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Falcon Minerals Fourth Quarter, Full Year 2020 Results

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   |    Thursday,March 04,2021

Falcon Minerals Corp. reported its Q4/full year 2020 results.

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%

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)

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.

Operational Results

Falcon's production averaged 4,196 boe/dduring 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/dduring 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:


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