Kimbell Royalty Partners, LP
Q4 2021 Earnings Call Transcript

Published: 24 Feb 2022

[Operator:]

Greetings and welcome to the Kimbell Royalty Partners Fourth 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 . As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Rick Black with Investor Relations. Thank you, Rick, and you may begin.

[Rick Black:]

Thank you, Operator. And good morning, everyone. Welcome to the Kimbell Royalty Partners conference call to review financial and operational results for the fourth quarter and year-end 2021. 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 KimballRP.com. Information recorded on this call speaks only as of today, February 24th, 2022. So please, be advised that any time-sensitive information may no longer be accurate as of the date of any replay, listening, or transcript reading. I would also like to remind you that the statements made today's discussion 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, 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 disclosures on forward-looking statements. These factors, as well as 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 today's earnings press release. Kimbell assumes no obligation to publicly update or revise any forward-looking statements. Now, I would like to turn the call over to Robert Ravnaas, Kimbell Royalty Partners, Chairman and Chief Executive Officer. Bob.

[Robert Ravnaas:]

Thank you, Rick. And good morning, everyone. We appreciate you joining us on the call this morning. With me today are several members of our senior management team, including Davis Ravnaas, our President and Chief Financial Officer, Matt Daly, our Chief Operating Officer, and Blayne Rhynsburger, our Controller. I will begin today's discussion by providing comments about the year in the quarter before turning the call over to Davis, to walk you through our financials in more detail. We are very pleased with the company's performance in 2021. This year marked another very strong year of new milestones for Kimbell, including multiple records for production, revenue, adjusted EBITDA, distributable cash flow per unit and net income. We also completed a highly attractive and accretive acquisition in December, increased the company's borrowing base, and elected commitment on the credit facility, increased our PDP reserves and completed the full redemption of the Series A preferred stock. In addition, and perhaps most importantly, I'm very proud of the release of our detailed portfolio review in May, which identified approximately 19 years of drilling inventory at 4.5 net wells completed per year. The level of which we believe our production remains flat. Finally, we paid out $1.14 in tax advantage quarterly distributions in 2021, and paid down approximately $23.3 million on our credit facility by allocating 25% of cash available for distribution, for debt pay down. Turning now to the fourth quarter, we achieved record, oil, natural gas, and natural grass liquids, revenue, and net income. As of December 31, 2021, Kimbell had 61 rigs actively drilling on our acreage, up from 60 rigs in the third quarter, and representing 10.7% market share of all rigs drilling in the continental United States. Tailwinds continue in the global energy sector and fundamentals across the U.S. energy complex continue to improve. Inventory levels are low. Rig count growth is tepid and operators continue to focus on balance sheet strength and free cash flow generation. Having said that, we do see drilling activity from private operators outpacing that of public company operators as they move more quickly to capitalize on higher commodity pricing and build scale. As of the end of the fourth quarter, private operators comprised 43% and public operators 57% of our active rig count, we were positively impacted by surging -- surging commodity prices, especially natural gas which contributed to our record quarter and the operational momentum we experienced in the second half of 2021 as Kimbell in an excellent position entering 2022. The oil and natural gas royalty sector is particularly well positioned to benefit from the inflationary cycle that has recently accelerated in the U.S. since royalty companies participate in the upside from commodity price inflation and do not experienced a significant service cost inflation currently impacting the upstream sectors. As we enter 2022, we see a bright future as we continue to act as a major consolidator in the U.S. oil and natural gas royalty sector. The asset class for mineral and royalties is enormous at over 700 billion in market size with only a handful of public entities in the U.S. and Canada that have the financial resources, infrastructure, and technical expertise to complete large-scale multi-basin acquisitions. We believe that we are still in the early innings of this consolidation, and will actively seek out targets that fit within our stringent acquisition profile. Furthermore, all data points from the U.S. land rig count, which is still well below pre -pandemic, levels to commentary for major EMPs indicate U.S. oil production will once again be roughly flat during 2022. Our current view of this new world, is that production stability and flat decline rates will be the new theme of energy investing rather than the hyper-growth models of the past. With our high-quality, low PDP decline and diversified royalty portfolio. Kimbell was built for these conditions. We're very excited about the opportunities to expand on the future and deliver unit holder value for years to come. And with that, I'll now turn the call over to Davis.

[Davis Ravnaas:]

Thanks Bob, and good morning, everyone. We are very pleased to report record performance during both the year and the fourth quarter. In addition, today we are also providing our full-year 2022 guidance. Beginning with the fourth quarter, total revenues were a record $55.7 million, and net income was a record $30.7 million. Net income attributable to common units was also a record at $20 million or $0.46 per common unit. Based on sustained positive trends and cash flows in the quarter, we announced a cash distribution of $0.37. As we have done in previous quarters, the company will utilize 25% of its Q4 cash available for distribution to pay down a portion of the credit facility. Since May 2020, excluding the expected upcoming pay down from the remaining 25% of Q4 2021 projected cash available for distribution. Kimbell's has paid down approximately $44.5 million an outstanding borrowings under its secured revolving credit facility by allocating a portion of its cash available for distribution for debt pay down, and we expect this capital allocation strategy to continue. For the fourth quarter of 2021, the company's oil, natural gas, and natural gas liquids revenues were $52.2 million up 9.7% sequentially from Q3. This primarily reflected a higher fourth quarter average realized prices of $74.79 per barrel of oil, $4.19 per Mcf of natural gas, and $38.31 per barrel of NGLs, for a combined per BOE pricing of $39.11. Fourth quarter 2021, average daily production was $14,479 BOE per day on a 61 basis, which consisted of 456 BOE per day. Related to prior-period production recognized during the quarter and 14, 023 BOE per day of run rate production. The prior period production recognized this quarter was primarily due to new wells outperforming estimates. The fourth quarter run rate daily production includes 25 days of production from the $57 million acquisition closed on December 7th, 2021. Including a full Q4 2021 impact of production which the company was entitled to receive, run rate production was 14,521 BOE per day, again, on a six to one basis. We had 61 active rigs at the end of the fourth quarter, led by the Permian and Haynesville basins, which was up from 60 rigs at the end of Q3. Our continental U.S. rig count represents 10.7% of total market share for rig drilling in the Lower 48. As of December 31st, Kimbell's major properties at 794 gross and 2.25 net drilled, but uncompleted wells. As well as 670 gross and 2.48 net permits on a day acreage. This data does not include our minor properties, which we estimate could add an additional 20% to the DUC and permit inventory. On the expense side, general and administrative expenses were $6.7 million in the quarter, $4.3 million of which was cash G&A, or $3.33 per BOE. Unit based compensation in the fourth quarter of 2021, which is a non-cash G&A expense was $2.4 million or $1.89 per BOE. Fourth-quarter consolidated adjusted EBITDA was $32.8 billion, compared to $33 million in the prior quarter. You will find a reconciliation of both consolidated adjusted EBITDA and cash available for distribution at the end of our news release. Commenting further on our balance sheet and liquidity, on December 7th, 2021, the borrowing base and aggregate commitments on our secured revolving credit facility, were increased from $265 million to $275 million in connection with our fall re-determination. As of December 31, 2021, Kimbell had approximately $217.1 million in debt outstanding under its secured revolving credit facility. Had net debt to fourth quarter 2021, trailing 12 month consolidated adjusted EBITDA of approximately 1.7 times, and was in compliance with all financial covenants under its secured revolving credit facility. Kimbell had approximately $57.9 billion in undrawn capacity under its secured revolving credit facility. We're also pleased to have redeemed all remaining Series A cumulative convertible preferred units outstanding during the quarter, further simplifying the capital structure and reducing our cost of capital. Today, we are providing full-year 2022 guidance, which includes production guidance that, at its midpoint, reflects roughly flat daily production relative to our fourth quarter 2021 daily production, including a full quarter of the acquired production. We believe that most operators will focus their 2022 budgets on resting declines with a goal of flat to low single-digit production growth in 2022. We do not expect Kimbell to pay a material amount of federal income taxes for 2021 through 2027. And also important, we expect that substantially all cash distributions paid to common unit holders from 2022 to 2025 will be free of dividend income taxes and instead be considered a return of capital. We are unaware of any oil and gas company that has given this level of detail with their tax guidance and believe it provides a highly compelling competitive advantage in terms of generating superior after-tax returns to our unit holders. We believe that Kimbell offers a compelling investment opportunity, a robust distribution yield, and continued opportunities for growth. Kimbell's current asset base, as well as global energy sector Tailwinds across the broader U.S. energy sector continues to give us confidence in our ability to generate strong operational results and cash distributions for unit holders for many years to come. As Bob said, we believe this energy up-cycle will last longer than previous cycles, and forecasted modest increases in investments by U.S. operators expected in 2022 will only serve to replace the significant depletion in ducks rather than lead to much in the way of new production growth in the continental United States next year. Kimbell, unlike many others in this sector, was built for this environment and will significantly benefit from commodity price inflation without significant downside risk of service cost inflation, which is truly unique to our model. Kimbell will continue with our goal and focus of generating long-term value and cash generation with transparency to investors for many years to come. Lastly, as I'm sure, all of you saw earlier this month, the Kimbell sponsored SPAC, Kimbell Tiger Acquisition Corporation, successfully priced at initial public offering on the New York Stock Exchange, raising approximately $230 million. Kimbell Tiger intends to search for a target company in the energy and natural resources industry in North America. The company is led by Zack Juan, who has extensive operating experience in the E&P sector, including both conventional and unconventional reservoirs. With that, Operator, we are now ready for questions.

[Operator:]

Thank you. We will now be conducting a question-and-answer session. . One moment, please, while we pull for questions. And our first question comes from the line of John Freeman with Raymond James. Please proceed with your question.

[John Freeman:]

Hi, guys.

[Davis Ravnaas:]

Morning, John.

[Rick Black:]

Hey, John.

[John Freeman:]

The first question I had was now that we've got the leverage ratio with a one handle on it, and just given the obviously favorable commodity environment we've got this year where that ratio is going to come screaming lower over the next 12 months. I know that for '22 you'll maintain that 75% payout ratio. Do you think longer-term, is that the right payout ratio or do you think of it as somehow tied to that leverage ratio as that goes lower, the sub one times or whatever, that that payout ratio starts to go up or should just assume 75 the right number?

[Davis Ravnaas:]

John, thanks for that question. This is probably the topic that we discuss at the board level, more than anything else. I think you're right that for the duration of this year, we're going to maintain 75%. I think you're spot on in pointing out that the ratio is just going to continue to accelerate downward as we have a greater amount of cash flow and therefore, 25% of that cash flow is just going to create an additional incremental drop in leverage over time. I think that a couple of years a ago, maybe 5 to 10 years ago, if you had asked us what an appropriate leverage level would be for royalty business, we would've said anything less than two times debt to EBITDA. That used to be kind of the general rule of thumb for the upstream E&P businesses, so certainly for a mineral company without CapEx obligations less than 2x seems perfectly reasonable. I think as we look at the environment, as we look at the best-in-class governance on E&P companies, I think that's changed now to be probably less than one-times. I don't think we're too far away from that happening and then once that does happen, once we get close to that one-times point, I think that becomes a really important point of discussion even more so than it is today at the board level. And I just said that no decisions have been made, but everything's on the table, and I could see us increasing payout ratio, I could see us not increasing payout ratio and trying to get that all the way down to zero. That might be a little bit too conservative. So I just say we -- that's vague at this point, but we're certainly aware of the importance of that issue and certainly solicit investor feedback as to the best course of action and their preference, so.

[John Freeman:]

I appreciate that. The other thing I was looking at I know in this quarter is all once again, had a prior period production that they got recognized. Again due to the wells outperforming estimates, and I was looking at the last couple of years over leases and it looks like you've now had about three quarters in a row where you've had this, this upward revision on the prior period recognition after going about a year with without necessarily having that, I went back to -- it looks like before 2Q'21, the loss of production was like 2Q of '20. And so I guess I'm just trying to understand, is there something that you-all are doing that's better capturing that data? Is there something about the mix of where the production is coming from? A certain field? Or am I just reading too much into this, which wouldn't be the first time I've done that?

[Davis Ravnaas:]

No, no, no. Great insight per usual. And I'll turn it over to Blayne Rhynsburger, our accountant, in a moment. My sense would be that we've added some substantial high-interest units through acquisitions over the last couple of years. We had muted natural gas drilling, in particular in the Haynesville, an area where we do have some very nice high enterprise. Prior to, I would say probably the last 18 months, drilling there really hasn't been particularly robust. As that starts to kick in, we've -- we've had -- we're going to have a little bit more, I would say in the way of quarterly fluctuations and production. So I wouldn't be surprised to see us go up a couple percent, a quarter, and then maybe down 0.5% or 1% the next quarter because of just natural decline setting in on those high-interest wells. So I think part of it is a little bit of a production mix as we've grown and added unconventional assets, I think that's part of it. Blayne, do you have any other additional -- I don't think it's a change in the methodology, but Blayne, any -- well first of all, I will just point out, we've obviously been conservative, right? Because we've been making upward revisions over time. So I think that's a good thing. But Blayne, any thoughts that you'd like to add that discussion?

[Blayne Rhynsburger:]

Yes. Yes, John, that's a good question. I knew this was going to come up. We've invested that I'd say the first part of your question to comment on Q4. Specifically, we had 4 EOG wells in Lea County, New Mexico that we got paid on this quarter with production dating back to 2020, and that's been a theme that we've seen the last couple of quarters like you pointed out. And really, I would say the reason that's happened like we mentioned in the last few quarters, is we have invested land resources on the personnel side where their sole responsibility is to find operators who have us unnecessarily spend. And so really we invested in that a couple of years ago and it's paid off every quarter since then and I think you'll continue to see that going forward. On top of what Davis mentioned, we are also conservative in our revenue accruals, but I would say the main reason for that is that we've hired personnel to go get us out of the spend where we shouldn't be.

[John Freeman:]

That's great. I appreciate all that, guys and very happy to see the market finally, a peripheral, really rewarding your stock these last few weeks. So hopefully that continues. Thanks again, guys.

[Davis Ravnaas:]

Grateful to you, John. Thanks for the questions.

[Robert Ravnaas:]

Yes, thanks, John.

[Operator:]

Our next question comes from the line of Derrick Whitfield with Stifel, please proceed with your question.

[Derrick Whitfield:]

Thanks. And good morning to all.

[Davis Ravnaas:]

Hey, Derrick.

[Derrick Whitfield:]

Over the last few months, we've seen a few larger deals announced in the mineral space, including the one you guys closed late last year. How would you characterize the current competitive landscape at present for both smaller and larger, and the opportunities, and where do you see the greatest opportunity for .

[Davis Ravnaas:]

Great question. I guess I'll start out by saying that M&A, not just from us, I think you'll hear this from our peers, has been really difficult from the public standpoint. I think all of us as a sector are undervalued. And obviously that dictates the amount at which we can pay some of these private folks to sell us their assets. So last year, you're right, we did have some co larger transactions, I think they're probably three large ones including ourselves, from our peers and by larger mean over, let's call it $50 million in size. I think -- frankly; I think last year was disappointing on the M&A front. I think we and our peers all hope to be doing more in the way of acquisitions. But the challenge, Derrick, I mean, as you're keenly aware, mastering the numbers here, we're trading at what? 13%, 14% to 15% free cash flow yield depending on what the stock price does. And so, and that's not too far off from where some of our other peers you're trading to, so when you are trading at seven times free cash flow yield on a fully distributed basis or wherever we are day-to-day, obviously, that puts a pretty low multiple on the cash flow that we can pay for the private operators -- for the private buyers. So that's really been the challenge is just the cost of capital has been higher than we'd hoped. I think over time, the reality is that the bar to go public as a mineral company just continues to get higher and higher. So a lot of these portfolios in the, let's call it $500 to $550 -- or sorry, $500 million to $750 million range, I think they are going to have to look for exits that involve merging in to one of the public entities. I think that they're going to have to take a substantial amount of stock in order to get that deal done. I don't think any of the -- I don't think ourselves or any of our peers would like to even if we could, issue stock in that amount for cash. So I think it's going to be -- a lot of this is going to be finding the right partners on the private side that are willing to accept stock as currency. We've been fortunate that we've been able to do that successfully in the past. The big haymaker deal we did years ago that was about half stock. We had a great partnership, and we continue to have a great partnership with that management team and their sponsors. We did a deal with NCAP, on Phillips, it was 100% stock. We did a deal with NGP that out a substantial stock portion. So I think that trend will continue. I think the biggest opportunity set is the larger acquisitions. I think anything over 50 million becomes more challenging for private equity portfolio companies to pull the trigger on, and that isn't to say that there's exceptions to that. There are certainly very deep-pocketed private mineral buyers, but I think once you start getting to the higher dollar amounts, there's just fewer and fewer people that are capable of biting off those chunks. There are some deals in the marketplace right now that we're looking at. I just think the bar is high to get something done. We're not -- we don't need to do any deals. We're in a great spot right now. I mean, I think we want to continue to grow. We want to get the company bigger. We want to realize economies of scale and increase float and liquidity and do accretive M&A. But we're not going to go and do something that's stupid. So I'd say that, it's challenging to successfully pull things off, but I think that if something does happen it's going to be on the larger end as opposed to the smaller. I think that you still see a lot of competition in the smaller deals, particularly in the Permian.

[Derrick Whitfield:]

Got it, that makes complete sense. And for my follow-up, referencing Slide 13, you guys have historically performed well with your rig count, market share statistics, and certainly that's a testament to your asset quality. While Q4 remains strong, is there anything you're seeing in the data that would explain the slight dip in Q4. And do you have a view on maybe the areas where you're outperforming at market share measures and where you're potentially underperforming?

[Davis Ravnaas:]

That's a good question. I'll turn that over to my team on the latter question. I'd say on Q4, look, we never like to have a quarter where you have a little bit of a drop in production. The reality is we're a royalty business and you see like in Q3, for example, that was the best quarter we've ever had. Production was outstanding. We did across the board with great results. I think Q4 was setting up for a tough, sequential quarter-over-quarter comparison. And again, you're going to see some lumpiness with Big Wells coming on and that's going to scream production higher for that quarter, and then it's going to go lower. We do have line of sight on some high-interest wells that we knock-on would hope we start to get some data on some cash flow on here in the near term I wouldn't say there's any major theme that's dictating anything other than to say that we're seeing operators maintain more discipline across the board, focusing more on keeping production rates flat to growing very slightly. But is there anybody matter, Blayne, do you want to jump in?

[Blayne Rhynsburger:]

Yeah, I've got some commentaries.

[Davis Ravnaas:]

On maturities? Terrific.

[Blayne Rhynsburger:]

Yes. So basically, going back to Q120, you see that on Slide 13, the rig count market share has ranged between roughly call it 11% or 12% every quarter. In Q4, it was 10.7%, and in Q3 it was 11.7%. So again, the 11% to 12% market share. The rig count at year-end was 570 as of today, the Baker Hughes rig count is 630, it's at 60 rigs. Today, we would expect to maintain that market share of 11% to 12% into Q1, and therefore, our rig count should go up based on the rig count going up. In terms of any reading into it further, the nice thing about our rig count is that we have 57% public, 43% private operators on it. the private operators have been the most aggressive drilling continuously through even during the pandemic we had -- we have private operators are drilling back when was oil trading at 30 because they're having to drill to build scale, they're having to drill to hold leases. So having more privates is actually, especially private equity back, which we have, has been nice in terms of the stability on the rig count, though we expect it to -- all these be equal to grow over time, the rig count. And we like the mix of public and private as well.

[Derrick Whitfield:]

Great point. You guys actually might have the highest within the mineral space on the private side as well. But very helpful guys and thanks for your time.

[Davis Ravnaas:]

Thanks, Derrick. Good question.

[Robert Ravnaas:]

Yes. Thank you.

[Operator:]

Our next question comes from the line if Christopher Baker with Credid.

[Christopher Baker:]

Hey, good morning.

[Davis Ravnaas:]

Morning, Chris.

[Christopher Baker:]

Most of my questions have --

[Robert Ravnaas:]

Hey, Chris.

[Christopher Baker:]

How you doing?

[Robert Ravnaas:]

Good.

[Christopher Baker:]

Most of my questions have been answered, but I just wanted to ask on M&A maybe in a bit of a different way. Any color around gas versus oil focused opportunities, just in terms of the opportunities that you see in front of you today?

[Davis Ravnaas:]

So I'll start by just reiterating which I know you know but for the benefit of everybody else listening. just reiterating our philosophy on gas versus oil. So we are agnostic to commodity. We've always been that way since we started the business back in 1998. What we look for is quality and value. So we can get a natural gas deal down in the Haynesville, and deliver a higher return to our investors. We'd rather do that to get an oilier deal in the Permian or the Eagle Ford. Just emphasize liquids. So we're always looking for what's the most efficient way that we can deploy capital. I think as we look at the opportunity set today, I don't know if I'd say that there's -- they were starting to see more opportunities, one way or the other. Rand or Matt or Bob, I might ask for you-all's input, but I'm not seeing -- as I look at our pipeline of acquisitions that we're actively evaluating, I'd say it's a pretty mixed group. I'd say -- I guess I'd say over the last 18 months, we've seen a little bit more activity in the Haynesville, understandably, and as natural gas prices have come up from such depressed levels over time, anything than anybody else would add, I'd it's a pretty fair split between the commodities overall. And I'd say action ability, I'd say is useful as well.

[Robert Ravnaas:]

So, yeah. And I'd say also we're seeing and fortunately more multi-basin packages, which are our specialty that we can underwrite multi - based in, more complex --

[Davis Ravnaas:]

Great point.

[Christopher Baker:]

That's good to see.

[Robert Ravnaas:]

The other -- this is Bob. Sorry. Didn't mean to talk over you this. Bob, I just like to add to that it goes without saying but we haven't said it yet on this phone call that we still continue to see tremendous amount of deal flow, both large and small deals. So we're on the pipeline, we're currently evaluating probably 15 deals to 20 deals. And that is true all through the year. So it shows how we are selectively are. We announced one large deal last year, but we're constantly looking at deals, evaluating deals, and are in the market.

[Christopher Baker:]

That's great color, thank you. And just as a follow-up, great to see the continued progress on the Kimbell Tiger front. How should we think about the broader strategic implications for Kimbell as a whole?

[Davis Ravnaas:]

Sure, Chris. Thanks for teeing that up. So I'll go into more detail. We can finally talk about this more, given that we've priced the SPAC. So the mandate is broad. The goal is to find a cash flow generative business at a valuation that's very attractive. So a real company, that generates real cash flows. And obviously, to the extent we are successful in De-SPAC-ing, as you're aware, Chris, on how stacks work. There's a very nice windfall for KRP unit holders in the event that we're able to successfully do that. So that's on what it means directly for our investors. What it means, perhaps even more importantly from a strategic level is what we'd really love to do is find a wonderful asset or set of assets that are operated in nature to form a relationship with an operating business whereby we can have for the first time developmental line of sight. So there are a lot of wonderful things, many, many wonderful things about the mineral business that apply to certainly ourselves but all of our peers, obviously. That one of the biggest risks to the mineral model obviously is lack of developmental control. So to the extent that we could form a relationship with a sister Company or an operator that we defect with less, whereby we could buy either minerals alongside them or carve out an override from high net revenue interest properties and I'll remind you that we love convinced. We love to predictability of the cash flows, one benefit of conventional assets is that typically those leases were struck, at much lower royalty rates. So it's not uncommon to see 87.5% nets or higher in some of these really wonderful fields that have been producing effectively the same number of amount of hydrocarbons today as they were when I was born. So, the ability to -- it opens up a whole new strategic direction for Kimbell, which could be national in scale, which is, let's buy an override alongside an operator. If we can joint bid things, we should be able to achieve a more competitive cost of capital because obviously, we as a mineral company could do an equity raise at a lower cost of capital that an operator can. And so if you could share that net revenue stream in such a way that doesn't denigrate the drilling economics, but allows us to grow and expand. And oh, by the way, have Linus site out of the development of the asset, that would just be just the holy grail outcome for the company. So that's what we're excited about. It's going to be challenging, the de -stacking environment is always very hard. So just want to set the expectation there, but we're working as hard as we possibly can on that front and it could be pretty, pretty exciting for all of us if we're successful.

[Christopher Baker:]

Great, I appreciate the color, guys.

[Davis Ravnaas:]

Thank you.

[Operator:]

And our next question comes from the line of TJ Schultz with RBC, please proceed with your questions.

[TJ Schultz:]

Hey, good morning. Maybe just a follow-up.

[Davis Ravnaas:]

Good morning TJ.

[TJ Schultz:]

How are you doing on.

[Davis Ravnaas:]

Doing good.

[TJ Schultz:]

On the Tiger deal. So I mean, do you pause? M&A or potential M&A activity right now and Kimbell Royalty until you of get out.

[Davis Ravnaas:]

No.

[TJ Schultz:]

Okay.

[Davis Ravnaas:]

No, no, no. So very important. So nothing changes at Kimbell. Exact same, but very important to us, we wouldn't have done this if we didn't find a manager who has a management team that he's identified once we find an asset to run that business. So no, day jobs, the exact same, allocation of duties, the exact same. Not a distraction whatsoever. Really, just given the fact that we're looking at 15 to 20 deals at any given time. So our peers by the way, that's how minerals. Businesses work. This is just another one of those potential acquisitions that we're looking at. We want to continue to Kimbell machine the same as it's been since we went -- since we founded the business 20 years ago. This is just a pretty exciting strategic direction that we're allocating resources, that we've brought on for that purpose specifically.

[TJ Schultz:]

Okay. Now that makes sense. Then on production guidance, appreciate that. Maybe if you could just expand on drivers that would push you to the low-end or high-end of that range at management, commodity and activity-driven. So would you say that the commodity prices, maybe your bias a bit to the higher-end, and then just confirming there's no view on future acquisitions built-in into that guidance. Thanks.

[Davis Ravnaas:]

I'll turn it over to Matt after I make just a couple of quick comments. No, acquisitions are never built into our guidance. We've always tried to be very conservative with our guidance and that's for two reasons. One, we like to we like to set expectations and then meet or exceed them, obviously, as opposed to setting a high bar and then failing to meet it. I would say that as a royalty business, it's even more important to be conservative, right? Because we don't have developmental control over the asset. It can sometimes be -- you can have acreage in the best part of Midland County and oil prices could be $100, and for whatever reason, the operator on that acreage doesn't want to increase drilling activity. And so you're obviously at the behest of the Operator. I'd say that in this environment, you're still seeing operators stick to what I think, for good reason, stick to plans to maintain that fiscal discipline. It will be interesting to see what happens and I am sure this is something you think about all the time TJ, but it will be interesting to see what happens in this higher-priced oil environment. Are they really going to stick to maintenance CapEx or are they going to ramp it up? I'd say that overall though; our goal is just to be conservative with our guidance. We'll never try to put anything out there that's heroic. So I would not be surprised if we exceeded it. And I'm actually happy to see that almost all of our peers do the same in terms of setting conservative guidance. But, Matt, I'll turn it over to you for any additional thoughts.

[Matt Daly:]

No, no, I agree with all that. I mean, on the low end, this is obvious, you have a big correction in commodity prices or another flare up in COVID; that could probably be in play. And on the high-end, we are still in the backward dated curve right now, at the spot price of 97, plays out throughout the year. Right now we're looking at oil drop into 84 later in the year. Silver are very good, but if the prices stay where they are now throughout the year, the rig count will keep continue to grow and you'd expect maybe on the high end there. And also the Haynesville has been, with gas prices where they are, we have some very high net revenue interest wells in the Haynesville that could also be a big area for us on the upside. As David said, we're being conservative with this guidance, we feel good about it for the year.

[TJ Schultz:]

Yes. All makes sense. Appreciate it. Thank you.

[Davis Ravnaas:]

Thanks, TJ.

[Operator:]

And there are no further questions at this time. And I would like to turn the floor back over to management for closing remarks.

[Rick Black:]

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

[Operator:]

And ladies and gentlemen, thank you for your participation. This does concludes the teleconference. You may disconnect your lines and have a wonderful day.