Q4 2024 Kimbell Royalty Partners LP Earnings Call
Operator: Greetings and welcome to Kimbell Royalty Partners' 4th Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode.
Greetings and welcome to Kimberly loyalty partners fourth quarter earnings Conference call. At this time all participants are in a listen only mode. A brief question and answer session been followed the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad.
Operator: A brief question and answer session will follow the formal presentation.
Operator: If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded.
Speaker Change: This conference is being recorded it is now my pleasure to introduce your host Mr. Rick Black Investor Relations. Thank you Mr. Black you might begin.
Rick Black: It is now my pleasure to introduce your host, Mr. Rick Black, in his relations. Thank you, Mr. Black. You may begin.
Rick Black: 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 2024 that ended on December 31, 2024. 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. Information recorded on this call speaks only as of today, February 27, 2025, 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 for future events or future financial performance, are considered forward-looking statements made pursuant to Safe Harbor's provisions of the Private Securities Litigation Reform Act of 1995.
Speaker Change: Thank you operator, and good morning, everyone welcome to the Kimball royalty Partners Conference call to review financial and operational results for the fourth quarter 2024 that ended on December 31, 2020 for this call is also being webcast and can be accessed through the audio link on the events and presentations page.
Speaker Change: Page of the IR section of the Kimball Art P Dot com.
Speaker Change: Information recorded on this call speaks only as of today February 27th 2025. 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.
Speaker Change: I'd also like to remind you that the statements made in today's discussion that are not historical facts, including statements of expectations future events or future financial performance are considered forward looking statements made pursuant to the safe Harbor provisions of the.
Speaker Change: Private Securities Litigation Reform Act of 1995.
Rick Black: We will be making forward-looking statements as part of today's discussion, 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 disclosures 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 also will be referring 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-looking statement.
Speaker Change: We will be making forward looking statements as part of today's discussion.
Speaker Change: 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 disclosures 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.
Speaker Change: Management also will be referring to non-GAAP measures, including adjusted EBITDA and cash available for distribution.
Speaker Change: Conciliations 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.
Bob Ravnaas: I would now like to turn the call over to Bob Ravnaas, Kimbell Royalty Partners Chairman and Chief Executive Officer. Bob? Thank you, Rick, and good morning everyone. We appreciate you joining us on call this. With me today are several members of our senior management team, including Davis Ravnaas, our President and Chief Financial Officer, Matt Daly, our Chief Operating Officer, and Blaine Reinsberger, our Controller.
Bob Rasmus: I would now like to turn the call over to Bob Rasmus Kimball royalty partners, Chairman and Chief Executive Officer Bob.
Bob Rasmus: Thank you Rick and good morning, everyone. We appreciate you joining our call. This morning with me today are several members of our senior management team, including data for Avnet, as our President and Chief Financial Officer, Matt Daley, Our Chief operating officer, and Blaine Rheinberger. Our controller. We're pleased to report another outstanding year of Kimball Mark.
Bob Ravnaas: We are pleased to report another outstanding year at Kimbell, marked by substantial growth in production, revenue, and EBITDA. This year yielded success from the significant acquisition we made in the prior year, which you might recall was a record $455 million acquisition that closed in Q3 2023. This portfolio has, and continues to, perform extremely well. As a result of this very productive year, Kimbell paid out $1.75 per common unit in tax-advantaged quarterly distributions during 2024, in addition to paying down on our credit facility. During the fourth quarter, drilling activity remained strong, with 91 rigs actively drilling on our acreage, including the rigs added from the Midland Basin acquisition, which closed last month.
Bob Rasmus: By substantial growth in production revenues and EBITDA. This year yielded success from the significant acquisition, we made in the prior year, which you might recall was a record 455 million dollar acquisition that closed in Q3 2023.
Bob Rasmus: This portfolio has and continues to perform extremely well as a result of this very productive here Kimball paid out a dollar and 75 cents per common unit and tax advantage quarterly distributions. During 2024 in addition to paying down on our credit facility.
Bob Rasmus: During the fourth quarter drilling activity remained strong with 91 rigs actively drilling on our acreage, including the rigs added from the Midland Basin acquisition, which closed last month.
Bob Ravnaas: This rig count represents 16% market share of all rigs drilling in the lower 48. Line-of-sight wells continue to be well above the number of wells needed to maintain flat production, giving us confidence in the resilience of our production for 2025. Our superior five-year annual average PDP decline rate of 14%, including the acquired production, requires only an estimated 6.5 net wells annually to maintain flat production.
Bob Rasmus: This rig count represent 16% market share of all rigs drilling in the lower 48.
Bob Rasmus: Line of sight wells continue to be well above the number of wells needed to maintain flat production, giving us confidence in the resilience of our production for 2025 are superior five year annual average PDP decline rate of 14%, including the acquired production requires only an estimated.
Bob Rasmus: $6 five net wells annually to maintain flat production.
Bob Ravnaas: 2025 is off to a strong start as we closed a $230 million acquisition last month, completed a highly successful primary equity offering, and today we introduce 2025 guidance. that has expected production, at its midpoint, a new record guidance level for Kimbell. Finally, we believe Kimbell is well positioned for continued growth as we continue to enhance unit holder value into the future.
Bob Rasmus: 2025 is off to a strong start as we closed $230 million acquisition last month completed a highly successful primary equity offering and today, we introduced 2025 guidance.
Bob Rasmus: It has expected production at its midpoint, our new record guidance level for Kimball.
Bob Rasmus: Finally, we believe Kimball is well positioned for continued growth as we continue to enhance unitholder value into the future.
Davis Ravnaas: I'll now turn the call over to David. Thanks, Bob, and good morning, everyone. As Bob mentioned, this is another excellent quarter for Kimbell.
Davis: I'll now turn the call over to Davis.
Thanks, Bob and good morning, everyone.
Speaker Change: Bob mentioned this was another excellent quarter for Kimball.
Davis Ravnaas: I'll now start by reviewing our financial results for the fourth quarter. Oil, natural gas, and NGL revenues totaled $69.1 million during the course.
Davis: I'll start by reviewing our financial results for the fourth quarter.
Davis: Oil natural gas and NGL revenues totaled $69 1 million during the quarter we.
Davis Ravnaas: which excludes the acquired production. including the acquired production, we had a record run rate production of 25,946 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 drilling in the continental United States.
Davis: Which excludes the acquired production <unk>.
Including the acquired production, we had a record run rate production of 25946 Boe per day.
Davis: And we exited the quarter with 91 rigs actively drilling on our acreage, which represents approximately 16% market share of all land rigs drilling in the continental United States.
Davis Ravnaas: On the expense side, fourth quarter general and administrative expenses were $9.4 million. $5.6 million of which was cash G&A expense. or $2.53 per BOE.
Davis: On the expense side fourth quarter general and administrative expenses were $9 4 million.
Davis: $5 6 million of which was cash G&A expense.
Davis: Or $2 53 per Boe.
Davis Ravnaas: Total fourth quarter consolidated adjusted EBITDA was $59.8 million, which excludes the acquired production. You will find a reconciliation of both consolidated adjusted EBITDA and cash available for distribution at the end of our news release.
Davis: Total fourth quarter consolidated adjusted EBITDA was $59 8 million, which excludes the acquired production.
Davis: You will find a reconciliation.
Davis: Consolidated adjusted EBITDA and cash available for distribution at the end of our news release.
Davis Ravnaas: Today we announce the cash distribution of 40 cents per common unit for the fourth quarter. We estimate that approximately 100% of this distribution is expected to be considered return of capital and therefore not subject to dividend taxes. further enhancing the after-tax return to our common unit holders. 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 Facility.
Davis: Today, we announced a cash distribution of <unk> 40 per common unit for the fourth quarter.
Davis: We estimate that approximately 100% of this distribution is expected to be considered return of capital and therefore, not subject to dividend taxes.
Davis: Further enhancing the after tax return to our common unitholders.
Davis: This represents a cash distribution payment to common unit holders that equates to 75% of cash available for distribution.
Davis: And the remaining 25% will be used to pay down a portion of the outstanding borrowings under Kimball secured revolving credit facility.
Davis Ravnaas: Moving now to our balance sheet and liquidity. At December 31st, 2024, we had approximately $239.2 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 approximately 0.8 times. We had approximately $310.8 million in undrawn capacity under the Secured Revolving Credit Facility as of December 31, 2024. We remain very comfortable with our strong financial position, the support of our expanding bank syndicate and our financial flexibility.
Davis: Moving now to our balance sheet and liquidity at.
Davis: At December 31, 2024, we had approximately $239 2 million in debt outstanding under our secured revolving credit facility.
Davis: We continue to maintain a conservative balance sheet with net debt to trailing 12 month consolidated adjusted EBITDA of approximately 0.8 times.
Davis: We had approximately $310 8 million and undrawn capacity under the secured revolving credit facility as of December 31, 2024.
Davis: We remain very comfortable with our strong financial position the support of our expanding bank syndicate.
Davis: Our financial flexibility.
Davis Ravnaas: Today, we are also releasing our 2025 guidance, which includes the incremental production associated with our latest acquisition and reflects a record high daily production guidance of 25,500 BOE per day at the midpoint. As a reminder, our full guidance outlook was provided in the Q4 2024 earnings press release. We remain confident about the prospects for continued robust development as we progress through 2025, given the number of rigs actively drilling on our acreage, especially in the Permian Basin. as well as our line-of-sight wells materially exceeding our maintenance well count.
Davis: Today, we're also releasing our 2025 guidance, which includes the incremental production associated with our latest acquisition and reflects a record high daily production guidance of 25500 Boe per day at the midpoint.
Davis: As a reminder, our full guidance outlook was provided in the Q4 2024 earnings press release.
Davis: We remain confident about the prospects for a continued robust development as you progress through 2025.
Davis: Given the number of rigs actively drilling on our acreage, especially in the Permian basin.
Davis: As well as our line of sight wells materially exceeding our maintenance well count.
Davis Ravnaas: Lastly, before turning the call over to questions...
Davis: Lastly, before turning the call over to questions I'd like to take a moment to recognize the achievement achievements at Kimball and thank our team our board of directors and our advisors that have all contributed to the company's success.
Davis Ravnaas: I'd like to take a moment to recognize the achievements at Kimbell and thank our team, our board of directors, and our advisors that have all contributed to the company's success. Eight years ago this month, KRP successfully completed our IPO. Since then, we have now grown production from 3,116 BOE per day to 25,946 BOE per day, an increase of 733%. As evidenced by our track record of ongoing acquisition activity, we expect to continue our role as a major consolidator in the highly fragmented U.S. oil and gas royalty sector. which we estimate to be over $700 billion in size.
Davis: Eight years ago. This month K ERP successfully completed our IPO.
Davis: Since then we have now grown production from 3116 Boe per day.
Davis: 25946 Boe per day, an increase of 700 and the 33%.
Davis: As evidenced by our track record of the ongoing acquisition activity, we expect to continue our role as a major consolidator in our highly fragmented U S oil and gas royalty sector, which we estimate to be over $700 billion in size.
Davis Ravnaas: And as we have stated in the past, there are only a handful of public entities in the United States and Canada. that have the financial resources, infrastructure, network, and technical expertise to complete large-scale, multi-basin acquisition.
Davis: And as we have stated in the past there are only a handful of public entities in the United States and Canada.
They have the financial resources infrastructure network and technical expertise to complete large scale multi basin acquisitions.
Davis Ravnaas: We are very excited about the opportunities to expand in the future and to deliver unit holder value for years to come.
Davis: We are very excited about the opportunities to expand in the future and to deliver unit holder value for years to come.
Operator: With that, operator, we are now ready for questions. Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your questions from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for questions.
Davis: With that operator, we are now ready for questions.
Speaker Change: Thank you <unk>.
Speaker Change: Now be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad.
Speaker Change: Confirmation tone will indicate your line is in the question queue you might start to if you would like to remove your questions from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the stock east one moment, please pull for questions.
Neal Dingmann: The first question comes from the line of Neal Dingmann with True Securities. Please go back. Yeah, hey, good morning. Thank you for taking my question.
Speaker Change: The first question comes from the line of Neal Dingmann with two Securities. Please go ahead.
Speaker Change: Yeah, Hey, good morning, Ben you are taking my question. This is Jack Wilson on for Neil.
Davis Ravnaas: This is Jack Wilson on for Neal. Maybe just to start, are there any particular basins where you're seeing an abundance of opportunity to add acreage? Morning, Jack. This is Davis. Continue to look across the United States. I wouldn't target one specific basin for where we're seeing the most deal flow, other than to point out the obvious, which is that the Permian continues to be the place where the most consolidation is occurring. That being said, we're seeing opportunities across the United States. There are a few big packages out in the market right now. Some are more interesting than others, but we're certainly taking a look at each of them.
Speaker Change: Just to start are there any particular basins, where youre seeing an abundance of opportunity you need to add acreage.
David: Morning, Jack This is David.
David: Continue to look across the United States I wouldn't target one specific basin for where we're seeing the most of the deal flow other than to point out the obvious which is that the Permian continues to be the place where the most consolidation is occurring.
David: That being said, we're seeing opportunities across the United States. There are a few big packages out in the market right now some are more interesting than others, but we're certainly taking a look at each of them.
Davis Ravnaas: But no specific basin that I would single out at the moment. Okay, that sounds good.
David: But no specific basin that I would I would single out at the moment.
David: Okay that sounds good and then I guess, maybe just from a regulatory perspective I know there's been a lot of news flow have you been seeing that in kind of the opportunities present or isn't that more just still headline.
Davis Ravnaas: And then I guess maybe just from a regulatory perspective, I know there's been a lot of news flow. Have you been seeing that and kind of the opportunities present? Or is that more just still headlines?
David: Regular can you please expand on the question. Please.
Davis Ravnaas: Regular, can you please expand on the question please? So just, you know, the new administration's been discussing a lot of potential regulatory changes. Have you been seeing that affecting you at all, or is that more just still in the headlines? No, not at all. Other than to say, you know, obviously the new administration has been very supportive of increased... energy output here domestically, and that would obviously benefit us as a mineral owner across our very diverse footprint. Thank you very much. Thank you.
David: So just you know the new administration, just been discussing a lot of potential regulatory changes.
David: Have you been seeing that affecting you at all or is that more just doing the headline.
David: No not at all other than to say, obviously, the new administration has been very supportive of increased energy output here domestically and that would obviously benefit us as a mineral owner across our very diverse footprint.
David: Thank you very much.
David: Thank you.
Speaker Change: Your next question comes from the line of Tim <unk> with Keybanc capital markets. Please go ahead.
David: Yeah.
John: Hi, good morning. This is John on for Tim. Thanks for taking our question. Mornin', John. Morning.
David: Hi, Good morning. This is John on for Tim Thanks for taking my questions. Good morning, John.
Davis Ravnaas: Can you just talk about what you're seeing across your footprint that led to a 2025 guide below your, call it, proforma fourth quarter run rate, and how would you frame the of the acquired assets compared to the rest of your portfolio. We just we saw line of sight wells increase following the acquisition, so we just thought we might see a little bit of growth this year. Yeah, so our guidance does imply that growth is likely if not probable to occur. If you look at our exit run rate, including the acquired production, we're almost dead on the midpoint of our 2025 guidance.
Speaker Change: Good morning.
Speaker Change: Can you just talk about what youre seeing across your footprint that led to a 2025 guys below your call it pro forma fourth quarter run rate.
Speaker Change: How would you frame the.
Speaker Change: The acquired assets compared to the rest of your portfolio.
Speaker Change: We just we saw a line of sight wells increased following the acquisition. So we just thought we might see a little bit of growth this year.
Speaker Change: Yeah, So our guidance doesn't imply that the growth is likely if not probable to occur. If you look at our exit run rate, including the acquired production were almost dead on the midpoint of our 2025 guidance.
Davis Ravnaas: So we put guidance at a midpoint, which reflects flat growth for the year. I think that's in line with what most of our peers, both in the mineral and in the working interest space, are looking at. We like to be conservative with our guidance. Our guidance for 2024 was just slightly less than actual realized volumes from last year. So having done this for quite some time, we just continue to improve and refine the way in which we put out that guidance. So feel great about our guidance for 2025. We have a better line-of-sight inventory than we ever have.
Speaker Change: So we've put guidance at the midpoint, which reflects flat growth for the year I think that's in line with what most of our peers are both of the mineral and in the working interest space are looking at.
Speaker Change: We'd like to be conservative with our guidance.
Speaker Change: Our guidance for 2024 was just slightly less than actual realized volumes from last year. So having done this for quite some time.
Speaker Change: We have continued to improve and refine the way in which we put out that guidance. So feel great about our guidance for 2025.
Speaker Change: We have a better line of sight inventory than we ever have our inventory into the future on a long term basis is as strong as it ever has been as well we have 91 rigs operating on our acreage about 50 of those are in the Permian basin. After that the mid continent. The most meaningful contributor in terms of activity so feel very good.
Davis Ravnaas: Our inventory into the future on a long-term basis is as strong as it ever has been as well. We have 91 rigs operating on our acreage, about 50 of those in the Permian Basin. After that, the MidCon is the most meaningful contributor in terms of activity. So feel very good about both near and long-term catalysts for growth on our acreage.
Speaker Change: Both near and long term catalysts for our growth on our acreage.
Davis Ravnaas: And the acquired assets, the second part of your question, outstanding acquisition, couldn't be happier with the born assets that we bought. Anyone who knows that property loves it. It's a wonderful asset. There's a continuous drilling clause on it that ensures development by its largest operator Conoco in the near future, but medium term future, frankly, so feel very good about that. And we think that'll be a really nice keystone asset in our portfolio that will bear fruit for years to come. Okay, great.
Speaker Change: And the acquired assets the second part of your question.
Speaker Change: Outstanding acquisition couldn't be happier with the born assets that we bought.
Speaker Change: Anyone who knows that property loved it it's a wonderful asset there's a continuous drilling clauses audit that ensures development by its largest operator conoco into the near future.
Medium term future frankly, so feel very good about that and we think it'll be a really.
Speaker Change: A really nice Keystone asset in our portfolio that will bear fruit for years to come.
Speaker Change: Okay, Great I appreciate the details.
John: Appreciate the details.
Noah Hungness: I can just give an update as to whether you still plan to redeem a portion of your preferreds in the second quarter and if an acquisition opportunity, say, in the next couple of months were to present itself, would you consider redeeming those? Yeah, so the plan is to take out about half of the Apollo press in May, we are on track for that right now. I think we've alluded to that the last couple of quarters in a row. So that's still on track. That'll be about half of the overall balance. As acquisitions present themselves, we of course look and look and consider all possible financing options for those.
Speaker Change: And can you just give an update.
Speaker Change: You know whether you still plan to redeem a portion of your preferreds in the second quarter and if an acquisition opportunity.
Speaker Change: Next couple of months were to present itself would you consider.
Speaker Change: Would you consider redeeming those.
Speaker Change: Yeah. So the plan is to take out about half of the Apollo Prefs in May we are on track for that right. Now I think we've alluded to that in the last couple of quarters in a row.
Speaker Change: So that's still on track there that'll be about half of the overall balance as acquisitions present themselves. We of course, we can look at and consider all possible financing options for those.
Davis Ravnaas: So I don't think that the acquisition framework and our timeline is in any way affected by the redemption of the PREF and we look forward to simplifying the balance sheet and reloading for more acquisitions in the future.
Speaker Change: So I don't think that the acquisition framework and our timeline is in any way affected by the redemption of the Prefs and we look forward to simplifying the balance sheet and reloading for more acquisitions in the future.
Davis Ravnaas: Okay, great. Appreciate it.
Speaker Change: Okay, Great I appreciate it.
Davis Ravnaas: I'll hand it back. Thank you.
Speaker Change: Matt.
Speaker Change: Thank you.
Speaker Change: Thank you next question comes from the line of Noah Hunger. This with Bank of America. Please go ahead.
Noah Hungness: Next question comes from the line of Noah Hungness with Bank of America. Please go ahead. Hi, everyone. For my first question, I kind of wanted to expand on the PREF a little bit. Once you guys do pay down about half of the PREF in May, how should we think about your plans to kind of pay down the rest? Yeah, great, great question. Thank you, Noah. We will continue to use 25% of our cash flow going forward to pay down debt on our revolver. And then we'll continue to draw down on a revolver to incrementally take out portions of the prep going into the future.
Speaker Change: Hi, everyone I'm for my first question I kind of wanted to expand on the press a little bit once you guys do you pay.
Speaker Change: Pay down about half of the press and.
Speaker Change: How should we think about your plans to kind of pay down the rest of it.
Speaker Change: Yeah, Great Great question. Thank you.
Speaker Change: We will continue to use 25% of our cash flow going forward to pay down debt on our revolver and then we'll continue to draw down on our revolver to incrementally take out portions of the perhaps going into the future. So it's a it's a pretty easy process.
Davis Ravnaas: So it's a pretty easy process.
Davis Ravnaas: And as you know, we've gone through this before, and have a long history of paying down debt and shoring up the balance sheet, and then looking at acquisitions and financing those at the right mix of equity and debt that keeps our leverage at a level that doesn't threaten the dividend under any sort of draconian scenario. So yeah, that's the game plan.
Speaker Change: And as.
Speaker Change: As you know we've gone through this before and have a long history of paying down debt and short up the balance sheet and then looking at acquisitions and financing those at the right mix of equity and debt that keeps our leverage at a level that doesn't threaten the dividend under any sort of draconian scenario.
Speaker Change: So that's the that's the game plan.
Davis Ravnaas: Just kind of one clarification question is, as you guys do pay down debt and you have extra capacity on your revolver, should we think of you paying down the press in large chunks like you would be doing in May, or would it be a more rateable? I would, I would say more rateable, absent a meaningful, you know, equity driven, creative acquisition that would be de-levering in nature. So if you look back to our history, we've done a good job, I think, of using our units to make a creative acquisitions without increasing leverage on the balance sheet, in fact, have de-leveraged through that process.
Speaker Change: Just kind of one clarification question is how.
Speaker Change: How did you guys do you pay down debt and you have extra capacity on your revolver should we think of you paying down the press in large chunks like you would be doing in may or would it be.
Speaker Change: On a more ratable pay down.
Speaker Change: I would I would say more ratable absent a meaningful.
Speaker Change: Equity driven accretive acquisition that would be delevering in nature. So if you look back to our history. We've done a good job I think of using our units to make accretive acquisitions without increasing leverage on the balance sheet and in fact have de levered through that process and if that were to occur then obviously that would accelerate.
Noah Hungness: And if that were to occur, then obviously that would accelerate the rate at which we would imagine redeeming the remaining preferred balance. Makes sense.
Speaker Change: The rate at which we would imagine redeeming the remaining preferred balance.
Speaker Change: Makes sense and then for my second question, just kind of comparing your 24 guidance.
Noah Hungness: And then for my second question, just kind of comparing your 24 guidance for the marketing and other expenses versus your 25, it does seem like it's moved down about 20 cents.
Speaker Change: For the marketing and other expenses versus your 25. It does seem like it's moved down about 20.
Blaine Reinsberger: Could you kind of talk about the moving parts there of what drove that lower? Sure, I'll turn that over to Blaine Reinsberg, our controller, who can give you a more detailed response. Yeah, it typically moves a little bit depending on commodity prices and so marketing another the way that different operators put that on the checks that we actually receive varies and so it moves a little bit.
Speaker Change: Could you kind of talk about the moving parts there.
Speaker Change: Drove that lower.
Speaker Change: Sure I'll turn that over to Blaine Ryan's Berger, our controller, who can give you a more detailed response.
Speaker Change: Yeah.
Speaker Change: It typically moves a little bit depending on commodity prices and so marketing another the way that different operators.
Speaker Change: Put that on our the chest that we actually receive berries and so it moves a little bit. So I would say that our we were being overly conservative probably in prior guidance and I would say that the current guidance that we have out there now is reflective of what we think is.
Blaine Reinsberger: So I would say that we were being overly conservative probably in prior guidance and I would say that the current guidance that we have out there now is reflective of what we think is going to be going forward. Thanks, Hans. Thanks. Thank you.
Speaker Change: Going to be going forward.
Speaker Change: Makes sense. Thanks.
Speaker Change: Thank you.
Speaker Change: Thank you.
Derek Whitfield: Next question comes from the line of Derek Whitfield with Texas Capital. Thanks and good morning all. Good morning, Derek.
Speaker Change: Next question comes from the line of Debbie.
Speaker Change: With Texas capital. Please go ahead.
Debbie: Thanks, and good morning all.
Good morning Derik.
Davis Ravnaas: With my first question, I wanted to lean in on the competitive landscape for M&A. Given the more constructive natural gas backdrop we have, does that change your relative focus or amount of attention you're providing to the gas base? It's a great question. The short answer is no, we try not to take a position on commodity price movements one way or the other. We're more focused on finding high quality properties that can be acquired at reasonable prices. So, you know, we are not, you know, obviously, the natural gas, are not lost on us, but I wouldn't say that we're refocusing efforts on more gas-heavy properties right now just because natural gas prices are higher in nature.
Speaker Change: With my first question I wanted to lean in on the competitive landscape for M&A.
Debbie: The more constructive natural gas backdrop, we have does that change your relative focus or amount of attention you are providing to the gas stations.
Debbie: That's a great question and the short answer is no. We we try not to take a position on commodity price movements, one way or the other we're more focused on finding high quality.
Debbie: <unk> that can be acquired at reasonable prices.
Debbie: So we are not obviously the natural gas.
Debbie: <unk> are not lost on us, but I wouldn't say that where they were.
Debbie: Refocusing efforts are more gas heavy properties right now just because natural gas prices are higher in nature. In fact, I would argue that we should perhaps be doing the opposite and focusing on all your wholly owned properties with when prices are lower so we'll look at everything and it really just depends on asset quality and valuation.
Davis Ravnaas: In fact, I would argue that we should perhaps be doing the opposite and focusing on oil properties when prices are lower. So we'll look at everything, and it really just depends on asset quality and valuation, and we try to remain impartial and agnostic to commodity price. We look at the strip. Makes sense.
And we try to remain and partial and agnostic to commodity price.
Debbie: At the strip.
Debbie: Makes sense given the considerable M&A that we witnessed across the Permian and I'm thinking about this more from a working interest operated perspective I wanted to ask for your thoughts on the impact it could have on your business both from a consolidated operator perspective.
Davis Ravnaas: And then, given the considerable M&A that we've witnessed across the Permian, and I'm thinking about this more from a working interests operator perspective, I wanted to ask for your thoughts on the impact it could have on your business, both from a consolidated operator perspective, and also from a competitive perspective, given that many of these operators are also competing for mental Yeah, we do see operators compete from time to time. I would say that it's generally rare. I mean, there are a few examples out there. And when they are competing, it's traditionally for very large packages.
Debbie: Also from a competitive perspective, given that many of these operators are also competing for minerals.
Debbie: Yeah, we do see operators compete from time to time I would say that it's generally rare I mean, there are a few examples out there and when they are competing its traditionally for very large packages. So it's a good question, but we haven't seen a whole lot of competition and let's call. It.
Davis Ravnaas: So it's a good question. But we haven't seen a whole lot of competition. And let's call it 50 to $300 million range, 100 to $300 million range from operators just because it's so small for them, it's not very meaningful.
Debbie: $50 million to $300 million range $100 million to $300 million range from operators just because its so small for them, it's not very meaningful and I'd add to that that consolidation for us. If we look back across our wide almost 30 years of doing this.
Davis Ravnaas: And I'd add to that that consolidation for us, if we look back across our, you know, what, almost 30 years of doing this, there's always some friction when M&A occurs between operators and what does that mean for development on our assets. But I'd say overall, it tends to be a net positive. You have larger companies with better balance sheets, they now have a larger acreage footprint where they can organize their drilling schedules in such a way to be even more efficient. So overall consolidation, when we look back over time, can create some short term noise, but longer term, it almost always results in a positive outcome for mineral owners, including ourselves.
Debbie: As always some friction when M&A occurs between operators and what does that mean for for development on our assets, but I'd say overall it tends to be a net positive you have larger companies with better balance sheets. They now have a larger acreage footprint, where they can organize their drilling schedules and such.
Debbie: The way to be even more efficient so overall consolidation when we look back over time can create some some short term noise, but longer term. It all it almost always results in a positive outcome for mineral owners, including ourselves.
Derek Whitfield: Very helpful.
Debbie: Very helpful. Thanks for your time.
Derek Whitfield: Thanks for your time. Thank you.
Debbie: Thank you.
Paul Diamond: Thank you next question comes from the line of Paul Diamond with Citi. Please go ahead.
Paul Diamond: Next question comes from the line of Paul Diamond with Citi. Please go ahead. Thanks, all. Appreciate you taking my call. Staying on the M&A dialogue, how should we think about the appetite, you know, as you guys have grown bigger, obviously, the deals have gotten bigger. But then there's been some kind of sizable swings taken, I guess. How should we think about your . opportunities set going forward?
Paul Diamond: Thanks, Tom I appreciate you.
Taking my call.
Paul Diamond: Staying on the M&A dialogue.
Paul Diamond: How should we think about the appetite as you guys have grown bigger obviously the deals have gotten bigger.
Paul Diamond: But then there's been some kind of sizeable swings taken I guess, how should we think about your.
Paul Diamond: The opportunity set going forward should we think more in those pitches 100 million dollar deals or with your increasing scale equipped 25000, a day does that.
Davis Ravnaas: Those should be think more in those $50 to $100 million deals or with your increasing scale, equipsing 25,000 VU a day, does that, you know, should that grow linearly or will you take some bigger swipes? Now, thanks for asking that question. It's very thoughtful and it's something that obviously isn't lost on us. We really are focused on larger acquisitions. I think the concern we have with doing a handful of smaller deals is that you can't structure a meaningful equity deal around something like that. And so you end up kind of casually leaning into revolver quarter over quarter with smaller deals, and they start to add up, and it just increases leverage over time.
Paul Diamond: Should that grow linearly or we take some bigger swings.
Paul Diamond: Thanks for asking that question, that's very thoughtful and it's something that obviously isn't lost on US. We really are focused on larger acquisitions I think the concern we have with with doing a handful of smaller deals.
Paul Diamond: You can't structure, a meaningful equity deal around something like that and so you end up kind of casually leaning into revolver quarter over quarter with smaller deals when they start to add up with that it just increases the leverage over time. So I would say that our focus is on 100 million dollar plus deals.
Davis Ravnaas: So I would say that our focus is on $100 million plus deals. I think we could swing higher if we found the right opportunity with the right ownership group, used a mix of equity and leveraged neutral on our revolver to finance it. That's been a recipe that's worked quite well for us over time. But you're right. I mean, we have gotten larger. And so I would say in tandem with that, the opportunity set available to us has grown in terms of acquisition size. And then I guess I'd further add to that, that as the mineral space just continues to consolidate, the size of the deals just keeps getting bigger and bigger.
Paul Diamond: We could swing higher if I'm, if we found the right opportunity with the right ownership group used a mix of equity and leverage neutral on our revolver to finance it.
Paul Diamond: That's been our recipe that's worked quite well for us over time, but you're right I mean, when you have gotten larger and so.
Paul Diamond: I would say.
Paul Diamond: Tandem with that the opportunity set available to US has grown in terms of acquisition size and then I guess I'd further add to that that as the mineral space. Just continues to consolidate the size of the deals just keeps getting bigger and bigger I mean gosh. When we were just newly public back in 2017, you rarely saw mid.
Davis Ravnaas: I mean, gosh, when we were just newly public back in 2017, you rarely saw a mineral and royalty deal over $50 million in size. But now there are seemingly dozens of deals that are $100 million plus in the market at any given time. So as the consolidators have grown, they've attracted more institutional capital into their private space, and that's simply resulted in more and larger opportunities going up into public hands. So it's a really nice theme to see. And I think we're still very early on in how this plays out. I mean, when you look at the overall mineral market size of $700 billion, just a very small percentage of that is captured by the public market.
Paul Diamond: And royalty deal over $50 million in size, but now there are seemingly dozens of deals that are $100 million plus in the market at any given time. So how does the as the consolidators have grown.
Paul Diamond: They've attracted more institutional capital into there.
Paul Diamond: <unk> space and that's simply resulted in more more and larger opportunities going up into public hands. So it's a really nice really.
Paul Diamond: Really nice seem to see and I think we're still very early on in and how this plays out I mean, when you look at the overall mineral market size of 700 billion just a very small percentage of that is captured by the public market. So this is a trend that we expect to continue to snowball.
Davis Ravnaas: So this is a trend that we expect to continue to snowball.
Paul Diamond: So I appreciate the clarity.
Paul Diamond: Understood I appreciate the clarity and then just one more sort of a walk to your question. So if I look at the table on your release between gross Ducks in gross permits the ratio seems pretty stable outside of notable kind of weakening in haynesville.
Davis Ravnaas: And then just one more bit of a wonky question. So if I look at the table and your release between gross ducks and gross permits, the ratio seems pretty stable outside of a notable kind of weakening in Haynesville. Um, should we, is that a decent read through to to think about as far as, you know, production growth or sustainability in Haynesville, not just on your app or your operations, but on kind of the larger basin? Or is that the wrong way to read through that? No, I wouldn't, I wouldn't read through too much on that.
Paul Diamond: Should we is that a decent read through to.
Paul Diamond: So think about as far as production growth or sustainability in Haynesville and not just on your own or your operations, but all of them kind of a larger basin or is that the wrong way to read through that.
No I wouldn't I wouldn't read through too much on that if we start to notice a significant trend on that particular basin.
Davis Ravnaas: If we start to notice a significant trend on that particular basin. That would be something that would be more meaningful to us. But no, that ratio of ducks to permits, it tends to go up and down over time.
Paul Diamond: That would be something that would be more meaningful to us, but know that that ratio of ducks to permit it tends to go up and down over time.
Davis Ravnaas: Still very bullish about the Haynesville, obviously. And of course, in this new natural gas price environment, it's a very bullish place to be. But I wouldn't read too much into the ratio of ducks. That could easily change core over core. Got it. Appreciate the clarity.
Still very bullish about the Haynesville, obviously and of course in this new natural gas price environment. It's a very bullish place to be but I wouldn't I wouldn't overly I wouldn't read too much into the ratio of ducks and permits that could that could easily change quarter over quarter.
Paul Diamond: Got it I appreciate the clarity.
Derek Whitfield: I'll leave it there. Thank you.
Paul Diamond: I'll leave it there.
Paul Diamond: Thank you.
Paul Diamond: Yeah.
Paul Diamond: Thank you.
Operator: As there are no further questions, ladies and gentlemen, we have reached the end of question and answer session.
Speaker Change: As there are no further questions, ladies and gentlemen, we have reached the end of question and answer session I would.
Bob Ravnaas: I would now like to turn the floor over to the management for closing comments. We thank you all for joining us this morning, and we look forward to speaking with you again next quarter.
Paul Diamond: Now I'd like to turn the phone 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.
Operator: This completes today's call. Thank you.
Speaker Change: This completes today's call.
Speaker Change: Thank you. This concludes today's teleconference. You may begin.
Operator: This concludes our today's teleconference. This time, thank you for your participation. [music]
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