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Fort Worth-based Kimbell Royalty Partners LP, an owner of oil and gas mineral and royalty interests across 20 states, announced May 28 it has agreed to acquire the mineral and royalty interests held by Houston-based Haymaker Minerals & Royalties LLC and Haymaker Resources LP.
The transaction is valued at approximately $404 million, consisting of $210 million in cash and 10 million common units of Kimbell, valued at $194 million. The boards of Kimbell and Haymaker have approved the deal, which is expected to close in the third quarter with an effective date of April 1, 2018.
The cash portion of the transaction will be partially funded through a private placement of 7 percent Series A Preferred Units to an affiliate of Apollo Global Management LLC for gross proceeds of $110 million. In conjunction with the closing of the acquisition, Kimbell has received commitments for a fully-underwritten $200 million revolving credit facility with Frost Bank, Wells Fargo Bank and Credit Suisse AG. The borrowing base of Kimbell’s current revolving credit facility is $100 million, which will increase to $200 million upon closing of the acquisition. At the closing, the company will have approximately $64 million of availability under its new revolving credit facility, providing for significant liquidity.
Following the closing of the acquisition, Haymaker’s private equity sponsors, KKR & Co. L.P. and Kayne Anderson Capital Advisors L.P., along with Haymaker management, will collectively own approximately 37 percent of the then outstanding common units of Kimbell.
“This is a transformative acquisition for our company which we expect to deliver significant value and benefits through both increased scale and significant operating leverage that will drive improved profitability,” said Bob Ravnaas, chairman and CEO of Kimbell in a news release. “Through this combination of highly complementary minerals portfolios, Kimbell is uniquely positioned to be a major participant in the best-performing, highest-growth oil and gas basins in the Lower 48. We expect the acquisition to be immediately accretive to distributable cash flow per unit and look forward to continued successes in this new and exciting chapter for Kimbell.”
Key parts of the deal, according to a Kimbell news release:
• Pro forma free cash flow yield of 12% drives accretion to distributable cash flow per unit of 20% based on first quarter 2018 results and using run-rate G&A
• Increases average daily net production per Kimbell unit for first quarter 2018 by more than 50% on pro forma basis
• Highly complementary Haymaker acreage increases Kimbell’s net royalty acres per unit by 10% on a pro forma basis
• 52% of the combined net royalty acreage is in the high growth Permian and Mid-Continent areas
• Conservatively financed with estimated pro forma net debt to EBITDA below 2.0×5 and ample liquidity under new revolving credit facility
Kimbell also said it plans a conversion to a taxable entity that “will enable it to target a significantly larger investor base both domestic and international, increase its liquidity and support its continued growth and consolidation strategy,” according to the news release.
KKR and Kayne, together with Haymaker management, as well as Apollo have agreed to vote in favor of the company’s proposed election to change to a taxable entity, with the precise structure to be determined by the Board of Directors of Kimbell.
Credit Suisse Securities (USA) LLC acted as exclusive financial advisor and sole placement agent on the Series A Preferred Units to Kimbell and Baker Botts L.L.P. acted as legal counsel to Kimbell. UBS Investment Bank acted as exclusive capital markets advisor to Kimbell in connection with the election to change to a taxable entity. RBC Richardson Barr acted as exclusive financial advisor to Haymaker, Kirkland & Ellis LLP acted as legal counsel to KKR and Haymaker and DLA Piper LLP acted as legal counsel to Kayne and Haymaker. Kirkland & Ellis LLP also represented Apollo in connection with the Series A Preferred Units offering.
Following the closing, Kimbell will have an 11.1 million gross acre position with a total of 73 active rigs on its properties. The acquisition further solidifies Kimbell’s position in the Permian by adding mineral interests in the Midland Basin and further strengthens its Mid-Continent position, which includes the SCOOP/STACK areas. Kimbell will remain a liquids-focused company with oil and NGLs accounting for approximately 67 percent of estimated pro forma 1Q 2018 production.
Kimbell Royalty Partners was formed by a combination of mineral interests of the Kimbell Art Foundation, multiple mineral and royalty investment partnerships and a number of high net worth Texas families. Kimbell Royalty Partners went public in 2017, trading on the NYSE under the KRP symbol.