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Kimbell Set to Purchase Permian and Mid-Continent Assets for $455 Million

Kimbell Royalty Partners' acquisition adds land in Delaware & Midland basins, enhancing its lead in production, active rigs, DUCs, permits & undrilled inventory.

Kimbell Royalty Partners LP has recently announced a landmark deal, the largest in its history, to expand its foothold in the oil and gas industry. The company has agreed to purchase Permian Basin and Midcontinent assets for a staggering $455 million in cash from a private seller.

Enhancing Existing Positions

This acquisition will strengthen Kimbell’s already robust presence in the Permian region, notably the Delaware and Midland basins. The Permian continues to be the forefront for Kimbell in terms of production, active rig count, DUCs, permits, and undrilled inventory.

Bob Ravnaas, the chairman and CEO of Kimbell's general partner, expressed that this deal is poised to bolster Kimbell's presence in the top-performing and fastest-growing oil and gas basins in the Lower 48. He emphasized that the specific portfolio of mineral and royalty interests aligns with their disciplined M&A strategy, bringing together exceptional reservoir quality, near-term cash flow, and sustainable production growth.

Ravnaas also noted the acquisition is foreseen to be immediately beneficial to distributable cash flow per unit, with more substantial gains expected in the coming years, reaffirming Kimbell's role as a key consolidator in the oil and natural gas royalty sector.

Assets' Details

The assets in focus are oil and gas mineral and royalty interests, strategically located in the core areas of the Permian and Midcontinent. These assets encompass over 4,000 gross producing wells, spread across more than 1 million gross acres, as confirmed by an official press release on Aug. 2.

Permian Acreage:

A total of 13,477 net royalty acres, normalized to 1/8th.
The acreage encompasses 1,613 gross producing wells in Delaware and Midland basins.
The production level stands at 2,362 barrels of oil equivalent per day (boe/d), with a composition of 72% liquids and 28% gas.

Delaware assets are primarily located in Loving County, Texas. There are 497 identified remaining inventory locations. The net revenue interest is recorded at 1.4%.

Core Midland assets include 920 remaining inventory locations. More than 40% of the net royalty acres are located in the high-quality and most active Midland Basin counties, specifically in Martin and Midland counties, Texas.

Reserve Distribution

In terms of reserve value, the Permian accounts for about 64%, while the Midcontinent holds roughly 36%. Further breaking down the acreage, it's distributed across the Delaware (49%), Midland (10%), and Midcontinent (41%).

Kimbell’s plans

Kimbell anticipates that the acquisition will bring several additions and changes:

An addition of 2.56 net DUCs and net permitted locations.
A modest increase in the net wells needed to maintain flat production, rising from 4.9 to 5.8 net wells.
An estimated addition of 16.63 net upside locations to the seller’s portfolio, leading to a 25% increase in Kimbell's significant undrilled inventory.

Kimbell has acquired the seller's Permian acreage, where 11 rigs are currently drilling. The acquisition includes exposure to several major operators in both the Delaware and Midland basins. This deal is expected to immediately boost distributable cash flow per unit, with a further acceleration planned for 2024 and 2025.

Kimbell forecasts an average production of roughly 4,765 boe/d (comprising 33% oil, 41% natural gas, 26% NGL) in the next year, generating an estimated cash flow of $64.3 million at current strip pricing. This reflects a transaction multiple of around 7.1x.

The acquisition is set to increase daily production by over 26% and reduce cash G&A per barrel by about 20%. Kimbell plans to maintain an industry-leading five-year decline rate of approximately 14% after the transaction.

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