Executive Summary / Key Takeaways

• Kimbell Royalty Partners offers investors a unique, passive exposure to U.S. onshore oil and natural gas production through a diversified, non-cost-bearing mineral and royalty interest portfolio, differentiating itself with a favorable tax structure and focus on accretive acquisitions.
• The company achieved record financial results in Q1 2025, including record oil, natural gas, and NGL revenues ($90.0 million), consolidated Adjusted EBITDA ($75.5 million), and cash available for distribution ($57.2 million), driven by higher natural gas and NGL prices and contributions from recent acquisitions like the Boren deal.
• Strategic M&A remains a core growth driver, exemplified by the $230.4 million Boren acquisition in the Midland Basin, which is expected to be immediately accretive and enhance production, inventory, and cost efficiency, reinforcing Kimbell's position as a leading consolidator in a fragmented market.
• Kimbell maintains a conservative balance sheet, recently increasing its credit facility to $625 million and redeeming 50% of its Series A preferred units, demonstrating a commitment to simplifying its capital structure and managing leverage (pro forma net debt to TTM Adjusted EBITDA of ~1.5x) to support distributions and future growth.
• Operational strength is underpinned by a robust 16% market share of U.S. land rigs drilling on its acreage, a low 14% PDP decline rate, and line-of-sight wells significantly exceeding maintenance levels, providing confidence in achieving the 2025 production guidance midpoint of 25,500 Boe/d despite commodity price volatility and geopolitical uncertainties.

Setting the Scene: A Passive Powerhouse in U.S. Energy Royalties

Kimbell Royalty Partners, LP operates with a distinct model in the U.S. energy landscape. Founded in 2015, the Delaware limited partnership is a pure-play owner and acquirer of mineral and royalty interests across the continental United States. Unlike traditional exploration and production (E&P) companies, Kimbell is not burdened by the significant capital expenditures and operational risks associated with drilling, completing, and operating wells. As a royalty owner, Kimbell is entitled to a specified percentage of the revenues generated from hydrocarbon production on the acreage underlying its interests, net of post-production expenses and taxes. This passive, non-cost-bearing structure is foundational to its strategy: providing increasing cash distributions to unitholders through both strategic acquisitions and the organic development of its existing asset base by third-party operators.

The company's journey since its 2017 IPO, where it produced approximately 3,116 Boe per day, has been one of aggressive, yet disciplined, consolidation. Through a series of acquisitions, including notable deals like Haymaker (2018), LongPoint (2023), and most recently, Boren (2025), Kimbell has dramatically scaled its footprint and production base. This growth strategy is executed within a fragmented U.S. royalty market, estimated to be over $700 billion in size, where Kimbell positions itself as a leading consolidator with the financial resources and technical expertise for large-scale, multi-basin transactions.

Kimbell's competitive positioning is primarily defined by its expansive and diversified asset portfolio, its unique tax structure, and its low-cost operating model. With interests spanning 28 states and every major onshore basin, including significant exposure to the Permian and Mid-Continent regions, Kimbell mitigates the risks inherent in regional concentration faced by some peers like Viper Energy Partners (VNOM), which is heavily weighted to the Permian, or Black Stone Minerals (BSM), with strong positions in the Permian and Haynesville. This diversification provides resilience against localized operational slowdowns or pricing disparities. Furthermore, Kimbell's election to be taxed as a corporation for U.S. federal income tax purposes results in distributions that are often treated as non-taxable return of capital for unitholders, a distinct advantage over traditional MLP structures used by some competitors, enhancing its appeal to a broader investor base.

While Kimbell does not possess proprietary drilling or extraction technology in the way an E&P company or a solar manufacturer like First Solar (FSLR) might have a unique panel technology, its operational model is fundamentally enabled by and benefits from the technological advancements and efficiencies of the diverse operators on its acreage. Kimbell's "technology" moat, in essence, lies in its ability to aggregate and manage a vast portfolio that captures the upside from the industry's best practices and technological progress across multiple basins without incurring the associated R&D or capital costs. The company's low five-year average proved developed producing (PDP) decline rate of 14% is a direct reflection of the quality and maturity of the underlying assets and the effectiveness of operator technologies in maintaining production. Kimbell's strategic focus is not on developing new drilling techniques, but on leveraging the existing and evolving capabilities of its operators through astute asset selection and acquisition. There are no specific R&D initiatives or quantifiable technological performance metrics related to Kimbell's direct operations disclosed, as its business is passive ownership, relying on the technological prowess of the industry at large.

Performance Reflecting Strategy and Market Dynamics

Kimbell's financial performance in the first quarter of 2025 underscores the effectiveness of its strategy and the impact of recent market dynamics. The company reported record oil, natural gas, and NGL revenues of $90.0 million, a notable increase from $87.5 million in Q1 2024. This growth was primarily fueled by a significant increase in average prices received for natural gas (up 97.4% to $3.87 per Mcf) and NGLs (up 13.3% to $27.99 per Bbl), which more than offset a decrease in oil prices (down 9.6% to $69.27 per Bbl) and a slight decrease in total production volumes (down from 2.50 million Boe to 2.30 million Boe). The Q1 2025 results included 74 days of contribution from the Boren acquisition, demonstrating the immediate impact of its M&A strategy.

This top-line performance translated into record consolidated Adjusted EBITDA of $75.5 million in Q1 2025, compared to $74.1 million in the prior year period. The increase in EBITDA, despite higher revenues, was somewhat tempered by mark-to-market losses on commodity derivative instruments ($7.0 million in Q1 2025), reflecting the volatility in strip pricing. However, the underlying cash flow generation remained strong, supporting the company's distribution policy.

Operating expenses saw some notable shifts. Production and ad valorem taxes decreased to $5.4 million in Q1 2025 from $6.5 million in Q1 2024, primarily due to lower production volumes, partially offset by taxes from the Boren acquisition. Depreciation and depletion expense decreased significantly to $31.1 million from $38.2 million, largely due to the impact of a $6.0 million impairment charge recorded in Q1 2024 (driven by lower 12-month average commodity prices affecting the full-cost ceiling test), which reduced the net capitalized cost of properties subject to depletion. No impairment was recorded in Q1 2025. The average depletion rate per barrel also decreased from $15.24 to $13.52, reflecting the lower cost basis post-impairment and the addition of Boren properties. General and administrative expenses remained relatively stable at $9.6 million, with a slight increase attributed to non-cash unit-based compensation. Interest expense decreased to $6.6 million from $7.3 million due to a lower weighted average interest rate on outstanding borrowings.

Looking at broader trends, Kimbell's TTM financial ratios highlight its operational efficiency and profitability. The company boasts a robust TTM Gross Profit Margin of 64.29% and an EBITDA Margin of 46.25%, reflecting the inherent high-margin nature of the royalty business model with minimal operating costs. While its TTM Net Profit Margin stands at 8.34%, influenced by non-cash items like impairments and mark-to-market derivative losses, the strong operating cash flow generation (TTM Operating Cash Flow of $250.9 million) underscores the health of the core business. The TTM Current Ratio of 6.01 and Quick Ratio of 6.01 indicate strong short-term liquidity.

Capital Management and Strategic Growth

Kimbell's approach to capital structure and liquidity is designed to support its growth ambitions while prioritizing unitholder distributions. The company's primary sources of capital are cash flow from operations, its secured revolving credit facility, and equity/debt issuances. Acquisitions are the primary use of capital beyond distributions.

The revolving credit facility is a key tool for funding acquisitions and managing liquidity. On May 1, 2025, the borrowing base and aggregate elected commitments were increased from $550 million to $625 million, providing enhanced financial flexibility. As of March 31, 2025, the outstanding balance was $299.0 million. Subsequent to quarter-end, on May 1, 2025, an additional $180.0 million was borrowed to facilitate the partial redemption of preferred units, bringing the outstanding balance to $479.0 million as of May 2, 2025. Kimbell remains in compliance with its financial covenants, including a Debt to EBITDAX ratio not exceeding 3.50 to 1.00 and a current ratio of at least 1.00 to 1.00.

A significant strategic move post-quarter was the redemption of 162,500 Series A preferred units on May 7, 2025, representing 50% of the outstanding preferred equity, for $182.3 million. These preferred units, issued in September 2023 for $325.0 million to fund the LongPoint acquisition, carried a cumulative quarterly distribution and conversion/redemption features. The redemption simplifies the capital structure and reduces the cost of capital. Following this redemption and the planned debt paydown from Q1 2025 distributions, Kimbell expects its pro forma net debt to trailing twelve-month consolidated Adjusted EBITDA to be approximately 1.5x, which management considers conservative and well within their target range of 1.5x or less. Management intends to continue allocating 25% of cash available for distribution on common units to debt reduction and plans to incrementally redeem the remaining preferred units over time, using revolver borrowings, unless a large, equity-driven acquisition provides an opportunity for accelerated deleveraging.

The acquisition strategy continues to focus on larger, impactful deals, preferably $100 million-plus transactions, which management believes are less competitive than smaller deals and allow for more efficient use of equity as a funding source. The $230.4 million Boren acquisition, funded by a combination of the January 2025 equity offering ($163.6 million net proceeds) and debt, exemplifies this approach. This acquisition of Midland Basin interests is expected to be immediately accretive to distributable cash flow per unit, increase daily production by approximately 8%, decrease cash G&A per Boe by approximately 7%, and add significant inventory, including 1.22 net DUCs/permits and 6.06 net upside locations in the Permian. This deal reinforces the Permian as Kimbell's leading basin and highlights the company's capability to execute large, value-accretive transactions.

Outlook, Risks, and Competitive Dynamics

Kimbell has affirmed its financial and operational guidance for 2025, initially provided in the Q4 2024 earnings release. The guidance includes an estimated daily production midpoint of 25,500 Boe/d, reflecting the full-year impact of the Boren acquisition. Management expresses confidence in achieving this guidance, citing robust activity levels on its acreage. As of March 31, 2025, 90 rigs were actively drilling on Kimbell's properties, representing a significant 16% market share of all U.S. land rigs. This high level of operator activity, combined with 8.10 net DUCs and net permitted locations (compared to an estimated 6.5 net wells needed to maintain flat production), provides strong line-of-sight for future production volumes. Management noted that recent permitting and lease bonus activity, particularly in the Permian and Mid-Continent, suggests no immediate evidence of a slowdown in operator development plans, which runs counter to some broader market narratives.

Despite this positive operational outlook, Kimbell faces inherent risks. Commodity price volatility remains the most significant factor influencing revenues and profitability. Global conflicts and geopolitical uncertainties contribute to this volatility, although Kimbell has not experienced a material impact to date. Changes in U.S. trade policy and potential tariffs could also indirectly affect commodity demand and prices. The risk of non-cash impairment charges persists, particularly if commodity prices decline significantly, impacting the full-cost ceiling test. While Kimbell benefits from operator technology, it is also dependent on operators' ability to obtain capital, manage costs, and execute drilling plans effectively. Counterparty credit risk exists for derivative contracts and revenue collection, although Kimbell evaluates its counterparties. Interest rate risk on its variable-rate debt is also a factor.

In the competitive landscape, Kimbell differentiates itself through its broad diversification and tax structure. While competitors like VNOM and BSM may exhibit slightly higher profitability margins (e.g., TTM Net Margins for VNOM were around 42% and BSM around 63%, compared to KRP's ~8.34%) or return metrics (e.g., TTM ROE for VNOM was around 21% and BSM around 33%, compared to KRP's ~0.000026%), Kimbell's lower operating cost model (no capex) and tax advantages provide a distinct value proposition. Kimbell's strategic focus on large-scale M&A positions it to consolidate the fragmented market, leveraging its financial capacity and technical expertise, areas where it competes directly with the handful of other public royalty companies capable of such transactions. The company's ability to execute accretive acquisitions, like Boren at an estimated 7.5x cash flow multiple, is critical to its growth trajectory and competitive standing.

Conclusion

Kimbell Royalty Partners presents a compelling investment thesis centered on its passive, diversified, and low-cost royalty model, underpinned by a strategic focus on accretive consolidation. The company's record performance in Q1 2025, driven by favorable commodity price movements and contributions from recent acquisitions, demonstrates the earnings power of its expanding asset base. With a robust pipeline of operator activity on its acreage and a conservative balance sheet recently strengthened by a credit facility increase and preferred unit redemption, Kimbell is well-positioned to deliver on its 2025 guidance and continue its growth trajectory. While exposed to the inherent volatility of commodity markets and geopolitical risks, Kimbell's diversified portfolio, tax-advantaged structure, and proven M&A capabilities provide a durable competitive advantage in the U.S. royalty sector. For investors seeking yield and growth potential without the operational complexities of traditional E&P, Kimbell offers a unique opportunity to participate in the ongoing development of U.S. onshore energy resources.