Release Date: August 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Kimbell Royalty Partners LP (KRP, Financial) reported strong cash flow and continued debt paydown for the second quarter of 2024.
- The company maintained a robust rig count with 91 rigs actively drilling, representing a 16% market share of all land rigs in the continental United States.
- KRP achieved a record low cash G&A expense per BOE, reflecting operational discipline and positive operating leverage.
- The company announced a $0.42 distribution per common unit, focusing on returning value to unitholders.
- KRP maintained a conservative balance sheet with a net debt to trailing 12-month consolidated adjusted EBITDA of 0.9 times, ensuring financial flexibility.
Negative Points
- Despite strong production, KRP did not revise its guidance for 2024, which some analysts viewed as overly conservative.
- The company faces challenges in acquiring gas assets, as there is limited availability in the market despite depressed gas prices.
- KRP's M&A activity has been relatively quiet, with fewer transactions of interest from an asset quality standpoint.
- The common units outstanding increased significantly, partly due to the conversion of private equity funds, which may dilute existing shareholders.
- The weak gas environment presents challenges, although KRP's Haynesville production remained stable.
Q & A Highlights
Q: Why has Kimbell Royalty Partners not revisited its guidance given that production is outpacing expectations and cash G&A and DD&A are trending outside the range?
A: R. Davis Ravnaas, President and CFO, acknowledged the point and mentioned that they might reconsider the guidance. He noted that while they don't control the drill bit, they aim to be conservative and ensure they deliver on their promises. Matt Daly, COO, added that they have significant wells coming online that could impact production positively.
Q: What are Kimbell's plans regarding the preferred shares as they approach 2025?
A: R. Davis Ravnaas stated that they plan to redeem about half of the preferred shares in the next three to six months, aiming to keep leverage low with a debt to EBITDA ratio of less than 1.5 times. This move is part of their strategy to improve the balance sheet.
Q: Can you explain the increase in common units outstanding to 81 million?
A: R. Davis Ravnaas explained that the increase was due to a conversion by one of their shareholders related to the Hatch acquisition. Matthew Daly added that a private equity fund converted from OpCo into common units, affecting the unit count.
Q: Are there any dislocations in pricing between gas and oil assets given the current weak gas environment?
A: R. Davis Ravnaas noted that finding gas assets has been challenging as sellers are holding onto them due to favorable future pricing scenarios. Matthew Daly added that despite low prices, their Haynesville production has been stable, and they have seen organic growth in their gas assets.
Q: What other basins is Kimbell looking at for potential acquisitions, and what is the potential ticket size?
A: R. Davis Ravnaas mentioned that M&A activity has been slow, but they are open to acquisitions across all basins. They prioritize asset quality over specific locations and are prepared to invest wherever they see the best opportunities for their investors.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
