Falcon Minerals Corporation (“Falcon,” or the “Company,” “we,”
“our,”) (NASDAQ: FLMN, FLMNW), a leading oil and gas minerals
company, today announces financial and operating results for the
third quarter 2020 and declares its third quarter 2020
dividend.
Highlights
- Net production of 4,471 barrels of oil equivalent per day
(“boe/d”) for the third quarter 2020
- 237 gross line-of-sight wells (3.13 net wells) permitted and in
active development as of October 27, 2020; 3.13 net line-of-sight
wells represents an increase of 24% compared to the prior
quarter
- Line-of-sight inclusive of 6 gross recently permitted Hooks
Ranch wells(1)
- Averaged 2 rigs running on Falcon’s Eagle Ford position during
the third quarter 2020
- 12 gross, 0.03 net wells were turned in line during the third
quarter 2020
- Third quarter 2020 net income of $1.3 million(2), or $0.01 per
Class A share
- Adjusted EBITDA of $6.5 million for the third quarter
2020(3)
- Net debt decreased to $36.5 million; net debt / LTM EBITDA
ratio of 1.27x(3)(4)
- Third quarter 2020 Pro-forma Free Cash Flow of $0.07 per
share(3)
- Third quarter 2020 dividend declared of $0.065 per share;
dividend represents a 117% increase from second quarter 2020.
Dividend represents a payout ratio of 93% of Pro-forma Free Cash
Flow in the third quarter 2020
- Dividend will be paid on December 8, 2020 to all shareholders
of record on November 24, 2020
(1)
The 6 recently permitted Hooks Ranch wells
will have extended laterals from an adjacent property into the
Hooks Ranch position. The resulting Net Revenue Interest
contribution from the 6 wells will be approximately 7.5% per
well.
(2)
Net income shown above includes amounts attributable to
non-controlling interests.
(3)
Please refer to the disclosure on pages
7-8 for a reconciliation of the identified non-GAAP measures to net
income, the most comparable financial measure prepared in
accordance with GAAP.
(4)
Calculated by dividing the sum of total
debt outstanding less cash on hand as of September 30, 2020 by
Adjusted EBITDA for the trailing 12-month period.
Daniel Herz, President and Chief Executive Officer of Falcon
Minerals commented, “Falcon Minerals has shown its strength and
resilience through this turbulent environment in the energy
industry. Production rose moderately from the second quarter, yet
Falcon was able to more than double free cash flow, increase the
Company’s dividend 117%, and further reduce net debt to $36.5
million by the end of the third quarter.” Mr. Herz continued,
“Looking ahead, the business is extremely well positioned with 3.13
net wells in our line-of-sight, which represents a 24% increase to
the line-of-sight we had reported in the second quarter.
“We continue to believe that our stock price is meaningfully
disconnected from the true value of our business. Management and
the Board of Directors are continuing to review methods to increase
value to our equity holders. We have made progress in this review
and will report to you on our conclusions when we have completed
fully evaluating all alternatives to address that disconnect” Mr.
Herz concluded.
Financial Update
Falcon realized prices of $36.91 per barrel (“bbl”) for crude
oil, $1.98 per thousand cubic feet (“mcf”) for natural gas and
$13.58/bbl for natural gas liquids (“NGL”) during the third quarter
2020.
Falcon reported net income of $1.3 million, or $0.01 per Class A
common share, for the third quarter 2020, which includes amounts
attributable to non-controlling interests. Falcon generated royalty
revenue of $9.9 million (approximately 73% oil) for the third
quarter 2020. The Company reported Adjusted EBITDA (a non-GAAP
measure defined and reconciled on pages 7-8) of $6.5 million for
the third quarter 2020.
Total cash operating costs for the third quarter 2020 were $3.2
million. General and administrative expense for the third quarter
2020, excluding non-cash stock-based compensation expense, was
approximately $1.9 million.
As of September 30, 2020, the Company had $39.0 million of
borrowings on its revolving credit facility, and $2.5 million of
cash on hand, resulting in a net debt of approximately $36.5
million at the end of the quarter. Falcon’s net debt / LTM EBITDA
ratio was 1.27x at September 30, 2020.(5)
(5)
Calculated by dividing the sum of total debt outstanding less
cash on hand as of September 30, 2020 by Adjusted EBITDA for the
trailing 12-month period. Please refer to the disclosure on pages
7-8 for the Reconciliation of net loss to Non-GAAP Measures.
Third Quarter 2020 Dividend
Falcon’s Board of Directors declared a dividend of $0.065 per
Class A share for the third quarter 2020. During the third quarter
2020, the Company generated Pro-forma Free Cash Flow per share of
$0.07(6) (as described and reconciled on page 7-8). The dividend
for the third quarter 2020 will be paid on December 8, 2020 to all
Class A shareholders of record on November 24, 2020. The third
quarter 2020 dividend does not have any effect on the current
$11.34 exercise price of the Company’s outstanding warrants.
The Company expects that substantially all of its third quarter
dividend will not constitute taxable dividend income and instead
will result in a non-taxable reduction to the tax basis of the
shareholders’ common stock. The reduced tax basis will increase a
shareholders’ capital gain (or decrease shareholders’ capital loss)
when shareholders’ sell their common stock. Furthermore, the
Company expects that substantially all dividends paid to
shareholders’ during 2020 will not be taxable dividend income.
(6)
The pro-forma adjustments assume that the
non-controlling interests are converted to Class A common shares,
such that approximately 86.5 million Class A shares would be
outstanding. The pro-forma Class A shares reflects the dilution
from 0.5 million unvested restricted stock awards which receive
dividend equivalent rights (“DER”) on a quarterly basis
Operational Results
Falcon’s production averaged 4,471 boe/d during the third
quarter 2020, of which approximately 48% was oil. Eagle Ford
production was approximately 55% oil during the third quarter 2020.
Falcon had 12 gross wells turned in line (0.03 net wells) with an
average net royalty interest (“NRI”) of approximately 0.23% during
the third quarter 2020.
Falcon currently has 2,026 gross producing Eagle Ford wells, and
the Company’s average NRI for all producing wells is approximately
1.29%.
As of October 27, 2020, the Company had 237 line-of-sight wells
(3.13 net wells) with an average NRI of 1.32% in various stages of
development on Falcon’s Eagle Ford minerals position. These wells
are comprised of the following:
Stage of Activity Gross Wells Net Wells NRI
% Permitted
110
1.43
1.30%
Waiting on completion
94
1.41
1.50%
Waiting on connection
33
0.29
0.89%
Total line-of-sight
237
3.13
1.32%
Conference Call Details
Falcon management invites investors and interested parties to
listen to the conference call to discuss third quarter 2020 results
on Thursday, November 5, 2020 at 9:00 am ET. Participants for the
conference call should dial (888) 567-1602 (International: (862)
298-0702). A replay of the Falcon earnings call will be available
starting at 2:00 pm ET on November 5, 2020. 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). At
the system prompt, dial your replay code (153751#); playback will
automatically begin.
About Falcon Minerals
Falcon Minerals Corporation (NASDAQ: FLMN, FLMNW) is a
C-Corporation formed to own and acquire high growth oil-weighted
mineral 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 80,000 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 not to place
any undue reliance on these forward-looking statements as
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, the tax treatment of dividends
paid, Falcon’s plans, initiatives, 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; the COVID-19 pandemic and its
impact on Falcon and on the oil and gas industry as a whole;
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; Falcon’s ability to meet financial
covenants under its credit agreement or its ability to obtain
amendments or waivers to effect such compliance; 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
Nine Months Ended September 30, September 30,
2020
2019
2020
2019
Revenues: Oil and gas sales
$
9,942
$
15,908
$
29,848
$
55,411
Gain (loss) on hedging activities
(273
)
-
(463
)
-
Total revenue
9,669
15,908
29,385
55,411
Expenses: Production and ad valorem taxes
745
891
2,205
2,940
Marketing and transportation
562
584
1,567
1,933
Amortization of royalty interests in oil & gas properties
3,542
3,184
10,485
9,624
General, administrative and other
2,806
3,168
8,618
8,728
Total expenses
7,655
7,827
22,875
23,225
Operating income
2,014
8,081
6,510
32,186
Other income (expense): Other income
31
58
94
134
Interest expense
(490
)
(650
)
(1,706
)
(1,838
)
Total other income (expense)
(459
)
(592
)
(1,612
)
(1,704
)
Income before income taxes
1,555
7,489
4,898
30,482
Provision for income taxes
243
1,132
400
3,920
Net income
1,312
6,357
4,498
26,562
Net income attributable to non-controlling interests
(723
)
(3,473
)
(2,278
)
(14,540
)
Net income attributable to shareholders
$
589
$
2,884
$
2,220
$
12,022
Class A common shares (basic and diluted)
$
0.01
$
0.06
$
0.05
$
0.26
FALCON MINERALS CORPORATION CONSOLIDATED BALANCE
SHEETS (In thousands) (Unaudited)
September 30, December 31, ASSETS
2020
2019
Current assets: Cash and cash equivalents
$
2,501
$
2,543
Accounts receivable
4,676
7,889
Prepaid expenses
1,035
1,182
Total current assets
8,212
11,614
Royalty interests in oil & gas properties, net of
accumulated amortization
210,808
219,192
Property and equipment, net of accumulated depreciation
453
517
Deferred tax asset, net
55,962
56,352
Other assets
3,357
2,530
Total assets
$
278,792
$
290,205
LIABILITIES AND SHAREHOLDERS' EQUITY Current
liabilities: Accounts payable and accrued expenses
$
2,162
$
2,206
Other current liabilities
829
-
Total current liabilities
2,991
2,206
Credit facility
39,000
42,500
Other non-current liabilities
984
473
Total liabilities
42,975
45,179
Shareholders' equity: Class A common stock
5
5
Class C common stock
4
4
Additional paid in capital
125,239
129,127
Non-controlling interests
110,569
115,890
Retained earnings
-
-
Total shareholders' equity
235,817
245,026
Total liabilities and shareholders' equity
$
278,792
$
290,205
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 before interest expense,
net, depletion expense, provision for income taxes, unrealized
gains and losses on commodity derivative instruments and non-cash
equity-based compensation. We define Pro-forma Free Cash Flow as
net income before depletion expense, provision for income taxes,
unrealized gains and losses on commodity derivative instruments and
non-cash equity-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.
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 September 30,
2020 September 30, 2020 (1) Net income
$
1,312
$
0.02
Interest expense (2)
490
0.01
Depletion and depreciation
3,568
0.04
Share-based compensation
893
0.01
Unrealized loss on commodity derivatives
34
-
Income tax expense
243
-
Adjusted EBITDA
$
6,540
$
0.08
Interest expense (2)
(490)
(0.01)
Pro-forma Free Cash Flow
$
6,050
$
0.07
(1)
Per share information is presented on a
fully converted basis and includes both the 46.6 million Class A
common shares (inclusive of 0.5 million unvested restricted stock
awards which receive DERs) and the 40.0 million Class C common
shares that are outstanding as of September 30, 2020. As such, net
income per fully converted share in this schedule is not comparable
to earnings per share of $0.01 for the period ended September 30,
2020 as shown on the Statement of Operations.
(2)
Interest expense includes amortization of
deferred financing costs.
Calculation of cash available for dividends for the third
quarter 2020 (in thousands): Three Months Ended
September 30,
2020
Adjusted EBITDA
$
6,540
Interest expense (2)
(490
)
Net cash available for distribution
$
6,050
Cash to be distributed to non-controlling interests
$
2,600
Cash to be distributed to Falcon Minerals Corp.
$
2,996
Dividends to be paid to Class A shareholders
$
2,996
(2)
Interest expense includes amortization of
deferred financing costs.
FALCON MINERALS CORPORATION SELECTED OPERATING DATA
(Unaudited) Three Months Ended Nine Months
Ended September 30, September 30,
2020
2019
2020
2019
Production Data: Oil (bbls)
197,652
220,537
656,326
695,423
Natural gas (boe)
149,900
133,749
440,494
468,123
Natural gas liquids (bbls)
63,821
89,652
188,297
240,015
Combined volumes (boe)
411,373
443,938
1,285,117
1,403,561
Average daily combined volume (boe/d)
4,471
4,825
4,690
5,141
Average sales prices: Oil (bbls)
$
36.91
$
60.02
$
34.65
$
60.90
Natural gas (mcf)
$
1.98
$
2.15
$
1.88
$
2.70
Natural gas liquids (bbls)
$
13.58
$
10.57
$
11.42
$
15.12
Combined per boe
$
24.17
$
35.84
$
23.24
$
38.16
Average costs ($/boe): Production and ad valorem
taxes
$
1.81
$
2.01
$
1.72
$
2.09
Marketing and transportation expense
$
1.37
$
1.32
$
1.22
$
1.38
Cash general and administrative expense
$
4.59
$
4.86
$
4.90
$
4.88
Interest expense, net
$
1.19
$
1.46
$
1.33
$
1.31
Depletion
$
8.61
$
7.17
$
8.16
$
6.86
View source
version on businesswire.com: https://www.businesswire.com/news/home/20201104005757/en/
Falcon Minerals Bryan C. Gunderson Chief Financial
Officer bgunderson@falconminerals.com
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