UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
(Amendment No. 4)
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (date of earliest event reported): January 28, 2019 (July 12, 2018)
Kimbell Royalty Partners, LP
(Exact name of registrant as specified in its charter)
Delaware |
|
1-38005 |
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47-5505475 |
(State or other jurisdiction
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(Commission
|
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(I.R.S. Employer
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777 Taylor Street, Suite 810
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76102 |
(Address of principal executive offices) |
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(Zip Code) |
Registrants telephone number, including area code: (817) 945-9700
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions ( see General Instruction A.2):
o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company x
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. x
Introductory Note
As reported in a Current Report on Form 8-K filed with the U.S. Securities and Exchange Commission by Kimbell Royalty Partners, LP, a Delaware limited partnership (the Partnership), on July 18, 2018 (the Original Form 8-K), on July 12, 2018, the Partnership completed its previously announced acquisition (the Acquisition) of the equity interests in certain subsidiaries owned by Haymaker Minerals & Royalties, LLC (Haymaker Minerals) and Haymaker Properties, L.P. (Haymaker Properties).
On July 27, 2018, the Partnership filed an amendment (Amendment No. 1) to the Original Form 8-K to provide the historical financial statements of Haymaker Minerals and Haymaker Properties as of June 30, 2018 and December 31, 2017 and for the six months ended June 30, 2018 and 2017 and the pro forma financial information of the Partnership giving effect to the Acquisition, as required by Item 9.01 of Form 8-K. On September 10, 2018, the Partnership filed an amendment (Amendment No. 2) to provide additional historical and pro forma information, through the quarter ended June 30, 2018, of Haymaker Minerals, Haymaker Properties and the Partnership (as applicable). On September 19, 2018, the Partnership filed an amendment (Amendment No. 3) to provide revised pro forma financial information, through the quarter ended June 30, 2018, of the Partnership, which reflected a correction to the pro forma reclassification of certain pro forma balance sheet items, including the reclassification of deposits on oil and natural gas properties and other assets. The pro forma information filed in Amendment No. 3 superseded the pro forma information previously filed in Amendment No. 2.
This amendment is filed to provide additional pro forma information, through the quarter ended September 30, 2018, of the Partnership pursuant to the applicable requirements of Rule 11-02 of Regulation S-X. The pro forma information that was previously filed by the Partnership in Amendment No. 1 and Amendment No. 3 is unchanged.
Item 9.01. Financial Statements and Exhibits.
(b) Pro Forma Financial Information.
The unaudited pro forma condensed combined statements of operations for the nine months ended September 30, 2018 and for the year ended December 31, 2017, which give effect to the Acquisition, are filed as Exhibit 99.1 hereto and incorporated by reference herein.
(d) Exhibits.
Number |
|
Description |
99.1 |
|
Unaudited pro forma condensed combined statements of operations of Kimbell Royalty Partners, LP |
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
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KIMBELL ROYALTY PARTNERS, LP |
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By: |
Kimbell Royalty GP, LLC, |
|
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its general partner |
|
|
|
|
|
|
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By: |
/s/ R. Davis Ravnaas |
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R. Davis Ravnaas |
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President and Chief Financial Officer |
Date: January 28, 2019 |
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Unaudited Pro Forma Condensed Combined Financial Statements
On July 12, 2018 (the Closing Date ), Kimbell Royalty Partners, LP, a Delaware limited partnership ( Kimbell or the Partnership ), completed its acquisition (the Acquisition ) of (i) all of the equity interests in certain subsidiaries owned by Haymaker Minerals & Royalties, LLC, a Delaware limited liability company ( Haymaker Minerals ), pursuant to the Securities Purchase Agreement, dated as of May 28, 2018, by and among Kimbell, Haymaker Minerals and Haymaker Services, LLC, a Delaware limited liability company ( Haymaker Services ), and (ii) all of the equity interests in certain subsidiaries, including Haymaker Properties, L.P. ( Haymaker Properties ), owned by Haymaker Resources, LP, a Delaware limited partnership ( Haymaker Resources and, together with Haymaker Minerals, the Haymaker Sellers ), pursuant to the Securities Purchase Agreement, dated as of May 28, 2018, by and among Kimbell, Haymaker Resources and Haymaker Services (the Haymaker Resources Purchase Agreement ). The aggregate consideration for the Acquisition consisted of approximately $216.3 million in cash (including amounts held in escrow, after standard pre-closing adjustments) and the issuance of 10 million common units representing limited partner interests ( Common Units ), resulting in a total valuation of approximately $451.7 million based on a closing price of $23.54 per unit for Kimbells Common Units as of the Closing Date. The completion of the Acquisition is referred to herein as the Haymaker Closing. Prior to the Closing Date, EIGF Aggregator III LLC, a Delaware limited liability company, TE Drilling Aggregator LLC, a Delaware limited liability company, and Haymaker Management, LLC, a Texas limited liability company (each of the preceding entities, together with Haymaker Minerals, the Haymaker Holders ), were designated as the recipients of the portion of the Common Units issued as consideration in connection with the Haymaker Resources Purchase Agreement.
At the time of the Haymaker Closing, Kimbell also entered into an amendment (the Credit Agreement Amendment ) to Kimbells existing Credit Agreement, dated as of January 11, 2017 (the Original Credit Agreement and, the Original Credit Agreement as amended by the Credit Agreement Amendment, the Amended Credit Agreement ), by and among the Partnership, certain subsidiaries of the Partnership as guarantors, Frost Bank, as administrative agent, and the other lenders party thereto. The Credit Agreement Amendment increased commitments under the Amended Credit Agreement, resulting in a fully underwritten $200 million revolving credit facility.
The Board of Directors of Kimbell Royalty GP, LLC, a Delaware limited liability company and the general partner of the Partnership, approved on July 2, 2018, a change in the Partnerships U.S. federal income tax status from a partnership to a corporation by means of a check-the-box election (the Tax Election ). On September 24, 2018, the Tax Election became effective. Following the Tax Election, the Partnership is treated as an entity taxable as a corporation for U.S. federal income tax purposes and the Partnership will pay entity-level U.S. federal income tax, currently at a flat rate of 21% on its taxable income, if any.
On the day immediately prior to the effectiveness of the Tax Election, (i) the Partnerships equity interest in Kimbell Royalty Operating, LLC, a Delaware limited liability company (the Operating Company ), was recapitalized into newly issued common units of the Operating Company ( OpCo Common Units ) and newly issued Series A Cumulative Convertible Preferred Units of the Operating Company ( OpCo Series A Preferred Units ), (ii) the Haymaker Holders and the Kimbell Art Foundation delivered and assigned to the Partnership the Common Units they owned, in exchange for (a) newly issued Class B common units representing limited partner interests in the Partnership (the Class B Units ) and (b) newly issued OpCo Common Units (iii) the Limited Liability Company Agreement of the Operating Company was amended and restated to reflect the foregoing transactions, and (iv) the Second Amended and Restated Agreement of Limited Partnership of the Partnership was amended and restated to reflect the foregoing transactions (together with the Tax Election, the Up-C Transaction ). The Partnership pays U.S. federal income tax on income allocated from its ownership of OpCo Common Units and OpCo Series A Preferred Units. There was no step-up in tax basis on OpCo Common Units or OpCo Series A Preferred Units as a result of the Up-C Transaction and no tax receivable agreement between the Partnership and the Haymaker Holders and the Kimbell Art Foundation. The Acquisition, the Credit Agreement Amendment and the Up-C Transaction are collectively referred to herein as the Pro Forma Transactions .
The unaudited pro forma condensed combined statements of operations for the nine months ended September 30, 2018 and for the year ended December 31, 2017 have been prepared to reflect the Pro Forma Transactions. The pro forma financial data is presented as if the Pro Forma Transactions had occurred on January 1, 2017.
The unaudited pro forma adjustments are based on preliminary estimates, accounting judgments and currently available information and assumptions that management believes are reasonable. The notes to the unaudited pro forma condensed combined statements of operations provide a detailed discussion of how such adjustments were derived and presented in the unaudited pro forma financial information.
The unaudited pro forma condensed combined financial information has been prepared to reflect adjustments to the Partnerships historical financial information that are (i) directly attributable to the Pro Forma Transactions and (ii) factually supportable, and with respect to the unaudited pro forma condensed combined statements of operations, expected to have a continuing impact on the Partnerships results.
The unaudited pro forma condensed combined statements of operations are for informational purposes only and do not purport to represent what the Partnerships financial position and results of operations would have been had the Acquisition occurred on the dates indicated. This unaudited pro forma condensed combined financial information should not be used to project the Partnerships financial performance for any future period. A number of factors may affect the Partnerships results. Please read Risk Factors and Cautionary Statement Regarding Forward-Looking Statements in the Partnerships Annual Report on Form 10-K for the year ended December 31, 2017 (the Form 10-K ) and the Partnerships Quarterly Reports on Form 10-Q for the quarters ended March 31, 2018, June 30, 2018, and September 30, 2018 for information regarding statements that do not relate strictly to historical or current facts and certain risks inherent in the Partnerships business.
The unaudited pro forma condensed combined financial information should be read in conjunction with the audited consolidated financial statements and notes thereto contained in the Form 10-K, the unaudited consolidated financial statements and notes thereto contained in the Partnerships Quarterly Report on Form 10-Q for the quarter ended September 30, 2018 and each of the historical financial statements and notes thereto of each of Haymaker Minerals and Haymaker Properties, as filed in Amendment No. 1 to the Current Report on Form 8-K filed by the Partnership with the Securities and Exchange Commission on July 18, 2018.
Unaudited Pro Forma Condensed Combined Statement of Operations
For the Nine Months Ended September 30, 2018
|
|
Kimbell |
|
Haymaker
|
|
Haymaker
|
|
|
|
|
Pro Forma |
|
|||||
|
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Nine Months Ended
|
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Period from January
|
|
Period from January
|
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Pro Forma
|
|
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Nine Months Ended
|
|
|||||
Oil, natural gas and NGL revenues |
|
$ |
42,741,233 |
|
$ |
|
|
$ |
|
|
$ |
23,667,490 |
|
(C) |
$ |
65,254,828 |
|
|
|
|
|
|
|
|
|
(368,124 |
) |
(E) |
|
|
|||||
|
|
|
|
|
|
|
|
(785,771 |
) |
(D) |
|
|
|||||
Crude oil and condensate sales |
|
|
|
3,152,933 |
|
6,048,098 |
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(9,201,031 |
) |
(C) |
|
|
|||||
Natural gas sales |
|
|
|
10,577,782 |
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1,351,999 |
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(11,929,781 |
) |
(C) |
|
|
|||||
Natural gas liquids sales and other |
|
|
|
1,581,258 |
|
955,420 |
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(2,536,678 |
) |
(C) |
|
|
|||||
Income from lease bonus |
|
1,124,949 |
|
259,445 |
|
1,119,041 |
|
368,124 |
|
(E) |
2,871,559 |
|
|||||
Loss on commodity derivative instruments |
|
(3,858,990 |
) |
|
|
|
|
|
|
|
(3,858,990 |
) |
|||||
Total revenues |
|
40,007,192 |
|
15,571,418 |
|
9,474,558 |
|
(785,771 |
) |
|
64,267,397 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Production and ad valorem taxes |
|
3,031,732 |
|
|
|
|
|
1,334,976 |
|
(F) |
4,366,708 |
|
|||||
Production ad valorem, and withholding taxes |
|
|
|
778,482 |
|
656,765 |
|
(1,334,976 |
) |
(F) |
|
|
|||||
|
|
|
|
|
|
|
|
(100,271 |
) |
(D) |
|
|
|||||
Production expense |
|
|
|
1,815,625 |
|
630,618 |
|
(2,431,650 |
) |
(G) |
|
|
|||||
|
|
|
|
|
|
|
|
(14,593 |
) |
(D) |
|
|
|||||
Depreciation, depletion and accretion expense |
|
15,494,439 |
|
3,971,571 |
|
2,534,303 |
|
(6,505,874 |
) |
(A) |
24,241,411 |
|
|||||
|
|
|
|
|
|
|
|
8,746,972 |
|
(A) |
|
|
|||||
Impairment of oil and natural gas properties |
|
54,753,444 |
|
|
|
|
|
|
|
|
54,753,444 |
|
|||||
Marketing and other deductions |
|
2,868,655 |
|
|
|
|
|
2,431,650 |
|
(G) |
5,300,305 |
|
|||||
General and administrative expense |
|
11,650,291 |
|
4,834,483 |
|
3,281,048 |
|
(5,458,064 |
) |
(J) |
14,307,758 |
|
|||||
Total costs and expenses |
|
87,798,561 |
|
11,400,161 |
|
7,102,734 |
|
(3,331,830 |
) |
|
102,969,626 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Operating (loss) income |
|
(47,791,369 |
) |
4,171,257 |
|
2,371,824 |
|
2,546,059 |
|
|
(38,702,229 |
) |
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Other (expense) income |
|
|
|
|
|
|
|
|
|
|
|
|
|||||
(Loss) gain on derivatives |
|
|
|
(736,696 |
) |
(632,594 |
) |
1,369,290 |
|
(H) |
|
|
|||||
Interest expense |
|
(2,677,083 |
) |
(538,704 |
) |
(398,643 |
) |
3,614,430 |
|
(B) |
(5,813,652 |
) |
|||||
|
|
|
|
|
|
|
|
(5,813,652 |
) |
(B) |
|
|
|||||
Other income (loss) |
|
|
|
4,686 |
|
17,710 |
|
(22,396 |
) |
(K) |
|
|
|||||
Total other (expense) income |
|
(2,677,083 |
) |
(1,270,714 |
) |
(1,013,527 |
) |
(852,328 |
) |
|
(5,813,652 |
) |
|||||
(Loss) income before income taxes |
|
(50,468,452 |
) |
2,900,543 |
|
1,358,297 |
|
1,693,731 |
|
|
(44,515,881 |
) |
|||||
Income tax benefit (expense) |
|
|
|
|
|
566 |
|
5,884,457 |
|
(I) |
5,885,023 |
|
|||||
Provision for income taxes |
|
(1,977,116 |
) |
|
|
|
|
|
|
|
(1,977,116 |
) |
|||||
Net (loss) income before Series A preferred unit distribution and accretion |
|
(52,445,568 |
) |
2,900,543 |
|
1,358,863 |
|
7,578,188 |
|
|
(40,607,974 |
) |
|||||
Distribution and accretion on Series A preferred units |
|
(2,840,456 |
) |
|
|
|
|
|
|
|
(2,840,456 |
) |
|||||
Net (loss) income |
|
(55,286,024 |
) |
2,900,543 |
|
1,358,863 |
|
7,578,188 |
|
|
(43,448,430 |
) |
|||||
Net loss attributable to noncontrolling interests |
|
(141,003 |
) |
|
|
|
|
|
|
|
(141,003 |
) |
|||||
Net (loss) income attributable to Kimbell Royalty Partners |
|
(55,145,021 |
) |
2,900,543 |
|
1,358,863 |
|
7,578,188 |
|
|
(43,307,427 |
) |
|||||
Distribution to Class B units |
|
(12,953 |
) |
|
|
|
|
|
|
|
(12,953 |
) |
|||||
Net (loss) income attributable to common units |
|
$ |
(55,157,974 |
) |
$ |
2,900,543 |
|
$ |
1,358,863 |
|
$ |
7,578,188 |
|
|
$ |
(43,320,380 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Net loss per Common Unit |
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Basic |
|
$ |
(2.91 |
) |
|
|
|
|
|
|
|
$ |
(1.50 |
) |
|||
Diluted |
|
$ |
(2.91 |
) |
|
|
|
|
|
|
|
$ |
(1.50 |
) |
|||
Weighted average Common Unit outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Basic |
|
18,962,446 |
|
|
|
|
|
10,000,000 |
|
|
28,962,446 |
|
|||||
Diluted |
|
18,962,446 |
|
|
|
|
|
10,000,000 |
|
|
28,962,446 |
|
|||||
Distributions declared and paid per Common Unit |
|
$ |
1.30 |
|
|
|
|
|
|
|
|
$ |
1.30 |
|
Unaudited Pro Forma Condensed Combined Statement of Operations
For the Year Ended December 31, 2017
|
|
Kimbell
|
|
Pro Forma Kimbell
|
|
Haymaker
|
|
Haymaker
|
|
Pro Forma
|
|
|
Pro Forma |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Oil, natural gas and NGL revenues |
|
$ |
30,665,092 |
|
$ |
3,515,409 |
|
$ |
|
|
$ |
|
|
$ |
44,986,176 |
|
(C) |
$ |
76,695,440 |
|
|
|
|
|
|
|
|
|
|
|
(721,172 |
) |
(E) |
|
|
||||||
|
|
|
|
|
|
|
|
|
|
(1,750,065 |
) |
(D) |
|
|
||||||
Crude oil and condensate sales |
|
|
|
|
|
5,198,807 |
|
8,412,906 |
|
(13,611,713 |
) |
(C) |
|
|
||||||
Natural gas sales |
|
|
|
|
|
23,802,198 |
|
3,104,569 |
|
(26,906,767 |
) |
(C) |
|
|
||||||
Natural gas liquids sales and other |
|
|
|
|
|
3,346,480 |
|
1,121,216 |
|
(4,467,696 |
) |
(C) |
|
|
||||||
Income from lease bonus |
|
|
|
|
|
659,552 |
|
2,535,014 |
|
721,172 |
|
(E) |
3,915,738 |
|
||||||
Loss on commodity derivative instruments |
|
(318,829 |
) |
|
|
|
|
|
|
|
|
|
(318,829 |
) |
||||||
Total revenues |
|
30,346,263 |
|
3,515,409 |
|
33,007,037 |
|
15,173,705 |
|
(1,750,065 |
) |
|
80,292,349 |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Production and ad valorem taxes |
|
2,452,058 |
|
261,760 |
|
|
|
|
|
2,896,789 |
|
(F) |
5,610,607 |
|
||||||
Production ad valorem, and withholding taxes |
|
|
|
|
|
2,009,528 |
|
918,933 |
|
(2,896,789 |
) |
(F) |
|
|
||||||
|
|
|
|
|
|
|
|
|
|
(31,672 |
) |
(D) |
|
|
||||||
Production expense |
|
|
|
|
|
3,616,353 |
|
1,107,389 |
|
(4,392,854 |
) |
(G) |
|
|
||||||
|
|
|
|
|
|
|
|
|
|
(330,888 |
) |
(D) |
|
|
||||||
Depreciation, depletion and accretion expense |
|
15,546,341 |
|
1,477,274 |
|
8,821,353 |
|
3,794,983 |
|
(12,616,336 |
) |
(A) |
35,144,929 |
|
||||||
|
|
|
|
|
|
|
|
|
|
18,121,314 |
|
(A) |
|
|
||||||
Marketing and other deductions |
|
1,648,895 |
|
167,222 |
|
|
|
|
|
4,392,854 |
|
(G) |
6,208,971 |
|
||||||
General and administrative expense |
|
8,191,792 |
|
930,181 |
|
8,152,102 |
|
6,344,052 |
|
|
|
|
23,618,127 |
|
||||||
Gain on sale of assets |
|
|
|
|
|
(83,633,721 |
) |
(12,870,998 |
) |
96,504,719 |
|
(D) |
|
|
||||||
Total costs and expenses |
|
27,839,086 |
|
2,836,437 |
|
(61,034,385 |
) |
(705,641 |
) |
101,647,137 |
|
|
70,582,634 |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Operating income |
|
2,507,177 |
|
678,972 |
|
94,041,422 |
|
15,879,346 |
|
(103,397,202 |
) |
|
9,709,715 |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Other income (expense) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Gain on derivatives |
|
|
|
|
|
2,289,723 |
|
917,330 |
|
(3,207,053 |
) |
(H) |
|
|
||||||
Interest expense |
|
(791,437 |
) |
|
|
(909,604 |
) |
(1,549,482 |
) |
3,250,523 |
|
(B) |
(7,751,536 |
) |
||||||
|
|
|
|
|
|
|
|
|
|
(7,751,536 |
) |
(B) |
|
|
||||||
Interest income |
|
|
|
|
|
1,918 |
|
|
|
(1,918 |
) |
(L) |
|
|
||||||
Loss on debt extinguishment |
|
|
|
|
|
|
|
(265,061 |
) |
265,061 |
|
(B) |
|
|
||||||
Total other income (expense) |
|
(791,437 |
) |
|
|
1,382,037 |
|
(897,213 |
) |
(7,444,923 |
) |
|
(7,751,536 |
) |
||||||
Income before income taxes |
|
1,715,740 |
|
678,972 |
|
95,423,459 |
|
14,982,133 |
|
(110,842,125 |
) |
|
1,958,179 |
|
||||||
Income tax expense |
|
|
|
|
|
|
|
97,388 |
|
(97,388 |
) |
(M) |
1,036,084 |
|
||||||
|
|
|
|
|
|
|
|
|
|
1,036,084 |
|
(I) |
|
|
||||||
Net income |
|
$ |
1,715,740 |
|
$ |
678,972 |
|
$ |
95,423,459 |
|
$ |
14,884,745 |
|
$ |
(111,780,821 |
) |
|
$ |
922,095 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Net income (loss) per Common Unit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Basic |
|
$ |
0.11 |
|
|
|
|
|
|
|
|
|
|
$ |
0.04 |
|
||||
Diluted |
|
$ |
0.10 |
|
|
|
|
|
|
|
|
|
|
$ |
0.03 |
|
||||
Weighted average Common Unit outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Basic |
|
16,336,871 |
|
|
|
|
|
|
|
10,000,000 |
|
|
26,336,871 |
|
||||||
Diluted |
|
16,455,602 |
|
|
|
|
|
|
|
15,945,946 |
|
|
32,401,548 |
|
||||||
Distributions declared and paid per Common Unit |
|
$ |
1.20 |
|
|
|
|
|
|
|
|
|
|
$ |
1.20 |
|
(1) On February 8, 2017, the Partnership completed its initial public offering. The adjustment reflects the pro forma revenues, direct expenses, depletion and general and administrative expenses for the Partnership during the stub period from January 1, 2017 to February 7, 2017.
For the Nine Months Ended September 30, 2018 and for the Year Ended December 31, 2017
1) Basis of Presentation
The unaudited pro forma condensed combined statements of operations for the nine months ended September 30, 2018 and for the year ended December 31, 2017 are derived from the historical financial statements of Kimbell, Haymaker Minerals and Haymaker Properties.
2) Pro Forma Adjustments and Assumptions
The adjustments are based on currently available information and certain estimates and assumptions. Therefore, the actual effects of the Pro Forma Transactions will differ from the pro forma adjustments. A general description of the pro forma adjustments is provided as follows:
A) To record the preliminary fair value assigned to the acquired oil and natural gas properties, subject to change, and eliminate the historical depreciation, depletion and accretion expense related to the acquired oil and natural gas properties.
B) Reflects the Partnerships entrance into the Credit Agreement Amendment, and increased borrowings at the closing of the Acquisition of $105.0 million.
The Amended Credit Agreement bears interest at LIBOR plus a margin of 2.5%. The unaudited pro forma condensed combined statements of operations for the nine months ended September 30, 2018 and for the year ended December 31, 2017 each used an estimated 4.62% interest rate on the outstanding borrowings under the Amended Credit Facility. The unaudited pro forma condensed combined statements of operations for the nine months ended September 30, 2018 and for the year ended December 31, 2017 each estimated that the Partnership had total borrowings outstanding under the Amended Credit Agreement of $148.0 million. The impact of a 1% increase in the interest rate on this amount of debt would result in an increase in interest expense of approximately $1.5 million annually, assuming that the Partnerships indebtedness remained constant throughout the year.
The following table represents the impact of adjustments to interest expense:
|
|
Nine Months |
|
|
|
||
|
|
Ended |
|
Year Ended |
|
||
|
|
September 30, |
|
December 31, |
|
||
|
|
2018 |
|
2017 |
|
||
New secured revolving credit facility: |
|
|
|
|
|
||
Interest expense |
|
$ |
5,322,365 |
|
$ |
7,096,487 |
|
Amortization expense of loan origination costs |
|
491,287 |
|
655,049 |
|
||
|
|
5,813,652 |
|
7,751,536 |
|
||
Pro forma adjustment of existing debt: |
|
|
|
|
|
||
Interest expense - Kimbell |
|
(2,677,083 |
) |
(791,437 |
) |
||
Interest expense - Haymaker Properties |
|
(538,704 |
) |
(909,604 |
) |
||
Interest expense - Haymaker Minerals |
|
(398,643 |
) |
(1,549,482 |
) |
||
|
|
(3,614,430 |
) |
(3,250,523 |
) |
||
Net adjustment to interest expense |
|
$ |
2,199,222 |
|
$ |
4,501,013 |
|
C) Reflects the historical statement of operations related to the Acquisition, which also reflects a reclassification of approximately $23.7 million and $45.0 million for the nine months ended September 30, 2018 and for the year ended December 31, 2017, respectively, related to crude oil and condensate sales, natural gas sales, and natural gas liquids (NGL) sales and other in order to conform the presentation to be consistent with the Partnerships presentation of such revenues within the oil, natural gas and NGL revenues line item in its historical statements of operations for the same periods.
D) Haymaker Minerals and Haymaker Properties sold assets to third parties prior to the Haymaker Closing. This pro forma adjustment reflects the reduction in revenues and direct expenses related to assets that were not acquired by the Partnership but that were included in the historical statements of operations of Haymaker Minerals and Haymaker Properties.
E) Reflects the reclassification of revenue related to lease bonus income that was previously recorded in the Partnerships oil, natural gas and NGL revenues.
F) Reflects the reclassification of production, ad valorem, and withholding taxes into production and ad valorem taxes.
G) Reflects the reclassification of production expense into marketing and other deductions.
H) Reflects the elimination of the impact of Haymaker Minerals and Haymaker Properties derivative instruments, which were terminated prior to the Haymaker Closing, from their respective historical statement of operations.
I) For the year ended December 31, 2017, reflects estimated incremental income tax provision associated with the Partnerships historical statement of operations, assuming the Partnerships earnings had been subject to federal and state income tax as a subchapter C corporation using a federal and state blended statutory tax rate of approximately 39.2% on earnings from the Partnerships 51.7% investment in the Operating Company after giving effect to the Up-C Transaction. The tax provision also includes the effects of reducing the Partnerships deferred tax asset in connection with the Tax Cuts and Jobs Act. For the nine months ended September 30, 2018, the Partnerships federal and state blended statutory rate is approximately 26.0% and reflects the Partnerships 51.7% ownership in the Operating Company after giving effect to the Up-C Transaction.
J) For the nine months ended September 30, 2018, Haymaker Minerals and Haymaker Properties incurred $2.2 million and $3.3 million, respectively, in transaction costs related to their divestiture to Kimbell. This proforma adjustment reflects the reduction in general and administrative expenses related to the historical statement of operations of Haymaker Minerals and Haymaker Properties.
K) Reflects the elimination of other income from Haymaker Minerals and Haymaker Properties historical statement of operations related to revenues that are not considered to be ongoing.
L) Reflects the elimination of interest income from Haymaker Properties historical statement of operations related to a receivable owed to Haymaker Properties that was settled prior to the Haymaker Closing.
M) Reflects the elimination of income tax expense from Haymaker Minerals historical statement of operations as the Haymaker Minerals taxable income was taken into consideration in footnote (I).
3) Pro Forma Net Income (Loss) per Common Unit
Pro forma net income (loss) per Common Unit is determined by dividing the pro forma net income available to common unitholders by the number of Common Units reflected in the unaudited condensed combined pro forma financial statements. All Common Units were assumed to have been outstanding since the beginning of the periods presented. The calculation of diluted net loss per Common Unit for the nine months ended September 30, 2018 excludes 437,641 non-vested, restricted Common Units issuable upon vesting and 5,945,946 additional Common Units, which represent the Series A Preferred Units on an as-converted basis, because their inclusion in the calculation would be anti-dilutive.
4) Pro Forma Supplemental Oil and Gas Reserve Information
The following pro forma standardized measure of the discounted net future cash flows and changes are applicable to the proved reserves of Kimbell, Haymaker Minerals and Haymaker Properties. The future cash flows are discounted at 10% per year and assume continuation of existing economic conditions.
The standardized measure of discounted future net cash flows, in managements opinion, should be examined with caution. The basis for this table is the reserve studies prepared by management, which contain imprecise estimates of quantities and rates of production of reserves. Revisions of previous year estimates can have a significant impact on these results. Also, exploration costs in one year may lead to significant discoveries in later years and may significantly change previous estimates of proved reserves and their valuation. Therefore, the standardized measure of discounted future net cash flows is not necessarily indicative of the fair value of the proved oil and natural gas properties of Kimbell, Haymaker Minerals and Haymaker Properties.
The data presented should not be viewed as representing the expected cash flows from, or current value of, existing proved reserves since the computations are based on a large number of estimates and arbitrary assumptions. Reserve quantities cannot be measured with precision and their estimation requires many judgmental determinations and frequent revisions. Actual future prices and costs are likely to be substantially different from the prices and costs utilized in the computation of reported amounts.
A more through discussion of the assumptions used in preparing the information presented can be found in the Form 10-K, as well as in the historical financial statements and notes thereto of each of Haymaker Minerals and Haymaker Properties, as filed herewith by the Partnership with the Commission.
The following tables provide a pro forma rollforward of the total proved reserves for the year ended December 31, 2017, as well as pro forma proved developed and proved undeveloped reserves at the beginning and end of the year:
|
|
Crude Oil and Condensate (MBbls) |
|
||||||||
|
|
Kimbell |
|
Haymaker
|
|
Haymaker
|
|
Divestitures |
|
Pro Forma |
|
Net proved reserves at December 31, 2016 |
|
7,210 |
|
1,315 |
|
859 |
|
(1 |
) |
9,383 |
|
Revisions of previous estimates (1) |
|
(193 |
) |
284 |
|
(4 |
) |
(5 |
) |
82 |
|
Purchase of minerals in place (2) |
|
362 |
|
|
|
|
|
|
|
362 |
|
Extensions, discoveries and other additions (3) |
|
505 |
|
582 |
|
91 |
|
(2 |
) |
1,176 |
|
Divestiture of reserves (4) |
|
|
|
(91 |
) |
(107 |
) |
|
|
(198 |
) |
Production |
|
(421 |
) |
(183 |
) |
(109 |
) |
2 |
|
(711 |
) |
Net proved reserves at December 31, 2017 |
|
7,463 |
|
1,907 |
|
730 |
|
(6 |
) |
10,094 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net proved developed reserves |
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016 |
|
4,879 |
|
1,315 |
|
859 |
|
(1 |
) |
7,052 |
|
December 31, 2017 |
|
5,284 |
|
1,907 |
|
730 |
|
(6 |
) |
7,915 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net proved undeveloped reserves |
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016 |
|
2,331 |
|
|
|
|
|
|
|
2,331 |
|
December 31, 2017 |
|
2,179 |
|
|
|
|
|
|
|
2,179 |
|
(1) Revisions of previous estimates include technical revisions due to changes in commodity prices, historical and projected performance and other factors.
(2) Includes the acquisition of $29.3 million of mineral and royalty interests, the largest of which being mineral and royalty interests in the Anadarko Basin, and also includes additional mineral and royalty interests in Texas, Louisiana, Wyoming, California, North Dakota, Utah, New Mexico, Arkansas, and Kansas.
(3) Includes discoveries and additions primarily related to active drilling on our acreage in the Permian Basin, Eagle Ford Shale, Appalachia region, and the Anadarko Basin.
(4) Includes divestitures of reserves the Appalachia region.
|
|
Natural Gas (MMcf) |
|
||||||||
|
|
Kimbell |
|
Haymaker
|
|
Haymaker
|
|
Divestitures |
|
Pro Forma |
|
Net proved reserves at December 31, 2016 |
|
50,390 |
|
10,139 |
|
33,729 |
|
(795 |
) |
93,463 |
|
Revisions of previous estimates (1) |
|
(1,535 |
) |
1,106 |
|
8,282 |
|
(106 |
) |
7,747 |
|
Purchase of minerals in place (2) |
|
16,312 |
|
|
|
|
|
|
|
16,312 |
|
Extensions, discoveries and other additions (3) |
|
2,261 |
|
735 |
|
12,663 |
|
(1,329 |
) |
14,330 |
|
Divestiture of reserves (4) |
|
|
|
(164 |
) |
(4,959 |
) |
|
|
(5,123 |
) |
Production |
|
(3,512 |
) |
(1,144 |
) |
(8,728 |
) |
351 |
|
(13,033 |
) |
Net proved reserves at December 31, 2017 |
|
63,916 |
|
10,672 |
|
40,987 |
|
(1,879 |
) |
113,696 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net proved developed reserves |
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016 |
|
35,172 |
|
10,139 |
|
33,729 |
|
(795 |
) |
78,245 |
|
December 31, 2017 |
|
47,501 |
|
10,672 |
|
40,987 |
|
(1,879 |
) |
97,281 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net proved undeveloped reserves |
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016 |
|
15,218 |
|
|
|
|
|
|
|
15,218 |
|
December 31, 2017 |
|
16,415 |
|
|
|
|
|
|
|
16,415 |
|
(1) Revisions of previous estimates include technical revisions due to changes in commodity prices, historical and projected performance and other factors.
(2) Includes the acquisition of $29.3 million of mineral and royalty interests, the largest of which being mineral and royalty interests in the Anadarko Basin, and also includes additional mineral and royalty interests in Texas, Louisiana, Wyoming, California, North Dakota, Utah, New Mexico, Arkansas, and Kansas.
(3) Includes discoveries and additions primarily related to active drilling on our acreage in the Permian Basin, Eagle Ford Shale, Appalachia region, and the Anadarko Basin.
(4) Includes divestitures of reserves the Appalachia region.
|
|
Natural Gas Liquids (MBbls) |
|
||||||||
|
|
Kimbell Royalty
|
|
Haymaker
|
|
Haymaker
|
|
Divestitures |
|
Pro Forma |
|
Net proved reserves at December 31, 2016 |
|
1,982 |
|
305 |
|
576 |
|
(7 |
) |
2,856 |
|
Revisions of previous estimates (1) |
|
666 |
|
95 |
|
103 |
|
(18 |
) |
846 |
|
Purchase of minerals in place (2) |
|
274 |
|
|
|
|
|
|
|
274 |
|
Extensions, discoveries and other additions (3) |
|
91 |
|
113 |
|
147 |
|
(45 |
) |
306 |
|
Divestiture of reserves (4) |
|
|
|
(15 |
) |
(18 |
) |
|
|
(33 |
) |
Production |
|
(175 |
) |
(45 |
) |
(121 |
) |
9 |
|
(332 |
) |
Net proved reserves at December 31, 2017 |
|
2,838 |
|
453 |
|
687 |
|
(61 |
) |
3,917 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net proved developed reserves |
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016 |
|
1,416 |
|
305 |
|
576 |
|
(7 |
) |
2,290 |
|
December 31, 2017 |
|
2,202 |
|
453 |
|
687 |
|
(61 |
) |
3,281 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net proved undeveloped reserves |
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016 |
|
566 |
|
|
|
|
|
|
|
566 |
|
December 31, 2017 |
|
636 |
|
|
|
|
|
|
|
636 |
|
(1) Revisions of previous estimates include technical revisions due to changes in commodity prices, historical and projected performance and other factors.
(2) Includes the acquisition of $29.3 million of mineral and royalty interests, the largest of which being mineral and royalty interests in the Anadarko Basin, and also includes additional mineral and royalty interests in Texas, Louisiana, Wyoming, California, North Dakota, Utah, New Mexico, Arkansas, and Kansas.
(3) Includes discoveries and additions primarily related to active drilling on our acreage in the Permian Basin, Eagle Ford Shale, Appalachia region, and the Anadarko Basin.
(4) Includes divestitures of reserves the Appalachia region.
|
|
Total (Mboe) |
|
||||||||
|
|
Kimbell Royalty
|
|
Haymaker
|
|
Haymaker
|
|
Divestitures |
|
Pro Forma |
|
Net proved reserves at December 31, 2016 |
|
17,590 |
|
3,310 |
|
7,057 |
|
(141 |
) |
27,816 |
|
Revisions of previous estimates (1) |
|
217 |
|
563 |
|
1,479 |
|
(41 |
) |
2,218 |
|
Purchase of minerals in place (2) |
|
3,355 |
|
|
|
|
|
|
|
3,355 |
|
Extensions, discoveries and other additions (3) |
|
973 |
|
818 |
|
2,349 |
|
(269 |
) |
3,871 |
|
Divestiture of reserves (4) |
|
|
|
(133 |
) |
(951 |
) |
|
|
(1,084 |
) |
Production |
|
(1,181 |
) |
(419 |
) |
(1,686 |
) |
70 |
|
(3,216 |
) |
Net proved reserves at December 31, 2017 |
|
20,954 |
|
4,139 |
|
8,248 |
|
(381 |
) |
32,960 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net proved developed reserves |
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016 |
|
12,157 |
|
3,310 |
|
7,057 |
|
(141 |
) |
22,383 |
|
December 31, 2017 |
|
15,403 |
|
4,139 |
|
8,248 |
|
(381 |
) |
27,409 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net proved undeveloped reserves |
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016 |
|
5,433 |
|
|
|
|
|
|
|
5,433 |
|
December 31, 2017 |
|
5,551 |
|
|
|
|
|
|
|
5,551 |
|
(1) Revisions of previous estimates include technical revisions due to changes in commodity prices, historical and projected performance and other factors.
(2) Includes the acquisition of $29.3 million of mineral and royalty interests, the largest of which being mineral and royalty interests in the Anadarko Basin, and also includes additional mineral and royalty interests in Texas, Louisiana, Wyoming, California, North Dakota, Utah, New Mexico, Arkansas, and Kansas.
(3) Includes discoveries and additions primarily related to active drilling on our acreage in the Permian Basin, Eagle Ford Shale, Appalachia region, and the Anadarko Basin.
(4) Includes divestitures of reserves the Appalachia region.
The following pro forma standardized measure of the discounted net future cash flows and changes applicable to the Kimbell, Haymaker Minerals and Haymaker Properties proved reserves reflect the effect of income taxes assuming the Partnerships standardized measure had been subject to federal and state income tax as a subchapter C corporation using a statutory rate of 26 per cent and 51.7 per cent ownership in the Operating Partnership. The pro forma standardized measure of discounted future net cash flows was as follows as of December 31, 2017 (in thousands):
|
|
Kimbell Royalty Partners |
|
Haymaker
|
|
Haymaker
|
|
Divestitures |
|
Corporate
|
|
Pro Forma |
|
||||||
Future cash inflows |
|
$ |
562,967 |
|
$ |
120,068 |
|
$ |
132,639 |
|
$ |
(4,575 |
) |
$ |
|
|
$ |
811,099 |
|
Future production costs |
|
(45,652 |
) |
(9,398 |
) |
(5,139 |
) |
419 |
|
|
|
(59,770 |
) |
||||||
Future income taxes |
|
(2,790 |
) |
(216 |
) |
|
|
|
|
(39,813 |
) |
(42,819 |
) |
||||||
Future net cash flows |
|
514,525 |
|
110,454 |
|
127,500 |
|
(4,156 |
) |
(39,813 |
) |
708,510 |
|
||||||
Less 10% annual discount to reflect estimated timing of cash flows |
|
(298,973 |
) |
(56,624 |
) |
(61,511 |
) |
1,975 |
|
22,156 |
|
(392,977 |
) |
||||||
Standard measure of discounted future net cash flows |
|
$ |
215,552 |
|
$ |
53,830 |
|
$ |
65,989 |
|
$ |
(2,181 |
) |
$ |
(17,657 |
) |
$ |
315,533 |
|
The changes in the pro forma standardized measure of discounted estimated future net cash flows were as follows for the year ended December 31, 2017 (in thousands):
|
|
Kimbell Royalty
|
|
Haymaker Minerals |
|
Haymaker Properties |
|
Divestitures |
|
Corporate
|
|
Pro Forma |
|
||||||
Standardized measure, beginning of year |
|
$ |
159,275 |
|
$ |
32,794 |
|
$ |
46,882 |
|
$ |
(733 |
) |
$ |
|
|
$ |
238,218 |
|
Sales, net of production costs |
|
(29,288 |
) |
(10,612 |
) |
(27,469 |
) |
945 |
|
|
|
(66,424 |
) |
||||||
Net changes of prices and production costs related to future production |
|
21,946 |
|
8,126 |
|
13,654 |
|
(68 |
) |
|
|
43,658 |
|
||||||
Extensions, discoveries and improved recovery, net of future production and development costs |
|
10,064 |
|
16,440 |
|
22,646 |
|
(2,098 |
) |
|
|
47,052 |
|
||||||
Revisions or previous quantity estimates, net of related costs |
|
2,248 |
|
7,886 |
|
11,940 |
|
(167 |
) |
|
|
21,907 |
|
||||||
Net change in income taxes |
|
301 |
|
(45 |
) |
|
|
|
|
(17,657 |
) |
(17,401 |
) |
||||||
Accretion of discount |
|
15,928 |
|
3,286 |
|
4,693 |
|
(78 |
) |
|
|
23,829 |
|
||||||
Purchases of reserves in place, less related costs |
|
23,309 |
|
|
|
|
|
|
|
|
|
23,309 |
|
||||||
Divestiture of reserves |
|
|
|
(1,840 |
) |
(5,319 |
) |
|
|
|
|
(7,159 |
) |
||||||
Timing differences and other |
|
11,769 |
|
(2,205 |
) |
(1,038 |
) |
18 |
|
|
|
8,544 |
|
||||||
Standardized measure - end of year |
|
$ |
215,552 |
|
$ |
53,830 |
|
$ |
65,989 |
|
$ |
(2,181 |
) |
$ |
(17,657 |
) |
$ |
315,533 |
|