Viper Energy Partners (VNOM, Financial):
VNOM was the Fund's worst individual performer for the quarter. The company owns mineral rights to oil fields (we discussed the company in greater detail in prior commentaries). Interestingly, both spot and long term oil contracts did not change much from June 30th to September 30th. VNOM's largest oil field operator, Diamondback Energy (Ticker: FANG), owns a large stake in the company. The relationship incentivizes FANG to develop acreage where mineral rights are owned by VNOM as it receives a higher percentage of the profits due to its ownership in VNOM. The stock declined during the quarter as: 1) FANG was having its own issues with high leverage; 2) VNOM hedged its 2020 production at low levels; and 3) VNOM has signaled a more gradual approach to returning to normalized levels of shareholder distributions, which have been cut due to the pandemic. We believe all of these are transitory factors and the selloff is overdone.
From the FPA Capital Fund (Trades, Portfolio)'s third-quarter 2020 shareholder letter.
