Kimbell Royalty Partners LP

Greetings and welcome to the Kimball Royalty Partners Third 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 is being recorded. It is now my pleasure to introduce your host for today's call, Rick Black, Investor Relations. Thank you. You may begin.

Thank you, Operator, and good morning, everyone. Welcome to the Kimball Royalty Partners conference call to review financial and operational results for the third quarter 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 kimballrp.com. Information recorded on this call speaks only as of today, November 5, 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 future events or future financial performance, are 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 Bob Ravenous, Kimball Realty Partners chairman and CEO.

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 Daly, our chief operating officer, Blaine Reinsberger, our controller. I'd like to begin by providing an overview of our performance in the third quarter before handing the call over to Davis to walk you through the financials in more detail. We had a very good quarter with both a strong improvement in commodity pricing and increased production, once again proving the resilience of our business model. Production curtailments, which were put in place by many operators during the height of the pandemic earlier this year, were largely reversed in the Permian and Eagleford during the quarter. However, curtailments were still largely in place on our block and assets during the third quarter. We are hopeful that these will reverse in Q4 of 2020 due to improved differentials and commodity prices. There was a slight uptick in the number of rigs drilling on our acreage from 29 to 30. The biggest increase occurred in the Haynesville, with a rig count increase from five rigs drilling at the end of the second quarter to eight rigs drilling at the end of Q3 2020. We are very excited to see the expected improvement in natural gas prices both in Q4 2020 and the full year 2021 based on the futures curve. With approximately 59% of our daily production from natural gas, this price improvement could have a very meaningful positive impact on our future cash flows and quarterly distribution payments. To put this in perspective, natural gas prices have averaged $2.02 per MCF so far this year. The average expected natural gas price for the full year 2021 is $3.03 per MCF, a 50% improvement over 2020 year-to-date prices. In addition to our gas-weighted daily production, we also have a significant amount of future drilling inventory located across the major natural gas basins in the U.S., with a concentration in the core areas of the Haynesville and Marcellus. We expect to benefit from this significant natural gas drilling inventory for years to come. In the third quarter, we also achieved a record low cash G&A per BOE, demonstrating the continued efficiency of our business model and our focus on cost control during these uncertain times. In addition, our strong hedge book and solid balance sheet provides future flexibility, further flexibility to make accretive acquisitions that fit our criteria for accretive growth. We are paying close attention to the hotly contested political discourse regarding fracking in the overall energy industry. With less than 2% of our royalty acreage on federal lands, a potential frack ban on federal acreage would not have any material impact on our production or future drilling prospects. If anything, such a frack ban on federal acreage could have the unintended consequence of disrupting supplies of oil and natural gas in the U.S., potentially causing a spike in commodity prices. As we look towards the future, we remain confident that no matter which political party controls Washington, our nation will continue to be a global leader in the oil and natural gas industry for decades to come. Focusing more closely on our specific business model, we have a highly differentiated strategy compared to most companies in the U.S. energy sector. Kimball is a pure royalty model with a diverse asset base, a commodities mix that is heavily concentrated in natural gas and with substantial pricing hedges and very low PDP decline rate, which is among the best in the industry. All of these aspects of our strategy are by design. We created this company with a long-term vision for sustainability and growth. We believe KRP will continue to be a consolidator of mineral and ruralities across all of the major U.S. basins, and we are not tied to a particular operator in one particular basin, which we believe creates an unnecessary idiosyncratic risk. These factors continue to contribute to our mission of maintaining a sustainable diverse portfolio of rurality assets that is broad and stable. 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. Since our IPO, Kimball has demonstrated organic production growth and a five-year forecasted PDP decline 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 decline minerals that generate substantial free cash flow for distribution to our unit holders. And since roughly 59% of our daily production is from 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. We also 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. While significant uncertainties remain in the U.S. energy sector, primarily related to the pace of new drilling and completions for the remainder of 2020 and into 2021, We remain very optimistic about the future of the U.S. energy industry and our business specifically. And with that, I'll now turn the call over to Davis.