Greetings, and welcome to the Kimbell Royalty Partners First Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Rick Black, Investor Relations for Kimbell Royalty Partners. Thank you. Mr. Black, you may begin.

Thank you, Jeremy, and good morning, everyone. Thank you for joining the Kimbell Royalty Partners conference call to review financial and operational results for the first quarter of 2018. This call is also being webcast and can be accessed through the audio link on the Events and Presentation page of the IR section of kimbellrp.com. Information recorded on this call speaks only as of today, May 10, 2018. So please be advised that any time-sensitive information may no longer be accurate as of the date of any replay. I would like to remind you that the statements made in today's discussions 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. We will be making forward-looking statements as part of today's call, that by their nature, are uncertain and outside of the Company's control and actual results may differ materially. Please refer to the earnings 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 our 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. Thanks for joining us. I'm here with several other members of our senior management team, including Davis Ravnaas, our President and Chief Financial Officer; Matt Daly, our Chief Operating Officer; Jeff McInnis, our Chief Accounting Officer; and Blayne Rhynsburger, our Controller. I would like to begin with a look at our record operational performance for the first quarter. At our most recent distribution increase and finished with a recap of our strategy and expectations for the rest of the year. Then I'll ask Davis to cover our financial performance in more detail. After that, we'll take your questions. We are delighted with our overall performance this past quarter with record revenue, adjusted EBITDA, distribution and production. Average daily production increased by about 4% versus Q4 to 3,650 Boe per day even though we did not make any acquisitions in Q1. On a revenue basis, 60% was from oil, 24% was from natural gas, 13% was from NGLs and 3% was from lease bonuses and other sales. The slight shift in the mix reflects strong pricing improvements in liquids along with organic growth from our existing properties. We realized higher natural gas output, higher NGLs production from the Permian Basin and Eagle Ford, increased oil production from 14 new wells that came online in Weld County, Colorado during the first quarter and we benefited from the full impact of acquisitions completed in mid fourth quarter 2017. I should point out that those 14 new wells in the Rockies demonstrates the importance of the diversity of our asset portfolio and our production over the long-term and the potential for upside development outside of the Permian Basin, which has been a major driver of our portfolio over the last several years. Higher commodity prices are driving…

Thanks, Bob, and good morning, everyone. I wanted to first quickly touch on the $54.8 million full-cost ceiling test impairment we bought against the value of our oil and gas properties in Q1. We've talked about the spending item each quarter since our IPO in February 2017 when we received an exemption from the SEC from a full-cost ceiling test on the value of our reserves through the end of 2017. We were required on our GAAP accounting rules to go ahead and record this charge in Q1. Again, let me stress that this impairment is a non-cash charge and does not impact cash available for distribution or liquidity, asset borrowing base or our ability to grow through acquisitions or drop-downs. So excluding this non-cash charge, our adjusted net earnings were $1.9 million or $0.12 per common unit, which was double our Q4 EPS. Total revenue increased by 12% to almost $11 million, including the impact of a small loss in our commodities hedges. Operating income, excluding the impact of the impairment, was $2.3 million, which is up 65% from Q4. These increases in financial results were due to an increase in commodity pricing of approximately 12% plus an increase in production resulted from organic growth and production from our existing properties in several basins, not just the Permian, as Bob mentioned earlier. Cash G&A for the quarter was $2.1 million and declined about 7% from Q4 2017. Adjusted EBITDA was $7.6 million, which is up 21% from the previous quarter. Cash available for distribution was $7.1 million, up 16% from Q4. You will find a reconciliation of both adjusted EBITDA and cash available for distribution at the end of our news release. Our average realized price for Boe was $32.90 per barrel, up 12% from Q4, driven by liquids…

[Operator Instructions] Our first question comes from the line of Matt Schmid from Stephens.

Good morning, guys.

Good morning, Matt. How you’re doing?

Doing well. Thank you. Clearly, you've got an attractive price for those Delaware assets and you spoken into potentially looking at more opportunities. You have a nice mark-to-market there. Is there any target on size of additional mineral sales or is it just kind of depend on price and what people are willing to offer out there?

Yes. Matt, that's a good question. We have a lot of acres in the Delaware Basin. I'm hesitant to provide an exact figure at this time because I'm reluctant to have people overreact at the number I'm going to extrapolate based on this one event what the potential value could be. But I will say that we are opportunistically looking at divesting certain assets in areas where we feel like valuations are robust. We are in the process of analyzing our Delaware portfolio to get a better grasp of exactly where some of our acreage is relative to the core of the play. So all I can say is we're kind of in the early stages of where we are – what we've sold is just kind of a fraction of what we have, so...

Okay, great. That's helpful. And then just thinking about the acquisition market in general, just maybe could you all provide an update on what you're seeing out there and the effect of increasing oil prices and how people are sort of thinking about the bid-ask spread?

Yes. I'd say that the A&D market, it seems like every quarter it gets increasingly more robust in terms of the number of opportunities that we're looking at. I'd say that sellers obviously are more willing to sell things now at $70 spot price. I'll remind everybody that we bid things on a three-year strip. So we take into account backwardation of the curve. So that's baked into our analysis when we make acquisitions. So that helps protect us a little bit against the near-term spike in oil prices. We're looking at a lot of M&A opportunity for cash and units kind of across the Board. And I'm more encouraged than perhaps I've ever been about developments within M&A in the near to medium term.

Okay great. Thank you. Appreciate the color.

Thank you, Matt.

Yes, thanks Matt.

Our next question comes from the line of Jason Wangler from Imperial Capital. Please proceed with your question.

Hi, good morning all.

Hey, good morning Jason.

Hey, how you’re doing?

I wanted to maybe ask a different way in the Delaware. Just – obviously, you sold a very nominal amount of production. I mean, how much of your productions coming out of that region, specifically right now as that's kind of an early days here and obviously the acreage is going for pretty high prices?

Yes. Not a lot, not a lot. And so the market for non-producing acreage in the Delaware Basin is probably the most competitive of any area in the United States. And so our thought is if we can sell assets that are generating virtually no cash flow for the company and pay our debt and make acquisitions that yield – robust yields, 10% or more, then we're creating a lot of value for unitholders by doing that. So it's not a lot of value. And again, I'll just repeat kind of what I said to Matt, rather than give you guys the net royalty acres we have in the Delaware, because it is a big number, we're going to spend some time over the next couple of quarters really getting a handle on exactly where some of our key acreage is there so that we can – we're going to continue to opportunistically sell things and we're going to get a better grasp of where we are for the next quarter or two. We're leanly staffed here, so it just takes us a little bit of time that we might bring in some outside resources to help us with that sale.

Sure. Okay. And then – and you kind of hit on it there on your answer, but the $9 million coming in and even if there are future transactions, how do you see the use of those proceeds? I mean, you have $30 or so million of debt now. So should we just kind of assume you put that on, back under the credit facility? And you guys are obviously active at the M&A market or just how we should think about that as...

Yes. You got it, Jason. That's exactly right.

Our next question comes from the line of Rich Eychner from Raymond James.

Hey, good morning guys, and congrats on the quarter and the announced sale. The first one given your presence in the Permian, I was wondering if you could just touch on the current takeaway versus production backdrop in the basin. And how you see differentials and realized pricing trending through the back half of this year and into 2019.

Bob, you're going to take this?

Yes. We have not seen – with regard to our receipts on the properties where we're getting most of our cash flow, we, through April, have not seen a increase in differentials. We do know that in the swaps and the future's market, we do see that increasing, but we have not seen that or seen any evidence of that yet.

Okay. Great. Thanks for the color. That's good to hear. For a follow-up, sticking with the Permian, have you come across any operators in the basin that are talking about – considering shipping capital through other areas or slowing down their pace of development just given the potential takeaway constraints? Or is that just not happening yet?

No. We haven't seen that from – we haven't heard that from our operators in the Permian. It's less of a concern for us, obviously, because we're so diversified in terms of where our assets are nationally. But no, we haven't heard anything from our large operators, actually. For example, we haven't heard anything from our operating partners that would suggest more muted activity in the future relative to other basins.

Okay. If I could sneak in one last one, just really a quick housekeeping item, G&A came in a bit higher than we were modeling in 1Q. I think you mentioned last quarter that you're targeting $8 million to $8.5 million in 2018. Is that still your target?

Yes. Let's start with that good point. So I'm glad you brought that up. I think for the second quarter, we want to give everybody guidance that will probably be closer to $2.5 million for cash G&A. We're in the process of putting together an S-3 registration statement just so we have the ability to issue equity if we want to. And then we're also spending some money on looking at converting to a C-Corp, that's something we're very seriously considering for some obvious reasons. So G&A in the second quarter should be a little bit higher than that, just wanted to give you guys a heads-up.

Our final question comes from the line of Tim Howard from Stifel.

Appreciate the portfolio optimization efforts. So I was just kind of interested, what are the levers you have to pull to kind of narrow the discount between where you see intrinsic value of the stock price. Historically, you've talked about increasing the liquidity. So I'm interested in how that plays in with the potential drop-down later this year. You're reviewing the C-Corp side, so that kind of plays into it. Just kind of – everything you guys are looking at in that light.

Yes, no. Tim, good morning. We're really – if I could pat ourselves on the back, we're really is a full team here collectively doing everything we absolutely can to narrow the gap between where our current unit prices and where it should be. I think that portfolio optimization is a one component of that. I think that delivering on our drop-down story is another component of that. So we're very focused on that process. And then frankly, I'd be remiss if I said, we definitely saw the 30%-plus uptick in Viper's price when they converted to a C-Corp. And I think that the market seems to be valuing the liquidity that, that generates. It opens an investor base of roughly 60 times greater than what the existing MLP universe is. So we'd be remiss if we didn't at the very least strongly consider that. And then what I'd also add, and we haven't really talked about it a lot in the past, is that we don't have a parent company like Diamondback to drop down NOLs to show us some taxes, but what we do have is a 90%-plus tax shield in our current – at right now. And we think that over the next 4 years, it'll be at least 80% or 85%. So we're still working on that analysis. But if you think about it, the cash leakage from corporate taxes for us is basically nil. And so the offset – increased liquidity in the stock attracting new people that would rather have 1099 than a K-1, we think is very attractive for us. So we're working hard at that. And then on top of all that, just – we happen to be an early mover in the mineral space being public. So we're one of the first guys that people call when they think about selling things. So we're continuing on our efforts to kind of consolidate the space nationally. We have a focus everywhere.

Could you remind me on the 90% tax shield? What's driving that?

Depletion.

Depletion. End of Q&A

At this time, questions-and-answer session is over. I would now like to turn the floor back over to CEO, Bob Ravnaas, for closing comments.

Thank you, everyone. And thank you all for joining us this morning. This completes today's call.

Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines. And have a wonderful day.