Falcon Minerals Corp: Overlooked Oil & Gas Stock Yields 7.9%
Here’s Why Falcon Minerals Stock’s Dividend Will Rise
Falcon Minerals Corp (NASDAQ:FLMN) is probably only really overlooked because it only went public a few years ago. That said, with a market cap of $416.0 million, it’s not exactly a small oil and gas exploration/production company. If anything, it has one of the most enviable mineral and royalty interests in the Eagle Ford Shale in south Texas and the Marcellus Shale in Pennsylvania.
For investors, Falcon Minerals is uniquely well situated, with growing production, no capital expenditures, and significant free-cash-flow growth. That bodes well for the FLMN stock price and dividend, which currently stands at 7.9%.
Falcon Minerals owns mineral, royalty, and overriding royalty interests covering approximately 256,000 gross-unit acres in the “core-of-the-core” of the Eagle Ford Shale and Austin Chalk in Karnes County, DeWitt County, and Gonzales County in Texas. Here, the company has more than 3,000 drilling locations. (Source: “Investor Presentation: May 2021,” Falcon Minerals Corp, last accessed July 23, 2021.)
Key operators in the company’s Eagle Ford territory include ConocoPhillips (NYSE:COP), which has a 10-year commitment. In September 2020, ConocoPhillips said it was focused on the Eagle Ford, which represents the company’s lowest cost of supply.
BP plc (NYSE:BP) and Devon Energy Corp (NYSE:DVN) have more than 10 years of inventory life in the Eagle Ford. They expect to bring 40 new wells online throughout the remainder of 2021.
Meanwhile, EOG Resources Inc (NYSE:EOG) says its Eagle Ford property is a bellwether asset in a “growth phase,” with more than 10 years of inventory remaining. EOG is currently running four rigs and has a targeted enhanced oil recovery program with more than 200 wells identified.
Falcon Minerals Corp’s Appalachia assets are located in the core of the Utica and Marcellus under premier operators. The company owns approximately 80,000 gross-unit acres with 421 producing wells.
Solid First-Quarter Results
In May, Falcon Minerals announced first-quarter net income of $500,000, adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of $9.5 million, and pro-forma free cash flow of $0.103 per share. (Source: “Falcon Minerals Corporation Reports First Quarter Financial Results And Declares Quarterly Dividend,” Falcon Minerals Corp, May 5, 2021.)
The company reported net production of 4,116 barrels of oil equivalent per day for the first quarter of 2021, of which approximately 49% was oil. Eagle Ford production was approximately 60% oil during the first quarter of 2021.
Falcon had 60 gross wells turned in line (1.23 net wells), with an average net royalty interest (NRI) of approximately two percent during the first quarter of 2021.
During the three-month period, Falcon Minerals Corp realized $56.69 per barrel for crude oil, $3.24 per thousand cubic feet for natural gas, and $23.70 per barrel for natural gas liquids.
Daniel Herz, president and CEO, commented, “We are very satisfied with the first quarter performance where Free Cash Flow per share grew 28% over the fourth quarter 2020, despite the impacts of Winter Storm Uri.” (Source: Ibid.)
He added, “Looking ahead, we expect the second quarter of 2021 to benefit from a full quarter of production from our high NRI locations, and substantial additional wells. These high NRI locations, which have already been turned in line late in the first quarter, will drive meaningful production growth and we continue to see Free Cash Flow approximately doubling from fourth quarter 2020 levels in the second quarter 2021.”
Based on current commodity prices, Falcon Minerals expects to report $0.15 of free cash flow per share in the second quarter.
Falcon Minerals Corp Raises Quarterly Dividend by 33%
Falcon Minerals’ board of directors declared a dividend of $0.10 for the first quarter of 2021. This represents a 33% increase over the $0.075 paid out during the prior quarter. Falcon Minerals stock’s payout is, of course, dependent on the price of oil and natural gas, so it will fluctuate quarter-to-quarter.
(Source: “Dividends,” Falcon Minerals Corp, last accessed July 23, 2021.)
Still, in the current economic environment, where oil prices are robust, the company said that, given its performance in the first quarter, growth in the second quarter, and robust line-of-sight wells, it continues “to be excited about Falcon’s ability to generate, and hand back, substantial Free Cash Flow in the near, medium, and long term.” (Source: Falcon Minerals Corp, May 5, 2021, op. cit.)
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The Lowdown on Falcon Minerals Corp
Falcon Minerals Corp is an oil and gas exploration/production company that holds huge mineral positions in the most oil-rich regions of the U.S. Best of all, leading oil and gas companies do all the heavy lifting. That leaves Falcon Minerals with a strong balance sheet, growing production, no capital expenditures, and significant free-cash-flow growth.
That helps FLMN stock provide investors with reliably frothy, high-yield dividends. With commodity prices on the rise, investors should see Falcon Minerals stock’s quarterly distributions rise over the coming quarters.