Kimbell Royalty Partners LP said Wednesday it has entered an agreement to buy interests of MB Minerals LP in the Northern Midland Basin that would add about 806 net royalty acres and more than 300 producing wells to its Permian inventory.
The purchase involves assets of the Sabalo Holdings LLC subsidiary in northern Howard county and southern Borden county. The transaction has an initial value of around $143.1 million, subject to price and other customary adjustments. The purchase is expected to close in the second quarter of this year, Kimbell said in a press release.
At the consummation of the deal, “Kimbell is expected to have over 16 million gross acres, over 125,000 gross wells and a total of 97 active rigs on its properties, which represents approximately 13% of the total active land rigs drilling in the continental United States”, the New York-listed company said.
Kimbell expects that, based on the acquisitions’ status as of April 1, these assets will produce some 1,901 barrels of oil equivalent per day (boepd) over the next 12 months. The output is projected to comprise 1,459 barrels of oil a day, 1,338 million cubic feet of natural gas per day and 219 barrels of natural gas liquids a day.
The new assets are “expected to increase Kimbell’s run-rate average daily production to over 19,000 boe/d (6:1) and to decrease Cash G&A [general and administrative expenses] per boe by 11%”, the company said in the announcement.
Spanning over 60,000 gross acres, the acquisitions hold an estimated 5.3 MMboe.
“In addition, over 97% of all rigs in the continental United States are located in counties where Kimbell is expected to hold mineral interest positions following the consummation of the Acquisition”, Kimbell added.
Based on the initial valuation of the purchase, Kimbell will pay MB Minerals $48.8 million in cash and surrender $85.4 million worth of about 5.4 million newly-issued common units of Kimbell Royalty Operating LLC and $8.9 million worth of approximately 600,000 newly-issued common shares of Kimbell Royalty Partners LP.
In an earlier Permian acquisition completed December, Kimbell bought interests of Hatch Royalty LLC, mostly in the Texas Delaware Basin, giving Kimbell 889 net royalty acres on 230,000 gross acres. Kimbell estimated the assets, acquired for around $270.7 million in cash and share divestment, will produce approximately 2,522 boepd in 2023.
Robert Ravnaas, chair and chief executive of Kimbell Royalty Partners co-owner Kimbell Royalty GP, said in Kimbell Royalty Partners’ 2022 earnings report, “reflecting on our growth since our IPO [initial public offering], we have now grown production from 3,116 boepd to 17,176 boepd, an increase of 451%”.
“We expect to continue our role as a major consolidator in the highly fragmented U.S. oil and natural gas royalty sector, which we estimate to be over $700 billion in size”, he said in the performance disclosure February 23.
“And, as I have stated in the past, there are only a handful of public entities in the U.S. and Canada that have the financial resources, infrastructure, network and technical expertise to complete large-scale, multi-basin acquisitions”, he added.
Ravnaas explained that energy investing has now shifted focus on stable output, profitability and inventory quality from the “hyper-growth models of the past”.
“While the U.S. rig count increased during the year and is now approaching pre-Covid levels, we do not expect much in the way of significant oil production growth from U.S. operators”, he said, citing as a main reason the decrease in drilled but uncompleted wells since 2020.
“While many companies will focus on replenishing their DUC inventories in the short-term, we believe that inflationary pressures in the drilling, completion and labor side of their businesses will continue to temper oil production growth during 2023”, Ravnaas added.
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