Kimbell Royalty Partners Stock: Projected Results And Distribution For 2024 (NYSE:KRP)

Kimbell Royalty Partners (NYSE:KRP) is now projected to have a quarterly distribution that averages in the mid-40s cents per unit in Q4 2023 and 2024 with a 75% payout ratio. This is a bit lower than the $0.51 per unit distribution for Q3 2023, due to weaker oil prices and increased preferred distributions (which had only a limited impact on Q3 2023).

Kimbell’s production growth in 2024 may be solid though, as it has a high amount of line-of-sight wells compared to its maintenance requirements. As a result, I have increased its projected 2024 production to 24,500 BOEPD, representing mid-single digits growth from 2H 2023 levels (proforma for its LongPoint acquisition).

This is a couple percent higher production than I had previously modeled for Kimbell in 2024. This slight increase in production growth results in my estimate of Kimbell’s value being maintained at approximately $19.25 per unit despite the lowered expectations for near-term distributable cash flow.

Borrowing Base Redetermination

Kimbell’s credit facility borrowing base and aggregate elected commitments both increased from $400 million to $550 million with its Fall 2023 redetermination. This reflects the impact of Kimbell’s $455 million mineral and royalty interests acquisition from LongPoint Minerals II.

Kimbell reported having $310.4 million in outstanding borrowings under its revolving credit facility at the end of Q3 2023, so proforma for its increased borrowing base (and elected commitments), Kimbell would have $239.6 million in credit facility availability.

Potential Q4 2023 Results

Kimbell expects approximately 23,400 BOEPD (34% oil, 16% NGLs and 50% natural gas) in production in Q4 2023 at the midpoint of its guidance. This is roughly flat compared to its Q3 2023 production if the LongPoint acquisition had closed at the beginning of the quarter. Commodity prices averaged approximately $78 to $79 WTI oil and $2.75 for Henry Hub gas for Q4 2023. At those commodity prices, Kimbell may have generated approximately $80 million in revenues, inclusive of hedges.

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Kimbell is thus expected to generate $54 million ($0.57 per unit) in Q4 2023 distributable cash flow. At a 75% payout ratio, this would result in a Q4 2023 distribution of $0.43 per unit.

This is lower than Kimbell’s Q3 2023 distribution of $0.51 per unit due to the impact of $12.4 million in cash flows it received from the LongPoint assets between the June 1, 2023 transaction effective date and the September 13, 2023 closing date. Thus Kimbell’s Q3 2023 distribution benefited fully from the cash flow from the acquired assets (and had June 2023 cash flow included too). Kimbell only had a partial month’s worth of Series A Preferred Unit distributions during the quarter as those were issued on September 13th as well.

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Updated 2024 Outlook

Kimbell notes that it had 9.34 net DUCs and permits at the end of Q3 2023, which (at 1.6x) is the highest multiple in its history to the estimated net wells per year (currently 5.8 net wells) needed to keep production flat. Kimbell also notes that it doesn’t have operational control over development, so there is some uncertainty about when those wells will come online.

However, given the large amount of line-of-sight wells, I am bumping up my estimate of Kimbell’s 2024 production by a couple percent to 24,500 BOEPD. This would represent mid-single digit growth from its 2H 2023 production levels, proforma for its LongPoint acquisition.

At the current 2024 strip of around $73 WTI oil and $3.00 Henry Hub gas, Kimbell is now projected to generate around $330 million in revenues after hedges. Kimbell has hedges covering around 20% of its oil and gas production at an average price of close to $79 WTI oil and $4 Henry Hub gas.

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Kimbell is now projected to generate $226 million (or $2.39 per unit) in distributable cash flow in 2024. This would result in a quarterly distribution of around $0.45 per unit based on a 75% payout ratio.

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Conclusion

Kimbell’s projected quarterly distributions for Q4 2023 and 2024 are now expected to average in the mid-40s cents per unit, down a bit from its Q3 2023 distribution of $0.51 per unit. This is due to weaker oil prices and increased preferred distributions (which had minimal impact on Q3 2023).

Kimbell’s line-of-sight wells are at a historical high compared to its maintenance requirements though, so that is a positive sign for organic production growth. I thus believe that a valuation of $19+ per unit remains reasonable for Kimbell. This represents a 2024 distribution yield of approximately 9.5% with a 75% payout ratio, and a distributable cash flow yield of around 12.5% at commodity prices that I believe are lower than the long-term average will be.