Item 7.01. Regulation FD Disclosure.
On November 9, 2021, Kimbell Royalty Partners, LP, a Delaware limited
partnership ("Kimbell") issued a news release announcing its entry into a
securities purchase agreement (the "Purchase Agreement") to acquire mineral and
royalty interests (the "Acquired Assets") from certain undisclosed sellers (the
"Sellers ") in an all-cash transaction (the "Acquisition"), which is described
below in Item 8.01 of this Current Report on Form 8-K. A copy of the news
release is attached hereto, furnished as Exhibit 99.1 to this Current Report on
Form 8-K and incorporated by reference into this Item 7.01.
The information set forth in this Item 7.01 (including Exhibit 99.1) shall not
be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), nor shall such information be deemed
incorporated by reference in any filing under the Securities Act of 1933 or the
Exchange Act, regardless of the general incorporation language of such filing,
except as shall be expressly set forth by specific reference in such filing.
Item 8.01. Other Events.
On November 9, 2021, Kimbell and Kimbell Royalty Operating, LLC, a Delaware
limited liability company ("Opco" and, together with Kimbell, the "Buyer
Parties"), entered into the Purchase Agreement in connection with the
Acquisition.
Pursuant to the terms of the Purchase Agreement, the Buyer Parties have agreed
to acquire all of the outstanding equity interests in certain subsidiaries owned
by the Sellers for $57,000,000 in cash consideration, subject to purchase price
adjustments and other customary closing adjustments. The Buyer Parties and the
Sellers have each made certain representations, warranties and covenants under
the Purchase Agreement, including the Sellers' covenant to conduct their
businesses in the ordinary course during the period between execution of the
Purchase Agreement and closing, subject to certain exceptions. The Buyer
Parties, on the one hand, and the Sellers, on the other hand, have agreed to
indemnify each other and their respective directors, officers, partners,
members, managers, employees, agents and advisors against certain losses
resulting from breaches of their respective representations, warranties and
covenants, subject to certain negotiated limitations and survival periods set
forth in the Purchase Agreement.
The Purchase Agreement provides that, during the period from the date of the
signing of the Purchase Agreement until the closing of the Acquisition or
termination of the Purchase Agreement, the Sellers will be subject to certain
restrictions on their ability to solicit alternative acquisition proposals from
third parties, to provide non-public information to third parties and to engage
in discussions with third parties regarding alternative acquisition proposals.
The closing of the Acquisition is subject to the satisfaction or waiver of
certain customary closing conditions as set forth in the Purchase Agreement.
Among other customary closing conditions, the Purchase Agreement contains a
condition that the borrowing base and elected commitment amount under Kimbell's
revolving credit facility is increased to $275.0 million in connection with the
Acquisition. Kimbell expects the Acquisition to close in the fourth quarter of
2021. The effective date of the Acquisition is expected to be November 1, 2021,
but it will be extended to December 1, 2021 if the Acquisition does not close by
December 15, 2021.
Kimbell intends to finance a portion of the purchase price for the Acquisition
that is due at closing, subject to market conditions and other factors, with net
proceeds from an underwritten public offering of common units representing
limited partner interests in Kimbell ("Common Units"). The portion of the
purchase price that is not funded through the underwritten public offering is
expected to be funded through borrowings under Kimbell's revolving credit
facility. Pursuant to the Purchase Agreement, Kimbell and the Sellers have the
right to terminate the Purchase Agreement in the event that the underwritten
public offering is not consummated or certain net proceeds thresholds from the
underwritten public offering are not met.
In the event that an underwritten public offering of Common Units has not been
consummated by November 9, 2021 or the net proceeds from the underwritten public
offering of Common Units are less than $42 million, the Purchase Agreement may
be terminated by the Buyer Parties or the Sellers. The Buyer Parties may also
terminate the Purchase Agreement if the Sellers commit certain breaches of their
representations and warranties or fail to perform their covenants and agreements
or if a governmental authority has issued a final order prohibiting the
consummation of the Acquisition, in each case, subject to certain exceptions.
Similarly, the Sellers may terminate the Purchase Agreement if the Buyer Parties
commit certain breaches of their representations and warranties or fail to
perform their covenants and agreements or if a governmental authority has issued
a final, non-appealable order prohibiting the consummation of the Acquisition,
in each case, subject to certain exceptions. Furthermore, the Purchase Agreement
may be terminated if the Acquisition has not closed by February 15, 2022.
Estimated Information about the Acquired Assets
Kimbell estimates that, as of September 30, 2021, the Acquired Assets produced
700 Boe/d (on a 6:1 basis), comprising of approximately 48% natural gas (2,021
mcf/d), 34% oil (240 bbl/d) and 18% NGLs (123 bbl/d), which is expected to
increase Kimbell's average daily net production as of September 30, 2021 to
14,783 Boe/d. Kimbell further estimates that, as of November 1, 2021, the
Acquired Assets consisted of over 26,000 gross proved developed producing
horizontal wells. The Acquired Assets include a position in the Denver Unit in
Gaines County, Texas, with approximately 33% of the overall Acquired Assets'
value, on a proved developed producing PV-10 basis, coming from this unit.
The Acquired Assets are expected to further reduce Kimbell's general and
administrative expense ("G&A"), net of non-cash unit-based compensation per Boe
from $3.09/Boe (as of September 30, 2021) to $2.95/Boe and also expected to
provide additional tax basis bolstering Kimbell's tax position. As of November
1, 2021, there were three rigs in operation on the Acquired Assets.
Kimbell estimates that, as of November 1, 2021, the Acquired Assets included
acreage across the Permian, Mid-Continent, Haynesville and other leading basins,
with the largest concentration of acreage acquired located in the Permian Basin
(39% of estimated total proved reserves), Mid-Continent Basin (31% of estimated
total proved reserves) and Haynesville Basin (14% of estimated total proved
reserves). As of November 1, 2021, Kimbell estimates that the Acquired Assets
holds approximately 5.9 Mboe in total proved reserves reflecting a purchase
price of approximately $9.66 per total proved Boe and comprised of approximately
46% natural gas, 37% oil and 17% NGLs, and proved developed producing reserves
of approximately 62% conventional and 38% unconventional assets. In addition,
Kimbell estimates that the average estimated five-year decline rate for the
Acquired Assets is approximately 9%, compared to Kimbell's estimated five-year
decline rate of 12% (estimated on a 6:1 basis).
Reserve engineering is a complex and subjective process of estimating
underground accumulations of oil and natural gas that cannot be measured in an
exact way, and the accuracy of any reserve estimate is a function of the quality
of available data and of engineering and geological interpretation and judgment.
As a result, estimates prepared by one engineer may vary from those prepared by
another. Estimates of proved reserves for Kimbell's oil and gas properties as of
December 31, 2021 will be prepared by Ryder Scott Company, L.P. using the
information available at that time, and estimates of proved reserves related to
the Acquisition will be prepared by Ryder Scott Company, L.P. as of December 31,
2021. Upon completion of their review, the estimate of the proved reserves for
Kimbell's oil and gas properties as of December 31, 2021 will be different from
the estimate of the proved reserves for its oil and gas properties as of
December 31, 2020, and the estimates of proved reserves of the Acquired Assets
as of December 31, 2021 will be different from Kimbell's estimates of such
reserves as of November 1, 2021.
Kimbell's assessment and estimates of the assets to be acquired in the
Acquisition to date have been limited. Even by the time the Acquisition closes,
Kimbell's assessment of these assets may not reveal all existing or potential
problems, nor will it permit Kimbell to become familiar enough with the
properties to assess fully their capabilities and deficiencies. Moreover, there
can be no assurance that Kimbell will consummate the Acquisition on the terms
described herein or at all. Even if Kimbell consummates the Acquisition, they
may not be able to achieve the expected benefits of the Acquisition.
Forward-Looking Statements
Certain information contained in this Current Report on Form 8-K and in the
exhibits hereto includes forward-looking statements. These forward-looking
statements, which include statements regarding the anticipated benefits of the
Acquisition, the expected timing of the closing of the Acquisition, operational
and reserve data with respect to the Acquired Assets, the financing of the
Acquisition and the proposed public offering and the use of proceeds therefrom,
involve risks and uncertainties, including risks that the anticipated benefits
of the Acquisition are not realized; risks relating to Kimbell's integration of
the Acquired Assets; risks relating to the possibility that the Acquisition does
not close when expected or at all because any conditions to the closing are not
satisfied on a timely basis or at all; and risks relating to Kimbell's business,
prospects for growth and acquisitions and the securities markets generally.
Except as required by law, Kimbell undertakes no obligation and does not intend
to update these forward-looking statements to reflect events or circumstances
occurring after the date hereof. When considering these forward-looking
statements, you should keep in mind the risk factors and other cautionary
statements in Kimbell's filings with the Securities and Exchange Commission
("SEC"). These include risks inherent in oil and natural gas drilling and
production activities, including risks with respect to low or declining prices
for oil and natural gas that could result in downward revisions to the value of
proved reserves or otherwise cause operators to delay or suspend planned
drilling and completion operations or reduce production levels, which would
adversely impact cash flow; risks relating to the impairment of oil and natural
gas properties; risks relating to the availability of capital to fund drilling
operations that can be adversely affected by adverse drilling results,
production declines and declines in oil and natural gas prices; risks relating
to Kimbell's ability to meet financial covenants under its credit agreement or
its ability to obtain amendments or waivers to effect such compliance; risks
relating to Kimbell's hedging activities; risks of fire, explosion, blowouts,
pipe failure, casing collapse, unusual or unexpected formation pressures,
environmental hazards, and other operating and production risks, which may
temporarily or permanently reduce production or cause initial production or test
results to not be indicative of future well performance or delay the timing of
sales or completion of drilling operations; risks relating to delays in receipt
of drilling permits; risks relating to unexpected adverse developments in the
status of properties; risks relating to borrowing base redeterminations by
Kimbell's lenders, risks relating to the absence or delay in receipt of
government approvals or third-party consents; risks relating to acquisitions,
dispositions and drop downs of assets; risks relating to Kimbell's ability to
realize the anticipated benefits from and to integrate acquired assets,
including the Acquired Assets; and other risks described in Kimbell's Annual
Report on Form 10-K and other filings with the SEC, available at the SEC's
website at www.sec.gov. You are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date of this Current
Report on Form 8-K.
Item 9.01. Financial Statements and Exhibits.
(d) Exhibits
Number Description
99.1 News release issued by Kimbell Royalty Partners, LP dated November
9, 2021.
104 Cover Page Interactive Data File (the cover page XBRL tags are
embedded within the Inline XBRL document).
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