Kimbell Royalty Partners Stock: Bullish 11%-Yielder Reported Record 2023 Results
April 17, 2024
Why KRP Stock Has Significant Potential
While many investors are attracted to the flash and sizzle of the technology sector and burgeoning artificial intelligence (AI) stocks, there’s one sector that has outperformed tech stocks over the last few months, and that’s energy.
Oil and natural gas stocks have been stealing the limelight from the “Magnificent Seven” tech stocks lately as oil prices have staged an unexpected rally.
No one really saw the energy industry as being the big winner in 2024, but tensions in the Middle East, production cuts by the Organization of the Petroleum Exporting Countries Plus (OPEC+), and high demand have forced analysts to increase their 2024 guidance for crude oil to as high as $100.00 per barrel.
That’s a far cry from the calls at the start of the year that foresaw crude oil averaging just $74.00 this year. (Source: “Citi Lowers 2024 Brent Price Forecast to $74 per Barrel,” Reuters, January 12, 2024.)
One energy stock that investors should keep on their radar is Kimbell Royalty Partners LP (NYSE:KRP). The partnership and its subsidiaries own mineral and royalty interests in oil and gas properties in the U.S.
The company’s portfolio includes interests in more than 129,000 gross wells across about 17 million gross acres in 28 states, including in the highest-growth shale basins and stable conventional energy fields. (Source: “Spring 2024 Investor Presentation,” Kimbell Royalty Partners LP,” February 2, 2024.)
Roughly 97% of all onshore rigs in the lower 48 states are in counties where Kimbell Royalty Partners has mineral interests.
Three of the partnership’s well-known operators are Exxon Mobil Corp (NYSE:XOM), Occidental Petroleum Corp (NYSE:OXY), and Pioneer Natural Resources Co (NYSE:PXD).
As a limited partnership, Kimbell Royalty Partners LP doesn’t pour money into new wells. Instead, it milks the positions it already has. The company’s high-quality, diverse asset base has (with the current technology) more than 16 years of drilling inventory.
At the end of 2023, the partnership had 98 active rigs (97% of them horizontal) on its acreage at no cost to the company. This represents a 16% market share of the U.S. land rig count.
The company lets the operators do all the heavy lifting (and spending). As of the end of 2023, 66% of its rigs were being operated by publicly traded companies and 34% were being operated by private businesses.
Kimbell Royalty Partners LP is always growing. Since its initial public offering (IPO) in 2017, the company has completed more than $1.8 billion worth of mergers and acquisitions, increased its run-rate average daily production by about eight times, and returned 56% of its $18.00/unit IPO price to shareholders via quarterly cash dividends.
$455-Million Acquisition of Mineral & Royalty Interests
In September 2023, Kimbell Royalty Partners closed on its previously announced $455.0-million acquisition of mineral and royalty interests in the Permian Basin and the Mid-Continent oil field. Those interests were held by a private seller. (Source: “Kimbell Royalty Partners Closes $455 Million Acquisition of Permian and Mid-Con Mineral and Royalty Interests in Cash Transaction,” Kimbell Royalty Partners LP, September 13, 2023.)
As part of the agreement, Kimbell Royalty Partners became entitled to all of the cash flow from the production attributable to the acquired assets since June 1, 2023. The revenues and certain other operating statistics were to be recorded for the acquisition beginning on the closing date of September 13, 2023.
Kimbell Royalty Partners LP estimated that, as of June 1, 2023, the acquired assets produced about 4,840 barrels of oil equivalent per day (BOE/d). The company also estimated that the acquired assets will produce about 5,049 BOE/d in 2024.
Record-Best 4th-Quarter & Full-Year Results
After reporting record-best first, second, and third-quarter 2023 results, it wasn’t a total surprise to see Kimbell Royalty Partners announce record-best fourth-quarter results.
For the fourth quarter of 2023, Kimbell Royalty Partners reported record-high oil, natural gas, and natural gas liquid (NGL) revenues of $83.9 million, which was a 21.1% increase over its third-quarter revenues. (Source: “Kimbell Royalty Partners Announces Record Fourth Quarter and Full Year 2023 Results,” Kimbell Royalty Partners LP, February 21, 2024.)
The company’s fourth-quarter net income was about $17.8 million, or $0.14 per share, down slightly from $18.5 million in the third quarter of 2023. It reported record consolidated adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of $69.0 million, up by 23.7% from the prior quarter.
The company also reported a record-high fourth-quarter run-rate daily production of 24,332 BOE/d.
That was up from 19,777 BOE/d in the third quarter of 2023. (Source: “Kimbell Royalty Partners Announces Record Third Quarter 2023 Results,” Kimbell Royalty Partners LP, November 2, 2023.)
Commenting on the results, Robert Ravnaas, Kimbell Royalty Partners LP’s chairman and CEO, said, “2023 was another record year for Kimbell.” (Source: Ibid.)
He continued, “We completed our largest acquisition to date during 2023, which was not only immediately accretive to distributable cash flow per common unit, but also bolstered the Permian as the leading basin for the company in terms of production, active rig count, [drilled but uncompleted wells (DUCs)], permits and undrilled inventory.”
4th-Quarter Distribution of $0.43 Per Unit
As an energy play, Kimbell Royalty Partners stock’s quarterly distributions fluctuate based on oil and gas prices, as well as supply/demand metrics. In February, the company announced a fourth-quarter 2023 distribution of $0.43 per unit. (Source: “Distribution History,” Kimbell Royalty Partners LP, last accessed April 10, 2024.)
That translates to a high yield of 10.77% (as of this writing)
The company’s payout ratio was just 75% of its available cash for distribution. Kimbell Royalty Partners said it will use the remaining 25% of its cash available for distribution to repay a portion of its outstanding revolving credit facility. (Kimbell Royalty Partners LP, February 21, 2024, op. cit.)
In the fourth quarter of 2023, Kimbell Royalty Partners LP had $42.4 million in cash available for distribution on its common units.
Since May 2020, the company has used a portion of its cash available for distribution to pay down about $136.0 million of its outstanding borrowings under its secured revolving credit facility.
Kimbell Royalty Partners Stock Trading Near Record Highs & Could Keep Rising
Kimbell Royalty Partners LP is a great energy company I’ve been keeping my eye on for a while. I first wrote about KRP stock in July 2021, when it was trading at $12.74. I last profiled it in January 2024. Since those two times, Kimbell Royalty Partners stock has rallied by 72% and 12.5%, respectively.
Trading at $16.28 as of this writing, KRP shares are up by:
- Six percent over the last month
- 14% over the last three months
- 16% over the last year
Those are some pretty solid gains, and shares of Kimbell Royalty Partners LP still have plenty of room to run. Wall Street analysts have provided a 12-month share-price target in the range of $20.00 to $21.00 per share. This points to potential gains in the range of 22.5% to 28.5%. Moreover, it would put KRP shares well above their November 2022 record high of $16.76.
Chart courtesy of StockCharts.com
The Lowdown on Kimbell Royalty Partners LP
Incorporated in 2015, Kimbell Royalty Partners has grown from a single investment in the Permian Basin to one of the largest mineral and royalty owners nationwide. Its portfolio includes interests in every major onshore basin in the continental U.S.
Since its IPO in 2017, Kimbell Royalty Partners LP has completed almost $2.0 billion worth of merger-and-acquisition transactions and increased its daily run-rate production by 681% to more than 24,300 BOE/d.
Thanks to the company’s significant acquisition activity, management expects its numbers to continue growing.
The U.S. oil and natural gas royalty sector is estimated to be worth more than $700.0 billion, and Kimbell Royalty Partners is one of only a handful of publicly traded entities that have the financial resources to complete large-scale, multi-basin acquisitions.
As a result, management believes that Kimbell Royalty Partners LP is still in the early stages of consolidation, so it’s actively seeking new targets that fit into the company’s acquisition profile. This should help the partnership expand and continue providing KRP stockholders with reliable, inflation-crushing distributions for years to come.
