KRP - Earnings call transcript Q2 2018 | Kimbell Royalty Partners, LP

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Operator

Greetings, and welcome to the Kimbell Royalty Partners Second Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Jack Lascar. Mr. begin. may you Lascar,

Jack Lascar

the call and Partners everyone. financial conference accessed XXXX. the section XXXX. & as results IR link on kimbellrp.com. Omar, webcast of the speaks only Information and for Kimbell for This of quarter Royalty recorded call second today, and Presentations through also the good of you, being Thanks morning, joining X, page operational can audio be is call August Thank the to of Events on review this

be advised be future safe discussion like are to today’s the please replay. date XXXX. financial made that pursuant are Act provision Litigation harbor So that may statements any in performance, expectations would historical not including no or accurate of that time-sensitive statements longer forward-looking the also I the you facts, the made of information to of remind as Reform Private of of statements Securities any events or future

making and We over may Bob? differ the I GAAP Ravnaas, like be of measures, and today’s to Commission. company’s in any Securities EBITDA and turn forward-looking can results release. Actual forward-looking cash Kimbell statements. nature, and disclosure would today’s statements. control. Reconciliations and with nearest Partners’ obligation assumes press non-GAAP the our in Bob outside available call Executive Please filings of to described Chairman risks no of These or will adjusted publicly refer uncertain Chief to company’s for Royalty their including by distribution. refer will statements other now Officer. revise press materially. the to at measures Kimbell the today’s are be forward-looking to also to update uncertainties found on that are end the for Management call, part release detail factors as the Exchange and

Robert Ravnaas

recent a Blayne our senior with Officer; tax Chief you, of several Chief Thanks in of a a Officer; Jack, factor our Davis Ravnaas, XX, and our expect would performance distribution Haymaker here President with recent to purchase that, I’m and Controller. The significant of institutional pleased on an Haymaker financial and volume. investors and that joining scale of being also This I entity, rest our we Accounting and trading to common conversion our the well expectations look significant including a of for for strategy to cuts that ask unlock our and operational investors of year. transformative our our other with With potential I’ll larger to XX, Operating second cash I’ll costs to management by increase. the to Kimbell is your a detail. acreage. future our U.S. to a conversion more and as everyone. Then Thank with has the our half, finish combined Officer; McInnis, the MLP tremendous prospects from with company. with most quick will we’ll Jeff cash team, pass-through very had Chief morning, approximately Minerals difficult of Royalties not represents quarter estimated begin for members international G&A and or for taxable in for It closed the We & July increases of our by it our Financial the lot Rhynsburger, leverage to Boe the the distributable us. was that the investors conversion their universe we A restricted liquidity. recap at believe are Haymaker’s recently acquisition Daly, U.S. per performance, certain significantly. both significantly acquisition acquisition, and improve which as our also Davis entity including is for MLPs, operating completed value acquisition, After investors to a our Matt we then a and course, questions. good are EBITDA take enhance recognized the investing like situations. flow Haymaker recap cover units in We of greatly taxable would, currently Haymaker, the valued shares, due provide our international which in the from potential to and planned market. performance

into So converting story. investors the a to new potential more taxable Kimbell bring entity would

now liquidity, we this allows with KKR acquisitions. future that the of and in two which investment with is equity, equity half the us to XX% sheet. common financed units for as our In a conservative with a of believe willing potential units equity acquisition attractive fact the of The our and improved more energy balance sophisticated maintain addition, speaks most We world, appreciation currency for Kayne in about future. volumes the Anderson, attractiveness the the accept to our firms were consideration of Haymaker

and where are record of interested private have from we taking equity-backed that. equity in in transaction. the seller and capitalize in looking make the as Kimbell, to the and mineral Anderson number companies the Haymaker financial There KKR exit capability are additional did Kayne near-term, to is flexibility acquisitions We and we to well-positioned also a particularly with those

Now that in legacy let’s the results look performance our only. And discussing the of from second I’ll I be assets footnote at should assets quarter. our

basis daily legacy flat XX% quarter-over-quarter quarter with a compared From pleased up XX% a with QX, another bonuses. XX%. was assets, this Boe cash to from very are gas quarter was average more than We X% quarter past adjusted X,XXX per On was from from production revenue, the in ago, lease of day, was year production revenue oil XX% NGLs, our XX% essentially in second at and and natural overall liquids, performance was record distribution. of and production our our EBITDA

from end of our the We the count see the are continuing activity. increased to quarter at which is first XX, quarter-over-quarter. robust at June On to rig XX XX X% legacy up acreage,

rig region, about lower is rigs in XX% the Ford and Valley Currently, the X% zones over X% working XX% than XX Eagle Basin, has Following the in we of the Mid-Continent, Bakken-Rocky in Haymaker are those at counties in the in lot quarters There XX% Permian acreage. Permian. count Haynesville-Cotton the concern of a of Mountain the in have XX% last been several the transaction, takeaway the from in more Louisiana. which

our $X.XX strengths in distribution increased or February with Permian. we by Oxy, adequate of has our the in than July its of have the be basis. fact our to may our they greatest takeaway what from of Permian. $X.XX unit a an XX% the from So is diversity, to significant portfolios more our differentials realized seen is we Permian, We more in legacy quarterly one the widening change due $X.XX, since most in distribution quarterly production capacity overall operator, far, publicly. fifth Most XXXX. than importantly, prices on This our to the haven’t that consecutive of the from increase outside sizable per coming resulting in went disclosed This commodity according largely annualized public

that of X. of we distribution record on August to paid as Our second August quarter XX unitholders

you to Davis. turn Now I’ll over

Davis Ravnaas

of I’ll good keep changes XXXX and changes the in by year-over-year. Thanks, we day X morning, that made Acquisition, and be million acquisitions day per fact XXXX million both prior Haymaker citing to Permian divested Since are versus represented approximately production about of Please that production. a we numbers influenced about of added last now year Bob, per and that mind $XX that only the comparison, acreage Boe everyone. of the quarter-to-quarter in Boe year-over-year the XX have partly XXX in clean

million million XXXX. Cash $X.X new the record, prior for million on to record, the prior income about new million, onetime $X.X at million of income quarter, assets due one-time distribution quarter, ago. $XX.X sequential of a versus loss XQ a in at of $X.X EBITDA $X.X the decline revenue corporate This also in quarter the was million, available a from flat of was largely flat the Adjusted hedges, prior $X.X sequentially year the Operating that excluding to the Cash million, was taxable and million for earlier. the on up year impact and costs prior million related million conversion million. a total our in was versus quarter entity, roughly excluding to was $X.X more corporate impact the including $X.X Second $X.X essentially the year quarter later. from asset converting ago. quarter in was the commodities million and costs about a $X.X a and million in $X.X from legacy the impairment $X.X operating $X.X versus G&A versus

the as I both of terms the partial Haymaker acquired and of properties at and of of is distribution the for on units after portion we We end net our the note should reconciliation income of or which XX, and second number paid for as consideration distribution for XXXX. included April that Haymaker of a news are our on find of You’ll acquisition. Under revenues date EBITDA be date units XX the net XXXX, to the the a X, these common for revenues record the properties of closing transaction. statement production production of second from entitled Net XXXX available issued release. revenues acquisition, distribution. million cash on quarter Haymaker the outstanding recorded after the will date quarter effective at from adjusted periods the common July

down slightly by gas Realized barrel, down from up but MMBTU barrel NGLs $XX.XX, per at sequentially per were barrel. and are Our per higher a average year prices the at but X% down a $XX.XX Boe prices price per previous from $XX.XX oil were $X.XX quarter, at at per X% realized QX up was $XX.XX X% $X.XX from ago. barrel

our value. production our percentage that price we equity at of fixed value hedges XXXX, when recall, percentage you’ll acquisition. of XX% account our as to initiated a about of is the consistent which and enterprise oil we increased gas a of strategy a in and the percentage July, enterprise the As the preferred our end debt hedged Haymaker same program into close since taking with We of of natural as match both swaps debt

the included daily gas our of result, news next for hedges on As that and approximate the oil two our Details a natural production schedule years. in supplemental have XX% release. are layered we of additional

let’s at the look sheet. Now balance

on $XXX on new Shortly million had outstanding June outstanding and revolving Haymaker our of under As transaction, had million hand closing of we at the we about $XX $XX million million facility. of cash larger $XXX facility. million our credit the revolving $X.X XX, credit of cash following

to our to acquisitions. short-term the is use As before, plan revolver for provide we’ve indicated financing

closing, I an In remains to Our XXXX. ratio time for transformative company. is conservative say and debt-to-adjusted June EBITDA it what want our times as X.X of at XX, exciting

We than initial have now is of which our generated IPO public the X, proud February in more return on to offering our investors XXXX, XX% of. we – very are something time since total

costs acquisition, resource plays Haymaker significantly while and diversified result on have production, a our cash also was basis. transaction time. half we approximately large set nationwide. the in per-unit this distributable as right scale at a The flow higher the to opportunity assets for administrative put, it the best With of generated right our a us of cutting general Simply the will and of added and drive portfolio economies

units. sponsors, whose access for We we unit, Moreover, entity our to for Anderson, KKR, their our have the and which itself. will team, known from decade, for respect dramatically our tremendous Haymaker and Kayne and well a ownership new management conversion to pass-through of and improve taxable a common speaks support opportunities investors exist over well-positioned a have currently and for we a greater our in space. the in With are and that, in questions. minerals now are tremendous are significantly on we to – result create for should we capitalize our all we the royalties time, very Putting value liquidity operator, together, over it believe ready investors that

Operator

question. your Instructions] be John question [Operator Our James. question answer proceed Raymond conducting a and Thank you. comes session. will we from Please first Freeman, with now

John Freeman

Hi, Haymaker acquisition. our on closing the congrats guys, and

Robert Ravnaas

Hey, thanks, John.

Davis Ravnaas

Good morning, John.

John Freeman

in the nice So broad-based or in I the of you to first Permian all did of see regions? increase the most increase as especially see quarter, have, Where on the light it’s legacy you the in pretty properties of mentioned. terms in activity the on was it all everything question during activity, in going

Davis Ravnaas

within focused Yes, increased the mostly Basin mostly terms nationwide. pretty on but I’d our Permian And broad-based on Midland production. of activity in portfolio say Permian,

Robert Ravnaas

Correct.

Davis Ravnaas

A bit platform too little the activity. uplift of in of on terms

Robert Ravnaas

has think, Also, docks completion noticed Bakken helped. kind the too of is, of in I everybody’s

Davis Ravnaas

they’re that kind of We’ve Yes. finally big Bakken been of helpful a turning and differentials so. backlog because improved got have docks on, that’s

John Freeman

of that you’ve that XX% X%, XX% rate can rate higher a is X% of of call then on kind that talked the decline a, for higher-level right it way? question. I Haymaker Kimbell, to with organic a more kind And to X% always outlook deal, kind average – had kind kind to of to about know of sort of sort first, I just of a I make I that sub-XX%, kind decline kind X% the I base sure it a right? wanted pro then to a organic base of on as X% thinking of Great. of of the growth kind guess, thought of of, is I’m XX% basis and growth. this a PDP of five-year Haymaker, the of that stays kind forma And decline So kind longer-term, of about legacy the obviously. kind

Davis Ravnaas

Yes, be say that’s for to higher but assets, would decline little obviously, a more I’d right. significantly a I’d organic growth exactly be XX%, too. to rate, say, Haymaker’s with decline conservative. XX%

within parameters. those think you’ve got I So it

John Freeman

perfect. Okay,

near-term, in the about organic kind some right way goes the base rate growth goes the that’s the the near-term, think to of some just see decline you up of while kind So it. up in

Robert Ravnaas

exactly That’s right.

John Freeman

sort was just if earlier when basically of then same the broader Haymaker assets. think have with set When When if – to go you kind of able it I really of spread of bid-ask of the question I and advantage set kind just of deal back about with access properties those the widens kind was the nice big sneak you think one disconnects, maybe And properties, now if disconnect in those that take more the of the price sort about, opportunity take I the on I overall all I Okay. of happened think properties pricing sort in high should year to where about to in. kind kind – to, either of that of Permian, of advantage now of some did that the grade of you for divestiture will?

Robert Ravnaas

Yes.

I very more we’re optimization. to that somewhere mean, an small. that’s a of think portfolio something accretive think hot can multiple then deploy I capital that. we we at in and as If multiple outrageous in sell do a reasonable really happy it else, area than

those count. of think I you’re business the than themselves. I the about mean, of the our then exactly is throughout present one calls strategy that’s and diversified when so I that the assets strengths right. it we’ll now size would basin, doubled having of we’ve that the every judgment and we more can say – roughly company acres opportunities make double thinking

themselves. an and we to and that I’d potential consider the yes, would we’re those Basin also fully be So again, have position, once fully if things at those multiples, under – Haymaker us what get look And pretty consider value feel they sales potentially if we present job are to and our of say of what assets in seriously excellence and value to people Midland ways portfolio. to would to not opportunities our kind control, we and the sell under ownership looking things. in valued we through then frothy with SCOOP/STACK divestitures shareholder going when we’re we’re going we��re optimize can come our is maximize But highly

John Freeman

I a That’s Well appreciate, guys. lot. Thanks great. done.

Robert Ravnaas

John. Yes. Thanks,

Davis Ravnaas

Thanks, John.

Operator

Wangler, next question question. comes Capital. your with Imperial Our proceed Jason Instructions] Please [Operator from

Jason Wangler

Good morning, all.

Robert Ravnaas

Hey, Jason.

Davis Ravnaas

going. it how’s Jason, Hey,

Robert Ravnaas

How was summer month? your

Jason Wangler

are Good, Good. you well. guys doing hope

that where Permian discussions, situation you’ve look the production your few at and have way that period months about see recall mentioned I of or you you If ask, prepared given kind guys a that there’s before from perhaps them? lag remarks a differentials. as there get more there, to it would in wanted too, more correctly, the it, real-time the is the you previous just you are on seeing on Just a to

Davis Ravnaas

yet. periods, we seen Lag not have it

directly little other are a hard in reasons. largest as going not for what is a kind of hit you our at by optimistic know, hearing and other capacity. to operator have more are frontier the sense particularly of public healthy One, from some situations Delaware one would on – kind that extensions Delaware, through We terms in the some we bit I of the just we in everything read in few And also amount the that based Midland of as the on a to them statements, large production And of blowouts and Again, folks kind have areas and they happening with Permian. areas arguably best hear Basin. differential as on it’s us the platform, there too, in that operators. appear it’s the we’re our of Oxy, are from takeaway

As you kind three a know, Permian conservative of have core areas. acreage position the those between we within more

we guarantee that surprised that the So reporting makes if I think us the sense. these be affected But same affects some of are it kind differential anything. we’d carnage can’t operators if them way of that

haven’t yes, it it – haven’t yet. yet we we So seen seen

I it’s possible. think,

the not – don’t going think, reduction want We that say some it’s of I that I in our right? QX even So or is to in included, Permian increase think, some possible. accruals, is happen, the I differential part to it’s

Robert Ravnaas

Yes.

Davis Ravnaas

for baked not around of kind expecting just just can’t, I in team, you’re folks deterioration already the numbers look we’re So see the I to seeing, that me, amount some of other But we’ve in so. for something of expectation same life the seeing. management are our

Jason Wangler

guys. partnered the of probably kind you’re right some Sure. And like with you said, of

that of So help. starting company each we’re its certainly that’s is going – It’s kind see to to really own?

Davis Ravnaas

are out when I having I But long. to drag mean, field think you ELR the those not are us of when mean, like some you prolific think, right? and that too in minerals I sets they’d Yes. place mean, projects, about most the this the isn’t anything for oil there, some and long if they’ve infrastructure new, they that of out – producing a fields in XXXXs get it, of had time. I mean, XXXXs. have really

think how bit middle the nowhere drill a of I different than, then figure a pad let’s that’s to and in oil out okay, out So there. get the super little to go try of

it about of I a so. that’s our of high-level mean, So, kind just perspective thinking way from

Jason Wangler

obviously, you. still Thank you at? thinking acquisition, position helpful. to forward good a something forward? you’re that? about M&A, looking a do on I with be as switching C-Corp, ratio. entity where should That’s I moving mean, But comfortable still And the pretty a low liquidity how obviously, got and bigger And too? balance you metrics and you’re focused the sheet that we maybe then pretty anything certain assume, think EBITDA over should Is a and as Are now how you’re think you there or at, about we about going

Davis Ravnaas

Yes.

are said, we I EBITDA. we leverage. less we’re terms X since as in think public, happy We to like debt went we’ve where we of times than leverage like,

we’re that right below So now.

we a when dropdown the underappreciated, inventory. about fact think feel again just that you M&A, big such think I us, differentiator it’s a have is we big like that which for

medium-term, we’ve us going been in focus I saying to be So of that’s for year. the last think, beginning and near that since the a to

dropdown. on a working we’re on So that consummating

eight so a we finance a it require accretively very about perspective is quite it And we I going I our want sponsors one think, Viper think that’s that important on. successfully, to do units, on in directly. doesn’t happened should just we’re can your dropdown, dropdown years? it’s focus through our helpful units I upstream that’s from to draw did what think, be to have So that, what that’s what even first I that that, think revolver

the lead just without company, has Because secondly, sell eventually And any to naturally benefits: in kind so associated of the one, if that then flow anything; right? to the leverage. it two EBITDA delevers production higher in it but over decide increase will time and we’re growing units sponsors

look we that a So it as kind win-win. of at

Jason Wangler

it turn I’ll Thank Perfect. you. back.

Davis Ravnaas

Jason. Thanks,

Operator

question. question Stifel. next comes Please from your Tim Howard, proceed Our with

Timothy Howard

Hi, for taking our thanks question

Robert Ravnaas

are Tim. How you,

Timothy Howard

you? Hi, how are

Robert Ravnaas

Good.

Timothy Howard

outline guys of if the or Could tax may think date maybe that last be target that remaining for set date? a would steps the And create conversion? kind do you effective the the you have target when you

Davis Ravnaas

to question. Chief I’m our Yes. it going turn to Matt Operating Daly, to that over Officer answer

Matthew Daly

send this are of targeting doing? we So How release part similarly press early will before the where effective. September, you be couple a actual we’re the do And in would date. a effective deal, out Viper latter the days it Yes. that month, we

about information XX-day effective. XXC, that’s period before data and filed preliminary So so was a it usually becomes the

Timothy Howard

Thanks. great. Okay,

Davis Ravnaas

Thanks, Tim.

Operator

There are further no questions this at time.

comments. like to would I back for management Now floor closing to the turn

Robert Ravnaas

this you, everyone, all, joining and Thank call. completes for you, us thank morning. today’s This

Davis Ravnaas

Thanks, everyone.

Operator

thank conclude participation. teleconference. today’s Ladies you gentlemen, does and for your This

You wonderful your and disconnect may lines day. a have

Kimbell Royalty Partners (KRP) 11 Aug 182018 Q2 Earnings call transcript