Kimbell Royalty Partners: Solid Production, But Distribution Reduced Due To Lower Oil Prices

Kimbell Royalty Partners (KRP) reported Q2 2025 production remained largely stable at 25,355 BOEPD, a slight 1% quarter-over-quarter decrease, despite weaker commodity prices that reduced adjusted EBITDA to $63.8 million and the quarterly distribution to $0.38 per unit. Resilient rig activity on KRP's acreage and a 9% increase in DUCs are expected to maintain production levels, with H2 2025 distributions projected at $0.35-$0.36 per unit based on current strip prices. The long-term valuation of $16.75 per unit is affirmed, anticipating higher future commodity prices ($70 WTI, $3.75 NYMEX) that would support quarterly distributions exceeding $0.40 per unit.

Analysis

Kimbell Royalty Partners (KRP) delivered resilient operational results in Q2 2025, with production remaining stable at 25,355 BOEPD, a marginal 1% decrease from the prior quarter. Despite this operational stability, weaker commodity prices drove a decline in adjusted EBITDA to $63.8 million from $75.5 million in Q1, consequently reducing the quarterly distribution by approximately 20% to $0.38 per unit, in line with the company's 75% payout ratio and analyst expectations. A key positive indicator is the outperformance of development activity on KRP's acreage; while the overall US land rig count fell 7%, KRP's rig count market share increased to 17%, and its inventory of drilled but uncompleted wells (DUCs) grew by 9%. This suggests a strong foundation for maintaining production levels through 2025. Looking ahead, distributions in 2H 2025 are projected to be in the $0.35-$0.36 per unit range based on current strip prices. The analyst's maintained valuation estimate of $16.75 per unit is contingent on a longer-term (post-2026) recovery in commodity prices to $70 WTI oil and $3.75 NYMEX gas, which would enable distributions to exceed $0.40 per unit.

Key Decisions for Investors

• Investors should look past the near-term distribution cut, which reflects market commodity prices, and focus on strong underlying operational metrics like resilient rig activity and a 9% increase in DUCs that support a stable production outlook.
• The investment thesis hinges on a long-term commodity price recovery, as the $16.75 valuation target is predicated on post-2026 prices of $70 WTI and $3.75 gas; a sustained lower-price environment would challenge this valuation.
• Monitor future hedging activity, particularly for 2027 and beyond, as locking in significant oil volumes at prices below the $70 WTI assumption could incrementally reduce long-term distributable cash flow potential.