Business Overview and History

Kimbell Royalty Partners, LP (KRP) is a leading owner of oil and natural gas mineral and royalty interests in over 17 million gross acres across 28 states in the United States. The company's diverse portfolio of assets has positioned it as a major consolidator in the highly fragmented U.S. oil and gas royalty sector, which is estimated to be over $700 billion in size.

Kimbell Royalty Partners was formed in 2015 as a Delaware limited partnership to own and acquire mineral and royalty interests in oil and natural gas properties throughout the United States. The company has elected to be taxed as a corporation for U.S. federal income tax purposes.

In 2017, Kimbell completed its initial public offering, listing its common units on the New York Stock Exchange under the ticker symbol KRP. This provided the company with access to public capital markets to help fund its growth strategy through acquisitions.

Over the years, Kimbell has significantly expanded its portfolio through various acquisitions. In 2023, the company completed two major acquisitions: a $455 million acquisition of Cherry Creek Minerals LLC and a $123 million acquisition of certain mineral and royalty assets from MB Minerals, L.P. and its affiliates. These acquisitions have helped Kimbell expand its footprint, particularly in the prolific Permian Basin.

Despite its growth through acquisitions, Kimbell has faced challenges. In 2024, the company recorded impairment charges of $62.1 million on its oil and natural gas properties due to the decline in commodity prices. However, Kimbell has maintained a conservative capital structure and prudent financial management, which has provided it with the flexibility to continue pursuing strategic acquisitions.

As an owner of mineral and royalty interests, Kimbell is entitled to a portion of the revenues received from the production of oil, natural gas, and associated natural gas liquids (NGLs) from the acreage underlying its interests, net of post-production expenses and taxes. The company is not obligated to fund drilling and completion costs, lease operating expenses, or plugging and abandonment costs at the end of a well's productive life.

Kimbell's primary business objective is to provide increasing cash distributions to unitholders resulting from acquisitions from third parties, its Sponsors, and the Contributing Parties, as well as from organic growth through the continued development by working interest owners of the properties in which it owns an interest.

The company's portfolio of mineral and royalty interests is diversified across 28 states and every major onshore basin in the continental United States. As of December 31, 2024, Kimbell owned mineral and royalty interests in approximately 12.2 million gross acres and overriding royalty interests in approximately 4.7 million gross acres, with approximately 54% of its aggregate acres located in the Permian Basin and Mid-Continent region.

Kimbell's mineral and royalty interests include ownership in over 129,000 gross wells, including over 50,000 wells in the Permian Basin. The company's assets are characterized by low estimated decline rates, with its proved developed producing (PDP) reserves having an average estimated yearly decline rate of 13.2% during the initial five-year period.

Product Segments

Kimbell Royalty Partners operates in two main product segments: mineral interests and overriding royalty interests.

Mineral Interests

Mineral interests are real property interests that grant ownership to the oil and natural gas lying below the surface of the property, as well as the right to explore, drill, and produce oil and natural gas on that property or lease such rights to a third party. When a mineral owner grants an oil and gas lease to an operator, the mineral owner retains a royalty interest entitling it to a cost-free percentage, usually 20-25%, of production or revenue from production. As of December 31, 2024, KRP owned mineral and nonparticipating royalty interests in approximately 12.2 million gross acres, with 99% of the acreage subject to its mineral and royalty interests leased to working interest owners.

Overriding Royalty Interests

In addition to mineral interests, KRP also owns overriding royalty interests, which are royalty interests that burden the working interests of a lease and represent the right to receive a fixed, cost-free percentage of production or revenue from production from a lease. As of December 31, 2024, KRP owned overriding royalty interests in approximately 4.7 million gross acres, with virtually all of its overriding royalty interests being perpetual.

Financials and Operating Performance

For the fiscal year ended December 31, 2024, Kimbell reported total revenues of $310.65 million, representing a year-over-year increase of 13.9% from $273.18 million in 2023. The company's net income for the year was $11.07 million, compared to $83.01 million in the prior year.

Kimbell's operating cash flow for 2024 was $250.92 million, up from $174.27 million in 2023, while its free cash flow for the year was $250.71 million, compared to -$316.54 million in the previous year. The company's capital expenditures for 2024 were $209,891, down significantly from $490.81 million in 2023.

The company's oil, natural gas, and NGL revenues for 2024 were $304.61 million, with oil revenues accounting for 71% of total revenues, natural gas revenues at 16%, and NGL revenues at 13%. Kimbell also reported $6.05 million in lease bonus and other income, and $1.35 million in gains on commodity derivative instruments.

For the fourth quarter of 2024, Kimbell reported revenue of $69.1 million and a net loss of $32.5 million. The quarterly loss was primarily due to the impairment charge on oil and natural gas properties.

Kimbell's proved oil, natural gas, and NGL reserves as of December 31, 2024, were 67.54 million barrels of oil equivalent (MMBOE), of which 100% were classified as proved developed reserves. The company's average depletion rate for the year was $14.80 per barrel of oil equivalent.

Liquidity

As of December 31, 2024, Kimbell had $239.16 million in long-term debt outstanding under its secured revolving credit facility, with a net debt to trailing twelve-month consolidated adjusted EBITDA ratio of approximately 0.8x. The company had $310.8 million in undrawn capacity under its credit facility as of the end of the year.

Kimbell's debt-to-equity ratio stood at 0.31, with total debt of $242.72 million and total equity of $780.22 million. The company had $34.17 million in cash and a current ratio of 6.69, indicating strong short-term liquidity.

Kimbell's production for the fourth quarter of 2024 reached a record run-rate of 25,946 barrels of oil equivalent per day (BOE/d), including the impact of the company's recent acquisition in the Midland Basin. For the full year 2024, the company's production averaged 24,872 BOE/d, up from 20,270 BOE/d in 2023.

Acquisition Activity and Growth Strategies

Acquisitions have been a key driver of Kimbell's growth, and the company has continued to execute on its strategy of acquiring mineral and royalty interests from third parties, its Sponsors, and the Contributing Parties.

In January 2025, Kimbell closed the $230 million acquisition of mineral and royalty interests in the Midland Basin, which added approximately 1,842 BOE/d of production as of October 1, 2024. The company funded the acquisition through a combination of borrowings under its revolving credit facility and proceeds from a $163.6 million public offering of common units.

Looking ahead, Kimbell remains focused on pursuing additional accretive acquisitions to expand its asset base and drive growth in cash flow and distributions to unitholders. The company has a right of first offer on acquisitions sourced by its Sponsors, providing it with a valuable pipeline of potential opportunities.

Kimbell's strong financial position, with ample liquidity and a conservative leverage profile, positions it well to continue executing on its acquisition strategy. The company's management team has a proven track record of identifying, evaluating, and integrating mineral and royalty interest acquisitions, which is a key competitive advantage.

Risks and Challenges

As with any investment, Kimbell Royalty Partners is subject to a variety of risks and challenges that investors should be aware of:

1. Commodity Price Volatility: The company's revenues are directly tied to the prices received for oil, natural gas, and NGLs, which can be highly volatile and subject to factors beyond Kimbell's control.

2. Acquisition Integration Risks: The successful integration of acquired mineral and royalty interests is critical to Kimbell's growth strategy, and any challenges in this process could impact the company's financial and operational performance.

3. Regulatory and Environmental Risks: Kimbell's operations and those of the operators on its properties are subject to extensive federal, state, and local regulations, which could change over time and result in increased costs or restrictions.

4. Concentration Risks: A significant portion of Kimbell's production and reserves are located in the Permian Basin and Mid-Continent regions, exposing the company to risks associated with potential downturns in these key areas.

5. Limited Operational Control: As a non-operator, Kimbell has no direct control over the drilling, completion, and production activities on the properties in which it owns mineral and royalty interests.

Despite these risks, Kimbell's diversified asset base, conservative financial management, and experienced management team have positioned the company well to navigate the challenges of the oil and gas industry and continue delivering value to its unitholders.

Industry Trends and Outlook

The oil and gas industry has experienced significant volatility in commodity prices over the past several years. However, the long-term outlook for oil and gas demand remains positive, with the International Energy Agency projecting global oil demand to increase by approximately 3.2 million barrels per day by 2030 compared to 2023 levels.

Kimbell's guidance for 2025 reflects the impact of its recent Midland Basin acquisition, with the company projecting record high daily production at the midpoint of its guidance range. The 2025 production guidance midpoint is 25,500 BOE/d, which is close to their Q4 2024 exit run rate of 25,946 BOE/d including the recent acquisition. This guidance reflects flat growth for the year, which is in line with most of Kimbell's peers.

The company has reported a better line of sight inventory than ever before, with 91 rigs actively drilling on their acreage, including about 50 in the Permian Basin. Kimbell's management has expressed confidence in both near-term and long-term catalysts for growth on their acreage.

Conclusion

Kimbell Royalty Partners is a leading owner of oil and gas mineral and royalty interests in the United States, with a strong track record of growth through strategic acquisitions and a focus on high-quality assets. The company's diverse portfolio of mineral and royalty interests, low-decline production profile, and conservative financial position provide a solid foundation for continued success.

As Kimbell Royalty Partners navigates the dynamic oil and gas landscape, the company's experienced management team, disciplined capital allocation, and strategic focus on accretive acquisitions position it well to capitalize on opportunities and drive long-term value creation for its investors. With a robust line of sight to new well completions, coupled with its low maintenance capital requirements, Kimbell is well-positioned for sustained cash flow growth and potential distribution increases to unitholders in the coming years.