Q4 2023 Kimbell Royalty Partners LP Earnings Call

Operator: and welcome to the Kimbell Royalty Partners 4th Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode; an answer session will follow the formal presentation. For operator assistance during the conference, please press star zero on your telephone keypad; the conference is being recorded. Rick Black with Investor Relief. Thank you, sir. Thank you, operator. And good morning, everyone. Welcome to the Kimbell Royalty Partners conference call to review financial and operational results for the fourth quarter. It ended on December 31, 2023.

And welcome to the Kindle royalty partners fourth quarter earnings Conference call. At this time, all participants are in a listen only mode.

Answer session will follow the formal presentation.

Our operator assistance during the conference. Please press Star zero on your telephone keypad.

The conference is being recorded.

Now to introduce your host Rick Black with Investor Relations. Thank you Sir you may begin.

Thank you operator, and good morning, everyone welcome to the Campbell royalty Partners Conference call to review financial and operational results for the fourth quarter.

Twenty-three ended on December 31, 2023. This call is also being webcast and can be accessed through the audio link on the events and presentations page of the IR section of Kimball RP Dot com.

Rick Black: This call is also being webcast and can be accessed through the audio link on the events and presentations page of the IR section of KimbellRP.com. However, information recorded on this call speaks only as of today, February 21, 2024, so please be advised that any time-sensitive information may no longer be accurate as of the date of any replay listening or transcript reading. I would also like to remind you that the statements made in today's discussion that are not historical facts, including statements of expectations or future events or future financial performance, are considered forward-looking statements made pursuant to the Safe Harbors Revision of the Private Securities Litigation Reform Act of 1995. We will be making forward-looking statements as part of today's call, which, by their nature, are uncertain and outside of the company's control. However, actual results may differ materially.

Information recorded on this call speaks only as of today February 21st 2024. So please be advised that any time sensitive information may no longer be accurate as of the date of any replay listening or transcript reading.

I would also like to remind you that the statements made in today's discussion that are not historical facts, including statements of expectations or future events or future financial performance are considered forward looking statements made pursuant to the safe Harbor provision of the private Securities Litigation Reform Act of 1995, we will.

I'll be making statements that are forward looking and as part of today's call, which by their nature are uncertain and outside of the company's control actual results may differ materially. Please refer to today's earnings release for our disclosure on forward looking statements. These factors and other uncertainties and risks are detailed in the company.

Rick Black: Please refer to today's earnings release for our disclosure on forward-looking statements. These factors and other uncertainties and risks are detailed in the company's filings with the Securities and Exchange Commission. Management will also refer to non-GAAP measures, including adjusted EBITDA and cash available for distribution. Reconciliations to the nearest GAAP measures can be found at the end of today's earnings release. Kimbell assumes no obligation to publicly update or revise any forward-

Filings with the Securities and Exchange Commission.

Management will also refer to non-GAAP measures, including adjusted EBITDA.

And cash available for distribution reconciliations to the nearest GAAP measures can be found at the end of today's earnings release Kimball assumes no obligation to publicly update or revise any forward looking statements with that I would now like to turn the call over to Bob Rabbinate, Kimball royalty partners, Chairman and Chief Executive Officer Bob.

Rick Black: And with that, I would now like to turn the call over to Bob Ravenous, Kimbell Royalty Partners Chairman and Chief Executive Officer. Bob? Thank you, Rick, and good morning, everyone. We appreciate you joining us on the call this morning. With me today are several members of our senior management team, including Davis Ravness, our president and chief financial officer, Matt Daly, our chief operating officer, and Blaine Reinsberger, our controller. We are very pleased to announce another record year for Kimbell.

Thank you Rick and good morning, everyone. We appreciate you joining us on the call. This morning with me today are several members of our senior management team, including Davis, Rob Lewis, Our President and Chief Financial Officer, Matt Daley, Our Chief operating officer, and Blaine Rheinberger, Our controller, we're very pleased to announce another record year for <unk>.

Bob Ravenous: In 2023, we completed our largest acquisition to date, which was immediately accretive to distributable cash flow per common unit, and the acquisition substantially bolstered the Permian as our leading basin in terms of production, active rig count, ducks, permits, and undrilled inventory. In addition, we increased the borrowing base and elected commitments on our revolving credit facility to $550 million, further enhancing our liquidity and conservative capital structure. We are also very pleased to report that we paid out $1.73 per common unit in tax-advantaged quarterly distributions during 2023 and paid down approximately $49.9 million on our credit facility. We ended the year with a strong fourth quarter that reflected significant sequential organic growth over the third quarter due to a number of high-interest wells coming online in the Permian and Haynesville.

Campbell in 2023 we completed our largest acquisition to date, which was immediately accretive to distributable cash flow per common unit and the acquisition substantially bolstered the Permian as a leading basin in terms of production active rig count Ducks permits and I'm thrilled inventory. In addition, we increased the.

Borrowing base and elected commitments on our revolving credit facility to 550 million further enhancing our liquidity and conservative capital structure. We are also very pleased to report that we paid out one dollar and 73 cents per common unit in tax advantaged quarterly distributions during 2023.

And to pay down approximately $49 9 million on our credit facility.

We ended the year with a strong fourth quarter that reflected significant sequential organic growth over the third quarter due to a number of high interest wells coming online in the Permian and Haynesville. We expect to continue this operational momentum as we progress through 'twenty 'twenty four given that our rig count remains near record high.

Bob Ravenous: We expect to continue this operational momentum as we progress through twenty-two, given that our rig count remains near record highs with 98 rigs actively drilling in the US. Turning now to production growth, it is remarkable to reflect on our growth since our IPO, as we have now grown production from 3,116 BOE per day to 24,332 BOE per day, an increase of 681 percent. As evidenced by our significant acquisition activity in 2023, we expect to continue our role as a major consolidator in the highly fragmented U.S. oil and natural gas royalty sector, and we estimate the total size of the market to be nearly a trillion dollars. As I've stated in the past, there are only a handful of public entities in the U.S. and Canada that have the financial resources, infrastructure, network, and technical expertise to complete large-scale, multi-basin acquisitions.

As with 98 rigs actively drilling in the U S.

Turning now to production growth it is remarkable to reflect on our growth since our IPO as we have now grown production from 3116 Bowie per day to 24332 Boe per day, an increase of 681%.

As evidenced by our significant acquisition activity in 2020 three we expect to continue our role as a major consolidator in the highly fragmented U S oil and natural gas royalty sector, and we estimate the total size of the market to be nearer nearly a trillion dollars.

I have stated in the past there are only a handful of public entities in the U S and Canada. They have the financial resources infrastructure network and technical expertise to complete large scale multi basin acquisitions. We believe that we are still in the early stages of this consolidation and will actively seek out targets that fit within.

Bob Ravenous: We believe that we are still in the early stages of this consolidation and will actively seek out targets that fit within our acquisition profile. We are very excited about the opportunities to expand in the future and deliver unit holder value for years to come. I'll now turn the call over to Davis and Matt. Thanks, Bob. And good morning, everyone.

Our acquisition profile, we are very excited about the opportunities to expand in the future and delivering unitholder value for years to come.

I'll now turn the call over to Davis and Matt.

Thanks, Bob and good morning, everyone I'd like to start by reiterating a sentiment that bought expressed this was a great year for Campbell as we finished 2023 with a very strong fourth quarter as well as setting new records in several of our financial and operating metrics.

Davis Ravness: I'd like to start by reiterating the sentiment that Bob expressed. This was a great year for Kimbell as we finished 2023 with a very strong fourth quarter, as well as setting new records for several of our financial and operating metrics. I'll start by reviewing our financial results for the fourth quarter, beginning with oil, natural gas, and NGL revenues of $83.9 million, an increase of 21.2% compared to the third quarter and a record for the company. In the fourth quarter, we generated record daily production that marked another significant milestone for Kimbell. Run rate production for Q4 2023 was a record at 24,332 BOE per day on a six to one basis, which reflected 3.4% organic growth from Q3 2023 run rate production.

I'll start by reviewing our financial results from the fourth quarter, beginning with oil natural gas and NGL revenues of $83 9 million.

An increase of 21, 2% compared to the third quarter and a record for the company.

In the fourth quarter, we generated record daily production that marks another significant milestone for Kimball.

Run rate production for Q4, 2023 was a record at 24332 B O you've heard a on a six to one basis.

What's reflected 3.4% organic growth from Q3, 2023 run rate production.

Davis Ravness: As of December 31st, 2023, Kimbell's major properties had 807 growth, or 4.55 net ducks, and 727 gross or 3.83 net permitted locations on our acreage, not including minor properties which we estimate could add an additional 15 percent. In addition, we exited the quarter with 98 rigs actively drilling on our acreage, which represents approximately 16.3 percent market share of all land rigs drilling in the continental United On the expense side, fourth-quarter general and administrative expenses were $9.1 million.

As of December 31st 2023, Kimball's major properties had 807 gross or 4.55, net docks and 727 gross or 3.83 net permitted locations on our acreage not including minor properties, which.

We estimate could add an additional 15%.

In addition, we exited the quarter with 98 rigs actively drilling on our acreage, which represents approximately 16.3% market share of all land rigs drilling in the continental United States.

On the expense side fourth quarter general and administrative expenses were $9 1 million.

Davis Ravness: $5.8 million of which was cash G&A expense. Excluding the impact of approximately $0.8 million in integration-related expenses associated with the third quarter acquired production, cash G&A per BOE was $2.25. Fourth quarter net income was approximately $17.8 million, and net income attributable to common units was approximately $9.8 million, as compared to $18.5 million and $13.6 million, respectively, from last quarter. Total fourth quarter consolidated adjusted EBITDA was a record at $69 million, which was up approximately 24% from last quarter. You will find a reconciliation of both consolidated adjusted EBITDA and cash available for distribution at the end of this news release Today, we announced a cash distribution of 43 cents per common unit for the fourth quarter.

$5 8 million of which was cash G&A expense.

Excluding the impact of approximately 0.8 million and integration related expenses associated with the third quarter acquired production cash G&A per BOE <unk> was $2.25.

Fourth quarter net income was approximately $17 8 million and net income attributable to common units with approximately $9 8 million.

As compared to $18 5 million and $13 6 million, respectively from last quarter.

Total fourth quarter consolidated adjusted EBITDA was a record at 69 million.

Which was up approximately 24% from last quarter.

You will find a reconciliation of those consolidated adjusted EBITDA and cash available for distribution at the end of our news release.

Today, we announced a cash distribution of 43 cents per common unit for the fourth quarter.

Davis Ravness: This represents a cash distribution payment to common unit holders that equates to 75% of cash available for distribution, and the remaining 25% will be used to pay down a portion of their outstanding borrowings under Kimbell's Secured Revolving Credit Facility. Moving now to our balance sheet and liquidity. As a reminder, on December 8th, we increased the borrowing base and aggregate commitments under our Secured Revolving Credit Facility from $400 million to $550 million in connection with the fall redetermination. As of December 31st, 2023, we had approximately $294.2 million in debt outstanding under our secured revolving credit facility. We continue to maintain a conservative balance sheet with net debt detrailing 12-month consolidated adjusted EBITDA of 1.0 times. Kimbell had approximately $255.8 million in undrawn capacity under its secure revolving credit facility as of December 31.

This represents a cash distribution payment to common unit holders that equates to 75% of cash available for distribution.

And the remaining 25% will be used to pay down a portion of their outstanding borrowings under Kimball secured revolving credit facility.

Moving now to our balance sheet and liquidity.

As a reminder, on December 8th we increased the borrowing base and aggregate commitments under our secured revolving credit facility from $400 million to $550 million and connection with our fall Redetermination.

At December 31, 2023, we had approximately $294 2 million in debt outstanding under our secured revolving credit facility.

We continue to maintain a conservative balance sheet with net debt to trailing 12 month consolidated adjusted EBITDA of one point out of times.

Kimball had approximately $255 8 million and undrawn capacity under its secured revolving credit facility as of December 31st.

Davis Ravness: We are very comfortable with our strong financial position, the support of our expanding bank syndicate, and our financial flexibility. We are also releasing 2024 guidance, which includes daily production at its midpoint of 24,000 BOE per day. We feel very confident about the prospects for continued robust development, given the number of rigs actively drilling on our acreage, as well as the commentary we are hearing from several operators about their expected development activity in 2024, especially in the Permian. We remain very bullish about our industry and our company as we see a long horizon for continued growth and opportunities to enhance shareholder value. I'd like to thank the incredibly hardworking, dedicated, and talented team here at Kimbell for continually driving growth and enhancing the value of our organization for all stakeholders.

We are very comfortable with our strong financial position the support of our expanding bank syndicate and our financial flexibility.

We are also releasing 2024 guidance, which includes daily production at its midpoint of 24000 Boe per day.

We feel very confident about the prospects for continued robust development given the number of rigs actively drilling on our acreage as well as the commentary we are hearing from several operators about their expected development activity in 2020 for especially in the Permian.

We remain very bullish about our industry and our company as we see a long horizon for continued growth and opportunities to enhance shareholder value.

I'd like to thank the incredibly hard working dedicated and talented team here at Campbell for continually driving growth and enhancing the value of our organization for all stakeholders.

Operator: In addition, we work with the best advisors and financial institutions in the business, and we greatly appreciate these partnerships that contribute to the company's success. With that, Operator, we are now ready for questions. Thank you. We will now be conducting a question and answer session. If you'd like to ask a question, please press star 1 on your telephone keypad. An information tone will indicate that your line is in question. Press star 2 if you would like to remove your question.

In addition, we work with the best advisers and financial institutions in the business can.

We greatly appreciate these partnerships they contribute to the company's success.

With that operator, we are now ready for questions.

We will now be conducting a question and answer session.

I'd like to ask a question. Please press star one on your telephone keypad confirmation tone will indicate that your line is in the question queue.

Press Star two if you would like to remove your question from the queue.

Operator: The panelists will limit themselves to one question and a follow-up. For participants using speaker equipment, it may be necessary to pick up their handsets before pressing the start key. One moment, please, while we poll for questions. Our first question comes from Neil Dingman with True Securities. Please proceed with your question. You all just talk about activity and what you're thinking for this year in the focus area. Thank you. Sorry guys, I think I was on mute.

So dinos analysts limit themselves to one question and a follow up.

Folks using speaker equipment, it may be necessary to pick up your handset before pressing the starkey.

Please while we poll for questions.

Our first question comes from Neal Dingmann with Truth Securities. Please proceed with your question.

I'll just talk about activity and what's your thinking for this year.

Focus area. Thank you.

Alright, guys if it goes on mute.

Operator: Um, a nice quarter. My question is around... Neil, you might be on mute, operator. We can go to the next question while we wait for Neil to come back in.

Nice quarter My question is around.

Okay.

Neil you might be on mute.

Operator.

Okay.

You can go to the next question, while we wait for Neil and bring them back and our next question is from Tim <unk> with Keybanc. Please proceed with your question.

Operator: Our next question is from Tim Rezvan with Pbank. Please proceed with your question. Hi, this is John Mardini on behalf of Tim.

Hi, This is John <unk> on for Tim.

You mentioned early on in your press release.

Bob Ravenous: You mentioned earlier in your press release that the industry is in the early stages of consolidation and that you're excited about the opportunities to expand. Can you just talk about what you're seeing in the marketplace now and why you're so confident? Sure, I'm happy to do that.

I mentioned earlier that the industry is in early stages of consolidation that you're excited about the opportunities to expand can you just talk about what youre seeing in the marketplace now and why or why youre. So confident.

Sure I'm happy to do that I would say that every year since our IPO and even before that we've been surprised by M&A volume last year was it wasn't an enormous year across the entire sector for consol.

Bob Ravenous: I would say that every year since our IPO and even before that, we've been surprised by the volume of M&A. Last year was an enormous year across the entire sector for consolidation within minerals, and it continues to surprise us to the positive. We're seeing more teams. Most recently, a trend we've seen is a lot of family offices that are getting increasingly involved in minerals, and that's driving consolidation, particularly amongst smaller deals that are being rolled up into larger portfolios. We are regularly in contact with those groups, and we're meeting new groups constantly.

Consolidation within minerals.

The surprises to the positive we were seeing more team.

Most recently a trend we've seen is a lot of family offices that are getting increasingly involved in minerals, that's driving consolidation, particularly amongst smaller deals that are being rolled up into larger portfolios.

We are we we are regularly in contact with those groups, we're meeting new groups constantly.

Bob Ravenous: Nearly all of them have a plan to exit at some point in the future. And so that's why we continue to believe that larger institutional buyers like ourselves, specifically public companies, will continue to benefit from a robust seller pipeline. It's tough getting deals done in this space, but we continue to see that trend as being a positive one. We think it will continue and we think it'll grow as things continue. I mean, if you look at just the overall market that's been captured by the public companies, it's still de minimis, you know, low single digits of the overall market size. So we just think it's inevitable that consolidation will continue. No, it's great.

Nearly all of them they have a plan to exit at some point in the future.

So that's why we continue to believe that larger institutional buyers like ourselves specifically the public companies will continue to benefit from robust seller of pipeline.

It's tough getting deals done in this space, but we continue to see that trend as being a positive. One we think it will continue and we think it'll grow this thing.

Continue I mean, if you look at just the overall market that's been captured by the public companies. It's still de Minimis, you know low single digits of the overall market size. So we just think it's inevitable that consolidation continues.

Bob Ravenous: Thanks for the details. So the Permian is clearly your organic growth opportunity today. I talked about this a little bit, but can you just expand on, you know, what you're seeing from operators and in terms of activity and cycle times, you know, are you seeing any stock builds or activities still proceeding at the normal rate? Yeah, good question.

No that's great. Thanks for the details and.

So the Permian is clearly your organic growth opportunity today I talked about this a little bit but can you just expand on why you are saying from operators in terms of activity and cycle time.

Any stock Bill.

Activity is still proceeding at the normal rate.

Yeah. Good question. So we are we feel better today than we ever have about.

Bob Ravenous: So we feel better today than we ever have about the near-term catalyst for development on our acreage. We have net ducks and permits of 8.4 compared to 5.8 needed to maintain flat production on our asset profile. So that would suggest that we have ample opportunity here to not only keep production volumes flat but, particularly, for them to grow. That being said, everybody is aware of what's been happening in the natural gas space recently.

The near term catalysts for development on our acreage so we have that docs and permits.

Of $8 four compared to $5 eight needed to maintain flat production on our on our asset profile. So that would suggest that we have.

Ample opportunity here.

Not only keep production volume slab, but particularly for them to grow with that being said that being said everybody is aware of what's been happening in the natural gas space recently, you're correct that we.

Bob Ravenous: You're correct that we have pivoted, not necessarily deliberately, but we have pivoted and just benefited from some really nice acquisitions in the Permian Basin over the last two years. So our companies have become increasingly oil-weighted. We're less dependent on the Haynesville for our growth versus where we were a few years ago. I think that's a good place to be right now, just given the dynamics in the natural gas space. I kind of wish that some of these operators would rein back drilling to a certain extent and maybe keep the gas in the ground on our acreage and theirs until natural gas accommodates a more positive price here. But we think that the permeate producers are going to keep production flat as a general theme.

We have pivoted not necessarily deliberately but we have pivoted and just benefited for some really nice acquisitions in the Permian basin over the last two years so.

He has become increasingly oil weighted we're less dependent on it.

Specifically, the haynesville for our growth versus where we were a few years ago I think that's a good place to be right now just given the dynamics and the natural gas space I kind of wished it.

Some of these operators what are.

Would would reign back rolling to a certain extent and maybe keep the gas in the ground on our acreage and theres until natural gas accommodate some more.

Positive price here, but we think that the Permian producers are going to keep production flat as a general theme some will be growing production I think our acreage would grow better than the average producer as well just by evidence of the number of doctors, we have relative to our PDP decline maintenance level. So feel good about the Permian.

Bob Ravenous: Some will be growing production. I think our acreage will grow better than the average producers will, just by evidence of the number of ducks we have relative to our PDP decline maintenance level. So feel good about the Permian.

Bob Ravenous: The Haynesville is a smaller position than we have today, but I still feel good about the Haynesville. We have a lot of ducks there. So overall, I feel good about the direction of the company. I think what you see in our guidance..., like always, is a conservative view on development. It's just always challenging as a mineral owner with no developmental control over the assets to pinpoint exactly what growth is going to be, particularly in such a volatile environment like we're in today on the natural gas side and even oil, but more recently, So, conservative guide. Feel good about it though. We don't think it's unduly conservative and feel very confident in our assets in the near term. No, that's great. Thanks for framing that up. I'll end it back then.

The Haynesville is a smaller position that we have today, but still feel good about the haynesville, we have a lot of docs there.

So overall feel good about the direction of the company I think what you'll see I think what you see in our guidance.

Oh ways is a conservative view on development, it's always challenging as the mineral owner with no developmental control over the asset.

Pinpoint exactly what growth is going to be particularly in such a volatile environment like we're in today on the natural gas side and even more recently so conservative guide.

I feel good about it though we don't think it's unduly conservative and feel very confident in our assets in the near term horizon for them.

Yeah.

No that's great. Thanks for framing that up I'll hand, it back.

Operator: Our next question comes from Derrick Whitfield. Please proceed with your question. Thanks and good morning, all. Good morning, Derrick. Hey, good morning.

Our next question comes from Derrick Whitfield with Stifel. Please proceed with your question.

Thanks, and good morning all.

Morning, Derek.

Hey, good morning, I consider.

Bob Ravenous: Given the considerable M&A activity we've witnessed across the Permian and Hainesville over the last six months, I wanted to ask for your thoughts on the impact it could have on your business. That's a great question. The immediate reaction to that is that we'll see a more disciplined approach to growth. So I think if I had to guess, I'd say that growth will be. We will feel more confident about those combined companies on a consolidated basis for their ability to maintain production levels. I think that what you'll see less of is the hyperbolic shale growth of prior years unless, of course, we see some sort of material macro event that increases oil and gas prices. We tend to see that happen pretty quickly on our acreage. But overall, we're absolutely fans of consolidation. We get that question all the time.

Given the considerable M&A, we've witnessed across the Permian and Haynesville over the last six months wanted to ask you your thoughts on the impacts that could have on your business.

That's a great question.

Reaction to that is that we will see a more disciplined approach to growth.

Well I think if I had to guess I'd say that growth will be.

We will feel more confident about those combined companies on a consolidated basis for their ability to maintain production levels I think what youll see less of is the hyperbolic shale growth.

Prior years unless of course, we see some sort of material macro event that increase as oil and gas prices, we tend to see that happen pretty quickly on our acreage.

But overall, where we're absolutely sands of consolidation, we get that question all the time and we view it as we'd rather have our assets developed by folks with with stronger balance sheets with more liquidity in their stock access to capital markets.

Bob Ravenous: And we view it as we'd rather have our assets developed by folks with stronger balance sheets, with more liquidity in their stocks, access to capital markets, investment grade ratings, all those wonderful things that support a healthy operator. We continue to believe that that ongoing consolidation story on the operator side will ultimately benefit mineral owners like ourselves and everyone else. That makes sense. And then, for my follow-up, I wanted to focus more specifically on Long Point. Now that you've onboarded with assets, are you seeing more ground game or collection opportunities? and bike collection opportunities.

You know investment grade ratings, all those wonderful things that support a healthy operator.

We continue to believe that that ongoing consolidation story on the operator side will ultimately benefit mineral owners like ourselves and everyone else.

Makes sense and then for my follow up I wanted to focus more specifically on long point.

Now that you've on boarded with that are you seeing more ground game, our collection opportunities and by collection opportunities that I'm speaking to operate under payment et cetera.

Bob Ravenous: I'm speaking to operator entertainment, etc. Sorry, just to clarify, are you asking whether we are seeing more small-scale acquisition opportunities on the mineral front, or am I misunderstanding? Nope, you've got it.

Sorry, just to clarify are you asking are we seeing more small scale acquisition opportunities on the mineral front or or I misunderstand the question.

Bob Ravenous: That's correct. So more mineral opportunities based on the new assets you've onboarded through LongPoint. And then, secondarily, just revenue collection opportunities. Are you seeing any situations where they were operator underpayment, just now that you've got the assets? Yeah, great question. Very happy with the ease at which we were able to integrate the LongPoint asset.

No you've got it that's correct so more mineral opportunities based on the new assets you've on boarded two long point and then secondarily just.

Collection revenue collection opportunity are you seeing any situations, where they were operator underpayment just now that you've got the assets in house.

Yeah, Great question very happy with the ease at which we were able to integrate the long point asset. They have a phenomenal team that had been incredibly well organized and very supportive of.

Bob Ravenous: They have a phenomenal team that has been incredibly well organized and very supportive of, frankly, just getting us fully integrated and getting all the cash where it needs to go. Not necessarily seeing a pickup in the smaller M&A game. We continue to be disappointed by the clearing prices for smaller acquisitions.

Frankly, just getting us fully integrated and getting all the cash where it needs to go.

Not seeing necessarily a pick up in the smaller M&A game, we continue to be disappointed by the price of the clearing prices for smaller acquisitions.

Bob Ravenous: I was speaking earlier about the fact that there just continues to be more and more attention to this space, more money coming into it, new teams constantly coming in. And what I think that's done is made ground game acquisitions, smaller deals more expensive. Candidly, some of the larger opportunities that we've seen over the last couple of years have been counterintuitively more efficient from a pricing perspective, with larger packages having better prices than smaller ones, which just seems totally counterproductive or counterintuitive to anybody from a corporate finance standpoint.

I was kind of speaking earlier to the fact that there just continues to be more and more attention to this space more money coming into it new teams constantly coming in and what I think that's done is made ground game acquisitions smaller deals more expensive candidly some of the larger opportunities that we've seen over the last couple of years have.

Ben Counterintuitively more efficient from a from a pricing perspective.

Larger packages, having better pricing than smaller ones, which just seems totally counterproductive and counterintuitive to anybody from a corporate finance standpoint, so I wouldn't I wouldn't say that the deal if that's what really led to an increase in smaller deal volumes.

Operator: So I wouldn't say that the deal has necessarily led to an increase in smaller deal volume. But overall, we just continue to be happy with how that asset has been developed, and we continue to believe that it's going to increase in production value, just by virtue of the number of ducks and permits on the properties over the next couple... Very helpful. Thanks for your time.

But overall just continue to be happy with how that asset has been developed and we continue to believe that it is going to increase and production value just by virtue of the number of ducks and comments on the properties over the next couple of years.

Very helpful. Thanks for your time thank.

Operator: Thank you. Our next question comes from Neil Dingman with Truth. Please proceed with your question. Good morning, guys.

Thank you.

Our next question comes from Neal Dingmann with true Securities. Please proceed with your question.

Neil Dingman: Thanks, Cora. I apologize for the prior background noise here at the office. My first question is also on your M&A. It sounds like you all continue to believe there are ample opportunities. It certainly seems to me as well. And I'm just wondering, will you strategically target mostly permanent assets on the heels of your recent successful deal? Or do you all just look at the most accretive?

Hey, good morning, guys nice quarter I apologize for the prior background the office.

My first question is also on your M&A it sounds like.

You all continue to believe there is ample opportunities that certainly it seems to me as well and I'm. Just wondering will you strategically target, mostly Permian assets on the heels of your recent successful deal or.

I'll just look at the most accretive I know youll continue to see tons of deals out there. So I'm just wondering how you think about approaching things this year.

Bob Ravenous: I know you'll continue to see tons of deals out there, so I'm just wondering how you think about approaching things this year. Yeah, excellent question. Again, one of the more common questions that we get. A strength of ours that's played out over the last 27 years of us doing this is not having a geographic restriction on what we buy or even a commodity restriction on what we buy. It's hard enough to make money in this business. It's a competitive business, minerals, and it's even harder when you restrict yourself to one county or two counties or even just one basin. I think it can be very challenging, with some exceptions, but I think it makes your life more difficult when you're precluding yourself from looking at the totality of what's possible to buy as opposed to focusing on one individual base.

Yeah excellent question again, what are the more common questions that we get.

Length of ours, that's played out over the last 27 years of us doing that.

Not having a geographic restriction to what we buy or even a commodity to a restriction of what we buy it's hard enough to make money in this business, it's a competitive business minerals.

Even harder when do you when do you restrict yourself to one county, or two counties or even just one base and I think it can be very challenging, but with some exceptions, but I think it makes your life more difficult when you're precluding yourself from looking at.

The totality of what's possible to buy as opposed to focusing on one individual basin. So you know.

Bob Ravenous: So, you know, consistent with our strategy in the past, we believe that first and foremost, our job when looking at acquisitions is to find assets that generate the best risk-adjusted returns for our investors. And we're agnostic as to where those opportunities present themselves. So it just so happened that in the last couple of years, the Permian has been really hot. There have been a lot of exits in that space.

Consistent with our strategy in the past, we believe that first and foremost our job when looking at acquisitions instead of five.

<unk> assets that generate the best risk adjusted returns for our investors and we're agnostic as to where those those opportunities present themselves. So.

It just so happened in the last couple of years. Upon me. It has been really hot theres been a lot of exits in that space. We have obviously benefited from that but then you know going back four or five years ago, with our haymaker acquisition and others that the haynesville with an excellent basis for US cities. These days things tend to be cyclical in nature, and and we like to be.

Bob Ravenous: We have obviously benefited from that. But then, you know, going back four or five years ago with our haymaker acquisition and others, the Haynesville was an excellent basin for us. So these basins tend to be cyclical in nature, and we like to be there opportunistically and try to keep our minds as open as possible on what makes the most sense for us to acquire. So a slow start to this year, I will say that.

Either opportunistically and try to keep our minds as they open if possible on what makes the most sense for us to acquire so slow start to this year I mean, I will say that we were not necessarily seeing huge packages right now that are particularly interesting to us but that's not.

Bob Ravenous: We're not necessarily seeing huge packages right now that are particularly interesting to us, but that's not something that surprises us. We've seen that same trend over the last couple of years. Frankly, at this time last year, we thought that 2023 was going to be a quiet year and ended up being the most active year in our company's history. So things can change quickly.

That's not something that surprises as we've seen that same trend over the last couple of years, we frankly at this time last year and we thought that two.

24, he was going to be a quiet year and ended up being the most active year in our company's history. So things can change quickly I think what youll see is that a lot of folks holding natural gas minerals are going to sit on their hands until prices improve to state. The obvious. So if I had to if I had to guess at this point I would say that the balance of the year.

Bob Ravenous: I think what you'll see is that a lot of the folks holding natural gas minerals are going to sit on their hands until prices improve, to state the obvious. So, you know, if I had to guess at this point, I'd say that the balance of the year looks more addressable from an oil-weighted perspective than perhaps gas.

And what's more what's more.

Addressable from an oil weighted perspective than perhaps gas and so on.

I'll just add that context.

Bob Ravenous: I really like the way you all look at that. And the second question on activity specifically, obviously, I can see the rig count seems to be holding up quite well, but just wondering how you all would describe sort of overall expectations for your operators for the remainder of the year, besides, you know, the attractive, what is it, nearly nine ducks in net permitted locations you all have talked about. Yeah, excellent.

Understood I really like the way you all look at that and the second question is on activity specifically.

Obviously, I can see the rig counts seem to be holding up quite well, but just wondering how you all would describe sort of overall expectations.

For your operators remainder of the year. Besides the attractive what does it nearly nine ducks in net permitted locations you talked about.

Bob Ravenous: And not to kind of repeat a little bit of what I said earlier, I think on balance, what we're hearing from operators is that they want to maintain production volumes, at least on the oil side and the Permian specifically. I think on the natural gas side, we're seeing a little bit of a mixed bag, some operators when we've all seen the headlines in the last couple days about some operators cutting capex and cutting production guidance, But you know, we may see a little bit of, you know, less production growth or less of an ability to replace production on a maintenance front on the natural gas side. But again, feel very confident about the oil-weighted asset base. Roughly, let's see, just over 50% of our rigs running right now in our acreage are in the Permian. And then we're pretty well diversified after that with 17% in the Midcon, 13% in the Haynesville, 8% in the Eagleford, obviously oil weighted, 6% in the Williston oil weighted, and so on and so forth.

Yeah excellent.

I kind of repeat a little bit of what I said earlier I think on balance what we're hearing from operators is that they want to maintain production volumes at least on the oil side in the Permian specifically.

Think on the natural gas side, we are seeing a little bit of a mixed bag.

Some operators and we've all seen the headlines in the last couple of days about some operators cutting capex cutting production guidance, which we think makes it incredibly good sense and this natural gas price environment, but we may see a little bit of a.

Less production growth or have less of an ability to replace production on the maintenance front on the natural gas side, but again feel very confident about the the oil weighted asset base, roughly let's say just over 50% of our rigs running right now in our acreage or in the Permian and then we're pretty well diversified after that with 17% in the <unk>.

13% of the Haynesville, 8% in the Eagle Ford, obviously oil weighted 6% on the Williston oil weighted and so on and so forth. So I think what Youll see is is that operators overall are going to what we're hearing is that they're going to maintain production volumes, maybe slight amounts of growth just depending on whats going on with their drilling programs.

Bob Ravenous: So I think what you'll see is that operators overall are going to, what we're hearing is that they're going to maintain production volumes, maybe slight amounts of growth, just depending on what's going on with their drilling programs. But I think that because we've happened to have acquired large assets in the last two years, with a disproportionate number of ducks relative to that maintenance production level, we would expect that our portfolio would look quite good on a relative basis to perhaps, you know, lower 48th growth overall. And again, we can't guarantee that, but we feel very confident about near-term development on our asset and the ability to replace, you know, declining production. I really love to hear that activity.

But I think that because we have happened to required large assets in the last two years with a disproportionate number of docs relative to that maintenance production level. We would expect that our portfolio will look quite good on a relative basis to perhaps lower 48th growth overall and again, we can't go.

We can't guarantee that but we feel we feel very confident about near term development on our asset and the ability to replace it.

Declining production barrels.

Really love to hear that activity. Thank you all.

Operator: Thank you all. Thank you. Our next question comes from Paul Diamond; please proceed with your question. I want to touch quickly on the opportunities that you guys are seeing for further growth. Is there, as the market sits right now, kind of an ideal scale of the deals you're looking at? Do those family offices need to get to a certain level before they make sense for you guys to really talk to? Or is it more just kind of like maintaining that conversation?

Thank you.

Yeah.

Our next question comes from Paul Diamond with Citi. Please proceed with your question.

Thank you good morning, all thanks for taking my call a touch of quick good morning, just wanted to touch quickly on the kind of the opportunities that you're going to see further growth is there is a market sits right now kind of an ideal.

Scale of the deals you are looking out to this family offices to get to a certain kind of level before they make sense for you guys to really talk too or is it more just kind of like maintaining that conversation and see where things go in the future.

Bob Ravenous: Yeah, great question. I haven't gotten that question addressed in that specific way. I wouldn't necessarily say it's necessarily the scale of the portfolio size that's the most important characteristic of making assets appealing to ourselves and other larger institutional buyers. I'd say it's more of waiting until the assets are at a balance of cash flow accretion today, right? We're not going to buy something for 10 times cash flow that's immediately diluted to our cash flow per unit. But then there has to be enough upside on the asset to where it's not just a declining one.

Yeah, Great Great question I haven't gotten that question addressed in that specific way I wouldn't say, it's necessarily the scale of the portfolio size. That's the most important characteristic of making making assets appealing to ourselves and and other larger institutional buyers I'd say, it's more of a fine.

Of waiting until the assets are at a a a balance of cash flow accretion today right, we're not going to buy something for 10 times cash flow. That's immediately dilutive to our cash flow per unit, but then there has to be enough upside on the asset to where it's not just the decline in one and the reason for that is that obviously it could be.

Bob Ravenous: And the reason for that is that obviously, it could be cash flow accreted today if you buy something at three times cash flow, and then obviously diluted in a year or two as the asset runs out without the ability to replace the inventory. So what we continue to focus folks that are out there working hard every day putting together mineral portfolios is to try to think about the exit as you're putting the assets together. Try to think about putting that right balance of cash flow and drilling inventory together so that somebody like us can pay, you know, the price that they need to justify the returns that they want. And we believe in win-win outcomes. We want the folks that we buy deals from to make money, and they want us to make money.

Hello accretive today, if you buy something at three times cash flow and then obviously dilutive in a year or two.

It runs out without the ability to replace the inventory. So what we what we continue to focus folks on that are out there working hard everyday putting together mineral portfolios is try to think about the exit as you're putting the assets together I'm trying to think about putting that right balance together of cash flow and.

The drilling inventory so that if somebody like us can pay the price that they need to justify the returns that they want and we believe and win win outcomes. We want the folks that we buy deal for them to make money and.

Bob Ravenous: And that's the reason we say that because a lot of what we do is buy from repeat sellers and have a rapport with them where they know that we're going to do what we say we're going to do. And we know that the quality of title and assets that they're delivering to us is going to be solid because we've gone through the diligence process with them before. So you know, size is relevant. I wouldn't say it's as relevant as what I was just alluding to, but on the size aspect, it's been really tough to find deals that make sense for us, candidly, just from a pricing perspective under 25 or 50 million bucks. It just seems like that size range, anything under that, attracts an incredible amount of attention from buyers.

They want us to make money and that's the reason we say that is because a lot of what we do is buy from repeat sellers said, an avid rapport with them or they know that we're going to do what we say, we're going to do and we know that the quality of title one asset that they're delivering to us it's gotta be solid because we've gone through the diligence process with them before so yeah. So size is.

Is relevant I wouldn't say, it's as relevant as what I was just alluding to but on the sides aspect. It's been really tough to find deals that make sense for us candidly just from a pricing perspective under.

25, or 50 million box. It just seems like that size range anything under that just attracts an incredible amount of attention from buyers and we've just been priced out of those deals and I think you'll see that not just for ourselves, but also some of the other public companies.

Bob Ravenous: And we've just been priced out of those deals. And I think you'll see that not just for ourselves, but also some of the other public companies where we're just a little bit surprised that it looks like some people are just trying to put money to work. But if the expectation is that they can outbid us today for a $25 million asset and maybe put together four of them and then try to bring that to us as a $100 million deal, that's not going to make mathematical sense to us.

There were just a little bit surprised that it looks like some people are just trying to put money to work.

And if the expectation is that they can outbid us today for a $25 million that and maybe put together four of them and then try to bring that to US is 100 million dollar deal that's not going to make a mathematical sense to us. So continue to be surprised by how competitive the smaller opportunities have been and continue to be pleased by.

Bob Ravenous: So, continue to be surprised by how competitive the smaller opportunities have been and continue to be pleased by how attractively priced some of the larger deals are. Good, makes perfect sense. Just a quick follow-up, if I do something back at the end, a little math on the existing permits and DUCs versus production guidance growth. Should I think about that as more of an expectation than a similar level of..., you know, ducks turning in line and the permits kind of progressing as normal seeing about 40, like 38, 40% of the existing going through? Or is it more just an expectation that, you know, there might be increased volatility? I think it's a little bit of both, and I like the way that you framed that.

How attractively priced some of the larger deals or so.

So it makes perfect sense.

Just a quick follow up if I would if I do some back of them into a mask on it.

Seeing permits ducks versus production.

Production guidance grows.

Should I think about that as more of the expectation that you have a similar level of.

Ducks turned in line and the parents kind of progressing as normal senior about you know 40, like 30% to 40% of the existing going through or is it more just an <unk>.

Expectation that there might be some increased volatility in the markets. This year.

I think it recently.

I think it's a little bit of both I and I like the way that you framed that so historically speaking, we expect close to 100% of our net docs to be to be completed over the next let's call. It 12 to 18 months and it's probably closer to 12 months on the permit side I don't disagree with the percentage that you just you just.

Bob Ravenous: So historically speaking, we expect close to 100% of our net ducks to be completed over the next, let's call it 12 to 18 months, and it's probably closer to 12 months. On the permit side, I don't disagree with the percentage that you just framed there. I don't have exactly in front of me what historical averages have been on permits, but that sounds reasonable to me.

There I don't have exactly in front of me what historical averages have been on permits but that that sounds reasonable to me.

Bob Ravenous: I think that what you're seeing from us, and maybe this is what you're driving at, is perhaps it looks a little bit conservative on our guidance, given that the ratio of net ducts and permits on our acreage to the maintenance level needed to maintain flat production is unduly conservative. I just think that in this market environment, we'd rather look at that volatility and say, we want to put something out there that makes sense in terms of guidance. We don't want to be unduly conservative, but we can't guarantee that in a natural gas price environment like this, or if oil starts to turn up this year, we don't want to be over-promising production to our shareholders. And so I think that what you see is just us trying to toe that line of giving realistic guidance for the next 12 months and not being unduly conservative, but also keeping in mind that, obviously, natural gas was what, $1.50 a couple of days ago. So it's a tough environment, specifically right now, to be providing guidance. And I think that's something that's going to be tough for any mineral owner, obviously, that doesn't have development control over their assets.

I I think that what you're seeing from us and maybe maybe this is what you're driving at is perhaps it looks a little bit conservative on our guidance given that ratio of net ducks and permits on our acreage to the maintenance level needed to maintain flat production it'll be being unduly conservative I just think that in this in this mark.

That environment, we'd rather look at that volatility and say, we want to put something out there that makes sense on guidance, we don't want to be unduly conservative, but we can't guarantee that our natural gas price environment like this or if oil starts to turn it over this year, we don't want to be over promising production to our to our shareholders.

I think that what you're seeing is just that's trying to be kind of to that line of getting of giving realistic guidance for the next 12 months, but nothing unduly conservative but also keeping in mind you know obviously the natural gas was $1 50, a couple of days ago. So it's it's a it's a tough environment, specifically right now to be providing guidance, but I think that's some.

That's going to be tough for any mineral owner, obviously that doesn't have developmental control over their assets. So.

Bob Ravenous: Got it, understood. I appreciate your time, and I'll leave it there. Thank you. Our next question comes from Grant Adkins with Raymond James. Please proceed with your question. Hey guys, thanks for taking the call. Good morning, Grant.

Got it understood I appreciate your time and I'll leave it there.

Thank you.

Our next question comes from Grant Adkins with Raymond James. Please proceed with your question.

Hey, guys. Thanks for taking my call.

Good morning Grant.

Operator: So this is going to be kind of on the macro side, but given the kind of activity reductions we've seen from some operators in both Appalachia and Hainesville, do y'all see that as kind of... I guess you kind of mentioned that you don't really want those assets to be drilled up right now. But how does that affect your kind of gas production, or does it moving forward into 24? I'm not too worried about gas production on our asset in 2024, just because of the amount of ducts that we have in gas basins currently. So I think what you'll see is that those alone with some permits will be able to keep our production more or less flat, absent even increased drilling on the acreage.

So this is going to be kind of more on the macro side, but given the kind of activity reductions we've seen.

From some operators in both Appalachia and the Haynesville.

Do you all see that as kind of.

I guess, you've kind of mentioned that you don't really want.

It really does as it drove up right now, but how do you think that affects your kind of gas production or does it moving forward into 'twenty four.

I'm not too worried about gas production on our asset in 2024.

Just because of the amount of docs that we have and gas basins. Currently so I think what youll see is that are those the wound with some permits will be able to keep our production more or less flat absent even increased drilling on the acreage.

Operator: That's really more focused on the Haynesville, which is now only... 13% of our rigs that are running today. So a little bit less relevant than it was for our business, you know, even just a couple of years ago, which always just kind of amazes me to look at how the portfolio has changed. Appalachia, a less significant, you know, portion of our production, obviously, so less focused on that.

That's really more focused on the Haynesville, which is now our only.

What's the 13% of our R.

Our our rigs that are running today, so a little bit less relevant than it was for a business. Even just a couple of years ago. When he was always just kind of amazes me to look at look at how the portfolio has changed Appalachia less significant.

A portion of our production, obviously, so less less focused on that but what we are hearing overall from operators. There is yet no maintenance production levels are or are going to be what we're going to see here over the next 12 to 18 months. So.

Bob Ravenous: But what we are hearing overall from operators there is that, you know, maintenance production levels are gonna be what we're gonna see here over the next 12 to 18 months. So I don't feel your point is well taken, and I think that's baked into our guidance and kind of echoes some of the comments that I've made on previous questions, which is that we feel very good about our ducks and permits relative to maintenance activity that needs to happen to keep production flat, but our guidance does reflect, you know, a realistic and, you know, conservative view of the fact that a recognition that natural gas prices are very low and very volatile, and therefore difficult to predict in terms of activity.

I don't feel your point is well taken and I think that's baked into our guidance and kind of.

Some of the comments that I've made on previous questions, which is that we feel very good about our ducks and permits relative to maintenance activity that needs to happen to keep production flat but.

But our guidance does reflect a realistic and and and a conservative view of the fact that a recognition that natural gas prices are very low and very volatile and therefore difficult to predict in terms of activity levels. So.

Bob Ravenous: Awesome, thank you. Um, and then follow up, this is going to shift gears a little bit. So you have a pretty distinct advantage with the tax structure on your distribution. Less the last announcement, what 93% was non-taxable. Can you give any color on where you expect that to be for the coming year, just like an average kind of what your tax shield is going to be there?

Awesome. Thank you and then a follow up this is going to shift gears a little bit.

So you all have a pretty distinct advantage with the like tax structure on your distribution.

Last announcement about 93% was non taxable can you give any color on like what where do you expect that to be for the coming year, just like an average kind of what your tax shield is gonna be there.

Blaine Reinsberger: Blaine, do we have anything that we can share on that now, or any thoughts on that, Blaine Rodsworth, our controller? Yeah, so we used to give tax guidance going forward. And we stopped doing that, just given the volatility of pricing. I would just say if you want to benchmark it, I would take what pricing is today.

Blame do we have anything that we can share on that now or any thoughts on that blayne ride controller yep.

Yeah. So we we used to give tax guidance going forward.

We stopped doing that just given the volatility of pricing I would just say if you want a bench market I would take what what what what pricing is today and then you can kind of just you know it is.

Blaine Reinsberger: And then you can kind of just, you know, it's going to ride whatever natural gas and oil prices do for the rest of the year. So I would take whatever we had for Q4, and maybe use that as a benchmark. And then whatever you think, whatever the strip price of oil and natural gas is, is kind of, the movement of that is going to be what's going to dictate what our tax shield is going to be. Okay, awesome. Thank you, guys. Thank you. Our next question comes from Aaron, on the calendar, and we will proceed with your questions. Hi morning, guys. I know there's been a lot of focus on this call around M&A, but I would say the one thing that I like about your business is that it can punish itself organically. And my question is sort of on that front. I noticed that your eagle for that activity picked up quite a lot in Q4. I think it was up five or six rigs quarter over quarter. Do you have any color on what's driving that?

Right, whatever natural gas and oil prices do.

For the rest of the year, So I would take whatever we have for Q4 and maybe use that as a benchmark and then whatever you think.

Wherever the strip price of oil and natural gas is kind of you know.

The movement of that is going to be what's going to dictate what our tax yield is going to be.

Okay Awesome. Thank you guys.

Yeah.

Yeah.

Okay.

Our next question comes from Erin Wilson.

E with PD Cowen. Please proceed with your question.

Hi, Good morning, guys I know theres been a lot of focus on this call around M&A, but I would say the one thing that I like about your businesses that can they can replenish itself organically and my question sort of on that Brian.

I noticed that your Eagle Ford activity picked up quite a lot in Q4, I think it was up five or six rigs quarter over quarter do you have any color on what's driving that.

Operator: That is an excellent question, Aaron. Good morning, by the way. Yeah, Aaron. This is Matt Daly. I noticed that too. The operators in Eagleford, it's interesting, there's only one public operator; it's EOG. The rest of the folks in Eagleford are all private operators.

That is an excellent question Erin good morning by the way.

Aaron This is bad daily I noticed that two of the operators in Eagle Ford is interesting there's only one public operators EOG. The rest of the folks in Eagle Ford are all private operators and so we had.

Quarter over quarter, we had.

Matt Daly: And so, you know, quarter by quarter, we had six rigs drop off the perming, but six rigs added to the Eagleford. So that was nice to see that sort of pop in the Eagleford drilling activity, but it's mainly private operators. Perfect. Thanks. I guess that's the benefit of the diversified royalty.

Six rigs drop off the Permian does six rigs added to the Eagle Ford So that was nice to see that sort of pop in the Eagle Ford drilling activity, but it's mainly private operators there.

Perfect. Thanks, I guess, that's the benefit of the diversified royalty.

Thank you Eric.

This concludes our question and answer session I would now like to turn the floor back over to management for closing.

Operator: Thank you, Aaron. This concludes our question and answer session. I would now like to turn the floor back over to you.

Thank you all for joining us this morning.

Operator: Thank you all for joining us this morning, and we look forward to speaking with you again next quarter. This concludes today's call. Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines and have a one.

And we look forward to speaking with you again next quarter. This completes today's call.

Okay.

Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines and have a wonderful day.

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