Kimbell Royalty Partners (KRP) risk factors, FY2024 10-K

Risks Related to Our Organization and Structure

1. 01We may not have sufficient available cash to pay any quarterly distribution on our common units
2. 02The amount of cash we have available for distribution to holders of our common units depends primarily on our cash flow and not solely on profitability, which may prevent us from paying cash distributions during periods when we record net income
3. 03Our partnership agreement requires that we distribute all of our available cash, which could limit our ability to grow and make acquisitions
4. 04The limited liability company agreement of our General Partner contains restrictive covenants, governance and other provisions that may restrict our ability to pursue our business strategies
5. 05make any acquisition opportunities available to us, except as provided for under the contribution agreement entered into in connection with our IPO
6. 06Our General Partner intends to limit its liability regarding our obligations
7. 07Our partnership agreement replaces fiduciary duties applicable to a corporation with contractual duties and restricts the remedies available to our unitholders for actions taken by our General Partner that might otherwise constitute breaches of fiduciary duty
8. 08Our partnership agreement replaces our General Partner’s fiduciary duties to our unitholders with contractual standards governing its duties
9. 09Holders of our common units have limited voting rights and are not entitled to elect our General Partner or its directors, which could reduce the price at which our common units will trade
10. 10Even if our unitholders are dissatisfied, they cannot initially remove our General Partner without its consent
11. 11Our partnership agreement restricts the voting rights of unitholders owning 20% or more of the interests in any class of our securities, subject to certain exceptions
12. 12Our General Partner interest or the control of our General Partner may be transferred to a third party without unitholder consent
13. 13Our sole cash-generating asset is our membership interest in the Operating Company, and we are accordingly dependent upon distributions from the Operating Company to pay taxes and cover our expenses and to make distributions to our unitholders
14. 14Unitholders may have liability to repay distributions and in certain circumstances may be personally liable for the obligations of the partnership
15. 15Increases in interest rates may cause the market price of our common units to decline
16. 16Our General Partner has a call right that may require unitholders to sell their units at an undesirable time or price
17. 17We may issue additional common units and other equity interests ranking junior to the Series A preferred units without unitholder approval, which would dilute existing common unitholder ownership interests
18. 18There are no limitations in our partnership agreement on our ability to issue units ranking senior in right of distributions or liquidation to our common units
19. 19The market price of our common units could be materially adversely affected by sales of substantial amounts of our common units in the public or private markets, including sales by our Sponsors, the Contributing Parties and other selling unitholders pursuant to any registration rights agreements
20. 20The price of our common units may fluctuate significantly, and unitholders could lose all or part of their investment
21. 21The New York Stock Exchange (the “NYSE”) does not require a publicly traded partnership like us to comply with certain of its corporate governance requirements
22. 22Our partnership agreement includes exclusive forum, venue and jurisdiction provisions. By acquiring an interest in us, a limited partner is irrevocably consenting to these provisions regarding claims, suits, actions or proceedings and submitting to the exclusive jurisdiction of Delaware courts
23. 23If a unitholder is an ineligible holder, the units of such unitholder may be subject to redemption
24. 24Our Series A preferred units have rights, preferences and privileges that are not held by, and are preferential to the rights of, holders of our common units
25. 25The terms of our Series A preferred units contain covenants that may limit our business flexibility

Risks Related to Economic Conditions and Our Industry

1. 26A deterioration in general economic, business or industry conditions would materially adversely affect our results of operations, financial condition and cash available for distribution on common units
2. 27Conservation measures and technological advances could reduce demand for oil and natural gas
3. 28Competition in the oil and natural gas industry is intense, which may adversely affect our operators’ ability to succeed
4. 29The results of exploratory drilling in shale plays will be subject to risks associated with drilling and completion techniques and drilling results may not meet our expectations for reserves or production
5. 30The marketability of our operators’ oil and natural gas production will depend in part upon the availability, proximity and capacity of transportation facilities, including gathering systems, trucks and pipelines, owned by third parties
6. 31Drilling for and producing oil and natural gas are high-risk activities with many uncertainties that may materially adversely affect our business, financial condition, results of operations and cash available for distribution on common units

Risks Related to Our Indebtedness and Derivatives

1. 32Our derivative activities could result in financial losses and reduce earnings
2. 33Restrictions in our secured revolving credit facility and future debt agreements could limit our growth and our ability to engage in certain activities, including our ability to pay distributions to our unitholders
3. 34Any significant reduction in our borrowing base under our secured revolving credit facility as a result of the periodic borrowing base redeterminations or otherwise may negatively impact our ability to fund our operations
4. 35Our debt levels may limit our flexibility to obtain additional financing and pursue other business opportunities

Risks Related to Our Operations

1. 36Our business is difficult to evaluate because we have made several significant acquisitions
2. 37We may not be able to terminate our leases if any of the operators of the properties in which we own mineral interests declare bankruptcy, and we may experience delays and be unable to replace operators that do not make royalty payments
3. 38Our future success depends on replacing reserves through acquisitions and the exploration and development activities of the operators of our properties
4. 39Our failure to successfully identify, complete and integrate acquisitions of properties or businesses would slow our growth and could materially adversely affect our results of operations and cash available for distribution on common units
5. 40commercially acceptable terms. Unless our operators further develop our existing properties, we will depend on acquisitions to grow our reserves, production and cash flow
6. 41Any acquisitions of additional mineral and royalty interests that we complete will be subject to substantial risks
7. 42If we are unable to make acquisitions on economically acceptable terms from our Sponsors, the Contributing Parties or third parties, our future growth will be limited
8. 43Project areas on our properties, which are in various stages of development, may not yield oil or natural gas in commercially viable quantities
9. 44Our estimated reserves are based on many assumptions that may prove to be inaccurate. Any material inaccuracies in these reserve estimates or underlying assumptions will materially affect the quantities and present value of our reserves
10. 45We do not intend to retain cash from our operations for replacement capital expenditures. Unless we replenish our oil and natural gas reserves, our cash generated from operations and our ability to pay distributions to our unitholders could be materially adversely affected
11. 46We rely on a few key individuals whose absence or loss could materially adversely affect our business
12. 47Loss of our or our operators’ information and computer systems could materially adversely affect our business
13. 48Title to the properties in which we have an interest may be impaired by title defects
14. 49The potential drilling locations identified by the operators of our properties are susceptible to uncertainties that could materially alter the occurrence or timing of their drilling
15. 50Acreage must be drilled before lease expiration, generally within three to five years, in order to hold the acreage by production. Our operators’ failure to drill sufficient wells to hold acreage may result in loss of the lease and prospective drilling opportunities
16. 51The unavailability, high cost, or shortages of rigs, equipment, raw materials, supplies or personnel may restrict or result in increased costs for operators related to developing and operating our properties
17. 52Operating hazards and uninsured risks may result in substantial losses to the operators of our properties, and any losses could materially adversely affect our results of operations and cash available for distribution on common units
18. 53If the operators of our properties suspend our right to receive royalty payments due to title or other issues, our business, financial condition, results of operations and cash available for distribution on common units may be adversely affected
19. 54We will be required to take write-downs of the carrying values of our proved properties if commodity prices decrease to a level such that the future cash flows discounted at 10% from our proved properties are less than their carrying value
20. 55the present value of estimated future net revenues. An impairment recognized in one period may not be reversed in a subsequent period even if higher oil and natural gas prices increase the cost center ceiling applicable to the subsequent period
21. 56We may incur substantial income tax liabilities on our allocable share of income from the Operating Company
22. 57Taxable gain or loss on the sale of our common units could be more or less than expected
23. 58Our tax liability may be greater than expected if we do not generate sufficient depletion deductions to offset our taxable income and reduce our tax liability
24. 59Future tax legislation could have an adverse impact on our cash tax liabilities, results of operations and financial condition, which could affect our cash available for distribution on common units and the value of our common units
25. 60Certain decreases in the price of our common units could adversely affect our amount of cash available for distribution on common units
26. 61The portion of our distributions taxable as dividends may be greater than expected
27. 62If the Operating Company were to become a publicly traded partnership taxable as a corporation for United States federal income tax purposes, we and the Operating Company might be subject to potentially significant tax inefficiencies

Legal, Environmental and Regulatory Risks

1. 63Oil and natural gas operations are subject to various governmental laws and regulations. Compliance with these laws and regulations can be burdensome and expensive, and failure to comply could result in significant liabilities, which could reduce our cash available for distribution on common units
2. 64Additionally, state and federal regulatory authorities may expand or alter applicable pipeline safety laws and regulations, compliance with which may require increased capital costs on the part of our operators and third party downstream natural gas transporters associated with production from our properties
3. 65The operators of our properties are subject to complex and evolving environmental and occupational health and safety laws and regulations. As a result, they may incur significant delays, costs and liabilities that could materially adversely affect our business and financial condition
4. 66Federal and state legislative and regulatory initiatives relating to hydraulic fracturing could result in increased costs and additional operating restrictions or delays
5. 67The adoption of climate change legislation and regulations could result in increased operating costs and reduced demand for the oil and natural gas that our operators produce
6. 68Increased costs of capital could materially adversely affect our business
7. 69A terrorist attack or armed conflict could harm our business
8. 70Cyber-attacks targeting systems and infrastructure used by the oil and gas industry and related regulations may adversely impact our operations and, if we are unable to obtain and maintain adequate protection for our data, our business may be harmed
9. 71We identified a material weakness in our internal control over financial reporting that could have resulted in material misstatements in our financial statements and cause us to fail to meet our reporting and financial obligations
10. 72Ineffective internal controls could impact our business and operating results