Business Context and Reporting Period
This Form 8-K, dated November 9, 2021, reports a material acquisition by Kimbell Royalty Partners, LP (Kimbell). The filing details the entry into a securities purchase agreement to acquire mineral and royalty interests from undisclosed sellers in an all-cash transaction.
Key Financial Metrics and Transaction Details
- Transaction Value: $57,000,000 in cash consideration, subject to customary adjustments.
- Acquired Production (as of Sept 30, 2021): Estimated 700 Boe/d (6:1 basis), comprising 48% natural gas, 34% oil, and 18% NGLs.
- Acquired Reserves (as of Nov 1, 2021): Approximately 5.9 Mboe in total proved reserves.
- Acquisition Cost Basis: Approximately $9.66 per total proved Boe.
- Reserve Composition: 46% natural gas, 37% oil, 17% NGLs; 62% conventional and 38% unconventional assets.
- Geographic Mix: Permian Basin (39%), Mid-Continent Basin (31%), Haynesville Basin (14%).
- Decline Rate: Estimated average five-year decline rate of 9% for acquired assets (vs. Kimbell's 12%).
- Operational Impact: Expected to increase Kimbell's average daily net production to 14,783 Boe/d (as of Sept 30, 2021) and reduce G&A expenses to $2.95/Boe.
Material Changes and Financing
The transaction represents a significant expansion of Kimbell's asset base. Financing is structured as follows:
- Equity Financing: A portion of the purchase price is intended to be funded by net proceeds from an underwritten public offering of common units.
- Debt Financing: The remaining portion is expected to be funded through borrowings under Kimbell's revolving credit facility.
- Credit Facility Adjustment: A closing condition requires the borrowing base and elected commitment amount under the revolving credit facility to be increased to $275.0 million.
Guidance, Risks, and Contingencies
- Closing Timeline: Expected to close in Q4 2021. The effective date is November 1, 2021, extendable to December 1, 2021, if not closed by December 15, 2021.
- Termination Rights: The agreement may be terminated if the underwritten public offering is not consummated by November 9, 2021, or if net proceeds are less than $42 million. Termination is also possible if the acquisition does not close by February 15, 2022.
- Reserve Estimates: Current reserve figures are preliminary estimates. Final proved reserve estimates as of December 31, 2021, will be prepared by Ryder Scott Company, L.P., and may differ from current projections.
- Risks: Risks include failure to close, inability to realize anticipated benefits, integration challenges, commodity price volatility, and borrowing base redeterminations.
Investor Verification Checklist
- Confirm the successful consummation of the underwritten public offering and whether net proceeds met the $42 million threshold.
- Verify the final approved borrowing base increase to $275.0 million under the revolving credit facility.
- Review the final proved reserve report by Ryder Scott Company, L.P., for accuracy against the preliminary $9.66/Boe cost basis.
- Monitor the actual closing date to ensure it occurs before the February 15, 2022, termination deadline.
- Assess the realized impact on G&A expenses per Boe post-integration.