KRP

Kimbell Royalty Partners, LP - Q2 2024 10-Q Summary

Business Context and Reporting Period

This report covers the quarterly period ended June 30, 2024. 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, 2024, the Partnership owned interests in approximately 12.2 million gross acres and 4.7 million gross acres of overriding royalty interests, with 54% of aggregate acreage located in the Permian Basin and Mid-Continent.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Growth: Total revenues increased 26% year-over-year for the three months ended June 30, 2024, driven primarily by higher production volumes from the LongPoint Acquisition (closed Sept 2023) and MB Minerals Acquisition (closed May 2023).
• Production Volumes: Combined production volumes increased to 2.19 million Boe for Q2 2024, up from 1.65 million Boe in Q2 2023.
• Commodity Prices: Average realized oil prices increased 7.4% to $77.20/Bbl, while natural gas prices decreased 5.4% to $2.10/Mcf compared to the prior year quarter.
• Derivative Impact: The Partnership recorded a net loss of $1.0 million on commodity derivatives for Q2 2024, compared to a gain of $1.7 million in Q2 2023, due to rising strip pricing.
• Impairment: An impairment charge of $6.0 million was recorded in the first half of 2024 due to a decline in 12-month average commodity prices, impacting the full-cost ceiling test. No impairment was recorded in Q2 2024 specifically.
• Debt Reduction: Long-term debt decreased from $294.2 million at year-end 2023 to $265.8 million at June 30, 2024, following repayments of approximately $33.4 million during the six-month period.

Guidance, Outlook, and Risks

• Distributions: The Board declared a quarterly cash distribution of $0.42 per common unit for Q2 2024, payable August 19, 2024. Additionally, a distribution of approximately $4.8 million is due on Series A preferred units.
• Capital Allocation: The Board allocated 25% of cash available for distribution in Q2 2024 to repay $13.6 million of outstanding borrowings. Management intends to continue allocating a portion of cash flow to debt repayment.
• Derivative Hedging: The Partnership maintains fixed price swaps for oil and natural gas extending through June 2026 to mitigate price volatility. As of June 30, 2024, hedged volumes included approximately 1.14 million Bbl of oil and 10.4 million MMBtu of natural gas.
• Risks: Key risks include volatility in oil and natural gas prices, potential future impairments if commodity prices decline further, and reliance on third-party operators for drilling and completion activity. Global conflicts (Russia-Ukraine, Middle East) continue to create market uncertainty.

Investor Verification Checklist

• Debt Covenants: Verify continued compliance with the Debt to EBITDAX ratio (max 3.5:1) and current asset to current liability ratio (min 1.0:1) under the Amended and Restated Credit Agreement.
• Series A Preferred Units: Monitor the conversion status and distribution obligations of the 325,000 Series A preferred units issued to Apollo affiliates, which carry a 6.0% annual distribution rate.
• Impairment Sensitivity: Assess the impact of future 12-month average price declines on the full-cost ceiling test, given the $6.0 million impairment already recognized in H1 2024.
• Production Growth: Confirm that production growth from the LongPoint and MB Minerals acquisitions is sustaining the revenue increases seen in Q2 2024.
• Derivative Settlements: Track the cash flow impact of derivative settlements, as mark-to-market losses in Q2 2024 reduced reported net income despite strong operational cash flow.