8-K: Kimbell Royalty Posts Strong Q2, Boosts Rig Share

Kimbell Royalty Partners announced robust second quarter 2025 results, maintaining strong production and increasing its market share of U.S. land rigs while affirming full-year guidance.

Summary

• Second quarter 2025 run-rate daily production was 25,355 barrels of oil equivalent (Boe) per day.
• Oil, natural gas, and NGL revenues for Q2 2025 totaled $74.7 million.
• Net income for the quarter was approximately $26.7 million, with net income attributable to common units at approximately $2.0 million ($0.02 per common unit).
• Consolidated Adjusted EBITDA reached $63.8 million in Q2 2025.
• Cash General & Administrative (G&A) expense per BOE was $2.36, which was below the low-end of guidance.
• As of June 30, 2025, Kimbell had 88 rigs actively drilling on its acreage, representing approximately 17% market share of all U.S. land rigs.
• Net DUCs (Drilled Uncompleted wells) increased by 9% quarter over quarter, reaching 5.10 net DUCs and 2.89 net permitted locations, totaling 7.99 net line-of-site wells.
• A Q2 2025 cash distribution of $0.38 per common unit was announced, reflecting a 75% payout ratio of cash available for distribution and implying a 10.3% annualized yield.
• The remaining 25% of cash available for distribution, approximately $13.6 million, will be used to repay outstanding borrowings under the secured revolving credit facility.
• Kimbell affirmed its financial and operational guidance ranges for 2025.

Sentiment

Score: 8

Explanation: The filing indicates strong operational performance with increased market share in a declining rig environment, effective cost control (G&A below guidance), and a healthy inventory of future wells. Strategic moves like debt repayment and preferred unit redemption strengthen the balance sheet and capital structure. While the distribution per unit is slightly lower than the prior year, the underlying cash available for distribution remains robust, and the tax-advantaged nature of the distribution is a significant positive for unitholders. The affirmation of full-year guidance adds confidence.

Positives

• Cash G&A per BOE of $2.36 was below the low-end of guidance, demonstrating operational discipline and positive operating leverage.
• Active rig count remained strong at 88 rigs, increasing market share of U.S. land rigs by 1% to 17% despite a 7% drop in the overall U.S. land rig count.
• Kimbell's overall rig count dropped by only 2% compared to the broader market's 7% decline, indicating resilience.
• Rig count increased in key basins, with the Permian Basin up by four rigs and Haynesville up by five rigs.
• Net DUCs increased by 9% quarter over quarter, particularly in the Permian Basin, which bodes well for near-term production.
• Line-of-site wells (7.99 net DUCs and permitted locations) are well above the estimated 6.5 net wells needed to maintain flat production.
• Declared a Q2 2025 cash distribution of $0.38 per common unit, offering a 10.3% annualized yield based on the August 6, 2025 closing price.
• Approximately 100% of the Q2 2025 distribution is expected to be considered return of capital for U.S. federal income tax purposes, enhancing after-tax returns.
• The company utilized 25% of its cash available for distribution ($13.6 million) to pay down debt under its secured revolving credit facility.
• The borrowing base and aggregate commitments on the secured revolving credit facility were increased from $550 million to $625 million on May 1, 2025.
• Redeemed 50% of Series A Cumulative Convertible Preferred Units on May 7, 2025, simplifying the capital structure and reducing the cost of capital.
• Net debt to trailing twelve month consolidated Adjusted EBITDA was approximately 1.6x, and the company was in compliance with all financial covenants.

Negatives

• Net income attributable to common units for Q2 2025 was $2.0 million, significantly lower than the $8.4 million reported in Q2 2024, primarily due to distributions and accretion on Series A preferred units and non-controlling interests.
• Cash available for distribution per common unit outstanding was $0.50 in Q2 2025, a decrease from $0.57 in Q2 2024.
• The declared Q2 2025 distribution of $0.38 per common unit is lower than the $0.42 declared in Q2 2024.
• The Mid-Continent region experienced a decline in drilling activity.

Risks

• Anticipated benefits of acquisitions may not be realized.
• Uncertainties exist regarding Kimbell's business, growth prospects, acquisitions, and the securities markets generally.
• Inherent risks in oil and natural gas drilling and production activities, including potential declines in commodity prices.
• Declines in oil and natural gas prices could lead to downward revisions to proved reserves, delays or suspensions in drilling, or reduced production levels, adversely impacting cash flow.
• Risk of impairment of oil and natural gas properties.
• Changes in U.S. trade policy and the impact of tariffs.
• Availability of capital to fund drilling operations can be adversely affected by adverse drilling results, production declines, and declines in oil and natural gas prices.
• Risks related to Kimbell's ability to meet financial covenants under its credit agreement or obtain necessary amendments or waivers.
• Risks associated with Kimbell's hedging activities.
• Operational risks such as fire, explosion, blowouts, pipe failure, casing collapse, unusual or unexpected formation pressures, and environmental hazards, which may reduce production or delay sales/completion.
• Delays in the receipt of drilling permits.
• Unexpected adverse developments in the status of properties.
• Risks related to borrowing base redeterminations by Kimbell's lenders.
• Absence or delay in receipt of government approvals or third-party consents.
• Risks associated with acquisitions, dispositions, and drop downs of assets, including the ability to realize anticipated benefits and integrate acquired assets.
• Risks related to tax matters.

Future Outlook

Kimbell Royalty Partners affirmed its financial and operational guidance ranges for 2025, previously disclosed in its Q4 2024 earnings release. The company expressed confidence in the resilience of its production through 2025, citing that its line-of-site wells (net DUCs and permitted locations totaling 7.99 net wells) are well above the estimated 6.5 net wells needed to maintain flat production. The 9% quarter-over-quarter increase in net DUCs, particularly in the Permian Basin, is expected to contribute to near-term production. Additionally, Kimbell anticipates that approximately 100% of its second quarter 2025 distribution will be considered a return of capital for U.S. federal income tax purposes, enhancing after-tax returns for unitholders.

Management Comments

• "Kimbell's active rig count remains strong with our market share of U.S. land rigs actively drilling increasing by 1% to 17%."
• "In addition, while the overall U.S. land rig count dropped by 7% quarter over quarter as operators, primarily in the Permian, slowed drilling activity, our overall rig count dropped by only 2% to 88 rigs actively drilling on our acreage."
• "Notably, our rig count in the Permian Basin increased by four rigs and Haynesville increased by five rigs while the Mid-Con experienced a decline in drilling activity."
• "Furthermore, our line-of-site wells continue to be well above the number of wells needed to maintain flat production, giving us confidence in the resilience of our production as we progress through 2025."
• "More specifically, net DUCs increased by 9% quarter over quarter, led by the Permian Basin, which bodes well for near-term production contributions from this region."
• "Finally, cash G&A per BOE was well below the low end of guidance reflecting operational discipline and positive operating leverage."
• "We are pleased to declare the Q2 2025 distribution of 38 cents per common unit, reflecting a 10.3% annualized tax advantaged yield based on Kimbell's closing price on August 6, 2025."
• "We estimate that approximately 100% of this distribution is expected to be considered return of capital and not subject to dividend taxes, further enhancing the after-tax return to our common unitholders."

Industry Context

The broader U.S. land rig count experienced a 7% quarter-over-quarter decline, with operators, particularly in the Permian, slowing drilling activity. Despite this industry-wide slowdown, Kimbell Royalty Partners demonstrated resilience, with its overall rig count dropping by only 2% to 88 rigs. This performance allowed Kimbell to increase its market share of U.S. land rigs by 1% to 17%. While the Mid-Continent region saw a decline in drilling activity, Kimbell observed increased rig counts in the Permian Basin (+4 rigs) and Haynesville (+5 rigs), indicating a strategic focus or operator preference for Kimbell's acreage in these key regions amidst a challenging market.

Comparison to Industry Standards

• Kimbell's active rig count of 88 represents approximately 17% market share of all U.S. land rigs drilling, based on Baker Hughes' U.S. land rig count of 533 as of June 30, 2025, indicating a strong relative position.
• While the overall U.S. land rig count dropped by 7% quarter over quarter, Kimbell's rig count dropped by only 2%, demonstrating superior operational resilience compared to the broader industry trend.
• The company's 7.99 net DUCs and permitted locations significantly exceed the estimated 6.5 net wells needed to maintain flat production, providing a robust inventory pipeline for future production stability, a key internal benchmark for sustainability.

Corporate Governance

Stakeholder Impact

• Shareholders/Unitholders: Will receive a Q2 2025 cash distribution of $0.38 per common unit, with approximately 100% expected to be tax-advantaged return of capital. The redemption of preferred units and debt repayment improve the capital structure, potentially enhancing long-term value and stability.
• Creditors: The repayment of $13.6 million of outstanding borrowings under the secured revolving credit facility and the increase in borrowing base demonstrate prudent financial management and strengthen the company's credit profile.
• Employees: Operational discipline leading to lower Cash G&A per BOE suggests efficient management, which can contribute to job security and company stability.

Next Steps

• Q2 2025 cash distribution payable on August 25, 2025, to common unitholders of record on August 18, 2025.
• Kimbell intends to utilize the remaining 25% of its cash available for distribution to repay a portion of outstanding borrowings under its secured revolving credit facility.
• Kimbell will continue to provide financial information in filings with the SEC, press releases, public conference calls, and on its website.
• The company will continue to monitor and manage its hedge book, with fixed price swaps extending through Q2 2027.

Key Dates

Recommendation

Kimbell Royalty Partners demonstrates robust operational resilience and financial discipline in a challenging energy market. The company's ability to increase its market share of active rigs while the overall U.S. land rig count declined, coupled with a 9% increase in net DUCs, signals strong future production potential. The commitment to debt reduction by allocating 25% of cash available for distribution, alongside a high, tax-advantaged annualized yield of 10.3%, makes it highly attractive for income-focused investors. The redemption of preferred units further simplifies the capital structure and reduces the cost of capital. These factors, combined with affirmed 2025 guidance and better-than-expected G&A costs, position Kimbell as a compelling 'strong buy' for investors seeking stable, high-yield exposure to the oil and gas royalty sector.

Keywords

Oil and Gas Royalty, Mineral Interests, Energy Sector, Kimbell Royalty Partners, KRP, SEC Filing, 8-K, Q2 2025 Results, Production, Adjusted EBITDA, Cash Distribution, DUC, Permian Basin, Haynesville, Mid-Continent, Debt Repayment, Capital Structure, Oil Prices, Natural Gas Prices, NGLs