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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2021

Or

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to             

Commission File Number: 001-38158

FALCON MINERALS CORPORATION

(Exact name of registrant as specified in its charter)

 

Delaware

 

82-0820780

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer Identification No.)

 

 

 

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

 

N/A

(Former name, former address and former fiscal year, if changed since last report)

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 (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

  

Accelerated filer

 

Non-accelerated filer

 

  

Smaller reporting company

 

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.  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

As of August 3, 2021, there were 46,303,614 shares of the registrant’s Class A common stock, par value $0.0001 per share, issued and outstanding and there were 40,000,000 shares of the registrant’s Class C common stock, par value of $0.0001 per share, issued and outstanding.

 

 

 


 

 

FALCON MINERALS CORPORATION

TABLE OF CONTENTS

 

 

    

 

  

 

Page

GLOSSARY OF TERMS

3

PART I.

  

FINANCIAL INFORMATION

 

 

  

Item 1.

  

Financial Statements (Unaudited)

 

 

  

 

  

Condensed Consolidated Balance Sheets

5

 

  

 

  

Condensed Consolidated Statements of Operations

6

 

  

 

  

Condensed Consolidated Statements of Cash Flows

7

 

  

 

  

Condensed Consolidated Statements of Shareholders’ Equity

8

 

  

 

  

Notes to Condensed Consolidated Financial Statements

9

 

  

Cautionary Statement Regarding Forward-Looking Statements

24

 

  

Item 2.

  

Management’s Discussion and Analysis of Financial Condition and Results of Operations

26

 

  

Item 3.

  

Quantitative and Qualitative Disclosures About Market Risk

34

 

  

Item 4.

  

Controls and Procedures

35

PART II.

  

OTHER INFORMATION

 

 

  

Item 1.

  

Legal Proceedings

35

 

  

Item 1A.

  

Risk Factors

36

 

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

36

 

 

Item 3.

 

Defaults Upon Senior Securities

36

 

 

Item 4.

 

Mine Safety Disclosures

36

 

  

Item 6.

  

Exhibits

36

EXHIBIT INDEX

36

SIGNATURES

38

 

 


 

 

GLOSSARY OF TERMS

Adjusted EBITDA:    Represents net income before interest expense, income taxes and depreciation and amortization expense, as further adjusted for other non-cash charges and other charges that are not reflective of our ongoing operations. Adjusted EBITDA is not a presentation made in accordance with GAAP. Please see the reconciliation of Adjusted EBITDA to net income in Part I, Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Overview of Our Results of Operations—Adjusted EBITDA.”

Barrel or bbl   Stock tank barrel, or 42 U.S. gallons liquid volume, used in this report in reference to crude oil or other liquid hydrocarbons.

BOE:    One barrel of oil equivalent, calculated by converting natural gas to oil equivalent barrels at a ratio of six Mcf of natural gas to one Bbl of oil.  

BOE/d:    BOE per day.

British Thermal Unit or Btu:    The quantity of heat required to raise the temperature of one pound of water by one-degree Fahrenheit.

Completion:    The process of treating a drilled well followed by the installation of permanent equipment for the production of natural gas or oil, or in the case of a dry hole, the reporting of abandonment to the appropriate agency.

Condensate:  Liquid hydrocarbons associated with the production that is primarily natural gas.

Crude oil:    Liquid hydrocarbons retrieved from geological structures underground to be refined into fuel sources.

Developed acreage: Acreage allocated or assignable to productive wells.  

Differential:  An adjustment to the price of oil and natural gas from an established spot market price to reflect differences in the quality and/or location of oil or natural gas.  

GAAP:    Generally accepted accounting principles in the United States.

Gross acres or gross wells:    The total acres or wells, as the case may be, in which an overriding, royalty or mineral interest is owned.

MBbls:  Thousand barrels of crude oil or other liquid hydrocarbons.

MBOE:    One thousand BOE.  

Mcf:    Thousand cubic feet of natural gas.

Mineral interests:  The interests in ownership of the resource and mineral rights, giving an owner the right to profit from the extracted resources.  

MMBtu:    Million British Thermal Units.

MMcf:  Million cubic feet of natural gas.

Net royalty acres: Gross acreage multiplied by the net royalty interest.  

NGLs:    Natural gas liquids.

Prospect:    A specific geographic area which, based on supporting geological, geophysical or other data and preliminary economic analysis using reasonably anticipated prices and costs, is deemed to have potential for the discovery of commercial hydrocarbons.

Proved reserves:    The estimated quantities of oil, natural gas and natural gas liquids which geological and engineering data demonstrate with reasonable certainty to be commercially recoverable in future years from known reservoirs under existing economic and operating conditions.

3


 

PUD:  Proved undeveloped, used to characterize reserves.

Reserves:    The estimated remaining quantities of oil and natural gas and related substances anticipated to be economically producible, as of a given date, by application of development projects to known accumulations. In addition, there must exist, or there must be a reasonable expectation that there will exist, the legal right to produce or a revenue interest in the production, installed means of delivering oil and natural gas or related substances to the market and all permits required to implement the project. Reserves are not assigned to adjacent reservoirs isolated by major, potentially sealing, faults until those reservoirs are penetrated and evaluated as economically producible. Reserves should not be assigned to areas that are clearly separated from a known accumulation by a non-productive reservoir (i.e., absence of reservoir, structurally low reservoir or negative test results). Such areas may contain prospective resources (i.e., potentially recoverable resources from undiscovered accumulations).

Reservoir:    A porous and permeable underground formation containing a natural accumulation of producible natural gas and/or oil that is confined by impermeable rock or water barriers and is separate from other reservoirs.

Royalty interest:    An interest that gives an owner the right to receive a portion of the resources or revenues without having to carry any costs of development.

SEC:    U.S. Securities and Exchange Commission.

Undeveloped acreage: Lease acreage on which wells have not been drilled or completed to a point that would permit the production of economic quantities of oil and natural gas regardless of whether such acreage contains proved reserves.

 

4


 

 

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

FALCON MINERALS CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share amounts)

(Unaudited)

 

 

 

June 30,

 

 

December 31,

 

 

 

2021

 

 

2020

 

Assets:

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

3,037

 

 

$

2,724

 

Account receivable

 

 

9,174

 

 

 

5,419

 

Prepaid expenses

 

 

327

 

 

 

766

 

Total current assets

 

 

12,538

 

 

 

8,909

 

Royalty interests in oil and natural gas properties, net of accumulated amortization

   of $151,657 and $144,445 respectively

 

 

201,380

 

 

 

207,505

 

Property and equipment, net

 

 

374

 

 

 

427

 

Deferred tax asset, net

 

 

54,116

 

 

 

55,773

 

Other assets

 

 

2,421

 

 

 

3,015

 

Total assets

 

$

270,829

 

 

$

275,629

 

Liabilities and shareholders' equity:

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses

 

$

3,920

 

 

$

1,540

 

Other current liabilities

 

 

3,546

 

 

 

1,557

 

Total current liabilities

 

 

7,466

 

 

 

3,097

 

Credit facility

 

 

36,500

 

 

 

39,800

 

Warrant liability

 

 

5,913

 

 

 

3,503

 

Other non-current liabilities

 

 

686

 

 

 

828

 

Total liabilities

 

 

50,565

 

 

 

47,228

 

Commitments and contingencies (See Note 15)

 

 

 

 

 

 

 

 

Shareholders' equity:

 

 

 

 

 

 

 

 

Preferred stock, $0.0001 par value; 1,000,000 shares authorized; none

   issued and outstanding

 

 

-

 

 

 

-

 

Class A common stock, $0.0001 par value; 240,000,000 shares authorized;

46,303,614 and 46,107,183 shares issued and outstanding as of June 30, 2021 and

  December 31, 2020, respectively

 

 

5

 

 

 

5

 

Class C common stock, $0.0001 par value; 120,000,000 shares authorized;

   40,000,000 issued and outstanding as of June 30, 2021 and December 31, 2020

 

 

4

 

 

 

4

 

Additional paid in capital

 

 

120,234

 

 

 

121,053

 

Non-controlling interests

 

 

87,163

 

 

 

88,637

 

Retained earnings

 

 

12,858

 

 

 

18,702

 

Total shareholders' equity

 

 

220,264

 

 

 

228,401

 

Total liabilities and shareholders' equity

 

$

270,829

 

 

$

275,629

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

5


 

FALCON MINERALS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

(Unaudited)

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

 

 

 

 

 

As restated, See Note 3

 

 

 

 

 

 

As restated, See Note 3

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Oil and gas sales

 

$

18,933

 

 

$

6,305

 

 

$

33,150

 

 

$

19,905

 

Loss on commodity derivative instruments

 

 

(2,772

)

 

 

(190

)

 

 

(4,485

)

 

 

(190

)

Total revenue

 

 

16,161

 

 

 

6,115

 

 

 

28,665

 

 

 

19,715

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Production and ad valorem taxes

 

 

1,097

 

 

 

606

 

 

 

1,907

 

 

 

1,460

 

Marketing and transportation

 

 

473

 

 

 

608

 

 

 

864

 

 

 

1,005

 

Amortization of royalty interests in oil and natural gas properties

 

 

4,025

 

 

 

3,268

 

 

 

7,212

 

 

 

6,943

 

General, administrative, and other

 

 

2,381

 

 

 

2,737

 

 

 

5,815

 

 

 

5,811

 

Total operating expenses

 

 

7,976

 

 

 

7,219

 

 

 

15,798

 

 

 

15,219

 

Operating income (loss)

 

 

8,185

 

 

 

(1,104

)

 

 

12,867

 

 

 

4,496

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in fair value of warrant liability

 

 

793

 

 

 

207

 

 

 

(2,409

)

 

 

5,885

 

Other income

 

 

13

 

 

 

31

 

 

 

25

 

 

 

63

 

Interest expense

 

 

(487

)

 

 

(537

)

 

 

(974

)

 

 

(1,217

)

Total other income (expense)

 

 

319

 

 

 

(299

)

 

 

(3,358

)

 

 

4,731

 

Income (loss) before income taxes

 

 

8,504

 

 

 

(1,403

)

 

 

9,509

 

 

 

9,227

 

Provision for (benefit from) income taxes

 

 

1,288

 

 

 

(287

)

 

 

1,747

 

 

 

157

 

Net income (loss)

 

 

7,216

 

 

 

(1,116

)

 

 

7,762

 

 

 

9,070

 

Net (income) loss attributable to non-controlling interests

 

 

(3,574

)

 

 

748

 

 

 

(5,527

)

 

 

(1,555

)

Net income (loss) attributable to common shareholders

 

$

3,642

 

 

$

(368

)

 

$

2,235

 

 

$

7,515

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings (loss) per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common shares - basic

 

$

0.08

 

 

$

(0.01

)

 

$

0.05

 

 

$

0.16

 

Common shares - diluted

 

$

0.07

 

 

$

(0.01

)

 

$

0.05

 

 

$

0.10

 

Weighted average number of shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common shares - basic

 

 

46,214

 

 

 

46,001

 

 

 

46,169

 

 

 

45,984

 

Common shares - diluted

 

 

86,214

 

 

 

46,001

 

 

 

46,169

 

 

 

85,984

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 

 

6


 

 

FALCON MINERALS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

 

June 30,

 

 

 

2021

 

 

2020

 

 

 

 

 

 

 

As restated, See Note 3

 

Cash flow from operating activities:

 

 

 

 

 

 

 

 

Net income

 

$

7,762

 

 

$

9,070

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Amortization of royalty interests in oil and natural gas properties

 

 

7,212

 

 

 

6,943

 

Depreciation of property and equipment

 

 

52

 

 

 

52

 

Amortization of debt issuance costs

 

 

335

 

 

 

324

 

Amortization of right-of-use assets

 

 

259

 

 

 

240

 

Unrealized (gain) loss on commodity derivative instruments

 

 

2,150

 

 

 

190

 

Change in fair value of warrant liability

 

 

2,409

 

 

 

(5,885

)

Stock-based compensation

 

 

(729

)

 

 

1,693

 

Deferred income taxes

 

 

1,657

 

 

 

147

 

Changes in operating assets and liabilities

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(3,756

)

 

 

4,954

 

Prepaid expenses

 

 

440

 

 

 

296

 

Accounts payable and accrued expenses

 

 

2,381

 

 

 

(529

)

Other liabilities

 

 

(303

)

 

 

(283

)

Net cash provided by operating activities

 

 

19,869

 

 

 

17,212

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchase of property and equipment

 

 

-

 

 

 

(14

)

Acquisition of oil and natural gas properties

 

 

(1,087

)

 

 

(2,101

)

Net cash used in investing activities

 

 

(1,087

)

 

 

(2,115

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from credit facility

 

 

4,000

 

 

 

10,000

 

Repayments of long-term debt

 

 

(7,300

)

 

 

(11,900

)

Deferred financing fees

 

 

-

 

 

 

(85

)

Dividends paid

 

 

(8,079

)

 

 

(7,355

)

Distributions to non-controlling interests

 

 

(7,000

)

 

 

(6,400

)

Distribution equivalent rights paid

 

 

(90

)

 

 

(54

)

Net cash used in financing activities

 

 

(18,469

)

 

 

(15,794

)

Net increase (decrease) in cash and cash equivalents

 

 

313

 

 

 

(697

)

Cash and cash equivalents, beginning of period

 

 

2,724

 

 

 

2,543

 

Cash and cash equivalents, end of period

 

$

3,037

 

 

$

1,846

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

639

 

 

$

893

 

Non-cash investing and financing activities:

 

 

 

 

 

 

 

 

Right-of-use assets obtained in exchange for operating leases

 

$

-

 

 

$

1,547

 

Accrued bonus paid in stock

 

$

-

 

 

$

113

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

7


 

 

FALCON MINERALS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(In thousands, except per share amounts)

(Unaudited)

 

 

 

Class A Common Stock

 

 

Class C Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(As restated, see Note 3)

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Additional Paid In

Capital

 

 

Non-controlling

interests

 

 

Retained Earnings

 

 

Total Shareholders'

Equity

 

Balance at December 31, 2019

 

 

45,964

 

 

$

5

 

 

 

40,000

 

 

$

4

 

 

$

117,561

 

 

$

96,089

 

 

$

22,736

 

 

$

236,395

 

Vested restricted stock grants

 

 

24

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Stock-based compensation

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

836

 

 

 

-

 

 

 

-

 

 

 

836

 

Distribution equivalent rights paid

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(42

)

 

 

-

 

 

 

-

 

 

 

(42

)

Distributions to non-controlling interests

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(5,400

)

 

 

-

 

 

 

(5,400

)

Dividends to shareholders ($0.135 per share)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(6,205

)

 

 

(6,205

)

Net income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

2,304

 

 

 

7,883

 

 

 

10,187

 

Balance at March 31, 2020

 

 

45,988

 

 

$

5

 

 

 

40,000

 

 

$

4

 

 

$

118,355

 

 

$

92,993

 

 

$

24,414

 

 

$

235,771

 

Vested restricted stock grants

 

 

35

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Stock-based compensation

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

969

 

 

 

-

 

 

 

-

 

 

 

969

 

Distribution equivalent rights paid

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(12

)

 

 

-

 

 

 

-

 

 

 

(12

)

Distributions to non-controlling interests

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(1,000

)

 

 

-

 

 

 

(1,000

)

Dividends to shareholders ($0.025 per share)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(1,150

)

 

 

(1,150

)

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(748

)

 

 

(368

)

 

 

(1,116

)

Balance at June 30, 2020

 

 

46,023

 

 

$

5

 

 

 

40,000

 

 

$

4

 

 

$

119,312

 

 

$

91,245

 

 

$

22,896

 

 

$

233,462

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2020

 

 

46,107

 

 

$

5

 

 

 

40,000

 

 

$

4

 

 

$

121,053

 

 

$

88,637

 

 

$

18,702

 

 

$

228,401

 

Vested restricted stock grants

 

 

78

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Stock-based compensation

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-