FLMNW Falcon Minerals Corporation

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, 2020.

Fourth Quarter 2020 Highlights

• Net production of 4,196 barrels of oil equivalent per day (“boe/d”) for the fourth quarter 2020
• 236 gross Eagle Ford line-of-sight wells (3.06 net) permitted and in active development as of February 1, 2021
  • Line-of-sight is inclusive of multiple high net revenue interest (“NRI”) units
• Averaged 2 rigs running on Falcon’s Eagle Ford position during the fourth quarter 2020
• 34 gross, 0.27 net wells were turned in line (“TIL”) during the fourth quarter 2020
• Fourth quarter 2020 Net Income of $0.8 million(1), or $0.01 per Class A share
• Adjusted EBITDA of $7.5 million for the fourth quarter 2020, excluding $0.8 million of expenses associated with the strategic review ($6.8 million inclusive of strategic review expenses)(2)
• Pro-forma Free Cash Flow for the fourth quarter 2020 of $0.082 per share, excluding $0.8 million of expenses associated with the strategic review ($0.073 per share inclusive of strategic review expenses)(2)
• Fourth quarter 2020 dividend declared of $0.075 per share; dividend represents a 15% increase from third quarter 2020
• Dividend to be paid on March 8, 2021 to all shareholders of record on February 25, 2021

2021 Highlights

• 7 rigs currently on Falcon’s Eagle Ford assets; over three times the rig count from fourth quarter 2020
• Confirmation of 5 high NRI gross wells (approximately 0.50 net) that were TIL first quarter 2021
• Anticipate another 6 high NRI gross wells (approximately 0.45 net) to be TIL late in the first quarter, which is expected to bolster production growth in the second quarter 2021
• Additional 225 gross and 2.11 line-of-sight wells which are expected to TIL over the next 12 months
• 7 rig pace implies 250 permitted or not yet permitted wells drilled over the next 12 months
• Anticipate production from 6 well Hooks Ranch pad (approximately 0.40 net)(3) in fourth quarter 2021
• 2021 oil production as a percentage of total production is expected to be 50 – 53%

 

(1)

  Net Income shown includes amounts attributable to non-controlling interests.  

(2)

  Please refer to the disclosure on pages 8-9 for a reconciliation of the identified non-GAAP measures to net income, the most comparable financial measure prepared in accordance with GAAP.  

(3)

  The 6 permitted Hooks Ranch wells will have extended laterals from an adjacent property into the Hooks Ranch position. The resulting NRI contribution from the 6 wells will be approximately 6.6% per well.

Daniel Herz, President and Chief Executive Officer of Falcon Minerals commented, “Falcon is uniquely well situated, with growing production, no capital expenditures, and significant free cash flow growth in 2021. With seven rigs running, high NRI locations already turned in line during the first quarter of 2021, incremental high NRI locations turning in line imminently, and the current commodity backdrop, we anticipate that Free Cash Flow per share will increase meaningfully throughout 2021 from fourth quarter 2020 levels. More specifically, we see Free Cash Flow per share potentially doubling from fourth quarter 2020 levels in the second quarter of 2021, and then continuing to grow throughout the second half of the year.”

Mr. Herz continued by saying, “Given the high NRI locations that have turned in line and that are expected to turn in line, our significant backlog of line-of-sight wells, and the robust activity that we are seeing across our position, we believe that the previously discussed average of 5,000 barrels of oil equivalent per day is conservative relative to what we expect to produce this year. Even at these conservative production levels, this represents growth in our base business of approximately 10% when compared to full year 2020.” Mr. Herz then went on to emphasize, “Most importantly the growth that we see in the near term is based exclusively on our line-of-sight and does not rely on incremental acquisitions or capital expenditures. Both our organic growth profile and the fact that it does not rely on capital expenditures, clearly distinguishes Falcon Minerals from other companies in the energy sector and within the minerals and royalties public peer group.”

Financial Update

Falcon realized prices of $40.21 per barrel (“bbl”) for crude oil, $2.42 per thousand cubic feet (“mcf”) for natural gas and $14.99/bbl for natural gas liquids (“NGL”) during the fourth quarter 2020.

Falcon reported net income of $0.8 million for the fourth quarter 2020, which includes amounts attributable to non-controlling interests. The Company generated fourth quarter earnings per share of $0.01 per Class A share.  Falcon generated royalty revenue of $10.2 million (approximately 70% oil) for the fourth quarter 2020. The Company generated Adjusted EBITDA of $7.5 million for the fourth quarter 2020 excluding $0.8 million of expenses attributable to the strategic review process ($6.8 million including expenses attributable to the strategic review process). Adjusted EBITDA is a non-GAAP measure defined and reconciled on pages 8-9. 

Total cash operating costs for the fourth quarter 2020 were $3.5 million. General and administrative expense for the fourth quarter 2020, excluding non-cash stock-based compensation expense, was approximately $1.7 million, excluding $0.8 million of expenses attributable to the strategic review process. These expenses are associated with the use of third-party experts and the increased time that Falcon’s Board of Directors spent considering all potential options.

As of December 31, 2020, the Company had $39.8 million of borrowings on its revolving credit facility, and $2.7 million of cash on hand, resulting in a net debt of approximately $37.1 million at the end of the quarter. Falcon’s net debt / LTM EBITDA ratio was 1.39x at December 31, 2020.(4)

 

(4)

  Calculated by dividing the sum of total debt outstanding less cash on hand as of December 31, 2020 by Adjusted EBITDA for the trailing 12-month period. Please refer to the disclosure on pages 8-9 for the Reconciliation of net income to Non-GAAP Measures.

Fourth Quarter 2020 Dividend

Falcon’s Board of Directors declared a dividend of $0.075 per Class A share for the fourth quarter 2020. During the fourth quarter 2020, the Company generated pro-forma free cash flow per share of $0.082 ($0.073 per share including expenses attributable to the strategic review process)(5) (as described and reconciled on page 8-9). The dividend for the fourth quarter 2020 will be paid on March 8, 2021 to all Class A shareholders of record on February 25, 2021. The fourth 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 86.6 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 4,196 boe/d during the fourth quarter 2020. Falcon had 34 gross wells TIL (0.27 net wells) with an average NRI of approximately 0.79% during the fourth quarter 2020.

Falcon’s production averaged 4,566 boe/d during the year ended December 31, 2020, of which approximately 50% was oil. Eagle Ford production was approximately 56% oil during the year ended December 31, 2020. Falcon had 139 gross wells TIL (1.91 net wells) with an average NRI of approximately 1.37% during the year ended December 31, 2020.

Falcon currently has 2,486 gross producing wells, and the Company’s average NRI for all producing wells is approximately 1.27%.

As of February 1, 2021, the Company had 236 line-of-sight wells (3.06 net wells) with an average NRI of 1.30% 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 February 1, 2021)             Stage of Activity  

Gross Wells

 

Net Wells

 

NRI %

  Permitted  

109

 

1.37

 

1.26%

  Waiting on completion  

111

 

1.17

 

1.06%

  Waiting on connection   

16

 

0.52

 

3.24%

  Total line-of-sight  

236

 

3.06

 

1.30%

Reserve Summary for the Year Ended December 31, 2020

As of December 31, 2020, net proved oil and gas reserves were approximately 20.0 million barrels of oil equivalent (MMboe), based on the Securities and Exchange Commission (SEC) average net realized price assumptions of $39.57/bbl for oil, $12.27/bbl for NGL, and $1.99/mcf for natural gas. Falcon’s year end 2020 proved reserves were valued at a PV-10 amount of approximately $256 million, and approximately 60% of the Company’s proved reserves were oil and NGLs.

Summary of proved reserves as of December 31, 2020:

                Total     Oil (Mbbl)   Gas (MMcf)   NGLs (Mbbl)   MBoe Proved developed reserves  

           3,291

 

         19,755

 

           1,164

 

           7,747

Proved undeveloped reserves  

           6,451

 

         28,781

 

           1,022

 

         12,270

Total proved reserves at December 31, 2020  

           9,742

 

         48,536

 

           2,186

 

         20,017

Reconciliation of proved reserves for full year 2020:

                Total     Oil (Mbbl)   Gas (MMcf)   NGLs (Mbbl)   MBoe Proved reserves at December 31, 2019  

         12,596

 

         46,270

 

           2,719

 

         23,027

Purchase of reserves in place  

                62

 

                62

 

                   -

 

                72

Extensions and discoveries  

                34

 

              797

 

                12

 

              179

Revisions of previous estimates  

         (2,114)

 

           4,935

 

            (298)

 

         (1,590)

Production  

            (836)

 

         (3,528)

 

            (247)

 

         (1,671)

Proved reserves at December 31, 2020  

           9,742

 

         48,536

 

           2,186

 

         20,017

                  Changes in reserves net of production  

         (2,018)

 

           5,794

 

            (286)

 

         (1,338)

Conference Call Details

Falcon management invites investors and interested parties to listen to the conference call to discuss fourth quarter 2020 results on Thursday, March 4, 2021 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 March 4, 2021. 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 (155278#); 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   Year Ended    December 31,   December 31,  

2020

 

2019

 

2020

 

2019

Revenues:               Oil and gas sales 

 $   10,234

 

 $   13,051

 

 $  40,081

 

 $  68,463

Gain (loss) on hedging activities

          (737)

 

                 -

 

      (1,200)

 

 - 

Total revenues 

        9,497

 

      13,051

 

     38,881

 

     68,463

Expenses:               Production and ad valorem taxes

            602

 

        1,322

 

        2,807

 

        4,262

Marketing and transportation 

            426

 

            463

 

        1,993

 

        2,396

Amortization of royalty interests in oil & gas properties

        3,619

 

        3,113

 

     14,103

 

     12,737

General, administrative, and other 

        3,379

 

        3,185

 

     11,997

 

     11,912

Total expenses 

        8,026

 

        8,083

 

     30,900

 

     31,307

Operating income 

        1,471

 

        4,968

 

        7,981

 

     37,156

                Other income (expense):               Other income

              31

 

              31

 

           125

 

           165

Interest expense 

          (491)

 

          (650)

 

      (2,197)

 

      (2,489)

Total other income (expense)

          (460)

 

          (619)

 

      (2,072)

 

      (2,324)

Income before income taxes

        1,011

 

        4,349

 

        5,909

 

     34,832

Provision for income taxes 

            189

 

              (3)

 

           589

 

        3,918

Net income 

            822

 

        4,352

 

        5,320

 

     30,914

Net income attributable to non-controlling interests

          (470)

 

       (2,024)

 

      (2,748)

 

    (16,564)

Net income attributable to shareholders

 $        352

 

 $     2,328

 

 $    2,572

 

 $  14,350

                Class A common shares (basic and diluted) 

 $       0.01

 

 $       0.05

 

 $       0.05

 

 $       0.31

FALCON MINERALS CORPORATION  CONSOLIDATED BALANCE SHEETS (In thousands) (Unaudited)              

December 31,

 

December 31,

ASSETS  

2020

 

2019

Current assets:         Cash and cash equivalents   

 $             2,724

 

 $             2,543

Accounts receivable   

                5,419

 

                7,889

Prepaid expenses   

                    766

 

                1,182

Total current assets   

                8,909

 

              11,614

          Royalty interests in oil & gas properties, net of accumulated amortization

            207,505

 

            219,192

Property and equipment, net of accumulated depreciation  

                    427

 

                   517

Deferred tax asset, net   

              55,773

 

              56,352

Other assets   

                3,015

 

                2,530

Total assets  

 $         275,629

 

 $        290,205

          LIABILITIES AND SHAREHOLDER'S EQUITY         Current liabilities:         Accounts payable  and accrued expenses   

 $             1,540

 

 $             2,206

Other current liabilities  

                1,557

 

                        -

Total current liabilities  

                3,097

 

                2,206

Credit facility  

              39,800

 

              42,500

Other non-current liabilities  

                    828

 

                   473

Total liabilities  

              43,725

 

              45,179

          Shareholder’s equity:         Class A common stock   

                        5

 

                        5

Class C common stock   

                        4

 

                        4

Additional paid in capital   

            123,457

 

            129,127

Non-controlling interests  

            108,438

 

            115,890

Retained earnings  

                         -

 

                        -

Total shareholder’s equity   

            231,904

 

            245,026

Total liabilities and shareholder’s equity   

 $         275,629

 

 $        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 and depreciation 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   December 31, 2020   December 31, 2020 (1) Net Income

 $                                    822

 

 $                                    0.01

Interest expense (2)

                                        491

 

                                       0.01

Depletion and depreciation

                                    3,645

 

                                       0.04

Share-based compensation

                                        893

 

                                       0.01

Unrealized loss on commodity derivatives

                                        720

 

                                       0.01

Income tax expense

                                        189

 

                                           -  

Adjusted EBITDA(3)

 $                                 6,760

 

 $                                    0.08

Interest expense (2)

                                      (491)

 

                                     (0.01)

Pro-forma Free Cash Flow

 $                                 6,269

 

 $                                    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 December 31, 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 December 31, 2020 as shown on the Statement of Operations.

 

(2)

 

Interest expense includes amortization of deferred financing costs.

 

(3)

 

Adjusted EBITDA includes $0.8 million of expenses related to the strategic review process.

Calculation of cash available for dividends for the fourth quarter 2020 (in thousands):           Three Months Ended     December 31,    

2020

      Adjusted EBITDA (3)   

 $                                6,760

Interest expense (2)  

                                    (491)

Net cash available for distribution   

 $                                6,269

      Cash to be distributed to non-controlling interests  

 $                                3,000

Cash to be distributed to Falcon Minerals Corp.  

 $                                3,458

      Dividends to be paid to Class A shareholders  

 $                                3,458

 

(2)

 

Interest expense includes amortization of deferred financing costs.

 

(3)

 

Adjusted EBITDA includes $0.8 million of expenses related to the strategic review process.

FALCON MINERALS CORPORATION SELECTED OPERATING DATA (Unaudited)                    Three Months Ended   Year Ended   December 31,   December 31,  

2020

 

2019

 

2020

 

2019

                Production Data:               Oil (bbls)

               179,219

 

               183,835

 

               835,545

 

               879,288

Natural gas (boe)

               147,531

 

               129,896

 

               588,025

 

               598,019

Natural gas liquids (bbls)

                 59,239

 

                 56,797

 

               247,536

 

               296,813

Combined volumes (boe)

               385,989

 

               370,528

 

            1,671,106

 

            1,774,120

Average daily combined volume (boe/d)

                   4,196

 

                   4,027

 

                   4,566

 

                   4,861

                Average sales prices:               Oil (bbls)

 $                40.21

 

 $                55.88

 

 $                35.84

 

 $                59.85

Natural gas (mcf)

 $                  2.42

 

 $                  2.34

 

 $                  2.01

 

 $                  2.62

Natural gas liquids (bbls)

 $                14.99

 

 $                16.86

 

 $                12.28

 

 $                15.45

Combined per boe

 $                26.52

 

 $                35.23

 

 $                23.98

 

 $                37.54

                Average costs ($/boe):               Production and ad valorem taxes

 $                  1.56

 

 $                  3.57

 

 $                  1.68

 

 $                  2.40

Marketing and transportation expense

 $                  1.10

 

 $                  1.25

 

 $                  1.19

 

 $                  1.35

Cash general and administrative expense

 $                  6.37

 

 $                  6.66

 

 $                  5.03

 

 $                  5.28

Interest expense, net

 $                  1.27

 

 $                  1.75

 

 $                  1.31

 

 $                  1.40

Depletion

 $                  9.37

 

 $                  8.40

 

 $                  8.44

 

 $                  7.18

 

View source version on businesswire.com: https://www.businesswire.com/news/home/20210303006022/en/

Falcon Minerals: Bryan C. Gunderson Chief Financial Officer bgunderson@falconminerals.com