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Falcon Minerals Corporation Reports Fourth Quarter and Full Year 2019 Financial Results

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.

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%.

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

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

     

Reconciliation of proved reserves for full year 2019

 

 

 

 

 

 

 

 

 

 

Total

 

Oil (Mbbl)

 

 

Gas (MMcf)

 

 

NGLs (Mbbl)

 

 

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.

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.

FALCON MINERALS CORPORATION    
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS    
(In thousands, except per share amounts)    
(Unaudited)    
   
 

Three Months Ended

 

Year Ended

 
 

December 31,

 

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

FALCON MINERALS CORPORATION  
CONSOLIDATED BALANCE SHEETS  
(In thousands)  
(Unaudited)  
  
 

December 31,

 

December 31,

ASSETS  

2019

 

2018

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

 
Reconciliation of Adjusted EBITDA and Pro-forma Free Cash Flow from Net Income (in thousands, except per share amounts):
  
 Fully Converted
 Three MonthsPer Share Basis
 EndedThree Months Ended
 December 31, 2019December 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

 

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.

FALCON MINERALS CORPORATION  
SELECTED OPERATING DATA  
(Unaudited)  
  
 

Three Months Ended

 

Year Ended

 

December 31,

 

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

 

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Contacts

Falcon Minerals Contact:
Bryan C. Gunderson
Chief Financial Officer
bgunderson@falconminerals.com