Drilling & Completions | Quarterly / Earnings Reports | First Quarter (1Q) Update | Financial Results | Capital Markets | 2020 Guidance

Brigham Minerals First Quarter 2020 Results

Share Print Bookmark    |    Wednesday,May 13,2020

Brigham Minerals, Inc. reported its Q1 2020 results.

Q1 Highlights:

• Record daily production volumes of 10,401 Boe/d (72% liquids, 55% oil)
  • Up 8% sequentially from Q4 2019 and up 93% from Q1 2019
  • Permian Basin production volumes up 18% sequentially from Q4 2019 to a record 5,974 Boe/d
• Mineral and royalty revenues totaling $28.4 million
  • Down 14% sequentially from Q4 2019 due to a 20% reduction in realized pricing
  • Up 61% from Q1 2019 due to 93% increase in production volumes
• Net income totaling $8.8 million
• Adjusted EBITDA⁽¹⁾ totaling $25.1 million
  • Down 6% sequentially from Q4 2019 and up 82% from Q1 2019
  • Lease bonus totaling $3.9 million driven by Permian Basin activity
  • Adjusted EBITDA ex Lease Bonus⁽¹⁾ totaling$21.2 million down 19% sequentially from Q4 2019 due to pricing
• Declared Q1 2020 dividend of $0.37 per share of Class A common stock
  • Roughly flat sequentially despite 20% reduction in realized pricing from Q4 2019
• Closed 36 transactions acquiring 1,625 net royalty acres deploying $25.4 million in mineral acquisition capital
  • Reduced mineral acquisition capital by approximately 50% from our average quarterly acquisition rate in response to rapidly changing market volatility and effects of the COVID-19 pandemic and desire to maintain liquidity
  • Anticipate deploying mineral acquisition capital later this year in lower cost environment dependent upon mineral sellers adjusting pricing expectations
  • Deployed 91% of capital to Permian Basin increasing position by 1,275 net royalty acres, or 4% sequentially from Q4 2019
• 882 gross (5.7 net) drilled but uncompleted locations (“DUCs”) as of March 31, 2020
  • Converted 248 (28%) gross and 1.9 (33%) net DUCs during Q1 2020
  • Reloaded DUC inventory with 209 gross and 1.6 net organic DUCs, up 16% from 2019 average of 1.4
• $31 million cash balance and undrawn revolver capacity of $180 million as of March 31, 2020
  • Approximately $211 million of liquidity as of March 31, 2020

2020 Guidance Withdrawal

• Given that the uncertainty and lower price commodity environment created by both the COVID-19 pandemic and the Saudi Arabia / Russia oil production dispute have caused a lack of clarity regarding operators’ drilling and completion plans as well as potential production curtailments and well shut-ins, the Company is withdrawing its previously provided 2020 Operational and Financial Guidance

Recent Developments

• Associated with the Company's late-May redetermination of the borrowing base under its revolving credit facility, the Administrative Agent has indicated a preliminary recommended borrowing base of $135M

• Anticipate achieving general & administrative cash cost savings of $550K, or 15%, per quarter for the remainder of 2020 beginning in Q2
  • Have renegotiated rates with service providers and implemented other cost savings initiatives

Ben M. (“Bud”) Brigham, Executive Chairman, commented, “First and foremost, our thoughts and prayers go out to all of those impacted worldwide by COVID-19. While these are extremely challenging times for our Country, I believe we can and will overcome the difficulties facing us quickly and safely given the ingenuity of the American people, and reopen businesses to keep the American people working and employed. The United States energy industry is also facing unprecedented challenges from both the COVID-19 pandemic and the fallout from the Saudi Arabia / Russia production disagreement. However, the cyclicality of the commodity markets is not new to our management team after having weathered both the 2008/2009 financial crisis and the oil market downturn in 2015/2016. I personally believe we are better positioned to survive and thrive during today’s tough market conditions as a result of our cash on hand and no debt, which will allow us to opportunistically consolidate minerals on a very attractive basis at a time when almost all other mineral buyers are idle. Additionally, as we’ve mentioned numerous times, we are not burdened by incremental development capital and do not incur ongoing lease operating expenses. Finally, our focus on the lowest cost and highest rate-of-return resource controlled by a diverse set of high-quality operators has never been more important and should position us for success.”

Robert M. (“Rob”) Roosa, Chief Executive Officer, commented, “Our portfolio continued to perform exceptionally well during the first quarter with production up sequentially 8% to 10,401 boe/d. Our Permian Basin assets continued to drive growth with an 18% sequential increase in volumes to roughly 6,000 boe/d. Another strong quarter of approximately 30% DUC conversions drove our production growth, which was balanced with the continued reloading of our DUC inventory as operators deployed rigs and capital to our minerals position. Given the rapid deterioration in markets that occurred in March, we proactively preserved liquidity by significantly reducing mineral acquisitions. During the first quarter, we closed just $25.4 million in mineral acquisitions, which represents only 50% of our typical quarterly acquisition run-rate and have thus far not executed a purchase agreement in the second quarter. Given the energy industry challenges ahead of us in the second quarter and potentially longer, we believe it to be extremely prudent to remain patient and disciplined on the acquisition front and we are tightening our underwriting criteria and are going to be extremely judicious in deploying capital. We believe there will be consolidation opportunities through the remainder of 2020 and we have the liquidity in place to execute accretive transactions.”

Blake C. Williams, Chief Financial Officer, added, “As a result of strong sequential production growth and the optionality of our portfolio via lease bonuses, we are pleased to announce a dividend of $0.37 per share, which is roughly flat with our Q4 2019 dividend of $0.38 per share despite the 20% reduction in realized prices during the quarter. Our assets, when paired with our well capitalized balance sheet, put us in a position of strength where we can not only capture value for shareholders through acquisitions but also return capital to them during these challenging times. Looking ahead to the remainder of 2020, the challenging macroeconomic environment and the associated impact to the crude oil supply / demand balance has and will place pressure on crude pricing and production and therefore our future revenues, operating cash flows, and our dividends. As we continue to pursue consolidation opportunities during the remainder of the year, we will prudently deploy capital by targeting a net debt to Adjusted EBITDA(1) ratio at or below 1.5 to 2.0 times.”

Ops Update

Mineral and Royalty Interest Ownership Update

During the first quarter 2020, the Company closed 36 transactions acquiring 1,625 net royalty acres (standardized to a 1/8th royalty interest) deploying $25.4 million in capital to the Permian, SCOOP and Williston Basins. The acquired minerals include 29 gross DUCs (0.1 net DUCs) and 21 gross permits (0.1 net permits). As of March 31, 2020, the Company had acquired roughly 83,275 net royalty acres, across 39 counties in what the Company views as the cores of the Permian Basin in West Texas and New Mexico, the SCOOP/STACK plays in the Anadarko Basin of Oklahoma, the Denver-Julesburg (“DJ”) Basin in Colorado and Wyoming and the Williston Basin in North Dakota.

The table below summarizes the Company’s mineral and royalty interest ownership at the dates indicated.

DUC Conversions Updates

The Company saw significant conversion of its DUC inventory during the first quarter with approximately 248 gross (1.9 net) horizontal wells converted to production, which represented 28% of its gross DUC inventory (33% of net DUCs) as of fourth quarter 2019. First quarter conversions of gross and net wells by status are summarized in the table below:

Drilling Activity Update

During the first quarter 2020, the Company identified 209 gross (1.6 net) wells spud on its mineral position. In 2019 and 2018, respectively, the Company averaged 219 gross (1.4 net) and 135 gross (1.0 net) wells spud per quarter. Brigham’s gross and net wells spud activity over the past nine quarters is summarized in the table below:

DUC and Permit Inventory Update

Given the aforementioned challenges facing the global crude market, the near-term conversion of wells from DUC or permits to proved developed producing may be delayed or deferred relative to historic conversion rates. Brigham’s gross and net DUC and permit inventory as of March 31, 2020 by basin is outlined in the table below:

(1) Individual amounts may not add to totals due to rounding.

Financials

For the three months ended March 31, 2020, crude oil, natural gas and NGL production volumes, increased 93% to 10,401 Boe/d as compared to the same prior year period, due to 156% increase in Permian Basin volumes and a 58% increase in Anadarko Basin volumes.

The first quarter 2020 average realized prices were $45.61 per barrel of oil, $1.76 per Mcf of natural gas, and $12.07 per barrel of NGL, for a total equivalent price of $29.98 per Boe. This represents a 20% decrease relative to fourth quarter 2019 and is 17% lower than year-ago levels of $36.31 per Boe.

The Company’s net income was $8.8 million for the three months ended March 31, 2020, net of $1.9 million of non-cash share-based compensation expense. Adjusted EBITDA was $25.1 million for the three months ended March 31, 2020, up 82% relative to the same prior-year period. Adjusted EBITDA ex lease bonus was $21.2 million for the three months ended March 31, 2020, up 61% from the prior year. Adjusted EBITDA and Adjusted EBITDA ex lease bonus are non-GAAP financial measures. For a definition of Adjusted EBITDA and Adjusted EBITDA ex lease bonus and a reconciliation to our most directly comparable measure calculated and presented in accordance with GAAP, please read "Non-GAAP Financial Measures” below.

As of March 31, 2020, the Company had a cash balance of $31.0 million and $180.0 million of capacity under its revolving credit facility, providing the Company with total liquidity of $211.0 million. Associated with the Company's borrowing base redetermination that is expected to be finalized in late May 2020, the Administrative Agent has indicated a recommended reduction to $135 million. Pro forma for the reduction in the borrowing base, the Company would have had total liquidity of $166.0 million as of March 31, 2020.