Kimbell Royalty Partners (NYSE:KRP), a leading owner of oil and natural gas mineral and royalty interests across the United States, reported solid financial results for the second quarter of 2024, marked by strong cash flow and significant debt reduction. The company maintained a robust rig count and announced a $0.42 distribution per common unit, signaling a commitment to returning value to unitholders.
Despite a challenging market for gas asset acquisitions and slow merger and acquisition (M&A) activity, Kimbell Royalty Partners remains optimistic about their development prospects and the strength of their Mid-Con position.
Key Takeaways
- Kimbell Royalty Partners (ticker: KRP) delivered strong cash flow and reduced debt in the second quarter of 2024.
- The company maintained a 16% market share with 91 active rigs drilling across the U.S.
- A quarterly distribution of $0.42 per common unit was announced.
- Kimbell plans to redeem about 50% of their preferred shares within the next 3 to 6 months to strengthen their balance sheet.
- Despite difficulties in acquiring gas assets and slow M&A activity, the company remains open to acquisitions and confident in their Mid-Con position.
Company Outlook
- Kimbell Royalty Partners affirmed their guidance for 2024, signaling confidence in continued development.
- The company remains committed to improving their balance sheet through the redemption of preferred shares.
- Haynesville production has remained stable, and the company expects an increase in M&A activity by year-end.
Bearish Highlights
- The acquisition of gas assets has been challenging due to favorable futures pricing and the introduction of new export terminals.
- M&A activity has been slower than expected, with a lack of quality transactions noted.
Bullish Highlights
- Kimbell's Mid-Con position includes a significant gas component, which has been successfully acquired.
- The company's 16% market share and strong rig count demonstrate a robust operational presence.
Misses
- The company acknowledged the passing of Ben Fortson, one of Kimbell's original directors, which marks a loss for the company.
Q&A Highlights
- Management discussed the conversion of private equity funds from OpCo into common units, which increased the common unit count.
- They expressed a willingness to consider acquisitions across all basins, reflecting a strategic flexibility in expanding their portfolio.
Kimbell Royalty Partners' solid performance in the second quarter of 2024, combined with their strategic initiatives to enhance shareholder value and optimize their asset portfolio, positions them as a resilient player in the oil and natural gas sector. Despite the current challenges in the gas market and M&A landscape, the company's proactive measures and stable production signal a steady path forward. Management's expression of gratitude and anticipation for the upcoming quarter underscores their commitment to maintaining momentum and capitalizing on future opportunities.
InvestingPro Insights
Kimbell Royalty Partners (ticker: KRP) has demonstrated a strong financial performance in the second quarter of 2024, with a remarkable gross profit margin of 92.93% over the last twelve months as of Q2 2024. This impressive margin underpins the company's ability to generate earnings and may provide a cushion against market volatility. The robust margin is complemented by a solid operating income margin of 36.82%, which reflects the company's operational efficiency.
The company's commitment to shareholder returns is evident through its significant dividend yield of 10.67% and a history of maintaining dividend payments for 8 consecutive years. For investors seeking income, these factors may make KRP an attractive option. It is important to note, however, that the company is trading at a high earnings multiple with a P/E ratio of 32.41, which suggests that the stock's price may be on the higher side relative to its earnings.
For readers interested in further financial insights, there are additional InvestingPro Tips available for Kimbell Royalty Partners. These tips provide a more comprehensive analysis of the company's financial health and investment potential. Currently, there are 11 more InvestingPro Tips listed on https://www.investing.com/pro/KRP, which can offer valuable guidance for evaluating the company's stock.
InvestingPro Data metrics reveal that Kimbell Royalty Partners has a market capitalization of $1.28 billion USD, which illustrates the company's size and market presence. Revenue growth has been robust, with a 25.54% increase over the last twelve months as of Q2 2024, indicating a strong top-line performance. Additionally, the company's fair value, as assessed by analysts, stands at $21 USD, suggesting potential upside from the previous close price of $15.97 USD.
Kimbell Royalty Partners' financial results, dividend commitment, and market valuation provide a multi-faceted view of the company's performance and prospects. The InvestingPro platform offers further insights and metrics that can help investors make informed decisions.
Full transcript - Kimbell Royalty Partners LP (KRP) Q2 2024:
Operator: Greetings, and welcome to Kimbell Royalty Partners Second Quarter Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Rick Black. Thank you. 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 second quarter of 2024, which ended June 30, 2024. This call is also being webcast and can be accessed through the audio link on the Events & Presentations page of kimbellroyaltyrp.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 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 measures can be found at the end of today's earnings release. Kimbell 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 Ravnaas, Kimbell Royalty Partners' Chairman and Chief Executive Officer. Bob?
Bob Ravnaas: 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 Ravnaas, our President and Chief Financial Officer; Matt Daly, our Chief Operating Officer; and Blayne Rhynsburger, our Controller. We are pleased to report solid results for the second quarter with strong cash flow, continued debt paydown and lower cash G&A costs. 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. 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 is one of Kimbell'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 Kimbell Art Foundation since 1975. Ben was an essential part of our success and evolution here at Kimbell. He helped create Kimbell 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 Kimbell over the years. We will miss his advice, sense of humor and friendship. I'll now turn the call over to Davis.
Davis Ravnaas: Thanks, Bob, and good morning, everyone. In the second quarter, 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&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 million. We had run rate production of 24,110 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. On the expense side, second quarter general and administrative expenses were $10.2 million, $5.1 million of which was cash G&A expense or $2.34 per BOE. This represents a new record low cash G&A per BOE for Kimbell and is below the low end of guidance, reflecting operational discipline and positive operating leverage. Net income in the second quarter was approximately $15.2 million, and net income attributable to common units was approximately $8.4 million or $0.11 per common unit. Total second quarter consolidated adjusted EBITDA was $65.8 million. 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 second quarter. This represents a cash distribution payment to common unitholders and 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 $265.8 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 0.9x. We had approximately $284.2 million in undrawn capacity under the secured revolving credit facility as of June 30. We 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 at our well-established and diversified asset portfolio will continue to enhance value for our unitholders. With that, operator, we are now ready for questions.
Operator: [Operator Instructions] The first question comes from Tim Rezvan with KeyBanc Capital Markets.
Tim Rezvan: I want to start on the unchanged guidance that you put out for the year. I guess you reiterated, 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&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 not revisit some of those items?
Davis Ravnaas: 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, 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 we -- 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. But Matt, anything on those additional wells that it might be helpful.
Matt Daly: Yes, yes, yes. I mean we do have some -- as Davis mentioned, two large interest wells, over 20% royalty interest wells likely coming on later this year, probably Q4 or Q1 '25. The operators located in Loving County currently rig on the site. And just to put that in perspective, the average royalty interest for us is about 1% or 1.5%. So having two 20% wells coming online, mainly oil production is going to make a big difference in production yield later this year or early '25. So your point about guidance is certainly noted and we'll internally meet about that.
Bob Ravnaas: And this is Bob. I'd also like to add, we're -- 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 was 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.
Tim Rezvan: Okay. I appreciate the color. As my follow-up, I was curious, you had the preferred sitting out there. I was wondering if you could give kind of updated thoughts on when or how you might look to address those as we head towards 2025?
Davis Ravnaas: 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 of less than 1.5x, that would allow us to redeem just over half of the pref, we believe, probably by the end of the calendar year. 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.
Tim Rezvan: Okay. And if I could sneak a quick one in just on the modeling side. The common units outstanding increased quite a bit to $81 million. Was that simply due to the accelerated vesting of restricted units that you cited in the release? Or was there anything else?
Davis Ravnaas: There was a conversion of one 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.
Matt Daly: One of the private equity funds converted from OpCo into common here recently, and that's one of the reasons why their common unit count went up and the OpCo unit count went down, if that's what you're asking about.
Tim Rezvan: Yes. Yes, exactly.
Matt Daly: You'll see their holding -- their holdings are reported on Bloomberg as of 6:30.
Operator: The next question is from Neal Dingmann with Truist Securities.
Julian Broche: This is Julian Broche on for Neal. 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 oil ones?
Davis Ravnaas: It's been a little bit -- I'll just give you my perspective, I'd be curious what Bob or Matt think 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, just outstanding asset. 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 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-Con position, which Bob was just talking about to be picked up through LongPoint does have a heavy gas component associated with it. And that's been wonderful to buy too. So tough to find gas assets. It's not lost to anybody that 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?
Matt Daly: Yes. I mean, it's just interesting to me, the Haynesville production for us was actually up slightly Q1 to 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, Davis, it's been difficult to find acquisitions in that area. 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 sort of like running perfectly in 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.
Julian Broche: Got it. And if I can sneak one more in. The kind of Permian where, 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? And what's kind of the potential ticket size that you're seeing the best opportunities right now?
Davis Ravnaas: It’s been a disappointing year for M&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. 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. I think everybody has seen that from an M&A standpoint. That being said, things change all the time. I mean, last year, -- last year it was relatively quiet and then LongPoint 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. But so far, it’s been relatively quiet. But no, we’re open-minded to acquisitions everywhere.
Operator: There are no further questions at this time. I would like to turn the floor back over to the management for closing comments.
Bob Ravnaas: 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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