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Sitio Royalties Reports Second Quarter 2022 Operational and Financial Results

·12 min read

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

DENVER, August 08, 2022--(BUSINESS WIRE)--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