Kimbell Royalty Partners(KRP) - 2025 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported record revenues for oil, natural gas, and NGL totaling $90 million for Q1 2025, which includes contributions from acquired production [10] - Consolidated adjusted EBITDA reached a new record of $75.5 million for the quarter [10] - The cash distribution for Q1 2025 was declared at $0.47 per common unit, reflecting a 17.5% increase from Q4 2024 [7][11] Business Line Data and Key Metrics Changes - The company achieved a first quarter run rate production of 25,841 BOE per day, including contributions from acquired production [10] - General and administrative expenses for Q1 were reported at $9.6 million, with cash G&A expenses at $2.52 per BOE [10] Market Data and Key Metrics Changes - The company maintained a market share of approximately 16% of all rigs drilling in the Lower 48 states, with 90 rigs actively drilling on its acreage [5][10] - The company noted strong permitting activity, including the recent permitting of 17 additional wells in Martin County, Texas [5] Company Strategy and Development Direction - The company aims to continue its role as a major consolidator in the U.S. oil and natural gas royalty sector, which is estimated to be over $700 billion in size [14] - The company plans to maintain a conservative balance sheet and leverage ratio of approximately 1.5 times EBITDA while pursuing M&A opportunities [24][50] Management Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving 2025 goals despite broader economic volatility and its impact on commodity prices [7][14] - The company highlighted a strong production profile and ongoing acquisition activity as key factors for future growth [14][29] Other Important Information - The company increased its borrowing base from $550 million to $625 million on May 1, 2025, and redeemed 50% of the Series A cumulative convertible preferred units on May 7, 2025 [4][12] Q&A Session Summary Question: Interest in M&A activity - Management acknowledged ongoing interest in M&A opportunities but noted challenges in transacting on natural gas deals due to competitive pricing [20][21] Question: Debt management and targets - The company aims to maintain a leverage ratio of approximately 1.5 times and plans to continue paying down debt while managing its capital structure [24][50] Question: Natural gas hedging strategy - Management stated that they are comfortable with a 20% hedging level, which they believe protects against price volatility while maintaining flexibility [34][36] Question: Production trends and guidance - Management reaffirmed guidance for 2025, indicating no current evidence of a slowdown in drilling activity [41][43] Question: Tax structure and distribution runway - The company has a considerable tax shield, allowing for a significant portion of distributions to be classified as return of capital, enhancing after-tax returns for unitholders [44][45] Question: Long-term capital structure and preferred units - Management plans to continue paying down debt and redeeming preferred units periodically while maintaining a conservative leverage ratio [50][52]