Kimbell Royalty Partners, LP 8-K/A, filed Sep 27, 2023
Kimbell Royalty Partners, LP (KRP)
About this 8-K/A
Kimbell Royalty Partners, LP filed this 8-K/A on September 27, 2023, reporting on events of September 13, 2023.
Items reported
- Item 9.01: Financial statements and exhibits
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Amendment No. 1)
CURRENT REPORT
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| Introductory Note |
As reported in a Current Report on Form 8-K filed with the U.S. Securities and Exchange Commission by Kimbell Royalty Partners, LP, a Delaware limited partnership (“Kimbell”), on September 14, 2023 (the “Original Form 8-K”), on September 13, 2023 Kimbell completed its previously announced acquisition (the “Acquisition”) of all of the issued and outstanding membership interests of Cherry Creek Minerals LLC, a Colorado limited liability company (the “Acquired Company”), pursuant to a securities purchase agreement by and among Kimbell, Kimbell Royalty Operating, LLC, a Delaware limited liability company, and LongPoint Minerals II, LLC, a Colorado limited liability company.
This amendment is filed to provide the historical financial statements of LongPoint Minerals II, LLC, the consolidating parent company of the Acquired Company, and the pro forma financial information of Kimbell giving effect to the Acquisition, as required by Item 9.01 of Form 8-K. Except as set forth below, the Original Form 8-K is unchanged.
| Item 9.01. | Financial Statements and Exhibits. |
(a) Financial Statements of Business Acquired.
The audited historical financial statements of LongPoint Minerals II, LLC, as of and for the year ended December 31, 2022 and 2021, and the unaudited interim financial statements of LongPoint Minerals II, LLC, as of June 30, 2023 and December 31, 2022 and for the six months ended June 30, 2023, and 2022, together with the related notes to such financial statements, are filed as Exhibits 99.1 and 99.2 hereto, respectively, and incorporated by reference herein.
(b) Pro Forma Financial Information.
The following unaudited pro forma financial information of Kimbell giving effect to the Acquisition is filed as Exhibit 99.3 hereto and incorporated by reference herein:
| ● | unaudited pro forma condensed combined balance sheet as of June 30, 2023; |
| ● | unaudited pro forma condensed statement of operations for the six months ended June 30, 2023; and |
| ● | unaudited pro forma condensed combined statement of operations for the year ended December 31, 2022. |
(d) Exhibits.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| KIMBELL ROYALTY PARTNERS, LP | ||
| By: | Kimbell Royalty GP, LLC, | |
| its general partner | ||
| By: | /s/ Matthew S. Daly | |
| Matthew S. Daly | ||
| Chief Operating Officer | ||
Date: September 27, 2023
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in Registration Statement Nos. 333-226425, 333-229417, 333-230986, 333-236341, 333-238330, 333-269264, and 333-272307 on Form S-3 and Registration Statement Nos. 333-217986, 333-228678, and 333-265288 on Form S-8 of Kimbell Royalty Partners, LP of our report dated March 21, 2023, relating to the financial statements of LongPoint Minerals II, LLC, incorporated by reference in this Current Report on Form 8-K of Kimbell Royalty Partners, LP dated September 27, 2023.
/s/ Deloitte & Touche LLP
Denver, Colorado
September 27, 2023
Exhibit 99.2
LongPoint Minerals II, LLC and Subsidiary
Unaudited Consolidated
Financial Statements
as of June 30, 2023 and December 31, 2022
and for the six months ended June 30, 2023 and 2022
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
PAGE
| Consolidated Balance Sheets – June 30, 2023 and December 31, 2022 | 2 |
| Consolidated Statements of Operations – For the Six Months Ended June 30, 2023 and 2022 | 3 |
| Consolidated Statements of Members’ Equity – For the Six Months Ended June 30, 2023 and 2022 | 4 |
| Consolidated Statements of Cash Flows – For the Six Months Ended June 30, 2023 and 2022 | 5 |
| Notes to Consolidated Financial Statements | 6 |
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LONGPOINT MINERALS II, LLC AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(unaudited, in thousands)
| June 30, 2023 | December 31, 2022 | |||||||
| ASSETS | ||||||||
| Current Assets: | ||||||||
| Cash and cash equivalents | $ | 13,717 | $ | 16,453 | ||||
| Accrued oil and gas sales and other | 6,649 | 11,516 | ||||||
| Prepaid expenses and other current assets | 29 | 30 | ||||||
| Total current assets | 20,395 | 27,999 | ||||||
| Property and Equipment, at cost: | ||||||||
| Oil and gas, on the basis of full cost method of accounting: | ||||||||
| Proved properties | 306,503 | 297,164 | ||||||
| Unproved properties | 326,878 | 336,217 | ||||||
| Accumulated depletion | (39,777 | ) | (34,500 | ) | ||||
| Total oil and gas properties, net | 593,604 | 598,881 | ||||||
| Total Assets | $ | 613,999 | $ | 626,880 | ||||
| LIABILITIES AND MEMBERS’ EQUITY | ||||||||
| Current Liabilities: | ||||||||
| Accounts payable and accrued expenses | $ | 1,925 | $ | 1,664 | ||||
| Commitments and Contingencies (Note 3) | ||||||||
| Members’ Equity: | ||||||||
| Members’ equity, net of placement fees of $13,893 for both periods | 612,074 | 625,216 | ||||||
| Total Liabilities and Members’ Equity | $ | 613,999 | $ | 626,880 | ||||
See accompanying notes to these consolidated financial statements.
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LONGPOINT MINERALS II, LLC AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, in thousands)
| For the Six Months Ended June 30, |
||||||||
| 2023 | 2022 | |||||||
| Revenues: | ||||||||
| Oil and gas sales | $ | 32,745 | $ | 45,078 | ||||
| Lease bonuses | 16,862 | 16,390 | ||||||
| Total revenues | 49,607 | 61,468 | ||||||
| Operating Expenses: | ||||||||
| Transportation and transmission | 1,109 | 1,342 | ||||||
| Severance and other taxes | 1,996 | 2,819 | ||||||
| Depletion | 5,277 | 4,730 | ||||||
| General and administrative | 2,207 | 2,207 | ||||||
| Total operating expenses | 10,589 | 11,098 | ||||||
| Operating income | 39,018 | 50,370 | ||||||
| Other (Expense) Income: | ||||||||
| Financing costs | (466 | ) | - | |||||
| Other income, net | 284 | 544 | ||||||
| Total other (expense) income, net | (182 | ) | 544 | |||||
| Income Before texas margin tax | 38,836 | 50,914 | ||||||
| Texas margin tax expense | 170 | 152 | ||||||
| Net income | $ | 38,666 | $ | 50,762 | ||||
See accompanying notes to these consolidated financial statements.
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LONGPOINT MINERALS II, LLC AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF MEMBERS’ EQUITY
(unaudited, in thousands)
| CLASS A | CLASS B | Total | ||||||||||
| Balances, January 1, 2022 | $ | 2,288 | $ | 627,537 | $ | 629,825 | ||||||
| Net income | 178 | 50,584 | 50,762 | |||||||||
| Members’ distributions | (106 | ) | (30,065 | ) | (30,171 | ) | ||||||
| Balances, June 30, 2022 | $ | 2,360 | $ | 648,056 | $ | 650,416 | ||||||
| Balances, January 1, 2023 | $ | 2,272 | $ | 622,944 | $ | 625,216 | ||||||
| Net income | 135 | 38,531 | 38,666 | |||||||||
| Members’ distributions | (181 | ) | (51,627 | ) | (51,808 | ) | ||||||
| Balances, June 30, 2023 | $ | 2,226 | $ | 609,848 | $ | 612,074 | ||||||
See accompanying notes to these consolidated financial statements.
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LONGPOINT MINERALS II, LLC AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
For the Six Months Ended June 30, | ||||||||
| 2023 | 2022 | |||||||
| Cash Flows from Operating Activities: | ||||||||
| Net income | $ | 38,666 | $ | 50,762 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
| Depletion | 5,277 | 4,730 | ||||||
| Effect of changes in current assets and liabilities: | ||||||||
| Accrued oil and gas sales, and other | 4,867 | (4,789 | ) | |||||
| Prepaid expenses and other current assets | 1 | (33 | ) | |||||
| Accounts payable and accrued expenses | 261 | 590 | ||||||
| Net cash provided by operating activities | 49,072 | 51,260 | ||||||
| Cash Flows from Financing Activities: | ||||||||
| Member distributions | (51,808 | ) | (30,171 | ) | ||||
| Net cash used in financing activities | (51,808 | ) | (30,171 | ) | ||||
| Net (Decrease) Increase In Cash and Cash Equivalents | (2,736 | ) | 21,089 | |||||
| Cash and Cash Equivalents, beginning of period | 16,453 | 13,790 | ||||||
| Cash and Cash Equivalents, end of period | $ | 13,717 | $ | 34,879 | ||||
See accompanying notes to these consolidated financial statements.
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LONGPOINT MINERALS II, LLC AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| 1. | Business and Summary of Significant Accounting Policies: |
Business – LongPoint Minerals II, LLC and its wholly owned subsidiary, Cherry Creek Minerals, LLC (collectively, the “Company” or “LongPoint II”) is a Colorado Limited Liability Company focused on acquiring mineral and royalty interests primarily in the Mid-Continent and Permian Basins.
LongPoint II does not have employees but rather entered into a “Services Agreement” with LongPoint Operating, LLC (“LongPoint Operating”) to provide all requisite management, technical and administrative support services. LongPoint Operating is a holding company which is owned by the Chief Executive Officer of LongPoint II. LongPoint Operating has entered into a Services Agreement with FourPoint Energy, LLC (“FourPoint”) to provide the services required under the LongPoint II/ LongPoint Operating Services Agreement. FourPoint employs the necessary people to perform the services required under the Services Agreement. During the six months ended June 30, 2023 and 2022, LongPoint II was assessed an agreed upon balance of General and Administrative costs by FourPoint as payment for the services provided.
Use of Estimates in the Preparation of Financial Statements – The preparation of financial statements in conformity with generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
These consolidated interim financial statements (the “financial statements)” reflect all adjustments, consisting of normal recurring adjustments, that are, in the opinion of management, necessary to present fairly the financial position and results of operations for the respective interim periods. Certain information and note disclosures normally included in the Company's annual consolidated financial statements prepared in accordance with GAAP have been condensed or omitted from these financial statements, although the Company believes that the disclosures made are adequate to make the information presented not misleading. Results of operations for any interim period are not necessarily indicative of the results that may be expected for the year ending December 31, 2023. These financial statements should be read in conjunction with the annual consolidated financial statements and notes thereto for the year ended December 31, 2022. Except as disclosed herein, there have been no material changes to the information disclosed in the notes to the consolidated annual financial statements for the year ended December 31, 2022.
Significant Accounting Policies – For a description of LongPoint II’s significant accounting policies, see Note 1 of the consolidated financial statements included in the Company’s 2022 audited financial statements. There have been no changes to the policies or the application of such policies during the six months ended June 30, 2023.
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LONGPOINT MINERALS II, LLC AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Principles of Consolidation – The accompanying financial statements are consolidated and include the accounts of the Company and its subsidiary. All intercompany amounts have been eliminated in consolidation.
Disaggregation of Income
The following table disaggregates the Company’s total oil and gas sales by product type:
| FOR THE SIX MONTHS ENDED JUNE 30, | ||||||||
| 2023 | 2022 | |||||||
| Gas sales | $ | 6,090 | $ | 12,193 | ||||
| Oil Sales | 20,620 | 24,823 | ||||||
| Natural gas liquids sales | 6,035 | 8,062 | ||||||
| Oil and gas sales | $ | 32,745 | $ | 45,078 | ||||
Concentrations of Credit Risk – The Company regularly has cash in a single financial institution which exceeds federal depository insurance limits. The Company places such deposits with high credit quality institutions and has not experienced any credit losses. The Company is subject to credit risk related to oil and gas receivables due from operators related to sale of hydrocarbons produced from properties in which LongPoint II owns a mineral or overriding royalty interest. For the six-month period ended June 30, 2023, 17% of LongPoint II’s oil and gas revenues related to the operations of CP Exploration III Operating LLC. No other operators provided more than 10% of the Company’s revenues during the period. For the six months ended June 30, 2022, 12%, 12%, 10% and 10% of LongPoint II’s oil and gas revenues related to the operations of Continental Resources Inc., Anadarko E&P Onshore LLC (a subsidiary of Occidental Petroleum Corporation), CP Exploration III Operating LLC and EOG Resources, Inc., respectively. No other operators provided more than 10% of the Company’s revenues during the period.
Fair Value of Financial Instruments – The Company’s financial instruments consist of cash equivalents and trade payables. The carrying value of these financial instruments are considered to be representative of their fair market value, due to the short-term maturity of these instruments.
Accounting for Oil and Gas Operations – The Company uses the full cost method of accounting for its oil and gas properties. Under this method, all costs related to acquisition, exploration and development of oil and gas properties are capitalized to the full cost pool. The Company’s oil and gas properties are comprised of only mineral and overriding royalty interests, as such, the Company has not incurred any exploration or development costs. Proceeds from the disposition of oil and gas properties are accounted for as adjustments to the full cost pool, with no gain or loss recognized unless the adjustment would significantly alter the relationship between capitalized costs and proved reserves. Any impairments of unproved properties are charged to the full cost pool when impaired.
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LONGPOINT MINERALS II, LLC AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Depletion of capitalized costs of oil and gas properties is provided for using the units of production method based upon estimates of proved oil and gas reserves. In calculating depletion, the volume of proved oil and gas reserves and production is converted into a common unit of measure at the energy equivalent conversion rate of six thousand cubic feet of natural gas to one barrel of oil. Depletion expense for the six-month periods ended June 30, 2023 and 2022 was $5.3 million ($5.93 per barrel of oil equivalent) and $4.7 million ($6.18 per barrel of oil equivalent), respectively.
Impairment of Oil and Gas Properties – In accordance with the full cost method of accounting, the net capitalized costs of oil and gas properties are subject to a ceiling. The cost center ceiling is defined as the sum of (a) estimated future net revenues, discounted at 10% per annum, from proved reserves, based on the simple average of the commodity prices posted on the first day of each month in the respective year, adjusted for existing contracts, (b) the cost of properties not being amortized, and (c) the lower of cost or fair market value of unproved properties included in the cost being amortized. If the net book value exceeds the ceiling, the book balance of the properties are written down to the ceiling via an impairment charge. No impairment to proved properties was recorded for the six months ended June 30, 2023 or 2022.
Recently Adopted Accounting Standards - In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses. In May 2019, ASU 2016-13 was subsequently amended by ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments-Credit Losses and ASU 2019-05, Financial Instruments-Credit Losses (Topic 326): Targeted Transition Relief. ASU 2016-13, as amended, applies to trade receivables, financial assets and certain other instruments that are not measured at fair value through net income. This ASU replaces the currently required incurred loss approach with an expected loss model for instruments measured at amortized cost. The Company adopted this update effective January 1, 2023. The adoption of this update did not have a material impact on its financial position, results of operations or liquidity since it does not have a history of, or material exposure to, credit losses.
| 2. | Sale of Cherry Creek Minerals, LLC: |
In May 2023, the Committee of Managers launched a process to market the mineral and royalty assets of LongPoint II for sale. As a result of the marketing process, in July 2023 the Committee of Managers informed management that it had selected an offer from a bidder for total cash consideration of $455.0 million for all of the issued and outstanding membership interests of Cherry Creek Minerals, LLC. Cherry Creek Minerals, LLC holds all of the mineral and royalty interests of the Company. The purchase agreement with respect to the transaction was executed in early August 2023 and the transaction closed on September 13, 2023. The total consideration of $455.0 million is below the carrying amount of Company which indicates that the Company will record a loss on the sale of Cherry Creek Minerals, LLC during the third quarter of 2023.
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LONGPOINT MINERALS II, LLC AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| 3. | Commitments and Contingencies: |
Legal Proceedings - The Company may from time to time be involved in various legal actions arising in the normal course of business or from activities associated with properties prior to their acquisition by the Company. In the opinion of management, the Company’s liability, if any, in these pending actions would not have a material adverse effect on the financial position, results of operations or cash flows of the Company.
Lease Commitments – The Company is not subject to any lease commitments. As of June 30, 2023, all leases incurred in the ordinary course of business were held by FourPoint and LongPoint II receives the benefit of such leases under the “Services Agreement” with LongPoint Operating.
| 4. | Members’ Capital: |
Capitalization and Distributions – LongPoint II is a Colorado limited liability company with membership interests owned by a group of investor members (the “Investor Members”) and LongPoint Holdings, LLC, a Colorado limited liability company (“Holdings”).
During the six months ended June 30, 2023 and 2022, the Company made distributions to the Investor Members and Holdings of $51.1 million and $29.4 million, respectively.
The state of Oklahoma requires operators to withhold 5% of all production revenues associated with royalty interests held by non-residents of Oklahoma to be offset against state income taxes. Similarly, the state of New Mexico requires operators to withhold 4.9% of all production revenues associated with all interests held by non-residents. As LongPoint II is not subject to income taxes as a limited liability company, the tax liability associated with the operations of LongPoint II is the responsibility of the Investor Members and Holdings. As such, the balance of the state withholdings has been reflected as an equity distribution. The total distributions attributable to state withholdings in the six months ended June 30, 2023 and 2022 were $0.7 million and $0.8 million, respectively.
| 5. | Related Party Transactions: |
LongPoint II incurred total fees of $1.7 million related to the Services Agreement with LongPoint Operating during each six-month period ended June 30, 2023 and 2022. These fees are reflected in “General and administrative” line in the statements of operations. At June 30, 2023 and December 31, 2022, $0.4 million and $0.3 million, respectively, was due to LongPoint Operating and is reflected in “Accounts payable and accrued expenses” in the accompanying balance sheets.
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LONGPOINT MINERALS II, LLC AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NorthPoint, an entity owned by an officer of the Company, owns or has certain rights to (i) third party software, (ii) propriety information and data and (iii) furniture, fixtures and equipment and other personal property located at the current office space utilized by FourPoint Energy. The Company has entered into a Usage Agreement with NorthPoint for the use of these assets. LongPoint incurred $0.2 million of fees related to the Usage Agreement in both of the six-month periods ended June 30, 2023 and 2022. No balance was due to NorthPoint at June 30, 2023 and December 31, 2022.
| 6. | Subsequent Events: |
The Company has evaluated events through September 27, 2023, the date these financial statements were issued. Other than what has been disclosed in the notes to the financial statements, no additional subsequent events of a material nature have been identified.
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Exhibit 99.3
KIMBELL ROYALTY PARTNERS, LP
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
On December 15, 2022 (the “Closing Date”), Kimbell Royalty Partners, LP, a Delaware limited partnership (“Kimbell” or the “Partnership”) and Kimbell Royalty Operating, LLC, a Delaware limited liability company (“OpCo” and, together with Kimbell, the “Buyer Parties”), completed the previously announced acquisition (the “Hatch Acquisition”) of mineral and royalty interests pursuant to a purchase and sale agreement (the “PSA”), dated November 3, 2022, by and among the Buyer Parties and Hatch Royalty LLC, a Delaware limited liability company (“Hatch”). The aggregate consideration paid to Hatch for the acquired assets consisted of (i) approximately $150.4 million in cash, subject to purchase price adjustments and other customary closing adjustments and (ii) the issuance of 7,272,821 common units representing limited liability company interests in Opco (“Opco units”) and an equal number of Class B units representing limited partner interests in Kimbell (“Class B units”). The Opco units, together with the Class B units, are exchangeable for an equal number of common units representing limited partner interests in Kimbell (“Common Units”). The total valuation of 7,272,821 Common Units for approximately $120.3 million is based on a closing price of $16.54. The cash consideration of the purchase price was funded from the issuance of 6,900,000 Common Units on November 8, 2022 for $116.9 million and increased borrowings under Kimbell’s existing revolving credit facility on December 13, 2022.
Additionally, on August 2, 2023, Kimbell entered into a securities purchase agreement (the “ Purchase Agreement”) with LongPoint Minerals II, LLC (“LongPoint”) to acquire all of the issued and outstanding membership interests of Cherry Creek Minerals, LLC, a Colorado limited liability company (the “Acquired Company”) and a wholly owned subsidiary of LongPoint for a total purchase price of $455.0 million in cash, subject to customary adjustments (the “Acquisition” and together with the Hatch Acquisition, the “Acquisitions”). The aggregate consideration paid to LongPoint for the acquired assets consists of (i) approximately $130.0 million in cash funded through borrowings under our revolving credit facility, and subject to purchase price adjustments and other customary closing adjustments and (ii) the private placement of 325,000 Series A Convertible Preferred Units (the “Preferred Units”) to Apollo Global Securities, LLC (“Apollo”) for gross proceeds of $325.0 million, pursuant to the Preferred Unit purchase agreement, dated as of August 2, 2023, by and among Kimbell and Apollo. The Operating Company used the net proceeds of this offering for the repayment of outstanding borrowings under our revolving credit facility
The following unaudited pro forma condensed combined financial statements (the “pro forma financial statements”) present (i) our unaudited pro forma balance sheet as of June 30, 2023, (ii) our unaudited pro forma statement of operations for the six months ended June 30, 2023, and (iii) our unaudited pro forma statement of operations for the year ended December 31, 2022. The pro forma balance sheet as of June 30, 2023 assumes that the Acquisition occurred on June 30, 2023. There were no pro forma adjustments for the Hatch Acquisition as of June 30, 2023 as the financial position is included in the consolidated balance sheet of Kimbell. as of December 31, 2022. The pro forma statement of operations for the six months ended June 30, 2023 and for the year ended December 31, 2022 give pro forma effect to the Acquisitions, as if they had occurred on January 1, 2022, the beginning of the earliest period presented.
The pro forma adjustments related to the Acquisitions and the related financing for the LongPoint transaction are based on preliminary estimates, accounting judgments and currently available information and assumptions that management believes are reasonable and are subject to change. Accordingly, these pro forma adjustments are preliminary and have been made solely for the purpose of providing these pro forma financial statements, and do not include the effects of synergies as a result of the Acquisitions. Differences between these preliminary estimates and the final fair value of assets acquired may occur and these differences could be material. The differences, if any, could have a material impact on the accompanying pro forma financial statements and our future results of operations. The pro forma financial statements have been derived from and should be read together with:
| ● | the accompanying notes to the unaudited pro forma financial statements; |
| ● | our historical audited consolidated financial statements and the related notes contained in the Partnership’s Annual Report on Form 10-K as of and for the year ended December 31, 2022, filed on February 23, 2023; |
| ● | our historical unaudited consolidated financial statements and related notes contained in the Partnership’s Quarterly Report on Form 10-Q as of and for the six months ended June 30, 2023 filed on August 2, 2023; |
| ● | the statement of revenues and direct operating expenses of Hatch Royalty LLC and related notes for the period ended December 15, 2022; |
| ● | the historical unaudited consolidated financial statements and related notes of LongPoint as of and for the six months ended June 30,2023; and |
1
| ● | the historical audited consolidated financial statements and related notes of LongPoint as of and for the year ended December 31, 2022 |
The pro forma financial statements also include the pro forma effects of the redemption of Kimbell Tiger Acquisition Corporation ("TGR"), a special purpose acquisition company incorporated in Delaware on April 9, 2021 that was previously a consolidated subsidiary of Kimbell. On May 22, 2023, TGR redeemed all of its outstanding shares of Class A common stock (the “TGR Redemption”), which were issued in connection with its initial public offering. A total of 23,002,500 shares were redeemed at a price of $10.57 per share, resulting in a cash payment of approximately $243.2 million to the holders of Class A common stock. As TGR was a consolidated subsidiary of Kimbell, the shares of Class A common stock issued by TGR were classified within redeemable non-controlling interest on the consolidated balance sheet of Kimbell.
The pro forma statement of operations for the six months ended June 30, 2023 and for the year ended December 31, 2022 give pro forma effect to the TGR Redemption, as if it occurred on January 1, 2022, the beginning of the earliest period presented. Management of Kimbell believes that TGR was not material to the financial position or results of operations of Kimbell because, among other things, TGR accounted for zero percent of Kimbell’s consolidated total revenues and the proceeds from TGR’s initial public offering were held in trust for the benefit of TGR’s public stockholders and not available to Kimbell. Nevertheless, Kimbell is including the effects of the TGR redemption within the pro forma statement of operations to provide a more complete presentation of Kimbell’s results of operations as of the dates shown herein. There are no pro forma adjustments to the balance sheet as of June 30, 2023 related to the TGR Redemption as it occurred prior to the pro forma balance sheet date of June 30, 2023.
These pro forma financial statements are for information purposes only and do not purport to represent what the Partnership’s financial position and results of operations would have been had the Acquisitions occurred on the dates indicated. These pro forma financial statements should not be used to project the Partnership’s financial performance for any future period. A number of factors may affect the results.
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KIMBELL ROYALTY PARTNERS, LP
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
| As of June 30, 2023 | ||||||||||||||||||||||||
| Transaction Account Adjustment | ||||||||||||||||||||||||
| Historical Kimbell | Historical LongPoint | Removal
of LongPoint to effectuate the Asset Acquisition | Long Point | Pro
Forma Combined | ||||||||||||||||||||
| Assets | ||||||||||||||||||||||||
| Current assets | ||||||||||||||||||||||||
| Cash and cash equivalents | $ | 20,779,119 | $ | 13,717,000 | $ | (13,717,000 | ) | 3 | $ | (1,497,874 | ) | 4a,b,c | $ | 19,281,245 | ||||||||||
| Oil, natural gas and NGL receivables | 45,006,388 | 6,649,000 | (6,649,000 | ) | 3 | - | 45,006,388 | |||||||||||||||||
| Derivatives | 1,794,888 | - | - | - | 1,794,888 | |||||||||||||||||||
| Accounts receivable and other current assets | 3,135,807 | 29,000 | (29,000 | ) | 3 | 10,872,589 | 4c | 14,008,396 | ||||||||||||||||
| Total current assets | 70,716,202 | 20,395,000 | (20,395,000 | ) | 9,374,715 | 80,090,917 | ||||||||||||||||||
| Property and equipment, net | 771,872 | - | - | - | 771,872 | |||||||||||||||||||
| Oil and natural gas properties: | ||||||||||||||||||||||||
| Oil and natural gas properties, using full cost method of accounting ($125,601,085 excluded from depletion at June 30, 2023) | 1,602,199,705 | 633,381,000 | (633,381,000 | ) | 3 | 445,625,285 | 4c | 2,047,824,990 | ||||||||||||||||
| Less: accumulated depreciation, depletion and impairment | (749,745,922 | ) | (39,777,000 | ) | 39,777,000 | 3 | - | (749,745,922 | ) | |||||||||||||||
| Total oil and natural gas properties, net | 852,453,783 | 593,604,000 | (593,604,000 | ) | 445,625,285 | 1,298,079,068 | ||||||||||||||||||
| Right-of-use assets, net | 2,357,665 | - | - | - | 2,357,665 | |||||||||||||||||||
| Derivative assets | 1,580,439 | - | - | - | 1,580,439 | |||||||||||||||||||
| Loan origination costs, net | 6,308,398 | - | - | - | 6,308,398 | |||||||||||||||||||
| Total assets | $ | 934,188,359 | $ | 613,999,000 | $ | (613,999,000 | ) | $ | 455,000,000 | $ | 1,389,188,359 | |||||||||||||
| Liabilities, mezzanine equity and unitholders' equity | ||||||||||||||||||||||||
| Current liabilities: | ||||||||||||||||||||||||
| Accounts payable | $ | 1,369,894 | $ | 1,925,000 | $ | (1,925,000 | ) | 3 | $ | - | $ | 1,369,894 | ||||||||||||
| Other current liabilities | 8,340,805 | - | - | - | 8,340,805 | |||||||||||||||||||
| Derivative liabilities | 428,560 | - | - | - | 428,560 | |||||||||||||||||||
| Total current liabilities | 10,139,259 | 1,925,000 | (1,925,000 | ) | - | 10,139,259 | ||||||||||||||||||
| Operating lease liabilities, excluding current portion | 2,066,030 | - | - | - | 2,066,030 | |||||||||||||||||||
| Derivative liabilities | 170,529 | - | - | - | 170,529 | |||||||||||||||||||
| Long-term debt | 269,600,000 | - | - | 140,500,000 | 4b | 410,100,000 | ||||||||||||||||||
| Other liabilities | 260,417 | - | - | - | 260,417 | |||||||||||||||||||
| Total liabilities | 282,236,235 | 1,925,000 | (1,925,000 | ) | 140,500,000 | 422,736,235 | ||||||||||||||||||
| Commitments and contingencies | ||||||||||||||||||||||||
| Mezzanine equity: | - | - | - | - | - | |||||||||||||||||||
| Series A preferred Units (325,000 units issued and outstanding as of June 30, 2023) | - | - | - | 314,500,000 | 4a | 314,500,000 | ||||||||||||||||||
| Kimbell Royalty Partners, LP unitholders' equity: | - | - | ||||||||||||||||||||||
| Common units (65,507,635 units issued and outstanding as of June 30, 2023) | 596,177,270 | - | - | - | 596,177,270 | |||||||||||||||||||
| Class B units (20,853,618 units issued and outstanding as of June 30, 2023) | 1,042,681 | - | - | - | 1,042,681 | |||||||||||||||||||
| Total Kimbell Royalty Partners, LP unitholders' equity | 597,219,951 | - | - | - | 597,219,951 | |||||||||||||||||||
| Members Equity | - | 612,074,000 | (612,074,000 | ) | 3 | - | - | |||||||||||||||||
| Non-controlling deficit in OpCo | 54,732,173 | - | - | - | 54,732,173 | |||||||||||||||||||
| Total equity | 651,952,124 | 610,074,000 | (612,074,000 | ) | - | 651,952,124 | ||||||||||||||||||
| Total liabilities, mezzanine equity and unitholders' equity | $ | 934,188,359 | $ | 613,999,000 | $ | (613,999,000 | ) | $ | 455,000,000 | $ | 1,389,188,359 | |||||||||||||
See accompanying notes to the unaudited pro forma financial statements
3
KIMBELL ROYALTY PARTNERS, LP
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
| Six Months Ended June 30, 2023 | ||||||||||||||||||||||||||||||
| Transaction Accounting Adjustment | ||||||||||||||||||||||||||||||
| Historical
Kimbell | Historical
LongPoint | Removal
of LongPoint to effectuate the Asset Acquisition | LongPoint | TGR Redemption | Pro
Forma Combined | |||||||||||||||||||||||||
| Revenue: | ||||||||||||||||||||||||||||||
| Oil, natural gas and NGL revenues | $ | 114,398,373 | $ | 32,745,000 | $ | (32,745,000 | ) | 3 | $ | 32,745,000 | 6a | $ | - | $ | 147,143,373 | |||||||||||||||
| Lease bonus and other income | 2,478,526 | 16,862,000 | (16,862,000 | ) | 3 | 16,862,000 | 6a | - | 19,340,526 | |||||||||||||||||||||
| Gain on commodity derivative instruments, net | 10,791,835 | - | - | - | - | 10,791,835 | ||||||||||||||||||||||||
| Total revenues | 127,668,734 | 49,607,000 | (49,607,000 | ) | 49,607,000 | - | 177,275,734 | |||||||||||||||||||||||
| Costs and expenses | ||||||||||||||||||||||||||||||
| Production and ad valorem taxes | 9,682,159 | 3,105,000 | (3,105,000 | ) | 3 | 3,105,000 | 6a | - | 12,787,159 | |||||||||||||||||||||
| Depreciation and depletion expense | 37,220,503 | 5,277,000 | (5,277,000 | ) | 3 | 10,992,733 | 6b | - | 48,213,236 | |||||||||||||||||||||
| Marketing and other deductions | 5,669,498 | 2,207,000 | (2,207,000 | ) | 3 | 855,874 | 6a | - | 6,525,372 | |||||||||||||||||||||
| General and administrative expense | 16,203,426 | - | - | - | - | 16,203,426 | ||||||||||||||||||||||||
| Consolidated variable interest entities related: | ||||||||||||||||||||||||||||||
| General and administrative expense | 927,699 | - | - | - | (927,699 | ) | 7 | - | ||||||||||||||||||||||
| Total costs and expenses | 69,703,285 | 10,589,000 | (10,589,000 | ) | 14,953,607 | (927,699 | ) | 83,729,193 | ||||||||||||||||||||||
| Operating Income | 57,965,449 | 39,018,000 | (39,018,000 | ) | 34,653,393 | 927,699 | 93,546,541 | |||||||||||||||||||||||
| Other income (expense) | ||||||||||||||||||||||||||||||
| Equity income in affiliate | - | - | - | - | - | - | ||||||||||||||||||||||||
| Interest expense | (11,804,522 | ) | (466,000 | ) | 466,000 | 3 | (5,936,106 | ) | 6c | - | (17,740,628 | ) | ||||||||||||||||||
| Loss on extinguishment of debt | (480,244 | ) | (480,244 | ) | ||||||||||||||||||||||||||
| Other (expense) income | (180,765 | ) | 284,000 | (284,000 | ) | 3 | - | - | (180,765 | ) | ||||||||||||||||||||
| Consolidated variable interest entities related: | ||||||||||||||||||||||||||||||
| Interest earned on marketable securities in trust account | 3,508,691 | - | - | - | (3,508,691 | ) | 7 | - | ||||||||||||||||||||||
| Net income before income taxes | 49,008,609 | 38,836,000 | (38,836,000 | ) | 28,717,287 | (2,580,992 | ) | 75,144,904 | ||||||||||||||||||||||
| Income tax expense | 2,312,040 | 170,000 | (170,000 | ) | 3 | 1,354,773 | 6d | (121,761 | ) | 7 | 3,545,052 | |||||||||||||||||||
| Net Income | 46,696,569 | 38,666,000 | (38,666,000 | ) | 27,362,514 | (2,459,231 | ) | 71,599,852 | ||||||||||||||||||||||
| Net income and distributions and accretion on Series A preferred units attributable to noncontrolling interests in OpCo | (9,860,860 | ) | - | - | - | - | (9,860,860 | ) | ||||||||||||||||||||||
| Distribution on Class B units | (47,085 | ) | - | - | - | - | (47,085 | ) | ||||||||||||||||||||||
| Net income attributable to common units of Kimbell Royalty Partners, LP | $ | 36,788,624 | $ | 38,666,000 | $ | (38,666,000 | ) | $ | 27,362,514 | $ | (2,459,231 | ) | $ | 61,691,907 | ||||||||||||||||
| Net Income per unit attributable to common units of Kimbell Royalty Partners LP | ||||||||||||||||||||||||||||||
| Basic | $ | 0.61 | $ | 1.15 | ||||||||||||||||||||||||||
| Diluted | $ | 0.59 | $ | 1.01 | ||||||||||||||||||||||||||
| Weighted average number of common units outstanding | ||||||||||||||||||||||||||||||
| Basic | 62,910,053 | 62,910,053 | ||||||||||||||||||||||||||||
| Basic | 81,263,101 | 81,588,101 | ||||||||||||||||||||||||||||
See accompanying notes to the unaudited pro forma financial statements
4
KIMBELL ROYALTY PARTNERS, LP
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
| Year Ended December 31, 2022 | ||||||||||||||||||||||||||||||||||||||||||||
| Transaction Accounting Adjustments | ||||||||||||||||||||||||||||||||||||||||||||
| Historical Kimbell | Historical
Hatch 1/1/22 - 9/30/22 | Transaction Accounting Adjustments Hatch for the period from 10/1/2022 – 12/15/2022 | Pro
Forma (excluding LongPoint) | Historical LongPoint | Removal
of LongPoint to effectuate the Asset Acquisition | LongPoint | TGR Redemption | Pro
Forma Combined | ||||||||||||||||||||||||||||||||||||
| Revenue | ||||||||||||||||||||||||||||||||||||||||||||
| Oil, natural gas and NGL revenues | $ | 281,964,126 | $ | 27,418,110 | $ | 10,007,022 | 5a | $ | 319,389,258 | $ | 87,154,000 | $ | (87,154,000 | ) | 3 | $ | 87,154,000 | 6a | $ | - | $ | 406,543,258 | ||||||||||||||||||||||
| Lease bonus and other income | 3,073,609 | 553,100 | - | 3,626,709 | 16,560,000 | (16,560,000 | ) | 3 | 16,560,000 | 6a | - | 20,186,709 | ||||||||||||||||||||||||||||||||
| Loss on commodity derivative instruments, net | (36,978,550 | ) | (1,282,926 | ) | 1,282,926 | 5f | (36,978,550 | ) | - | - | - | - | (36,978,550 | ) | ||||||||||||||||||||||||||||||
| Total revenues | 248,059,185 | 26,688,284 | 11,289,948 | 286,037,417 | 103,714,000 | (103,714,000 | ) | 103,714,000 | - | 389,751,417 | ||||||||||||||||||||||||||||||||||
| Costs and expenses | ||||||||||||||||||||||||||||||||||||||||||||
| Production and ad valorem taxes | 16,238,814 | 1,313,756 | - | 17,552,570 | 7,922,000 | (7,922,000 | ) | 3 | 7,922,000 | 6a | - | 25,474,570 | ||||||||||||||||||||||||||||||||
| Depreciation and depletion expense | 50,086,414 | 4,521,809 | 4,395,024 | 5b | 59,003,247 | 9,343,000 | (9,343,000 | ) | 3 | 21,649,236 | 6b | - | 80,652,483 | |||||||||||||||||||||||||||||||
| Marketing and other deductions | 13,383,074 | 3,612,012 | (2,656,309 | ) | 5f | 14,338,777 | 4,413,000 | (4,413,000 | ) | 3 | 2,747,197 | 6a | - | 17,085,974 | ||||||||||||||||||||||||||||||
| General and administrative expense | 29,128,659 | - | - | 29,128,659 | - | - | - | - | 29,128,659 | |||||||||||||||||||||||||||||||||||
| Consolidated variable interest entities related: | ||||||||||||||||||||||||||||||||||||||||||||
| General and administrative expense | 2,304,445 | - | - | 2,304,445 | - | - | - | (2,304,445 | ) | 7 | - | |||||||||||||||||||||||||||||||||
| Total costs and expenses | 111,141,406 | 9,447,577 | 1,738,715 | 122,327,698 | 21,678,000 | (21,678,000 | ) | 32,318,433 | (2,304,445 | ) | 152,341,686 | |||||||||||||||||||||||||||||||||
| Operating income | 136,917,779 | 17,240,707 | 9,551,233 | 163,709,719 | 82,036,000 | (82,036,000 | ) | 71,395,567 | 2,304,445 | 237,409,731 | ||||||||||||||||||||||||||||||||||
| Other income (expense) | ||||||||||||||||||||||||||||||||||||||||||||
| Equity income in affiliate | 2,668,844 | - | - | 2,668,844 | - | - | - | - | 2,668,844 | |||||||||||||||||||||||||||||||||||
| Interest expense | (13,818,310 | ) | (1,604,315 | ) | (409,318 | ) | 5c | (15,831,943 | ) | (1,067,000 | ) | 1,067,000 | 3 | (7,418,400 | ) | 6c | - | (23,250,343 | ) | |||||||||||||||||||||||||
| Other income | 4,043,530 | - | - | 4,043,530 | 1,147,000 | (1,147,000 | ) | 3 | - | - | 4,043,530 | |||||||||||||||||||||||||||||||||
| Consolidated variable interest entities related: | ||||||||||||||||||||||||||||||||||||||||||||
| Interest earned on marketable securities in trust account | 3,721,145 | - | - | 3,721,145 | - | - | - | (3,721,145 | ) | 7 | - | |||||||||||||||||||||||||||||||||
| Net income before income taxes | 133,532,988 | 15,636,392 | 9,141,915 | 158,311,295 | 82,116,000 | (82,116,000 | ) | 63,977,167 | (1,416,700 | ) | 220,871,762 | |||||||||||||||||||||||||||||||||
| Income tax expense | 2,738,702 | - | 508,192 | 5d | 3,246,894 | 322,000 | (322,000 | ) | 3 | 1,312,143 | 6d | (29,056 | ) | 7 | 4,529,981 | |||||||||||||||||||||||||||||
| Net income | 130,794,286 | 15,636,392 | 8,633,723 | 155,064,401 | 81,794,000 | (81,794,000 | ) | 62,665,024 | (1,387,644 | ) | 216,341,781 | |||||||||||||||||||||||||||||||||
| Net income and distributions and accretion on Series A preferred units attributable to noncontrolling interests in OpCo | (18,822,552 | ) | - | (4,714,324 | ) | 5e | (23,536,876 | ) | - | - | - | - | (23,536,876 | ) | ||||||||||||||||||||||||||||||
| Distribution on Class B units | (42,243 | ) | - | - | (42,243 | ) | - | - | - | - | (42,243 | ) | ||||||||||||||||||||||||||||||||
| Net income attributable to common units | $ | 111,929,491 | $ | 15,636,392 | $ | 3,919,399 | $ | 131,485,282 | $ | 81,794,000 | $ | (81,794,000 | ) | $ | 62,665,024 | $ | (1,387,644 | ) | $ | 192,762,662 | ||||||||||||||||||||||||
| Net Income per unit attributable to common units of Kimbell Royalty Partners LP | ||||||||||||||||||||||||||||||||||||||||||||
| Basic | $ | 1.75 | $ | 2.43 | $ | 3.56 | ||||||||||||||||||||||||||||||||||||||
| Diluted | $ | 1.72 | $ | 2.02 | $ | 3.25 | ||||||||||||||||||||||||||||||||||||||
| Weighted average number of common units outstanding | ||||||||||||||||||||||||||||||||||||||||||||
| Basic | 54,112,595 | 54,112,595 | 54,112,595 | |||||||||||||||||||||||||||||||||||||||||
| Diluted | 65,837,017 | 65,837,017 | 66,162,017 | |||||||||||||||||||||||||||||||||||||||||
See accompanying notes to the unaudited pro forma financial statements
5
NOTES TO THE UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
| 1) | Basis of Presentation |
The pro forma financial statements have been prepared in accordance with Article 11 of Regulation S-X as amended by the final rule, Release No. 33-10786, “Amendments to Financial Disclosures about Acquired and Disposed Businesses.” Release No. 33-10786 replaces the existing pro forma adjustment criteria which simplified requirements to depict the accounting for the transaction (“Transaction Accounting Adjustments”) and present the reasonably estimable synergies and other transaction effects that have occurred or are reasonably expected to occur (“Management Adjustments”). As such, only Transaction Accounting Adjustments are presented in the pro forma financial information and notes thereto, without the effect of estimable synergies. The adjustments presented in the pro forma financial statements have been identified and presented to provide relevant information necessary for an understanding of the Acquisitions.
The pro forma balance sheet as of June 30, 2023 assumes that the Acquisition occurred on June 30, 2023. The pro forma statement of operations for the six months ended June 30, 2023 gives pro forma effect to the Acquisition and the TGR Redemption as if they occurred on January 1, 2022, the beginning of the earliest period presented. The pro forma statement of operations for the year ended December 31, 2022 gives pro forma effect to the Acquisitions and the TGR Redemption as if they had occurred on January 1, 2022.
The pro forma financial statements are not necessarily indicative of what the actual results of operations and financial position would have been had the transaction taken place on the dates indicated, nor are they indicative of the future consolidated results of operations or financial position of Kimbell following the transaction.
The pro forma basic and diluted earnings per units amounts presented in the unaudited pro forma statement of operations are based on the weighted average number of the Partnerships’ units outstanding, assuming the Acquisitions and the TGR Redemption occurred at the beginning of the earliest period presented.
The pro forma adjustments related to the purchase price allocation of the Acquisition are preliminary and are subject to revisions as additional information becomes available. Revisions to the preliminary purchase price allocation of the assets acquired may have a significant impact on the pro forma amounts. The pro forma adjustments related to the Acquisition reflect the fair values of the assets acquired as of the date indicated. The pro forma adjustments do not necessarily reflect the fair values that would have been recorded if the acquisition had occurred on June 30, 2023.
6
| 2) | Estimated Consideration and Preliminary Purchase Price Allocation |
The Partnership has performed a preliminary valuation analysis of the fair value of the oil and natural gas properties acquired. Using the total consideration for the Acquisition, the Partnership has estimated the allocation to such assets. The Partnership is accounting for the Acquisition as an asset acquisition thus, all transaction costs associated with the Acquisition were capitalized. The following table summarizes the allocation of the preliminary purchase price as of the date indicated:
| Estimated Consideration | ||||
| Cash purchase consideration | $ | 450,268,125 | ||
| Add: Transaction costs | 6,229,749 | |||
| Less: Purchase price adjustments | (10,872,589 | ) | ||
| Total estimated purchase price | $ | 445,625,285 | ||
| Purchase Price Allocation | ||||
| Oil and natural gas properties | $ | 445,625,285 | ||
| Net assets acquired | $ | 445,625,285 | ||
This preliminary purchase price allocation of the assets acquired has been used to prepare the transaction accounting adjustments in the pro forma balance sheet and statements of operations. The final purchase price allocation is expected to be completed when the Partnership files its report on Form 10-Q for the quarter ended September 30, 2023, subsequent to the closing date of the Acquisition and could differ materially from the preliminary allocation used in the transaction accounting adjustments.
| 3) | Removal of Historical LongPoint to Effectuate the Asset Acquisition |
As the Partnership determined the Acquisition will be accounted for as an asset acquisition in accordance with U.S. GAAP, the historical account balances of LongPoint have been eliminated. Incremental activity related to the transaction, including the acquisition of the oil and natural gas properties and the incremental revenues, direct operating costs and interest expense, have been reflected as accounting transaction adjustments within the pro forma financial statements.
| 4) | Transaction Accounting Adjustments – Balance Sheet |
The unaudited pro forma condensed combined balance sheet has been adjusted to reflect the assets acquired from the Acquisition and has been prepared for informational purposes only.
| (a) | Represents the proceeds from Kimbell’s issuance of 325,000 Preferred Units to Apollo, net of equity issuance costs, to fund the acquisition. |
| (b) | Represents the increase of $140.5 million of borrowings under the Partnership’s revolving credit facility to fund the Acquisition, including the issuance costs associated with the Preferred Units. |
| (c) | Reflects the consideration transferred and preliminary purchase price allocation for the Acquisition consisting of: |
| ● | The total consideration paid to LongPoint of $450.3 million funded by (i) the $325.0 million of 325,000 Preferred Units which were issued net of equity issuance costs of $10.5 million; (ii) borrowings under the Partnership’s revolving credit facility of $130.0 million; (iii) net of closing adjustments and acquired cash which reduced the total consideration paid to LongPoint by $4.7 million; |
| ● | The estimated $445.6 million fair value of the proved oil and natural gas properties acquired based on the preliminary purchase price allocation; |
| ● | The $6.2 million of transaction costs; and |
| ● | Purchase price adjustments of $10.9 million relate to revenues directly attributable to the assets acquired and received by LongPoint following the effective date of the Acquisition. |
| 5) | Hatch Transaction Accounting Adjustments – Statement of Operations |
The unaudited pro forma statement of operations has been adjusted to reflect the assets acquired from the Hatch Acquisition for the year ended December 31, 2022 and has been prepared for informational purposes only. The results of operations and financial position of Hatch are included in the consolidated financial statements of Kimbell after December 15, 2023, the Closing Date of the Hatch Acquisition.
7
| (a) | Represents the historical royalty income derived from the acquired mineral and royalty interests for the period October 1, 2022, through December 15, 2022, totaling $10.0 million: |
| (b) | Represents the increase in depletion expense computed on a unit of production basis following the preliminary purchase price allocation to proved oil and natural gas properties, as if the Hatch Acquisition was consummated on January 1, 2022. Of the $261.1 million estimated fair value of proved oil and natural gas properties acquired, only $56.4 million were subject to depletion in the period presented. |
| (c) | Represents the increase to interest expense resulting from the interest on the additional borrowings under the Partnership’s existing credit facility that was used to finance the acquisition. The Partnership’s credit facility bears interest at SOFR plus a margin of 3.5% or the ABR plus a margin of 2.50%. The unaudited pro forma condensed combined statement of operations for the period ended December 15, 2022, used the weighted average interest of 5.28% on the net outstanding borrowings of $40 million. A 1/8 of a percent point increase or decrease in the benchmark rate would not have a material impact on the pro forma interest expense in the period presented. |
| (d) | Reflects estimated incremental income tax provision associated with the Partnership’s historical statement of operations, using an effective tax rate of approximately 2.05% on net earnings from the Hatch Acquisition. |
| (e) | Reflects the impact of the net income attributable to the non-controlling interests in OpCo as a result of Kimbell’s public offering of Common Units and the Hatch Acquisition. The net income attributable to the non-controlling interests in OpCo was 19% for the period ended December 15, 2022. |
| (f) | Reflects the removal of certain historical activity related to Hatch that is unrelated to the acquired oil and gas properties, including: |
| ● | approximately $1.3 million loss on commodity derivatives; and |
| ● | approximately $2.7 million of marketing and other deductions. |
| 6) | LongPoint Transaction Accounting Adjustments – Statement of Operations |
The unaudited pro forma statement of operations has been adjusted to reflect the assets acquired from the Acquisition and has been prepared for informational purposes only.
| (a) | Represents the historical royalty income, lease bonus and extension income derived from the acquired mineral and royalty interests, and operating expenses including: |
| ● | Approximately $32.7 million of oil and natural gas revenues and $16.9 million of lease bonus and other income for the six months ended June 30, 2023; |
| ● | Approximately $87.1 million of oil and natural gas revenues and $16.6 million of lease bonus and other income for the year ended December 31, 2022; |
| ● | Approximately $3.1 million and $7.9 million of production related expenses and taxes for the six months ended June 30, 2023 and year ended December 31, 2022; and |
| ● | Approximately $0.9 million and $2.7 million of direct marketing expenses for the six months ended June 30, 2023 and year ended December 31, 2022. |
| (b) | Represents the increase in depletion expense computed on a unit of production basis following the preliminary purchase price allocation to proved oil and natural gas properties, as if the Acquisition was consummated on January 1, 2022. Of the $462.0 million estimated fair value of proved oil and natural gas properties acquired, only $198.4 million were subject to depletion in the periods presented. |
| (c) | Represents the increase to interest expense resulting from the interest on the additional borrowings under the Partnership’s existing credit facility that were used to finance the acquisition and preferred issuance costs. The Partnership’s credit facility bears interest at SOFR plus a margin of 3.5% or the ABR plus a margin of 2.50%. The unaudited pro forma condensed combined statement of operations for the six months ended June 30, 2023 and for the year ended December 31, 2022 each used the weighted average interest of 8.52% and 5.28% respectively, on the net outstanding borrowings of $140.5 million. A 1/8 of a percent point increase or decrease in the benchmark rate would not have a material impact on the pro forma interest expense in each period presented. |
| (d) | For the year ended December 31, 2022, reflects estimated incremental income tax provision associated with the Partnership’s historical statement of operations, using an effective tax rate of approximately 2.05% on net earnings from the Acquisition. For the six months ended June 30, 2023, the Partnership’s effective tax rate is approximately 4.72% and it is applied to the Partnership’s net earnings from the Acquisition for calculating the incremental income tax provision. |
8
| 7) | Redemption of Kimbell Tiger Acquisition Corporation |
On May 22, 2023, as a result of TGR’s inability to consummate an initial business combination, TGR redeemed all of its outstanding shares of Class A common stock included as part of the units issued in its initial public offering. Following such redemption, TGR (along with TGR’s Sponsor, Kimbell Tiger Acquisition Sponsor, LLC) was dissolved in accordance with the terms of its organizational documents. There are no pro forma adjustments to the balance sheet as the TGR Redemption occurred prior to the pro forma balance sheet date of June 30, 2023. The unaudited pro forma condensed combined statement of operations reflects the TGR redemption as if it occurred on January 1, 2022. The pro forma adjustments include:
| ● | The derecognition of general and administrative expense of approximately $0.9 million and $2.3 million for the six and twelve months ended June 30, 2023 and December 31, 2022; |
| ● | The derecognition of interest expense on marketable securities of approximately $3.5 million and $3.7 million for the six and twelve months ended June 30, 2023 and December 31, 2022; and through equity |
| ● | The derecognition of income tax benefit of approximately $0.1 million for the six months ended June 30, 2023. |
| 8) | Pro Forma Net Income per Common Unit |
Pro forma net income per Common Unit is determined by dividing the pro forma net income attributable to common unitholders by the number of Common Units reflected in the unaudited condensed pro forma financial statements. All Common Units were assumed to have been outstanding since the beginning of the periods presented. The calculation of diluted net income per Common Unit for the six months ended June 30, 2023 and year ended December 31, 2022 includes Preferred Units on Series A, Common Units issuable upon the exchange of the outstanding Class B Units, and the unvested restricted units issuable upon vesting.
| 9) | Supplemental Pro Forma Oil and Natural Gas Reserve Information |
The following unaudited supplemental pro forma oil and natural gas reserve tables present how the combined oil and natural gas reserves and standardized measure information of the Company and Acquisition may have appeared had the Acquisition occurred on January 1, 2022. The supplemental pro forma combined oil and natural gas reserves and standardized measure information are for illustrative purposes only. Numerous uncertainties are inherent in estimating quantities and values of proved reserves including future rates of production, exploration and development expenditures, commodity prices, and service costs which may affect the reserve volumes attributable to the Properties and the standardized measure of discounted future net cash flows.
The following tables provide a summary of the changes in estimated proved reserves for the year ended December 31, 2022, as well as pro forma proved developed as of the beginning and end of the year, giving effect to the Acquisition as if it had occurred on January 1, 2022.
Estimated Pro Forma Combined Quantities of Proved Reserves
| Crude Oil and Condensate (MBbls) | ||||||||||||
| Kimbell | LongPoint | Pro Forma | ||||||||||
| Net proved reserves at December 31, 2021 | 12,511 | 2,314 | 14,825 | |||||||||
| Revisions of previous estimates | (58 | ) | 449 | 391 | ||||||||
| Purchase of minerals in place | 1,328 | - | 1,328 | |||||||||
| Production | (1,426 | ) | (469 | ) | (1,895 | ) | ||||||
| Net proved reserves at December 31, 2022 | 12,355 | 2,294 | 14,649 | |||||||||
| Net Proved Developed Reserves | ||||||||||||
| December 31, 2021 | 12,511 | 2,314 | 14,825 | |||||||||
| December 31, 2022 | 12,355 | 2,294 | 14,649 | |||||||||
| Natural Gas (MMcf) | ||||||||||||
| Kimbell | LongPoint | Pro Forma | ||||||||||
| Net proved reserves at December 31, 2021 | 157,764 | 23,714 | 181,478 | |||||||||
| Revisions of previous estimates | 17,119 | 6,782 | 23,901 | |||||||||
| Purchase of minerals in place | 5,726 | - | 5,726 | |||||||||
| Production | (20,311 | ) | (3,875 | ) | (24,186 | ) | ||||||
| Net proved reserves at December 31, 2022 | 160,298 | 26,621 | 186,919 | |||||||||
| Net Proved Developed Reserves | ||||||||||||
| December 31, 2021 | 157,764 | 23,714 | 181,478 | |||||||||
| December 31, 2022 | 160,298 | 26,621 | 186,919 | |||||||||
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| Natural Gas Liquids (MBbls) | ||||||||||||
| Kimbell | LongPoint | Pro Forma | ||||||||||
| Net proved reserves at December 31, 2021 | 6,669 | 2,240 | 8,909 | |||||||||
| Revisions of previous estimates | 759 | 785 | 1,544 | |||||||||
| Purchase of minerals in place | 707 | - | 707 | |||||||||
| Production | (747 | ) | (386 | ) | (1,133 | ) | ||||||
| Net proved reserves at December 31, 2022 | 7,388 | 2,639 | 10,027 | |||||||||
| Net Proved Developed Reserves | ||||||||||||
| December 31, 2021 | 6,669 | 2,240 | 8,909 | |||||||||
| December 31, 2022 | 7,388 | 2,639 | 10,027 | |||||||||
| Total (Mboe) | ||||||||||||
| Kimbell | LongPoint | Pro Forma | ||||||||||
| Net proved reserves at December 31, 2021 | 45,474 | 8,506 | 53,980 | |||||||||
| Revisions of previous estimates | 3,554 | 2,365 | 5,919 | |||||||||
| Purchase of minerals in place | 2,989 | - | 2,989 | |||||||||
| Production | (5,558 | ) | (1,502 | ) | (7,060 | ) | ||||||
| Net proved reserves at December 31, 2022 | 46,459 | 9,369 | 55,828 | |||||||||
| Net Proved Developed Reserves | ||||||||||||
| December 31, 2021 | 45,474 | 8,506 | 53,980 | |||||||||
| December 31, 2022 | 46,459 | 9,369 | 55,828 | |||||||||
Pro Forma Combined Standardized Measure of Discounted Future Net Cash Flows
| (in thousands) | Kimbell | LongPoint | Pro Forma | |||||||||
| Future cash inflows | $ | 2,253,273 | $ | 469,705 | $ | 2,722,978 | ||||||
| Future production costs | (161,676 | ) | (35,733 | ) | (197,409 | ) | ||||||
| Future state margin taxes | (76,322 | ) | (15,853 | ) | (92,175 | ) | ||||||
| Future net cash flows | 2,015,275 | 418,119 | 2,433,394 | |||||||||
| Less 10% annual discount to reflect estimated timing of cash flows | (1,110,980 | ) | (201,647 | ) | (1,312,627 | ) | ||||||
| Standard measure of discounted future net cash flows | $ | 904,295 | $ | 216,472 | $ | 1,120,767 | ||||||
Pro Forma Combined Changes in the Standardized Measure of Discounted Future Net Cash Flows
| (in thousands) | Kimbell | LongPoint | Pro Forma | |||||||||
| Standardized measure, beginning of year | $ | 526,615 | $ | 138,265 | $ | 664,880 | ||||||
| Sales, net of production costs | (252,597 | ) | (76,814 | ) | (329,411 | ) | ||||||
| Net changes of prices and production costs related to future production | 365,427 | 64,584 | 430,011 | |||||||||
| Revisions or previous quantity estimates, net of related costs | 71,776 | 54,646 | 126,422 | |||||||||
| Net changes in state margin taxes | (15,266 | ) | (3,035 | ) | (18,301 | ) | ||||||
| Accretion of discount | 44,280 | 13,826 | 58,106 | |||||||||
| Purchases of reserves in place, less related costs | 77,719 | - | 77,719 | |||||||||
| Timing differences and other | 86,341 | 25,000 | 111,341 | |||||||||
| Standardized measure – end of year | $ | 904,295 | $ | 216,472 | $ | 1,120,767 | ||||||
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