Kimbell Royalty Partners, LP Common Units representing Limited Partner Interests 2026 Q2 Earnings Call

Greetings. Welcome to the Kimbell Royalty Partners second quarter 2026 earnings call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I'd now like to turn the call over to your host, Zach Vaughan, with investor relations. Thank you. You may begin.

Thank you, operator. Good morning, everyone. Welcome to the Kimbell Royalty Partners conference call to review financial and operational results for the second quarter, which ended June 30th, 2026. 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, August 7th, 2026, 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 by 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 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 earnings release. Kimbell assumes no obligation to publicly update or revise any forward-looking statements. I would now like to turn the call over to Robert Ravnaas, Kimbell Royalty Partners Chairman and Chief Executive Officer.

Bob? Thank you, Zach. Good morning, everyone.

With me today are several members of our senior management team, including Davis Ravnaas, our President and Chief Financial Officer, Matt S. Daly, our Chief Operating Officer, and Blayne Rhynsburger, our Controller. To start off, we are pleased to report an outstanding quarter for Kimbell, which includes records for oil, natural gas, and NGL revenues, net income, consolidated adjusted EBITDA, lease bonuses, average daily production, and cash available for distribution. We also closed on our previously announced Mesa Royalties acquisition in June, which has begun to contribute nicely to our overall results. Last month, we announced the second drop-down acquisition since our IPO. Both of these transactions are expected to add meaningful production and drive cash flow growth for years to come.

Production during the quarter grew both organically and through acquisitions, resulting in oil, natural gas, and NGL revenues exceeding $100 million for the first time, while cash G&A per BOE remained below the midpoint of guidance, generating positive operating leverage and distribution growth. Even with the uncertainty occurring across the broader geopolitical landscape in recent months, activity on our acreage remains robust, with 91 rigs actively drilling at quarter end, representing a market share of U.S. land rigs at 16%. This record second quarter performance allowed us to declare a Q2 2026 distribution of $0.47 per common unit, up 15% from Q1 2026 as we continue to focus on returning value to unit holders. This distribution reflects an annualized tax advantage yield of approximately 13% based on yesterday's closing price.

Looking ahead, we are excited to layer in production from our drop-down acquisition, which is slated to close later this month, are confident in the potential of the combined company on a go-forward basis. We expect both transactions to expand our scale and enhance our cash flow generation for years to come. We also continue to expect higher oil prices to support a modest uptick in activity across our oil-weighted basins. While oil prices have been especially volatile in recent weeks due to the stops and starts of the Middle East conflict, they remain elevated relative to historical levels, we believe the current forward strip is conducive to incremental activity over time. We remain bullish about the U.S. oil and natural gas royalty industry and our role as a leading consolidator in the sector.

As evidenced by our announcement of over $360 million in acquisitions over the last 90 days, we continue to believe that the transition from private to public ownership of U.S. oil and natural gas royalties remains in the beginning stages, we are encouraged by the opportunities in front of us. We intend to build on this recent activity as we strive to expand our industry-leading portfolio of assets. I'd like to thank all of our employees for their hard work and dedication in driving Kimbell forward and for their role in helping to generate long-term unit holder value. Now I'll turn the call over to Davis.

Thanks, Bob, good morning, everyone. As Bob mentioned, this was another very strong quarter for Kimbell. We generated several new quarterly records for oil, natural gas, and NGL revenues, net income, consolidated adjusted EBITDA, lease bonuses, average daily production, and cash available for distribution. I'll now start by reviewing our financial results for the second quarter. Oil, natural gas, and NGL revenues totaled $103 million during the second quarter, which includes nine days of contribution from the acquired production and is a new record for Kimbell. Second quarter average daily production was 25,830 BOE per day. Following the closing of the Mesa Royalties acquisition, run rate production increased to 26,967 BOE per day.

On the expense side, second quarter general and administrative expenses were $10.2 million, $5.9 million of which was cash G&A expense, or $2.50 per BOE, below the midpoint of our guidance range and a reflection of our continued operational discipline. Total second quarter consolidated adjusted EBITDA was a record $84.9 million. You will find a reconciliation of both consolidated adjusted EBITDA and cash available for distribution at the end of our news release. This morning, we announced a cash distribution of $0.47 per common unit for the second quarter, an increase of 15% from the prior quarter. We estimate that approximately 47% of this distribution is expected to be considered return of capital and not subject to dividend taxes, further enhancing the after-tax return to our common unit holders.

This represents a cash distribution payment to common unit holders and equates to 75% of cash available for distribution. The remaining 25% will be used to pay down a portion of the outstanding borrowings under Kimbell's secured revolving credit facility. I'd also like to point out that during the second quarter, we repurchased and canceled 500,000 units of the company's common stock for an aggregate purchase price of approximately $7.4 million at an average price of $14.70 per unit. This reflects our confidence in the underlying strength of the business and our view that the shares continue to trade below intrinsic value, making the repurchase an efficient use of capital while maintaining balance sheet discipline. Moving now to our balance sheet and liquidity.

Prior to quarter end, on June 24th, 2026, we increased the borrowing base and aggregate commitments on Kimbell's secure revolving credit facility from $625 million to $660 million. This expansion both enhances our financial flexibility and supports our ongoing growth initiatives. At June 30th, 2026, we had approximately $478.7 million in debt outstanding under our secure revolving credit facility, which represented a net debt to trailing 12 months consolidated adjusted EBITDA of approximately 1.4 times. We also had approximately $181.3 million in undrawn capacity under the secure revolving credit facility at quarter end. We continue to maintain a conservative balance sheet and remain very comfortable with our strong financial position, financial flexibility, and the ongoing support of our bank partners. Today, we are also affirming our financial and operational guidance ranges for 2026. As a reminder, our full 2026 guidance outlook was included in the Q4 2025 earnings release.

We can expect to update guidance upon the closing of the drop-down acquisition that was announced on July 17th, 2026. We remain confident about the prospects for continued development in 2026, given the number of rigs actively drilling on our acreage, especially in the Permian, higher commodity prices, as well as our line of sight wells exceeding our maintenance well counts. In closing, we are excited about our position as a leading consolidator in the highly fragmented U.S. oil and natural gas royalty sector, which we estimate at approximately $800 billion in size. Long-term demand for U.S. energy is expected to continue to grow. We are well positioned to benefit through our diversified portfolio of high-quality royalty assets across the leading U.S. basins. With that operator, we are now ready for questions.