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

Financial Data and Key Metrics Changes - Kimbell Royalty Partners reported record revenues for oil, natural gas, and NGL totaling $90 million for Q1 2025, marking a new record for the company [10] - Consolidated adjusted EBITDA reached $75.5 million, also a new record, reflecting strong operational performance [10] - The company declared a cash distribution of $0.47 per common unit, an increase of 17.5% from Q4 2024, with approximately 70% of this distribution expected to be considered a return of capital [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 $9.6 million, with cash G&A expenses at $2.52 per BOE [10] Market Data and Key Metrics Changes - Kimbell Royalty Partners maintained a market share of approximately 16% of all rigs drilling in the Lower 48 states, with 90 rigs actively drilling on its acreage [6][10] - The company noted strong permitting activity, including the permitting of 17 additional wells in Martin County, Texas, demonstrating the strength of its diversified asset portfolio [6] 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 [15] - Kimbell Royalty Partners plans to maintain a conservative balance sheet with a target net debt to EBITDA ratio of approximately 1.5 times, while continuing to pursue M&A opportunities [26][51] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving its goals for 2025 despite current economic volatility and uncertainty impacting commodity prices [7][14] - The company highlighted that its diversified portfolio and low PDP decline rate position it well to outperform many competitors in the upstream space [27] Other Important Information - The company increased its borrowing base and elected commitments on its credit facility from $550 million to $625 million as of May 1, 2025 [5][12] - Kimbell Royalty Partners redeemed 50% of its Series A cumulative convertible preferred units on May 7, 2025, simplifying its capital structure and reducing its cost of capital [5][13] Q&A Session Summary Question: Interest in M&A activity - Management acknowledged ongoing interest in M&A opportunities, particularly in the natural gas sector, despite challenges in transacting due to high valuations [20][22] Question: Target debt levels and leverage management - The company aims to maintain leverage at approximately 1.5 times EBITDA while continuing to pay down debt and redeem preferred units periodically [26][51] Question: Trends in production volumes - Management reaffirmed guidance for 2025, indicating no current evidence of a slowdown in drilling activity, with strong lease bonus payments expected [44][68] 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, with no near-term end to this advantage anticipated [45][46] Question: NGL and natural gas realizations - Management noted stronger than expected realizations for NGL and natural gas, attributing improvements across the entire portfolio [62] Question: Update on net DUCs - The company reported 4.67 net DUCs at the end of Q1, with no significant trends indicating a slowdown in activity [65][67]