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 as well as
the dividend for the third quarter ended September 30, 2019.
Highlights
- 207 line of sight wells (2.82 net wells) currently in active
development, an increase of 16% from the second quarter 2019
- 118 wells waiting on completion (1.69 net wells)
- 32 wells waiting on connection (0.36 net wells)
- Four Hooks Ranch wells drilled to total depth during October,
in which Falcon has a 22.5% net revenue interest (“NRI”), are
waiting to be completed and are expected to be turned in line in
the first quarter 2020 (1)
- Averaged seven rigs running on Falcon’s Eagle Ford position in
the third quarter 2019
- Net production of 4,825 barrels of oil equivalent per day
(“boe/d”) during the third quarter 2019 (Eagle Ford production was
56% oil; approximately 50% oil in total)
- Third quarter 2019 Net Income of $6.4 million (2), or $0.06 per
Class A share
- Adjusted EBITDA of $12.3 million for the third quarter 2019
(3)
- Third quarter 2019 dividend of $0.135 per share, which
represents a last twelve month yield of 10.5% based upon Falcon’s
closing share price on November 6, 2019; the third quarter dividend
will be paid on December 3, 2019 to all shareholders of record on
November 20, 2019
- Third quarter 2019 Net Debt / LTM EBITDA ratio of 0.55x; credit
facility was $38.0 million drawn at the end of the period
- Establishing average production guidance for Q4 2019 / Q1 2020
of 5,000 – 5,500 boe/d (50% – 55% oil)
(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% NRI. The
net NRI contribution from the four wells will be approximately
14.2%
(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, “Falcon continues to benefit from world class operators’
steady development of our high margin assets in the core of the
Eagle Ford Shale. Our line of sight net wells have increased
quarter over quarter, which should drive meaningful growth well
into 2020, as our top operators continue to execute on their
multi-year development plans. With 2.82 net wells in our line of
sight, up from 2.44 net wells last quarter, we continue to see
substantial organic growth on the horizon.” Mr. Herz continued,
“With the stability of our base business, upcoming growth, and the
shifting landscape within energy, we chose to be even more
stringent with our acquisition parameters. As such, we completed
three acquisitions over the third quarter totaling $0.9 million in
total purchase price. Following these acquisitions, we have
maintained a pristine balance sheet with only $38.0 million drawn
on our revolver. We look forward to continuing to reliably deliver
free cash flow to our shareholders quarter after quarter.”
Financial Update
Falcon’s net realized price for crude oil was $60.02 per barrel
(“bbl”) in the third quarter 2019 compared to $63.84 in second
quarter 2019. Falcon’s net oil realization was approximately
$4.00/bbl above the average WTI price for the third quarter 2019,
consistent with the differential realized in the second quarter
2019. The Company’s realized price for natural gas during the third
quarter 2019 was $2.15 per thousand cubic feet (“mcf”) and
$10.57/bbl for natural gas liquids.
On a GAAP basis, Falcon reported Net Income of $6.4 million, or
$0.06 per Class A common share, for the third quarter 2019. Falcon
generated revenue of $15.9 million (approximately 83% oil) for the
third quarter 2019. The Company reported Adjusted EBITDA (a
non-GAAP measure as defined and reconciled on pages 8-9) of $12.3
million for the third quarter 2019.
Total cash operating costs for the third quarter 2019 were $8.28
per barrel of oil equivalent (“boe”), compared to $8.61/boe for the
second quarter 2019.
General and administrative expense for the third quarter 2019,
excluding non-cash stock-based compensation expense, was
approximately $2.2 million, compared to $2.3 million for the second
quarter 2019. The decrease from the prior quarter was due primarily
to certain non-recurring startup related expenses incurred in the
second quarter.
As of September 30, 2019, the Company had $38.0 million of
borrowings on its revolving credit facility, and $2.6 million of
cash on hand, resulting in a net liquidity position of
approximately $70 million at the end of quarter. Falcon’s net debt
/ LTM EBITDA ratio was 0.55x at September 30, 2019 (4).
(4)
Calculated by dividing the sum of total
debt outstanding less cash on hand as of September 30, 2019 by
Adjusted EBITDA for the trailing 12-month period, as per Falcon’s
credit agreement dated August 23, 2018
Third Quarter 2019 Dividend
Falcon’s Board of Directors has declared Falcon’s dividend of
$0.135 per Class A share for the third quarter 2019. During the
third quarter 2019, the Company generated Pro-forma Free Cash Flow
per share of $0.14 (5) (as described and reconciled on page 8-9).
The dividend for the third quarter 2019 will be paid on December 3,
2019 to all Class A shareholders of record on November 20, 2019. As
a result of this dividend, the exercise price of the Falcon
warrants will be adjusted downward to $11.34 per warrant.
(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 297,000 unvested restricted stock awards (RSAs) which receive
dividend equivalent rights (“DER”) on a quarterly basis
Operational Results
Falcon’s net production averaged 4,825 boe/d during the third
quarter 2019, of which approximately 50% was oil. Eagle Ford
production was approximately 56% oil during the third quarter.
Falcon had 27 gross wells turned in line (0.14 net wells) with an
average NRI of approximately 0.54% during the third quarter 2019.
Falcon currently has 1,867 producing Eagle Ford wells, and the
Company’s average NRI for all producing wells is approximately
1.33%.
Falcon continues to experience ongoing development from its
leading operators on its oil-rich minerals positions in the Eagle
Ford Shale. There are currently 207 line of sight wells (2.82 net
wells) with an average NRI of 1.36% in various stages of
development on its Eagle Ford minerals position. The 207 line of
sight wells represent an increase of approximately 16% from the
prior period. These wells are comprised of the following:
Line of Sight
Wells
Stage of Activity
Gross Wells
Net Wells
NRI %
Permitted
57
0.78
1.36%
Waiting on completion
118
1.69
1.43%
Waiting on connection
32
0.36
1.11%
Total line of sight
207
2.82
1.36%
The line of sight wells include four wells on Falcon’s Hooks
Ranch location that were recently drilled to total depth by
ConocoPhillips, and in which the Company has a 22.5% NRI. The four
recently drilled Hooks Ranch wells are expected to each have
lateral lengths of approximately 10,000 feet, which will extend the
laterals from the Hooks Ranch positions into an adjacent leasehold
property where Falcon has a 3.65% NRI. As a result, Falcon expects
that the net NRI contribution from the four wells will be
approximately 14.2%. These four Hooks Ranch wells are expected to
be turned in line in the first quarter 2020.
In the first nine months of 2019, Falcon has acquired
approximately 130 net royalty acres through 20 transactions in the
Eagle Ford Shale for a total cost of approximately $20.9 million.
The transactions were funded using cash on hand and availability on
the Company’s revolving credit facility.
Guidance Summary
The Company has provided forward six-month average guidance
based upon expectations for producer activity on Falcon’s net
royalty positions.
Q4 2019 – Q1
2020
Guidance
Range
Net production per barrel of oil
equivalent per day (boe/d)
5,000 – 5,500
% Oil of net production
50% – 55%
Operating costs:
Production and ad valorem taxes (% of
revenue)
4.0% – 5.0%
Marketing and transportation ($/boe)
$1.00 – $1.50
Cash general and administrative (6)
($mm)
$4.5 – $5.0
Depletion expense (7) ($/boe)
$6.50 – $7.50
(6)
General and administrative expense above
represents guidance over the next six months and excludes non-cash
stock-based compensation expense
(7)
The depletion expense forecast range above
is shown on a GAAP basis
Upcoming Investor Conferences
The Company will be participating in several upcoming investor
conferences. Falcon will be hosting investor meetings at each of
the following events:
- Wednesday, November 13, 2019: Stephens Investment Conference –
The Omni Nashville Hotel, Nashville, TN
- Thursday, December 12, 2019: Capital One Securities 14th Annual
Energy Conference – Hotel Zaza, Houston, TX
Conference Call Details
Falcon management invites investors and interested parties to
listen to the conference call to discuss third quarter 2019 results
on Friday, November 8, 2019 at 9:00 am ET. Participants for the
conference call should dial (866) 342-8591 (International: (203)
518-9713) and use the confirmation code FLMNQ319. The Falcon
earnings call is also accessible via webcast on the company’s
website on www.falconminerals.com in the Events page of the
Investor Relations section. A replay of the call will be available
starting at 12:00 pm ET on November 8, 2019. 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 (800) 839-2382 (International: (402)
220-7201).
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 68,000 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
September 30,
2019
2018
Revenues: Oil and gas sales
$
15,908
$
23,825
Loss on hedging activities
-
458
Total revenues
15,908
24,283
Expenses: Production and ad valorem taxes
891
1,326
Marketing and transportation
584
493
Amortization of royalty interests in oil & gas properties
3,184
4,494
General, administrative and other
3,168
1,132
Total expenses
7,827
7,445
Operating income
8,081
16,838
Other income (expense): Gain on the sale of assets
-
-
Other income
58
38
Interest expense
(650)
(557)
Total other income (expense)
(592)
(519)
Income before income taxes
7,489
16,319
Provision for income taxes
1,132
810
Income from continuing operations
6,357
15,509
Income from discontinued operations
-
91
Net income
6,357
15,600
Net income attributable to non-controlling interests
(3,473)
(2,933)
Net income attributable to shareholders/unitholders
$
2,884
$
12,667
Class A common shares (basic and diluted)
$
0.06
$
0.06
(1)
(1)
Earnings per share for 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)
September 30,
December 31,
ASSETS
2019
2018
Current assets: Cash and cash equivalents
$
2,627
$
7,317
Accounts receivable
8,029
11,271
Prepaid expenses
1,292
1,524
Total current assets
11,948
20,112
Royalty interests in oil & gas properties, net of
accumulated amortization
220,446
209,168
Property and equipment, net
497
-
Deferred tax asset, net
56,470
58,773
Other assets
2,690
3,182
Total assets
$
292,051
$
291,235
LIABILITIES AND SHAREHOLDER'S EQUITY Current
liabilities: Accounts payable and accrued expenses
$
1,974
$
521
Credit facility
38,000
21,000
Other non-current liabilities
476
-
Total liabilities
40,450
21,521
Shareholder’s equity: Class A common stock
5
5
Class C common stock
4
4
Additional paid in capital
132,325
137,866
Non-controlling interests
119,267
127,029
Retained earnings
-
4,810
Total shareholder’s equity
251,601
269,714
Total liabilities and shareholder’s equity
$
292,051
$
291,235
Reconciliation of Adjusted EBITDA and Pro-forma Free Cash
Flow from Net Income (in thousands, except per share
amounts):
Three Months Ended September
30, 2019
Fully Converted Per Share
Basis Three Months Ended Sept. 30, 2019 (1)
Net Income
$
6,357
$
0.07
Interest expense (2)
650
0.00
Depletion and depreciation
3,207
0.05
Share-based compensation
970
0.01
Income taxes
1,132
0.01
Adjusted EBITDA
$
12,316
$
0.14
Interest expense (2)
(650
)
(0.00
)
Pro-forma Free Cash Flow
$
11,666
$
0.14
(1)
Per share information is presented on a
fully converted basis and includes both the 46.2 million Class A
common shares (inclusive of 297,000 unvested restricted stock
awards which receive DERs) and the 40.0 million Class C common
shares that are outstanding as of September 30, 2019. As such, Net
Income per fully converted share in this schedule is not comparable
to earnings per share (EPS) of $0.06 for the period ended September
30, 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 third
quarter 2019 (in thousands):
Three Months Ended
September 30,
2019
Adjusted EBITDA
$
12,316
Interest expense
(650
)
Net cash available for
distribution
11,666
Cash to be distributed to non-controlling
interests
$
5,400
Cash to be distributed to Falcon Minerals
Corp.
$
6,203
Dividends to be paid to Class A
shareholders
$
6,203
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
September 30,
2019
2018 (1)
Production Data:
Oil (bbls)
220,537
258,665
Natural gas (boe)
133,749
187,640
Natural gas liquids (bbls)
89,652
68,134
Combined volumes (boe)
443,938
514,439
Average daily combined volume (boe/d)
4,825
5,592
Average sales prices:
Oil (bbls)
$
60.02
$
74.43
Natural gas (mcf)
$
2.15
$
3.03
Natural gas liquids (bbls)
$
10.57
$
28.73
Combined per boe
$
35.84
$
47.86
Average costs ($/boe):
Production and ad valorem taxes
$
2.01
$
2.58
Marketing and transportation expense
$
1.32
$
0.96
Cash general and administrative
expense
$
4.95
$
2.20
Interest expense, net
$
1.46
$
1.08
Depletion
$
7.17
$
8.74
(1)
The production data for Q3 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/20191107006109/en/
Falcon Minerals Contacts: Bryan C. Gunderson Chief
Financial Officer bgunderson@falconminerals.com
Brian Begley Investor Relations bbegley@falconminerals.com
Falcon Minerals (NASDAQ:FLMNW)
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