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Kimbell Royalty Partners, LP (NYSE:KRP)
Q4 2019 Earnings Call
Feb 27, 2020, 11:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Greetings and welcome to the Kimbell Royalty Partners Fourth Quarter Earnings Conference Call. [Operator Instructions] It is now my pleasure to introduce your host Rick Black Investor Relations for Kimbell Royalty Partners. Thank you. You may begin.

Rick Black -- Executive Vice President

Thank you operator and good morning everyone. Welcome to the Kimbell Royalty Partners conference call to review financial and operational results for the fourth quarter 2019. This call is also being webcast and can be accessed through the audio link on the Events and Presentations page of the IR section of kimbellrp.com. Information recorded on this call speaks only as of today February 27 2020 so please be advised that any time-sensitive information may no longer be accurate as of the date of any replay. I would also like to remind you that the statements made in today's discussion that are not historical facts including statements of expectations or future events or future financial performance are forward-looking statements made pursuant to the safe harbor's provision to the Private Securities Litigation Reform Act of 1995. We will be making forward-looking statements as part of today's call which by their nature are uncertain and outside of the company's control.

Actual results may differ materially. Please refer to today's press release for our disclosure on forward-looking statements. These factors and other risks and uncertainties are described in detail in the company's filings with the Securities and Exchange Commission. Management will also refer to non-GAAP measures including adjusted EBITDA and cash available for distribution. Reconciliations to the nearest GAAP numbers can be found at the end of today's earnings press release. Kimbell assumes no obligation to publicly update or revise any forward-looking statements.

I would now like to turn the call over to Bob Ravnaas Kimbell Royalty Partners' Chairman and Chief Executive Officer. Bob?

Robert Ravnaas -- Chairman and Chief Executive Officer

Thank you Rick and good morning everyone. I'm here with several other members of our senior management team including Davis Ravnaas our President and Chief Financial Officer; Matt Daly our Chief Operating Officer; and Blayne Rhynsburger our Controller. I would like to begin by discussing our record-breaking performance in the fourth quarter and provide commentary about our recently announced Springbok acquisition then I'll ask Davis to cover our financial performance in more detail. After that we'll take your questions. The fourth quarter was outstanding with record-high production and record-low cash G&A per Boe. And for the full year we achieved record high revenue and consolidated adjusted EBITDA. In addition as we discussed in the press release our predeveloped reserves at year-end 2019 increased by approximately 22% year-over-year including 8% organic growth. Putting all these items together we feel very good about the continued strength of our business model as we accelerate growth into 2020. We are also extremely excited about our recently announced acquisition to acquire the Springbok assets which is expected to grow our production by over 2500 Boe per day increase our oil production mix and provide additional exposure to the high-growth Delaware Basin.

With many of our industry's highest quality operators actively drilling on this acreage we are highly optimistic about the future development of these assets for many years to come. Springbok is a strategic acquisition with highly complementary acreage which again is consistent with our long-term consolidation strategy. These assets include a core position in the Delaware Basin one of the most active basins areas of any basin in the United States and add significant cash flow as well as visible growth through existing permits DUCs and upside locations. At year-end 2019 there were 14 active rigs with 90-plus operators across core areas of the Delaware Basin DJ Basin Haynesville STACK Eagle Ford and other leading basins. Combining these assets with the Kimbell assets results in only a modest 1% increase in our corporate level PDP decline rate to 13% which we believe is by far best-in-class. This acquisition is expected to be immediately accretive to distributable cash flow per unit in 2020 with acceleration accelerated accretion expected in 2021. It also is expected to increase cash flow with only a nominal amount of incremental G&A expense. Approximately 70% of expected cash flow from this asset base comes from liquids with daily production of 2533 Boe per day and average realized cash margin of $21.92 per Boe.

We expect to close the acquisition in early Q2 2020. Our broad-based high-quality asset portfolio continues to outperform expectations and at the end of the fourth quarter our rig count was 81 including 24 rigs in the Permian. And including the rigs from the recently announced Springbok acquisition Kimbell will have 93 rigs actively drilling on its acreage at year-end 2019 across the U.S. or 12% market share. We believe this will either be the number one or number two position in terms of number of rigs drilling across the Lower 48 among all of the publicly traded minerals companies. Combining this leading rig count with our best-in-class PDP decline rates creates in our view the leading business model in the U.S. royalty sector. We have a successful track record of completing minerals acquisitions that totaled over $218 million in 2019 alone which does not include the $175 million Springbok acquisition announced this year. Our strategy is to continue to be the preeminent consolidator a diversified high-quality low PDP decline minerals that generate substantial free cash flow for distribution to our unitholders. In addition we're able to make these acquisitions with only modest increases in our G&A as evidenced by our record low cash G&A per Boe.

This positive operating leverage results in more cash flow dropping to our bottom line with each acquisition on a per unit basis. In this way we are more akin to an asset management company rather than a traditional oil and gas company. We have demonstrated our strategy as a public company since February 2017 during which time we have significantly transformed Kimbell. Prior to the Springbok acquisition we have more than quadrupled our production since our IPO. We have achieved significant scale in terms of both revenues and net royalty acres. We have grown net royalty acreage by over a 128% in less than three years. The rig count on our acreage has grown approximately 238% and the market share growth based on rig count grew from 3% in early 2017 to 10.4% today and 12% upon closing Springbok. And Kimbell has returned approximately 25% of our $18 per unit IPO price via cash dividends in just three years in a highly tax-efficient manner to our unit owners. We are proud of our growth record and believe we are well positioned as a consolidator in the highly fragmented minerals industry with over $550 billion in market size and limited public participants of scale. Our prudent M&A strategy starts with a strict discipline around the selection process focused on diversified high-quality targets that are immediately cash flow accretive have years of future growth and that enhance the long-term value of our overall portfolio.

And with that I'll now turn the call over to Davis.

R. Davis Ravnaas -- President and Chief Financial Officer

Thanks Bob and good morning everyone. I'm going to start by reviewing our record-breaking production in the quarter followed by a recap of our 2019 financial results. Q4 average daily run rate production was 12828 Boe per day with a total average daily production of 12845 Boe per day which consisted of 17 Boe per day related to prior period production recognized in the quarter. The 12828 Boe per day of run rate production for Q4 2019 was comprised of approximately 38% from liquids 26% from oil and 12% from NGLs and 62% from natural gas on a 6:1 basis. The prior period production recognized in Q4 2019 was primarily due to new wells outperforming estimates. Oil natural gas and natural gas liquids revenues in the fourth quarter increased 18% compared to the fourth quarter last year to $27.2 million. This increase reflects strong performance from acquisitions made in the past 12 months despite the decrease in realized commodity prices. While current pressures persist for many exploration and production companies operating in the U.S. our broad-based high-quality asset portfolio continues to outperform expectations. Consolidated adjusted EBITDA was $20.2 million up 35.9% compared to the same quarter last year and was $80.7 million for the full year 2019 compared to $44.2 million for the full year 2018. On the expense side general and administrative expenses were $5.4 million in Q4 2019 $3.6 million of which was cash G&A expense or $3.12 per Boe a new record low and down from $3.30 per Boe in Q3 2019. Cash G&A per Boe in Q4 was below the low end of our guidance.

The company had cash available for distribution to common units of $0.35 in Q4 2019. However we declared a cash distribution of $0.38. The $0.03 difference reflects effective date to closing date cash flow from the Buckhorn and Oklahoma acquisitions totaling approximately $1.6 million that we paid out with the Q4 2019 distribution. In addition to mitigate the effect of the $5 million common unit offering we announced on January 9 we also paid out an allocated portion of the post October 1 2019 effective date anticipated cash receipts from the Springbok assets. You will find a reconciliation of both adjusted EBITDA and cash available for distribution at the end of our news release. Again Kimbell expects substantially all of this distribution will not constitute taxable dividend income and instead it will generally result in a nontaxable reduction to the tax basis of unitholders' common units. The reduced tax basis will increase unitholders' capital gain or decrease unitholders' capital loss when the unitholders sell their common units. Furthermore Kimbell expects substantially all distributions paid to common unitholders from 2020 through 2023 will not be taxable dividend income and less than 25% of distributions paid to common unitholders for the subsequent two years 2024 to 2025 are expected to be taxable dividend income.

Turning now to realized pricing in the fourth quarter. Average realized price per barrel of oil was $54.95 per Mcf of natural gas was $1.92 per barrel of NGLs was $13.56 and per Boe combined was $22.95. As of 12/31/19 our hedges were approximately 18% of our daily oil and natural gas production for the next two years. We have provided a table at the end of our press release with additional detail on our hedges. Looking now at the balance sheet and liquidity. At December 31 2019 we had $100.1 million of debt outstanding and $124.9 million in undrawn capacity under the revolving credit facility or $199.9 million if the accordion feature was exercised. Kimbell's total debt to consolidated adjusted EBITDA ratio was 1.2x based on Q4 2019 annualized consolidated adjusted EBITDA. And the company was in compliance with all financial covenants under the revolving credit facility at December 31 2019. We are continuing our plan to maintain financial flexibility with a targeted long-term leverage ratio of 1.5x or below. Also in connection with financing arrangements for the Springbok acquisition Kimbell recently redeemed half of the Series A convertible preferred units for a total cost of $61.1 million. This redemption was funded by a draw on Kimbell's revolving credit facility. After giving effect to this redemption and the net proceeds received by Kimbell from the issuance of common units on January 14 which is predominantly used to pay down the revolving credit facility until the closing of the Springbok acquisition the revolving credit facility balance was $100.7 million as of February 26 2020. Turning now to our reserves that Bob mentioned earlier. As of December 31 2019 proved reserves increased by approximately 22% year-over-year to almost 41 million Boe reflecting the acquisitions made during the year along with continued organic reserve growth on Kimbell's acreage. Before turning the call over to questions I'd like to also comment on the Springbok acquisition. On a combined basis Kimbell would have approximately 146000 net royalty acres in the Lower 48 with significant positions in the highest growth basins across the country. Over 96% of all rigs currently drilling in the Continental U.S. are located in counties where Kimbell will hold mineral interest positions. Our combined 5-year average PDP decline rate of approximately 13% is one of the lowest among our peers in the mineral space. Springbok incrementally pivots our production profile to a higher liquids content which has a favorable impact on our realized price per Boe for the company. Finally the acquisition of Springbok is expected to add an additional scale expected to add additional scale to Kimbell enhance its financial performance increase its float as well as increase the long-term unitholder value of the company. 2019 was a very tough market for energy stocks. And even in this challenging environment Kimbell generated a leading total return of 37% in 2019 the highest among any publicly traded minerals company. Kimbell's strong 2019 returns also compared even more favorably to the S&P Oil and Gas Index which was down 9% in 2019. Kimbell has developed a track record as a leading consolidator in the oil and gas mineral space. We expect this trend to continue into 2020 and beyond as the migration of private ownership to public ownership of mineral assets across the U.S. accelerates.

With that operator we are now ready for questions.

Questions and Answers:

Operator

[Operator Instructions] Our first question comes from the line of John Freeman with Raymond James. Please proceed with your question.

John Christopher Freeman -- Raymond James & Associates Inc. -- Analyst

The first question I've got just given the severe volatility we're seeing in the commodity environment sort of given yours experience and what you're looking at now sort of the if you could talk to sort of the balance of when you typically have these severe commodity swings usually you'll see pretty wide kind of bid-ask spreads and makes deals more difficult in the interim. And then on the other hand you've got a lot of private-public operators that are in pretty distressed positions that may be forced to sell or monetize minerals sooner rather than later. Just sort of the balance of those two dynamics in the market if you all could speak to that?

R. Davis Ravnaas -- President and Chief Financial Officer

Yes great insight John this is Davis and I'll pass it on to Bob and Matt if they've anything to add. I think you're certainly right that particularly on smaller deals I think the bid-ask spread when you're in ridiculous volatility like we are today makes it challenging to get deals done. So I had to completely agree with that. On the other hand there is what I would describe as captive deal flow that's pretty tremendous in terms of private equity-backed groups and also some larger operators that are carving off overrides that either institutionally as a private equity firm they have to exit and/or these operators that are over-levered need to do something and an override carve out seems to be their best option. So I totally agree with you. The volatility is not helpful for getting deals done. But given just $1 billion $2 billion $3 billion of M&A opportunity out there from private equity and working interest companies with our override carve outs that gives us a lot of confidence that this year despite what's going on is still going to be a really good M&A year for mineral companies. And then looking at us more specifically we believe we offer a very compelling opportunity to some of these sellers vis-a-vis people have shown a strong willingness to accept our equity. I think that in a challenging volatile environment like this having a 12% PDP decline being diversified between oil and gas being in every major base and having converted to a C-corp and having that as currency all of those factors I think put us in a pretty strong position to use our equity to make some of these acquisitions. So I feel very good personally about M&A opportunities that are going to be in front of us. It might be challenging for the next couple of weeks. But I think in general this year is looking perhaps nicer than any other one has in terms of the amount of captive necessary deal flow that we'll transact. Bob or Matt?

Robert Ravnaas -- Chairman and Chief Executive Officer

Yes I'll just add to that. I've been John as you know I've been through a number of cycles like this. What we usually see is there's going to be a pause button hit right now obviously this week in the coming weeks. Once we get through and we will get through this health event once we get through the health event and the economy starts to improve and the demand for oil starts going up we'll start to see a rebound. And my experience is when you start seeing a rebound people say maybe it's time to sell. So I think just depending on that timing it may not be this quarter it may not be next quarter. But I think once we get through this health event I think the prices will start rebounding hopefully and then you'll start seeing people start saying maybe now is a good time to sell.

Matthew S. Daly -- Chief Operating Officer

Yes. And just as a last comment on that. I mean multiples for 2019 as some of these override carve outs were relatively elevated around 12x we need to see multiple sort of in the call it 8x to make those sort of a reasonable acquisition for us.

R. Davis Ravnaas -- President and Chief Financial Officer

Agreed. For quality assets.

Matthew S. Daly -- Chief Operating Officer

Exactly yes.

John Christopher Freeman -- Raymond James & Associates Inc. -- Analyst

That's great. And then just the follow-up question. You've continued to make big strides on the cash G&A on a per Boe basis down rather roughly 30% over the past year. I know you guys try to run as lean as you can and you had to make some staffing additions when you did the big Haymaker transaction. And just want to get you all sense for following the closing of the Springbok deal if you feel like you still have sort of the proper headcount personnel if that's still sufficient?

R. Davis Ravnaas -- President and Chief Financial Officer

We do. I will I'll take this opportunity to add. We might have some onetime G&A charges in the first quarter. Is that fair math that might make 1Q a little bit higher on a cash G&A basis.

Matthew S. Daly -- Chief Operating Officer

Yes modestly higher.

R. Davis Ravnaas -- President and Chief Financial Officer

Modestly higher so very slightly higher. But in general John I mean we talk all the time about it we have what 20 employees now. I don't see the need to add. When we first signed the PSA on Springbok we had kind of a long internal discussion with our accounting team and I can turn it over to Blayne. But I think we came to the conclusion we're not going to add a single person with Springbok. And that was a $175 million deal and with a bunch of different operators and interest. So we really have I think kind of proven to ourselves that we can handle the additional scale and integration of these assets without adding significant personnel. And I think now we're down overall since going public our G&A on a cash basis per Boe is down like 60%. Is that right?

Matthew S. Daly -- Chief Operating Officer

Yes that's right yes.

R. Davis Ravnaas -- President and Chief Financial Officer

So our long-term goal John I mean just candidly is I want it below $1. I mean we started the company at the IPO with a team that could scale and we've really added just very limited resources over the last three years. So I do expect that trend to continue. At some point we might add like a general counsel for example which would be very normal for a company of our size or somebody to run Investor Relations which we currently do as the management team on our own. But I think in general we feel pretty good about where we are and just very proud of our corporate culture. I don't think we want to add a bunch of people to dilute that.

Matthew S. Daly -- Chief Operating Officer

Yes. Just another comment on the G&A side. In Q2 as soon as we close the Springbok acquisition we'll have a two month TSA $150000 a month two months just like a different cap just for the integration of the accounting side and of course that will roll off after two months. So you'll see that G&A in Q2 so.

John Christopher Freeman -- Raymond James & Associates Inc. -- Analyst

Thanks for all the comments, guys. I'll turn it over to somebody else.

Matthew S. Daly -- Chief Operating Officer

Thanks again, john.

Operator

Our next question comes from the line of Derrick Whitfield with Stifel. Please proceed with your question.

Derrick Lee Whitfield -- Stifel Nicolaus & Company -- Analyst

Good morning all Congrats on a strong quarter and positioning your company for increasing market share in the total U.S. rig count.

R. Davis Ravnaas -- President and Chief Financial Officer

Well thank you Derrick. It's always disappointing when you have 35% total return in 2019 and we were hoping for a good stock price reaction to how we performed last year. Obviously we couldn't anticipate the coronavirus and kind of the implications on oil but feel very good about where we are in this environment at this time. It seems like the right place to be in the oil and gas space so anyway.

Derrick Lee Whitfield -- Stifel Nicolaus & Company -- Analyst

Absolutely. And certainly not indicative of your performance in the operation. So don't read it that way. Regarding the Q4 production beat could you help us frame what area or development drove the beat relative to your expectations?

R. Davis Ravnaas -- President and Chief Financial Officer

Yes this will not surprise you Derrick. It was mostly Permian outperformance and then I'll add in a little bit of Appalachia surprisingly and then some Eagle Ford and then Bakken. Bakken actually was surprisingly up. We had Oasis drilled some new wells in McKenzie in which we had a high net revenue interest. But I'd say the biggest contribution was the Permian and most specifically it was related to the Phillips acquisition we made roughly this time last year. There were seven new Mewbourne operated wells that came on in Lea County. So that was a nice little bump for us. Anyway Bob? Yes. No no. I agree at all.

Matthew S. Daly -- Chief Operating Officer

Yes Derrick this is Matt. Just we're looking we track this basically we have eight different geographical areas that we track. five out of those eight areas had growth between Q3 and Q4 OK? So nice across the board growth. Both organic and some slight growth through acquisition. The only area that had a drop is the Haynesville. And this just because we had some huge wells that came on in Q3 some high-interest wells that had flush production. There's a normal decline on that. So overall again five out of eight geographic regions had growth between Q3 and Q4.

Derrick Lee Whitfield -- Stifel Nicolaus & Company -- Analyst

That's great. And as my follow-up I'll actually touch on that by referring slide 10. Could you speak to the resiliency of the rigs across your portfolio as you evaluate the basins and operators in which you have the exposure?

R. Davis Ravnaas -- President and Chief Financial Officer

Matt I'll let you tackle.

Derrick Lee Whitfield -- Stifel Nicolaus & Company -- Analyst

Yes yes. So we had 82 rigs as of Q3 81 rigs as of Q4. We expect that market share went up nicely between Q3 and Q4 that's from 9.8% to 10.4%. The rig count between the end of the year through the last Friday was down about 1.8% on the Lower 48 across United States. So we wouldn't be surprised to see the rig count drop by a couple of rigs going into Q1. But that being said we're adding a number of rigs from the Springbok acquisition. We're going to have over 93 rigs actually roughly 93 rigs from Springbok. That is probably the largest number of rigs. I mean if not the largest number the second largest and is a very good number 12% market share across the Lower 48. So having that 93 rig count combined with by far by multiples the best PDP decline rate it's really a nice combination for a business model. I agree. It's very helpful. Thanks for detailed response.

Matthew S. Daly -- Chief Operating Officer

Thank you.

Operator

Thank you. Our next question comes from the line of TJ Schultz with RBC Capital Markets. Please proceed with your question.

Torrey Joseph Schultz -- RBC Capital Markets Research Division -- Analyst

Great, thanks. Hey, good morning. Just a follow-up on kind of the M&A market. You talked about options to give private equity and exit here and then some of these overrides. Are the deals that you're seeing now are looking at and maybe if you're participating in some of these override processes are they similar in size to something like Springbok? Sorry maybe if you could just talk about that process a little and how that deal came about? And what it may mean for your ability to find these deals or execute on some of that opportunity?

R. Davis Ravnaas -- President and Chief Financial Officer

Sure. Yes. No great question. I'll without naming names I'll be a little bit more specific with kind of things that we're looking at. We've looked at a couple of opportunities. One was Permian only. The other was the other is multi-basin. Both of which are similar in size to Springbok. They're in let's call it the $150 million to $200 million ZIP code in terms of value. That's probably perfect for us in terms of our ability to transact at that level assuming we can get to terms on something. Nothing immediate to announce but these are just groups that we're talking. I mean we basically talk to every private equity group knock on wood that's got an asset over let's call it $75 million. We'd like to believe that we speak to every single one of those groups. There are a couple of opportunities including the two I just mentioned that are I think more actionable than others. But beyond that there gosh there's three or four different portfolio of companies in the Permian that would love to exit I think at some point this year or next year. The override carve-outs are a little bit more challenging. I think some of the opportunities that are on the market today are dry gas in nature and just more difficult to get excited about opportunities where you just don't really see a near-term catalyst for production growth. Bob Matt anything you guys want to add? And those typically are larger. And so I think our desire to add TJ I think you'll appreciate this. We don't want to do a $300 million dry gas deal right now in Appalachia. That's just not particularly interesting to us. Even if we could get it at a ridiculously attractive valuation I think that would be tough. And TJ we've talked about this with you before but we're really happy how we've positioned ourselves to be able to look at anything in every basin in the country. We've really seen over the last year we've seen capital pullback and less competition in any area in the country outside of the Delaware. And we look at everything in the Delaware but we're happy that we have the confidence and are able to evaluate every basin of the country. So I think we're happy with that.

Torrey Joseph Schultz -- RBC Capital Markets Research Division -- Analyst

Okay. Appreciate that. Just my follow-up question would be on the outlook for not paying federal or material federal income taxes through 2026. Just in that assumption what are you kind of baking in for future acquisitions? And how would that date change maybe if you don't do acquisitions?

R. Davis Ravnaas -- President and Chief Financial Officer

Yes. So that every time we've refreshed that analysis which we intend to do once a year in conjunction with issuing guidance. So we'll issue new corporate and production level guidance. At the same time we release tax guidance which is in April correct?

Matthew S. Daly -- Chief Operating Officer

Yes.

R. Davis Ravnaas -- President and Chief Financial Officer

When we make that assessment we do not include any future acquisitions because we can't guarantee. Obviously we just look at everything at status quo. That being said and I don't want to go over my skis here one would generally think that anytime we make an acquisition it would increase our tax shield because we're simply adding additional assets upon which depletion is applied. So you would think. And again I can't guarantee this and I'm not a tax expert but our understanding is and we've seen this historically as we continue to grow and add assets it should just further increase the size of that tax shield. And then one final point obviously to the extent that oil and gas prices go down where they are today for example that just further increases the longevity of the shield because you're generating less income to state the obvious. So nothing changed in our view at this point on our tax outlook which in our opinion is absolutely unique and perhaps unprecedented in our space in terms of the amount of shield that we have over the next nearly a decade. And as we continue to grow we just think we'll be able to continue to add to that shield and continue to bolster that tax-efficient status.

Torrey Joseph Schultz -- RBC Capital Markets Research Division -- Analyst

Got it. Thank you.

R. Davis Ravnaas -- President and Chief Financial Officer

Thanks,

Operator

Thank you Our next question comes from the line of Betty Jiang with Credit Suisse. Please proceed with your question.

Wei Jiang -- Credit Suisse AG Research Division -- Analyst

I know you're going to give production guidance after the acquisition closes. But just curious how is the activity trending? And sort of the how the portfolio performance is going on the acquired assets versus the legacy portfolio? And then how are you guys thinking about that long-term growth rate of 3% to 6% right now?

R. Davis Ravnaas -- President and Chief Financial Officer

Thank you for asking that question. So legacy Kimbell which is actually surprisingly good news increased 2.5% quarter-over-quarter from Q3 to Q4. That was due mostly to some drilling in Weld County and also in the Western Eagle Ford and Zapata County the same position we've had there for a while. So that was a nice little legacy quarter-over-quarter growth percentage. Haymaker assets were down Betty but that's almost entirely well it is entirely because of the flush production on those huge high interest wells. If you recall they came on our acreage and that was like Q2. In Q2 so let's say Haymaker was down. The drop-down assets that we added in late 2018 actually were up pretty dramatically. We had a 8% quarter-over-quarter growth organically on those. That was due to looking at my notes three things: one some additional drilling which I already mentioned in McKenzie County some wells that Oasis developed; some additional drilling in the Marcellus in Marshall County. And really those are basically the two largest factors. The Phillips acquisition was up about 2% quarter-over-quarter which was nice as well. That was due to what I mentioned earlier which was some significant wells that came on in Lea County that are Mewbourne operated. So that's generally I think that's the breakout of everything we've acquired. And then the most recent kind of smaller deals SKC in Oklahoma and the Buckhorn in the Eagle Ford are performing in line or ahead of the expectations so far.

Wei Jiang -- Credit Suisse AG Research Division -- Analyst

Got it.

R. Davis Ravnaas -- President and Chief Financial Officer

Sorry one way of answering your question we still feel pretty good about where we we feel very good about what we disclosed previously about how we intend to grow organically every year which is kind of that 3% to 6% growth number. I would say based on what we're seeing in our portfolio today I would say I have more conviction in meeting that than that I did before getting all these quarterly results in front of us.

Robert Ravnaas -- Chairman and Chief Executive Officer

And again it's because of the low bar of the PDP decline that we have to improve upon. And it's only a 13% PDP decline. So that always makes it much easier for us to maintain and increase production quarter-over-quarter.

Matthew S. Daly -- Chief Operating Officer

Yes. And Betty one more point and you'll see this in our investor presentation. We had a slide that shows organic production growth going back I believe 20 years and you'll note that in 2019 we had we actually had 8% organic production growth in 2019 I think among one of the highest organic growth rates among the various mineral companies. So that's obviously trending higher than what we've seen in the last 10 years which is sort of proving out the theory of having the legacy KRP assets with low PDP decline adding on the growth of the unconventional assets from Haymaker and Phillips.

R. Davis Ravnaas -- President and Chief Financial Officer

Yes I agree.

Wei Jiang -- Credit Suisse AG Research Division -- Analyst

And then the other question is sort of on M&A as it relates to balance sheet like and you talked about there's a wealth of opportunities in this environment but leverage but need to be mindful of where leverage is given the weak commodity price environment. So how are you guys balancing the ground game acquisitions versus what you're looking at on the leverage front? And are you guys still engaged in that micro play ground game partnership?

R. Davis Ravnaas -- President and Chief Financial Officer

We are we are Betty. So yes so we allocated $15 million to that strategy initially. We have now deployed almost $4 million of that. So on pace very very pleased with the results of that strategy so far. We're currently in what about 1x debt to EBITDA. We don't anticipate the long the short answer to your question is the micro JV won't have any meaningful impact because it's so small on debt even if we use our revolver to finance that which is what we intend to do. But to the extent we see to the we're going to stay away from using our revolver or any debt capacity to make meaningful acquisitions. Any acquisitions we do this year will be driven by will be financed by direct equity issuance like we've done to sellers in the past or some sort of capital raise but that would only be in the event that the market improves. Obviously nobody can do an equity raise in this environment. And the opportunity set would have to be very appealing.

Wei Jiang -- Credit Suisse AG Research Division -- Analyst

Got it in there. So thank you.

R. Davis Ravnaas -- President and Chief Financial Officer

Thanks, buddy.

Operator

[Operator Instructions] Our next question comes from the line of Jason Wangler with Imperial Capital. Please proceed with your question.

Jason Andrew Wangler -- Imperial Capital LLC -- Analyst

Wanted to just ask you kind of mentioned it briefly in the prepared comments but the redemption of half the preferreds can you just talk a bit about the timing and the thought behind that as well as maybe when you look at the remaining position there as you kind of change the balance sheet as you guys grow?

R. Davis Ravnaas -- President and Chief Financial Officer

Sure sure. Thanks for the question. Ideally we would like to have a less complicated capital structure. So having a simple capital structure is ideal for us. We entered into that preferred equity piece as a necessity for financing the Haymaker acquisition back in 2018 which was obviously transformative for our company and put us in a position to grow dramatically. I think so the short answer is we wanted to take out as much as we could without putting undue pressure on the balance sheet. So when we look at our balance sheet having 1.2x debt-to-EBITDA anything below that number feels good to us. Certainly anything below 1.5x and nothing above that certainly. So I think at some point in the future as we continue to grow organically and through acquisitions we'll probably intend to take out the other half. Apollo has been a fantastic partner to us but it's simply a matter of reducing our cost of capital. If we can grow EBITDA and production and then borrow against that keeping leverage ratio as very low at a let's call it a 4% all-in cost of capital. Obviously it behooves us to take out a 7% cost of capital piece of paper. So that's simply where we are is just trying to deliver a more efficient capital structure to our investors and we feel that we own that.

Jason Andrew Wangler -- Imperial Capital LLC -- Analyst

Okay. That makes sense. And I guess just a follow-up to that is as you have the ability to take that out as you see fit. There's no any other reason than just kind of when you think you're ready and you have that opportunity.

R. Davis Ravnaas -- President and Chief Financial Officer

That's exactly right. Yes we have nothing that prohibits us from taking out the other half yes.

Operator

Ladies and gentlemen this concludes our question-and-answer session. I'll turn the floor back to management for any final comments.

Robert Ravnaas -- Chairman and Chief Executive Officer

We thank you all for joining us this morning and look forward to speaking with you again when we report first quarter results. This completes today's call.

Operator

[Operator Closing Remarks]

Duration: 40 minutes

Call participants:

Rick Black -- Executive Vice President

Robert Ravnaas -- Chairman and Chief Executive Officer

R. Davis Ravnaas -- President and Chief Financial Officer

Matthew S. Daly -- Chief Operating Officer

John Christopher Freeman -- Raymond James & Associates Inc. -- Analyst

Derrick Lee Whitfield -- Stifel Nicolaus & Company -- Analyst

Torrey Joseph Schultz -- RBC Capital Markets Research Division -- Analyst

Wei Jiang -- Credit Suisse AG Research Division -- Analyst

Jason Andrew Wangler -- Imperial Capital LLC -- Analyst

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