Sitio Royalties (US:STR)2021-08-08 09:52Financial Data and Key Metrics Changes - Reported production was 5,034 BOE per day, representing a 22% increase from the first quarter [9] - Free cash flow per share, excluding one-time costs, was $0.153, a 48% increase from the first quarter [10] - The second quarter dividend was $0.15 per share, reflecting a 50% increase compared to the first quarter [11] - Net income for the second quarter was $3.6 million on a standalone basis and $7.2 million including non-controlling interest [24] - Adjusted EBITDA for the second quarter was $13.8 million, an increase of $4.3 million from the first quarter [23] Business Line Data and Key Metrics Changes - The increase in production was driven by high NRI wells turned in line late in the first quarter and early in the second quarter [9] - Falcon's assets generated $18.9 million in royalty revenue during the second quarter [19] - ConocoPhillips grew production in the Eagle Ford by 21% compared to the first quarter and 24% cumulatively since the fourth quarter of 2020 [20] Market Data and Key Metrics Changes - Falcon's net realized price for oil during the second quarter was $64.45 per barrel, with natural gas at $2.79 per MCF and NGL at $25.23 per barrel [21] - Cash operating costs for the second quarter were $1.6 million, with marketing and transportation expenses at $1.03 per barrel [22] Company Strategy and Development Direction - The management emphasizes the need for diversification and scale, viewing Falcon as an attractive combination vehicle for assets held in private hands [32] - The company aims to enhance free cash flow on a per share basis while remaining disciplined in managing the existing portfolio and considering growth opportunities [18] Management's Comments on Operating Environment and Future Outlook - Management is optimistic about the resolution of disputes affecting the Hooks Ranch position, anticipating development in 2022 [17] - The company expects free cash flow per share to remain healthy, projecting between $0.13 and $0.15 for the third quarter [13] - Management is cautious about providing broad guidance for 2022, indicating that more information will be available in the November call [38] Other Important Information - The balance on the revolving credit facility decreased by $4 million quarter-over-quarter, with net debt to LTM EBITDA at 0.92 times [12] - More than 50% of dividends paid to Class A shareholders in 2021 will be classified as non-dividend distributions, affecting tax basis for shareholders [25] Q&A Session Summary Question: Importance of diversification and strategy for achieving it - Management believes diversification and scale are beneficial and sees Falcon as an attractive vehicle for acquiring private assets [32] Question: Outlook for 2022 based on current activity - Management refrains from providing broad guidance for 2022, indicating more clarity will come in the November call [38] Question: Trends in payout ratio and future plans - Management acknowledges the high payout ratio but does not plan to reduce it at this time, despite observing peers throttling back [41] Question: Thoughts on base and variable dividends - Management is focused on maintaining full payouts to shareholders and is not currently considering a shift to a base and variable dividend structure [43] Question: A&D opportunities and strategic focus - Management is more focused on larger acquisition opportunities rather than smaller ground game transactions [49] Question: Hedging strategy moving forward - Management is considering opportunities for hedging, particularly in winter gas, but has not added new hedges recently [50][52] Question: Production updates from Devon and rig activity - Positive production increases were noted from Devon, with expectations for continued activity in the Eagle Ford [58]