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Falcon Minerals Second Quarter 2020 Results

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   |    Wednesday,August 05,2020

Falcon Minerals Corp. reported its Q2 2020 results.

Highlights:

• Net production of 4,450 barrels of oil equivalent per day (“boe/d”) for the second quarter 2020 (51% oil); production during the quarter was shut-in/curtailed by ~25% during May and June
• Net debt decreased to $38.8 million; 10% reduction in borrowings on Falcon’s revolving credit facility quarter over quarter; net debt/LTM EBITDA ratio of 1.12x⁽²⁾⁽³⁾
• Crude hedging program established in June 2020 for third quarter 2020 through first quarter 2021 at approximately $40 per barrel
• Cash G&A expense decreased to $1.7 million in the second quarter 2020; represents a ~25% decrease compared to the first quarter 2020
• 20 gross, 0.12 net wells were turned in line during the second quarter 2020
• 212 gross line of sight wells (2.52 net wells) permitted and in active development as of August 3, 2020; 2.52 net line of sight wells includes 1.62 net wells in active development
• Averaged three rigs running on Falcon’s Eagle Ford position during the second quarter 2020
• Second quarter 2020 net loss of $1.3 million⁽¹⁾, or $0.01 per Class A share
• Adjusted EBITDA of $3.4 million for the second quarter 2020⁽²⁾
• Second quarter 2020 Pro-forma Free Cash Flow of $0.033 per share⁽²⁾
• Second quarter dividend declared of $0.03 per share; dividend represents a 20% increase from first quarter 2020. Increased payout ratio of Pro-forma Free Cash Flow from 23% in the first quarter 2020 to 91% in the second quarter 2020
• Dividend will be paid on September 8, 2020 to all shareholders of record on August 25, 2020

Daniel Herz, President and Chief Executive Officer of Falcon Minerals commented, “We believe that our current stock price meaningfully undervalues our business. Falcon has successfully been able to cut cash G&A costs by 25% quarter over quarter, strengthen its balance sheet by reducing the borrowings under its credit facility from $45.3 million in the first quarter 2020 to $40.6 million in the second quarter 2020, and increase the dividend by 20% quarter over quarter.” Mr. Herz also noted, “Falcon’s ability to increase its quarterly dividend, cut costs, and reduce net debt to below $39 million demonstrates the strength of our business model and is a good reminder that Falcon is uniquely positioned to generate—and return—free cash flow, even in the midst of a turbulent market. Looking forward, the business is well positioned for stability and growth given our hedge profile, anticipated volumes coming back online from curtailed wells, and robust line of sight.” Mr. Herz went on to say that “Given the current depressed stock price, management and the Board of Directors are evaluating all options to increase value to equity holders over the short, medium, and long-term.”

Financial Update

Falcon realized prices of $22.03 per barrel (“bbl”) for crude oil, $1.71 per thousand cubic feet (“mcf”) for natural gas and $5.44/bbl for natural gas liquids (“NGL”) during the in the second quarter 2020.

Falcon reported a net loss of $1.3 million, or $0.01 per Class A common share, for the second quarter 2020, which includes amounts attributable to non-controlling interests. Falcon generated royalty revenue of $6.3 million (approximately 72% oil) for the second quarter 2020. The Company reported Adjusted EBITDA (a non-GAAP measure as defined and reconciled on pages 6-7) of $3.4 million for the second quarter 2020.

Total cash operating costs for the second quarter 2020 were $3.0 million, a $0.6 million decrease compared to the first quarter 2020. General and administrative expense for the second quarter 2020, excluding non-cash stock-based compensation expense, was approximately $1.7 million, which represents a 25% decrease when compared to $2.3 million for the first quarter 2020.

As of June 30, 2020, the Company had $40.6 million of borrowings on its revolving credit facility, and $1.8 million of cash on hand, resulting in a net debt of approximately $38.8 million at the end of quarter. Falcon’s net debt / LTM EBITDA ratio was 1.12x at June 30, 2020

Dividend

Falcon’s Board of Directors declared a dividend of $0.03 per Class A share for the second quarter 2020. During the second quarter 2020, the Company generated Pro-forma Free Cash Flow per share of $0.03⁽⁵⁾ (as described and reconciled on page 6-7). The dividend for the second quarter 2020 will be paid on September 8, 2020 to all Class A shareholders of record on August 25, 2020. The second quarter 2020 dividend does not have any effect on the current $11.34 exercise price of the Company’s outstanding warrants.

Ops Results

Falcon’s production averaged 4,450 boe/d during the second quarter 2020, of which approximately 51% was oil. Eagle Ford production was approximately 56% oil during the second quarter 2020. Falcon had 20 gross wells turned in line (0.12 net wells) with an average net royalty interest (“NRI”) of approximately 0.61% during the second quarter 2020. This compares to 63 gross wells turned in line (1.45 net wells) during the first quarter of 2020.

Falcon currently has 2,021 producing Eagle Ford wells, and the Company’s average NRI for all producing wells is approximately 1.29%.

As of August 3, 2020, the Company had 212 line of sight wells (2.52 net wells) with an average NRI of 1.19% 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 August 3, 2020)