Kimbell Royalty Partners · NYSE:KRP
Kimbell Royalty Partners — Merger or Acquisition (May 2018)
35 slides from Kimbell Royalty Partners's merger presentation, May 29, 2018
Slide 1: Disclaimer
Disclaimer This presentation includes forward-looking statements relating to the business, financial performance and results of Kimbell Royalty Partners, LP (“KRP”). These forward-looking statements involve risks and uncertainties, including certain plans, expectations, goals and statements about th
Slide 2: Management Presenters
Management Presenters Appointed Chief Executive Officer and Chairman of the Board of Directors in November 2015 Former President of Cawley Gillespie & Associates Began career as a Production Engineer for Amoco Responsible for underwriting 160+ royalty acquisitions over 20 years MSc, Petroleum Engine
Slide 3: Transaction Summary
Transaction Summary On May 28, 2018, Kimbell Royalty Partners, LP (“Kimbell,” “KRP” or the “Company”) entered into definitive agreements to acquire all of the mineral and royalty interests held by Haymaker Minerals & Royalties, LLC and Haymaker Resources, LP (collectively, “Haymaker”) in an approxim
Slide 4: Highly Accretive Transaction
Highly Accretive Transaction Haymaker acquisition is transformative to Kimbell, providing pro forma 1Q’18 DCF / unit accretion of >20% on a run-rate G&A basis - DCF accretion of >15% including one-time integration expenses(1) 337 PF 1Q’18 production of 9.1 Mboe/d, a 148% total increase - 1Q’18 produ
Slide 5: Significant Free Cash Flow Yield
Significant Free Cash Flow Yield 12% Free Cash Flow Yield higher than peer group Peer group companies selected includes royalty, Permian and investment grade E&P companies 12% (6%) Permian E&P Average KRP Pro Forma Royalty Peer Average Investment Grade Average 12% (6%) Permian E&P Average KRP Pro Fo
Slide 6: Acquisition Provides Scale Across the Lower 48
Acquisition Provides Scale Across the Lower 48 Approximately 11.1 million gross acres across 28 states and in every major producing basin 95% of all rigs in the Lower 48 are in counties where Kimbell holds mineral interests positions(1) 33% Gas 67% Liquids Note: (1) (2) Production mix and average da
Slide 7: Combined Company Highlights
Combined Company Highlights - Pro forma 1Q’18 DCF / unit accretion including one-time integration costs of >15% - Pro forma 1Q’18 Production per unit increases by 56% Energy yield investor market has ~$6.0 trillion in AUM, ~60x size of the MLP market Significant consolidation opportunity in the mine
Slide 8: History
History Certain members of Kimbell’s management team have completed over 160 acquisitions Founders began actively acquiring mineral and royalty interests in 1998 With a handshake agreement in 1998, a small group of Fort Worth based investors laid the groundwork for what is now Kimbell Kimbell Royalt
Slide 9: Key Strategies
Key Strategies Focus on high ROIC and per unit accretion, not scale - Emphasis on Free Cash Flow yield per unit - Review all acquisitions on per unit metrics - Want to be highest company on Return of Capital, not be the largest in size Use engineering and geological expertise to acquire acreage with
Slide 10: Kimbell's Transformation
Kimbell’s Transformation $2.57 337 At IPO 1Q'18A Pro Forma for Acquisition At IPO 1Q'18A Pro Forma for Acquisition 4,249 $19.40 At IPO Pro Forma for Acquisition At IPO 5/25/2018 Source: Note: (1) Company filings and presentations. EBITDA at IPO represents first full quarter after IPO in 2017. Assume
Slide 11: Pro Forma Kimbell Overview
Pro Forma Kimbell Overview Economic Areas (Boe/d)(1) Over 114,000 Net Royalty Acres in the Lower 48 with significant positions in the highest growth basins 1,243 Liquids-focused with approximately 67% of production from oil and NGLs(2) 7% of the total active Lower 48 rigs are operating on the combin
Slide 12: Acreage Focused in High Return Basins
Acreage Focused in High Return Basins Kimbell has a weighted average breakeven price of $40 across its acreage position(1) 44% of production weighted towards the high growth, high margin Permian and Mid-Continent areas $80 $70 $60 $50 $40 $30 $20 $10 $0 WTI Price: $67.50 Weighted Average Breakeven P
Slide 13: Positioned for Growth Through Acquisitions
Positioned for Growth Through Acquisitions Existing Kimbell sponsors’ remaining assets have production and reserve characteristics similar to Kimbell’s existing portfolio - Sponsors’ portfolio is larger than standalone Kimbell today Ownership position incentivizes Kimbell’s Sponsors to offer Kimbell
Slide 14: Conservative Leverage Strategy vs. Investment Grade Peers
Conservative Leverage Strategy vs. Investment Grade Peers Kimbell compared to select independent investment grade E&P companies 46% 7% 1% (55%) KRP Pro Forma Peer 1 Peer 2 Peer 3 Peer 4 Peer 5 Peer 6 Peer 7 Strategy is to keep leverage low while opportunistically increasing leverage for value enhanc
Slide 15: Sources of Cash for Transaction
Sources of Cash for Transaction In conjunction with the Haymaker acquisition, Kimbell has lender commitments to increase its existing borrowing base capacity to $200 million from $100 million currently The $200 million commitment is fully underwritten between Frost Bank, the existing Administrative
Slide 16: Public Minerals Market Landscape
Public Minerals Market Landscape Drop-down Potential Acquisitions Majority of Acreage is Leased Geographic Diversification Variable Distribution Policy Source: (1) (2) Company filings and FactSet as of 5/25/18. Acreage presented on a similar bases assuming net mineral acres multiplied by royalty int
Slide 17: Key Reasons to Own Kimbell
Key Reasons to Own Kimbell 1 2 3 4 5 6 7 18 Trading at Significant Discount Strong Sponsor Support Prudent Financial Philosophy Positions Kimbell to Become a Consolidator Complementary, High-Quality Asset Base Upside through Conversion to C-Corp Structure Immediately Accretive Transaction
Slide 18: Key Reasons to Own Kimbell
Key Reasons to Own Kimbell ne as
Slide 19: Yield History
Yield History 10.0% 9.0% 8.7% KRP 8.0% 7.0% 6.9% BSM 6.0% 5.9% VNOM 5.0% 4.0% Feb-17 Mar-17 May-17 Jun-17 Aug-17 Sep-17 Nov-17 Dec-17 Feb-18 Apr-18 May-18 (1) Company filings and FactSet as of 5/25/2018. 20 Distribution Yield Average KRP DCF yield prior to 1Q18 distribution announcement: 7.6% Distri
Slide 20: Defining a Net Royalty Acre
Defining a Net Royalty Acre Kimbell calculates its Net Royalty Acres(1) as follows: Net Mineral Acres x Royalty Interest(2) - This methodology provides a clear and easily understandable view of Kimbell’s acreage position Royalty Interest Many companies use a 1/8th convention which assumes eight roya
Slide 21: Pro Forma Well Count by Basin
Pro Forma Well Count by Basin Permian Basin 38,674 DJ Basin/Rockies/Niobrara Mid-Continent Terryville / Cotton Valley / Haynesville Barnett Shale/Fort Worth Basin Other Bakken/Williston Basin Appalachian Basin San Juan Basin Eagle Ford Onshore California Illinois Basin Kimbell Haymaker 22 11,883 9,4
Slide 22: Pro Forma Portfolio
Pro Forma Portfolio Terryville / Cotton Valley / Haynesville 6% Terryville / Cotton Valley / Haynesville 6% Terryville / Cotton Valley / Haynesville 5% Other 26% Other 25% Other 29% Mid-Continent 30% Mid-Continent 31% 11.1 mm acres Mid-Continent 29% + = 5.7 mm acres 5.4 mm acres Bakken / Williston B
Slide 23: Kimbell's Standalone Profile
Kimbell’s Standalone Profile Expansive position of ~5.7 million gross acres and ~71,300 net royalty acres with core positions in the Permian Basin and Mid-Continent, representing 52% of total net royalty acres Mineral and overriding royalty interests in more than 50,000 wells Diverse base of 700 ope
Slide 24: Haymaker Overview
Haymaker Overview Vast position of ~5.4 million gross acres and ~43,000 net royalty acres 51 Rigs on Acreage(1) - Increasing operator activity in the Mid-Continent as operators pursue high-return, stacked pay drilling targets in the SCOOP/STACK Mineral and overriding royalty interests in more than 3
Slide 25: Post-Acquisition Management
Post-Acquisition Management weaknesses of individual assets in the involved with tracking cash flows and performance expectations 26 Proactive Approach Leverage specialized software and proprietary models to forecast new well development and net production to determine Apply ongoing forecasting anal
Slide 26: Minerals Provide Favorable Risk Profile
Minerals Provide Favorable Risk Profile Bankruptcy 27 Increasing risk A diversified mineral and royalty portfolio provides a favorable risk profile compared to other investments with oil and gas capture CapEx Exposure Operating Cost Exposure Environmental Liabilities Leverage Required Concentration
Slide 27: Mineral Interests Senior in Capital Structure
Mineral Interests Generally Capital Structure Senior to All Claims in 28 Working Interest owner entitled to ~75-85% of production revenue and bears 100% of development cost and lease operating expense Equity Subordinated Debt Senior Debt Senior Secured Debt Mineral Interest owner entitled to ~15-25%
Slide 28: Kimbell vs. Midstream/Service MLPs
Kimbell vs. Midstream/Service MLPs 1 2 3 4 Sizeable/Diversified Asset Base Avoid Operating Expenses & Risks Equity-Like Upside Compelling Current Income investments based on a operator drilling programs (1) Acreage numbers as of 12/31/2017. Includes mineral interests and overriding royalty interests
Slide 29: Higher Margin, Lower Risk
Higher Margin, Lower Risk Illustrative Kimbell Royalty Interest(1) Illustrative Working Interest Owner(1) Revenue of $50.00 Revenue of $50.00 (1) Illustrative purposes only. Expenses and tax rates will vary by operator, locale and asset. 30 Royalties ($12.50) LOE & Prod. / Ad Val Tax ($15.65) F&D ($
Slide 30: Overview of Mineral & Royalty Interests
Overview of Mineral & Royalty Interests Minerals NPRIs ORRIs Perpetual real-property interests that grant oil and natural gas ownership under a tract of land Nonparticipating royalty interests Overriding royalty interests Royalty interests that are carved out of a mineral estate Royalty interests th
Slide 31: Historical Selected Financial Data of KRP
Historical Selected Financial Data of KRP March 31, 2018 Balance Sheet (in thousands) Assets: Current assets Cash and cash equivalents Oil, natural gas and NGL receivables Other current assets Total current assets Property and equipment, net Oil and natural gas properties Oil and natural gas propert
Slide 32: Historical Selected Financial Data of KRP (cont'd)
Historical Selected Financial Data of KRP (cont’d) Statement of Operations Three Months Ended March 31, 2018 (in thousands) Revenue Oil, natural gas and NGL revenues Loss on commodity derivative instruments Total revenues Costs and expenses Production and ad valorem taxes Depreciation, depletion and
Slide 33: Non-GAAP Reconciliation
Historical Selected Financial Data of KRP (cont’d) Non-GAAP Reconciliation Three Months Ended March 31, 2018 (in thousands) Net loss Depreciation, depletion and accretion expenses Interest expense EBITDA Impairment of oil and natural gas properties Unit-based compensation Unrealized loss on commodit
Slide 34: Non-GAAP Reconciliation
Historical Selected Financial Data of KRP (cont’d) Non-GAAP Reconciliation Three Months Ended March 31, 2018 (in thousands) Reconciliation of net cash provided by operating activities to Adjusted EBITDA Net cash provided by operating activities Interest expense Impairment of oil and natural gas prop
Slide 35: Non-GAAP Reconciliation
35 Historical Selected Financial Data of KRP (cont’d) Non-GAAP Reconciliation Reconciliation of net cash provided by operating activities to Adjusted EBITDA Net cash provided by operating activities Interest expense Impairment of oil and natural gas properties Amortization of loan origination costs
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