This document is a Contribution Agreement, effective as of June 17, 2014, among Diamondback Energy, Inc., Viper Energy Partners LLC (OpCo), Viper Energy Partners GP LLC (MLP GP), and Viper Energy Partners Lp (MLP). It outlines the terms and conditions under which Diamondback Energy contributes certain assets to Viper Energy Partners LP in exchange for partnership interests. This agreement is a crucial legal document for understanding the initial formation and asset structure of Viper Energy Partners LP.
Key Parties Involved in the Agreement
The agreement clearly defines the roles of each party:
- Diamondback Energy, Inc.: Referred to as “Diamondback,” the parent company contributing assets.
- Viper Energy Partners LLC (OpCo): A subsidiary of Diamondback, acting as an operating company.
- Viper Energy Partners GP LLC (MLP GP): The general partner of Viper Energy Partners LP, responsible for management.
- Viper Energy Partners LP (MLP): The master limited partnership, “Viper Energy Partners LP,” the entity receiving the assets and issuing partnership units.
Understanding these entities and their relationships is fundamental to grasping the agreement’s implications.
Background and Recitals of the Agreement
The agreement begins by outlining the background and reasons for the agreement through a series of recitals:
- Diamondback initially held a 100% limited partner interest in Viper Energy Partners LP and 100% interest in both MLP GP and OpCo.
- An existing Limited Partnership Agreement (Original LPA) between Diamondback and MLP GP was in place, dated February 27, 2014.
- The agreement anticipates several key actions:
- Amendment and restatement of the Original LPA.
- Diamondback’s contribution of a subordinated note from OpCo and its interest in OpCo to Viper Energy Partners LP in exchange for “Sponsor Units.”
- A public offering of Common Units to raise capital.
- Distribution of the offering proceeds to Diamondback.
These recitals set the stage for the formal agreement, indicating a move towards public offering and restructuring of Viper Energy Partners LP.
Core Components of the Contribution Agreement
The heart of the agreement lies in Article II, detailing the contributions and related transactions that occurred immediately before the public offering (Effective Time).
Execution of Amended Partnership Agreement
- Section 2.1 Execution of A&R LPA: Diamondback and MLP GP were to amend and restate the original partnership agreement (Original LPA) to create the “A&R LPA” (First Amended and Restated Agreement of Limited Partnership). This updated agreement would govern the operations of Viper Energy Partners LP moving forward.
Redemption of Initial LP Interest
- Section 2.2 Redemption of Initial LP Interest: Diamondback’s initial limited partner interest in Viper Energy Partners LP was redeemed for a nominal sum of $100. This is a procedural step to restructure the ownership before the public offering.
Contribution of Subordinated Note and OpCo Interests
- Section 2.3 Contribution of Subordinated Note and Interests in OpCo and Related Matters: This section outlines the core contribution:
- (a) Contribution of Subordinated Note: Diamondback contributed a $440 million subordinated note from OpCo to OpCo itself. This might seem unusual, but it’s likely a mechanism for internal restructuring and capital management. Upon contribution, the note was cancelled.
- (b) OpCo Cash Distribution: OpCo was to distribute its cash, cash equivalents, and royalty income to Diamondback. This step likely aimed to streamline OpCo’s assets before its interest was transferred to Viper Energy Partners LP.
- (c) Unrestricted Subsidiaries Designation: Diamondback designated OpCo, MLP GP, and Viper Energy Partners LP as “Unrestricted Subsidiaries” under its existing credit agreement and indenture. This designation provides these entities with more financial flexibility, potentially regarding debt and operational activities, within the broader Diamondback Energy structure.
- (d) Contribution of OpCo Interest: Diamondback contributed its 100% limited liability company interest in OpCo to Viper Energy Partners LP. This is a key transfer, bringing OpCo and its assets under the Viper Energy Partners LP umbrella. In exchange for these contributions, Diamondback received “Sponsor Units” in Viper Energy Partners LP and the right to a “Deferred Issuance and Distribution.”
Registration Rights Agreement
- Section 2.4 Execution of Registration Rights Agreement: Diamondback and Viper Energy Partners LP were to execute a Registration Rights Agreement. This agreement grants Diamondback the right to register its Viper Energy Partners LP units for future sale, providing liquidity for its investment.
Underwriter Cash Contribution and Use of Proceeds
- Section 2.5 Underwriter Cash Contribution: Acknowledges the public offering where underwriters would contribute cash in exchange for Common Units in Viper Energy Partners LP.
- Section 2.6 Use of Offering Proceeds: States the intention for Viper Energy Partners LP to distribute the net proceeds from the offering to Diamondback. This distribution was to be treated as reimbursement for pre-formation capital expenditures, a tax-efficient method of returning capital to Diamondback.
Deferred Issuance and Distribution (Article III)
Article III addresses the “Deferred Issuance and Distribution,” related to the underwriters’ option to purchase additional units (Option Units).
- Section 3.1 Deferred Issuance and Distribution: If the underwriters exercised their option, Viper Energy Partners LP would issue additional Common Units to Diamondback and distribute cash proceeds (net of underwriter discounts) from the option exercise to Diamondback. This mechanism ensures Diamondback benefits if the offering is upsized due to underwriter option exercise.
Miscellaneous Provisions (Article IV)
Article IV contains standard legal clauses common in such agreements:
- Further Assurances: Obligation for parties to take further actions to ensure the agreement’s effectiveness.
- Successors and Assigns: Agreement binds successors and assigns of the parties.
- No Third Party Rights: Agreement is solely for the benefit of the parties involved.
- Severability: If any provision is invalid, the rest of the agreement remains in effect.
- Entire Agreement: Agreement constitutes the complete understanding between parties.
- Amendment or Modification: Requires written amendment signed by all parties.
- Construction: Defines interpretation rules for the agreement.
- Counterparts: Agreement can be signed in multiple counterparts.
- Deed; Bill of Sale; Assignment: Agreement serves as a legal transfer document where applicable.
- Applicable Law: Governed by Delaware law.
These clauses are boilerplate legal protections and standard practice in such agreements.
Conclusion: Implications for Viper Energy Partners LP
This Contribution Agreement is a foundational document for Viper Energy Partners LP. It details the initial asset contribution from Diamondback Energy, setting the stage for Viper Energy Partners LP’s operations as a publicly traded entity focused on oil and gas royalty interests. Key takeaways for investors include:
- Asset Base Origin: Viper Energy Partners LP’s initial asset base originated from Diamondback Energy.
- Financial Structure: The agreement outlines the financial transactions involved in the formation, including the subordinated note and cash distributions.
- Relationship with Diamondback: The agreement underscores the close relationship between Viper Energy Partners LP and Diamondback Energy, with Diamondback retaining significant ownership through Sponsor Units and registration rights.
For anyone seeking to understand the financial and legal underpinnings of Viper Energy Partners LP, this Contribution Agreement provides essential insights into its formation and initial structure. It’s a critical piece of documentation for due diligence and understanding the company’s history.
