Business Context and Reporting Period
This Form 8-K, filed on January 9, 2020, reports that Kimbell Royalty Partners, LP (KRP) entered into definitive agreements to acquire mineral and royalty interests from Springbok Energy entities (the "Springbok Acquisition"). The filing also provides updates on two recently completed acquisitions: the Oklahoma Acquisition (closed November 6, 2019) and the Buckhorn Acquisition (closed December 12, 2019).
Key Financial Metrics and Transaction Details
Springbok Acquisition Consideration
- Total Cash Consideration: $95 million (approx. $44.8 million under Springbok I; approx. $50.2 million under Springbok II).
- Equity Consideration:
- 2,224,358 Common Units issued to Springbok I Sellers.
- 2,497,134 Opco Common Units and an equal number of Class B Units issued to the Springbok II Seller (exchangeable for Common Units).
- Financing: KRP intends to fund a portion of the cash purchase price via an underwritten public offering of Common Units. The transaction may be terminated if net proceeds from this offering are less than $65 million by January 22, 2020.
Asset Metrics (Springbok Assets as of Oct 1, 2019)
- Production: 2,533 Boe/d (82% oil and NGLs).
- Cash Margin: Estimated average realized cash margin of $21.92 per Boe.
- Acreage: 2,160 net royalty acres across multiple basins (Delaware, DJ, Haynesville, STACK, Eagle Ford, etc.).
- Wells: 6.8 net producing horizontal wells; 0.8 net drilled but uncompleted wells.
Recent Completed Acquisitions
- Oklahoma Acquisition: $9.9 million purchase price; 279,680 gross royalty acres; 202 Boe/d production.
- Buckhorn Acquisition: $36.3 million consideration (equity); 86,000 gross royalty acres; 270 Boe/d production.
Material Changes and Strategic Impact
The Springbok Acquisition represents a significant expansion of KRP's asset base. Upon closing, KRP estimates that over 96% of all rigs operating in the continental U.S. will be located in counties where it holds interests. The combined acquisitions (Springbok, Buckhorn, Oklahoma) are estimated to contribute 24% of KRP's total production, with a notable shift toward oil and NGLs (32% of oil production and 28% of NGL production derived from these assets).
Guidance, Risks, and Contingencies
Closing Conditions and Timeline
- Expected Closing: Second quarter of 2020.
- Effective Date: October 1, 2019.
- Termination Rights: The agreements may be terminated if the public offering fails to raise $65 million by January 22, 2020, or if the transaction does not close by June 2, 2020.
Risks and Uncertainties
- Reserve Estimates: Management's estimates of reserves and production are preliminary. Independent verification by Ryder Scott Company, L.P. is pending for the Springbok Assets (as of Dec 31, 2020).
- Market Conditions: Financing is subject to market conditions; failure to secure funding could terminate the deal.
- Operational Risks: Standard oil and gas risks including price volatility, drilling delays, and integration challenges apply.
- Lock-up Period: Sellers are restricted from disposing of received units for 120 days following closing.
Investor Verification Checklist
- Verify the successful completion of the underwritten public offering of Common Units and whether net proceeds meet the $65 million threshold.
- Monitor the filing of the Shelf Registration Statement for the resale of units issued to sellers (required within 30 days of closing).
- Review the independent reserve report by Ryder Scott Company, L.P. for the Springbok Assets once available to validate the 2,533 Boe/d production and $21.92/Boe margin estimates.
- Confirm the actual closing date in Q2 2020 and any adjustments to the purchase price based on the terms of the Springbok Purchase Agreements.
- Assess the impact of the 14% estimated five-year decline rate on future cash flows post-acquisition.