On Friday, JPMorgan analyst Arun Jayaram increased the price target on Viper Energy (NASDAQ:VNOM) shares traded on NASDAQ:VNOM to $52.00, up from the previous $51.00. The firm maintained an Overweight rating on the stock. This adjustment follows a series of efficiency gains and cost reductions by Diamondback Energy (NASDAQ:FANG), which have positively impacted Viper Energy's operations and financial outlook.
Jayaram highlighted that Diamondback Energy's acquisition of Endeavor in February 2024 set a preliminary 2025 production guide of 470-480 thousand barrels of oil equivalent per day (MBo/d), supported by a capital expenditure (capex) range of $4.1-$4.4 billion. Initially, Diamondback planned to operate 21-24 rigs and more than five frac crews to meet this target. However, Diamondback has since achieved significant efficiency gains, now expecting to execute the same program with 18 rigs and four HAL Zeus eFleets.
These gains include a reduction in leading-edge well costs in the Midland Basin to $600 per foot, which is lower than the $625 per foot estimate previously factored into the Endeavor merger. The improvements are attributed to the use of clear drilling fluids and simul-frac techniques. Additionally, Viper Energy's Tumbleweed acquisition in September 2024 is projected to contribute 4.5 MBo/d to the 2025 volumes, potentially pushing production to the upper end of Diamondback's guidance.
Jayaram also noted that strong productivity trends from Diamondback's 2024 turn-in-lines (TILs) could further enhance capital efficiency. The company may consider moderating activities to maintain flat volumes around 475 MBo/d from the fourth quarter, while capitalizing on efficiency gains to boost free cash flow (FCF) generation and exercise restraint in a market with abundant oil supply.
JPMorgan's forecasts for Diamondback Energy remain aligned with consensus estimates, predicting cash flow per share (CFPS) of $7.49 against a street estimate (STe) of $7.53, EBITDA of $2,498 million compared to the STe of $2,507 million, and oil production of 474.7 MBo/d, which sits at the high end of Diamondback's 470-475 MBo/d guidance range.
The capex estimate of $991 million is slightly below the street's $1,000 million and just under the midpoint of Diamondback's $950-$1,050 million guidance. Diamondback is expected to generate $1,194 million of FCF in the fourth quarter, with cash returns comprising a $0.90 per share quarterly dividend and $334 million in share buybacks.
After incorporating recent strip pricing and Diamondback's pricing disclosures, JPMorgan reaffirmed its Overweight rating and raised its December 2025 price target for Diamondback Energy to $195 from the previous $191.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.