10-Q: Kimbell Royalty Partners Reports Q3 2025 Results

Kimbell Royalty Partners, LP reported increased nine-month net income and production volumes, driven by strategic acquisitions and higher natural gas prices, despite a quarterly dip in net income.

Summary

• Net income for the nine months ended September 30, 2025, increased to $74.8 million, up from $50.3 million in the same period of 2024.
• Basic and diluted net income per common unit for the nine months ended September 30, 2025, rose to $0.41, compared to $0.38 in 2024.
• Total revenues for the nine months ended September 30, 2025, increased to $251.4 million, up from $242.6 million in 2024.
• Total production volumes for the nine months ended September 30, 2025, increased by 0.94% to 6,951,149 Boe (25,462 Boe/d) from 6,886,189 Boe (25,132 Boe/d) in 2024.
• The Boren Acquisition, valued at approximately $230.4 million, was completed on January 17, 2025, adding mineral and royalty interests in the Midland Basin, Texas.
• Long-term debt increased to $448.5 million as of September 30, 2025, from $239.2 million at December 31, 2024, primarily due to funding the Boren Acquisition and partial redemption of Series A preferred units.
• A quarterly cash distribution of $0.35 per common unit was declared for Q3 2025, a decrease from $0.41 per common unit for Q3 2024.
• The company redeemed 50% of its outstanding Series A preferred units on May 7, 2025, for $182.3 million.
• The borrowing base and aggregate elected commitments under the secured revolving credit facility were increased from $550.0 million to $625.0 million on May 1, 2025.

Sentiment

Score: 7

Explanation: The company demonstrated strong nine-month financial performance with significant increases in net income, EPS, and production, largely driven by a strategic acquisition. The increased borrowing capacity and tax benefits are also positive. However, the quarterly results show a decline in net income and EPS, coupled with increased debt and a reduced quarterly distribution, indicating some near-term pressures and a more conservative approach to shareholder returns.

Positives

• Net income for the nine months ended September 30, 2025, significantly increased to $74.8 million from $50.3 million in the prior year.
• Basic and diluted net income per common unit for the nine months ended September 30, 2025, increased to $0.41 from $0.38.
• Total revenues for the nine months ended September 30, 2025, grew to $251.4 million, an increase of $8.8 million year-over-year.
• Production volumes for the nine months ended September 30, 2025, increased to 6,951,149 Boe, primarily due to the Boren Acquisition.
• The Boren Acquisition, a strategic acquisition of mineral and royalty interests for $230.4 million, expanded the company's asset base in the Midland Basin.
• The company recorded an income tax benefit of $3.3 million for the three months ended September 30, 2025, and no income tax expense for the nine months ended September 30, 2025, partly due to the 'One Big Beautiful Bill Act'.
• The borrowing base and aggregate elected commitments under the secured revolving credit facility were increased to $625.0 million, enhancing liquidity and financial flexibility.
• No impairment on oil and natural gas properties was recorded for the three and nine months ended September 30, 2025, compared to a $6.0 million impairment in the prior nine-month period.

Negatives

• Net income for the three months ended September 30, 2025, decreased to $22.3 million from $25.8 million in the prior year quarter.
• Basic and diluted net income per common unit for the three months ended September 30, 2025, decreased to $0.19 from $0.22 in the prior year quarter.
• Total revenues for the three months ended September 30, 2025, decreased to $80.6 million from $83.8 million in the prior year quarter.
• Average oil prices received decreased by 17.5% to $64.42 per Bbl for the three months ended September 30, 2025, and by 14.9% to $65.71 per Bbl for the nine months ended September 30, 2025, compared to the respective prior year periods.
• Lease bonus and other income significantly decreased by $2.8 million for the three months and $1.1 million for the nine months ended September 30, 2025, compared to the prior year periods.
• Interest expense increased to $9.8 million for the three months and $25.4 million for the nine months ended September 30, 2025, due to higher debt balances.
• The quarterly cash distribution for Q3 2025 was $0.35 per common unit, a reduction from $0.41 per common unit in Q3 2024.
• The Baker Hughes United States Rotary Rig count decreased by 6.2% to 532 active land rigs at September 30, 2025, compared to 567 at September 30, 2024, indicating a slowdown in drilling activity.

Risks

• Volatility of realized prices for oil, natural gas, and natural gas liquids (NGLs), influenced by OPEC actions, global supply/demand imbalances, and international conflicts.
• Ability to replace reserves and execute business strategies, including consummating and integrating acquisitions.
• Impact of global conflicts (Russia-Ukraine, Middle East) on regional instability, global financial markets, and commodity prices.
• Potential for further changes to regulations and tariffs by the U.S. government, which could impact the oil and gas industry, commodity demand/price, and operational expenses.
• Revisions to reserve estimates due to changes in commodity prices, decline curves, and other uncertainties.
• Risk of impairment expense on oil and natural gas properties, particularly during periods of low commodity prices or significant downward adjustments to estimated proved reserves.
• Competition in the oil and natural gas industry and the mineral and royalty industry.
• Ability of operators on the company's properties to obtain capital or financing for development and exploration.
• Title defects in acquired properties.
• Availability or cost of rigs, completion crews, equipment, raw materials, supplies, oilfield services, or personnel for operators.
• Restrictions on or availability of water use in operators' businesses.
• Availability of transportation facilities.
• Ability of operators to comply with governmental laws and regulations and obtain permits/approvals, including those related to the environment, hydraulic fracturing, and climate change.
• Uncertainties regarding United States federal income tax law, including the treatment of future earnings and distributions.
• Ability to maintain effective internal controls over financial reporting and disclosure controls and procedures.

Future Outlook

The company expects to pursue acquisitions of mineral and royalty interests from third parties, affiliates of its Sponsors, and Contributing Parties. The Board of Directors intends to continue allocating a portion of cash available for distribution on common units to the repayment of outstanding borrowings under the secured revolving credit facility and may allocate such cash in other manners. The company does not currently intend to maintain excess distribution coverage for distribution stability or growth, reserve cash for distributions, or incur debt to pay quarterly distributions, although the Board may do so if deemed warranted.

Management Comments

• "Our primary business objective is to provide increasing cash distributions to unitholders resulting from acquisitions from third parties, our Sponsors and the Contributing Parties, and from organic growth through the continued development by working interest owners of the properties in which we own an interest."
• "To date, we have not experienced a material impact to operations or the consolidated financial statements as a result of these conflicts; however, we will continue to monitor for events that could materially impact us."
• "The Board of Directors approved the allocation of 25% of our cash available for distribution on common units for the third quarter of 2025 for the repayment of $12.6 million in outstanding borrowings under our secured revolving credit facility during its determination of available cash for the third quarter of 2025."

Industry Context

Global conflicts in Ukraine and the Middle East have led to regional instability and increased volatility in worldwide oil supply and demand, impacting commodity prices. The Baker Hughes United States Rotary Rig count decreased by 6.2% year-over-year, primarily influenced by lower average oil prices, partially offset by an increase in natural gas prices. New government legislation, the 'One Big Beautiful Bill Act', has permanently reduced the corporate tax rate and extended 100% bonus depreciation, which could positively impact the oil and gas industry.

Related Party Transactions

• Payments of $30,000 for the three months and $90,000 for the nine months ended September 30, 2025, were made to K3 Royalties, LLC for management, administrative, and operational services.
• Reimbursements of $48,891 for the three months and $131,779 for the nine months ended September 30, 2025, were received from Rivercrest Capital Management, LLC for shared operating expenses.

Stakeholder Impact

• Shareholders: Experienced a decrease in the quarterly cash distribution for Q3 2025 ($0.35/unit) compared to Q3 2024 ($0.41/unit). The 2025 Equity Offering resulted in dilution but funded a significant acquisition aimed at long-term growth.
• Employees and Directors: Benefited from unit-based compensation under the Amended and Restated Kimbell Royalty GP, LLC 2017 Long-Term Incentive Plan.
• Creditors: The company increased its long-term debt to $448.5 million and expanded its credit facility borrowing base to $625.0 million, indicating increased leverage but also enhanced liquidity.
• Operators: Drilling activity on the company's acreage is dependent on the capital and operational decisions of working interest owners, which are influenced by commodity prices and rig counts.
• General: Global conflicts and potential regulatory changes could introduce volatility and impact the company's operations and expenses, affecting overall business stability.

Next Steps

• Pay the declared Q3 2025 cash distribution of $0.35 per common unit on November 24, 2025.
• Continue to allocate a portion of cash available for distribution on common units to the repayment of outstanding borrowings under the secured revolving credit facility.
• Pursue further acquisitions of mineral and royalty interests from third parties, Sponsors, and Contributing Parties.

Key Dates

Recommendation

While Kimbell Royalty Partners demonstrated strong nine-month growth in net income, EPS, and production, driven by the strategic Boren Acquisition, the quarterly performance shows a decline in net income and EPS compared to the prior year. The increase in long-term debt and interest expense, coupled with a reduced quarterly distribution, suggests a more cautious approach to capital allocation and shareholder returns in the short term. The company's strategy of funding acquisitions through equity and debt, while growing the asset base, introduces leverage. The current commodity price volatility and a decreasing rig count also present headwinds. A 'hold' recommendation reflects the balance between the positive long-term growth strategy and the near-term financial pressures and market uncertainties.

Keywords

Kimbell Royalty Partners, KRP, oil and gas, royalty interests, mineral interests, Permian Basin, Midland Basin, natural gas, NGL, energy, Q3 2025, SEC filing, 10-Q, Boren Acquisition, dividends, distributions, commodity prices, debt, equity offering