KRP - Earnings call transcript Q1 2022 | Kimbell Royalty Partners, LP

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Operator

Greetings and welcome to the Kimbell Royalty Partners First Quarter Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Rick Black with Investor Relations. Thank you, sir.

You may begin.

Rick Black

Good and operator, you, morning, everyone. Thank the financial and to March XXXX. Kimbell first Royalty review to XX, call conference operational ended Partners quarter Welcome results the for through being Presentations and of the kimbellrp.com. can This the of page webcast section is link on also be call accessed the IR audio Events and the be replay, speaks longer time any sensitive or may no today’s Information of March that recorded call on any X, advised today, accurate date as transcript reading. of be as listening only XXXX, of so please information would made of of also statements forward-looking of future are Private the facts, like the I or XXXX. to remind Reform provision are statements in not made Securities that Litigation you pursuant including expectations statements events performance, that or to future today’s the Act discussion financial harbor’s historical safe

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

Bob Ravnaas

Ravnaas, We will over Thank the I are more Davis me you, our providing call management Rick our quarter President and walk morning. current turning Officer; Matt through members this good on to and Operating With detail. about our the the Daly, team, Davis Financial Officer; several the Rhynsburger, of begin today and call comments by including to everyone. our today’s in senior before Chief Chief Controller. Blayne financials appreciate you you our us discussion environment morning joining operating and

pleased $X.XX which XXXX EBITDA with an first natural led very gas a have saw as common during distribution us. quarter on NGL cash record adjusted to to per a record are to that We activity commodity is unit, available count into the at to acreage strong XX% started and actively distribution, for extremely quarter Strong unitholders revenues, and increase the of in our cash Kimbell. increased our new evidenced for acreage also cost which on quarter no by translated prices the our drilling rig oil,

to permits. X% our wells each of In sequentially addition, from increased This properties need sight year line since net production notable major keep DUCs and X.X we net completed flat. to only is inventory X.XX approximately

as Mid-Con terms compel and strong While led continue rig in basins prices the will the believe XXXX. in all we count, through activity Haynesville, we the in of natural improved Permian growth of gas Marcellus

in natural with of cubic draw winter approximately less level well for X.X and gas In support pricing levels exports, should natural recent inventory, associated in drilling This the exited gas LNG of gas low gas of U.S. throughout terms our trillion record relatively and Haynesville oil-directed XXXX led The and X-year with DUCs the from regions the below all XXXX. end. quarter natural season net average. fact, storage at natural of coupled feet, provide

with in natural quarter gas the improvements XXXX. prices IPO highest also market have of in XX% were in for realizations In the of Pricing fact, as Kimbell compared experienced XXXX WTI our liquids oil seen spot prices. approaching some of prices we strong realized that first since natural the gas to

are We to substantial are core the a we continue in gas natural through U.S., some improved these of assets the XXXX. in quality benefit have from as of including and highest the portion poised Haynesville royalty fundamentals the the fortunate to core in

with fundamentals year XXXX. the rig levels and sector on Kimbell energy XX, the in March continue to had of presents an and XX increase the to last rigs continue modest share end energy of at improve fourth to As actively the United across compared up rigs year. drilling continuing the overall acreage, its global count in improve drilling continental from This XX.X% market approximately quarter low States, all complex U.S. XX% a of pace. Tailwinds inventory

remains with that have Canada in the multi-basin strong generation. We the benefit diverse in and at expertise on count the year-end. the of and as for is over strong sectors. drilling upside entities positioned basins for industry from commodity at broad the point and U.S. rig of do resources, demand out billion ramp public upstream compared for currently also XX% asset continued oil handful asset active inflation and a mineral to the financial experience important with sector acreage that public It natural making We company significant class benefit complete from only in a current for positioned has is in cost XX in the particularly is to technical infrastructure cash cycle U.S. gas a price that large-scale both for saw since Lower the all XX% is outlook should well size $XXX our companies our major acquisitions. market the inflationary energy. specifically the our not believe and royalty very from portfolio up operators and throughout flow well to The also and enormous sector in the to royalties Kimbell positive, participate impacting up Kimbell’s and accelerated service public inflation royalty

We as leading the Kimbell in well In this the continue role come. to the closer to to positioned is consolidation is than years midpoint. addition, believe industry process consolidator the a to of even much still beginning its

thrilled our be we in delivering a are to to We great on value and unitholders. focused XXXX, off start remain for

Kimbell to target also the resources Kimbell successful is Corporation, report turn talented events Lunn, acquisition pleased by North led are Tiger SPAC and Lastly, sponsored Tiger to with that energy industry a natural Zach an is over that, as call a and IPO in we of And energy executive, who updates we in now America. will the dictate. very by Kimbell Davis. look to I forward will providing the Acquisition

Davis Ravnaas

everyone. Thanks, good Bob and morning,

compared XXXX We start financial by year was fourth that results the XXXX are first release. reviewing gas to to period beginning NGL the XXXX. our $XX.X during quarter, fourth with is of of million, largely of full $X.X pleased are record and previously is oil, million performance This attributable press from affirming increase of and I’ll improved record prior our very quarter an the revenues realized guidance adjustments. in to prices natural report our quarter we quarter, which and commodity first disclosed XX%

$XX.XX the and BBL XXXX first per the price marks assets which also finally, of average last contribution was natural BOE was quarter $X.XX, portfolio per we first year, expectations. line combined Mcf late quarter per of Cornerstone realized from $XX.XX. was $XX.XX of and, per is Kimbell’s oil quarter acquired full of was with in NGLs This BBL gas our performing

production released per on XX,XXX was per past period was BOE run to which during consisted that First day of day a production production period X:X quarter XX basis, this XXXX the The XX,XXX from day recognized rate per average to attributable was BOE quarter daily of production. BOE prior recognized related production and quarter suspense. prior

approximately The from first from XX,XXX approximately XX% run of BOE XX% natural of composed oil gas and quarter from or daily from liquids, and day XX% rate was XX% production NGLs. per

distribution, XX% borrowings approximately be pay-down. Kimbell’s and a liquidity. of borrowings upcoming available million non-cash facility. the will Total quarter quarter. credit $X.XX outstanding to under Since an $X.X QX or payment outstanding $X.XX unitholders $X.X portion for cash of for XX% down cash Kimbell We last a adjusted record million BOE. administrative first XX% per G&A increase of remaining common was paid a which the of the on common $XX.X expenses the distribution consolidated balance expense, distribution G&A May $X.X first was high to the its $X.XX of credit portion BOE. its secured Unit-based On announced quarter, distribution This in compensation for our the revolving revolving has facility to general down EBITDA cash quarter, represents $XX.X expense available million of cash of side, secured pay Kimbell a sheet Commenting and or used is further and quarter. this which in million, per million of for payment, of cash unit were was under compared by first excluding allocating per a for debt XXXX,

had and and Kimbell quarter had As outstanding X.Xx was its debt in end. secured credit $XX.X quarter capacity undrawn debt under It consolidated under million March its of also XX-month to covenants revolving credit Kimbell XXXX all credit facility net of revolving trailing adjusted EBITDA secured secured XX, first compliance financial its $XXX.X million in approximately approximately to under with had approximately facility. revolving facility.

and call Since the distributed to X February continues in just questions, the have ago, over over very have to daily our like by our perform cyclical in we energy strength I’d strategic the per IPO reiterate grown over for unit XXX%. common industry. that Before business highly we model turn $X.XX well XXXX, of production years

price experiencing natural All both of much lower this average oil we occurred today are gas. that for under a and commodity

operator, a in royalty the are for the the value are So, extremely generate as questions. of at we years and prospects look we ready that, now our come. Kimbell natural consolidator for as XXXX to oil leading long-term With for unitholder beyond, about sector excited and and role to remainder we gas

Operator

Our Please Instructions] with first is Credit question your Baker Suisse. Chris proceed question. from [Operator with

Chris Baker

Hey, good morning.

Bob Ravnaas

Good morning, Chris.

Chris Baker

and space? on maybe M&A. wanted consolidator guys in you you see Could on its around excitement just just the ask made the mineral KRP to a as I comments in for release the the role expand

Davis Ravnaas

is Davis. Sure. Thanks, Chris. This

are deal now. at flow right We record looking

said, for by next in are the $XX it, the year-to-date. everything in precipitously where million some are years [indiscernible]. meaningfully really that to have $XXX That course on universe that’s get we portfolios are bidding done that than, to of dries That in we accept being motivated oil think are steep part the the they been the I up. the spiking being tough so obviously that obviously strip. on call of front-month million, let’s of said, today assets being to prices the buyer It’s larger over such below fact couple sellers

are buy to that front. do neutral, in a we So, leverage someone, in spot we it’s be nature. delevering going if If good on not

overall, But stock by I that been want think are use in Very I their in do to Bob, folks to and multi-basin you public. to went our to record plan environment, that. careful to wheelhouse, rate guys acquisitions have interest our this a of we be. add encouraged think like you level coming to up we’re we Matt, that? sell So would anything frankly the which have packages, kind of since at underwriting

Bob Ravnaas

No. Good summary.

Davis Ravnaas

Yes.

Chris Baker

just elevated potential you for later a as trading valuation balance Great. leverage? basis. guys your I the And peers my just you looks maybe touched Against favorite you on And sheet. just share Could thoughts buyback around for still flow like year. a the think share my Thans. it this an cash follow-up, at model, versus latest are on a question,

Davis Ravnaas

Right most of frequently as the brush That’s company. still get discussed for of feel that a leverage CapEx with the we question, at that obviously. about royalty businesses have now, thanks one some X.Xx, that, same as good Chris. the particularly No, the Yes. Board. we Unfortunately E&P with we the very painted topics

royalty is much company. X.Xx And an for so for business than E&P better obviously

I to think and a get look level. Xx we’d lower or like we at nice is continue to

too that. not far away We’re from

very it directly quarters. recently, probably close, we if terms not Buybacks Your models on is where over next an in looked at the option. would haven’t you’re be of several de-levering always but

what, at, flow to if with going I obviously your to But looking annualize pricing. just XX% – yield, think, free think yield use if it, at weigh that better point, I I happened think M&A and dividend external with opportunities. what’s forward XX% we’re I and look right to this and things now quarter you cash we’re going are

back first kind M&A that of So, your more tying into challenging, question. makes

all think on table. options I So are the

from of to time. talk we I think investors welcome one get feedback to all kind we our our turn, investors. the once of that We all

up is a that some do that we think interesting point if relatively I on to bulletproof get think, Xx And Do opens just bulletproof. once look M&A? liquidity particular be us. stock and assets basis table kind at that where off of on is payout leverage we yields, a we or I options XX% at effectively it you buy If That’s better? ratio? external Should as our less, that well. we Will Maybe, we we plus yield buying better understand deals? higher Maybe. a to certainly probably example. high-teens can stuff with in return the for

it’s have, corner. point, not is cash quite So, to do which it’s good a just we’re problem your around But flow. just And your you what to the there yet. with

Matt Daly

All Yes. is to seeing on the prices obviously side. more we much the process gas I’d that add than realizations this and deleveraging the gas $X of happening is some that, we’re given Matt, originally rapidly projected, is

raising that, buybacks, other level, the kinds we ratio says, as So, have debt options all off or that said, deploy paying point just at payout you as Davis entirely. once that into to XX%, the of to get we Xx

anyway. So,

Chris Baker

Appreciate Great. the guys. answers,

Bob Ravnaas

Chris. Thanks,

Operator

you. Thank

Our from with proceed with Raymond next Trafford your Lamar is Please James. question. question

Trafford Lamar

guys. Hi,

Bob Ravnaas

Good morning.

Trafford Lamar

quarter. you’ll Congrats I year, $X got ratio once of my great But in first question into you my the ask a over in the have question. I – Xx. doing kind know approach tied revolves where is on I I going half specifically? kind the to distribution ratio. potentially answered with Thanks front-month looked second hedges now, to collars question. a leverage costless about all looking around taking you formulaic have hedges. additional like any right of your second guess, given first increasing for at my question was you’ve of answered

Davis Ravnaas

hedging the about all time. talk We

I most a to think consistent is what’s us maintaining just approach. important

of the downturn about money happy we our bunch people a and on obviously, So made hedges, in were that.

happening I any faster don’t an the we approach they about gas anybody we’re just People than, are Now little a and that a can I don’t in any that the prices. desire internally though, see environment trouble of think expected, prices to to Again, have much have predict we drag. into I to hedging. get where up change went bit what’s think – think, they when hedges oil

enterprise enterprise get going So down as and to we what we continue to means EBITDA ratio percentage. to debt and and growing, dictate our But hedging that as therefore, continues our value, is lower forward we’re stay formula. use is, pay lower the a our to consistent value that to as X-year with policy debt

don’t We are going are because changing will pitch like they are simple. I forward. entertain off rolling So, hedges we’ve rolling they we’ve thing come add, of our in swaps brought see I look, interest amount off looked you and to consulting swaps. collars. a at I us quickly. on firms good One costless But – money We and on really since rate made up, don’t that it strategies.

we so kind of mitigate another hedges. in to commodity our that’s the helps speak, quiver, the So against losses arrow that on have

balance each that those potentially if So we could against makes sense. other

rapidly. I near-term don’t that we going go down feel that? see we’re over to that I do change de-levering to want where Matt, like time. strategy. like you really hedging percentage are. is anything I And add any to that good I So, in about our

Matt Daly

agree and And It totally in that’s right, ‘XX of looking XX% rapidly of ‘XX. production I hedge drops mean, that. it’s for XX% dropping. No, I around year. in we’re the our at this rest XX% to with

stock by in the distribution time these having a roll having off hedges over with it’s obviously sort near-term. of So, catalyst growth simply the

Trafford Lamar

you, congrats guys. a again quarter. thank Well, Great. on great And

Bob Ravnaas

Thank you.

Operator

Thank you.

from with Please with Pendleton question. proceed is question next Our Stifel. your Nate

Nate Pendleton

Good strong quarter. morning. Congrats on

Bob Ravnaas

you. thank morning, Good

Nate Pendleton

higher higher in commodity the XXXX? question, light your and thoughts environment can bonuses first on for in share well, the rig you lease count the potential as environment My of

Bob Ravnaas

question. That is a good

it lease how a forecasts. in bonus any – good would Matt, bake a comment really I do our answer want never of make we any to turn to mean, we It’s and general I that? So say I’ll over. question. I’ll

bonus I think, in increase and expect prices oil you any would this, an time like see naturally one lease obviously, up gas go activity.

I’d in comes expect being waves. So, that. we do that it That said, say

reason lease some and quarter get next one then we nothing. big will quarter really get chunky in for We bonuses the whatever

predict, if near-term. the would that I not to but trend difficult expect impossible at is here we elevated, in argue Matt? and your So, to premise the would that be correct least it’s

Matt Daly

Yes. Loving was QX, $XXX,XXX all that with saw a you now not NGL Mid-Con well Reeves totally we mean, the Midland in leasing, on County, that QX, in Mid-Con, activity almost right now Martin higher the Yes, fairly given What and Haynesville agree lease County, is County. in NGL lot Permian, I of surprising, which that. in of the the natural mainly seeing higher County, inbound right heavy. seeing we’re obviously as with prices is gas we’re calls as prices the are seeing

So might the and year see you that’s Haynesville rest sort of of a Permian, for for Mid-Con. theme the

Nate Pendleton

for that And my Great. volumes, were follow-up, any oil behind color. there Thanks that regarding for QX drivers notable outperformance?

Bob Ravnaas

want Good you on volumes? of speak do oil drivers to bigger to question. Blayne, any the

Blayne Rhynsburger

of I absolutely. the just oil oil we But from but had with asset owned solid the that wells the with We the Permian. majority Haynesville. our majority your a specifically in Ford was County. the the on a we’ve in seven question, it also had there. would broad Yes, came on Eagle Mixing of in development good side, include with – that given a say, new come on Dimmit development, development legacy

Eagle I the the would and factors, development say, Ford are Permian. So, main in those the the two

Nate Pendleton

Thanks questions. taking my Great. for

Bob Ravnaas

Thank you.

Operator

with Our proceed question. next Capital. RBC with TJ question Schultz is Please your from

TJ Schultz

morning. Good Hey.

for does Tiger, thinking And term work want just trying type in would it’s out on next going sandbox longer today? deal to the find any to market in of year in Just the a Tiger, at all then, you’re XX you how the put producing update months. your feeling to de-SPAC? get optimism something a at competitive for you how be of on level a that that asset that to potentially all through the different get and KRP done gold first are deals with Just really about Thanks. to as

Davis Ravnaas

unique today Yes. of better exciting multiple ongoing de-SPAC It’s find have Goof for an a sitting we on for operated say, by a here alongside a with working every feel TJ, unlock new of we at universe interest of quarter, ability opportunities, that that potentially advantage we should dialogue encouraged have think candidate partner Frankly our I front development. sight to frankly, end acquisition transparency I’d line last mineral very morning, the really to that company acreage and their about help entirely could parties. of an with having did KRP of operates partner advantage minerals. KRP or than have the in

So premise. huge I that’s in of finance feel difficult We mean, that cash. the amount think with it. acquisitions it’s good to environment, I a really about this

I think big, big public it’s a hard to you’re really company. get unless

those side even out So working opinion. off only few that environment, that the on in there there could pull of is this really a my interest in

working I partner – do it a that on to – mineral realization, folks the get SPAC a think some and capital and to for strategic you So, company interest the in and with my override in of opportunity that way are, can lower so is liquidity cost where carve-out great or opportunity us, we a have great opinion, bid folks can. a a than like side a

it to be working partner combined a We acquisitions could pretty a basis, group. financing interesting. that on so, And makes interest

forward. M&A in relationship anything? for will of what de-SPAC KRP think I be KRP optimistic, get TRP amount unitholders, also the that strategic do just ongoing feel initial about only unitholders the growth exciting going not get candidate, units upfront Matt or it. something and and for and And good Bob, it’s going So, cash done. we the but Being for to means that will

Bob Ravnaas

that perfect. sounds No,

TJ Schultz

or these think Does a time next as could XXXX I Okay. X? you I frame gears through appreciate hold commodity that year If taxpayer Thanks. for all. at I all accelerate prices be just a on differentiator and you have before, cash that. guys shift said prices – cash would taxes, over definitely the these not you material

Davis Ravnaas

So I’ll to Blayne. that over turn

we is, as typically our can year. a The release a first thing I’ll process, tax It’s very once complicated imagine. guidance you say

it’s away Let revenues we’d on have. I about faster. detail Obviously, me know. more good expect is profitability The shield provide guidance up, and anybody could with thing, a that to a good which tax – going problem than go just

to released specifics over haven’t turn that, to additional on add I’ll We it color. but Blayne

Blayne Rhynsburger

we federal you’re No, not right pay TJ, Yes. I said, taxes. expect not you directionally, XXXX, think Davis, mean, have as there. I mentioned, we that income to through material,

I released we guidance look you last if of our last year. just in – QX gave was at, think, we time the

now, gas And to-date the going gas XXs XXX. at You’ve in got Xs and in got we’ve obviously. oil and oil the down

be kind through math. alluded shields to, just you So higher lot quicker. revenues as can of But eaten do a the with Davis will the

look release. forward updated our coming you can tax guidance with out So, QX to

TJ Schultz

Perfect. Thanks, guys.

Bob Ravnaas

Thank you.

Operator

end closing and of we Ladies gentlemen, for over question-and-answer session. And the back have to turn to the management reached like now call remarks. the I would

Bob Ravnaas

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

Operator

This tonight’s concludes conference.

may disconnect at lines Thank you participation. this time. your for your You

Kimbell Royalty Partners (KRP) 9 May 222022 Q1 Earnings call transcript