Kimbell Royalty Partners Q2 2024 Earnings Call Transcript

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August 1, 2024

There are 7 speakers on the call.

Operator

Greetings, and welcome to Kimbell Royalty Partners Second Quarter Earnings Conference Call. At this time, all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Rick Black.

Operator

Thank you. You may begin.

Speaker 1

Thank you, operator, and good morning, everyone. Welcome to the Kimbell Royalty Partners conference call to review financial and operational results for the Q2 of 2024, which ended June 30, 2024. This call is also being webcast and can be accessed through the audio link on the Events and Presentations page of kimberroyaltyrp.com. Information recorded on this call speaks only as of today, which is August 1, 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 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.

Speaker 1

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.

Speaker 1

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 of these forward looking statements. I would now like to turn the call over to Bob Ravinis, Kimball Royalty Partners' Chairman and Chief Executive Officer. Bob?

Speaker 2

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 Ravnus, our President and Chief Financial Officer Matt Daley, our Chief Operating Officer and Blaine Rinesburger, our Controller. We are pleased to report solid results for the Q2 with strong cash flow, continued debt pay down and lower cash G and A costs. Our rig count remains robust at 91 rigs actively drilling across the U.

Speaker 2

S, which represents a 16% market share of all land rigs currently drilling in the continental United States. 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. Finally, we announced a $0.42 distribution per common unit as we continue to focus on returning value to unitholders. Before turning the call over to Davis, I wanted to acknowledge the passing of Ben Fortson, who was one of Kimball's original directors, my friend and colleague. Ben had decades of industry experience serving as President and CEO of Fortson Oil Company and serving as the Chief Investment Officer and Executive Vice President of the Kimball Art Foundation since 1975.

Speaker 2

Ben was an essential part of our success and evolution here at Kimball. He helped create Kimball Royalty Partners, participated in our IPO in 2017 and continue to serve on our Board of Directors in 2024. I will miss Ben's wise counsel, vision and excellent investing skills that contributed to the success of Kimball over the years. We will miss his advice, sense of humor and friendship. I'll now turn the call over to Davis.

Speaker 3

Thanks, Bob, and good morning, everyone. In the Q2, we once again generated strong results, exceeded our internal production expectations, maintained a substantial market share of the U. S. Rig count and achieved a record low cash G and A per BOE, which was below the low end of guidance. I'll start by reviewing our financial results from the quarter, beginning with oil, natural gas and NGL revenues, which totaled $77,000,000 We had run rate production of 24,000 110 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.

Speaker 3

On the expense side, 2nd quarter general and administrative expenses were $10,200,000 $5,100,000 of which was cash G and G and A expense or $2.34 per BOE. This represents a new record low cash G and A per BOE for Kimbell and is below the low end of guidance reflecting operational discipline and positive operating leverage. Net income in the 2nd quarter was approximately $15,200,000 and net income attributable to common units was approximately 8,400,000 dollars or $0.11 per common unit. Total 2nd quarter consolidated adjusted EBITDA was $65,800,000 You will find a reconciliation of both consolidated adjusted EBITDA and cash available for distribution at the end of our news release. As Bob mentioned, today we announced a cash distribution of $0.42 per common unit for the 2nd quarter.

Speaker 3

This represents a cash distribution payment to common unitholders 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. Moving now to our balance sheet and liquidity. At June 30, 2024, we had approximately 265 $800,000 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 0.9 times. We had approximately 284 point $2,000,000 in undrawn capacity under the secured revolving credit facility as of June 30.

Speaker 3

Remain very comfortable with our strong financial position, the support of our expanding bank syndicate and our financial flexibility. Today, we are also affirming our 2024 guidance, which includes daily production at its midpoint of 24,000 BOE per day. As a reminder, our full guidance outlook was provided in the Q4 2023 earnings press release. We remain confident about the prospects for continued robust development as we progress through 2024 given the number of rigs actively drilling on our acreage, especially in the Permian. We continue to believe that the overall demand for energy and our well established and diversified asset portfolio will continue to enhance value for our unitholders.

Speaker 3

With that, operator, we are now ready for questions.

Operator

Thank you. We will now be conducting a question and answer session. The first question comes from Tim Rezvan with KeyBanc Capital Markets. Please go ahead.

Speaker 4

Good morning folks and thank you for taking my questions.

Speaker 3

Good morning, guys. Good morning.

Speaker 4

I want to start on the unchanged guidance that you put out for the year. I guess you reiterated it. Production is sort of outpacing the midpoint of the annual guide year to date. We have decent line of sight on future TILs across your footprint. Why not revisit guidance for that and maybe guidance as well on cash G and A and DD and A that seem to be trending outside the range?

Speaker 4

I know you all play conservative and sort of have wide goalposts, but just kind of curious why not revisit some of those items?

Speaker 3

Yes, that's a fair comment, and it's not lost on us. Let us collect internally here and reconsider that. I will say, look, we don't have control obviously over the drill bit, so things are always variable. But your points are valid and we don't want to be unduly conservative as well. And I'll add to that.

Speaker 3

We do have some even more immediate line of sight on some large 20% interest wells that we have, and I think it's Loving County that we think are going to come online later in this year. 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. We're not doing that from a sense of 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 on what we're saying we're going to deliver.

Speaker 3

But Matt, anything on those additional wells that it might be helpful?

Speaker 5

Yes, yes, yes. I mean, we do have some, as Davis mentioned, 2 large interest wells, over 20% royalty interest wells likely coming on later this year, probably Q4 or Q1 'twenty 25. The operators located in Loving County, currently rig on-site. And just to put that in perspective, the average royalty interest for us is about 1% or 1.5%. So having 2 20 percent wells coming online, mainly oil production is going to make a big difference in production later this year or early 2025.

Speaker 5

So your point about guidance is certainly noted and we'll internally meet about that.

Speaker 2

And this is Bob. I'd also like to add we have a great position in the Mid Continent that we're really proud of through a couple of acquisitions, one last year and one several years ago. And our production this last quarter is up 5% in Oklahoma and our rig capture is approximately 50% of all rigs in Oklahoma. So we're very happy with the activity on our Mid Continent acreage.

Speaker 4

Okay. I appreciate the color. As my follow-up, I was curious, you have the preferreds sitting out there. I was wondering if you could give kind of your updated thoughts on when or how you might look to address those as we head towards 2025?

Speaker 3

Man, you're asking all the great questions. We are excited to say that we'll probably plan to redeem about half of that pref in the next 3 to 6 months. That's our current game plan. We want to keep leverage low. So looking at a debt to EBITDA ratio less than 1.5 times, that would allow us to redeem just over half of the pref, we believe, probably by the end of the calendar year.

Speaker 3

So that's, in our opinion, a way that we're continuing 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.

Speaker 4

Okay. Thank you. And if I could sneak a quick one in just on the modeling side. The common units outstanding increased quite a bit to $81,000,000 Was that simply due to the accelerated vesting of restricted units that you cited in the release? Or was there anything else?

Speaker 3

There was a conversion of 1 of our shareholders recently. Matt, do you want to add any detail to that? I believe it was related to the Hatch acquisition a couple of years ago. Yes. That's one

Speaker 5

of the private equity funds converted from OpCo into common here recently. And that's one of the reasons why the common unit count went up and the OpCo unit count went down, if that's what you're asking about?

Speaker 4

Yes, yes. I think that's an important part.

Speaker 5

You'll see their holdings are reported on Bloomberg as of sixthirty.

Speaker 4

Okay. Okay. Appreciate all the color. Thank you.

Speaker 2

Of course.

Operator

Thank you. The next question is from Neil Dingmann with Truist Securities. Please go ahead.

Speaker 6

Hey, this is Julian Brochet on for Neil. Thanks for taking our questions.

Speaker 3

Yes. Good morning, Julian.

Speaker 6

Good morning. Just kind of given the weak gas environment that we're seeing now, are you guys seeing any actionable dislocations in pricing kind of versus gas assets versus oily ones?

Speaker 3

It's been a little bit I'll just give you my perspective. I'd be curious with bottom massing too. It's been a little bit disappointing on the gas front. We our big gas acquisition was obviously Haymaker, which we made back in 2018, which I continue to believe was probably the best gas buy we've done in 20 years. Gas was $2 its core, Western Louisiana acreage, this outstanding asset.

Speaker 3

We haven't seen a whole lot on the gas front in the last I mean, candidly, I'll even say we haven't seen much since 2018. It just seems like nobody wants to sell gas assets, but mostly because I think everybody is 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, 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's been wonderful to buy too. So tough to find gas assets.

Speaker 3

It's not lost to anybody. The gas is depressed. We would be happy to buy gas assets. It's just been hard to get them out of people's hands. But Bob or Matt, anything you guys would like to add to that?

Speaker 5

Yes. I mean, it's just interesting to me. 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 have totally stabilized there from an operational standpoint. But yes, you're right, David, it's a bit difficult to find acquisitions in that area.

Speaker 5

I think people see what we're seeing there in terms of the future prospects about the LNG exports and so forth. So but operationally, it's just sort of like running perfectly. And the Haymaker asset we bought, that asset has grown dramatically since we bought it back in 2018 organically. So it's done very well for us.

Speaker 6

Got it. Thank you. And if I can sneak one more in. The kind of Permian I guess Permian deal flow is kind of potentially going to slow down into year end, given all the deals. But what other basins are you all looking at?

Speaker 6

And what's kind of the potential ticket size that you're seeing the best opportunities right now?

Speaker 3

It's been a disappointing year for M and A generally speaking across the board. So I'd say that we've seen very few transactions and even fewer transactions that are actually interesting to us from an asset quality standpoint. We're looking at every basin. So we always do. We look at everything we can.

Speaker 3

Our job is not to pick a specific county and say that we're only going to buy there and we'll pay whatever it takes to get a deal done in that county. Our dollars compete across the board, across all basins and all counties. So if we can make more money for our investors buying something in Utah, we'd rather do that than buy something in Midland County. So we're looking everywhere. But I would say so far this year has been a little bit depressed on royalty volumes.

Speaker 3

I think everybody's seen that from an M and A standpoint. That being said, things change all the time. I mean, last year was relatively quiet and then Long Point came along for us and that was a huge deal. We've seen that the last couple of years too 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.

Speaker 3

But so far, it's been relatively quiet. But no, we're open minded to acquisitions everywhere.

Speaker 6

Got it. Very helpful. Thank you very much.

Speaker 3

Thank you.

Operator

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 2

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.

Operator

Thank you. This concludes today's teleconference. You may now disconnect your lines. Thank you for your participation.

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Key Takeaways

  • In Q2 2024, Kimbell generated $77.0 million in oil, gas and NGL revenues with average production of 24,110 BOE/d and declared a $0.42 distribution per common unit.
  • The company achieved a record low cash G&A of $2.34 per BOE, reported net income of $15.2 million and consolidated adjusted EBITDA of $65.8 million.
  • As of June 30, Kimbell maintained a conservative balance sheet with net debt to trailing 12-month adjusted EBITDA of 0.9× and $284.2 million of undrawn revolver capacity.
  • Two high-interest (≈20%) wells in Loving County are expected online in Q4 2024/early 2025, further bolstering production beyond the level needed to sustain flat output.
  • The partnership plans to redeem approximately half of its preferred units within the next 3–6 months to keep leverage below 1.5× and strengthen financial flexibility.
AI Generated. May Contain Errors.
Earnings Conference Call
Kimbell Royalty Partners Q2 2024
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