Kimbell Royalty Partners LP

Greetings and welcome to the Kimbell Royalty Partners Second Quarter Earnings Conference Call. At this time, all participants are on 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 call is being recorded. It is now my pleasure to introduce your host for today's call, Mr. Rick Black, Investor Relations. Thank you. 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 second 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 of today, August 6, 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 of expectations or of future events or of future financial performance, are all considered forward-looking statements made pursuant to the Safe Harbor's provision of the Private Securities Litigation Reform Act of 1995. We will be making forward-looking statements In the heart 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 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 press release. Kimball assumes no obligation to publicly update or revise any forward-looking statements. I would now like to turn the call over to 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 providing an overview of our performance in the second quarter before handing the call over to Davis to walk you through the financials in more detail. We are encouraged by the gradual recovery in both commodity prices and the U.S. economy and are cautiously optimistic that the worst is behind us with regard to production curtailments. Despite market challenges during the second quarter, we benefited from the full integration of the Springbok assets and increased our Q2 2020 payout ratio from 50% to 75% of cash available for distribution. Our run rate daily production during the quarter was 14,069 barrels of oil equivalent per day, down 7% from Q1 2020 record production of 15,188 VOE per day including a full quarter of the production attributable to the Springbok assets. Substantially, all of the decrease in production between the first quarter and the second quarter was due to curtailments that occurred during the second quarter. Having said that, many risks remain in the economy, including but not limited to significant recent increases in COVID-19 cases across the country, additional potential shutdowns related to COVID-19, and the related effects on U.S. employment. In addition, significant uncertainties remain in the U.S. energy sector, primarily related to the pace of new drilling and completions for the remainder of 2020. However, we believe the Kimbell business model is highly differentiated from most companies in the U.S. energy sector, given our pure royalty model, diverse asset base, mix of commodities, substantial hedges, and low PDP decline rate, which is among the best in the industry. We remain extremely optimistic about the future of our industry and our business specifically. Lastly, I would like to state that our business builds on a broad, stable, and diverse portfolio of royalty assets across all the major basins in the lower 48. Our mineral interests 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 our minerals peers. Our leadership team has successfully managed through a number of economic cycles over the past several decades, and I believe Kimball is very well positioned to not only weather this storm, but also be opportunistic as the right situations present themselves in the future. These strong characteristics of our business coupled with a proven consolidation strategy that acquires high quality and accretive assets, have demonstrated significant growth, scale, and cash flow for our company. Our goal is to continue advancement of our long-term strategy as a preeminent consolidator of diversified and low PDP-declined 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, we believe that our business model is well positioned for any tough challenges ahead and to participate in the eventual economic recovery. Last quarter, 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. We believe that Kimball offers a compelling investment opportunity with growth opportunities and a robust distribution yield, which we expect our distributions 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 highly 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.