Story By Chris Matthews |Hart Energy| Kimbell Royalty Partners anticipates hitting record oil and gas production this year after completing an acquisition in the Permian Basin.
Fort Worth-based Kimbell closed a deal to scoop up about 806 net royalty acres in the Northern Midland Basin on May 17. The acquired assets are concentrated in northern Howard County, Texas, and southern Borden County, Texas.
Kimbell purchased the mineral and royalty interests from MB Minerals LP, a subsidiary of EnCap-backed Sabalo Holdings LLC, for approximately $140.8 million.
The deal included a $48.8 million cash payment, which accounted for about 35% of the total consideration. Kimbell also issued about 5.4 million common units valued at $83.4 million from Kimbell Royalty Operating LLC, and around 600,000 newly issued KRP units valued at $8.7 million.
The total price reflects Kimbell’s $15.53 per unit closing price as of May 17, the company said. The transaction was valued at $143.1 million when first announced in April.
Kimbell Royalty Partners’ acreage in the core Midland Basin as of March 31, 2023 (Source: KRP Summer 2023 Investor Presentation)
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Boosting production guidance
After closing the Midland Basin acquisition, Kimbell is raising its outlook for oil and gas production this year.
The company expects production from the acquired Midland assets to average 1,459 barrels per day (bbl/d) of crude oil, 219 bbl/d of NGL and 1,338 cubic feet per day of natural gas (1,901 boe/d) over the next twelve months.
The Permian deal also moves up the oil weighting of Kimbell’s portfolio from 29% to 34% of daily production.
“This acquisition again reinforces our Permian Basin position as our leading basin in terms of production, active rig count, DUCs, permits and undrilled inventory,” said Robert Ravnaas, co-founder, chairman and CEO at Kimbell, on the company’s first-quarter earnings call on May 3.
For the remainder of the second quarter, Kimbell is guiding for net production of between 17,500 boe/d and 19,300 boe/d.
MINERAL OWNERS
That’s up 7% at the midpoint over the company’s previous guidance of between 16,300 boe/d and 18,100 boe/d for 2023.
Production in the third and fourth quarters is expected to grow to between 18,100 boe/d and 19,900 boe/d—up 10% at the midpoint over previous guidance. Crude oil production should range between 32% and 36% of total output during the back half of the year, Kimbell said.
Natural gas will still make up more than half of the company’s total production this year; NGL output is expected to range between 12% and 16% of production.
Despite a collapse in U.S. natural gas prices, rig activity led by private operators on Kimbell’s core acreage in the gassy Haynesville Shale increased over the first quarter, Ravnaas said.
“In addition, we realized natural gas prices that were substantially higher than Henry Hub across several basins during Q1, led by the D-J Basin and Bakken, which highlights the strength of our diversified royalty model,” he said.
Kimbell owned 7,919 net royalty acres in the Haynesville at the end of the first quarter (Source: KRP Summer 2023 Investor Presentation)
Henry Hub natural gas prices are forecast to average $2.91/MMBtu in 2023, down more than 50% from 2022’s average of $6.42/MMBtu, according to the latest estimates from the U.S. Energy Information Administration.
Given the low commodity price environment, it wouldn’t be unsurprising for Kimbell to see deferred completions on its acreage that could ultimately impact production, Ravnaas said.
“We don’t see evidence of that currently,” he said. “It’s just we don’t have control, obviously, as a mineral company over the timing of those completions.”
