8-K: Kimbell Royalty Partners Announces Record First Quarter 2024 Results, Exceeding Production Guidance

Kimbell Royalty Partners reported record first quarter 2024 results, including record daily production, revenues, and adjusted EBITDA, exceeding the mid-point of their guidance.

Summary

• Kimbell Royalty Partners announced record first quarter 2024 results, with a run-rate daily production of 24,678 Boe/d, exceeding the mid-point of their guidance.
• The company achieved record oil, natural gas, and NGL revenues of $87.5 million, a 4.2% increase from the previous quarter.
• Adjusted EBITDA reached a record $74.1 million, a 7.4% increase from the fourth quarter of 2023.
• Net income for the quarter was approximately $9.3 million, with net income attributable to common units at approximately $3.2 million.
• Kimbell declared a cash distribution of $0.49 per common unit, representing a 75% payout ratio of cash available for distribution.
• The company had 98 active rigs drilling on its acreage, representing a 16.3% market share of U.S. land rigs.
• Kimbell's net debt to trailing twelve-month consolidated adjusted EBITDA was 1.0x, indicating a conservative balance sheet.
• Approximately 79% of the distribution is expected to be considered a return of capital and not subject to dividend taxes.

Sentiment

Score: 8

Explanation: The document conveys a positive sentiment due to record production, revenue, and EBITDA, along with a strong distribution and conservative balance sheet. The management's confidence in the future also contributes to the high score.

Positives

• Kimbell's operational momentum from 2023 continued into Q1 2024, with record daily production, revenue, and Adjusted EBITDA.
• The company's run-rate production growth exceeded the mid-point of guidance.
• Kimbell has a significant number of line-of-sight wells, exceeding the number needed to maintain flat production.
• The Q1 2024 distribution of $0.49 per common unit represents a 14% increase from Q4 2023.
• The company has a conservative balance sheet with a net debt to trailing twelve-month consolidated Adjusted EBITDA of 1.0x.
• Kimbell has a significant undrawn capacity of $264.6 million under its secured revolving credit facility.
• The company's management is confident about the U.S. oil and natural gas industry and Kimbell's role as a leading consolidator.

Negatives

• Net income attributable to common units decreased to approximately $3.2 million in Q1 2024, compared to $9.8 million in Q4 2023.
• A non-cash ceiling test impairment expense of $6.0 million was recorded during the quarter, primarily due to declining commodity prices.

Risks

• The company faces risks related to potential declines in oil and natural gas prices, which could impact the value of proved reserves and delay drilling operations.
• There are risks associated with the availability of capital to fund drilling operations, which can be affected by adverse drilling results and price declines.
• Kimbell is subject to risks related to its hedging activities, which may not fully protect against price fluctuations.
• Operational risks such as fire, explosion, and environmental hazards could temporarily or permanently reduce production.
• Delays in receiving drilling permits and unexpected adverse developments in the status of properties pose risks to the company's operations.
• The company's ability to meet financial covenants under its credit agreement is a risk, as is the potential for borrowing base redeterminations by lenders.
• There are risks associated with acquisitions, dispositions, and drop-downs of assets, including the ability to integrate acquired assets.

Future Outlook

Kimbell affirms its financial and operational guidance ranges for 2024 previously disclosed in its Q4 2023 earnings release and is confident about the U.S. oil and natural gas industry and its ability to generate long-term unitholder value.

Management Comments

• Operational momentum from 2023 continued into the first quarter of 2024 as the company achieved several new records in terms of daily production, revenue and Adjusted EBITDA.
• Q1 2024 reflected another quarter of organic run-rate production growth exceeding the mid-point of guidance and we exited the quarter with a near record number of rigs drilling on our acreage.
• Our line-of-site wells continue to be well above the number of wells needed to maintain flat production, giving us confidence in the resilience of our production as we progress through 2024.
• Overall, we are very pleased with this quarter as well as the Q1 2024 distribution that we declared today of 49 cents per common unit, an increase of 14% from Q4 2023.
• As we look forward in 2024 and beyond, we are confident about the U.S. oil and natural gas industry, our role as a leading consolidator in the sector and the prospects for Kimbell to generate long-term unitholder value.

Industry Context

Kimbell's strong Q1 2024 results, particularly in production and rig activity, highlight the continued activity in the U.S. onshore oil and gas sector. The company's 16.3% market share of U.S. land rigs indicates a significant presence in the industry.

Comparison to Industry Standards

• Kimbell's production growth of 1.4% quarter-over-quarter and 5.6% annualized is a positive sign, indicating strong operational performance compared to industry averages.
• The company's Adjusted EBITDA growth of 7.4% from the previous quarter suggests efficient cost management and revenue generation, which is a key metric for comparison with peers like Viper Energy Partners and Black Stone Minerals.
• A net debt to trailing twelve-month consolidated Adjusted EBITDA of 1.0x demonstrates a conservative financial approach, which is favorable compared to some peers with higher leverage.
• The cash distribution of $0.49 per common unit, representing a 12.5% annualized yield, is competitive within the royalty and mineral interest sector, potentially attracting income-focused investors.
• Kimbell's 16.3% market share of U.S. land rigs indicates a strong operational footprint, which is a key differentiator compared to smaller royalty companies.

Stakeholder Impact

• Shareholders will benefit from the increased cash distribution of $0.49 per common unit.
• Shareholders will also benefit from the expected return of capital portion of the distribution, which is not subject to dividend taxes.
• Creditors will benefit from the company's continued debt repayment using a portion of its cash available for distribution.
• Employees may benefit from the company's strong performance and positive outlook.

Next Steps

• Kimbell will pay the Q1 2024 cash distribution on May 20, 2024.
• The company will continue to utilize 25% of cash available for distribution to repay debt.
• Kimbell will host a conference call and webcast to discuss the results.

Key Dates

Keywords

Kimbell Royalty Partners, Oil and Gas, Mineral Rights, Royalty Interests, Production, EBITDA, Cash Distribution, Drilling Rigs, Net Debt, Hedges