,” “seek,” “should,” “target,” “will,” “would,” and similar expressions (including the negative of such terms) as they relate to us are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words. In particular, the factors discussed in this report and detailed under Part II. Item 1A. Risk Factors, our Annual Report on Form 10-K for the year ended December 31, 2021, our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2022 and our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2022 could affect our actual results and cause our actual results to differ materially from expectations, estimates or assumptions expressed, forecasted or implied in such forward-looking statements. Unless the context requires otherwise, references to “we,” “us,” “our” or “the Partnership” are intended to mean the business and operations of the Partnership and the Operating Company.

Factors that could cause the outcomes to differ materially include (but are not limited to) the following:

Changes in supply and demand levels for oil, natural gas, and natural gas liquids, and the resulting impact on the price for those commodities;
the impact of public health crises, including epidemic or pandemic diseases such as the COVID-19 pandemic, and any related company or government policies or actions;
actions taken by the members of OPEC and Russia affecting the production and pricing of oil, as well as other domestic and global political, economic, or diplomatic developments;
changes in general economic, business or industry conditions, including changes in foreign currency exchange rates, interest rates, inflation rates and concerns over a potential economic downturn or recession;
regional supply and demand factors, including delays, curtailment delays or interruptions of production on our mineral and royalty acreage, or governmental orders, rules or regulations that impose production limits on such acreage;
federal and state legislative and regulatory initiatives relating to hydraulic fracturing, including the effect of existing and future laws and governmental regulations;
physical and transition risks relating to climate change;
restrictions on the use of water, including limits on the use of produced water by our operators and a moratorium on new produced water well permits recently imposed by the Texas Railroad Commission in an effort to control induced seismicity in the Permian Basin;
significant declines in prices for oil, natural gas, or natural gas liquids, which could require recognition of significant impairment charges;
changes in U.S. energy, environmental, monetary and trade policies;
conditions in the capital, financial and credit markets, including the availability and pricing of capital for drilling and development by our operators and environmental and social responsibility projects undertaken by Diamondback and our other operators;
changes in availability or cost of rigs, equipment, raw materials, supplies and oilfield services impacting our operators;
changes in safety, health, environmental, tax, and other regulations or requirements impacting us or our operators (including those addressing air emissions, water management, or the impact of global climate change);
security threats, including cybersecurity threats and disruptions to our business from breaches of our information technology systems, or from breaches of information technology systems of third parties with whom we transact business;
iv

lack of, or disruption in, access to adequate and reliable transportation, processing, storage, and other facilities impacting our operators;
severe weather conditions;
acts of war or terrorist acts and the governmental or military response thereto;
changes in the financial strength of counterparties to the credit agreement and hedging contracts of our operating subsidiary;
changes in our credit rating; and
other risks and factors disclosed in this report.

In light of these factors, the events anticipated by our forward-looking statements may not occur at the time anticipated or at all. Moreover, new risks emerge from time to time. We cannot predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those anticipated by any forward-looking statements we may make. Accordingly, you should not place undue reliance on any forward-looking statements made in this report. All forward-looking statements speak only as of the date of this report or, if earlier, as of the date they were made. We do not intend to, and disclaim any obligation to, update or revise any forward-looking statements unless required by applicable law.

v

PART I. FINANCIAL INFORMATION


ITEM 1.     CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Viper Energy Partners LP
Condensed Consolidated Balance Sheets
(Unaudited)
September 30,December 31,
20222021
(In thousands, except unit amounts)
Assets
Current assets:
Cash and cash equivalents$11,616 $39,448 
Royalty income receivable (net of allowance for credit losses)94,215 68,568 
Royalty income receivable—related party10,267 2,144 
Derivative instruments4,686  
Other current assets3,506 989 
Total current assets124,290 111,149 
Property:
Oil and natural gas interests, full cost method of accounting ($1,460,744 and $1,640,172 excluded from depletion at September 30, 2022 and December 31, 2021, respectively)
3,493,979 3,513,590 
Land5,688 5,688 
Accumulated depletion and impairment(688,996)(599,163)
Property, net2,810,671 2,920,115 
Derivative instruments839  
Deferred income taxes (net of allowances)49,656  
Other assets301 2,757 
Total assets$2,985,757 $3,034,021 
Liabilities and Unitholders’ Equity
Current liabilities:
Accounts payable$17 $69 
Accrued liabilities24,173 20,509 
Derivative instruments891 3,417 
Income taxes payable 471 
Total current liabilities25,081 24,466 
Long-term debt, net669,638 776,727 
Derivative instruments125  
Total liabilities694,844 801,193 
Commitments and contingencies (Note 12)
Unitholders’ equity:
General Partner669 729 
Common units (74,156,051 units issued and outstanding as of September 30, 2022 and 78,546,403 units issued and outstanding as of December 31, 2021)
722,397 813,161 
Class B units (90,709,946 units issued and outstanding as of September 30, 2022 and December 31, 2021)
857 931 
Total Viper Energy Partners LP unitholders’ equity723,923 814,821 
Non-controlling interest1,566,990 1,418,007 
Total equity2,290,913 2,232,828 
Total liabilities and unitholders’ equity$2,985,757 $3,034,021 

See accompanying notes to condensed consolidated financial statements.
1

Viper Energy Partners LP
Condensed Consolidated Statements of Operations
(Unaudited)
Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
(In thousands, except per unit amounts)
Operating income:
Royalty income$219,909 $127,649 $651,828 $337,619 
Lease bonus income1,497 223 10,508 1,032 
Other operating income211 132 506 479 
Total operating income221,617 128,004 662,842 339,130 
Costs and expenses:
Production and ad valorem taxes15,638 8,625 45,547 23,426 
Depletion30,460 25,366 89,833 74,230 
General and administrative expenses2,139 1,735 5,972 6,118 
Total costs and expenses48,237 35,726 141,352 103,774 
Income (loss) from operations173,380 92,278 521,490 235,356 
Other income (expense):
Interest expense, net(10,731)(8,328)(30,158)(24,161)
Gain (loss) on derivative instruments, net882 (9,599)(19,366)(70,649)
Other income, net162  200 77 
Total other expense, net(9,687)(17,927)(49,324)(94,733)
Income (loss) before income taxes163,693 74,351 472,166 140,623 
Provision for (benefit from) income taxes(46,409)906 (37,597)941 
Net income (loss)210,102 73,445 509,763 139,682 
Net income (loss) attributable to non-controlling interest130,762 56,613 379,796 121,208 
Net income (loss) attributable to Viper Energy Partners LP$79,340 $16,832 $129,967 $18,474 
Net income (loss) attributable to common limited partner units:
Basic$1.06 $0.26 $1.70 $0.28 
Diluted$1.06 $0.26 $1.70 $0.28 
Weighted average number of common limited partner units outstanding:
Basic74,943 64,152 76,215 64,724 
Diluted74,943 64,241 76,325 64,815 















See accompanying notes to condensed consolidated financial statements.
2

Viper Energy Partners LP
Condensed Consolidated Statements of Changes to Unitholders' Equity
(Unaudited)

Limited PartnersGeneral PartnerNon-Controlling Interest
CommonClass B AmountAmount
UnitsAmountUnitsAmountTotal
(In thousands)
Balance at December 31, 202178,546 $813,161 90,710 $931 $729 $1,418,007 $2,232,828 
Unit-based compensation— 284 — — — — 284 
Distribution equivalent rights payments— (64)— — — — (64)
Distributions to public— (35,830)— — — — (35,830)
Distributions to Diamondback— (344)— (25)— (42,634)(43,003)
Distributions to General Partner— — — — (20)— (20)
Change in ownership of consolidated subsidiaries, net— 14,195 — — — (14,195) 
Repurchased units as part of unit buyback(1,580)(39,260)— — — — (39,260)
Net income (loss)— 16,605 — — — 111,436 128,041 
Balance at March 31, 202276,966 768,747 90,710 906 709 1,472,614 2,242,976 
Unit-based compensation— 335 — — — — 335 
Distribution equivalent rights payments— (113)— — — — (113)
Distributions to public— (51,077)— — — — (51,077)
Distributions to Diamondback— (490)— (25)— (63,497)(64,012)
Distributions to General Partner— — — — (20)— (20)
Change in ownership of consolidated subsidiaries, net— 11,523 — — — (11,523) 
Repurchased units as part of unit buyback(1,020)(28,949)— — — — (28,949)
Net income (loss)— 34,022 — — — 137,598 171,620 
Balance at June 30, 202275,946 733,998 90,710 881 689 1,535,192 2,270,760 
Unit-based compensation— 362 — — — — 362 
Vesting of restricted stock units28 — — — — — — 
Distribution equivalent rights payments— (132)— — — — (132)
Distributions to public— (59,901)— — — — (59,901)
Distributions to Diamondback— (593)— (24)— (78,918)(79,535)
Distributions to General Partner— — — — (20)— (20)
Change in ownership of consolidated subsidiaries, net— 20,046 — — — (20,046) 
Repurchased units as part of unit buyback(1,818)(50,723)— — — — (50,723)
Net income (loss)— 79,340 — — — 130,762 210,102 
Balance at September 30, 202274,156 $722,397 90,710 $857 $669 $1,566,990 $2,290,913 





See accompanying notes to condensed consolidated financial statements.
3

Viper Energy Partners LP
Condensed Consolidated Statements of Changes to Unitholders' Equity - (Continued)
(Unaudited)

Limited PartnersGeneral PartnerNon-Controlling Interest
CommonClass B AmountAmount
UnitsAmountUnitsAmountTotal
(In thousands)
Balance at December 31, 202065,817 $633,415 90,710 $1,031 $809 $1,225,578 $1,860,833 
Unit-based compensation— 315 — — — — 315 
Vesting of restricted stock units3 — — — — — — 
Distribution equivalent rights payments— (24)— — — — (24)
Distributions to public— (9,036)— — — — (9,036)
Distributions to Diamondback— (102)— (25)— (12,699)(12,826)
Distributions to General Partner— — — — (20)— (20)
Change in ownership of consolidated subsidiaries, net— 2,687 — — — (2,687) 
Cash paid for tax withholding on vested common units— (20)— — — — (20)
Repurchased units as part of unit buyback(870)(13,043)— — — — (13,043)
Net income (loss)— (3,020)— — — 26,879 23,859 
Balance at March 31, 202164,950 611,172 90,710 1,006 789 1,237,071 1,850,038 
Unit-based compensation— 338 — — — — 338 
Distribution equivalent rights payments— (55)— — — — (55)
Distributions to public— (15,992)— — — — (15,992)
Distributions to Diamondback— (183)— (25)— (22,678)(22,886)
Distributions to General Partner— — — — (20)— (20)
Change in ownership of consolidated subsidiaries, net— 1,614 — — — (1,614) 
Repurchased units as part of unit buyback(404)(6,779)— — — (6,779)
Net income (loss)— 4,662 — — — 37,716 42,378 
Balance at June 30, 202164,546 594,777 90,710 981 769 1,250,495 1,847,022 
Unit-based compensation— 243 — — — — 243 
Vesting of restricted stock units50 — — — — — — 
Distribution equivalent rights payments— (62)— — — — (62)
Distributions to public— (20,933)— — — — (20,933)
Distributions to Diamondback— (240)— (25)— (29,936)(30,201)
Distributions to General Partner— — — — (20)— (20)
Change in ownership of consolidated subsidiaries, net— 4,115 — — — (4,115) 
Repurchased units as part of unit buyback(765)(13,740)— — — — (13,740)
Net income (loss)— 16,832 — — — 56,613 73,445 
Balance at September 30, 202163,831 $580,992 90,710 $956 $749 $1,273,057 $1,855,754 


See accompanying notes to condensed consolidated financial statements.
4

Viper Energy Partners LP
Condensed Consolidated Statements of Cash Flows
(Unaudited)

Nine Months Ended September 30,
20222021
(In thousands)
Cash flows from operating activities:
Net income (loss)$509,763 $139,682 
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Provision for (benefit from) deferred income taxes(49,656) 
Depletion89,833 74,230 
(Gain) loss on derivative instruments, net19,366 70,649 
Net cash receipts (payments) on derivatives(27,292)(61,188)
Other4,372 3,332 
Changes in operating assets and liabilities:
Royalty income receivable(25,647)(14,923)
Royalty income receivable—related party(8,123)(20,024)
Accounts payable and accrued liabilities3,612 7,902 
Other(2,987)12 
Net cash provided by (used in) operating activities513,241 199,672 
Cash flows from investing activities:
Acquisitions of oil and natural gas interests(38,334)(6,728)
Proceeds from sale of oil and natural gas interests57,945  
Net cash provided by (used in) investing activities19,611 (6,728)
Cash flows from financing activities:
Proceeds from borrowings under credit facility229,000 87,000 
Repayment on credit facility(288,000)(79,000)
Repayment of senior notes(48,963) 
Repurchased units as part of unit buyback(118,932)(33,562)
Distributions to public (147,117)(46,102)
Distributions to Diamondback (186,550)(65,913)
Other(122)(2,948)
Net cash provided by (used in) financing activities(560,684)(140,525)
Net increase (decrease) in cash and cash equivalents(27,832)52,419 
Cash, cash equivalents and restricted cash at beginning of period39,448 19,121 
Cash, cash equivalents and restricted cash at end of period$11,616 $71,540 














See accompanying notes to condensed consolidated financial statements.
5

Viper Energy Partners LP
Condensed Notes to Consolidated Financial Statements
(Unaudited)


1.    ORGANIZATION AND BASIS OF PRESENTATION

Organization

Viper Energy Partners LP (the “Partnership”) is a publicly traded Delaware limited partnership focused on owning and acquiring mineral interests and royalty interests in oil and natural gas properties primarily in the Permian Basin.

As of September 30, 2022, Viper Energy Partners GP LLC (the “General Partner”) held a 100% general partner interest in the Partnership and Diamondback Energy, Inc. (“Diamondback”) beneficially owned approximately 55% of the Partnership’s total limited partner units outstanding. Diamondback owns and controls the General Partner.

Basis of Presentation

The accompanying condensed consolidated financial statements and related notes thereto were prepared in accordance with GAAP. All material intercompany balances and transactions have been eliminated upon consolidation. We report our operations in one reportable segment.

These condensed consolidated financial statements have been prepared by the Partnership without audit, pursuant to the rules and regulations of the SEC. They reflect all adjustments that are, in the opinion of management, necessary for a fair statement of the results for interim periods, on a basis consistent with the annual audited financial statements. All such adjustments are of a normal recurring nature. Certain information, accounting policies and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been omitted pursuant to SEC rules and regulations, although the Partnership believes the disclosures are adequate to make the information presented not misleading. This report should be read in conjunction with the Partnership’s most recent Annual Report on Form 10–K for the fiscal year ended December 31, 2021, which contains a summary of the Partnership’s significant accounting policies and other disclosures.

Reclassifications

Certain prior period amounts have been reclassified to conform to the current period financial statement presentation. These reclassifications had no effect on the previously reported total assets, total liabilities, unitholders’ equity, results of operations or cash flows.

2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Use of Estimates

Certain amounts included in or affecting the Partnership’s financial statements and related disclosures must be estimated by management, requiring certain assumptions to be made with respect to values or conditions that cannot be known with certainty at the time the financial statements are prepared. These estimates and assumptions affect the amounts the Partnership reports for assets and liabilities and the Partnership’s disclosure of contingent assets and liabilities as of the date of the financial statements.

Making accurate estimates and assumptions is particularly difficult in the oil and natural gas industry given the challenges resulting from volatility in oil and natural gas prices. For instance, the effects of COVID-19, the war in Ukraine and actions by OPEC members and other exporting nations on the supply and demand in global oil and natural gas markets continued to contribute to economic and pricing volatility. The financial results of companies in the oil and natural gas industry have been impacted materially as a result of changing market conditions. Such circumstances generally increase uncertainty in the Partnership’s accounting estimates, particularly those involving financial forecasts.

The Partnership evaluates these estimates on an ongoing basis, using historical experience, consultation with experts and other methods the Partnership considers reasonable in each particular circumstance. Nevertheless, actual results may differ significantly from the Partnership’s estimates. Any effects on the Partnership’s business, financial position or results of operations resulting from revisions to these estimates are recorded in the period in which the facts that give rise to the revision become known. Significant items subject to such estimates and assumptions include estimates of proved oil and natural gas reserves and related present value estimates of future net cash flows therefrom, the carrying value of oil and natural gas interests, the recoverability of costs of unevaluated properties, the fair value determination of assets and liabilities, including
6

Viper Energy Partners LP
Condensed Notes to Consolidated Financial Statements - (Continued)
(Unaudited)
those acquired by the Partnership, fair value estimates of commodity derivatives and estimates of income taxes, including deferred tax valuation allowances.

Related Party Transactions

During the three and nine months ended September 30, 2022, Diamondback, either directly or through its consolidated subsidiaries, paid the Partnership $0.4 million and $6.7 million, respectively, of lease bonus income primarily related to certain leases acquired in the Swallowtail Acquisition.

All other significant related party transactions with Diamondback or its affiliates have been stated on the face of the consolidated financial statements included elsewhere in this report as of September 30, 2022 and for the three and nine months ended September 30, 2022 and 2021.

Accrued Liabilities

Accrued liabilities consist of the following:

September 30,December 31,
20222021
(In thousands)
Interest payable$9,694 $4,430 
Ad valorem taxes payable11,075 6,201 
Derivatives instruments payable2,252 8,879 
Other1,152 999 
Total accrued liabilities$24,173 $20,509 

Recent Accounting Pronouncements

Recently Adopted Pronouncements

There are no recently adopted pronouncements.

Accounting Pronouncements Not Yet Adopted

The Partnership considers the applicability and impact of all ASUs. There are no recent accounting pronouncements not yet adopted that are expected to have a material effect on the Partnership upon adoption, as applicable.

3.    REVENUE FROM CONTRACTS WITH CUSTOMERS

Royalty income represents the right to receive revenues from oil, natural gas and natural gas liquids sales obtained by the operator of the wells in which the Partnership owns a royalty interest. Royalty income is recognized at the point control of the product is transferred to the purchaser at the wellhead or at the gas processing facility based on the Partnership’s percentage ownership share of the revenue, net of any deductions for gathering and transportation. Virtually all of the pricing provisions in the Partnership’s contracts are tied to a market index.

7

Viper Energy Partners LP
Condensed Notes to Consolidated Financial Statements - (Continued)
(Unaudited)
The following table disaggregates the Partnership’s total royalty income by product type:

Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
(In thousands)
Oil income$167,934 $100,154 $514,180 $272,450 
Natural gas income28,638 12,074 67,621 30,651 
Natural gas liquids income23,337 15,421 70,027 34,518 
Total royalty income$219,909 $127,649 $651,828 $337,619 

4.    ACQUISITIONS AND DIVESTITURES

2022 Activity

Acquisitions

In the third quarter of 2022, the Partnership acquired, from unrelated third-party sellers, mineral and royalty interests representing 165 net royalty acres in the Permian Basin for an aggregate purchase price of approximately $40.1 million, subject to post-closing adjustments. The Partnership funded these acquisitions with cash on hand and borrowings under the Operating Company’s revolving credit facility.

Divestitures

In the first quarter of 2022, the Partnership divested 325 net royalty acres of third party operated acreage located entirely in Upton and Reagan counties in the Midland Basin for a net sales price of $29.3 million, including post-closing adjustments.

In the third quarter of 2022, the Partnership divested 93 net royalty acres of third party operated acreage located entirely in Loving county in the Delaware Basin for an aggregate sales price of $29.9 million, subject to closing adjustments.

2021 Activity

Swallowtail Acquisition

On October 1, 2021, the Partnership and the Operating Company acquired certain mineral and royalty interests from Swallowtail Royalties LLC and Swallowtail Royalties II LLC (the “Swallowtail entities”) pursuant to a definitive purchase and sale agreement for approximately 15.25 million common units and approximately $225.3 million in cash (the “Swallowtail Acquisition”). The mineral and royalty interests acquired in the Swallowtail Acquisition represent 2,313 net royalty acres primarily in the Northern Midland Basin, of which 62% were operated by Diamondback as of December 31, 2021. The Swallowtail Acquisition has an effective date of August 1, 2021. In accordance with the terms of the purchase agreement, the Partnership deposited $30.0 million into an escrow account in August 2021, which was released upon the closing of the transaction in October 2021. The cash portion of this transaction was funded through a combination of cash on hand and approximately $190.0 million of borrowings under the Operating Company’s revolving credit facility.

Other 2021 Acquisitions

Additionally during the year ended December 31, 2021, the Partnership acquired, from unrelated third party sellers, mineral and royalty interests representing 1,277 gross (392 net royalty) acres in the Permian Basin for an aggregate purchase price of approximately $55.1 million, after post-closing adjustments. The Partnership funded these acquisitions with cash on hand and borrowings under the Operating Company’s revolving credit facility.

8

Viper Energy Partners LP
Condensed Notes to Consolidated Financial Statements - (Continued)
(Unaudited)
5.    OIL AND NATURAL GAS INTERESTS

Oil and natural gas interests include the following:
September 30,December 31,
20222021
(In thousands)
Oil and natural gas interests:
Subject to depletion$2,033,235 $1,873,418 
Not subject to depletion1,460,744 1,640,172 
Gross oil and natural gas interests3,493,979 3,513,590 
Accumulated depletion and impairment(688,996)(599,163)
Oil and natural gas interests, net2,804,983 2,914,427 
Land5,688 5,688 
Property, net of accumulated depletion and impairment$2,810,671 $2,920,115 

As of September 30, 2022 and December 31, 2021, the Partnership had mineral and royalty interests representing 26,789 and 27,027 net royalty acres, respectively.

No impairment expense was recorded on the Partnership’s oil and natural gas interests for the three and nine months ended September 30, 2022 and 2021 based on the results of the respective quarterly ceiling tests. In addition to commodity prices, the Partnership’s production rates, levels of proved reserves, transfers of unevaluated properties and other factors will determine its actual ceiling test limitations and impairment analysis in future periods. If the trailing 12-month commodity prices decline as compared to the commodity prices used in prior quarters, the Partnership may have material write-downs in subsequent quarters.

6.    DEBT

Long-term debt consisted of the following as of the dates indicated:

September 30,December 31,
20222021
(In thousands)
5.375% senior unsecured notes due 2027
$430,350 $479,938 
Revolving credit facility245,000 304,000 
Unamortized debt issuance costs(1,374)(1,757)
Unamortized discount(4,338)(5,454)
Total long-term debt$669,638 $776,727 

Repurchases of Notes

During the nine months ended September 30, 2022, the Partnership repurchased an aggregate $49.6 million principal amount of the outstanding Notes for total cash consideration of $49.0 million, which resulted in an immaterial loss on extinguishment of debt during the nine months ended September 30, 2022 after including accrued interest and the write-off of related unamortized costs. The Partnership funded the debt repurchases through a combination of cash on hand and borrowings under the Operating Company’s revolving credit facility.

The Operating Company’s Revolving Credit Facility

The Operating Company’s credit agreement, as amended to date, provides for a revolving credit facility in the maximum credit amount of $2.0 billion and a borrowing base of $580.0 million based on the Operating Company’s oil and natural gas reserves and other factors. The borrowing base is scheduled to be redetermined semi-annually in May and November. As of September 30, 2022, the Operating Company had elected a commitment amount of $500.0 million, with
9

Viper Energy Partners LP
Condensed Notes to Consolidated Financial Statements - (Continued)
(Unaudited)
$245.0 million of outstanding borrowings and $255.0 million available for future borrowings. During the three and nine months ended September 30, 2022 and 2021, the weighted average interest rates on the Operating Company’s revolving credit facility were 4.75%, 3.53%, 1.98% and 2.14%, respectively. The revolving credit facility will mature on June 2, 2025.

As of September 30, 2022, the Operating Company was in compliance with the financial maintenance covenants under its credit agreement.

7.    UNITHOLDERS’ EQUITY AND DISTRIBUTIONS

The Partnership has General Partner and limited partner units. At September 30, 2022, the Partnership had a total of 74,156,051 common units issued and outstanding and 90,709,946 Class B units issued and outstanding, of which 731,500 common units and 90,709,946 Class B units were beneficially owned by Diamondback, representing approximately 55% of the Partnership’s total units outstanding. At September 30, 2022, Diamondback also beneficially owns 90,709,946 Operating Company units, representing a 55% non-controlling ownership interest in the Operating Company. The Operating Company units and the Partnership’s Class B units beneficially owned by Diamondback are exchangeable from time to time for the Partnership’s common units (that is, one Operating Company unit and one Partnership Class B unit, together, will be exchangeable for one Partnership common unit).

Common Unit Repurchase Program

The board of directors of the Partnership’s General Partner has approved a common unit repurchase program to acquire up to $750.0 million of the Partnership’s outstanding common units over an indefinite period of time. The Partnership intends to purchase common units under the repurchase program opportunistically with funds from cash on hand, free cash flow from operations and potential liquidity events such as the sale of assets. This repurchase program may be suspended from time to time, modified, extended or discontinued by the board of directors of the Partnership’s General Partner at any time. During the three and nine months ended September 30, 2022 and 2021, the Partnership repurchased approximately $50.7 million, $118.9 million, $13.7 million and $33.6 million of common units under the repurchase program, respectively. Repurchases for the nine months ended September 30, 2022 include approximately $37.3 million for the repurchase of 1.5 million common units from a significant unitholder in a privately negotiated transaction in the first quarter of 2022. As of September 30, 2022, $561.0 million remains available for use to repurchase common units under the repurchase program.

Cash Distributions on Common Units

The board of directors of the General Partner has established a distribution policy whereby the Operating Company distributes all or a portion of its available cash on a quarterly basis to its unitholders (including Diamondback and the Partnership). The Partnership in turn distributes all or a portion of the available cash it receives from the Operating Company to its common unitholders. The Partnership’s available cash and the available cash of the Operating Company for each quarter is determined by the board of directors of the General Partner following the end of such quarter. The cash available for distribution by the Operating Company, a non-GAAP measure, generally equals the Partnership’s consolidated Adjusted EBITDA for the applicable quarter, less cash needed for income taxes payable, debt service, contractual obligations, fixed charges and reserves for future operating or capital needs that the board of directors of the General Partner deems necessary or appropriate, lease bonus income, distribution equivalent rights payments and preferred distributions, if any. The Partnership’s cash available for distribution for each quarter generally equals the Partnership’s proportional share of the cash distributed by the Operating Company for the quarter, less cash needed by the Partnership for the payment of income taxes, if any, and the preferred distribution. Further, in July 2022, the board of directors of the General Partner approved a distribution policy, effective beginning with the Partnership’s distribution payable for the third quarter of 2022, consisting of a base and variable distribution, that takes into account capital returned to unitholders via our common unit repurchase program. The board updated the distribution policy in November 2022, providing that lease bonus payments and other similar, one-time, non-recurring payments will be excluded from the calculation of the Partnership’s and the Operating Company’s available cash.

The percentage of cash available for distribution pursuant to the distribution policy discussed above may change quarterly to enable the Operating Company to retain cash flow to help strengthen the Partnership’s balance sheet while also expanding the return of capital program through the Partnership’s common unit repurchase program. The Partnership is not required to pay distributions to its common unitholders on a quarterly or other basis.

10

Viper Energy Partners LP
Condensed Notes to Consolidated Financial Statements - (Continued)
(Unaudited)
The following table presents information regarding cash distributions approved by the board of directors of the General Partner for the periods presented (in thousands, except for per share amounts):
PeriodAmount per Operating Company Unit
Operating Company Distributions to Diamondback
Amount per Common Unit
Distributions to Common Unitholders(1)
Declaration DateUnitholder Record DatePayment Date
Q4 2021$0.47 $42,634 $0.47 $36,238 February 16, 2022March 4, 2022March 11, 2022
Q1 2022$0.70 $63,497 $0.67 $51,680 April 27, 2022May 12, 2022May 19, 2022
Q2 2022$0.87 $78,918 $0.81 $60,626 July 26, 2022August 16, 2022August 23, 2022
(1)Includes amounts paid to Diamondback for the 731,500 common units beneficially owned by Diamondback and distribution equivalent rights payments.

Cash distributions will be made to the common unitholders of record on the applicable record date, generally within 60 days after the end of each quarter.

Change in Ownership of Consolidated Subsidiaries

Non-controlling interest in the accompanying condensed consolidated financial statements represents Diamondback’s ownership in the net assets of the Operating Company. Diamondback’s relative ownership interest in the Operating Company can change due to the Partnership’s public offerings, issuance of units for acquisitions, issuance of unit-based compensation, repurchases of common units and distribution equivalent rights paid on the Partnership’s units. These changes in ownership percentage and the disproportionate allocation of net income (loss) to Diamondback discussed below result in adjustments to non-controlling interest and common unitholder equity, tax effected, but do not impact earnings. The following table summarizes the changes in common unitholder equity due to changes in ownership interest during the period:

Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
(In thousands)
Net income (loss) attributable to the Partnership$79,340 $16,832 $129,967 $18,474 
Change in ownership of consolidated subsidiaries 20,046