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
second quarter 2020 and declares its second quarter dividend.
Highlights
- Net production of 4,450 barrels of oil equivalent per day
(“boe/d”) for the second quarter 2020 (51% oil); production during
the quarter was shut-in/curtailed by ~25% during May and June
- Net debt decreased to $38.8 million; 10% reduction in
borrowings on Falcon’s revolving credit facility quarter over
quarter; net debt/LTM EBITDA ratio of 1.12x(2)(3)
- Crude hedging program established in June 2020 for third
quarter 2020 through first quarter 2021 at approximately $40 per
barrel
- Cash G&A expense decreased to $1.7 million in the second
quarter 2020; represents a ~25% decrease compared to the first
quarter 2020
- 20 gross, 0.12 net wells were turned in line during the second
quarter 2020
- 212 gross line of sight wells (2.52 net wells) permitted and in
active development as of August 3, 2020; 2.52 net line of sight
wells includes 1.62 net wells in active development
- Averaged three rigs running on Falcon’s Eagle Ford position
during the second quarter 2020
- Second quarter 2020 net loss of $1.3 million(1), or $0.01 per
Class A share
- Adjusted EBITDA of $3.4 million for the second quarter
2020(2)
- Second quarter 2020 Pro-forma Free Cash Flow of $0.033 per
share(2)
- Second quarter dividend declared of $0.03 per share; dividend
represents a 20% increase from first quarter 2020. Increased payout
ratio of Pro-forma Free Cash Flow from 23% in the first quarter
2020 to 91% in the second quarter 2020
- Dividend will be paid on September 8, 2020 to all shareholders
of record on August 25, 2020
(1)
Net loss shown above includes amounts attributable to
non-controlling interests.
(2)
Please refer to the disclosure on pages 6-7 for the
Reconciliation of net loss to Non-GAAP Measures.
(3)
Calculated by dividing the sum of total debt outstanding less
cash on hand as of June 30, 2020 by Adjusted EBITDA for the
trailing 12-month period.
Daniel Herz, President and Chief Executive Officer of Falcon
Minerals commented, “We believe that our current stock price
meaningfully undervalues our business. Falcon has successfully been
able to cut cash G&A costs by 25% quarter over quarter,
strengthen its balance sheet by reducing the borrowings under its
credit facility from $45.3 million in the first quarter 2020 to
$40.6 million in the second quarter 2020, and increase the dividend
by 20% quarter over quarter.” Mr. Herz also noted, “Falcon’s
ability to increase its quarterly dividend, cut costs, and reduce
net debt to below $39 million demonstrates the strength of our
business model and is a good reminder that Falcon is uniquely
positioned to generate—and return—free cash flow, even in the midst
of a turbulent market. Looking forward, the business is well
positioned for stability and growth given our hedge profile,
anticipated volumes coming back online from curtailed wells, and
robust line of sight.” Mr. Herz went on to say that “Given the
current depressed stock price, management and the Board of
Directors are evaluating all options to increase value to equity
holders over the short, medium, and long-term.”
Financial Update
Falcon realized prices of $22.03 per barrel (“bbl”) for crude
oil, $1.71 per thousand cubic feet (“mcf”) for natural gas and
$5.44/bbl for natural gas liquids (“NGL”) during the in the second
quarter 2020.
Falcon reported a net loss of $1.3 million, or $0.01 per Class A
common share, for the second quarter 2020, which includes amounts
attributable to non-controlling interests. Falcon generated royalty
revenue of $6.3 million (approximately 72% oil) for the second
quarter 2020. The Company reported Adjusted EBITDA (a non-GAAP
measure as defined and reconciled on pages 6-7) of $3.4 million for
the second quarter 2020.
Total cash operating costs for the second quarter 2020 were $3.0
million, a $0.6 million decrease compared to the first quarter
2020. General and administrative expense for the second quarter
2020, excluding non-cash stock-based compensation expense, was
approximately $1.7 million, which represents a 25% decrease when
compared to $2.3 million for the first quarter 2020.
As of June 30, 2020, the Company had $40.6 million of borrowings
on its revolving credit facility, and $1.8 million of cash on hand,
resulting in a net debt of approximately $38.8 million at the end
of quarter. Falcon’s net debt / LTM EBITDA ratio was 1.12x at June
30, 2020.(4)
(4)
Calculated by dividing the sum of total debt outstanding less
cash on hand as of June 30, 2020 by Adjusted EBITDA for the
trailing 12-month period. Please refer to the disclosure on pages
6-7 for the Reconciliation of net loss to Non-GAAP Measures.
Second Quarter 2020 Dividend
Falcon’s Board of Directors declared a dividend of $0.03 per
Class A share for the second quarter 2020. During the second
quarter 2020, the Company generated Pro-forma Free Cash Flow per
share of $0.03(5) (as described and reconciled on page 6-7). The
dividend for the second quarter 2020 will be paid on September 8,
2020 to all Class A shareholders of record on August 25, 2020. The
second quarter 2020 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 86.5 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 4,450 boe/d during the second
quarter 2020, of which approximately 51% was oil. Eagle Ford
production was approximately 56% oil during the second quarter
2020. Falcon had 20 gross wells turned in line (0.12 net wells)
with an average net royalty interest (“NRI”) of approximately 0.61%
during the second quarter 2020. This compares to 63 gross wells
turned in line (1.45 net wells) during the first quarter of
2020.
Falcon currently has 2,021 producing Eagle Ford wells, and the
Company’s average NRI for all producing wells is approximately
1.29%.
As of August 3, 2020, the Company had 212 line of sight wells
(2.52 net wells) with an average NRI of 1.19% in various stages of
development on Falcon’s Eagle Ford minerals position. These wells
are comprised of the following:
Line of Sight Wells (As of August 3,
2020)
Stage of Activity
Gross Wells
Net Wells
NRI %
Permitted
94
0.90
0.96%
Waiting on completion
98
1.57
1.60%
Waiting on connection
20
0.06
0.28%
Total line of sight
212
2.52
1.19%
Conference Call Details
Falcon management invites investors and interested parties to
listen to the conference call to discuss second quarter 2020
results on Thursday, August 6, 2020 at 9:00 am ET. Participants for
the conference call should dial (888) 567-1602 (International:
(862) 298-0701). A replay of the Falcon earnings call will be
available starting at 2:00 pm ET on August 6, 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 (151920#); 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
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 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, 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;
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
Six Months Ended June 30, June 30,
2020
2019
2020
2019
Revenues: Oil and gas sales
$ 6,305
$ 18,246
$ 19,905
$ 39,504
Gain (loss) on hedging activities
(190)
-
(190)
-
Total revenue
6,115
18,246
19,715
39,504
Expenses: Production and ad valorem taxes
606
920
1,460
2,049
Marketing and transportation
608
565
1,005
1,349
Amortization of royalty interests in oil & gas properties
3,268
2,930
6,943
6,440
General, administrative and other
2,737
3,055
5,811
5,559
Total expenses
7,219
7,470
15,219
15,397
Operating income (loss)
(1,104)
10,776
4,496
24,107
Other income (expense): Other income
31
44
63
75
Interest expense
(537)
(535)
(1,217)
(1,189)
Total other income (expense)
(506)
(491)
(1,154)
(1,114)
Income (loss) before income taxes
(1,610)
10,285
3,342
22,993
Provision for (benefit from) income taxes
(287)
1,383
157
2,788
Net income (loss)
(1,323)
8,902
3,185
20,205
Net (income) loss attributable to non-controlling interests
748
(5,146)
(1,555)
(11,067)
Net income (loss) attributable to shareholders
$ (575)
$ 3,756
$ 1,630
$ 9,138
Class A common shares (basic and diluted)
$ (0.01)
$ 0.08
$ 0.04
$ 0.20
FALCON MINERALS CORPORATION CONSOLIDATED BALANCE
SHEETS (In thousands) (Unaudited) June
30, December 31, ASSETS
2020
2019
Current assets: Cash and cash equivalents
$ 1,846
$ 2,543
Accounts receivable
2,935
7,889
Prepaid expenses
887
1,182
Total current assets
5,668
11,614
Royalty interests in oil & gas properties, net of
accumulated amortization
214,350
219,192
Property and equipment, net of accumulated depreciation
479
517
Deferred tax asset, net
56,205
56,352
Other assets
3,599
2,530
Total assets
$ 280,301
$ 290,205
LIABILITIES AND SHAREHOLDERS' EQUITY Current
liabilities: Accounts payable and accrued expenses
$ 1,566
$ 2,206
Other current liabilities
789
-
Total current liabilities
2,355
2,206
Credit facility
40,600
42,500
Other non-current liabilities
1,138
473
Total liabilities
44,093
45,179
Shareholders' equity: Class A common stock
5
5
Class C common stock
4
4
Additional paid in capital
125,728
129,127
Non-controlling interests
111,046
115,890
Retained earnings (accumulated deficit)
(575)
-
Total shareholders' equity
236,208
245,026
Total liabilities and shareholders' equity
$ 280,301
$ 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 (loss) before interest
expense, net, depletion expense, provision for (benefit from)
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 (loss) before depletion
expense, provision for (benefit from) 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 (loss)
as determined by GAAP. We exclude the items listed above from net
income (loss) 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
(loss), 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 Net Loss to Adjusted EBITDA and Pro-forma
Free Cash Flow (in thousands, except per share amounts):
Fully Converted Three Months Per Share Basis
Ended Three Months Ended June 30, 2020 June
30, 2020 (1) Net loss
$ (1,323)
$ (0.02)
Interest expense (2)
537
0.01
Depletion and depreciation
3,294
0.04
Share-based compensation
969
0.01
Unrealized loss on commodity derivatives
190
-
Income tax benefit
(287)
-
Adjusted EBITDA
$ 3,380
$ 0.04
Interest expense (2)
(537)
(0.01)
Pro-forma Free Cash Flow
$ 2,843
$ 0.03
(1)
Per share information is presented on a fully converted basis
and includes both the 46.5 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 June 30, 2020. As such, net loss per fully converted share in
this schedule is not comparable to loss per share of $0.01 for the
period ended June 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 second
quarter 2020 (in thousands):
Three Months Ended June 30,
2020
Adjusted EBITDA
$ 3,380
Interest expense (1)
(537)
Net cash available for distribution
$ 2,843
Cash to be distributed to non-controlling interests
$ 1,200
Cash to be distributed to Falcon Minerals Corp.
$ 1,381
Dividends to be paid to Class A shareholders
$ 1,381
(1)
Interest expense includes amortization of deferred financing
costs.
FALCON MINERALS CORPORATION SELECTED OPERATING DATA
(Unaudited) Three Months Ended Six Months
Ended June 30, June 30,
2020
2019
2020
2019
Production Data: Oil (bbls)
205,146
199,938
458,673
474,916
Natural gas (boe)
145,759
161,687
290,594
334,373
Natural gas liquids (bbls)
54,002
77,473
124,476
150,364
Combined volumes (boe)
404,907
439,098
873,743
959,653
Average daily combined volume (boe/d)
4,450
4,825
4,801
5,302
Average sales prices: Oil (bbls)
$ 22.03
$ 63.84
$ 33.37
$ 61.30
Natural gas (mcf)
$ 1.71
$ 2.52
$ 1.82
$ 2.92
Natural gas liquids (bbls)
$ 5.44
$ 17.45
$ 10.32
$ 17.83
Combined per boe
$ 15.58
$ 37.72
$ 22.62
$ 39.23
Average costs ($/boe): Production and ad valorem
taxes
$ 1.50
$ 2.10
$ 1.67
$ 2.14
Marketing and transportation expense
$ 1.50
$ 1.29
$ 1.15
$ 1.41
Cash general and administrative expense
$ 4.30
$ 5.22
$ 4.65
$ 4.96
Interest expense, net
$ 1.33
$ 1.22
$ 1.39
$ 1.24
Depletion
$ 8.07
$ 6.67
$ 7.95
$ 6.71
View source
version on businesswire.com: https://www.businesswire.com/news/home/20200805006062/en/
Bryan C. Gunderson Chief Financial Officer
bgunderson@falconminerals.com
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