Viper Energy to Acquire Sitio Royalties in $4.1B All-Stock Deal

Viper Energy, Inc. VNOM, a subsidiary of the independent oil and gas exploration firm Diamondback Energy, announced that it has entered into an agreement to acquire Sitio Royalties STR in an all-stock transaction totaling $4.1 billion. The total valuation includes Sitio’s net debt of $1.1 billion at the end of the first quarter of 2025. In addition to the acquisition of Sitio Royalties in the Permian Basin, the company has also announced a 10% increase in its base dividend to $1.32 per share annually, or 33 cents quarterly.

Implied Valuations for Sitio Shareholders

For each share of Sitio Class A common stock, the shareholders will receive 0.4855 shares of Class A common stock of Viper, and against each unit of Sitio’s operating subsidiary, unitholders are expected to get 0.4855 units of Viper Energy Partners LLC, Viper’s operating subsidiary. This transaction has resulted in an implied share price of $19.41 per share for Sitio’s stockholders, based on Viper’s share price as of June 2, 2025.

Following the announcement, shares of Viper Energy have risen almost 1% while those of Sitio Royalties have gained approximately 12%. The deal is anticipated to be closed in the third quarter of 2025.

Financial and Operational Synergies

The transaction is deemed to be a strategic fit for Viper Energy that should enhance its scale and inventory to support sustainable production growth for the next 10 years. Further, this should enable VNOM to strengthen free cash flow generation over the next decade. The companies also expect the acquisition to be immediately accretive to cash available for distribution per Class A share by nearly 8-10%.

Additionally, the deal is expected to generate more than $50 million in annual synergies, primarily due to a reduction in general and administrative costs and cost of capital savings. Post closing of the transaction, Viper Energy intends to uphold its Investment Grade rating, keeping its net debt target at $1.5 billion in the near term. The acquisition will also improve Viper Energy’s financials by reducing its pro forma base dividend breakeven to below $20 WTI, roughly $2 per barrel lower than prior estimates.

Portfolio Expansion in the Permian

Sitio Royalties’ total acreage dropped to approximately 34,300 net royalty acres, of which nearly 25,300 net royalty acres lie within the prolific Permian basin and approximately 9,000 net royalty acres are concentrated in other major basins in the United States, such as the Eagle Ford Basin and Williston Basin. The deal will increase Viper’s Permian Basin footprint by 42%. The combined entity will own approximately 85,700 net royalty acres in the Permian Basin, of which 43% shall be operated by Diamondback.

Following the closure of the deal, Viper Energy’s pro forma average production in the fourth quarter is expected to be in the range of 122-130 thousand barrels of oil equivalent per day (mboe/d). After the Sitio acquisition, Diamondback Energy will own approximately 41% of pro forma Viper’s outstanding common stock.

Zacks Rank & Key Picks

Both VNOM and STR currently carry a Zacks Rank #3 (Hold).

Some better-ranked stocks from the energy sector are Flotek Industries Inc. FTK and Energy Transfer ET. While Flotek Industries sports a Zacks Rank #1 (Strong Buy) at present, Energy Transfer carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Flotek Industries specializes in green chemistry, which provides innovative solutions aimed at reducing the environmental impact of the energy industry. Flotek develops specialty chemicals tailored for both domestic and international energy producers, as well as oilfield service companies. These chemicals not only help reduce the environmental impact of hydrocarbon production but also lower operational costs.

Energy Transfer is a midstream player that owns and operates one of the most diversified portfolios of energy assets in the United States. Boasting a pipeline network extending more than 130,000 miles, its network spans over 44 states. With a presence in all the major U.S. production basins, ET’s outlook seems positive.

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This article originally published on Zacks Investment Research (zacks.com).

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