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

Falcon Minerals First Quarter 2020 Results

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   |    Thursday,May 07,2020

Falcon Minerals Corp. reported its Q1 2020 results.

Highlights

• Net production of 5,152 barrels of oil equivalent per day (“boe/d”) for the first quarter 2020 (54% oil). Represents a 28% increase when compared to the fourth quarter of 2019
• 1.43 net, 61 gross wells were turned in line during the first quarter 2020
• Four Hooks Ranch wells were turned in line on February 7, 2020
• Aggressive cost cutting beginning March 12, 2020 inclusive of approximately 50% reduction in cash compensation for CEO for full year 2020 and meaningful reductions to Board of Directors compensation expenses
• Updating full year 2020 cash G&A guidance to $7.25 million to $7.75 million. Represents an approximately 20% reduction from full year 2019
• 193 gross line of sight wells (2.41 net wells) permitted and in active development as of April 29, 2020
• 2.41 net line of sight wells includes 1.7 net wells in active development
• Averaged seven rigs running on Falcon’s Eagle Ford position in the first quarter 2020 (currently four rigs running on position)
• First quarter 2020 Net Income of $4.5 million⁽¹⁾, or $0.05 per Class A share
• Adjusted EBITDA of $10.1 million for the first quarter 2020⁽²⁾
• First quarter 2020 Free Cash Flow of $0.11 per share⁽²⁾
• First quarter dividend declared of $0.025 per share, approximately a 23% payout ratio, will be paid on June 8, 2020 to all shareholders of record on May 25, 2020

Daniel Herz, President and Chief Executive Officer of Falcon commented, “While we are pleased with the performance of Falcon’s business in the first quarter, as we saw both production and net wells turned in line grow materially, we are wholly focused on the future.” Mr. Herz went on to say “As we consider the global economic toll resulting from the COVID-19 pandemic, the associated impact to the United States oil markets, and the curtailments that have already been announced, we have elected to be exceedingly cautious with our use of our free cash flow. Today, Falcon declared a dividend of $0.025 per Class A share which represents approximately 23% of our free cash flow for the first quarter 2020. The Board will consider the appropriate payout ratio on a quarter by quarter basis.” Mr. Herz continued saying “Falcon’s business model was designed to weather storms and the benefits of that design are showing today. Falcon continues to have modest leverage, a world class asset base, low costs and it is well positioned to perform in the midst of the current environment and thrive on the other side of it.”

Financial Update

Falcon realized prices of $43.10 per barrel (“bbl”) for crude oil, $1.94 per thousand cubic feet (“mcf”) for natural gas and $14.05/bbl for natural gas liquids (“NGL”) during the in the first quarter 2020.

Falcon reported Net Income of $4.5 million, or $0.05 per Class A common share, for the first quarter 2020, which includes amounts attributable to non-controlling interests. Falcon generated revenue of $13.6 million (approximately 80% oil) for the first quarter 2020. The Company reported Adjusted EBITDA (a non-GAAP measure as defined and reconciled on pages 7-8) of $10.1 million for the first quarter 2020.

Total cash operating costs for the first quarter 2020 were $3.6 million. General and administrative expense for the first quarter 2020, excluding non-cash stock-based compensation expense, was approximately $2.3 million, compared to $2.5 million for the fourth quarter 2019. This first quarter is inclusive of year end audit costs and does not include the full benefit of cost cutting measure put in place in March 2020.

As of March 31, 2020, the Company had $45.3 million of borrowings on its revolving credit facility, and $2.2 million of cash on hand, resulting in a net debt of approximately $43.1 million at the end of quarter. Falcon’s Net Debt / LTM EBITDA ratio was 0.95x at March 31, 2020.⁽³⁾ Effective May 1, 2020, in connection with the Company’s spring redetermination, the borrowing base decreased from $90 million to $70 million.

⁽³⁾ Calculated by dividing the sum of total debt outstanding less cash on hand as of March 31, 2020 by Adjusted EBITDA for the trailing 12-month period, as per Falcon’s credit agreement dated August 23, 2018, as amended from time to time.

First Quarter 2020 Dividend

Falcon’s Board of Directors declared a dividend of $0.025 per Class A share for the first quarter 2020. During the first quarter 2020, the Company generated pro-forma free cash flow per share of $0.11⁽⁴⁾ (as described and reconciled on page 7-8). The dividend for the first quarter 2020 will be paid on June 8, 2020 to all Class A shareholders of record on May 25, 2020. The first quarter 2020 dividend does not have any effect on the current $11.34 exercise price of the Company’s outstanding warrants.

⁽⁴⁾ 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 (RSAs) which receive dividend equivalent rights (“DER”) on a quarterly basis

Operational Results

Falcon’s production averaged 5,152 boe/dduring the first quarter 2020, of which approximately 54% was oil. Eagle Ford production was approximately 60% oil during the first quarter 2020. Falcon had 61 gross wells turned in line (1.43 net wells) with an average NRI of approximately 2.35% during the first quarter 2020. This compares to 73 gross wells turned in line (0.59 net wells) during the fourth quarter of 2019.

Falcon currently has 2,011 producing Eagle Ford wells, and the Company’s average NRI for all producing wells is approximately 1.31%.

As of April 29, 2020, the Company had 193 line of sight wells (2.41 net wells) with an average NRI of 1.25% 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 April 29, 2020)

During the three months ended March 31, 2020, Falcon acquired approximately 49 net royalty acres through two transactions in the Eagle Ford Shale for a total cost of approximately $2.1 million. The transactions were funded using cash on hand and availability on the Company’s revolving credit facility.

Full Year Guidance

Given the ongoing uncertainty, continued market volatility, and production curtailments expected over the coming months, Falcon’s original 2020 guidance should not be relied upon. Further guidance has been temporarily suspended. During this suspension, the company may provide periodic updates, as appropriate.

Falcon is updating the Company’s full year 2020 cash G&A guidance to $7.25 million to $7.75 million.