Kimbell Royalty Partners, LP Annual Report - A Look Back at 2023

This guide offers a clear, concise overview of Kimbell Royalty Partners, LP's performance for the fiscal year that ended on December 31, 2023. We aim to simplify their annual report, helping you understand their operations and financial health. Kimbell Royalty Partners' common units trade on the New York Stock Exchange under the ticker symbol KRP.

1. Business Overview (What the Company Does)

Kimbell Royalty Partners operates primarily within the oil and natural gas industry. As a royalty company, Kimbell does not drill for oil and gas itself. Instead, it owns the rights to receive a percentage of the revenue from oil and gas produced on land it owns or has leased. Think of Kimbell as a landlord who collects a portion of the income from a tenant operating a business on their property. This model allows Kimbell to benefit from production without incurring the high costs and risks associated with drilling.

As of early 2024, Kimbell's common units represented a market value of approximately $1.2 billion, indicating its significant size. In fiscal year 2023, Kimbell demonstrated resilience, navigating fluctuating commodity prices while maintaining strong distributions to its unitholders. The company focused on optimizing its existing assets and strategically pursuing accretive acquisitions, which helped sustain a stable production profile across its diverse portfolio.

2. Financial Performance (Revenue, Profit, Year-over-Year Changes)

For the fiscal year ended December 31, 2023, Kimbell Royalty Partners reported total revenues of approximately $250 million. This figure marked a slight decrease from the previous year, mainly due to lower average realized commodity prices, even as production volumes remained stable. The company achieved a net income of around $80 million and an Adjusted EBITDA of approximately $180 million. Kimbell prioritized returning capital to unitholders, declaring total cash distributions of $1.50 per common unit for the year, consistent with its payout strategy. Production volumes held relatively flat year-over-year, averaging around 15,000 barrels of oil equivalent per day (BOEPD), reflecting the steady nature of its royalty interests.

3. Risk Factors (Key Risks)

Kimbell Royalty Partners faces several primary risks:

• Commodity Price Fluctuations: Changes in oil and natural gas prices directly impact Kimbell's revenue.
• Declining Production: Production from underlying wells could decline, a factor Kimbell does not control as it does not make drilling decisions.
• Regulatory Changes: Environmental policies or drilling permit regulations could affect Kimbell's operators and, consequently, its royalty income.
• Counterparty Risk: Operators (Kimbell's tenants) may face bankruptcy or operational issues, posing a risk.
• Acquisition Opportunities: The availability of attractive acquisition opportunities and Kimbell's ability to finance them could affect future growth.

4. Management Discussion (MD&A Highlights)

In 2023, Kimbell achieved a significant win by successfully integrating several strategic acquisitions totaling approximately $100 million. These additions diversified its royalty interests across key basins like the Permian and Appalachian and are expected to contribute to future cash flow stability. Kimbell also benefited from its operators' strong operational efficiency, which led to consistent production.

A primary challenge for the year was the volatility in crude oil and natural gas prices, directly impacting revenue and profitability. Additionally, inflationary pressures on operators' costs presented a minor headwind, though Kimbell's royalty model largely insulates it from direct operational cost increases.

Kimbell's executive leadership team saw no significant changes in 2023, ensuring continuity in management. The company's core strategy remained consistent:

• Grow through accretive acquisitions of high-quality mineral and royalty interests.
• Maintain a strong balance sheet.
• Return a significant portion of cash flow to unitholders through consistent distributions.

Kimbell continued to emphasize a disciplined approach to capital allocation, focusing on assets that enhance its existing portfolio and provide immediate cash flow.

Broader market trends also influence Kimbell, including global demand for oil and natural gas, geopolitical events affecting supply, and the ongoing energy transition. While renewable energy is a long-term trend, Kimbell believes natural gas will play a crucial role as a transition fuel, and oil demand will remain robust. Environmental regulations, particularly those concerning methane emissions and drilling permits, could impact operators' activities and, indirectly, Kimbell's revenues. However, its diversified asset base helps spread this risk.

5. Financial Health (Debt, Cash, Liquidity)

Kimbell concluded 2023 in a solid financial position. It reported cash and cash equivalents of approximately $20 million. Total long-term debt stood at around $350 million, resulting in a net debt to Adjusted EBITDA ratio of approximately 1.9x. This ratio falls well within Kimbell's target range, indicating a manageable leverage profile. The company maintained significant liquidity, with approximately $150 million available under its revolving credit facility, providing flexibility for future acquisitions and operational needs. Kimbell's non-operating model allows it to generate strong, relatively predictable cash flows with minimal capital expenditure requirements.

6. Future Outlook (Guidance, Strategy)

Looking ahead, Kimbell anticipates stable to slightly increasing production volumes. Recent acquisitions and ongoing development activity by its operators will drive this growth. The company expects commodity prices to remain a key determinant of financial performance and is positioned to benefit from any upward trends. Kimbell plans to continue its disciplined acquisition strategy, targeting opportunities that enhance cash flow per unit. It reiterated its commitment to maintaining a strong distribution policy, aiming to provide attractive returns to unitholders while responsibly managing leverage.

7. Competitive Position

Kimbell holds a strong competitive position as one of the largest and most diversified mineral and royalty companies in the U.S. Its portfolio spans over 17 million gross acres across 28 states, with interests in all major onshore basins. This broad diversification helps mitigate risks associated with any single basin or operator. Kimbell's non-operated model provides a low-cost structure compared to exploration and production (E&P) companies. It competes for acquisitions with other royalty companies and private equity funds, leveraging its scale and access to capital.