Kimbell Royalty Partners LP

Greetings and welcome to the Kimball Royalty Partners first quarter 2021 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. Thank you, Rick. 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 first quarter 2021. 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, along with the supplemental presentation. Information recorded on this call speaks only as of the day, May 6th, 2021, so please be advised that any time-sensitive information may no longer be accurate at the time 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 Harbor's 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 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 earnings 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 Realty 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 and technical team, including Davis Ravenous, our President and Chief Financial Officer, Matt Daly, our Chief Operating Officer, Blaine Reinsberger, our Controller, Marco Pena, our Associate Engineer, Michelle Scarborough, our Associate Geologist, and Ryan Pugliano, our Head of Data Analytics. I will begin today's discussion by providing comments about our first quarter. I will then discuss the exciting results from our extremely detailed review of Kimball's extensive acreage portfolio, which we are releasing today after over a year's work by our technical team. Before we turn the call over for questions, Davis will walk you through our financials for the quarter in more detail. Let's start with looking at our performance in the first quarter. Improved pricing in the quarter as compared to the fourth quarter of 2020 was the primary driver for our significantly improved cash distribution of 27 cents, which was up 42% as compared to the fourth quarter of 2020 distribution. Realized oil prices were up 37%, realized natural gas prices were up 62% and realized NGL prices were up 63%. Operators generally appear to be maintaining discipline with their capital expenditure programs with a greater focus on free cash flow generation and distributions to their shareholders. During the first quarter, production curtailments due to the February 2021 freeze across a large part of the United States resulted in approximately 1.2 days of lost production or 188 BOE per day. With these curtailments now behind us and increased activity as evidenced by the 26% increase in the rig count on our acreage as compared to year-end 2020, we are optimistic that Kimball will experience improved production levels on its acreage as we progress through 2021. Now I would like to discuss our detailed portfolio review and the results that have come from it. This morning, we posted a new supplemental presentation on our website that provides further details of what I will be discussing. The presentation can be found on the investor relations section of our website. More than a year ago, we began this deep dive review into our extensive acreage portfolio. The resulting information that we discovered was that as of March 31st, 2021, Kimball had 10,160 gross and 68.1 net undrilled upside locations on our acreage, on our major acreage. This represents an estimated 15 years of future drilling inventory based on the pace of well completions during 2019, which we believe is a more normalized rate of well completions given the pandemic slowdown in 2020. Approximately 80% of the total undrilled net inventory is located in the Permian, Eagleford, and Haynesville which have some of the best economic returns and lowest break-even cost in the U.S. Let's now discuss the methodology we used for this detailed portfolio review. We implemented this review in order to quantify the number of undeveloped drilling locations, both gross and net, located on our acreage. Across our 13 million gross acres, it is very time consuming to track upside for all of our minor properties, which we define as generally having a net revenue interest of 0.1% or below. Therefore, only major properties were identified during this exercise. We believe, however, that including our minor properties would have added up to an additional 20% to our net undrilled locations, which could be potentially as high as 85.2 net locations. This analysis was reviewed by leading third party independent engineering firm, Ryder Scott. In terms of background, Kimball does not book any upside reserves in the year-end reserve report filed with the SEC. However, for the purpose of this exercise and based on the general reserve categories defined by the SPE Petroleum Resources Management System Guidelines, we believe that these upside locations fall under the general classifications of proved undeveloped, probable, and possible reserves. With regard to KRP's underwriting criteria, Upside development spacing was determined utilizing offset development trends by surrounding operators consistent with a conservative underwriting approach. Development spacing varies basin by basin and takes geology, operator, and current rig counts into consideration. The average range of gross wells per DSU fluctuates between 5.9 in the Haynesville to 12 in the Permian. These figures were derived from Kimball's internal reserves database, which we believe are conservative spacing assumptions when compared to our peers. And it is important to note that DSUs can vary in size. Again, the locations reviewed only include Kimball's major properties and did not include Kimball's minor properties, which generally have less than a 0.1% net revenue interest and are time consuming to quantify but in our judgment would add up to an additional 20% to Kimball's net inventory in the aggregate. So just to reiterate our conclusions from this detailed portfolio analysis review, in major properties alone, a total of 10,160 gross and 68.9 net, 100% net revenue interest, upside locations were identified in the seven major basins which KRP owns interests, including the Permian, Eagleford, Haynesville, MidCon, Bakken, Appalachia, and Rockies. Kimball has consistently demonstrated a strong track record of producing a stable growth profile organically in legacy assets, as well as through strategic acquisitions in the most active basins within the lower 48. We believe our low PDP decline and diversified royalty portfolio is a core competitive advantage for our company in the mineral and royalty space that provides long-term stability for Kimball. In addition to the location analysis that we completed, we were also confirming today that we have concluded that Kimball only requires approximately 4.5 net wells each year to keep production flat given our superior PDP decline rate. It is important to note that I'm extremely proud the skilled and dedicated effort and the 19 months of hard work spent by our engineering land and geological teams to carefully analyze our 13 million gross acres across the u.s as we continue to move forward in 2021 i'd like to reiterate that we remain focused on our role as a major consolidator in the highly fragmented u.s oil and gas royalty sector assembling a high quality low PDP decline, and diversified royalty portfolio generating recurring cash flow with significant growth potential and no capital requirements. Our vision for Kimball since inception has always been long-term focused on sustainability and growth. In summary, we are very optimistic about the future of our industry given rapidly improving fundamentals across the U.S. energy sector. We are also excited about the opportunities to further expand our acreage footprint and deliver compelling value to our unit holders for years to come. And with that, I'll now turn the call over to Davis.