|
|
|
|
|
|
|
|
|
|
|
|
|
Price to
Public
|
|
Underwriting
Discount(1)
|
|
Proceeds,
Before
Expenses, to Us
|
|
Per Common Unit
|
|
$
|
15.5000
|
|
$
|
0.6975
|
|
$
|
14.8025
|
|
Total
|
|
$
|
77,500,000
|
|
$
|
3,487,500
|
|
$
|
74,012,500
|
|
-
(1)
-
We
refer you to "Underwriting (Conflicts of Interest)" beginning on page S-25 of this prospectus supplement for additional information regarding underwriting
compensation.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this
prospectus supplement or the accompanying base prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
The
selling unitholders named in this prospectus supplement have granted the underwriters a 30-day option to purchase up to an additional 750,000 common units on the same terms and
conditions as set forth above. We will not receive any of the proceeds from the sale of common units to be offered by the selling unitholders.
The
underwriters expect to deliver the common units on or about January 14, 2020 through the book-entry facilities of The Depository Trust Company.
Joint Book-Running Managers
|
|
|
|
|
Credit Suisse
|
|
|
|
Raymond James
|
RBC Capital Markets
|
|
Goldman Sachs
|
|
UBS Investment Bank
|
Co-Managers
|
|
|
|
|
|
|
Wells Fargo Securities
|
|
Imperial Capital
|
|
TD Securities
|
|
Tuohy Brothers
|
The date of this prospectus supplement is January 9, 2020.
Table of Contents
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
PROSPECTUS
S-i
Table of Contents
ABOUT THIS PROSPECTUS SUPPLEMENT
This document is in two parts. The first part is this prospectus supplement, which describes our business and the terms of this offering of our
common units and also adds to and updates information contained in the accompanying base prospectus and the documents incorporated by reference in this prospectus supplement and the accompanying base
prospectus. The second part is the accompanying base prospectus, which gives more general information, some of which may not apply to this offering of common units. We sometimes refer to the
prospectus supplement and the accompanying base prospectus, taken together, as "the prospectus." If the information varies between this prospectus supplement and the accompanying base prospectus, you
should rely on the information in this prospectus supplement.
Neither we, the selling unitholders nor the underwriters have authorized anyone to provide you with any information other than the information contained in this
prospectus supplement and the accompanying base prospectus or incorporated by reference into this prospectus supplement or the
accompanying base prospectus. Neither we, the selling unitholders nor the underwriters take any responsibility for, and can provide no assurance as to the reliability of, any other information that
others may give you. We, the selling unitholders and the underwriters are offering to sell these securities, and seeking offers to buy these securities, only in jurisdictions where offers and sales
are permitted. You should not assume that the information contained in this prospectus supplement, the accompanying base prospectus or any free writing prospectus is accurate as of any date other than
the dates shown in these documents or that any information incorporated by reference herein is accurate as of any date other than the date of the document incorporated by reference. Our business,
financial condition, results of operations and prospects may have changed since such dates.
Industry and Market Data
This prospectus supplement includes industry and market data and forecasts that we obtained from internal company surveys, publicly available
information and industry publications and surveys. Our internal research and forecasts are based on management's understanding of industry conditions, and such information has not been verified by
independent sources. Industry publications and surveys generally state that the information contained therein has been obtained from sources believed to be reliable.
S-ii
Table of Contents
FORWARD-LOOKING STATEMENTS
Certain statements and information contained in or incorporated by reference in this prospectus supplement and the accompanying base prospectus
may constitute "forward-looking statements." Forward-looking statements give our current expectations, contain projections of results of operations or of financial condition, or forecasts of future
events. Words such as "may," "assume," "forecast," "position," "predict," "strategy," "expect," "intend," "plan," "estimate," "anticipate," "believe," "project," "budget," "potential," or "continue,"
and similar expressions are used to identify forward-looking statements. They can be affected by assumptions used or by known or unknown risks or uncertainties. Consequently, no forward-looking
statements can be guaranteed. When considering these forward-looking statements, you should keep in mind the risk factors and other cautionary statements in this prospectus supplement and the
accompanying base prospectus. Actual results may vary materially. You are cautioned not to place undue reliance on any forward-looking statements. You should also understand that it is not possible to
predict or identify all such factors and should not
consider the following list to be a complete statement of all potential risks and uncertainties. All comments concerning our expectations for future revenues and operating results are based on our
forecasts for our existing operations and do not include the potential impact of future operations or acquisitions. Factors that could cause our actual results to differ materially from the results
contemplated by such forward-looking statements include:
-
-
our ability to replace our reserves;
-
-
our ability to make, consummate and integrate acquisitions, including the Springbok Acquisition (as defined below), and realize any expected
benefits or effects of any acquisitions or the timing, final purchase price or consummation of any acquisitions, including the Springbok Acquisition;
-
-
our ability to execute our business strategies;
-
-
the volatility of realized prices for oil, natural gas and natural gas liquids ("NGLs");
-
-
the level of production on our properties;
-
-
the level of drilling and completion activity by the operators of our properties;
-
-
regional supply and demand factors, delays or interruptions of production;
-
-
general economic, business or industry conditions;
-
-
competition in the oil and natural gas industry generally and the mineral and royalty industry in particular;
-
-
the ability of the operators of our properties to obtain capital or financing needed for development and exploration operations;
-
-
title defects in the properties that we acquire;
-
-
uncertainties with respect to identified drilling locations and estimates of reserves on our properties and on properties we seek to acquire;
-
-
the availability or cost of rigs, completion crews, equipment, raw materials, supplies, oilfield services or personnel;
-
-
restrictions on or the availability of the use of water in the business of the operators of our properties;
-
-
the availability of transportation facilities;
-
-
the ability of the operators of our properties to comply with applicable governmental laws and regulations and to obtain permits and
governmental approvals;
S-iii
Table of Contents
-
-
federal and state legislative and regulatory initiatives relating to the environment, hydraulic fracturing, tax laws and other matters
affecting the oil and gas industry;
-
-
future operating results;
-
-
exploration and development drilling prospects, inventories, projects and programs;
-
-
operating hazards faced by the operators of our properties;
-
-
the ability of the operators of our properties to keep pace with technological advancements;
-
-
uncertainties regarding federal income tax treatment of future earnings and distributions; and
-
-
certain factors discussed elsewhere in this prospectus supplement and the accompanying base prospectus.
For
additional information regarding known material factors that could cause our actual results to differ from our historical experience and our present expectations or projections,
please read "Risk Factors" in this prospectus supplement and the accompanying base prospectus, our
Annual Report on Form 10-K for the fiscal year ended December 31,
2018, which is incorporated by reference herein. The risk factors and other factors included in this prospectus supplement and the accompanying base prospectus or incorporated by
reference herein or therein could cause our actual results to differ materially from those contained in any forward looking statement.
Readers
are cautioned not to place undue reliance on forward looking statements, which speak only as of the date hereof. We undertake no obligation to publicly update or revise any
forward looking statements after the date they are made, whether as a result of new information, future events or otherwise.
S-iv
Table of Contents
SUMMARY
This summary highlights information included or incorporated by reference in this prospectus supplement and the
accompanying base prospectus. It does not contain all the information that you should consider before investing in the common units. You should read carefully the entire prospectus supplement, the
accompanying base prospectus and the documents incorporated by reference herein and therein for a more complete understanding of this offering. Please read "Risk Factors" on page S-11 of this
prospectus supplement, on page 7 of the accompanying base prospectus and in our
Annual Report on Form 10-K for the fiscal year ended December 31,
2018, and our other filings with the Securities and Exchange Commission (the "SEC"), which are incorporated by reference herein, for information regarding risks you should consider
before making a decision to purchase any common units in this offering. Unless otherwise specifically stated, the information presented in this prospectus supplement assumes that the underwriters have
not exercised their option to purchase additional common units.
Unless the context otherwise requires, references to "Kimbell Royalty Partners, LP," "our partnership," "we," "our," "us" or like terms refer to Kimbell
Royalty Partners, LP and its subsidiaries. References to "our general partner" refer to Kimbell Royalty GP, LLC. References to "our Sponsors" refer to affiliates of our founders,
Ben J. Fortson, Robert D. Ravnaas, Brett G. Taylor and Mitch S. Wynne, respectively. References to the "Operating Company" refer to Kimbell Royalty Operating, LLC, a subsidiary of our
partnership. References to the "Contributing Parties" refer to all entities and individuals, including certain affiliates of our Sponsors, that contributed, directly or indirectly, certain mineral and
royalty interests to us in connection with our initial public offering.
Our Company
We are a Delaware limited partnership formed in 2015 to own and acquire mineral and royalty interests in oil and natural gas properties
throughout the United States. Effective as of September 24, 2018, we have elected to be taxed as a corporation for United States federal income tax purposes (the "Tax Election"). As an owner of
mineral and royalty interests, we are entitled to a portion of the revenues received from the production of oil, natural gas and associated NGLs from the acreage underlying our interests, net of
post-production expenses and taxes. We are not obligated to fund drilling and completion costs, lease operating expenses or plugging and abandonment costs at the end of a well's productive life. Our
primary business objective is to provide increasing cash distributions to our unitholders resulting from acquisitions from third parties, our Sponsors and the Contributing Parties and from organic
growth through the continued development by working interest owners of the properties in which we own an interest.
As
of September 30, 2019, we owned mineral and royalty interests in approximately 8.7 million gross royalty acres and overriding royalty interests in approximately
4.3 million gross royalty acres, with approximately 48% of our aggregate acres located in the Permian Basin and Mid-Continent. We refer to these non-cost-bearing interests collectively as our
"mineral and royalty interests." As of September 30, 2019, over 98% of the acreage subject to our mineral and royalty interests was leased to working interest owners, including 100% of our
overriding royalty interests, and substantially all of those leases were held by production. As of September 30, 2019, our mineral and royalty interests are located in 28 states and in every
major onshore basin across the continental United States and include ownership in over 92,000 gross producing wells, including over 40,000 wells in the Permian Basin. As of September 30, 2019,
approximately 33% of our total production, comprising approximately 49% of our oil production, 26% of our natural gas production and 36% of our NGL production (on an oil-equivalent basis using a
conversion factor of six Mcf of natural gas per barrel of "oil equivalent," which is based on approximate energy equivalency and does not reflect the price or value relationship between oil and
natural gas, which we refer to in this prospectus supplement as a "6:1 basis"), was derived from conventional assets, including certain enhanced oil recovery projects.
S-1
Table of Contents
The
below table summarizes our mineral and royalty interest ownership by U.S. basins and producing regions.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2019
|
|
|
Active Rigs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Royalty
Acreage
|
|
Net Royalty
Acreage(1)
|
|
Average Daily
Production
(Boe/d)(2)
|
|
Percentage of
Total Revenue
|
|
Gross
Producing
Wells
|
|
as of
December 31,
2019
|
|
Permian Basin
|
|
|
2,615,262
|
|
|
22,585
|
|
|
1,667
|
|
|
19
|
%
|
|
40,191
|
|
|
24
|
|
Mid-Continent
|
|
|
3,589,116
|
|
|
40,550
|
|
|
1,927
|
|
|
10
|
%
|
|
10,115
|
|
|
16
|
|
Haynesville
|
|
|
745,745
|
|
|
7,058
|
|
|
4,179
|
|
|
14
|
%
|
|
8,460
|
|
|
12
|
|
Appalachia
|
|
|
721,656
|
|
|
23,074
|
|
|
1,912
|
|
|
8
|
%
|
|
2,985
|
|
|
1
|
|
Bakken
|
|
|
1,555,557
|
|
|
5,959
|
|
|
500
|
|
|
7
|
%
|
|
3,801
|
|
|
9
|
|
Eagle Ford
|
|
|
532,142
|
|
|
6,282
|
|
|
1,382
|
|
|
17
|
%
|
|
2,394
|
|
|
9
|
|
Rockies
|
|
|
46,328
|
|
|
829
|
|
|
485
|
|
|
4
|
%
|
|
12,044
|
|
|
9
|
|
Other(3)
|
|
|
3,222,614
|
|
|
36,829
|
|
|
2,786
|
|
|
21
|
%
|
|
12,921
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
13,028,420
|
|
|
143,166
|
|
|
14,838
|
|
|
100
|
%
|
|
92,911
|
|
|
81
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(1)
-
Net
royalty acreage is calculated as the sum of the net revenue interest in each acre multiplied by the number of acres.
-
(2)
-
"Btu-equivalent"
production volumes are presented on an oil-equivalent basis using a conversion factor of six Mcf of natural gas per barrel of "oil equivalent,"
which is based on approximate energy equivalency and does not reflect the price or value relationship between oil and natural gas. Please read "BusinessOil and Natural Gas
DataProved ReservesSummary of Estimated Proved Reserves" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018.
-
(3)
-
Other
locations include the Barnett Shale, Tuscaloosa, California, Piceance, Green River, Gulf of Mexico, Illinois, South Louisiana, Michigan, Powder River, Fort
Worth Basin, East Texas, Palo Duro, Uinta, Big Horn and Wind River.
Recent Developments
Oklahoma Acquisition
On November 6, 2019, we completed the acquisition of various mineral and royalty interests in Oklahoma for an aggregate purchase price of
approximately $9.9 million (the "Oklahoma Acquisition"), which was funded with borrowings under our revolving credit facility. The assets acquired in the Oklahoma Acquisition consisted of
approximately 279,680 gross royalty acres (approximately 189 net royalty acres). As of August 1, 2019, the assets acquired in the Oklahoma Acquisition consisted of 878 gross producing
wells, 51 drilled but uncompleted wells and 918 additional upside locations. As of August 1, 2019, the 878 gross producing wells had an average net daily net production of 202 Boe/d,
comprising approximately 44% oil, 28% natural gas and 28% NGLs (on a 6:1 basis).
Buckhorn Acquisition
On December 12, 2019, we completed the acquisition of certain mineral and royalty interests (the "Buckhorn Acquisition") from Buckhorn
Resources GP, LLC and its affiliates (collectively, "Buckhorn"). We acquired the mineral and royalty interests in the Buckhorn Acquisition in exchange for 2,169,348 common units
representing limited liability company interests in the Operating Company ("OpCo units") and an equal number of Class B units representing limited partnership interests in our partnership
("Class B units") for total consideration valued at approximately $36.3 million.
The
assets acquired in the Buckhorn Acquisition consisted of approximately 86,000 gross royalty acres (approximately 400 net royalty acres). As of July 1, 2019, the assets
acquired in the Buckhorn Acquisition consisted of 504 gross producing wells, 38 drilled but uncompleted wells and 519 additional
S-2
Table of Contents
upside
locations. As of July 1, 2019, the 504 gross producing wells had an average daily net production of 270 Boe/d, comprising approximately 83% oil, 11% natural gas and 6% NGLs (on a 6:1
basis).
Springbok Acquisition
On January 9, 2020, we entered into securities purchase agreements (the "Springbok Purchase Agreements") with the owners of Springbok
Energy Partners, LLC and Springbok Energy Partners II, LLC (collectively, the "Springbok Entities"), pursuant to which we have agreed to acquire all of the mineral and royalty
interests owned by the Springbok Entities (the "Springbok Assets"). The transactions contemplated by the Springbok Purchase Agreements are referred to herein as the "Springbok Acquisition."
The
aggregate consideration to be delivered to the sellers at the closing of the Springbok Acquisition will consist of $95 million in cash, 2,224,358 common units in our
partnership and 2,497,133 OpCo units (and an equal number of Class B units), subject to customary adjustments. We expect the Springbok Acquisition to close in the second quarter of 2020,
subject to satisfaction of specified closing conditions. The effective time of the Springbok Acquisition will be October 1, 2019.
In
connection with the closing of the Springbok Acquisition, we will enter into a transition services agreement with an affiliate of the Springbok Entities, pursuant to which such
affiliate will provide certain administrative services and accounting assistance for two months following the closing of the Springbok Acquisition. We expect the Springbok Acquisition to be
immediately accretive to our distributable cash flow without a significant incremental increase in our general and administrative expense.
We
estimate that, as of October 1, 2019, the Springbok Assets included 2,160 net royalty acres across the Delaware Basin, DJ Basin, Haynesville Shale, STACK, Eagle Ford Shale and
other leading basins. We estimate that, as of October 1, 2019, the Springbok Assets produced 2,533 Boe/d (on a 6:1 basis) with an average realized cash margin of $21.92 per Boe. We further
estimate that, as of October 1, 2019, the Springbok Assets consisted of 6.8 net (1,493 gross) proved developed producing horizontal wells, 0.8 net (231 gross) drilled but uncompleted wells and
1.0 net (164 gross) permit locations, as compared to 0.9 net (228 gross) drilled but uncompleted wells and 0.9 net (192 gross) permit locations as of October 1, 2018. For the twelve months
ended September 30, 2019, we estimate that 1.5 net (344 gross) wells turned to sales. We also estimate that the Springbok Assets include 7.7 net (1,042 gross) identified undeveloped locations
as of October 1, 2019. As of December 31, 2019, there were more than 90 operators on the Springbok Assets, including Centennial Resource Development, Inc.,
EOG Resources Inc., PDC Energy, Inc., Marathon Oil Company, Ovintiv Inc. (f/k/a Encana Corp.), Comstock Resources, Inc., Continental Resources, Inc.,
BP p.l.c. and Devon Energy Corp.
As
of September 30, 2019 and including run-rate production attributable to the Springbok Acquisition, the Buckhorn Acquisition and the Oklahoma Acquisition, we estimate that 24%
of our total production, comprising approximately 32% of our oil production, 20% of our natural gas production and 28% of our NGL production (on a 6:1 basis), will be derived from conventional assets,
including certain enhanced oil recovery projects. After taking the Springbok Acquisition into account, we estimate that over 96% of all rigs operating in the continental United States as of
December 31, 2019 are located in counties where we will hold mineral and royalty interests. Further, we estimate that 93 rigs would have been actively drilling on our combined acreage as of
December 31, 2019, which would have accounted for approximately 12% of all rigs operating in the continental United States at such date.
S-3
Table of Contents
The
below table summarizes our estimates regarding the mineral and royalty interests comprising the Springbok Assets by U.S. basins and producing regions.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of October 1, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Royalty
Acreage
|
|
Net
Royalty
Acreage(1)
|
|
Daily
Production
(Boe/d)(2)(3)
|
|
Gross
Producing
Wells
|
|
Net
Producing
Wells
|
|
Gross
Drilled but
Uncompleted
Wells
|
|
Net
Drilled but
Uncompleted
Wells
|
|
Gross
Permitted
Locations
|
|
Net
Permitted
Locations
|
|
Active Rigs
as of
December 31,
2019
|
|
Delaware
|
|
|
55,750
|
|
|
437
|
|
|
431
|
|
|
206
|
|
|
1.1
|
|
|
61
|
|
|
0.3
|
|
|
42
|
|
|
0.3
|
|
|
4
|
|
Eagle Ford
|
|
|
7,129
|
|
|
47
|
|
|
182
|
|
|
94
|
|
|
0.5
|
|
|
20
|
|
|
0.1
|
|
|
10
|
|
|
0.1
|
|
|
1
|
|
Bakken
|
|
|
14,976
|
|
|
92
|
|
|
92
|
|
|
86
|
|
|
0.4
|
|
|
13
|
|
|
0.1
|
|
|
3
|
|
|
<0.1
|
|
|
0
|
|
DJ
|
|
|
26,122
|
|
|
207
|
|
|
287
|
|
|
290
|
|
|
1.3
|
|
|
73
|
|
|
0.1
|
|
|
65
|
|
|
0.5
|
|
|
2
|
|
Haynesville
|
|
|
22,354
|
|
|
246
|
|
|
742
|
|
|
98
|
|
|
0.8
|
|
|
16
|
|
|
0.1
|
|
|
1
|
|
|
<0.1
|
|
|
1
|
|
STACK
|
|
|
51,830
|
|
|
476
|
|
|
338
|
|
|
154
|
|
|
0.9
|
|
|
20
|
|
|
0.1
|
|
|
25
|
|
|
<0.1
|
|
|
0
|
|
Midland
|
|
|
7,367
|
|
|
53
|
|
|
93
|
|
|
44
|
|
|
0.3
|
|
|
|
|
|
|
|
|
3
|
|
|
<0.1
|
|
|
0
|
|
Other(4)
|
|
|
72,082
|
|
|
602
|
|
|
368
|
|
|
521
|
|
|
1.5
|
|
|
28
|
|
|
<0.1
|
|
|
15
|
|
|
<0.1
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
257,610
|
|
|
2,160
|
|
|
2,533
|
|
|
1,493
|
|
|
6.8
|
|
|
231
|
|
|
0.8
|
|
|
164
|
|
|
1.0
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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(1)
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Net
royalty acreage is calculated as the sum of the net revenue interest in each acre multiplied by the number of acres.
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(2)
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"Btu-equivalent"
production volumes are presented on an oil-equivalent basis using a conversion factor of six Mcf of natural gas per barrel of "oil equivalent,"
which is based on approximate energy equivalency and does not reflect the price or value relationship between oil and natural gas.
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(3)
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Daily
production from the Springbok Assets is based on run-rate production as of October 1, 2019, which is the effective date of the Springbok Acquisition. As
of October 1, 2019, production from the Springbok Assets consisted of approximately 823 Bbl per day of oil, 279 Bbl per day of NGLs and 8,584 Mcf/d of natural gas, with over 70% of the
cash flow associated with such production derived from oil and NGLs.
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(4)
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Other
locations include Arkoma, Barnett Shale, Cotton Valley, Marcellus Shale, SCOOP, Texas Panhandle and Utica.
In
addition, we estimate that the average estimated five-year decline rate for our combined proved developed producing reserves, assuming the Springbok Acquisition is consummated as
described in this prospectus supplement, would be approximately 14%. Reserve engineering is a complex and subjective process of estimating underground accumulations of oil and natural gas that cannot
be measured in an exact way, and the accuracy of any reserve estimate is a function of the quality of available data and of engineering and geological interpretation and judgment. As a result,
estimates prepared by one engineer may vary from those prepared by another. Estimates of proved reserves for our oil and gas properties as of December 31, 2019 will be prepared by Ryder Scott
Company, L.P. using the information available at that time, and estimates of proved reserves related to the Springbok Acquisition will be prepared by Ryder Scott Company, L.P. as of
December 31, 2020. Upon completion of their review, the estimate of the proved reserves for our oil and gas properties as of December 31, 2019 will be different from the estimate of the
proved reserves for our oil and gas properties as of December 31, 2018, and the estimates of proved reserves relating to the Springbok Assets as of December 31, 2020 will be different
from our management's estimates of such reserves as of October 1, 2019.
Our
assessment and estimates of the assets to be acquired in the Springbok Acquisition to date has been limited. Even by the time of closing, our assessment of these assets will not
reveal all existing or potential problems, nor will it permit us to become familiar enough with the properties to assess fully their capabilities and deficiencies. Please read "Risk Factors."
We
intend to finance a portion of the cash purchase price for the Springbok Acquisition that is due at closing, subject to market conditions and other factors, with net proceeds from
this offering. The portion of the cash purchase price that is not funded through this offering will be funded through borrowings under our revolving credit facility. Please read "Use of Proceeds."
This offering is not conditioned upon the consummation of the Springbok Acquisition, and we cannot assure you that we will consummate the Springbok Acquisition on the terms described herein or at all.
Please read "Risk Factors." Pursuant to the Springbok Purchase Agreements, we and the sellers have the right to terminate the Springbok Purchase Agreements in the event that this offering is not
consummated or certain net proceeds thresholds from this offering are not met.
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Table of Contents
Tax Matters
Even though we are organized as a limited partnership under state law, we are treated as a corporation for United States federal income tax
purposes. Accordingly, we are subject to United States federal income tax at regular corporate rates on our net taxable income. We currently expect that (i) we will pay no material federal
income taxes through 2021 (no more than approximately 5% of estimated pre-tax distributable cash flow), and (ii) substantially all distributions (more than 95%) paid to our common unitholders
will not be taxable dividend income through 2021.
Distributions
in excess of the amount taxable as dividend income will reduce a common unitholder's tax basis in its common units or produce capital gain to the extent they exceed a
common unitholder's tax basis. Any reduced tax basis will increase a common unitholder's capital gain when it sells its common units. The estimates described above are the result of certain non-cash
expenses (principally depletion) substantially offsetting our taxable income and tax "earnings and profits." Our estimates of the tax treatment of earnings and distributions are based upon assumptions
regarding the capital structure and earnings of the Operating Company, our capital structure, the amount of the earnings of the Operating Company allocated to us and production from the Springbok
Assets. Many factors may impact these estimates, including changes in drilling and production activity, commodity prices, future acquisitions or changes in the business, economic, regulatory,
legislative, competitive or political environment in which we operate. These estimates are based on current tax law and tax reporting positions that we have adopted and with which the Internal Revenue
Service (the "IRS") could disagree. These estimates are not fact and should not be relied upon as being necessarily indicative of future results, and no assurances can be made regarding these
estimates. You are encouraged to consult with your tax advisor on this matter. Please read "Risk FactorsTax Risks" in this prospectus supplement.
Executive Offices
Our principal executive offices are located at 777 Taylor Street, Suite 810, Fort Worth, Texas 76102, and our phone number is
(817) 945-9700. Our website address is www.kimbellrp.com. Information on our website or any other website is not incorporated by reference into
this prospectus and does not constitute a part of this prospectus.
S-5
Table of Contents
Our Structure
The diagram below depicts our simplified organizational and ownership structure after giving effect to the Buckhorn Acquisition, the Springbok
Acquisition and this offering (assuming the underwriters' option to purchase additional common units is not exercised).
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(1)
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The Sponsors are affiliates of our founders, Messrs. Fortson, R. Ravnaas, Taylor and Wynne.
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(2)
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Includes common units beneficially owned by the Sponsors other than those reflected as held by Kimbell GP
Holdings, LLC.
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(3)
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Includes certain affiliates of Haymaker Resources, LP, Haymaker Management LLC, certain affiliates of EnCap
Partners, LP, the Kimbell Art Foundation, Cupola Royalty Direct LLC, Rivercrest Capital Partners LP and Buckhorn.
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(4)
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Kimbell Operating Company, LLC, a wholly owned subsidiary of our general partner, has entered into a management
services agreement with us and separate management services agreements with entities controlled by affiliates of certain of our Sponsors and others for the provision of certain management,
administrative and operational services.
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Table of Contents
The Offering
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Common units offered by us
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5,000,000 common units.
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Option to purchase additional common units from the selling unitholders
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750,000 common units.
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Common units outstanding after this offering
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28,518,652 common units, or 29,268,652 common units if the underwriters exercise in full their option to purchase additional
common units. If all outstanding Class B units and OpCo units held by our Class B unitholders were exchanged for newly issued common units on a one-for-one basis (including the Class B units and OpCo units held by the selling
unitholders), 54,076,258 common units would be outstanding.
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Class B units outstanding after this offering
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25,557,606 Class B units, or 24,807,606 Class B units if the underwriters exercise in full their option to
purchase additional common units. Class B units have voting rights and are entitled to receive certain cash distributions subsequent to distributions on our outstanding Series A Cumulative Convertible Preferred Units ("Series A
preferred units") but in preference to distributions on our common units. Please read "Cash distributions" below.
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OpCo units outstanding after this offering
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54,076,258 OpCo units, or 54,076,258 OpCo units if the underwriters exercise in full their option to purchase additional
common units.
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Use of proceeds
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We expect to receive approximately $73.3 million in net proceeds from the sale of the 5,000,000 common units we are
offering hereby, after deducting the underwriting discounts and estimated offering expenses payable by us. We intend to contribute the net proceeds from this offering to the Operating Company in exchange for 5,000,000 OpCo units.
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The Operating Company will use the net proceeds we receive from this offering to fund a portion of the cash purchase price
for the Springbok Acquisition and to pay fees and expenses related to the Springbok Acquisition. This offering is not conditioned on the consummation of the Springbok Acquisition. Pending the closing of the Springbok Acquisition, the Operating
Company intends to use the net proceeds for the repayment of outstanding borrowings under our revolving credit facility. We and the Operating Company may use future amounts borrowed under our revolving credit facility for general
partnership
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Table of Contents
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purposes, including a potential redemption of a portion of our Series A preferred units. Please read "Use of Proceeds." Any redemption
of our Series A preferred units will be made pursuant to a notice of redemption in accordance with the terms of such securities. This prospectus supplement is not a notice of redemption with respect to our Series A preferred
units.
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We will not receive any of the proceeds from the sale of common units to be offered by the selling unitholders.
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Cash distributions
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Within 45 days after the end of each quarter, we make distributions to common unitholders of record, subject to the
distribution preferences of the Series A preferred units and the Class B units (in each case as described below), on the applicable record date. Commencing with the quarter ending September 30, 2018 and continuing until the conversion
of the Series A preferred units into common units or their redemption, holders of the Series A preferred units are entitled to receive cumulative quarterly distributions equal to 7.0% per annum plus accrued and unpaid distributions. Holders
of our Class B units are entitled to receive cash distributions equal to 2% per quarter on their respective Class B contribution (which distribution amount for the quarter ended September 30, 2019, was approximately $23,414 in total),
subsequent to distributions on the Series A preferred units but in preference to distributions on our common units.
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The limited liability company agreement of the Operating Company requires it to distribute all of its cash on hand at the
end of each quarter in an amount equal to its available cash for such quarter. In turn, our partnership agreement requires us to distribute all of our cash on hand at the end of each quarter in an amount equal to our available cash for such quarter.
Available cash for each quarter will be determined by the Board of Directors following the end of such quarter. Available cash is defined in the limited liability company agreement of the Operating Company, our partnership agreement and in "How We
Pay Distributions" in the accompanying base prospectus. We expect that the Operating Company's available cash for each quarter will generally equal its Adjusted EBITDA for the quarter, less cash needed for debt service and other contractual
obligations and fixed charges and reserves for future operating or capital needs that the Board of Directors may determine is appropriate, and we expect that our available cash for each quarter will generally equal our Adjusted EBITDA for the quarter
(and will be our proportional share of the available cash distributed by the Operating Company for that quarter), less cash needs for debt service and other contractual obligations, tax
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Table of Contents
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obligations, fixed charges and reserves for future operating or capital needs that the Board of Directors may determine is appropriate. We
do not currently intend to maintain a material reserve of cash for the purpose of maintaining stability or growth in our quarterly distribution, nor do we intend to incur debt to pay quarterly distributions, although the Board of Directors may change
this policy.
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Unlike other public companies, we do not currently intend to retain cash from our operations for capital expenditures
necessary to replace our existing oil and natural gas reserves or otherwise maintain our asset base (replacement capital expenditures), primarily due to our expectation that the continued development of our properties and completion of drilled but
uncompleted wells by working interest owners will substantially offset the natural production declines from our existing wells. We believe that our operators have significant drilling inventory remaining on the acreage underlying our mineral or
royalty interests in multiple resource plays that will provide a solid base for organic growth when commodity prices increase. The Board of Directors may change our distribution policy and decide to withhold replacement capital expenditures from cash
available for distribution, which would reduce the amount of cash available for distribution in the quarter(s) in which any such amounts are withheld. Over the long term, if our reserves are depleted and our operators become unable to maintain
production on our existing properties and we have not been retaining cash for replacement capital expenditures, the amount of cash generated from our existing properties will decrease and we may have to reduce the amount of distributions payable to
our unitholders. To the extent that we do not withhold replacement capital expenditures, a portion of our cash available for distribution will represent a return of your capital.
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It is our intent, subject to market conditions, to finance acquisitions of mineral and royalty interests that increase our
asset base largely through external sources, such as borrowings under our revolving credit facility and the issuance of equity and debt securities, although the Board of Directors may choose to reserve a portion of cash generated from operations to
finance such acquisitions as well. The limited liability company agreement of our general partner contains provisions that prohibit certain actions without a supermajority vote of at least 662/3% of the members of the board
of directors of our general partner. Among the actions requiring a supermajority vote will be the reservation of a portion of cash generated from operations to finance such acquisitions.
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S-9
Table of Contents
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Because the limited liability company agreement of the Operating Company and our partnership agreement each require the Operating Company
and us to distribute an amount equal to all available cash generated by each respective entity each quarter, holders of OpCo units and our unitholders have direct exposure to fluctuations in the amount of cash generated by our business. We expect
that the amount of quarterly distributions, if any, will fluctuate based on variations in, among other factors, (i) the performance of the operators of our properties, (ii) earnings caused by, among other things, fluctuations in the price
of oil, natural gas and NGLs, changes to working capital or capital expenditures, (iii) tax and certain contractual obligations and (iv) cash reserves deemed appropriate by the Board of Directors. Such variations in the amount of quarterly
distributions may be significant and could result in no distribution being made for any particular quarter. We do not currently intend to maintain a material reserve of cash for the purpose of maintaining stability or growth in our quarterly
distribution, otherwise reserve a material amount of cash for distributions or incur debt to pay quarterly distributions, although the Board of Directors may do so if they believe it is warranted.
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Material United States federal income tax consequences
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For a discussion of the material United States federal income tax consequences that may be relevant to prospective
unitholders, please read "Material United States Federal Income Tax Consequences" in this prospectus supplement. Please also read "SummaryTax Matters" and "Risk FactorsTax Matters."
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Agreement to be bound by the partnership agreement
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By purchasing a common unit, you will be admitted as a unitholder of our partnership and will be deemed to have agreed to be
bound by all of the terms of our partnership agreement.
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Listing and trading symbol
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Our common units are listed on the New York Stock Exchange under the symbol "KRP."
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Conflicts of interest
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Affiliates of Credit Suisse Securities (USA) LLC, RBC Capital Markets, LLC and Wells Fargo Securities, LLC,
underwriters in this offering, will receive at least 5% of the net proceeds of this offering in connection with the potential repayment of outstanding borrowings under our revolving credit facility. Accordingly, this offering is being made in
compliance with the requirements of Rule 5121 of the Financial Industry Regulatory Authority ("FINRA"). The appointment of a "qualified independent underwriter" is not required in connection with this offering as a "bona fide public market," as
defined in FINRA Rule 5121, exists for our common units. Please read "Use of Proceeds" and "Underwriting (Conflicts of Interest)."
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S-10
Table of Contents
RISK FACTORS
An investment in our common units involves risks. You should carefully consider the information contained under "Risk Factors" beginning on
page 7 of the accompanying base prospectus and the information contained under "Where You Can Find More Information," including our
Annual Report on Form 10-K for the fiscal year ended December 31,
2018, together with all of the other information included or incorporated by reference in this prospectus supplement and the accompanying base prospectus, before deciding to invest in
our common units.
This
prospectus supplement, the accompanying base prospectus and the documents incorporated by reference herein and therein also contain forward-looking statements that involve risks and
uncertainties. Please read "Forward-Looking Statements." Our actual results could differ materially from those anticipated in the forward-looking statements as a result of certain factors, including
the risks described in this prospectus supplement, the accompanying base prospectus and in the documents incorporated by reference herein and therein. If any of these risks occur, our business,
financial condition or results of operation could be materially and adversely affected. The risks described in this prospectus supplement, the accompanying base prospectus and the documents
incorporated by reference herein and therein are not the only risks that we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may have a
material adverse effect on our business, financial condition or results of operations.
Risks Related to the Springbok Acquisition
We may not consummate the Springbok Acquisition, and this offering is not conditioned on the consummation of
the Springbok Acquisition.
If the Springbok Acquisition is consummated, we intend to use the net proceeds from this offering to fund a portion of the cash purchase price
for the Springbok Acquisition and to pay fees and expenses related to the Springbok Acquisition. Please read "SummaryRecent Developments" and "Use of Proceeds." However, this offering is
not conditioned upon the consummation of the Springbok Acquisition. In addition, the Springbok Acquisition is subject to the satisfaction or waiver of customary closing conditions, and we cannot
assure you that the Springbok Acquisition will be consummated in the anticipated time frame or at all.
The
consummation of the Springbok Acquisition is not conditioned upon the successful completion of this offering of common units, although, pursuant to the Springbok Purchase Agreements,
we and the sellers have the right to terminate the Springbok Purchase Agreements in the event that this offering is not consummated or certain net proceeds thresholds from this offering are not met.
We
have performed only a limited investigation of the properties included in the Springbok Acquisition. The completion of the Springbok Acquisition is subject to specified closing
conditions and to the right of one or both of the parties to terminate the transaction, including in the event that adjustments to the cash purchase price related to title defects are required in
excess of agreed upon thresholds. If one or more of the closing conditions are not satisfied, the Springbok Acquisition may not be completed. Some of these conditions are beyond our control, and we
may elect not to take actions necessary to satisfy these conditions or to ensure that the transaction is not otherwise terminated.
Because
this offering is not conditioned upon the consummation of the Springbok Acquisition, upon the closing of this offering, you will become a holder of our common units regardless of
whether the Springbok Acquisition is consummated, delayed or terminated. If the Springbok Acquisition is delayed, terminated or consummated on terms different than those described herein, the market
price of our common units may decline to the extent that the price of our common units reflects a market assumption that the Springbok Acquisition will be consummated on the terms described herein or
at all. Further, a failed transaction may result in negative publicity or a negative impression of us in the
S-11
Table of Contents
investment
community and may affect our relationships with our business partners. Please read "SummaryRecent DevelopmentsSpringbok Acquisition" for more information regarding
the Springbok Acquisition.
In
addition, pending the potential use of the proceeds of this offering to fund a portion of the cash purchase price for the Springbok Acquisition, the Operating Company intends to use
the net proceeds received by us from this offering for the repayment of outstanding borrowings under our revolving credit facility. Our general partner will have broad discretion with respect to the
use of future drawdowns on our revolving credit facility and may use these funds in ways that you or other unitholders may not support, including to fund a potential redemption of a portion of our
Series A preferred units, which could adversely affect the market price of our common units.
We may not be able to achieve the expected benefits of the Springbok Acquisition and our assessment and
estimates of the properties to be acquired in the Springbok Acquisition may prove to be incorrect.
Even if we consummate the Springbok Acquisition, we may not be able to achieve the expected benefits of the Springbok Acquisition. There can be
no assurance that the Springbok Acquisition will be beneficial to us. We may not be able to integrate the assets acquired in the Springbok Acquisition without increases in costs or other difficulties.
Any unexpected costs or delays incurred in connection with the integration of the Springbok Acquisition could have an adverse effect on our business, results of operations, financial condition and
prospects, as well as the market price of our common units.
Our
assessment and estimates of the properties to be acquired in the Springbok Acquisition to date has been limited and may prove to be incorrect. Even by the time of closing, our
assessment of these properties will not reveal all existing or potential problems. In the course of our assessment, we will not receive an independent reserve engineer report related to the properties
to be acquired in the
Springbok Acquisition. In addition, any inspection that we do may not reveal all title issues or other problems. We may be required to assume the risk that the properties may not perform in accordance
with our expectations. Our ability to make specified claims against the Springbok Entities in the Springbok Acquisition generally expires over time and we may be left with no recourse for liabilities
and other problems associated with the Springbok Acquisition that we do not discover prior to the expiration date related to such matters under the Springbok Purchase Agreements.
The
market price of our common units may decline as a result of the Springbok Acquisition if, among other things, the integration of the properties to be acquired in the Springbok
Acquisition is unsuccessful or if the properties are not successfully developed by working interest owners or if the liabilities, expenses, title and other defects, or transaction costs related to the
Springbok Acquisition are greater than expected. The market price of our common units may decline if we do not achieve the perceived benefits of the Springbok Acquisition as rapidly or to the extent
anticipated by us or by securities market participants or if the effect of the Springbok Acquisition on our business results of operations or financial condition or prospects is not consistent with
our expectations or those of securities market participants.
Any acquisitions we complete, including the Springbok Acquisition, are subject to substantial risks that
could reduce our ability to make distributions to our unitholders.
Even if we do make acquisitions that we believe will increase the amount of cash available for distributions to our unitholders, these
acquisitions, including the Springbok Acquisition, may nevertheless result in a decrease in the amount of cash available for distributions. Any acquisition, including the Springbok Acquisition,
involves potential risks, including, among other things:
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the validity of our assumptions about estimated proved reserves, future production, drilling locations, prices, revenues, capital expenditures
and production costs;
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the assumption of unknown liabilities, losses or costs for which we are not indemnified or for which any indemnity we receive is inadequate;
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our inability to obtain satisfactory title to the assets we acquire; and
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the occurrence of other significant changes, such as impairment of oil and natural gas properties, goodwill or other intangible assets, asset
devaluation or restructuring charges.
In
addition, subject to the satisfaction of closing conditions, we intend to enter into a transition services agreement in connection with the closing of the Springbok Acquisition. The
services to be provided under such transition services agreement may not be performed timely and effectively, and any significant disruption in such transition services or unanticipated costs related
to such services could adversely affect our business and results of operations.
Tax Risks
Our 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.
Even though we are organized as a limited partnership under state law, we are treated as a corporation for United States federal income tax
purposes and thus we are subject to United States federal income tax at regular corporate rates on our net taxable income. We expect to generate depletion deductions that we can use to offset our
taxable income. As a result, we do not expect to pay material United States federal income tax through 2021. This estimate is based upon assumptions we have made regarding, among other things, the
Operating Company's income and depletion expenses and production from the Springbok Assets and it ignores the effect of any possible acquisitions of additional assets, other than the Springbok
Acquisition.
While
we expect that our depletion deductions will be available to us as a benefit, in the event that the depletion deductions are not available as expected, are successfully challenged
by the IRS (in a tax audit or otherwise) or are subject to future limitations, our ability to realize these benefits may be limited. Further, the IRS or other tax authorities could challenge one or
more tax positions we or the Operating Company take. Further, any change in law may affect our tax positions. Please read "SummaryTax Matters."
The portion of our distributions taxable as dividends may be greater than expected.
If we make distributions from current or accumulated earnings and profits as computed for United States federal income tax purposes, such
distributions will generally be taxable to our common unitholders as dividend income for United States federal income tax purposes. Distributions paid to non-corporate United States common unitholders
will be subject to United States federal income tax at preferential rates, provided that certain holding period and other requirements are satisfied. We estimate that we will not have material current
or accumulated earnings and profits as computed for United States federal income tax purposes through 2021. However, it is difficult to predict whether we will generate earnings and profits in any
given tax year. Please read "SummaryTax Matters." Although we expect that a significant portion of our distributions to common unitholders will exceed our current and accumulated earnings
and profits as computed for United States federal income tax purposes, and therefore constitute a non-taxable return of capital to each unitholder to the extent of such unitholder's basis in its
common units, this may not occur. In addition, although distributions treated as a return of capital are generally non-taxable to the extent of a unitholder's basis in its common units, such
distributions will reduce such unitholder's adjusted tax basis in its common units, which will result in an increase in the amount of gain (or a decrease in the amount of loss) that will be recognized
by the unitholder on a future disposition of our common units, and to the extent any such distribution exceeds a unitholder's basis in its common units, such distribution will be treated as gain on
the sale or exchange of such common units.
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Table of Contents
USE OF PROCEEDS
We expect to receive approximately $73.3 million in net proceeds from the sale of the 5,000,000 common units we are offering hereby,
after deducting the underwriting discounts and estimated offering expenses payable by us. We intend to contribute the net proceeds from this offering to the Operating Company in exchange for 5,000,000
OpCo units. The Operating Company will use the
net proceeds we receive from this offering to fund a portion of the cash purchase price for the Springbok Acquisition and to pay fees and expenses related to the Springbok Acquisition. Pending the
closing of the Springbok Acquisition, the Operating Company intends to use the net proceeds for the repayment of outstanding borrowings under our revolving credit facility.
We
will not receive any of the proceeds from the sale of common units to be offered by the selling unitholders. We will, however, bear the costs, other than the underwriting discount and
commissions, associated with the sale of common units by the selling unitholders.
As
of January 8, 2020, we had $109.6 million in borrowings outstanding under our revolving credit facility, with a weighted average interest rate of 4.40%. Our revolving
credit facility matures on February 8, 2022. The outstanding borrowings under our revolving credit facility were used primarily to fund acquisitions. Amounts borrowed in the future under our
revolving credit facility will be used for general partnership purposes, which may include funding future acquisitions or the redemption of our Series A preferred units. We currently expect to
issue a notice of redemption with respect to approximately 50% of our issued and outstanding Series A preferred units following the closing of this offering, which would result in a redemption
price of approximately $61 million. This prospectus supplement is not a notice of redemption with respect to our Series A preferred units.
Affiliates
of Credit Suisse Securities (USA) LLC, RBC Capital Markets, LLC and Wells Fargo Securities, LLC, underwriters in this offering, will receive at least 5% of the net
proceeds of this offering in connection with the potential repayment of outstanding borrowings under our revolving credit facility. Accordingly, this offering is being made in compliance with the
requirements of Rule 5121 of FINRA. The appointment of a "qualified independent underwriter" is not required in connection with this offering as a "bona fide public market," as defined in FINRA
Rule 5121, exists for our common units. Please read "Underwriting (Conflicts of Interest)."
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CAPITALIZATION
The following table sets forth our unaudited cash and cash equivalents and capitalization as of September 30,
2019:
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on an actual basis;
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on an as adjusted basis to give effect to (i) the Oklahoma Acquisition, (ii) the Buckhorn Acquisition and (iii) the
issuance and sale by us of 5,000,000 million common units in this offering and our receipt of approximately $73.3 million of net proceeds from this offering, after deducting underwriting
discounts and estimated offering expenses, and the application of such net proceeds to repay borrowings under our revolving credit facility pending the consummation of the Springbok Acquisition; and
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on an as further adjusted basis to give effect to the consummation of the Springbok Acquisition, assuming the cash portion of the purchase
price is financed with borrowings under our revolving credit facility.
You
should read the following table in conjunction with "Use of Proceeds" in this prospectus supplement and "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our audited consolidated financial statements and the notes thereto included in our
Annual Report on Form 10-K for the fiscal year ended December 31,
2018 and our unaudited condensed consolidated financial statements and the notes thereto included in our
Quarterly Report on Form 10-Q for the quarter ended September 30,
2019, each of which is incorporated by reference into this prospectus supplement, for additional information.
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As of September 30, 2019
(in thousands)
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Actual
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As
adjusted
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As further
adjusted(2)(3)
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Cash and cash equivalents
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$
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20,298
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$
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20,298
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$
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20,298
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Long-term debt(1)
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$
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91,261
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$
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26,823
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$
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121,823
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Mezzanine equity
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Series A preferred units
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$
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73,365
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|
$
|
73,365
|
|
$
|
73,365
|
|
|
|
|
|
|
|
|
|
|
|
|
Unitholders' equity
|
|
|
|
|
|
|
|
|
|
|
General partner
|
|
|
|
|
|
|
|
|
|
|
Common units
|
|
|
341,969
|
|
|
415,282
|
|
|
452,971
|
|
Class B units
|
|
|
1,169
|
|
|
1,277
|
|
|
1,402
|
|
Total unitholders' equity
|
|
$
|
343,138
|
|
$
|
416,559
|
|
$
|
454,373
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncontrolling interest
|
|
|
|
|
|
|
|
|
|
|
Noncontrolling interest
|
|
$
|
310,744
|
|
$
|
347,037
|
|
$
|
389,348
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capitalization
|
|
$
|
818,508
|
|
$
|
863,783
|
|
$
|
1,038,908
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(1)
-
As
of January 8, 2020, we had $109.6 million in borrowings outstanding under our revolving credit facility. As of that date, our borrowing base was
$300.0 million and we had $115.4 million available for future borrowings under our revolving credit facility based on current elected commitments of $225.0 million.
-
(2)
-
We
and the Operating Company may use future amounts borrowed under our revolving credit facility to fund a redemption of approximately 50% of our issued and
outstanding Series A preferred units, which would result in a redemption price of approximately
S-15
Table of Contents
$61 million.
Please read "Use of Proceeds." We currently have 110,000 Series A preferred units issued and outstanding with a face value of $110.0 million.
-
(3)
-
Assumes
the issuance of an aggregate of 2,224,358 common units and 2,497,133 Class B units as consideration pursuant to the terms and conditions of the
Springbok Purchase Agreements.
This
table does not reflect the issuance of up to an additional 750,000 common units that may be sold by the selling unitholders to the underwriters upon exercise of their option to
purchase additional common units.
S-16
Table of Contents
SELLING UNITHOLDERS
The following table sets forth the name of each selling unitholder, the number of common units and Class B units beneficially owned by
each selling unitholder as of the date of this prospectus supplement and the number of common units and Class B units beneficially owned by each selling unitholder following the completion of
this offering (assuming the underwriters' option to purchase additional common units is exercised in full). To our knowledge, the selling unitholders have held no position or office or had any other
material relationship with us or any of our affiliates or predecessors during the past three years, other than as disclosed in the accompanying base prospectus.
We
have prepared the table and the related notes based on information supplied to us by the selling unitholders. We have not sought to verify such information. In addition, the selling
unitholders identified below may sell additional common units pursuant to registered public offerings or exemptions from the registration requirements. The selling unitholders have agreed, subject to
certain exceptions
and extensions, not to sell any common units for a period of 45 days from the date of this prospectus. Please read "Underwriting (Conflicts of Interest)" for a description of these lock-up
provisions.
Beneficial
ownership is determined in accordance with the rules and regulations of the SEC. The percentages of common units and Class B units outstanding have been calculated
based on 23,518,652 common units and 25,557,606 Class B units outstanding as of January 8, 2020.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Units Beneficially Owned Before this
Offering
|
|
|
Number of
Common
|
|
|
Units Beneficially Owned After this
Offering
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Units(1)
|
|
|
Class B
Units(2)
|
|
|
Units
Offered(3)
|
|
|
Common
Units(1)
|
|
|
Class B
Units(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
|
|
|
%
|
|
|
Number
|
|
|
%
|
|
|
Number
|
|
|
Number
|
|
|
%
|
|
|
Number
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling unitholder:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EIGF Aggregator III LLC(4)
|
|
|
4,599,554
|
|
|
16.36
|
%
|
|
4,599,554
|
|
|
18.00
|
%
|
|
702,071
|
|
|
3,897,483
|
|
|
11.75
|
%
|
|
3,897,483
|
|
|
15.71
|
%
|
TE Drilling Aggregator LLC(4)
|
|
|
314,005
|
|
|
1.32
|
%
|
|
314,005
|
|
|
1.23
|
%
|
|
47,929
|
|
|
266,076
|
|
|
0.90
|
%
|
|
266,076
|
|
|
1.07
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
4,913,559
|
|
|
17.28
|
%
|
|
4,913,559
|
|
|
19.23
|
%
|
|
750,000
|
|
|
4,163,559
|
|
|
12.45
|
%
|
|
4,163,559
|
|
|
16.78
|
%
|
-
(1)
-
As
of January 8, 2020, the Series A preferred units have not been converted in part or in full. Assumes that no conversion of the Series A
preferred units has taken place. Assumes the full exchange of all outstanding OpCo units and Class B units as described below.
-
(2)
-
Each
of the selling unitholders is a member of the Operating Company and holds one Class B unit for each OpCo unit that it holds. As described in "Description
of Our Common Units and Class B Units" in the accompanying base prospectus, each OpCo unit, together with a Class B unit, is exchangeable for a common unit on a one-for-one basis.
-
(3)
-
Includes
common units issuable upon exchange of OpCo units, together with an equal number of our Class B units, and proposed to be sold in this offering.
-
(4)
-
EIGF
Aggregator LLC ("EIGF Aggregator") is the managing member of EIGF Aggregator III LLC ("EIGF Aggregator III"). KKR Energy Income and
Growth Fund I L.P. ("KKR Energy Income") is the managing member of EIGF Aggregator. KKR Energy Income and Growth Fund ITE L.P. ("KKR Energy Income TE") is the
sole member of TE Drilling Aggregator LLC ("TE Drilling Aggregator"), and KKR Associates EIGF TE L.P. ("KKR Associates TE") is the general partner of KKR Energy Income TE. KKR Associates
EIGF L.P. ("KKR Associates") is the general partner of KKR Energy Income. KKR EIGF LLC ("KKR EIGF") is the general partner of KKR Associates and the general partner of KKR Associates TE.
KKR Upstream Associates LLC ("KKR Upstream Associates") is the sole member of KKR EIGF. KKR Group Partnership L.P. ("KKR Group Partnership") and KKR Upstream LLC ("KKR Upstream")
are the members of KKR Upstream Associates. KKR Group Partnership is the sole member of KKR Upstream. KKR Group Holdings Corp. ("KKR Group Holdings") is the general partner of KKR Group Partnership.
KKR & Co. Inc. ("KKR & Co.") is the sole shareholder of KKR Group Holdings. KKR Management LLP ("KKR Management") is the Class B shareholder of
KKR & Co. Messrs. Kravis and Roberts are the founding partners of KKR Management. As such, each of the above may be deemed the beneficial owners having shared voting and
investment power with respect to all or a portion of the securities held by EIGF Aggregator III and TE Drilling Aggregator. The principal business address of each of the entities and persons
identified in this paragraph, except Mr. Roberts, is c/o Kohlberg Kravis Roberts & Co. L.P., 9 West 57th Street, Suite 4200, New York, NY 10019. The principal
business address for Mr. Roberts is c/o Kohlberg Kravis Roberts & Co. L.P., 2800 Sand Hill Road, Suite 200, Menlo Park, CA 94025.
S-17
Table of Contents
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the material United States federal income tax consequences related to the purchase, ownership and disposition of
our common units by a unitholder that holds our common units as a "capital asset" (generally property held for investment). This summary is based on the provisions of the Internal Revenue Code of
1986, as amended, or the Code, United States Treasury regulations and administrative rulings and judicial decisions, all as in effect on the date hereof, and all of which are subject to change,
possibly with retroactive effect. We have not sought any ruling from the IRS with respect to the statements made and the conclusions reached in the following summary, and there can be no assurance
that the IRS or a court will agree with such statements and conclusions.
This
summary does not address all aspects of United States federal income taxation or the tax considerations arising under the laws of any non-United States, state, or local
jurisdiction, or under United States federal estate or gift tax laws. In addition, except as expressly described in this summary, this summary does not address tax considerations applicable to
investors that may be subject to special treatment under the United States federal income tax laws, such as (without limitation):
-
-
banks, insurance companies or other financial institutions;
-
-
tax-exempt or governmental organizations;
-
-
qualified foreign pension funds (or any entities all of the interests of which are held by a qualified foreign pension fund);
-
-
dealers or brokers in stocks or securities or foreign currencies;
-
-
United States holders (as defined below) whose functional currency is not the U.S. dollar;
-
-
traders in securities that use the mark-to-market method of accounting for United States federal income tax purposes;
-
-
"controlled foreign corporations," "passive foreign investment companies" and corporations that accumulate earnings to avoid United States
federal income tax;
-
-
persons subject to the alternative minimum tax;
-
-
partnerships (including entities or arrangements treated as partnerships for United States federal income tax purposes) or other pass-through
entities for United States federal income tax purposes or holders of interests therein;
-
-
S corporations (or investors in S corporations);
-
-
persons that hold or are deemed to sell our common units as a result of a constructive sale;
-
-
persons that acquired our common units through the exercise of employee stock options or otherwise as compensation or through a tax-qualified
retirement plan;
-
-
certain former citizens or long-term residents of the United States;
-
-
real estate investment trusts, regulated investment companies or mutual funds;
-
-
persons that hold our common units as part of a straddle, appreciated financial position, synthetic security, hedge, conversion transaction or
other integrated investment or risk reduction transaction; and
-
-
persons that hold our common units other than as a capital asset.
If
a partnership (or an entity or arrangement treated as a partnership for United States federal income tax purposes) holds our common units, the tax treatment of a partner in the
partnership generally will depend upon the status of the partner, upon the activities of the partnership and upon
S-18
Table of Contents
certain
determinations made at the partner level. Accordingly, we urge partners of a partnership (including an entity or arrangement treated as a partnership for United States federal income tax
purposes) investing in our common units to consult their tax advisors regarding the United States federal income tax considerations of the purchase, ownership and disposition of our common units by
such partnership.
YOU ARE ENCOURAGED TO CONSULT YOUR TAX ADVISOR WITH RESPECT TO THE APPLICATION OF THE UNITED STATES FEDERAL INCOME TAX LAWS TO YOUR PARTICULAR SITUATION, AS WELL
AS ANY TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF OUR COMMON UNITS ARISING UNDER THE UNITED STATES FEDERAL ESTATE AND GIFT TAX LAWS OR UNDER THE LAWS OF ANY STATE, LOCAL,
NON-UNITED STATES OR OTHER TAXING JURISDICTION OR UNDER ANY APPLICABLE TAX TREATY.
Corporate Status
Although we are a Delaware limited partnership, we are treated as an entity taxable as a corporation for United States federal income tax
purposes as a result of the Tax Election. Thus, we are obligated to pay United States federal income tax on our net taxable income, and distributions on our common units are treated as distributions
on corporate stock for United States federal income tax purposes. Currently, the corporate United States federal income tax rate is 21%. In addition, no Schedule K-1s will be issued with
respect to the common units; instead, holders of common units will receive a Form 1099 from us with respect to distributions received on the common units.
Tax Consequences to United States Holders
The discussion in this section is addressed to holders of our common units who are United States holders. You are a United States holder for
purposes of this discussion if you are a beneficial owner of our common units and you are, for United States federal income tax purposes:
-
-
an individual citizen or resident of the United States;
-
-
a corporation, or other entity taxable as a corporation for United States federal income tax purposes, that was created or organized in or
under the laws of the United States, any state thereof or the District of Columbia;
-
-
an estate whose income is subject to United States federal income tax regardless of its source; or
-
-
a trust if (i) a United States court can exercise primary supervision over the trust's administration and one or more United States
persons are authorized to control all substantial decisions of the trust or (ii) certain circumstances apply and the trust has validly elected to be treated as a United States person.
Treatment of Distributions
Distributions with respect to our common units will constitute dividends for United States federal income tax purposes to the extent paid from
our current or accumulated earnings and profits, as determined under United States federal income tax principles. To the extent that the amount of a distribution with respect to our common units
exceeds our current and accumulated earnings and profits, such distribution will be treated first as a tax-free return of capital to the extent of the United States holder's adjusted tax basis in such
common units, which reduces such basis dollar-for-dollar (but not below zero), and thereafter as capital gain from the sale or exchange of such common units. Please read "Disposition of
Common Units." Such gain will be long-term capital gain provided that the United States holder has held such common units for more than one year as of the time of the distribution. Subject to the
discussion below under "3.8% Tax on Net Investment Income,"
S-19
Table of Contents
individuals
that receive distributions on our common units that are treated as dividends for United States federal income tax purposes generally will be subject to United States federal income tax at
a maximum tax rate of 20% on such dividends provided certain holding period requirements are met. United States holders that are corporations for United States federal income tax purposes that receive
a distribution from us treated as a dividend for United States federal income tax purposes may be eligible for the corporate dividends-received deduction (subject to certain limitations, including
limitations on the aggregate amount of the deduction that may be claimed and limitations based on the holding period of the common units on which the dividends were paid, which holding period may be
reduced if the holder engages in risk reduction transactions with respect to its common units).
Investors
in our common units are encouraged to consult their tax advisors as to the tax consequences of receiving distributions on our common units that do not qualify as dividends for
United States federal income tax purposes, including, in the case of corporate investors, the inability to claim the corporate dividends-received deduction with respect to such distributions.
Disposition of Common Units
A United States holder of common units generally will recognize capital gain or loss on a sale, an exchange, certain redemptions, or other
taxable dispositions of our common units equal to the difference, if any, between the amount realized upon the disposition of such common units and the United States holder's adjusted tax basis in
those units. A United States holder's tax basis in the common units generally will be equal to the amount paid for such units, reduced (but not below zero) by distributions received on such units that
are not treated as dividends for United States federal income tax purposes. Such capital gain or loss generally will be long-term capital gain or loss if the United States holder's holding period for
the units sold or disposed of is more than one year. Subject to the discussion below under "3.8% Tax on Net Investment Income," long-term capital gains of individuals generally are
subject to a reduced maximum United States federal income tax rate of 20%. The deductibility of net capital losses is subject to limitations.
Investment by Tax-Exempt Investors and Regulated Investment Companies
A tax-exempt investor will not have unrelated business taxable income attributable to its ownership of common units or to its sale, exchange or
other disposition of common units unless
its ownership of common units is debt-financed. In general, common units would be debt-financed if the tax-exempt investor incurs debt to acquire common units or otherwise incurs or maintains a debt
that would not have been incurred or maintained if those common units had not been acquired.
Distributions
that constitute dividends with respect to the common units will result in income that is qualifying income for a regulated investment company or a mutual fund. Furthermore,
any gain from the sale, exchange or other disposition of the common units will constitute gain from the sale, exchange or other disposition of stock or securities and will also result in income that
is qualifying income for a regulated investment company. Finally, the common units will constitute qualifying assets to regulated investment companies, which generally must own at least 50% in
qualifying assets and not more than 25% in certain nonqualifying assets at the end of each quarter, provided such regulated investment companies do not violate certain percentage ownership limitations
with respect to the common units.
Backup Withholding and Information Reporting
Information returns generally will be filed with the IRS with respect to distributions on our common units and the proceeds from a disposition
of our common units. United States holders may be subject to backup withholding on distributions with respect to our common units and on the proceeds of a disposition of our common units unless such
United States holders furnish the applicable withholding agent with a taxpayer identification number, certified under penalties of perjury, and
S-20
Table of Contents
certain
other information, or otherwise establish, in the manner prescribed by law, an exemption from backup withholding. Penalties apply for failure to furnish correct information and for failure to
include reportable payments in income.
Backup
withholding is not an additional tax. Any amounts withheld under the backup withholding rules will be creditable against a United States holder's United States federal income tax
liability, and the United States holder may be entitled to a refund, provided the United States holder timely furnishes the required information to the IRS. United States holders are urged to consult
their own tax advisors regarding the application of the backup withholding rules to their particular circumstances and the availability of, and procedure for, obtaining an exemption from backup
withholding.
Tax Consequences to Non-United States Holders
The discussion in this section is addressed to holders of our common units who are non-United States holders. For purposes of this discussion, a
non-United States holder is a beneficial owner of our common units that is neither a partnership for United States federal income tax purposes nor a United States holder as defined above.
Treatment of Distributions
Distributions with respect to our common units will constitute dividends for United States federal income tax purposes to the extent paid from
our current or accumulated earnings and profits, as determined under United States federal income tax principles. Subject to the withholding requirements under FATCA (as defined below) and with
respect to dividends effectively connected with a trade or business, each of which is discussed below, a distribution treated as a dividend paid to a non-United States holder on our common units
generally will be subject to United States withholding tax at a rate of 30% of the gross amount of the distribution, or such lower rate as may be specified by an applicable income tax treaty. To the
extent a distribution exceeds our current and accumulated earnings and profits, such distribution will reduce the non-United States holder's adjusted tax basis in its common units (but not below
zero). The remaining amount of such distribution will be treated as gain from the sale of such common units and will have the tax consequences described below under "Disposition of Common
Units." The rules applicable to distributions by "USRPHCs" (as defined below) to non-United States persons that exceed current and accumulated earnings and profits are not clear. As a result, to the
extent that the amount of a distribution with respect to our common units exceeds our current and accumulated earnings and profits, it is possible that United States federal income tax, at a rate not
less than 15% (or such lower rate as may be specified by an applicable income tax treaty for distributions from a USRPHC), may be withheld from such distributions received by non-United States
holders. To receive the benefit of a reduced treaty rate on distributions, a non-United States holder must provide the withholding agent with an IRS Form W-8BEN or IRS Form W-8BEN-E (or
other appropriate form) certifying qualification for the reduced rate.
Non-United
States holders are encouraged to consult their tax advisors regarding the withholding rules applicable to distributions on our common units, the requirement for claiming
treaty benefits, and any procedures required to obtain a refund of any over withheld amounts.
Distributions
treated as dividends that are paid to a non-United States holder and are effectively connected with a trade or business conducted by the non-United States holder in the
United States (and, if required by an applicable tax treaty, are attributable to a permanent establishment maintained
by the non-United States holder in the United States) generally will be taxed on a net income basis at the rates and in the manner generally applicable to United States persons (as defined under the
Code). Effectively connected dividend income will not be subject to United States withholding tax if the non-United States holder satisfies certain certification requirements by providing to the
withholding agent a properly executed IRS Form W-8ECI (or other appropriate form) certifying eligibility for the
S-21
Table of Contents
exemption.
If the non-United States holder is a corporation, that portion of the corporation's earnings and profits for the taxable year, as adjusted for certain items, that is effectively connected
with its United States trade or business (and, if required by applicable income tax treaty, is attributable to a permanent establishment maintained in the United States by a non-United States holder
that is a corporation for United States federal income tax purposes) may also be subject to a "branch profits tax" at a 30% rate or such lower rate as may be specified by an applicable tax treaty.
Disposition of Common Units
Subject to the discussion below under "Backup Withholding and Information Reporting," a non-United States holder generally will not
be subject to United States federal income or withholding tax on any gain realized upon the sale or other disposition of our common units unless:
-
-
the non-United States holder is an individual who is present in the United States for a period or periods aggregating 183 days or more
during the calendar year in which the sale or disposition occurs and certain other conditions are met;
-
-
the gain is effectively connected with a trade or business conducted by the non-United States holder in the United States (and, if required by
an applicable tax treaty, is attributable to a permanent establishment maintained by the non-United States holder in the United States); or
-
-
our common units constitute a United States real property interest by reason of our status as a United States real property holding
corporation, or USRPHC, for United States federal income tax purposes and as a result such gain is treated as effectively connected with a trade or business conducted by the non-United States holder
in the United States.
A
non-United States holder described in the first bullet point above will be subject to tax at a rate of 30% (or such lower rate as may be specified by an applicable tax treaty) on the
amount of such gain (which may be offset by United States source capital losses, provided that the non-United States holder has timely filed United States federal income tax returns with respect to
such losses).
A
non-United States holder whose gain is described in the second bullet point above or, subject to the exceptions described in the next paragraph, the third bullet point above, will be
subject to United States federal income tax on any such gain recognized on a net income basis at the same graduated rates generally applicable to United States persons unless an applicable tax treaty
provides otherwise. If the non-United States holder is a corporation for United States federal income tax purposes whose gain is described in the second bullet point above, then such gain would also
be included in its effectively connected earnings and profits, as adjusted for certain items, which may also be subject to a branch profits tax equal to 30% (or such lower rate as may be specified by
an applicable tax treaty).
Generally,
a corporation is a USRPHC if the fair market value of its United States real property interests equals or exceeds 50% of the sum of the fair market value of its worldwide real
property interests and its other assets used or held for use in a trade or business. We believe that we currently are, and expect to remain for the foreseeable future, a USRPHC for United States
federal income tax purposes. However, as long as our common units are "regularly traded on an established securities market" (within the meaning of the U.S. Treasury regulations), a non-United States
holder will be treated as disposing of a United States real property interest and will be taxable on gain recognized on the disposition of our common units as a result of our status as a USRPHC only
if the non-United States holder actually or constructively owns, or owned at any time during the five-year period ending on the date of the disposition or, if shorter, the non-United States holder's
holding period for the common units, more than 5% of our common units. If our common units were not considered to be regularly traded on an established securities market, all non-United States holders
would be subject to United States federal income tax on a disposition of our common units, and a 15% withholding tax
S-22
Table of Contents
would
apply to the gross proceeds from the sale of our common units by such non-United States holder.
Non-United
States holders should consult their tax advisors with respect to the application of the foregoing rules to their ownership and disposition of our common units.
Backup Withholding and Information Reporting
Generally, we must report annually to the IRS and to each non-United States holder the amount of dividends paid to such holder, the name and
address of the recipient, and the amount, if any, of tax withheld with respect to those dividends. These information reporting requirements apply even if withholding was not required. Pursuant to tax
treaties or other agreements, the IRS may make such reports available to tax authorities in the recipient's country of residence.
Payments
of dividends to a non-United States holder generally will not be subject to backup withholding if the non-United States holder establishes an exemption by properly certifying
its non-United States status on an IRS Form W-8BEN, IRS Form W-8BEN-E or another appropriate version of IRS Form W-8, provided that the withholding agent does not have actual
knowledge, or reason to know, that the beneficial owner is a United States person that is not an exempt recipient.
Payments
of the proceeds from a sale or other disposition by a non-United States holder of our common units effected by or through a United States office of a broker generally will be
subject to information reporting and backup withholding (at the applicable rate) unless the non-United States holder establishes an exemption by properly certifying its non-United States status on an
IRS Form W-8BEN, IRS Form W-8BEN-E or another appropriate version of IRS Form W-8 and certain other conditions are met or the non-United States holder otherwise establishes an
exemption. Information reporting and backup withholding generally will not apply to any payment of the proceeds from a sale or other disposition of our common units effected outside the United States
by a foreign office of a broker. However, unless such broker has documentary evidence in its records that the holder is a non-United States holder and certain other conditions are met, or the
non-United States holder otherwise establishes an exemption, information reporting will apply to a payment of the proceeds of the disposition of our common units effected outside the United States by
such a broker if it has certain relationships within the United States.
Backup
withholding is not an additional tax. Rather, the United States income tax liability (if any) of persons subject to backup withholding will be reduced by the amount of tax
withheld. If withholding results in an overpayment of taxes, a refund may be obtained, provided that certain required information is timely furnished to the IRS.
Additional Withholding Requirements under Foreign Account Tax Compliance Act
Sections 1471 through 1474 of the Code and the Treasury regulations and administrative guidance issued thereunder ("FATCA") impose a 30%
withholding tax on any dividends paid on our common units if paid to a "foreign financial institution" or a "non-financial foreign entity" (each as defined in the Code) (including, in some cases, when
such foreign financial institution or non-financial foreign entity is acting as an intermediary), unless (i) in the case of a foreign financial institution, such institution enters into an
agreement with the United States government to withhold on certain payments, and to collect and provide to the United States tax authorities substantial information regarding United States account
holders of such institution (which includes certain equity and debt holders of such institution, as well as certain account holders that are foreign entities with United States owners), (ii) in
the case of a non-financial foreign entity, such entity certifies that it does not have any "substantial United States owners" (as defined in the Code) or provides the withholding agent with a
certification identifying the direct and indirect substantial United States owners of the entity, or (iii) the foreign financial institution or non-financial foreign entity otherwise qualifies
for an exemption
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from
these rules and provides appropriate documentation (such as an IRS Form W-8BEN-E). Under certain circumstances, a holder might be eligible for refunds or credits of such taxes. An
intergovernmental agreement between the United States and an applicable foreign country or future Treasury Regulations may modify these requirements. Holders are encouraged to consult their tax
advisors regarding the possible implications of FATCA.
3.8% Tax on Net Investment Income
Certain holders that are individuals, trusts or estates will be subject to an additional 3.8% tax on net investment income, which generally will
include dividends received and gain recognized with respect to our common units. For individual United States holders, this tax applies to the lesser of (i) "net investment income," or
(ii) the excess of "modified adjusted gross income" over $200,000 ($250,000 if married and filing jointly or $125,000 if married and filing separately). "Net investment income" generally equals
a holder's gross investment income reduced by the deductions that are allocable to such income. Investment income generally includes passive income such as interest, dividends, annuities, royalties,
rents and capital gains. You are urged to consult your own tax advisors regarding the application of this additional tax to your particular circumstances.
INVESTORS CONSIDERING THE PURCHASE OF OUR COMMON UNITS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS REGARDING THE APPLICATION OF THE UNITED STATES FEDERAL INCOME
TAX LAWS TO THEIR PARTICULAR SITUATIONS AND THE APPLICABILITY AND EFFECT OF UNITED STATES FEDERAL ESTATE AND GIFT TAX LAWS AND ANY STATE, LOCAL OR FOREIGN TAX LAWS AND
TREATIES.
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UNDERWRITING (CONFLICTS OF INTEREST)
Under the terms and subject to the conditions contained in an underwriting agreement dated January 9, 2020, we have agreed to sell to the
underwriters named below, for whom Credit Suisse Securities (USA) LLC is acting as representative, the following respective numbers of common units:
|
|
|
Underwriters
|
|
Number
of Units
|
Credit Suisse Securities (USA) LLC
|
|
2,617,347
|
Raymond James & Associates, Inc.
|
|
1,239,796
|
RBC Capital Markets, LLC
|
|
380,952
|
Goldman Sachs & Co. LLC
|
|
285,714
|
UBS Securities LLC
|
|
285,714
|
Wells Fargo Securities, LLC
|
|
95,238
|
Imperial Capital, LLC
|
|
38,096
|
TD Securities (USA) LLC
|
|
38,096
|
Tuohy Brothers Investment Research, Inc.
|
|
19,047
|
|
|
|
Total
|
|
5,000,000
|
|
|
|
|
|
|
|
|
|
The
underwriting agreement provides that the underwriters are obligated to purchase all the common units in this offering if any are purchased, other than those common units covered by
the option described below. The underwriting agreement also provides that, if an underwriter defaults, the purchase commitments of non-defaulting underwriters may be increased or this offering may be
terminated. The offering of the common units by the underwriters is subject to receipt and acceptance, and subject to the underwriters' right to reject, any order in whole or in part.
We
and the selling unitholders have agreed to indemnify the underwriters and certain of their controlling persons against certain liabilities, including liabilities under the Securities
Act, and to contribute to payments that the underwriters may be required to make in respect of those liabilities.
The
selling unitholders have granted the underwriters a 30-day option to purchase up to 750,000 additional units at the public offering price less the underwriting discount.
The
underwriters propose to offer the common units initially at the public offering price on the cover page of this prospectus supplement and to selling group members at that price less
a selling concession of up to $0.3720 per common unit. After the public offering of the common units, the representative may change the public offering price and selling concession and discount to
broker/dealers.
The
following table summarizes the compensation we will pay to the underwriters:
|
|
|
|
|
|
|
|
|
|
|
Per
Common
Unit
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
Price to public
|
|
$
|
15.5000
|
|
$
|
77,500,000
|
|
Underwriting discount
|
|
$
|
0.6975
|
|
$
|
3,487,500
|
|
Proceeds, before expenses, to us
|
|
$
|
14.8025
|
|
$
|
74,012,500
|
|
We
will bear the costs, other than the underwriting discount and commissions, associated with the sale of common units by the selling unitholders. The expenses of this offering that have
been paid or are payable by us are estimated to be approximately $700,000 (excluding underwriting discounts). We have agreed to reimburse the underwriters for certain of their expenses in an amount up
to $20,000.
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Subject
to certain exceptions, (i) we, our general partner, and each of the officers and directors of our general partner and (ii) the selling unitholders have agreed that
for a period of 60 and 45 days,
respectively, after the date of this prospectus supplement, we and they will not, directly or indirectly, (i) offer for sale, sell, pledge or otherwise dispose of (or enter into any transaction
or device that is designed to, or could be expected to, result in the disposition by any person at any time in the future of) any of our common units or securities convertible into or exchangeable or
exercisable for any of our common units, or sell or grant options, rights or warrants with respect to any of our common units or securities convertible into or exchangeable for our common units,
(ii) enter into any swap or other derivatives transaction that transfers to another, in whole or in part, any of the economic benefits or risks of ownership of our common units, whether any
such transaction described in clause (i) or (ii) above is to be settled by delivery of our common units or other securities, in cash or otherwise, (iii) file or cause to be filed
a registration statement, including any amendments with respect to the registration of any of our common units or securities convertible, exercisable or exchangeable into our common units or any other
of our securities or (iv) publicly disclose the intention to do any of the foregoing, in each case without the prior written consent of Credit Suisse Securities (USA) LLC on behalf of
the underwriters.
In
connection with this offering the underwriters may engage in stabilizing transactions, over-allotment transactions, syndicate covering transactions and penalty bids, in accordance
with Regulation M under the Securities Exchange Act of 1934, as amended (the "Exchange Act").
-
-
Stabilizing transactions permit bids to purchase the underlying security so long as the stabilizing bids do not exceed a specified maximum.
-
-
Over-allotment involves sales by the underwriters of common units in excess of the number of common units the underwriters are obligated to
purchase, which creates a syndicate short position. The short position may be either a covered short position or a naked short position. In a covered short position, the number of common units
over-allotted by the underwriters is not greater than the number of common units that they may purchase in the option to purchase additional common units. In a naked short position, the number of
common units involved is greater than the number of common units in the over-allotment option. The underwriters may close out any covered short position by either exercising their over-allotment
option and/or purchasing common units in the open market.
-
-
Syndicate covering transactions involve purchases of our common units in the open market after the distribution has been completed in order to
cover syndicate short positions. In determining the source of common units to close out the short position, the underwriters will consider, among other things, the price of common units available for
purchase in the open market as compared to the price at which they may purchase common units through the option to purchase additional common units. If the underwriters sell more common units than
could be covered by the option to purchase additional common units, a naked short position, the position can only be closed out by buying common units in the open market. A naked short position is
more likely to be created if the underwriters are concerned that there could be downward pressure on the price of the common units in the open market after pricing that could adversely affect
investors who purchase in this offering.
-
-
Penalty bids permit the representative to reclaim a selling concession from a syndicate member when the common units originally sold by the
syndicate member are purchased in a stabilizing or syndicate covering transaction to cover syndicate short positions.
These
stabilizing transactions, syndicate covering transactions and penalty bids may have the effect of raising or maintaining the market price of our common units or preventing or
retarding a decline in the market price of the common units. As a result the price of our common units may be higher than
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the
price that might otherwise exist in the open market. These transactions may be effected on the New York Stock Exchange or otherwise and, if commenced, may be discontinued at any time.
A
prospectus supplement and the accompanying base prospectus in electronic format may be made available on the websites maintained by one or more of the underwriters, or selling group
members, if any, participating in this offering and one or more of the underwriters participating in this offering may distribute prospectuses electronically. The underwriters may agree to allocate a
number of common units to underwriters and selling group members for sale to their online brokerage account holders. Internet distributions will be allocated by the underwriters and selling group
members that will make internet distributions on the same basis as other allocations.
Other Relationships
The underwriters and their respective affiliates are full-service financial institutions engaged in various activities, which may include
securities trading, commercial and investment banking, financial advisory, investment management, investment research, principal investment, hedging, financing and brokerage activities. Certain of the
underwriters and their respective affiliates have, from time to time, performed, and may in the future perform, various financial advisory and investment banking services for us and our affiliates,
for which they received or will receive customary fees and expenses.
In
addition, in the ordinary course of their business activities, the underwriters and their affiliates may make or hold a broad array of investments and actively trade debt and equity
securities (or related derivative securities) and financial instruments (including bank loans) for their own account and for the accounts of their customers. These investments and securities
activities may involve securities and/or instruments of ours or our affiliates. The underwriters and their affiliates may also make investment recommendations and/or publish or express independent
research views in respect of such securities or financial instruments and may hold, or recommend to clients that they acquire, long and/or short positions in such securities and instruments.
Conflicts of Interest
As described in the section titled "Use of Proceeds," Credit Suisse Securities (USA) LLC, RBC Capital Markets, LLC and Wells Fargo
Securities, LLC are underwriters in this offering and their respective affiliates will receive at least 5% of the net proceeds of this offering in connection with the potential repayment of
outstanding borrowings under our revolving credit facility with the net proceeds of this offering. As such, Credit Suisse Securities (USA) LLC, RBC Capital Markets, LLC and Wells Fargo
Securities, LLC are each deemed to have a "conflict of interest" under FINRA Rule 5121. Accordingly, this offering will be made in compliance with the applicable provisions of FINRA
Rule 5121. The appointment of a "qualified independent underwriter" is not required in connection with this offering as a "bona fide public market," as defined in FINRA Rule 5121, exists
for our common units. Pursuant to FINRA Rule 5121, Credit Suisse Securities (USA) LLC, RBC Capital Markets, LLC and Wells Fargo Securities, LLC will not confirm sales of
securities to any account over which it exercises discretionary authority without the prior written approval of the accountholder. Please read "Use of Proceeds" for additional information.
Selling Restrictions
Hong Kong
The common units may not be offered or sold by means of any document other than (i) in circumstances which do not constitute an offer to
the public within the meaning of the Companies Ordinance (Cap. 32, Laws of Hong Kong), or (ii) to "professional investors" within the meaning of the Securities and Futures Ordinance (Cap. 571,
Laws of Hong Kong) and any rules made thereunder, or (iii) in other circumstances which do not result in the document being a "prospectus" within the
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meaning
of the Companies Ordinance (Cap. 32, Laws of Hong Kong), and no advertisement, invitation or document relating to the common units may be issued or may be in the possession of any person for
the purpose of issue (in each case whether in Hong Kong or elsewhere), which is directed at, or the contents of which are likely to be accessed or read by, the public in Hong Kong (except if permitted
to do so under the laws of Hong Kong) other than with respect to common units which are or are intended to be disposed of only to persons outside Hong Kong or only to "professional investors" within
the meaning of the Securities and Futures Ordinance (Cap. 571, Laws of Hong Kong) and any rules made thereunder.
Singapore
This prospectus has not been registered as a prospectus with the Monetary Authority of Singapore. Accordingly, this prospectus and any other
document or material in connection with the offer or sale, or invitation for subscription or purchase, of the common units may not be circulated or distributed, nor may the common units be offered or
sold, or be made the subject of an invitation for subscription or purchase, whether directly or indirectly, to persons in Singapore other
than (i) to an institutional investor under Section 274 of the Securities and Futures Act, Chapter 289 of Singapore, or the SFA, (ii) to a relevant person, or any person
pursuant to Section 275(1A), and in accordance with the conditions, specified in Section 275 of the SFA or (iii) otherwise pursuant to, and in accordance with the conditions of,
any other applicable provision of the SFA.
Where
the common units are subscribed or purchased under Section 275 by a relevant person which is: (a) a corporation (which is not an accredited investor) the sole
business of which is to hold investments and the entire share capital of which is owned by one or more individuals, each of whom is an accredited investor; or (b) a trust (where the trustee is
not an accredited investor) whose sole purpose is to hold investments and each beneficiary is an accredited investor, common units and debentures of that corporation or the beneficiaries' rights and
interest in that trust shall not be transferable for 6 months after that corporation or that trust has acquired the common units under Section 275 except: (1) to an institutional
investor under Section 274 of the SFA or to a relevant person, or any person pursuant to Section 275(1A), and in accordance with the conditions, specified in Section 275 of the
SFA; (2) where no consideration is given for the transfer; or (3) by operation of law.
Japan
The securities have not been and will not be registered under the Financial Instruments and Exchange Law of Japan, or the Financial Instruments
and Exchange Law, and each underwriter has agreed that it will not offer or sell any securities, directly or indirectly, in Japan or to, or for the benefit of, any resident of Japan (which term as
used herein means any person resident in Japan, including any corporation or other entity organized under the laws of Japan), or to others for re-offering or resale, directly or indirectly, in Japan
or to a resident of Japan, except pursuant to an exemption from the registration requirements of, and otherwise in compliance with, the Financial Instruments and Exchange Law and any other applicable
laws, regulations and ministerial guidelines of Japan.
Canada
Resale Restrictions
The distribution of common units in Canada is being made on a private placement basis exempt from the requirement that we prepare and
file a prospectus with the securities regulatory authorities in each province where trades of these securities are made. Any resale of the common units in Canada must be made under applicable
securities laws which may vary depending on the relevant jurisdiction, and which may require resales to be made under available statutory exemptions or under a
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discretionary
exemption granted by the applicable Canadian securities regulatory authority. Purchasers are advised to seek legal advice prior to any resale of the securities.
Representations of Canadian Purchasers
By purchasing common units in Canada and accepting delivery of a purchase confirmation, a purchaser is representing to us and the dealer from
whom the purchase confirmation is received that:
-
-
the purchaser is entitled under applicable provincial securities laws to purchase the common units without the benefit of a prospectus
qualified under those securities laws as it is an "accredited investor" as defined under National Instrument 45-106Prospectus Exemptions or Section 73.3(1) of the Securities
Act (Ontario), as applicable,
-
-
the purchaser is a "permitted client" as defined in National Instrument 31-103Registration Requirements, Exemptions and
Ongoing Registrant Obligations,
-
-
where required by law, the purchaser is purchasing as principal and not as agent, and
-
-
the purchaser has reviewed the text above under Resale Restrictions.
Conflicts of Interest
Canadian purchasers are hereby notified that the underwriters are relying on the exemption set out in section 3A.3 of National
Instrument 33-105Underwriting Conflicts from having to provide certain conflict of interest disclosure in this document.
Statutory Rights of Action
Securities legislation in certain provinces or territories of Canada may provide a purchaser with remedies for rescission or damages if the
offering memorandum (including any amendment thereto) such as this document contains a misrepresentation, provided that the remedies for rescission or damages are exercised by the purchaser within the
time limit prescribed by the securities legislation of the purchaser's province or territory. The purchaser of these securities in Canada should refer to any applicable provisions of the securities
legislation of the purchaser's province or territory for particulars of these rights or consult with a legal advisor.
Enforcement of Legal Rights
All of our directors and officers as well as the experts named herein may be located outside of Canada and, as a result, it may not be possible
for Canadian purchasers to effect service of process within Canada upon us or those persons. All or a substantial portion of our assets and the assets of those persons may be located outside of Canada
and, as a result, it may not be possible to satisfy a judgment against us or those persons in Canada or to enforce a judgment obtained in Canadian courts against us or those persons outside of Canada.
Taxation and Eligibility for Investment
Canadian purchasers of common units should consult their own legal and tax advisors with respect to the tax consequences of an investment in the
common units in their particular circumstances and about the eligibility of the common units for investment by the purchaser under relevant Canadian legislation.
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LEGAL MATTERS
The validity of the common units offered hereby will be passed upon for us by Baker Botts L.L.P., Houston, Texas. Certain legal matters
with respect to the common units offered hereby will be passed upon for the underwriters by Latham & Watkins LLP, Houston, Texas. Certain legal matters with respect to the common units
offered hereby will be passed upon for the selling unitholders by Kirkland & Ellis LLP.
EXPERTS
The audited financial statements of Kimbell Royalty Partners, LP incorporated by reference in this prospectus supplement and elsewhere in
the registration statement have been so incorporated by reference in reliance upon the report of Grant Thornton LLP, independent registered public accountants, upon the authority of said firm
as experts in accounting and auditing.
The
audited historical consolidated financial statements of Haymaker Minerals & Royalties, LLC included in Exhibit 99.1 of Kimbell Royalty Partners, LP's
Current Report on Form 8-K/A dated July 27, 2018 have been so
incorporated in reliance on the report of PricewaterhouseCoopers LLP, independent accountants, given on the authority of said firm as experts in auditing and accounting.
The
financial statements of Haymaker Properties, LP as of and for the years ended December 31, 2017 and 2016, incorporated by reference in this prospectus, have been
audited by Deloitte & Touche LLP, independent auditors, as stated in their report (which report expresses an unmodified opinion and includes an emphasis-of-matter paragraph relating to
related party transactions and an other matter paragraph related to the supplemental oil and gas information) incorporated by reference herein. Such financial statements have been so incorporated in
reliance upon the report of such firm given upon their authority as experts in accounting and auditing.
The
audited historical combined financial statements of Phillips Energy Partners, LLC, Phillips Energy Partners II, LLC and Phillips Energy Partners III, LLC as of
and for the years ended December 31, 2018 and 2017, have been audited by Heard, McElroy & Vestal LLC, independent auditors, as stated in their report incorporated by reference
herein. Such financial statements have been so incorporated in reliance upon the report of such firm given upon their authority as experts in accounting and auditing.
Information
incorporated in this prospectus by reference from Kimbell Royalty Partners, LP's
Annual Report on Form 10-K for the fiscal year ended December 31,
2018 regarding estimates of our proved reserves, future production and income attributable to certain royalty interests of Kimbell Royalty Partners, LP is based upon estimates of
such reserves and present values prepared by Ryder Scott Company, L.P., a third-party independent petroleum engineer, as of December 31, 2018. This information is incorporated by
reference in reliance upon the authority of said firm as experts in such matters.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and other reports and other information with the SEC. Our SEC filings are available at the SEC's website at
www.sec.gov, which contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. You can also obtain information about us on our
website at www.kimbellrp.com. Information on our website or any other website is not incorporated by reference into this prospectus and does not constitute a part of this prospectus unless
specifically so designated and filed with the SEC.
The
SEC allows us to "incorporate by reference" the information we have filed with the SEC. This means that we can disclose important information to you without actually including the
specific information in this prospectus by referring you to those documents. The information incorporated by
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reference
is considered to be part of this prospectus. However, any statement incorporated by reference into this prospectus supplement shall be automatically modified or superseded for purposes of
this prospectus supplement to the extent that a statement contained herein modifies or supersedes such prior statement. Information that we file later with the SEC (which does not include any
information furnished pursuant to Item 2.02 or Item 7.01 on any Current Report on Form 8-K) will automatically update and may replace information in this prospectus and
information previously filed with the SEC.
The
documents listed below and any future filings made by us with the SEC under Section 13(a), 13(c), 14 or 15(d) of the Exchange Act (excluding any information furnished pursuant
to Item 2.02 or Item 7.01 on any Current Report on Form 8-K) after the date of this prospectus supplement or the accompanying base prospectus and prior to the termination of the
offering of the securities offered by this prospectus supplement and the accompanying base prospectus, are incorporated by reference in this prospectus:
-
-
our Annual Report on
Form 10-K for the fiscal year ended December 31, 2018, filed on March 12, 2019;
-
-
our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2019, June 30, 2019 and September 30, 2019,
filed on May 9, 2019,
August 8, 2019 and
November 8, 2019, respectively;
-
-
the description of our common
units contained in our Registration Statement on Form 8-A (File No. 001-38005), filed on February 2, 2017; and
-
-
our Current Reports on Form 8-K or 8-K/A filed on
July 30, 2018,
September 11, 2018,
September 19, 2018,
January 25, 2019,
January 28, 2019,
February 12, 2019 (but only the Form 8-K filed with respect to
Items 1.01, 3.02 and 9.01), March 5, 2019,
March 12, 2019,
March 26, 2019,
April 5, 2019,
April 26, 2019,
May 28, 2019,
June 7, 2019,
July 26, 2019,
October 25, 2019,
November 14, 2019,
December 16, 2019, and
January 9, 2020.
You
may request a copy of any document incorporated by reference in this prospectus, at no cost, by writing or calling us at the following address:
Kimbell
Royalty Partners, LP
777 Taylor Street, Suite 810
Fort Worth, Texas 76102
(817) 945-9700
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PROSPECTUS
$134,450,000
KIMBELL ROYALTY PARTNERS, LP
Common Units
Preferred Units
Partnership Securities
Warrants
Rights
27,512,556 Common Units Offered by the Selling Unitholders
We may from time to time, in one or more offerings, sell, in one or more series, the following securities under this prospectus, which we refer to collectively as
the "securities":
-
-
common units representing limited partner interests in Kimbell Royalty Partners, LP;
-
-
preferred units representing limited partner interests in Kimbell Royalty Partners, LP;
-
-
partnership securities representing limited partner interests in Kimbell Royalty Partners, LP;
-
-
warrants to purchase common units, preferred units or partnership securities in Kimbell Royalty Partners, LP; and
-
-
rights to purchase common units, preferred units or partnership securities in Kimbell Royalty Partners, LP.
This
prospectus may also be used by the selling unitholders (as defined below), from time to time in one or more offerings, of up to 27,512,556 common units held by such selling
unitholders at prices and on terms that will be determined at the time of any such offerings. "Selling unitholders" refers to the selling unitholders named in this prospectus or in any supplement to
this prospectus or certain transferees, assignees or other successors-in-interest that received units from the selling unitholders (collectively, the "selling unitholders").
We
will not receive any proceeds from the sale of common units owned by the selling unitholders. For a detailed discussion of the selling unitholders, please read "Selling Unitholders."
We
and the selling unitholders may sell these securities through one or more underwriters, dealers or agents, or directly to purchasers, on a continuous or delayed basis. The aggregate
initial offering price of all securities sold by us under this prospectus will not exceed $134,450,000.
This
prospectus describes the general terms of these securities and the general manner in which we or the selling unitholders will offer them. The specific terms of any securities that
we or the selling unitholders offer will, if not included in this prospectus or the information incorporated by reference herein, be included in a supplement to this prospectus. The prospectus
supplement will also describe the specific manner in which we or the selling unitholders will offer the securities, and also may add, update or change information contained in this prospectus. The
names of any underwriters and the specific terms of a plan of distribution will be stated in a supplement to this prospectus.
You
should read this prospectus and any applicable prospectus supplement and the documents incorporated by reference herein or therein carefully before you invest in any of our
securities. You should also read the documents we have referred you to in the "Where You Can Find More Information" and "Information We Incorporate by Reference" sections of this prospectus for
information about us, including our financial statements.
Our
common units are traded on the New York Stock Exchange (the "NYSE") under the symbol "KRP." We will provide information in the prospectus supplement for the trading market, if any,
for any preferred units, partnership securities, warrants and rights we may offer.
Investing in our securities involves a high degree of risk. Limited partnerships are inherently different from
corporations. You should carefully consider the risks relating to investing in our securities and each of the other risk factors described under "Risk Factors" beginning on page 7 of this
prospectus before you make an investment in our securities.
Neither the Securities and Exchange Commission (the "SEC") nor any state securities commission has approved or disapproved
of these securities or determined whether this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
The
date of this prospectus is May 23, 2019
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TABLE OF CONTENTS
In making your investment decision, you should rely only on the information contained in this prospectus, any prospectus supplement and the documents we have
incorporated by reference in this prospectus or any prospectus supplement. We have not authorized anyone else to give you different information. We are not offering these securities in any state where
the offer is not permitted. You should not assume that the information in this prospectus or any prospectus supplement is accurate as of any date other than the date on the front of those
documents.
You should not assume that the information contained in the documents incorporated by reference in this prospectus or in any prospectus supplement is accurate as
of any date other than the respective dates of those documents. We will disclose any material changes in our affairs in an amendment to this prospectus, a prospectus supplement or a future filing with
the SEC incorporated by reference in this prospectus or any prospectus supplement.
i
Table of Contents
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement that we have filed with the SEC using a "shelf" registration process. Under this shelf
registration process, we may sell from time to time up to $134,450,000 of our securities. In addition, the selling unitholders may from time to time sell up to 27,512,556 of our common units.
This
prospectus provides you with a general description of Kimbell Royalty Partners, LP and the securities that are registered hereunder. Each time we sell any securities offered
by this prospectus, we will provide a prospectus supplement that will contain specific information about the terms of that offering and the securities being offered. Each time a selling unitholder
sells common units with this prospectus, such selling unitholder is required to provide you with this prospectus and any related prospectus supplement containing specific information about the terms
of that offering. Any prospectus supplement may also add to, update or change information contained in this prospectus. To the extent
information in this prospectus is inconsistent with the information contained in a prospectus supplement, you should rely on the information in the prospectus supplement.
The
information in this prospectus is accurate as of its date. Additional information, including our financial statements and the notes thereto, is incorporated in this prospectus by
reference to our reports filed with the SEC and is accurate as of the date stated in such report. Before you invest in our securities, you should carefully read this prospectus, including the "Risk
Factors," any prospectus supplement, the information incorporated by reference in this prospectus and any prospectus supplement (including the documents described under the heading "Where You Can Find
More Information" in both this prospectus and any prospectus supplement) and any additional information you may need to make your investment decision.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and other reports and other information with the SEC. Our SEC filings are available at the SEC's website at
http://www.sec.gov, which contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. You can also obtain information about us on
our website at http://www.kimbellrp.com. Information on our website or any other website is not incorporated by reference into this prospectus and does not constitute a part of this prospectus unless
specifically so designated and filed with the SEC.
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INFORMATION WE INCORPORATE BY REFERENCE
The SEC allows us to "incorporate by reference" the information we have filed with the SEC. This means that we can disclose important
information to you without actually including the specific information in this prospectus by referring you to those documents. The information incorporated by reference is considered to be part of
this prospectus. Information that we file later with the SEC (which does not include any information furnished pursuant to Item 2.02 or Item 7.01 on any Current Report on
Form 8-K) will automatically update and may replace information in this prospectus and information previously filed with the SEC. Any information so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this prospectus. Unless this prospectus or the information incorporated by reference herein indicates that another date applies,
you should not assume that the information in this prospectus is current as of any date other than the date of this prospectus or that any information we have incorporated by reference herein is
accurate as of any date other than the date of the document incorporated by reference.
The
documents listed below and any future filings made by us with the SEC under Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act") (excluding any information furnished pursuant to Item 2.02 or Item 7.01 on any Current Report on Form 8-K), including all such documents we may file with the SEC after the
date of the registration statement that includes this prospectus and prior to the effectiveness of the registration statement that includes this prospectus, are incorporated by reference in this
prospectus until the termination of all offerings under this registration statement:
-
-
our Annual Report on
Form 10-K for the year ended December 31, 2018, filed on March 12, 2019;
-
-
our Quarterly Report on
Form 10-Q for the quarter ended March 31, 2019, filed on May 9, 2019;
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-
the description of our
common units contained in our Registration Statement on Form 8-A, filed on February 2, 2017; and
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-
our Current Reports on Form 8-K or Form 8-K/A filed on
July 30, 2018,
September 11, 2018,
September 19, 2018,
January 25, 2019,
January 28, 2019,
February 12, 2019 (but only the Form 8-K filed with
respect to Items 1.01, 3.02 and 9.01), March 5,
2019, March 12, 2019,
March 26, 2019,
April 5, 2019 and
April 26, 2019.
You
may request a copy of any document incorporated by reference in this prospectus, at no cost, by writing or calling us at the following address:
Kimbell
Royalty Partners, LP
777 Taylor Street, Suite 810
Fort Worth, Texas 76102
(817) 945-9700
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements and information contained in or incorporated by reference in this prospectus may constitute "forward-looking statements."
Forward-looking statements give our current expectations, contain projections of results of operations or of financial condition, or forecasts of future events. Words such as "may," "assume,"
"forecast," "position," "predict," "strategy," "expect," "intend," "plan," "estimate," "anticipate," "believe," "project," "budget," "potential," or "continue," and similar expressions are used to
identify forward-looking statements. They can be affected by assumptions used or by known or unknown risks or uncertainties. Consequently, no forward-looking statements can be guaranteed. When
considering these forward-looking statements, you should keep in mind the risk factors and other cautionary statements in this prospectus. Actual results may vary materially. You are cautioned not to
place undue reliance on any forward-looking statements. You should also understand that it is not possible to predict or identify all such factors and should not consider the following list to be a
complete statement of all potential risks and uncertainties. All comments concerning our expectations for future revenues and operating results are based on our forecasts for our existing operations
and do not include the potential impact of future operations or acquisitions. Factors that could cause our actual results to differ materially from the results contemplated by such forward-looking
statements include:
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our ability to replace our reserves;
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-
our ability to identify, complete and integrate acquisitions of assets or businesses;
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-
the effect of the Tax Election (as defined below) or the Restructuring (as defined below) on our customer relationships, operating results and
business generally;
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-
the failure to realize the anticipated benefits of the Tax Election or the Restructuring;
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our ability to execute our business strategies;
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the volatility of realized prices for oil, natural gas and natural gas liquids ("NGLs");
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the level of production on our properties;
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the level of drilling and completion activity by the operators of our properties;
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regional supply and demand factors, delays or interruptions of production;
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general economic, business or industry conditions;
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competition in the oil and natural gas industry;
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the ability of the operators of our properties to obtain capital or financing needed for development and exploration operations;
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title defects in the properties that we acquire;
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uncertainties with respect to identified drilling locations and estimates of reserves;
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the availability or cost of rigs, completion crews, equipment, raw materials, supplies, oilfield services or personnel;
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restrictions on or the availability of the use of water in the business of the operators of our properties;
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the availability of transportation facilities;
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the ability of the operators of our properties to comply with applicable governmental laws and regulations and to obtain permits and
governmental approvals;
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federal and state legislative and regulatory initiatives relating to the environment, hydraulic fracturing, tax laws and other matters
affecting the oil and gas industry;
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future operating results;
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exploration and development drilling prospects, inventories, projects and programs;
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operating hazards faced by the operators of our properties;
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the ability of the operators of our properties to keep pace with technological advancements; and
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certain factors discussed elsewhere in this prospectus.
For
additional information regarding known material factors that could cause our actual results to differ from our historical experience and our present expectations or projections,
please see "Risk Factors" in our Annual Report on Form 10-K and, to the extent applicable, our Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any prospectus
supplement. The risk factors and other factors included in this prospectus, any prospectus supplement or incorporated by reference herein or therein could cause our actual results to differ materially
from those contained in any forward-looking statement.
Readers
are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date hereof. We undertake no obligation to publicly update or revise any
forward-looking statements after the date they are made, whether as a result of new information, future events or otherwise.
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ABOUT KIMBELL ROYALTY PARTNERS, LP
Unless the context otherwise requires, references to "Kimbell Royalty Partners, LP," "our partnership," "we,"
"our," "us" or like terms refer to Kimbell Royalty Partners, LP and its subsidiaries. References to "our general partner" refer to Kimbell Royalty GP, LLC. References to "our
Sponsors" refer to affiliates of our founders, Ben J. Fortson, Robert D. Ravnaas, Brett G. Taylor and Mitch S. Wynne, respectively. References to "the Operating Company" refer to Kimbell Royalty
Operating, LLC, a subsidiary of our partnership. References to the "Contributing Parties" refer to all entities and individuals, including certain affiliates of our Sponsors, that contributed,
directly or indirectly, certain mineral and royalty interests to us. References to "Kimbell Operating" refer to Kimbell Operating Company, LLC, a wholly owned subsidiary of our general partner,
which entered into separate services agreements with certain entities controlled by affiliates of our Sponsors and certain Contributing Parties as described herein. References to the "Exchange
Agreement" refer to the Exchange Agreement, dated as of September 23, 2018, by and among Haymaker Minerals & Royalties, LLC, EIGF Aggregator III LLC, TE Drilling
Aggregator LLC, Haymaker Management, LLC (collectively, the "Haymaker Holders"), the Kimbell Art Foundation (the "Foundation"), our general partner, the Operating Company and any future
holders of common units of the Operating Company ("OpCo Common Units") and Class B common units representing limited partner interests in us ("Class B Units") from time to time party
thereto.
We
are a Delaware limited partnership formed in 2015 to own and acquire mineral and royalty interests in oil and natural gas properties throughout the United States of America ("United
States"). As an owner of mineral and royalty interests, we are entitled to a portion of the revenues received from the production of oil, natural gas and associated NGLs from the acreage underlying
our interests, net of post-production expenses and taxes. We are not obligated to fund drilling and completion costs, lease operating expenses or plugging and abandonment costs at the end of a well's
productive life. Our primary business objective is to provide increasing cash distributions to unitholders resulting from acquisitions from third parties, our Sponsors and the Contributing Parties and
from organic growth through the continued development by working interest owners of the properties in which we own an interest.
On
September 24, 2018, we elected to change our United States federal income tax status from that of a pass-through partnership to that of an entity taxable as a corporation by
means of a "check the box" election (the "Tax Election"). Pursuant to the terms of a Recapitalization Agreement, dated as of July 24, 2018 (the "Recapitalization Agreement"), (a) our
equity interest in the Operating Company was recapitalized into newly issued OpCo Common Units and newly issued Series A Cumulative Convertible
Preferred Units of the Operating Company ("OpCo Series A Preferred Units") and (b) the common units held by the Haymaker Holders and the Foundation were exchanged for (i) newly
issued Class B Units and (ii) newly issued OpCo Common Units. In addition, the owners of Kimbell GP Holdings, LLC, the direct owner of our general partner ("GP Holdings"),
contributed 30,000 common units to GP Holdings. The transactions contemplated by the Recapitalization Agreement are referred to herein as the "Restructuring."
Following
the effectiveness of the Tax Election and the completion of the Restructuring, our royalty and minerals business continues to be conducted through the Operating Company, which
is taxed as a partnership for United States federal and state income tax purposes. We are the managing member of the Operating Company and other holders of OpCo Common Units are non-managing members.
Our decisions in our capacity as the managing member of the Operating Company are made by our general partner. The non-managing members have limited voting rights and are entitled to distributions.
For a more complete description of the Tax Election and the Restructuring, please read our
Annual Report on Form 10-K for the year ended December 31,
2018, which is incorporated by reference herein.
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Executive Offices
Our principal executive offices are located at 777 Taylor Street, Suite 810, Fort Worth, Texas 76102, and our phone number is
(817) 945-9700. Our website address is http://www.kimbellrp.com. Information on our website or any other website is not incorporated by reference
into this prospectus and does not constitute a part of this prospectus.
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RISK FACTORS
An investment in our securities involves a significant degree of risk. You should carefully consider the following risk factors and all of the
other information included in this prospectus, any prospectus supplement, and the documents we have incorporated by reference into this prospectus and any prospectus supplement, including those in
Item 1A "Risk Factors" in our Annual Report on Form 10-K for the fiscal year
ended December 31, 2018, as updated by quarterly and other reports and documents we file with the SEC that are incorporated by reference herein, in evaluating an investment in
our securities. If any of these risks were actually to occur, our business, financial condition, results of operations, and cash available for distribution could be materially adversely affected. In
that event, we might not be able to make distributions on our common units, the trading price of our common units, preferred units, partnership securities, warrants or rights could decline, and you
could lose all or part of your investment. If we or any selling unitholder sell any securities pursuant to a prospectus supplement, we or such selling unitholder may include additional risk factors
relevant to such securities in such prospectus supplement.
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USE OF PROCEEDS
Except as otherwise provided in an applicable prospectus supplement, we will use the net proceeds we receive from our sale of securities covered
by this prospectus for general partnership purposes, which may include, among other things, debt repayment, working capital, capital expenditures and acquisitions.
Any
specific allocation of the net proceeds of an offering of securities to a purpose will be determined at the time of the offering and will be described in a prospectus supplement.
We
will not receive any of the proceeds from the sale of common units by the selling unitholders.
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DESCRIPTION OF OUR COMMON UNITS AND CLASS B UNITS
Our Common Units
The common units represent limited partner interests in us. The holders of common units are entitled to participate in partnership distributions
and exercise the rights and privileges provided to limited partners holding common units under our partnership agreement. For a description of the relative rights and privileges of holders of our
common units to partnership distributions, please read "How We Pay Distributions." For a description of the rights and privileges of limited partners holding common units under our partnership
agreement, including voting rights, please read "The Partnership Agreement."
Our Class B Units
The Class B Units represent limited partner interests in us. The holders of Class B Units are only entitled to participate in
partnership distributions and exercise the rights and privileges provided to limited partners holding Class B Units under our partnership agreement. For a description of the relative rights and
privileges of holders of our Class B Units to partnership distributions, please read "How We Pay Distributions." For a description of the rights and privileges of limited partners holding
Class B Units under our partnership agreement, including voting rights, please read "The Partnership Agreement."
The
Class B Units are identical to the common units, except that the Class B Units (i) are entitled to receive cash distributions from operations or upon our
liquidation or winding up equal to 2.0% per quarter on their respective Class B Contribution (as defined below) (ii) are not transferable (except to certain affiliates of holders of
Class B Units, so long as the transferring holder of the Class B Units simultaneously transfers an equal number of OpCo Common Units to such affiliate in accordance with the limited
liability company agreement of the Operating Company), (iii) are exchangeable, together with an equal number of OpCo Common Units, for common units, (iv) do not have the benefit of
registration rights and (v) if at any time any record holder of one or more Class B Units does not hold an equal number of Class B Units and OpCo Common Units, we will issue
additional Class B Units to such holder or cancel Class B Units held by such holder, as applicable, such that the number of Class B Units held by such holder is equal to the
number of OpCo Common Units held by such holder.
Exchange Right
Pursuant to the terms of the Exchange Agreement, each holder of OpCo Common Units is able to tender its OpCo Common Units and an equal number of
its Class B Units (one such OpCo Common Unit and one such Class B Unit, together, a "Tendered Unit," and collectively, the "Tendered Units") for redemption to the Operating Company. Each
tendering holder of Tendered Units (such holder, a "Tendering Holder") has the right to receive, at the election of the Operating Company, either a number of our common units equal to the number of
Tendered Units or a cash payment equal to the number of Tendered Units multiplied by the current market price of our common units calculated in accordance with our partnership agreement. In addition,
we have the right, but not the obligation, to directly purchase all or a portion of such Tendered Units for either a number of our common units equal to the number of Tendered Units we elect to
purchase or a cash payment equal to the number of Tendered Units we elect to purchase multiplied by the current market price of our common units calculated in accordance with our partnership
agreement. Each Tendering Holder also has the right to receive a cash amount equal to the Class B Capital Contribution Per Unit Amount (as defined below) multiplied by the number of Tendered
Units that are redeemed by the Operating Company or that are repurchased by us.
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If
the Operating Company elects to require the delivery of our common units in exchange for any Tendered Units or we elect to purchase any Tendered Units using our common units as
consideration, the exchange will be on a one-for-one basis, subject to adjustment in the event of splits or combinations of units, distributions of warrants or other unit purchase rights, specified
extraordinary distributions and similar events.
Transfer Agent and Registrar
Duties
American Stock Transfer & Trust Company, LLC serves as the registrar and transfer agent for the common units. We pay all fees
charged by the transfer agent for transfers of common units except the following, which must be paid by unitholders:
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surety bond premiums to replace lost or stolen certificates, taxes and other governmental charges;
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special charges for services requested by a holder of a common unit; and
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other similar fees or charges.
There
is no charge to our unitholders for disbursements of our quarterly cash distributions. We will indemnify the transfer agent, its agents and each of their stockholders, directors,
officers and employees against all claims and losses that may arise out of acts performed or omitted for its activities in that capacity, except for any liability due to any gross negligence or
intentional misconduct of the indemnified person or entity.
Resignation or Removal
The transfer agent may resign, by notice to us, or be removed by us. The resignation or removal of the transfer agent will become effective upon
our appointment of a successor transfer agent and registrar and its acceptance of the appointment. If a successor has not been appointed or has not accepted its appointment within 30 days after
notice of the resignation or removal, our general partner may act as the transfer agent and registrar until a successor is appointed.
Transfer of Common Units and Class B Units
By transfer of common units and Class B Units in accordance with our partnership agreement, each transferee of common units and
Class B Units shall be admitted as a limited partner with respect to the class of units transferred when such transfer and admission are reflected in our books and records. Each
transferee:
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represents that the transferee has the capacity, power and authority to become bound by our partnership agreement;
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automatically agrees to be bound by the terms and conditions of, and is deemed to have executed, our partnership agreement; and
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gives the consents and approvals contained in our partnership agreement.
A
transferee will become a substituted limited partner of our partnership for the transferred units automatically upon the recording of the transfer on our books and records. Our general
partner will cause any transfers to be recorded on our books and records from time to time as necessary to accurately reflect the transfers.
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We
may, at our discretion, treat the nominee holder of a common unit or Class B Unit as the absolute owner. In that case, the beneficial holder's rights are limited solely to
those that it has against the nominee holder as a result of any agreement between the beneficial owner and the nominee holder.
Common
units and Class B Units are securities and are transferable according to the laws governing transfer of securities. In addition to other rights acquired upon transfer, the
transferor gives the transferee the right to become a limited partner in our partnership for the transferred units.
Until
a common unit or Class B Unit has been transferred on our books, we and the transfer agent may treat the record holder of the unit as the absolute owner for all purposes,
except as otherwise required by law or stock exchange regulations.
Listing
Our common units are traded on the NYSE under the symbol "KRP." Our Class B Units are not, and will not be, listed on any securities
exchange.
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DESCRIPTION OF THE PREFERRED UNITS
Our partnership agreement authorizes us to issue an unlimited number of additional limited partner interests and other equity securities for the
consideration and with the designations, preferences, rights, powers and duties established by our general partner without the approval of any of our limited partners, except that we will need the
consent of 662/3% of the outstanding Series A Cumulative Convertible Preferred Units ("Series A Preferred Units") to issue, authorize or create any additional
Series A Preferred Units or any class or series of partnership interests (or any obligation or security convertible into, exchangeable for or evidencing the right to purchase any class or
series of partnership interests) that, with respect to distributions on such partnership interests or distributions in respect of such partnership interests upon our liquidation, dissolution and
winding up, ranks equal to or senior to the Series A Preferred Units. In accordance with Delaware law and the provisions of our partnership agreement and subject to the rights of the holders of
the Series A Preferred Units, we may issue additional partnership interests that have special voting rights to which our common units are not entitled. As of the date of this prospectus, we
have one series of preferred units outstanding, the Series A Preferred Units. For more information regarding our Series A Preferred
Units, please read "Series A Cumulative Convertible Preferred Units" and "The Partnership Agreement."
Should
we offer preferred units under this prospectus, a prospectus supplement relating to the particular series of preferred units offered will include the specific terms of those
preferred units, including, among other things, the following:
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the designation, stated value and liquidation preference of the preferred units and the number of preferred units offered;
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the price at which the preferred units will be issued;
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the conversion or exchange provisions of the preferred units;
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any redemption or sinking fund provisions of the preferred units;
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the distribution rights of the preferred units, if any;
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a discussion of any additional material United States federal income tax consequences relating to the preferred units; and
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any additional rights, preferences, privileges, limitations and restrictions of the preferred units.
Series A Cumulative Convertible Preferred Units
On May 28, 2018, we entered into a Series A Preferred Unit Purchase Agreement (the "Series A Preferred Unit Purchase
Agreement") with certain affiliates of Apollo Capital Management, L.P. (collectively, the "Series A Purchasers") to issue and sell 110,000 Series A Preferred Units for a cash
purchase price of $1,000 per Series A Preferred Unit (the "Series A Issue Price"), resulting in gross proceeds to us of $110 million. We issued the Series A Preferred Units
on July 12, 2018 (the "Series A Issuance Date").
Ranking
The Series A Preferred Units rank senior to all classes or series of limited partner interests of ours with respect to distribution
rights.
Voting Rights
The Series A Preferred Units vote on an as-converted basis with the common units and have certain other class voting rights, including
with respect to certain incurrences of debt and any amendment to our partnership agreement if the amendment is materially adverse to any of the rights,
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preferences
and privileges of the Series A Preferred Units. For a description of the rights and privileges of the holders of Series A Preferred Units under our partnership agreement,
including voting rights, please read "The Partnership Agreement."
Distributions
Until the conversion of the Series A Preferred Units into common units or their redemption, holders of the Series A Preferred
Units are entitled to receive cumulative quarterly distributions equal to 7.0% per annum plus accrued and unpaid distributions. We have the right, in any four non-consecutive quarters, to elect not to
pay such quarterly distribution in cash and instead have the unpaid distribution amount added to the liquidation preference at the rate of 10.0% per annum. If we make such an election in consecutive
quarters or otherwise materially breach our obligations to the holders of the Series A Preferred Units, the distribution rate will increase to 20.0% per annum until the accumulated
distributions are paid or the breach is cured, as applicable. Each holder of Series A Preferred Units has the right to share in any special distributions by us of cash, securities or other
property pro rata with the common units on an as-converted basis, subject to customary adjustments. We cannot pay any distributions on any junior securities, including any of the common units, prior
to paying the quarterly distribution payable to the Series A Preferred Units, including any previously accrued and unpaid distributions.
Conversion
Beginning with the earlier of (i) the second anniversary of the Series A Issuance Date and (ii) immediately prior to a
liquidation of us, each holder of the Series A Preferred Units may, at any time (but not more often than once per quarter), elect to convert all or any portion of its Series A Preferred
Units into a number of common units determined by multiplying the number of Series A Preferred Units to be converted by the then-applicable conversion rate, provided that any conversion
(a) is for at least $10 million or such lesser amount that covers all of such holder's (and its affiliates') remaining Series A Preferred Units and (b) the closing price of
the common units is at least 130% of the conversion price of $18.50, subject to certain anti-dilution adjustments (the "Series A Conversion Price") for 20 trading days during the 30-trading day
period immediately preceding the conversion notice.
At
any time on or after the second anniversary of the Series A Issuance Date, we have the option to convert all or any portion of the Series A Preferred Units into a number
of common units determined
by the then-applicable conversion rate, provided that (i) any conversion is for at least $10 million or such lesser amount that covers all of such holder's (and its affiliates')
Series A Preferred Units, (ii) the common units are listed for, or admitted to, trading on a national securities exchange, (iii) the closing price of the common units is at least
160% of the Series A Conversion Price for 20 trading days during the 30-trading day period immediately preceding the conversion notice and (iv) we have an effective registration
statement on file with the SEC covering resales of the underlying common units to be received by the holders of Series A Preferred Units upon such conversion.
Redemption
At our option at any time or at the option of the holders of the Series A Preferred Units beginning seven years after the Series A
Issuance Date or in the event of a change of control, the Series A Preferred Units may be redeemed for a cash amount per Series A Preferred Unit (the "Series A Redemption Price")
equal to the product of (A) the number of outstanding Series A Preferred Units multiplied by (B) the greatest of (1) an amount (together with all prior distributions made
in respect of such Series A Preferred Unit) necessary to achieve the Minimum IRR (as defined below), (2) an amount (together with all prior distributions made in respect of such
Series A Preferred Unit) necessary to achieve a return on investment equal to 1.2 times with respect to such Series A
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Preferred
Unit and (3) the Series A Issue Price plus accrued and unpaid distributions. For purposes of this paragraph, "Minimum IRR" means as of any measurement date: (a) prior to
the fifth anniversary of the Series A Issuance Date, a 13.0% internal rate of return with respect to the Series A Preferred Units; (b) on or after the fifth anniversary of the
Series A Issuance Date and prior to the sixth anniversary of the Series A Issuance Date, a 14.0% internal rate of return with respect to the Series A Preferred Units; and
(c) on or after the sixth anniversary of the Series A Issuance Date, a 15.0% internal rate of return with respect to the Series A Preferred Units.
Board Rights
In connection with the issuance of the Series A Preferred Units, we granted holders of the Series A Preferred Units board observer
rights beginning three years after the Series A Issuance Date, and board appointment rights beginning four years after the Series A Issuance Date and in the case of events of default
with respect to the Series A Preferred Units.
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DESCRIPTION OF THE PARTNERSHIP SECURITIES
Our partnership agreement authorizes us to issue an unlimited number of additional limited partner interests and other equity securities for the
consideration and with the rights, preferences and privileges established by our general partner without the approval of any of our limited partners, except that we will need the consent of
662/3% of the outstanding Series A Preferred Units to issue, authorize or create any additional Series A Preferred Units or any class or series of partnership interests
(or any obligation or security convertible into, exchangeable for or evidencing the right to purchase any class or series of partnership interests) that, with respect to distributions on such
partnership interests or distributions in respect of such partnership interests upon our liquidation, dissolution and winding up, ranks equal to or senior to the Series A Preferred Units.
Should
we offer partnership securities under this prospectus, a prospectus supplement relating to the particular class or series of units offered will include the specific terms of those
units, including, among other things, the following:
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the designation, stated value and liquidation preference of the units and the maximum number of units to constitute the class or series;
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the number of units to be offered;
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the public offering price at which the units will be issued;
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any sinking fund provisions of the units;
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the voting rights, if any, of the units;
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the distribution rights of the units, if any;
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whether the units will be redeemable and, if so, the price and the terms and conditions on which the units may be redeemed, including the time
during which the units may be redeemed and any accumulated distributions thereof, if any, that the holders of the units will be entitled to receive upon the redemption thereof;
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the terms and conditions, if any, on which the units will be convertible into, or exchangeable for, the units of any other class or series of
units representing limited partner interests, including the price or prices or the rate or rates of conversion or exchange and the method, if any, of adjusting the same;
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a discussion of any additional material United States federal income tax considerations (other than as discussed in this prospectus), if any,
regarding the units; and
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any additional rights, preferences, privileges, limitations and restrictions of the units.
The
particular terms of any class or series of units will also be described in the amendment to our partnership agreement relating to that class or series of units, which will be filed
as an exhibit to or incorporated by reference in this prospectus at or before the time of issuance of any such class or series of units.
Such
units will be fully paid and non-assessable when issued upon full payment of the purchase price therefor. The transfer agent, registrar and distributions disbursement agent for the
units will be designated in the applicable prospectus supplement.
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DESCRIPTION OF THE WARRANTS
General Description of Warrants
We may issue warrants for the purchase of common units, preferred units or partnership securities. Warrants may be issued independently or
together with other securities and may be attached to or separate from any offered securities. Each series of warrants will be issued under a separate warrant agreement to be entered into between us
and a bank or trust company, as warrant agent. The warrant agent will act solely as our agent in connection with the warrants and will not have
any obligation or relationship of agency or trust for or with any holders or beneficial owners of warrants. A copy of the warrant agreement will be filed with the SEC in connection with the offering
of warrants.
The
prospectus supplement relating to a particular issue of warrants to purchase common units, preferred units or partnership securities will describe the terms of the common unit
warrants, preferred unit warrants or partnership securities warrants, including, among other things, the following:
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the title of the warrants;
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the offering price for the warrants, if any;
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the aggregate number of the warrants;
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the designation and terms of the common units, preferred units or partnership securities that may be purchased upon exercise of the warrants;
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if applicable, the designation and terms of the securities that the warrants are issued with and the number of warrants issued with each
security;
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if applicable, the date from and after which the warrants and any securities issued with the warrants will be separately transferable;
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the number of common units, preferred units or partnership securities that may be purchased upon exercise of a warrant and the price at which
such securities may be purchased upon exercise;
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the dates on which the right to exercise the warrants commence and expire;
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if applicable, the minimum or maximum amount of the warrants that may be exercised at any one time;
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the currency or currency units in which the offering price, if any, and the exercise price are payable;
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if applicable, a discussion of material United States federal income tax considerations;
-
-
anti-dilution provisions of the warrants, if any;
-
-
redemption or call provisions, if any, applicable to the warrants;
-
-
any additional terms of the warrants, including terms, procedures, and limitations relating to the exchange and exercise of the warrants; and
-
-
any other information we think is important about the warrants.
Exercise of Warrants
Each warrant will entitle the holder of the warrant to purchase at the exercise price set forth in the applicable prospectus supplement the
number of common units, preferred units or partnership securities being offered. Holders may exercise warrants at any time up to the close of business on the expiration date set forth in the
applicable prospectus supplement. After the close of business on the
16
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expiration
date, unexercised warrants are void. Holders may exercise warrants as set forth in the prospectus supplement relating to the warrants being offered.
Until
you exercise your warrants to purchase our common units, preferred units or partnership securities, you will not have any rights as a holder of common units, preferred units or
partnership securities, as the case may be, by virtue of your ownership of warrants.
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DESCRIPTION OF THE RIGHTS
We may issue rights to purchase common units, preferred units or partnership securities. These rights may be issued independently or together
with any other security offered hereby and may or may not be transferable by the unitholder receiving the rights in such offering. In connection with any offering of such rights, we may enter into a
standby arrangement with one or more underwriters or other purchasers pursuant to which the underwriters or other purchasers may be required to purchase any securities remaining unsubscribed for after
such offering.
Each
series of rights will be issued under a separate rights agreement, which we will enter into with a bank or trust company, as rights agent, all as set forth in the applicable
prospectus supplement. The rights agent will act solely as our agent in connection with the certificates relating to the rights and will not assume any obligation or relationship of agency or trust
with any holders of rights certificates or beneficial owners of rights. We will file the rights agreement and the rights certificates relating to each series of rights with the SEC, and incorporate
them by reference as an exhibit to the registration statement of which this prospectus is a part on or before the time we issue a series of rights.
The
applicable prospectus supplement will describe the specific terms of any offering of rights for which this prospectus is being delivered, including, among other things, the
following:
-
-
the date of determining the unitholders entitled to the rights distribution;
-
-
the number of rights issued or to be issued to each unitholder;
-
-
the exercise price payable for each common unit, preferred unit or partnership security upon the exercise of the rights;
-
-
the number and terms of the common units, preferred units or partnership securities that may be purchased per each right;
-
-
the extent to which the rights are transferable;
-
-
the date on which the holder's ability to exercise the rights shall commence, and the date on which the rights shall expire;
-
-
the extent to which the rights may include an over-subscription privilege with respect to unsubscribed securities;
-
-
if applicable, the material terms of any standby underwriting or purchase arrangement entered into by us in connection with the offering of
such rights;
-
-
any other terms of the rights, including the terms, procedures, conditions, and limitations relating to the exchange and exercise of the
rights; and
-
-
any other information we think is important about the rights.
The
description in the applicable prospectus supplement of any rights that we may offer will not necessarily be complete and will be qualified in its entirety by reference to the
applicable rights certificate, which will be filed with the SEC.
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CASH DISTRIBUTION POLICY AND RESTRICTIONS ON DISTRIBUTIONS
General
Our Cash Distribution Policy
The limited liability company agreement of the Operating Company requires it to distribute all of its cash on hand at the end of each quarter in
an amount equal to its available cash for such quarter. In turn, our partnership agreement requires us to distribute all of our cash on hand at the end of each quarter in an amount equal to our
available cash for such quarter. Available cash for each quarter will be determined by the Board of Directors following the end of such quarter. Available cash is defined in the limited liability
company agreement of the Operating Company, our partnership agreement and in "How We Pay Distributions." We expect that the Operating Company's available cash for each quarter will generally equal its
Adjusted EBITDA for the quarter, less cash needed for debt service and other contractual obligations and fixed charges and reserves for future operating or capital needs that the Board of Directors
may determine is appropriate, and we expect that our available cash for each quarter will generally equal our Adjusted EBITDA for the quarter (and will be our proportional share of the available cash
distributed by the Operating Company for that quarter), less cash needs for debt service and other contractual obligations and fixed charges and reserves for future operating or capital needs that the
Board of Directors may determine is appropriate. We do not currently intend to maintain reserve cash for the purpose of maintaining stability or growth in our quarterly distribution or otherwise to
reserve cash for distributions, nor do we intend to incur debt to pay quarterly distributions, although the Board of Directors may change this policy.
Unlike
other public companies, we do not currently intend to retain cash from our operations for capital expenditures necessary to replace our existing oil and natural gas reserves or
otherwise maintain our asset base (replacement capital expenditures), primarily due to our expectation that the continued development of our properties and completion of drilled but uncompleted wells
by working interest owners will substantially offset the natural production declines from our existing wells. We believe that our operators have significant drilling inventory remaining on the acreage
underlying our mineral or royalty interest in multiple resource plays that will provide a solid base for organic growth when commodity prices increase. The Board of Directors may change our
distribution policy and decide to withhold replacement capital expenditures from cash available for distribution, which would reduce the amount of cash available for distribution in the quarter(s) in
which any such amounts are withheld. Over the long term, if our reserves are depleted and our operators become unable to maintain production on our existing properties and we have not been retaining
cash for replacement capital expenditures, the amount of cash generated from our existing properties will decrease and we may have to reduce the amount of distributions payable to our unitholders. To
the extent that we do not withhold replacement capital expenditures, a portion of our cash available for distribution will represent a return of your capital.
It
is our intent, subject to market conditions, to finance acquisitions of mineral and royalty interests that increase our asset base largely through external sources, such as borrowings
under our secured revolving credit facility and the issuance of equity and debt securities, although the Board of Directors may choose to reserve a portion of cash generated from operations to finance
such acquisitions as well. We do not currently intend to maintain reserve cash for the purpose of maintaining stability or growth in our quarterly distribution or otherwise reserve cash for
distributions, or to incur debt to pay quarterly distributions and the Board of Directors may change this policy.
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Limitations on Cash Distributions and Our Ability to Change Our Cash Distribution Policy
There is no guarantee that we will pay cash distributions to our unitholders each quarter. Our cash distribution policy is subject to certain
restrictions, including the following:
-
-
Our sole cash-generating asset is our membership interest in the Operating Company. Therefore, our cash flow and resulting ability to make
distributions is completely dependent upon the ability of the Operating Company to make distributions.
-
-
Our credit agreement contains and our future debt agreements may contain certain financial tests and covenants that we would have to satisfy.
We may also be prohibited from paying distributions if an event of default or borrowing base deficiency exists under our secured revolving credit facility. If we are unable to satisfy the restrictions
under any future debt agreements, we could be prohibited from paying a distribution to you notwithstanding our stated distribution policy.
-
-
Our business performance may be volatile, and our cash flows may be less stable, than the business performance and cash flows of most publicly
traded partnerships. As a result, our quarterly cash distributions may be volatile and may vary quarterly and annually.
-
-
We do not have a minimum quarterly distribution or employ structures intended to maintain or increase quarterly distributions over time.
Furthermore, none of our limited partner interests are subordinate in right of distribution payment to the common units.
-
-
Our general partner has the authority to establish cash reserves for the prudent conduct of our business, and the establishment of, or increase
in, those reserves could result in a reduction in cash distributions to our unitholders. Neither our partnership agreement or the limited liability company agreement of the Operating Company sets a
limit on the amount of cash reserves that our general partner may establish. Any decision to establish cash reserves made by our general partner will be binding on our unitholders.
-
-
Prior to paying any distributions, we and the Operating Company will reimburse our general partner and its affiliates, including Kimbell
Operating pursuant to its management services agreement discussed below, for all direct and indirect expenses they incur on our behalf. Our partnership agreement and the limited liability company
agreement of the Operating Company provide that our general partner will determine the expenses that are allocable to us, but does not limit the amount of expenses for which our general partner and
its affiliates may be reimbursed. In addition, we have entered into a management services agreement with Kimbell Operating, which has entered into separate service agreements with certain entities
controlled by affiliates of our Sponsors and certain Contributing Parties, pursuant to which they and Kimbell Operating provide management, administrative and operational services to us. The
reimbursement of expenses and payment of fees, if any, to our general partner and its affiliates, including Kimbell Operating, and to such other entities providing services to us and Kimbell
Operating, will reduce the amount of cash to pay distributions to our common unitholders.
-
-
Prior to distributions on our common units, each holder of Class B Units is entitled to receive cash distributions equal to 2.0% per
quarter on their respective Class B Contribution. As of May 13, 2019, such distributed amount is approximately $23,800 per quarter in total.
-
-
Under Section 17-607 of the Delaware Act, we may not pay a distribution if the distribution would cause our liabilities to exceed the
fair value of our assets.
-
-
We may lack sufficient cash to pay distributions to our common unitholders due to cash flow shortfalls attributable to a number of commercial
or other factors as well as increases in general and administrative expenses, principal and interest payments on our outstanding debt, tax expenses, working capital requirements and anticipated cash
needs.
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We
expect to generally distribute a significant percentage of our cash from operations to our common unitholders on a quarterly basis, after, among other things, the establishment of
cash reserves and payment of our expenses. To fund growth, we will need capital in excess of the amounts we may retain in our business. As a result, our growth may depend on our operators' ability,
and perhaps our ability in the future, to raise debt and equity capital from third parties in sufficient amounts and on favorable
terms when needed. To the extent efforts to access capital externally are unsuccessful, our ability to grow will be significantly impaired.
We
expect to pay our distributions within 45 days of the end of each quarter.
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HOW WE PAY DISTRIBUTIONS
General
Our partnership agreement requires that, within 45 days after the end of each quarter, we distribute all of our available cash to common
unitholders of record on the applicable record date. Our partnership agreement generally defines "available cash" for any quarter as:
-
-
the sum of:
-
-
all of our and our subsidiaries' cash and cash equivalents on hand at the end of that quarter;
-
-
as determined by our general partner, all of our and our subsidiaries' cash or cash equivalents on hand on the date of
determination of available cash for that quarter resulting from working capital borrowings (as described below) made after the end of that quarter; and
-
-
all of our cash and cash equivalents received by us from distributions on OpCo Common Units by the Operating Company made with
respect to that quarter subsequent to the end of that quarter and prior to the date of distribution of available cash;
-
-
less the amount of cash reserves established by our general partner to:
-
-
provide for the proper conduct of our business (including reserves for our future capital expenditures and for our future credit
needs);
-
-
comply with applicable law or any debt instrument or other agreement or obligation to which we or our subsidiaries are a party or
to which our or our subsidiaries' assets are subject; or
-
-
provide funds for distributions to our unitholders and to our general partner for any one or more of the next four quarters;
Working
capital borrowings are generally borrowings incurred under a credit facility, commercial paper facility or similar financing arrangement that are used solely for working capital
purposes or to pay distributions to unitholders, and with the intent of the borrower to repay such borrowings within 12 months with funds other than additional working capital borrowings.
Please read "Cash Distribution Policy and Restrictions on Distributions."
The
limited liability company agreement of the Operating Company requires that, within 45 days after the end of each quarter, the Operating Company distribute its available cash
to holders of record of its
OpCo Common Units on the applicable record date. The limited liability company agreement of the Operating Company generally defines "available cash" for any quarter
as:
-
-
the sum of:
-
-
all cash and cash equivalents of the Operating Company and its subsidiaries on hand at the end of that quarter; and
-
-
as determined by the managing member of the Operating Company, all cash or cash equivalents of the Operating Company and its
subsidiaries on hand on the date of determination of available cash for that quarter resulting from working capital borrowings (as described below) made after the end of that quarter;
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-
-
less the amount of cash reserves established by the managing member of the Operating Company to:
-
-
provide for the proper conduct of the business of the Operating Company and its subsidiaries (including reserves for future
capital expenditures and for future credit needs of the Operating Company and its subsidiaries);
-
-
comply with applicable law or any debt instrument or other agreement or obligation to which the managing member of the Operating
Company, the Operating Company or any of their subsidiaries is a party or to which its assets are subject; and
-
-
provide funds for distributions to the Operating Company's unitholders for any one or more of the next four quarters.
Working
capital borrowings are generally borrowings incurred under a credit facility, commercial paper facility or similar financing arrangement that are used solely for working capital
purposes or to pay distributions to unitholders, and with the intent of the borrower to repay such borrowings within 12 months with funds other than additional working capital borrowings.
Please read "Cash Distribution Policy and Restrictions on Distributions."
In
addition, the limited liability company agreement of our general partner contains provisions that prohibit certain actions without a supermajority vote of at least
662/3% of the members of the Board of Directors, including:
-
-
the incurrence of borrowings in excess of 2.5 times our Debt to EBITDAX Ratio for the preceding four quarters;
-
-
the reservation of a portion of cash generated from operations to finance acquisitions;
-
-
modifications to the definition of "available cash" in our partnership agreement; and
-
-
the issuance of any partnership interests that rank senior in right of distributions or liquidation to our common units.
Please
read "The Partnership AgreementCertain Provisions of the Agreement Governing our General Partner."
Method of Distributions
Subject to the distribution preferences of the Series A Preferred Units and the Class B Units, we intend to distribute available
cash to our common unitholders, pro rata. Our partnership agreement permits, but does not require, us to borrow to pay distributions. Accordingly, there is no guarantee that we will pay any
distribution on the units in any quarter. The Series A Preferred Units receive the distribution preference described below under "Series A Preferred Units," and the
Class B Units will receive the distribution preference described below under "Class B Units."
Common Units
As of May 13, 2019, we had 23,095,403 common units outstanding. Subject to the distribution preferences of the Series A Preferred
Units and the Class B Units, each common unit is entitled to receive cash distributions to the extent we distribute available cash. Common units do not accrue arrearages. Subject to the voting
rights of the Series A Preferred Units, our partnership agreement allows us to issue an unlimited number of additional equity interests of equal or senior rank.
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Class B Units
As of May 13, 2019, we had 23,814,342 Class B Units outstanding. Each holder of Class B Units pays five cents per
Class B Unit to us as an additional capital contribution for the Class B Units (such aggregate amount, the "Class B Contribution" and such per unit amount, the "Class B
Capital Contribution Per Unit Amount") in exchange for Class B Units. Each holder of Class B Units is entitled to receive cash distributions equal to 2.0% per quarter on their respective
Class B Contribution subsequent to distributions on the Series A Preferred Units but prior to distributions on our common units.
Please
read "Description of our Common Units and Class B UnitsOur Class B Units."
Series A Preferred Units
As of May 13, 2019, we had 110,000 Series A Preferred Units outstanding. Until the conversion of the Series A Preferred
Units into common units or their redemption, holders of the Series A Preferred Units are entitled to receive cumulative quarterly distributions equal to 7.0% per annum plus accrued and unpaid
distributions. We have the right, in any four non-consecutive quarters, to elect not to pay such quarterly distribution in cash and instead have the unpaid distribution amount added to the liquidation
preference at the rate of 10.0% per annum. If we make such an election in consecutive quarters or otherwise materially breach our obligations to the holders of the Series A Preferred Units, the
distribution rate will increase to 20.0% per annum until the accumulated distributions are paid or the breach is cured, as applicable. Each holder of Series A Preferred Units has the right to
share in any special distributions by us of cash, securities or other property pro rata with the common units on an as-converted basis, subject to customary adjustments. We cannot pay any
distributions on any junior securities, including any of the common units, prior to paying the quarterly distribution payable to the Series A Preferred Units, including any previously accrued
and unpaid distributions.
Please
read "Description of the Preferred UnitsSeries A Cumulative Convertible Preferred Units."
General Partner Interest
Our general partner owns a non-economic general partner interest in us and therefore is not entitled to receive cash distributions. However, it
may acquire common units and other partnership interests in the future and will be entitled to receive pro rata distributions in respect of those partnership interests.
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THE PARTNERSHIP AGREEMENT
The following is a summary of the material provisions of our partnership agreement. We also summarize certain material provisions of the limited
liability company agreement of our general partner. We will provide investors and prospective investors with a copy of our partnership agreement upon request at no charge.
We
summarize the following provisions of our partnership agreement elsewhere in this prospectus:
-
-
with regard to distributions of cash, please read "How We Pay Distributions";
-
-
with regard to the rights of holders of common units and Class B Units, please read "Description of Our Common Units and Class B
Units";
-
-
with regard to the rights of holders of Series A Preferred Units, please read "Description of the Preferred
UnitsSeries A Cumulative Convertible Preferred Units"; and
-
-
with regard to certain tax matters relating to our common units, please read "Material United States Federal Income Tax Consequences."
In
connection with the Tax Election and the Restructuring, we amended and restated our partnership agreement to delete or amend certain provisions of our partnership agreement to reflect
our United States federal income tax classification as an entity taxable as a corporation upon the effective date of the Tax Election and to reflect the Restructuring and the issuance of the
Class B Units.
Organization and Duration
We were organized in October 2015. We are a Delaware limited partnership for state law purposes. As a result of the Tax Election, we are treated
as an entity taxable as a corporation for United States federal income tax purposes. Please read "About Kimbell Royalty Partners, LP." We will have a perpetual existence unless terminated
pursuant to the terms of our partnership agreement.
Purpose
Our purpose, as set forth in our partnership agreement, is limited to any business activity that is approved by our general partner and that
lawfully may be conducted by a limited partnership organized under Delaware law.
Although
our general partner has the ability to cause us and our subsidiaries to engage in activities other than our current business of owning mineral and royalty interests, our general
partner may decline to do so free of any duty or obligation whatsoever to us or the limited partners, including any duty to act in the best interests of us or our limited partners, other than the
implied contractual covenant of good faith and fair dealing. Our general partner is generally authorized to perform all acts it determines to be necessary or appropriate to carry out our purposes and
to conduct our business.
Cash Distributions
Our partnership agreement specifies the manner in which we will pay distributions to holders of our common units, Class B Units,
Series A Preferred Units and other partnership securities. For a description of these distributions, please read "How We Pay Distributions."
Capital Contributions
Unitholders are not obligated to make additional capital contributions, except as described below under "Limited Liability."
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Table of Contents
Voting Rights
The following is a summary of the unitholder vote required for approval of the matters specified below. Matters that call for the approval of a
"unit majority" require the approval of a majority of the outstanding common units, Class B Units and Series A Preferred Units (voting on an as-converted basis), voting together as a
single class, except that the outstanding Series A Preferred Units cannot vote with the outstanding common units and Class B Units on any amendment to our partnership agreement requiring
the approval of the outstanding common units pursuant to Section 13.3(c) of our partnership agreement.
In
voting their common units, our general partner and its affiliates have no duty or obligation whatsoever to us or the limited partners, including any duty to act in the best interests
of us or the limited partners, other than the implied covenant of good faith and fair dealing. The holders of a majority of the outstanding units of the class or classes for which a meeting has been
called (including units deemed owned by our general partner) represented in person or by proxy shall constitute a quorum at a meeting of such unitholders, unless any such action requires approval by
holders of a greater percentage of such units in which case the quorum shall be such greater percentage.
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The following is a summary of the vote requirements specified for certain matters under our partnership agreement.
|
|
|
Issuance of additional units
|
|
No approval right by common unitholders; certain issuances require approval by 662/3% of the holders of our Series A Preferred Units. Please read "Issuance of Additional Partnership
Interests."
|
Amendment of the partnership agreement
|
|
Certain amendments may be made by our general partner without the approval of the unitholders, and certain other amendments that would materially adversely affect any of the rights, preferences and privileges of the
Series A Preferred Units require the approval of holders of 662/3% of the Series A Preferred Units. Certain amendments that would alter, amend or repeal the voting rights of the Class B Units or adopt any
provision of our partnership agreement inconsistent with the voting rights of the Class B Units will require the approval of holders of a majority of the Class B Units. Other amendments generally require the approval of the holders of a
unit majority. Please read "Amendment of the Partnership Agreement."
|
Merger of our partnership or the sale of all or substantially all of our assets
|
|
Unit majority in certain circumstances, and if such merger or sale would materially adversely affect any of the rights, preferences and privileges of the Series A Preferred Units, the affirmative vote of
662/3% of Series A Preferred Units. Please read "Merger, Consolidation, Conversion, Sale or Other Disposition of Assets."
|
Dissolution of our partnership
|
|
Unit majority. Please read "Dissolution."
|
Continuation of our business upon dissolution
|
|
Unit majority. Please read "Dissolution."
|
Withdrawal of our general partner
|
|
Under most circumstances, the approval of unitholders holding a majority of the outstanding common units, excluding common units held by our general partner and its affiliates, is required for the withdrawal of our
general partner prior to December 31, 2026 in a manner that would cause a dissolution of our partnership. Please read "Withdrawal or Removal of Our General Partner."
|
Removal of our general partner
|
|
Not less than 662/3% of the outstanding units, including common units and Class B Units held by our general partner and its affiliates, for cause. Any removal of our general partner is
also subject to the approval of a successor general partner by the holders of a unit majority. Please read "Withdrawal or Removal of Our General Partner."
|
Transfer of our general partner interest
|
|
Our general partner may transfer any or all of its general partner interest in us without a vote of our unitholders. Please read "Transfer of General Partner Interest."
|
Transfer of ownership interests in our general partner
|
|
No unitholder approval required. Please read "Transfer of Ownership Interests in Our General Partner."
|
If
any person or group other than (a) our general partner and its affiliates, (b) the Contributing Parties and their respective affiliates, (c) a direct or
subsequently approved transferee of our general partner or its affiliates, (d) purchasers specifically approved by our general partner, (e) any holder of Series A Preferred Units
in connection with any vote, consent or approval of the Series A Preferred
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Units
as a separate class, or on an as-converted basis with the holders of the common units, on any matter, or (f) any person or group who owns 20% or more of our partnership interests of a
class as the result of (i) any redemption or purchase of any other person's or persons' partnership interests by us or other similar action by us or (ii) any conversion of
Series A Preferred Units into common units, acquires,
in the aggregate, beneficial ownership of 20% or more of any class of units then outstanding, that person or group loses voting rights on all of its units.
Voting Rights of Class B Units
Each holder of Class B Units is entitled to receive notice of, be included in any requisite quora for, and participate in any and all
approvals, votes or other actions of our partners on a pro rata basis as, and treating such persons for all purposes as if they are, unitholders holding our common units, including any and all
notices, quora, approvals, votes and other actions that may be taken pursuant to the requirements of the Delaware Act or any other applicable law, rule or regulation, except as otherwise explicitly
provided in our partnership agreement. The affirmative vote of the holders of a majority of the voting power of all Class B Units voting separately as a class is required to alter, amend or
repeal this provision or to adopt any provision of our partnership agreement inconsistent with this provision.
Voting Rights of Series A Preferred Units
The affirmative vote of 662/3% of the Series A Preferred Units, voting separately as a class, is required for us to, or to
permit any of our subsidiaries to (in each case, directly or indirectly, including by way of amendment to our partnership agreement, by merger, consolidation, reclassification or
otherwise):
-
(1)
-
incur
certain indebtedness for borrowed money (including under a customary credit facility) that would be included in the definition of "total debt" under our credit
agreement (but assuming for such purposes that any undrawn letters of credit or bank guarantees constitute "total debt" under our credit agreement), if (i) the increase in the distribution rate
on our Series A Preferred Units to 20.0% per annum as described above under "Description of the Preferred UnitsSeries A Cumulative Convertible Preferred
UnitsDistributions" is applicable, or (ii) pro forma for such incurrence and the application of any proceeds thereof, our adjusted leverage ratio would exceed 3.50;
-
(2)
-
borrow
under our credit agreement, at any time, an amount exceeding 95% of our "PV10" (as defined in our partnership agreement) calculated based on our most recent
reserve report;
-
(3)
-
enter
into certain new or replacement credit facilities;
-
(4)
-
incur
certain indebtedness for borrowed money (except for indebtedness under a customary credit facility), subject to exceptions for:
-
(a)
-
indebtedness
among us and our subsidiaries;
-
(b)
-
indebtedness
that does not exceed $5,000,000 in principal amount outstanding;
-
(c)
-
indebtedness
in respect of certain capital leases or purchase money financings in an aggregate principal amount outstanding at any time not to exceed $5,000,000;
-
(d)
-
indebtedness
consisting of the financing of insurance premiums in the ordinary course of business; and
-
(e)
-
any
renewals, refinancings or extensions of any of the foregoing;
-
(5)
-
enter
into, adopt or agree to any "restricted payment" provisions (or other similar provisions that restrict or limit the payment of distributions on, or the
redemption of, the Series A
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Preferred
Units) under any debt agreements that would be more materially restrictive, taken as a whole, on the payment of dividends on, or redemption of, the Series A Preferred Units than those
existing in our debt agreements as of the Series A Issuance Date;
-
(6)
-
declare,
or pay, any distribution on or repurchase or redeem any junior securities (including, for the avoidance of doubt, the common units) if (i) our pro
forma adjusted leverage ratio exceeds 3.50, immediately after giving effect thereto or (ii) the increase in the distribution rate on our Series A Preferred Units to 20.0% per annum as
described above under "Description of the Preferred UnitsSeries A Cumulative Convertible Preferred UnitsDistributions" is applicable;
-
(7)
-
declare,
or pay, any special or one-time distribution with respect to any class of junior securities, including any distribution that is not out of available cash,
unless such special or one-time distribution is made on a pro rata basis to the Series A Preferred Units and any class of parity securities;
-
(8)
-
form
or create any subsidiaries, other than wholly-owned subsidiaries, issue, or permit to be issued, any equity securities of any subsidiaries, other than to
wholly-owned subsidiaries, except as expressly contemplated by Section 5.09 of the Series A Preferred Unit Purchase Agreement, and we are permitted to own each of OGM Partners I,
RCPTX, Ltd. and Oakwood Minerals I, L.P. as non-wholly-owned subsidiaries, in the proportions owned as of the date of our partnership agreement;
-
(9)
-
to
the fullest extent permitted by law, take certain bankruptcy-related actions;
-
(10)
-
make,
change or revoke any entity classification election in respect of us or any of our subsidiaries for United States federal income tax purposes or relevant
state or local income tax purposes, except as expressly provided in Section 9.1 of our partnership agreement;
-
(11)
-
except
for certain permitted transactions, enter into, or modify, any agreement or transaction between or among us and/or our subsidiaries, on the one hand, and our
general partner, its officers or employees or members of the Board of Directors and/or their respective affiliates (other than us and our wholly-owned subsidiaries) on the other hand;
-
(12)
-
except
for certain permitted dispositions, sell, lease, assign, convey or otherwise dispose of (including by farmout or similar transaction) any oil and gas
properties having a fair market value in excess of $50 million in any fiscal year and $125 million in the aggregate while any Series A Preferred Units are outstanding;
-
(13)
-
enter
into certain change of control transactions unless in connection therewith we redeem in full for cash all of the outstanding Series A Preferred Units
in accordance with our partnership agreement; or
-
(14)
-
except
as expressly provided in Section 5.09 of the Series A Preferred Unit Purchase Agreement, amend or amend and restate our partnership agreement,
our certificate of limited partnership or the organizational documents of our subsidiaries (including by merger or otherwise or any amendment contemplated by and made in accordance with our
partnership agreement) if such amendment is materially adverse to any of the rights, preferences and privileges of the Series A Preferred Units. Without limiting the generality of the preceding
sentence, any amendment will be deemed to have such a materially adverse impact if such amendment would:
-
(a)
-
reduce
the Series A Distribution Amount or the Series A Quarterly Distribution (as such terms are defined in our partnership agreement), change the
form of payment of distributions on the Series A Preferred Units, defer the date from which distributions on the Series A Preferred Units will accrue, cancel any accrued and unpaid
distributions on
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the
Series A Preferred Units or any interest accrued thereon (including any accumulated distributions or partial period distributions), or change the seniority rights of the holders of the
Series A Preferred Units as to the payment of distributions in relation to the holders of any other class or series of our partnership interests;
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(b)
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reduce
the amount payable or change the form of payment to the holders of the Series A Preferred Units upon the voluntary or involuntary liquidation,
dissolution or winding up, or sale of all or substantially all of our assets, of us, or change the seniority of the liquidation preferences of the holders of the Series A Preferred Units in
relation to the rights of the holders of any other class or series of our partnership interests upon our liquidation, dissolution and winding up; or
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(c)
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make
the Series A Preferred Units redeemable or convertible at our option other than as set forth in our partnership agreement.
In
addition, the affirmative vote of 662/3% of the Series A Preferred Units, voting separately as a class, is required for us to issue, authorize or create any
additional Series A Preferred Units or any class or series of partnership interests (or any obligation or security convertible into, exchangeable for or evidencing the right to purchase any
class or series of partnership interests) that, with respect to distributions on such partnership interests or distributions in respect of such partnership interests upon our liquidation, dissolution
and winding up, ranks equal to or senior to the Series A Preferred Units.
Applicable Law; Forum, Venue and Jurisdiction
Our partnership agreement is governed by Delaware law. Our partnership agreement requires that any claims, suits, actions or
proceedings:
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arising out of or relating in any way to the partnership agreement (including any claims, suits or actions to interpret, apply or enforce the
provisions of the partnership agreement or the duties, obligations or liabilities among limited partners or of limited partners to us, or the rights or powers of, or restrictions on, the limited
partners or us);
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brought in a derivative manner on our behalf;
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asserting a claim of breach of a duty (including a fiduciary duty) owed by any director, officer or other employee of us or our general
partner, or owed by our general partner, to us or the limited partners;
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asserting a claim arising pursuant to any provision of the Delaware Act; or
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asserting a claim governed by the internal affairs doctrine,
shall
be exclusively brought in the Court of Chancery of the State of Delaware (or, if such court does not have subject matter jurisdiction, any other court located in the State of Delaware with
subject matter jurisdiction), regardless of whether such claims, suits, actions or proceedings sound in contract, tort, fraud or otherwise, are based on common law, statutory, equitable, legal or
other grounds, or are derivative or direct claims.
By
purchasing our securities, a unitholder is irrevocably consenting to these limitations and provisions regarding claims, suits, actions or proceedings and submitting to the exclusive
jurisdiction of the Court of Chancery of the State of Delaware (or such other Delaware court) in connection with any such claims, suits, actions or proceedings. The enforceability of similar choice of
forum provisions in other companies' certificates of incorporation or similar governing documents have been challenged in legal proceedings, and it is possible that, in connection with any action, a
court could find the choice of
forum provisions contained in our partnership agreement to be inapplicable or unenforceable in such action.
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Limited Liability
Assuming that a limited partner does not participate in the control of our business within the meaning of the Delaware Act and that he, she or
it otherwise acts in conformity with the provisions of the partnership agreement, his, her or its liability under the Delaware Act will be limited, subject to possible exceptions, to the amount of
capital he, she or it is obligated to contribute to us for his, her or its common units plus his, her or its share of any undistributed profits and assets. However, if it were determined that the
right, or exercise of the right, by the limited partners as a group:
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to remove or replace our general partner for cause;
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to approve some amendments to our partnership agreement; or
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to take other action under our partnership agreement,
constituted
"participation in the control" of our business for the purposes of the Delaware Act, then the limited partners could be held personally liable for our obligations under the laws of
Delaware, to the same extent as our general partner. This liability would extend to persons who transact business with us under the reasonable belief that the limited partner is a general partner.
Neither our
partnership agreement nor the Delaware Act specifically provides for legal recourse against our general partner if a limited partner were to lose limited liability through any fault of our general
partner. While this does not mean that a limited partner could not seek legal recourse, we know of no precedent for this type of a claim in Delaware case law.
Under
the Delaware Act, a limited partnership may not make a distribution to a partner if, after the distribution, all liabilities of the limited partnership, other than liabilities to
partners on account of their partnership interests and liabilities for which the recourse of creditors is limited to specific property of the partnership, would exceed the fair value of the assets of
the limited partnership. For the purpose of determining the fair value of the assets of a limited partnership, the Delaware Act provides that the fair value of property subject to liability for which
recourse of creditors is limited shall be included in the assets of the limited partnership only to the extent that the fair value of that property exceeds the nonrecourse liability. The Delaware Act
provides that a limited partner who receives a distribution and knew at the time of the distribution that the distribution was in violation of the Delaware Act shall be liable to the limited
partnership for the amount of the distribution for three years. Under the Delaware Act, a substituted limited partner of a limited partnership is liable for the obligations of its assignor to make
contributions to the partnership, except that such person is not obligated for liabilities unknown to him at the time he, she or it became a limited partner and that could not be ascertained from our
partnership agreement.
Our
subsidiaries conduct business in 28 states and we may have subsidiaries that conduct business in additional states or countries in the future. Maintenance of our limited liability as
owner of our operating subsidiaries may require compliance with legal requirements in the jurisdictions in which the operating subsidiaries conduct business, including qualifying our subsidiaries to
do business there.
Limitations
on the liability of members or limited partners for the obligations of a limited liability company or limited partnership have not been clearly established in many
jurisdictions. If, by virtue of our ownership interest in our subsidiaries or otherwise, it were determined that we were conducting business in any jurisdiction without compliance with the applicable
limited partnership or limited liability company statute, or that the right or exercise of the right by the limited partners as a group to remove or replace our general partner for cause, to approve
some amendments to our partnership agreement, or to take other action under our partnership agreement constituted "participation in the control" of our business for purposes of the statutes of any
relevant jurisdiction, then the limited partners could be held personally liable for our obligations under the law of that jurisdiction to the same extent as our general partner under the
circumstances. We will operate in a manner that our
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general
partner considers reasonable and necessary or appropriate to preserve the limited liability of the limited partners.
Issuance of Additional Partnership Interests
Our partnership agreement authorizes us to issue an unlimited number of additional partnership interests for the consideration and on the terms
and conditions determined by our general partner without the approval of the unitholders, except that we will need the consent of 662/3% of the outstanding Series A Preferred
Units to issue, authorize or create any additional Series A Preferred Units or any class or series of partnership interests (or any obligation or security convertible into, exchangeable for or
evidencing the right to purchase any class or series of partnership interests) that, with respect to distributions on such partnership interests or distributions in respect of such partnership
interests upon our liquidation, dissolution and winding up, ranks equal to or senior to the Series A Preferred Units.
Subject
to certain limited exceptions, we will not issue any additional common units unless we contribute the net cash proceeds or other consideration received from the issuance of such
additional common units to the Operating Company in exchange for an equivalent number of OpCo Common Units. It is possible that we will fund acquisitions through the issuance of additional common
units or other partnership interests. Holders of any additional common units we issue will be entitled to share equally with the then-existing common unitholders in our distributions. In addition, the
issuance of additional common units or other partnership interests may dilute the value of the interests of the then-existing common unitholders in our net assets.
In
accordance with Delaware law and the provisions of our partnership agreement, subject to the voting rights of the Series A Preferred Units, we may also issue additional
partnership interests that, as determined by our general partner, may have rights to distributions or special voting rights to which our common units and Class B Units are not entitled. In
addition, subject to the voting rights of the Series A Preferred Units, our partnership agreement does not prohibit our subsidiaries from issuing equity interests, which may effectively rank
senior in right of distributions or liquidation to our common units and Class B Units.
Our
general partner has the right, which it may from time to time assign in whole or in part to any of its affiliates, to purchase common units or other partnership interests whenever,
and on the same terms that, we issue partnership interests to persons other than our general partner and its affiliates, to the extent necessary to maintain the percentage interest of our general
partner and its affiliates, including such interest represented by common units, that existed immediately prior to each issuance. The common unitholders do not have preemptive rights under our
partnership agreement to acquire additional common units or other partnership interests.
In
addition, pursuant to the terms of the Exchange Agreement, each holder of OpCo Common Units is able to tender Tendered Units for redemption to the Operating Company. Each Tendering
Holder has the right to receive, at the election of the Operating Company, either a number of our common units
equal to the number of Tendered Units or a cash payment equal to the number of Tendered Units multiplied by the current market price of our common units calculated in accordance with our partnership
agreement. Please read "Description of our Common Units and Class B UnitsOur Class B UnitsExchange Right."
Amendment of the Partnership Agreement
General
Amendments to our partnership agreement may be proposed only by our general partner. However, our general partner has no duty or obligation to
propose any amendment and may decline to
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propose
or approve any amendment to our partnership agreement in its sole discretion. In order to adopt a proposed amendment, other than the amendments discussed below, our general partner is required
to seek written approval of the holders of the number of units required to approve the amendment or to call a meeting of the limited partners to consider and vote upon the proposed amendment. Except
as described below, an amendment must be approved by the holders of a unit majority. In addition, (i) any amendment that materially adversely affects any of the rights, preferences and
privileges of the Series A Preferred Units must be approved by the affirmative vote of 662/3% of the Series A Preferred Units, voting separately as a class, and
(ii) any amendment that would alter, amend or repeal the voting rights of the Class B Units or adopt any provision of our partnership agreement inconsistent with the voting rights of the
Class B Units must be approved by the affirmative vote of the holders of a majority of the voting power of all Class B Units voting separately as a class.
Prohibited Amendments
No amendment may be made that would:
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-
enlarge the duties or payment obligations of any limited partner without his consent, unless approved by at least a majority of the type or
class of limited partner interests so affected; or
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enlarge the duties or payment obligations of, restrict in any way any action by or rights of, or reduce in any way the amounts distributable,
reimbursable or otherwise payable by us to our general partner or any of its affiliates without the consent of our general partner, which consent may be given or withheld in its sole discretion.
The
provision of our partnership agreement preventing the amendments having the effects described in the clauses above can be amended upon the approval of the holders of at least 90% of
the outstanding units, voting as a single class (including units owned by our general partner and its affiliates). As of May 13, 2019, all directors and officers of our general partner as a
group own or control approximately 21.3% of our outstanding common units and Class B Units and approximately 18.9% of the combined number of outstanding common units, Class B Units and
Series A Preferred Units (on an as-converted basis at the then applicable conversion rate).
No Limited Partner Approval
Subject to the voting rights of the Series A Preferred Units and Class B Units, our general partner may generally make amendments
to our partnership agreement without the approval of any limited partner to reflect:
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a change in our name, the location of our principal office, our registered agent or our registered office;
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the admission, substitution, withdrawal or removal of partners in accordance with our partnership agreement;
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a change that our general partner determines to be necessary or appropriate to qualify or continue our qualification as a limited partnership
or other entity in which the limited partners have limited liability under the laws of any state;
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a change in our fiscal year or taxable year and any other changes that our general partner determines to be necessary or appropriate as a
result of such change;
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an amendment that is necessary, in the opinion of our counsel, to prevent us or our general partner or its directors, officers, agents or
trustees from in any manner being subjected to the provisions of the Investment Company Act of 1940, the Investment Advisers Act of 1940 or "plan asset" regulations adopted under the Employee
Retirement Income Security Act of 1974
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In
addition, subject to the voting rights of the Series A Preferred Units and Class B Units, our general partner may make amendments to our partnership agreement without
the approval of any limited partner if our general partner determines that those amendments:
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-
do not adversely affect in any material respect the limited partners, considered as a whole, or any particular class of partnership interests
as compared to other classes of partnership interests;
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are necessary or appropriate to satisfy any requirements, conditions or guidelines contained in any opinion, directive, order, ruling or
regulation of any federal or state agency or judicial authority or contained in any federal or state statute;
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are necessary or appropriate to facilitate the trading of limited partner interests or to comply with any rule, regulation, guideline or
requirement of any securities exchange on which the limited partner interests are or will be listed or admitted to trading;
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are necessary or appropriate for any action taken by our general partner relating to splits or combinations of units under the provisions of
our partnership agreement; or
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are required to effect the intent expressed in this prospectus or the intent of the provisions of our partnership agreement or are otherwise
contemplated by our partnership agreement.
The
affirmative vote of 662/3% of the Series A Preferred Units, voting separately as a class, is necessary on any matter (including a merger, consolidation or
business combination) that would materially adversely affect any of the rights, preferences and privileges of the Series A Preferred Units.
Opinion of Counsel and Unitholder Approval
For amendments of the type not requiring unitholder approval, our general partner is not required to obtain an opinion of counsel to the effect
that an amendment will not affect the limited liability of any limited partner under Delaware law. No other amendments to our partnership agreement will
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become
effective without the approval of holders of at least 90% of the outstanding units, voting as a single class, unless we first obtain such an opinion.
In
addition to the above restrictions, any amendment that would have a material adverse effect on the rights or preferences of any type or class of partnership interests in relation to
other classes of partnership interests will require the approval of at least a majority of the type or class of partnership interests so affected. Any amendment that would reduce the percentage of
units required to take any action, other than to remove our general partner for cause or call a meeting of unitholders, must be approved by the affirmative vote of limited partners whose aggregate
outstanding units constitute not less than the percentage sought to be reduced.
Any
amendment that would increase the percentage of units required to remove our general partner for cause must be approved by the affirmative vote of limited partners whose aggregate
outstanding units constitute not less than 662/3% of outstanding units. Any amendment that would increase the percentage of units required to call a meeting of unitholders must be
approved by the affirmative vote of limited partners whose aggregate outstanding units constitute at least a majority of the outstanding units.
Certain Provisions of the Agreement Governing our General Partner
The limited liability company agreement of our general partner contains provisions that prohibit certain actions without a supermajority vote of
at least 662/3% of the members of the Board of Directors, including:
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the incurrence of borrowings in excess of 2.5 times our Debt to EBITDAX Ratio (as defined below) for the preceding four quarters;
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the reservation of a portion of cash generated from operations to finance acquisitions;
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modifications to the definition of "available cash" in our partnership agreement; and
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the issuance of any partnership interests that rank senior in right of distributions or liquidation to our common units.
As
used in the limited liability company agreement of our general partner, the term "Debt to EBITDAX Ratio" refers to the ratio of (i) the total debt of the Partnership and its
consolidated subsidiaries as of the relevant determination date to (ii) EBITDAX (as defined in such agreement) of the Partnership and its consolidated subsidiaries for the most recent four
fiscal quarter period, subject to certain exceptions.
Merger, Consolidation, Conversion, Sale or Other Disposition of Assets
A merger, consolidation or conversion of us requires the prior consent of our general partner. However, our general partner has no duty or
obligation to consent to any merger, consolidation or conversion and may decline to do so free of any duty or obligation whatsoever to us or the limited partners, including any duty to act in the best
interests of us or the limited partners, other than the implied contractual covenant of good faith and fair dealing.
In
addition, our partnership agreement generally prohibits our general partner, without the prior approval of the holders of a unit majority, from causing us to, among other things,
sell, exchange or otherwise dispose of all or substantially all of our assets in a single transaction or a series of related transactions. Further, the affirmative vote of 662/3% of the
Series A Preferred Units, voting separately as a class, is required for certain asset sales or if any such sale, merger, consolidation or other combination is materially adverse to any of the
rights, preferences and privileges of the Series A Preferred Units. Please read "Voting Rights." Our general partner may, however, mortgage, pledge, hypothecate or grant a security
interest in all or substantially all of our assets without such approval.
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Our
general partner may also sell any or all of our assets under a foreclosure or other realization upon those encumbrances without such approval. Finally, our general partner may consummate any
merger with another limited liability entity without the prior approval of our unitholders if we are the surviving entity in the transaction, our general partner has received an opinion of counsel
regarding limited liability and tax matters, the transaction would not result in an amendment to the partnership agreement requiring unitholder approval, each of our units will be an identical unit of
our partnership following the transaction and the partnership interests to be issued by us in such merger do not exceed 20% of our outstanding partnership interests immediately prior to the
transaction.
If
the conditions specified in our partnership agreement are satisfied, our general partner may convert us or any of our subsidiaries into a new limited liability entity or merge us or
any of our subsidiaries into, or convey all of our assets to, a newly formed entity, if the sole purpose of that conversion, merger or conveyance is to effect a mere change in our legal form into
another limited liability entity, our general partner has received an opinion of counsel regarding limited liability and tax matters, and our general partner determines that the governing instruments
of the new entity provide the limited partners and our general partner with the same rights and obligations as contained in our partnership agreement. Our unitholders are not entitled to dissenters'
rights of appraisal under our partnership agreement or applicable Delaware law in the event of a conversion, merger or consolidation, a sale of substantially all of our assets or any other similar
transaction or event.
Dissolution
We will continue as a limited partnership until dissolved under our partnership agreement. We will dissolve
upon:
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the election of our general partner to dissolve us, if approved by the holders of units representing a unit majority;
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there being no limited partners, unless we are continued without dissolution in accordance with applicable Delaware law;
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the entry of a decree of judicial dissolution of our partnership; or
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the withdrawal or removal of our general partner or any other event that results in its ceasing to be our general partner other than by reason
of a transfer of its general partner interest in accordance with our partnership agreement or its withdrawal or removal following the approval and admission of a successor.
Upon
a dissolution under the last clause above, the holders of a unit majority may also elect, within specific time limitations, to continue our business on the same terms and conditions
described in our partnership agreement by appointing as a successor general partner an entity approved by the holders of units representing a unit majority, subject to our receipt of an opinion of
counsel to the effect that the action would not result in the loss of limited liability under Delaware law of any limited partner.
Liquidation and Distribution of Proceeds
Upon our dissolution, unless our business is continued, the liquidator authorized to wind up our affairs will, acting with all of the powers of
our general partner that are necessary or appropriate, liquidate our assets and apply the proceeds of the liquidation as set forth in our partnership agreement. The liquidator may defer liquidation or
distribution of our assets for a reasonable period of time or distribute assets to partners in kind if it determines that a sale would be impractical or would cause undue loss to our partners.
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Upon our liquidation, dissolution and winding up, the holders of the Series A Preferred Units will be entitled to receive, prior to any distribution of any
of our assets to the holders of our common units or to the holders of any other class or series of our equity securities, an amount per Series A Preferred Unit equal to the Series A
Redemption Price. After making such distribution to the holders of the Series A Preferred Units, and prior to making any distribution of any of our assets to the holders of our common units,
the holders of the then outstanding Class B Units will be entitled to receive the Class B Unit Contribution in respect of each such Class B Unit.
Withdrawal or Removal of Our General Partner
Except as provided below, our general partner has agreed not to withdraw voluntarily as our general partner prior to December 31, 2026
without obtaining the approval of the holders of a majority of the outstanding common units, excluding common units held by our general partner and its affiliates, and furnishing an opinion of counsel
regarding limited liability. On or after
December 31, 2026, our general partner may withdraw as general partner without first obtaining approval of any unitholder by giving 90 days' written notice, and that withdrawal will not
constitute a violation of our partnership agreement. Notwithstanding the information above, our general partner may withdraw without unitholder approval upon 90 days' notice to the limited
partners if at least 50% of the outstanding units are held or controlled by one person and its affiliates other than our general partner and its affiliates. In addition, our partnership agreement
permits our general partner to sell or otherwise transfer all of its general partner interest in us without the approval of the unitholders. Please read "Transfer of General Partner
Interest."
Upon
voluntary withdrawal of our general partner by giving notice to the other partners, the holders of a unit majority may select a successor to that withdrawing general partner. If a
successor is not elected, or is elected but an opinion of counsel regarding limited liability cannot be obtained, we will be dissolved, wound up and liquidated, unless within a specified period after
that withdrawal, the holders of a unit majority agree to continue our business by appointing a successor general partner. Please read "Dissolution."
Our
general partner may not be removed unless that removal is both (i) for cause and (ii) approved by the vote of the holders of not less than 662/3% of the
outstanding units, voting together as a single class, including common units and Class B Units held by our general partner and its affiliates, and we receive an opinion of counsel regarding
limited liability. Any removal of our general partner is also subject to the approval of a successor general partner by the vote of the holders of a unit majority. "Cause" is narrowly defined under
our partnership agreement to mean that a court of competent jurisdiction has entered a final, non-appealable judgment finding the general partner liable to the partnership or any limited partner for
actual fraud or willful misconduct in its capacity as our general partner. Under this definition, "cause" generally does not include charges of poor management of the business. The ownership of more
than 331/3% of the outstanding units by our general partner and its affiliates would give them the practical ability to prevent our general partner's removal.
As
of May 13, 2019, all directors and officers of our general partner as a group own or control approximately 21.3% of our outstanding common units and Class B Units and
approximately 18.9% of the combined number of outstanding common units, Class B Units and Series A Preferred Units (on an as-converted basis at the then applicable conversion rate), and
our Sponsors indirectly own and control our general partner.
In
the event of the removal of our general partner or withdrawal of our general partner where that withdrawal violates our partnership agreement, a successor general partner will have
the option to purchase the general partner interest of the departing general partner for a cash payment equal to the fair market value of those interests. Under all other circumstances where our
general partner withdraws, the departing general partner will have the option to require the successor general partner
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to
purchase the general partner interest of the departing general partner for fair market value. In each case, this fair market value will be determined by agreement between the departing general
partner and the successor general partner. If no agreement is reached, an independent investment banking firm or other independent expert selected by the departing general partner and the successor
general partner will determine the fair market value. Or, if the departing general partner and the successor general partner cannot agree upon an expert, then an expert chosen by agreement of the
experts selected by each of them will determine the fair market value.
If
the option described above is not exercised by either the departing general partner or the successor general partner, the departing general partner will become a limited partner and
its general partner interest will automatically convert into common units pursuant to a valuation of those interests as determined by an investment banking firm or other independent expert selected in
the manner described in the preceding paragraph.
In
addition, we will be required to reimburse the departing general partner for all amounts due the departing general partner, including, without limitation, all employee-related
liabilities, including severance liabilities, incurred as a result of the termination of any employees employed for our benefit by the departing general partner or its affiliates.
Transfer of General Partner Interest
At any time, our general partner may transfer all or any of its general partner interest to another person without the approval of our common
unitholders. As a condition of this transfer, the transferee must, among other things, assume the rights and duties of our general partner, agree to be bound by the provisions of our partnership
agreement and furnish an opinion of counsel regarding limited liability.
Transfer of Ownership Interests in Our General Partner
At any time, the owners of our general partner may sell or transfer all or part of their ownership interests in our general partner to an
affiliate or any third party without the approval of our unitholders.
Change of Management Provisions
Our partnership agreement contains specific provisions that are intended to discourage a person or group from attempting to remove Kimbell
Royalty GP, LLC as our general partner or from otherwise changing our management. Please read "Withdrawal or Removal of Our General Partner" for a discussion of certain
consequences of the removal of our general partner. If any person or group, other than (a) our general partner and its affiliates, (b) the Contributing Parties and their respective
affiliates, (c) a direct or subsequently approved transferee of our general partner or its affiliates, (d) purchasers specifically approved by our general partner, (e) any holder
of Series A Preferred Units in connection with any vote, consent or approval of the Series A Preferred Units as a separate class, or on an as-converted basis with the holders of the
common units, on any matter, or (f) any person or group who owns 20% or more of our partnership interests of a class as the result of (i) any redemption or purchase of any other person's
or persons' partnership interests by us or other similar action by us or (ii) any conversion of Series A Preferred Units into common units, acquires, in the aggregate, beneficial
ownership of 20% or more of any class of units then outstanding, that person or group loses voting rights on all of its units.
Limited Call Right
If at any time our general partner and its affiliates (including our Sponsors and their respective affiliates) hold more than 80% of the sum of
(i) the number of common units then outstanding and
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(ii) the
number of Class B Units then outstanding equal to the number of OpCo Common Units, our general partner shall then have the right, which right it may assign and transfer in whole
or in part to any of its affiliates or to us, exercisable at our general partner's option, to purchase all, but not less than all, of such common units and Class B Units (and treating the
common units and Class B Units as a single class of units) then outstanding held by unaffiliated persons, as of a record date to be selected by our general partner, on at least 10, but not more
than 60, days' notice. The purchase price in the event of this purchase is the greater of:
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-
the highest per unit price paid by our general partner or any of its affiliates for any limited partner interests of the class purchased during
the 90 day period preceding the date on which our general partner first mails notice of its election to purchase those limited partner interests; and
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-
the current market price calculated in accordance with our partnership agreement as of the date three business days before the date the notice
is mailed.
As
a result of our general partner's right to purchase outstanding limited partner interests, a holder of limited partner interests may have his, her or its limited partner interests
purchased at an undesirable time or at a price that may be lower than market prices at various times prior to such purchase or lower than a unitholder may anticipate the market price to be in the
future. The tax consequences to a unitholder of the exercise of this call right are the same as a sale by that unitholder of his, her or its common units in the market. Please read "Material United
States Federal Income Tax ConsequencesTax Consequences to United States HoldersDisposition of Common Units" and "Material United States Federal Income Tax
ConsequencesTax Consequences to Non-United States HoldersDisposition of Common Units".
Meetings; Voting
Except as described below regarding a person or group owning 20% or more of any class of units then outstanding, record holders of units on the
record date are entitled to notice of,
and to vote at, meetings of our limited partners and to act upon matters for which approvals may be solicited.
Our
general partner does not anticipate that any meeting of unitholders will be called in the foreseeable future. Any action that is required or permitted to be taken by the unitholders
may be taken either at a meeting of the unitholders or, if authorized by our general partner, without a meeting if consents in writing describing the action so taken are signed by holders of the
number of units that would be necessary to authorize or take that action at a meeting where all limited partners were present and voted. Meetings of the unitholders may be called by our general
partner or by unitholders owning at least 20% of the outstanding units of the class for which a meeting is proposed. Unitholders may vote either in person or by proxy at meetings. The holders of a
majority of the outstanding units of the class or classes for which a meeting has been called, represented in person or by proxy, will constitute a quorum, unless any action by the unitholders
requires approval by holders of a greater percentage of the units, in which case the quorum will be the greater percentage.
Each
record holder of a unit has a vote according to his, her or its percentage interest in us, although additional limited partner interests having special voting rights could be
issued. Please read "Issuance of Additional Partnership Interests."
However,
if at any time any person or group, other than (a) our general partner and its affiliates, (b) the Contributing Parties and their respective affiliates,
(c) a direct or subsequently approved transferee of our general partner or its affiliates, (d) purchasers specifically approved by our general partner, (e) any holder of
Series A Preferred Units in connection with any vote, consent or approval of the Series A Preferred Units as a separate class, or on an as-converted basis with the holders of the common
units, on any matter, or (f) any person or group who owns 20% or more of our partnership
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interests
of a class as the result of (i) any redemption or purchase of any other person's or persons' partnership interests by us or other similar action by us or (ii) any conversion of
Series A Preferred Units into common units, acquires, in the aggregate, beneficial ownership of 20% or more of any class of units then outstanding, that person or group will lose voting rights
on all of its units and the units may not be voted on any matter and will not be considered to be outstanding when sending notices of a meeting of unitholders, calculating required votes, determining
the presence of a quorum or for other similar purposes. Common units held in nominee or street name account will be voted by the broker or other nominee in accordance with the instruction of the
beneficial owner unless the arrangement between the beneficial owner and his, her or its nominee provides otherwise.
Any
notice, demand, request, report or proxy material required or permitted to be given or made to record common unitholders under our partnership agreement will be delivered to the
record holder by us or by the transfer agent or an exchange agent.
Status as Limited Partner
By transfer of units in accordance with our partnership agreement, each transferee of units shall be admitted as a limited partner with respect
to our units transferred when such transfer and admission are reflected in our books and records. Except as described under "Limited Liability," our common units, Class B Units and
Series A Preferred Units are fully paid, and unitholders are not required to make additional contributions.
Ineligible Holders; Redemption
Under our partnership agreement, an "Ineligible Holder" is a limited partner whose, or whose owners', nationality, citizenship or other related
status would create a substantial risk of cancellation or forfeiture of any property in which we have an interest, as determined by our general partner with the advice of counsel.
If
at any time our general partner determines, with the advice of counsel, that one or more limited partners are Ineligible Holders, then our general partner may request any limited
partner to furnish to our general partner an executed certification or other information about his, her or its nationality, citizenship or related status. If a limited partner fails to furnish such
certification or other requested information within 30 days (or such other period as our general partner may determine) after a request for such certification or other information, or our
general partner determines after receipt of the information that the limited partner is an Ineligible Holder, the limited partner may be treated as an Ineligible Holder. An Ineligible Holder does not
have the right to direct the voting of its units and may not receive distributions in kind upon our liquidation.
Furthermore,
we have the right to redeem all of our units of any holder that our general partner concludes is an Ineligible Holder or fails to furnish the information requested by our
general partner. The redemption price in the event of such redemption for each unit held by such unitholder will be the current market price of such unit (the date of determination of which shall be
the date fixed for redemption). The redemption price will be paid, as determined by our general partner, in cash or by delivery of a promissory note. Any such promissory note will bear interest at the
rate of 5% annually
and be payable in three equal annual installments of principal and accrued interest, commencing one year after the redemption date.
Indemnification
Under our partnership agreement, in most circumstances, we will indemnify the following persons, to the fullest extent permitted by law, from
and against all losses, claims, damages or similar events:
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-
-
any departing general partner;
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-
any person who is or was an affiliate of our general partner or any departing general partner;
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-
any person who is or was a manager, managing member, general partner, director, officer, fiduciary or trustee of us, our subsidiaries or any
entity set forth in the preceding three bullet points;
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-
any person who is or was serving as a manager, managing member, general partner, director, officer, fiduciary or trustee of another person
owing a fiduciary duty to us or any of our subsidiaries at the request of our general partner or any departing general partner or any of their affiliates; and
-
-
any person designated by our general partner.
Any
indemnification under these provisions will only be out of our assets. Unless it otherwise agrees, our general partner will not be personally liable for, or have any obligation to
contribute or lend funds or assets to us to enable us to effectuate, indemnification. We may purchase insurance against liabilities asserted against and expenses incurred by persons for our
activities, regardless of whether we would have the power to indemnify the person against such liabilities under our partnership agreement.
Reimbursement of Expenses
Our partnership agreement requires us to reimburse our general partner for all direct and indirect expenses it incurs or payments it makes on
our behalf and all other expenses allocable to us or otherwise incurred by our general partner in connection with operating our business. These expenses include salary, bonus, incentive compensation
and other amounts paid to persons who perform services for us or on our behalf and expenses allocated to our general partner by its affiliates. Kimbell Operating, a wholly owned subsidiary of our
general partner, provides management, administrative and operational services to us pursuant to a management services agreement. These services are provided indirectly by affiliates of our general
partner and our Sponsors. Our general partner is entitled to determine in good faith the expenses that are allocable to us. Our partnership agreement does not set a limit on the amount of expenses for
which our general partner and its affiliates may be reimbursed.
Books and Reports
Our general partner is required to keep appropriate books of our business at our principal offices. These books are maintained for financial
reporting purposes on an accrual basis. For tax and fiscal reporting purposes, our fiscal year is the calendar year.
We
will mail or make available to record holders of our units, within 105 days after the close of each fiscal year, an annual report containing audited consolidated financial
statements and a report on those consolidated financial statements by our independent public accountants. Except for our fourth quarter, we will also mail or make available summary financial
information within 50 days after the close of each quarter. We are deemed to have made any such annual or quarterly report available if we file such report with the SEC on EDGAR or make the
report available on a publicly available website that we maintain.
Right to Inspect Our Books and Records
Our partnership agreement provides that a limited partner can, for a purpose reasonably related to his interest as a limited partner, upon
reasonable written demand stating the purpose of such demand and at his own expense, have furnished to him:
-
-
a current list of the name and last known address of each record holder;
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-
-
copies of our partnership agreement and our certificate of limited partnership and all amendments thereto; and
-
-
certain information regarding the status of our business and financial condition.
Our
general partner may, and intends to, keep confidential from the limited partners any information that our general partner reasonably believes to be in the nature of trade secrets or
other information the disclosure of which our general partner in good faith believes is not in our best interests, could damage us or our business or that we are required by law, regulation or by
agreements with third parties to keep confidential. Our partnership agreement limits the rights to information that a limited partner would otherwise have under Delaware law.
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MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the material United States federal income tax consequences related to the purchase, ownership and disposition of
our common units by a shareholder that holds our common units as a "capital asset" (generally property held for investment). This summary is based on the provisions of the Internal Revenue Code of
1986, as amended, or the Code, United States Treasury regulations and administrative rulings and judicial decisions, all as in effect on the date hereof, and all of which are subject to change,
possibly with retroactive effect. We have not sought any ruling from the Internal Revenue Service ("IRS") with respect to the statements made and the conclusions reached in the following summary, and
there can be no assurance that the IRS or a court will agree with such statements and conclusions.
This
summary does not address all aspects of United States federal income taxation or the tax considerations arising under the laws of any non-United States, state, or local
jurisdiction, or under United States federal estate or gift tax laws. In addition, except as expressly described in this summary, this summary does not address tax considerations applicable to
investors that may be subject to special treatment under the United States federal income tax laws, such as (without limitation):
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-
banks, insurance companies or other financial institutions;
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-
tax-exempt or governmental organizations;
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-
qualified foreign pension funds (or any entities all of the interests of which are held by a qualified foreign pension fund);
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-
dealers or brokers in stocks or securities or foreign currencies;
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-
United States holders (as defined below) whose functional currency is not the U.S. dollar;
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-
traders in securities that use the mark-to-market method of accounting for United States federal income tax purposes;
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-
"controlled foreign corporations," "passive foreign investment companies" and corporations that accumulate earnings to avoid United States
federal income tax;
-
-
persons subject to the alternative minimum tax;
-
-
partnerships (including entities or arrangements treated as partnerships for United States federal income tax purposes) or other pass-through
entities for United States federal income tax purposes or holders of interests therein;
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-
S corporations (or investors in S corporations);
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-
persons that hold or are deemed to sell our common units as a result of a constructive sale;
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-
persons that acquired our common units through the exercise of employee stock options or otherwise as compensation or through a tax-qualified
retirement plan;
-
-
certain former citizens or long-term residents of the United States;
-
-
real estate investment trusts, regulated investment companies or mutual funds;
-
-
persons that hold our common units as part of a straddle, appreciated financial position, synthetic security, hedge, conversion transaction or
other integrated investment or risk reduction transaction; and
-
-
persons that hold our common units other than as a capital asset.
If
a partnership (or an entity or arrangement treated as a partnership for United States federal income tax purposes) holds our common units, the tax treatment of a partner in the
partnership
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generally
will depend upon the status of the partner, upon the activities of the partnership and upon certain determinations made at the partner level. Accordingly, we urge partners of a partnership
(including an entity or arrangement treated as a partnership for United States federal income tax purposes) investing in our common units to consult their tax advisors regarding the United States
federal income tax considerations of the purchase, ownership and disposition of our common units by such partnership.
YOU ARE ENCOURAGED TO CONSULT YOUR TAX ADVISOR WITH RESPECT TO THE APPLICATION OF THE UNITED STATES FEDERAL INCOME TAX LAWS TO YOUR PARTICULAR SITUATION, AS WELL
AS ANY TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF OUR COMMON UNITS ARISING UNDER THE UNITED STATES FEDERAL ESTATE AND GIFT TAX LAWS OR UNDER THE LAWS OF ANY STATE, LOCAL,
NON-UNITED STATES OR OTHER TAXING JURISDICTION OR UNDER ANY APPLICABLE TAX TREATY.
Corporate Status
Although we are a Delaware limited partnership, we are treated as an entity taxable as a corporation for United States federal income tax
purposes as a result of the Tax Election. Thus, we are obligated to pay United States federal income tax on our net taxable income, and distributions on our common units are treated as distributions
on corporate stock for federal income tax purposes. Currently, the corporate United States federal income tax rate is 21%. In addition, no Schedule K-1s will be issued with respect to the
common units; instead holders of common units will receive a Form 1099 from us with respect to distributions received on the common units.
Tax Consequences to United States Holders
The discussion in this section is addressed to holders of our common units who are United States holders. You are a United States holder for
purposes of this discussion if you are a beneficial owner of our common units and you are, for United States federal income tax purposes:
-
-
an individual citizen or resident of the United States;
-
-
a corporation, or other entity taxable as a corporation for United States federal income tax purposes, that was created or organized in or
under the laws of the United States, any state thereof or the District of Columbia;
-
-
an estate whose income is subject to United States federal income tax regardless of its source; or
-
-
a trust if (i) a United States court can exercise primary supervision over the trust's administration and one or more United States
persons are authorized to control all substantial decisions of the trust or (ii) certain circumstances apply and the trust has validly elected to be treated as a United States person.
Treatment of Distributions
Distributions with respect to our common units will constitute dividends for United States federal income tax purposes to the extent paid from
our current or accumulated earnings and profits, as determined under United States federal income tax principles. To the extent that the amount of a distribution with respect to our common units
exceeds our current and accumulated earnings and profits, such distribution will be treated first as a tax-free return of capital to the extent of the United States holder's adjusted tax basis in such
common units, which reduces such basis dollar-for-dollar (but not below zero), and thereafter as capital gain from the sale or exchange of such common units. See "Disposition of Common
Units." Such gain will be long-term capital gain provided that the United States holder has held such common units for more than one year as of the time of the distribution.
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Subject
to the discussion below under "3.8% Tax on Net Investment Income," individuals that receive distributions on our common units that are treated as dividends for United States
federal income tax purposes generally would be subject to United States federal income tax at a maximum tax rate of 20% on such dividends provided certain holding period requirements are met. United
States holders that are corporations for U.S. federal income tax purposes that receive a distribution from us treated as a dividend for United States federal income tax purposes may be eligible for
the corporate dividends-received deduction (subject to certain limitations, including limitations on the aggregate amount of the deduction that may be claimed and limitations based on the holding
period of the common units on which the dividends were paid, which holding period may be reduced if the holder engages in risk reduction transactions with respect to its common units).
Investors
in our common units are encouraged to consult their tax advisors as to the tax consequences of receiving distributions on our common units that do not qualify as dividends for
United States federal income tax purposes, including, in the case of corporate investors, the inability to claim the corporate dividends-received deduction with respect to such distributions.
Disposition of Common Units
A United States holder of common units generally will recognize capital gain or loss on a sale, an exchange, certain redemptions, or other
taxable dispositions of our common units equal to the difference, if any, between the amount realized upon the disposition of such common units and the United States holder's adjusted tax basis in
those units. A United States holder's tax basis in the common units generally will be equal to the amount paid for such units, reduced (but not below zero) by distributions received on such units that
are not treated as dividends for United States federal income tax purposes. Such capital gain or loss generally will be long-term capital gain or loss if the
United States holder's holding period for the units sold or disposed of is more than one year. Subject to the discussion below under "3.8% Tax on Net Investment Income," long-term capital
gains of individuals generally are subject to a reduced maximum United States federal income tax rate of 20%. The deductibility of net capital losses is subject to limitations.
Investment by Tax-Exempt Investors and Regulated Investment Companies
A tax-exempt investor will not have unrelated business taxable income attributable to its ownership of common units or to its sale, exchange or
other disposition of common units unless its ownership of common units is debt-financed. In general, common units would be debt-financed if the tax-exempt investor incurs debt to acquire common units
or otherwise incurs or maintains a debt that would not have been incurred or maintained if those common units had not been acquired.
Distributions
that constitute dividends with respect to the common units will result in income that is qualifying income for a regulated investment company or a mutual fund. Furthermore,
any gain from the sale, exchange or other disposition of the common units will constitute gain from the sale, exchange or other disposition of stock or securities and will also result in income that
is qualifying income for a regulated investment company. Finally, the common units will constitute qualifying assets to regulated investment companies, which generally must own at least 50% in
qualifying assets and not more than 25% in certain nonqualifying assets at the end of each quarter, provided such regulated investment companies do not violate certain percentage ownership limitations
with respect to the common units.
Backup Withholding and Information Reporting
Information returns generally will be filed with the IRS with respect to distributions on our common units and the proceeds from a disposition
of our common units. United States holders may be subject to backup withholding on distributions with respect to our common units and on the proceeds of a disposition of our common units unless such
United States holders furnish the applicable
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withholding
agent with a taxpayer identification number, certified under penalties of perjury, and certain other information, or otherwise establish, in the manner prescribed by law, an exemption from
backup withholding. Penalties apply for failure to furnish correct information and for failure to include reportable payments in income.
Backup
withholding is not an additional tax. Any amounts withheld under the backup withholding rules will be creditable against a United States holder's United States federal income tax
liability, and the United States holder may be entitled to a refund, provided the United States holder timely furnishes the required information to the IRS. United States holders are urged to consult
their own tax advisors regarding the application of the backup withholding rules to their particular circumstances and the availability of, and procedure for, obtaining an exemption from backup
withholding.
Tax Consequences to Non-United States Holders
The discussion in this section is addressed to holders of our common units who are non-United States holders. For purposes of this discussion, a
non-United States holder is a beneficial owner of our common units that is neither a partnership for United States federal income tax purposes nor a United States holder as defined above.
Treatment of Distributions
Distributions with respect to our common units will constitute dividends for United States federal income tax purposes to the extent paid from
our current or accumulated earnings and profits, as determined under United States federal income tax principles. Subject to the withholding requirements under FATCA (as defined below) and with
respect to dividends effectively connected with a trade or business, each of which is discussed below, a distribution treated as a dividend paid to a non-United States holder on our common units
generally will be subject to United States withholding tax at a rate of 30% of the gross amount of the distribution, or such lower rate as may be specified by an applicable income tax treaty. To the
extent a distribution exceeds our current and accumulated earnings and profits, such distribution will reduce the non-United States holder's adjusted tax basis in its common units (but not below
zero). The remaining amount of such distribution will be treated as gain from the sale of such common units and will have the tax consequences described below under "Disposition of Common
Units." The rules applicable to
distributions by "USRPHCs" (as defined below) to non-United States persons that exceed current and accumulated earnings and profits are not clear. As a result, to the extent that the amount of a
distribution with respect to our common units exceeds our current and accumulated earnings and profits, it is possible that United States federal income tax, at a rate not less than 15% (or such lower
rate as may be specified by an applicable income tax treaty for distributions from a USRPHC), may be withheld from such distributions received by non-United States holders. To receive the benefit of a
reduced treaty rate on distributions, a non-United States holder must provide the withholding agent with an IRS Form W-8BEN or IRS Form W-8BEN-E (or other appropriate form) certifying
qualification for the reduced rate.
Non-United
States holders are encouraged to consult their tax advisors regarding the withholding rules applicable to distributions on our common units, the requirement for claiming
treaty benefits, and any procedures required to obtain a refund of any overwithheld amounts.
Distributions
treated as dividends that are paid to a non-United States holder and are effectively connected with a trade or business conducted by the non-United States holder in the
United States (and, if required by an applicable tax treaty, are attributable to a permanent establishment maintained by the non-United States holder in the United States) generally will be taxed on a
net income basis at the rates and in the manner generally applicable to United States persons (as defined under the Code). Effectively connected dividend income will not be subject to United States
withholding tax if the non-United States holder satisfies certain certification requirements by providing to the withholding
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agent
a properly executed IRS Form W-8ECI (or other appropriate form) certifying eligibility for the exemption. If the non-United States holder is a corporation, that portion of the
corporation's earnings and profits for the taxable year, as adjusted for certain items, that is effectively connected with its United States trade or business (and, if required by applicable income
tax treaty, is attributable to a permanent establishment maintained in the United States by a non-United States holder that is a corporation for U.S. federal income tax purposes) may also be subject
to a "branch profits tax" at a 30% rate or such lower rate as may be specified by an applicable tax treaty.
Disposition of Common Units
Subject to the discussion below under "Backup Withholding and Information Reporting," a non-United States holder generally will not
be subject to United States
federal income or withholding tax on any gain realized upon the sale or other disposition of our common units unless:
-
-
the non-United States holder is an individual who is present in the United States for a period or periods aggregating 183 days or more
during the calendar year in which the sale or disposition occurs and certain other conditions are met;
-
-
the gain is effectively connected with a trade or business conducted by the non-United States holder in the United States (and, if required by
an applicable tax treaty, is attributable to a permanent establishment maintained by the non-United States holder in the United States); or
-
-
our common units constitute a United States real property interest by reason of our status as a United States real property holding
corporation, or USRPHC, for United States federal income tax purposes and as a result such gain is treated as effectively connected with a trade or business conducted by the non-United States holder
in the United States.
A
non-United States holder described in the first bullet point above will be subject to tax at a rate of 30% (or such lower rate as may be specified by an applicable tax treaty) on the
amount of such gain (which may be offset by United States source capital losses, provided that the non-United States holder has timely filed United States federal income tax returns with respect to
such losses).
A
non-United States holder whose gain is described in the second bullet point above or, subject to the exceptions described in the next paragraph, the third bullet point above, will be
subject to United States federal income tax on any such gain recognized on a net income basis at the same graduated rates generally applicable to United States persons unless an applicable tax treaty
provides otherwise. If the non-United States holder is a corporation for U.S. federal income tax purposes whose gain is described in the second bullet point above, then such gain would also be
included in its effectively connected earnings and profits, as adjusted for certain items, which may also be subject to a branch profits tax equal to 30% (or such lower rate as may be specified by an
applicable tax treaty).
Generally,
a corporation is a USRPHC if the fair market value of its United States real property interests equals or exceeds 50% of the sum of the fair market value of its worldwide real
property interests and its other assets used or held for use in a trade or business. We believe that we currently are, and expect to remain for the foreseeable future, a USRPHC for United States
federal income tax
purposes. However, as long as our common units are "regularly traded on an established securities market" (within the meaning of the U.S. Treasury regulations), a non-United States holder will be
treated as disposing of a United States real property interest and will be taxable on gain recognized on the disposition of our common units as a result of our status as a USRPHC only if the
non-United States holder actually or constructively owns, or owned at any time during the five-year period ending on the date of the disposition or, if shorter, the non-United States holder's holding
period for the common units, more than 5% of our common units. If our common units were not considered to be regularly traded on an established securities market, all non-United States holders would
be subject to United States federal income tax on a disposition of our common units, and a 15% withholding tax
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would
apply to the gross proceeds from the sale of our common units by such non-United States holder.
Non-United
States holders should consult their tax advisors with respect to the application of the foregoing rules to their ownership and disposition of our common units.
Backup Withholding and Information Reporting
Generally, we must report annually to the IRS and to each non-United States holder the amount of dividends paid to such holder, the name and
address of the recipient, and the amount, if any, of tax withheld with respect to those dividends. These information reporting requirements apply even if withholding was not required. Pursuant to tax
treaties or other agreements, the IRS may make such reports available to tax authorities in the recipient's country of residence.
Payments
of dividends to a non-United States holder generally will not be subject to backup withholding if the non-United States holder establishes an exemption by properly certifying
its non-United States status on an IRS Form W-8BEN, IRS Form W-8BEN-E or another appropriate version of IRS Form W-8, provided that the withholding agent does not have actual
knowledge, or reason to know, that the beneficial owner is a United States person that is not an exempt recipient.
Payments
of the proceeds from a sale or other disposition by a non-United States holder of our common units effected by or through a United States office of a broker generally will be
subject to information reporting and backup withholding (at the applicable rate) unless the non-United States
holder establishes an exemption by properly certifying its non-United States status on an IRS Form W-8BEN, IRS Form W-8BEN-E or another appropriate version of IRS Form W-8 and
certain other conditions are met or the non-United States holder otherwise establishes an exemption. Information reporting and backup withholding generally will not apply to any payment of the
proceeds from a sale or other disposition of our common units effected outside the United States by a foreign office of a broker. However, unless such broker has documentary evidence in its records
that the holder is a non-United States holder and certain other conditions are met, or the non-United States holder otherwise establishes an exemption, information reporting will apply to a payment of
the proceeds of the disposition of our common units effected outside the United States by such a broker if it has certain relationships within the United States.
Backup
withholding is not an additional tax. Rather, the United States income tax liability (if any) of persons subject to backup withholding will be reduced by the amount of tax
withheld. If withholding results in an overpayment of taxes, a refund may be obtained, provided that certain required information is timely furnished to the IRS.
Additional Withholding Requirements under Foreign Account Tax Compliance Act
Sections 1471 through 1474 of the Code and the Treasury regulations and administrative guidance issued thereunder ("FATCA") impose a 30%
withholding tax on any dividends paid on our common units if paid to a "foreign financial institution" or a "non-financial foreign entity" (each as defined in the Code) (including, in some cases, when
such foreign financial institution or non-financial foreign entity is acting as an intermediary), unless (i) in the case of a foreign financial institution, such institution enters into an
agreement with the United States government to withhold on certain payments, and to collect and provide to the United States tax authorities substantial information regarding United States account
holders of such institution (which includes certain equity and debt holders of such institution, as well as certain account holders that are foreign entities with United States owners), (ii) in
the case of a non-financial foreign entity, such entity certifies that it does not have any "substantial United States owners" (as defined in the Code) or provides the withholding agent with a
certification identifying the direct and indirect substantial United States owners of the entity, or (iii) the foreign financial institution or non-financial foreign entity otherwise qualifies
for an exemption
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from
these rules and provides appropriate documentation (such as an IRS Form W-8BEN-E). Under certain circumstances, a holder might be eligible for refunds or credits of such taxes. An
intergovernmental agreement between the United States and an applicable foreign country or future Treasury Regulations may modify these requirements. Holders are encouraged to consult their tax
advisors regarding the possible implications of FATCA.
3.8% Tax on Net Investment Income
Certain holders that are individuals, trusts or estates will be subject to an additional 3.8% tax on net investment income, which generally will
include dividends received and gain recognized with respect to our common units. For individual United States holders, this tax applies to the lesser of (i) "net investment income," or
(ii) the excess of "modified adjusted gross income" over $200,000 ($250,000 if married and filing jointly or $125,000 if married and filing separately). "Net investment income" generally equals
a holder's gross investment income reduced by the deductions that are allocable to such income. Investment income generally includes passive income such as interest, dividends, annuities, royalties,
rents and capital gains. You are urged to consult your own tax advisors regarding the application of this additional tax to your particular circumstances.
INVESTORS CONSIDERING THE PURCHASE OF OUR COMMON UNITS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS REGARDING THE APPLICATION OF THE UNITED STATES FEDERAL INCOME
TAX LAWS TO THEIR PARTICULAR SITUATIONS AND THE APPLICABILITY AND EFFECT OF UNITED STATES FEDERAL ESTATE AND GIFT TAX LAWS AND ANY STATE, LOCAL OR FOREIGN TAX LAWS AND
TREATIES.
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INVESTMENT IN KIMBELL ROYALTY PARTNERS, LP BY EMPLOYEE BENEFIT PLANS
An investment in our securities by an employee benefit plan is subject to additional considerations because the investments of these plans are
subject to the fiduciary responsibility and prohibited transaction provisions of ERISA, restrictions imposed by Section 4975 of the Code, and/or provisions under any federal, state, local,
non-United States or other laws or regulations that are similar to such provisions of the Code or ERISA (collectively, "Similar Laws"). For these purposes the term "employee benefit plan" includes,
but is not limited to, qualified pension, profit-sharing and stock bonus plans, Keogh plans, simplified employee pension plans and tax deferred annuities or IRAs and entities whose underlying assets
are considered to include "plan assets" of such plans, accounts or arrangements. In considering an investment in our securities, among other things, consideration should be given
to:
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-
whether the investment is prudent under Section 404(a)(1)(B) of ERISA and any other applicable Similar Laws;
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-
whether in making the investment, the plan will satisfy the diversification requirements of Section 404(a)(1)(C) of ERISA and any other
applicable Similar Laws;
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-
whether the investment is permitted under the terms of the applicable documents governing the employee benefit plan;
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-
whether in making the investment, the employee benefit plan will be considered to hold, as plan assets, (1) only the investment in our
securities or (2) an undivided interest in our underlying assets;
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-
whether the investment will result in recognition of unrelated business taxable income by the plan and, if so, the potential after-tax
investment return. Please read "Material United States Federal Income Tax ConsequencesTax-Exempt Organizations and Other Investors"; and
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-
whether making such an investment will comply with the delegation of control and prohibited transaction provisions of ERISA, the Code and any
other applicable Similar Laws.
The
person with investment discretion with respect to the assets of an employee benefit plan, often called a fiduciary, should determine whether an investment in our securities is
authorized by the appropriate governing instrument and is a proper investment for the plan.
Prohibited Transaction Issues
Section 406 of ERISA and Section 4975 of the Code prohibit employee benefit plans from engaging in specified transactions
involving "plan assets" with parties that are "parties in interest" under ERISA or "disqualified persons" under the Code with respect to the employee benefit plan, unless an exemption is applicable. A
party in interest or disqualified person who engages in a non-exempt prohibited transaction may be subject to excise taxes and other penalties and liabilities under ERISA and the Code. In addition,
the fiduciary of the ERISA plan that engaged in such a non-exempt prohibited transaction may be subject to excise taxes, penalties and liabilities under ERISA and the Code.
Plan Asset Issues
In addition to considering whether the purchase of our securities is a prohibited transaction, a fiduciary of an employee benefit plan should
consider whether the plan will, by investing in our securities, be deemed to own an undivided interest in our assets, with the result that our operations would be subject to the regulatory
restrictions of ERISA, including its prohibited transaction rules, as well as the prohibited transaction rules of the Code and any other applicable Similar Laws.
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The
United States Department of Labor regulations provide guidance with respect to whether the assets of an entity in which employee benefit plans acquire equity interests would be
deemed "plan assets" under some circumstances. Under these regulations, an entity's assets would not be considered to be "plan assets" if, among other things:
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(1)
-
the
equity interests acquired by employee benefit plans are publicly offered securitiesi.e., the equity interests are widely held by 100 or more
investors independent of the issuer and each other, freely transferable and registered under some provisions of the federal securities laws;
-
(2)
-
the
entity is an "operating company"i.e., it is primarily engaged in the production or sale of a product or service other than the investment of
capital either directly or through a majority-owned subsidiary or subsidiaries; or
-
(3)
-
there
is no significant investment by benefit plan investors, which is defined to mean that less than 25% of the value of each class of equity interest is held by
the employee benefit plans referred to above.
The
foregoing discussion of issues arising for employee benefit plan investments under ERISA, the Code and applicable Similar Laws is general in nature and is not intended to be all
inclusive, nor should it be construed as legal advice. Plan fiduciaries contemplating a purchase of our securities should consult with their own counsel regarding the consequences under ERISA, the
Code and any other applicable Similar Laws in light of the serious penalties imposed on persons who engage in prohibited transactions or other violations.
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SELLING UNITHOLDERS
This prospectus covers the offering for resale from time to time, in one or more offerings, of up to 27,512,556 common units, comprising
(i) 5,945,946 common units issuable upon the conversion of 110,000 Series A Preferred Units owned by the Series A Purchasers, (ii) 20,861,084 common units issuable upon the
exchange of the OpCo Common Units and a corresponding number of Class B Units owned by certain of the selling unitholders named herein and (iii) 705,526 common units owned by the other
selling unitholders named herein.
On May 28, 2018, we entered into two securities purchase agreements (each, a "Haymaker Purchase Agreement," and together, the "Haymaker
Purchase Agreements"), pursuant to which Haymaker Minerals & Royalties, LLC, a Delaware limited liability company ("Haymaker Minerals"), and Haymaker Resources, LP, a Delaware
limited partnership ("Haymaker Resources" and together with Haymaker Minerals, the "Haymaker Sellers"), agreed to contribute various entities to us in exchange for cash and common units. The
transactions contemplated by the Haymaker Purchase Agreements are referred to herein as the "Haymaker Transactions."
On
May 28, 2018, we also entered into the Series A Preferred Unit Purchase Agreement with the Series A Purchasers, pursuant to which we agreed to issue and sell
110,000 Series A Preferred Units. The closing of the Haymaker Transactions and the transactions contemplated under the Series A Preferred Unit Purchase Agreement occurred on
July 12, 2018. In connection with the closing of the transactions contemplated under the Series A Preferred Unit Purchase Agreement, we issued 110,000 Series A Preferred Units to
the Series A Purchasers. We used the proceeds from the issuance of the Series A Preferred Units to partially fund the cash purchase price of the Haymaker Transactions. Each of the
Series A Purchasers acquired its Series A Preferred Units in a private placement exempt from the registration requirements of the Securities Act of 1933, as amended (the "Securities
Act"), under Section 4(a)(2) of the Securities Act.
In
connection with the closing of the Haymaker Transactions, we issued 10,000,000 common units to the Haymaker Sellers, consisting of 4,000,000 common units issued to Haymaker Minerals
and 6,000,000 common units issued to entities designated by Haymaker Resources. In connection with the Restructuring, the Haymaker Holders delivered and assigned to us the 10,000,000 common units they
owned in exchange for (a) 10,000,000 newly issued Class B Units and (b) 10,000,000 newly issued OpCo Common Units. Each of the Haymaker Holders acquired its units in a private
placement exempt from the registration requirements of the Securities Act under Section 4(a)(2) of the Securities Act.
Pursuant
to the terms of the Haymaker Purchase Agreements and the Series A Preferred Unit Purchase Agreement, on July 12, 2018, in connection with the closing of the
Haymaker Transactions and the transactions contemplated under the Series A Preferred Unit Purchase Agreement, we entered into a registration rights agreement with the Haymaker Holders and the
Series A Purchasers (the "Haymaker Registration Rights Agreement").
On November 20, 2018, we entered into a purchase and sale agreement (the "Dropdown Purchase Agreement") with Rivercrest Capital
Partners LP, a Delaware limited partnership ("Rivercrest Capital"), the Foundation, Cupola Royalty Direct, LLC, a Delaware limited liability company ("Cupola" and, together with
Rivercrest Capital and the Foundation, the "Asset Sellers"), Rivercrest Royalties Holdings II, LLC ("Holdings II" and, together with the Asset Sellers, the "Dropdown Sellers"), and the
Operating Company, pursuant to which we agreed to acquire (a) certain overriding royalty, royalty and other mineral interests from the Asset Sellers and (b) all of the limited liability
company interests of a subsidiary of Holdings II in exchange for OpCo Common Units and Class B
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Units.
The transactions contemplated by the Dropdown Purchase Agreement are referred to herein as the "Dropdown Transaction."
The
closing of the Dropdown Transaction occurred on December 20, 2018. In connection with the closing of the Dropdown Transaction, we issued a total of 6,500,000 OpCo Common Units
and an equal number of Class B Units to the Dropdown Sellers. The OpCo Common Units and the Class B Units were issued in a private placement exempt from the registration requirements of
the Securities Act under Section 4(a)(2) of the Securities Act.
Pursuant
to the terms of the Dropdown Purchase Agreement, on December 20, 2018, we entered into a registration rights agreement with the Dropdown Sellers (the "Dropdown
Registration Rights Agreement").
On February 6, 2019, we entered into a securities purchase agreement (as amended, the "Phillips Purchase Agreement") with PEP I
Holdings, LLC, a Delaware limited liability company ("Phillips I"), PEP II Holdings, LLC, a Delaware limited liability company ("Phillips II"), PEP
III Holdings, LLC, a Delaware limited liability company ("Phillips III" and, together with Phillips I and Phillips II, the "Phillips Sellers"), and the Operating Company, pursuant to which we
agreed to acquire all of the equity interests owned by the Phillips Sellers in certain entities that own oil and natural gas mineral and royalty interests (the "Acquired Phillips Subsidiaries"). The
transactions contemplated by the Phillips Purchase Agreement are referred to herein as the "Phillips Transaction."
The
closing of the Phillips Transaction occurred on March 25, 2019. In connection with the closing of the Phillips Transaction, we issued a total of 9,400,000 OpCo Common Units
and an equal number of Class B Units to the Phillips Sellers. The OpCo Common Units and the Class B Units were issued in a private placement exempt from the registration requirements of
the Securities Act under Section 4(a)(2) of the Securities Act.
In
connection with the closing of the Phillips Transaction, on March 25, 2019, we entered into an Amended and Restated Registration Rights Agreement (the "Amended and Restated
Registration Rights Agreement") with the Phillips Sellers, the Haymaker Holders, the Series A Purchasers and certain of the Dropdown Sellers. The Amended and Restated Registration Rights
Agreement amended and consolidated the Haymaker Registration Rights Agreement and the Dropdown Registration Rights Agreement, and set forth certain registration rights of the Phillips Sellers.
Pursuant to the terms of the Amended and Restated Registration Rights Agreement, we are obligated to, among other things, prepare a shelf registration statement or an amendment to our existing shelf
registration statement, in either event, with respect to the resale of our common units issued or issuable upon the exchange of the OpCo Common Units and a corresponding number of Class B Units
issued in connection with the Haymaker Transactions, the Dropdown Transaction and the Phillips Transaction. We are registering the common units described in this prospectus pursuant to our obligations
under the Amended and Restated Registration Rights Agreement.
On January 25, 2019, Holdings II exchanged 1,241,679 OpCo Common Units and an equal number of Class B Units for 1,241,679 common
units pursuant to the terms of the Exchange Agreement. Pursuant to the terms of our partnership agreement, the Class B Units tendered in such exchange were automatically cancelled and cease to
be outstanding. Subsequent to such exchange, Holdings II completed a pro rata distribution of 1,117,511 common units to its members. As a result, such common units are not listed herein as
common units that may be offered for resale by such selling unitholder.
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On
January 25, 2019, Haymaker Management, LLC ("Haymaker Management") exchanged 197,237 OpCo Common Units and an equal number of Class B Units for 197,237 common
units pursuant to the terms of the Exchange Agreement. Pursuant to the terms of our partnership agreement, the Class B Units tendered in such exchange were automatically cancelled and cease to
be outstanding. Subsequent to such exchange, Haymaker Management completed a distribution of 197,237 common units to certain individuals under its employment, some of whom have elected to be named as
selling unitholders in this prospectus pursuant to the terms of the Amended and Restated Registration Rights Agreement.
On
April 10, 2019, Haymaker Minerals exchanged 3,600,000 OpCo Common Units and an equal number of Class B Units for 3,600,000 common units pursuant to the terms of the
Exchange Agreement. Pursuant to the terms of our partnership agreement, the Class B Units tendered in such exchange were automatically cancelled and cease to be outstanding. On May 1,
2019, according to a Schedule 13G/A filed by Haymaker Minerals on May 13, 2019, Haymaker Minerals disposed of 3,200,000 common units. As a result, such common units are not listed herein as
common units that may be offered for resale by such selling unitholder.
The following table sets forth the name of each selling unitholder, the number of Series A Preferred Units beneficially owned prior to
the offering, the number of common units beneficially owned prior to the offering, the number of Class B Units beneficially owned prior to the offering, the number of common units that may be
offered from time to time for each selling unitholder's account and the amount to be owned and the percentage of common units outstanding beneficially owned by each selling unitholder following the
completion of the offering (assuming each selling unitholder sells all of the common units covered by this prospectus). The percentages of common units outstanding have been calculated based on
23,095,403 common units outstanding as of May 13, 2019. Certain officers, managing members and/or managers of the Dropdown Sellers (or the entities that manage or control the Dropdown Sellers)
also serve as officers and/or directors of our general partner and our subsidiaries. To our knowledge, except as described in the preceding sentence and notes to the table, the selling unitholders
have held no position or office or had any other material relationship with us or any of our affiliates or predecessors during the past three years, other than (i) the Haymaker Transactions and
related agreements, including the Haymaker Purchase Agreements and the Amended and Restated Registration Rights Agreement, (ii) the Dropdown Transaction and related agreements, including the
Dropdown Purchase Agreement and the Amended and Restated Registration Rights Agreement, (iii) the Phillips Transaction and related agreements, including the Phillips Purchase Agreement and the
Amended and Restated Registration Rights Agreement, (iv) their ownership of Series A Preferred Units, common units, OpCo Common Units and Class B Units, as applicable, and
(v) the Restructuring.
We
have prepared the table and the related notes based on information supplied to us by the selling unitholders. We have not sought to verify such information. Additionally, the selling
unitholders identified below may sell all or a portion of the common units registered hereby or some or all of the
selling unitholders may have sold or transferred some or all of the units listed below in exempt or non-exempt transactions since the date on which the information was provided to us. Information
concerning the selling unitholders may change from time to time and, if necessary, we will supplement
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this
prospectus accordingly. The registration of these common units does not necessarily mean that the selling unitholders will sell all or any portion of the common units covered by this prospectus.
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Common Units
Beneficially Owned
After the Offering(3)
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Series A
Preferred Units
Beneficially
Owned Prior to
the Offering
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Common Units
Beneficially
Owned
Prior to the
Offering(1)
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Class B Units
Beneficially
Owned Prior
to the
Offering
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Selling Unitholder
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Common Units
Being
Offered(2)(3)
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Number of Units
|
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Percent
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AA Direct, L.P.(4)
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1,980
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|
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107,027
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107,027
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*
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AHVF Intermediate Holdings, L.P.(4)
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60,280
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3,258,378
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3,258,378
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*
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Apollo Kings Alley Credit SPV, L.P.(4)
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5,170
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279,459
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279,459
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*
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AP KRP Credit Intermediate, LLC(4)
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13,310
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719,459
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719,459
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*
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Apollo Lincoln Private Credit Fund, L.P.(4)
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3,630
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196,216
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196,216
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*
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Apollo SPN Investments I (Credit), LLC(4)
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3,080
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166,486
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166,486
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*
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Apollo Thunder Partners, L.P.(4)
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5,170
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279,459
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279,459
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*
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Apollo Union Street SPV, L.P.(4)
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4,070
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220,000
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220,000
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*
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ATCF SPV, L.P.(4)
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13,310
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719,459
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719,459
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*
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Haymaker Minerals & Royalties, LLC(5)
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800,000
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400,000
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800,000
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*
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EIGF Aggregator III LLC(6)
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4,599,554
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4,599,554
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4,599,554
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*
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TE Drilling Aggregator LLC(6)
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314,005
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314,005
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314,005
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*
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Haymaker Management, LLC(7)
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889,204
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889,204
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889,204
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*
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Rivercrest Capital Partners LP(8)
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2,813,179
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2,813,179
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2,813,179
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*
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Kimbell Art Foundation(9)
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5,135,020
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5,135,020
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2,181,762
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2,953,258
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5.59
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%
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Rivercrest Royalties Holdings II, LLC(10)
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124,168
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124,168
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*
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Cupola Royalty Direct, LLC(11)
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263,380
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263,380
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263,380
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*
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PEP I Holdings, LLC(12)(13)
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723,800
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723,800
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723,800
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*
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PEP II Holdings, LLC(12)(14)
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3,318,200
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3,318,200
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3,318,200
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*
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PEP III Holdings, LLC(12)(15)
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5,358,000
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5,358,000
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5,358,000
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*
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Other selling unitholders as a group(16)
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181,358
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181,358
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*
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-
*
-
Represents
less than 1%.
-
(1)
-
Calculated
in accordance with Rule 13d-3 under the Exchange Act.
-
(2)
-
As
of May 13, 2019, the Series A Preferred Units have not been converted in part or in full. Assumes the full conversion of the Series A
Preferred Units issued to the selling unitholders based on the initial conversion rate. Assumes the full exchange of all outstanding OpCo Common Units and Class B Units issued to the selling
unitholders for common units.
-
(3)
-
Assumes
the sale of all common units of the applicable selling unitholder being offered pursuant to this registration statement.
-
(4)
-
We
have been advised by the selling unitholder that Joseph D. Glatt, as vice president of one or more affiliates and/or funds or separate accounts managed by Apollo
Credit Management, LLC and/or its affiliates, has power to vote or dispose of the securities.
-
(5)
-
The
principal business office address of Haymaker Minerals is 811 Main Street, 14th Floor, Houston, Texas 77002. The 400,000 common units and 400,000 common
units issuable upon the exchange of 400,000 OpCo Common Units and an equivalent number of Class B Units are owned directly by Haymaker Minerals. Kayne Anderson Capital Advisors, L.P.
("KACALP") is the managing member of the general partner of Kayne Anderson Energy Fund VI LP ("KAEF VI"), a member of Haymaker Minerals holding the right to appoint four of the seven
representatives to the board of managers of Haymaker Minerals. The four representatives to the board of managers of Haymaker
55
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Minerals
appointed by KAEF VI possess the majority vote of the board of managers of Haymaker Minerals. As a result, KACALP may be deemed to have the power to vote or direct the vote or to dispose or
direct the disposition of the common units owned by Haymaker Minerals. Richard A. Kayne is the controlling shareholder of Kayne Anderson Investment Management, Inc., the general partner of
KACALP. Mr. Kayne is also a limited partner of KAEF VI. KACALP disclaims beneficial ownership of the securities owned by Haymaker Minerals in excess of its pecuniary interest therein and this
statement shall not be deemed an admission that KACALP is the beneficial owner of the reported common units for the purposes of Section 13(d) of the Exchange Act or any other purpose.
Mr. Kayne disclaims beneficial ownership of the common units reported, except those common units held by him or attributable to him by virtue of his limited partner interest in KAEF VI and his
indirect interest in the interest of KACALP in KAEF VI. 400,000 or 50% of the 800,000 common units are subject to an Escrow Agreement, dated May 28, 2018, among Haymaker Minerals, us and
Citibank, N.A., as escrow agent, and will be released at the end of the one year escrow period assuming Haymaker Minerals will have no indemnification obligations under the applicable Haymaker
Purchase Agreement.
-
(6)
-
EIGF
Aggregator LLC ("EIGF Aggregator") is the managing member of EIGF Aggregator III LLC ("EIGF Aggregator III"). KKR Energy Income and Growth Fund
I L.P. ("KKR Energy Income") is the managing member of EIGF Aggregator. KKR Energy Income and Growth Fund I TE L.P. ("KKR Energy Income TE") is the sole member of TE Drilling
Aggregator LLC ("TE Drilling Aggregator"), and KKR Associates EIGF TE L.P. ("KKR Associates TE") is the general partner of KKR Energy Income TE. KKR Associates EIGF L.P. ("KKR
Associates") is the general partner of KKR Energy Income. KKR EIGF LLC ("KKR EIGF") is the general partner of KKR Associates and the general partner of KKR Associates TE. KKR Upstream
Associates LLC ("KKR Upstream Associates") is the sole member of KKR EIGF. KKR Fund Holdings L.P. ("KKR Fund Holdings") and KKR Upstream LLC ("KKR Upstream") are the members of
KKR Upstream Associates. KKR Fund Holdings is the sole member of KKR Upstream. KKR Fund Holdings GP Limited ("KKR Fund Holdings GP") is a general partner of KKR Fund Holdings. KKR Group
Holdings Corp. ("KKR Group Holdings") is the sole shareholder of KKR Fund Holdings GP and a general partner of KKR Fund Holdings. KKR & Co. Inc. ("KKR & Co.")
is the sole shareholder of KKR Group Holdings. KKR Management LLC ("KKR Management") is the controlling shareholder of KKR & Co. Messrs. Kravis and Roberts are the
designated members of KKR Management. As such, each of the above may be deemed the beneficial owners having shared voting and investment power with respect to all or a portion of the securities held
by EIGF Aggregator III and TE Drilling Aggregator. The principal business address of each of the entities and persons identified in this paragraph, except Mr. Roberts, is c/o Kohlberg Kravis
Roberts & Co. L.P., 9 West 57th Street, Suite 4200, New York, NY 10019. The principal business address for Mr. Roberts is c/o Kohlberg Kravis
Roberts & Co. L.P., 2800 Sand Hill Road, Suite 200, Menlo Park, CA 94025. 491,355.90 or 10% of the 4,913,559 common units beneficially owned by EIGF Aggregator III and TE
Drilling Aggregator are subject to an Escrow Agreement, dated May 28, 2018 (the "Haymaker Resources Escrow Agreement") among Haymaker Resources, us and Citibank, N.A., as escrow agent, and will
be released at the end of the one year escrow period assuming Haymaker Resources will have no indemnification obligations under the applicable Haymaker Purchase Agreement.
-
(7)
-
Haymaker
Management is governed by a board of managers consisting of Karl Brensike, Doug Collins, and Vasilis Mouratoff, each of whom may be deemed to share voting
and dispositive power over the securities held by Haymaker Management and may also be deemed to be the beneficial owner of these securities, but disclaims beneficial ownership of such securities in
excess of his pecuniary interest in the securities. The principal business address of the foregoing entity and persons is 7 Switchbud Place, Suite 192 PMB 311, The Woodlands, Texas 77380.
125,700 or approximately 14% of the 889,204 common units are subject to the Haymaker Resources Escrow Agreement and will be released at the end of the one year escrow period assuming Haymaker
Resources will have no indemnification obligations under the applicable Haymaker Purchase Agreement.
-
(8)
-
Rivercrest
Capital Partners LP (the "Fund") directly owns the reported securities. Rivercrest Capital Management LLC ("RCM") is the manager of the Fund
pursuant to a management agreement with the Fund. Rivercrest Holding LP ("RHLP") is the sole member of RCM. Rivercrest Capital GP ("RCGP") is the general partner of the Fund and RHLP.
Through these relationships, each of RCM, RHLP and RCGP may be deemed to have the power to vote or direct the vote or to dispose or direct the disposition of the securities owned by the Fund. The
principal business address for each of the Fund, RCM, RHLP and RCGP is 777 Taylor Street, Suite 810, Fort Worth, TX 76102. T. Scott Martin ("Martin"), Robert D. Ravnaas ("R.
Ravnaas"), and R. Davis Ravnaas ("D. Ravnaas") are the managing members of RCGP. Mr. Martin is also a member of the Board of Directors. Mr. R. Ravnaas is also the Chief
Executive Officer and Chairman of the Board of Directors. Mr. D.
Ravnaas is also the President and Chief Financial Officer of our general partner. None of Messrs. R. Ravnaas, D. Ravnaas or Martin has voting or investment power with respect to the
reported securities. Each of Messrs. R. Ravnaas, D. Ravnaas and Martin disclaims beneficial ownership of any common units issuable upon exchange by the
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Fund
of its OpCo Common Units and Class B Units, except to the extent of his pecuniary interest therein. 281,318 or 10% of the 2,813,179 common units are subject to an Escrow Agreement, dated
as of December 20, 2018 (the "Dropdown Escrow Agreement"), among us, the Operating Company, the Dropdown Sellers and Citibank, N.A., as escrow agent, and will be released over a one year period
assuming the Fund will have no indemnification obligations under the Dropdown Purchase Agreement.
-
(9)
-
The
principal business address of the Foundation is 301 Commerce Street, Suite 2300, Fort Worth, Texas 76102. Ben J. Fortson is Executive Vice
President and Chief Investment Officer of the Foundation, and he was delegated authority to manage the investment assets of the Foundation and, therefore, may be deemed to have voting and investment
power over the securities owned by the Foundation. Mr. Fortson disclaims beneficial ownership of such securities. 218,176 or 10% of the 2,181,762 common units are subject to the Dropdown Escrow
Agreement and will be released over a one year period assuming the Foundation will have no indemnification obligations under the Dropdown Purchase Agreement.
-
(10)
-
The
principal business address of Holdings II is 777 Taylor Street, Suite 810, Fort Worth, Texas 76102. Yorktown Energy Partners X, L.P. ("Yorktown")
is a member of Holdings II and currently owns a majority of the outstanding units in Holdings II. Under the terms of Holdings II's governing agreements, Yorktown has the ability to elect or remove
members of the board of managers of Holdings II for so long as Yorktown owns a majority of the outstanding units in Holdings II. Yorktown, therefore, could appoint a majority of the members of the
board of managers of Holdings II. Yorktown X Company LP, a Delaware limited partnership ("Yorktown Company"), is the sole general partner of Yorktown. Yorktown X Associates LLC, a
Delaware limited liability company ("Yorktown Associates" and together with Yorktown and Yorktown Company, the "Yorktown Persons"), is the sole general partner of Yorktown Company. As a result, each
of the Yorktown Persons may be deemed to have the power to vote or direct the vote or to dispose or direct the disposition of the securities owned by Holdings II. Each of the Yorktown Persons
disclaims beneficial ownership of the securities owned by Holdings II except to the extent of its pecuniary interest therein. All of the common units are subject to the Dropdown Escrow Agreement and
will be released over a one year period assuming Holdings II will have no indemnification obligations under the Dropdown Purchase Agreement.
-
(11)
-
The
principal business address of Cupola is 777 Taylor Street, Suite 810, Fort Worth, Texas 76102. Rivercrest Cupola LLC ("Rivercrest Cupola")
is the manager of Cupola. Rivercrest Cupola, in turn, is governed by its members, consisting of Messrs. Martin, R. Ravnaas and D. Ravnaas, each of whom may be deemed to share voting and
dispositive power over the securities held by Cupola and may also be deemed to be the beneficial owner of these securities, but disclaims beneficial ownership of such securities in excess of his
pecuniary interest therein. 26,338 or 10% of the 263,380 common units are subject to the Dropdown Escrow Agreement and will be released over a one year period assuming Cupola will have no
indemnification obligations under the Dropdown Purchase Agreement.
-
(12)
-
EnCap
Partners GP, LLC, a Delaware limited liability company ("EnCap Partners GP"), is the sole general partner of EnCap Partners, LP, a
Delaware limited partnership, which is the managing member of EnCap Investments Holdings, LLC, a Delaware limited liability company, which is the sole member of EnCap Investments GP,
L.L.C., a Delaware limited liability company, which is the general partner of EnCap Investments L.P., a Delaware limited partnership, which is the general partner of EnCap Equity Fund
VI GP, L.P., a Texas limited partnership ("EnCap Fund VI GP"), EnCap Equity Fund VII GP, L.P., a Texas limited partnership, and EnCap Equity Fund
VIII GP, L.P., a Texas limited partnership, which are the general partners of EnCap Energy Capital Fund VI, L.P., a Texas limited partnership ("EnCap Fund VI"), EnCap Energy
Capital Fund VII, L.P., a Texas limited partnership ("EnCap Fund VII"), and EnCap Energy Capital Fund VIII, L.P., a Texas limited partnership ("EnCap Fund VIII"), respectively.
Additionally, EnCap Fund VI GP is the general partner of EnCap Energy Capital Fund VI-B, L.P., a Texas limited partnership, which is the sole member of EnCap VI-B
Acquisitions GP, LLC, a Delaware limited liability company, which is the general partner of EnCap VI-B Acquisitions, L.P., a Texas limited partnership ("EnCap VI-B"). The
securities reported above as beneficially owned by the Phillips Sellers may be distributed by the Phillips Sellers to each of their members in accordance with the terms of their respective limited
liability company agreements. Any reported securities so distributed may be offered hereunder by such members or other successors-in-interest to the Phillips Sellers that receive any such securities
as a distribution or other non-sale related transfer after the date of this prospectus. The principal business address of the Phillips Sellers and each of the entities identified in this paragraph is
1100 Louisiana Street, Suite 4900, Houston, Texas 77002.
-
(13)
-
EnCap
Fund VI and EnCap VI-B are the managing members of Phillips I. Therefore, EnCap Partners GP, EnCap Fund VI and EnCap VI-B may be deemed to beneficially
own all of the reported securities that are deemed to be beneficially owned by Phillips I. Each of EnCap Partners GP, EnCap Fund VI and EnCap VI-B disclaims beneficial
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ownership
of the reported securities except to the extent of its pecuniary interest therein, and this statement shall not be deemed an admission that it is the beneficial owner of the reported
securities for the purposes of Section 13(d) of the Exchange Act or any other purpose. 72,380 or 10% of the 723,800 OpCo Common Units and an equivalent number of Class B Units are held
in escrow pursuant to an Escrow Agreement, dated as of March 25, 2019 (the "Phillips Escrow Agreement"), among us, the Phillips Sellers and Citibank, N.A., as escrow agent, pending the outcome
of potential claims for indemnification by us against the Phillips Sellers.
-
(14)
-
EnCap
Fund VII is the managing member of Phillips II. Therefore, EnCap Partners GP and EnCap Fund VII may be deemed to beneficially own all of the reported
securities that are deemed to be beneficially owned by Phillips II. Each of EnCap Partners GP and EnCap Fund VII disclaims beneficial ownership of the reported securities except to the extent
of its pecuniary interest therein, and this statement shall not be deemed an admission that it is the beneficial owner of the reported securities for the purposes of Section 13(d) of the
Exchange Act or any other purpose. 331,820 or 10% of the 3,318,200 OpCo Common Units and an equivalent number of Class B Units are held in escrow pursuant to the Phillips Escrow Agreement
pending the outcome of potential claims for indemnification by us against the Phillips Sellers. Additionally, 42,081 OpCo Common Units and an equivalent number of Class B Units are held in
escrow pending the outcome of ongoing litigation involving certain of the Acquired Phillips Subsidiaries.
-
(15)
-
EnCap
Fund VIII is the managing member of Phillips III. Therefore, EnCap Partners GP and EnCap Fund VIII may be deemed to beneficially own all of the
reported securities that are deemed to be beneficially owned by Phillips III. Each of EnCap Partners GP and EnCap Fund VIII disclaims beneficial ownership of the reported securities except to
the extent of its pecuniary interest therein, and this statement shall not be deemed an admission that it is the beneficial owner of the reported securities for the purposes of Section 13(d) of
the Exchange Act or any other purpose. 535,800 or 10% of the 5,358,000 OpCo Common Units and an equivalent number of Class B Units are held in escrow pursuant to the Phillips Escrow Agreement
pending the outcome of potential claims for indemnification by us against the Phillips Sellers. Additionally, 9,709 OpCo Common Units and an equivalent number of Class B Units are held in
escrow pending the outcome of ongoing litigation involving certain of the Acquired Phillips Subsidiaries.
-
(16)
-
Includes
the common units held by selling unitholders that in the aggregate beneficially own less than 1% of our outstanding common units as of May 13, 2019.
No selling unitholder included in this group has held any position or office with us or had a material relationship with us in the past three years.
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PLAN OF DISTRIBUTION
We and the selling unitholders may sell the securities being offered hereby in and outside the United States through the methods described below
or by any other method permitted pursuant to applicable law, including through a combination of methods.
The
prospectus supplement, if required, will set forth any required information such as the terms of the offering, the method of distribution and the
following:
-
-
the names of any underwriters or agents;
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-
the name or names of any managing underwriter or underwriters;
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-
the purchase price of the securities from us or the selling unitholders;
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-
the net proceeds to us or the selling unitholders from the sale of the securities;
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-
any delayed delivery arrangements;
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-
any over-allotment options under which underwriters may purchase additional securities from us or the selling unitholders;
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-
any underwriting discounts, commissions and other items constituting compensation to underwriters, dealers or agents;
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any public offering price;
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-
any discounts or concessions allowed or reallowed or paid to dealers;
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-
any commissions paid to agents;
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-
any securities exchange or market on which the securities offered in the prospectus supplement may be listed; and
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-
any additional or different material United States federal income tax considerations relating to the purchase, ownership or disposition of such
securities.
Sale Through Underwriters or Dealers
If we or the selling unitholders use one or more underwriters in the sale of securities, we, and where applicable, the selling unitholders, will
execute an underwriting agreement with the underwriter at the time of sale and will, if required, provide the name of any underwriter in any applicable prospectus supplement that the underwriter will
use to make resales of securities to the public. The underwriters will acquire the securities for their own account, and the underwriters may resell the securities from time to time in one or more
transactions, including negotiated transactions, at a fixed public offering price or at varying prices determined at the time of sale. Underwriters may offer securities to the public either through
underwriting syndicates represented by one or more managing underwriters or directly by one or more firms acting as underwriters. The obligations of the underwriters to purchase the securities may be
subject to conditions, and any underwritten offering may be on a firm commitment basis. The underwriters may change from time to time any initial public offering price and any discounts or concessions
allowed or reallowed or paid to dealers.
If
we or the selling unitholders use dealers in the sale of securities, we or the selling unitholders may sell the securities to them as principals. They may then resell those securities
to the public at varying prices determined by the dealers at the time of resale. Therefore, exact figures regarding proceeds that will be raised or commissions to be paid cannot be determined at this
time. We or the selling unitholders also may agree to sell, and the relevant underwriters or agents may agree to solicit offers to purchase, blocks of securities. The terms of each such agreement will
be set forth in more detail in the applicable prospectus supplement and any related free writing prospectus. The dealers
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participating
in any sale of the securities may be deemed to be underwriters within the meaning of the Securities Act, with respect to any sale of those securities. If required, we or the selling
unitholders will include in any applicable prospectus supplement the names of the dealers, information about any compensation paid to the dealers and the terms of the transaction.
Sales Through Agents
We or the selling unitholders may designate broker-dealers as agents from time to time to solicit offers from purchasers to purchase the common
units included in this prospectus, or to sell such common units in ordinary brokerage transactions, on our or the selling unitholders' behalf. If required, the name of any agent involved in the offer
or sale of the offered securities and any commissions payable by us or the selling unitholders to the agent will be included in any applicable prospectus supplement. Unless stated otherwise in any
applicable prospectus supplement, any agent will agree to use its reasonable best efforts to solicit purchases for the period of its appointment. Agents may be deemed to be "underwriters" as that term
is defined in the Securities Act in such offering.
Direct Sales
We or the selling unitholders may sell the securities directly. In that event, no underwriters or agents would be involved. We or the selling
unitholders may use electronic media, including the Internet, to sell offered securities directly.
Delayed Delivery or Forward Contracts
We or the selling unitholders may authorize agents, underwriters or dealers to solicit offers to purchase securities from us or the selling
unitholders at the public offering price set forth in any applicable prospectus supplement under delayed delivery or forward contracts. These contracts would provide for payment and delivery on a
specified date in the future at prices determined as described in any applicable prospectus supplement.
At-the-Market Offerings
We, the selling unitholders or their respective underwriters, broker-dealers, or agents may make sales of the common units that are deemed to be
an at-the-market offering as defined in Securities Act Rule 415, which includes sales of such common units made directly on or through the NYSE, the existing trading market for the common
units, or in the over-the-counter market or otherwise.
Remarketing
We or the selling unitholders may sell any of the securities in connection with a remarketing upon their purchase, in accordance with a
redemption or repayment by their terms or otherwise by one or more remarketing firms acting as principals for their own accounts or as our or the
selling unitholders' agents. The name of any remarketing firm, the terms of any remarketing agreement and the compensation to be paid to the remarketing firm will be included in any applicable
prospectus supplement as required. Remarketing firms may be deemed underwriters under the Securities Act.
Derivative Transactions
We or the selling unitholders may enter into derivative transactions with third parties, or sell securities not covered by this prospectus to
third parties in privately negotiated transactions. If any applicable prospectus supplement indicates, in connection with those derivatives, the third parties may sell securities covered by this
prospectus and any applicable prospectus supplement, including in short sale transactions. If so, the third parties may use securities pledged by us or the selling unitholders or borrowed from us the
selling unitholders, or others to settle those sales or to close out any related
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open
borrowings of stock, and may use securities received from us or the selling unitholders in settlement of those derivatives to close out any related open borrowings of stock. The third parties in
these sale transactions will be underwriters and, if not identified in this prospectus, will be identified in any applicable prospectus supplement or in a post-effective amendment to the registration
statement of which this prospectus forms a part. In addition, we or the selling unitholders may otherwise loan or pledge securities to a financial institution or other third party that in turn
may sell the securities short using this prospectus. Such financial institution or other third party may transfer its economic short position to investors in our securities or in connection with a
concurrent offering of other securities.
Sales by the Selling Unitholders
We are registering 27,512,556 common units described in this prospectus to permit the resale of these securities by the selling unitholders from
time to time after the date of this prospectus. We will not receive any of the proceeds from the sale by the selling unitholders of the securities.
The
selling unitholders may act independently of us in making decisions with respect to the timing, manner and size of each of its sales. The selling unitholders may make sales of the
common units from time to time though one or more methods specified herein or through a combination of any of such methods or any other method permitted pursuant to applicable law. Such offers and
sales may be made directly to purchasers, through underwriters, to dealers, or through agents, on the NYSE or otherwise at prices and under terms prevailing at the time of the sale, at prices related
to the then-current market price, at fixed prices, at varying prices determined at the time of sale, or at privately negotiated prices.
The
Amended and Restated Registration Rights Agreement requires us to indemnify in certain circumstances certain of the selling unitholders of the common units registered on their behalf
by the registration statement, against certain liabilities to which they may become subject in connection with the sale of such securities, including liabilities arising under the Securities Act. The
Amended and Restated Registration Rights Agreement also requires certain of the selling unitholders to indemnify us in certain circumstances against certain liabilities to which we may become subject
in connection with the sale of such securities, including liabilities arising under the Securities Act.
We
have agreed to pay the expenses of the registration of the common units offered and sold by the selling unitholders under the registration statement. The selling unitholders will pay
any underwriting discounts and commissions applicable to the common units sold by such selling unitholders.
Any
selling unitholder that is a broker-dealer or an affiliate of a broker-dealer may be deemed to be an "underwriter" within the meaning of Section 2(11) of the Securities Act.
As a result, any profits derived by such selling unitholder on the sale of common units included in this prospectus and any discounts, commissions or concessions received by it may be deemed to be
underwriting discounts and commissions under the Securities Act. Selling unitholders who are deemed to be "underwriters" within the meaning of the Securities Act will be subject to prospectus delivery
requirements of the Securities Act. Such selling unitholders may also be subject to certain statutory liabilities, including, but not limited to, Sections 11, 12 and 17 of the Securities Act.
General Information
In connection with the sale of the securities, underwriters, dealers or agents may be deemed to have received compensation from us or the
selling unitholders in the form of underwriting discounts or commissions and may also receive commissions from securities purchasers for whom they may act as agent. Underwriters may sell the
securities to or through dealers, and the dealers may receive compensation in the form of discounts, concessions or commissions from the underwriters or commissions from the purchasers for whom they
may act as agent. We will provide in any applicable
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prospectus
supplement any required information regarding any underwriting discounts or other compensation that we or the selling unitholders pay to underwriters or agents in connection with the
securities offering, and any discounts, concessions or commissions which underwriters allow to dealers.
We
or the selling unitholders may have agreements with the agents, dealers and underwriters to indemnify them against certain civil liabilities, including liabilities under the
Securities Act, or to contribute with respect to payments that the agents, dealers or underwriters may be required to make because of those liabilities. Agents, dealers and underwriters, or their
affiliates or associates, may be customers of, engage in transactions with or perform services for us or the selling unitholders in the ordinary course of their businesses.
Other
than the common units, which are listed on the NYSE, each series of offered securities will have no established trading market. We may elect to list any series of offered
securities on an exchange, but we are not obligated to do so. It is possible that one or more underwriters may make a market in a series of offered securities. However, they will not be obligated to
do so and may discontinue market making at any time without notice. We cannot assure you as to the liquidity of, or the trading market for, any of our offered securities.
In
connection with an offering, certain persons participating in the offering may make a market in the securities or engage in transactions that stabilize, maintain or otherwise affect
the market price of the offered securities. This may include, among other transactions, over-allotments or short sales of the securities, which involves the sale by persons participating in the
offering of more securities than we or the selling unitholders sold to them. In these circumstances, these persons would cover such over-allotments or short positions by making purchases in the open
market or by exercising their over-allotment option. As a result, the price of the securities may be higher than the price that might otherwise prevail in the open market. If these activities are
commenced, these transactions may be discontinued at any time.
A
prospectus and any applicable accompanying prospectus supplement in electronic form may be made available on the websites maintained by the underwriters. The underwriters may agree to
allocate a number of securities for sale to their online brokerage account holders. Such allocations of securities for internet distributions will be made on the same basis as other allocations. In
addition, securities may be sold by the underwriters to securities dealers who resell securities to online brokerage account holders.
To
the extent required, this prospectus may be amended or supplemented from time to time to describe a specific plan of distribution. The place and time of delivery for the securities in
respect of which this
prospectus is delivered may be set forth in any applicable accompanying prospectus supplement, if required.
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LEGAL MATTERS
Unless otherwise specified in a prospectus supplement, the validity of the securities will be passed upon for us by Baker Botts L.L.P.,
Houston, Texas. Any underwriters will be advised about legal matters by their own counsel, which will be named in a prospectus supplement to the extent required by law.
EXPERTS
The audited financial statements of Kimbell Royalty Partners, LP incorporated by reference in this prospectus and elsewhere in the
registration statement have been so incorporated by reference in reliance upon the report of Grant Thornton LLP, independent registered public accountants, upon the authority of said firm as
experts in accounting and auditing.
The
audited historical consolidated financial statements of Haymaker Minerals & Royalties, LLC included in Exhibit 99.1 of Kimbell Royalty Partners, LP's
Current Report on Form 8-K/A dated July 27, 2018 have been so
incorporated in this prospectus in reliance on the report of PricewaterhouseCoopers LLP, independent accountants, given on the authority of said firm as experts in auditing and accounting.
The
financial statements of Haymaker Properties, LP as of and for the years ended December 31, 2017 and 2016, incorporated by reference in this prospectus, have been
audited by Deloitte & Touche LLP, independent auditors, as stated in their report (which report expresses an unmodified opinion and includes an emphasis-of-matter paragraph relating to
related party transactions and an other matter paragraph related to the supplemental oil and gas information) incorporated by reference in this
prospectus. Such financial statements have been so incorporated in reliance upon the report of such firm given upon their authority as experts in accounting and auditing.
Information
incorporated by reference in this prospectus from Kimbell Royalty Partners, LP's Annual Report on Form 10-K regarding estimates of our proved reserves, future
production and income attributable to certain royalty interests of Kimbell Royalty Partners, LP is based upon estimates of such reserves and present values prepared by Ryder Scott
Company, L.P., a third-party independent petroleum engineer, as of
December 31, 2018. This information is incorporated by reference in
reliance upon the authority of said firm as experts in such matters.
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