Kimbell (KRP) Q2 Revenue Rises 13%

Kimbell Royalty Partners (KRP -2.03%), a mineral and royalty interests company with broad exposure to U.S. oil and gas basins, released its second quarter results on August 7, 2025. The headline news was a sharp shortfall in GAAP earnings per share, which landed at $0.02, missing the $0.15 analyst consensus. This 86.3% GAAP EPS miss contrasted with a solid GAAP revenue outcome of $86.5 million, which topped expectations of $81.06 million and marked a 13.0% increase over Q2 2024. Overall, the quarter showed robust top-line growth and stable production but highlighted pressures from higher expenses and capital structure complexity that affected earnings and the cash payout to common unitholders.

Source: Analyst estimates for the quarter provided by FactSet.

Company Overview and Strategic Focus

Kimbell Royalty Partners owns mineral and royalty interests across more than 17 million gross acres in key U.S. oil and gas regions, including the Permian and Mid-Continent basins. Its business model focuses on collecting royalties from third-party producers developing these assets. That means it benefits from production activity and commodity prices, but does not carry the direct cost of drilling and completing wells.

The company's recent focus has been on expanding its high-quality portfolio through targeted acquisitions and maintaining disciplined financial management. Its key success factors include growing reserves and production through property acquisitions, leveraging its asset-light strategy, and defending cash flows with a balanced exposure to both oil and natural gas prices. Maintaining a conservative capital structure while pursuing accretive deals is core to its approach.

Second Quarter Highlights and Key Developments

Daily output averaged 25,355 barrels of oil equivalent, with a product mix close to company norms: 53% liquids (including 33% oil and 20% natural gas liquids) and 47% natural gas. This mix aligns with its strategy of balanced exposure to both oil and gas, which helps smooth out swings in energy markets.

GAAP revenue surpassed expectations, helped by steady operational momentum. While income from oil, natural gas, and NGLs totaled $74.7 million (GAAP), slightly below last year’s level, Lease bonus and other income (GAAP) rose sharply to $2.5 million, more than tripling the prior-year result. Additionally, a swing to a $9.3 million gain on derivative transactions (GAAP) reversed a loss in the comparable quarter last year, adding a boost to revenue and net income.

Expenses reflected active management discipline. General and administrative costs (GAAP) were $9.6 million, with cash G&A per barrel of oil equivalent at $2.36 (non-GAAP)—lower than prior guidance. However, higher interest costs and allocations for distributions to holders of preferred units reduced the portion of net income attributable to common unitholders (GAAP). While total net income (GAAP) reached $26.7 million, only $2.0 million was attributable to the common unit base—a significant decrease from last year. This result, alongside an increased number of common units outstanding, led to GAAP earnings per share of $0.02, falling sharply below analyst forecasts.

Cash available for distribution was $47.1 million, essentially flat compared to the prior year. The company paid out $0.38 per common unit, compared to $0.42 for Q2 2024 and $0.47 for Q1 2025. The distribution payout ratio stood at 75%, with the remaining cash allocated to debt reduction. The quarterly distribution was thus trimmed (down 9.5% from Q2 2024 to Q2 2025) as part of a strategy to keep leverage in check and manage long-term financial flexibility.

Kimbell’s capital structure shifted during the period. The company finished the quarter with $462.1 million in long-term debt and a net debt-to-trailing twelve month consolidated Adjusted EBITDA ratio of 1.6 times (non-GAAP). It increased its borrowing base to $625 million on May 1, 2025, and redeemed half of its Series A preferred units, which helps simplify the balance sheet and reduces future financing costs. Available liquidity stood at $162.9 million as of June 30, 2025, providing the company with flexibility for future acquisitions.

Operational metrics in the field remained strong. The company reported 88 active rigs on its acreage, up as a share of total U.S. land rigs even as the national industry rig count declined. The number of drilled but uncompleted wells (DUCs) on its major properties rose to 5.10 net DUCs, providing a healthy inventory for future production. The Permian and Haynesville basins both saw an increase in rig activity, highlighting the ongoing interest in those regions.

In terms of commodity risk management, Kimbell maintained a moderate hedging program. Hedges for Q3 2025 included oil volumes at $74.20 per barrel and natural gas volumes at $3.74 per million British thermal units.

No new large acquisitions were announced in the second quarter. The quarter’s performance continued to reflect the impact of the Permian asset acquisition closed in January, which expanded production capacity and asset quality. Management reaffirmed its commitment to high-return, accretive deals that help strengthen the balance sheet through “deleveraging” and preserve flexibility for potential opportunities over the coming year, specifically citing a potential M&A timeline of six to eighteen months.

Looking Ahead: Guidance and Investor Focus

The company’s leadership reaffirmed their financial and operational guidance for fiscal 2025. No changes were made to previously outlined targets. Management’s confidence is based on strong operational inventories, steady drilling activity, and a diversified production base that is more resilient to sector swings. There was no update to guidance figures, nor were any specific forecasts for the third quarter made in the company’s comments.

For unitholders, the outlook rests on three critical factors: preserving stable production levels despite industry volatility, continuing to optimize the capital structure through debt paydowns and selective preferred redemptions, and maintaining discipline in any future acquisitions; but dilution from additional units and increased leverage bear watching in future quarters. The company paid a quarterly distribution of $0.38 per common unit, down from $0.42 in Q2 2024.

Revenue and net income presented using U.S. generally accepted accounting principles (GAAP) unless otherwise noted.