10-K: Kimbell Royalty Partners, LP Details Securities Registered Under the Exchange Act

Kimbell Royalty Partners, LP outlines the characteristics of its common units, Class B units, and Series A preferred units in its latest filing.

Summary

• Kimbell Royalty Partners, LP has registered common units representing limited partnership interests under the Securities Exchange Act of 1934.
• The company also has Class B units, which are similar to common units but have a distribution preference of 2.0% per quarter on their contribution.
• Class B units are not transferable except to certain affiliates and are exchangeable for common units.
• As of February 16, 2024, there were 73,851,458 common units and 20,847,295 Class B units outstanding.
• The company also has Series A preferred units, which have a distribution preference of 6.0% per annum plus accrued and unpaid distributions.
• Series A preferred units have voting rights on an as-converted basis with common units and can be converted into common units under certain conditions.
• As of February 16, 2024, there were 325,000 Series A preferred units outstanding.
• The company's cash distribution policy requires it to distribute all available cash each quarter, subject to certain restrictions and reserves.
• The company's general partner has the authority to establish cash reserves, which could reduce cash distributions to unitholders.
• The company's partnership agreement contains provisions that may discourage a change in management.

Sentiment

Score: 6

Explanation: The document is neutral in tone, providing factual information about the company's securities and structure. There are both positive and negative aspects to the structure, but the document does not express a strong opinion.

Positives

• The company has a clear structure for its different classes of units.
• The company's cash distribution policy is well-defined.
• The Series A preferred units have a redemption option at the holders option beginning seven years after the Series A Issuance Date or in the event of a change of control.
• The company has a call right that may require unitholders to sell their units.

Negatives

• The company's general partner has the authority to establish cash reserves, which could reduce cash distributions to unitholders.
• The company's partnership agreement contains provisions that may discourage a change in management.
• The Class B units are not transferable except to certain affiliates.
• The company's general partner has a call right that may require unitholders to sell their units.

Risks

• The company's cash distribution policy is subject to certain restrictions, including the ability of the Operating Company to make distributions.
• The company's credit agreement contains financial tests and covenants that could prohibit distributions.
• The company's business performance may be volatile, and its cash flows may be less stable than other publicly traded partnerships.
• The company does not have a minimum quarterly distribution or employ structures intended to maintain or increase quarterly distributions over time.
• The company's general partner has the authority to establish cash reserves, which could reduce cash distributions to unitholders.
• The company may lack sufficient cash to pay distributions due to cash flow shortfalls or increases in expenses.
• The company's partnership agreement contains provisions that may discourage a change in management.
• The company's general partner may transfer its interest without a vote of the unitholders.
• The company's general partner has a call right that may require unitholders to sell their units.
• The company may issue additional units that dilute existing unitholder ownership.
• The company may issue units that rank senior in right of distributions or liquidation to common units.

Future Outlook

The company's future cash distributions are dependent on the performance of its business and the ability of the Operating Company to make distributions.

Management Comments

• The holders of common units are entitled to participate in partnership distributions and exercise the rights and privileges provided to limited partners holding common units under our partnership agreement.
• Our partnership agreement allows us to issue an unlimited number of additional equity interests of equal or senior rank.
• Our general partner has the authority to establish cash reserves for the prudent conduct of our business, and the establishment of, or increase in, those reserves could result in a reduction in cash distributions to our unitholders.

Industry Context

This document provides details on the structure of Kimbell Royalty Partners, LP, which is relevant to investors in the oil and gas royalty sector. It highlights the different classes of units and their respective rights, which is important for understanding the company's capital structure and distribution policy.

Comparison to Industry Standards

• The structure of Kimbell Royalty Partners, LP with its common units, Class B units, and Series A preferred units is not uncommon in the master limited partnership (MLP) space, particularly in the energy sector.
• Many MLPs have different classes of units to accommodate various investors and their preferences for income or capital appreciation.
• The distribution preferences of the Class B and Series A preferred units are similar to those seen in other MLPs, where preferred units often have a higher priority for distributions.
• The conversion options for the Series A preferred units are also a common feature in preferred equity instruments, allowing for potential upside if the common unit price appreciates.
• The call right of the general partner is a feature that is not unique to Kimbell Royalty Partners, LP, and is often included in partnership agreements to allow for flexibility in capital structure management.
• Companies like Viper Energy Partners LP and Black Stone Minerals LP also operate in the mineral and royalty space and have similar structures with different classes of units and distribution policies.

Stakeholder Impact

• Shareholders will receive cash distributions based on the company's performance and available cash.
• Shareholders may be required to sell their units if the general partner exercises its call right.
• Shareholders may experience dilution if the company issues additional units.
• Shareholders may have their voting rights limited if they own 20% or more of any class of units.

Next Steps

• The company will continue to distribute available cash each quarter, subject to certain restrictions and reserves.
• The company may issue additional units in the future, which could dilute existing unitholder ownership.
• The company's general partner may transfer its interest without a vote of the unitholders.

Key Dates

Keywords

common units, Class B units, Series A preferred units, cash distribution, partnership agreement, limited partner, general partner, voting rights, conversion, redemption