Release Date: May 02, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Kimbell Royalty Partners LP achieved new quarterly records in daily production, revenue, and EBITDA, indicating strong operational performance.
- The company announced a $0.49 distribution per common unit, marking a 14% increase compared to the previous quarter, demonstrating commitment to returning value to unitholders.
- Approximately 79% of the distribution will be considered return of capital, enhancing the after-tax return for unitholders.
- Kimbell Royalty Partners LP maintains a conservative balance sheet with net debt to trailing 12 months consolidated adjusted EBITDA of one times, ensuring financial stability.
- The company has a diversified model with activities in multiple basins, providing resilience against localized downturns in any single region.
Negative Points
- The M&A market had a relatively muted start to the year, with fewer opportunities for significant acquisitions, particularly outside the Permian basin.
- General and administrative expenses remain a significant portion of costs, with $9.4 million reported this quarter.
- Despite high activity levels, there is an acknowledgment of potential slowdowns in certain areas like the Haynesville region due to reduced capital expenditure by operators.
- The company faces challenges in acquiring high-quality, large mineral packages outside of the Permian, particularly in the Appalachian Basin.
- There is a noted disparity in bid-ask spreads for acquisitions, particularly on oil assets, which could affect future M&A activities.
Q & A Highlights
Q: What is the current state of the M&A market, particularly in terms of opportunities in different basins and potential deal sizes?
A: (Robert Ravnaas, CEO) - The M&A market has had a relatively muted start this year, with most sizable opportunities appearing in the Permian Basin. Potential deals could exceed $100 million in this region. The overall pace and scale of M&A activities can vary significantly year by year.
Q: Can you provide insights on the rig activity and operational dynamics in the Mid-Con assets?
A: (Robert Ravnaas, CEO) - The Mid-Con basin has shown robust activity levels, which are somewhat surprising given its recent downturns. This resilience is attributed to improved operational efficiencies and strong well performance in the region.
Q: How are bid-ask spreads behaving in the current market, especially between oily and gassy assets?
A: (Robert Ravnaas, CEO) - The market hasn't seen many large gas asset deals recently, leading to fewer comparisons. However, oil assets show a disparity in initial cash flow multiples between bids and asks, influenced by backwardated curves, which could complicate deal-making.
Q: Given the decrease in activity in the Haynesville region, were you surprised by the slight production increase there in Q1?
A: (Matt Daly, COO) - The increase was unexpected but was driven by high-interest wells coming online, which significantly impacted production despite broader regional slowdowns.
Q: Are there any anticipated changes to the 75% payout ratio for cash distributions or adjustments to the hedging program?
A: (Robert Ravnaas, CEO) - There are no expected changes to the current payout ratio or significant alterations to the hedging strategy. The company maintains a balance, hedging about 20% of production to protect against price drops while benefiting from price increases.
Q: Are there any notable M&A opportunities outside the Permian Basin?
A: (R. Davis Ravnaas, CFO) - Currently, the larger, more significant M&A opportunities are concentrated in the Permian. While the company is open to acquisitions in other basins, nothing substantial outside the Permian is being considered at the moment.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
