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

Thank you, Operator, and good morning, everyone. Welcome to the Kimbell Royalty Partners conference call to review financial and operational results for the first quarter of 2020. 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, May 7, 2020, 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 or expectations or future events or future financial performance, are considered forward-looking statements, made pursuant to the safe harbor provision of the Private Securities Litigation Reform Act of 1995.We will be 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, as well as other risk factors 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.And with that, I would now like to turn the call over to Mr. 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'm 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'd like to begin by extending our thoughts and prayers to those affected by the COVID-19 crisis. These are certainly unprecedented times and we're doing all that we can to support the health and safety of our employees and to assist with the recovery of our community from this crisis. We are especially grateful for all of the hard work being performed by first responders and healthcare workers. They have truly been an inspiration to us all. We also applaud the legions of hard working Americans all over the country that have remained dedicated to keeping the nation's food supply and other vital components of the economy up and running during this difficult time.As you know, COVID-19 has contributed to deeper challenges in the energy sector than most other industries as the price of crude oil recently reached the record lows. The market volatility and pricing pressures that existed before the pandemic began have now created the perfect storm with an unparalleled supply glut and continuing demand disruption. Notwithstanding the challenging effects of this health and economic crisis, we believe that Kimbell's fundamental business model will provide far more stable and resilient than others.As of the first quarter, approximately 60% of our production was from natural gas, which continues to have an improving macro outlook. And we have strengthened our balance sheet and improved liquidity. In addition, we believe that we have one of the strongest hedge books in all of energy in terms of both in price and duration. We currently have…

Thanks, Bob, and good morning, everyone. I want to take a moment to echo Bob's opening comments about COVID-19 and this pandemic. We remain vigilant regarding this health crisis and we'll continue to follow all federal, state, and local guidance regarding safety measures for ourselves, our employees, and our communities.Regarding the economic effects of this crisis, we strongly believe that our business and our asset portfolio are well-positioned to manage and even grow in 2020 and beyond. Even if WTI oils traded at 0 for the entire second quarter of 2020, we estimate that we would still generate positive distributable cash flow due our significant natural gas exposure and strong hedge book.First, I want to cover our record-breaking production in the quarter, followed by a recap of our first quarter financial results. Since the Springbok transaction effective date was October 01, 2019, with a closing date of April 17,2020, we are entitled to the Springbok cash flow, since October 2019. But our GAAP Q1 2020 financials will exclude Springbok. I plan to provide Q1 2020 consolidated adjusted EBITA and production numbers with and without Springbok in my remarks today.Our first quarter average daily run rate production was 12,602 Boe per day with a total average daily production of 13,358 Boe per day, which consisted of 756 Boe per day relating to prior period production recognized in the quarter. The 12,602 Boe per day of run rate production for Q1 2020 was comprised of approximately 40% from liquids, which was 27% from oil and 13% NGLs; and 60% from natural gas on a 6:1 basis.The prior period production recognized in Q1 2020, was primarily due to new wells outperforming estimates. Including a full quarter of Springbok run rate production for Q1 2020 was 15,188 Boe per day, a new record high…

[Operator Instructions]. Our first question comes from the line of John Freeman with Raymond James.

I just wanted you all to talk a little bit more about sort of the strategy, at least in the foreseeable future, about how you think about balancing the lower payout ratio was sort of the two pronged of, looking at lowering the leverage more, but also what is likely to have a lot of really attractive kind of acquisition opportunities in this market, I would expect and the dry powder you'd get with having that lower payout ratio?

I think our plan as it pertains to the payout ratio, just given the enormous uncertainty in the market, is really from our Board discussion to take it on a quarter-by-quarter basis. So what we reevaluate at each quarter, what amount of the cash flow we want to pay out. We continue to fund our micro aggregation strategy.So to your point, we expect to see some pretty compelling acquisition opportunities here in the near future. Based on our experience, it takes a couple of months of Royalty owners receiving checks at reduced cash flow amounts for them to get -- for them to accept the new reality of where hydrocarbon pricing is.So the A&D market, as you might imagine, is pretty slow currently, but we expect it to pick up in the next, let's call it, 2 to 6 months. Beyond that, we continue to see a tremendous opportunity to use our equity, very selectively on highly accretive transactions, particularly with private equity backed groups that have diversified assets doing all equity deals, it allows us to accomplish 2 things at ones. One, improve accretion on $1 per DCF basis. And then also to delever to the extent that it's funded entirely with stock issued directly to the seller.So I think that's how we're thinking about it for now. We're just being very careful in this environment. And I know things feel a lot better with oil at $25 today, but it was $12 8 days ago. So I think it's only prudent that we as management and our Board make those decisions in real-time on a quarter-by-quarter basis as things develop.

And then does the -- the fact that at the moment with the payout ratio where it's at, you sort of have the side benefit of it. It lowers your cost of capital. Does that in any way change sort of when you're looking at accretive acquisitions, especially given your -- at least recent track record of using equity on a lot of the bigger deals? Does that at all change the set of assets you can look at?

No, I think the game plan is still the same. I mean, we don't expect to do any major deals eminently in this environment to state the obvious, and we'd like to see a recovery in the sector before we start to use our stock. We're, obviously, not happy with where it's trading today. We think it's unduly low, just kind of a reflection of overall market conditions. But, no, I don't think it changes our strategy, other than to say, John, that, obviously, we've always been selective that even in this market you have to be hyper selective.I think there's only a small -- we might be one of the only groups that's capable of buying assets both in the Permian Basin and outside of it. So I think competition for assets nationally is going to continue to dwindle.We're seeing a lot of the private equity backed competition really dry up. It's become more difficult, I think, for folks to raise money and deploy it in an attractive way. And so I think that plays into our hand as well overtime. We think coming out of this, it's going to present some pretty compelling acquisition opportunities. Anything you'd add Matt?

Yes, John, just in terms of your question about cost of capital and you know WACC. Right now the credit facility with LIBOR dropping so much and interest rates being so low, we're looking at a credit facility interest rate cost of between 3.1% and 3.2%. So it's extremely low cost of capital, the credit facility. To the extent that we do acquisitions, using cash, especially on the micro strategy where some of those transactions have extremely high yields, it generates a lot of immediate accretion to us.

Yes, good point.

Our next question comes from the line of Derrick Whitfield with Stifel.

Perhaps for Bob or Davis, I wanted to stay on cash flow distributions to build on John's first question. As we look out towards a recovery scenario, what will be your guiding principles or conditions for increasing the percentage of distributable cash flow?

That is a great question. For now, we're going to address that on a quarter-by-quarter basis. But I can't speak for our Board at large. But, directionally, I'll point to. If we get back to our -- when and if we get back to our target leverage ratio below 1.5x, I think it's -- yes, I'll say likely, if not probable that we resume paying out a 100%.I think we just want to be -- I mean, and maybe history might show that we've been too conservative by directing some cash to debt pay down in this environment. But the reality is, it's just an environment with incredible uncertainty, and we rather be too conservative in the other way. So I think once we get back to a position where we feel more confident and we feel like the leverage is under control or less than 1.5x, that's probably the point at which we start resuming 100% payout. So it's something to that effect.

And as my follow-up, regarding your Haynesville royalty position more broadly. Are you sensing any change in activity with the steadily improving forward curve?

We have not seen anything eminently. We had a really big year last year in the Haynesville. You might recall -- and I believe it was the second quarter of last year, we had some huge wells come online, which led to 8% quarter-over-quarter growth in the entire company. So very meaningful wells. We still had more PUDs on that acreage and nearby acreage at similar address.We have yet to see -- to your point, we think that our natural gas position is amongst the best in the industry, particularly in the Haynesville Shale. We haven't seen an immediate impact to increased drilling activity, but we would expect that with the drop in associated gas and the improved outlook for natural gas, holistically, we would expect to see an increase in Haynesville.Funny enough, this quarter, we did see -- we went from one rig in Appalachia of 3 and had some big Appalachia rigs come online. So we are seeing some improvement in the gas basins and we would expect that to continue.And, again, I'll just say this again for the benefit of anybody on the call. 60% of our production is natural gas. We were widely -- I will even use the word ridiculed for that in the past for being "gassy." We've always done that by design. Our company has always had a healthy balance of oil and natural gas. And it's to protect our investors in moments exactly like this, where one commodity has gotten hit disproportionate relative to the other.And so, I think, this is an environment where a diversified model with a low PDP decline rate and a healthy mix of oil and natural gas should outperform. So it's a challenging environment, but we think we're up for that challenge.

Just one follow-up comment, just on the overall rig count. I mean we had 81 rigs as of year-end '19. And as of 4/17, we ran this pretty recently, we had 70 rigs across our acreage, including Springbok. So our market share of the entire lower 48 land drilling fleet based on Baker Hughes went from 11.9% to 13.7% as a 4/17. We actually had a rig count increase in the Permian from 24 rigs at year-end to 33 rigs on 4/17.And some of the operators, we had 6 rigs of Pioneer. We had 6 with Parsley; four with Concho; two with Diamondback; we had 11 rigs in Midland County. This is all as of 4/17. Now, we had some rigs drop in the Mid-Con expected, we had a few rigs drop out of the Haynesville and in the Williston Basin. But Appalachia, as Davis mentioned earlier, we had -- we went from 1 rig to 3 rigs, and those are two Cabot rigs that were added as well. So a lot of activity -- frankly, and this market is pretty good.

Yes. I think, the reason we focus on market share of all rigs, Derrick, is that -- we think that that's the best way of kind of showing people that our assets tend to be on average in better locations than the average acreage, if our market share continues to improve despite a drop in the overall rig count. We think that's the best litmus test for that. Anything else you would add Bob?

No. I agree.

Diversification clearly matters, thanks for your commentary.

Thanks Derrick.

Yes, thank you.

Our next question comes from line of Jason Wangler with Imperial Capital.

Just maybe a real-time question that's hard to answer now. But, I mean, as we're hearing a lot of the operators talk about, shutting in production, whether it's late April or even into May. Are you guys seeing any impact on that or maybe it's even more what you guys are hearing on that aspect as how that might affect you guys in the next couple of months?

Glad you ask that. So I think our company is going to be a helpful data point in the second quarter for the industry at large, just given the fact that -- I think we probably have more exposure to more acreage and more wells than maybe any other company in the United States. And so, I think that, seeing activity and the way that operators are changing their behavior, we're going to see that. And we're going to be able to provide you guys, I hope, at the end of Q2 with information on how things are changing.You might be surprised to hear this, we've only received one force majeure notice and that's from an operator that we -- I didn't even know still existed in the Eagle Ford. Other than that, we've gotten any -- if you look around the table any other material force majeure notices. I mean, we know it's happening. We know we know that operators are looking back and curtailing. I'm not sure there are legal requirements to provide us with notification of their plans. I think they're probably reluctant to notify thousands of minerals owners and what they intend to do. But we'll be tracking that.And it's going to be interesting to see how we get affected relative to similar concentrated companies. Because a lot of our production lags, 3 to 6 months or even more. We sometimes get paid on wells that are 18 months in suspense. So we'll see how this plays out, but it would be my expectation that, that we outperform relative to a lot of other groups just given the diversification, the small number of -- the small interest in 10s of thousands of wells, and just that combined effect. And we -- this quarter, we got a $1 million check on an asset that we didn't even know we owned. So I mean, we just find good news with these diversified portfolios that kind of comes out of nowhere sometimes.

The other thing, as we said in the past, over the last 20 years, we've really taken care to buy high quality properties. And so when you hear and I think it's probably going to happen that the operators are going to shut in the marginal wells and the stripper wells and that's a very, very small percentage of our overall production. So, I think, we have insurance against that, too.

And maybe kind of alongside that -- and you kind of mentioned that there Davis about, whether it's lease extensions or changing the contract a bit on your acreage. Is that something that you guys are maybe starting to hear about as far as with this activity slow down. Folks, either looking to make sure to extend the leases to make sure that they're not coming due or things like that, which may actually, like you said, kind of bump up on your, like, lease bonuses and things of that nature?

Yes, good question, Jason. So I'll say this to you. Everything that we own that we know of, is held by production. So we're not necessarily worried about leases going away. I think -- what we expect to see, given the fact that we've received only one force majeure notice, which would allow them to kind of get around the -- shutting in production temporarily, and not allowing us to have any legal recourse. The fact that we haven't seen more of that, frankly, has surprised me, which suggests to me -- I mean, tell me what you think, too -- which suggests to me that operators aren't necessarily shutting in entirely in all these leases. They're just choking back, in some cases, probably pretty dramatically. So we don't expect to lose a lot of leases, again, because everything we own is HBP. We only buy properties that have existing production. That's a unique aspect of our business model, that's not necessarily shared by many others. So we haven't seen any of that yet. But to the extent we start to see operators playing games are trying to get out of their obligations to us, we certainly have a duty to all of our investors to be as aggressive as we can to maximize value for folks.And worst case scenario, if some of these operators lose leases, if they're in good areas, we'll release them to somebody else, collect a new lease bonus to your point and hopefully a higher royalty and proceed that way. So, we're going to be doing everything we can to protect our assets, protect our investors and maximize value through this difficult time.

There are no further questions at this time. I'd like to turn the floor back over to management for closing comments.

We thank you all for joining us this morning and look forward to speaking with you again when we report the second quarter results. This completes today's call. Thank you.

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