Kimbell Royalty Partners LP

Greetings and welcome to the Kimball Royalty Partners second quarter 2026 earnings call. At this time, all participants are in a listen-only mode. A 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. I'd now like to turn the call over to your host, Zach Vaughn, with 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, which ended June 30th, 2026. This call is also being webcast and could 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, August 7th, 2026, So please be advised that any time sensitive information may no longer be accurate as of the date of any replay listing 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 considered 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 earnings 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 gap measures can be found at the end of today's earnings release. Kimball assumes no obligation to publicly update or revise any foreign-looking statements. I would now like to turn the call over to Bob Ravnaas, Kimball Royalty Partners Chairman and Chief Executive Officer. Bob?

Thank you, Zach, and good morning, everyone. We appreciate you joining us this morning. With me today are several members of our senior management team, including Davis Ravnaas, our President and Chief Financial Officer, Matt Daly, our chief operating officer, and Blayne Rhynsburger, our controller. To start off, we are pleased to report an outstanding quarter for Kimball, which includes records for oil, natural gas and NGL revenues, net income, consolidated adjusted EBITDA, lease bonuses, average daily production, and cash available for distribution. We also closed on our previously announced Mesa Royalty's acquisition in June. which has begun to contribute nicely to our overall results, and last month we announced the second drop-down acquisition since our IPO. Both of these transactions are expected to add meaningful production and drive cash flow growth for years to come. Production during the quarter grew both organically and through acquisitions, resulting in oil, natural gas, and NGL revenues exceeding $100 million for the first time, while cash G&A per BOE remained below the midpoint of guidance generating positive operating leverage and distribution growth. Even with the uncertainty occurring across the broader geopolitical landscape in recent months, activity on our acreage remains robust with 91 rigs actively drilling at quarter end representing a market share of US land rigs at 16%. This record second quarter performance allowed us to declare a Q2 2026 Distribution of 47 cents per common unit, up 15% from Q1, 2026. As we continue to focus on returning value to unit holders, this distribution reflects an annualized tax advantage yield of approximately 13% based on yesterday's closing price. Looking ahead, we're excited to layer in production from our drop-down acquisition, which is slated to close later this month, and are confident in the potential of the Caban Company on a go-forward basis. We expect both transactions to expand our scale and enhance our cash flow generation for years to come. We also continue to expect higher oil prices to support a modest uptick in activity across our oil-weighted basins. While oil prices have been especially volatile in recent weeks due to the stops and starts of the Middle East conflict, they remain elevated relative to historical levels, and we believe the current Robert Dean Ravnaas, Brett Taylor, Robert Davis Ravnaas remains in the beginning stages, and we are encouraged by the opportunities in front of us. We intend to build on this recent activity as we strive to expand our industry-leading portfolio of assets. I'd like to thank all of our employees for their hard work and dedication in driving Kimball forward and for their role in helping to generate long-term unit holder value. And now I'll turn the call over to Davis.

Thanks, Bob, and good morning, everyone. As Bob mentioned, this is another very strong quarter for Kimball. We generated several new quarterly records for oil, natural gas, and MGL revenues, net income, consolidated adjusted EBITDA, lease bonuses, average daily production, and cash available for distribution. I'll now start by reviewing our financial results for the second quarter. Oil, natural gas, and MGL revenues totaled $103 million during the second quarter, which includes nine days of contribution from the acquired production, and it's a new record for Kimball. Second quarter average daily production was 25,830 BOE per day. Following the closing of the Mesa Royalties acquisition, run rate production increased to 26,000 967 BOE per day. On the expense side, second quarter general and administrative expenses were 10.2 million, 5.9 million of which was cash G&A expense or $2.50 per BOE, below the midpoint of our guidance range and a reflection of our continued operational discipline. Total second quarter consolidated adjusted EBITDA was a record 84.9 million. You will find a reconciliation of both consolidated adjusted EBITDA and cash available for distribution at the end of our news release. This morning, we announced a cash distribution of 47 cents per common unit for the second quarter, an increase of 15% from the prior quarter. We estimate that approximately 47% of this distribution is expected to be considered return of capital and not subject to dividend taxes, further enhancing the after-tax return to our common unit holders. This represents a cash distribution payment to common unit holders that equates to 75% of cash available for distribution, and the remaining 25% will be used to pay down a portion of the outstanding borrowings under Kimball's secured revolving credit facility. I'd also like to point out that during the second quarter, we repurchased and canceled 500,000 units of the company's common stock for an aggregate purchase price of approximately $7.4 million at an average price of $14.70 per unit. This reflects our confidence in the underlying strength of the business and our view that the shares continue to trade below intrinsic value, making the repurchase an efficient use of capital while maintaining balance sheet discipline. Moving now to our balance sheet and liquidity, prior to quarter end on June 24th, 2026, we increased the borrowing base and aggregate commitments on Kimball Secured Revolving Credit Facility from 625 million to 660 million. This expansion both enhances our financial flexibility and supports our ongoing growth initiatives. At June 30th, 2026, we got approximately 478.7 million in debt outstanding under our secure revolving credit facility, which represented a net debt to trailing 12 months, consolidated adjusted EBITDA, of approximately 1.4 times. We also had approximately 181.3 million in undrawn capacity under the secure revolving credit facility at quarter end. We continue to maintain a conservative balance sheet and remain very comfortable with our strong financial position, financial flexibility, and the ongoing support of our bank partners. Today, we are also affirming our financial and operational guidance ranges for 2026. As a reminder, our full 2026 guidance outlook was included in the Q4 2025 earnings release. We can expect to update guidance upon the closing of the dropdown acquisition that was announced on July 17th, 2026. We remain confident about the prospects for continued development in 2026 given the number of rigs actively drilling on our acreage, especially in the Permian, higher commodity prices, as well as our line-of-sight wells exceeding our maintenance well count. In closing, we are excited about our position as a leading consolidator in the highly fragmented U.S. oil and natural gas royalty sector which we estimate at approximately $800 billion in size. Long-term demand for U.S. energy is expected to continue to grow, and we are well-positioned to benefit through our diversified portfolio of high-quality royalty assets across the leading U.S. basins. With that, operator, we are now ready for questions.

Thank you. If you'd like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. We ask that you each keep to one question and one follow-up. Thank you. Our first question comes from the line of Tim Resvan with KeyBank Capital Markets. Please proceed with your question.

Hey, good morning folks. Thanks for taking our questions.

Good morning, Tim.

Good morning. I thought I'd start, you know, I thought we might get a guidance update today. It sounds like we'll have to wait for the drop down to close in a couple weeks. But as we look and see production kind of about to hit, you know, 30,000 a day on equivalents, can you talk about, you know, the acquisitions you're bringing in? Do they have similar kind of production profiles to the legacy assets? And kind of where I'm going, I know you won't give us a number, but should we sort of expect from this pro forma business, kind of a steady growth CAGR like we've seen on the legacy assets?

Yes. The short answer to that, Tim, is yes. We're always looking to add to our portfolio assets, which we think are very complementary and in line with what we already own. And then we obviously want to add those in such a way that it's immediately accretive to our cash flow and accretive to DCF over time. So yeah, I would just assume that acquisitions that we made just continue to expand the size of the company with very similar growth and inventory characteristics.

Okay. Okay. Thank you. As a follow-up, you know, we did see the 5% increase in the credit facility. I assume that includes Mesa, which closed, but not the drop-down. So I was wondering if you could just kind of talk bigger picture about managing liquidity. You are over 70% drawn on today's facility. and then maybe how, I know I ask this every quarter, but how are you thinking about the trade-offs of keeping the preferreds on the balance sheet? Thanks.

Yeah, great question. Just to confirm, Andrew, the latest borrowing base increased due to Mesa already. We have that incorporated in this number. Is this unclear?

That's correct, Davis.

Okay, great. So, Tim, we would expect another increase in the borrowing base as a result of the drop-down, so that'll add additional liquidity. and going forward, we want to be opportunistic on redeeming the preferred units. There's obviously a trade-off like you mentioned between keeping our leverage profile low for covenant purposes and redeeming the press. I think you'll see us just continue to dwindle down on the face value of that press over time while also maintaining conservative leverage. For a royalty company, we think one and a half times as low We may opportunistically go up very slightly to redeem additional preferred units if we think that's in our best interest. So think about that all the time. And then on liquidity, great point. That's probably one of the things that we think about the most here. We want to always make sure that we have plenty of liquidity on the balance sheet. And you won't see us make acquisitions that will increase our leverage profile. If anything, we're delevering by using less leverage, at least on a on an EBITDA basis going forward. So I think that's a positive that would help our leverage profile and help us redeem those prep securities faster, if all that makes sense.

Yeah, no, that's good context. And then if I could just sneak one last one in. Earlier this year, you were pretty candid about seeing an active A&D market, and obviously you've hit a couple of bids here and brought in some additional royalty production. Can you talk about... Your peers have said the market's still hot. What are you seeing and sort of how actively are you looking today? Are you ready and willing to transact again if the right deal presents itself?

Yeah, no, look, great question, and I'm always happy that you asked that quarterly. We are always more competitive usually on assets that are diversified in nature. On the Permian-only deals, that's where we can see competition get out of control. We've been on a couple of large marketed packages recently in the Permian market, and got absolutely destroyed. I mean, bids that were nearly two times what we were paying, kind of head scratchers. They weren't huge deals, but multi hundred million dollar packages. So, you know, not insignificant. We will do our best on those, understanding our cost of capital constraints. But if someone else is going to pay 75% more of us for an asset, you know, they can have it. So that's what we're seeing on the bid front is the permian continues to be very hot. There is a, you know, I think what happened was, and I'm sure you've heard this from other companies that you follow, when oil prices started going up this year, a lot of people went to market. And so we continue to see almost on a weekly basis, a new acquisition opportunity for us. So I'd say we're highly, you know, we've had a great year on A&D, you know, frankly, some surpassing expectations this year in terms of what we've been able to achieve with our cost of capital. We are still in the market looking for acquisitions. We're only eight months into the year. There's going to be more to come, but we're going to be very selective, and obviously we're not going to overpay. Okay.

I appreciate all the callers. Thank you. Of course.

Thank you. Our next question comes from the line. of Nicholas Armato with Texas Capital. Please proceed with your question.

Good morning, all, and thanks for taking my questions. Good morning. For my first one, lease bonuses were particularly stronger in the quarter. Maybe just what drove the increase, and given the improved commodity backdrop, what are you seeing in terms of leasing interest and competition across your acreage? Are there any basins where activity is maybe picking up a little bit more meaningfully? Yeah, great question.

Thank you for pointing that out. When we look at our portfolio, we like to say to people that we believe that everything is leased that we own. That's obviously just not true because we have this recurring revenue stream, which is meaningful every quarter in terms of royalty and lease bonus. What we have seen is you rightly identified with the increase in oil prices and renewed interest in deeper zones. I mean, there's a lot of talk about the Barnett these days. We have seen an uptick in lease bonus activity. I can say that we probably project that that will continue into subsequent quarters. Who knows how long that will last? But lease bonus activity has increased. We've noticed it. It's nice to see. And I would just add that, you know, our Permian position, almost all of it, when we underwrote these assets, we do this on every deal we look at, Robert Dean Ravnaas, Brett Taylor, Robert Davis Ravnaas, and I think it increased realization that our assets, you know, in nearly all cases, we own all zones, all depths. So it's, you know, we believe that will be an additional windfall for us in the future, particularly if oil prices continue to improve and you start to see a, you know, a continued drawdown on tier one inventory.

Great color. We appreciate it. And then just for the follow-up, The duck and permit backlog remains above the level needed to maintain that flat production profile. With the drop-down expected to close later this month, how do you expect the backlog to trend, and how should we think about the level of inventory needed to main flat production once it's closing?

Yeah, I would expect it to be the same. I think you'll see probably the same relative difference between maintenance levels and actual levels. So I think that'll continue to maintain the same as we make acquisitions into the future. And I just add to that, because of the diversified nature of our footprint, and this is related to the lease bonus question you asked previously, that actual duck and permit inventory is lower than what we actually own. We just have no way of quantifying that because we have millions of interests across the United States. And so we're just constantly getting, which is a good problem to have, constantly getting new checks in the mail and new division orders that reflect interests in many cases which are quite meaningful and we didn't even know that we owned. So there's a buffer there that we continue to see on an ongoing basis and out of just the conservative nature of which we disclose numbers, we only identify things that are discreet, that we know about, that we can reflect in our materials to you.

Perfect. I appreciate it. Great quarter, and I'll turn it back to the operator.

Thank you very much.

Thank you. Our next question comes from the line of Paul Diamond with Citi. Please proceed with your question.

Thank you. Good morning. I hope I've stuck in the call. Good morning, Paul. Good morning. So, the last several months, we've seen some activity modulation for different basins, particularly, you know, for , et cetera, et cetera. But it doesn't seem to have really hit you guys operationally, I guess. How do you see that progressing in other basins and back to the Permian overcoming quarters? Any bump in the Permian or potential curtailments elsewhere? How's your view on the macro implications there?

Yeah, great question. You broke up a little bit on it, but I think I heard you. You know, I always love looking at that because one of the fun things sitting in my seat is looking at The different basins that we have exposure to and trends that we're seeing within each basin. And in many cases, they surprise me on a quarterly basis. Even on a quarterly basis and then over longer periods of time, it's even more interesting to see. Was pleasantly surprised by the uptick in activity in the Permian. We had very meaningful additions to our Permian rig count. So Permian rig count quarter of a quarter was up. 23%, which frankly surprised me if I'm looking at the right numbers here. Our mid-con number went down slightly. It went down by an almost equal amount. It went from 17 to 13 rigs, so down about 24%. What that tells me, just speculatively, Paul, is that with natural gas prices disappointing this year, gas was down almost as much quarter over quarter as oil was up. I think that the midcom on a relative basis probably was less competitive for CapEx dollars for operators. And then as I go down the list, Hainesville Flat, Appalachia Flat, Bakken Flat, Eagleford Flat. So the rest of the basins appear to be kind of steady production and steady CapEx allocations. A couple of surprising, not necessarily surprising things, but then just on... Production levels, so that was a rig count on production levels. The Permian was obviously up meaningfully for us this quarter, quarter over quarter. Mid-con down, kind of mid-single digits. Hainesville was down about 11%, and I actually don't mind that. We're always hopeful that operators in the Hainesville will look at spot natural gas prices and even increasingly the curves. and perhaps put rigs down or just allocate less capital and wait for better days before they develop our assets. Appalachian was up slightly and, you know, kind of surprisingly to me, our Bakken production was up kind of high single digits and everybody kind of thinks about the Bakken being played out. I mean, it's still going. We keep getting, you know, activity and notices there that show that there's still life there. So I hope that answers your question.

No, it does. I appreciate the insight. Just a quick follow-up. I mean, you talked a bit about it in perspective and other questions here, but are there any particular kind of basins or scales jumping out at you, whether it's, you know, emerging plays like a Western Hainesville or more Utica or, you know, the larger package deals versus the smaller ground game? It's just how you see the market unfolding in 2H given current conditions.

Yeah, great question. We're always basin and commodity agnostic. We feel like our job on behalf of our unit holders is to deploy capital and acquisitions where we can get the highest rate of return for the lowest risk, regardless of which basin or which commodity we're looking at. So the Permian obviously has the most deal flow. It's also the most competitive. We've been able to transact in the Permian the last few years, but I'd say if we put out 25 bids We maybe get one and it's just that competitive and hard to get. We're more competitive on multi-basin portfolios. So if there are groups out there with portfolios and multiple basins, a lot of our competition is precluded from participating in those processes because their mandate is to only play in the Permian. And so in those cases, we have a much higher success rate. It's still low, but it's much higher than it is on the Permian specific deals. And sometimes our competition will try to buy just the Permian only piece. And then obviously, if you're the seller, then you have to think about carving up your package into multiple packages with multiple buyers, then you've got multiple NDAs. multiple diligence processes going on contemporaneously, which is a hassle. So I would think that ideal asset for us would have a significant Permian component, but it doesn't even have to be the majority of it, and then spread out the basins that we continue to like longer term. We do believe in the bull thesis on natural gas, so we like the MidCon. We like the Haynesville. We're a little bit... Jury's still out on the Western Hainesville. I think we'd be unlikely to do a significant transaction there. But if there's a core Hainesville position that has inventory, obviously we're very interested in that. We love Appalachia. Appalachia can have some title issues and sort of some considerations in the diligence process that just add some additional risk that we have to take into account. The Eagleford's great too, but again, it's about finding an asset kind of like the Hainesville where there's existing production where it's immediately accreted to us, but where it still has enough inventory remaining to where it's accreted to our long-term NAV. So that's the way that we're thinking about the basins. And again, we're more successful on diversified packages versus just a pure play Permian deal.

Got it. That makes perfect sense. Appreciate the time.

Thank you. Thank you. This concludes our question and answer session. I'll turn the floor back to management for any final comments.

We thank you all for joining us this morning, and we look forward to speaking with you again next quarter. This completes today's call.

Thank you. This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.