Greetings, and welcome to Kimbell Royalty Partners Second Quarter Earnings Conference Call. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Rick Black. Thank you. 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 second quarter of 2024, which ended June 30, 2024. This call is also being webcast and can be accessed through the audio link on the Events & Presentations page of kimbellroyaltyrp.com. Information recorded on this call speaks only as of today, which is August 1, 2024, so please be advised that any time-sensitive information may no longer be accurate as of the date of any replay listening or transcript reading. I would also like to remind you that the statements made in today's discussion that are not historical facts, including statements of expectations or future events or future financial performance are considered forward-looking statements made pursuant to the safe harbor's 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 earnings press release for our disclosure on forward-looking statements. These factors and other risks 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 release. Kimbell assumes no obligation to publicly update or revise any of these forward-looking statements. I would now like to turn the call over to Bob Ravnaas, Kimbell Royalty Partners' Chairman and Chief Executive Officer. Bob?

Thank you, Rick, and good morning, everyone. We appreciate you joining us on the call this morning. With me today are 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. We are pleased to report solid results for the second quarter with strong cash flow, continued debt paydown, and lower cash G&A costs. Our rig count remains robust at 91 rigs actively drilling across the U.S., which represents a 16% market share of all land rigs currently drilling in the Continental United States. In addition, our line-of-sight wells continue to be significantly above the number of wells needed to maintain flat production, giving us confidence in the resilience of our production as we progress through 2024. Finally, we announced a $0.42 distribution per common unit as we continue to focus on returning value to unitholders. Before turning the call over to Davis, I wanted to acknowledge the passing of Ben Fortson, who is one of Kimbell's original directors, my friend and colleague. Ben had decades of industry experience, serving as President and CEO of Fortson Oil Company, and serving as the Chief Investment Officer and Executive Vice President of the Kimbell Art Foundation since 1975. Ben was an essential part of our success and evolution here at Kimbell. He helped create Kimbell Royalty Partners, participated in our IPO in 2017, and continued to serve on our Board of Directors in 2024. I will miss Ben's wise counsel, vision, and excellent investing skills that contributed to the success of Kimbell over the years. We will miss his advice, sense of humor, and friendship. I'll now turn the call over to Davis.

Thanks, Bob, and good morning, everyone. In the second quarter, we once again generated strong results, exceeded our internal production expectations, maintained a substantial market share of the U.S. rig count, and achieved a record low cash G&A per BOE, which was below the low end of guidance. I'll start by reviewing our financial results from the quarter, beginning with oil, natural gas, and NGL revenues, which totaled $77 million. We had run rate production of 24,110 BOE per day, and we exited the quarter with 91 rigs actively drilling on our acreage, which represents approximately 16% market share of all land rigs drilling in the Continental United States. On the expense side, second quarter general and administrative expenses were $10.2 million, $5.1 million of which was cash G&A expense or $2.34 per BOE. This represents a new record low cash G&A per BOE for Kimbell and is below the low end of guidance, reflecting operational discipline and positive operating leverage. Net income in the second quarter was approximately $15.2 million, and net income attributable to common units was approximately $8.4 million or $0.11 per common unit. Total second quarter consolidated adjusted EBITDA was $65.8 million. You will find a reconciliation of both consolidated adjusted EBITDA and cash available for distribution at the end of our news release. As Bob mentioned, today we announced a cash distribution of $0.42 per common unit for the second quarter. This represents a cash distribution payment to common unitholders and equates to 75% of cash available for distribution, with the remaining 25% being used to pay down a portion of the outstanding borrowings under Kimbell's secured revolving credit facility. Moving now to our balance sheet and liquidity. At June 30, 2024, we had approximately $265.8 million in debt outstanding under our secured revolving credit facility. We continue to maintain a conservative balance sheet with net debt to trailing 12-month consolidated adjusted EBITDA of 0.9x. We had approximately $284.2 million in undrawn capacity under the secured revolving credit facility as of June 30. We remain very comfortable with our strong financial position, the support of our expanding bank syndicate, and our financial flexibility. Today, we are also affirming our 2024 guidance, which includes daily production at its midpoint of 24,000 BOE per day. As a reminder, our full guidance outlook was provided in the Q4 2023 earnings press release. We remain confident about the prospects for continued robust development as we progress through 2024, given the number of rigs actively drilling on our acreage, especially in the Permian. We continue to believe that the overall demand for energy at our well-established and diversified asset portfolio will continue to enhance value for our unitholders. With that, operator, we are now ready for questions.

The first question comes from Tim Rezvan with KeyBanc Capital Markets.

I want to start on the unchanged guidance that you put out for the year. I guess you reiterated, production is sort of outpacing the midpoint of the annual guide year-to-date. We have decent line of sight on future TILs across your footprint. Why not revisit guidance for that and maybe guidance as well on cash G&A and DD&A that seem to be trending outside the range? I know you all play conservative and sort of have wide goalposts. But just kind of curious why not revisit some of those items?

Yes, that’s a valid observation, and we recognize it. We will take time to reassess internally. I want to note that we don’t have control over the drill bit, so there will always be some variability. Your concerns are legitimate, and we don’t want to be overly conservative. Additionally, we have some immediate visibility on significant 20% interest wells, particularly in Loving County, which we expect to come online later this year. Matt, could you share more details about that? Your point stands, and we might be being a bit overly cautious. We're not doing this intentionally; rather, we aim to be careful and want to assure the market that we will meet our commitments. Matt, do you have any insights on those additional wells that could be useful?

Yes, we do have some significant developments. As Davis mentioned, we anticipate two large wells with over 20% royalty interests coming online later this year, likely in Q4 or Q1 of '25. The operators are currently setting up in Loving County. To give you some context, our average royalty interest is about 1% to 1.5%. Therefore, having two wells with 20% interest, primarily focused on oil production, is expected to greatly enhance our production yield later this year or early '25. We acknowledge your point about guidance, and we will have an internal meeting to address that.

And this is Bob. I'd also like to add, we have a great position in the Mid-Continent that we're really proud of through a couple of acquisitions, one last year and one several years ago. Our production this last quarter was up 5% in Oklahoma, and our rig capture is approximately 50% of all rigs in Oklahoma. So we're very happy with the activity on our Mid-Continent acreage.

Okay. I appreciate the color. As my follow-up, I was curious, you had the preferred sitting out there. I was wondering if you could give kind of updated thoughts on when or how you might look to address those as we head towards 2025?

Man, you're asking all the great questions. We are excited to say that we'll probably plan to redeem about half of that pref in the next 3 to 6 months, that's our current game plan. We want to keep leverage low. So looking at a debt-to-EBITDA ratio of less than 1.5x, that would allow us to redeem just over half of the pref, we believe, probably by the end of the calendar year. So that's, in our opinion, a way that we're continuing to improve the balance sheet and just move ourselves into a stronger position. So all good news on that front as well. Thank you for asking that.

Okay. And if I could sneak a quick one in just on the modeling side. The common units outstanding increased quite a bit to $81 million. Was that simply due to the accelerated vesting of restricted units that you cited in the release? Or was there anything else?

There was a conversion of one of our shareholders recently. Matt, do you want to add any detail to that? I believe it was related to the Hatch acquisition a couple of years ago.

One of the private equity funds converted from OpCo into common here recently, and that's one of the reasons why their common unit count went up and the OpCo unit count went down, if that's what you're asking about.

Yes. Yes, exactly.

The next question is from Neal Dingmann with Truist Securities.

This is Julian Broche on for Neal. Just kind of given the weak gas environment that we're seeing now, are you guys seeing any actionable dislocations in pricing kind of versus gas assets versus oil ones?

It's been a little disappointing on the gas front. Our major gas acquisition was Haymaker, which we made back in 2018, and I still believe it was probably the best gas purchase we've made in 20 years. Gas was at $2, and it was an outstanding asset in our core Western Louisiana acreage. We haven't seen much activity in the gas sector recently. Honestly, we haven't observed much since 2018. It seems like no one wants to sell gas assets, mainly because everyone is focused on the strong futures pricing scenario with the new export terminals coming online. So, it's been challenging to find attractive gas assets. However, the Mid-Con position that Bob mentioned, which we are acquiring through LongPoint, does have a significant gas component, and that has been a great purchase too. It's clear that the gas market is depressed, and we would be eager to acquire gas assets, but it's difficult to get sellers to part with them. Bob or Matt, would you like to add anything?

Yes, it's interesting to note that our Haynesville production has seen a slight increase from Q1 to Q2, even with the low prices and a stable rig count in the area. Operations there have completely stabilized. However, as you mentioned, it's been challenging to find acquisition opportunities in that region. Many are recognizing the potential for LNG exports, which is influencing the market. Operationally, everything is running smoothly with the Haymaker asset we acquired, which has significantly grown since we purchased it in 2018.

Got it. And if I can sneak one more in. The kind of Permian where, I guess, Permian deal flow is kind of potentially going to slow down into year-end given all the deals, but what other basins are you all looking at? And what's kind of the potential ticket size that you're seeing the best opportunities right now?

It’s been a disappointing year for M&A, generally speaking, across the board. So I’d say that we’ve seen very few transactions and even fewer transactions that are actually interesting to us from an asset quality standpoint. We’re looking at every basin. So we always do. We look at everything we can. Our job is not to pick a specific county and say that we’re only going to buy there and we’ll pay whatever it takes to get a deal done in that county. Our dollars compete across the board, across all basins and all counties. So if we can make more money for our investors buying something in Utah, we’d rather do that than buy something in Midland County. So we’re looking everywhere. But I would say so far this year has been a little bit depressed on royalty volumes. I think everybody has seen that from an M&A standpoint. That being said, things change all the time. I mean, last year, it was relatively quiet, and then LongPoint came along for us, and that was a huge deal. We’ve seen that the last couple of years too, where people just want to sell things by the end of the year. So I wouldn’t be surprised if things picked up here imminently. But so far, it’s been relatively quiet. But no, we’re open-minded to acquisitions everywhere.

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

We thank you all for joining us this morning, and we look forward to speaking with you again next quarter. This completes today's call.

Thank you. This concludes today's teleconference. You may now disconnect your lines. Thank you for your participation.