8-K: Kimbell Royalty Partners Announces Strong Q3 2024 Results Driven by Increased Drilling Activity

Kimbell Royalty Partners reported a robust third quarter in 2024, marked by increased production, record lease bonuses, and a solid cash distribution to unitholders.

Summary

• Kimbell Royalty Partners announced its financial and operating results for the third quarter of 2024, showing a run-rate daily production of 23,846 barrels of oil equivalent (Boe/d).
• The company's oil, natural gas, and NGL revenues totaled $71.1 million, with a net income of approximately $25.8 million, and net income attributable to common units of approximately $17.4 million.
• Consolidated Adjusted EBITDA for the quarter was $63.1 million.
• Kimbell had 90 active rigs drilling on its acreage, representing 16% of the total U.S. land rig count.
• The number of net drilled but uncompleted wells (DUCs) increased by 34% quarter-over-quarter, reaching 5.1 net DUCs.
• A cash distribution of $0.41 per common unit was declared, representing a 75% payout ratio of cash available for distribution.
• The company intends to use the remaining 25% of cash available for distribution to reduce its outstanding debt.
• Kimbell's net debt to trailing twelve-month consolidated Adjusted EBITDA was 0.8x, indicating a conservative balance sheet.
• The company's average realized price per barrel of oil was $74.19, per Mcf of natural gas was $1.71, and per barrel of NGLs was $21.46.

Sentiment

Score: 8

Explanation: The document presents a very positive outlook with strong financial results, increased drilling activity, and a solid distribution to unitholders. The company's conservative balance sheet and debt reduction efforts further enhance the positive sentiment.

Positives

• Kimbell experienced strong activity on its acreage with 90 active rigs.
• The company achieved record lease bonuses, demonstrating increased operator interest.
• The number of net DUCs increased significantly, indicating future production potential.
• The declared cash distribution of $0.41 per common unit provides a solid return to unitholders.
• The company maintains a conservative balance sheet with a low net debt to EBITDA ratio of 0.8x.
• Kimbell's management believes that approximately 100% of the distribution will be considered a return of capital, enhancing after-tax returns for unitholders.
• The company has paid down approximately $179 million of debt since May 2020.

Negatives

• The document does not explicitly state any negative aspects of the results.

Risks

• The company's forward-looking statements are subject to risks and uncertainties, including potential declines in oil and natural gas prices.
• There are risks related to drilling and production activities, such as potential delays, environmental hazards, and operational issues.
• Kimbell's ability to meet financial covenants under its credit agreement is subject to risk.
• The company's hedging activities carry inherent risks.
• There are risks associated with acquisitions, dispositions, and drop-downs of assets.
• Tax matters and other risks described in Kimbell's filings with the SEC could impact the company.

Future Outlook

Kimbell affirms its financial and operational guidance ranges for 2024 previously disclosed in its Q4 2023 earnings release. The company expects that approximately 100% of its third quarter 2024 distribution should not constitute dividends for U.S. federal income tax purposes.

Management Comments

• Robert Ravnaas, Chairman and CEO, stated that activity on Kimbell's acreage remained strong with 90 rigs actively drilling.
• He noted that lease bonuses during the quarter were the highest in Kimbell's history.
• Ravnaas expressed confidence in the resilience of production due to the number of line-of-site wells being well above the number needed to maintain flat production.
• He highlighted the 34% quarter-over-quarter increase in net DUCs, led by the Permian Basin.
• Management is pleased to declare the Q3 2024 distribution of 41 cents per common unit.

Industry Context

This announcement reflects the ongoing activity and investment in the oil and gas sector, particularly in the Permian Basin. Kimbell's strong rig count and increased DUCs suggest a positive outlook for production growth, aligning with broader industry trends of increased drilling and development.

Comparison to Industry Standards

• Kimbell's 16% market share of U.S. land rigs is a significant position compared to other royalty companies.
• The increase in DUCs by 34% quarter-over-quarter is a strong indicator of future production potential, which is a key metric for investors in the oil and gas sector.
• The net debt to trailing twelve-month consolidated Adjusted EBITDA of 0.8x is a conservative ratio, suggesting a strong financial position compared to some peers with higher leverage.
• The 10% annualized yield based on the distribution is competitive in the current market for income-focused investors.
• The company's focus on debt reduction, with $179 million paid down since May 2020, is a positive sign of financial discipline, which is often compared to other companies in the sector.

Stakeholder Impact

• Shareholders will benefit from the cash distribution of $0.41 per common unit.
• Employees may see increased job security due to the company's strong performance.
• Customers and suppliers may experience continued business relationships with a financially stable company.
• Creditors will benefit from the company's debt reduction efforts.

Next Steps

• Kimbell will pay the Q3 2024 cash distribution on November 25, 2024.
• The company will use 25% of cash available for distribution to pay down debt.
• Kimbell will continue to monitor and develop its acreage, focusing on the Permian Basin.
• The company will host a conference call to discuss the results.

Key Dates

Keywords

Kimbell Royalty Partners, Oil and Gas, Production, Royalties, EBITDA, Distribution, Drilling, DUCs, Permian Basin, Debt, Hedges