In This Article:
Release Date: May 08, 2025
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
-
Kimbell Royalty Partners LP (NYSE:KRP) reported record revenues for oil, natural gas, and NGLs in Q1 2025.
-
The company completed a highly attractive acquisition in the Permian Basin, enhancing its asset portfolio.
-
KRP increased its credit facility commitments from $550 million to $625 million, improving financial flexibility.
-
The company declared a 17.5% increase in its quarterly distribution to $0.47 per common unit.
-
KRP maintains a low PDP decline rate of 14%, requiring only 6.5 net wells annually to maintain flat production.
Negative Points
-
The company faces challenges in transacting natural gas deals due to competitive pricing expectations.
-
KRP's equity currency has weakened, affecting its ability to pursue M&A opportunities.
-
There is uncertainty in the broader economy and commodity prices, impacting future financial performance.
-
The company has a significant amount of debt, with $299 million outstanding under its credit facility.
-
KRP's hedging strategy is limited to 20% of production, which may expose it to price volatility.
Q & A Highlights
Q: Can you discuss your interest in M&A today, especially given the current market conditions and how your equity currency factors into that? A: Unidentified_4 (CFO): We are always looking at M&A opportunities. It's been challenging to transact on natural gas deals due to high competition. We aim to use our equity accretively to buy assets that deleverage the business. We expect to execute some M&A over the next 6 to 18 months, which would benefit everyone.
Q: How do you think about leverage, and do you have a target number for debt reduction? A: Unidentified_4 (CFO): We aim to maintain leverage at 1.5 times or less. Our strategy involves using free cash flow to pay down debt and potentially executing equity-based M&A to accelerate deleveraging. Our balanced portfolio and low PDP decline rate position us well to manage leverage effectively.
Q: Could you elaborate on your hedging strategy, especially with the current natural gas strip? A: Unidentified_4 (CFO): We maintain a 20% hedge level, which we believe is prudent. We stress test our production against low price scenarios to ensure we can protect distributions. While we consider increasing hedges, we prefer a methodical approach rather than timing the market.
Q: With strong volumes in Q1, how do you see volumes trending throughout the year? A: Unidentified_4 (CFO): We are reaffirming our guidance and remain conservative. Despite market uncertainties, we see no evidence of a slowdown in drilling activity. Our line of sight wells and rig activity support our confidence in meeting guidance.