Greetings, and welcome to the Kimbell Royalty Partners First Quarter Earnings Conference Call. This conference is being recorded. It is now my pleasure to introduce your host, Rick Black of Investor Relations. Thank you, Mr. Black, you may begin.

Thank you, Operator, and good morning, everyone. Welcome to the Kimbell Royalty Partners conference call to review financial and operational results for the first quarter of 2020. This call is also being webcast and can be accessed through the audio link on the Events and Presentations page of the IR section of kimbellrp.com. Information recorded on this call speaks only as of today, May 7, 2020, so please be advised that any time-sensitive information may no longer be accurate as of the date of any replay. I would also like to remind you that the statements made in today's discussion that are not historical facts, including statements or expectations or future events or future financial performance, are considered forward-looking statements, made pursuant to the safe harbor provision of the Private Securities Litigation Reform Act of 1995. We will be making forward-looking statements as part of today's call, which by their nature, are uncertain and outside of the company's control. Actual results may differ materially. Please refer to today's press release for our disclosure on forward-looking statements. These factors, as well as other risk factors and uncertainties, are described in detail in the company's filings with the Securities and Exchange Commission. Management will also refer to non-GAAP measures, including adjusted EBITDA and cash available for distribution. Reconciliations to the nearest GAAP measures can be found at the end of today's earnings press release. Kimbell assumes no obligation to publicly update or revise any forward-looking statements. And with that, I would now like to turn the call over to Mr. Bob Ravnaas, Kimbell Royalty Partners' Chairman and Chief Executive Officer. Bob?

Thank you, Rick, and good morning, everyone. We appreciate you joining us for this call. I'm joined here on the call with several members of our senior management team, including Davis Ravnaas, our President and Chief Financial Officer; Matt Daly, our Chief Operating Officer; and Blayne Rhynsburger, our Controller. I'd like to begin by extending our thoughts and prayers to those affected by the COVID-19 crisis. These are certainly unprecedented times and we're doing all that we can to support the health and safety of our employees and to assist with the recovery of our community from this crisis. We are especially grateful for all of the hard work being performed by first responders and healthcare workers. They have truly been an inspiration to us all. We also applaud the legions of hardworking Americans all over the country that have remained dedicated to keeping the nation's food supply and other vital components of the economy up and running during this difficult time. As you know, COVID-19 has contributed to deeper challenges in the energy sector than in most other industries as the price of crude oil recently reached record lows. The market volatility and pricing pressures that existed before the pandemic began have now created the perfect storm with an unparalleled supply glut and continuing demand disruptions. Notwithstanding the challenging effects of this health and economic crisis, we believe that Kimbell's fundamental business model will provide far more stability and resilience than others. As of the first quarter, approximately 60% of our production was from natural gas, which continues to have an improving macro outlook. We have strengthened our balance sheet and improved liquidity. In addition, we believe that we have one of the strongest hedge books in all of energy in terms of both price and duration. We currently have a substantial portion of our oil and natural gas production hedged in the form of swaps going out two years with prices for oil averaging in the low $40s and natural gas averaging around $2.49 per MMBTU. Our leadership team has managed through a number of economic cycles over the past three to four decades, and I believe Kimbell is very well positioned to weather this storm. In light of the potential for curtailment of production in the coming months, we made the decision to pay down a portion of our debt during the second quarter. We will fund the debt repayment by allocating 50% of our cash available for distribution from Q1 2020 together with certain cash received at the closing of the Springbok acquisition and other cash reserves for the repayment of $15 million in outstanding borrowings under our revolving credit facility. We believe that, in light of the uncertainties in the economy right now, particularly in the oil and gas sector, paying down a portion of our revolver is prudent. We also believe that strengthening our balance sheet and maintaining dry powder in this challenging environment provides additional financial flexibility. Touching now on the first quarter results, we achieved new record high performance for daily production and consolidated adjusted EBITDA. In each case, after giving effect to a full quarter of Springbok, as the effective date of this acquisition was October 1, 2019. Our first quarter production daily run rate was 12,602 barrels of oil equivalent per day, up 5% compared to the same quarter last year. Including a full quarter of the Springbok assets, the first quarter run rate daily production was 15,188 Boe per day, up 27% compared to Q1 last year. We had 70 active rigs operating on our properties as of April 17, 2020, which represents an increased market share of all land drilling rigs in the Continental United States compared to year-end 2019. Davis will walk you through more of the Q1 2020 metrics during his remarks. Given the unprecedented circumstances of the current economy and challenges in the energy industry, I'd like to spend a few moments recapping the fundamental characteristics of our model that provide us with continued confidence today about the royalty and mineral space. It is important to understand our business model and our diverse high-quality asset portfolio. As an oil and gas, minerals, and royalty company, we benefit from the fact that we do not make any direct capital expenditures. Our expense structure is extremely efficient and more akin to an asset management company rather than a traditional oil and gas company. Our business builds on a broad, stable, and diverse portfolio of royalty assets across all the major basins in the Lower 48. Our mineral and royalty spanned over 13 million gross acres in 28 states and included more than 96,000 gross wells with over 40,000 wells in the Permian Basin. Over the last 20 years, Kimbell has demonstrated organic production growth and a five-year forecasted PDP decline rate of only 13%, which is one of the lowest among its minerals peers. In addition, our proved developed reserves at year-end 2019 increased by approximately 22% year-over-year, including 8% organic growth. Perhaps most importantly, Kimbell has one of the highest PDP reserve to production ratios in the entire energy industry, of approximately 9 years. These strong characteristics of our business, coupled with a proven bolt-on acquisition strategy that consolidates highly accretive assets, have demonstrated significant growth in cash flow for our company. Our goal is to continue advancement of our long-term strategy as a preeminent consolidator of diversified high-quality low PDP decline minerals that generate substantial free cash flow for distribution to our unitholders. And since approximately 60% of our producing assets are natural gas, and a substantial portion of our production is contractually hedged for the next couple of years, our business model is well positioned for the tough challenges ahead. Last month, we closed our Springbok acquisition that was announced in January of this year. We believe Springbok is an exceptional strategic acquisition with highly complementary acreage that we expect will add significant cash flow, as well as the opportunity for continued growth. Please remember that we issued equity directly to the seller as a fixed number of units for nearly half of the total purchase price, which has helped us continue to maintain our financial flexibility. From an M&A perspective, we plan to continue to fund our micro acquisition strategy at current depressed commodity prices and continue to be well positioned as a consolidator in the highly fragmented minerals industry. As we navigate through the challenging landscape of today’s current volatility relative to M&A, we plan to maintain strict discipline in our selection process, focused on diversifying high-quality targets. We also want new prospects to be immediately cash flow accretive, enhance production stability and diversity, as well as provide years of future growth. We believe that Kimbell offers a compelling investment opportunity with growth opportunities and a robust distribution yield, which we expect to be substantially tax-free through 2023 and to be considered a return of capital to the extent of a unitholder’s basis in its common units. We remain focused on executing our business plan and creating long-term value for our unitholders. And with that, I'll now turn the call over to Davis.

Thanks, Bob, and good morning, everyone. I want to take a moment to echo Bob's opening comments about COVID-19 and this pandemic. We remain vigilant regarding this health crisis and will continue to follow all federal, state, and local guidance regarding safety measures for ourselves, our employees, and our communities. Regarding the economic effects of this crisis, we strongly believe that our business and our asset portfolio are well-positioned to manage and even grow in 2020 and beyond. Even if WTI oil traded at $0 for the entire second quarter of 2020, we estimate that we would still generate positive distributable cash flow due to our significant natural gas exposure and strong hedge book. First, I want to cover our record-breaking production in the quarter, followed by a recap of our first quarter financial results. Since the Springbok transaction effective date was October 1, 2019, with a closing date of April 17, 2020, we are entitled to the Springbok cash flow since October 2019. But our GAAP Q1 2020 financials will exclude Springbok. I plan to provide Q1 2020 consolidated adjusted EBITDA and production numbers with and without Springbok in my remarks today. Our first quarter average daily run rate production was 12,602 Boe per day with a total average daily production of 13,358 Boe per day, which consisted of 756 Boe per day relating to prior period production recognized in the quarter. The 12,602 Boe per day of run rate production for Q1 2020 was comprised of approximately 40% from liquids, which was 27% from oil and 13% from NGLs; and 60% from natural gas on a 6:1 basis. The prior period production recognized in Q1 2020 was primarily due to new wells outperforming estimates. Including a full quarter of Springbok run rate production for Q1 2020, it was 15,188 Boe per day, a new record high for the company. Oil, natural gas, and natural gas liquids revenues for the first quarter increased 12% compared to the first quarter last year to $25.6 million. This increase reflects solid performance from acquisitions made in the past 12 months, despite the decrease in realized commodity prices. Consistent with prior quarters, while downward pressure persisted for E&P companies, our broad-based, high-quality asset portfolio continued to outperform expectations in Q1. Consolidated adjusted EBITDA was $18.8 million, up 17% compared to the first quarter of 2019. Including a full quarter of Springbok cash flows, consolidated adjusted EBITDA for Q1 2020 was $23.3 million, also a new record. On the expense side, general administrative expenses were $6.5 million in Q1 2020, $4.4 million of which was cash G&A expense or $3.85 per Boe. Including a full quarter of production attributable to the Springbok assets, Q1 2020 cash G&A was $3.20 per Boe. The company will distribute cash of $0.17 per common unit on May 11th to holders of record as of the close of business on May 4th for the Q1 2020 distribution and also made the decision to pay down $15 million of debt in order to strengthen the balance sheet and increase liquidity. Had we not allocated 50% of Q1 2020 cash available for distribution to pay down debt, the cash distribution per unit would have been $0.34. However, we believe this is a conservative and prudent measure, given the high level of uncertainty and recent economic disruptions in the broader markets in the energy industry. You will find a reconciliation of both consolidated adjusted EBITDA and cash available for distribution at the end of our news release. As you know, Kimbell anticipates that substantially all of the Q1 distribution will be a non-taxable reduction to increase unitholder capital gain or decrease unitholders' capital loss when the unitholders sell their common units. Furthermore, Kimbell expects substantially all distributions paid to common unitholders from 2020 through 2023 will not be taxable dividend income, and less than 25% of distributions paid to common unitholders for the subsequent two years, 2024 through 2025, are expected to be taxable dividend income. Turning now to realized pricing in the first quarter, average realized price per Bbl of oil was $44.48, per Mcf of natural gas was $1.75, and per barrel of NGLs was $12.22, and per Boe combined was $19.83. Looking now at the balance sheet and liquidity. At March 31, 2020, Kimbell had approximately $101.2 million in debt outstanding under its revolving credit facility and approximately $123.8 million in undrawn capacity, or approximately $198.8 million if aggregate commitments were equal to Kimbell's current borrowing base, which is $300 million. Kimbell was in compliance with all financial covenants under its revolving credit facility at March 31, 2020. At April 24th, 2020, after taking into account the previously disclosed drawdown to fund the cash portion of the purchase price and the Springbok acquisition, Kimbell had approximately $186.7 million in debt outstanding under its revolving credit facility. After giving effect to the previously announced repayment of $15 million in outstanding borrowings, which is anticipated to occur in the second quarter of 2020, Kimbell expects to have approximately $171.7 million in outstanding borrowings under its revolving credit facility and a pro forma total debt to Q1 2020 annualized consolidated adjusted EBITDA, including a full quarter of the Springbok assets, of approximately 1.8x. We think it is important to note the power of the free cash flow that our business generates. Traditional oil and gas companies tend to focus on debt to EBITDA as the primary leverage metric, which is generally meaningless, since it doesn't factor in required maintenance capital or other drilling requirements. The more appropriate metric to truly measure leverage is debt to free cash flow. As we have proven in Q1, our substantial free cash flow is a tool that we can use to either payout in its entirety each quarter in the form of a cash distribution, pay down a portion of our debt, or a combination of both depending on market conditions. Most other E&Ps may have positive EBITDA but 0 or negative free cash flow. Thus, they have no real ability to pay down a meaningful amount of their debt balance. We are simply a far more efficient business model that is heavily focused on consistent free cash flow generation. Turning now to our reserves that Bob mentioned earlier. As of December 31, 2019, proved reserves increased by approximately 22% year-over-year to almost 41 million barrels of oil equivalent, reflecting the acquisitions made during the year along with continued organic reserve growth on Kimbell's acreage. Finally, we are very pleased to be able to disclose for the first time in our earnings release our DUCs and permits by basin on our major properties. Including the Springbok assets, we had 2.96 net DUCs, 882 gross DUCs, and 2.35 net permits, or 476 gross permits on Kimbell's acreage as of March 31, 2020. This data does not include our minor properties, which we estimate could add an additional 20% to the DUC permit inventory based on our experience. In addition, for the eight months to check data for which we have completed analysis, we estimate that on average 129 gross wells and 0.5 net wells were brought online each month on average during 2019. We are providing this increased level of transparency in an effort to show that the company not only has robust development on its acreage, but also near-term future development catalysts across both oil and natural gas at nearly every major producing basin. Our business model has not changed due to recent events, and Kimbell continues to build on its track record as a leading consolidator in the oil and gas mineral space. We expect our success to continue into 2020. We do think the migration of private ownership to public ownership of mineral assets across the U.S. will continue to accelerate. With that, operator, we are now ready for questions.

Our first question comes from John Freeman with Raymond James.

I just wanted you all to talk a little bit more about sort of the strategy, at least in the foreseeable future, about how you think about balancing the lower payout ratio with sort of the two-pronged of looking at lowering the leverage more, but also what is likely to have a lot of really attractive acquisition opportunities in this market, I would expect, and the dry powder you'd get by having that lower payout ratio?

I think our plan as it pertains to the payout ratio, just given the enormous uncertainty in the market, is really from our Board discussion to take it on a quarter-by-quarter basis. So we reevaluate at each quarter, what amount of the cash flow we want to pay out. We continue to fund our micro acquisition strategy. So to your point, we expect to see some pretty compelling acquisition opportunities here in the near future. Based on our experience, it takes a couple of months of royalty owners receiving checks at reduced cash flow amounts for them to accept the new reality of where hydrocarbon pricing is. So the A&D market, as you might imagine, is pretty slow currently, but we expect it to pick up in the next, let's call it, 2 to 6 months. Beyond that, we continue to see a tremendous opportunity to use our equity very selectively on highly accretive transactions, particularly with private equity-backed groups that have diversified assets. Doing all equity deals allows us to accomplish two things at once: one, improve accretion on a $1 per DCF basis, and then also to deleverage to the extent that it's funded entirely with stock issued directly to the seller. So I think that's how we're thinking about it for now. We're just being very careful in this environment. And I know things feel a lot better with oil at $25 today, but it was $12 eight days ago. So I think it's only prudent that we as management and our Board make those decisions in real-time on a quarter-by-quarter basis as things develop.

And then does the fact that at the moment with the payout ratio where it's at, you sort of have the side benefit of it lowering your cost of capital. Does that in any way change sort of when you're looking at accretive acquisitions, especially given your recent track record of using equity on a lot of the bigger deals? Does that at all change the set of assets you can look at?

No, I believe our plan remains unchanged. We don’t anticipate making any significant deals in the current environment, which is quite obvious. We prefer to wait for a recovery in the sector before utilizing our stock. We are clearly not satisfied with its current trading position, which we feel is unfairly low and simply reflects the broader market conditions. However, this does not alter our strategy; it just emphasizes our usual selectivity, particularly in today's market where we need to be extremely discerning. I think we may be one of the few groups able to acquire assets both in the Permian Basin and elsewhere. Therefore, I expect competition for assets nationwide will continue to diminish. Many private equity-backed competitors are facing significant challenges in raising and deploying funds effectively. This trend ultimately benefits us over time. We foresee that emerging from this situation will provide us with some appealing acquisition opportunities. Do you have anything to add, Matt?

Yes, John, just in terms of your question about cost of capital and you know WACC. Right now the credit facility with LIBOR dropping so much and interest rates being so low, we're looking at a credit facility interest rate cost of between 3.1% and 3.2%. So it's extremely low cost of capital for the credit facility. To the extent that we do acquisitions, using cash, especially on the micro strategy where some of those transactions have extremely high yields, it generates a lot of immediate accretion to us.

Yes, good point.

Our next question comes from the line of Derrick Whitfield with Stifel.

Perhaps for Bob or Davis, I wanted to stay on cash flow distributions to build on John's first question. As we look out towards a recovery scenario, what will be your guiding principles or conditions for increasing the percentage of distributable cash flow?

That is a great question. For now, we're going to address that on a quarter-by-quarter basis. I can't speak for our Board as a whole, but I will say that if we return to our target leverage ratio below 1.5 times, it is likely, if not probable, that we will resume paying out 100%. We recognize that we may have been overly cautious in directing some cash towards debt reduction in this uncertain environment. However, we prefer to be too conservative in that regard. Once we are in a position where we feel more confident and see that our leverage is under control or below 1.5 times, that will probably be the point at which we start resuming the 100% payout.

And as my follow-up, regarding your Haynesville royalty position more broadly. Are you sensing any change in activity with the steadily improving forward curve?

We have not observed anything immediate. Last year was significant for us in the Haynesville. You may remember that in the second quarter of last year, we had some major wells come online, resulting in an 8% growth quarter-over-quarter for the company. These were very important wells. We still have more proven undeveloped locations on that acreage and nearby. Although we haven't noticed an immediate increase in drilling activity, we believe our natural gas position is among the strongest in the industry, especially in the Haynesville Shale. We anticipate that with the decrease in associated gas and a better overall outlook for natural gas, there should be an increase in activity in Haynesville. Interestingly, this quarter we increased our rig count in Appalachia from one to three and added significant rigs in that area. We are seeing some progress in the gas basins, and we expect that trend to continue. Just to reiterate for everyone on the call, 60% of our production is natural gas. We were often criticized in the past for having such a gas-heavy portfolio. However, this was intentional, as our company has always maintained a balanced approach to oil and natural gas to safeguard our investors during situations like this, where one commodity is affected more than the other. In this environment, we believe that a diversified model with a low decline rate in proved developed production and a healthy blend of oil and gas will perform better. While it’s a challenging environment, we are prepared to meet that challenge.

Just one follow-up comment on the overall rig count. We had 81 rigs at the end of 2019, and as of April 17, we had 70 rigs across our acreage, including Springbok. Our market share of the entire lower 48 land drilling fleet based on Baker Hughes increased from 11.9% to 13.7% as of April 17. We saw a rig count increase in the Permian from 24 rigs at year-end to 33 rigs on April 17. Some of the operators included 6 rigs from Pioneer, 6 from Parsley, 4 from Concho, 2 from Diamondback, and we had 11 rigs in Midland County as of April 17. However, we did see some rig drops in the Mid-Con as expected, along with a few rigs dropping out of the Haynesville and the Williston Basin. In Appalachia, as mentioned earlier, we increased from 1 rig to 3 rigs, adding two Cabot rigs. Overall, there is a lot of activity, and the market is performing quite well.

Yes. I think, the reason we focus on market share of all rigs, Derrick, is that we think that's the best way of kind of showing people that our assets tend to be on average in better locations than the average acreage, if our market share continues to improve despite a drop in the overall rig count. We think that's the best litmus test for that. Anything else you would add Bob?

No. I agree.

Diversification clearly matters, thanks for your commentary.

Thanks, Derrick.

Yes, thank you.

Our next question comes from line of Jason Wangler with Imperial Capital.

Just maybe a real-time question that's hard to answer now. But, I mean, as we're hearing a lot of the operators talk about shutting in production, whether it's late April or even into May. Are you guys seeing any impact on that or maybe it's even more what you guys are hearing on that aspect as how that might affect you guys in the next couple of months?

I'm glad you asked that. I believe our company will provide valuable insights in the second quarter for the broader industry, especially since we likely have more exposure to acreage and wells than any other company in the United States. As we observe changes in operator behavior, we expect to share updates at the end of Q2 about these developments. You might find it surprising that we've only received one force majeure notice, which came from an operator we didn’t even realize was still active in the Eagle Ford. Aside from that, we haven't seen any other significant force majeure notices. While we acknowledge these events are occurring and know operators are scaling back, there may not be legal obligations for them to inform us of their plans. They may be hesitant to inform numerous mineral owners about what they intend to do. We will be monitoring the situation closely, and it will be interesting to see how we compare to similar companies. Much of our production is delayed by three to six months or even longer, with some payments on wells being 18 months in suspense. We'll see how this unfolds, but I expect that we will perform better than many others due to our diversification and our interests in tens of thousands of wells. Additionally, this quarter, we received a $1 million payment for an asset we didn't even know we owned, which is a positive outcome from our diversified portfolios that can sometimes yield unexpected benefits.

The other thing, as we said in the past, over the last 20 years, we've really taken care to buy high-quality properties. And so when you hear and I think it's probably going to happen that the operators are going to shut in the marginal wells and the stripper wells, and that's a very, very small percentage of our overall production. So, I think we have insurance against that, too.

And maybe kind of alongside that — and you kind of mentioned that there Davis about, whether it's lease extensions or changing the contract a bit on your acreage. Is that something that you guys are maybe starting to hear about as far as with this activity slowdown? Folks either looking to make sure to extend the leases to make sure that they're not coming due or things like that, which may actually, like you said, kind of bump up on your lease bonuses and things of that nature?

Yes, that's a good question, Jason. Everything we have is held by production, so we are not particularly concerned about losing leases. Given that we've only received one force majeure notice, which allows companies to temporarily stop production without legal consequences, the limited number of such notices has actually surprised me. This indicates that operators may not be completely shutting down production on these leases; instead, they might be reducing it significantly. We don't expect to lose many leases since all our assets are based on production. We only invest in properties that already have production, which is a distinctive element of our business model that many others do not share. So far, we haven't encountered any issues. However, if operators start attempting to evade their obligations, we are committed to doing our best to protect our investors and maximize value. In the worst-case scenario, if some operators lose their leases in good locations, we would take those over and secure a new lease bonus while hopefully negotiating a higher royalty. We are focused on safeguarding our assets and maximizing value during these challenging times.

There are no further questions at this time. I'd like to turn the floor back over to management for closing comments.

We thank you all for joining us this morning and look forward to speaking with you again when we report the second quarter results. This completes today's call. Thank you.

Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines and have a wonderful day.