SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): August 5, 2020
FALCON MINERALS CORPORATION
(Exact Name of Registrant as Specified in its Charter)
(State or Other Jurisdiction
(Commission File Number)
510 Madison Avenue, 8th Floor,
New York, NY 10022
(Address of Principal Executive Offices) (Zip Code)
Registrant’s telephone number, including area code
(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 of 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 Exchange Act:
|Title of each class||Trading Symbol||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 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 August 5, 2020, Falcon Minerals Corporation (the “Company”) issued a press release regarding its financial results for the three and six months ended June 30, 2020. A copy of the press release is furnished as Exhibit 99.1 to this Current Report and is incorporated by reference herein.
Item 7.01. Regulation FD Disclosure
The Company hereby furnishes the information set forth in the presentation attached hereto as Exhibit 99.2, which is incorporated by reference herein.
The information in this Current Report, including Exhibits 99.1 and 99.2, 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.
|Exhibit No.||Description of Exhibit|
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.
|Date: August 5, 2020||FALCON MINERALS CORPORATION|
|By:||/s/ Bryan C. Gunderson|
|Bryan C. Gunderson|
|Chief Financial Officer|
FALCON MINERALS CORPORATION REPORTS SECOND QUARTER FINANCIAL RESULTS AND DECLARES QUARTERLY DIVIDEND
NEW YORK, NY – August 5, 2020 – Falcon Minerals Corporation (“Falcon,” or the “Company,” “we,” “our,”) (NASDAQ: FLMN, FLMNW), a leading oil and gas minerals company, today announces financial and operating results for the second quarter 2020 and declares its second quarter dividend.
|●||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|
|(1)||Net loss shown above includes amounts attributable to non-controlling interests.|
|(2)||Please refer to the disclosure on pages 6-7 for the Reconciliation of net loss to Non-GAAP Measures.|
|(3)||Calculated by dividing the sum of total debt outstanding less cash on hand as of June 30, 2020 by Adjusted EBITDA for the trailing 12-month period.|
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.”
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.(4)
|(4)||Calculated by dividing the sum of total debt outstanding less cash on hand as of June 30, 2020 by Adjusted EBITDA for the trailing 12-month period. Please refer to the disclosure on pages 6-7 for the Reconciliation of net loss to Non-GAAP Measures.|
Second Quarter 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.
|(5)||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|
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)
|Stage of Activity||Gross Wells||Net Wells||NRI %|
|Waiting on completion||98||1.57||1.60||%|
|Waiting on connection||20||0.06||0.28||%|
|Total line of sight||212||2.52||1.19||%|
Conference Call Details
Falcon management invites investors and interested parties to listen to the conference call to discuss second quarter 2020 results on Thursday, August 6, 2020 at 9:00 am ET. Participants for the conference call should dial (888) 567-1602 (International: (862) 298-0701). A replay of the Falcon earnings call will be available starting at 2:00 pm ET on August 6, 2020. 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). At the system prompt, dial your replay code (151920#); playback will automatically begin.
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.
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, 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; 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 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.
FALCON MINERALS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
|Three Months Ended||Six Months Ended|
|June 30,||June 30,|
|Oil and gas sales||$||6,305||$||18,246||$||19,905||$||39,504|
|Gain (loss) on hedging activities||(190||)||-||(190||)||-|
|Production and ad valorem taxes||606||920||1,460||2,049|
|Marketing and transportation||608||565||1,005||1,349|
|Amortization of royalty interests in oil & gas properties||3,268||2,930||6,943||6,440|
|General, administrative and other||2,737||3,055||5,811||5,559|
|Operating income (loss)||(1,104||)||10,776||4,496||24,107|
|Other income (expense):|
|Total other income (expense)||(506||)||(491||)||(1,154||)||(1,114||)|
|Income (loss) before income taxes||(1,610||)||10,285||3,342||22,993|
|Provision for (benefit from) income taxes||(287||)||1,383||157||2,788|
|Net income (loss)||(1,323||)||8,902||3,185||20,205|
|Net (income) loss attributable to non-controlling interests||748||(5,146||)||(1,555||)||(11,067||)|
|Net income (loss) attributable to shareholders||$||(575||)||$||3,756||$||1,630||$||9,138|
|Class A common shares (basic and diluted)||$||(0.01||)||$||0.08||$||0.04||$||0.20|
FALCON MINERALS CORPORATION
CONSOLIDATED BALANCE SHEETS
|June 30,||December 31,|
|Cash and cash equivalents||$||1,846||$||2,543|
|Total current assets||5,668||11,614|
|Royalty interests in oil & gas properties, net of accumulated amortization||214,350||219,192|
|Property and equipment, net of accumulated depreciation||479||517|
|Deferred tax asset, net||56,205||56,352|
|LIABILITIES AND SHAREHOLDERS’ EQUITY|
|Accounts payable and accrued expenses||$||1,566||$||2,206|
|Other current liabilities||789||-|
|Total current liabilities||2,355||2,206|
|Other non-current liabilities||1,138||473|
|Class A common stock||5||5|
|Class C common stock||4||4|
|Additional paid in capital||125,728||129,127|
|Retained earnings (accumulated deficit)||(575||)||-|
|Total shareholders’ equity||236,208||245,026|
|Total liabilities and shareholders’ equity||$||280,301||$||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 (loss) before interest expense, net, depletion expense, provision for (benefit from) 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 (loss) before depletion expense, provision for (benefit from) 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 (loss) as determined by GAAP. We exclude the items listed above from net income (loss) 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 (loss), 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 Net Loss to Adjusted EBITDA and Pro-forma Free Cash Flow (in thousands, except per share amounts):
|Three Months |
|Fully Converted |
Per Share Basis
|Interest expense (2)||537||0.01|
|Depletion and depreciation||3,294||0.04|
|Unrealized loss on commodity derivatives||190||-|
|Income tax benefit||(287||)||-|
|Interest expense (2)||(537||)||(0.01||)|
|Pro-forma Free Cash Flow||$||2,843||$||0.03|
|(1)||Per share information is presented on a fully converted basis and includes both the 46.5 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 June 30, 2020. As such, net loss per fully converted share in this schedule is not comparable to loss per share of $0.01 for the period ended June 30, 2020 as shown on the Statement of Operations.|
|(2)||Interest expense includes amortization of deferred financing costs.|
Calculation of cash available for dividends for the second quarter 2020 (in thousands):
|Three Months Ended|
|Interest expense (1)||(537||)|
|Net cash available for distribution||$||2,843|
|Cash to be distributed to non-controlling interests||$||1,200|
|Cash to be distributed to Falcon Minerals Corp.||$||1,381|
|Dividends to be paid to Class A shareholders||$||1,381|
|(1)||Interest expense includes amortization of deferred financing costs.|
FALCON MINERALS CORPORATION
SELECTED OPERATING DATA
|Three Months Ended||Six Months Ended|
|June 30,||June 30,|
|Natural gas (boe)||145,759||161,687||290,594||334,373|
|Natural gas liquids (bbls)||54,002||77,473||124,476||150,364|
|Combined volumes (boe)||404,907||439,098||873,743||959,653|
|Average daily combined volume (boe/d)||4,450||4,825||4,801||5,302|
|Average sales prices:|
|Natural gas (mcf)||$||1.71||$||2.52||$||1.82||$||2.92|
|Natural gas liquids (bbls)||$||5.44||$||17.45||$||10.32||$||17.83|
|Combined per boe||$||15.58||$||37.72||$||22.62||$||39.23|
|Average costs ($/boe):|
|Production and ad valorem taxes||$||1.50||$||2.10||$||1.67||$||2.14|
|Marketing and transportation expense||$||1.50||$||1.29||$||1.15||$||1.41|
|Cash general and administrative expense||$||4.30||$||5.22||$||4.65||$||4.96|
|Interest expense, net||$||1.33||$||1.22||$||1.39||$||1.24|
Falcon Minerals Contact:
Bryan C. Gunderson
Chief Financial Officer
Investor Presentation August 2020
Disclaimer 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, 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 ; 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 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 . RESERVE INFORMATION Reserve engineering is a process of estimating underground accumulations of hydrocarbons that cannot be measured in an exact way . The accuracy of any reserve estimate depends on the quality of available data, the interpretation of such data and price and cost assumptions made by reserve engineers . In addition, the results of drilling, testing and production activities may justify revisions of estimates that were made previously . If significant, such revisions could impact Falcon’s strategy and change the schedule of any further production and development drilling . Accordingly, reserve estimates may differ significantly from the quantities of oil and natural gas that are ultimately recovered . Estimated Ultimate Recoveries, or “EURs,” refers to estimates of the sum of total gross remaining proved reserves per well as of a given date and cumulative production prior to such given date for developed wells . These quantities do not necessarily constitute or represent reserves as defined by the SEC and are not intended to be representative of all anticipated future well results . 2
Goliad Bee Core of the Core Eagle Ford Falcon’s primary assets are located in the core of the Eagle Ford under premier operators Overview 3 World class assets developed by world class operators Market / Asset Overview NASDAQ Ticker FLMN Market Capitalization (1) ~$220mm Shares Outstanding (2) ~86.0mm Leverage Ratio (3) 1.12x Key Counties Karnes, Dewitt, Gonzales Key Operators COP, BP/DVN, EOG Gross Unit Acres ~256,000 acres Net Royalty Acres ~2,700 acres Producing Horizontal Wells ~2,020 Eagle Ford wells (1) Assumes share price as of August 4, 2020. Inclusive of Class C Shares. (2) 86,022,724 shares reflect fully - diluted or as - converted shares outstanding, inclusive of 40,000,000 Class C shares. Excludes un vested RSAs. (3) Calculated by dividing the sum of total debt outstanding less total cash on hand as of June 30, 2020 by Adjusted EBITDA for t he trailing 12 - month period. Real Bandera Bexar Medina Uvalde Zavala Frio Atascosa Wilson Comal Guadalupe DeWitt Gonzales Kendall Kerr Hays Caldwell Live Oak McMullen La Salle Dimmit Webb Duval Jim Wells 1 st 12 Mo. Boe / Ft. 0 – 11 24 – 33 80 – 132 133 – 267 267+ 33 – 44 44 – 58 58 – 80 11 – 18 18 – 24 Karnes
Operational Overview □ World class operators prosecuting decade long plans on Falcon’s Eagle Ford position □ Karnes Trough is characterized by some of the lowest breakeven returns to operators in North American shale □ EOG and COP have both discussed 10% - 30% returns at ~$25 - $30 oil prices □ Q2 ’20 production of ~4,450 Boe /d (~51% oil) □ ~0.12 net (20 gross) wells TIL during Q2 ’20 ~1.57 net (83 gross) wells TIL in 1H 2020 □ Averaged three rigs on Eagle Ford position during Q2 ’20 two rigs currently on Falcon’s Eagle Ford position □ Approximately 25% of production curtailed during low oil price months of May and June majority of production back online at higher oil prices, with all production expected back online by the end of August Q2 ‘20 Financial Overview □ Adjusted EBITDA of $3.4 million for Q2 ‘20 □ Announced Q2 ‘20 dividend of $0.03 on August 5, 2020; free cash flow per share of $0.033 for Q2 ’20 □ Inception to date aggregate dividends of $0.945 per share □ Maintained low leverage profile 1.12 x net debt / LTM EBITDA at Q2 ’20 (1) □ Established crude oil swap program for third quarter 2020 through first quarter 2021 ~1,230 Bbls /d (approximately 55% of Q2 ’20 oil production) at ~$40 / Bbl Line of Sight Development (August 2020) □ 212 gross line of sight wells (2.52 net) ~ 1.62 net wells with ongoing development activity □ 94 gross permitted wells (0.90 net wells) □ 98 gross wells waiting on completion (1.57 net wells) □ 20 gross wells waiting on connection (0.06 net wells) Falcon Highlights □ Zero capex requirements □ Ability to generate free cash flow in challenged commodity price environment □ Management focused on maintaining a low - cost structure □ Conservative balance sheet and disciplined acquisition strategy Investment Highlights 4 (1) Calculated by dividing the sum of total debt outstanding less total cash on hand as of June 30, 2020 by Adjusted EBITDA for t he trailing 12 month period.
Recent Operator Commentary 5 Key Operators □ Eagle Ford Outlook – 10 - year commitment to Eagle Ford □ ~3,800 top - tier locations remaining □ Maintaining 4 rigs across the Eagle Ford for the remainder of 2020 with 1 or 2 frac crews expected □ Planning to build substantial DUC inventory of ~130 wells in Lower 48 with modest activity ramp in 2H ‘20 □ COP has observed flush production from curtailed wells recently brought back online □ Expect all Lower 48 production to be online by September □ Average cost of supply in Lower 48 below ~$30 / Bbl (10% IRR threshold) □ Upside – ~300 refracs in 10 - year plan, ~75% EUR increase from mechanical isolation refracs □ Eagle Ford Outlook – 10+ years of inventory life in the Eagle Ford □ Eagle Ford net production increased 7% Q - o - Q includes impacts of curtailments during Q2 ‘20 □ No plans to curtail production in 2H ‘20 □ 13 wells turned in line on Falcon’s Eagle Ford position during Q2 ’20 with average IP - 30s of ~2,300 Boe /d □ DUC inventory includes 22 high - impact wells as of July 2020 □ Successful redevelopment appraisal program during 1H ‘20 confirms resource upside and additional highly economic inventory □ Upside – ~700+ potential refrac locations along with additional redevelopment / infill inventory □ Eagle Ford Outlook – bellwether asset in “growth phase” with 10+ years of inventory remaining □ Maintaining 3 rig / 3 frac crew program across the Eagle Ford in 2020 □ ~200 net Eagle Ford wells expected to TIL in 2020 ( 82 net wells TIL in Q1 ’20) □ ~1,900 net undrilled premium locations in the Eagle Ford □ ~7% reduction in Eagle Ford well costs expected in 2020 compared to 2019 levels □ Upside – targeting Enhanced Oil Recovery (EOR) program with over 200 wells identified 10 - year commitment to the Eagle Ford across key operators Note: EOG commentary reflects disclosure prior to Q2 ‘20 earnings release scheduled for August 7, 2020.
Hooks Ranch Update 6 □ Falcon Minerals has a 22.5% royalty interest in ConocoPhillips’ Hooks Ranch position ─ 75%+ undeveloped ─ 100% HBP and operated by ConocoPhillips Hooks Ranch Overview □ Four Hooks Ranch wells turned in line on February 7, 2020 ─ Wells curtailed in May and June and back online as of July □ Wells have lateral lengths of ~11,000’ ─ Wells drilled from Hooks Ranch lease and extend into the Hardesty unit □ Initial aggregate production in line with expectations □ 6 - well pad (4 Lower Eagle Ford, 2 Upper Eagle Ford) TIL in February 2018 ─ Substantially outperformed original type curves ─ Wells in top decile of returns in basin Development Overview Hooks Ranch Units DeWitt DeWitt Gonzales Karnes Hooks - Hardesty (2020)
Development Activity Q2 ‘20 Development □ 3 rigs on Falcon’s position during second quarter 2020 □ ~0.12 net wells TIL during second quarter 2020 Eagle Ford Line of Sight Development (August 2020) □ 212 gross Eagle Ford wells (2.52 net) ─ 94 gross (0.90 net) permitted wells ─ 98 gross (1.57 net) waiting on completion wells ─ 20 gross (0.06 net) waiting on connection wells 7 Gross Wells Average NRI Net Wells Permitted 94 0.96% 0.90 Waiting on Completion 98 1.60% 1.57 Waiting on Connection 20 0.28% 0.06 Total 212 1.19% 2.52 Active Rigs Gross TIL Average NRI Net TIL 2019 Total 7 194 0.79% 1.54 2019 Development Eagle Ford Line of Sight Development (August 2020) Active Rigs Gross TIL Average NRI Net TIL Q1 ’20 7 63 ~2.30% ~1.45 Q2 ’20 3 20 ~0.60% ~0.12 2020 YTD Development
Financial Overview 8 Pro Forma Capitalization as of 6/30/20 Cash $1.8mm Revolving Credit Facility Borrowing $40.6mm Net Debt $38.8mm Borrowing Base $70.0mm Net Debt to LTM EBITDA (1) 1.12x 2020 Guidance □ Full - year 2020 guidance is temporarily suspended; company may provide periodic updates as appropriate □ Updating full year 2020 cash G&A guidance to $7.25 million - $7.75 million ─ Represents an approximately 20% reduction from full year 2019 Second Quarter 2020 □ 20 gross wells (0.12 net) turned in line during Q2 ‘20 □ Announced Q2 ’20 dividend of $0.03 per Class A share on August 5, 2020 ─ $0.945 per share in dividends since inception □ Adjusted EBITDA of $3.4 million for Q2 ‘20 □ Maintained low leverage profile 1.12x net debt / LTM EBITDA at Q2 ’20 (1) (1) Calculated by dividing the sum of total debt outstanding less total cash on hand as of June 30, 2020 by Adjusted EBITDA for t he trailing 12 month period.
Hedge Program Overview 9 Overview □ Falcon has established a crude oil swap program beginning in July 2020 through March 2021 ─ All trades executed on 6/10/20 ─ Volumes hedged monthly in Q3 ‘20 and quarterly in Q4 ‘20 and Q1 ‘21 □ Purpose is to protect Falcon’s cash flow ─ Protect the downside in the short - term while retaining full optionality as oil prices recover in the medium and long - term Hedge Program Detail Date Swap Volumes ( Bbls /d) % of Q2 ‘20 Oil Production Swap Price ($ / Bbl ) July 2020 1,231 ~55% $39.38 August 2020 1,341 ~60% $39.58 September 2020 1,440 ~64% $39.88 Q4 ’20 1,273 ~56% $40.13 Q1 ‘21 1,087 ~48% $40.44
Dividend Payouts and Sustainability 10 Favorable Tax Treatment of Dividends Cumulative Dividends Per Share □ Falcon announced second quarter 2020 dividend of $0.03 per share $0.945 of cumulative dividends since inception □ 80% of dividends paid to Class A shareholders during 2019 were classified as non - dividend distributions and therefore represent a reduction of basis rather than ordinary income □ Non - dividend distributions are treated as a reduction of basis until such time that the investors’ basis is fully recovered □ Falcon generates non - dividend distributions due to the Company’s high payout ratio coupled with the step up in the tax basis of Falcon’s minerals interests that was received as a part of the transaction with Royal Resources in 2018 □ Falcon expects that greater than 50% of dividends paid to Class A shareholders during 2020 will be classified as non - dividend distributions in 2020 Note : This expected favorable tax treatment is the result of certain non - cash expenses (principally depletion) substantially offsetting Falcon’s taxable income and tax "earnings and profit . ” Our estimates of the tax treatment of Falcon’s earnings and dividends are based upon assumptions regarding the capital structure and earnings of Falcon Minerals Operating Company LP (“ OpCo ”), the capital structure of Falcon and the amount of the earnings OpCo allocates to Falcon . Many factors may impact these estimates, including changes in drilling and production activity, commodity prices, future acquisitions, or changes in the business, economic, regulatory, legislative, competitive or political environment in which Falcon operates . These estimates are based on current tax law and tax reporting positions that we have adopted and with which the Internal Revenue Service could disagree . These estimates are not fact and should not be relied upon as being necessarily indicative of future results, and no assurances can be made regarding these estimates . Investors are encouraged to consult with their tax advisor on this matter . $0.095 $0.295 $0.470 $0.620 $0.755 $0.890 $0.915 $0.945 Q3 '18 Q4 '18 Q1 '19 Q2 '19 Q3 '19 Q4 '19 Q1 '20 Q2 '20
Key Takeaways 11 World class operators executing on multi - year development plans in the core of the Eagle Ford Disciplined acquisition strategy Continued conservative leverage profile 1.12x levered as of second quarter 2020 Ability to generate free cash flow in challenged commodity price environment Significant line of sight inventory Crude swap program in place to protect cash flow and balance sheet