Business Context and Reporting Period
Company: Kimbell Royalty Partners, LP (KRP)
Filing Type: Form 8-K (Current Report)
Date: November 3, 2022
Event: Entry into a Material Definitive Agreement to acquire mineral and royalty interests from Hatch Royalty LLC.
Key Financial Metrics and Transaction Terms
Transaction Consideration:
- Cash: Approximately $150 million.
- Equity: Issuance of 7,272,821 OpCo Common Units and an equal number of Class B Units (exchangeable for Common Units).
- Proved Reserves: Estimated 14.7 MMBoe.
- Production: 2,072 Boe/d (58% oil, 18% NGLs, 24% natural gas).
- Acreage: 889 net royalty acres on ~230,000 gross acres.
- Inventory: 1.18 net drilled but uncompleted wells; 1.06 net permitted locations.
- Expected reduction in general and administrative expenses (net of non-cash compensation) by approximately 12%.
- Expected increase in oil weighting of daily production mix from 25% to 29%.
Kimbell intends to finance a portion of the cash purchase price via an underwritten public offering of Common Units. The agreement may be terminated if net proceeds from this offering are less than $76,925,000 by November 16, 2022.
Material Changes and Strategic Outlook
Geographic Concentration: The acquired assets are concentrated in the Delaware Basin (Texas and New Mexico) and the Midland Basin, with 82% of net royalty acres in the Texas Delaware Basin.
Inventory Growth: The acquisition is expected to increase Kimbell's total net drilled but uncompleted wells and permitted location inventory by 41% and Permian Basin inventory by 117%.
Closing Timeline: Expected to close in the fourth quarter of 2022 with an effective date of October 1, 2022. The agreement includes a termination date of January 21, 2023, if the acquisition has not closed.
Risks, Contingencies, and Management Commentary
Conditions Precedent: Closing is subject to customary conditions, including the successful consummation of the equity offering mentioned above.
Lock-up Period: The Seller agreed not to dispose of the equity units for 120 days following closing.
Registration Rights: Kimbell agreed to file a shelf registration statement within 30 days of closing to permit resale of the units issued to the Seller.
Reserve Estimates: Management notes that reserve engineering is subjective. Final proved reserve estimates for the acquired assets will be prepared by Ryder Scott Company, L.P., as of December 31, 2022, and may differ from current management estimates.
Forward-Looking Risks: Risks include failure to close, integration challenges, commodity price volatility, drilling risks, and potential borrowing base redeterminations.
Investor Verification Checklist
- Confirm the closing of the acquisition and the final purchase price adjustments.
- Verify the successful completion of the underwritten public offering and the amount of net proceeds raised.
- Review the final proved reserve report by Ryder Scott Company, L.P., for the acquired assets (expected post-Dec 31, 2022).
- Monitor the effectiveness of the shelf registration statement for the Seller's units.
- Assess the actual impact on G&A expenses and production mix post-closing.