Kimbell Royalty Partners LP

Greetings and welcome to the Kimball Royalty Partners Third 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 a 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, 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 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. Information recorded on this call speaks only as of today, November 4th, 2021. So please be advised that any time-sensitive information may no longer be accurate as of the date of any replay listening or transcript reading. 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 provisions 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 detailed 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 these metrics 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 Worldview 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, and Blaine Reinsberger, our Controller. I will begin today's discussion by providing comments about our third quarter before turning the call over to Davis to walk you through our financials in more detail. For the third quarter, Kimball had record oil, natural gas, and natural gas liquids revenue, record consolidated adjusted EBITDA, record net income, and record cash available for distribution per common unit. The company was positively impacted by surging commodity prices, especially natural gas, that contributed to our record quarter. The operational momentum we identified in our last call continued, as evidenced by the 20 percent increase in our rig count at the end of the quarter compared to the end of the second quarter, led by natural gas-driven basins such as the Haynesville and MidCon. Our operational momentum today resulted from seeds planted in July 2018 with the completion of the Haymaker acquisition, which provided a world-class mineral position in the core areas of the natural gas heavy Haynesville shale. That transformational acquisition more than three years ago is proving very fortuitous in this market environment. For the third quarter, our run rate average daily production was 14,083 BOE per day on a six to one basis and was composed of approximately 62% from natural gas and 38% from liquids, of which 25% from oil and 13% from NGLs. The prior period production recognized in the third quarter 2021 was primarily due to new wells outperforming previous estimates reflecting our continued conservative approach for new wells. The combined momentum of improved pricing and production as well as controlling costs drove the positive operating leverage and expanded consolidated adjusted EBITDA to a record 33 million, an increase of 18% compared to the second quarter. We also had record cash available for distribution for the third quarter of 50 cents per common unit and declared a distribution of 37 cents per common unit, or 75 percent of cash available for distribution, which was a 19 percent increase sequentially from Q2. Tailwinds continue in the global energy sector, and fundamentals across the U.S. energy complex continue to improve. Inventory levels are low, rig count growth is tepid, and operators continue to focus on balance sheet strength and free cash flow generation. Having said that, we do see drilling activity from private operators outpacing that of public company operators as they move more quickly to capitalize on higher commodity pricing and build scale. As of the end of the third quarter, private operators comprised 43 percent and public operators 57 percent of our active rig count. Overall, we believe this energy up cycle will last longer than previous cycles. Also, we believe that modest increase in investment that is expected in 2022 will only serve to largely replace the significant depletion in drilled but uncompleted wells in the U.S. rather than providing much in the way of oil and natural gas production growth in the lower 48 next year. The oil and natural gas royalty sector is particularly well positioned to benefit from this cycle since we participate in the upside from commodity price inflation but did not experience the cost inflation that is currently being experienced by both the energy services and upstream sectors. We remain very bullish about the future of our space. In particular, we are optimistic regarding our differentiated business strategy that has consistently demonstrated a strong track record of production stability in our legacy assets, as well as acquiring strategic portfolios such as our Haymaker acquisition in 2018. in a disciplined fashion across active basins. We believe our low PDP decline rate and diversified royalty portfolio is a core competitive advantage for our company in the mineral and royalty space. In addition, we plan to 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 growth potential and no capital requirements. This year has been challenging for acquisitions in the minerals and royalty industry. In fact, there has only been one significant publicly announced minerals transaction year to date in our space on the public side. We've been in this business a long time and have seen many different market cycles. This current situation is not necessarily uncommon. The minerals industry does go through cycles where the bid-ask spread is so significant that people just aren't able to get deals done. However, history has demonstrated that the pendulum will swing the other way, and often very quickly. And when it does, we'll be ready. Our long-term vision for Kimball since inception has been a focus on sustainability and disciplined growth, and we will continue to be highly opportunistic in this mission. With modest growth forecasted for oil production in the lower 48, we believe that our production stability and flat PDP decline rates will be a winning theme for energy investing rather than the hyper growth models of the past. As we disclosed previously, the results of our inventory evaluation of our portfolio in coordination with Ryder Scott, a global engineering firm, illustrated that it will take a relatively low number of new net wells to maintain flat production due to our superior PDP decline curve. The results from this evaluation demonstrated that only approximately 4.5 net wells per year are needed to keep our production flat. And at this level, we have approximately 19 years of drilling inventory. This strengthens our belief and confidence that Kimball was built for these conditions. We look forward to finishing the year strong and continue to be very excited about the future of Kimball and its prospects for delivering unit holder value for years to come. And with that, I'll now turn the call over to Davis.