8-K: Kimbell Royalty Partners Exceeds Production Guidance, Announces Q2 2024 Distribution

Kimbell Royalty Partners reports strong Q2 2024 results, exceeding production guidance and declaring a cash distribution of $0.42 per common unit.

Summary

• Kimbell Royalty Partners announced its second quarter 2024 financial and operating results, with a run-rate daily production of 24,110 Boe/d, exceeding the mid-point of guidance.
• The company reported Q2 2024 revenues of $77.0 million, net income of approximately $15.2 million, and consolidated Adjusted EBITDA of $65.8 million.
• Cash G&A per BOE reached a record low of $2.34, below the low-end of guidance.
• A cash distribution of $0.42 per common unit was declared, representing a 75% payout ratio of cash available for distribution.
• Kimbell's active rig count remained strong with 91 rigs, representing 16.3% market share of U.S. land rigs, with 47 rigs in the Permian Basin.
• The company has reduced its outstanding borrowings by approximately $165.4 million since May 2020.
• Kimbell's net debt to trailing twelve month consolidated Adjusted EBITDA is 0.9x.

Sentiment

Score: 8

Explanation: The document presents a positive outlook with strong production, cost control, and a healthy distribution. The company's financial metrics and operational performance are generally strong, indicating a positive sentiment.

Positives

• Production exceeded the mid-point of guidance, indicating strong operational performance.
• Record low cash G&A per BOE demonstrates effective cost management.
• The declared distribution of $0.42 per common unit provides a strong yield for investors.
• Kimbell's high rig count and market share suggest a robust drilling program.
• The company's conservative balance sheet with a low net debt to EBITDA ratio indicates financial stability.
• Approximately 100% of the distribution is expected to be considered a return of capital and not subject to dividend taxes.

Negatives

• Unit-based compensation increased to $5.1 million due to accelerated vesting of restricted units following the passing of a director.
• Net income attributable to common units was $8.4 million, down from $13.468 million in the same quarter last year.

Risks

• The company's performance is subject to fluctuations in oil and natural gas prices.
• There are risks associated with drilling and production activities, including potential declines in prices and operational issues.
• The company's ability to meet financial covenants under its credit agreement is a potential risk.
• The estimates for the tax treatment of distributions are subject to change.
• The company's future performance is subject to various risks and uncertainties as detailed in their SEC filings.

Future Outlook

Kimbell affirms its financial and operational guidance ranges for 2024 previously disclosed in its Q4 2023 earnings release. The company expects that approximately 100% of its second quarter 2024 distribution should not constitute dividends for U.S. federal income tax purposes.

Management Comments

• Robert Ravnaas, Chairman and CEO, stated that Kimbell's active rig count remains strong with a 16% market share of U.S. land rigs.
• Management expressed confidence in the resilience of their production due to the number of line-of-site wells being well above the number needed to maintain flat production.
• Management highlighted the record low cash G&A per BOE, reflecting operational discipline and positive operating leverage.
• Management noted that approximately 100% of the distribution is expected to be considered return of capital and not subject to dividend taxes.

Industry Context

Kimbell's strong rig count and production figures indicate a positive position within the oil and gas industry, particularly in the Permian Basin. The company's focus on cost management and debt reduction aligns with current industry trends.

Comparison to Industry Standards

• Kimbell's 16.3% market share of U.S. land rigs is a significant position compared to other royalty companies.
• The company's net debt to trailing twelve month consolidated Adjusted EBITDA of 0.9x is conservative compared to some peers, indicating a strong balance sheet.
• The cash G&A per BOE of $2.34 is a record low for the company and is likely competitive within the industry.
• The 10.2% annualized yield based on the distribution is attractive compared to other income-generating investments in the energy sector.

Stakeholder Impact

• Shareholders will benefit from the cash distribution and the potential for capital appreciation.
• Employees may be impacted by the company's operational performance and financial stability.
• Customers and suppliers may be affected by the company's production levels and financial health.
• Creditors will be impacted by the company's debt repayment strategy and financial performance.

Next Steps

• The company will pay a cash distribution of $0.42 per common unit on August 19, 2024.
• Kimbell plans to use 25% of cash available for distribution to pay down debt.
• The company will continue to monitor and manage its drilling and production activities.
• Kimbell will host a conference call to discuss the results.

Key Dates

Keywords

Kimbell Royalty Partners, Oil and Gas, Production, Distribution, EBITDA, Rig Count, Net Debt, Cash G&A, Permian Basin, Mineral Rights