Kimbell Royalty Partners(KRP) - 2020 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported a net loss of $76.8 million for Q2 2020, with a net loss attributable to common units of $48 million or $1.39 per common unit, primarily due to a $65.5 million non-cash impairment expense related to commodity price weakness [16][17] - The payout ratio was increased from 50% to 75% of cash available for distribution, resulting in a distribution of $0.13 per common unit [17][18] - Consolidated adjusted EBITDA for Q2 was $12.1 million, with a slight adjustment for a one-time transition services agreement related to the Springbok acquisition [17] Business Line Data and Key Metrics Changes - The average daily run rate production for Q2 2020 was 14,069 barrels of oil equivalent (Boe) per day, down 7% from Q1 2020's record production of 15,188 Boe per day [7][15] - The production mix for Q2 consisted of approximately 41% from liquids (28% oil and 13% NGLs) and 59% from natural gas [15] Market Data and Key Metrics Changes - The company maintained a market share of 11.6% of all drilling rig activity in the Lower 48 states as of June 30, 2020, with 29 active rigs [15][19] - The average realized prices for Q2 were $24.89 per barrel of oil, $1.44 per Mcf of natural gas, and $7.87 per barrel of natural gas liquids, leading to a total combined Boe price of $13.09 [16] Company Strategy and Development Direction - The company aims to continue its strategy as a consolidator of diversified and low PDP decline minerals, generating substantial free cash flow for distribution to unit holders [10] - The Springbok acquisition is viewed as a strategic move to enhance cash flow and growth opportunities [11] Management Comments on Operating Environment and Future Outlook - Management expressed cautious optimism regarding the recovery of commodity prices and the U.S. economy, believing that the worst of production curtailments is behind them [6][8] - The company anticipates that most curtailments experienced in Q2 will reverse in the coming quarters, supported by a strong inventory of permits and drilled but uncompleted wells [14][13] Other Important Information - The company expects that substantially all distributions for the remainder of 2020 through 2023 will be non-taxable, considered a return of capital [18] - As of June 30, 2020, the company had approximately $171.7 million in debt outstanding, with a pro forma total debt to trailing 12-month consolidated adjusted EBITDA ratio of approximately 2.3 times [19] Q&A Session Summary Question: Details on curtailments or shut-ins during Q2 - Management indicated that approximately 6% of the 7% production drop was due to temporary curtailments, which are expected to reverse [27][29] Question: Discussion on payout ratio increase - Management explained the decision to increase the payout ratio to 75% was based on improved market conditions and investor feedback, with a focus on maintaining leverage levels [35][38] Question: Insights on micro investment deals and M&A outlook - Management noted that while it is challenging to transact in the current environment, there are opportunities for distressed sales, and they are focusing on both micro and larger M&A strategies [44][47] Question: Outlook for the second half of the year - Management expressed optimism that Q3 production would be higher than Q2 due to the reversal of curtailments, while also acknowledging natural decline and fewer rigs running [56][58]