Kimbell Royalty Partners(KRP) - 2021 Q1 - Quarterly Report

PART I Item 1. Condensed Consolidated Financial Statements (Unaudited) Kimbell Royalty Partners' unaudited Q1 2021 financial statements reflect a net income of $0.54 million, a significant improvement from a $59.78 million net loss in Q1 2020 Condensed Consolidated Balance Sheets As of March 31, 2021, total assets were $564.0 million, with liabilities increasing to $195.7 million and equity decreasing to $325.0 million Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $8,124 | $9,805 | | Total current assets | $34,450 | $28,332 | | Total oil and natural gas properties, net | $513,802 | $520,993 | | Total assets | $563,980 | $564,634 | | Liabilities & Equity | | | | Total current liabilities | $15,827 | $8,767 | | Long-term debt | $168,534 | $171,550 | | Total liabilities | $195,699 | $186,333 | | Total equity | $324,999 | $335,635 | Condensed Consolidated Statements of Operations For Q1 2021, the Partnership reported net income of $0.54 million, a significant improvement from a $59.78 million net loss in Q1 2020, primarily due to the absence of a $70.9 million impairment charge Statement of Operations Highlights (in thousands) | Account | Three Months Ended Mar 31, 2021 | Three Months Ended Mar 31, 2020 | | :--- | :--- | :--- | | Oil, natural gas and NGL revenues | $36,369 | $25,585 | | (Loss) gain on commodity derivative instruments, net | $(14,136) | $10,133 | | Total revenues | $22,419 | $35,947 | | Impairment of oil and natural gas properties | $0 | $70,926 | | Total costs and expenses | $20,435 | $94,474 | | Operating income (loss) | $1,984 | $(58,527) | | Net income (loss) | $537 | $(59,784) | | Net loss attributable to common units | $(704) | $(39,301) | | Net loss per common unit (Basic & Diluted) | $(0.02) | $(1.29) | Condensed Consolidated Statements of Changes in Unitholders' Equity Total unitholders' equity decreased to $325.0 million by March 31, 2021, primarily due to $11.3 million in distributions to unitholders and preferred units - Total equity decreased by $10.6 million during Q1 2021, primarily due to distributions to unitholders and preferred unitholders[15] Condensed Consolidated Statements of Cash Flows Net cash provided by operating activities was $15.5 million for Q1 2021, decreasing from $20.8 million in Q1 2020, leading to a $1.7 million overall decrease in cash and cash equivalents Cash Flow Summary (in thousands) | Activity | Three Months Ended Mar 31, 2021 | Three Months Ended Mar 31, 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $15,481 | $20,788 | | Net cash used in investing activities | $(812) | $(11,177) | | Net cash used in financing activities | $(16,350) | $(9,334) | | Net (decrease) increase in cash | $(1,681) | $277 | Notes to Condensed Consolidated Financial Statements The notes detail the Partnership's business, accounting policies, derivative activities, and debt structure, highlighting no impairment in Q1 2021 and a new interest rate swap - The Partnership's business is owning and acquiring mineral and royalty interests, entitling it to revenue from oil and gas production without funding drilling or operating costs[19] - In January 2021, the Partnership entered into an interest rate swap, fixing the interest rate at approximately 3.9% on $150.0 million of its secured revolving credit facility until January 2024[33] - No impairment was recorded on oil and natural gas properties for the three months ended March 31, 2021, in contrast to a $70.9 million impairment for the same period in 2020[44] - Subsequent to the quarter end, the Partnership drew down $4.0 million on its credit facility and declared a Q1 2021 cash distribution of $0.27 per common unit[81][83] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q1 2021 financial results, highlighting a 42% increase in oil, gas, and NGL revenues due to higher commodity prices, offset by derivative losses, and the absence of a prior-year impairment charge Overview and Business Environment Kimbell owns mineral and royalty interests in over 97,000 wells, with Q1 2021 showing improved commodity prices and a rebound in rig count despite a year-over-year decrease - As of March 31, 2021, Kimbell owned interests in approximately 13.6 million gross acres and over 97,000 gross wells, with the Permian Basin being a key area[91][94] Average Commodity Prices (EIA) | Commodity | Three Months Ended Mar 31, 2021 | Three Months Ended Mar 31, 2020 | | :--- | :--- | :--- | | Oil ($/Bbl) | $58.09 | $45.54 | | Natural gas ($/MMBtu) | $3.50 | $1.90 | - The Baker Hughes active land rig count was 416 at March 31, 2021, a 41.4% decrease from 710 rigs at March 31, 2020, but a 25.3% increase from 332 rigs at December 31, 2020[116] Results of Operations Q1 2021 results show a 42% increase in oil, natural gas, and NGL revenues due to higher commodity prices, leading to operating income compared to a prior-year loss burdened by a $70.9 million impairment - Oil, natural gas, and NGL revenues increased to $36.4 million in Q1 2021 from $25.6 million in Q1 2020, driven by a 20.5% increase in average oil prices and a 71.5% increase in average natural gas prices received[140][142] - A net loss on commodity derivatives of $14.1 million was recorded in Q1 2021, compared to a $10.1 million gain in Q1 2020, due to rising strip prices[138][144] - No impairment expense was recorded in Q1 2021, compared to a $70.9 million impairment in Q1 2020, which was caused by a significant decline in commodity prices and drilling uncertainty at that time[149] - Depreciation and depletion expense decreased to $7.9 million in Q1 2021 from $13.3 million in Q1 2020, as the depletion rate per barrel fell from $10.86 to $6.22 due to significant impairments recorded in 2020[146][148] Liquidity and Capital Resources The company's liquidity relies on cash from operations and its credit facility, with $5.6 million allocated to debt repayment in Q1 2021, leaving $96.5 million in available capacity - The Board of Directors approved allocating 25% of cash available for distribution for Q1 2021 to repay $5.6 million in outstanding borrowings under the secured revolving credit facility[157] Credit Facility Status (as of March 31, 2021) | Item | Amount (in millions) | | :--- | :--- | | Borrowing Base | $265.0 | | Outstanding Borrowings | $168.5 | | Available Capacity | $96.5 | - Net cash provided by operating activities decreased by $5.3 million to $15.5 million in Q1 2021 compared to Q1 2020[162] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company manages commodity price volatility with fixed-price swap derivatives and mitigates interest rate risk on its variable-rate debt by fixing $150.0 million at 3.9% through an interest rate swap - The company uses commodity derivative contracts (fixed price swaps) to reduce exposure to oil and natural gas price volatility[174][175] - As of March 31, 2021, the company had two counterparties for its derivative contracts, both of which are also lenders under its credit facility[180] - To manage interest rate risk, the company entered an interest rate swap fixing the rate on $150.0 million of its debt at ~3.9% until January 2024, covering approximately 89% of its outstanding balance at the time[183] Item 4. Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of March 31, 2021, with no material changes to internal control over financial reporting during the quarter - Management concluded that as of March 31, 2021, the company's disclosure controls and procedures were effective at a reasonable assurance level[184] - No material changes to the internal control over financial reporting occurred during the quarter ended March 31, 2021[185] PART II – OTHER INFORMATION Item 1. Legal Proceedings As of March 31, 2021, the company is not aware of any legal, environmental, or other commitments that would materially affect its financial condition or operations - As of March 31, 2021, management is not aware of any legal proceedings that would materially affect the Partnership[79][188] Item 1A. Risk Factors There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2020 - There have been no material changes to the risk factors disclosed in the 2020 Form 10-K[189] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds During the quarter, the company did not have a common unit repurchase program, but 85,360 common units were withheld to satisfy tax obligations from restricted unit vesting - In March 2021, 85,360 common units were withheld to satisfy tax-withholding obligations from the vesting of restricted units[191] - The company did not have a common unit repurchase program in place during the quarter[191] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including corporate governance documents and CEO/CFO certifications Signatures The report is signed on May 6, 2021, by Robert D. Ravnaas, CEO, and R. Davis Ravnaas, President and CFO, for Kimbell Royalty Partners, LP