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Sitio Royalties Reports Second Quarter 2022 Operational and Financial Results

Average Daily Production Volume of 12,402 Boe/d and Pro Forma Average Daily Production Volume of 15,149 Boe/d Including Falcon Minerals Volumes for the Entire Second Quarter 20221

Asset Footprint Increased by 65% to 173,800 Net Royalty Acres2

Declared $0.71 Dividend Per Share of Class A Common Stock

Active Quarter of Acquisitions, Including Closing Merger With Falcon Minerals, Closing Acquisitions of Approximately 22,000 Net Royalty Acres and Signing Acquisition of Approximately 12,200 Additional Net Royalty Acres

Additional Scale Significantly Enhances Profitability on a Per Boe Basis

Sitio Royalties Corp. (NYSE: STR) (“Sitio”, "STR" or the “Company”) today announced operational and financial results for the quarter ended June 30, 2022.

SECOND QUARTER 2022 OPERATIONAL AND FINANCIAL HIGHLIGHTS AND RECENT DEVELOPMENTS

  • Average daily production volume of 12,402 barrels of oil equivalent per day ("Boe/d"), (52% oil), up 9% sequentially from 1Q 2022; pro forma average daily production volume of 15,149 Boe/d (50% oil) including Falcon Minerals volumes for the entire second quarter 2022
  • Net income of $72.0 million, up 87% sequentially from 1Q 2022 and cash flow from operations of $43.8 million, down 2% sequentially from 1Q 2022
  • Adjusted EBITDA of $76.7 million3, up 29% sequentially from 1Q 2022 and Discretionary Cash Flow ("DCF")3 of $75.5 million, up 29% sequentially from 1Q 2022
  • Pro forma Adjusted EBITDA of $92.7 million and pro forma Discretionary Cash Flow of $91.4 million, including Falcon Minerals results for full 2Q 2022
  • Declared 2Q 2022 dividend of $0.71 per share of Class A Common Stock4; implied annualized dividend yield of 10.3% based on STR's Class A Common Stock closing price of $27.55 on August 5, 2022
  • 126.8 net producing wells online as of June 30, 2022 including net wells on acquired acreage from Momentum Minerals
  • Including activity on the acquired acreage from Momentum Minerals, 5.2 net wells turned-in-line ("TIL") during 2Q 2022, approximately 88% of which were in the Permian Basin
  • Including net line-of-sight (“LOS”) wells on acquired acreage from Momentum Minerals, 26.8 net LOS wells as of June 30, 2022, comprised of 14.4 net spuds and 12.4 net permits, with approximately 94% of total net LOS wells in the Permian Basin4
  • Completed all-stock merger with Falcon Minerals Corporation (“Falcon Merger”) for over 34,000 net royalty acres ("NRAs") and cash acquisitions of approximately $357 million for an additional 22,000 NRAs
  • Signed agreement to acquire 12,200 NRAs from Momentum Minerals, which closed in July of 2022 (“Momentum Acquisition”)

In January 2022, first half 2022 guidance was provided for Desert Peak and Falcon Minerals as if they were combined since January 1, 2022. Pro forma first half 2022 combined results for Sitio, which includes results from Falcon Minerals for the entire period, but does not include pro forma adjustments for the Foundation Acquisition and Momentum Acquisition, are shown in the table below.

1H 2022 Guidance Metric

 

Pro Forma 1H 2022 Results(1)

 

 

1H 2022 Guidance(2)

 

1H 2022 Average daily production (Boe/d)

 

 

15,317

 

 

13,500 - 14,500

 

1H 2022 Average daily production (% oil)

 

 

50.4

%

 

50.0% – 53.0%

 

1H 2022 Implied average daily oil production (Bbl/d)

 

 

7,720

 

 

6,750 - 7,685

 

1H 2022 Average daily production (% Permian)

 

 

74.9

%

 

 

73.0

%

Annualized Cash G&A ($ in millions)

 

$

13.1

 

 

$

12.0

 

(1) Includes Falcon Minerals results for the six months ended June 30, 2022.

(2) Guidance issued in January 2022 for pro forma combined company (Desert Peak Minerals and Falcon Minerals).

Chris Conoscenti, Chief Executive Officer of Sitio commented, “We are excited to announce strong results for our first quarter as a public company. Active operator development of our assets, incremental royalty revenue from acquired assets, and favorable commodity prices contributed to a successful inaugural quarter. We continued to execute well on our large-scale, Permian-weighted consolidation strategy. This was our most active quarter in our Company’s history with the closing of the Falcon Merger, the closing of the acquisition of Permian assets from Foundation Minerals, LLC ( the “Foundation Acquisition”) and two other all cash acquisitions, and the announcement of the Momentum Acquisition. In aggregate, these acquisitions increase our footprint by 65% to over 173,000 NRAs. In addition, I'm pleased to announce our inaugural dividend of $0.71 per share for the second quarter, which is based on cash flow for legacy Desert Peak Minerals and Falcon Minerals as if both entities had been combined for the entire quarter and is not burdened with transaction fees from the Falcon Merger. Our second quarter dividend per share is nearly 99% of the split adjusted dividend per share that was paid to Falcon Minerals stockholders for the first quarter of 2022, even though our target payout ratio of 65% of Discretionary Cash Flow is lower than Falcon Minerals' historical payout ratio of approximately 100%, which gives Sitio significantly more financial flexibility to protect the balance sheet and pursue accretive acquisitions.”

OPERATOR ACTIVITY AND MERGERS AND ACQUISITIONS UPDATE

During the second quarter of 2022 and inclusive of the NRAs acquired from Momentum Minerals, the Company estimates that there were 5.2 net wells turned-in-line with an average net royalty interest (“NRI”) of 0.7% and that as of June 30, 2022, there were 26.8 net LOS wells comprised of 14.4 net spuds and 12.4 net permits on the Company's acreage. Daily production volume averaged 12,402 Boe/d, which includes 24 days of production from assets acquired from Falcon Minerals and 7 days of production from assets acquired from Foundation Minerals, LLC. Second quarter 2022 pro forma combined daily production volume averaged 15,149 Boe/d including production from assets acquired from Falcon Minerals for the entire quarter but excluding additional adjustments for assets acquired in other acquisitions.

Sitio completed the all-stock merger with Falcon Minerals on June 7, 2022 and closed three all cash acquisitions during the second quarter of 2022, increasing NRAs by approximately 56,300. In June of 2022, the Company also signed a purchase agreement for approximately 12,200 Permian Basin NRAs from Momentum Minerals for approximately $224.0 million5, which closed on July 26, 2022. In aggregate, these acquired assets (including those acquired from Momentum Minerals) are expected to make a substantial impact to near-term production and cash flow, and as of June 30, 2022, these assets acquired from Foundation Minerals and Momentum Minerals had 9.0 net LOS wells, comprised of 3.4 net spuds and 5.6 net permits.

The following table summarizes Sitio's net production, net wells and net royalty acres by area:

 

 

Delaware

 

 

Midland

 

 

Eagle Ford

 

 

Appalachia

 

 

Total

 

Average Daily Production (Boe/d)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As reported for the three months ended June 30, 2022

 

 

8,875

 

 

 

2,658

 

 

 

667

 

 

 

202

 

 

 

12,402

 

% Oil

 

 

47

%

 

 

71

%

 

 

57

%

 

 

1

%

 

 

52

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pro forma including Falcon Minerals volumes for the three months ended June 30, 2022 (1)

 

 

8,875

 

 

 

2,658

 

 

 

2,760

 

 

 

856

 

 

 

15,149

 

% Oil

 

 

47

%

 

 

71

%

 

 

57

%

 

 

4

%

 

 

50

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Well Activity (normalized to 5,000' laterals)(2)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pro Forma net wells online as of June 30, 2022

 

 

70.5

 

 

 

20.1

 

 

 

33.1

 

 

 

3.1

 

 

 

126.8

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pro Forma net wells TIL for the three months ended June 30, 2022

 

 

2.4

 

 

 

2.2

 

 

 

0.6

 

 

 

-

 

 

 

5.2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pro forma net LOS wells as of June 30, 2022

 

 

14.6

 

 

 

10.5

 

 

 

1.7

 

 

 

-

 

 

 

26.8

 

Spuds

 

 

6.4

 

 

 

7.4

 

 

 

0.6

 

 

 

-

 

 

 

14.4

 

Permits

 

 

8.2

 

 

 

3.1

 

 

 

1.1

 

 

 

-

 

 

 

12.4

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Royalty Acres (normalized to 1/8th royalty equivalent)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2022

 

 

83,600

 

 

 

21,700

 

 

 

-

 

 

 

-

 

 

 

105,300

 

June 30, 2022

 

 

102,200

 

 

 

25,200

 

 

 

21,800

 

 

 

12,400

 

 

 

161,600

 

Pro forma June 30, 2022 including NRAs acquired from Momentum Minerals

 

 

110,300

 

 

 

29,300

 

 

 

21,800

 

 

 

12,400

 

 

 

173,800

 

NRA Increase since March 31, 2022

 

 

26,700

 

 

 

7,600

 

 

 

21,800

 

 

 

12,400

 

 

 

68,500

 

(1) Does not include pro forma adjustments for Foundation Acquisition and Momentum Acquisition

(2) All well counts give pro forma effect to all acquisitions completed in the quarter, in addition to the Momentum Acquisition

FINANCIAL UPDATE

Sitio's second quarter 2022 average unhedged realized prices including all expected quality, transportation and demand adjustments were $109.87 per barrel of oil, $6.55 per Mcf of natural gas and $42.29 per barrel of natural gas liquids, for a total equivalent price of $76.65 per barrel of oil equivalent. During the second quarter, the Company paid $420,000 in net cash settlements for commodity derivative contracts and as a result, average hedged realized prices were $109.35 per barrel of oil, $6.49 per Mcf of natural gas and $42.29 per barrel of natural gas liquids, for a total equivalent price of $76.28 per barrel of oil equivalent. This represents a $12.90 per barrel of oil equivalent, or 20% increase relative to hedged realized prices for the three months ended March 31, 2022.

Consolidated net income for the second quarter of 2022 was $72.0 million, an increase of 87% relative to the first quarter of 2022. Consolidated net income was positively impacted by a $20.4 million non-cash hedging gain from Sitio's commodity derivative contracts. For the three months ended June 30, 2022 Adjusted EBITDA was $76.7 million, up 29% from the three months ended March 31, 2022 primarily due to increased production volumes and commodity prices.

As of June 30, 2022, the Company had a cash balance of $15.6 million, $505.0 million of total debt (comprised of $255.0 million drawn on its revolving credit facility and a $250.0 million 364-day unsecured term loan) and liquidity of $60.6 million. In July of 2022, the Company drew an additional $175.0 million on the 364-day unsecured term loan and $10.0 million on the revolving credit facility to fund the closing of the Momentum Acquisition. Sitio is evaluating long-term debt financing options to repay the $425.0 million 364-day unsecured term loan. Sitio added hedges related to recent cash acquisitions, which are reflected in the summary table of Sitio’s commodity hedges.

 

 

Oil (NYMEX WTI)

 

 

2H22

 

 

2023

 

 

2024

 

 

1H25

Swaps

 

 

 

 

 

 

 

 

 

 

 

Total volume (Bbls)

 

 

404,800

 

 

 

1,113,250

 

 

 

1,207,800

 

 

 

199,100

Average price ($/Bbl)

 

$

106.31

 

 

$

93.71

 

 

$

82.66

 

 

$

74.65

Collars

 

 

 

 

 

 

 

 

 

 

 

Total volume (Bbls)

 

 

 

 

 

 

 

 

 

 

 

362,000

Average call ($/Bbl)

 

 

 

 

 

 

 

 

 

 

$

93.20

Average put ($/Bbl)

 

 

 

 

 

 

 

 

 

 

$

60.00

 

 

Gas (NYMEX Henry Hub)

 

 

2H22

 

 

2023

 

 

2024

 

 

1H25

Swaps

 

 

 

 

 

 

 

 

 

 

 

Total volume (MMBtu)

 

 

92,000

 

 

 

182,500

 

 

 

183,000

 

 

 

Average price ($/MMBtu)

 

$

4.63

 

 

$

3.83

 

 

$

3.41

 

 

 

Collars

 

 

 

 

 

 

 

 

 

 

 

Total volume (MMBtu)

 

 

1,104,000

 

 

 

3,102,500

 

 

 

4,172,400

 

 

 

2,099,600

Average call ($/MMBtu)

 

$

9.69

 

 

$

7.93

 

 

$

7.24

 

 

$

10.34

Average put ($/MMbtu)

 

$

6.00

 

 

$

4.82

 

 

$

4.00

 

 

$

3.31

SECOND HALF 2022 GUIDANCE UPDATE

After reviewing completed second quarter 2022 results, the Company is lowering the second half 2022 guidance ranges for gathering and transportation and cash taxes and reiterating all other guidance metrics that were previously disclosed on June 27, 2022.

 

 

Low

 

 

High

 

Average Daily Production

 

 

 

 

 

 

2H 2022 Average daily production (Mboe/d)

 

 

18.0

 

 

 

19.0

 

2H 2022 Average daily production (% oil)

 

 

50

%

 

 

53

%

 

 

 

 

 

 

 

Revenue Deductions, Expenses and Taxes

 

 

 

 

 

 

Gathering and transportation ($/boe)

 

$

1.15

 

 

$

1.65

 

Annual Cash G&A ($ in millions)

 

$

15.0

 

 

$

16.5

 

Production taxes (% of royalty revenue)

 

 

7

%

 

 

9

%

Cash tax rate (% of pre-tax income)

 

 

2

%

 

 

4

%

SECOND QUARTER CASH DIVIDEND

The Company's Board of Directors (the "Board") declared a cash dividend of $0.71 per share of Class A Common Stock for the second quarter of 2022. The dividend is payable on August 31, 2022 to all eligible stockholders at the close of business on August 18, 2022. Based on a 65% payout ratio of second quarter 2022 Discretionary Cash Flow, Sitio's quarterly dividend would have been $0.58 per Class A common share; however, the Company's Board of Directors approved a 2Q 2022 dividend of $0.71 per Class A common share, which equates to an approximate 65% payout ratio including pro forma Falcon Minerals Discretionary Cash Flow for the full three months ended June 30, 2022.

SECOND QUARTER 2022 EARNINGS CONFERENCE CALL

Sitio will host a conference call at 8:30 a.m. Eastern on Tuesday, August 9, 2022 to discuss its second quarter 2022 operating and financial results. Participants can access the call by dialing 1-888-440-5983 in the United States or 1-646-960-0202 in other locations with access code 5570483 or via webcast at https://events.q4inc.com/attendee/537881978. The conference call, live webcast and archive of the call can also be accessed through the Investor Relations section of Sitio’s website at www.sitio.com.

UPCOMING INVESTOR CONFERENCES

Members of Sitio's management team will be attending the 2022 Citi One-on-One Midstream / Energy Infrastructure Conference on August 16, 2022 and the Barclays CEO Energy-Power Conference from September 6 - 7, 2022. Presentation materials associated with these events will be accessible through the Investor Relations section of Sitio's website at www.sitio.com.

 

FINANCIAL RESULTS

Production Data

 

 

Three Months Ended

June 30,

 

 

Six Months Ended

June 30,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Production Data:

 

 

 

 

 

 

 

 

 

 

 

 

Crude oil (Mbbls)

 

 

588

 

 

 

230

 

 

 

1,123

 

 

 

420

 

Natural gas (Mmcf)

 

 

1,871

 

 

 

929

 

 

 

3,565

 

 

 

1,954

 

NGLs (Mbbls)

 

 

229

 

 

 

100

 

 

 

436

 

 

 

180

 

Total (MBOE)(6:1)

 

 

1,129

 

 

 

485

 

 

 

2,153

 

 

 

926

 

Average daily production (BOE/d)(6:1)

 

 

12,402

 

 

 

5,337

 

 

 

11,897

 

 

 

5,112

 

Average Realized Prices:

 

 

 

 

 

 

 

 

 

 

 

 

Crude oil (per Bbl)

 

$

109.87

 

 

$

62.79

 

 

$

101.37

 

 

$

59.19

 

Natural gas (per Mcf)

 

$

6.55

 

 

$

2.74

 

 

$

5.64

 

 

$

3.22

 

NGLs (per Bbl)

 

$

42.29

 

 

$

25.99

 

 

$

40.17

 

 

$

27.44

 

Combined (per BOE)

 

$

76.65

 

 

$

40.39

 

 

$

70.33

 

 

$

38.98

 

Average Realized Prices After Effects of Derivative Settlements:

 

 

 

 

 

 

 

 

 

 

 

 

Crude oil (per Bbl)

 

$

109.35

 

 

$

62.79

 

 

$

101.10

 

 

$

59.19

 

Natural gas (per Mcf)

 

$

6.49

 

 

$

2.74

 

 

$

5.60

 

 

$

3.22

 

NGLs (per Bbl)

 

$

42.29

 

 

$

25.99

 

 

$

40.17

 

 

$

27.44

 

Combined (per BOE)

 

$

76.28

 

 

$

40.39

 

 

$

70.14

 

 

$

38.98

 

 

Selected Expense Metrics

 

 

Three Months Ended

June 30,

 

 

Six Months Ended

June 30,

 

 

 

2022

 

 

2022

 

Severance and ad valorem taxes

 

 

7.9

%

 

 

7.0

%

Depreciation, depletion and amortization

 

$

17.64

 

 

$

16.39

 

General and administrative

 

$

5.91

 

 

$

4.99

 

Interest expense, net

 

$

1.72

 

 

$

1.44

 

 

Condensed Consolidated Balance Sheets

(In thousands except par and share amounts)

 

 

June 30,

 

 

December 31,

 

 

 

2022

 

 

2021

 

 

 

(Unaudited)

 

 

 

 

ASSETS

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

Cash and cash equivalents

 

$

15,618

 

 

$

12,379

 

Accrued revenue and accounts receivable, net

 

 

69,997

 

 

 

36,202

 

Prepaid assets

 

 

1,553

 

 

 

235

 

Derivative asset

 

 

7,099

 

 

 

 

Total current assets

 

 

94,267

 

 

 

48,816

 

 

 

 

 

 

 

 

Property and equipment

 

 

 

 

 

 

Oil and natural gas properties, successful efforts method:

 

 

 

 

 

 

Unproved properties

 

 

1,489,217

 

 

 

817,873

 

Proved properties

 

 

829,736

 

 

 

447,369

 

Other property and equipment

 

 

3,102

 

 

 

8,187

 

Accumulated depreciation, depletion and amortization

 

 

(153,989

)

 

 

(121,536

)

Net oil and gas properties and other property and equipment

 

 

2,168,066

 

 

 

1,151,893

 

 

 

 

 

 

 

 

Other long-term assets

 

 

 

 

 

 

Deposits for property acquisitions

 

 

22,428

 

 

 

 

Long-term derivative asset

 

 

12,217

 

 

 

 

Deferred financing costs

 

 

4,498

 

 

 

2,145

 

Other long-term assets

 

 

643

 

 

 

 

Total long-term assets

 

 

39,786

 

 

 

2,145

 

 

 

 

 

 

 

 

TOTAL ASSETS

 

$

2,302,119

 

 

$

1,202,854

 

 

 

 

 

 

 

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

Accounts payable and accrued expenses

 

$

15,444

 

 

$

4,140

 

Due to affiliates

 

 

 

 

 

442

 

Bridge loan facility payable

 

 

243,286

 

 

 

 

Total current liabilities

 

 

258,730

 

 

 

4,582

 

 

 

 

 

 

 

 

Long-term liabilities

 

 

 

 

 

 

Long-term debt

 

 

255,000

 

 

 

134,000

 

Warrant liability

 

 

3,306

 

 

 

 

Deferred tax liability

2,731

 

Deferred rent

 

 

1,117

 

 

 

1,129

 

Total long-term liabilities

 

 

262,154

 

 

 

135,129

 

 

 

 

 

 

 

 

Total liabilities

 

 

520,884

 

 

 

139,711

 

 

 

 

 

 

 

 

Temporary equity

 

 

1,664,677

 

 

 

 

Equity

 

 

 

 

 

 

Class A Common Stock, $0.0001 par value; 240,000,000 shares authorized;

12,700,770 and 0 shares issued and outstanding at June 30, 2022 and December 31, 2021, respectively

 

 

1

 

 

 

 

Class C Common Stock, $0.0001 par value; 120,000,000 shares authorized;

71,140,064 and 0 shares issued and outstanding at June 30, 2022 and December 31, 2021, respectively

 

 

7

 

 

 

 

Additional paid-in capital

116,550

 

 —

Retained earnings

 

 

 

 

 

 

Partners' Capital

 

 

 

 

 

560,622

 

Noncontrolling interests

 

 

 

 

 

502,521

 

Total equity

 

 

116,558

 

 

 

1,063,143

 

 

 

 

 

 

 

 

TOTAL LIABILITIES, TEMPORARY EQUITY AND EQUITY

 

$

2,302,119

 

 

$

1,202,854

 

 

Unaudited Condensed Consolidated Statements of Income

(In thousands)

 

 

Three Months Ended

June 30,

 

 

Six Months Ended

June 30,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

Oil, natural gas and natural gas liquids revenues

 

$

86,507

 

 

$

19,616

 

 

$

151,458

 

 

$

36,069

 

Lease bonus and other income

 

 

1,297

 

 

 

55

 

 

 

2,709

 

 

 

650

 

Total revenues

 

 

87,804

 

 

 

19,671

 

 

 

154,167

 

 

 

36,719

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Management fees to affiliates

 

 

1,371

 

 

 

1,870

 

 

 

3,241

 

 

 

3,740

 

Depreciation, depletion and amortization

 

 

19,912

 

 

 

8,936

 

 

 

35,297

 

 

 

15,801

 

General and administrative

 

 

6,675

 

 

 

1,105

 

 

 

10,662

 

 

 

1,278

 

General and administrative - affiliates

 

 

 

 

 

1,050

 

 

 

74

 

 

 

3,217

 

Severance and ad valorem taxes

 

 

6,950

 

 

 

1,453

 

 

 

10,804

 

 

 

2,574

 

Total operating expenses

 

 

34,908

 

 

 

14,414

 

 

 

60,078

 

 

 

26,610

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income from operations

 

 

52,896

 

 

 

5,257

 

 

 

94,089

 

 

 

10,109

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other expense:

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

 

(1,942

)

 

 

(218

)

 

 

(3,110

)

 

 

(524

)

Change in fair value of warrant liability

 

 

3,306

 

 

 

 

 

 

3,306

 

 

 

 

Commodity derivatives gains

 

 

20,010

 

 

 

 

 

 

18,895

 

 

 

 

Income before income tax expense

 

 

74,270

 

 

 

5,039

 

 

 

113,180

 

 

 

9,585

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income tax expense

 

 

(2,257

)

 

 

(20

)

 

 

(2,645

)

 

 

(90

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

72,013

 

 

 

5,019

 

 

 

110,535

 

 

 

9,495

 

Net income attributable to Predecessor(1)

 

 

(39,582

)

 

 

(5,019

)

 

 

(78,104

)

 

 

(9,495

)

Net income attributable to temporary equity

 

 

(26,271

)

 

 

 

 

 

(26,271

)

 

 

 

Net income attributable to Class A stockholders

 

$

6,160

 

 

$

 

 

$

6,160

 

 

$

 

(1) The Falcon Merger was accounted for as a reverse merger and a business combination for accounting purposes using the acquisition method of accounting with Desert Peak Minerals as the accounting acquirer. As such, the historical financial information included herein are based on the financial statements of Desert Peak Mineral's predecessor, Kimmeridge Mineral Fund, LP (“KMF” or the “Predecessor”) prior to our corporate reorganization. KMF is the entity where the Company's historical financial statements were generated. Prior the Falcon Merger, Desert Peak Minerals was consolidated into the results of KMF.

 

Unaudited Condensed Consolidated Statements of Cash Flow

(In thousands)

 

 

Six Months Ended June 30,

 

 

 

2022

 

 

2021

 

Cash flows from operating activities:

 

 

 

 

 

 

Net income

 

$

110,535

 

 

$

9,495

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

Depreciation, depletion and amortization

 

 

35,297

 

 

 

15,801

 

Share-based compensation

 

 

978

 

 

 

 

Change in fair value of warrant liability

 

 

(3,306

)

 

 

 

Commodity derivative gains

 

 

(18,895

)

 

 

 

Losses on settled commodity derivatives

 

 

(420

)

 

 

 

Deferred tax expense

 

 

133

 

 

 

 

Change in operating assets and liabilities:

 

 

 

 

 

 

Accrued revenue and accounts receivable, net

 

 

(21,741

)

 

 

(2,696

)

Other prepaid assets

 

 

(734

)

 

 

(25

)

Other long-term assets

 

 

350

 

 

 

 

Deferred financing costs

 

 

 

 

 

141

 

Accrued expenses and other liabilities

 

 

(13,374

)

 

 

(310

)

Due to affiliates

 

 

(380

)

 

 

1,279

 

Other long-term liabilities

 

 

(12

)

 

 

(23

)

Net cash provided by operating activities

 

 

88,431

 

 

 

23,662

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

Acquisition of Falcon, net of cash

 

 

4,484

 

 

 

 

Predecessor cash not contributed in the Merger

 

 

(15,229

)

 

 

 

Purchases of oil and gas properties

 

 

(356,799

)

 

 

(1,918

)

Proceeds from sales of oil and gas properties

 

 

 

 

 

(63

)

Purchases of other property and equipment

 

 

(676

)

 

 

 

Deposits for property acquisitions

 

 

(22,428

)

 

 

(2,325

)

Net cash provided by (used) in investing activities

 

 

(390,648

)

 

 

(4,306

)

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

Borrowings on credit facility

 

 

156,895

 

 

 

 

Repayments on credit facility

 

 

(79,000

)

 

 

(23,600

)

Borrowings on bridge loan facility

 

 

250,000

 

 

 

 

Bridge loan facility issuance costs

 

 

(6,281

)

 

 

 

Issuance of equity in consolidated subsidiary

 

 

 

 

 

1,467

 

Contributions of partners' capital received in advance

 

 

 

 

 

1,463

 

Distributions to noncontrolling interests

 

 

(13,318

)

 

 

 

Payments of deferred financing costs

 

 

(2,830

)

 

 

(29

)

Deferred initial public offering costs

 

 

(10

)

 

 

 

Net cash provided by (used) in financing activities

 

 

305,456

 

 

 

(20,699

)

 

 

 

 

 

 

 

Net change in cash and cash equivalents

 

 

3,239

 

 

 

(1,343

)

Cash and cash equivalents, beginning of year

 

 

12,379

 

 

 

7,531

 

Cash and cash equivalents, end of period

 

$

15,618

 

 

$

6,188

 

Non-GAAP financial measures

Adjusted EBITDA, Discretionary Cash Flow and Cash G&A are non-GAAP supplemental financial measures used by our management and by external users of our financial statements such as investors, research analysts and others to assess the financial performance of our assets and their ability to sustain dividends over the long term without regard to financing methods, capital structure or historical cost basis.

We define Adjusted EBITDA as net income (loss) plus (a) interest expense, (b) provisions for taxes, (c) depreciation, depletion and amortization, (d) non-cash share-based compensation expense, (e) impairment of oil and natural gas properties, (f) gains or losses on unsettled derivative instruments, (g) change in fair value of the warrant liability, (h) write off of deferred offering costs, (i) management fee to affiliates, and (j) one-time transaction costs. Adjusted EBITDA is not a measure determined by accounting principles generally accepted in the United States of America (“GAAP”).

We define Discretionary Cash Flow as Adjusted EBITDA, less cash interest expense and cash taxes.

We define Cash G&A as general and administrative expense less (a) non-cash share-based compensation expense and (b) one-time transaction costs.

These non-GAAP financial measures do not represent and should not be considered an alternative to, or more meaningful than, their most directly comparable GAAP financial measures or any other measure of financial performance presented in accordance with GAAP as measures of our financial performance. Non-GAAP financial measures have important limitations as analytical tools because they exclude some but not all items that affect the most directly comparable GAAP financial measure. Our computations of Adjusted EBITDA, Discretionary Cash Flow and Cash G&A may differ from computations of similarly titled measures of other companies.

The following table presents a reconciliation of Adjusted EBITDA to the most directly comparable GAAP financial measure for the period indicated (in thousands).

 

 

Three Months Ended

June 30,

 

 

2022

Net income

 

$

72,013

Interest expense, net

 

 

1,942

 

Income tax expense

 

 

2,257

Depreciation, depletion and amortization

 

 

19,912

EBITDA

 

$

96,124

Non-cash share-based compensation expense

 

 

978

Gains on unsettled derivative instruments

 

 

(20,429

)

Change in fair value of warrant liability

 

 

(3,306

)

Management fees to affiliates

 

 

1,371

One-time transaction costs

 

 

1,979

Adjusted EBITDA

 

$

76,717

Falcon Minerals EBITDA April 1 to June 6

 

 

15,938

Pro forma Adjusted EBITDA

 

$

92,655

The following table presents a reconciliation of Discretionary Cash Flow to the most directly comparable GAAP financial measure for the period indicated (in thousands).

 

 

Three Months Ended

June 30,

 

 

 

2022

 

Cash flow from operations

 

$

43,828

 

Interest expense, net

 

 

1,942

 

Income tax expense

 

 

2,257

 

Deferred tax expense

 

 

(133

)

Changes in operating assets and liabilities

 

 

25,473

 

Management fees to affiliates

 

 

1,371

 

One-time transaction costs

 

 

1,979

 

Adjusted EBITDA

 

$

76,717

 

Less:

 

 

 

Cash interest expense

 

 

826

 

Cash taxes

 

 

428

 

Discretionary Cash Flow

 

$

75,463

 

Falcon Minerals Discretionary Cash Flow April 1 to June 6

 

 

15,938

 

Pro forma Discretionary Cash Flow

 

$

91,401

 

The following table presents a reconciliation of Cash G&A to the most directly comparable GAAP financial measure for the period indicated (in thousands).

 

 

Three Months Ended

June 30,

 

 

 

2022

 

General and administrative expense

 

$

6,675

 

Non-cash share-based compensation expense

 

 

978

 

One-time transaction costs

 

 

1,979

 

Cash G&A

 

$

3,718

 

Footnotes

  1. Average daily production volume includes actual production for the three months ended June 30, 2022 of legacy Desert Peak Minerals and Falcon Minerals from June 7, 2022 through June 30, 2022, which represents the time period subsequent to the closing of the Falcon Minerals merger. Pro forma average daily production includes actual three months ended June 30, 2022 average daily production plus average daily production from Falcon Minerals from April 1, 2022 through June 6, 2022 (the day before closing of the Falcon Minerals merger). Pro forma average daily production does not include volumes associated with the Foundation Acquisition prior to the closing date of June 24, 2022 or any production associated with the Momentum Acquisition.
  2. Net royalty acres includes Momentum Acquisition, which closed on July 26, 2022.
  3. Adjusted EBITDA and Discretionary Cash Flow are non-GAAP financial measures. For definitions of such measures and reconciliations to their most directly comparable GAAP financial measures, please see “Non-GAAP financial measures.” Implied 2Q 2022 dividend of $0.58 per share of Class A Common Stock based on a 65% payout ratio of Discretionary Cash Flow for 2Q 2022. Sitio Royalties Board of Directors approved a 2Q 2022 dividend of $0.71 per share of Class A Common Stock based on pro forma Discretionary Cash Flow, which includes Falcon Minerals cash flows for the full three months ended June 30, 2022.
  4. Net wells normalized for 5,000 foot lateral length.
  5. Excludes customary closing adjustments which reduced the purchase price.

About Sitio Royalties Corp.

Sitio is a shareholder returns-driven company focused on large-scale consolidation of high-quality oil & gas mineral and royalty interests across premium basins, with a diversified set of top-tier operators. With a clear objective of generating cash flow from operations that can be returned to stockholders and reinvested, Sitio has accumulated over 173,000 NRAs through the consummation of over 180 acquisitions to date. More information about Sitio is available at www.sitio.com.

Forward Looking Statements

This new release contains statements that may constitute “forward-looking statements” for purposes of federal securities laws. Forward-looking statements include, but are not limited to, statements that refer to projections, forecasts, or other characterizations of future events or circumstances, including any underlying assumptions. The words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intends,” “may,” “might,” “plan,” “seeks,” “possible,” “potential,” “predict,” “project,” “prospects,” “guidance,” “outlook,” “should,” “would,” “will,” and similar expressions may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking. These statements include, but are not limited to, statements about expected benefits of acquisitions as well as future plans, expectations and objectives for the Company’s operations, including statements about strategy, synergies, future operations, financial position, prospects, and plans. While forward-looking statements are based on assumptions and analyses made by us that we believe to be reasonable under the circumstances, whether actual results and developments will meet our expectations and predictions depend on a number of risks and uncertainties that could cause our actual results, performance, and financial condition to differ materially from our expectations and predictions. See “Risk Factors” in the Company’s definitive proxy statement filed with the U.S. Securities and Exchange Commission (the “SEC”) on May 5, 2022 for a discussion of risk factors related to the Falcon Merger. See also Part I, Item 1A “Risk Factors” in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021 and Part II, Item 1A “Risk Factors” in any subsequent Quarterly Reports on Form 10-Q, each filed with the SEC for a discussion of risk factors that affect the Company’s business. Any forward-looking statement made in this news release speaks only as of the date on which it is made. Factors or events that could cause actual results to differ may emerge from time to time, and it is not possible to predict all of them. Sitio undertakes no obligation to publicly update any forward-looking statement, whether as a result of new information, future development, or otherwise, except as may be required by law.

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