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): March 9, 2020

 

 

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 March 9, 2020, Falcon Minerals Corporation (the “Company”) issued a press release regarding its financial results for the fourth quarter and full year 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: March 9, 2020

 

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 FOURTH QUARTER AND FULL YEAR 2019 FINANCIAL RESULTS

NEW YORK, NY – March 9, 2020 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 for the fourth quarter and full year ending December 31, 2019.

Highlights

 

   

Four Hooks Ranch wells were turned in line on February 7, 2020 (1)

 

   

218 gross line of sight wells (3.52 net wells) permitted and in active development, an increase of ~25% from November 2019

 

   

1.20 net wells out of the 3.52 net wells were connected in January and February 2020

 

   

Continue to average seven rigs running on Falcon’s Eagle Ford position in the fourth quarter 2019 (currently eight rigs running on position)

 

   

Net production of 4,027 barrels of oil equivalent per day (“boe/d”) during the fourth quarter 2019 (Eagle Ford production 58% oil; total production 50% oil)

 

   

Fourth quarter 2019 Net Income of $4.4 million (2), or $0.05 per Class A share

 

   

Adjusted EBITDA of $8.9 million for the fourth quarter 2019 (3)

 

   

Fourth quarter 2019 dividend of $0.135 per share; the fourth quarter dividend was paid on March 9, 2020 to all shareholders of record on February 25, 2020

 

   

2020 full year production guidance of 5,300 – 6,100 boe/d supported by current proved developed producing locations and line of sight inventory

 

(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% Net Revenue Interest (“NRI”). The resulting NRI contribution from the four wells will be approximately 14%

(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, “While we are in a challenging period for energy generally, Falcon was designed not only to withstand this kind of environment, but also to outperform.” Mr. Herz continued, “Falcon benefits from the strength of our operators, who have been consistent in their development of our world class inventory. Our 3.52 net line of sight wells are nicely along in their development which should provide for strong production in 2020 even in this challenging environment. Finally, we remain committed to maintaining a strong balance sheet and delivering value to our shareholders.”

Financial Update

Falcon realized prices of $55.88 per barrel (“bbl”) for crude oil, $2.34 per thousand cubic feet (“mcf”) for natural gas and $16.86/bbl for natural gas liquids (“NGL”) during the in the fourth quarter 2019.

Falcon reported Net Income of $4.4 million, or $0.05 per Class A common share, for the fourth quarter 2019, which includes amounts attributable to non-controlling interests. Falcon generated revenue of $13.1 million (approximately 79% oil) for the fourth quarter 2019. The Company reported Adjusted EBITDA (a non-GAAP measure as defined and reconciled on pages 8-9) of $8.9 million for the fourth quarter 2019.

 

1


Total cash operating costs for the fourth quarter 2019 were $4.3 million inclusive of an increase of $0.6 million in ad valorem taxes. General and administrative expense for the fourth quarter 2019, excluding non-cash stock-based compensation expense, was approximately $2.5 million, compared to $2.2 million for the third quarter 2019. The increase from the prior quarter was due primarily to an increase in professional fees associated with the annual audit.

As of December 31, 2019, the Company had $42.5 million of borrowings on its revolving credit facility, and $2.5 million of cash on hand, resulting in a net liquidity position of approximately $50.0 million at the end of quarter. Falcon’s Net Debt / LTM EBITDA ratio was 0.76x at December 31, 2019. (4)

 

(4)

Calculated by dividing the sum of total debt outstanding less cash on hand as of December 31, 2019 by Adjusted EBITDA for the trailing 12-month period, as per Falcon’s credit agreement dated August 23, 2018

Fourth Quarter 2019 Dividend

Falcon’s Board of Directors declared a dividend of $0.135 per Class A share for the fourth quarter 2019. During the fourth quarter 2019, the Company generated pro-forma free cash flow per share of $0.10 (5) (as described and reconciled on page 8-9). The dividend for the fourth quarter 2019 was paid on March 9, 2020 to all Class A shareholders of record on February 25, 2020. The fourth quarter 2019 dividend does not have any effect on the current $11.34 exercise price of the Company’s outstanding warrants.

 

(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 0.3 million unvested restricted stock awards (RSAs) which receive dividend equivalent rights (“DER”) on a quarterly basis

Operational Results

Falcon’s production averaged 4,027 boe/d during the fourth quarter 2019, of which approximately 50% was oil. Eagle Ford production was approximately 58% oil during the fourth quarter 2019. Falcon had 73 gross wells turned in line (0.59 net wells) with an average NRI of approximately 0.81% during the fourth quarter 2019.

Falcon’s production averaged 4,861 boe/d during the year ended December 31, 2019, of which approximately 50% was oil. Eagle Ford production was approximately 58% oil during the year ended December 31, 2019. Falcon had 194 gross wells turn in line (1.54 net wells) with an average NRI of approximately 0.79% during the year ended December 31, 2019.

Falcon currently has 1,924 producing Eagle Ford wells, and the Company’s average NRI for all producing wells is approximately 1.32%.

 

2


As of January 24, 2020, the Company had 218 line of sight wells (3.52 net wells) with an average NRI of 1.62% in various stages of development on Falcon’s Eagle Ford minerals position. The 218 line of sight wells represent an increase of approximately 25% from November 2019. These wells are comprised of the following:

Line of Sight Wells (As of January 24, 2020)

 

Stage of Activity

   Gross Wells      Net Wells      NRI %  

Permitted

     90        1.42        1.58

Waiting on completion

     86        0.83        0.96

Waiting on connection

     42        1.27        3.03
  

 

 

    

 

 

    

 

 

 

Total line of sight

     218        3.52        1.62

The line of sight wells include four wells on Falcon’s Hooks Ranch location that were connected to production on February 7, 2020, and in total 1.20 of the 3.52 net wells have already turned in line during 2020. Approximately 75% of line of sight wells have development activity or have been turned in line.

During the year ended December 31, 2019, Falcon acquired approximately 147 net royalty acres through 27 transactions in the Eagle Ford Shale for a total cost of approximately $22.6 million. The transactions were funded using cash on hand and availability on the Company’s revolving credit facility.

Reserve Summary for the Year Ended December 31, 2019

As of December 31, 2019, net proved oil and gas reserves were approximately 23.0 million barrels of oil equivalent (MMboe), based on the Securities and Exchange Commission (SEC) average net realized price assumptions of $55.69/bbl for oil, $13.20/bbl for NGL, and $2.58/mcf for natural gas. Falcon’s year end 2019 proved reserves were valued at a PV-10 amount of approximately $488 million, and approximately 67% of the Company’s proved reserves were oil and NGLs.

Summary of proved reserves as of December 31, 2019

 

     Oil (Mbbl)      Gas (MMcf)      NGLs (Mbbl)      Total
MBOE
 

Proved developed reserves

     3,900        18,016        1,230        8,133  

Proved undeveloped reserves

     8,696        28,254        1,489        14,894  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total proved reserves at December 31, 2019

     12,596        46,270        2,719        23,027  

 

3


Reconciliation of proved reserves for full year 2019

 

     Oil (Mbbl)      Gas (MMcf)      NGLs (Mbbl)      Total
MBoe
 

Proved reserves at December 31, 2018

     15,212        56,185        3,163        27,740  

Purchase of reserves in place

     32        70        12        56  

Extensions and discoveries

     215        553        71        378  

Reivisions of previous estimates

     (1,984      (6,950      (230      (3,373

Production

     (879      (3,588      (297      (1,774
  

 

 

    

 

 

    

 

 

    

 

 

 

Proved reserves at December 31, 2019

     12,596        46,270        2,719        23,027  

Changes in reserves net of production

     (1,737      (6,327      (147      (2,940

Guidance Summary

The Company has provided full year 2020 guidance based upon expectations for producer activity on Falcon’s net royalty positions.

 

Full Year 2020 Guidance

   Guidance Range

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

   5,300 - 6,100

% Oil of net production

   50% - 55%

Operating costs:

  

Production and ad valorem taxes (% of revenue)

   6.0% - 7.0%

Marketing and transportation ($/boe)

   $1.00 - $1.50

Cash general and administrative (6)

   $8.5 - $9.0 million

Depletion expense (7) ($/boe)

   $6.50 - $7.50

 

(6)

General and administrative expense above excludes non-cash stock-based compensation expense

(7)

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

Conference Call Details

Falcon management invites investors and interested parties to listen to the conference call to discuss fourth quarter 2019 results on Tuesday, March 10, 2020 at 9:00 am ET. Participants for the conference call should dial (888) 567-1602 (International: (862) 298-0701). A replay of the call will be available starting at 2:00 pm ET on March 10, 2020. 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 (888) 539-4649 (International: (754) 333-7735).

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 75,000 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
December 31,
    Year Ended
December 31,
 
     2019     2018     2019     2018  

Revenues:

        

Oil and gas sales

   $ 13,051     $ 26,301     $ 68,463     $ 98,655  

Loss on hedging activities

     —         —         —         (1,456
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

     13,051       26,301       68,463       97,199  
  

 

 

   

 

 

   

 

 

   

 

 

 

Expenses:

        

Production and ad valorem taxes

     1,322       1,289       4,262       5,143  

Marketing and transportation

     463       881       2,396       2,368  

Amortization of royalty interests in oil & gas properties

     3,113       3,783       12,737       16,962  

General, administrative and other

     3,185       2,532       11,912       9,544  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total expenses

     8,083       8,485       31,307       34,017  
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     4,968       17,816       37,156       63,182  

Other income (expense):

        

Gain on the sale of assets

     —         —         —         41,382  

Other income

     31       7       165       46  

Interest expense

     (650     (749     (2,489     (2,350
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other income (expense)

     (619     (742     (2,324     39,078  
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

     4,349       17,074       34,832       102,260  

Provision for income taxes

     (3     2,482       3,918       3,292  
  

 

 

   

 

 

   

 

 

   

 

 

 

Income from continuing operations

     4,352       14,592       30,914       98,968  

Income from discontinued operations

     —         —         —         2,139  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     4,352       14,592       30,914       101,107  

Net income attributable to non-controlling interests

     (2,024     (7,955     (16,564     (10,982
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to shareholders/unitholders

   $ 2,328     $ 6,637     $ 14,350     $ 90,125  
  

 

 

   

 

 

   

 

 

   

 

 

 

Class A common shares (basic and diluted)

   $ 0.05     $ 0.14     $ 0.31     $ 0.20 (1)  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)

Earnings per share for year ended December 31, 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)

 

     December 31,
2019
     December 31,
2018
 

ASSETS

     

Current assets:

     

Cash and cash equivalents

   $ 2,543      $ 7,317  

Accounts receivable

     7,889        11,271  

Prepaid expenses

     1,182        1,524  
  

 

 

    

 

 

 

Total current assets

     11,614        20,112  

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

     219,192        209,168  

Property and equipment, net of accumulated depreciation

     517        —    

Deferred tax asset, net

     56,352        58,773  

Other assets

     2,530        3,182  
  

 

 

    

 

 

 

Total assets

   $ 290,205      $ 291,235  
  

 

 

    

 

 

 

LIABILITIES AND SHAREHOLDER’S EQUITY

     

Current liabilities:

     

Accounts payable and accrued expenses

   $ 2,206      $ 521  

Credit facility

     42,500        21,000  

Other non-current liabilities

     473        —    
  

 

 

    

 

 

 

Total liabilities

     45,179        21,521  
  

 

 

    

 

 

 

Shareholder’s equity:

     

Class A common stock

     5        5  

Class C common stock

     4        4  

Additional paid in capital

     129,127        137,866  

Non-controlling interests

     115,890        127,029  

Retained earnings

     —          4,810  
  

 

 

    

 

 

 

Total shareholder’s equity

     245,026        269,714  
  

 

 

    

 

 

 

Total liabilities and shareholder’s equity

   $ 290,205      $ 291,235  
  

 

 

    

 

 

 

 

7


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

 

     Three Months
Ended
December 31, 2019
     Fully Converted
Per Share Basis
Three Months Ended
December 31, 2019 (1)
 

Net Income

   $ 4,352      $ 0.05  

Interest expense (2)

     650        0.01  

Depletion and depreciation

     3,142        0.04  

Share-based compensation

     717        0.01  

Income taxes

     (3      —    
  

 

 

    

 

 

 

Adjusted EBITDA

   $ 8,858      $ 0.11  
  

 

 

    

 

 

 

Interest expense (2)

     (650      (0.01
  

 

 

    

 

 

 

Pro-forma Free Cash Flow

   $ 8,208      $ 0.10  
  

 

 

    

 

 

 

 

(1)

Per share information is presented on a fully converted basis and includes both the 46.2 million Class A common shares (inclusive of 0.3 million unvested restricted stock awards which receive DERs) and the 40.0 million Class C common shares that are outstanding as of December 31, 2019. As such, Net Income per fully converted share in this schedule is not comparable to earnings per share (EPS) of $0.05 for the period ended December 31, 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 fourth quarter 2019 (in thousands):

 

     Three Months Ended
December 31,

2019
 

Adjusted EBITDA

   $ 8,858  

Interest expense

     (650
  

 

 

 

Net cash available for distribution

   $ 8,208  
  

 

 

 

Cash to be distributed to non-controlling interests

   $ 5,400  
  

 

 

 

Cash to be distributed to Falcon Minerals Corp.

   $ 6,205  
  

 

 

 

Dividends to be paid to Class A shareholders

   $ 6,205  
  

 

 

 

 

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
December 31,
     Year Ended
December 31,
 
     2019      2018      2019      2018(1)  

Production Data:

           

Oil (bbls)

     183,835        303,460        879,288        1,237,813  

Natural gas (boe)

     129,896        172,702        598,019        686,279  

Natural gas liquids (bbls)

     56,797        82,923        296,813        293,086  
  

 

 

    

 

 

    

 

 

    

 

 

 

Combined volumes (boe)

     370,528        559,085        1,774,120        2,217,178  
  

 

 

    

 

 

    

 

 

    

 

 

 

Average daily combined volume (boe/d)

     4,027        6,077        4,861        6,074  

Average sales prices:

           

Oil (bbls)

   $ 55.88      $ 65.43      $ 59.85      $ 67.14  

Natural gas (mcf)

   $ 2.34      $ 3.63      $ 2.62      $ 3.10  

Natural gas liquids (bbls)

   $ 16.86      $ 28.49      $ 15.45      $ 25.62  

Combined per boe

   $ 35.23      $ 47.04      $ 37.54      $ 46.63  

Average costs ($/boe):

           

Production and ad valorem taxes

   $ 3.57      $ 2.31      $ 2.40      $ 2.32  

Marketing and transportation expense

   $ 1.25      $ 1.58      $ 1.35      $ 1.07  

Cash general and administrative expense

   $ 6.66      $ 4.53      $ 5.28      $ 4.30  

Interest expense, net

   $ 1.75      $ 1.34      $ 1.40      $ 1.06  

Depletion

   $ 8.40      $ 6.77      $ 7.18      $ 7.65  

 

(1)

The production data for the year ended December 31, 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 Contact:

Bryan C. Gunderson

Chief Financial Officer

bgunderson@falconminerals.com

 

10