Kimbell Royalty Partners, LP — FY 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023; comparisons are with FY 2022 unless noted. Kimbell owns non-cost-bearing mineral, royalty and overriding royalty interests across U.S. oil and gas basins. It relies on third-party operators for drilling and production and is taxed as a corporation for U.S. federal income tax purposes.
Financial results and position
| Metric | FY 2023 | FY 2022 | Change |
|---|---|---|---|
| Oil, natural gas and NGL revenue | $267.6 million | $282.0 million | Down 5.1% |
| Total revenue, including derivative gains/losses | $294.1 million | $248.1 million | Up 18.5% |
| Operating income | $109.9 million | $136.9 million | Down 19.8% |
| Net income | $83.0 million | $130.8 million | Down 36.5% |
| Net income attributable to common units | $60.1 million | $111.9 million | Down 46.3% |
| Net cash from operating activities | $174.3 million | $166.6 million | Up 4.6% |
| Adjusted EBITDA attributable to KRP | $165.6 million | $164.0 million | Up 0.9% |
| Cash available for distribution on common units | $140.8 million | $151.3 million | Down 7.0% |
Operating margin was approximately 37.4% of total revenue, compared with 55.2% in 2022; net margin was approximately 28.2%, compared with 52.7%. These margins include commodity derivative results in revenue and were affected by higher depletion, impairment and interest expense.
- Production and pricing: Production rose 32.6% to 7.37 million Boe, or 20,265 Boe/d, primarily reflecting acquisitions. Average realized prices fell: oil to $76.55/Bbl from $91.74, natural gas to $2.55/Mcf from $6.04, and NGLs to $23.01/Bbl from $38.19.
- Profit and unusual items: Commodity derivatives produced a net gain of $20.9 million, versus a $37.0 million loss in 2022. KRP recorded an $18.2 million oil and gas property impairment, compared with none in 2022, and $26.0 million of interest expense, up from $13.8 million. The impairment reflected lower reserve-price assumptions; acquisitions increased depletion expense to $96.5 million from $50.1 million.
- Cash flow and investment: Investing cash outflow was $246.7 million, including $490.7 million of acquisition spending, partly offset by $243.2 million returned from TGR’s trust account. Financing cash inflow was $78.4 million; year-end cash increased to $31.0 million from $24.6 million on the balance sheet.
- Debt and liquidity: Revolver borrowings were $294.2 million at year-end, up from $233.0 million; the borrowing base and elected commitments were increased to $550 million. Weighted-average borrowing interest rate was 8.62%. KRP reported covenant compliance at year-end. The facility requires debt/EBITDAX of no more than 3.5x and current assets/current liabilities of at least 1.0x; distributions are restricted if debt/EBITDAX exceeds 3.0x.
- Assets and reserves: Total assets were $1.34 billion, including $1.22 billion net oil and gas properties. Proved developed reserves increased 40.8% to 65.4 million Boe; all reported reserves were proved developed. The standardized measure of discounted future net cash flows rose to $975.1 million from $904.3 million, though this SEC measure is not fair value and uses prescribed pricing assumptions.
- Distributions and capital structure: Common-unit distributions declared for 2023 were $0.35, $0.39 and $0.51 for the first three quarters; the $0.43 fourth-quarter distribution was declared in February 2024 and scheduled for payment in March. The fourth-quarter cash allocation included $13.8 million for debt repayment. KRP issued 325,000 Series A preferred units for $325 million gross proceeds; they carry a cumulative 6% annual distribution senior to common units. It also completed an $110.7 million net common-unit offering.
Material developments and outlook
- KRP completed the MB Minerals acquisition in May 2023 for approximately $48.8 million cash plus units, and the LongPoint acquisition in September for approximately $455 million cash. The LongPoint purchase was funded with revolver borrowings and preferred-unit proceeds.
- Revenue growth and earnings are sensitive to commodity prices, production volumes and operator development decisions. Management cited acquisitions and continued operator activity as growth drivers, but the filing provides no formal numerical guidance for 2024.
- Management expects to continue directing a portion of available cash toward revolver repayment. KRP does not maintain a material distribution-stability reserve and does not intend to retain cash for replacement capital expenditures; distributions may vary or be suspended.
- Risk factors include commodity-price volatility, dependence on unaffiliated operators, reserve-estimation uncertainty, acquisition and integration risks, debt and interest-rate exposure, potential impairment, environmental and climate regulation, hydraulic-fracturing restrictions, and limited unitholder governance rights. Russia-Ukraine and Middle East conflicts had no reported material effect on operations to date, but contributed to market uncertainty.
- KRP reported no material legal proceedings or known material commitments or contingencies. It reported effective disclosure controls and internal control over financial reporting; the acquired LongPoint business was excluded from management’s internal-control assessment. The auditor’s financial-statement opinion was unqualified.
Most important facts for investors to verify
- Reconcile acquisition-driven production and reserve growth with lower realized prices, lower common-unit earnings and the 2023 impairment.
- Review debt capacity, borrowing costs, covenant headroom and planned debt repayment against the $550 million borrowing base and distribution restrictions.
- Assess whether the $140.8 million of cash available for common-unit distributions is sustainable given preferred distributions, taxes, interest and the absence of replacement-capital reserves.
- Examine the Series A preferred terms—including senior 6% cumulative distributions, conversion and redemption provisions—and potential dilution from Class B units and preferred conversion.
- Evaluate reserve estimates, operator drilling activity and derivative exposure. The filing reports year-end swaps through 2025, while derivative fair-value changes affect reported earnings.
- Confirm post-year-end distribution payments and the effects of acquisition integration, including the LongPoint transition-services agreement, which ended in January 2024.