KRP

Kimbell Royalty Partners, LP - 10-Q Summary (Q2 2025)

Business Context and Reporting Period

This filing covers the quarterly period ended June 30, 2025. Kimbell Royalty Partners, LP is a Delaware limited partnership owning mineral and royalty interests in oil and natural gas properties across the United States. The Partnership is taxed as a corporation. As of June 30, 2025, the Partnership owned interests in approximately 12.3 million gross acres and 4.7 million gross acres of overriding royalty interests, with over 99% of acreage leased and held by production.

Key Financial Metrics

Material Changes vs. Prior Period

• Acquisitions: Completed the Boren Acquisition in January 2025 for approximately $230.4 million, adding mineral and royalty interests in the Midland Basin. This increased production volumes in Q2 2025.
• Capital Structure:
  • Completed a public equity offering in January 2025, issuing 11.5 million common units for net proceeds of ~$163.6 million.
  • Redeemed 50% of outstanding Series A preferred units (162,500 units) in May 2025 for an aggregate price of $182.3 million.
  • Increased borrowing base on the secured revolving credit facility from $550.0 million to $625.0 million in May 2025.
• Revenue Drivers:
  • Oil, natural gas, and NGL revenues decreased slightly in Q2 2025 ($74.7M) compared to Q2 2024 ($77.0M) due to lower average oil and NGL prices, partially offset by higher natural gas prices and increased volumes from the Boren Acquisition.
  • YTD 2025 revenues remained flat compared to YTD 2024 ($164.6M vs $164.5M).
• Derivatives: Recorded a net gain of $9.3 million on commodity derivatives in Q2 2025, compared to a loss of $1.0 million in Q2 2024, driven by mark-to-market gains on contracts with lower strike pricing.
• Depletion: Average depletion rate per barrel decreased to $13.16 in Q2 2025 from $15.01 in Q2 2024, largely due to a prior-year impairment reducing the net capitalized cost basis.

Guidance, Outlook, and Risks

• Distributions: The Board declared a quarterly cash distribution of $0.38 per common unit for Q2 2025, payable August 25, 2025. The Board intends to continue allocating a portion of cash available for distribution to repay outstanding borrowings.
• Outlook: Management expects to pursue further acquisitions to grow the asset base, funded by external sources (debt/equity) and operating cash flows. No specific production or price guidance was provided for the remainder of 2025.
• Risks:
  • Commodity Price Volatility: Exposure to fluctuations in oil and natural gas prices, though partially mitigated by derivative contracts extending through June 2027.
  • Geopolitical Instability: Ongoing conflicts in Ukraine and the Middle East continue to create uncertainty in global energy markets.
  • Regulatory/Tax Changes: The "One Big Beautiful Bill Act" enacted on July 4, 2025, introduced significant tax code modifications. The Partnership is evaluating the impact, which is not reflected in the Q2 2025 financials.
  • Impairment Risk: Future declines in commodity prices or reserve estimates could trigger additional impairments under the full-cost ceiling test.

Investor Verification Checklist

• Verify the impact of the new "One Big Beautiful Bill Act" tax legislation on future effective tax rates and distribution tax treatment.
• Confirm the integration and production performance of the Boren Acquisition assets in the Midland Basin.
• Monitor the utilization of the increased $625 million borrowing base and the trajectory of debt repayment versus distribution coverage.
• Review the maturity schedule and strike prices of the commodity derivative portfolio to assess hedging effectiveness against current market prices.
• Assess the sustainability of the $0.38 per unit distribution given the Board's policy to allocate 25% of available cash to debt repayment.