Kimbell Royalty Partners, LP (KRP) Cash Flow Statement

The persistent gap between net income and operating cash flow is driven by substantial non-cash DD&A, which averaged roughly $30M per quarter, while working capital changes were minor. This suggests that reported earnings understate the partnership's true cash-generating ability, a hallmark of the royalty model. Investors should focus on distributable cash flow rather than GAAP net income, as the latter is heavily distorted by depletion charges.

The trajectory shows a clear upward trend, with FCF margins consistently above 50% except for the 2025Q1 anomaly caused by a $223M acquisition-related capex. Excluding that quarter, FCF has grown sequentially, supported by record oil, gas, and NGL revenues. This robust cash generation underpins the partnership's ability to sustain and potentially grow distributions, though commodity price volatility remains a key swing factor.

KRP's capital expenditures are almost entirely maintenance-related, with no growth capex, as operators fund all drilling and completion costs. This ultra-low capital intensity (capex/revenue of 0.1% in 2026Q2) means nearly all operating cash flow converts to free cash flow, a structural advantage over traditional E&Ps. The only outlier was 2025Q1's $223M acquisition, which was a strategic investment rather than maintenance, highlighting management's opportunistic deployment of capital.

The relatively small working capital adjustments suggest efficient management of receivables and payables, though the two-to-three-month revenue lag inherent in royalty streams can cause timing mismatches. The positive working capital contributions in 2025Q2 and 2025Q3 likely reflect catch-up payments from operators, while negative changes in other quarters may indicate accrual adjustments. Overall, working capital is not a significant drag on cash flow, reinforcing the predictability of distributions.

KRP consistently returns a significant portion of cash to unitholders, with dividends averaging $50M per quarter over the last ten quarters, though the 2024Q3 dividend of $98.2M was notably elevated. Buybacks are opportunistic, with a $179.9M repurchase in 2025Q2, while acquisitions like the $44.3M in 2026Q2 indicate continued portfolio growth. The low debt-to-equity ratio of 0.58% suggests ample financial flexibility to fund these activities without straining the balance sheet.

The massive cumulative gap between net income and operating cash flow is primarily due to non-cash depletion and amortization, which averaged $30M per quarter. This divergence underscores that KRP's earnings are not a reliable indicator of cash available for distribution, and investors should rely on distributable cash flow metrics. The consistency of this gap suggests it is structural, not a red flag, but it warrants monitoring for any changes in depletion rates or impairments.