10-K: Kimbell Royalty Partners Reports FY24 Results, Highlights Strategic Acquisitions and Conservative Capital Structure

Kimbell Royalty Partners reports its financial results for the year ended December 31, 2024, emphasizing strategic acquisitions and a commitment to a conservative capital structure.

Summary

• Kimbell Royalty Partners, LP released its 10-K filing for the fiscal year ended December 31, 2024.
• The company owns mineral and royalty interests in approximately 12.2 million gross acres and overriding royalty interests in approximately 4.7 million gross acres, with 54% of the aggregate acres located in the Permian Basin and Mid-Continent.
• As of December 31, 2024, over 99% of the acreage subject to mineral and royalty interests was leased to working interest owners.
• Estimated proved oil, natural gas, and NGL reserves attributable to the company's interests were 67,541 MBoe (49.6% liquids) based on a report by Ryder Scott.
• The company's primary business objective is to provide increasing cash distributions to unitholders through acquisitions and organic growth.
• For the year ended December 31, 2024, oil, natural gas, and NGL revenues were $304.6 million, with 71% from oil sales, 16% from natural gas sales, and 13% from NGL sales.
• The company maintains a $550.0 million secured revolving credit facility.
• A supermajority vote of the General Partner's Board of Directors is required for borrowings exceeding 2.5 times the Debt to EBITDAX Ratio and for issuing partnership interests senior to common units.
• The Board of Directors may allocate cash to repay outstanding borrowings under the secured revolving credit facility, reducing cash available for distribution on common units.
• On January 9, 2025, the company completed an underwritten public offering of 11,500,000 common units for net proceeds of approximately $163.6 million.
• On January 17, 2025, the company completed the Boren Acquisition in a cash transaction valued at approximately $230.4 million, funded by borrowings and proceeds from the equity offering.
• On February 27, 2025, the Board of Directors declared a quarterly cash distribution of $0.40 per common unit and OpCo common unit for the quarter ended December 31, 2024.

Sentiment

Score: 7

Explanation: The document presents a balanced view with both positive growth and strategic initiatives alongside risks and challenges inherent in the industry and the company's structure.

Positives

• The company has a significant and diversified portfolio of mineral and royalty interests.
• The company has exposure to many of the leading resource plays in the United States.
• The company has financial flexibility to fund expansion.
• The company has an experienced and proven management team with a track record of making acquisitions.

Negatives

• The company's revenues are derived from royalty payments that are based on the variable prices at which oil, natural gas and NGLs are sold.
• The company depends on unaffiliated operators for all of the exploration, development and production on the properties in which it owns mineral and royalty interests.
• The company may not be able to terminate its leases if any of the operators of the properties in which it owns mineral interests declare bankruptcy.
• The company does not intend to retain cash from its operations for replacement capital expenditures.

Risks

• The company may not have sufficient available cash to pay any quarterly distribution on its common units.
• The company's cash flow may prevent it from paying cash distributions.
• The amount of the company's quarterly cash distributions, if any, is directly dependent on the performance of its business.
• The company's partnership agreement requires that it distribute all of its available cash, which could limit its ability to grow and make acquisitions.
• The limited liability company agreement of the company's General Partner contains provisions that may restrict the company's ability to pursue its business strategies.
• The company's General Partner and its affiliates, including its Sponsors and their affiliates, have conflicts of interest with the company and limited duties to the company and its unitholders.
• The company's partnership agreement does not restrict the company's Sponsors and their affiliates or the Contributing Parties from competing with the company.
• The company's General Partner intends to limit its liability under contractual arrangements between the company and third parties such that these third parties would not have recourse against the company's General Partner or its assets.
• Neither the company, its General Partner nor its subsidiaries have any employees, and the company relies solely on Kimbell Operating to manage and operate, or arrange for the management and operation of, the company's business.
• The company's partnership agreement restricts the remedies available to its unitholders for actions by the company's General Partner that might otherwise constitute breaches of fiduciary duty.
• The company's partnership agreement replaces the company's General Partner's fiduciary duties with contractual standards.
• Holders of the company's common units have limited voting rights and cannot elect the company's General Partner or its directors.
• Even if the company's unitholders are dissatisfied, they cannot remove the company's General Partner without its consent.
• The company's partnership agreement restricts the voting rights of unitholders owning 20% or more of the interests in any class of the company's securities.
• Cost reimbursements due to the company's General Partner for services provided to the company or on its behalf will reduce cash available for distribution.
• The company's General Partner interest or the control of the company's General Partner may be transferred to a third party without unitholder consent.
• The company's sole cash-generating asset is its membership interest in the Operating Company.
• Unitholders may have liability to repay distributions and may be personally liable for the obligations of the partnership.
• Increases in interest rates may cause the market price of the company's common units to decline.
• The company's General Partner has a call right that may require unitholders to sell their units.
• The company may issue additional common units and other equity interests ranking junior to the Series A preferred units without unitholder approval, which would dilute existing common unitholder ownership interests.
• There are no limitations in the company's partnership agreement on the company's ability to issue units ranking senior in right of distributions or liquidation to the company's common units.
• The market price of the company's common units could be materially adversely affected by sales of substantial amounts of the company's common units in the public or private markets.
• The price of the company's common units may fluctuate, and unitholders could lose their investment.
• The New York Stock Exchange (the NYSE) does not require a publicly traded partnership to comply with certain corporate governance requirements.
• The company's partnership agreement includes exclusive forum, venue and jurisdiction provisions applicable to the company's unitholders.
• If a unitholder is an ineligible holder, the units of such unitholder may be subject to redemption.
• The company's Series A preferred units have rights, preferences and privileges that are not held by, and are preferential to the rights of, holders of the company's common units.
• The terms of the company's Series A preferred units contain covenants that may limit the company's business flexibility.

Future Outlook

The company aims to provide increasing cash distributions to unitholders through acquisitions and organic growth, while maintaining a conservative capital structure.

Industry Context

The oil and natural gas industry is intensely competitive, with Kimbell Royalty Partners competing with companies for the acquisition of oil and natural gas properties, some of whom have greater resources than Kimbell Royalty Partners.

Comparison to Industry Standards

• The document mentions several peer companies, including Black Stone Minerals, L.P., Magnolia Oil & Gas Corporation, Callon Petroleum Company, Northern Oil and Gas, Inc., Comstock Resources, Inc., SM Energy Company, Crescent Energy Company, Sitio Royalties Corp., Earthstone Energy, Inc., Talos Energy Inc., Gulfport Energy Corporation, Vital Energy Inc., and HighPeak Energy, Inc.
• These companies are used as benchmarks for executive compensation.
• The document does not provide a direct comparison of Kimbell Royalty Partners' financial performance to these companies, but it does state that Pearl Meyer's analysis determined that the proposed 2024 compensation at the target levels was below the median of the peer group for Messrs. Robert D. Ravnaas and above the median for R. Davis Ravnaas and Matthew S. Daly.

Related Party Transactions

• The company has entered into a management services agreement with Kimbell Operating, which in turn has entered into separate services agreements with entities controlled by affiliates of certain of the company's Sponsors and certain Contributing Parties, pursuant to which they and Kimbell Operating provide management, administrative and operational services to the company.
• John Wynne, the son of Mitch S. Wynne, acts as the company's agent at Higginbotham Insurance & Financial Services, which provides director and officer insurance to the company.

Stakeholder Impact

• The company's primary business objective is to provide increasing cash distributions to unitholders.
• The company's performance and decisions regarding distributions, acquisitions, and capital structure directly impact its unitholders.
• The company's reliance on third-party operators affects its ability to control exploration, development, and production activities, impacting stakeholders dependent on these operations.

Next Steps

• The Board of Directors may continue to allocate cash generated by the business to the repayment of outstanding borrowings under the secured revolving credit facility.
• The company intends to pay the distributions on March 25, 2025 to common unitholders and OpCo common unitholders of record as of the close of business on March 18, 2025.
• The company intends to pay a quarterly cash distribution on the Series A preferred units of approximately $4.9 million for the quarter ended December 31, 2024 subsequent to February 27, 2025, and prior to the distribution on the common units and OpCo common units.

Key Dates