Kimbell Royalty Partners, LP current report, 20 November 2018

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Business Context and Reporting Period

Company: Kimbell Royalty Partners, LP
Filing Type: Form 8-K (Current Report)
Date of Report: November 21, 2018
Event Date: November 20, 2018
Context: The Partnership entered into a Material Definitive Agreement (Purchase Agreement) to acquire certain overriding royalty, royalty, and other mineral interests, as well as all limited liability company interests of a subsidiary of Rivercrest Royalties Holdings II, LLC. This transaction is referred to as the "Dropdown."

Key Financial Metrics and Transaction Terms

Consideration: The aggregate consideration for the Dropdown consists of:

  • 6,500,000 Opco Common Units (limited liability company interests in Kimbell Royalty Operating, LLC).
  • 6,500,000 Class B Units (limited partner interests in the Partnership).

Unit Structure: The Opco Common Units and Class B Units are exchangeable for an equal number of Common Units representing limited partner interests in the Partnership.
Adjustments: Consideration is subject to certain adjustments, some in cash and others by increasing or decreasing the number of units issued.
Closing Timeline: Expected to close in the fourth quarter of 2018 with an effective date of October 1, 2018.
Financial Data: The filing text does not provide specific revenue, profit, cash flow, margin, debt, or liquidity figures for the reporting period.

Material Changes and Transaction Details

Parties Involved:

  • Buyer Parties: Kimbell Royalty Partners, LP and Kimbell Royalty Operating, LLC.
  • Sellers: Rivercrest Capital Partners LP, Kimbell Art Foundation, Cupola Royalty Direct, LLC, and Rivercrest Royalties Holdings II, LLC.
Related Party Status: Certain officers and managers of the Sellers also serve as officers or directors of the Partnership. Certain Sellers are direct or beneficial owners of limited partner interests in the Partnership.
Approval: The transaction was approved by the Board of Directors of Kimbell Royalty Partners GP, LLC and the Conflicts Committee, which engaged independent financial and legal advisors.

Guidance, Risks, and Contingencies

Closing Conditions: Completion is subject to customary closing conditions, including representations, warranties, and covenants.
Lock-Up Period: Sellers agreed not to dispose of Opco Common Units for 120 days following the closing.
Registration Rights: The Partnership will enter into a Registration Rights Agreement to prepare a shelf registration statement for the resale of the issued units. The statement must be filed within 30 days and become effective within 180 days of execution.
Termination Rights:

  • Buyer Parties may terminate for breaches by Sellers or governmental prohibition.
  • A group of at least three Sellers may terminate for breaches by Buyer Parties or governmental prohibition.
  • Automatic termination if the Dropdown is not consummated by January 31, 2019.
Risk Disclosure: Representations and warranties in the Purchase Agreement are qualified by confidential disclosure schedules and may have been used for risk allocation rather than establishing facts.

Investor Verification Checklist

  • Verify the final closing date and whether the transaction closed in Q4 2018 as expected.
  • Confirm the final number of units issued after any cash or unit adjustments.
  • Review the confidential disclosure schedules (if available) to understand exceptions to representations and warranties.
  • Monitor the filing and effectiveness of the Shelf Registration Statement for the resale of Registrable Securities.
  • Assess the impact of the 120-day lock-up period on future liquidity of the issued units.
  • Confirm the specific mineral interests and royalty assets acquired to evaluate future cash flow potential.