Kimbell Royalty Partners, LP (NYSE:KRP) Q3 2023 Earnings Call Transcript November 2, 2023
Kimbell Royalty Partners, LP misses on earnings expectations. Reported EPS is $0.19 EPS, expectations were $0.35.
Operator: Greetings, and welcome to the Kimbell Royalty Partners Third Quarter 2023 Earnings Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It's now my pleasure to introduce your host, Rick Black, Investor Relations for Kimbell Royalty Partners. Thank you. You may begin.
Rick Black: Thank you, operator, and good morning, everyone. Welcome to the Kimbell Royalty Partners conference call to review financial and operational results for the third quarter of 2023, which ended on September 30, 2023. This call is also being webcast and can be accessed through the audio link on the Events and Presentations page of the IR section of kimbellrp.com. Information recorded on this call speaks only as of today, November 2, 2023. So please be advised that any time sensitive information may no longer be accurate as of the date of any replay listening or transcript reading. I would also like to remind you that the statements made in today's discussion that are not historical facts, including statements of expectations or future events or future financial performance are considered forward-looking statements made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995.
We will be making forward-looking statements as part of today's call, which, by their nature, are uncertain and outside of the company's control. Actual results may differ materially. Please refer to today's earnings press release for our disclosure on forward-looking statements. These factors and other risks and uncertainties are described in detail in the company's filings with the Securities and Exchange Commission. Management will also refer to non-GAAP measures, including adjusted EBITDA and cash available for distribution. Reconciliations to the nearest GAAP measures can be found at the end of today's press release. Kimbell assumes no obligation to publicly update or revise any forward-looking statements. I would now like to turn the call over to Bob Ravnaas, Kimbell Royalty Partners' Chairman and Chief Executive Officer.
Bob Ravnaas: Thank you, Rick, and good morning, everyone. We appreciate you joining us on the call this morning. With me today are several members of our senior management team, including Davis Ravnaas, our President and Chief Financial Officer; Matt Daly, our Chief Operating Officer; and Blayne Rhynsburger, our Controller. We are very pleased to announce another record quarter that included substantial growth in all key operating metrics. Our total production, including a full quarter from our recent $455 million acquisition from a private seller exceeded 23,000 BOE per day for the first time in our history. We are excited to have achieved this significant milestone as we continue to execute our strategic business model aimed at not only consolidating the U.S. oil and natural gas royalty sector, but also, and more importantly, generating long-term value for our unitholders.
The third quarter marked new all-time highs set in production, rig count, DUCs and permits. During the quarter, our production mix continued to materially shift towards liquids with oil and NGLs now representing 49% of our production, compared to 46% last quarter. Activity in our acreage remains strong, and we now have a 17% market share of the overall U.S. land rig count, the highest in our history. Even after giving effect to our most recent $455 million acquisition, we still have the best-in-class PDP decline rate of only 14%. At the end of the quarter, we had 9.3 net DUCs and permits reflecting the widest spread we've ever had of line-of-sight wells relative to the number of wells needed to maintain flat production of only 5.8 net wells per year.
This gives us confidence in the resilience in our production, as we wrap up 2023 and look at 2024. In short, we are extremely pleased with this quarter as well as our third quarter distribution of $0.51 that we declared today, an increase of 31% from last quarter. In September, we closed our largest acquisition in the company's history. As we stated then and still believe today, this acquisition is expected to significantly enhance Kimbell's positions in the best-performing, highest growth oil and gas basins in the Lower 48. The targeted portfolio of mineral and royalty interest complements our disciplined approach to M&A, combining excellent reservoir quality, near-term cash flow and long-term drilling upside. While this acquisition was immediately accretive to distributable cash flow per unit, we believe it will generate accelerated accretion in the future years.
We look forward to continuing our role as a major consolidator in the oil and natural gas royalty sector. I'll now turn the call over to Davis to review our financials in more detail before we open the call to questions.
Davis Ravnaas: Thanks, Bob, and good morning, everyone. Kimbell performed extremely well in the third quarter and generated record daily production that marked a significant new milestone for Kimbell. Including a full quarter of the acquired production that Bob just discussed, the revenues of which will be received by Kimbell for the full quarter, run rate production was 23,531 BOE per day on a 6:1 basis. As a result of the significant incremental production and our expectations for the fourth quarter, today, we are boosting our production guidance range for Q4. In addition, we expect record low cash G&A per BOE at Q4, reflecting the positive operating leverage our business model generates. I'll start by reviewing our financial results from the third quarter, beginning with oil, natural gas and NGL revenues of $69.2 million, an increase of 21.5%, compared to the second quarter.
Third quarter 2023 run rate average daily production was 19,777 BOE per day, including 18 days of production from our recent acquisition. This represents a 13% increase, compared to the second quarter run rate average daily production of 17,573 BOE per day. Our third quarter production mix was comprised of approximately 51% from natural gas and approximately 49% from liquids, or 34% from oil and 15% from NGLs. As of September 30, 2023, Kimbell's major properties had 909 gross or 5.4 net DUCs and 805 gross, or 3.94 net permitted locations on its acreage. This data does not include our minor properties, which we estimate can add an additional 20% to the DUC and permit inventory. In addition, we exited the quarter with 99 rigs actively drilling on our acreage, and our market share of all land rigs drilling in the continental United States, represents approximately 17%, a new record.
On the expense side, general and administrative expenses for Kimbell were $10.4 million, $7 million of which was cash G&A expense. Excluding the impact of approximately $1.5 million in transaction-related expenses associated with the acquired production and including a full quarter impact of the acquired production, cash G&A per BOE was $2.55, a new record low for the company. Third quarter net income was approximately $18.5 million and net income attributable to common units was approximately $13.6 million, as compared to $17.8 million and $13.5 million, respectively, from last quarter. Total third quarter consolidated adjusted EBITDA was $55.8 million, up from $45 million last quarter, including the acquired production from the effective date of June 1, 2023, through September 30, 2023, Q3, 2023 consolidated adjusted EBITDA was $71.6 million.
You will find a reconciliation of both consolidated adjusted EBITDA and cash available for distribution at the end of our news release. Today, we announced a cash distribution of $0.51 per common unit for the third quarter. This represents a cash distribution payment to common unitholders that equates to 75% of cash available for distribution and the remaining 25% will be used to paydown a portion of the outstanding borrowings under Kimbell's secured revolving credit facility. We expect that approximately 55% of our third quarter 2023 distribution should not constitute dividends for U.S. federal income tax purposes, but instead are estimated to constitute nontaxable reductions, to the basis of each distribution recipients' ownership interest in Kimbell common units.
Please refer to today's earnings release for additional commentary related to taxes. Moving now to our balance sheet and liquidity. As a reminder, on June 13, we amended our existing credit agreement to, among other things, increase the borrowing base and elected commitment amount from $350 million to $400 million on the secured revolver and extend the maturity to June 2027. As of September 30, 2023, we had approximately $310.4 million in debt outstanding under our secured revolving credit facility. We continue to maintain a conservative balance sheet with net debt to trailing 12 months consolidated adjusted EBITDA of 0.9 times. Kimbell had approximately $89.6 million in undrawn capacity under its secured revolving credit facility as of September 30, 2023.
We are very comfortable with our strong financial position, the support of our expanding base syndicates and our financial flexibility. We remain very bullish about our industry and our company, as we see a long horizon for continued growth and opportunities, to enhance shareholder value. With that, operator, we are now ready for questions.
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