Kimbell Royalty Partners LP: 10.4%-Yielder Closing in on Record High
October 14, 2024
Kimbell Royalty Has Never Missed a Quarterly Payout
The sentiment surrounding the energy sector and oil and natural gas exploration and production (E&P) companies like Kimbell Royalty Partners LP (NYSE:KRP) has turned bullish overnight.
Energy has been one of the worst-performing sectors in 2024 on weakening demand and potential increased output from the Organization of the Petroleum Exporting Countries (OPEC) plus other oil-producing countries.
But, as is often the case on Wall Street, things can change in a heartbeat.
Energy stocks got a big jolt at the start of October on fears of widening tensions in the Middle East. This includes missile attacks between Iran and Israel, which could upend the stability of oil supplies in the oil saturated Middle East.
The White House saying that it supports Israel’s defense strategy and warning that any direct military attack from Iran against Israel will face serious consequences is adding fuel to the fire. Especially since Iran actually launched a missile attack on Israel on October 1. (Source: “US sees indications of imminent Iranian missile attack on Israel,” Reuters, October 1, 2024.)
As of this writing, energy is the day’s top-performing sector, up 1.6%. Year to date, though, energy is the worst performer, posting gains of 4.6%.
Still, the near-term outlook for energy remains solid. Frankly, the long-term outlook does, too; it’s not as if the world isn’t going to need oil and gas for the next hundred years or more.
And that bodes well for often-ignored energy plays like Kimbell Royalty Partners LP.
About Kimbell Royalty Partners LP
Kimbell Royalty Partners and its subsidiaries are engaged in acquiring and owning mineral and royalty interests in oil and natural gas properties in the U.S. (Source: “Fall 2024 Investor Presentation,” Kimbell Royalty Partners LP, August 1, 2024.)
It has interests in over 129,000 gross wells across 17 million gross acres in the U.S, including the highest growth shale basins and stable conventional fields.
Roughly 96% of all onshore rigs in the lower 48 are in counties where Kimbell holds mineral interest positions.
As a limited partnership, it doesn’t sink any money into new wells. Instead, Kimbell has zero capital requirements, which supports its resilient free cash flow. The company lets its customers do all the heavy lifting.
Kimbell receives an upfront cash bonus payment and customarily a 20%–25% royalty on production revenues. In return, the company delivers the right to explore and develop with the operator bearing 100% of costs for a specified lease term.
Its top operators include Exxon Mobile Corp (NYSE:XOM), Occidental Petroleum Corp (NYSE:OXY), and Pioneer Natural Resources (NYSE:PXD).
As of June 30, 2024, Kimbell had 91 rigs actively drilling on its properties, representing a 16.3% market share of all land rigs drilling in the continental U.S.
And, thanks to its high-quality, diversified asset base, with current technology, the partnership has more than 16 years of drilling inventory across its major properties.
It’s always growing, too. Since its 2017 initial public offering (IPO), Kimbell has completed over $1.8 billion in mergers and acquisitions transactions, grown its run-rate average daily production by over 8x, and returned 61% of its $18.00/unit IPO price via quarterly cash distributions.
Another Solid Quarter
More often than not, Kimbell reports record financial results, including record fourth-quarter and whole-year 2023 and first-quarter 2024 results. It didn’t achieve record second-quarter numbers, but it did report very solid results. (Source: “Kimbell Royalty Partners Announces Second Quarter 2024 Results,” Kimbell Royalty Partners LP, August 1, 2024.)
Oil, natural gas, and natural gas liquids (NGL) revenue increased 35% on an annual basis to $76.9 million. The second-quarter run-rate average daily production of 24,110 barrels of oil equivalent per day (BOE/D) was ahead of the 24,000 BOE/D midpoint of management guidance.
Kimbell’s net income was $15.2 million, while its net income attributable to common units came in at approximately $8.4 million, or $0.11 per share. Its second-quarter 2024 adjusted earnings before interest, taxes, depreciation, and amortization increased 46% to $65.8 million.
The company did report one record during the quarter: record low cash general and administrative expenses per barrel of oil (BOE) of $2.34. This number was below the low-end of guidance and reflects Kimbell’s operational discipline and positive operating leverage.
Commenting on the second-quarter results, Robert Ravnaas, chairman and chief executive officer, said, “Kimbell’s active rig count remains strong with our market share of U.S. land rigs actively drilling remaining at 16%, which includes 91 rigs led by the Permian Basin with 47 rigs drilling at the end of Q2 2024.”
“Furthermore, our line-of-site wells continue to be well above the number of wells needed to maintain flat production, giving us confidence in the resilience of our production as we progress through 2024,” Ravnaas added.
Second-Quarter Dividend of $0.42 Per Unit Declared
As an energy play, Kimbell’s payouts fluctuate based on supply/demand and pricing, so its quarterly dividend payouts will change quarter to quarter. (Source: “Distribution History,” Kimbell Royalty Partners LP, last accessed October 1, 2024.)
| Period | Amount Per Unit |
| 2024 Q1–Q2 | $0.91 |
| 2023 | $1.68 |
| 2022 | $1.99 |
| 2021 | $1.32 |
| 2020 | $0.68 |
| 2019 | $1.56 |
| 2018 | $1.70 |
| 2017 | $1.20 |
In the first quarter, Kimbell announced a cash distribution of $0.49 per unit. In the second quarter, it was $0.42 per unit. This works out to an annual distribution of $1.68 per unit, for a forward yield of 10.44%.
Despite the inherent volatility in its payout, royalty companies like Kimbell provide far superior cash yields to the precious metals and REIT sectors as well as the S&P 500. The most recent data are from July 2024.
| Sectors | Yield Comparison |
| Kimbell Royalty | 9.9% |
| RoyaltyCo | 7.9% |
| Mid-Cap D&P | 3.6% |
| Large-Cap E&P | 2.6% |
| Integrateds | 4.3% |
| MSCI REIT Index | 3.9% |
| Precious Metal Producers | 1.5% |
| S&P 500 | 1.3% |
KRP Units Have 56% Upside
Kimbell’s dividend yield of 10.4% isn’t a fluke; its five-year average dividend yield is 11.05%.
Typically, a high dividend yield is tied to a stock/unit price that is down. However, this isn’t the case with Kimbell Royalty; its units are trading near record levels.
Kimbell Royalty units last hit a record intraday high of $16.62 on July 15. KRP units have bounced around a little over the last three months, but the recent ramping up of tensions in the Middle East has boosted them to within sight of a new record high.
As of this writing, KRP is trading hands at $16.04 per unit, putting it up 16% year to date and 13% year over year.
KRP units need to climb 3.6% to get to the previous record level, but even conservative Wall Street expects it to blow past that level.
Of those analysts providing a 12-month price forecast for KRP units, the average estimate is $20.67, with a high estimate of $25.00. This points to potential gains in the range of approximately 29% to 56%.
Chart courtesy of StockCharts.com
The Lowdown on Kimbell Royalty Partners LP
Kimbell Royalty Partners LP is a great E&P company with a diversified, high-margin, and shallow-decline portfolio of assets with zero capital requirements. This gives the company access to a consistent cash flow, which it uses to provide a reliable, high-yield dividend.
In fact, Kimbell has returned approximately 61% of its $18.00/unit IPO price through cash distributions since 2017.
As of late, KRP units have also been providing investors with some of the sectors strongest gains. Looking ahead, Wall Street expects KRPs to hit fresh highs over the coming quarters.
