Kimbell Royalty Partners Stock: 12.8%-Yielder Hasn’t Missed Quarterly Payout Since IPO
KRP Stock Has 63% Upside Potential
Energy stocks took a big hit in 2020, which, in hindsight, wasn’t a big surprise. The COVID-19 pandemic shut down the global economy, so the demand for oil and natural gas evaporated. Energy companies took a beating in the opening months of 2020, and many of them cut their dividends to preserve cash. One oil and gas exploration and production company that didn’t miss a beat, however, is Kimbell Royalty Partners LP (NYSE:KRP).
The Fort Worth, Texas-based energy stock cratered during the opening months of the pandemic, but the company still managed to pay quarterly dividends throughout the year.
Since it’s an energy company, Kimbell Royalty Partners LP’s payouts fluctuate based on supply/demand and pricing. Kimbell Royalty Partners stock’s quarterly dividends were lower in 2020 than in 2019 but still respectable.
In 2019, KRP stock paid out $1.56 per share. In 2020, it paid out $0.68 per share. The dividend has rebounded since then, to $1.32 in 2021 and $1.99 in 2022. (Source: “Distribution History,” Kimbell Royalty Partners LP, last accessed July 11, 2023.)
Energy was the best-performing business sector in 2021 and 2022, so the big payouts were warranted. The energy sector hasn’t fared as well in 2023, but Kimbell Royalty Partners LP hasn’t received that memo. The company reported record fourth-quarter 2022, full-year 2022, and first-quarter 2023 results. It has also boosted its full-year 2023 production guidance.
Moreover, the partnership recently completed a $141.0-million mineral and royalty acquisition. This was the second big acquisition it announced since December.
Despite all the great things going on at Kimbell Royalty Partners LP, its unit price hasn’t followed suit. As of this writing, Kimbell Royalty Partners units are up by 3.3% year-to-date but down by 7.2% year-over-year. That has more to do with rising interest rates, inflation, and fears of a recession than anything going on at the company.
The outlook for Kimbell Royalty Partners is bullish, though, with analysts providing a 12-month unit-price target in the range of $19.00 to $24.00. This points to potential upside in the range of 30% to 63%. (Source: “Summer 2023 Investor Presentation,” Kimbell Royalty Partners LP, last accessed July 11, 2023.)
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About Kimbell Royalty Partners LP
Kimbell Royalty Partners and its subsidiaries own and acquire mineral and royalty interests in oil and natural gas properties in the U.S.
Its portfolio includes more than 16 million gross acres and more than 150,000 net royalty acres in the lower 48 states, with significant positions in the highest-growth basins. Some 92% of its production comes from the seven premier U.S. onshore resource plays: Appalachia, Bakken, Eagle Ford, Haynesville, Mid-Continent, Permian, and Rockies.
About 97% of all the onshore rigs in the lower 48 states are in counties where Kimbell Royalty Partners LP holds mineral interest positions. Roughly two percent of the acreage is federal land, and no material impact is expected from any potential legislation.
As of March 31, Kimbell Royalty had a record 94 rigs actively drilling for resources, up from 92 in the fourth quarter of 2022. This represents a 12.8% market share of all rigs drilling in the continental U.S.
Kimbell Royalty Partners LP’s top operators include Chesapeake Energy (NASDAQ:CHK), Coterra Energy Inc (NYSE:CTRA), Devon Energy Corp (NYSE:DVN), Exxon Mobil Corp (NYSE:XOM), Occidental Petroleum Corp (NYSE:OXY), and PDC Energy Inc (NASDAQ:PDCE).
As a limited partnership, Kimbell Royalty doesn’t pour money into new wells. Instead, it milks the positions it already has. Based on current technology, its high-quality, diverse asset base still has 19 years of drilling inventory across its major properties.
As of December 31, 2022, management had identified 10,763 gross (66.94 net) upside locations on its major properties. Major properties comprise approximately 80% of its portfolio. The company estimates that its minor properties could add up to 20% to its net inventory.
That doesn’t mean Kimbell Royalty Partners LP isn’t willing to spend money to expand its portfolio. Since its initial public offering (IPO) in 2017, the partnership has announced eight major merger-and-acquisition transactions. Since its IPO, it has invested $1.2 billion in mergers and acquisitions, increasing its portfolio by about 12 million gross acres.
Recent Acquisitions of Mineral & Royalty Interests
Last December, Kimbell Royalty closed on its previously announced purchase of mineral and royalty interests held by Austin, Texas-based Hatch Royalty LLC in a cash and unit transaction valued at approximately $270.7 million. (Source: “Kimbell Royalty Partners Closes $271 Million Acquisition of Permian Basin Mineral and Royalty Interests in Cash and Unit Transaction,” Kimbell Royalty Partners LP, December 15, 2022.)
The purchase price comprised $150.4 million in cash and about 7.3 million common units of Kimbell Royalty Operating, LLC, which were valued at $120.3 million.
The acquired assets are located in the Permian Basin, with high-interest locations concentrated in the Texas Delaware Basin (82%), New Mexico Delaware Basin (eight percent) and Midland Basin (10%).
Kimbell Royalty is entitled to all cash flow from the production attributable to the acquired assets since October 1, 2022. Revenues and certain other operating statistics under generally accepted accounting principles (GAAP) were to be recorded for the acquisition beginning on the closing date of December 15, 2022.
Kimbell Royalty Partners LP estimates that, as of October 1, 2022, the acquired assets produced approximately 2,072 barrels of oil equivalent per day (Boe/d). Kimbell Royalty estimates that the acquired assets will produce about 2,522 Boe/d in full-year 2023.
These acquisitions have helped Kimbell Royalty Partners LP grow its average daily run rate by over five times since its 2017 IPO. In the first quarter of 2017, its average daily run rate was 3,100 barrels of Boe/d. In the first quarter of 2023, the number stood at 17,000 Boe/d.
In May 2023, Kimbell Royalty Partners closed on its previously announced purchase of mineral and royalty interests held by MB Minerals, L.P., a subsidiary of Sabalo Holdings, LLC. (Source: “Kimbell Royalty Partners Closes $141 Million Midland Basin Mineral and Royalty Acquisition,” Kimbell Royalty Partners LP, May 17, 2023.)
This transaction was valued at approximately $140.8 million ($48.8 million in cash, 5.4 million units of KRP stock, and about 600,000 newly issued common units of Kimbell Royalty Partners, LP, valued at $8.7 million).
The acquired assets are concentrated in northern Howard County and southern Borden County.
With this acquisition, Kimbell Royalty is entitled to all cash flow from production attributable to the acquired assets since the effective date of April 1. Revenues and certain other operating statistics under GAAP were to be recorded for this acquisition beginning on the closing date of May 17.
Kimbell Royalty Partners LP estimates that, over the initial 12 months of this acquisition, the acquired assets will produce approximately 1,901 Boe/d.
Record Q1 Results & Increased Production Guidance
For the first quarter ended March 31, Kimbell Royalty reported a record run-rate daily production of 17,014 Boe/d, up by 10.5% from its production in the fourth quarter of 2022. The first-quarter production comprised approximately 58% natural gas, 29% oil, and 13% natural gas liquids (NGL). (Source: “Kimbell Royalty Partners Announces Record First Quarter 2023 Results,” Kimbell Royalty Partners LP, May 3, 2023.)
Kimbell Royalty Partners LP’s first-quarter revenue was $66.9 million, almost double the $33.7 million recorded for the same period last year. Its net income in the quarter was $28.9 million, a 243% increase over its first-quarter 2022 net income of $8.4 million. The partnership’s net income attributable to common units was $23.3 million, or $0.37 per unit, compared to $7.3 million, or a loss of $0.20 per unit, in the first quarter of 2022.
In May, the company upped its 2023 production guidance. The company now expects to report record-high daily production. The increased forecast is connected to the aforementioned purchase of mineral and royalty interests from MB Minerals, L.P. (Source: “Kimbell Royalty Partners Boosts 2023 Production Guidance,” Kimbell Royalty Partners LP, May 18, 2023.)
First-Quarter Cash Distribution of $0.35/Unit
Kimbell Royalty Partners LP’s board approved a first-quarter cash distribution to common unitholders of $0.35 per common unit, for a yield of 12.8% (as of this writing). That dividend represents 75% of the company’s cash available for distribution for the quarter.
The partnership used the remaining 25% of its cash available for distribution to pay down a portion of the outstanding borrowings under its secured revolving credit facility.
Since May 2020 (excluding the just-mentioned recent paydown), Kimbell Royalty Partners LP has used a portion of its cash available for distribution to pay down approximately $99.2 million of the outstanding borrowings under its secured revolving credit facility.
The company has said it expects to continue paying out 75% of its projected cash available for distribution on a quarterly basis and using the other 25% to pay down the outstanding borrowings under its secure revolving credit facility.
The Lowdown on Kimbell Royalty Partners Stock
Kimbell Royalty Partners LP is a great energy play that has been reporting record results, strategic acquisitions, and strong guidance.
Thanks to its tremendous cash generation and industry tailwinds, the partnership has been able to strengthen its balance sheet and provide reliable, inflation-crushing, high-yield dividends to KRP stockholders.