Kimbell Royalty Partners advances growth with $231m Midland Basin acquisition

Kimbell Royalty Partners, a prominent owner of oil and gas mineral and royalty interests, has announced a transformative $231 million acquisition in the core of the Midland Basin. This deal, structured as a combination of cash and units, underscores Kimbell Royalty Partners’ long-standing strategy to enhance its portfolio with premium mineral assets while delivering substantial shareholder value.

The acquired assets are located under the prolific Mabee Ranch, covering over 68,000 gross acres. These mineral and royalty interests, concentrated in Martin and Andrews counties, include approximately 875 gross producing wells operated by top-tier energy companies such as ConocoPhillips, Diamondback Energy, and ExxonMobil.

Enhanced Production and Financial Accretion

The acquisition is expected to immediately boost Kimbell Royalty Partners’ distributable cash flow per unit and accelerate financial accretion over the next five years. The newly acquired assets are projected to contribute an average daily production of 1,842 barrels of oil equivalent (Boe) in 2025, with 60% comprising oil. At current strip pricing, this is estimated to generate $30.9 million in cash flow.

In a statement, Bob Ravnaas, Chairman and CEO of Kimbell Royalty Partners, emphasized the transformative nature of the deal. Ravnaas noted that the acquired assets, situated in the heart of the Midland Basin, represent some of the highest-quality reservoirs in the region. He pointed to the significant production potential, robust cash flow, and an extensive inventory of undeveloped drilling locations as key benefits of the transaction.

“This acquisition significantly strengthens Kimbell Royalty Partners’ footprint in the Permian Basin while ensuring near-term cash flow and long-term production growth. It is a testament to our team’s commitment to pursuing high-value opportunities,” Ravnaas remarked.

Strengthening Permian Basin Inventory

The transaction significantly bolsters Kimbell Royalty Partners’ operational presence in the Permian Basin, a leading oil and gas production area in the United States. The acquisition increases the company’s daily production by approximately 8% and adds 1.22 net drilled but uncompleted wells (DUCs) and permitted locations, representing a 16% expansion of its inventory.

Moreover, Kimbell Royalty Partners’ total undrilled Permian Basin inventory will increase by 19%, with the addition of 6.06 net upside drilling locations. This expanded inventory ensures a clear line of sight for sustained production growth supported by consistent rig activity and development by top-tier operators.

The newly acquired acreage also enhances Kimbell Royalty Partners’ liquids-weighted production mix, which is expected to rise from 48% to 51%, further diversifying the company’s asset base and ensuring a balanced production profile.

Conservative Financial Approach

Kimbell Royalty Partners has structured the transaction with a focus on maintaining financial discipline. The company will finance the acquisition with $207 million in cash and 1.4 million common units, valued at $24 million. This approach will keep Kimbell Royalty Partners’ balance sheet conservative, with an expected pro forma net leverage ratio of approximately 1.0x upon closing.

This financial prudence underscores Kimbell Royalty Partners’ commitment to sustainable growth, ensuring that the company remains well-positioned to pursue future opportunities in the oil and gas sector.

Industry-Wide Implications

This acquisition solidifies Kimbell Royalty Partners’ role as a leading consolidator in the U.S. oil and gas royalty sector. Following the deal, the company will hold over 17 million gross acres, 130,000 gross wells, and 92 active rigs, representing approximately 16% of all active land rigs in the continental U.S.

Additionally, the transaction enhances Kimbell Royalty Partners’ ability to benefit from the long-term value associated with the Permian Basin, which continues to lead the nation in production volumes and drilling activity. Industry experts view this acquisition as a strategic move that not only reinforces Kimbell Royalty Partners’ competitive edge but also highlights its focus on high-quality, long-life assets.