Kimbell Royalty Partners, LP (KRP) Q2 2019 Earnings Call Transcript

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Kimbell Royalty Partners, LP  (NYSE:KRP)
Q2 2019 Earnings Call
Aug. 08, 2019, 11:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Greetings, and welcome to the Kimbell Royalty Partners Second Quarter Earnings Conference Call. [Operator Instructions] It is now my pleasure to introduce your host, Rick Black, Investor Relations. Mr Black, you may begin.

Rick BlackInvestor Relations

Thank you, operator, and good morning, everyone. Welcome to the Kimbell Royalty Partners conference call to review financial and operational results for the second quarter 2019. 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, August 8, 2019. 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 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 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 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 today’s 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 Ravines, Kimbell Royalty Partners’ Chairman and Chief Executive Officer. Bob?

Robert Dean RavnaasChairman and Chief Executive Officer

Thank you, Rick, and good morning, everyone. I’m here with several other members of our senior management team, including Davis Ravines, our President and Chief Financial Officer; Matt Daly, our Chief Operating Officer; and Blayne Rhynsburger, our Controller. I would like to begin by discussing our performance in the second quarter, followed by our expectations going forward. Then I’ll ask Davis to cover our financial performance in more detail. After that, we’ll take your questions? We are very pleased with the cash flow generation, production stability and growth potential across our asset base, especially in a challenging time for many exploration and production companies operating in the U.S. Our rig count remained flat between Q1 and Q2 at 89 rigs and our market share in the entire lower 48 drilling fleet increased to 9.5% from 9.1%, a testament to the quality of our acreage and operators.

For the quarter, we achieved record high consolidated adjusted EBITDA of $21.6 million, up from $16.1 million in the first quarter and up from $7.7 million in the second quarter last year. Oil and natural gas and NGL revenues were $27.9 million, up 22% sequentially, primarily due to a full quarter of Philips revenue, improved differentials and the receipt of over $1 million in lease bonuses. Second quarter average daily production of 11,807 Boe per day was approximately flat compared to the first quarter and was composed of approximately 37% from liquids, 25% from oil and 12% from NGLs and 63% from natural gas on a 6:1 basis. And most importantly, for our investors, our second quarter cash distribution of $0.39 per common unit was a 5.4% increase sequentially. This increase implies an annualized yield of approximately 11%.

Our total distributions paid since our IPO just two years ago is $3.66 per common unit, which is 20% of our IPO price. And we expect substantially all of the Q1 and Q2 2019 distributions to common unitholders will not be taxable dividend income and instead should generally constitute nontaxable reduction to the tax basis. This tax advantage structure to our unitholders is expected to remain in place for many years into the future. And I refer our investors to the tax guidance press release that we issued on May 13, 2019 for further details. So from our view of the business and coming off an exceptional first quarter where we experienced 2.4% sequential production growth and 9.6% annualized production growth, second quarter results met our expectations. It is important to note that over the last 12 months, we have closed approximately $700 million in acquisitions.

Having completed the full integration of our most recent acquisition of the Philips assets from EnCap in the second quarter. The Philips assets are performing very well, above our expectations, and we are projecting many years of additional development across this newly acquired mineral position. As of the end of the quarter, we now have royalty interest in over 92,000 wells with 89 rigs drilling on our acreage and no cost to us. In addition, we have some of the strongest and most efficient operators drilling on our acreage, which includes premier names, such as ExxonMobil, Oxidental Petroleum, Pioneer, Apache and EOG, to name a few. To reiterate our business strategy and model, we are a pure mineral and royalty company with no working interest. We have no lease operating costs or capital expenditures. So key drivers of our distribution payouts come from production volume, fluctuations in commodity prices and the efficient integration of our acquisitions. We continue to execute on our proven growth strategy vis-a-vis organic growth and accretive acquisitions. And we maintain a broad, stable and diverse portfolio of royalty assets across all the major basins in the Lower 48, featuring organic growth from our recently acquired assets, coupled with the stability in industry’s lowest PDP decline rate of 12%.

As we strategically add production through acquisitions, we also grow PDP reserves organically year-over-year. To drive success and sustainability in this industry space, we believe that the optimal business model is a shallow PDP decline curve, coupled with the growth potential for unconventional drilling in the lowest cost basins from leading operators. We firmly believe that these elements of our strategy are extremely important differentiators for us compared to other companies. In addition, while production volumes can ebb and flow across the country, our broad footprint significantly benefits us. For example, we may see one basin drop off for a period of time, but see increases in another basin as capital is reallocated to it, which provides us with a natural business model hedge. As we move forward, we continue to actively evaluate a number of acquisition opportunities nationwide. We remain focused on assembling a high-quality, low PDP decline and diversified royalty portfolio that generates substantial cash flow and growth potential with no capital outlays.

We will remain patient and highly selective as we seek diversified, high-quality acquisition opportunities that are not only immediately accretive to our unitholders, but that also enhances the long-term value of the overall portfolio. Lastly, we’d like to point out that we do not know of another company in the upstream or mineral and rolling market with a comparable PDP decline rate to ours. While the market seems to still be trying to understand our company and our sector, this is an extremely important and core understanding of our model. We started this company with this core belief: Cash flow growth must, in our view, be higher than the PDP decline. I believe the market will grow to understand this and that we will be rewarded it for this primary aspect of our business model. I’ve been an petroleum engineer for over 40 years, and extend my entire carrier working with decline The investor community needs to understand that an oil and gas business is not sustainable and lesser organic production growth within cash flow is greater than their PDP decline. Many of our peers have PDP declines of over 30% to 40%, which questions the sustainability of their business models, particularly in an environment where access to equity capital for drilling does not exist. Again, we are very pleased with the results in the first half of 2019, and we are reaffirming our guidance for 2019.

Now I’ll turn you over to Davis.

Robert Davis RavnaasPresident and Chief Financial Officer

Thanks, Bob, and good morning, everyone. Total second quarter 2019 revenues increased 78% from the first quarter of 2019 to a new record of $31.9 million. Second quarter 2019 consolidated adjusted EBITDA was $21.6 million, also a new record and up 34% from Q1 2019. Second quarter 2019 net loss attributable to common units was $11.8 million compared to a net income attributable to common units of $1.4 million in the second quarter last year due to a $28.1 million noncash impairment. This noncash accounting impairment expense was primarily attributable to the decline in the 12-month average price of oil and natural gas prices and does not impact our operations or our ability to pay distributions or fund acquisitions in the future or anything else. General and administrative expenses were $6.2 million in Q2 2019, of which $4.1 million was cash G&A expense or $3.82 per Boe, down from $3.95 per Boe in Q1 2019. Noncash G&A in Q2 2019 was $2.1 million or $1.97 per Boe.

Excluding the effect of one-time severance costs incurred in Q2 2019, cash G&A per Boe was $3.71 and noncash G&A per Boe was $1.67. Cash available for distribution attributable to the common units was $9.1 million or $0.39 per common unit. You will find a reconciliation of both adjusted EBITDA and cash available for distribution at the end of our news release. As Bob mentioned, our second quarter cash distribution was $0.39 per common unit, a 5.4% increase compared to the first quarter of 2019. This represents a highly compelling approximately 11% annualized yield. And because substantially all of this distribution will not be taxable dividend income and instead be a reduction in tax basis, the pre-tax equivalent yield is even higher. Assuming a 37% effective tax rate, the pre-tax equivalent yield is closer to 17%. In addition, as announced on our May 13, 2019 press release, we expect that for the next seven years, 2019 to 2025, the company will pay no material federal income taxes.

For the next four years, 2019 to 2022, substantially, all distributions paid to common unitholders will not be taxable dividend income. And for 2023 through 2025, less than 25% of distributions paid to common unitholders will be taxable dividend income. This favorable tax treatment significantly enhances the after-tax returns for the distributions paid to our common unitholders for years to come. Turning now to realized pricing in the second quarter. Average realized price per barrel for oil was $57.55, natural gas per Mcf was $2.44, NGLs per barrel was $19.55 and combined was $25.98 per Boe. We experienced a significant improvement in differentials for both oil and natural gas in the quarter, primarily as a result of infrastructure developments in the Permian Basin. As of 6/30/2019, our hedges were approximately 20% of our daily oil and natural gas production for the next two years. We have provided a table at the end of our press release with additional detail on our hedges.

Looking now at the balance sheet. On May 28, 2019, our borrowing base has increased from $200 million to $300 million. At June 30, we had cash on hand of $16.9 million, we had $87.3 million outstanding, with $212.7 million under our revolving credit facility in terms of liquidity. As you’ve indicated before, our plan is to use the revolver to provide short-term financing for acquisitions, and our total debt to adjusted EBITDA ratio is a conservative 1.0x. Before turning the call over for questions, I’d like to provide some overview comments about the mineral space. As you’ve seen, we’ve maintained a very active and investor engagement schedule this year by attending several conferences as well as meeting with many investors. We have also welcomed additional sell-side coverage on our company. Q2 was a profoundly differentiating quarter between the mineral names and the working interest E&Ps. Kimbell and our peers in the mineral space continue to do relatively well, generating robust cash flow and returns for their shareholders and contrast many E&Ps this quarter experienced significant financial and operational distress and modest, if any, free cash flow.

We believe that more capital will soon find its way out of marginally successful working interest E&Ps and into the mineral space as it continues to grow and increase its liquidity in the coming quarters and years. This, in turn, will increase the attention from generalist investors searching for yield, particularly at 11% yield that is tax rate. Just to provide a little more detail on regional production trends by basin, the Permian, Mid-Con, Appalachia and Bakken were roughly flat quarter-over-quarter. And the Eagle Ford experienced a decline from strong Q1 production that was offset by significant activity in the Haynesville. As always, basin specific performance within our portfolio will vary from quarter-to-quarter, and our strength is in our diversification throughout basins, which helps to smooth our production trends over time, rather than creating significant volatility from quarter-to-quarter. We believe we have a unique opportunity to continue to lead the way along with our peers, and growing the public royalty sector.

And with our proven business model and growth strategy, no required capital spending plan at a very robust distribution yield of 11%, we offer a compelling, high-yield and tax-advantaged investment to our common unitholders. In addition, Kimbell offers one of the largest diversified royalty portfolios in the mineral space, a best-in-class PDP decline rate and continued record setting performance. This proven strategy enhances long-term value and reduces risk for our unitholders. Despite a volatile time in the energy industry and in the financial markets at large, our sector and our company remain undervalued. Compared to our peer group of mineral and royalty companies, we have been only 1 of 2 companies with positive production growth year-to-date, and we have distributed the second largest combined dividend amount year-to-date. So while our company has had great performance so far this year, our stock is certainly not reflected it.

In fact, as unbelievable as it is to us, our stock currently is being traded around its lowest point since we went public. In addition, we continue to expect that investors will increasingly focus on PDP declines for oil and gas companies, which for most are typically in excess of 25% declines or more. We significantly stand out with an average PDP decline rate of only 12%, which is the best in our sector. As Bob mentioned, a core component to our business model is maintaining a low PDP decline rate, while generating cash flow in excess of that rate. Frankly, we are surprised this model hasn’t been embraced by the overall E&P sector and that the market does not seem to fully recognize our competitive advantage. Make no mistake, it is a very tough time for the oil and gas market overall.

The XOP Index of oil and gas producers is now as its lowest point since its inception in 2006, lower than even the 2008 financial crisis level. But we expect that our company, Kimbell, will operationally outperform in an environment like this. We have deliberately built the company so that it has the lowest PDP decline rate of 12%, not only of any mineral company, but if any upstream company we are aware of. We have 89 rigs operating on our properties, nearly all of which are drilling horizontal wells and growing production. We have a very strong balance sheet with debt-to-EBITDA of only 1x. We believe our dividend yield, which is over 11% and nontaxable, offers an outstanding risk-adjusted return and presents investors with the unique opportunity to invest in the U.S. oil and gas market at its lowest point in the last decade. We are well equipped to weather this storm and believe the coming months will present the company with attractive acquisition opportunities that we will come out of this cyclical downturn at an even stronger position than we are today.

With that, operator, we are now ready for questions.

Questions and Answers:

Operator

[Operator Instructions] Our first question is from John Freeman, Raymond James. Please proceed with your question

Robert Dean RavnaasChairman and Chief Executive Officer

Hi good morning John.

Robert Davis RavnaasPresident and Chief Financial Officer

Hey John how’s it going

John FreemanRaymond James — Analyst

Good. Well, Congrats again on getting this creative joint venture structure done to pursue opportunities on the micro market side. Can you provide any additional details on kind of how sort of the structure and this kind of partnership works in terms of — obviously, you’ve committed the $15 million this partner. Do they get some sort of a — just from a high-level perspective, they get some sort of a fee when they bring you a deal? Like just sort of how it works?

Robert Dean RavnaasChairman and Chief Executive Officer

Yes. Absolutely, John. Thank you for asking. It’s — frankly, it’s one of the things we’re most excited about from our company’s perspective. I think just one kind of macro comments on it. To the extent that we can finance royalty purchasers or aggregators directly rather than watching private equity folks back these guys and then paying a premium to acquire the assets, that would be our preference. We think that strategic combinations like this or partnerships make a whole lot of sense. And just kind of cut the middleman out, so to speak.

So in terms of the arrangement, we do pay them a small upfront fee, which is capitalized, and then they have to return that cost back to us, plus a healthy return that’s consistent with kind of private equity returns. And then if they achieve certain return thresholds on the asset, they get a back end that’s consistent with how PE works. So rather than getting more specific, I’ll to say, it’s basically a traditional private equity arrangement with an upfront fee with a back end, like a PE model. But again, kind of cutting out the middleman, instead of having 2 layers of promote, there’s just one now. So…

John FreemanRaymond James — Analyst

That makes sense. And then the partnership you have is, again, just from a high-level perspective. Does this partner tend to focus on a certain area region or are they kind of pursue kind of a broad-based approach like you all do?

Robert Dean RavnaasChairman and Chief Executive Officer

Yes. Thanks for asking that too. So that was the toughest part about doing this. We’ve been trying to establish a ground game and find a partner like this for a long time. And as you probably know, John, they’re going to be look in the Fort Worth Cloud building that we’re in today, there’s probably 50 guys right now, down started working out to buy minerals. And the challenge is that they typically focus on one county or just one low area within a county and don’t have kind of a Rolodex of relationships, nationwide. So what’s unique about this partner that we found, and we’ve known them forever, it’s just — we just kind of finding the right opportunity to partner with them. And they’ve bought successfully in every major basin in the U.S. And so we’ve sat down with them and really vetted their track record over the last decade or so and Kimbell unbelievably impressed and have set up certain parameters under which they’re allowed to transact. So it’s not — just — I just want to be clear, it sounds like we’re just giving these guys $15 million, and they’re just going out and do whatever they want to do, they have very strict parameters where we have weighting on upside locations.

We have assumptions within every basin about spacing. We have operator limitations in terms of who they’re focusing on, concentration limitations. So we put this together really over the course of about the last six months. And we’re starting out conservatively with $15 million, but we might expand that as you kind of look back at the success of the results. But the PV values that they’re able to transact that would really make, frankly, just making flash. It’s something that’s very attractive to us in an increasingly competitive royalty acquisition market.

John FreemanRaymond James — Analyst

Those details are really helpful. I mean, if I was allowed to just sneak one extra question in on The lease bonus — you had a very nice contribution from lease bonuses this quarter. And just quite frankly, we’re seeing kind of the opposite trend with others, just given the general macro environment. Just any additional color on that?

Robert Dean RavnaasChairman and Chief Executive Officer

Yes. It’s funny. I would actually say, if anything, it’s kind of — I mean, this was a big quarter for lease bonus of $1.5 million. But I mean, so far, this quarter, we behave a good amount…

John FreemanRaymond James — Analyst

At least, $500,000.

Robert Davis RavnaasPresident and Chief Financial Officer

Yes. John, it’s Dave. Just some more detail on the lease furnaces. I give you, call it, $200,000 on the Eagle Ford from some of the Haymaker properties, we had about $140,000 in the Marcellus from Haymaker properties. The biggest allocation was the Mid-Con for pay maker gets $700,000 in Stevens County, the area private operator. We had some legacy properties in the Permian lease peers. So pretty much diversified across our all basins.

Robert Dean RavnaasChairman and Chief Executive Officer

Yes. And it’s something we haven’t talked about a lot historically, John. Because, as you know, when we went public, we add more of the mature asset base that was all HBPed. And is — now that we’ve acquired Haymaker and Phillips, we do have kind of a component to our revenue story going forward that will be lease bonus based. And it’s something that, for obvious reason, doesn’t really being — we’re not really getting credit for it, so to speak. So…

John FreemanRaymond James — Analyst

So that’s great. I really appreciate it. Well done guys.

Robert Dean RavnaasChairman and Chief Executive Officer

Thank you John. Thanks for. Questions

Operator

Our next question is from Jason Wangler, Imperial Capital. Please proceed with your question.

Robert Dean RavnaasChairman and Chief Executive Officer

Hey good morning

Jason WanglerImperial Capital — Analyst

Good Davis, I actually wanted to follow-up on that lease bonus question. Because I was kind of curious, your thoughts with the commentary that you guys mentioned earlier. You’ve seen a lot of rigs being dropped and things. It does makes really impacting you guys as much. But do you think that’s going to be a bigger part of that — of the business as folks try to keep leases or how do you kind of see that going as you’ve got some uncertainty headed in the second half of the year?

Robert Dean RavnaasChairman and Chief Executive Officer

Jason, I hate to extrapolate too much based on a couple of quarters of lease bonus success. I think it’s going to be more material for us going forward than it has been in the past. But I would hate to make any sort of forecast on lease activity just because it’s so sporadic.

Jason WanglerImperial Capital — Analyst

Sure. That’s helpful. And then, I mean, you guys talked about the ground game piece in this $15 million commitment. I mean, how far into that are you? How much has been, I guess, spend? How do you kind of see that playing out? And then maybe just some commentary on some larger M&A kind of what you’re seeing because of what we’re seeing in the market would be helpful?

Robert Dean RavnaasChairman and Chief Executive Officer

Sure. Sure. Good question. So of the $15 million, I think, they’ve drawn down $2 million to $3 million of it so far. We’ve funded $2 million to $3 million. So good progress already. We’re only like a month into this now. And we’ve got to look under the hood on what they thought and have been very impressed. And then on larger M&A opportunities, we’re looking at really kind of a record amount of deal flow. I know we say that every quarter, but it’s just amazing. This space is just exploding. A lot of its PE guys looking to exit, and we’ve touched on that multiple times in the past.

But also just kind of some interesting M&A discussions we’re having with other companies that, frankly, working interest companies or companies in other sectors that just have minerals within their portfolio and aren’t getting credit for it, so trying to structure something creative with them where we can do an accretive deal that highlights the value of the minerals they have in their portfolio. So we’re trying to be creative. And again, I’ve said this the last couple of quarters. But I’d be disappointed if we didn’t announce another large M&A deal by the end of the year that’s financed with units. So…

Jason WanglerImperial Capital — Analyst

I appreciate it. Thanks guys.

Robert Dean RavnaasChairman and Chief Executive Officer

Thanks.

Operator

Our next question is from Welles Fitzpatrick, SunTrust. Please proceed with your question.

Welles FitzpatrickSunTrust — Analyst

Hey good morning, Can you give a breakout on the lease bonuses this quarter? Is essentially all of that new leases or is some of that renewals? And if it is, could you break that out?

Robert Dean RavnaasChairman and Chief Executive Officer

Yes.

Robert Davis RavnaasPresident and Chief Financial Officer

Yes. There’s going to be almost entirely on new leases, new activity, not with nonrenewals.

Robert Dean RavnaasChairman and Chief Executive Officer

The biggest one was actually a working interest conversion, right? So we have a bunch of — well, I’m not sure if you’re familiar with this. But in many cases, if you go — if you’re given the opportunity to drill, you can deny it entity back into a royalty payment after, I think, a payout, typically of what 3x or something to the operator. So we have a number of — and that’s a legacy, but that’s a maker saying that’s been going on, frankly, forever with those guys. So — that’s one component to within lease bonuses or these working interest conversions, but they’re mostly new leases otherwise.

Welles FitzpatrickSunTrust — Analyst

Okay. Okay. Perfect. That makes sense. And then can you talk to what you’re seeing in the markets for mineral prices? I mean, it’s still holding up pretty well or are people anticipating maybe more of a drop in the rig count, as these E&Ps move that seem to be free cash flow positive, as you noted in your comments?

Robert Dean RavnaasChairman and Chief Executive Officer

Yes. Well, first of all, thank you for picking up coverage on us, excited that you did, and we appreciate that. And as you kind of get to know us a little bit better. And I think one thing we’d say is the commentary you’re going to hear from some of our peers about royalty acquisitions really doesn’t apply to us because we don’t buy in the same way that any of them do. We really don’t look at dollar per acre figures. And so while I agree with you, it’s almost ridiculous. In the Delaware Basin, if you’re paying $20,000 in net royalty acre a year ago, when oil was over $60, that figure doesn’t change when oil drops down to the $40s. And so we’ve never liked that approach. It seems to be kind of a simplistic land focused aggregation strategy that doesn’t look at engineering and geology and just math, which is what we do. And so when we transact, it’s typically on — or it’s always on next 12 months, forecasted cash flow assuming a very reasonable development pace and DUC completion schedules and the like.

So for us, the transaction multiples are always — the price that we’re willing to pay is going to change up and down with the commodity price movements, whereas for most of our peers, it will not. So that’s why I think that, again, that’s why I think we’ve been successful in the past. And we’re just not interested in playing that game of guaranteeing our investors 80% year-over-year production growth forever because it’s just not realistic. So we’re just different in that respect. So…

Welles FitzpatrickSunTrust — Analyst

Perfect. That makes total sense. I appreciate thank you

Operator

Our next question is from Betty Jiang, Credit Suisse. Please proceed with your question.

Betty JiangCredit Suisse — Analyst

Good morning

Robert Dean RavnaasChairman and Chief Executive Officer

Good morning Betty

Betty JiangCredit Suisse — Analyst

Good morning, Can you give an update on the unconventional assets in the portfolio? How had it perform relative to expectations? The rig count that seems to be holding pretty flat. So just wondering the momentum there is showing up in production and cash flow?

Robert Dean RavnaasChairman and Chief Executive Officer

Sure. Sure. So we actually just did a look back on how performance has trended on our Philips and Haymaker assets from when we underwrote them at present, and they’re outperforming together by about 11% since we underwrote the acquisition. So I think that’s a — we always like to see that, that we’ve been conservative in our underwriting forecast that they tend to outperform. General trends, I’d say that activity seems to be kind of bouncing around from basin to basin. Last quarter was very strong for us in the Eagle Ford. This quarter, it was not as strong. It was down from last quarter, but the Haynesville was up. So over time, we do expect that unconventional volumes are going to continue to increase. They’ve more than offset the PDP decline on our assets year-to-date, Bob or Matt, any other…

Matthew S. DalyChief Operating Officer and Secretary

Betty, this is Matt. We’ll comment on the Eagle Ford. We had about 165 Boe per day temporarily shut in as the fracked wells nearby. So pro forma for that, I would have taken the production up to 11,972, which have been would have been all-time new records. It’s a temporary shutdown. I’ll show and hope will this come up in line in Q3. We also have 3 new large net revenue at just wells can you align in the Hanesville right now, and they peaked out probably a petulant of Q3 as well. So there is 10.5% net revenue wells, which is very big for us.

Robert Dean RavnaasChairman and Chief Executive Officer

Yes.

Robert Davis RavnaasPresident and Chief Financial Officer

Yes.

Betty JiangCredit Suisse — Analyst

Great. No, that’s helpful. And then just that $165 million is a net number, net to you guys?

Robert Davis RavnaasPresident and Chief Financial Officer

Yes.

Robert Dean RavnaasChairman and Chief Executive Officer

And that was — yes, and we’ll see that kind of go down

Welles FitzpatrickSunTrust — Analyst

Got it. And then on M&A, we do — we are hearing more and more E&P operators highlighting in-house royalty assets. Do you see more competition from operators who can arguably pay more for royalty assets under their own land?

Robert Dean RavnaasChairman and Chief Executive Officer

Yes. Again, it gets back to what I said before, if we were a private equity back group that bought nonproducing acreage ahead of the drill bit, that would be a huge concern to us because you’re going to be competing against the operators that know where the drill bit is going. It’s not — I mean, I don’t think we ever had an operator compete with is ever in 20% maybe once in the last five years. We’ve got an operator

Matthew S. DalyChief Operating Officer and Secretary

And on that, it would be a conventional asset, where they would just want to increase the net revenues. So, yes. On an unconventional…

Robert Dean RavnaasChairman and Chief Executive Officer

Yes, exactly. So no, Betty, that hasn’t been a concern of ours. I would say that, I think, you’re right, though. I think that for some of our peers, that’s going to be kind of a headwind they’re going to face on acquisitions.

Betty JiangCredit Suisse — Analyst

Got it. No, that’s helpful. And then one last thing. Just on the second quarter, pricing realization is fairly strong across the board. You saw narrower oil differential and then NGL realization was flattish despite the Monbebe pricing was weak during the second quarter. So just — maybe help us understand what’s driving that strong pricing? And would these pricing dynamics continue?

Robert Dean RavnaasChairman and Chief Executive Officer

Sure. I’ll start and then — Matt, you guys jump in. So on the oil front, I think, that’s largely just a result of infrastructure improving in the Permian. So everything we’ve got there has dramatically improved in terms of differential improvement. Any other comments you guys have…

Matthew S. DalyChief Operating Officer and Secretary

That’s the main driver of the oil was for the Permian improvements.

Robert Dean RavnaasChairman and Chief Executive Officer

Okay. And then gas, I guess, just at the Haynesville, got better depth than anywhere else.

Matthew S. DalyChief Operating Officer and Secretary

Yes.

Robert Dean RavnaasChairman and Chief Executive Officer

Yes. So —

Robert Davis RavnaasPresident and Chief Financial Officer

Yes. So gas differentials were, I believe, 5% versus 8% in Q1. If you go back and — you guys in terms of modeling this, I wouldn’t take — and when I guess, oil was 4%. If you take a look at the last 2 or 3 quarters, maybe use an average of those as sort of your modeling forecast.

Robert Dean RavnaasChairman and Chief Executive Officer

Gas — for gas.

Robert Davis RavnaasPresident and Chief Financial Officer

Yes. The last 3 quarters for gas and maybe for oil, 4% sort of right at the bottom tick levels. My point is that you’re going to do this to be conservative. I’m looking maybe take that number and average out a couple of quarters and use that for forecasting. Differentials are very hard to predict quarter-to-quarter. So — in NGL, let me really no comment there. That’s we’re so diversified. It’s sort of, we can really pinpoint one particular area driving that differential.

Matthew S. DalyChief Operating Officer and Secretary

Got it. Great. This is helpful. Thank you everybody.

Operator

Our next question is from Tim Howard, Stifel. Please proceed with your question.

Tim HowardSteeple — Analyst

Hi. Thanks for taking our question, Sure Just wondering if you can provide an update on any thoughts of the private equity ownership? We received a lot of questions on potential sales given the lockups and fully understand it’s a tough question to answer. But given kind of how you recently, the volatility? It’s surprising to us as well. So I don’t know if there’s anything that you could provide feedback that you’re hearing from them, just to maybe a piece of the market a little bit?

Robert Dean RavnaasChairman and Chief Executive Officer

Yes, sure. Thanks for the question, Tim. Yes. It’s funny. We get questions about our private equity ownership, but it’s only about what 25% of our total company, whereas any of our peers that were private equity-backed or 80% or 90% of by private equity sponsors. And so we actually have a lot less of an overhang than some of our peers do. But on that front, we look at it as a positive longer-term for the company in terms of improving float and liquidity. So — and this last — Anderson, I think, it’s been publicly announced, sold out 3.2 million of their 3.6 million shares, I think, last quarter. And they were able to do to a 6% discount, which on a smaller, more liquid stock like ours is amazing.

So I think that, that — and some of that stock went to some very prominent investors that we’re very pleased and flatter to now have as long-term holders. So I think that speaks to the fact that there is a market for our stock. People want our stock, and we don’t have a whole lot of float. But when they have opportunities to get their hands on some of the stock, they tend to take it at tight discounts. So we’re not super concerned about overhang. We certainly haven’t heard anything that makes us think that there’s some huge share that’s imminent. I think it will be kind of an orderly process over the next couple of years. So — And again, it’s not a huge amount of our stock relative to some of our peers. So…

Tim HowardSteeple — Analyst

I appreciate that. Thank you.

Operator

There are no further questions at this time. And I would like to turn the floor back over to you for closing comments.

Robert Dean RavnaasChairman and Chief Executive Officer

Thank you. I’d like to reiterate that we are very bullish on our company in the royalty sector overall. We’ll be on the road quite a bit more this year at a number of investor conferences, telling the Kimbell story and broadening the outreach, along with our peers in the mineral sector. We look forward to the second half of 2019 and the opportunities that lie ahead. We thank you all for joining us this morning, and look forward to speaking with you again when we report third quarter results. This completes today’s call.

Operator

[Operator Closing Remarks]

Duration: 38 minutes

Call participants:

Rick BlackInvestor Relations

Robert Dean RavnaasChairman and Chief Executive Officer

Robert Davis RavnaasPresident and Chief Financial Officer

John FreemanRaymond James — Analyst

Jason WanglerImperial Capital — Analyst

Welles FitzpatrickSunTrust — Analyst

Betty JiangCredit Suisse — Analyst

Matthew S. DalyChief Operating Officer and Secretary

Tim HowardSteeple — Analyst

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