Falcon Minerals Corporation Reports Fourth Quarter and Full Year 2018 Financial Results

Source Quarterly Report
Company Falcon Minerals Corporation 
Tags Asset Deals, Deals, Shale Oil, Shale Gas, Eagle Ford, Unconventional Resources, Upstream Activities, Guidance
Date February 26, 2019
  • Net production in the fourth quarter 2018 was approximately 6,100 barrels of oil equivalents per day (boe/d), an increase of 33% over the fourth quarter 2017 (1); full year 2018 net production increased approximately 22% compared to the full year 2017 (1)
  • Adjusted EBITDA was $21.6 million for the fourth quarter 2018, an increase of 12%compared to the fourth quarter 2017 (3)
  • Fourth quarter 2018 Net Income was $14.6 (2) million, or $0.14 per Class A share
  • Fourth quarter 2018 dividend declared of $0.20 per share, to be paid on February 28thto all shareholders of record on February 21st
  • Net debt-to-annualized EBITDA ratio was 0.16x for the fourth quarter 2018
  • Falcon will host fourth quarter 2018 conference call at 9:00 AM ET on Wednesday, February 27, 2019

Falcon Minerals Corporation (“Falcon” or the “Company”) (NASDAQ: FLMN, FLMNW) today announced earnings results for the fourth quarter and full year 2018.

“We are pleased to report our fourth quarter and full year 2018 results, with the fourth quarter representing our first full period at Falcon,” stated Daniel Herz, President and Chief Executive Officer. “Our asset base, anchored in the core of the Eagle Ford Shale, continues to generate cash flow at substantial margins from our oil & gas royalty interests. We are encouraged by recent comments from our best-in-class operators across our Eagle Ford position, as well their respective outlooks. Net production in 2018 increased by 22% on a year over year basis (1), demonstrating our growth potential. Additionally, we have begun to execute on our organic acquisition strategy, closing over $10 million in additional Eagle Ford royalty interests in the last several months. As we move forward, Falcon is well-positioned with strong cash returns to shareholders, minimal leverage and a robust inventory of high-margin assets in the Eagle Ford.”

     
(1)    Comparisons made to fourth quarter and full year 2017 are based only on the assets acquired by Falcon in the Royal Resources transaction in August 2018. 
(2)    Net income shown includes amounts attributable to non-controlling interests 
(3)    Please refer to the disclosure on page 8 for the Reconciliation of Net Income to Non-GAAP Measures. 
     

Financial and Operating Results

Earnings Results

  • On a GAAP basis, Net Income was $14.6 million(1), or $0.14 per Class A common share, for the fourth quarter 2018. Falcon generated royalty revenue of $26.3 million for the fourth quarter 2018.
  • The Company reported Adjusted EBITDA (a non-GAAP measure as defined and reconciled on pages 8-9) of $21.6 million for the fourth quarter 2018.
  • Cash operating costs for the fourth quarter 2018 were $8.42 per barrel of oil equivalent (“boe”). The increase in operating costs from the prior quarter was primarily due to approximately $0.8 million in certain non-recurring and increased general and administrative expenses incurred during the fourth quarter, related primarily to the transition of Falcon’s initial business operations from the previous third-party management agreement to internally operated management.

Production Results

  • Falcon’s net production averaged 6,077 boe/d for the fourth quarter 2018, an increase of approximately 33% compared to the fourth quarter 2017, and full year 2018 net productionof 5,716 boe/d increased by 22% over full year 2017 (2). Net production for the fourth quarter 2018 was 76% oil by revenue and 56% oil by volume.
  • Falcon has recently averaged 160 line-of-sight wells in various stages of development on its Eagle Ford minerals position, and 235 wells were turned in line during 2018.
  • Falcon’s net realized price for crude oil was $65.43 per barrel (“bbl”) in the fourth quarter 2018. The Company receives revenue based primarily on Louisiana Light Sweet crude (“LLS”) pricing on production generated from the Eagle Ford Shale. LLS currently trades at a premium to West Texas Intermediate crude (“WTI”) and averaged approximately $7.50/bbl over WTI during the fourth quarter 2018. The Company’s realized price for natural gas during the quarter was $3.63 per thousand cubic feet (“mcf”) and $28.49/bbl for natural gas liquids (“NGLs”).

Capitalization & Liquidity

As of December 31, 2018, the Company had $21.0 million of borrowings on its $115 million revolving credit facility, and $7.3 million of cash. Falcon’s net debt-to-annualized EBITDA ratio was 0.16x for the fourth quarter 2018.

     
(1)    Net income shown includes amounts attributable to non-controlling interests 
(2)    Comparisons made to fourth quarter and full year 2017 are based only on the assets acquired by Falcon in the Royal Resources transaction in August 2018. 
     

Reserve Summary for the Year Ended December 31, 2018

As of December 31, 2018, net proved oil and gas reserves were approximately 27.7 million barrels of oil equivalent (MMboe), based on the Securities and Exchange Commission (SEC) average net realized price assumptions of $66.12/bbl for oil, $25.34/bbl for NGLs, and $3.19/mcf for natural gas. Falcon’s year end 2018 proved reserves were valued at a PV-10 amount of approximately $659 million, and approximately 66% of the Company’s proved reserves were oil and NGLs.

Summary of proved reserves as of December 31, 2018

                     
        Oil (Mbbl)    Gas (MMcf)    NGLs (Mbbl)    Total MBoe 
Proved developed reserves        3,857    18,700    1,293    8,267 
Proved undeveloped reserves        11,355    37,485    1,870    19,473 
Total proved reserves at December 31, 2018        15,212    56,185    3,163    27,740 
                     

Reconciliation of proved reserves for 2018

                 
    Oil (Mbbl)    Gas (MMcf)    NGLs (Mbbl)    Total MBoe 
Proved reserves at December 31, 2017 (1)    15,914    52,562    3,342    28,016 
Pricing and performance revisions of existing reserves    417    7,538    86    1,760 
Acquired properties    23    83    13    50 
Production    (1,142)    (3,999)    (277)    (2,086) 
Proved reserves at December 31, 2018    15,212    56,185    3,163    27,740 
                 
Changes in reserves net of production    440    7,621    99    1,810 
                 
(1)    Proved reserves as of December 31, 2017 are pro forma for contributed entities as of December 31, 2017, reduced by divestitures prior to the August 23, 2018 closing of Falcon’s transaction with Royal Resources. 
     

Guidance Summary

As previously announced, the Company has provided forward six-month guidance based upon expectations for producer activity on Falcon’s net royalty positions.

       
Forecast for first half of 2019 (Q1 2019 – Q2 2019)      Guidance Range 
       
Net production per barrel of oil equivalent per day (boe/d) (2)      5,300 – 5,800 
% Oil of net production      53% - 55% 
       
Operating costs:       
Production and ad valorem taxes (% of revenue)      4.0% – 5.0% 
Marketing and transportation ($/boe)      $1.00 – $1.50 
General and administrative ($/boe)      $3.70 – $4.20 
Depletion expense (3) ($/boe)      $7.00 – $8.00 
 
Capital expenditures:      N/M 
       
     
(2)    The forecasted 1H19 net production range does not include any contribution from additional Hooks Ranch wells connected in the future. 
(3)    The depletion expense forecast range above is shown on a book basis; the equivalent range on a tax basis would be in a range of $28.00 – $32.00 per boe. 
     

Recent Royalty Acquisitions

During the fourth quarter 2018 and first quarter of 2019 to date, Falcon commenced its organic acquisition strategy, purchasing approximately 60 net royalty acres (4) (5,304 gross unit acres) for an aggregate price of $10.7 million, primarily from available cash. The acquired properties include 13 line-of-sight wells in various stages of development. Notably, 47 net royalty acres (3,394 gross unit acres) of the acquired assets are in eastern Karnes County, TX and are currently being developed by ConocoPhillips. This Karnes County position has 14 producing wells with over 50 additional undeveloped Lower Eagle Ford locations.

     
(4)    Calculated as Net Mineral Acres * Lease Royalty Rate; does not assume 1/8th normalization 
     

Fourth Quarter 2018 Dividend

On February 6, 2019, the Board of Directors of the Company approved Falcon’s dividend of $0.20 per Class A share for the fourth quarter 2018. During the fourth quarter 2018, the Company generated Pro-forma Free Cash Flow per share of $0.23 (5). The pro-forma adjustments assume that the non-controlling interests are converted to Class A common shares, such that 85.9 million Class A shares would be outstanding. The dividend for the fourth quarter 2018 will be paid on February 28, 2019 to all Class A shareholders of record on February 21,2019.

     
(5)    Please refer to the disclosure on page 8 for the Reconciliation of Net Income to Non-GAAP Measures. 
     

Conference Call Details

Falcon management invites investors and interested parties to listen to the conference call to discuss fourth quarter 2018 results on Wednesday, February 27, 2019 at 9:00 am ET. Participants for the conference call should dial (877) 876-9173 (International: (785) 424-1667) and use the confirmation code “FLMNQ418”. The Falcon earnings call is also accessible via webcast on the Company’s website on  in the Investor Relations section. A supplemental investor presentation for the earnings call is available on the Falcon website in the Events & Presentations page of the Investor Relations section. To access the replay of the conference call, investors and interested parties can call 800-839-2488 (International: (402) 220-7224).

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