Greetings and welcome to the Kimbell Royalty Partners Second Quarter Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Rick Black, Investor Relations. Thank you. You may begin.

Thank you, operator and good morning everyone. Welcome to the Kimbell Royalty Partners conference call to review financial and operational results for the second quarter 2021. 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, August 5, 2021, 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 provisions of the Private Securities Litigation Reform Act of 1995. While we are making – while we maybe 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 measures 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?

Thank you, Rick and good morning everyone. We appreciate you joining us for this call. I am joined here on the call with several members of our senior management team, including Davis Ravnaas, our President and Chief Financial Officer; Matt Daly, our Chief Operating Officer; Blayne Rhynsburger, our Controller. I will begin today’s discussion by providing comments about our second quarter before turning the call over to Davis to walk you through our financials in more detail. We are extremely pleased with our operational and financial performance during the quarter. Momentum across all areas of our business continued to improve from the first quarter to the second quarter in terms of both improved pricing and activity. Second quarter average daily production is 14,393 BOE per day on a 6:1 basis, which consisted of 382 BOE per day related to prior period production recognized in Q2. Excluding this amount, our Q2 run rate production was 14,011 BOE per day, which was up 2% sequentially compared to the first quarter. The combined momentum of improved pricing and production drove positive operating leverage and consolidated adjusted EBITDA to a new record of $28.1 million. Our cash available for distribution was robust during the quarter, resulting in a 15% increase in our quarterly distribution to $0.31 per common unitholder. Operators in the U.S. continue to practice discipline with their drilling activity even in the face of significantly higher commodity prices. To put this into perspective, oil prices are now well above pre-COVID levels, but the U.S. land rig count is 39% below year end 2019 levels. Furthermore, natural gas prices are trading at multiyear highs, driven primarily by increased power demand in the U.S. and surging exports of LNG to Europe and Asia. Given that a significant portion of our daily production is natural…

Thanks, Bob and good morning everyone. As Bob mentioned, we are very excited about our second quarter results and we remain very bullish on the future of our company. Second quarter total revenues were $25.7 million, net income was approximately $3.7 million, and net income attributable to common units was approximately $1.5 million, or $0.04 per common unit. Based on positive trends and improving cash flows in the quarter, we announced a substantially higher cash distribution of $0.31, up approximately 15% from the Q1 distribution in 2021. As we have done in previous quarters, the company utilized 25% of its Q1 cash available for distribution to pay down a portion of the credit facility in Q2. Since May 2020, the company has paid down $30.6 million of outstanding borrowings under its secured revolving credit facility by allocating a portion of its cash flow to debt pay-down. We expect to continue to allocate 25% of our cash available for distribution for debt pay-down in the future. We believe that our hedging strategy is a prudent methodology for managing the company’s future price risks on oil and natural gas. Having substantial hedges in place on a rolling 2-year basis, well ahead of the price shocks that occurred in 2020, proved to be a very effective risk mitigation strategy. For the second quarter of 2021, the company’s oil, natural gas and natural gas liquids revenues were $38.8 million, which reflected higher second quarter average realized prices of $63.62 per barrel of oil, $2.68 per Mcf of natural gas and $25.79 per barrel of NGLs for a combined per-BOE pricing of $29.50. Second quarter 2021 average daily production was 14,393 BOE per day on a 6:1 basis, which consisted of 382 BOE per day related to prior period production recognized during the quarter and…

Thank you. [Operator Instructions] Our first question comes from the line of Chris Baker with Credit Suisse. Please proceed with your question.

Hey, good morning.

Hey, Chris. How are you doing?

I am good. I am good. Appreciate the update this morning, some solid results. My first question is for Davis. I was hoping you could give us an update on what you are seeing on the mineral acquisition front currently. Just curious how that’s evolved over the past few months and if you think we are likely to see KRP get another large scale opportunity over the line later this year?

Yes, it’s a great question. As you know, Chris, I think we have acquired more properties over the last 5 years than anyone else in the space candidly at least on the public side. We have averaged over, I want to say, $150 million a year of M&A since we went public per year. This year has been tough. There hasn’t been a single significant publicly announced mineral transaction year-to-date by us or any of our peers on the public side. I think that’s a combination of a few things. I think first and foremost, I think the public mineral companies, all of us, not even just us specifically, but perhaps us maybe the most, are dramatically undervalued. I mean you’re looking at – what are we trading at now? An 11.5% dividend yield, which is a 15% free cash flow yield. But even that 11.5% dividend yield is completely tax-free for us. So divide that by 0.63, it’s an 18% taxable dividend on our stock. I mean, this is – we’re getting into a Looney Tunes level valuation. So we’re at a point where we’re looking at our assets and we are valued at a mid-teens yield. We would be better off buying our own stock. So we want to pay off the pref we have with Apollo. We have indicated repeatedly that we are going to do that within the next 6 months, most likely, subject to market conditions. At that point, what do we do with the residual 25% of cash flow that we have? Are we going to go buy minerals at something better than a PV 15 or 16 on assets that we already own and know intimately, or do you take a risk and try to get better returns on the private side? I…

Hey, Chris, it’s Matt Daly. One more comment about that as to what Davis said is that we price acquisitions using the strip and the strip right now is in a pretty severe backwardation, oil in the $50s in the out years. A lot of these sellers are assuming a $70 oil flat forever and that’s just not realistic based on the strips. That’s one cause of this so-called bid/ask spread right now.

Okay, great. No, that’s helpful. And then just as a follow-up, maybe for Bob or Davis, whoever wants to grab it. Any color you can share on maybe how the first half of next year is shaping up given where the activity backlog is today and what you have seen historically in terms of conversion rates?

Good to excellent.

Yes.

I mean, what everybody is forgetting about, we are what, 65% gas production right now and gas is at $4.20. I mean, people are going to start going bonanza on gas plays. I think that’s – and I think that’s very well reflected in the outlook for our production. I mean is there anything that we see guys, anybody around the table, that’s negative on our production. I mean, we just went up sequentially quarter-over-quarter better than the growth stocks that we trade against. No, I mean we feel very good about the future.

I appreciate the color guys.

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

Thanks and good morning, all.

Hey, Derrick. How are you?

Doing great. So for my first question, I wanted to focus on your rig count market share as your gains and the past trajectory have been quite strong. Is there anything that you are seeing in the data as a trend that would explain the slight dip in Q2 or is it likely just temporary in nature?

This is Matt Daly. We think it’s just a slight dip to temporary. We generally range between 11% and 12% market share on the U.S. rig count. So there is nothing – we believe this is a temporary dip. The rig count between 6/30 and July 30 is up about 4%. So, assuming we keep that consistent sort of 11%, 12% market share of Lower 48 and based on the increase in the rig count between June 30 and July 30, we would expect our rig count to go from 50 to something slightly higher, but we will see how it shakes out, so…

Hey, Derrick. I will add. I agree with everything Matt just said. This is Davis. We also – so tracking the rig count is a useful metric for us. It is. And I am glad that you are asking about it, that you focus on it. But keep in mind, we literally do that analysis, one of our geologists does, on one day. So, it’s the day that the quarter ends. So, the day before or the day after, the rig count could be different. We just don’t know. You see what I am saying. So, it’s imperfect – it’s a helpful metric. It’s imperfect in nature. So I just – I wouldn’t – and I would say the exact same thing if our rig count market share was up. I would hedge that by saying that on that particular day it appeared to be up relative to that particular day the quarter before. So, it’s helpful. I just wouldn’t read too much into it unless we start seeing some sort of massive trend, which will start being – which would of course be obvious one way or the other, so...

Makes complete sense. As my follow-up perhaps shifting over to the lease bonuses in Q2, could you offer any color on the new activity and the potential for sustained bonuses based on the activity in those areas?

Who wants to take that?

Yes, I will take that. So, the lease bonuses, the color there the major area that we got a lease bonus was in Martin County, Texas, about call it $0.5 million bonus. We had some other – two big bonuses come in, in Wyoming and Campbell County and Converse County, Wyoming. And obviously, so a fair amount of, call it 11 total lease bonuses came in during the quarter. So, that was a big increase in activity relative to Q1. That’s a good sign for activity that’s going to sort of come later this year. So in terms of the sustainability of that, I mean, with prices at $0.70 and gas at $4.20, we think that – hopefully, that will continue for the latter part of the year, maybe not quite that high, but certainly good.

Very helpful. Thanks for your time.

Thank you, Derrick.

There are no further questions in the queue. I’d like to hand the call back to management for closing remarks.

This is Bob Ravnaas. We thank you for joining us this morning and look forward to speaking with you again when we report third quarter results. This completes today’s call.

Ladies and gentlemen, this does conclude today’s teleconference. Thank you for your participation. You may disconnect your lines at this time and have a wonderful day.