Drilling & Completions | Quarterly / Earnings Reports | Second Quarter (2Q) Update | Financial Results | Capital Markets | Drilled Uncomplete (DUC)

Brigham Minerals Second Quarter 2020 Results

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   |    Wednesday,August 12,2020

Brigham Minerals, Inc. announced operating and financial results for the quarter ended June 30, 2020.

Q2 Highlights

• Daily production volumes of 8,854 Boe/d (71% liquids, 50% oil)
  • Production volumes up 31% from Q2 2019 with Permian production volumes up 73% from Q2 2019
  • Production volumes down 15% sequentially, largely driven by roughly 700 Boe/d of Q2 2020 production curtailments by our operators in response to the price collapse from COVID-19 demand destruction, which based on operator disclosures, we expect much of it to return on line in Q3 2020

• Mineral and royalty revenues totaling $12.5 million
  • Revenue down 46% from Q2 2019 driven by 58% lower realized pricing
  • Revenue down 56% sequentially from Q1 2020 primarily driven by 48% lower realized pricing
• Net loss totaling $6.8 million
  • Adjusted EBITDA⁽¹⁾ totaling $5.9 million
• Declared Q2 2020 dividend of $0.14 per share of Class A common stock
  • Payout of 100% of Q2 2020 discretionary cash flow⁽¹⁾
• Acquired 300 net royalty acres deploying $2.3 million in mineral acquisition capital
  • Acquisition costs totaling $4.3 million per net location, representing a 37% decrease vs Q1 2020
  • Remaining highly disciplined with acquisitions given volatile market conditions
• 705 gross (4.6 net) drilled but uncompleted locations (“DUCs”) as of June 30, 2020
  • Converted 222 (25%) gross and 1.2 (21%) net DUCs during Q2 2020
  • Approximately 60% of June 30, 2020 net DUC inventory located in Permian Basin
  • Anticipate majority of DUCs to be completed by ExxonMobil, Chevron Corporation, Royal Dutch Shell, Continental Resources, Crestone Peak and PDC Energy
• Subsequent to completion of Chevron Corporation and Noble Energy, Inc. merger, anticipate 8% of organic undeveloped inventory to be operated by Chevron in the Delaware and DJ Basins
  • Permian Basin and DJ Basin to comprise 6% and 2%, respectively, of undeveloped inventory
• $16.5 million cash balance and undrawn revolver capacity of $135 million as of June 30, 2020
  • Approximately $151 million of liquidity

Ben M. (“Bud”) Brigham, Executive Chairman, commented, “The unprecedented challenges posed by COVID-19 and the OPEC + production disagreement in March significantly impacted the energy markets during the second quarter thereby reducing our realized pricing as well as forcing some of our operators to curtail production. As a result, we saw lower levels of discretionary cash flow⁽¹⁾ in the second quarter, however, as we previously committed to our shareholders we are distributing 100% of our discretionary cash flow⁽¹⁾ given our cash on hand and undrawn revolver capacity. Further, our portfolio has been carefully constructed by our team of geologists and reservoir engineers to acquire in the core geologic areas within liquids rich resource plays and importantly the optionality associated with our approach has played out yet again with Chevron Corporation's announced acquisition of Noble Energy. With roughly 8% of our undeveloped locations soon to be under Chevron control, we believe those locations will be developed more efficiently by Chevron given their extremely well-capitalized balance sheet and proven track record of consistent rig deployment throughout commodity cycles.”

Robert M. (“Rob”) Roosa, Chief Executive Officer, commented, “Challenging macro conditions in the energy space drove record low rig counts and a substantial decline in frac crews during the second quarter. Although the challenging conditions resulted in a sequential decline in our second quarter production, our data indicates that approximately one-third of our DUCs in inventory at the end of the second quarter have been treated and can potentially be rapidly turned in line to production during the second half of 2020. Given both our treated DUCs and operator commentary indicating curtailed volumes will largely be back on line beginning in the third quarter, we believe our production volumes will stabilize and average in excess of 9,000 Boe/d in the second half of 2020. Further, our permitting inventory remains strong due to continued strength in new Permian activity that will provide the basis for future production. Finally, our technical teams are excited by the recent significant deal flow that has transpired, which points to a potential thawing of the acquisition markets and the opportunity to jump start our ground game acquisitions during the remainder of 2020 at lower pricing levels. Thus far in the third quarter, we've closed or have under contract $15 million of mineral acquisitions, 90% of which are located in the Permian Basin and approximately two-thirds of the total is located in Loving County. We continue to believe that our ample liquidity will allow us to achieve differentiated mineral acquisition performance in the second half of the year.”

Blake C. Williams, Chief Financial Officer, added, “Our financial results reflect the challenging environment we faced with benchmark and realized pricing down significantly and many of our operators curtailing some of our production volumes for the majority of the second quarter. Despite these issues, our strong balance sheet allowed us to avoid industry wide leverage issues, avoid putting on hedges as a reaction to declining prices, and therefore we are currently poised to fully benefit from a stabilization and eventual recovery of the crude markets. In terms of general & administrative costs, excluding the impacts of approximately $0.7 million in secondary offering and other annual costs, we were able to achieve reductions in run-rate cash costs during the second quarter in line with our previously announced initiatives.”

Ops Update

Mineral and Royalty Interest Ownership Update

Due to the ongoing COVID-19 pandemic and crude market volatility, the Company was focused on preserving balance sheet flexibility and liquidity during the second quarter 2020. During the quarter, the Company closed seven transactions acquiring 300 net royalty acres (standardized to a 1/8th royalty interest) deploying $2.3 million in capital primarily to the Midland Basin. As of June 30, 2020, the Company had acquired roughly 83,575 net royalty acres, encompassing 12,907 gross (113.2 net) undeveloped horizontal locations, 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 approximately 222 gross (1.2 net) DUCs converted to production during the second quarter, which represented 25% of its gross DUC inventory (21% of net DUCs) at the end of the first quarter of 2020. Second quarter conversions of gross and net wells by status are summarized in the table below:

Drilling Activity Update

During the second quarter 2020, the Company identified 36 gross (0.2 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 ten quarters is summarized in the table below:

DUC and Permit Inventory Update

Given the aforementioned challenges facing the global crude market and our operators, the near-term conversion of wells from DUCs or permits to proved developed producing was delayed and may continue to be delayed or deferred relative to historic conversion rates. Brigham’s gross and net DUC and permit inventory as of June 30, 2020 by basin is outlined in the table below:

Financials

For the three months ended June 30, 2020, crude oil, natural gas and NGL production volumes, increased 31% to 8,854 Boe/d as compared to the same prior year period, due to a 73% increase in Permian Basin volumes and a 12% increase in Anadarko Basin volumes.

Second quarter 2020 average realized prices were $24.15 per barrel of oil, $1.11 per Mcf of natural gas, and $7.28 per barrel of NGL, for a total equivalent price of $15.57 per Boe. This represents a 48% decrease relative to first quarter 2020 and is 58% lower than year-ago levels of $37.42 per Boe.

The Company’s net loss was $6.8 million for the three months ended June 30, 2020, inclusive of $1.9 million of non-cash share-based compensation expense. Adjusted EBITDA was $5.9 million for the three months ended June 30, 2020, down 68% relative to the same prior-year period. Adjusted EBITDA ex lease bonus was $5.8 million for the three months ended June 30, 2020, down 65% 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 June 30, 2020, the Company had a cash balance of $16.5 million and $135.0 million of capacity under its revolving credit facility, providing the Company with total liquidity of $151.5 million. During the three months ended June 30, 2020, $0.3 million of debt issuance costs were written off as a result of the reduction in the revolving credit facility's borrowing base from $180 million to $135 million in conjunction with the May redetermination.