Kimbell Royalty Partners, LP (KRP) stock intrinsic value fair value estimate & owner earnings analysis

Kimbell Royalty Partners owns mineral and royalty interests in oil and natural gas properties across the United States: about 4.7 million gross acres and interests in more than 133,000 wells, roughly 53,000 of them in the Permian Basin. It does not drill or pay for wells. Operators such as ConocoPhillips, EOG Resources, Occidental Petroleum and Diamondback drill and run them, and Kimbell collects a share of the oil, gas and natural gas liquids sold. At the end of 2025, 85 rigs were drilling on its acreage, about 16% of all land rigs in the continental United States. Production averaged 25,760 barrels of oil equivalent per day in 2025, up from 20,265 in 2023, mostly because of acquisitions. How we measured earnings. We start with cash from operations, remove swings in working capital, and subtract unit-based pay as a real cost. Purchases of mineral interests are treated as acquisitions rather than upkeep. Kimbell pays for them with new units and debt, and the extra units are counted in every per-unit figure, so acquiring reserves with fresh capital does not flatter the result. Debt costs are already inside cash from operations. On this basis, owner earnings per diluted unit were $1.65 in 2021, $2.52 in 2022, $1.82 in 2023, $1.92 in 2024 and $1.80 in 2025. We use the median of those five years, $1.82 per unit. We start in 2021 because in earlier years the reported diluted unit count left out the Class B units and preferred units, so per-unit figures for those years are not comparable. An independent rebuild from net income, depletion and other non-cash items agreed with the 2025 figure to within 0.2%. Series A preferred units are counted as if converted into common units at $15.07, and we use about 120 million diluted units today (93.4 million common, 14.5 million Class B, about 10.8 million from the preferred, and about 1.5 million restricted units). Why the business can hold its earning power. The engine we credit is one Kimbell has shown for three years: operators keep drilling on its acreage, and that adds to reserves without Kimbell paying for it. Net proved reserves were 72.9 million barrels of oil equivalent at the end of 2025, all classified as developed. Revisions to earlier estimates added 8.4, 11.2 and 10.2 million barrels in 2023, 2024 and 2025, against production of 7.4, 9.1 and 9.4 million, roughly 115% replacement. In 2024 Kimbell spent essentially nothing on acquisitions ($22 thousand) and reserves still rose. There are also 660 gross drilled-but-uncompleted wells and 393 gross permits on Permian acreage. We do not credit growth from future acquisitions, higher prices or new basins. Acquisitions are irregular (none in 2024) and are paid for with outside capital, so they are not something the business funds from its own cash. Growth-path check. Owner earnings per unit fell about 6% in 2025 ($1.80 versus $1.92). Year 1 of the base case therefore starts about 6% below the median, at $1.71. The most recent filing shows that softness continuing: cash from operations in the first half of 2026 was $117.7 million against $126.5 million a year earlier (about 7% lower) even though revenue rose to $178.0 million from $170.8 million. We could not fully reconcile that gap from the data we reviewed. We also could not separate how much of 2025 production came from legacy properties versus the January 2025 Boren acquisition. What each case assumes. Depletion means production runs down at roughly 12.9% of reserves a year (9.4 million produced against 72.9 million in reserves), so the question in every case is how much of that operators replace. Base case, $15.60 per unit: owner earnings begin at $1.71, then fall 3.2% a year as new reserves replace about 75% of what is produced, well under the roughly 115% achieved in 2023 to 2025. The story runs 20 years and then stops, because nothing beyond that is evidenced. Bull case, $20.11: replacement stays at the demonstrated level for a decade, so owner earnings hold at $1.71 through year 10, then fall 3.2% a year through year 25. This uses only the replacement record already achieved and adds no acquisitions or price gains. Bear case, $8.44: operators replace only about 20% of production, far below the roughly 115% seen in 2023 to 2025. A slowdown is plausible because rigs on Kimbell's acreage have already fallen from 98 in 2023 to 87 in 2024 and 85 in 2025, and the US land rig count fell 8% during 2025. Owner earnings start 7% lower, in line with the drop in first-half 2026 cash flow, and then decline about 10% a year for 20 years. Kimbell had $441.5 million of debt at the end of 2025 under a revolving credit facility that matures in December 2030, with the borrowing base reviewed twice a year, and it paid $31.9 million of cash interest in 2025. We hold that interest cost fixed through the bear case, so it takes a growing share of a shrinking income stream. As a cross-check, this case is close to the $970 million (about $8.07 per unit) standardized measure of Kimbell's proved reserves at year-end 2025, which is built on Ryder Scott reserve reports and discounts at 10%. What the shares appear to be worth. We value the shares at about $15.60 in the base case, with a range of $8.44 to $20.11. The margin-of-safety price is about $9.50, roughly 39% below the base case and close to the bear case. That margin reflects exposure to oil and gas prices, borrowing against the reserves, and the fact that the organic replacement record covers only three years. What could prove this wrong. Reserve revisions include changes tied to commodity prices, and the record is short. If operators slow drilling on the acreage or replacement falls short of 75%, the base case is too high. If Kimbell keeps adding reserves at the 2023 to 2025 pace without spending, the bull case is closer. The preferred units carry a 10% distribution and could remain outstanding rather than converting, which would take more cash away from common unitholders than our as-converted treatment does.