Sitio Royalties (US:STR)2022-02-26 18:02Financial Data and Key Metrics Changes - The company distributed over $1.50 per share to shareholders in 2021, with a 14% increase in the first quarter 2022 base dividend to $0.16 per share per quarter [8][9] - Daily production for Q4 2021 was 9,170 barrels of oil equivalent per day, up 1% sequentially, with a slight increase in oil cut to 51% [28] - Record royalty revenue of $47 million for Q4 2021, up 16% sequentially, driven by a 15% improvement in realized pricing [28] - Net income for Q4 2021 was just under $22 million, with record adjusted EBITDA of $39.6 million, up 13% sequentially [29] Business Line Data and Key Metrics Changes - The company deployed approximately $150 million in acquisition capital during 2021, including a significant deal in the DJ Basin totaling approximately $9.8 million [10] - The net activity well inventory grew by approximately 65% to 12.9 net locations, setting a company record [11] - The net DUCs in inventory at the end of Q4 2021 grew by 23% to 7.4 net locations [24] Market Data and Key Metrics Changes - The company anticipates a full year 2022 production range of 11,300 to 12,000 barrels of oil equivalent per day, representing year-over-year growth of greater than 25% [26] - Realized pricing for Q4 2021 was $55.76 per BOE, with oil at $75.87 per barrel and gas at $5.28 per Mcf [28] Company Strategy and Development Direction - The company is positioned to capture significant value in the ongoing energy super cycle, similar to the 1970s, with a focus on U.S. shale, particularly the Permian Basin [12][13] - The company aims to continue its disciplined capital allocation strategy while pursuing accretive acquisition opportunities [31] Management's Comments on Operating Environment and Future Outlook - Management expressed concerns about supply chain disruptions and labor shortages impacting the industry's ability to ramp up production significantly [46] - The company is confident in its ability to generate substantial cash flows and returns for investors, emphasizing the importance of capital flowing into the industry [45] Other Important Information - The company has closed four divestiture transactions totaling $21 million, which will be redeployed to ground game acquisitions [22] - The company exited Q4 2021 with $21 million in cash and $93 million drawn on its revolving credit facility, resulting in a leverage of 0.5x net debt to last quarter annualized adjusted EBITDA [31] Q&A Session Summary Question: Can you speak to the amount of production you're assuming for 2022 associated with the ground game success? - Management indicated that starting 2022 with Q4 production volumes of roughly 9,200 barrels a day, layering on the DJ transaction and Midland Basin transaction, leading to a run rate of about 10,600 barrels a day [37][38] Question: What are your macro concerns regarding current DUC levels? - Management expressed concerns about the political and cultural biases restricting capital flows to the industry, impacting energy prices and national security [44][46] Question: Can you talk about the benefits of scale for the business? - Management noted opportunities for improving liquidity and scale through larger transactions, emphasizing the efficiency of their team in evaluating deals [53][54] Question: Is there any interest in adding oil hedges at current levels? - Management stated they are currently unhedged but may consider hedging if they take on term debt to ensure downside protection for equity holders [60][61] Question: How does the disciplined acquisition strategy show up in terms of financial performance? - Management highlighted a greater than 25% improvement in production volumes in 2022 as a clear indicator of the quality of the portfolio and acquisitions [57] Question: Can you provide color on the potential for further portfolio optimization? - Management confirmed ongoing opportunities for divestitures and redeploying capital to more productive areas, particularly in the Permian Basin [73]