8-K

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 8-K

 

 

CURRENT REPORT

Pursuant to Section 13 or Section 15(d)

of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): November 7, 2019

 

 

FALCON MINERALS CORPORATION

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   001-38158   82-0820780

(State or other jurisdiction

of incorporation or organization)

 

(Commission

File Number)

 

(I.R.S. Employer

Identification Number)

 

510 Madison Avenue, 8th Floor, New York, NY   10022
(Address of principal executive offices)   (Zip Code)

Registrant’s telephone number, including area code: (212) 506-5925

Not Applicable

(Former name or former address, if changed since last report)

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation to the registrant under any of the following provisions:

 

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange

on which registered

Class A Common Stock, par value $0.0001 per share   FLMN   Nasdaq Capital Market
Warrants, each to purchase one share of Class A Common Stock   FLMNW   Nasdaq Capital Market

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company  ☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

 

 

 


Item 2.02. Results of Operations and Financial Condition.

On November 7, 2019, Falcon Minerals Corporation (the “Company”) issued a press release regarding its financial results for the third quarter 2019. A copy of the press release is furnished as Exhibit 99.1 to this Current Report and is incorporated by reference herein. The information in this Current Report, including Exhibit 99.1, is being furnished and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that Section. The information in this Current Report shall not be incorporated by reference into any registration statement or other document pursuant to the Securities Act of 1933, as amended.

Item 9.01. Financial Statements and Exhibits.

(d) Exhibits

 

Exhibit No.

  

Description of Exhibit

99.1    Press release


SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Dated: November 7, 2019

 

FALCON MINERALS CORPORATION
By:  

/s/ Bryan C. Gunderson

Name:   Bryan C. Gunderson
Title:   Chief Financial Officer
EX-99.1

Exhibit 99.1

 

LOGO

FALCON MINERALS CORPORATION REPORTS THIRD QUARTER 2019 FINANCIAL RESULTS AND DECLARES QUARTERLY DIVIDEND

NEW YORK, NY – November 7, 2019 Falcon Minerals Corporation (“Falcon,” or the “Company,” “we,” “our,”) (NASDAQ: FLMN, FLMNW), a leading oil and gas minerals company, today announced financial and operating results as well as the dividend for the third quarter ended September 30, 2019.

Highlights

 

   

207 line of sight wells (2.82 net wells) currently in active development, an increase of 16% from the second quarter 2019

 

   

118 wells waiting on completion (1.69 net wells)

 

   

32 wells waiting on connection (0.36 net wells)

 

   

Four Hooks Ranch wells drilled to total depth during October, in which Falcon has a 22.5% net revenue interest (“NRI”), are waiting to be completed and are expected to be turned in line in the first quarter 2020 (1)

 

   

Averaged seven rigs running on Falcon’s Eagle Ford position in the third quarter 2019

 

   

Net production of 4,825 barrels of oil equivalent per day (“boe/d”) during the third quarter 2019 (Eagle Ford production was 56% oil; approximately 50% oil in total)

 

   

Third quarter 2019 Net Income of $6.4 million (2), or $0.06 per Class A share

 

   

Adjusted EBITDA of $12.3 million for the third quarter 2019 (3)

 

   

Third quarter 2019 dividend of $0.135 per share, which represents a last twelve month yield of 10.5% based upon Falcon’s closing share price on November 6, 2019; the third quarter dividend will be paid on December 3, 2019 to all shareholders of record on November 20, 2019

 

   

Third quarter 2019 Net Debt / LTM EBITDA ratio of 0.55x; credit facility was $38.0 million drawn at the end of the period

 

   

Establishing average production guidance for Q4 2019 / Q1 2020 of 5,000 – 5,500 boe/d (50% – 55% oil)

 

(1)

The four recently drilled Hooks Ranch wells will extend the laterals from the Hooks Ranch positions into an adjacent leasehold property where Falcon has a 3.65% NRI. The net NRI contribution from the four wells will be approximately 14.2%

(2)

Net Income shown includes amounts attributable to non-controlling interests

(3)

Please refer to the disclosure on pages 8-9 for the Reconciliation of Net Income to Non-GAAP Measures

Daniel Herz, President and Chief Executive Officer of Falcon commented, “Falcon continues to benefit from world class operators’ steady development of our high margin assets in the core of the Eagle Ford Shale. Our line of sight net wells have increased quarter over quarter, which should drive meaningful growth well into 2020, as our top operators continue to execute on their multi-year development plans. With 2.82 net wells in our line of sight, up from 2.44 net wells last quarter, we continue to see substantial organic growth on the horizon.” Mr. Herz continued, “With the stability of our base business, upcoming growth, and the shifting landscape within energy, we chose to be even more stringent with our acquisition parameters. As such, we completed three acquisitions over the third quarter totaling $0.9 million in total purchase price. Following these acquisitions, we have maintained a pristine balance sheet with only $38.0 million drawn on our revolver. We look forward to continuing to reliably deliver free cash flow to our shareholders quarter after quarter.”

 

1


Financial Update

Falcon’s net realized price for crude oil was $60.02 per barrel (“bbl”) in the third quarter 2019 compared to $63.84 in second quarter 2019. Falcon’s net oil realization was approximately $4.00/bbl above the average WTI price for the third quarter 2019, consistent with the differential realized in the second quarter 2019. The Company’s realized price for natural gas during the third quarter 2019 was $2.15 per thousand cubic feet (“mcf”) and $10.57/bbl for natural gas liquids.

On a GAAP basis, Falcon reported Net Income of $6.4 million, or $0.06 per Class A common share, for the third quarter 2019. Falcon generated revenue of $15.9 million (approximately 83% oil) for the third quarter 2019. The Company reported Adjusted EBITDA (a non-GAAP measure as defined and reconciled on pages 8-9) of $12.3 million for the third quarter 2019.

Total cash operating costs for the third quarter 2019 were $8.28 per barrel of oil equivalent (“boe”), compared to $8.61/boe for the second quarter 2019.

General and administrative expense for the third quarter 2019, excluding non-cash stock-based compensation expense, was approximately $2.2 million, compared to $2.3 million for the second quarter 2019. The decrease from the prior quarter was due primarily to certain non-recurring startup related expenses incurred in the second quarter.

As of September 30, 2019, the Company had $38.0 million of borrowings on its revolving credit facility, and $2.6 million of cash on hand, resulting in a net liquidity position of approximately $70 million at the end of quarter. Falcon’s net debt / LTM EBITDA ratio was 0.55x at September 30, 2019 (4).

 

(4)

Calculated by dividing the sum of total debt outstanding less cash on hand as of September 30, 2019 by Adjusted EBITDA for the trailing 12-month period, as per Falcon’s credit agreement dated August 23, 2018

Third Quarter 2019 Dividend

Falcon’s Board of Directors has declared Falcon’s dividend of $0.135 per Class A share for the third quarter 2019. During the third quarter 2019, the Company generated Pro-forma Free Cash Flow per share of $0.14 (5) (as described and reconciled on page 8-9). The dividend for the third quarter 2019 will be paid on December 3, 2019 to all Class A shareholders of record on November 20, 2019. As a result of this dividend, the exercise price of the Falcon warrants will be adjusted downward to $11.34 per warrant.

 

(5)

The pro-forma adjustments assume that the non-controlling interests are converted to Class A common shares, such that approximately 86.2 million Class A shares would be outstanding. The pro-forma Class A shares reflects the dilution from 297,000 unvested restricted stock awards (RSAs) which receive dividend equivalent rights (“DER”) on a quarterly basis

 

2


Operational Results

Falcon’s net production averaged 4,825 boe/d during the third quarter 2019, of which approximately 50% was oil. Eagle Ford production was approximately 56% oil during the third quarter. Falcon had 27 gross wells turned in line (0.14 net wells) with an average NRI of approximately 0.54% during the third quarter 2019. Falcon currently has 1,867 producing Eagle Ford wells, and the Company’s average NRI for all producing wells is approximately 1.33%.

Falcon continues to experience ongoing development from its leading operators on its oil-rich minerals positions in the Eagle Ford Shale. There are currently 207 line of sight wells (2.82 net wells) with an average NRI of 1.36% in various stages of development on its Eagle Ford minerals position. The 207 line of sight wells represent an increase of approximately 16% from the prior period. These wells are comprised of the following:

Line of Sight Wells

 

Stage of Activity

   Gross Wells      Net Wells      NRI %  

Permitted

     57        0.78        1.36

Waiting on completion

     118        1.69        1.43

Waiting on connection

     32        0.36        1.11
  

 

 

    

 

 

    

 

 

 

Total line of sight

     207        2.82        1.36

The line of sight wells include four wells on Falcon’s Hooks Ranch location that were recently drilled to total depth by ConocoPhillips, and in which the Company has a 22.5% NRI. The four recently drilled Hooks Ranch wells are expected to each have lateral lengths of approximately 10,000 feet, which will extend the laterals from the Hooks Ranch positions into an adjacent leasehold property where Falcon has a 3.65% NRI. As a result, Falcon expects that the net NRI contribution from the four wells will be approximately 14.2%. These four Hooks Ranch wells are expected to be turned in line in the first quarter 2020.

In the first nine months of 2019, Falcon has acquired approximately 130 net royalty acres through 20 transactions in the Eagle Ford Shale for a total cost of approximately $20.9 million. The transactions were funded using cash on hand and availability on the Company’s revolving credit facility.

 

3


Guidance Summary

The Company has provided forward six-month average guidance based upon expectations for producer activity on Falcon’s net royalty positions.

 

Q4 2019 – Q1 2020

   Guidance Range

Net production per barrel of oil equivalent per day (boe/d)

   5,000 – 5,500

% Oil of net production

   50% – 55%

Operating costs:

  

Production and ad valorem taxes (% of revenue)

   4.0% – 5.0%

Marketing and transportation ($/boe)

   $1.00 – $1.50

Cash general and administrative (6) ($mm)

   $4.5 – $5.0

Depletion expense (7) ($/boe)

   $6.50 – $7.50

 

(6)

General and administrative expense above represents guidance over the next six months and excludes non-cash stock-based compensation expense

(7)

The depletion expense forecast range above is shown on a GAAP basis

Upcoming Investor Conferences

The Company will be participating in several upcoming investor conferences. Falcon will be hosting investor meetings at each of the following events:

 

   

Wednesday, November 13, 2019: Stephens Investment Conference – The Omni Nashville Hotel, Nashville, TN

 

   

Thursday, December 12, 2019: Capital One Securities 14th Annual Energy Conference – Hotel Zaza, Houston, TX

Conference Call Details

Falcon management invites investors and interested parties to listen to the conference call to discuss third quarter 2019 results on Friday, November 8, 2019 at 9:00 am ET. Participants for the conference call should dial (866) 342-8591 (International: (203) 518-9713) and use the confirmation code FLMNQ319. The Falcon earnings call is also accessible via webcast on the company’s website on www.falconminerals.com in the Events page of the Investor Relations section. A replay of the call will be available starting at 12:00 pm ET on November 8, 2019. To access the replay, investors and interested parties can listen to the replay on www.falconminerals.com in the Events page of the Investor Relations section, or call (800) 839-2382 (International: (402) 220-7201).

About Falcon Minerals

Falcon Minerals Corporation (NASDAQ: FLMN, FLMNW) is a C-Corporation formed to own and acquire high growth oil-weighted minerals rights. Falcon Minerals owns mineral, royalty, and over-riding royalty interests covering approximately 256,000 gross unit acres in the Eagle Ford Shale and Austin Chalk in Karnes, DeWitt and Gonzales Counties in Texas. The Company also owns approximately 68,000 gross unit acres in the Marcellus Shale across Pennsylvania, Ohio and West Virginia. For more information, visit our website at www.falconminerals.com.

 

4


Cautionary Note Regarding Forward-Looking Statements

This document contains forward-looking statements that involve a number of assumptions, risks and uncertainties that could cause actual results to differ materially from those contained in the forward-looking statements. Falcon cautions readers that any forward-looking information is not a guarantee of future performance. Such forward-looking statements include, but are not limited to, statements about future financial and operating results, future dividends paid, resource and production potential, Falcon’s plans, objectives, expectations and intentions and other statements that are not historical facts. Risks, assumptions and uncertainties that could cause actual results to materially differ from the forward-looking statements include, but are not limited to, those associated with general economic and business conditions; Falcon’s ability to realize the anticipated benefits of its acquisitions; changes in commodity prices; uncertainties about estimates of reserves and resource potential; inability to obtain capital needed for operations; changes in government environmental policies and other environmental risks; the availability of drilling equipment and the timing of production in Falcon’s regions; tax consequences of business transactions; and other risks, assumptions and uncertainties detailed from time to time in Falcon’s reports filed with the U.S. Securities and Exchange Commission, including under the heading “Risk Factors” in Falcon’s most recent annual report on Form 10-K as well as any subsequently filed quarterly reports on Form 10-Q and current reports on Form 8-K. Forward-looking statements speak only as of the date hereof, and Falcon assumes no obligation to update such statements, except as may be required by applicable law.

 

5


FALCON MINERALS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

(Unaudited)

 

     Three Months Ended  
     September 30,  
     2019     2018  

Revenues:

    

Oil and gas sales

   $ 15,908     $ 23,825  

Loss on hedging activities

     —         458  
  

 

 

   

 

 

 

Total revenues

     15,908       24,283  
  

 

 

   

 

 

 

Expenses:

    

Production and ad valorem taxes

     891       1,326  

Marketing and transportation

     584       493  

Amortization of royalty interests in oil & gas properties

     3,184       4,494  

General, administrative and other

     3,168       1,132  
  

 

 

   

 

 

 

Total expenses

     7,827       7,445  
  

 

 

   

 

 

 

Operating income

     8,081       16,838  

Other income (expense):

    

Gain on the sale of assets

     —         —    

Other income

     58       38  

Interest expense

     (650     (557
  

 

 

   

 

 

 

Total other income (expense)

     (592     (519
  

 

 

   

 

 

 

Income before income taxes

     7,489       16,319  

Provision for income taxes

     1,132       810  
  

 

 

   

 

 

 

Income from continuing operations

     6,357       15,509  

Income from discontinued operations

     —         91  
  

 

 

   

 

 

 

Net income

     6,357       15,600  

Net income attributable to non-controlling interests

     (3,473     (2,933
  

 

 

   

 

 

 

Net income attributable to shareholders/unitholders

   $ 2,884     $ 12,667  
  

 

 

   

 

 

 

Class A common shares (basic and diluted)

   $ 0.06     $ 0.06 (1) 
  

 

 

   

 

 

 

 

(1)

Earnings per share for 2018 is calculated for the Company only for periods subsequent to the transactions with Royal Resources L.P. (the “Transactions”) due to the Transactions being accounted for as a reverse recapitalization

 

6


FALCON MINERALS CORPORATION

CONSOLIDATED BALANCE SHEETS

(In thousands)

(Unaudited)

 

     September 30,
2019
     December 31,
2018
 

ASSETS

     

Current assets:

     

Cash and cash equivalents

   $ 2,627      $ 7,317  

Accounts receivable

     8,029        11,271  

Prepaid expenses

     1,292        1,524  
  

 

 

    

 

 

 

Total current assets

     11,948        20,112  

Royalty interests in oil & gas properties, net of accumulated amortization

     220,446        209,168  

Property and equipment, net

     497        —    

Deferred tax asset, net

     56,470        58,773  

Other assets

     2,690        3,182  
  

 

 

    

 

 

 

Total assets

   $ 292,051      $ 291,235  
  

 

 

    

 

 

 

LIABILITIES AND SHAREHOLDER’S EQUITY

     

Current liabilities:

     

Accounts payable and accrued expenses

   $ 1,974      $ 521  

Credit facility

     38,000        21,000  

Other non-current liabilities

     476        —    
  

 

 

    

 

 

 

Total liabilities

     40,450        21,521  
  

 

 

    

 

 

 

Shareholder’s equity:

     

Class A common stock

     5        5  

Class C common stock

     4        4  

Additional paid in capital

     132,325        137,866  

Non-controlling interests

     119,267        127,029  

Retained earnings

     —          4,810  
  

 

 

    

 

 

 

Total shareholder’s equity

     251,601        269,714  
  

 

 

    

 

 

 

Total liabilities and shareholder’s equity

   $ 292,051      $ 291,235  
  

 

 

    

 

 

 

 

7


Reconciliation of Adjusted EBITDA and Pro-forma Free Cash Flow from Net Income (in thousands, except per share amounts):

 

     Three Months
Ended
September 30, 2019
     Fully Converted
Per Share Basis
Three Months
Ended

Sept. 30, 2019 (1)
 

Net Income

   $ 6,357      $ 0.07  

Interest expense (2)

     650        0.00  

Depletion and depreciation

     3,207        0.05  

Share-based compensation

     970        0.01  

Income taxes

     1,132        0.01  
  

 

 

    

 

 

 

Adjusted EBITDA

   $ 12,316      $ 0.14  

Interest expense (2)

     (650      (0.00
  

 

 

    

 

 

 

Pro-forma Free Cash Flow

   $ 11,666      $ 0.14  

 

(1)

Per share information is presented on a fully converted basis and includes both the 46.2 million Class A common shares (inclusive of 297,000 unvested restricted stock awards which receive DERs) and the 40.0 million Class C common shares that are outstanding as of September 30, 2019. As such, Net Income per fully converted share in this schedule is not comparable to earnings per share (EPS) of $0.06 for the period ended September 30, 2019 as shown on the Statement of Operations

(2)

Interest expense includes amortization of deferred financing costs

Calculation of cash available for dividends for the third quarter 2019 (in thousands):

 

     Three Months
Ended
 
     September 30,  
     2019  

Adjusted EBITDA

   $ 12,316  

Interest expense

     (650
  

 

 

 

Net cash available for distribution

     11,666  

Cash to be distributed to non-controlling interests

   $ 5,400  
  

 

 

 

Cash to be distributed to Falcon Minerals Corp.

   $ 6,203  
  

 

 

 

Dividends to be paid to Class A shareholders

   $ 6,203  
  

 

 

 

 

8


Non-GAAP Financial Measures

Adjusted EBITDA and Pro-forma Free Cash Flow are supplemental non-GAAP financial measures used by management and external users of our financial statements, such as industry analysts, investors, lenders and rating agencies. We believe Adjusted EBITDA and Pro-forma Free Cash Flow are useful because they allow us to evaluate our performance and compare the results of our operations period to period without regard to our financing methods or capital structure. In addition, management uses Adjusted EBITDA and Pro-forma Free Cash Flow to evaluate cash flow available to pay dividends to our common shareholders.

We define Adjusted EBITDA as Net Income plus interest expense, net, depletion expense, provision for income taxes and share-based compensation. We define Pro forma Free Cash Flow as Net Income plus depletion expense, provision for income taxes and share-based compensation less cash income taxes. Adjusted EBITDA and Pro-forma Free Cash Flow are not measures of Net Income as determined by GAAP. We exclude the items listed above from Net Income in calculating Adjusted EBITDA and Pro-forma Free Cash Flow because these amounts can vary substantially from company to company within our industry depending upon accounting methods and book values of assets, capital structures and the method by which the assets were acquired. Certain items excluded from Adjusted EBITDA and Pro-forma Free Cash Flow are significant components in understanding and assessing a company’s financial performance, such as a company’s cost of capital and tax structure, as well as historic costs of depreciable assets, none of which are components of Adjusted EBITDA and Pro-forma Free Cash Flow.

Adjusted EBITDA and Pro-forma Free Cash Flow should not be considered an alternative to, or more meaningful than, Net Income, royalty income, cash flow from operating activities or any other measure of financial performance presented in accordance with GAAP. Our computations of Adjusted EBITDA and Pro-forma Free Cash Flow may not be comparable to other similarly titled measures of other companies.

 

9


FALCON MINERALS CORPORATION

SELECTED OPERATING DATA

(Unaudited)

 

     Three Months Ended  
     September 30,  
     2019      2018 (1)  

Production Data:

     

Oil (bbls)

     220,537        258,665  

Natural gas (boe)

     133,749        187,640  

Natural gas liquids (bbls)

     89,652        68,134  
  

 

 

    

 

 

 

Combined volumes (boe)

     443,938        514,439  
  

 

 

    

 

 

 

Average daily combined volume (boe/d)

     4,825        5,592  

Average sales prices:

     

Oil (bbls)

   $ 60.02      $ 74.43  

Natural gas (mcf)

   $ 2.15      $ 3.03  

Natural gas liquids (bbls)

   $ 10.57      $ 28.73  

Combined per boe

   $ 35.84      $ 47.86  

Average costs ($/boe):

     

Production and ad valorem taxes

   $ 2.01      $ 2.58  

Marketing and transportation expense

   $ 1.32      $ 0.96  

Cash general and administrative expense

   $ 4.95      $ 2.20  

Interest expense, net

   $ 1.46      $ 1.08  

Depletion

   $ 7.17      $ 8.74  

 

(1)

The production data for Q3 2018 shown contains certain production that was not contributed to Falcon in the Royal Resources transaction in August 2018, including a portion of this non-acquired production that was sold in February 2018

Falcon Minerals Contacts:

Bryan C. Gunderson

Chief Financial Officer

bgunderson@falconminerals.com

Brian Begley

Investor Relations

bbegley@falconminerals.com

 

10