Kimbell Royalty Partners, a company which owns oil and natural gas mineral and royalty interests across 28 states in the US, has announced the purchase of oil and gas royalty assets from affiliated sellers for approximately $107.8m in a ‘Drop Down’ acquisition.
The transaction is expected to close on or around 20 December 2018, and will be immediately accretive to distributable cash flow per unit.
It includes a package of royalty interests with more than 70% of production (6:1) from resource plays, including the Eagle Ford Shale, Permian Basin, Appalachian Basin and Bakken Formation.
The purchase price consists of 6.5 million newly issued units in Kimbell Royalty Operating, and reduces Kimbell’s leverage ratio due to 100% equity used to fund the purchase price.
The transaction will add 1,190 Boe/d of production (6:1); liquids-focused asset base with 80% of revenue from oil and natural gas liquids; and production mix on a 6:1 basis of 38% oil, 43% natural gas and 19% natural gas liquids.
It will also add 16,700 net royalty acres, which will increase Kimbell’s total net royalty acre position by 15% to 131,900 net royalty acres across the continental US.
For Kimbell, the deal will provide significant upside potential from future development with 59% of total proved PV-8 reserves comprising proved undeveloped reserves.
The drop down assets have an estimated five-year PDP decline rate of approximately 11%.
The transaction will have an effective date of October 1, 2018, and Kimbell will be entitled to revenues from production on and after such date.
The drop down has been approved by the conflicts committee and the board of directors of Kimbell Royalty Partners’ general partner on November 20, 2018.
Evercore Group acted as financial advisor to the conflicts committee in connection with the drop down. Potter Anderson & Corroon acted as legal advisor to the conflicts committee.
Baker Botts acted as legal advisor to Kimbell Royalty Partners in connection with the drop down.
UBS Investment Bank acted as financial advisor and Mayer Brown acted as legal advisor to the sellers in the drop down.
The sellers will be subject to a 120-day lock-up after the closing on or around December 20, 2018.