Falcon Minerals Corporation

Falcon reported third-quarter 2021 royalty and lease revenue of $20.2 million, adjusted EBITDA of $14.7 million, and pro forma free cash flow per share of approximately $0.16. Production was 4,535 BOE/day versus 5,034 BOE/day in Q2; oil realization was $59.61/bbl, gas realization was $3.65/Mcf, and NGL realization was $33.92/bbl. Cash G&A was approximately $2.7 million, cash operating costs were $1.5 million, and the company ended the quarter with $36.5 million of revolver debt and about $3.6 million of cash, or net debt of approximately $32.9 million. The company said Q4 2021 free cash flow per share should be about $0.13 to $0.14, and it declared a $0.155 dividend payable December 8, 2021.

Bryan Gunderson said the quarter came in as expected and highlighted the strength of Falcon’s Karnes Trough assets and added Marcellus lease bonus income. He emphasized the company’s focus on generating free cash flow per share and returning most of it to shareholders through a high payout ratio. He also said Falcon is open to strategic transactions, especially larger ones, and reiterated a preference for Tier 1 assets and operators, with a continued focus on Permian and oil exposure.

Matt Ockwood detailed the quarter’s financial drivers: $20.2 million of royalty and lease revenue, a $1.3 million cash loss on commodity derivatives, and $14.7 million of adjusted EBITDA, up about $900,000 sequentially. He cited realized prices of $59.61/bbl for oil, $3.65/Mcf for gas, and $33.92/bbl for NGLs, plus $1.1 million in Marcellus lease bonus revenue. He also noted $36.5 million of debt, $3.6 million of cash, net debt of $32.9 million, and net debt to LTM EBITDA of 0.74x, while saying the balance sheet remains conservative and leverage should tighten further. On hedging, he said Falcon added gas collars for November 2021 through March 2022 at $4.20/MMBtu and remains unhedged on 2022 crude oil.

Analysts pressed management on acquisition appetite, payout ratio, hedging, and the potential timing of Hooks Ranch development. Management said it is open to strategic or even ‘shelling’ opportunities if the right deal appears, but is mainly focused on larger transactions, roughly $50 million-plus, and prefers not to retain excess cash at the expense of current shareholder returns. On Hooks Ranch, management said the dispute there appears to be nearing resolution and development could begin in the first half of 2022, though exact production timing is uncertain. On hedging, management said it intentionally chose not to add 2022 oil hedges, while using gas hedges tactically and considering hedges mainly in the context of financing any future acquisition.