Falcon Minerals Corporation Reports Third Quarter Financial Results and Declares Quarterly Dividend
Highlights
- Net production of 4,471 barrels of oil equivalent per day (“boe/d”) for the third quarter 2020
- 237 gross line-of-sight wells (3.13 net wells) permitted and in active development as of
October 27, 2020 ; 3.13 net line-of-sight wells represents an increase of 24% compared to the prior quarter - Line-of-sight inclusive of 6 gross recently permitted
Hooks Ranch wells(1) - Averaged 2 rigs running on Falcon’s
Eagle Ford position during the third quarter 2020 - 12 gross, 0.03 net wells were turned in line during the third quarter 2020
- Third quarter 2020 net income of
$1.3 million (2), or$0.01 per Class A share - Adjusted EBITDA of
$6.5 million for the third quarter 2020(3) - Net debt decreased to
$36.5 million ; net debt / LTM EBITDA ratio of 1.27x(3)(4) - Third quarter 2020 Pro-forma Free Cash Flow of
$0.07 per share(3) - Third quarter 2020 dividend declared of
$0.065 per share; dividend represents a 117% increase from second quarter 2020. Dividend represents a payout ratio of 93% of Pro-forma Free Cash Flow in the third quarter 2020 - Dividend will be paid on
December 8, 2020 to all shareholders of record onNovember 24, 2020
(1) |
The 6 recently permitted |
|
(2) |
Net income shown above includes amounts attributable to non-controlling interests. |
|
(3) |
Please refer to the disclosure on pages 7-8 for a reconciliation of the identified non-GAAP measures to net income, the most comparable financial measure prepared in accordance with GAAP. |
|
(4) |
Calculated by dividing the sum of total debt outstanding less cash on hand as of |
“We continue to believe that our stock price is meaningfully disconnected from the true value of our business. Management and the Board of Directors are continuing to review methods to increase value to our equity holders. We have made progress in this review and will report to you on our conclusions when we have completed fully evaluating all alternatives to address that disconnect”
Financial Update
Falcon realized prices of
Falcon reported net income of
Total cash operating costs for the third quarter 2020 were
As of
(5) |
Calculated by dividing the sum of total debt outstanding less cash on hand as of |
Third Quarter 2020 Dividend
Falcon’s Board of Directors declared a dividend of
The Company expects that substantially all of its third quarter dividend will not constitute taxable dividend income and instead will result in a non-taxable reduction to the tax basis of the shareholders’ common stock. The reduced tax basis will increase a shareholders’ capital gain (or decrease shareholders’ capital loss) when shareholders’ sell their common stock. Furthermore, the Company expects that substantially all dividends paid to shareholders’ during 2020 will not be taxable dividend income.
(6) |
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 which receive dividend equivalent rights (“DER”) on a quarterly basis |
Operational Results
Falcon’s production averaged 4,471 boe/d during the third quarter 2020, of which approximately 48% was oil.
Falcon currently has 2,026 gross producing
As of
Stage of Activity | Gross Wells | NRI % | ||||
Permitted |
110 |
1.43 |
1.30% |
|||
Waiting on completion |
94 |
1.41 |
1.50% |
|||
Waiting on connection |
33 |
0.29 |
0.89% |
|||
Total line-of-sight |
237 |
3.13 |
1.32% |
Conference Call Details
Falcon management invites investors and interested parties to listen to the conference call to discuss third quarter 2020 results on
About
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 not to place any undue reliance on these forward-looking statements as 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, the tax treatment of dividends paid, Falcon’s plans, initiatives, 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; the COVID-19 pandemic and its impact on Falcon and on the oil and gas industry as a whole; 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; Falcon’s ability to meet financial covenants under its credit agreement or its ability to obtain amendments or waivers to effect such compliance; 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
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS | |||||||||||||||
(In thousands, except per share amounts) | |||||||||||||||
(Unaudited) | |||||||||||||||
Three Months Ended | Nine Months Ended | ||||||||||||||
|
2020 |
|
|
2019 |
|
|
2020 |
|
|
2019 |
|
||||
Revenues: | |||||||||||||||
Oil and gas sales |
$ |
9,942 |
|
$ |
15,908 |
|
$ |
29,848 |
|
$ |
55,411 |
|
|||
Gain (loss) on hedging activities |
|
(273 |
) |
|
- |
|
|
(463 |
) |
|
- |
|
|||
Total revenue |
|
9,669 |
|
|
15,908 |
|
|
29,385 |
|
|
55,411 |
|
|||
Expenses: | |||||||||||||||
Production and ad valorem taxes |
|
745 |
|
|
891 |
|
|
2,205 |
|
|
2,940 |
|
|||
Marketing and transportation |
|
562 |
|
|
584 |
|
|
1,567 |
|
|
1,933 |
|
|||
Amortization of royalty interests in oil & gas properties |
|
3,542 |
|
|
3,184 |
|
|
10,485 |
|
|
9,624 |
|
|||
General, administrative and other |
|
2,806 |
|
|
3,168 |
|
|
8,618 |
|
|
8,728 |
|
|||
Total expenses |
|
7,655 |
|
|
7,827 |
|
|
22,875 |
|
|
23,225 |
|
|||
Operating income |
|
2,014 |
|
|
8,081 |
|
|
6,510 |
|
|
32,186 |
|
|||
Other income (expense): | |||||||||||||||
Other income |
|
31 |
|
|
58 |
|
|
94 |
|
|
134 |
|
|||
Interest expense |
|
(490 |
) |
|
(650 |
) |
|
(1,706 |
) |
|
(1,838 |
) |
|||
Total other income (expense) |
|
(459 |
) |
|
(592 |
) |
|
(1,612 |
) |
|
(1,704 |
) |
|||
Income before income taxes |
|
1,555 |
|
|
7,489 |
|
|
4,898 |
|
|
30,482 |
|
|||
Provision for income taxes |
|
243 |
|
|
1,132 |
|
|
400 |
|
|
3,920 |
|
|||
Net income |
|
1,312 |
|
|
6,357 |
|
|
4,498 |
|
|
26,562 |
|
|||
Net income attributable to non-controlling interests |
|
(723 |
) |
|
(3,473 |
) |
|
(2,278 |
) |
|
(14,540 |
) |
|||
Net income attributable to shareholders |
$ |
589 |
|
$ |
2,884 |
|
$ |
2,220 |
|
$ |
12,022 |
|
|||
Class A common shares (basic and diluted) |
$ |
0.01 |
|
$ |
0.06 |
|
$ |
0.05 |
|
$ |
0.26 |
|
CONSOLIDATED BALANCE SHEETS | ||||||
(In thousands) | ||||||
(Unaudited) | ||||||
ASSETS |
|
2020 |
|
2019 |
||
Current assets: | ||||||
Cash and cash equivalents |
$ |
2,501 |
$ |
2,543 |
||
Accounts receivable |
|
4,676 |
|
7,889 |
||
Prepaid expenses |
|
1,035 |
|
1,182 |
||
Total current assets |
|
8,212 |
|
11,614 |
||
Royalty interests in oil & gas properties, net of accumulated amortization |
|
210,808 |
|
219,192 |
||
Property and equipment, net of accumulated depreciation |
|
453 |
|
517 |
||
Deferred tax asset, net |
|
55,962 |
|
56,352 |
||
Other assets |
|
3,357 |
|
2,530 |
||
Total assets |
$ |
278,792 |
$ |
290,205 |
||
LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||
Current liabilities: | ||||||
Accounts payable and accrued expenses |
$ |
2,162 |
$ |
2,206 |
||
Other current liabilities |
|
829 |
|
- |
||
Total current liabilities |
|
2,991 |
|
2,206 |
||
Credit facility |
|
39,000 |
|
42,500 |
||
Other non-current liabilities |
|
984 |
|
473 |
||
Total liabilities |
|
42,975 |
|
45,179 |
||
Shareholders' equity: | ||||||
Class A common stock |
|
5 |
|
5 |
||
Class C common stock |
|
4 |
|
4 |
||
Additional paid in capital |
|
125,239 |
|
129,127 |
||
Non-controlling interests |
|
110,569 |
|
115,890 |
||
Retained earnings |
|
- |
|
- |
||
Total shareholders' equity |
|
235,817 |
|
245,026 |
||
Total liabilities and shareholders' equity |
$ |
278,792 |
$ |
290,205 |
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 before interest expense, net, depletion expense, provision for income taxes, unrealized gains and losses on commodity derivative instruments and non-cash equity-based compensation. We define Pro-forma Free Cash Flow as net income before depletion expense, provision for income taxes, unrealized gains and losses on commodity derivative instruments and non-cash equity-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.
Reconciliation of Adjusted EBITDA and Pro-forma Free Cash Flow from Net Income (in thousands, except per share amounts): | |||||
Fully Converted | |||||
Three Months | Per Share Basis | ||||
Ended | Three Months Ended | ||||
Net income |
$ |
1,312 |
$ |
0.02 |
|
Interest expense (2) |
|
490 |
|
0.01 |
|
Depletion and depreciation |
|
3,568 |
|
0.04 |
|
Share-based compensation |
|
893 |
|
0.01 |
|
Unrealized loss on commodity derivatives |
|
34 |
|
- |
|
Income tax expense |
|
243 |
|
- |
|
Adjusted EBITDA |
$ |
6,540 |
$ |
0.08 |
|
Interest expense (2) |
|
(490) |
|
(0.01) |
|
Pro-forma Free Cash Flow |
$ |
6,050 |
$ |
0.07 |
(1) |
Per share information is presented on a fully converted basis and includes both the 46.6 million Class A common shares (inclusive of 0.5 million unvested restricted stock awards which receive DERs) and the 40.0 million Class C common shares that are outstanding as of |
|
(2) |
Interest expense includes amortization of deferred financing costs. |
Calculation of cash available for dividends for the third quarter 2020 (in thousands): | ||||
Three Months Ended | ||||
|
2020 |
|
||
Adjusted EBITDA |
$ |
6,540 |
|
|
Interest expense (2) |
|
(490 |
) |
|
Net cash available for distribution |
$ |
6,050 |
|
|
Cash to be distributed to non-controlling interests |
$ |
2,600 |
|
|
Cash to be distributed to |
$ |
2,996 |
|
|
Dividends to be paid to Class A shareholders |
$ |
2,996 |
|
(2) |
Interest expense includes amortization of deferred financing costs. |
SELECTED OPERATING DATA | |||||||||||
(Unaudited) | |||||||||||
Three Months Ended | Nine Months Ended | ||||||||||
|
2020 |
|
2019 |
|
2020 |
|
2019 |
||||
Production Data: | |||||||||||
Oil (bbls) |
|
197,652 |
|
220,537 |
|
656,326 |
|
695,423 |
|||
Natural gas (boe) |
|
149,900 |
|
133,749 |
|
440,494 |
|
468,123 |
|||
Natural gas liquids (bbls) |
|
63,821 |
|
89,652 |
|
188,297 |
|
240,015 |
|||
Combined volumes (boe) |
|
411,373 |
|
443,938 |
|
1,285,117 |
|
1,403,561 |
|||
Average daily combined volume (boe/d) |
|
4,471 |
|
4,825 |
|
4,690 |
|
5,141 |
|||
Average sales prices: | |||||||||||
Oil (bbls) |
$ |
36.91 |
$ |
60.02 |
$ |
34.65 |
$ |
60.90 |
|||
Natural gas (mcf) |
$ |
1.98 |
$ |
2.15 |
$ |
1.88 |
$ |
2.70 |
|||
Natural gas liquids (bbls) |
$ |
13.58 |
$ |
10.57 |
$ |
11.42 |
$ |
15.12 |
|||
Combined per boe |
$ |
24.17 |
$ |
35.84 |
$ |
23.24 |
$ |
38.16 |
|||
Average costs ($/boe): | |||||||||||
Production and ad valorem taxes |
$ |
1.81 |
$ |
2.01 |
$ |
1.72 |
$ |
2.09 |
|||
Marketing and transportation expense |
$ |
1.37 |
$ |
1.32 |
$ |
1.22 |
$ |
1.38 |
|||
Cash general and administrative expense |
$ |
4.59 |
$ |
4.86 |
$ |
4.90 |
$ |
4.88 |
|||
Interest expense, net |
$ |
1.19 |
$ |
1.46 |
$ |
1.33 |
$ |
1.31 |
|||
Depletion |
$ |
8.61 |
$ |
7.17 |
$ |
8.16 |
$ |
6.86 |
|||
View source version on businesswire.com: https://www.businesswire.com/news/home/20201104005757/en/
Chief Financial Officer
bgunderson@falconminerals.com
Source: