Kimbell Royalty Partners LP

Greetings and welcome to the Kimball Royalty Partners First Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief 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. It is now my pleasure to introduce your host, Rick Black of Investor Relations. Thank you, Mr. Black. You may begin.

Thank you, operator, and good morning, everyone. Welcome to the Kimbell Royalty Partners conference call to review financial and operational results for the first quarter of 2020. 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, May 7th, 2020, so please be advised that any time-sensitive information may no longer be accurate as of the date of any replay. I would also like to remind you that the statements made in today's discussion that are not historical facts, including statements or expectations for future events or future financial performance, are considered forward-looking statements made pursuant to the Safe Harbors Provision of 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 press release for our disclosure on forward-looking statements. These factors, as well as 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 press release. Kimball assumes no obligation to publicly update or revise any forward-looking statements. And with that, I would now like to turn the call over to Mr. Bob Ravenous, Kimball Royalty Partners Chairman and Chief Executive Officer. Bob?

Thank you, Rick, and good morning, everyone. We appreciate you joining us for this call. I'm joined here on the call with several members of our senior management team, including Davis Ravenous, our President and Chief Financial Officer, Matt Daley, our Chief Operating Officer, Blaine Reinsberger, our controller. I'd like to begin by extending our thoughts and prayers to those affected by the COVID-19 crisis. These are certainly unprecedented times, and we are doing all that we can to support the health and safety of our employees and to assist with the recovery of our community from this crisis. We are especially grateful for all of the hard work being performed by first responders and healthcare workers. They have truly been an inspiration to us all. We also applaud the legions of hardworking Americans all over the country that have remained dedicated to keeping the nation's food supply and other vital components of the economy up and running during this difficult time. As you know, COVID-19 has contributed to deeper challenges in the energy sector than most other industries, as the price of crude oil recently reached record lows. The market volatility and pricing pressures that existed before the pandemic began have now created the perfect storm with an unparalleled supply glut and continuing demand disruption. Notwithstanding the challenging effects of this health and economic crisis, we believe that Kimball's fundamental business model will provide far more stable and resilient than others. As of the first quarter, approximately 60% of our production was from natural gas, which continues to have an improving macro outlook. and we have strengthened our balance sheet and improved liquidity. In addition, we believe that we have one of the strongest hedge books in all of energy in terms of both in price and duration. We currently have a substantial portion of our oil and natural gas production hedged in the form of swaps going out two years with prices for oil averaging in the low 40s and natural gas averaging around $2.49 per MMBTU. Our leadership team has been successfully managed through a number of economic cycles over the past three to four decades, and I believe Kimball is very well positioned to weather this storm. In light of the potential for curtailments of production in the coming months, we made the decision to pay down a portion of our debt during the second quarter. We will fund the debt repayment by allocating 50% of our cash available for distribution from Q1 2020 together with certain cash received at the closing of the Springbok acquisition and other cash reserves for the repayment of $15 million in outstanding borrowings under our revolving credit facility. We believe that, in light of the uncertainties in the economy right now, particularly in the oil and gas sector, paying down a portion of our revolver is prudent. We also believe that strengthening our balance sheet and maintaining dry powder in this challenging environment provides additional financial flexibility. Touching now on the first quarter results, we achieved new record high performance for daily production and consolidated adjusted EBITDA. In each case, after giving effect to a full quarter of Springbok as the effective date of this acquisition was October 1st, 2019. Our first quarter production daily run rate was 12,602 barrels of oil equivalent per day, up 5% compared to the same quarter last year. Including a full quarter of the Springbok assets, the first quarter run rate daily production was 15,188 BOE per day, up 27% compared to Q1 last year. We had 70 active rigs operating on our properties as of April 17th, 2020, which represents an increased market share of all land drilling rigs in the continental United States compared to year-end 2019. Davis will walk you through more of the Q1 2020 metrics during his remarks. Given the unprecedented circumstances of the current economy and challenges in the energy industry, I'd like to spend a few moments recapping the fundamental characteristics of our model that provide us with continued confidence today about the royalty in mineral space. It is important to understand our business model and our diverse, high-quality asset portfolio. As an oil and gas minerals and royalty company, we benefit from the fact that we do not make any direct capital expenditures, and our expense structure is extremely efficient and more akin to an asset management company rather than a traditional oil and gas company. Our business builds on a broad, stable, and diverse portfolio of royalty assets across all the major basins in the lower 48. Our mineral arches span over 13 million gross acres in 28 states and include more than 96,000 gross wells, with over 40,000 wells in the Permian Basin. Over the last 20 years, Kimball has demonstrated organic production growth and a five-year forecasted PDP decline rate of only 13%, which is one of the lowest among its minerals peers. In addition, our pre-developed reserves at year-end 2019 increased by approximately 22% year-over-year, including 8% organic growth. Perhaps most importantly, Kimball has one of the highest PDP reserve-to-production ratios, or R over P ratio, in the entire energy industry of approximately nine years. These strong characteristics of our business, coupled with a proven bolt-on acquisition strategy that consolidates highly accreted assets have demonstrated significant growth and cash flow for our company. Our goal is to continue advancement of our long-term strategy as a preeminent consolidator of diversified, high-quality, low PDP decline minerals that generate substantial free cash flow for distribution to our unit holders. And since approximately 60% of our producing assets are natural gas, and a substantial portion of our production is contractually hedged for the next couple of years, our business model is well positioned for the tough challenges ahead. Last month, we closed our Springbok acquisition that was announced in January of this year. We believe Springbok is an exceptional strategic acquisition with highly complementary acreage that we expect will add significant cash flow as well as the opportunity for continued growth. Please remember that we issued equity directly to the seller as a fixed number of units for nearly half of the total purchase price, which helped us to continue to maintain our financial flexibility. From an M&A perspective, we plan to continue to fund our micro acquisition strategy at current depressed commodity prices and continue to be well positioned as a consolidator in the highly fragmented minerals industry. As we navigate through the challenging landscape of today's current volatility relative to M&A, we plan to maintain a strict discipline and selection process focused on diversified high-quality targets. We also want new prospects to be immediately cash flow accretive, enhance production stability and diversity, as well as provide years of future growth. We believe that Kimball offers a compelling investment opportunity with growth opportunities and a robust distribution yield, which we expect to be substantially tax-free through 2023, and instead to be considered a return of capital to the extent of a unit holder's basis in its common units. We remain focused on executing our business plan and creating long-term value for our unit holders. And with that, I'll now turn the call over to Davis.