Logo of jester cap with thought bubble.

Image source: The Motley Fool.

Viper Energy Partners LP (NASDAQ:VNOM)
Q4 2019 Earnings Call
Feb 12, 2020, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by. And welcome to the Viper Energy Partners Fourth Quarter 2019 Earnings Call. [Operator Instructions] After the speakers' presentation, there will be a Q&A session. [Operator Instructions]

I would now like to hand the conference over to your speaker, Adam Lawlis, Vice President of Investor Relations. Thank you. Please go ahead, sir.

Adam Lawlis -- Vice President of Investor Relations

Thank you, Justin. Good morning, and welcome to Viper Energy Partners fourth quarter 2019 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; and Kaes Van't Hof, President.

During this conference call, 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. The reconciliations with the appropriate GAAP measures can be found in our earnings release issued yesterday afternoon.

I'll now turn the call over to Travis Stice.

Travis D. Stice -- Chief Executive Officer

Thank you, Adam. Welcome everyone, and thank you for listening to the Viper Energy Partners fourth quarter 2019 conference call. 2019 was an important year for Viper as we successfully leveraged our size and scale to acquire more than 9,000 net royalty acres and most importantly, more than doubled our exposure to Diamondback-operated royalty acreage. As a result, Viper expects to have exposure to roughly 70% of Diamondback's 2020 gross completions with an average net revenue interest of greater than 5%. This increased exposure directly translates to at least 12 Diamondback-operated 100% net royalty interest wells expected to be turned to production on Viper's acreage this year versus less than eight in 2019, offering Viper the most exposure to Diamondback in years.

Outside of Diamondback-operated acreage, Viper's premium acreage position under other well-capitalized operators has continued to attract strong activity levels despite the overall decline in the rig count seen across the Permian Basin. Viper today has a stronger near-term inventory of net wells currently in the process of active development, as well as additional line-of-sight wells that have not yet been spud than at any time in our short history. However, in an effort to be conservative, we have contemplated slower-than-normal timing assumptions for both spud-to-first production and permit-to-first production in our 2020 production forecast. Even with these slower timing assumptions, which have been pushed out by three months on average per pad versus historical actual conversion rates, we are assuming over 10% more net wells turned to production in 2020 on our acreage, not operated by Diamondback compared to 2019. As a result, Viper is initiating full-year 2020 oil production guidance that implies 28% growth relative to full-year 2019 oil production.

Separately, in addition to the strong production growth expected in 2020, oil realizations are also expected to be a tailwind this year as the last of Diamondback's fixed differential contracts rolled off in December of 2019. Realizations are expected to move closer to the current Midland market with the potential improvement should Brent or MEH spreads widen versus local Midland pricing given Diamondback's position on the Gray Oak and EPIC pipelines. Given this and assuming $55 WTI in 2020, Viper is projecting aggregate 2020 distributions of greater than $2 per unit, implying a greater than 9% annualized forward yield at the current unit price. Further, given Viper's cost structure and high cash margins, the Company is still expected to generate a free cash flow yield that is 70% higher than the current S&P 500 sector average even at $40 oil.

In a difficult energy landscape, Viper's resilient free cash flow yield and unique relationship of Diamondback will further distinguish it from its peers. We will continue to be active in acquiring Diamondback-operated acreage, ahead of the drill bit to further enhance the embedded high-margin long-term growth potential of our asset base that requires zero capex. And we look forward to continuing to generate significant organic production growth in 2020 and for many years to come.

Operator, please open the line for questions.

Questions and Answers:

Operator

[Operator Instructions] And our first question comes from Derrick Whitfield from Stifel. Your line is now open.

Derrick Whitfield -- Stifel Financial Corp -- Analyst

Good morning all, and thanks for your continued peer-leading disclosure on operated and non-operated activities.

Travis D. Stice -- Chief Executive Officer

Thank you.

Derrick Whitfield -- Stifel Financial Corp -- Analyst

We -- regarding your more conservative third-party cycle time assumptions, would it be fair to view the production impact from a planning perspective as more one-time in nature, assuming cycle time outlook remains static? And if that's the case, do you guys have a view on factors leading to longer cycle times, in aggregate, across the basin?

Travis D. Stice -- Chief Executive Officer

Derrick, yeah. I mean, with non-op being about a third of our volumes and Diamondback-operated being two-thirds, we are using the exact Diamondback drill schedule and production forecast for about two-thirds of Viper's production. For the other third on the non-op piece, traditionally, our spud-to-first production in the Midland Basin has averaged between six and seven months. And our spud-to-first production in the Delaware Basin has averaged five to six months. In this guidance here given that it's early February and it's been a tumultuous 2020 already, we're going to be conservative and guide to spud-to-first production of nine months and not a lot of permit conversion in 2020.

We certainly expect for all our permits to be converted. We are at a very high permit conversion ratio. Just at this juncture in the year, this is the hardest guide for Viper for the year to guide to the full year. So we're pushing those spud-to-first production assumptions out by about three months.

Derrick Whitfield -- Stifel Financial Corp -- Analyst

That makes sense. And as a follow on to that question, could you comment on how your spud-to-POP and permit-to-POP cycle times have trended over the last couple of years for your operated program?

Travis D. Stice -- Chief Executive Officer

The operated program is pretty consistent in that five or six-month time frame. I will say, we wait on filing permits at the Diamondback level, so that our Viper team can get ahead of buying minerals before that permits filed because the price of minerals -- the price of poker for minerals goes up dramatically once that permits filed.

Derrick Whitfield -- Stifel Financial Corp -- Analyst

That's helpful. Makes sense. Thanks for your commentary.

Travis D. Stice -- Chief Executive Officer

Thank you, Derrick.

Operator

Thank you. And our next question comes from Brian Singer from Goldman Sachs. Your line is now open.

Brian Singer -- Goldman Sachs -- Analyst

Thank you. Good morning.

Travis D. Stice -- Chief Executive Officer

Hey, Brian.

Brian Singer -- Goldman Sachs -- Analyst

Wanted to see what expectations for well performance you've built in 2020 relative to 2019 and how that trend may differ or not when you look at third-party operators year-on-year versus saying as the operator?

Travis D. Stice -- Chief Executive Officer

Yeah, Brian, I will speak for Diamondback. We view the exact type curves we're using at the Diamondback level. We've risked those type curves. We traditionally risk new type curves in general, but also we've added the water-out effect that we're going to see throughout our different -- various fields throughout the year and that's been reflected in the Viper guidance. Certainly not looking to -- on third-parties. I assume the best type curve possible, particularly in this environment, but I will say that our third-party type curves are probably on average double-digit percent below expectations, but really that's more about a lower IP rate in our model than what we traditionally see on the non-op side.

Brian Singer -- Goldman Sachs -- Analyst

Got it. I guess, are you seeing anything to suggest that beyond conservatism, there is reason for either material degradation or improvement year-on-year in well performance of those type curves?

Travis D. Stice -- Chief Executive Officer

No, I don't foresee a significant change. I think certainly, more and more operators are developing more zones on larger pads, and that has a different production profile than just single unbounded parent wells. But I think that's well reflected in what we're projecting here.

Brian Singer -- Goldman Sachs -- Analyst

Great. Thanks. And then my follow-up is on the acquisition front, have you contemplated any incremental acquisitions when you think about guidance and production trajectory and how do you seen characterize the market and your interest?

Travis D. Stice -- Chief Executive Officer

Yeah. So we always guide to the assets that we have today. So there is no incremental production or cash flow contribution from projected acquisitions. We certainly will continue to be acquisitive. I would say, we're being a lot more selective on third-party acquisition opportunities, but that doesn't mean we haven't stopped continuing the acquisition machine on the Diamondback side. I think there is a significant amount of opportunities remaining for us on the Diamondback side. We just have to be careful in this environment, but also we said some price expectations from a market that gets sometimes gets pretty heated. So for us, saying no to deals is going to be more -- the norm than the exception in 2020, but that doesn't mean we can't keep buying aggressively under the Diamondback drill bit.

Brian Singer -- Goldman Sachs -- Analyst

Great. Thank you.

Travis D. Stice -- Chief Executive Officer

Thanks, Brian.

Operator

Thank you. And our next question comes from Jeff Grampp from Northland Capital Markets. Your line is now open.

Jeff Grampp -- Northland Capital Markets -- Analyst

Good morning, guys. Wanted to circle back first on a comment case, I think, you made at the beginning, you're saying that I think two-thirds of production is in the Diamondback side and the third is on the third-party side. Is that -- I guess, first I want to make sure I'm hearing that right was on the production front. And is that a decent kind of split for 2020 completions that are baked into guidance or is that dramatically altering given the drop in some of the acquisitions you've done lately?

Travis D. Stice -- Chief Executive Officer

No, I think that's fair, Jeff. I mean, I kind of have production increasing Diamondback's percentage or total production increasing throughout the year, but about two-thirds is a fair number for where we're going to be in the fourth quarter. On a net well basis in our model right now, Diamondback is 65% to 70% of the net wells, but again that's with a non-op net well inventory pretty low in the fourth quarter given where we are today in the first quarter. So in general, 50% of the assets operated by FANG are going to generate two-thirds of the production.

Jeff Grampp -- Northland Capital Markets -- Analyst

Got it, got it. Really helpful. And my follow up, I'm hopefully a quicker one. Do you guys have an estimate of kind of what the PDP decline rate of the asset base is, if we were to look at kind of 4Q '19 to 4Q '20?

Travis D. Stice -- Chief Executive Officer

It should be about mid-30s on BOEs and high 30s on oil.

Jeff Grampp -- Northland Capital Markets -- Analyst

Got it, got it. All right. Great. Appreciate the time, guys. Thanks.

Travis D. Stice -- Chief Executive Officer

Thanks, Jeff.

Adam Lawlis -- Vice President of Investor Relations

Thanks, Jeff.

Operator

Thank you. And our next question comes from William Thompson from Barclays. Your line is now open.

William Thompson -- Barclays -- Analyst

Hey, everyone, good morning.

Travis D. Stice -- Chief Executive Officer

Good morning, William.

William Thompson -- Barclays -- Analyst

So before the Street consensus models 1Q '20 simply at the midpoint of the first half production guidance, can you maybe help us understand the cadence of the 20 net completions you have visibility on and how that can translate into oil growth throughout the year? Should we think about maybe modest to flattish growth in 1Q, but a pickup in 2Q?

Travis D. Stice -- Chief Executive Officer

Yeah, I think that's fair. We -- from a Diamondback-operated perspective, the number of net wells in Q1 will look very similar to Q4, about two net wells. That steps up by about 50% in Q2. And then from a Diamondback-operated perspective, we're almost averaging four net wells a quarter in the back half of the year. So I think from a growth perspective, we expect to grow modestly off of the released Q4 numbers, low-single-digits and have a pretty meaningful step-up in Q2 from an oil and BOE production perspective into the mid-single-digits from Q1 to Q2. The way we have it, model right now, there are some large pads coming on in the back half of the year, which should help the year exit very strong with an exit-to-exit number Q4 '19 to Q4 '20 of mid-to-high teens on the oil and the BOE side.

William Thompson -- Barclays -- Analyst

Okay, that's helpful color. And then regarding the updated oil realization guidance of 97% to 100% of WTI, can you maybe just clarify the moving parts there? You had indicated that Diamondback represents about two-thirds of VNOM's volumes. You had a reduction in the net back of the Diamondback legacy Spanish Trail sale agreement. I think that was linked to MEH, now that the MEH-WTI differentials have been moving around. So maybe just help us understand the moving parts that you're assuming into that updated realization guidance.

Travis D. Stice -- Chief Executive Officer

Yeah. So spreads are going to move. It's hard for us to guide to WTI when really none of our barrels get priced on WTI. So as you think about Spanish Trail, if MEH versus WTI is greater than $3.50, you should go about a 100% of WTI on that number for that operated piece. The rest of our position, particularly when EPIC and Gray Oak start-up is going to be priced off of Brent. So Brent-WTI is wide. We will benefit to be higher than WTI, but I've seen a lot of noise about the 97% to 100%. I think you can just think of it as some conservatism and also looking at spreads where they are today, Midland-Cushing has been $1 or more for a few of the last couple of months. And today, it was $0.15 this morning. So these spreads move around and after having a tough time going through the realizations we had to go through in 2019, I'm just excited that we're going to be up 8% or 9% from where we were in 2019.

William Thompson -- Barclays -- Analyst

And just to add on to that point, I think on Page 18 of the deck, it indicates that have been [Phonetic] assessing viability of adding hedges, is that pertaining to maybe locking in some of those basis differentials?

Travis D. Stice -- Chief Executive Officer

Yeah. So we have received approval to add hedging to our program, and we -- certainly as these prices aren't going to be hedging oil, but some sort of protection on both the spread side or even the gas WAHA spread side given the outlook for Permian gas is pretty dire here in 2020. I think we're looking to take that risk out of the Viper story. So we'll be looking at the market and now have approval to hedge from a downside and spread protection perspective.

William Thompson -- Barclays -- Analyst

All right. Thanks for the color.

Operator

And thank you. And our next question comes from Gail Nicholson from Stephens. Your line is now open.

Gail Nicholson -- Stephens -- Analyst

Good morning. Most of my questions have been asked, but I guess, I would just overall kind of taking a step-back. I feel like the market is kind of missing the value that Viper creates or penetrates from a standpoint of a yield vehicle. When you kind of look at '20 versus '19, can you just talk about confidence level and overall plan and going forward, and the ability to, even in a variant oil price environment still deliver a really top tier yield, not just across energy, but really the entire S&P sector?

Travis D. Stice -- Chief Executive Officer

Yeah. Gail, we feel really confident about the 2020 forecast that we put in place. Again, some of that confidence is because of the increased exposure to Diamondback-operated wells, but we included a new slide in the deck that shows -- I think it's Slide Number 5, that really shows even at $40 oil, this vehicle is going to have an annualized yield of over 6.5%. And so, I just think as the market understands pristinely how we've modeled our future and in how this is still a robust return vehicle that requires no capital or operating expense. I think it's going to be an investment vehicle of choice because the merits of it should look like it should be.

Gail Nicholson -- Stephens -- Analyst

Great, thank you.

Travis D. Stice -- Chief Executive Officer

Thank you, Gail.

Operator

Thank you. And our next question comes from Pearce Hammond from Simmons Energy. Your line is now open.

Pearce Hammond -- Simmons Energy -- Analyst

Good morning. Do you think Viper's mineral acreage is outperforming the Permian Basin as a whole and looking at rig activity, meaning has the rig count declined at a lower percentage level on your acreage versus the Permian Basin writ large?

Travis D. Stice -- Chief Executive Officer

Pearce, that's tough to figure out. I can't say that while our non-op acreage increased last year, we're projecting 10% more non-op net 100% interest wells in 2020 than 2019 even as the conservative assumptions we put out there this year. So that is -- that does point to acreage quality. I will say we do think about buying minerals as if we were the operator and what are the areas that we would want to be operating in. So hopefully, with our capital allocation and our knowledge of the Permian, we are buying minerals in areas that we think are going to be developed first rather than last.

Pearce Hammond -- Simmons Energy -- Analyst

Okay, good. And then my follow-up, the oil mix percentage decline during 2019 and looks to be roughly flat with Q4 '19 levels as we looking at the 2020 guidance. So what drove the oil mix percentage change in 2019? Was it just more Delaware Basin completions? And do you see the current oil mix is indicative of your production over the next few years?

Travis D. Stice -- Chief Executive Officer

Yeah. Pearce, we certainly have added more Delaware to our mix and the gas content of the Delaware is significantly higher, particularly than the Northern Midland. I think as we go through 2020, we should have a higher percentage of flush production at Viper, which will help oil mix. But overall, we've tried to now guide to oil production separately. Gas forecasts, particularly in the Delaware Basin, have been outperforming expectations. And therefore, we decided to switch from an oil percentage guide to oil total barrel guide, particularly because the asset is now so diverse rather than just being Spanish Trail only. We just have a lot of different type curves in a lot of different areas.

Pearce Hammond -- Simmons Energy -- Analyst

Perfect. That makes sense. Thanks for taking my questions.

Travis D. Stice -- Chief Executive Officer

Thank you, Pearce.

Operator

Thank you. And our next question comes from Welles Fitzpatrick from SunTrust. Your line is now open.

Welles Fitzpatrick -- SunTrust Robinson Humphrey -- Analyst

Hey, good morning. Obviously, you saw a nice uptick in development line-of-sight wells versus last quarter's release. Can you give us an idea as to the cadence, how much of that accelerate in January and February as new budgets came out?

Travis D. Stice -- Chief Executive Officer

Yeah. We saw some activity pick up toward the end of December on some of our high interest areas. I think from a non-op perspective, we are -- we think we're going to have a little more contribution in Q2 than Q1, but I think the way we are modeling right now Q1 versus Q4 2019 is flat to a little bit up on the non-op side, but overall, I think I said this in the last question that from a non-op net well perspective, even at today's assumptions, we are assuming 10% or more net non-op wells than we got last year.

Welles Fitzpatrick -- SunTrust Robinson Humphrey -- Analyst

Okay. That makes sense. And the disclosure on the sensitivity is great. I think that's on Page 5. That's obviously an illustration of why you don't need to hedge, but if there is a recovery, has your view on that changed at all? I mean, would you look to lock anything in or are you sticking to your guns as wanting to have that data?

Travis D. Stice -- Chief Executive Officer

Yeah. Well, I think we're only focused on -- today on hedging differential exposure, particularly on the gas side. So hopefully, we can remove severe downside risk on the gas side from the Viper story and that will leave investors full exposure to both oil and NGL upside.

Welles Fitzpatrick -- SunTrust Robinson Humphrey -- Analyst

Makes sense. Thanks so much.

Travis D. Stice -- Chief Executive Officer

Thank you.

Operator

Thank you. And our next question comes from Phil Stuart from Scotia Bank. Your line is now open.

Phil Stuart -- Scotiabank -- Analyst

Good morning, guys.

Travis D. Stice -- Chief Executive Officer

Hi, Phil.

Phil Stuart -- Scotiabank -- Analyst

I guess, kind of dovetailing on some of the previous questions, you all are obviously focusing a lot more on the kind of net oil volumes to Viper. So I guess -- and looking at that you all have -- Viper has done a good job of growing oil volumes per million units outstanding over the last three quarters. And as you think about financing acquisitions going forward, is oil production per million units going to be maybe the most important factor for deal accretion going forward or is it still kind of pretty evenly split across your historic metrics for deal accretion?

Travis D. Stice -- Chief Executive Officer

Yeah. Phil, I think broadly for the Viper story, oil production per million units growth is the key driver of the Viper story and that's what we've redoubled down on here with our acquisition machine, our focus there. Overall, we think about all deals as if they were equity funded today, would our distribution go up over the next year by this deal. And that hasn't changed. I will say our commodity assumptions have changed. I think we've become more conservative on NGL pricing and essentially running gas almost zero. So that does point us to more deals in the Northern Midland Basin or the eastern portion of the Delaware Basin, particularly under Diamondback where we're very confident in the development program.

Phil Stuart -- Scotiabank -- Analyst

All right, guys. I appreciate the time. That's it from me.

Travis D. Stice -- Chief Executive Officer

Thank you, Phil.

Operator

Thank you. And our next question comes from Leo Mariani from KeyBanc. Your line is now open.

Leo Mariani -- KeyBanc Capital Markets -- Analyst

Hey guys. Just wanted to follow up on the commentary around acquisitions. Obviously, you had a couple of chunky deals close in the fourth quarter with Santa Elena and the FANG dropped down. Just wanted to get a sense, is there much of an appetite for anything chunkier here in the short term or should we kind of maybe just expect kind of a better stream of kind of the little tiny deals out there that kind of add up over time?

Travis D. Stice -- Chief Executive Officer

Yeah. I think we're really focused on -- we did some very large deals last year, especially relative to the size of Viper. And I think for our investors, particularly in these uncertain times, it's important for us to prove that there is organic growth on the asset and production per million units is going up. I'm not going to say, we're not going to look at some small deals here and there, particularly in the Diamondback, but today as I see it, there is not a ton of huge deals we're very interested in. And I think bid-ask needs to come in on some of these larger packages as we go through the next couple of years.

Leo Mariani -- KeyBanc Capital Markets -- Analyst

All right. That's helpful for sure here. And I guess, just looking at the G&A side of the equation, I think you guys came out kind of somewhere in the low to mid 70s per BOE in 2019. Looking at your guide, you kind of saying under $0.80 for 2020, I guess that implies kind of flattish. I guess, I would have expected with the big production bump [Phonetic] that you get from the acquisitions in 4Q, it runs in a little bit into first quarter of '20, that maybe your per unit GOE -- G&A per BOE would drop a little bit in 2020. Is still potential for that to come down a little bit, it's under $0.80, maybe just a conservative way of looking at it?

Travis D. Stice -- Chief Executive Officer

Yeah. I think when you run a company, $4.5 billion company with $7 million of year cash G&A, you need to save some for the good guys. So in this front, we've always been pretty conservative on the G&A guide. We're certainly not adding a ton of people this year, but we do have more back-office, and we get 300, 400 wells a quarter that we're adding. We had to make sure we're getting paid on. So overall, I think we're not going to increase G&A much on a gross basis. The volumes will help a little bit. But we're saving that for the good guys.

Leo Mariani -- KeyBanc Capital Markets -- Analyst

All right. Thanks guys.

Travis D. Stice -- Chief Executive Officer

Thank you, Leo.

Operator

Thank you. And our next question comes from Jason Wangler from Imperial Capital. Your line is now open.

Jason Wangler -- Imperial Capital -- Analyst

Good morning, guys. Kaes, I was just wondering -- I appreciate all the detail, but on the reserve side as you talk about booking pretty conservatively, what's the makeup of the Diamondback versus the third-parties in terms of the reserves?

Kaes Van't Hof -- President

Yeah. So on the pad side, we really don't like pads. The majority of our pads that we booked are 80% or 85% Diamondback- operated. The rest are third-parties and really those third-party pads are either ducts that we know are going to get completed or wells and Spanish Trail that were operated by Concho. So overall, you've seen the PDP percentage of Viper go up from 72% in 2019 -- sorry, 2018 to 78% in 2019. And given the liquidity the Company has, there's really not a big push for us to continue to book pads aggressively either Diamondback-operated or third-party-operated.

Jason Wangler -- Imperial Capital -- Analyst

That's really helpful. Thank you.

Operator

Thank you. [Operator Instructions] And our next question comes from TJ Schultz from RBC Capital Markets. Your line is now open.

TJ Schultz -- RBC Capital Markets -- Analyst

With the Railroad Commission coming out with a gas flaring report soon, how does gas flaring in the Permian or just a need to limit flaring potentially impact your outlook for pace of development over the next couple of years, if at all?

Travis D. Stice -- Chief Executive Officer

Yeah. Certainly, the flaring has appropriately gotten a lot of attention out here in the Permian Basin, but has actually translated into our forecast. That's something we study very, very closely and monitor weekly at the Diamondback level, and we take mitigating steps across the board to eliminate any flaring that we're in control of. How it reads through to third-party production forecast as of yet is still under -- is undefined. We're all interested in Commissioner Citizens [Phonetic] Report that's going to come out here shortly to see how the each individual operator looks across the Permian Basin. But so far, TJ, we've not taken into any of our forecasting, any impacts of flaring or increased flaring regulation.

TJ Schultz -- RBC Capital Markets -- Analyst

Okay. Understood. Just lastly, if acquisitions do slow down potentially, just any guidance you can give on when you would expect to be a cash taxpayer. Thanks.

Kaes Van't Hof -- President

We're very dependent upon the oil price at the moment. I mean, at low 50s, where we are today, I think we're OK for a couple of years, should we see a massive ramp in commodity price that would change and accelerate, but where we are today at strip, I think we're OK for 18 to 24 months.

TJ Schultz -- RBC Capital Markets -- Analyst

Great. Thank you.

Kaes Van't Hof -- President

Thank you, TJ.

Operator

Thank you. And we have a follow-up question from William Thompson from Barclays. Your line is now open.

William Thompson -- Barclays -- Analyst

All right. Thanks for squeezing me in here for one more. So the pushback we sometimes get on the mineral space is that organic growth isn't sustainable as M&A is required to backfill net well locations. You show on Slide 11 an inventory of 128 net locations are probably six years of inventory based on 20 net locations this year, with 60% of that FANG-operated. I'm just curious like, let's say Viper wasn't to do M&A in 2020, can you give us a sense on what organic growth would look like in 2021? I know this is not guidance. But I'm just trying to get a sense on, can we still see double-digit organic growth in 2021?

Travis D. Stice -- Chief Executive Officer

Yeah. I'm not going to get talked into 2021 guidance here. I will tell you for one thing, most of our assets we buy, you're seeing the first or second well in a section be completed. So we don't buy a full section. That's just going to be a PDP blowdown. Most of our reserves are in the 3P category that you don't see in the reserve report. We got a long way to go. We got a ton of inventory ahead of us. We've been running two rigs in Spanish Trail over the last five years, and we're still going to keep doing that for the next few years. So we backfill that undeveloped inventory with undeveloped resource throughout both basins, and we expect to be around and to grow organically for a very long time.

William Thompson -- Barclays -- Analyst

Okay. Thanks guys.

Travis D. Stice -- Chief Executive Officer

Thank you.

Operator

Thank you. And I'm showing no further questions. I would now like to turn the call back over to Travis Stice, CEO, for closing remarks.

Travis D. Stice -- Chief Executive Officer

Thank you again to everyone participating in today's call. If you have any questions, please contact us using the contact information provided.

Operator

[Operator Closing Remarks]

Duration: 33 minutes

Call participants:

Adam Lawlis -- Vice President of Investor Relations

Travis D. Stice -- Chief Executive Officer

Kaes Van't Hof -- President

Derrick Whitfield -- Stifel Financial Corp -- Analyst

Brian Singer -- Goldman Sachs -- Analyst

Jeff Grampp -- Northland Capital Markets -- Analyst

William Thompson -- Barclays -- Analyst

Gail Nicholson -- Stephens -- Analyst

Pearce Hammond -- Simmons Energy -- Analyst

Welles Fitzpatrick -- SunTrust Robinson Humphrey -- Analyst

Phil Stuart -- Scotiabank -- Analyst

Leo Mariani -- KeyBanc Capital Markets -- Analyst

Jason Wangler -- Imperial Capital -- Analyst

TJ Schultz -- RBC Capital Markets -- Analyst

More VNOM analysis

All earnings call transcripts

AlphaStreet Logo