A "landman" company

Sorry, I've dropped the ball on these reports over the last couple of weeks. I've been busy laying the groundwork for some fun projects for our “AI in business” project that we're working on called Nerd Out (check it out if you’re interested in implementing these next gen tools in your business or work).

Today, I'm digging into Kimbell Royalty Partners (KRP).

They own mineral and royalty interests under roughly 17 million gross acres across 28 states. They're considered a passive mineral owner where someone else drills the wells and sells the oil.

In industry terms, they own “working interests”.

KRP pays their pro rata share of any drilling expenses that are incurred on their mineral interest and then receives the pro rata share of the net revenue from these wells.

I've done this on a tiny scale on some mineral interests that I own in Northwestern North Dakota. Let me tell you, when these companies are drilling 4 to 8 well pads, it doesn't take many acres before the dollars get real big.

A few things that stood out to me:

• 91 rigs were turning on Kimbell acreage in Q2 which amounts to about 16% of every land rig running in the US. They hold interests in more than 137,000 gross wells. Roughly one out of every six rigs in America is drilling a hole that sends Kimbell a check.

• Gross margin is 87.8% and operating margin is 40.1% on the trailing twelve months.

• Businesses like this are somewhat tough to analyze using standard financial metrics, given that what would normally be R&D expense in another business is almost entirely acquisition-related capital expenditures in this kind of business. To truly grow, they need to acquire new holdings.

It's hard for me to walk away from this one with a bunch of actionable takeaways. But there are ample opportunities out there to participate in investments in companies, real estate, or more niche assets like mineral interests, timber land, farmland, bank notes, etc. And the more niche and opaque the market, the more inefficient it can be.

If you have an interest in an industry that doesn't fit into the mold of a traditional startup, don't shy away from diving headfirst and learning what opportunities exist out there for you.

With that, I’ll talk to you soon.

Nick

PS. I do feel the need to caution you if you're ever approached to participate directly in oil and gas investments like this. There are a lot of scammy operators out there that try to use other people's money to chase after highly speculative deals and then layer in crazy-high performance fees if these risks actually pan out. I know quite a few people have swung and missed on these kinds of deals over the years.

TL;DR

• Kimbell owns non-operated mineral and royalty interests in more than 137,000 gross wells across 28 states. TTM revenue is $341.2 million at a 40.1% operating margin.

• Q2 2026 set records almost everywhere: $103.0 million of oil, gas and NGL revenue, $84.9 million of adjusted EBITDA, 25,830 Boe/d.

• The distribution is the product. $0.47 per unit for Q2, up 15% from Q1, at a 75% payout ratio, with about 47% of it treated as a non-taxable return of capital.

• Growth comes from acquisitions: Hatch, Cherry Creek, Boren, Mesa, and a $221.2 million drop-down closed August 21.

• One-year total return is 18.0%, and almost two thirds of that came from the distribution. Black Stone Minerals beat it by 14 points.

• N.O.O.B. Nine score: 2.8 out of 5. Great position in the revenue waterfall, weak protection against a competitor with the same idea.

The 30,000-Foot View

A mineral interest is a deed. Kimbell owns the deed, an operator leases the acreage, and when hydrocarbons come out of the ground Kimbell collects a percentage of gross revenue before the operator recovers a dollar of cost. No capital calls, no overruns, no plugging liability.

Q2 production was 53% liquids and 47% natural gas, at realized prices of $94.67 per barrel of oil, $29.12 per barrel of NGLs, and $2.01 per Mcf of gas. That gas number is the swing factor here.

What makes Kimbell odd among royalty companies is how thin it slices. Most of these portfolios chase concentrated Permian acreage. Kimbell owns fractions of wells in the Permian, Eagle Ford, Mid-Continent, Appalachia and everywhere else. No single operator's budget meeting can move the year.

Key Stats

• Market cap: about $1.8 billion

• TTM revenue: $341.2 million

• Gross margin: 87.8%

• Operating margin: 40.1%

• Q2 production: 25,830 Boe/d, a record

• Gross acreage: roughly 17 million acres, 28 states

• Active rigs on acreage: 91, about 16% of the US land rig count

• Net debt: $433.8 million, 1.4x TTM adjusted EBITDA

• 1Y total return: +18.0%

Company History

• 1998: A group of Fort Worth investors shakes hands on one Permian mineral investment.

• February 3, 2017: IPO on the NYSE at $18 per unit, under Robert Ravnaas.

• September 2018: Elects to be taxed as a corporation. Unitholders start receiving 1099s, which quietly opens the door to IRAs, index funds, and every advisor who hates April.

• 2020: Closes the $175 million Springbok deal, then rides oil to negative $37 a barrel. Distributions get cut.

• November 2022: Buys Hatch Royalty for about $271 million in cash and units.

• August 2023: Buys the Cherry Creek and LongPoint package for $455 million. Capex hits $490.8 million that year.

• January 2025: Announces the Boren Minerals deal at roughly $231 million in the Midland Basin.

• June 22, 2026: Closes the $145.9 million Mesa Royalties acquisition in the Permian.

• August 21, 2026: Closes a $221.2 million drop-down from affiliated sellers covering 3 million gross acres and 29,000 producing wells, two thirds funded with OpCo units.

• August 24, 2026: Raises guidance. Q3 production midpoint goes to 28.0 Mboe/d and Q4 to 29.2 Mboe/d, up 10% and 15% on the prior 2026 plan.

Show Me the Money

Standout financial features:

• That FY2024 operating margin of 12.0% is a $62.1 million impairment sitting in an otherwise fine year. Strip it out and the margin was 32.1%. Mineral portfolios get written down when the strip moves, and it tells you nothing about the cash.

• Look at the capex row. $490.8 million, then $0.2 million, then $223.5 million. There is no maintenance capex in a royalty business, so spending tracks whatever came up for sale.

• Depreciation and depletion ran $122.4 million on the trailing twelve months, about 36% of revenue. That is the treadmill in one number: roughly $122 million of checks a year just to keep production flat.

• Net debt nearly doubled in eighteen months, and the June quarter alone lifted the unit count 27.7%. The balance sheet and the equity are funding the same shopping trip.

• The August 24 guidance raise is the payoff arriving. Q4 production now points to a 29.2 Mboe/d midpoint against 25.5 in the original 2026 plan, with cash G&A per Boe guided lower. Buy the barrels, spread the same overhead.

Stock Performance

All figures as of the September 1, 2026 close. Total return is the price move plus distributions received, without reinvestment.

Almost two thirds of Kimbell's one-year return arrived as cash in the mailbox. The units themselves moved 6.6%. Black Stone got there on a smaller check and a much bigger price move, beating Kimbell by 14 points. Viper landed two points ahead.

That split is the argument for owning a royalty partnership. The return shows up quarterly whether or not the market feels like re-rating you. Stretch the window to five years and the total return runs close to +98% [VERIFY], again mostly distributions.

The N.O.O.B. Nine — Competitive Powers

Average: 2.8 out of 5

The moat is positional. Kimbell sits above the operator in the revenue waterfall and cannot be dislodged from any single well. What it cannot do is stop a competitor assembling the identical portfolio next door.

Memorable Marketing

Kimbell runs no consumer marketing. The investor-facing playbook is where the interesting moves are.

• The rig count stat (ongoing). Every quarter they publish rigs running on their acreage and their share of the US land rig count. It turns an invisible asset into a number you can watch, and it front-runs revenue by about six months.

• Killing the K-1 (2018). Electing corporate tax treatment cost real money and removed the biggest reason people refuse to own an MLP.

• Selling the tax character (ongoing). They lead with the fact that roughly 47% of the distribution is return of capital. Same dollar, better story.

• Naming deals after the sellers. Haymaker, Hatch, Springbok, Boren, Mesa. Mineral families sell to buyers other mineral families respected, and leaving the name on the deal keeps referrals coming.

• The 1998 handshake (ongoing). The founding story on their site is a handshake among Fort Worth investors. For a business selling trust to landowning families, that origin beats any capabilities deck.

Takeaways you can use: publish the leading indicator your customers can't see, pay to remove friction from owning your product, and name your deals after the people you bought from.

AI Uses & Opportunities

What's already true: 47% of Kimbell's production is natural gas, and gas realized $2.01 per Mcf in Q2. Data center load growth is the biggest reason to believe that price rises over the next decade. Kimbell has no contracts here, no announcements, no strategy. They own the resource that gets consumed if the buildout happens. One difference from Texas Pacific Land: Kimbell owns mineral rights, so no data center ground lease is coming. They don't own the dirt on top.

Where AI could change the business:

• Royalty revenue auditing across 137,000 wells. Underpayment by operators is endemic and nobody checks that many division orders by hand.

• Machine learning on permit and completion data to price acquisitions before the seller runs a process

• Well-level cash flow modeling on packages priced in aggregate today

Bumps in the Road

• The depletion treadmill. Standing still costs nine figures a year. Miss a year of acquisitions and production falls.

• Growth is funded by dilution. Two deals in two months issued 16.4 million units. Per-unit results improve only if every deal is bought below the trading multiple.

• Related-party drop-downs. The $221.2 million August 21 deal came from affiliated sellers. The conflicts committee is load-bearing here.

• No control over anything. Operator budgets, rig allocation and commodity prices set the revenue. The only lever is what Kimbell buys.

• The gas problem is right now. $2.01 per Mcf on 47% of production hurts. AI demand is a multi-year story; the distribution is a quarterly one.

Your Swipe File

1. Oil and gas is full of smaller shady operators. This company is not one of them, but I wanted to make it clear that if you're ever approached with investments in assets like this, you should approach them with extreme caution.

2. Intellect + social skills is a powerful combination. There have been many landmen who have generated significant wealth for themselves and others by building a relationship with a sizable mineral owner and locking up that acreage under an oil and gas lease. There are many industries like this where personal relationships lead to deal flow.

3. If your asset depletes, acquisition is your operating business. Kimbell spends more management time buying minerals than managing them. Any business with churn baked in should staff accordingly.