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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 2020
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF SECURITIES EXCHANGE ACT OF 1934
Commission File Number 001-36505
 
Viper Energy Partners LP
(Exact Name of Registrant As Specified in Its Charter)
DE
46-5001985
(State or Other Jurisdiction of Incorporation or Organization)
(I.R.S. Employer Identification Number)
500 West Texas
Suite 1200
Midland,TX
79701
(Address of principal executive offices)
(Zip code)
(432) 221-7400
(Registrant's telephone number, including area code)
 
Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common UnitsVNOMThe Nasdaq Stock Market LLC
(NASDAQ Global Select Market)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check One):
Large Accelerated FilerAccelerated Filer
Non-Accelerated FilerSmaller Reporting Company
Emerging Growth Company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes       No   

As of July 31, 2020, the registrant had outstanding 67,844,370 common units representing limited partner interests and 90,709,946 Class B units representing limited partner interests.


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VIPER ENERGY PARTNERS LP
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2020
TABLE OF CONTENTS
Page


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GLOSSARY OF OIL AND NATURAL GAS TERMS
The following is a glossary of certain oil and gas terms that are used in this Quarterly Report on Form 10-Q (this “report”):
BasinA large depression on the earth’s surface in which sediments accumulate.
Bbl or barrelOne stock tank barrel, or 42 U.S. gallons liquid volume, used in this report in reference to crude oil or other liquid hydrocarbons.
BOEOne barrel of crude oil equivalent, with six thousand cubic feet of natural gas being equivalent to one barrel of oil.
BOE/dBOE per day.
British Thermal Unit or BtuThe quantity of heat required to raise the temperature of one pound of water by one degree Fahrenheit.
CondensateLiquid hydrocarbons associated with the production of a primarily natural gas reserve.
Crude oilLiquid hydrocarbons retrieved from geological structures underground to be refined into fuel sources.
FracturingThe process of creating and preserving a fracture or system of fractures in a reservoir rock typically by injecting a fluid under pressure through a wellbore and into the targeted formation.
Horizontal wellsWells drilled directionally horizontal to allow for development of structures not reachable through traditional vertical drilling mechanisms.
MBbls
Thousand barrels of crude oil or other liquid hydrocarbons.
MBOEOne thousand barrels of crude oil equivalent, determined using a ratio of six Mcf of natural gas to one Bbl of crude oil, condensate or natural gas liquids.
McfOne thousand cubic feet of natural gas.
Mineral interestsThe interests in ownership of the resource and mineral rights, giving an owner the right to profit from the extracted resources.
MMBtuOne million British Thermal Units.
Net royalty acresGross acreage multiplied by the average royalty interest.
Oil and natural gas propertiesTracts of land consisting of properties to be developed for oil and natural gas resource extraction.
OperatorThe individual or company responsible for the exploration and/or production of an oil or natural gas well or lease.
ProspectA specific geographic area which, based on supporting geological, geophysical or other data and also preliminary economic analysis using reasonably anticipated prices and costs, is deemed to have potential for the discovery of commercial hydrocarbons.
Proved reservesThe estimated quantities of oil, natural gas and natural gas liquids which geological and engineering data demonstrate with reasonable certainty to be commercially recoverable in future years from known reservoirs under existing economic and operating conditions.
ReservesThe estimated remaining quantities of oil and natural gas and related substances anticipated to be economically producible, as of a given date, by application of development projects to known accumulations. In addition, there must exist, or there must be a reasonable expectation that there will exist, the legal right to produce or a revenue interest in the production, installed means of delivering oil and natural gas or related substances to the market and all permits and financing required to implement the project. Reserves are not assigned to adjacent reservoirs isolated by major, potentially sealing, faults until those reservoirs are penetrated and evaluated as economically producible. Reserves should not be assigned to areas that are clearly separated from a known accumulation by a non-productive reservoir (i.e., absence of reservoir, structurally low reservoir or negative test results). Such areas may contain prospective resources (i.e., potentially recoverable resources from undiscovered accumulations).
ReservoirA porous and permeable underground formation containing a natural accumulation of producible natural gas and/or crude oil that is confined by impermeable rock or water barriers and is separate from other reservoirs.
Royalty interestAn interest that gives an owner the right to receive a portion of the resources or revenues without having to carry any costs of development, which may be subject to expiration.
WTIWest Texas Intermediate.


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GLOSSARY OF CERTAIN OTHER TERMS
The following is a glossary of certain other terms that are used in this report:
Diamondback
Diamondback Energy, Inc., a Delaware corporation.
Exchange Act
The Securities Exchange Act of 1934, as amended.
GAAP
Accounting principles generally accepted in the United States.
General Partner
Viper Energy Partners GP LLC, a Delaware limited liability company, and the General Partner of the Partnership.
IPO
The Partnership’s initial public offering.
LTIP
Viper Energy Partners LP Long Term Incentive Plan.
NYMEX
New York Mercantile Exchange.
Operating Company
Viper Energy Partners LLC, a Delaware limited liability company and a consolidated subsidiary of Viper Energy Partners LP.
Partnership
Viper Energy Partners LP, a Delaware limited partnership.
Partnership agreement
The first amended and restated agreement of limited partnership, dated June 23, 2014, entered into by the General Partner and Diamondback in connection with the closing of the IPO.
SEC
United States Securities and Exchange Commission.
Securities Act
The Securities Act of 1933, as amended.
Wells Fargo
Wells Fargo Bank, National Association.

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

Various statements contained in this report that express a belief, expectation, or intention, or that are not statements of historical fact, are forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. These forward-looking statements are subject to a number of risks and uncertainties, many of which are beyond our control. All statements, other than statements of historical fact, regarding our strategy, future operations, financial position, estimated revenues and losses, projected costs, prospects, plans and objectives of management are forward-looking statements. When used in this report, the words “could,” “believe,” “anticipate,” “intend,” “estimate,” “expect,” “may,” “continue,” “predict,” “potential,” “project,” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words. In particular, the factors discussed in this report, including those detailed under Part II. Item 1A. Risk Factors in this report, our Annual Report on Form 10-K for the year ended December 31, 2019 and our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2020, could affect our actual results and cause our actual results to differ materially from expectations, estimates or assumptions expressed, forecasted or implied in such forward-looking statements. Unless the context requires otherwise, references to “we,” “us,” “our” or “the Partnership” are intended to mean the business and operations of the Partnership and its consolidated subsidiary, Viper Energy Partners LLC (the “Operating Company”).

Forward-looking statements may include statements about:
the volatility of realized oil and natural gas prices and the extent and duration of price reductions and increased production by the Organization of the Petroleum Exporting Countries, or OPEC, members and other oil exporting nations;
the threat, occurrence, potential duration or other implications of epidemic or pandemic diseases, including the recent outbreak of a highly transmissible and pathogenic strain of coronavirus, or COVID-19, or any government responses to such occurrence or threat;
logistical challenges and the supply chain disruptions during the ongoing COVID-19 pandemic;
changes in general economic, business or industry conditions;
conditions in the capital, financial and credit markets;
conditions of the U.S. oil and natural gas industry and the effect of U.S. energy, monetary and trade policies;
U.S. and global economic conditions and political and economic developments, including the outcome of the U.S. presidential election and resulting energy and environmental policies;
our ability to execute our business and financial strategies;
the level of production on our properties;
regional supply and demand factors, delays, curtailments or interruptions of production, and any government order, rule or regulation that may impose production limits on properties in which we have mineral and royalty interest;
actions taken by third party operators on our mineral and royalty acreage;
our ability to replace our oil and natural gas reserves;
our ability to identify, complete and effectively integrate acquisitions of properties or businesses;
competition in the oil and natural gas industry;
the ability of our operators to obtain capital or financing needed for development and exploration operations;
title defects in the properties in which we invest;
uncertainties with respect to identified drilling locations and estimates of reserves;
the availability or cost of rigs, equipment, raw materials, supplies, oilfield services or personnel;
restrictions on the use of water;
the availability of transportation, pipeline and storage facilities;
the ability of our operators to comply with applicable governmental laws and regulations and to obtain permits and governmental approvals;
federal and state legislative and regulatory initiatives relating to hydraulic fracturing;
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future operating results;
future distributions to eligible unitholders;
impact of potential impairment charges;
exploration and development drilling prospects, inventories, projects and programs;
operating hazards faced by our operators;
the ability of our operators to keep pace with technological advancements;
the effect of existing and future laws and government regulations;
terrorist attacks and cyber threats;
the effects of future litigation; and
certain other factors discussed elsewhere in this report.

All forward-looking statements speak only as of the date of this report or, if earlier, as of the date they were made. We do not intend to, and disclaim any obligation to, update or revise any forward-looking statements unless required by securities laws. You should not place undue reliance on these forward-looking statements. These forward-looking statements are subject to a number of risks, uncertainties and assumptions. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. Although we believe that our plans, intentions and expectations reflected in or suggested by the forward-looking statements we make in this report are reasonable, we can give no assurance that these plans, intentions or expectations will be achieved or occur, and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.
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PART I. FINANCIAL INFORMATION


ITEM 1.  CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Viper Energy Partners LP
Consolidated Balance Sheets
(Unaudited)
June 30,December 31,
20202019
(In thousands, except unit amounts)
Assets
Current assets:
Cash and cash equivalents$9,663  $3,602  
Royalty income receivable (net of allowance for credit losses)32,118  58,089  
Royalty income receivable—related party917  10,576  
Other current assets482  397  
Total current assets43,180  72,664  
Property:
Oil and natural gas interests, full cost method of accounting ($1,480,346 and $1,551,767 excluded from depletion at June 30, 2020 and December 31, 2019, respectively)
2,933,731  2,868,459  
Land5,688  5,688  
Accumulated depletion and impairment(373,898) (326,474) 
Property, net2,565,521  2,547,673  
Deferred tax asset (net of allowance)  142,466  
Other assets15,572  22,823  
Total assets$2,624,273  $2,785,626  
Liabilities and Unitholders’ Equity
Current liabilities:
Accounts payable$11  $  
Accounts payable—related party  150  
Accrued liabilities12,439  13,282  
Derivative instruments33,956    
Total current liabilities46,406  13,432  
Long-term debt, net630,507  586,774  
Derivative instruments5,875    
Total liabilities682,788  600,206  
Commitments and contingencies (Note 12)
Unitholders’ equity:
General partner849  889  
Common units (67,831,342 units issued and outstanding as of June 30, 2020 and 67,805,707 units issued and outstanding as of December 31, 2019)
728,149  929,116  
Class B units (90,709,946 units issued and outstanding as of June 30, 2020 and December 31, 2019)
1,080  1,130  
Total Viper Energy Partners LP unitholders’ equity730,078  931,135  
Non-controlling interest1,211,407  1,254,285  
Total equity1,941,485  2,185,420  
Total liabilities and unitholders’ equity$2,624,273  $2,785,626  



See accompanying notes to consolidated financial statements.
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Viper Energy Partners LP
Consolidated Statements of Operations
(Unaudited)
Three Months Ended June 30,Six Months Ended June 30,
2020201920202019
(In thousands, except per unit amounts)
Operating income:
Royalty income$32,444  $70,442  $109,273  $130,870  
Lease bonus income23  1,749  1,645  2,909  
Other operating income202  3  443  5  
Total operating income32,669  72,194  111,361  133,784  
Costs and expenses:
Production and ad valorem taxes3,110  4,389  9,257  8,081  
Depletion22,782  16,512  47,424  32,711  
General and administrative expenses1,683  1,723  4,349  3,418  
Total costs and expenses27,575  22,624  61,030  44,210  
Income from operations5,094  49,570  50,331  89,574  
Other income (expense):
Interest expense, net(7,669) (2,713) (16,632) (7,262) 
Loss on derivative instruments, net(34,443)   (42,385)   
Gain (loss) on revaluation of investment3,443  50  (6,677) 3,642  
Other income, net519  547  923  1,203  
Total other expense, net(38,150) (2,116) (64,771) (2,417) 
(Loss) income before income taxes(33,056) 47,454  (14,440) 87,157  
Provision for (benefit from) income taxes  180  142,466  (34,428) 
Net (loss) income(33,056) 47,274  (156,906) 121,585  
Net (loss) income attributable to non-controlling interest(11,304) 45,009  7,015  85,541  
Net (loss) income attributable to Viper Energy Partners LP$(21,752) $2,265  $(163,921) $36,044  
Net (loss) income attributable to common limited partner units:
Basic$(0.32) $0.04  $(2.42) $0.61  
Diluted$(0.32) $0.04  $(2.42) $0.61  
Weighted average number of common limited partner units outstanding:
Basic67,831  62,628  67,827  59,058  
Diluted67,831  62,664  67,827  59,094  














See accompanying notes to consolidated financial statements.
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Viper Energy Partners LP
Consolidated Statements of Changes to Unitholders' Equity
(Unaudited)

Limited PartnersGeneral PartnerNon-Controlling Interest
CommonClass B AmountAmount
UnitsAmountUnitsAmountTotal
(In thousands)
Balance at December 31, 201967,806  $929,116  90,710  $1,130  $889  $1,254,285  $2,185,420  
Unit-based compensation42  387  —  —  —  —  387  
Distribution equivalent rights payments—  (20) —  —  —  —  (20) 
Distributions to public—  (30,194) —  —  —  —  (30,194) 
Distributions to Diamondback—  (329) —  (25) —  (40,819) (41,173) 
Distributions to General Partner—  —  —  —  (20) —  (20) 
Units repurchased for tax withholding(17) (383) —  —  —  —  (383) 
Net (loss) income—  (142,169) —  —  —  18,319  (123,850) 
Balance at March 31, 202067,831  756,408  90,710  1,105  869  1,231,785  1,990,167  
Unit-based compensation  283  —  —  —  —  283  
Distribution equivalent rights payments—  (4) —  —  —  —  (4) 
Distributions to public—  (6,710) —  —  —  —  (6,710) 
Distributions to Diamondback—  (76) —  (25) —  (9,074) (9,175) 
Distributions to General Partner—  —  —  —  (20) —  (20) 
Net loss—  (21,752) —  —  —  (11,304) (33,056) 
Balance at June 30, 202067,831  $728,149  90,710  $1,080  $849  $1,211,407  $1,941,485  


























See accompanying notes to consolidated financial statements.
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Viper Energy Partners LP
Consolidated Statements of Changes to Unitholders' Equity - Continued
(Unaudited)

Limited PartnersGeneral PartnerNon-Controlling Interest
CommonClass B AmountAmount
UnitsAmountUnitsAmountTotal
(In thousands)
Balance at December 31, 201851,654  $540,112  72,419  $990  $1,000  $694,940  $1,237,042  
Net proceeds from the issuance of common units - public10,925  340,648  —  —  —  —  340,648  
Unit-based compensation60  405  —  —  —  —  405  
Distributions to public—  (25,970) —  —  —  —  (25,970) 
Distributions to Diamondback—  (392) —  —  —  (36,934) (37,326) 
Distributions to General Partner—  (20) —  —  —  —  (20) 
Change in ownership of consolidated subsidiaries, net—  (71,195) —  —  —  90,120  18,925  
Units repurchased for tax withholding(11) (353) —  —  —  —  (353) 
Net income—  33,779  —  —  —  40,532  74,311  
Balance at March 31, 201962,628  817,014  72,419  990  1,000  788,658  1,607,662  
Offering costs—  (9) —  —  —  (9) 
Unit-based compensation  472  —  —  —  —  472  
Distributions to public—  (23,521) —  —  —  —  (23,521) 
Distributions to Diamondback—  (298) —  —  —  (27,519) (27,817) 
Distributions to General Partner—  (20) —  —  —  —  (20) 
Net income—  2,265  —  —  —  45,009  47,274  
Balance at June 30, 201962,628  $795,903  72,419  $990  $1,000  $806,148  $1,604,041  

























See accompanying notes to consolidated financial statements.
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Viper Energy Partners LP
Consolidated Statements of Cash Flows
(Unaudited)

Six Months Ended June 30,
20202019
(In thousands)
Cash flows from operating activities:
Net (loss) income$(156,906) $121,585  
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Provision for (benefit from) income taxes142,466  (34,536) 
Depletion47,424  32,711  
Loss on derivative instruments, net42,385    
Net cash payments on derivatives(2,554)   
Gain on extinguishment of debt(14)   
Loss (gain) on revaluation of investment6,677  (3,642) 
Amortization of debt issuance costs1,152  441  
Non-cash unit-based compensation670  877  
Changes in operating assets and liabilities:
Royalty income receivable, net25,971  (7,996) 
Royalty income receivable—related party9,659  (5,549) 
Accounts payable and accrued liabilities(832) (2,238) 
Accounts payable—related party(150)   
Income tax payable  108  
Other current assets(85) (41) 
Net cash provided by operating activities115,863  101,720  
Cash flows from investing activities:
Acquisitions of oil and natural gas interests(65,272) (125,231) 
Funds held in escrow  (13,215) 
Net cash used in investing activities(65,272) (138,446) 
Cash flows from financing activities:
Proceeds from borrowings under credit facility92,000  171,000  
Repayment on credit facility(35,000) (369,500) 
Debt issuance costs(44) (258) 
Repayment of senior notes(13,787)   
Proceeds from public offerings  340,860  
Public offering costs  (221) 
Units purchased for tax withholding(383) (353) 
Distributions to General Partner (40) (40) 
Distributions to public (36,928) (49,491) 
Distributions to Diamondback (50,348) (65,143) 
Net cash (used in) provided by financing activities(44,530) 26,854  
Net increase (decrease) in cash6,061  (9,872) 
Cash and cash equivalents at beginning of period3,602  22,676  
Cash and cash equivalents at end of period$9,663  $12,804  
Supplemental disclosure of cash flow information:
Interest paid$17,918  $2,382  

See accompanying notes to consolidated financial statements.
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Viper Energy Partners LP
Condensed Notes to Consolidated Financial Statements
(Unaudited)


1. ORGANIZATION AND BASIS OF PRESENTATION

Organization

Viper Energy Partners LP (the “Partnership”) is a publicly traded Delaware limited partnership. The Partnership was formed by Diamondback Energy, Inc. (“Diamondback”) on February 27, 2014 to, among other things, own, acquire and exploit oil and natural gas properties in North America. The Partnership is currently focused on owning and acquiring mineral interests and royalty interests in oil and natural gas properties in the Permian Basin and Eagle Ford Shale. Since May 10, 2018, the Partnership has been treated as a corporation for U.S. federal income tax purposes.

As of June 30, 2020, Viper Energy Partners GP LLC (the “General Partner”), held a 100% general partner interest in the Partnership and Diamondback had an approximate 58% limited partner interest in the Partnership. Diamondback owns and controls the General Partner.

Basis of Presentation

The accompanying consolidated financial statements and related notes thereto were prepared in accordance with GAAP. All material intercompany balances and transactions have been eliminated upon consolidation.

These consolidated financial statements have been prepared by the Partnership without audit, pursuant to the rules and regulations of the SEC. They reflect all adjustments that are, in the opinion of management, necessary for a fair statement of the results for interim periods, on a basis consistent with the annual audited financial statements. All such adjustments are of a normal recurring nature. Certain information, accounting policies and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been omitted pursuant to SEC rules and regulations, although the Partnership believes the disclosures are adequate to make the information presented not misleading. This report should be read in conjunction with the Partnership’s most recent Annual Report on Form 10–K for the fiscal year ended December 31, 2019, which contains a summary of the Partnership’s significant accounting policies and other disclosures.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Use of Estimates

Certain amounts included in or affecting the Partnership’s financial statements and related disclosures must be estimated by management, requiring certain assumptions to be made with respect to values or conditions that cannot be known with certainty at the time the financial statements are prepared. These estimates and assumptions affect the amounts the Partnership reports for assets and liabilities and the Partnership’s disclosure of contingent assets and liabilities at the date of the financial statements.

Making accurate estimates and assumptions is particularly difficult as the oil and gas industry experiences challenges resulting from negative pricing pressure from the effects of COVID-19 and actions by OPEC members and other exporting nations on the supply and demand in global oil and natural gas markets. Many companies in the oil and natural gas industry have changed near term business plans in response to changing market conditions. The aforementioned circumstances generally increase the estimation uncertainty in the Partnership’s accounting estimates, particularly the accounting estimates involving financial forecasts.

The Partnership evaluates these estimates on an ongoing basis, using historical experience, consultation with experts and other methods the Partnership considers reasonable in each particular circumstance. Nevertheless, actual results may differ significantly from the Partnership’s estimates. Any effects on the Partnership’s business, financial position or results of operations resulting from revisions to these estimates are recorded in the period in which the facts that give rise to the revision become known. Significant items subject to such estimates and assumptions include estimates of proved oil and natural gas reserves and related present value estimates of future net cash flows therefrom, the carrying value of oil and natural gas interests, the recoverability of costs of unevaluated properties, fair value estimates of commodity derivatives, unit–based compensation and estimate of income taxes.


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Viper Energy Partners LP
Condensed Notes to Consolidated Financial Statements - (Continued)
(Unaudited)


Accounts Receivable

Accounts receivable consist of receivables from oil and natural gas sales. The operators remit payment for production directly to the Partnership. Most payments for production are received within three months after the production date. Payments on new wells added organically or through acquisition may be further delayed due to title opinion work which is required to be completed by the operator before payments are released.

The Partnership adopted Accounting Standards Update (“ASU”) 2016-13 and the subsequent applicable modifications to the rule on January 1, 2020. Accounts receivable are stated at amounts due from purchasers, net of an allowance for expected losses as estimated by the Partnership when collection is deemed doubtful. Accounts receivable outstanding longer than the contractual payment terms are considered past due. The Partnership determines its allowance by considering a number of factors, including the Partnership’s previous loss history, the debtor’s current ability to pay its obligation to the Partnership, the condition of the general economy and the industry as a whole. The Partnership writes off specific accounts receivable when they become uncollectible, and payments subsequently received on such receivables are credited to the allowance for expected losses. The adoption of ASU 2016-13 did not result in a material change to the Partnership’s allowance, and no cumulative-effect adjustment was made to beginning unitholders’ equity. At June 30, 2020, the Partnership recorded an immaterial allowance for expected losses and did not record such an allowance at December 31, 2019.

Derivative Instruments

The Partnership is required to recognize its derivative instruments on the consolidated balance sheets as assets or liabilities at fair value with such amounts classified as current or long-term based on their anticipated settlement dates. The accounting for the changes in fair value of a derivative depends on the intended use of the derivative and resulting designation. The Partnership has not designated its derivative instruments as hedges for accounting purposes and, as a result, marks its derivative instruments to fair value and recognizes the cash and non-cash change in fair value on derivative instruments for each period in the consolidated statements of operations.

Accrued Liabilities

Accrued liabilities consist of the following:
June 30,December 31,
20202019
(In thousands)
Interest payable$4,391  $6,718  
Ad valorem taxes payable3,324  5,632  
Derivatives payable4,627    
Other97  932  
Total accrued liabilities$12,439  $13,282  

Non-controlling Interest

Non-controlling interest in the accompanying consolidated financial statements represents Diamondback’s ownership in the net assets of the Operating Company. When Diamondback’s relative ownership interest in the Operating Company changes, adjustments to non-controlling interest and common unitholder equity, tax effected, will occur. Because these changes in the Partnership’s ownership interest in the Operating Company did not result in a change of control, the transactions were accounted for as equity transactions under ASC Topic 810, Consolidation, which requires that any differences between the carrying value of the Partnership’s basis in the Operating Company and the fair value of the consideration received are recognized directly in equity and attributed to the controlling interest. In the first quarter of 2019, the Partnership recorded an adjustment to non-controlling interest of $90.1 million, common unitholder equity of $(71.2) million, and deferred tax asset of $18.9 million to reflect the ownership structure that was effective at March 31, 2019. The adjustment had no impact on earnings. See Note 7 - Unitholders' Equity and Partnership Distributions for further discussion of change in ownership.
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Viper Energy Partners LP
Condensed Notes to Consolidated Financial Statements - (Continued)
(Unaudited)


Recent Accounting Pronouncements

The Partnership considers the applicability and impact of all ASUs. ASUs not listed below were assessed and determined to be either not applicable or clarifications of ASUs previously disclosed. The following table provides a brief description of recent accounting pronouncements and the Partnership’s analysis of the effects on its financial statements:
StandardDescriptionDate of AdoptionEffect on Financial Statements or Other Significant Matters
Recently Adopted Pronouncements
ASU 2016-13, “Financial Instruments - Credit Losses”
This update affects entities holding financial assets and net investment in leases that are not accounted for at fair value through net income. The amendments affect loans, debt securities, trade receivables, net investments in leases, off-balance sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash.
Q1 2020
The Partnership adopted this update effective January 1, 2020. The adoption of this update did not have a material impact on its financial position, results of operations or liquidity since it does not have a history of credit losses.

Pronouncements Not Yet Adopted
ASU 2019-12, “Income Taxes (Topic 740) - Simplifying the Accounting for Income Taxes”This update is intended to simplify the accounting for income taxes by removing certain exceptions and by clarifying and amending existing guidance.Q1 2021This update is effective for public business entities beginning after December 15, 2020 with early adoption permitted. The Partnership does not believe the adoption of this standard will have an impact on its financial position, results of operations or liquidity.

3. REVENUE FROM CONTRACTS WITH CUSTOMERS

Royalty income represents the right to receive revenues from oil, natural gas and natural gas liquids sales obtained by the operator of the wells in which the Partnership owns a royalty interest. Royalty income is recognized at the point control of the product is transferred to the purchaser at the wellhead or at the gas processing facility based on the Partnership’s percentage ownership share of the revenue, net of any deductions for gathering and transportation. Virtually all of the pricing provisions in the Partnership’s contracts are tied to a market index.

The following table disaggregates the Partnership’s total royalty income by product type:

Three Months Ended June 30,Six Months Ended June 30,
2020201920202019
(In thousands)
Oil income$27,617  $65,863  $99,817  $117,850  
Natural gas income1,234  (1,074) 1,578  2,765  
Natural gas liquids income3,593  5,653  7,878  10,255  
Total royalty income$32,444  $70,442  $109,273  $130,870  

4. ACQUISITIONS

2020 Activity

During the six months ended June 30, 2020, the Partnership acquired, from unrelated third-party sellers, mineral and royalty interests representing 4,948 gross (410 net royalty) acres in the Permian Basin for an aggregate purchase price of approximately $63.4 million, subject to post-closing adjustments. The Partnership funded these acquisitions with cash on hand and borrowings under the Operating Company’s revolving credit facility.

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Viper Energy Partners LP
Condensed Notes to Consolidated Financial Statements - (Continued)
(Unaudited)


2019 Activity

During the six months ended June 30, 2019, the Partnership acquired, from unrelated third-party sellers, mineral and royalty interests representing 1,028 net royalty acres for an aggregate purchase price of approximately $126.9 million. The Partnership funded these acquisitions with cash on hand, a portion of the net proceeds from its February 2019 offering of common units and borrowings under the Operating Company’s revolving credit facility.

5. OIL AND NATURAL GAS INTERESTS

Oil and natural gas interests include the following:
June 30,December 31,
20202019
(In thousands)
Oil and natural gas interests:
Subject to depletion$1,453,385  $1,316,692  
Not subject to depletion1,480,346  1,551,767  
Gross oil and natural gas interests2,933,731  2,868,459  
Accumulated depletion and impairment(373,898) (326,474) 
Oil and natural gas interests, net2,559,833  2,541,985  
Land5,688  5,688  
Property, net of accumulated depletion and impairment$2,565,521  $2,547,673  

As of June 30, 2020 and December 31, 2019, the Partnership had mineral and royalty interests representing 24,714 and 24,304 net royalty acres, respectively.

Under the full cost method of accounting, the Partnership is required to perform a ceiling test each quarter. The test determines a limit, or ceiling, on the book value of the proved oil and gas interests. After performing the ceiling test for the quarter ended June 30, 2020, the Partnership was not required to record an impairment. If the trailing 12-month commodity prices continue to fall as compared to the commodity prices used in prior quarters, the Partnership will have write-downs in subsequent quarters, which may be material.

6. DEBT

Long-term debt consisted of the following as of the dates indicated:
June 30,December 31,
20202019
(In thousands)
5.375% Senior Notes due 2027
$485,938  $500,000  
Revolving credit facility153,500  96,500  
Unamortized debt issuance costs(2,237) (2,458) 
Unamortized discount costs(6,694) (7,268) 
Total long-term debt$630,507  $586,774  


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Viper Energy Partners LP
Condensed Notes to Consolidated Financial Statements - (Continued)
(Unaudited)


2027 Senior Notes
 
On October 16, 2019, the Partnership completed an offering (the “Notes Offering”) of $500.0 million in aggregate principal amount of its 5.375% Senior Notes due 2027 (the “Notes”). The Partnership received net proceeds of approximately $490.0 million from the Notes Offering. The Partnership loaned the gross proceeds to the Operating Company. The Operating Company used the proceeds from the Notes Offering to pay down borrowings under its revolving credit facility. During the second quarter of 2020, the Partnership repurchased $14.1 million of the outstanding principal of the Notes at a cash price ranging from 97.5% to 98.5% of the aggregate principal amount, which resulted in an immaterial gain on extinguishment of debt. As of June 30, 2020, the remaining outstanding principal amount of Notes totaled $485.9 million and will mature on November 1, 2027.

The Operating Company’s Revolving Credit Facility

On July 20, 2018, the Partnership, as guarantor, entered into an amended and restated credit agreement with the Operating Company, as borrower, Wells Fargo National Bank (“Wells Fargo”), as administrative agent, and the other lenders. The credit agreement, as amended to date, provides for a revolving credit facility in the maximum credit amount of $2.0 billion and a borrowing base based on the Operating Company’s oil and natural gas reserves and other factors. The Partnership’s borrowing base was reduced from $775.0 million to $580.0 million during the scheduled semi-annual redetermination in the second quarter of 2020. The borrowing base is scheduled to be re-determined semi-annually in May and November. In addition, the Operating Company and Wells Fargo each may request up to three interim redeterminations of the borrowing base during any 12-month period. As of June 30, 2020, there was $426.5 million available for future borrowings under the Operating Company’s revolving credit facility. During the three and six months ended June 30, 2020, the weighted average interest rates on the Operating Company’s revolving credit facility were 2.41% and 2.82%, respectively. The revolving credit facility will mature on November 1, 2022.

As of June 30, 2020, the Operating Company was in compliance with the financial maintenance covenants under its credit agreement.

7. UNITHOLDERS’ EQUITY AND PARTNERSHIP DISTRIBUTIONS

The Partnership has general partner and limited partner units. At June 30, 2020, the Partnership had a total of 67,831,342 common units issued and outstanding and 90,709,946 Class B units issued and outstanding, of which 731,500 common units and 90,709,946 Class B units were owned by Diamondback, representing approximately 58% of the Partnership’s total units outstanding. The Operating Company units and the Partnership’s Class B units owned by Diamondback are exchangeable from time to time for the Partnership’s common units (that is, one Operating Company unit and one Partnership Class B unit, together, will be exchangeable for one Partnership common unit).

In March 2019, the Partnership completed an underwritten public offering of 10,925,000 common units, which included 1,425,000 common units issued pursuant to an option to purchase additional common units granted to the underwriters. Following this offering, Diamondback owned approximately 54% of the total Partnership units then outstanding. The Partnership received net proceeds from this offering of approximately $340.6 million, after deducting underwriting discounts and commissions and offering expenses. The Partnership used the net proceeds to purchase units of the Operating Company. The Operating Company in turn used the net proceeds to repay a portion of the outstanding borrowings under its revolving credit facility and finance acquisitions during the period.

The following table summarizes the ownership interest in subsidiary changes during the period:

Six Months Ended June 30, 2019
(In thousands)
Net income attributable to the Partnership$36,044  
Change in ownership of consolidated subsidiaries due to purchase of subsidiary shares in 2019 offering(71,195) 
Change from net loss attributable to the Partnership's shareholders and transfers to non-controlling interest$(35,151) 

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Viper Energy Partners LP
Condensed Notes to Consolidated Financial Statements - (Continued)
(Unaudited)


There were