KRP

Kimbell Royalty Partners, LP - Q1 2025 Filing Summary

Business Context and Reporting Period

This Form 10-Q covers the quarterly period ended March 31, 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 March 31, 2025, the Partnership owned interests in approximately 12.3 million gross acres and 4.7 million gross acres of overriding royalty interests, with operations spanning 28 states and over 131,000 gross wells.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Growth: Total revenues increased by $2.0 million (2.4%) year-over-year, driven primarily by a 97.4% increase in average natural gas prices ($3.87/Mcf vs. $1.96/Mcf), which offset a 9.6% decrease in average oil prices and a 8.1% decline in production volumes (2.30 million Boe vs. 2.50 million Boe).
• Profitability Surge: Net income attributable to common units increased significantly to $17.9 million from $3.2 million. This was aided by the absence of the $6.0 million impairment charge recorded in Q1 2024 and lower depreciation and depletion expenses ($31.1 million vs. $38.2 million) due to prior period impairments reducing the cost basis.
• Acquisition Activity: The Partnership completed the Boren Acquisition on January 17, 2025, for approximately $230.4 million. This transaction added mineral and royalty interests in the Midland Basin (Mabee Ranch) and was funded by a combination of debt and proceeds from a new equity offering.
• Capital Structure: Long-term debt increased by approximately $60 million to $299.0 million to fund the Boren Acquisition. Concurrently, the Partnership completed an underwritten public offering of 11.5 million common units, raising net proceeds of approximately $163.6 million.
• Derivative Losses: The Partnership recorded a net loss on commodity derivative instruments of $6.1 million, compared to $5.7 million in the prior year, reflecting mark-to-market adjustments.

Guidance, Outlook, and Risks

• Distributions: The Board declared a quarterly cash distribution of $0.47 per common unit for Q1 2025, payable May 28, 2025. This is a slight decrease from the $0.49 per unit distribution in Q1 2024.
• Subsequent Events: On May 1, 2025, the borrowing base was increased to $625.0 million. The Partnership borrowed an additional $180.0 million to fund the partial redemption of 50% of its Series A preferred units (162,500 units) on May 7, 2025, at a price of $1,121.92 per unit.
• Market Risks: Management highlights volatility in commodity prices due to global conflicts (Russia-Ukraine, Middle East) and potential impacts of U.S. trade policies and tariffs. While no material impact has been felt to date, these factors remain significant risks to future pricing and demand.
• Outlook: The Partnership continues to pursue acquisitions to grow its asset base, utilizing a mix of debt and equity financing. Production volumes are expected to be influenced by operator drilling activity and the integration of the Boren Acquisition assets.

Investor Verification Checklist

• Debt Covenants: Verify compliance with the Debt to EBITDAX ratio (max 3.5:1) and current asset to current liability ratio (min 1.0:1) following the recent increase in debt to $479.0 million (as of May 2, 2025).
• Preferred Unit Redemption: Confirm the financial impact of the 50% redemption of Series A preferred units and the associated cash outflow of $182.3 million.
• Production Volumes: Monitor the integration of the Boren Acquisition assets to ensure they offset the natural decline in legacy production volumes.
• Commodity Hedging: Review the remaining open derivative positions (fixed price swaps through March 2027) to assess exposure to future price fluctuations.
• Equity Dilution: Assess the impact of the 11.5 million new common units issued in January 2025 on future earnings per unit.