Release Date: November 07, 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) declared a third quarter cash distribution of $0.41 per common unit, highlighting their commitment to returning value to unitholders.
- The company reported strong drilling activity with 90 rigs actively drilling on their acreage, representing a 16% market share of all land rigs in the Lower 48.
- KRP achieved a record number of lease bonuses during the third quarter, indicating increased operator interest in their acreage.
- The number of net DUCs increased by 34% quarter-over-quarter to 5.1 net DUCs, the second highest level in the company's history, driven by activity in the Permian Basin.
- KRP maintained a conservative balance sheet with a net debt to trailing 12-month consolidated adjusted EBITDA of approximately 0.8 times, ensuring financial flexibility.
Negative Points
- The decision to delay the partial redemption of Apollo preferred stock to May 2025, although cost-efficient, may raise concerns about the timing and financial strategy.
- Net permits decreased by about 1.4, which could indicate a potential slowdown in future drilling activity if not addressed.
- The company faces competition in smaller acquisitions, which could limit their ability to consolidate smaller interests efficiently.
- There is uncertainty regarding the continuation of increased lease bonuses, as it may depend on operators running through their Tier 1 acreage.
- KRP's exposure to the Appalachian Basin is limited, which could be a missed opportunity given the potential for increased infrastructure and LNG exports in the region.
Q & A Highlights
Q: Could you explain the decision to partially redeem the preferred stock in May 2025 instead of this quarter?
A: R. Davis Ravnaas, President and CFO, explained that after recalculating, it was found to be more cost-efficient to redeem the preferred stock in May 2025, saving the partnership a couple of million dollars. The goal remains to redeem it as soon as possible, but waiting a few months is financially beneficial.
Q: Should we expect the increase in net DUCs to continue, and how should we view the relationship between net DUCs and permits?
A: R. Davis Ravnaas noted that a DUC is more valuable than a permit, and the recent increase in DUCs, particularly in the Delaware Basin, is encouraging. The increase is mainly driven by activity in Loving County, and they expect to see the impact of these wells in Q4.
Q: What basins are presenting the most M&A opportunities, and how does the recent election impact this?
A: R. Davis Ravnaas stated that the Permian Basin remains attractive due to the pipeline of opportunities, though it can be expensive. They are also seeing increased opportunities in Appalachia, potentially due to bullish LNG export stories. The focus is on larger, impactful acquisitions rather than smaller ones.
Q: Can you elaborate on the impressive quarterly lease bonuses and whether this trend will continue?
A: R. Davis Ravnaas attributed the increase in lease bonuses to heightened operator interest, particularly in the Mid Continent region and the new Cherokee shale play. He suggested that operators might be expanding beyond Tier 1 acreage, which could continue to drive leasing activity.
Q: Regarding the high NRI wells in Loving County, when should we expect to see their impact?
A: R. Davis Ravnaas confirmed that these wells are already producing, and they expect to start receiving production and cash flow in Q4. The initial results are very encouraging, given Loving County's productivity.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
