Falcon Minerals Corporation (“Falcon,” or the “Company,” “we,”
“our,”) (NASDAQ: FLMN, FLMNW), a leading oil and gas minerals
company, today announced financial and operating results for the
fourth quarter and full year ending December 31, 2019.
Highlights
- Four Hooks Ranch wells were turned in line on February 7, 2020
(1)
- 218 gross line of sight wells (3.52 net wells) permitted and in
active development, an increase of ~25% from November 2019
- 1.20 net wells out of the 3.52 net wells were connected in
January and February 2020
- Continue to average seven rigs running on Falcon’s Eagle Ford
position in the fourth quarter 2019 (currently eight rigs running
on position)
- Net production of 4,027 barrels of oil equivalent per day
(“boe/d”) during the fourth quarter 2019 (Eagle Ford production 58%
oil; total production 50% oil)
- Fourth quarter 2019 Net Income of $4.4 million (2), or $0.05
per Class A share
- Adjusted EBITDA of $8.9 million for the fourth quarter 2019
(3)
- Fourth quarter 2019 dividend of $0.135 per share; the fourth
quarter dividend was paid on March 9, 2020 to all shareholders of
record on February 25, 2020
- 2020 full year production guidance of 5,300 – 6,100 boe/d
supported by current proved developed producing locations and line
of sight inventory
(1)
The four recently drilled Hooks Ranch
wells will extend the laterals from the Hooks Ranch positions into
an adjacent leasehold property where Falcon has a 3.65% Net Revenue
Interest (“NRI”). The resulting NRI contribution from the four
wells will be approximately 14%
(2)
Net Income shown includes amounts
attributable to non-controlling interests
(3)
Please refer to the disclosure on pages
8-9 for the Reconciliation of Net Income to Non-GAAP Measures
Daniel Herz, President and Chief Executive Officer of Falcon
commented, “While we are in a challenging period for energy
generally, Falcon was designed not only to withstand this kind of
environment, but also to outperform.” Mr. Herz continued, “Falcon
benefits from the strength of our operators, who have been
consistent in their development of our world class inventory. Our
3.52 net line of sight wells are nicely along in their development
which should provide for strong production in 2020 even in this
challenging environment. Finally, we remain committed to
maintaining a strong balance sheet and delivering value to our
shareholders.”
Financial Update
Falcon realized prices of $55.88 per barrel (“bbl”) for crude
oil, $2.34 per thousand cubic feet (“mcf”) for natural gas and
$16.86/bbl for natural gas liquids (“NGL”) during the in the fourth
quarter 2019.
Falcon reported Net Income of $4.4 million, or $0.05 per Class A
common share, for the fourth quarter 2019, which includes amounts
attributable to non-controlling interests. Falcon generated revenue
of $13.1 million (approximately 79% oil) for the fourth quarter
2019. The Company reported Adjusted EBITDA (a non-GAAP measure as
defined and reconciled on pages 8-9) of $8.9 million for the fourth
quarter 2019.
Total cash operating costs for the fourth quarter 2019 were $4.3
million inclusive of an increase of $0.6 million in ad valorem
taxes. General and administrative expense for the fourth quarter
2019, excluding non-cash stock-based compensation expense, was
approximately $2.5 million, compared to $2.2 million for the third
quarter 2019. The increase from the prior quarter was due primarily
to an increase in professional fees associated with the annual
audit.
As of December 31, 2019, the Company had $42.5 million of
borrowings on its revolving credit facility, and $2.5 million of
cash on hand, resulting in a net liquidity position of
approximately $50.0 million at the end of quarter. Falcon’s Net
Debt / LTM EBITDA ratio was 0.76x at December 31, 2019. (4)
(4)
Calculated by dividing the sum of total
debt outstanding less cash on hand as of December 31, 2019 by
Adjusted EBITDA for the trailing 12-month period, as per Falcon’s
credit agreement dated August 23, 2018
Fourth Quarter 2019 Dividend
Falcon’s Board of Directors declared a dividend of $0.135 per
Class A share for the fourth quarter 2019. During the fourth
quarter 2019, the Company generated pro-forma free cash flow per
share of $0.10 (5) (as described and reconciled on page 8-9). The
dividend for the fourth quarter 2019 was paid on March 9, 2020 to
all Class A shareholders of record on February 25, 2020. The fourth
quarter 2019 dividend does not have any effect on the current
$11.34 exercise price of the Company’s outstanding warrants.
(5)
The pro-forma adjustments assume that the
non-controlling interests are converted to Class A common shares,
such that approximately 86.2 million Class A shares would be
outstanding. The pro-forma Class A shares reflects the dilution
from 0.3 million unvested restricted stock awards (RSAs) which
receive dividend equivalent rights (“DER”) on a quarterly
basis
Operational Results
Falcon’s production averaged 4,027 boe/d during the fourth
quarter 2019, of which approximately 50% was oil. Eagle Ford
production was approximately 58% oil during the fourth quarter
2019. Falcon had 73 gross wells turned in line (0.59 net wells)
with an average NRI of approximately 0.81% during the fourth
quarter 2019.
Falcon’s production averaged 4,861 boe/d during the year ended
December 31, 2019, of which approximately 50% was oil. Eagle Ford
production was approximately 58% oil during the year ended December
31, 2019. Falcon had 194 gross wells turn in line (1.54 net wells)
with an average NRI of approximately 0.79% during the year ended
December 31, 2019.
Falcon currently has 1,924 producing Eagle Ford wells, and the
Company’s average NRI for all producing wells is approximately
1.32%.
As of January 24, 2020, the Company had 218 line of sight wells
(3.52 net wells) with an average NRI of 1.62% in various stages of
development on Falcon’s Eagle Ford minerals position. The 218 line
of sight wells represent an increase of approximately 25% from
November 2019. These wells are comprised of the following:
Line of Sight
Wells (As of January 24, 2020)
Stage of
Activity
Gross Wells
Net Wells
NRI %
Permitted
90
1.42
1.58%
Waiting on completion
86
0.83
0.96%
Waiting on connection
42
1.27
3.03%
Total line of sight
218
3.52
1.62%
The line of sight wells include four wells on Falcon’s Hooks
Ranch location that were connected to production on February 7,
2020, and in total 1.20 of the 3.52 net wells have already turned
in line during 2020. Approximately 75% of line of sight wells have
development activity or have been turned in line.
During the year ended December 31, 2019, Falcon acquired
approximately 147 net royalty acres through 27 transactions in the
Eagle Ford Shale for a total cost of approximately $22.6 million.
The transactions were funded using cash on hand and availability on
the Company’s revolving credit facility.
Reserve Summary for the Year Ended December 31, 2019
As of December 31, 2019, net proved oil and gas reserves were
approximately 23.0 million barrels of oil equivalent (MMboe), based
on the Securities and Exchange Commission (SEC) average net
realized price assumptions of $55.69/bbl for oil, $13.20/bbl for
NGL, and $2.58/mcf for natural gas. Falcon’s year end 2019 proved
reserves were valued at a PV-10 amount of approximately $488
million, and approximately 67% of the Company’s proved reserves
were oil and NGLs.
Summary of proved
reserves as of December 31, 2019
Total Oil (Mbbl)
Gas (MMcf) NGLs (Mbbl)
MBoe Proved developed reserves
3,900
18,016
1,230
8,133
Proved undeveloped reserves
8,696
28,254
1,489
14,894
Total proved reserves at December 31, 2019
12,596
46,270
2,719
23,027
Reconciliation of
proved reserves for full year 2019
Total
Oil (Mbbl)
Gas (MMcf)
NGLs (Mbbl)
MBoe
Proved reserves at December 31, 2018
15,212
56,185
3,163
27,740
Purchase of reserves in place
32
70
12
56
Extensions and discoveries
215
553
71
378
Reivisions of previous estimates
(1,984
)
(6,950
)
(230
)
(3,373
)
Production
(879
)
(3,588
)
(297
)
(1,774
)
Proved reserves at December 31, 2019
12,596
46,270
2,719
23,027
Changes in reserves net of
production
(1,737
)
(6,327
)
(147
)
(2,940
)
Guidance Summary
The Company has provided full year 2020 guidance based upon
expectations for producer activity on Falcon’s net royalty
positions.
Full Year 2020 Guidance
Guidance
Range
Net production per barrel of oil equivalent per day (boe/d)
5,300 - 6,100
% Oil of net production
50% - 55%
Operating costs:
Production and ad valorem taxes (% of revenue)
6.0% - 7.0%
Marketing and transportation ($/boe)
$1.00 - $1.50
Cash general and administrative (6)
$8.5 - $9.0 million
Depletion expense (7) ($/boe)
$6.50 - $7.50
(6)
General and administrative expense above
excludes non-cash stock-based compensation expense
(7)
The depletion expense forecast range above
is shown on a GAAP basis
Conference Call Details
Falcon management invites investors and interested parties to
listen to the conference call to discuss fourth quarter 2019
results on Tuesday, March 10, 2020 at 9:00 am ET. Participants for
the conference call should dial (888) 567-1602 (International:
(862) 298-0701). A replay of the call will be available starting at
2:00 pm ET on March 10, 2020. To access the replay, investors and
interested parties can listen to the replay on
www.falconminerals.com in the Events page of the Investor Relations
section, or call (888) 539-4649 (International: (754)
333-7735).
About Falcon Minerals
Falcon Minerals Corporation (NASDAQ: FLMN, FLMNW) is a
C-Corporation formed to own and acquire high growth oil-weighted
minerals rights. Falcon Minerals owns mineral, royalty, and
over-riding royalty interests covering approximately 256,000 gross
unit acres in the Eagle Ford Shale and Austin Chalk in Karnes,
DeWitt and Gonzales Counties in Texas. The Company also owns
approximately 75,000 gross unit acres in the Marcellus Shale across
Pennsylvania, Ohio and West Virginia. For more information, visit
our website at www.falconminerals.com.
Cautionary Note Regarding Forward-Looking Statements
This document contains forward-looking statements that involve a
number of assumptions, risks and uncertainties that could cause
actual results to differ materially from those contained in the
forward-looking statements. Falcon cautions readers that any
forward-looking information is not a guarantee of future
performance. Such forward-looking statements include, but are not
limited to, statements about future financial and operating
results, future dividends paid, resource and production potential,
Falcon’s plans, objectives, expectations and intentions and other
statements that are not historical facts. Risks, assumptions and
uncertainties that could cause actual results to materially differ
from the forward-looking statements include, but are not limited
to, those associated with general economic and business conditions;
Falcon’s ability to realize the anticipated benefits of its
acquisitions; changes in commodity prices; uncertainties about
estimates of reserves and resource potential; inability to obtain
capital needed for operations; changes in government environmental
policies and other environmental risks; the availability of
drilling equipment and the timing of production in Falcon’s
regions; tax consequences of business transactions; and other
risks, assumptions and uncertainties detailed from time to time in
Falcon’s reports filed with the U.S. Securities and Exchange
Commission, including under the heading “Risk Factors” in Falcon’s
most recent annual report on Form 10-K as well as any subsequently
filed quarterly reports on Form 10-Q and current reports on Form
8-K. Forward-looking statements speak only as of the date hereof,
and Falcon assumes no obligation to update such statements, except
as may be required by applicable law.
FALCON MINERALS CORPORATION CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS (In
thousands, except per share amounts)
(Unaudited)
Three Months Ended
Year Ended
December 31,
December 31,
2019
2018
2019
2018
Revenues: Oil and gas sales
$
13,051
$
26,301
$
68,463
$
98,655
Loss on hedging activities
-
-
-
(1,456)
Total revenues
13,051
26,301
68,463
97,199
Expenses: Production and ad valorem
taxes
1,322
1,289
4,262
5,143
Marketing and transportation
463
881
2,396
2,368
Amortization of royalty interests in oil & gas
properties
3,113
3,783
12,737
16,962
General, administrative and other
3,185
2,532
11,912
9,544
Total expenses
8,083
8,485
31,307
34,017
Operating income
4,968
17,816
37,156
63,182
Other income (expense):
Gain on the sale of assets
-
-
-
41,382
Other income
31
7
165
46
Interest expense
(650)
(749)
(2,489)
(2,350)
Total other income (expense)
(619)
(742)
(2,324)
39,078
Income before income taxes
4,349
17,074
34,832
102,260
Provision for income taxes
(3)
2,482
3,918
3,292
Income from continuing operations
4,352
14,592
30,914
98,968
Income from discontinued operations
-
-
-
2,139
Net income
4,352
14,592
30,914
101,107
Net income attributable to non-controlling interests
(2,024)
(7,955)
(16,564)
(10,982)
Net income attributable to shareholders/unitholders
$
2,328
$
6,637
$
14,350
$
90,125
Class A common shares (basic and
diluted)
$
0.05
$
0.14
$
0.31
$
0.20
(1)
(1)
Earnings per share for year ended December
31, 2018 is calculated for the Company only for periods subsequent
to the transactions with Royal Resources L.P. (the “Transactions”)
due to the Transactions being accounted for as a reverse
recapitalization
FALCON MINERALS CORPORATION CONSOLIDATED BALANCE
SHEETS (In thousands) (Unaudited)
December 31,
December 31,
ASSETS
2019
2018
Current assets: Cash and cash equivalents
$
2,543
$
7,317
Accounts receivable
7,889
11,271
Prepaid expenses
1,182
1,524
Total current assets
11,614
20,112
Royalty interests in oil & gas properties, net of
accumulated amortization
219,192
209,168
Property and equipment, net of accumulated depreciation
517
-
Deferred tax asset, net
56,352
58,773
Other assets
2,530
3,182
Total assets
$
290,205
$
291,235
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities: Accounts payable and accrued
expenses
$
2,206
$
521
Credit facility
42,500
21,000
Other non-current liabilities
473
-
Total liabilities
45,179
21,521
Shareholder’s equity: Class A common
stock
5
5
Class C common stock
4
4
Additional paid in capital
129,127
137,866
Non-controlling interests
115,890
127,029
Retained earnings
-
4,810
Total shareholder’s equity
245,026
269,714
Total liabilities and shareholder’s equity
$
290,205
$
291,235
Reconciliation of Adjusted EBITDA and Pro-forma Free Cash
Flow from Net Income (in thousands, except per share amounts):
Fully Converted Three
Months Per Share Basis Ended Three
Months Ended December 31, 2019 December 31,
2019 (1) Net Income
$
4,352
$
0.05
Interest expense (2)
650
0.01
Depletion and depreciation
3,142
0.04
Share-based compensation
717
0.01
Income taxes
(3)
-
Adjusted EBITDA
$
8,858
$
0.11
Interest expense (2)
(650)
(0.01)
Pro-forma Free Cash Flow
$
8,208
$
0.10
(1)
Per share information is presented on a
fully converted basis and includes both the 46.2 million Class A
common shares (inclusive of 0.3 million unvested restricted stock
awards which receive DERs) and the 40.0 million Class C common
shares that are outstanding as of December 31, 2019. As such, Net
Income per fully converted share in this schedule is not comparable
to earnings per share (EPS) of $0.05 for the period ended December
31, 2019 as shown on the Statement of Operations
(2)
Interest expense includes amortization of
deferred financing costs
Calculation of cash available for dividends for the fourth
quarter 2019 (in thousands):
Three Months Ended
December 31,
2019
Adjusted EBITDA
$
8,858
Interest expense
(650
)
Net cash available for distribution
$
8,208
Cash to be distributed to non-controlling interests
$
5,400
Cash to be distributed to Falcon Minerals Corp.
$
6,205
Dividends to be paid to Class A shareholders
$
6,205
Non-GAAP Financial Measures
Adjusted EBITDA and Pro-forma Free Cash Flow are supplemental
non-GAAP financial measures used by management and external users
of our financial statements, such as industry analysts, investors,
lenders and rating agencies. We believe Adjusted EBITDA and
Pro-forma Free Cash Flow are useful because they allow us to
evaluate our performance and compare the results of our operations
period to period without regard to our financing methods or capital
structure. In addition, management uses Adjusted EBITDA and
Pro-forma Free Cash Flow to evaluate cash flow available to pay
dividends to our common shareholders.
We define Adjusted EBITDA as Net Income plus interest expense,
net, depletion expense, provision for income taxes and share-based
compensation. We define Pro forma Free Cash Flow as Net Income plus
depletion expense, provision for income taxes and share-based
compensation less cash income taxes. Adjusted EBITDA and Pro-forma
Free Cash Flow are not measures of Net Income as determined by
GAAP. We exclude the items listed above from Net Income in
calculating Adjusted EBITDA and Pro-forma Free Cash Flow because
these amounts can vary substantially from company to company within
our industry depending upon accounting methods and book values of
assets, capital structures and the method by which the assets were
acquired. Certain items excluded from Adjusted EBITDA and Pro-forma
Free Cash Flow are significant components in understanding and
assessing a company’s financial performance, such as a company’s
cost of capital and tax structure, as well as historic costs of
depreciable assets, none of which are components of Adjusted EBITDA
and Pro-forma Free Cash Flow.
Adjusted EBITDA and Pro-forma Free Cash Flow should not be
considered an alternative to, or more meaningful than, Net Income,
royalty income, cash flow from operating activities or any other
measure of financial performance presented in accordance with GAAP.
Our computations of Adjusted EBITDA and Pro-forma Free Cash Flow
may not be comparable to other similarly titled measures of other
companies.
FALCON MINERALS CORPORATION SELECTED OPERATING
DATA (Unaudited)
Three Months Ended
Year Ended
December 31,
December 31,
2019
2018
2019
2018(1)
Production Data: Oil (bbls)
183,835
303,460
879,288
1,237,813
Natural gas (boe)
129,896
172,702
598,019
686,279
Natural gas liquids (bbls)
56,797
82,923
296,813
293,086
Combined volumes (boe)
370,528
559,085
1,774,120
2,217,178
Average daily combined volume (boe/d)
4,027
6,077
4,861
6,074
Average sales prices: Oil (bbls)
$
55.88
$
65.43
$
59.85
$
67.14
Natural gas (mcf)
$
2.34
$
3.63
$
2.62
$
3.10
Natural gas liquids (bbls)
$
16.86
$
28.49
$
15.45
$
25.62
Combined per boe
$
35.23
$
47.04
$
37.54
$
46.63
Average costs ($/boe): Production and
ad valorem taxes
$
3.57
$
2.31
$
2.40
$
2.32
Marketing and transportation expense
$
1.25
$
1.58
$
1.35
$
1.07
Cash general and administrative expense
$
6.66
$
4.53
$
5.28
$
4.30
Interest expense, net
$
1.75
$
1.34
$
1.40
$
1.06
Depletion
$
8.40
$
6.77
$
7.18
$
7.65
(1)
The production data for the year ended
December 31, 2018 shown contains certain production that was not
contributed to Falcon in the Royal Resources transaction in August
2018, including a portion of this non-acquired production that was
sold in February 2018
View source
version on businesswire.com: https://www.businesswire.com/news/home/20200309005816/en/
Falcon Minerals Contact: Bryan C. Gunderson Chief
Financial Officer bgunderson@falconminerals.com
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