Kimbell Royalty Partners, LP [KRP] Filings

10-Q 1 krp-20230630x10q.htm 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2023 OR

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 001-38005

Kimbell Royalty Partners, LP

(Exact name of registrant as specified in its charter)


Delaware (State or other jurisdiction of incorporation or organization)	1311 (Primary Standard Industrial Classification Code Number)	47-5505475 (I.R.S. Employer Identification No.)

777 Taylor Street, Suite 810

Fort Worth, Texas 76102

(817) 945-9700

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class:	Trading symbol(s)	Name of exchange on which registered:
Common Units Representing Limited Partner Interests	KRP	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of July 28, 2023, the registrant had outstanding 65,507,635 common units representing limited partner interests and 20,853,618 Class B units representing limited partner interests.

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KIMBELL ROYALTY PARTNERS, LP

FORM 10-Q

TABLE OF CONTENTS


PART I – FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements (Unaudited):	1
Consolidated Balance Sheets	1
Consolidated Statements of Operations	2
Consolidated Statements of Changes in Unitholders’ Equity	3
Consolidated Statements of Cash Flows	5
Notes to Consolidated Financial Statements	7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
Item 3. Quantitative and Qualitative Disclosures About Market Risk	38
Item 4. Controls and Procedures	39


PART II – OTHER INFORMATION
Item 1. Legal Proceedings	39
Item 1A. Risk Factors	39
Item 5. Other Information	40
Item 6. Exhibits	40
Signatures	42

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PART I – FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements (Unaudited)

KIMBELL ROYALTY PARTNERS, LP

CONSOLIDATED BALANCE SHEETS

(Unaudited)


	June 30,		December 31,
	2023		2022
ASSETS
Current assets
Cash and cash equivalents	$	20,779,119	$	24,635,718
Oil, natural gas and NGL receivables		45,006,388		46,993,711
Derivative assets		1,794,888		—
Accounts receivable and other current assets		3,135,807		3,562,912
Total current assets		70,716,202		75,192,341
Property and equipment, net		771,872		953,781
Oil and natural gas properties
Oil and natural gas properties, using full cost method of accounting ($125,601,085 and $207,695,343 excluded from depletion at June 30, 2023 and December 31, 2022, respectively)		1,602,199,705		1,465,985,718
Less: accumulated depreciation, depletion and impairment		(749,745,922)		(712,716,951)
Total oil and natural gas properties, net		852,453,783		753,268,767
Right-of-use assets, net		2,357,665		2,525,323
Derivative assets		1,580,439		754,786
Loan origination costs, net		6,308,398		3,004,104
Assets of consolidated variable interest entities:
Cash		—		390,850
Investments held in trust		—		240,621,146
Prepaid expenses		—		35,201
Total assets	$	934,188,359	$	1,076,746,299

LIABILITIES, MEZZANINE EQUITY AND UNITHOLDERS' EQUITY
Current liabilities
Accounts payable	$	1,369,894	$	1,210,337
Other current liabilities		8,340,805		4,909,510
Derivative liabilities		428,560		12,646,720
Total current liabilities		10,139,259		18,766,567
Operating lease liabilities, excluding current portion		2,066,030		2,236,361
Derivative liabilities		170,529		432,142
Long-term debt		269,600,000		233,015,911
Other liabilities		260,417		322,917
Liabilities of consolidated variable interest entities:
Other current liabilities		—		512,725
Deferred underwriting commissions		—		8,050,000
Total liabilities		282,236,235		263,336,623
Commitments and contingencies (Note 15)
Mezzanine equity:
Redeemable non-controlling interest in Kimbell Tiger Acquisition Corporation		—		236,900,000
Kimbell Royalty Partners, LP unitholders' equity:
Common units (65,507,635 units and 64,231,833 units issued and outstanding as of June 30, 2023 and December 31, 2022, respectively)		596,177,270		601,841,776
Class B units (20,853,618 and 15,484,400 units issued and outstanding as of June 30, 2023 and December 31, 2022, respectively)		1,042,681		774,220
Total Kimbell Royalty Partners, LP unitholders' equity		597,219,951		602,615,996
Non-controlling interest (deficit) in OpCo		54,732,173		(26,106,320)
Total equity		651,952,124		576,509,676
Total liabilities, mezzanine equity and unitholders' equity	$	934,188,359	$	1,076,746,299

The accompanying notes are an integral part of these consolidated financial statements.

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KIMBELL ROYALTY PARTNERS, LP

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Revenue
Oil, natural gas and NGL revenues	$	56,981,614	$	78,591,469	$	114,398,373	$	143,675,372
Lease bonus and other income		2,041,189		1,213,322		2,478,526		1,867,452
Gain (Loss) on commodity derivative instruments, net		1,729,459		(7,094,127)		10,791,835		(39,077,647)
Total revenues		60,752,262		72,710,664		127,668,734		106,465,177
Costs and expenses
Production and ad valorem taxes		5,404,955		5,002,794		9,682,159		9,023,705
Depreciation and depletion expense		19,656,855		11,273,960		37,220,503		22,033,124
Marketing and other deductions		2,907,459		4,063,004		5,669,498		7,571,070
General and administrative expense		7,925,159		7,866,176		16,203,426		14,455,435
Consolidated variable interest entities related:
General and administrative expense		219,473		590,500		927,699		1,329,959
Total costs and expenses		36,113,901		28,796,434		69,703,285		54,413,293
Operating income		24,638,361		43,914,230		57,965,449		52,051,884
Other income (expense)
Equity income in affiliate		—		3,385,325		—		3,634,733
Interest expense		(6,341,118)		(3,323,290)		(11,804,522)		(6,201,145)
Loss on extinguishment of debt		(480,244)		—		(480,244)		—
Other (expense) income		(180,765)		898,207		(180,765)		3,966,657
Consolidated variable interest entities related:
Interest earned on marketable securities in trust account		1,069,854		223,135		3,508,691		324,521
Net income before income taxes		18,706,088		45,097,607		49,008,609		53,776,650
Income tax expense		909,057		1,803,441		2,312,040		2,075,240
Net income		17,797,031		43,294,166		46,696,569		51,701,410
Net income attributable to non-controlling interests in OpCo		(4,297,442)		(5,424,092)		(9,860,860)		(6,482,769)
Distribution on Class B units		(31,601)		(8,211)		(47,085)		(25,821)
Net income attributable to common units of Kimbell Royalty Partners, LP	$	13,467,988	$	37,861,863	$	36,788,624	$	45,192,820

Net income per unit attributable to common units of Kimbell Royalty Partners, LP
Basic	$	0.24	$	0.66	$	0.61	$	0.54
Diluted	$	0.23	$	0.55	$	0.59	$	0.42
Weighted average number of common units outstanding
Basic		63,274,492		55,424,930		62,910,053		50,710,073
Diluted		82,959,981		65,543,669		81,263,101		65,323,279

The accompanying notes are an integral part of these consolidated financial statements.

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KIMBELL ROYALTY PARTNERS, LP

CONSOLIDATED STATEMENTS OF CHANGES IN UNITHOLDERS’ EQUITY

(Unaudited)


	Six Months Ended June 30, 2023
									Non-controlling
	Common Units		Amount		Class B Units		Amount		Interest in OpCo		Total
Balance at January 1, 2023		64,231,833	$	601,841,776		15,484,400	$	774,220	$	(26,106,320)	$	576,509,676
Restricted units repurchased for tax withholding		(279,662)		(4,851,962)		—		—		—		(4,851,962)
Unit-based compensation		998,162		3,170,000		—		—		—		3,170,000
Distributions to unitholders		—		(31,176,160)		—		—		(7,436,615)		(38,612,775)
Distribution on Class B units		—		(15,484)		—		—		—		(15,484)
Net income		—		23,336,120		—		—		5,563,418		28,899,538
Balance at March 31, 2023		64,950,333		592,304,290		15,484,400		774,220		(27,979,517)		565,098,993
Units issued for acquisition		557,302		8,654,900		5,369,218		268,461		83,383,956		92,307,317
Unit-based compensation		—		3,289,740		—		—		—		3,289,740
Distributions to unitholders		—		(22,732,617)		—		—		(5,349,476)		(28,082,093)
Distribution on Class B units		—		(31,601)		—		—		—		(31,601)
Accretion of redeemable non-controlling interest in Kimbell Tiger Acquisition Corporation and write-off of deferred underwriting commissions		—		1,192,969		—		—		379,768		1,572,737
Net income		—		13,499,589		—		—		4,297,442		17,797,031
Balance at June 30, 2023		65,507,635	$	596,177,270		20,853,618	$	1,042,681	$	54,732,173	$	651,952,124

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KIMBELL ROYALTY PARTNERS, LP

CONSOLIDATED STATEMENTS OF CHANGES IN UNITHOLDERS’ EQUITY — (Continued)

(Unaudited)


	Six Months Ended June 30, 2022
									Non-controlling		Non-controlling
	Common Units		Amount		Class B Units		Amount		Interest in OpCo		Interest in TGR		Total
Balance at January 1, 2022		47,162,773	$	328,717,841		17,611,579	$	880,579	$	19,251,361	$	—	$	348,849,781
Costs associated with equity offering		—		(325,508)		—		—		—		—		(325,508)
Conversion of Class B units to common units		9,357,919		161,424,103		(9,357,919)		(467,896)		(161,424,103)		—		(467,896)
Restricted units repurchased for tax withholding		(193,604)		(3,344,828)		—		—		—		—		(3,344,828)
Unit-based compensation		963,835		2,194,342		—		—		—		—		2,194,342
Distributions to unitholders		—		(17,450,226)		—		—		(6,516,284)		—		(23,966,510)
Distribution on Class B units		—		(17,610)		—		—		—		—		(17,610)
Proceeds from issuance of TGR public warrants		—		—		—		—		—		11,500,000		11,500,000
Accretion of redeemable non-controlling interest in Kimbell Tiger Acquisition Corporation		—		(16,325,799)		—		—		(2,351,988)		(11,500,000)		(30,177,787)
Net income		—		7,348,567		—		—		1,058,677		—		8,407,244
Balance at March 31, 2022		57,290,923		462,220,882		8,253,660		412,683		(149,982,337)		—		312,651,228
Conversion of Class B units to common units		42,081		722,952		(42,081)		(2,104)		(722,952)		—		(2,104)
Forfeitures of restricted units		(1,171)		(19,813)		—		—		—		—		(19,813)
Unit-based compensation		—		2,949,491		—		—		—		—		2,949,491
Distributions to unitholders		—		(26,945,962)		—		—		(3,859,442)		—		(30,805,404)
Distribution on Class B units		—		(8,211)		—		—		—		—		(8,211)
Accretion of redeemable non-controlling interest in Kimbell Tiger Acquisition Corporation		—		(1,519,432)		—		—		(217,627)		—		(1,737,059)
Net income		—		37,870,074		—		—		5,424,092		—		43,294,166
Balance at June 30, 2022		57,331,833	$	475,269,981		8,211,579	$	410,579	$	(149,358,266)	$	—	$	326,322,294

The accompanying notes are an integral part of these consolidated financial statements.

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KIMBELL ROYALTY PARTNERS, LP

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Six Months Ended June 30,
	2023		2022
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	46,696,569	$	51,701,410
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and depletion expense		37,220,503		22,033,124
Amortization of right-of-use assets		167,658		157,298
Amortization of loan origination costs		1,008,830		901,660
Loss on extinguishment of debt		480,244		—
Equity income in affiliate		—		(3,634,733)
Cash distribution from affiliate		—		3,770,651
Forfeiture of restricted units		—		(19,813)
Unit-based compensation		6,459,740		5,143,833
(Gain) loss on derivative instruments, net of settlements		(15,100,314)		12,116,997
Changes in operating assets and liabilities:
Oil, natural gas and NGL receivables		1,987,323		(18,448,369)
Accounts receivable and other current assets		427,105		906,119
Accounts payable		159,557		741,972
Other current liabilities		3,431,295		1,859,036
Operating lease liabilities		(170,331)		(159,717)
Consolidated variable interest entities related:
Interest earned on marketable securities in trust account		(3,508,691)		(324,521)
Other assets and liabilities		(687,353)		(289,307)
Net cash provided by operating activities		78,572,135		76,455,640
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment		(72,123)		(75,398)
Purchase of oil and natural gas properties		(44,175,131)		(443,977)
Proceeds from trust of variable interest entity		930,850		—
Cash distribution from affiliate		—		3,465,376
Consolidated variable interest entities related:
Cash paid for transaction costs		31,553		—
Cash received from investments held in trust		243,167,434		—
Investment in marketable securities		—		(236,900,000)
Net cash provided by (used in) investing activities		199,882,583		(233,953,999)
CASH FLOWS FROM FINANCING ACTIVITIES
Costs associated with equity offering		—		(325,508)
Contributions from Class B unitholders		268,461		—
Redemption of Class B contributions on converted units		—		(470,000)
Distributions to common unitholders		(53,908,777)		(44,396,188)
Distribution to OpCo unitholders		(12,786,091)		(10,375,726)
Distribution on Class B units		(47,085)		(25,821)
Borrowings on long-term debt		59,084,089		36,200,000
Repayments on long-term debt		(22,500,000)		(37,200,000)
Payment of loan origination costs		(4,793,368)		(435,142)
Restricted units repurchased for tax withholding		(4,851,962)		(3,344,828)
Consolidated variable interest entities related:
Proceeds from initial public offering of Kimbell Tiger Operating Company		—		227,585,000
Payment of underwriting commissions with equity offering of Kimbell Tiger Operating Company, net of adjustments		—		(2,661,288)
Redemption of Kimbell Tiger Acquisition Corporation equity units		(243,167,434)		—
Net cash (used in) provided by financing activities		(282,702,167)		164,550,499
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS		(4,247,449)		7,052,140
CASH AND CASH EQUIVALENTS, beginning of period		25,026,568		7,052,414
CASH AND CASH EQUIVALENTS, end of period	$	20,779,119	$	14,104,554
Supplemental cash flow information:
Cash paid for interest	$	10,963,296	$	5,032,259
Cash paid for taxes	$	—	$	2,043,374
Non-cash investing and financing activities:
Units issued in exchange for oil and natural gas properties	$	92,038,856	$	—
Recognition of tenant improvement asset	$	62,500	$	62,501
Consolidated variable interest entities related:
Reduction of deferred underwriting commission associated with redemption of Kimbell Tiger Acquisition Corporation equity units	$	(8,050,000)	$	—
Deferred underwriting commissions	$	—	$	8,050,000

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KIMBELL ROYALTY PARTNERS, LP

CONSOLIDATED STATEMENTS OF CASH FLOWS — (Continued)

(Unaudited)


	Six Months Ended June 30,
	2023		2022
Reconciliation of Cash and Cash Equivalents and Cash Held at Consolidated Variable Interest Entities to the Consolidated Statements of Cash Flows
Cash and cash equivalents	$	20,779,119	$	13,317,833
Cash held at consolidated variable interest entities		—		786,721
	$	20,779,119	$	14,104,554

The accompanying notes are an integral part of these consolidated financial statements.

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Unless the context otherwise requires, references to “Kimbell Royalty Partners, LP,” the “Partnership,” or like terms refer to Kimbell Royalty Partners, LP and its subsidiaries. References to the “Operating Company” or “OpCo” refer to Kimbell Royalty Operating, LLC. References to the “General Partner” refer to Kimbell Royalty GP, LLC. References to “Kimbell Operating” refer to Kimbell Operating Company, LLC, a wholly owned subsidiary of the General Partner. References to the “Sponsors” refer to affiliates of the Partnership’s founders, Ben J. Fortson, Robert D. Ravnaas, Brett G. Taylor and Mitch S. Wynne, respectively. References to the “Contributing Parties” refer to all entities and individuals, including certain affiliates of the Sponsors, that contributed, directly or indirectly, certain mineral and royalty interests to the Partnership.

NOTE 1—ORGANIZATION AND BASIS OF PRESENTATION

Organization

Kimbell Royalty Partners, LP is a Delaware limited partnership formed in 2015 to own and acquire mineral and royalty interests in oil and natural gas properties throughout the United States. The Partnership has elected to be taxed as a corporation for United States federal income tax purposes. As an owner of mineral and royalty interests, the Partnership is entitled to a portion of the revenues received from the production of oil, natural gas and associated natural gas liquids (“NGL”) from the acreage underlying its interests, net of post-production expenses and taxes. The Partnership is not obligated to fund drilling and completion costs, lease operating expenses or plugging and abandonment costs at the end of a well’s productive life. The Partnership’s primary business objective is to provide increasing cash distributions to unitholders resulting from acquisitions from third parties, its Sponsors and the Contributing Parties, and from organic growth through the continued development by working interest owners of the properties in which it owns an interest.

On February 8, 2022, the Partnership announced the $230 million initial public offering of its special purpose acquisition company, Kimbell Tiger Acquisition Corporation (NYSE: TGR).

Kimbell Tiger Acquisition Corporation (“TGR”) was formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses. Kimbell Tiger Acquisition Sponsor, LLC (“TGR Sponsor”), which was a subsidiary of the Partnership, and was created to assist TGR in sourcing, analyzing and consummating acquisition opportunities for that initial business combination. TGR Sponsor and TGR have been consolidated in the financial statements of the Partnership beginning in the year ended December 31, 2021.

On May 22, 2023, as a result of TGR’s inability to consummate an initial business combination on or prior to May 8, 2023 and pursuant to the terms of its organizational documents, TGR redeemed all of its outstanding shares of Class A common stock (as defined in Note 4) included as part of the units issued in its initial public offering. Following such redemption, TGR (along with TGR Sponsor) was dissolved in accordance with the terms of its organizational documents. Further details can be found in Note 4—Acquisitions, Joint Venture and Special Purpose Acquisition Company.

Basis of Presentation

The accompanying unaudited interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”). As a result, the accompanying unaudited interim consolidated financial statements do not include all disclosures required for complete annual financial statements prepared in conformity with GAAP. Accordingly, the accompanying unaudited interim consolidated financial statements and related notes should be read in conjunction with the Partnership’s Annual Report on Form 10-K for the year ended December 31, 2022 (the “2022 Form 10-K”), which contains a summary of the Partnership’s significant accounting policies and other disclosures. In the opinion of management of the General Partner, the unaudited interim consolidated financial statements contain all adjustments necessary to fairly present the financial position and results of operations for the interim periods in accordance with GAAP and all adjustments are of a normal recurring nature. The accompanying unaudited interim consolidated financial statements include the accounts of the Partnership and its consolidated subsidiaries. All material intercompany balances

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and transactions are eliminated in consolidation. The results of operations for any interim period are not necessarily indicative of the results to be expected for the full year.

Use of Estimates

Preparation of the Partnership’s financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts in the financial statements and notes. Actual results could differ from those estimates.

Segment Reporting

The Partnership operates in a single operating and reportable segment. Operating segments are defined as components of an enterprise for which separate financial information is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and assess performance. The Partnership’s chief operating decision maker allocates resources and assesses performance based upon financial information of the Partnership as a whole.

Russia / Ukraine Conflict

In February 2022, Russia invaded Ukraine and is still engaged in active armed conflict against the country. The conflict and the sanctions imposed in response have led to regional instability and caused dramatic fluctuations in global financial markets and have increased the level of global economic and political uncertainty, including uncertainty about world-wide oil supply and demand, which in turn has increased volatility in commodity prices. To date, the Partnership has not experienced a material impact to operations or the consolidated financial statements as a result of the invasion of Ukraine; however, the Partnership will continue to monitor for events that could materially impact them.

NOTE 2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Significant Accounting Policies

For a description of the Partnership’s significant accounting policies, see Note 2 of the consolidated financial statements included in the Partnership’s 2022 Form 10-K, as well as the items noted below. There have been no substantial changes in such policies or the application of such policies during the three and six months ended June 30, 2023.

Consolidation

The Partnership analyzes whether it has a variable interest in an entity and whether that entity is a variable interest entity (“VIE”) to determine whether it is required to consolidate those entities. The Partnership performs the variable interest analysis for all entities in which it has a potential variable interest, which primarily consist of all entities with respect to which the Partnership serves as the sponsor, general partner or managing member, and general partner entities not wholly owned by the Partnership. If the Partnership has a variable interest in the entity and the entity is a VIE, it will also analyze whether the Partnership is the primary beneficiary of this entity and whether consolidation is required.

In evaluating whether it has a variable interest in the entity, the Partnership reviews the equity ownership and the extent to which it absorbs risk created and distributed by the entity, as well as whether the fees charged to the entity are customary and commensurate with the level of effort required to provide services. Fees received by the Partnership are not variable interests if (i) the fees are compensation for services provided and are commensurate with the level of effort required to provide those services, (ii) the service arrangement includes only terms, conditions, or amounts that are customarily present in arrangements for similar services negotiated at arm’s length and (iii) the Partnership’s other economic interests in the VIE held directly and indirectly through its related parties, as well as economic interests held by related parties under common control, where applicable, would not absorb more than an insignificant amount of the entity’s losses or receive more than an insignificant amount of the entity’s benefits. Evaluation of these criteria requires judgment.

For entities determined to be VIEs, the Partnership must then evaluate whether it is the primary beneficiary of such VIEs. To make this determination, the Partnership evaluates its economic interests in the entity specifically determining if the Partnership has both the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and the obligation to absorb losses or the right to receive benefits that could potentially be

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significant to the VIE (the “benefits”). When making the determination on whether the benefits received from an entity are significant, the Partnership considers the total economics of the entity, and analyzes whether the Partnership’s share of the economics is significant. The Partnership utilizes qualitative factors, and, where applicable, quantitative factors, while performing the analysis.

VIEs of which the Partnership is the primary beneficiary have been included in the Partnership’s consolidated financial statements. The portion of the consolidated subsidiaries owned by third parties and any related activity is eliminated through non-controlling interests in the consolidated balance sheets and income (loss) attributable to non-controlling interests in the consolidated statements of operations.

Investments Held in Trust by Consolidated Variable Interest Entities

Investments held in trust represent funds raised by TGR, a consolidated special purpose acquisition company, through the TGR IPO (as defined in Note 4). These funds were held in an actively-traded money market fund, which invested in U.S. Treasury securities. Investments held in trust are classified as trading securities and are presented on the balance sheet at fair value at the end of each reporting period. Gains and losses resulting from the change in fair value of these securities are included in other income (expense)—interest earned on marketable securities in trust account on the accompanying unaudited interim consolidated statements of operations. The estimated fair values of investments held in the trust account are determined using quoted prices in an active market and therefore are classified in Level 1 of the fair value hierarchy, as described in Note 6— Fair Value Measurements.

Redeemable Non-Controlling Interest

Redeemable non-controlling interests represent the shares of TGR Class A common stock (as defined in Note 4) sold in the TGR IPO that were redeemable for cash by the public TGR shareholders that would have been concurrent with TGR’s initial business combination or in the event of TGR’s failure to complete a business combination or a tender offer. The redeemable non-controlling interests were initially recorded at their original issue price, net of issuance costs and the initial fair value of separately traded warrants. As of June 30, 2023, the shares had been redeemed in full.

New Accounting Pronouncements

In March 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-01, “Leases (Topic 842): Common Control Arrangements.” This update requires that (i) entities determine whether a related party arrangement between entities under common control is a lease and (ii) that leasehold improvements have an amortization period consistent with the shorter of the remaining lease term and the useful life of the improvements, which is an approach that is largely consistent with legacy guidance. This update is effective for financial statements issued for fiscal years beginning after December 15, 2023, including interim periods within that fiscal year. The Partnership is currently evaluating the impact of the adoption of this update, but does not believe it will have a material impact on its financial position, results of operations or liquidity.

NOTE 3—REVENUE FROM CONTRACTS WITH CUSTOMERS

The Partnership has the right to receive revenues from oil, natural gas and NGL sales obtained by the operator of the wells in which the Partnership owns a mineral or royalty interest. Revenue is recognized at the point control of the product is transferred to the purchaser. Virtually all of the pricing provisions in the Partnership’s contracts are tied to a market index.

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The Partnership’s oil, natural gas and NGL sales contracts are generally structured whereby the producer of the properties in which the Partnership owns a mineral or royalty interest sells the Partnership’s proportionate share of oil, natural gas and NGL production to the purchaser and the Partnership collects its percentage royalty based on the revenue generated by the sale of the oil, natural gas and NGL. In this scenario, the Partnership recognizes revenue when control transfers to the purchaser at the wellhead or at the gas processing facility based on the Partnership’s percentage ownership share of the revenue, net of any deductions for gathering and transportation.

The following table disaggregates the Partnership’s oil, natural gas, and NGL revenues for the following periods:


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Oil revenue	$	39,809,883	$	34,567,049	$	72,810,169	$	68,340,181
Natural gas revenue		11,539,982		35,876,768		31,188,764		58,894,902
NGL revenue		5,631,749		8,147,652		10,399,440		16,440,289
Total Oil, natural gas and NGL revenues	$	56,981,614	$	78,591,469	$	114,398,373	$	143,675,372

NOTE 4—ACQUISITIONS, JOINT VENTURE AND SPECIAL PURPOSE ACQUISITION COMPANY

Acquisitions

On May 17, 2023, the Partnership completed the acquisition of certain mineral and royalty assets held by MB Minerals, L.P. and certain of its affiliates (the “MB Minerals Acquisition”). The aggregate consideration for the MB Minerals Acquisition consisted of (i) approximately $48.8 million in cash and (ii) the issuance of (a) 5,369,218 OpCo Common Units and an equal number of Class B units representing limited partnership interests in the Partnership (“Class B Units”) and (b) 557,302 common units. The Partnership funded the cash payment of the purchase price with borrowings under its secured revolving credit facility. The assets acquired in the MB Minerals Acquisition are located in Howard and Borden Counties, Texas. The MB Minerals Acquisition was accounted for as an asset acquisition and the allocation of the purchase price was $60.8 million to proved properties and $74.9 million to unevaluated properties.

On December 15, 2022, the Partnership completed the acquisition of certain mineral and royalty assets held by Hatch Royalty LLC (the “Hatch Acquisition”). The aggregate consideration for the Hatch Acquisition consisted of (i) approximately $150.4 million in cash and (ii) the issuance of 7,272,821 OpCo common units and an equal number of Class B units. The Partnership funded the cash payment of the purchase price with borrowings under its secured revolving credit facility. The assets acquired in the Hatch Acquisition are located in the Permian Basin and the Partnership estimates that the assets consisted of approximately 889 net royalty acres on approximately 230,000 gross acres. The Hatch Acquisition was accounted for as an asset acquisition and the allocation of the purchase price was $56.4 million to proved properties and $204.7 million to unevaluated properties.

Joint Venture

On June 19, 2019, the Partnership entered into a joint venture (the “Joint Venture”) with Springbok SKR Capital Company, LLC and Rivercrest Capital Partners, LP, a related party. The Partnership’s ownership in the Joint Venture was 49.3%. During the year ended December 31, 2022, the Joint Venture completed the sale of its royalty, mineral and overriding interests and similar non-cost bearing interests in oil and gas properties for a total purchase price of $15.0 million. Net proceeds distributed to the Partnership were $6.5 million during the year ended December 31, 2022, the majority of which was used to repay debt on the Partnership’s secured revolving credit facility. The Joint Venture was dissolved on November 1, 2022.

Special Purpose Acquisition Company

On July 29, 2021, TGR, the Partnership’s recently dissolved special purpose acquisition company and subsidiary, filed a registration statement on Form S-1 with the SEC. On February 8, 2022, TGR consummated its initial public offering (the “TGR IPO”) of 23,000,000 units (each a “unit” and, collectively, the “units”), including 3,000,000 additional units issued pursuant to the underwriter’s exercise in full of its over-allotment option, at $10.00 per unit, generating proceeds of approximately $230,000,000 and incurring offering costs of approximately $12,650,000, inclusive of $8,050,000 in deferred underwriting commissions. Each unit consisted of one share of Class A common stock, par value $0.0001 (the

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“TGR Class A common stock”), and one-half of one redeemable warrant. Each whole warrant was exercisable for one share of Class A common stock at a price of $11.50 per share. Certain members of our management and members of the Board of Directors were members of the sponsor of TGR, TGR Sponsor. TGR was formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses (the “Business Combination”). Under the terms of TGR’s governing documents, TGR had until May 8, 2023 (15 months from the closing of the TGR IPO) to complete the Business Combination, subject to TGR Sponsor’s option to extend such deadline by three months up to two times.

In connection with the closing of the TGR IPO, TGR completed the sale of 14.1 million private placement warrants (the “private placement warrants”) to TGR Sponsor, which was a subsidiary of the Partnership, for a purchase price of $1.00 per private placement warrant, generating gross proceeds of $14.1 million. Each private placement warrant was exercisable to purchase for $11.50 one share of TGR Class A common stock.

In addition, TGR incurred $12.7 million of fees and expenses, of which $8.1 million were deferred underwriting commissions that became payable to the underwriters solely in the event that TGR completed the Business Combination, which were included in deferred underwriting commissions on the accompanying unaudited interim consolidated balance sheet at December 31, 2022.

In May 2021, prior to TGR’s IPO, TGR Sponsor paid $25,000 in exchange for the issuance of (i) 5,750,100 shares of TGR’s Class B common stock, par value $0.0001 per share (the “TGR Class B common stock”), and (ii) 2,500 shares of TGR Class A common stock. Additionally, in May 2021, TGR paid $25,000 to Kimbell Tiger Operating Company (“TGR Opco”) in exchange for the issuance of 2,500 Class A units of TGR Opco. Also in May 2021, TGR Sponsor received 100 Class A units of TGR Opco in exchange for $1,000 and 5,750,000 Class B units of TGR Opco. The shares of TGR Class B common stock and corresponding number of Class B units of TGR Opco (or the Class A units of TGR Opco into which such Class B units will convert) are collectively referred to as the “Founders Shares.” The Founders Shares would have been exchangeable for shares of TGR Class A common stock upon completion of the Business Combination on a one-for-one basis, subject to certain adjustments. Class A units and Class B units of TGR Opco were substantially similar, other than certain distribution rights, and were entitled to vote together as a single class on all matters submitted for stockholder vote.

In determining the accounting treatment of the Partnership’s equity interest in TGR, management concluded that TGR was a VIE as defined by Accounting Standards Codification Topic 810, “Consolidation.” A VIE is an entity in which equity investors at risk lack the characteristics of a controlling financial interest. VIEs are consolidated by the primary beneficiary, the party who has both the power to direct the activities of a VIE that most significantly impact the entity’s economic performance, as well as the obligation to absorb losses of the entity or the right to receive benefits from the entity that could potentially be significant to the entity. TGR Sponsor was the primary beneficiary of TGR as it had, through its equity interest, the right to receive benefits or the obligation to absorb losses from TGR, as well as the power to direct a majority of the activities that significantly impacted TGR’s economic performance, including identification of a target for its Business Combination. As such, TGR was consolidated into the Partnership’s financial statements through TGR Sponsor.

Proceeds of $236.9 million were deposited in a trust account established for the benefit of TGR’s public unitholders consisting of certain proceeds from the TGR IPO and certain proceeds from the sale of the private placement warrants, net of underwriters’ discounts and commissions and other costs and expenses. The proceeds held in the trust account were not available to be used by the Partnership at any time. A minimum balance of $236.9 million, representing the number of TGR units sold at a redemption value of $10.30 per unit, was required by the underwriting agreement to be maintained in the trust account. The proceeds held in the trust account were only permitted to be invested in U.S. government treasury obligations with a maturity of 185 days or less or in money market funds meeting certain conditions under Rule 2a-7 of the Investment Company Act that invest only in direct U.S. government treasury obligations. In connection with the trust account, the Partnership reported investments held in trust of $240.6 million on the accompanying unaudited interim consolidated balance sheet as of December 31, 2022.

On May 22, 2023, as a result of TGR’s inability to consummate an initial business combination on or prior to May 8, 2023, and pursuant to the terms of its organizational documents, TGR redeemed all of its outstanding shares of Class A common stock included as part of the units issued in its initial public offering. The per-share redemption price for the TGR public shares was $10.57 and the Partnership remeasured and accreted through equity the redeemable non-

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controlling interest in TGR to its redemption value of $243.0 million and wrote off the deferred underwriting commissions through equity. The public shares of TGR ceased trading as of the close of business on May 8, 2023. As of the close of business on May 9, 2023, the public shares were deemed cancelled and represented only the right to receive the redemption amount. Following such redemption, TGR (along with TGR Sponsor) was dissolved in accordance with the terms of its organizational documents. There were no redemption rights or liquidating distributions with respect to TGR’s warrants, including the Private Placement Warrants held by TGR Sponsor, which expired worthless. TGR Sponsor waived its redemption rights with respect to TGR’s outstanding common stock issued before TGR’s initial public offering. The Class A common stock was redeemed on June 22, 2023 and the Partnership completed the dissolution and deconsolidation of TGR on June 30, 2023. The net non-cash impact of the deconsolidation of TGR was $1.6 million, which is included in the accompanying unaudited interim consolidated balance sheet as of June 30, 2023.

NOTE 5—DERIVATIVES

Commodity Derivatives

The Partnership’s ongoing operations expose it to changes in the market price for oil and natural gas. To mitigate the inherent commodity price risk associated with its operations, the Partnership uses oil and natural gas commodity derivative financial instruments. From time to time, such instruments may include variable-to-fixed-price swaps, costless collars, fixed-price contracts and other contractual arrangements. The Partnership enters into oil and natural gas derivative contracts that contain netting arrangements with each counterparty.

As of June 30, 2023, the Partnership’s commodity derivative contracts consisted of fixed price swaps, under which the Partnership receives a fixed price for the contract and pays a floating market price to the counterparty over a specified period for a contracted volume. The Partnership hedges its production based on the amount of debt and/or preferred equity as a percent of its enterprise value. As of June 30, 2023, these economic hedges constituted approximately 15% of daily oil and natural gas production.

The Partnership’s oil fixed price swap transactions are settled based upon the average daily prices for the calendar month of the contract period, and its natural gas fixed price swap transactions are settled based upon the last scheduled trading day for the first nearby month futures contract corresponding to the relevant contract period. Settlement for oil derivative contracts occurs in the succeeding month and natural gas derivative contracts are settled in the production month. Changes in the fair values of the Partnership’s commodity derivative instruments are recognized as gains or losses in the current period and are presented on a net basis within revenue in the accompanying unaudited interim consolidated statements of operations.

Interest Rate Swaps

On January 27, 2021, the Partnership entered into an interest rate swap with Citibank, N.A., New York (“Citibank”), which fixed the interest rate on $150.0 million of the notional balance on our secured revolving credit facility. On May 17, 2022, the Partnership entered into a partial termination agreement with Citibank to unwind 50% of the interest rate swap. On August 8, 2022, the Partnership entered into a termination agreement with Citibank to unwind the remaining 50% of the interest rate swap. The May 2022 termination resulted in a $3.0 million gain, which is included in other income (expense) in the accompanying unaudited interim consolidated statements of operations for the three and six months ended June 30, 2022. The Partnership used an interest rate swap for the management of interest rate risk exposure, as the interest rate swap effectively converted a portion of the Partnership’s secured revolving credit facility from a floating to a fixed rate. Changes in the fair values of the Partnership’s interest rate swaps were recognized as gains or losses in the current period and were presented on a net basis within other income in the accompanying unaudited interim consolidated statements of operations. As of June 30, 2022, the interest rate swap had a total notional amount of $75.0 million and a fair value of $3.3 million.

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The Partnership has not designated any of its derivative contracts as hedges for accounting purposes. Changes in the fair value consisted of the following:


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Beginning fair value of derivative instruments	$	175,525	$	(45,305,641)	$	(12,324,076)	$	(26,624,646)
Gain (loss) on derivative instruments		1,729,459		(6,195,920)		10,791,835		(34,434,335)
Net cash paid on settlements of derivative instruments		871,254		12,759,918		4,308,479		22,317,338
Ending fair value of derivative instruments	$	2,776,238	$	(38,741,643)	$	2,776,238	$	(38,741,643)

The following table presents the fair value of the Partnership’s derivative contracts for the periods indicated:


		June 30,		December 31,
Classification	Balance Sheet Location	2023		2022
Assets:
Current assets	Derivative assets	$	1,794,888	$	—
Long-term assets	Derivative assets		1,580,439		754,786
Liabilities:
Current liabilities	Derivative liabilities		(428,560)		(12,646,720)
Long-term liabilities	Derivative liabilities		(170,529)		(432,142)
		$	2,776,238	$	(12,324,076)

As of June 30, 2023, the Partnership’s open commodity derivative contracts consisted of the following:

Oil Price Swaps


	Notional	Weighted Average		Range (per Bbl)
	Volumes (Bbl)	Fixed Price (per Bbl)		Low		High
July 2023 - December 2023	140,668	$	62.33	$	61.70	$	63.00
January 2024 - December 2024	228,044	$	74.44	$	69.30	$	82.40
January 2025 - June 2025	171,558	$	65.17	$	64.35	$	66.31

Natural Gas Price Swaps


	Notional	Weighted Average		Range (per MMBtu)
	Volumes (MMBtu)	Fixed Price (per MMBtu)		Low		High
July 2023 - December 2023	2,043,412	$	3.18	$	3.09	$	3.28
January 2024 - December 2024	3,229,292	$	4.34