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Kimbell Royalty Partners, LP’s $230 million Acquisition of Mineral and Royalty Interests

  • peachgardenpartner
  • Feb 12
  • 6 min read

By Alice Ye & Leuan Jennings


Overview of the Deal


  • Acquirer: Kimbell Royalty Partners, LP (NYSE:KRP)

  • Target: Mineral and Royalty Interests located in Mabee Ranch in the Midland Basin

  • Transaction Value: $230M

  • Equity Valuation: $230M

  • Expected Close Date: 3rd of January 2025

  • Target Advisors: Undisclosed

  • Acquirer Advisors: Citigroup Inc. (Financial Advisor), White & Case LLP (Legal Advisor)



Strategic Rationale


Kimbell Royalty Partners' acquisition aligns with its long-term strategy of expanding its asset base and increasing cash flows. The addition of 8,000 acres enhances its mineral and royalty portfolio, contributing approximately 2,500 barrels of oil equivalent per day, which boosts revenue and ensures stable long-term cash flows. Operational efficiencies also improve due to geographic concentration, leading to optimised resource allocation, lower administrative costs, and economies of scale. Additionally, the deal strengthens Kimbell’s market position, reinforcing its leadership in the mineral and royalty sector and improving its investment attractiveness.


Transaction Overview


In December 2024, Kimbell Royalty Partners, LP formally announced the acquisition of mineral and royalty interests, financed through a strategic split of $150 million from a revolving credit facility and $80 million from the issuance of new equity. The transaction included 8,000 acres of valuable oil and gas-producing land, with an expected net production of approximately 2,500 barrels of oil per day. Geographically located in the Midland Basin, a region known for its abundant oil and gas reserves, the acquisition capitalizes on Kimbell's efficient extraction technology, making it a highly attractive investment.


Through this acquisition, Kimbell enhances its mineral and royalty portfolio, reinforcing its position as a leading producer of oil and gas. The strategic investment not only leverages high production levels but also benefits from sustained demand for oil and gas, ensuring long-term profitability. Additionally, the geographic concentration of assets promotes operational efficiencies, contributing to optimized resource allocation and increased profitability.



Transaction Details


Acquirer Profile: Kimbell Royalty Partners, LP

  • Industry and Core Operations: Kimbell Royalty Partners, LP, together with its subsidiaries, engages in acquiring and owning mineral and royalty interests in oil and natural gas properties in the United States


  • Founded: 2015

  • Headquarters: Texas, USA

  • Key Financials (as of 07/02/2025):

    • Market Cap: $1,247 mm

    • Enterprise Value (EV): $1877 mm

    • LTM Revenue: $325 mm

    • LTM EBITDA: $267 mm

    • EV/Revenue Multiple: 5.8x

    • EV/EBITDA Multiple: 7.0x

 

Target Profile: Mineral and Royalty Interests located in Mabee Ranch in the Midland Basin


  • Industry and Offerings: • Industry and Offerings: Oil and gas royalties and mineral rights in the Midland Basin, generating revenue from production leases

  • Founded: 1923

  • Headquarters: Texas, USA


Short-Term Implications


  • Market Synergies: The acquisition significantly enhances Kimbell's asset portfolio by adding approximately 8,000 acres of oil and gas-producing land concentrated in Martin County (63%) and Andrews County (37%) in Texas. This strategic move bolsters Kimbell's presence in the Midland Basin, a prolific area within the Permian Basin, renowned as one of North America's most productive oil and gas regions. The newly acquired assets are expected to contribute an estimated 1,842 barrels of oil equivalent per day (Boe/d) in 2025, comprising 1,104 barrels of oil, 424 barrels of natural gas liquids (NGLs), and 1,881 thousand cubic feet (Mcf) of natural gas per day, creating operational synergies.

 

  • Revenue Growth: The acquisition is anticipated to generate immediate revenue growth for Kimbell by contributing approximately 1,842 Boe/d from the newly acquired assets. This production uplift diversifies Kimbell's revenue streams through a balanced mix of hydrocarbons, including oil, NGLs, and natural gas, reducing reliance on a single commodity and enhancing revenue stability. Moreover, the acquisition expands Kimbell's ownership interests to over 130,000 gross wells across 28 states, with more than 51,000 wells in the Permian Basin alone. This extensive and diversified well inventory positions the company for sustained revenue growth by tapping into multiple productive assets.

 

  • Cost Efficiencies: Kimbell is poised to realize significant cost synergies by integrating the newly acquired assets into its existing operations. The concentration of assets in the Midland Basin allows for more efficient resource allocation, optimizing operational processes and reducing per-unit extraction and administrative costs. The economies of scale achieved through this integration are expected to yield substantial cost savings, supported by shared services and streamlined operational practices. Additionally, Kimbell can leverage its existing infrastructure and technological expertise in the region, minimizing capital expenditures and operational expenses associated with the development of new assets.



Long-Term Strategic Upsides


  • Revenue Expansion: The acquired assets are located under the historic Mabee Ranch in the Midland Basin, with oil and gas minerals and royalty interests concentrated in Martin County (63%) and Andrews County (37%). This strategic acquisition enhances Kimbell's Permian footprint with excellent reservoir quality, near-term cash flow, and long-term production growth.

 

  • Profitability Gains: The integration of these high-quality assets is expected to yield significant profitability gains for Kimbell. The excellent reservoir quality of the acquired assets is anticipated to result in higher extraction rates and lower operational costs, thereby improving profit margins. Additionally, the near-term cash flow from these assets will provide immediate financial benefits, while the long-term production growth ensures sustained profitability

 

  • Market Leadership: This acquisition solidifies Kimbell's position as a leading owner of oil and gas mineral and royalty interests in the United States. By expanding its footprint in the Midland Basin, Kimbell not only strengthens its presence in a prolific oil and gas region but also enhances its influence in the industry. This strategic move positions Kimbell to capitalize on future opportunities in the energy sector, reinforcing its market leadership



Risks and Uncertainties


  • Regulatory Hurdles: The oil and gas industry operates under stringent environmental regulations, and any changes in federal or state policies could impact Kimbell's operations. For instance, potential modifications to drilling permits, emission standards, or land use regulations could affect the development timeline and profitability of the acquired assets. According to the U.S. Energy Information Administration, regulatory changes can lead to increased compliance costs, which may affect operational margins. Kimbell must proactively monitor policy developments and engage with regulatory bodies to mitigate these risks.

 

  • Integration Challenges: Integrating the newly acquired assets, which include approximately 869 net royalty acres spanning 68,049 gross acres in Martin and Andrews counties, into Kimbell's existing portfolio may present operational challenges. Ensuring seamless integration requires aligning operational practices and effectively managing the expanded scale of operations. According to industry analyses, mergers and acquisitions in the oil and gas sector often face challenges related to operational scalability and cultural alignment, which can impact the realization of anticipated synergies



Financial Projections and Analysis


  • Financial Structure and Attractiveness: The financial structure of the transaction emphasizes its appeal for Kimbell and its investors. The $230 million asset acquisition was financed through a combination of a revolving credit facility and equity issuance. This approach enabled the company to access immediate liquidity while retaining financial flexibility. Furthermore, raising capital through equity ensures the long-term stability of Kimbell’s capital structure by balancing funding strategies. This financial structure is particularly attractive as it positions the firm to effectively manage its growth while maintaining sustainability.

 

  • Competitive Valuation and Expected Returns: The acquisition’s valuation aligns with Kimbell’s historical acquisition metrics, with a deal price of $92 per boe/d of net production, reflecting a competitive price given the assets’ high productivity (Kimbell Royalty Partners, 2024). These acquired assets are projected to contribute an additional $15 million in annual revenue. The internal rate of return (IRR) is estimated to be in the high 10% range, well above the cost of funding, assuming stable oil prices at $65 per barrel. The transaction is also expected to be accretive to Kimbell’s earnings per share (EPS) within the first year post-acquisition.

 

  • Balance Sheet Strength and Debt Management: Following the acquisition, Kimbell’s balance sheet will be strengthened, with pro forma debt-to-equity ratios remaining within target ranges. However, the company must carefully manage integration risks and monitor market volatility that could negatively affect future cash flows. By doing so, Kimbell can mitigate potential financial risks and maintain its desired financial position while ensuring long-term growth and profitability.



Key Takeaways


  1. Enhanced Asset Portfolio and Revenue Growth: The acquisition significantly expands Kimbell's presence in the Midland Basin, adding approximately 8,000 acres of high-productivity land and boosting daily production by 1,842 Boe.


  2. Cost Efficiencies and Profitability Gains: By integrating these assets, Kimbell can achieve cost synergies, streamline operations, and reduce per-unit extraction costs. The high-quality reservoirs are expected to enhance extraction rates and lower operational costs.


  3. Strategic Market Position and Risks: This acquisition solidifies Kimbell’s leadership in the U.S. oil and gas sector, positioning the company to capitalize on future opportunities.



Sources


Jones, D. & Latham, T. (2023) Strategic Oil & Gas Investments: Trends and Opportunities. New York: Energy Publishing.


Kimbell Royalty Partners (2024) Kimbell Royalty Partners, LP’s Acquisition of Mineral and Royalty Interests in the Midland Basin: Acquisition Report. Available at: www.kimbellroyalty.com/reports/ (Accessed: 9 February 2025).


Smith, J. & Roberts, H. (2023) The Impact of Technology on Resource Management in Oil Production. London: Global Energy Research Press.


U.S. Energy Information Administration (2023) Energy Market Analysis: U.S. Oil and Gas Sector. Available at: www.eia.gov/analysis/ (Accessed: 9 February 2025).


U.S. Environmental Protection Agency (2024) Environmental Risk Management in Oil Extraction. Available at: www.epa.gov/energy (Accessed: 9 February 2025).


U.S. Geological Survey (2024) Midland Basin Oil and Gas Production Insights. Available at: www.usgs.gov/energy (Accessed: 9 February 2025).

 

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