Q2 2024 Kimbell Royalty Partners LP Earnings Call

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's provision 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 actual results may differ materially.

Please refer to today's earnings press release for our disclosure on forward looking statements. These factors and other risks and uncertainties are described in detail 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.

Bob Robbins: Measures can be found at the end of today's earnings release, Kimball assumes no obligation to publicly update or revise any of these forward looking statements what else I would now like to turn the call over to Bob Robbins, Kimball royalty partners, Chairman and Chief Executive Officer Bob.

Bob Robbins: Thank you Rick and good morning, everyone. We appreciate you joining us on the call. This morning.

David <unk>: With me today are several members of our senior management team, including David <unk>, Our President and Chief Financial Officer.

Unknown Executive: Matt Daly, our Chief Operating Officer, and Blaine Reinsberger, our Controller, giving us confidence in the resilience of our production as we progress through 2024. Finally, we announced a $0.42 distribution per common unit as we continue to focus on returning value to unit holders. We will miss his advice, sense of humor, and friendship.

Speaker Change: Matt Daley, our chief operating officer, and Blaine Ryan's Berger our controller.

Speaker Change: We are pleased to report solid results for the second quarter with strong cash flow continued debt pay down and lower cash G&A costs.

Speaker Change: Our rig count remains robust at 91 rigs actively drilling across the U S, which represents a 16% market share of all land rigs currently drilling in the continental United States.

Bob Robbins: In addition, our line of sight wells continue to be meaningfully above the number of wells needed to maintain flat production, giving us confidence in the resilience of our production as we progress through 2024.

Bob Robbins: Finally, we announced a 42 step distribution per common unit as we continue to focus on returning value to unit holders.

Speaker Change: Before turning the call over to Davis I wanted to acknowledge the passing of enforcing who was one of Kimball's original directors my friend and colleague.

Speaker Change: Dan had decades of industry experience, serving as president and CEO of Fortune oil company.

Speaker Change: And serving as a chief investment officer, and executive Vice President of the Kimball Art Foundation since $19 75.

Speaker Change: Ben was an essential part of our success and evolution here at Kimball.

Speaker Change: He helped create Kimball royalty partners participated in our IPO in 2017 and continue to serve on our board of directors in 2024 hour missed Dan's wise counsel.

Speaker Change: <unk>, an excellent investing skills that contributed to the success of Kimball over the years we.

Speaker Change: We will miss his advice sense of humor and friendship.

Speaker Change: I'll now turn the call over to Davis.

Davis: Thanks, Bob and good morning, everyone.

Davis: In the second quarter, we once again generated strong results.

Davis: Exceeded our internal production expectations maintained a substantial market share of the U S rig count and achieved a record low cash G&A per Boe.

Bob Robbins: Which was below the low end of guidance.

Speaker Change: Start by reviewing our financial results from the quarter.

Bob Robbins: Getting with oil natural gas and NGL revenues, which totaled $77 million.

Bob Robbins: We had run rate production of 24110 Boe per day, and we exited the quarter with 91 rigs actively drilling on our acreage, which represents approximately 16% market share of all land rigs.

Bob Robbins: Filling in the Continental United States.

Bob Robbins: On the expense side.

Bob Robbins: First quarter general and administrative expenses were $10 2 million.

Unknown Executive: $5.1 million of which was cash G&A expense or $2.34 per BOE. $65.8 million. 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 the outstanding borrowings under Kimbell's Secured Revolving Credit Fund. We had approximately $284.2 million and under on capacity under the secured revolving credit facility as of June 30.

Bob Robbins: $5 1 million of which was cash G&A expense or $2 34 per Boe.

Bob Robbins: This represents a new record low cash G&A per Boe for Campbell and is below the low end of guidance, reflecting operational discipline and positive operating leverage.

Bob Robbins: Net income in the second quarter was approximately $15 2 million and net income attributable to common units approximately $8 4 million.

Bob Robbins: Or 11 cents per common unit.

Bob Robbins: Total second quarter consolidated adjusted EBITDA of 60.

Bob Robbins: $65 8 million.

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

Speaker Change: As Bob mentioned today, we announced a cash distribution of <unk> 42 per common unit for the second quarter. This represents a cash distribution payment to common unit holders equates to 75% of cash available for distribution and the remaining 25% will be used to pay down a portion of the outstanding.

Speaker Change: Borrowings under Kimball secured revolving credit facility.

Speaker Change: Moving now to our balance sheet and liquidity.

Speaker Change: At June 32024, we had approximately $265 8 million of debt outstanding under our secured revolving credit facility.

Speaker Change: We continue to maintain a conservative balance sheet with net debt to trailing 12 month consolidated adjusted EBITDA of <unk> nine times.

Speaker Change: We had approximately $284 2 million and undrawn capacity under our secured revolving credit facility as of June 30th.

Bob Robbins: We remain very comfortable with our strong financial position the support of our expanding bank syndicate.

Speaker Change: Financial flexibility.

Speaker Change: Today, we are also affirming our 2024 guidance, which includes daily production at its midpoint of 24000 Boe per day.

Bob Robbins: As a reminder, our full guidance outlook provided in our Q4 2023 earnings press release.

Speaker Change: We remain confident about the prospects for continued robust development as you progress through 2024, given the number of rigs actively drilling on our acreage, especially in the Permian.

Bob Robbins: We continue to believe that the overall demand for energy and are well established and diversified asset portfolio will continue to enhance value for our unit holders.

Speaker Change: With that operator, we're now ready for questions.

Speaker Change: Thank you.

Speaker Change: We will now be conducting a question and answer session.

Speaker Change: If you'd like to ask a question. Please press star one on your telephone keypad.

Speaker Change: A confirmation tone will indicate your line is in the question queue.

Speaker Change: You May press Star two if you would like to remove your question from the queue.

Speaker Change: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

Speaker Change: One moment, please while we poll for questions.

Operator: One moment, please, while we poll for questions.

Tim <unk>: The first question comes from Tim <unk> with Keybanc capital markets. Please go ahead.

Tim <unk>: Good morning folks. Thank you for taking my questions.

Speaker Change: Good morning.

Speaker Change: Yes, good morning.

Speaker Change: Wanted to start on the unchanged guidance that you've put out to the year I guess you reiterated it.

Speaker Change: It's sort of outpacing the.

Speaker Change: The midpoint of the annual guide year to date, we have decent line of sight on future tails across your footprint.

Speaker Change: I don't revisit guidance for that or and maybe guidance as well on cash G&A and DD&A that seem to be trending outside the range. I know you all play conservative and sort of have wide goalposts, but just kind of curious why why not revisit some of those items.

Speaker Change: Yes, that's a fair comment.

Speaker Change: And it's not lost on us, let us collect internally here and reconsider that.

Speaker Change: I will say you know look we don't have control obviously over the drill bed. So things are always variable, but your points are valid and we don't want to be unduly conservative as well.

Speaker Change: And I'll add to that we do have some even more immediate line of sight on some large 20% interest wells that we have and I think it is loving county.

Speaker Change: Do we think are going to come online later in this year Matt.

Speaker Change: Matt maybe you can provide a little bit of additional detail on that but your point is valid, we're probably being a little bit unduly conservative.

Speaker Change: We're not doing that from a sense of.

Speaker Change: A deliberate attempt to do so but more just trying to be conservative and want to indicate to the market that we're going to deliver.

Matt: To deliver on what we're saying we're going to deliver that Matt anything on those additional wells that it might be helpful. So yeah, yeah, Yeah. I mean, we do have some that as David mentioned too.

Matt: Large interest wells over 20% ROI royalty interest wells.

Speaker Change: A likely coming on later this year or probably Q4 or Q1 25.

Speaker Change: The operators located in loving County.

Speaker Change: Rig onsite and just to put that in perspective, the average royalty interest for us is about one or one 5%, so having 220% wells coming online mainly oil production is going to make a big difference in production. Here. Later this year early 25. So you pointed out guidance is certainly noted and well internally about that.

Speaker Change: And this is this is Bob I'd also like to add where we have a great position in the mid con that they were really proud out through a couple of acquisitions, one last year and won several years ago and our production. This last quarter was up 5% in Oklahoma and our recapture is approximately 50% of all rigs in Oklahoma. So.

Speaker Change: We're very happy with the activity on our on our mid continent acreage.

Speaker Change: Okay I appreciate the color.

Timothy Rezvan: Okay, I appreciate the color. As a follow-up, I was curious, you know, you have the preferred sitting out there. I was wondering if you could give kind of an updated thoughts on

Speaker Change: As my follow up.

Speaker Change: I was curious you know you have the preferred.

Speaker Change: Sitting out there I was wondering if you could give kind of updated thoughts on.

Speaker Change: On when or how you might look to address those as we head towards 2025.

Speaker Change: Man, you're asking all the all the great questions and.

Speaker Change: We are excited to say that we'll probably plan to redeem about half of that perhaps.

Speaker Change: And the next three to six months, that's our current game plan, but we want to keep leverage low so looking at.

Speaker Change: Debt to EBITDA ratio of less than one five times that.

Speaker Change: That would allow us to redeem just over half of the perhaps we believe.

Speaker Change: Probably by the end of the calendar year.

Speaker Change: So that's in our opinion a way that we can.

Speaker Change: Turning to improve the balance sheet and just move ourselves into a stronger position. So all good news on that front as well. Thank you for asking that.

Derrick Whitfield: Okay, thank you. And if I could sneak a quick one in on the modeling side, the common units outstanding increased quite a bit to 81 million. Was that simply due to the accelerated investing of restricted units that you cited in the release?

Speaker Change: Okay. Thank you and if I could sneak a quick one.

Speaker Change:

Speaker Change: On the modeling side, the common units outstanding increased quite a bit to $81 million was that simply due to the accelerated.

Speaker Change: Do you have a restricted units that you cited in the release or was there anything else.

Speaker Change: There was a conversion of one of our shareholders.

Speaker Change: Recently, Matt do you want add any detail to that I believe it was related to the hatch acquisition correct.

Matt: What are the private equity funds converted from Opco in a common here recently and that that's one of the reasons why the common unit count went up in the Opco unit Count went down if that's what you're asking about.

Matt: Yeah Yeah.

Speaker Change: An important part you'll you'll be you'll see they're holding your wholly their holdings and I'll report on Bloomberg at 630.

Speaker Change: Okay.

Speaker Change: Okay I appreciate all the color. Thank you.

Speaker Change: Of course.

Speaker Change: Thank you.

Speaker Change: The next question is from Neal Dingmann with <unk> Securities. Please go ahead.

Matt: Hey, this is Julian Broche on for Neil and Thanks for taking my questions.

Speaker Change: Yeah, good morning Julien.

Speaker Change: Good morning, I'm, just kind of given a weak gas environment.

Speaker Change: That we're seeing now are you guys seeing any actionable dislocations in pricing kind of versus a gas assets versus oily ones.

Speaker Change: It's been it's been a little bit you know I'll just give you my perspective I'd be curious with Baader, Matt. Thank too it's been a little bit disappointing on the gas front.

Speaker Change: We.

Speaker Change: Our big gas acquisition was obviously haymaker, which we made back in 2018, which I, which I continue to believe is probably the best gas by we've done in 20 years.

Speaker Change: Gas was two box its core western Louisiana acreage I'm, just outstanding outstanding asset, we havent seen a whole lot.

Speaker Change: On the gas front in the last I mean candidly all I'll, even say, we havent seen much since 2018, it just seems like nobody wants to sell gas assets.

Neal Dingmann: But mostly because I think everybody's just looking at this incredible futures pricing scenario with the new export terminals coming online and all of that. So it's been rough finding nice gas assets. Now, what I will say to that

Speaker Change: Mostly because I think everybody is just looking at this this incredible.

Speaker Change: Futures pricing scenario with with the new export terminals coming online and all of that so it's been rough finding nice gas assets now what I will say to that.

Speaker Change: The mid composition, which Bob was just talking about to be picked up through long point does have a heavy gas component associated with it and that that's been wonderful to buy too so tough to find gas assets. It's not lost anybody that gas is depressed we.

Speaker Change: We would be happy to buy gas asset, it's just been hard to get them out of People's hands, but Bob Matt anything you guys would like to add to that.

Bob Robbins: Yeah, I mean, it's just interesting to me you know that the Haynesville production for US was actually up slightly Q1, and Q2, even with these low prices and the rig count in the Haynesville is totally flat. So things are totally stabilized there from an operational standpoint, but yeah youre right, David it's been difficult to find acquisitions in that area I think people see what we're seeing there.

David <unk>: In terms of the future prospects about.

Speaker Change: The LNG exports and so forth, so but operationally it just sort of like running perfectly in the haymaker asset we bought that asset is.

Speaker Change: <unk> grown dramatically since we bought it back in 2018 organically. So it's done very well for us.

Speaker Change: Got it thank you and if I can sneak one more in.

Rick Black: Got it, thank you. And if I can sneak one more in, the kind of Permian deal flow, I guess Permian deal flow is kind of potentially gonna slow down into year end given all the deals, but what other basins are you all looking at, and what's kind of the potential ticket size that you're seeing the best opportunities right now?

Speaker Change: The kind of Permian, where where you know I guess Permian deal flow, it's kind of potentially going to slow down until year end given all the deals but what other basins are you all looking at and what's kind of the potential ticket size that youre seeing the best opportunities right now.

Speaker Change: It's been a disappointing year for M&A generally speaking across the board. So I would say that we've seen very few transactions and even fewer transactions that are actually interesting to us from an asset quality standpoint.

Speaker Change: Looking at every basin. So we always do we look at everything we can you know our job is not to.

Speaker Change: To pick a specific county, and say that we're only going to buy there and we will pay whatever it takes to get a deal done in that county.

Speaker Change: Well you know our dollars compete across the board across all basins in all counties. So if we can make more money for our investors buying something and Utah, we'd rather do that than buy something in Midland County, So were looking everywhere, but I would say so far this year, it's been a little bit depressed on on royalty volumes and I think everybody has seen that from an M&A standpoint.

Speaker Change: That being said things change all the time I mean last year last year. It was relatively quiet and then long point came along for us and that was a huge deal.

Speaker Change: We've seen that the last couple of years to where people just want to sell things by the end of the year. So I wouldn't be surprised if things picked up here imminently, but so far it's been it's been relatively quiet, but now we are open minded to acquisitions everywhere.

Unknown Executive: Very helpful. Thank you very much.

Speaker Change: Got it very helpful. Thank you very much.

Speaker Change: Thank you. Thank you.

Speaker Change: Thank you there are no further questions at this time I would like to turn the floor back over to the management for closing comments.

Speaker Change: We thank you all for joining us this morning, and we look forward to speaking with you again next quarter. This completes today's call.

Speaker Change: Thank you.

Speaker Change: This concludes today's teleconference. You may now disconnect your lines.

Speaker Change: Thank you for your participation.

Speaker Change: Mhm.

Speaker Change: [music].