Kimbell Royalty Partners, LP — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024. The unaudited filing covers a mineral and royalty owner with interests across U.S. oil and gas basins. The Partnership reported approximately 12.2 million gross mineral and royalty acres and 4.7 million gross overriding royalty acres; about 54% of aggregate acreage was in the Permian Basin and Mid-Continent.
Financial and operating results
| Metric | Q1 2024 | Q1 2023 |
|---|---|---|
| Oil, natural gas and NGL revenue | $87.5 million | $57.4 million |
| Total revenue, including derivatives | $82.2 million | $66.9 million |
| Operating income | $17.6 million | $33.3 million |
| Net income | $9.3 million | $28.9 million |
| Net income attributable to common units | $3.2 million; $0.04 per basic and diluted unit | $23.3 million; $0.37 basic and $0.36 diluted |
| Net cash provided by operating activities | $69.0 million | $47.1 million |
| Adjusted EBITDA attributable to Kimbell | $57.9 million | $34.1 million |
| Cash available for distribution on common units | $48.9 million | $30.6 million |
Oil, gas and NGL production was 2.50 million Boe (27,454 Boe/d), up from 1.58 million Boe (17,215 Boe/d). Management attributed the increase primarily to the May 2023 MB Minerals and September 2023 LongPoint acquisitions. Oil, natural gas and NGL revenue rose 52%; natural gas revenue fell as lower realized gas prices partly offset higher volumes. Total revenue was affected by a $5.7 million derivative loss, versus a $9.1 million gain in Q1 2023. Operating margin, calculated as operating income divided by total revenue, was approximately 21% versus 50%; consolidated net margin was approximately 11% versus 43%.
Depletion expense rose to $38.2 million from $17.6 million, reflecting acquired properties and a higher depletion rate. The Partnership also recorded a $6.0 million full-cost ceiling impairment, primarily because of lower trailing 12-month average commodity prices; no impairment was recorded in the prior-year quarter. The trailing average oil price was $77.48/Bbl and gas price $2.45/Mcf, down 14.8% and 58.8%, respectively, year over year.
Cash, debt and distributions
- Cash and cash equivalents were $39.7 million at March 31, 2024, up from $31.0 million at year-end. Current assets were $103.3 million and current liabilities $12.2 million.
- Long-term debt was $285.4 million, down from $294.2 million at year-end. The secured revolving facility had $550 million of elected commitments and matures June 7, 2027; availability remains subject to the borrowing base and facility terms. The May 2024 borrowing-base redetermination was underway at filing. The weighted average borrowing rate was 8.71%; the Partnership reported covenant compliance at quarter-end.
- Operating cash flow of $69.0 million exceeded cash distributions and debt repayments; investing cash use was $0.1 million and financing cash use was $60.3 million. Debt repayments were $13.8 million, partly offset by $5.0 million in new borrowings.
- The Board declared a $0.49-per-common-unit distribution for Q1, payable May 20, 2024, and an approximately $4.9 million Series A preferred distribution. The Board allocated 25% of Q1 cash available for common-unit distributions toward repayment of borrowings. Preferred distributions rank ahead of common distributions.
Changes, outlook and risks
- Results are not directly comparable with Q1 2023: the MB Minerals and LongPoint acquisitions expanded production and the asset base, while the Series A preferred units issued in September 2023 add distributions senior to common units. The prior-year period also included a consolidated SPAC’s trust-account interest and expenses; that entity was dissolved and deconsolidated in June 2023.
- The Series A preferred units carry a cumulative 6% annual distribution, with specified provisions that can increase the rate if distributions are deferred or unpaid. Their potential conversion and redemption terms could affect future dilution, cash requirements and common-unit economics.
- The filing gives no quantitative earnings or production guidance. Management’s stated objective is to provide increasing cash distributions, but future distributions depend on available cash, debt service, reserves and Board decisions. The Partnership does not currently maintain a material distribution-stability reserve or intend to borrow to pay distributions.
- Key exposures include volatile oil and gas prices, production and drilling activity controlled by operators, acquisition execution, reserve revisions and further impairment. Derivatives mitigate some price exposure but are not designated as accounting hedges; fair-value changes affect current earnings. Five derivative counterparties were also lenders. A 1% interest-rate increase on quarter-end debt would add approximately $2.9 million of annual interest expense if debt stayed constant.
- Management reported no material legal, environmental or other contingencies, no off-balance-sheet arrangements, and effective disclosure controls at quarter-end. It reported no material change in internal control over financial reporting. The Board’s May 1, 2024 LTIP amendment increased units available for awards by 4,684,622.
Investor facts to verify
- How much of the production and revenue increase is sustainable from acquired assets, and how acquisition-related depletion affects future earnings.
- Commodity-price assumptions, hedge volumes and terms, and the impact of future derivative settlements and mark-to-market movements.
- The outcome of the May 2024 borrowing-base redetermination, remaining revolver availability, interest costs and covenant headroom.
- Common-unit distribution coverage after preferred distributions, debt repayment allocations and other cash needs; also review the preferred units’ senior claims and potential dilution or redemption costs.
- Future reserve estimates and full-cost ceiling tests, particularly if oil or natural gas prices weaken further.