Kimbell Royalty Partners (KRP) Q4 2024: Production Surpasses 25,900 Boe/d, Setting Record High Guidance for 2025

February 27, 2025 | By EarningsIQ Research

Kimbell Royalty Partners achieved a historic production milestone exceeding 25,900 barrels of oil equivalent per day (Boe/d) including recent acquisitions, underpinning its record high 2025 production guidance. The company’s disciplined capital allocation balances attractive distributions with sustained debt reduction, supporting financial flexibility amid a robust drilling environment. Strategic acquisition activity and a superior decline profile position Kimbell for continued growth in the fragmented U.S. mineral and royalty sector.

Summary

• Production Expansion: Record run-rate production driven by strategic acquisitions and active drilling operations.
• Financial Discipline: Balanced capital deployment with 75% cash distribution and 25% debt repayment preserves financial strength.
• Growth Visibility: Robust drilling inventory and rig activity support optimistic 2025 guidance and long-term growth potential.

Business Overview

Kimbell Royalty Partners (KRP) operates as a mineral and royalty interest owner in oil and natural gas properties across the United States. The company generates revenue primarily from royalties and mineral interests on over 130,000 gross wells spanning 28 states, with major exposure in prolific basins such as the Permian, Mid-Continent, and Haynesville. Kimbell’s business model leverages a capital-light structure, receiving production-based cash flows without operational costs associated with working interest ownership.

Performance Analysis

Kimbell reported fourth quarter 2024 oil, natural gas, and NGL revenues of $69.1 million, excluding the newly acquired production. Including the acquisition effective October 1, 2024, the company’s run-rate production reached 25,946 Boe/d, representing a 23% increase year-over-year and a new company record. The liquids-to-gas production split remained balanced at approximately 50% liquids and 50% natural gas (6:1 basis), with oil comprising 31% and NGLs 19% of production.

Despite a net loss of approximately $39.3 million attributable largely to a non-cash impairment charge of $56.2 million reflecting commodity price declines, Kimbell delivered consolidated adjusted EBITDA of $59.8 million. General and administrative expenses were $9.4 million, with cash G&A at $5.6 million or $2.53 per Boe, reflecting operational efficiency. The company maintained a conservative balance sheet with net debt to trailing twelve months adjusted EBITDA at 0.8x and $310.8 million undrawn capacity on its revolving credit facility.

• Production Growth Levers: Acquisition activity and organic development supported by 91 active rigs, representing 16% U.S. land rig market share.
• Capital Allocation Balance: 75% of cash available for distribution paid out as quarterly distributions, with 25% allocated to debt reduction.
• Operational Resilience: Superior five-year average proved developed producing (PDP) decline rate of 14%, reducing maintenance drilling requirements.

Kimbell’s operational metrics, including 8.07 net drilled but uncompleted wells (DUCs) and permitted locations exceeding the estimated 6.5 net wells required to sustain flat production, underpin confidence in production stability and growth potential. The company’s 2025 guidance projects a midpoint daily production of 25,500 Boe/d, exceeding prior year guidance and reflecting the full contribution of recent acquisitions.

Executive Commentary

Strategic Positioning

1. Focused Consolidation in a Fragmented Market

Kimbell continues to leverage its scale and expertise to acquire high-quality mineral and royalty interests in the highly fragmented U.S. sector, estimated at over $700 billion in size. The company targets larger deals typically exceeding $100 million to optimize equity financing and maintain leverage discipline. Management views the ongoing consolidation trend as a long-term growth runway, with increasing institutional capital fueling deal flow and larger acquisition opportunities.

2. Strong Operational Footprint and Rig Activity

With 91 rigs actively drilling on its acreage, Kimbell commands a 16% market share of U.S. land rigs, underscoring its position as a preferred mineral owner. The Permian Basin remains the core focus, accounting for approximately half of active rigs and the majority of drilling inventory. This operational scale supports stable production growth and provides visibility into future cash flows.

3. Superior Decline Profile and Inventory Depth

Kimbell’s five-year average PDP decline rate of 14% is significantly lower than industry averages, reducing the need for maintenance drilling to sustain production. The company’s inventory of net DUCs and permitted locations exceeds the estimated wells required to maintain flat production, indicating a strong development pipeline and production resilience amid commodity price volatility.

4. Balanced Capital Allocation with Financial Flexibility

Kimbell maintains a disciplined capital allocation strategy, distributing 75% of cash available for distribution to unitholders while allocating 25% to debt reduction. This approach supports a conservative net debt to adjusted EBITDA ratio of 0.8x, preserving financial flexibility for future acquisitions and operational needs. The company plans to redeem approximately half of its Series A preferred units in Q2 2025, further simplifying its capital structure.

5. Tax-Advantaged Distributions Enhance Unitholder Returns

The company estimates that approximately 100% of its Q4 2024 distribution will be considered a return of capital for U.S. federal income tax purposes, reducing tax liabilities for unitholders and increasing after-tax returns. This tax treatment is a key feature of Kimbell’s royalty business model, enhancing the attractiveness of its distributions relative to traditional dividend-paying equities.

Key Considerations

Kimbell’s Q4 2024 results and 2025 guidance reflect a business at a strategic inflection point, balancing growth through acquisitions and organic development with financial prudence.

• Acquisition Pipeline: The company’s access to large-scale acquisition opportunities and strong institutional backing position it well to continue consolidating the fragmented mineral ownership landscape.
• Commodity Price Sensitivity: Non-cash impairment charges due to commodity price declines highlight exposure to market volatility, though hedging programs mitigate near-term risks.
• Operational Execution: High rig activity and robust drilling inventory provide confidence in sustaining and growing production volumes.
• Capital Structure Management: Ongoing debt repayments and preferred unit redemptions reduce leverage risk and improve financial flexibility.
• Tax Efficiency: Favorable tax treatment of distributions enhances unitholder value and supports investor appeal.

Risks

Kimbell faces risks typical of mineral and royalty businesses, including commodity price fluctuations that can impact revenue and asset valuations, potential delays or reductions in drilling activity by operators, and competitive pressures in acquisition markets. Regulatory changes, while currently supportive of domestic energy production, remain a variable that could affect operational dynamics. Impairment charges underscore sensitivity to lower commodity prices, which could impact future earnings and cash flow.

Forward Outlook

For the first quarter of 2025, Kimbell projects production consistent with its full-year guidance midpoint, reflecting stable volumes following recent acquisitions. The company expects to maintain its capital allocation policy, distributing 75% of cash available for distribution and allocating 25% to debt repayment.

• 2025 production guidance: 24,000 to 27,000 Boe/d, midpoint at 25,500 Boe/d
• Marketing and other deductions guidance: $1.40 to $2.20 per Boe
• Cash G&A guidance: $2.45 to $2.65 per Boe
• Production and ad valorem taxes: 7% to 9% of revenues

Management emphasized confidence in the drilling activity and inventory underpinning production stability and growth, with continued focus on accretive acquisitions and prudent financial management.

Takeaways

Kimbell Royalty Partners demonstrated robust operational and financial execution in Q4 2024, driven by strategic acquisitions and a strong drilling footprint. The company’s conservative guidance and capital allocation approach balance growth ambitions with financial discipline, positioning it well amid industry consolidation and commodity market volatility.

• Production Growth Anchored by Scale: Record production levels and active rig count highlight Kimbell’s expanding footprint and operational leverage.
• Financial Strength Maintained: Low leverage and disciplined debt repayment provide flexibility to pursue future acquisitions without compromising distributions.
• Future Growth Visibility: Strong drilling inventory and line-of-sight wells support confidence in sustaining production and cash flow growth through 2025 and beyond.

Conclusion

Kimbell Royalty Partners’ Q4 2024 results and 2025 outlook confirm its leadership position in the U.S. mineral and royalty sector, supported by strategic acquisitions, operational scale, and financial discipline. Investors should monitor drilling activity, acquisition execution, and commodity price trends as key drivers of future performance.

Industry Read-Through

Kimbell’s continued consolidation efforts and record production guidance underscore the ongoing maturation and institutionalization of the U.S. mineral and royalty market. The company’s scale advantage and disciplined capital allocation provide a blueprint for public mineral owners navigating a fragmented and competitive acquisition environment. Other industry participants may face increasing pressure to scale or specialize to compete effectively, while the favorable tax treatment of distributions remains a compelling feature for investor attraction across the sector.

KRP Energy Oil and Gas Royalty Acquisitions Production Growth Capital Allocation Mineral Rights