KRP

Business Context and Reporting Period

Company: Kimbell Royalty Partners, LP (KRP)
Filing Type: Form 10-K (Annual Report)
Reporting Period: Fiscal year ended December 31, 2024
Business Model: KRP is a Delaware limited partnership that owns and acquires mineral and royalty interests in oil and natural gas properties across the United States. It is taxed as a corporation. The company does not fund drilling or completion costs; instead, it receives a cost-free percentage of production revenues from third-party operators. As of December 31, 2024, KRP owned interests in approximately 12.2 million gross acres and over 129,000 gross wells, with significant exposure to the Permian Basin and Mid-Continent regions.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Growth: Total revenues increased 5.2% to $309.3 million in 2024, driven primarily by a 23.4% increase in production volumes (9.1 million Boe vs. 7.4 million Boe in 2023). This volume growth was offset by a decline in average realized prices for natural gas (down 28.6%) and a slight decrease in oil prices (down 0.7%).
• Profitability Decline: Net income attributable to common units turned negative at $(8.8) million in 2024, compared to $60.1 million in 2023. This was primarily due to a significant impairment charge of $62.1 million (vs. $18.2 million in 2023) resulting from declines in 12-month average commodity prices, and increased depreciation and depletion expenses ($135.1 million vs. $96.5 million) due to recent acquisitions.
• Debt Reduction: The company reduced its outstanding borrowings under its secured revolving credit facility by approximately $60.0 million during 2024, bringing the balance to $239.2 million as of year-end.
• Derivative Losses: The company recorded a net loss of $1.3 million on commodity derivative instruments in 2024, compared to a gain of $20.9 million in 2023.

Guidance, Outlook, and Risks

• Recent Developments: In January 2025, KRP completed a $230.4 million acquisition of assets from Boren Minerals (the "Boren Acquisition") and a public equity offering raising approximately $163.6 million. The Boren Acquisition was funded by the equity proceeds and additional borrowings.
• Distribution Policy: The Board declared a quarterly cash distribution of $0.40 per common unit for Q4 2024. The Board intends to continue allocating a portion of cash available for distribution to repay outstanding borrowings under the credit facility.
• Capital Structure: KRP maintains a $550.0 million secured revolving credit facility. The borrowing base was reaffirmed at $550.0 million in November 2024. The company is subject to covenants limiting the Debt to EBITDAX ratio to 3.5 to 1.0.
• Key Risks:
  • Commodity Price Volatility: Revenues are highly sensitive to oil and natural gas prices. A decline in prices can trigger impairment charges and reduce cash flow.
  • Operator Dependency: KRP relies entirely on third-party operators for drilling and production decisions. A reduction in operator activity could lead to production declines.
  • Internal Controls: The company previously identified a material weakness in internal controls related to accounting for changes in ownership of its Operating Company. Management states this weakness was remediated as of December 31, 2024.
  • Regulatory Environment: Changes in environmental regulations, particularly regarding hydraulic fracturing and methane emissions, could increase costs for operators and impact production.

Investor Verification Checklist

• Impairment Sensitivity: Verify the impact of future commodity price fluctuations on the full-cost ceiling test, given the $62.1 million impairment recorded in 2024.
• Debt Covenants: Monitor the Debt to EBITDAX ratio to ensure compliance with the 3.5x covenant limit, especially as debt levels may rise to fund the Boren Acquisition.
• Production vs. Decline: Assess whether the 23% production growth in 2024 is sustainable given the natural decline rate of 13.2% for proved developed producing reserves.
• Internal Control Remediation: Confirm that the remediation of the material weakness regarding non-controlling interest accounting remains effective in future reporting periods.
• Acquisition Integration: Evaluate the accretive nature of the Boren Acquisition and the MB Minerals/LongPoint acquisitions on future cash flow per unit.