Kimbell Royalty Partners acquisition adds acreage in the Delaware and Midland basins, which remains the company’s leading basin for production, active rig count, DUCs, permits and undrilled inventory. (Source: Shutterstock.com)
Kimbell Royalty Partners LP has agreed to buy Permian Basin and Midcontinent assets from a private seller for $455 million cash, the largest in the company’s history.
The deal builds on Kimbell’s existing Permian position — including the Delaware and Midland basins — which remains Kimbell's leading basin for production, active rig count, DUCs, permits and undrilled inventory.
The targeted oil and gas mineral and royalty interests are located in “core positions of the Permian” and Midcontinent, with more than 4,000 gross producing wells on more than 1 million gross acres, the company said in an Aug. 2 press release.
The Permian represents approximately 64% of the reserve value, with approximately 36% in the Midcontinent, the company said. The acreage is concentrated in the Delaware (49%), Midland (10%) and Midcontinent (41%).
RELATED: Kimbell Royalty Partners Boosts Midland Basin Position with $143 Million Deal
The Permian acreage consisted of 13,477 net royalty acres (normalized to 1/8th). The acreage includes 1,613 gross producing wells in Delaware and Midland basins with current net production of 2,362 boe/d, 72% liquids and 28% gas.
The Delaware acreage is concentrated in Loving County, Texas, with 497 identified remaining inventory locations with a 1.4% net revenue interest.
Core Midland position includes 920 remaining inventory locations, with more that 40% of net royalty acres in the high quality and the most active Midland Basin counties: Martin and Midland counties, Texas.
The seller’s Permian acreage has 11 rigs actively drilling as of June 30, offering exposure to operators including EOG Resources, Occidental Petroleum and ConocoPhillips in the Delaware Basin and Pioneer Natural Resources, Endeavor Energy Resources and SM Energy in the Midland basin.
Kimbell expects the acquisition to be immediately accretive to distributable cash flow per unit, with an estimated “acceleration of accretion in 2024 and 2025,” the company said.
The company anticipates average production in the next 12 months of approximately 4,765 boe/d (33% oil, 41% natural gas, 26% NGL), generating an estimated $64.3 million of cash flow at strip pricing as of July 26 — reflecting a transaction multiple of approximately 7.1x, the company said.
The deal is also expected to increase daily production by more than 26% and decrease cash G&A per barrel of oil equivalent by approximately 20%. Following the transaction, Kimbell expects to maintain a peer-leading five-year decline rate of approximately 14%.
Kimbel also expects the acquisition to add 2.56 net DUCs and net permitted locations. Following the transaction, Kimbell expects net wells needed to maintain flat production to modestly increase from 4.9 net wells to 5.8 net wells.
In addition to net wells, the seller’s portfolio is expected to add an estimated 16.63 net upside locations, increasing Kimbell's major undrilled inventory by approximately 25%.
Bob Ravnaas, chairman and CEO of Kimbell's general partner, said the deal is expected to significantly enhance Kimbell's positions in the best-performing, highest-growth oil and gas basins in the Lower 48. “The targeted portfolio of mineral and royalty interests complements our disciplined approach to M&A, combining excellent reservoir quality, near-term cash flow and long-term production growth,” Ravnaas said. “We expect the acquisition to be immediately accretive to distributable cash flow per unit, with accelerated accretion anticipated in future years, and look forward to continuing our role as a major consolidator in the oil and natural gas royalty sector."
Kimbell intends to fund the purchase with a private placement of preferred units to affiliates of Apollo as well as borrowings under Kimbell’s revolved credit facility.
The deal maintains the company’s conservative balance sheet metrics with expected pro forma net leverage of approximately 1x following the close of the transaction.
The acquisition is expected to close in third-quarter 2023, subject to customary closing conditions, with an effective date of June 1, 2023.
Citigroup and Truist Securities served as co-financial advisers and White & Case LLP and Kelly Hart & Hallman LLP acted as legal counsel to Kimbell. RBC Capital Markets served as exclusive financial adviser and Bracewell LLP served as legal adviser to seller.
Recommended Reading
Texas Pacific Land Closes $290MM Permian Minerals, Royalties Deal
2024-10-03 - Texas Pacific Land Corp. acquired Permian Basin oil and gas minerals and royalties operated by Exxon Mobil, Diamondback Energy, Occidental Petroleum and ConocoPhillips.
Diamondback’s Viper Buys $1.1B in Permian Mineral, Royalty Interests
2024-09-11 - Diamondback subsidiary Viper Energy is spending $1.1 billion on a series of Permian Basin mineral and royalty acquisitions from Tumbleweed Royalty, which was formed by the executives behind Double Eagle Energy.
Diamondback Swaps Delaware Assets, Pays $238MM For TRP’s Midland Assets
2024-11-04 - After closing a $26 billion acquisition of Endeavor Energy Resources, Diamondback Energy is getting deeper in the Midland Basin through an asset swap with TRP Energy.
Diamondback Subsidiary Viper Closes $900MM Midland Royalty Deal
2024-10-02 - Diamondback Energy’s Viper Energy closed the last of three acquisitions from Tumbleweed Royalty, owned by Double Eagle Energy’s founders, that together totaled about $1.1 billion.
Diamondback Closes $26B Endeavor Deal, Forming Last Permian ‘Sandbox’
2024-09-13 - Diamondback Energy’s merger with Endeavor Energy Resources forms a company with pro forma production of 468,000 bbl/d (816,000 boe/d) on total Permian acreage of about 838,000 net acres.
Comments
Add new comment
This conversation is moderated according to Hart Energy community rules. Please read the rules before joining the discussion. If you’re experiencing any technical problems, please contact our customer care team.