Viper Energy: Nothing Wrong with This Snake Oil

The phrase “snake oil salesman” has a rich history. In the United States, snake oil medicines were introduced by Chinese immigrants who helped build the railroads. The Americans marvelled at how effectively they soothed joints after a hard day’s work - their popularity immediately took off. Unsurprisingly, in the second half of the nineteenth century this attracted a wave of entrepreneurs eager to cash in. One of these was an ex-cowboy by the name of Clark Stanley. He wowed audiences at the 1893 World Exposition in Chicago by slicing open a live snake, boiling it, and skimming off the oil to be sold to onlookers as a “liniment”, or heat rub. Years later, when these patent medicines became regulated, federal investigators found that Stanley’s Snake Oil was in fact made from petroleum based mineral oil, beef fat, red pepper and turpentine.

It would stand to reason therefore, that when an oil and gas company named Viper Energy first came onto our screen, the natural reaction was suspicion. But - never to be deterred by generalisations – we still thought to check the ingredients. As the largest energy royalty operator in North America, it turned out that Viper bears no relation to Clark Stanley’s creations.

In fact, the opposite. A large-scale leader, managed by one of the most respected teams in its industry and about to enter a phase of growth in cash returns.

The company first listed as a Master Limited Partnership (MLP) in 2013, carved out as a former subsidiary of Diamondback Energy. Royalty and streaming agreements are common across North America but better known in mining, where the largest company, Franco-Nevada, is valued at just under $50bn. The idea is to transfer part ownership of the underlying commodity revenue, but with no exposure to both the operating and capital spend. With less risk, these revenue streams should achieve higher valuations. A sale of royalty rights can raise more money to fund development plans.

It was curious then, to find that in the case of Viper, this higher valuation over operators did not exist. There could be a few reasons. MLPs are structures that can complicate tax treatment for certain funds, which in the past may have limited interest. Viper only converted from an MLP into a Delaware corporation in 2023. This, along with a lack of enthusiasm for energy versus gold/silver and no sizeable royalty companies in the sector, left companies like Viper gathering dust.

Things started to change in 2021, when Viper introduced a more formulaic way to return capital to shareholders. This included a progressive base dividend, a variable special dividend and share repurchases, adjusted depending on the operational results.

The company gained further attention in 2025, when it undertook several acquisitions to take its market capitalisation from $5bn to almost $15bn. Viper became many times the size of its closest competition, without taking on lots of debt.

The beauty of Viper is its focus on the best parts of the Permian basin. The Permian has been the star of the U.S. energy revival, and its productivity has repeatedly defied predictions of rapid decline rates. We spoke to operators and equipment service providers to understand what was going on.

They told us that the basin is maturing; but also entering a new phase of development – one that will favour larger producers that have emerged from a decade of consolidation. New surfactants combined with AI-enhanced analysis of geological data and improved extraction are opening more efficient new production opportunities.

With a roster of the best operators as its customers, this will be a bounty for Viper. We also believe that activity will increase in areas where it enjoys higher royalty rates per acre.

The royalty model works because of high margins and Viper is no different. With typical cash margins between 80% and 90% of realised prices, the company can afford to pay out between 75% and 100% of free distributable cash flow. At the mid-point of its latest 2026 production guidance and a conservative $70 WTI oil price, the company will yield just under 8% in dividends[1]. Viper’s base dividend is sustainable down to $30 WTI[2].

After ARC Resources was bid for by Shell, we did not expect to find another investment in energy this soon. The effects of the Iran conflict factor little into our analysis - the attractions are clear regardless. More than Clark Stanley’s liniment oil at least.

[1] Viper Energy investor presentation, May 2026

[2] Viper Energy investor presentation, May 2026

For professional investors only.

This document has been prepared by River Global Investors LLP (“RGI”). RGI is authorised and regulated in the United Kingdom by the Financial Conduct Authority (Firm Reference No. 453087) and is registered in England (Company No. OC317647), with its registered office at 30 Coleman Street, London EC2R 5AL.

For further information on the sub-funds of the RGI Funds ICVC and the SVM Funds ICVC including specific risks and risk profiles please refer to the Prospectuses and the Key Investor Information Documents (KIIDs) (available on river.global).

This document is intended for use by individuals who are familiar with investment terminology. Please contact your financial adviser if you need an explanation of the terms used.

The value of investments and any income generated may go down as well as up and is not guaranteed. An investor may not get back the amount originally invested. Past performance is not a reliable guide to future results. Changes in exchange rates may have an adverse effect on the value, price or income of investments. This article does not constitute an investment recommendation and should not be used as the basis for any investment decision. Opinions, estimates and projections in this article constitute the current judgement of the author as of the date of this article.

Please note that individual securities named in this article may be held by the Portfolio Manager or persons closely associated with them and/or other members of the Investment Team personally for their own accounts. The interests of clients are protected by operation of a conflicts of interest policy and associated systems and controls which prevent personal dealing in situations which would lead to any detriment to a client.

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For professional investors only.

This document has been prepared and issued by River Global Investors LLP (“RGI”). RGI is authorised and regulated in the United Kingdom by the Financial Conduct Authority (Firm Reference No. 453087) and is registered in England (Company No. OC317647), with its registered office at 30 Coleman Street, London EC2R 5AL. It  does not constitute an investment recommendation or advice and should not be used as the basis for any investment decision. Opinions, estimates and projections in this article constitute the current judgement of the author as of the date of this article.

The value of investments and any income generated may go down as well as up and is not guaranteed. An investor may not get back the amount originally invested. Past performance is not a reliable guide to future results. Changes in exchange rates may have an adverse effect on the value, price or income of investments.

Please note that individual securities named in this article may be held by the Portfolio Manager or persons closely associated with them and/or other members of the Investment Team personally for their own accounts. The interests of clients are protected by operation of a conflicts of interest policy and associated systems and controls which prevent personal dealing in situations which would lead to any detriment to a client.

For further information on the fund including specific risks and risk profiles please refer to the Prospectus and the Key Investor Information Document (KIID) (available on river.global).