Q4 2023 Viper Energy Inc Earnings Call

Participants

Adam Lawlis; Investor Relations; Viper Energy Inc

Travis Stice; Chief Executive Officer; Viper Energy Partners LLC

Neal Dingmann; Analyst; Truist Securities

Derrick Whitfield; Analyst; Stifel Canada

Paul Diamond; Analyst; Citi

Leo Mariani; Analyst; Roth MKM

Tim Rezvan; Analyst; KeyBanc Capital Markets Inc.

Presentation

Operator

Good day and thank you for standing by, welcome to the Viper Energy fourth-quarter 2023 earnings call. (Operator Instructions) Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Adam Lawlis, Vice President of Investor Relations. Please go ahead.

Adam Lawlis

Thank you, Victor. Good morning and welcome to Viper Energy's fourth-quarter 2023 conference call. During our call today, we will reference an updated investor presentation, which can be found on Viper's website. Representing Viper today are Travis Stice, CEO; Kaes Van’t Hof, President; and Austen Gilfillian, Vice President.
During this conference call, the participants may make certain forward-looking statements relating to the Company's financial condition, results of operations, plans, objectives, future performance and businesses. We caution you that actual results could differ materially from those that are indicated in these forward-looking statements due to variety of factors. Information concerning these factors can be found in the Company's filings with the SEC.
In addition, we will make reference to certain non-GAAP measures. Reconciliations to the appropriate GAAP measures can be found on our earnings release issued yesterday after.
I'll now turn the call over to TransDigm.

Travis Stice

Thank you, Adam, and welcome, everyone, and thank you for listening to Viper Energy's Fourth Quarter 2023 conference call and the fourth quarter wrapped up a milestone year for Viper for the full year, average oil production increased 13% compared to previous year, while our average share count was reduced by 1% over the same period as a result of continued strong organic production growth, accretive acquisitions as an opportunistic share repurchase program. The fourth quarter represented the eighth consecutive quarter of increased production per share providers for our return of capital for the fourth quarter, we have declared a $0.29 variable dividend to Class A. shareholders, along with our $0.27 base dividend. Importantly, this variable dividend is the same that we would have paid with the 75% payout ratio. Certainly we did not repurchase any shares during the quarter. However, inclusive of the 28.7 million in shares that we repurchased during the quarter. Our effective payout ratio for Q4 is 97%. Our rationale for excluding the share repurchases done during the quarter and calculating our variable dividend is that we view this buyback, which was done during the secondary offering related to our GRP acquisition as an extension of the financing of the deal. Additionally, we've already received 10 million in post affected cash flow that is applied as a reduction to the purchase price and does not show up in our reported financials for the quarter.
Looking back on the year as a whole, there were several strategic initiatives completed during 2023 that Mark important steps in the growth and evolution of Baxter, our GRP acquisition, which closed in the fourth quarter clearly laid out the frame what we look for in large scale, M&A, first must be accretive on all relevant financial measures. Second, there must be high-quality, undeveloped inventory that supports our long-term growth profile and provides clear visibility to future development. And third, the acquisition must provide significant scale that results in a pro forma business that is both bigger and better separately. Viper also completed its conversion into a Delaware corporation during the fourth quarter. We believe this conversion has delivered increased governance rights for our shareholders and positions Viper to grow our business and fully highlight the advantaged nature of mineral and royalty ownership.
Looking ahead to 2024, we've initiated production guidance for both Q1 and the full year. While Q1 is expected to be the weakest quarter of the year, primarily as a result of the timing of large pads. We continue to see strong activity levels across our acreage position and expect significant growth to occur throughout the year with 20 with Q4 2024 production expected to be at or above the high end of our guidance range. This continued production growth, along with our best-in-class cost structure, should enable Viper to continue to return a substantial amount of capital to our shareholders, primarily through our base plus variable dividend. Operator, please open the line for questions.

Question and Answer Session

Operator

(Operator Instructions) Neal Dingmann, Truist.

Neal Dingmann

Wanted to have a nice quarter on my first quarter. My first question is on valuation. And just maybe broadly, it seems to me that the market still not appropriately valuing victims of growth and the continued associated and distribution. So case for you and the team, just wondering if you all believe this is still a more of a broader issue with the minerals group in general? Or is it more the market not appreciated Ventiv's future value creation?

Yes. I mean, I think the market starting to wake up to the Venom story to know as well as the mineral story. But I think generally the conversion that we did to C-Corps that has opened up a broader investor universe is a lot of that. You take meetings with shareholders that are prospective shareholders that you haven't been able to buy the stock in the past. I think it's good to see some index ownership. It's good to see the flows pick up coming on. And I think as you think about as we think about the vision for this business, you know, as you continue to see consolidation in the E&P space, we think Viper will offer a unique opportunity and a unique investment case in the pure play Permian E&P or minerals business. However, you want to look at it. I mean, I think generally, as we continue to grow this business and a growth production, you can do that at Viper without um, you know, even if the parent company not not growing. So yes, generally, I think the market's waking up to the story. I mean this business is going to grow 14% grow oil, 14% quarter over quarter, Q4 24 to Q4 23. That's a pretty impressive growth rate and it's not impacting overall macro as much as it was upstream.

Neal Dingmann

Okay, great. And then just second quick one on capital allocation. Given your low leverage relative to I assume you'll continue or will you continue to pay out the 90% plus cash available for distribution? And would you consider allocating more into the buybacks?

We did a unique deal in Q4 to buy back 1 million units from what what was given to GRP seller financing. I think that's a unique opportunity to buy back a lot of shares at one time lag for shareholders have been rewarded for that, you know, off of from a returns perspective, I think generally, you know, we still believe minerals should be distribution vehicles. We have a fixed distribution that's grown in the last couple of years.

Travis Stice

We have a variable distribution.

That's our probably our second call on on on payout. And then behind that, probably repurchases, I think there will be opportunities to repurchase shares in the future. But right now, the priority fields to be shifted more towards the base plus variable unless there was a unique event like a large shareholder. So on.
Great, thanks for the time points.

Operator

Derrick Whitfield from Stifel.

Derrick Whitfield

I've been wanting all there.
I'm wanted to circle back on a topic that came up earlier on your Diamondback call today regarding the increased inclusion of Wolfcamp D in 2024, is that development focused in your Spanish Trail area or more broadly integrated across your stack development.

It's more broadly integrated across the portfolio, but there is a lot of undeveloped opportunity in Spanish Trail. We signed a big lease last year for deep rights, which includes a little bit of Wolfcamp D, but mainly Barnett and Woodford across that Spanish Trail position. I think there's a couple of wells coming on this year and the Wolfcamp D, which just opens up the next leg of the stool.
When it comes to mineral ownership, I mean, when we first bought Spanish Trail, you know 10 years ago was focused on single bench, Wolfcamp B development, maybe some more vertical wells. And now here we are developing five or six benches and then upside in the deeper zone. So at the end of the day, it's always good to be the mineral owner in Texas and Viper being a large mineral owner with a well-funded parent operator is in a very good position. And you often leave out slides, slide 12 of the deck, what that looks like and what the benefit has been to the Viper shareholders in Spanish Trail from a deal that started with the $400 million purchased 10 years ago, agree, quite amazing.

Derrick Whitfield

Maybe kind of bridging from that topic with potential inclusion of Endeavour. Are you guys aware of any leases or ranches with materially higher interest like Spanish Trail? Or is it just uniformly higher and your perspective?

Yes, there's certainly some opportunities in other. There's a liquid Ranch, which we had a little discussion about with Endeavor a few years ago, and they got pilots of the ranch, but we know the mineral owner there who owns a significant amount of minerals and so on, we should be talking to. But then I think those are all opportunities that will open offices as we get to work with the Endeavour team on on what they have and what we have, and I'm putting together what will truly be a kind of world class resource at the upstream oil and downstream are the sort of the mineral Lingo.

Derrick Whitfield

Terrific.
Thanks for your time,

Travis Stice

and thank you.

Operator

Paul Diamond, Citi.

Paul Diamond

Good morning and thanks for taking my call. Just a quick one on kind of run rate cadence. If we take those 13.4 net wells in active development and kind of run that out on our numbers, we get to you pretty close to the high end of guidance pretty quickly for 24. Should we kind of view that as just a bit of conservatism into it? Or is it more just accounting for ongoing volatility in pricing and just operational cadence across the market?

Yes, Paul, a lot of it is timing related. So if you think about Q1, right, it's kind of in the lower end of the range, mainly as a result of the lower well count that we saw turn in production in Q4 carried into the year. So when you think about full year, we've obviously had this range of 25 to 27 five on oil out there since September of last year when we announced the GRP. deal on as we kind of roll for a couple of mindset and you look at our net well, count with current activity on things that ticked up a little bit. So I think that's my bias is things maybe a little bit higher than we previously thought in the back half of the year, but particularly typically pretty conservative when it comes to converting permits to production on the ENA, kind of put some of that activity that you see there into the 2025 time line, but it is staying current with current expert with operators, pace of development is potentially there could be a little bit of upside to our guidance but we just guided what we can see and be very confident in place.
Yes.

The beginning of the toughest part for us on getting of portfolios, particularly on the mall side, you know, the things side very, very well, that moves around or slightly. But I think generally we're a little more conservative in what we think it gets popped in the second half of the year on the non-op piece.

Paul Diamond

Got it.
Understood.
And just a quick follow-up on given the kind of proliferation of deals M&A across both the mineral side as well as the non-op and just the operators more broadly, has that really shifted your guys' mind is where you see the most attractive deal size post GRP.? Has it gotten a little bit bigger because you guys are the figures, it's still kind of run the gamut of different scale and your geographies.

I think I think generally we have deal like GRP showed our advantaged position because we could do a deal of that size with the significant amount of cash. I mean, it's still a nice size in the basin for smaller deals and probably to solve what's called sub-20 sub 10 million deal market. And really, I think we still look at that market, but it's not a huge piece of our business anymore. I think generally minerals have consolidated into funds that are sizable that will need to monetize at some point, and Viper should be the buyer of those. Those larger positions rather than the blocking and tackling. And you're making a big difference in the story. And I think but I think also, Paul, as you know, minerals are in our mind well behind E & P's in terms of consolidating, there's going to be a probably more mineral consolidation in the next few years and more names on that, sell them then upstream and upstream and consolidating very rapidly, but there's going to be a solid wave of mineral positions that monetize big or small. And we want to be positioned to buy the best rock with the best visibility that that online is mainly Permian. If not, we are mainly in the basin.
Got it, projected that over the next four.

Paul Diamond

Thank you.

Operator

Leo Mariani, Roth.

Leo Mariani

I appreciate some of the commentary there on your expectations for the minerals market to consolidate. Obviously, I think you guys laid out on the Endeavor acquisition call that Endeavour has roughly a portfolio that's two-thirds the size of denims currently, which obviously is very significant on. Would you guys be able to kind of just give us a little bit of a high-level plan in terms of how you see that maybe playing out over time to the benefit of Venom certainly seems like there's significant dropdown potential that something you think you could evaluate and kind of do multiple deals over kind of a handful of years. And what do you think kind of a high-level game plan.

Clearly, I mean, we gave some some high-level information on the potential opportunity in the in the merger deck. I'll say that we can't really say much today on timing or sizing. But very clearly, it's a it's a meaningful position that would differentiate Viper if we could get a deal done at the right time. But you know, I think we're have to leave it up to the pro forma Board to decide and get the deal closed. And as you know, we don't we don't move slowly so we'll get working on it quickly, but I can't really give you much until that time comes.

Leo Mariani

Okay. And then just in terms of some of the numbers here, certainly noticed that your G&A is kind of going up five per barrel by a fair amount. I'm assuming that's really just the conversion of the C-Corp and the additional costs that sort of come on that as a fairly or not.

We're not adding a ton of people are leaving. We run this business pretty lean, but there are some added costs as we now allocate know fully between the two, the parent and the sub.

Leo Mariani

Okay. Thanks.

Thank you.

Operator

Tim Rezvan, KeyBanc Capital Markets.

Tim Rezvan

Good morning, folks, and thanks for taking my question. I have two questions that are sort of related following up on what's been discussed here on the is it fair to say that despite the Endeavour opportunity come in around the end of 2024 that you are open and willing to transact and third party minerals this year. I know in the past done that history, you haven't been afraid to stack deals and we see opportunities. So are you sort of continuing to be on the prowl, you know, now and through 2024?

Yes, I think we want to be selective, but certainly something that looks like GRP. like we did last year would be very interesting to us. I mean, I think although that deal didn't have all Diamondback operation there, there's actually a lot of Endeavour permits and units under it. But from that visibility and that quality of remaining units in the Midland Basin costs has a lot of value. And if there are deals with a lot of undeveloped value, not just near term free cash flow accretion, that's something we're going to we're going to look at. It is don't have direct visibility into what that is today.

Tim Rezvan

Okay.

Okay.

Tim Rezvan

That's helpful. And then related to that. And as you think longer term on endeavor one, if you bake in the legacy, the acquired EBITDA on GRP leverage looks like a little bit over one times and hard to see a lot of organic deleveraging in a low 70s oil world. So what are your thoughts on the balance sheet and where you are today and maybe where you'd want to be over the medium term to sort of be able to it take down bigger opportunities as they come up?

Yes, I think I think a path towards one times no matter what the deal looks like is the right way to look at it. I mean, we are we are distributing 75% of free cash. So there is a more limited amount of free cash to go to the balance sheet on a quarterly basis. But generally, minerals, we've proven that the mineral business can delever very quickly. Doesn't mean we're going to lever it up by any means. But its security of pure free cash flow almost regardless of commodity prices is a pretty unique way to think about leverage in and in a low or commodity base business.

Tim Rezvan

Thank you.

Operator

Thank you. I'm not showing any further questions in the queue. I'd like to now turn it back to Travis place for CEO for any closing remarks.

Travis Stice

Thank you, Taylor, and thank you again for everyone participating in today's call. If you've got any questions, just please reach out using the information we provided.

Operator

Thank you for participating in today's conference. This does conclude the program. You may now disconnect. Everyone, have a great day.

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Operator

Yes, good day and thank you for standing by and welcome to the Viper Energy Fourth Quarter 2023 earnings call. At this time, all participants are in a listen only mode. After the speakers' presentation there will be a question and answer session to ask a question. During the session, you will need to press star one on your telephone. You will hear an automated message advising your hand is raised. To withdraw your question, please press star one one.

Again.

Operator

Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Adam Lawlis, Vice President of Investor Relations. Please go ahead.

Adam Lawlis

Thank you, Victor, and good morning, and welcome to the Viper Energy's Fourth Quarter 2023 conference call. During our call today, we will reference an updated investor presentation, which can be found on Viper's website. Representing Viper today are Travis Stice, CEO, Kaes Van’t Hof, President and often Gilson Vice President.
During this conference call, the participants may make certain forward-looking statements relating to the Company's financial condition, results of operations, plans, objectives, future performance and businesses. We caution you that actual results could differ materially from those that are indicated in these forward-looking statements due to a variety of factors. Information concerning these factors can be found in the Company's filings with the SEC. In addition, we will make reference to certain non-GAAP measures. Reconciliations to the appropriate GAAP measures can be found on our earnings release issued yesterday after.
I'll now turn the call over to transact.

Travis Stice

Thank you, Adam, and welcome, everyone, and thank you for listening to Viper Energy's Fourth Quarter 2023 conference call and the fourth quarter wrapped up a milestone year for Viper. For the full year, average oil production increased 13% compared to previous year, while our average share count was reduced by 1% over the same period as a result of continued strong organic production growth, accretive acquisitions as an opportunistic share repurchase program. The fourth quarter represented the eighth consecutive quarter of increased production per share providers for our return of capital. For the fourth quarter, we have declared a $0.29 variable dividend to Class A. shareholders now long with our $0.27 base dividend Importantly, this variable dividend is the same that we would have paid with a 75% payout ratio. Certainly, we did not repurchase any shares during the quarter. However, inclusive of the 28.7 million in shares that we repurchased during the quarter. Our effective payout ratio for Q4 is 97%. Our rationale for excluding the share repurchases done during the quarter and calculated in our variable dividend is that we view this buyback, which was done during the secondary offering related to our GRP acquisition as an extension of the financing of the deal. Additionally, we've already received 10 million in post effective cash flow that is applied as a reduction to the purchase price and does not show up in our reported financials for the quarter. Looking back on the year as a whole, there were several strategic initiatives completed during 2023 that Mark important steps in the growth and evolution of Baxter. Our GRP acquisition, which closed in the fourth quarter clearly laid out the frame core that we look for in large scale.

M&a.

Travis Stice

First must be accretive on all relevant financial measures. Second, there must be high-quality undeveloped inventory that supports our long-term growth profile and provides clear visibility to future development. And third, the acquisition must provide significant scale that results in a pro forma business that is both bigger and better separately. Viper also completed its conversion into a Delaware corporation during the fourth quarter. We believe this conversion has delivered increased governance rights for our shareholders and positions Viper to grow our business and fully highlight the advantaged nature of mineral and royalty ownership.
Looking ahead to 2024, we've initiated production guidance for both Q1 and the full year. While Q1 is expected to be the weakest quarter of the year, primarily as a result of the timing of large pads, we continue to see strong activity levels across our acreage position, and we expect significant growth to occur throughout the year with 20 with Q4 2024 production expected to be at or above the high end of our guidance range. This continued production growth, along with our best in class cost structure, should enable Viper to continue to return a substantial amount of capital to our shareholders, primarily through our base plus variable dividend. Operator, please open the line for questions.

Operator

Thank you. And as a reminder to ask a question, you need to press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one again. Please stand by while we compile the Q&A roster.

One moment.

Operator

Our first question, our first question will come from the line of Neal Dingmann from Truist. Your line is open.

Wanted to have a nice quarter on my first. My first question is on valuation. And just maybe broadly, it seems to me that the market still not appropriately valuing victims of growth and the continued associated and distribution. So case for Unity I'm just wondering if you all believe this is still a more of a broader issue with the minerals group in general, or is it more the market not appreciating denims future value creation?

Yes. I mean, look, I think the market starting to wake up the Venom story to know as well as the mineral story. But I think generally the conversion that we did to a C-Corp that has opened up a broader investor universe has allowed us to take meetings with shareholders that are prospective shareholders that have been able to buy the stock in the past. I think it's good to see some index ownership. It's good to see the float pickup coming on. I think as you think about as we think about the vision for this business. You know, as you continue to see consolidation in the E&P space, we think Viper will offer a unique opportunity and a unique investment case in the pure play, Permian E and P or minerals business. However, you look at it, I mean, I think generally, as we continue to grow this business and a growth production, you can do that at Viper without some, you know, even if the parent company not not growing. So yes, generally, I think the market is waking up to the story. I mean, this business is going to grow 14% gross oil, 14% quarter over quarter, Q4 24 to Q4 23. That's a pretty impressive growth rate and and it's not impacting overall macro as much as it was upstream.

Yes, I would agree. And then just second quick one on capital allocation. Given your low leverage relative to I assume you'll continue or will you continue to pay out the 90% plus cash available for distribution? And would you consider allocating more into the buybacks?

We did a unique deal in Q4 to buyback 1 million units from what what was given the GRP seller financing. And I think that's a unique opportunity to buy back a lot of shares at one time. Viper shareholders have been rewarded for that, you know, of from a returns perspective?
I think generally, you know, we still believe minerals should be distribution vehicles. We have a fixed distribution that's grown in the last couple of years, we have a variable distribution. That's our probably our second call on on on payout and then behind that, probably repurchases. I think there will be opportunities to repurchase shares in the future. But right now, the priority feels to be shifted more towards the base plus variable unless there was a unique event like a large shareholder. So on.
Great. Thanks for the time being until PanCAN.
One moment.

Operator

Our next question.

Yes.

Operator

Our next question comes from line of Derrick Whitfield from Stifel. Your line is open.

Good morning.

All I wanted to circle back on a topic that came up earlier on your Diamondback call today regarding the increased inclusion of Wolfcamp D in 2024, is that development focused in your Spanish Trail area or more broadly integrated across your stack development.

It's more broadly integrated across the portfolio, but there is a lot of undeveloped opportunity in Spanish Trail we signed a big lease last year for deep rights, which included a little bit of Wolfcamp D, but mainly Barnett and Woodford across that Spanish Trail position. I think there's a couple of wells coming on this year and the Wolfcamp D, which just opens up the next leg of the stool.
When it comes to mineral ownership, I mean, when we first bought three in Australia. You know, 10 years ago was focused on single bench, Wolfcamp B development, maybe some more vertical wells. And now here we are developing five or six benches and then upside in the deeper zone. So at the end of the day, it's always good to be the mineral owner in Texas and you know, Viper being a large mineral owner with a well-funded parent operator is in a very good position. And you often laid out on slides, slide 12 of the deck, what that looks like and what the benefit has been to the Viper shareholders in Spanish Trail from a deal that started with the $400 million purchased 10 years ago.
Agree, quite amazing.

Maybe kind of bridging from that topic with potential inclusion of Endeavour, are you guys aware of any leases or ranches with materially higher NRIs like Spanish Trail? Or is it just uniformly higher your perspective?

Yes, there's certainly some opportunities in other. There's a liquid Ranch, which we had a little discussion about with Endeavour a few years ago, and they got title to the ranch, but we know the mineral owner there who owns a significant amount of minerals and so on, we should be talking to them. I think those are all opportunities that will open offices as we get to work with the Endeavour team on what they have and what we have, and I'm putting together what will truly be a kind of world-class resource at the upstream oil and the downstream or the sorry, the mineral oil.

Operator

Terrific.

Travis Stice

Thanks for your time, and thank you.

Operator

One moment for our next question. Our next question comes from the line of Paul diamond from Citi.

Good morning and thanks for taking my call. Just a quick one on kind of run rate cadence. If we take those 13.4 net wells in active development and kind of run that out on our numbers, we get to you pretty close to the high end of guidance pretty quickly for 24. Should we kind of view that as just a bit of conservatism into it? Or is it more just accounting for the ongoing volatility in pricing and just operational cadence across the markets?

Adam Lawlis

Yes, Paul, a lot of it's just timing related. So if you think about Q1, right, it's kind of in the lower end of the range, mainly as a result of the lower well count that we saw a turn in production in Q4 carried into the year. So when you think about full year, we've obviously had this range of 25 to 27, five on oil out there since September of last year when we announced the GRP. deal on as we kind of roll for a couple of mindset and you look at our net well count with current activity on things have ticked up a little bit. So I think that pipeline has been maybe a little bit higher than we previously thought in the back half of the year, but particularly typically pretty conservative when it comes to converting permits to production on the E, not kind of put some of that activity that you see there into the 2025 time line. But if things stay current with current expert with operators, pace of development is potentially there could be a little bit of upside to our guidance, but we described what we can see and be very confident in today's yes, the beginning of the year, the toughest part for us on getting it fully resolved to go on them all.

So we know the things very, very well that moves around or slightly, but I think generally we're a little more conservative in what we think it gets passed in the second half of the year on the non-op piece.

Got it.

Travis Stice

Understood.

And just a quick follow-up on given the kind of proliferation of video M&A across both the mineral side as well as the non-op and just the operators more broadly, has that really shifted your guys' mind is where you see like the most attractive deal size per GRP, is it gotten a little bit bigger because you guys are a bigger or is it still kind of run the gamut of different scale and your geographies?

I think I think generally for a deal like GRP showed our advantaged position because we could do a deal that size with the significant amount of cash. I mean it's still a knife fight in the basin for smaller deals and probably to solve what's called sub-20 sub 10 million deal market. And really, I think we still look at that market, but it's not a huge piece of our business anymore. I think generally minerals have consolidated into funds that are sizable that will need to monetize at some point, and Viper should be the buyer of those larger positions rather than the blocking and tackling. And you're making a big difference in the story. And I think that I think also, Paul, as you know, minerals are in our mind was well behind E & P's in terms of consolidating, there's going to be a probably more mineral consolidation in the next few years and more names on that sell them than upstream and upstream and consolidating very rapidly, but there's going to be a solid wave of of mineral positions that monetize big or small, and we want to be positioned to buy the best rock with the best visibility on. And that in our mind is mainly Permian. If not, we are mainly in the Illinois Basin.

Got it.

Thanks.

Operator

Paul Sankey, one moment to our next question.
And next question comes from the line of Leo Mariani from Rice.

Your line is I appreciate that some of the commentary there on your expectations for the minerals market consolidate. Obviously, I think you guys laid out on the Endeavor acquisition call that Endeavour has roughly a portfolio that's two-thirds the size of denims currently, which obviously is very, very significant on. Would you guys be able to kind of just give us a little bit of a high-level plan in terms of how you see that maybe playing out over time to the benefit of denim. So it seems like there's significant drop-down potential. Is that something you think you could evaluate and kind of do multiple deals over kind of a handful of years. I mean, what do you think kind of the high-level game plans?

Clearly, I mean, we gave some some high-level information on the potential opportunity in the in the merger deck, I'll say that we can't really say much today on timing or sizing, but very clearly, it's a it's a meaningful position that would differentiate Viper if we could get a deal done at the right time, but I think we're going to leave it up to the pro forma Board to decide and get the deal closed. And as you know, we don't we don't move slowly. So we'll get working on it quickly, but I can't really give you much until that time comes.
Okay.

And then just in terms of some of the numbers here. Certainly noticed that your G&A is kind of going up five per barrel by a fair amount. I'm assuming that's really just the conversion of the C-Corp and the additional costs that sort of come on that as a fairly or not, we're not adding a ton of people or anything.

We run this business pretty lean, but there are some added costs as we now allocate fully between the two, the parent and the sub.
Okay. Thanks.
Thank you.

Operator

Thank you. One moment for our next question. Our next question come from the line of Tim Rezvan from KeyBanc Capital Markets. Your line is open.

Good morning, folks, and thanks for taking my question. I have two questions that are sort of related following up on what's been discussed here on the is it fair to say that despite the Endeavour opportunity come in around the end of 2024 that you are open and willing to transact and third party minerals this year. I know in the past done that history, you haven't been afraid to stack deals when we see opportunities. So are you sort of continuing to be on the prowl now and through 2024?

Yes. Look, I think we want to be selective, but certainly something that looks like GRP. like we did last year would be very interesting to us. I mean, I think although that deal didn't have all Diamondback operations, there's actually a lot of Endeavour permits and units under it. But from that visibility and that quality of remaining units in the Midland Basin costs has a lot of value. And if there are deals with a lot of undeveloped value, not just near term free cash flow accretion. That's something we're going to we're going to look at it is don't have direct visibility into what that is today. Okay.

Okay.

That's helpful. And then related to that, and as you think longer term on endeavor one, if you bake in the legacy required EBITDA on GRP. leverage, looks like a little bit over one times and hard to see a lot of organic deleveraging in a low 70s oil world. So what are your thoughts on the balance sheet and where you are today and maybe where you'd want to be over the medium term to sort of be able to it take down bigger opportunities as they come up?

Yes, I think I think a path towards one times no matter what the deal looks like is the right way to look at it. I mean, we are we are distributing 75% of free cash. So there is a more limited amount of free cash to go to the balance sheet on a quarterly basis. But generally, minerals, we've proven that the mineral business can delever very quickly. Doesn't mean we're going to lever it up by any means. But yield security of pure free cash flow almost regardless of commodity prices is a pretty unique way to think about leveraging in a low or commodity-based business.

Thank you.

Operator

Thank you. I'm not showing any further questions in the queue. I'd like to now turn it back to Travis base for CEO for any closing remarks.

Travis Stice

Thank you, Taylor, and thank you again for everyone participating in today's call. If you've got any questions, just please reach out using the information we provided.

Operator

Thank you for participating in today's conference. That does conclude the program. You may now disconnect. Everyone, have a great day.