Company Quick10K Filing
Kimbell Royalty Partners
Price1.00 EPS56,235,013
Shares-0 P/E0
MCap-0 P/FCF-0
Net Debt-20 EBIT-51
TEV-20 TEV/EBIT0
TTM 2019-09-30, in MM, except price, ratios
10-Q 2020-09-30 Filed 2020-11-05
10-Q 2020-06-30 Filed 2020-08-06
10-Q 2020-03-31 Filed 2020-05-07
10-K 2019-12-31 Filed 2020-02-28
10-Q 2019-09-30 Filed 2019-11-08
10-Q 2019-06-30 Filed 2019-08-08
10-Q 2019-03-31 Filed 2019-05-09
10-K 2018-12-31 Filed 2019-03-12
10-Q 2018-09-30 Filed 2018-11-09
10-Q 2018-06-30 Filed 2018-08-10
10-Q 2018-03-31 Filed 2018-05-11
10-K 2017-12-31 Filed 2018-03-09
10-Q 2017-09-30 Filed 2017-11-09
10-Q 2017-06-30 Filed 2017-08-14
10-Q 2017-03-31 Filed 2017-05-12
10-K 2016-12-31 Filed 2017-03-30
8-K 2020-11-05
8-K 2020-10-23
8-K 2020-08-06
8-K 2020-07-24
8-K 2020-05-07
8-K 2020-04-27
8-K 2020-04-17
8-K 2020-02-27
8-K 2020-01-24
8-K 2020-01-14
8-K 2020-01-09
8-K 2020-01-09
8-K 2019-12-12
8-K 2019-11-11
8-K 2019-11-07
8-K 2019-10-25
8-K 2019-08-21
8-K 2019-08-08
8-K 2019-07-26
8-K 2019-06-10
8-K 2019-05-23
8-K 2019-05-20
8-K 2019-05-13
8-K 2019-05-09
8-K 2019-04-26
8-K 2019-04-08
8-K 2019-04-04
8-K 2019-03-25
8-K 2019-03-07
8-K 2019-02-12
8-K 2019-02-06
8-K 2019-01-25
8-K 2018-12-20
8-K 2018-12-07
8-K 2018-11-29
8-K 2018-11-20
8-K 2018-11-08
8-K 2018-10-26
8-K 2018-10-02
8-K 2018-09-27
8-K 2018-09-23
8-K 2018-08-09
8-K 2018-07-23
8-K 2018-07-12
8-K 2018-05-28
8-K 2018-05-10
8-K 2018-04-27
8-K 2018-04-02
8-K 2018-03-08
8-K 2018-02-02

KRP 10Q Quarterly Report

Part I - Financial Information
Item 1. Condensed Consolidated Financial Statements (Unaudited)
Note 1 - Organization and Basis of Presentation
Note 2 - Summary of Significant Accounting Policies
Note 3 - Acquisitions and Joint Ventures
Note 4 - Derivatives
Note 5 - Fair Value Measurements
Note 6 - Oil and Natural Gas Properties
Note 7 - Leases
Note 8 - Long - Term Debt
Note 9 - Preferred Units
Note 10 - Unitholders' Equity and Partnership Distributions
Note 11 - Earnings (Loss) per Unit
Note 12 - Income Taxes
Note 13 - Unit - Based Compensation
Note 14 - Related Party Transactions
Note 15 - Administrative Services
Note 16 - Commitments and Contingencies
Note 17 - Subsequent Events
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II - Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 6. Exhibits
EX-31.1 krp-20200930xex31d1.htm
EX-31.2 krp-20200930xex31d2.htm
EX-32.1 krp-20200930xex32d1.htm
EX-32.2 krp-20200930xex32d2.htm

Kimbell Royalty Partners Earnings 2020-09-30

Balance SheetIncome StatementCash Flow
91072854636418202017201820192020
Assets, Equity
3517-1-19-37-552016201720182020
Rev, G Profit, Net Income
19511841-36-113-1902017201820192020
Ops, Inv, Fin

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Table of Contents

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 September 30, 2020

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 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 October 30, 2020, the registrant had outstanding 38,948,023 common units representing limited partner interests and 20,779,781 Class B units representing limited partner interests.

Table of Contents

KIMBELL ROYALTY PARTNERS, LP

FORM 10-Q

TABLE OF CONTENTS

i

Table of Contents

PART I – FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements (Unaudited)

KIMBELL ROYALTY PARTNERS, LP

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

September 30, 

December 31, 

2020

2019

ASSETS

Current assets

Cash and cash equivalents

$

12,347,689

$

14,204,250

Oil, natural gas and NGL receivables

16,039,385

19,170,762

Commodity derivative assets

687,933

Accounts receivable and other current assets

946,937

76,868

Total current assets

29,334,011

34,139,813

Property and equipment, net

1,166,660

1,327,057

Investment in affiliate (equity method)

4,707,165

2,952,264

Oil and natural gas properties

Oil and natural gas properties, using full cost method of accounting ($235,028,364 and $275,041,784 excluded from depletion at September 30, 2020 and December 31, 2019, respectively)

1,148,983,401

1,033,355,017

Less: accumulated depreciation, depletion and impairment

(523,403,235)

(328,913,425)

Total oil and natural gas properties, net

625,580,166

704,441,592

Right-of-use assets, net

3,194,116

3,399,634

Commodity derivative assets

116,568

Loan origination costs, net

1,469,266

2,217,126

Total assets

$

665,451,384

$

748,594,054

LIABILITIES, MEZZANINE EQUITY AND UNITHOLDERS' EQUITY

Current liabilities

Accounts payable

$

995,574

$

1,207,736

Other current liabilities

5,842,811

4,231,579

Commodity derivative liabilities

992,299

Total current liabilities

7,830,684

5,439,315

Operating lease liabilities, excluding current portion

2,919,194

3,124,416

Commodity derivative liabilities

2,699,576

Long-term debt

169,700,653

100,135,477

Total liabilities

183,150,107

108,699,208

Commitments and contingencies (Note 16)

Mezzanine equity:

Series A preferred units (55,000 and 110,000 units issued and outstanding as of September 30, 2020 and December 31, 2019, respectively)

42,050,637

74,909,732

Unitholders' equity:

Common units (38,948,023 units issued and outstanding as of September 30, 2020 and 23,518,652 units issued and outstanding as of December 31, 2019)

325,048,170

282,549,841

Class B units (20,779,781 units issued and outstanding as of September 30, 2020 and 25,557,606 units issued and outstanding as of December 31, 2019)

1,038,989

1,277,880

Total unitholders' equity

326,087,159

283,827,721

Noncontrolling interest

114,163,481

281,157,393

Total equity

440,250,640

564,985,114

Total liabilities, mezzanine equity and unitholders' equity

$

665,451,384

$

748,594,054

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

1

Table of Contents

KIMBELL ROYALTY PARTNERS, LP

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

Three Months Ended September 30, 

Nine Months Ended September 30, 

2020

2019

2020

2019

Revenue

Oil, natural gas and NGL revenues

$

24,325,893

$

29,531,138

$

66,686,729

$

80,278,506

Lease bonus and other income

15,916

940,898

313,844

2,313,548

(Loss) gain on commodity derivative instruments, net

(5,897,646)

2,506,815

193,995

270,607

Total revenues

18,444,163

32,978,851

67,194,568

82,862,661

Costs and expenses

Production and ad valorem taxes

1,840,607

2,236,405

4,916,858

5,757,742

Depreciation and depletion expense

10,704,945

15,098,107

36,002,109

37,690,558

Impairment of oil and natural gas properties

22,237,131

34,880,071

158,698,835

65,828,980

Marketing and other deductions

2,511,919

2,332,010

6,692,850

5,938,093

General and administrative expense

6,110,846

5,694,534

19,500,306

17,248,399

Total costs and expenses

43,405,448

60,241,127

225,810,958

132,463,772

Operating loss

(24,961,285)

(27,262,276)

(158,616,390)

(49,601,111)

Other income (expense)

Equity income (loss) in affiliate

292,803

(80,896)

460,360

(80,896)

Interest expense

(1,603,006)

(1,468,419)

(4,689,907)

(4,332,633)

Other expense

(100,000)

(100,000)

Net loss before income taxes

(26,371,488)

(28,811,591)

(162,945,937)

(54,014,640)

(Benefit from) provision for income taxes

(694,864)

102,997

(694,864)

610,798

Net loss

(25,676,624)

(28,914,588)

(162,251,073)

(54,625,438)

Distribution and accretion on Series A preferred units

(1,577,968)

(3,469,584)

(6,232,620)

(10,408,752)

Net loss and distributions and accretion on Series A preferred units attributable to noncontrolling interests

9,482,090

16,146,535

63,429,454

33,398,555

Distribution on Class B units

(23,141)

(23,414)

(71,089)

(71,042)

Net loss attributable to common units

$

(17,795,643)

$

(16,261,051)

$

(105,125,328)

$

(31,706,677)

Net loss attributable to common units

Basic

$

(0.50)

$

(0.73)

$

(3.13)

$

(1.53)

Diluted

$

(0.50)

$

(0.73)

$

(3.13)

$

(1.53)

Weighted average number of common units outstanding

Basic

35,423,112

22,399,748

33,540,977

20,715,633

Diluted

35,423,112

22,399,748

33,540,977

20,715,633

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

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KIMBELL ROYALTY PARTNERS, LP

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN UNITHOLDERS’ EQUITY

(Unaudited)

Nine Months Ended September 30, 2020

Noncontrolling

   

Common Units

   

Amount

   

Class B Units

   

Amount

Interest

Total

Balance at January 1, 2020

23,518,652

$

282,549,841

25,557,606

$

1,277,880

$

281,157,393

$

564,985,114

Common units issued for equity offering

5,000,000

73,601,668

73,601,668

Conversion of Class B units to common units

4,913,559

75,578,037

(4,913,559)

(245,678)

(75,578,037)

(245,678)

Redemption of Series A preferred units

(16,150,018)

(9,697,873)

(25,847,891)

Unit-based compensation

946,638

2,107,587

2,107,587

Distributions to unitholders

(11,122,088)

(9,616,966)

(20,739,054)

Distribution and accretion on Series A preferred units

(1,922,344)

(1,154,340)

(3,076,684)

Distribution on Class B units

(24,807)

(24,807)

Net loss

(37,353,883)

(22,430,516)

(59,784,399)

Balance at March 31, 2020

34,378,849

367,263,993

20,644,047

1,032,202

162,679,661

530,975,856

Units issued for Springbok Acquisition

2,224,358

13,257,174

2,497,134

124,857

14,758,062

28,140,093

Restricted units used for tax withholding

(1,018)

(6,259)

(6,259)

Forfeiture of restricted units

(14,166)

(106,245)

(106,245)

Unit-based compensation

2,534,198

2,534,198

Distributions to unitholders

(6,234,957)

(3,934,000)

(10,168,957)

Distribution and accretion on Series A preferred units

(966,609)

(611,359)

(1,577,968)

Distribution on Class B units

(23,141)

(23,141)

Net loss

(47,038,901)

(29,751,149)

(76,790,050)

Balance at June 30, 2020

36,588,023

328,679,253

23,141,181

1,157,059

143,141,215

472,977,527

Conversion of Class B units to common units

2,361,400

16,487,288

(2,361,400)

(118,070)

(16,487,288)

(118,070)

Forfeiture of restricted units

(1,400)

(12,614)

(12,614)

Unit-based compensation

2,446,329

2,446,329

Distributions to unitholders

(4,756,443)

(3,008,356)

(7,764,799)

Distribution and accretion on Series A preferred units

(1,028,981)

(548,987)

(1,577,968)

Distribution on Class B units

(23,141)

(23,141)

Net loss

(16,743,521)

(8,933,103)

(25,676,624)

Balance at September 30, 2020

38,948,023

$

325,048,170

20,779,781

$

1,038,989

$

114,163,481

$

440,250,640

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KIMBELL ROYALTY PARTNERS, LP

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN UNITHOLDERS’ EQUITY – (Continued)

(Unaudited)

Nine Months Ended September 30, 2019

Noncontrolling

   

Common Units

   

Amount

   

Class B Units

   

Amount

Interest

Total

Balance at January 1, 2019

18,056,487

$

299,821,901

19,453,258

$

972,663

$

291,932,233

$

592,726,797

Units issued for Phillips Acquisition

9,400,000

470,000

171,550,000

172,020,000

Conversion of Class B units to common units

1,438,916

23,507,402

(1,438,916)

(71,946)

(23,507,402)

(71,946)

Unit-based compensation

1,770,410

1,770,410

Distributions to unitholders

(7,798,161)

(7,205,737)

(15,003,898)

Distribution and accretion on Series A preferred units

(1,441,938)

(2,027,646)

(3,469,584)

Distribution on Class B units

(23,814)

(23,814)

Net loss

(2,221,500)

(3,123,863)

(5,345,363)

Balance at March 31, 2019

19,495,403

313,614,300

27,414,342

1,370,717

427,617,585

742,602,602

Conversion of Class B units to common units

3,600,000

63,540,000

(3,600,000)

(180,000)

(63,540,000)

(180,000)

Restricted units used for tax withholding

(1,268)

(21,036)

(21,036)

Unit-based compensation

2,112,764

2,112,764

Distributions to unitholders

(8,545,299)

(8,811,307)

(17,356,606)

Distribution and accretion on Series A preferred units

(1,708,157)

(1,761,427)

(3,469,584)

Distribution on Class B units

(23,814)

(23,814)

Net loss

(10,026,403)

(10,339,084)

(20,365,487)

Balance at June 30, 2019

23,094,135

358,942,355

23,814,342

1,190,717

343,165,767

703,298,839

Conversion of Class B units to common units

426,084

6,641,087

(426,084)

(21,304)

(6,641,087)

(21,304)

Unit-based compensation

1,809,752

1,809,752

Distributions to unitholders

(9,162,713)

(9,633,877)

(18,796,590)

Distribution and accretion on Series A preferred units

(1,739,672)

(1,729,912)

(3,469,584)

Distribution on Class B units

(23,414)

(23,414)

Net loss

(14,497,965)

(14,416,623)

(28,914,588)

Balance at September 30, 2019

23,520,219

$

341,969,430

23,388,258

$

1,169,413

$

310,744,268

$

653,883,111

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

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KIMBELL ROYALTY PARTNERS, LP

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

Nine Months Ended September 30, 

2020

   

2019

CASH FLOWS FROM OPERATING ACTIVITIES

Net loss

$

(162,251,073)

$

(54,625,438)

Adjustments to reconcile net loss to net cash provided by operating activities:

Depreciation and depletion expense

36,002,109

37,690,558

Impairment of oil and natural gas properties

158,698,835

65,828,980

Amortization of right-of-use assets

205,518

88,058

Amortization of loan origination costs

808,534

783,961

Equity (income) loss in affiliate

(460,360)

80,896

Forfeiture of restricted units

(118,859)

Unit-based compensation

7,088,114

5,692,926

Loss on commodity derivative instruments, net of settlements

4,496,376

878,255

Changes in operating assets and liabilities:

Oil, natural gas and NGL receivables

3,131,377

5,270,397

Accounts receivable and other current assets

(870,069)

(389,839)

Accounts payable

(212,162)

(399,679)

Other current liabilities

1,611,232

3,198,198

Operating lease liabilities

(205,222)

(117,312)

Net cash provided by operating activities

47,924,350

63,979,961

CASH FLOWS FROM INVESTING ACTIVITIES

Purchases of property and equipment

(50,737)

(829,724)

Purchase of oil and natural gas properties

(87,488,292)

(1,192,432)

Deposits on oil and natural gas properties

(986,000)

Investment in affiliate

(1,751,951)

(2,965,933)

Cash distribution from affiliate

457,410

Net cash used in investing activities

(88,833,570)

(5,974,089)

CASH FLOWS FROM FINANCING ACTIVITIES

Proceeds from equity offering

73,601,668

Contributions from Class B unitholders

470,000

Redemption of Class B contributions on converted units

(363,747)

(73,250)

Issuance costs paid on Series A preferred units

(717,612)

Redemption on Series A preferred units

(61,089,600)

Distributions to common unitholders

(22,113,488)

(25,506,173)

Distribution to OpCo unitholders

(16,559,322)

(25,650,921)

Distribution and accretion on Series A preferred units

(3,850,006)

(5,775,000)

Distribution on Class B units

(71,089)

(71,042)

Borrowings on long-term debt

157,065,176

3,951,933

Repayments on long-term debt

(87,500,000)

Payment of loan origination costs

(60,674)

(88,776)

Restricted units used for tax withholding

(6,259)

(21,036)

Net cash provided by (used in) financing activities

39,052,659

(53,481,877)

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS

(1,856,561)

4,523,995

CASH AND CASH EQUIVALENTS, beginning of period

14,204,250

15,773,987

CASH AND CASH EQUIVALENTS, end of period

$

12,347,689

$

20,297,982

Supplemental cash flow information:

Cash paid for interest

$

3,928,101

$

3,572,952

Non-cash investing and financing activities:

Right-of-use assets obtained in exchange for operating lease liabilities

$

$

3,554,159

Units issued in exchange for oil and natural gas properties

$

28,140,093

$

171,550,000

Non-cash deemed distribution to Series A preferred units

$

2,382,614

$

4,633,752

Noncash effect of Series A preferred unit redemption

$

25,847,891

$

Redemption of Class B contributions on converted units in accounts payable

$

$

200,000

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

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KIMBELL ROYALTY PARTNERS, LP

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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” 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. Effective as of September 24, 2018, 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.

Basis of Presentation

The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“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. As a result, the accompanying unaudited interim condensed consolidated financial statements do not include all disclosures required for complete annual financial statements prepared in conformity with GAAP. Accordingly, the accompanying unaudited interim condensed 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, 2019, 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 condensed 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 results of operations for any interim period are not necessarily indicative of the results to be expected for the full year.

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.

COVID-19 Pandemic and Impact on Global Demand for Oil and Natural Gas

The global spread of coronavirus (“COVID-19”) created significant volatility, uncertainty, and economic disruption during the first nine months of 2020. On March 11, 2020, the World Health Organization (the “WHO”) declared

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KIMBELL ROYALTY PARTNERS, LP

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

the ongoing COVID-19 outbreak a pandemic and recommended containment and mitigation measures worldwide. The pandemic has reached more than 200 countries and has resulted in widespread adverse impacts on the global economy, the Partnership’s oil, natural gas, and NGL operators and other parties with whom the Partnership has business relations, including a significant reduction in the global demand for oil and natural gas. This significant decline in demand accelerated following the announcement of price reductions and production increases in March 2020 by members of the Organization of Petroleum Exporting Countries (“OPEC”) and other foreign, oil-exporting countries, raising concerns about global storage capacity. The resulting supply and demand imbalance has led to a significantly weaker outlook for oil and gas producers and is having a disruptive impact on the oil and natural gas industry.

The Partnership has modified certain business practices (including those related to employee travel, employee work locations, and cancellation of physical participation in meetings, events and conferences) to conform to government restrictions and best practices encouraged by the Centers for Disease Control and Prevention, the WHO and other governmental and regulatory authorities. In mid-March, the Partnership restricted access to its offices to only essential employees, and directed the remainder of its employees to work from home to the extent possible. Beginning in mid-May, the Partnership opened its offices to employees on a voluntary basis, with employees having the option to work from the office or from home. These restrictions have had minimal impact on the Partnership’s operations to date and have allowed the Partnership to maintain the engagement and connectivity of its personnel, as well as minimize the number of employees in the office.

The ultimate impacts of COVID-19 and the volatility currently being experienced in the oil and natural gas markets on the Partnership’s business, cash flows, liquidity, financial condition and results of operations will depend on future developments, including, among others, the ultimate geographic spread of the virus, the consequences of governmental and other measures designed to prevent the spread of the virus, the development of effective treatments, the duration of the outbreak, actions taken by members of OPEC and other foreign, oil-exporting countries, governmental authorities and other thirds parties, workforce availability, and the timing and extent to which normal economic and operating conditions resume. For additional discussion regarding the risks associated with the COVID-19 pandemic and actions announced by OPEC and other foreign, oil-exporting countries, see Part I, Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations and Part II, Item 1A Risk Factors.

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 Annual Report on Form 10-K for the year ended December 31, 2019, as well as the items noted below. There have been no substantial changes in such policies or the application of such policies during the nine months ended September 30, 2020, other than those discussed below in Recently Adopted Accounting Pronouncements.

New Accounting Pronouncements

Recently Adopted Pronouncements

In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework — Changes to the Disclosure Requirements for Fair Value Measurement.” This update modifies the fair value measurement disclosure requirements specifically related to Level 3 fair value measurements and transfers between levels. The Partnership adopted this update on January 1, 2020 and applied it prospectively. The adoption of this update did not have a material impact on the Partnership’s results of operations for the three and nine months ended September 30, 2020.

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments —Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” which changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The standard replaced the currently required incurred loss approach with an expected loss model for instruments measured at amortized cost. The Partnership

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KIMBELL ROYALTY PARTNERS, LP

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

adopted this update using the modified retrospective approach, effective January 1, 2020. The adoption of this update did not have a material impact on the Partnership’s results of operations for the three and nine months ended September 30, 2020.

Accounting Pronouncements Not Yet Adopted

In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes,” that is expected to reduce cost and complexity related to accounting for income taxes. The amendments in this update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. 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 3ACQUISITIONS AND JOINT VENTURES

Acquisitions

On March 25, 2019, the Partnership acquired all of the equity interests in subsidiaries of PEP I Holdings, LLC, PEP II Holdings, LLC and PEP III Holdings, LLC that own oil and natural gas mineral and royalty interests (the “Phillips Acquisition”). The aggregate consideration for the Phillips Acquisition consisted of 9,400,000 common units of the Operating Company (“OpCo common units”) and an equal number of Class B units representing limited partner interests of the Partnership (“Class B units”). The Class B units and OpCo common units are exchangeable together into an equal number of common units representing limited partner interests in the Partnership (“common units”). The assets acquired in the Phillips Acquisition consisted of approximately 866,528 gross acres and 12,210 net royalty acres.

On September 20, 2019, the Partnership agreed to acquire various mineral and royalty interests in Oklahoma for an aggregate purchase price of approximately $9.9 million. The acquisition closed on November 6, 2019. The Partnership funded the payment of the purchase price with borrowings under its secured revolving credit facility. The assets acquired consisted of approximately 279,680 gross acres and 186 net royalty acres.

On April 17, 2020, the Partnership and the Operating Company completed the acquisition of all of the equity interests in Springbok Energy Partners, LLC and Springbok Energy Partners II, LLC (the “Springbok Acquisition”). The aggregate consideration for the Springbok Acquisition consisted of (i) approximately $95.0 million in cash, which was funded by borrowings under the Partnership’s secured revolving credit facility, (ii) the issuance of 2,224,358 common units and (iii) the issuance of 2,497,134 OpCo common units and an equal number of Class B units. At the time of the Springbok Acquisition, the acreage acquired had over 90 operators on 2,160 net royalty acres across core areas of the Delaware Basin, DJ Basin, Haynesville, STACK, Eagle Ford and other leading basins.

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KIMBELL ROYALTY PARTNERS, LP

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

Joint Ventures

The Partnership has partial ownership in 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 is 49.3% and its total capital commitment will not exceed $15.0 million. The Joint Venture is managed by Springbok Operating Company, LLC. While certain members of Springbok Operating Company, LLC are affiliated with the entities acquired as part of the Springbok Acquisition, none of the assets held by the Joint Venture were included in the Springbok Acquisition. The purpose of the Joint Venture is to make direct or indirect investments in royalty, mineral and overriding royalty interests and similar non-cost bearing interests in oil and gas properties, excluding leasehold or working interests. The Partnership currently utilizes the equity method of accounting for its investment in the Joint Venture. As of September 30, 2020, the Partnership had paid approximately $4.7 million under its capital commitment. In October 2020, the Partnership paid a capital contribution of $0.1 million, bringing the total amount paid under its capital commitment to approximately $4.8 million.

NOTE 4DERIVATIVES

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 September 30, 2020, 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 daily production based on the amount of debt and/or preferred equity as a percent of its enterprise value. As of September 30, 2020, these economic hedges constituted approximately 33% 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 day settlement of the first nearby month futures contract of the contract period. Settlement for oil derivative contracts occurs in the succeeding month and natural gas derivative contracts are settled in the production month.

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KIMBELL ROYALTY PARTNERS, LP

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

The Partnership has not designated any of its derivative contracts as hedges for accounting purposes. The Partnership records all derivative contracts at fair value. Changes in the fair values of the Partnership’s derivative instruments are recognized as gains or losses in the current period and are presented on a net basis in the accompanying unaudited condensed consolidated statements of operations. Changes in fair value consisted of the following: