8-K
Kimbell Royalty Partners, LP (KRP)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (date of earliest event reported):February 23, 2023
Kimbell Royalty Partners, LP
(Exact nameof registrant as specified in its charter)
| Delaware | 1-38005 | 47-5505475 |
|---|---|---|
| (State or other jurisdiction<br><br> <br>of incorporation) | (Commission<br><br> <br>File Number) | (I.R.S. Employer<br><br> <br>Identification No.) |
| 777 Taylor Street, Suite 810<br><br> <br>Fort Worth, Texas | 76102 | |
| --- | --- | |
| (Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, includingarea code:
(817
) 945-9700
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2):
| ¨ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
|---|---|
| ¨ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| --- | --- |
| ¨ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| --- | --- |
| ¨ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
| --- | --- |
Securities registered pursuant to 12(b) of the Act:
| Title of each class: | Trading symbol(s): | Name of each exchange on which registered: |
|---|---|---|
| Common Units Representing Limited Partnership Interests | KRP | New York Stock Exchange |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
| Item 2.02. | Results of Operations and Financial Condition. |
|---|
On February 23, 2023, Kimbell Royalty Partners, LP (the “Partnership”) issued a news release announcing its fourth quarter and full year 2022 financial and operating results. A copy of the news release is attached hereto, furnished as Exhibit 99.1 and incorporated in this Item 2.02 by reference.
| Item 7.01. | Regulation FD Disclosure. |
|---|
Also on February 23, 2023, the Partnership posted an updated investor presentation on its website. The presentation, titled “Spring 2023 Investor Presentation,” may be found at http://www.kimbellrp.com under the “Events and Presentations” section under the “Investor Relations” tab on the Partnership’s website. Investors should note that the Partnership announces financial information in filings with the Securities and Exchange Commission, press releases and public conference calls as well as on its website. The Partnership may use the “Investor Relations” and other sections of its website to communicate with investors and it is possible that the financial and other information posted there could be deemed to be material information.
The information contained in Item 2.02, Item 7.01 and the accompanying Exhibit 99.1 shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liability of such section, nor shall such information be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, regardless of the general incorporation language of such filing, except as shall be expressly set forth by specific reference in such filing.
| Item 9.01. | Financial Statements and Exhibits. |
|---|
(d) Exhibits
| Number | Description |
|---|---|
| 99.1 | News release issued by Kimbell Royalty Partners, LP dated February 23, 2023. |
| 104 | Cover Page Interactive Data File (the cover page XBRL tags are embedded within the Inline XBRL document). |
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: February 23, 2023
Exhibit99.1
NEWS RELEASE
KimbellRoyalty Partners Announces Record Fourth Quarter and
FullYear 2022 Results
RecordFull-Year Oil, Natural Gas and Natural Gas Liquids Revenue and Net Income
RecordQ4 22 Run-Rate Daily Production; Post-Hatch Acquisition Quarterly Production Exceeds 17,000 Boe/d (6:1) for First Time
RecordNumber of Net DUCs and Permits; Record Rig Count of 92 Active Rigs Drilling
UpdatedDetailed Portfolio Review Includes 10,763 Gross and 66.94 Net Major Upside Locations*^1^** and Estimated 19 Years of DrillingInventory**^2^***
SuperiorFive-Year Annual Average PDP Decline Rate of 12% Requires Only an Estimated 4.5 Net Wells Annually to Maintain Flat Production
Increasein Borrowing Base on Secured Revolving Credit Facility to $350 Million; Conservative Balance Sheet with Net Debt to Trailing Twelve MonthConsolidated Adjusted EBITDA of 0.9x
AnnouncesQ4 2022 Cash Distribution of $0.48 per Common Unit
FORTWORTH, Texas, February 23, 2023 – Kimbell Royalty Partners, LP (NYSE: KRP) (“Kimbell” or the “Company”), a leading owner of oil and natural gas mineral and royalty interests in over 124,000 gross wells across 28 states, today announced financial and operating results for the quarter ended and year ended December 31, 2022.
FourthQuarter 2022 Highlights
| · | Record<br> Q4 2022 run-rate daily production of 15,394 barrels of oil equivalent (“Boe”)<br> per day (6:1) |
|---|---|
| · | Includes<br> 17 days of production from the Company’s $270.7 million acquisition of mineral and<br> royalty interests held by Austin-based Hatch Royalty LLC (the “Acquired Production”)<br> that closed on December 15, 2022 |
| --- | --- |
| · | Including<br> a full Q4 2022 impact of the Acquired Production, the revenues from which will be received<br> by the Company, run-rate production was 17,176 Boe per day (6:1) |
| --- | --- |
| · | Q4<br> 2022 oil, natural gas and NGL revenues of $64.4 million, a decrease of 12.8% from Q3 2022,<br> primarily attributable to a decline in realized commodity prices |
| --- | --- |
^1^These figures include Kimbell's major properties and do not include locations from Kimbell's minor properties, which generally include properties with less than a 0.1% net revenue interest and are time consuming to quantify, but in the estimation of Kimbell's management could add up to an additional 20% to Kimbell's net inventory in the aggregate.
^2^Based on estimated major and minor upside net locations of 83.68 divided by estimated 4.5 net wells completed per year to maintain flat production.
Kimbell Royalty Partners, LP – News Release
Page 2
| · | Q4<br> 2022 net income of approximately $35.2 million and net income attributable to common units<br> of approximately $28.4 million, as compared to $43.8 million and $38.3 million, respectively,<br> from Q3 2022 |
|---|---|
| · | Q4<br> 2022 consolidated Adjusted EBITDA of $46.2 million, as compared to $47.5 million in Q3 2022 |
| --- | --- |
| · | As<br> of December 31, 2022, Kimbell’s major properties^3^had 6.94 net drilled<br> but uncompleted wells (“DUCs”) and net permitted locations on its acreage (3.67<br> net DUCs and 3.27 net permitted locations), a new record, compared to an estimated 4.5 net<br> wells needed to maintain flat production |
| --- | --- |
| · | As<br> of December 31, 2022, Kimbell had a record 92 rigs actively drilling on its acreage,<br> up from 79 rigs in Q3 2022 and representing 12.1%^4^market share of all rigs<br> drilling in the continental United States as of such time |
| --- | --- |
| · | On<br> December 15, 2022, the borrowing base and aggregate commitments on Kimbell's secured<br> revolving credit facility were increased from $300 million to $350 million in connection<br> with its fall redetermination |
| --- | --- |
| · | Announced<br> a Q4 2022 cash distribution of $0.48 per common unit, reflecting a payout ratio of 75% of<br> cash available for distribution; implies a 13.2% annualized yield based on the February 22,<br> 2023 closing price of $14.59 per common unit; Kimbell intends to utilize the remaining<br> 25% of its cash available for distribution to repay a portion of the outstanding borrowings<br> under Kimbell’s revolving credit facility |
| --- | --- |
| · | Initiated<br> 2023 guidance with estimated daily production at is mid-point projected at 17,200 Boe/d for<br> the year; oil-weighting projected to increase relative to 2022 guidance provided in the Q4<br> 2021 earnings release due to the Acquired Production in the Permian Basin |
| --- | --- |
Robert Ravnaas, Chairman and Chief Executive Officer of Kimbell Royalty GP, LLC, Kimbell’s general partner (the “General Partner”), commented, “2022 was another very strong year for Kimbell, which included several new records for revenue, EBITDA, distributable cash flow per unit and net income during the year. In addition, we completed a highly attractive and accretive acquisition in one of the highest quality and most active parts of the Permian Basin in December, which reestablished the Permian as the leading basin for the Company in terms of production, active rig count, DUCs, permits and undrilled inventory. Furthermore, the borrowing base and elected commitment on the Company’s revolving credit facility increased to $350 million, further enhancing our liquidity and conservative capital structure. In fact, the Company’s leverage ratio is now at the lowest level it has been in years at 0.9x Net Debt to trailing twelve month consolidated Adjusted EBITDA. Finally, the Company paid out $1.88 in tax-advantaged quarterly distributions during 2022 and paid down approximately $41.5 million on its credit facility by allocating 25% of cash available for distribution for debt-paydown.
“Reflecting on our growth since our IPO, we have now grown production from 3,116 Boe/d to 17,176 Boe/d, an increase of 451%. We expect to continue our role as a major consolidator in the highly fragmented U.S. oil and natural gas royalty sector, which we estimate to be over $700 billion in size. And, as I have stated in the past, there are only a handful of public entities in the U.S. and Canada that have the financial resources, infrastructure, network and technical expertise to complete large-scale, multi-basin acquisitions. We believe that we are still in the early stages of this consolidation and will actively seek out targets that fit within our acquisition profile.”
^3^These figures pertain only to Kimbell's major properties and do not include possible additional DUCs and permits from Kimbell's minor properties, which generally have a net revenue interest of 0.1% or below and are time consuming to quantify but, in the estimation of Kimbell's management, could add an additional 20% to Kimbell’s net inventory.
^4^Based on Kimbell rig count of 92 and Baker Hughes U.S. land rig count of 762 as of December 31, 2022.
Kimbell Royalty Partners, LP – News Release
Page 3
“While the U.S. rig count increased during the year and is now approaching pre-COVID levels, we do not expect much in the way of significant oil production growth from U.S. operators. A primary reason for this is that the number of DUCs in the U.S., one of the best indicators for near-term production growth, has dropped precipitously since 2020. In fact, in the Permian Basin alone, DUCs have dropped from a peak of over 3,500 in July 2020 to just over 1,000 today – levels not seen since 2015. While many companies will focus on replenishing their DUC inventories in the short-term, we believe that inflationary pressures in the drilling, completion and labor side of their businesses will continue to temper oil production growth during 2023. Production stability, profitability and quality of inventory will continue to be the primary themes of energy investing rather than the hyper-growth models of the past. With our high-quality, low-PDP decline and diversified royalty portfolio with substantial upside drilling locations, Kimbell was built for these conditions. We are very excited about the opportunities to expand in the future and deliver unitholder value for years to come.”
FourthQuarter 2022 Distribution and Debt Repayment
Today, the Board of Directors of the General Partner (the “Board of Directors”) approved a cash distribution payment to common unitholders of 75% of cash available for distribution for the fourth quarter of 2022, or $0.48 per common unit. The distribution will be payable on March 16, 2023 to common unitholders of record at the close of business on March 9, 2023. Kimbell plans to utilize the remaining 25% of cash available for distribution for the fourth quarter of 2022 to pay down a portion of the outstanding borrowings under its secured revolving credit facility. Since May 2020 (excluding the expected upcoming pay-down from the remaining 25% of Q4 2022 projected cash available for distribution), Kimbell has paid down approximately $86.1 million of outstanding borrowings under its secured revolving credit facility by allocating a portion of its cash available for distribution for debt pay-down.
Kimbell expects that approximately 68% of its fourth quarter 2022 distribution should not constitute dividends for U.S. federal income tax purposes, but instead are estimated to constitute non-taxable reductions to the basis of each distribution recipient’s ownership interest in Kimbell common units. The reduced tax basis will increase unitholders’ capital gain (or decrease unitholders’ capital loss) when unitholders sell their common units. The Form 8937 containing additional information may be found at www.kimbellrp.com under “Investor Relations” section of the site. Kimbell currently believes that the portion that constitute dividends for U.S. federal income tax purposes will be considered qualified dividends, subject to holding period and certain other conditions, which are subject to a tax rate of 0%, 15% or 20% depending on the income level and tax filing status of a unitholder for 2023. Kimbell believes these estimates are reasonable based on currently available information, but they are subject to change.
Kimbell Royalty Partners, LP – News Release
Page 4
FinancialHighlights
Kimbell’s fourth quarter 2022 average realized price per Bbl of oil was $82.04, per Mcf of natural gas was $5.02, per Bbl of NGLs was $30.55 and per Boe combined was $43.65.
During the fourth quarter of 2022, the Company’s total revenues were $68.7 million, net income was approximately $35.2 million and net income attributable to common units was approximately $28.4 million, or $0.48 per common unit.
Total fourth quarter 2022 consolidated Adjusted EBITDA was $46.2 million (consolidated Adjusted EBITDA is a non-GAAP financial measure.Please see a reconciliation to the nearest GAAP financial measures at the end of this news release).
In the fourth quarter of 2022, G&A expense was $7.2 million, $4.2 million of which was Cash G&A expense, or $2.97 per Boe (Cash G&A and Cash G&A per Boe are non-GAAP financial measures. Please see definition under Non-GAAP Financial Measuresin the Supplemental Schedules included in this news release). Unit-based compensation in the fourth quarter of 2022, which is a non-cash G&A expense, was $3.0 million or $2.11 per Boe.
On December 15, 2022, the borrowing base and aggregate commitments under its secured revolving credit facility were increased from $300 million to $350 million in connection with its fall redetermination.
As of December 31, 2022, Kimbell had approximately $233.0 million in debt outstanding under its secured revolving credit facility, had net debt to fourth quarter 2022 trailing twelve month consolidated Adjusted EBITDA of approximately 0.9x and was in compliance with all financial covenants under its secured revolving credit facility. Kimbell had approximately $117.0 million in undrawn capacity under its secured revolving credit facility as of December 31, 2022.
As of December 31, 2022, Kimbell had outstanding 64,231,833 common units and 15,484,400 Class B units. As of February 23, 2023, Kimbell had outstanding 65,229,995 common units and 15,484,400 Class B units.
Production
Fourth quarter 2022 average daily run-rate production was 15,394 Boe per day (6:1) and was composed of approximately 61% from natural gas (6:1) and approximately 39% from liquids (26% from oil and 13% from NGLs). Including a full Q4 2022 impact of the Acquired Production, the revenues from which will be received by the Company, run-rate production was 17,176 Boe per day (6:1).
OperationalUpdate
As of December 31, 2022, Kimbell’s major properties had 882 gross (3.67 net) DUCs and 675 gross (3.27 net) permitted locations on its acreage. In addition, as of December 31, 2022, Kimbell had 92 rigs actively drilling on its acreage, which represents an approximate 12.1% market share of all land rigs drilling in the continental United States as of such time.
Kimbell Royalty Partners, LP – News Release
Page 5
| Basin | Gross DUCs as of December 31, 2022^(1)^ | Gross Permits as of December 31, 2022^(1)^ | Net DUCs as of December 31, 2022^(1)^ | Net Permits as of December 31, 2022^(1)^ | ||||
|---|---|---|---|---|---|---|---|---|
| Permian | 455 | 365 | 1.55 | 1.60 | ||||
| Eagle<br> Ford | 82 | 62 | 0.63 | 0.52 | ||||
| Haynesville | 102 | 45 | 0.89 | 0.55 | ||||
| Mid-Continent | 110 | 52 | 0.27 | 0.12 | ||||
| Bakken | 102 | 132 | 0.23 | 0.35 | ||||
| Appalachia | 6 | 9 | 0.01 | 0.02 | ||||
| Rockies | 25 | 10 | 0.09 | 0.11 | ||||
| Total | 882 | 675 | 3.67 | 3.27 |
^(1)^These figures pertain only to Kimbell's major properties and do not include possible additional DUCs and permits from Kimbell's minor properties, which generally have a net revenue interest of 0.1% or below and are time consuming to quantify but, in the estimation of Kimbell's management, could add an additional 20% to Kimbell's net inventory.
Reserves
Ryder Scott Company, L.P. prepared an estimate of Kimbell’s proved reserves as of December 31, 2022. Average prices of $93.67 per barrel of oil and $6.36 per MMBtu of natural gas were used in accordance with applicable rules of the Securities and Exchange Commission (the “SEC”). Realized prices with applicable differentials were $90.94 per barrel of oil, $5.37 per Mcf of natural gas and $36.42 per barrel of NGLs.
Proved developed reserves at year-end 2022 increased by approximately 2% year-over-year to over 46 MMBoe, reflecting the acquisitions Kimbell made during the year along with continued development by the operators of Kimbell’s acreage.
| Crude<br> Oil and<br><br> Condensate<br><br> (MBbls) | Natural<br> Gas<br><br> (MMcf) | Natural<br> Gas<br><br> Liquids (MBbls) | Total<br> (MBOE) | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Net<br> proved developed reserves at December 31, 2021 | 12,511 | 157,764 | 6,669 | 45,474 | ||||||||
| Revisions<br> of previous estimates | (58 | ) | 17,119 | 759 | 3,554 | |||||||
| Purchases<br> of minerals in place | 1,328 | 5,726 | 707 | 2,989 | ||||||||
| Production | (1,426 | ) | (20,311 | ) | (747 | ) | (5,558 | ) | ||||
| Net<br> proved developed reserves at December 31, 2022 | 12,355 | 160,298 | 7,388 | 46,459 |
Resultsof Updated Portfolio Review
Kimbell completed an updated review of its portfolio including the Acquired Production, which as of December 31, 2022, identified 10,763 gross and 66.94 net (100% NRI) major total upside drilling locations. These locations only include Kimbell's major properties and do not include Kimbell's minor properties, which generally have less than a 0.1% net revenue interest and are time consuming to quantify, but in the estimation of Kimbell's management could add up to an additional 20% to Kimbell's net inventory in the aggregate. Including both the estimated major and minor upside locations, the Company believes it has a total of 83.68 net locations, or approximately 19 years of drilling inventory based on 4.5 net wells per year needed to maintain flat production.
Kimbell Royalty Partners, LP – News Release
Page 6
Approximately 79% of the total estimated undrilled net inventory is located in the Permian, Eagle Ford and Haynesville, which have some of the best economic returns and lowest break-even costs in the U.S. In addition, Kimbell's superior five-year average PDP decline rate of only 12% requires only an estimated 4.5 net wells each year to keep production flat.
| Basin | Gross Major Locations as of December 31, 2022^(1)^ | Net Major Locations as of December 31, 2022^(1)^ | Avg. Gross Horizontal Wells/DSU^(2)^ | |||
|---|---|---|---|---|---|---|
| Permian | 4,190 | 23.71 | 12.0 | |||
| Eagle<br> Ford | 1,672 | 15.50 | 6.9 | |||
| Haynesville | 1,093 | 13.76 | 5.9 | |||
| Mid-Continent | 1,402 | 6.36 | 6.8 | |||
| Bakken | 1,956 | 3.98 | 8.5 | |||
| Appalachia | 251 | 2.16 | 7.6 | |||
| Rockies | 199 | 1.47 | 10.5 | |||
| Total | 10,763 | 66.94 | 8.3 |
^(1)^Locations include permits, proven undeveloped (PUD), probable, and possible (per SPE-PRMS reserve definitions based on interenal reserves database as of December 31, 2022). In addition, these figures pertain only to Kimbell's major properties and do not include additional locations from Kimbell's minor properties, which generally have a net revenue interest of 0.1% or below and are time consuming to quantify, but in the estimation of Kimbell's management, could add an additional 20% to Kimbell's net inventory in the aggregate.
^(2)^Gross horizontal wells per drilling spacing unit (“DSU”) from internal reserves database as of December 31, 2022. DSUs vary in size.
Kimbell Royalty Partners, LP – News Release
Page 7
HedgingUpdate
The following provides information concerning Kimbell’s hedge book as of December 31, 2022:
| Fixed<br> Price Swaps as of December 31, 2022 | ||||||
|---|---|---|---|---|---|---|
| Weighted<br> Average | ||||||
| Volumes | Fixed<br> Price | |||||
| Oil | Nat<br> Gas | Oil | Nat<br> Gas | |||
| BBL | MMBTU | /BBL | /MMBTU | |||
| 1Q<br> 2023 | 91,854 | 1,204,308 | ||||
| 2Q<br> 2023 | 70,889 | 998,179 | ||||
| 3Q<br> 2023 | 72,680 | 1,047,880 | ||||
| 4Q<br> 2023 | 67,988 | 995,532 | ||||
| 1Q<br> 2024 | 54,509 | 823,186 | ||||
| 2Q<br> 2024 | 56,511 | 809,354 | ||||
| 3Q<br> 2024 | 48,576 | 785,588 | ||||
| 4Q<br> 2024 | 68,448 | 811,164 |
All values are in US Dollars.
2023Guidance
Kimbell is providing financial and operational guidance ranges for 2023 as follows:
| 2023 | ||
| Net Production - Mboe/d (6:1) | - | 18.1 |
| Oil Production - % of Net Production | - | 30% |
| Natural Gas Production - % of Net Production | - | 60% |
| Natural Gas Liquids Production - % of Net Production | - | 16% |
| Unit Costs (/boe) | ||
| Marketing and other deductions | - | $2.90 |
| Depreciation, depletion and accretion expenses | - | $10.00 |
| G&A | ||
| Cash G&A | - | $3.10 |
| Non-Cash G&A | - | $2.40 |
| Production and ad valorem taxes - % of Oil, Natural Gas and NGL Revenues | - | 8.0% |
| Payout Ratio (1) | 75% |
All values are in US Dollars.
(1) The Company intends to pay out 75% of its projected cash available for distribution in quarterly distributions and utilize 25% of projected cash available for distribution to pay down a portion of the outstanding borrowings under its secured revolving credit facility each quarter.
Kimbell Royalty Partners, LP – News Release
Page 8
ConferenceCall
Kimbell Royalty Partners will host a conference call and webcast today at 10:00 a.m. Central Time (11:00 a.m. Eastern Time) to discuss fourth quarter 2022 results. To access the call live by phone, dial 201-389-0869 and ask for the Kimbell Royalty Partners call at least 10 minutes prior to the start time. A telephonic replay will be available through March 2, 2023 by dialing 201-612-7415 and using the conference ID 13734773#. A webcast of the call will also be available live and for later replay on Kimbell’s website at http://kimbellrp.investorroom.com under the Events and Presentations tab.
Presentation
On February 23, 2023, Kimbell posted an updated investor presentation on its website. The presentation may be found at http://kimbellrp.investorroom.com under the Events and Presentations tab. Information on Kimbell’s website does not constitute a portion of this news release.
AboutKimbell Royalty Partners, LP
Kimbell (NYSE: KRP) is a leading oil and gas mineral and royalty company based in Fort Worth, Texas. Kimbell owns mineral and royalty interests in over 16 million gross acres in 28 states and in every major onshore basin in the continental United States, including ownership in more than 124,000 gross wells. To learn more, visit http://www.kimbellrp.com.
Forward-LookingStatements
Thisnews release includes forward-looking statements, in particular statements relating to Kimbell’s financial, operating and productionresults and prospects for growth, drilling inventory, growth potential, identified locations and all other estimates and predictionsresulting from Kimbell’s portfolio review, the tax treatment of Kimbell's distributions, changes in Kimbell’s capital structure,future natural gas and other commodity prices and changes to supply and demand for oil, natural gas and NGLs. These and other forward-lookingstatements involve risks and uncertainties, including risks that the anticipated benefits of acquisitions are not realized and uncertaintiesrelating to Kimbell’s business, prospects for growth and acquisitions and the securities markets generally, as well as risks inherentin oil and natural gas drilling and production activities, including risks with respect to potential declines in prices for oil and naturalgas that could result in downward revisions to the value of proved reserves or otherwise cause operators to delay or suspend planneddrilling and completion operations or reduce production levels, which would adversely impact cash flow, risks relating to the impairmentof oil and natural gas properties, risks relating to the availability of capital to fund drilling operations that can be adversely affectedby adverse drilling results, production declines and declines in oil and natural gas prices, risks relating to Kimbell’s abilityto meet financial covenants under its credit agreement or its ability to obtain amendments or waivers to effect such compliance, risksrelating to Kimbell’s hedging activities, risks of fire, explosion, blowouts, pipe failure, casing collapse, unusual or unexpectedformation pressures, environmental hazards, and other operating and production risks, which may temporarily or permanently reduce productionor cause initial production or test results to not be indicative of future well performance or delay the timing of sales or completionof drilling operations, risks relating to delays in receipt of drilling permits, risks relating to unexpected adverse developments inthe status of properties, risks relating to borrowing base redeterminations by Kimbell’s lenders, risks relating to the absenceor delay in receipt of government approvals or third-party consents, risks relating to acquisitions, dispositions and drop downs of assets,risks relating to Kimbell's ability to realize the anticipated benefits from and to integrate acquired assets, including the AcquiredProduction, risks relating to tax matters, and other risks described in Kimbell's Annual Report on Form 10-K and other filings withthe Securities and Exchange Commission (the “SEC”), available at the SEC's website at www.sec.gov. You are cautioned notto place undue reliance on these forward-looking statements, which speak only as of the date of this news release. Except as requiredby law, Kimbell undertakes no obligation and does not intend to update these forward-looking statements to reflect events or circumstancesoccurring after this news release. When considering these forward-looking statements, you should keep in mind the risk factors and othercautionary statements in Kimbell's filings with the SEC.
Kimbell Royalty Partners, LP – News Release
Page 9
Contact:
Rick Black
Dennard Lascar Investor Relations
krp@dennardlascar.com
(713) 529-6600
– Financial statements follow –
Kimbell Royalty Partners, LP – News Release
Page 10
KimbellRoyalty Partners, LP
CondensedConsolidated Balance Sheet
(Unaudited,in thousands)
| December 31, | |||
|---|---|---|---|
| 2022 | |||
| Assets: | |||
| Current<br> assets | |||
| Cash<br> and cash equivalents | $ | 24,636 | |
| Oil,<br> natural gas and NGL receivables | 46,993 | ||
| Accounts<br> receivable and other current assets | 3,563 | ||
| Total<br> current assets | 75,192 | ||
| Property<br> and equipment, net | 954 | ||
| Oil<br> and natural gas properties | |||
| Oil<br> and natural gas properties (full cost method) | 1,465,986 | ||
| Less:<br> accumulated depreciation, depletion and impairment | (712,717 | ) | |
| Total<br> oil and natural gas properties, net | 753,269 | ||
| Right-of-use<br> assets, net | 2,525 | ||
| Derivative<br> assets | 755 | ||
| Loan<br> origination costs, net | 3,004 | ||
| Assets<br> of consolidated variable interest entities: | |||
| Cash | 391 | ||
| Investments<br> held in trust | 240,621 | ||
| Prepaid<br> expenses | 35 | ||
| Total<br> assets | $ | 1,076,746 | |
| Liabilities<br> and unitholders' equity: | |||
| Current<br> liabilities | |||
| Accounts<br> payable | $ | 1,210 | |
| Other<br> current liabilities | 4,910 | ||
| Derivative<br> liabilities | 12,647 | ||
| Total<br> current liabilities | 18,767 | ||
| Operating<br> lease liabilities, excluding current portion | 2,236 | ||
| Derivative<br> liabilities | 432 | ||
| Long-term<br> debt | 233,016 | ||
| Other<br> liabilities | 323 | ||
| Liabilities<br> of consolidated variable interest entities: | |||
| Other<br> current liabilities | 513 | ||
| Deferred<br> underwriting commissions | 8,050 | ||
| Total<br> liabilities | 263,337 | ||
| Commitments<br> and contingencies | |||
| Mezzanine<br> equity: | |||
| Redeemable<br> noncontrolling interest in Kimbell Tiger Acquisition Corporation | 236,900 | ||
| Kimbell<br> Royalty Partners, LP unitholders' equity: | |||
| Common<br> units | 601,842 | ||
| Class B<br> units | 774 | ||
| Total<br> Kimbell Royalty Partners, LP unitholders' equity | 602,616 | ||
| Noncontrolling<br> deficit interest in OpCo | (26,107 | ) | |
| Total<br> equity | 576,509 | ||
| Total<br> liabilities, mezzanine equity and unitholders' equity | $ | 1,076,746 |
Kimbell Royalty Partners, LP – News Release
Page 11
KimbellRoyalty Partners, LP
CondensedConsolidated Statements of Operations
(Unaudited,in thousands, except per-unit data and unit counts)
| Three<br> Months Ended | Three<br> Months Ended | |||||
|---|---|---|---|---|---|---|
| December 31,<br> 2022 | December 31,<br> 2021 | |||||
| Revenue | ||||||
| Oil,<br> natural gas and NGL revenues | $ | 64,421 | $ | 52,243 | ||
| Lease<br> bonus and other income | 1,034 | 306 | ||||
| Gain<br> on commodity derivative instruments, net | 3,216 | 3,128 | ||||
| Total<br> revenues | 68,671 | 55,677 | ||||
| Costs<br> and expenses | ||||||
| Production<br> and ad valorem taxes | 2,697 | 2,380 | ||||
| Depreciation<br> and depletion expense | 16,726 | 11,721 | ||||
| Marketing<br> and other deductions | 2,744 | 3,206 | ||||
| General<br> and administrative expenses | 7,190 | 6,730 | ||||
| Consolidated<br> variable interest entities related: | ||||||
| General<br> and administrative expenses | 447 | — | ||||
| Total<br> costs and expenses | 29,804 | 24,037 | ||||
| Operating<br> income | 38,867 | 31,640 | ||||
| Other<br> income (expense) | ||||||
| Equity<br> (loss) income in affiliate | (989 | ) | 400 | |||
| Interest<br> expense | (3,950 | ) | (2,489 | ) | ||
| Other<br> income | — | 1,247 | ||||
| Consolidated<br> variable interest entities related: | ||||||
| Interest<br> earned on marketable securities in trust account | 2,208 | — | ||||
| Net<br> income before income taxes | 36,136 | 30,798 | ||||
| Income<br> tax expense | 888 | 74 | ||||
| Net<br> income | 35,248 | 30,724 | ||||
| Distribution<br> and accretion on Series A preferred units | — | (3,244 | ) | |||
| Net<br> income attributable to noncontrolling interests | (6,847 | ) | (7,472 | ) | ||
| Distributions<br> on Class B units | (8 | ) | (18 | ) | ||
| Net<br> income attributable to common units of Kimbell Royalty Partners, LP | $ | 28,393 | $ | 19,990 | ||
| Basic | $ | 0.48 | $ | 0.46 | ||
| Diluted | $ | 0.48 | $ | 0.44 | ||
| Weighted<br> average number of common units outstanding | ||||||
| Basic | 59,484,641 | 43,371,258 | ||||
| Diluted | 69,913,842 | 62,713,187 |
Kimbell Royalty Partners, LP – News Release
Page 12
KimbellRoyalty Partners, LP
CondensedConsolidated Statements of Operations
(Unaudited,in thousands, except per-unit data and unit counts)
| Year<br> Ended | Year<br> Ended | |||||
|---|---|---|---|---|---|---|
| December 31,<br> 2022 | December 31,<br> 2021 | |||||
| Revenue | ||||||
| Oil,<br> natural gas and NGL revenues | $ | 281,964 | $ | 175,088 | ||
| Lease<br> bonus and other income | 3,074 | 3,319 | ||||
| Loss<br> on commodity derivative instruments, net | (36,979 | ) | (42,792 | ) | ||
| Total<br> revenues | 248,059 | 135,615 | ||||
| Costs<br> and expenses | ||||||
| Production<br> and ad valorem taxes | 16,239 | 10,480 | ||||
| Depreciation<br> and depletion expense | 50,086 | 36,798 | ||||
| Marketing<br> and other deductions | 13,383 | 12,049 | ||||
| General<br> and administrative expenses | 29,129 | 26,978 | ||||
| Consolidated<br> variable interest entities related: | ||||||
| General<br> and administrative expenses | 2,304 | — | ||||
| Total<br> costs and expenses | 111,141 | 86,305 | ||||
| Operating<br> income | 136,918 | 49,310 | ||||
| Other<br> income (expense) | ||||||
| Equity<br> income in affiliate | 2,669 | 1,120 | ||||
| Interest<br> expense | (13,818 | ) | (9,182 | ) | ||
| Other<br> income | 4,043 | 1,264 | ||||
| Consolidated<br> variable interest entities related: | ||||||
| Interest<br> earned on marketable securities in trust account | 3,721 | — | ||||
| Net<br> income before income taxes | 133,533 | 42,512 | ||||
| Income<br> tax expense | 2,739 | 74 | ||||
| Net<br> income | 130,794 | 42,438 | ||||
| Distribution<br> and accretion on Series A preferred units | — | (11,250 | ) | |||
| Net<br> income attributable to noncontrolling interests | (18,823 | ) | (8,496 | ) | ||
| Distributions<br> on Class B units | (42 | ) | (77 | ) | ||
| Net<br> income attributable to common units of Kimbell Royalty Partners, LP | $ | 111,929 | $ | 22,615 | ||
| Basic | $ | 1.75 | $ | 0.56 | ||
| Diluted | $ | 1.72 | $ | 0.51 | ||
| Weighted<br> average number of common units outstanding | ||||||
| Basic | 54,112,595 | 40,400,907 | ||||
| Diluted | 65,837,017 | 60,957,824 |
Kimbell Royalty Partners, LP – News Release
Page 13
KimbellRoyalty Partners, LPSupplemental Schedules
NON-GAAPFINANCIAL MEASURES
Adjusted EBITDA, Cash G&A and Cash G&A per Boe are used as supplemental non-GAAP financial measures by management and external users of Kimbell’s financial statements, such as industry analysts, investors, lenders and rating agencies. Kimbell believes Adjusted EBITDA is useful because it allows us to more effectively evaluate Kimbell’s operating performance and compare the results of Kimbell’s operations period to period without regard to its financing methods or capital structure. In addition, management uses Adjusted EBITDA to evaluate cash flow available to pay distributions to Kimbell’s unitholders. Kimbell defines Adjusted EBITDA as net income (loss), net of depreciation and depletion expense, interest expense, income taxes, non cash unit based compensation, unrealized gains and losses on derivative instruments, cash distribution from affiliate, equity income (loss) in affiliate, gains and losses on sales of assets and operational impacts of variable interest entities, which include general and administrative expense and interest income. Adjusted EBITDA is not a measure of net income (loss) or net cash provided by operating activities as determined by GAAP. Kimbell excludes the items listed above from net income (loss) in arriving at Adjusted EBITDA because these amounts can vary substantially from company to company within Kimbell’s industry depending upon accounting methods and book values of assets, capital structures and the method by which the assets were acquired. Certain items excluded from Adjusted EBITDA are significant components in understanding and assessing a company's financial performance, such as a company's cost of capital and tax structure, as well as historic costs of depreciable assets, none of which are components of Adjusted EBITDA. Adjusted EBITDA should not be considered an alternative to net income, oil, natural gas and natural gas liquids revenues, net cash provided by operating activities or any other measure of financial performance or liquidity presented in accordance with GAAP. Kimbell’s computations of Adjusted EBITDA may not be comparable to other similarly titled measures of other companies. Kimbell expects that cash available for distribution for each quarter will generally equal its Adjusted EBITDA for the quarter, less cash needed for debt service and other contractual obligations, tax obligations, and fixed charges and reserves for future operating or capital needs that the Board of Directors may determine is appropriate.
Kimbell believes Cash G&A and Cash G&A per Boe are useful metrics because they isolate cash costs within overall G&A expense and measure cash costs relative to overall production, which is a widely utilized metric to evaluate operational performance within the energy sector. Cash G&A is defined as general and administrative expenses less unit-based compensation expense. Cash G&A per Boe is defined as Cash G&A divided by total production for a period. Cash G&A should not be considered an alternative to G&A expense presented in accordance with GAAP. Kimbell’s computations of Cash G&A and Cash G&A per Boe may not be comparable to other similarly titled measures of other companies.
Kimbell Royalty Partners, LP – News Release
Page 14
KimbellRoyalty Partners, LP
SupplementalSchedules
(Unaudited,in thousands)
| Three<br> Months Ended | Three<br> Months Ended | |||||
|---|---|---|---|---|---|---|
| December 31,<br> 2022 | December 31,<br> 2021 | |||||
| Reconciliation<br> of net cash provided by operating activities to Adjusted EBITDA and cash available for distribution | ||||||
| Net<br> cash provided by operating activities | $ | 38,631 | $ | 22,360 | ||
| Interest<br> expense | 3,950 | 2,489 | ||||
| Income<br> tax expense | 888 | 74 | ||||
| Amortization<br> of right-of-use assets | (82 | ) | (77 | ) | ||
| Amortization<br> of loan origination costs | (491 | ) | (409 | ) | ||
| Equity<br> (loss) income in affiliate | (989 | ) | 400 | |||
| Unit-based<br> compensation | (2,982 | ) | (2,436 | ) | ||
| Gain<br> on derivative instruments, net of settlements | 13,029 | 14,626 | ||||
| Changes<br> in operating assets and liabilities: | ||||||
| Oil,<br> natural gas and NGL revenues receivable | 606 | 4,464 | ||||
| Accounts<br> receivable and other current assets | 967 | 1,557 | ||||
| Accounts<br> payable | (336 | ) | 218 | |||
| Other<br> current liabilities | 1,509 | 2,016 | ||||
| Operating<br> lease liabilities | 84 | 78 | ||||
| Consolidated<br> variable interest entities related: | ||||||
| Interest<br> earned on marketable securities in Trust Account | 2,208 | — | ||||
| Other<br> assets and liabilities | (180 | ) | — | |||
| Consolidated<br> EBITDA | $ | 56,812 | $ | 45,360 | ||
| Add: | ||||||
| Unit-based<br> compensation | 2,982 | 2,436 | ||||
| Gain<br> on derivative instruments, net of settlements | (13,029 | ) | (14,626 | ) | ||
| Cash<br> distribution from affiliate | 171 | — | ||||
| Equity<br> loss (income) in affiliate | 989 | (400 | ) | |||
| Consolidated<br> variable interest entities related: | ||||||
| Interest<br> earned on marketable securities in Trust Account | (2,208 | ) | — | |||
| General<br> and administrative expenses | 447 | — | ||||
| Consolidated<br> Adjusted EBITDA | $ | 46,164 | $ | 32,770 | ||
| Adjusted<br> EBITDA attributable to noncontrolling interest | (8,967 | ) | (8,910 | ) | ||
| Adjusted<br> EBITDA attributable to Kimbell Royalty Partners, LP | $ | 37,197 | $ | 23,860 | ||
| Adjustments<br> to reconcile Adjusted EBITDA to cash available for distribution | ||||||
| Less: | ||||||
| Cash<br> interest expense | 2,558 | 1,524 | ||||
| Cash<br> income tax expense | 15 | — | ||||
| Cash<br> distributions on Series A preferred units | — | 318 | ||||
| Restricted<br> units repurchased for tax withholding | — | 670 | ||||
| Distributions<br> on Class B units | 8 | 18 | ||||
| Cash<br> available for distribution on common units | $ | 34,616 | $ | 21,330 |
Kimbell Royalty Partners, LP – News Release
Page 15
Kimbell Royalty Partners, LP
Supplemental Schedules
(Unaudited, in thousands, except for per-unitdata and unit counts)
| Three Months Ended | |||
|---|---|---|---|
| December 31, 2022 | |||
| Net income | $ | 35,248 | |
| Depreciation and depletion expense | 16,726 | ||
| Interest expense | 3,950 | ||
| Income tax expense | 888 | ||
| Consolidated EBITDA | $ | 56,812 | |
| Unit-based compensation | 2,982 | ||
| Gain on derivative instruments, net of settlements | (13,029 | ) | |
| Cash distribution from affiliate | 171 | ||
| Equity loss in affiliate | 989 | ||
| Consolidated variable interest entities related: | |||
| Interest earned on marketable securities in Trust Account | (2,208 | ) | |
| General and administrative expenses | 447 | ||
| Consolidated Adjusted EBITDA | $ | 46,164 | |
| Adjusted EBITDA attributable to noncontrolling interest | (8,967 | ) | |
| Adjusted EBITDA attributable to Kimbell Royalty Partners, LP | $ | 37,197 | |
| Adjustments to reconcile Adjusted EBITDA to cash<br> available for distribution | |||
| Less: | |||
| Cash interest expense | 2,558 | ||
| Cash income tax expense | 15 | ||
| Distributions on Class B units | 8 | ||
| Cash available for distribution on common units | $ | 34,616 | |
| Common units outstanding on December 31, 2022 | 64,231,833 | ||
| Cash available for distribution per common unit outstanding | $ | 0.53 | |
| Common units outstanding on March 9, 2023 Record Date | 65,229,995 | ||
| Fourth quarter 2022 distribution declared ^(1)^ | $ | 0.48 |
(1) The difference between the declared distribution and the cash available for distribution is primarily attributable to Kimbell allocating 25% of cash available for distribution to pay outstanding borrowings under its secured revolving credit facility. Additionally, Kimbell utilized cash flows received from the Q4 2022 Acquired Production after the effective date of October 1, 2022, but prior to the closing date of December 15, 2022, to pay outstanding borrowings under its credit facility and to distribute the additional cash flows to common unitholders. Revenues, production and other financial and operating results from the Q4 2022 acquisition are reflected in Kimbell's condensed consolidated financial statements from December 15, 2022 onward.
Kimbell Royalty Partners, LP – News Release
Page 16
Kimbell Royalty Partners, LP
Supplemental Schedules
(Unaudited, in thousands, except for per-unitdata and unit counts)
| Three Months Ended | |||
|---|---|---|---|
| December 31, 2021 | |||
| Net income | $ | 30,724 | |
| Depreciation and depletion expense | 11,721 | ||
| Interest expense | 2,489 | ||
| Cash distribution from affiliate | 352 | ||
| Income tax expense | 74 | ||
| Consolidated EBITDA | $ | 45,360 | |
| Unit-based compensation | 2,436 | ||
| Gain on commodity derivative instruments, net of settlements | (14,626 | ) | |
| Equity income in affiliate | (400 | ) | |
| Consolidated Adjusted EBITDA | $ | 32,770 | |
| Adjusted EBITDA attributable to noncontrolling interest | (8,910 | ) | |
| Adjusted EBITDA attributable to Kimbell Royalty Partners, LP | $ | 23,860 | |
| Adjustments to reconcile Adjusted EBITDA to cash<br> available for distribution | |||
| Less: | |||
| Cash interest expense | 1,524 | ||
| Cash distributions on Series A preferred units | 318 | ||
| Restricted units repurchased for tax withholding | 670 | ||
| Distributions on Class B units | 18 | ||
| Cash available for distribution on common units | $ | 21,330 | |
| Common units outstanding on December 31, 2021 | 47,162,773 | ||
| Cash available for distribution per common unit outstanding | $ | 0.45 | |
| Common units outstanding on January 31, 2022 Record Date | 47,162,773 | ||
| Fourth quarter 2021 distribution declared ^(1)^ | $ | 0.37 |
(1) The difference between the declared distribution and the cash available for distribution is primarily attributable to Kimbell allocating 25% of cash available for distribution to pay outstanding borrowings under its revolving credit facility. Additionally, Kimbell utilized cash flows received from the Q4 2021 acquired production after the cash cutoff date of November 1, 2021, but prior to the closing date of December 7, 2021, to pay outstanding borrowings under its credit facility and to distribute the additional cash flows to common unitholders. Revenues, production and other financial and operating results from the Q4 2021 acquisition are reflected in Kimbell's condensed consolidated financial statements from December 7, 2021 onward.
Kimbell Royalty Partners, LP – News Release
Page 17
Kimbell Royalty Partners, LP
Supplemental Schedules
(Unaudited, in thousands)
| Three Months Ended | |||
|---|---|---|---|
| December 31, 2022 | |||
| Net income | $ | 35,248 | |
| Depreciation and depletion expense | 16,726 | ||
| Interest expense | 3,950 | ||
| Income tax expense | 888 | ||
| Consolidated EBITDA | $ | 56,812 | |
| Unit-based compensation | 2,982 | ||
| Gain on derivative instruments, net of settlements | (13,029 | ) | |
| Cash distribution from affiliate | 171 | ||
| Equity loss in affiliate | 989 | ||
| Consolidated variable interest entities related: | |||
| Interest earned on marketable securities in Trust Account | (2,208 | ) | |
| General and administrative expenses | 447 | ||
| Consolidated Adjusted EBITDA | $ | 46,164 | |
| Q1 2022 - Q3 2022 Consolidated Adjusted EBITDA ^(1)^ | 175,560 | ||
| Trailing Twelve Month Consolidated Adjusted EBITDA | $ | 221,724 | |
| Long-term debt (as of 12/31/22) | 233,016 | ||
| Cash and cash equivalents (as of 12/31/22) | (25,027 | ) | |
| Net debt (as of 12/31/22) | $ | 207,989 | |
| Net Debt to Trailing Twelve Month Consolidated Adjusted EBITDA | 0.9 | x |
(1) Consolidated Adjusted EBITDA for each of the quarters ended March 31, 2022, June 30, 2022 and September 30, 2022 was previously reported in a news release relating to the applicable quarter, and the reconciliation of net income to consolidated Adjusted EBITDA for each quarter is included in the applicable news release. This also includes the trailing twelve months pro forma results from the Q4 2022 acquisition that closed in December 2022 in accordance with Kimbell's secured revolving credit facility.