8-K: Kimbell Royalty Partners Announces Record Fourth Quarter and Full Year 2023 Results

Kimbell Royalty Partners reported record fourth-quarter and full-year 2023 results, driven by increased production and strategic acquisitions.

Summary

• Kimbell Royalty Partners announced record fourth-quarter and full-year 2023 results.
• The company's Q4 2023 run-rate daily production reached 24,332 Boe/d, exceeding the high end of guidance and representing a 3.4% organic growth from Q3 2023.
• Q4 2023 revenues from oil, natural gas, and NGLs were $83.9 million, a 21.2% increase from Q3 2023.
• Net income for Q4 2023 was approximately $17.8 million, with net income attributable to common units at approximately $9.8 million.
• Consolidated Adjusted EBITDA for Q4 2023 reached a record $69.0 million, a 23.7% increase from Q3 2023.
• The borrowing base on the secured revolving credit facility increased to $550 million.
• The company announced a Q4 2023 cash distribution of $0.43 per common unit, representing a 75% payout ratio.
• Kimbell's net debt to trailing twelve-month consolidated Adjusted EBITDA was 1.0x.
• Full-year 2024 production guidance is estimated at 24,000 Boe/d at the mid-point.
• Proved developed reserves at year-end 2023 increased by approximately 41% year-over-year to over 65 MMBoe.

Sentiment

Score: 8

Explanation: The document conveys a positive sentiment due to record financial and operational results, increased borrowing capacity, and a strong distribution yield. The company's growth trajectory and strategic positioning in the market are also positive indicators.

Positives

• Kimbell achieved record production, revenue, and Adjusted EBITDA in Q4 2023.
• The company's organic growth between Q3 and Q4 2023 was 3.4%.
• The increase in the borrowing base to $550 million enhances liquidity.
• The company maintains a conservative balance sheet with a net debt to trailing twelve-month consolidated Adjusted EBITDA of 1.0x.
• The announced cash distribution of $0.43 per common unit provides a strong yield for investors.
• Kimbell's five-year average PDP decline rate of 14% is superior, requiring only 5.8 net wells annually to maintain flat production.
• The company has a significant drilling inventory of approximately 16 years.
• Kimbell has paid down approximately $136.0 million of outstanding borrowings since May 2020.

Negatives

• Net income attributable to common units decreased from $13.6 million in Q3 2023 to $9.8 million in Q4 2023.
• A non-cash ceiling test impairment expense of $18.2 million was recorded during the quarter due to declining commodity prices.
• The company's G&A expense was $9.1 million in Q4 2023.
• The company had a net income of $17.8 million in Q4 2023, down from $18.5 million in Q3 2023.

Risks

• The company is subject to risks related to potential declines in prices for oil and natural gas.
• There are risks related to the availability of capital to fund drilling operations.
• Kimbell faces risks related to its ability to meet financial covenants under its credit agreement.
• The company is exposed to risks of fire, explosion, blowouts, and other operating and production risks.
• There are risks related to delays in receipt of drilling permits.
• The company faces risks related to acquisitions and the integration of acquired assets.
• The company's estimates for tax treatment of distributions are subject to change.

Future Outlook

Kimbell expects to continue its operational momentum through 2024, with estimated daily production at its mid-point projected at 24,000 Boe/d for the year. The company also intends to continue its role as a major consolidator in the U.S. oil and natural gas royalty sector.

Management Comments

• 2023 was another record year for Kimbell.
• The largest acquisition to date was completed during 2023, which was immediately accretive to distributable cash flow per common unit.
• The borrowing base and elected commitments on the company's revolving credit facility increased to $550 million.
• The company paid out $1.73 per common unit in tax-advantaged quarterly distributions during 2023.
• Q4 2023 reflected significant organic growth relative to Q3 2023 due to a number of high interest wells coming online in the Permian and Haynesville.
• Kimbell expects to continue its role as a major consolidator in the highly fragmented U.S. oil and natural gas royalty sector.
• The company believes it is still in the early stages of consolidation and will actively seek out targets that fit within its acquisition profile.

Industry Context

This announcement reflects the ongoing consolidation trend in the U.S. oil and gas royalty sector, where companies with strong financial resources and operational expertise are actively seeking acquisition opportunities. Kimbell's focus on the Permian, Eagle Ford, and Haynesville basins aligns with industry trends towards high-return, low break-even cost areas.

Comparison to Industry Standards

• Kimbell's 14% five-year average PDP decline rate is superior to many of its peers, indicating a strong asset base and efficient operations.
• The company's net debt to trailing twelve-month consolidated Adjusted EBITDA of 1.0x is conservative compared to some other companies in the sector, suggesting a lower risk profile.
• The 11.2% annualized yield based on the February 20, 2024 closing price is competitive within the royalty space.
• Kimbell's focus on major basins like the Permian, Eagle Ford, and Haynesville is consistent with industry trends towards high-return areas, similar to companies like Viper Energy Partners and Black Stone Minerals.
• The company's production growth of 681% since its IPO is significant, demonstrating a strong track record of expansion, which is comparable to other rapidly growing royalty companies.

Stakeholder Impact

• Shareholders will benefit from the increased cash distribution and the company's strong financial performance.
• Employees may benefit from the company's growth and expansion.
• Customers and suppliers will likely see continued business activity with Kimbell.
• Creditors will benefit from the company's conservative balance sheet and debt repayment strategy.

Next Steps

• Kimbell will continue to utilize 25% of its cash available for distribution to pay down outstanding borrowings under its secured revolving credit facility.
• The company will actively seek out acquisition targets that fit within its acquisition profile.
• Kimbell will host a conference call and webcast to discuss fourth quarter 2023 results.
• The company will continue to monitor and manage its hedge book.

Key Dates

Keywords

Kimbell Royalty Partners, Oil and Gas, Mineral Rights, Royalty Interests, Production, EBITDA, Distribution, Reserves, Drilling, Permian Basin