STR (2019 - Q2)

Good morning. Welcome to the Falcon Minerals Second Quarter 2019 Earnings Results Call and Webcast. As a reminder, today's call is being recorded. [Operator Instructions]. It is now my pleasure to turn the floor over to Brian Begley with Falcon Minerals. Sir, you may begin. Brian Be

Good morning, everyone, and thank you for joining us for today's call to discuss Falcon's Second Quarter 2019 Results. With us today on the call is our President and Chief Executive Officer, Daniel Herz; and our Chief Financial Officer, Bryan Gunderson. Before we begin, I would like to remind everyone that during this call, we'll make certain forward-looking statements. And in its context, forward-looking statements often address our expected future business and financial performance and financial conditions and also contain words such as expect, anticipates and similar words or phrases. Forward-looking statements by their nature address matters that are uncertain and are subject to certain risks and uncertainties, which can cause actual results to differ materially from those projected in the forward-looking statements. We discussed these risks in the quarterly report on Form 10-Q, and our annual report on Form 10-K. I also would like to caution you not to place undue reliance on these forward-looking statements, which reflect management's analysis only as of the date hereof. The company undertakes no obligations to publicly update our forward-looking statements or to publicly release the results of any revisions to forward-looking statements that may be made to reflect events or circumstances after the date hereof or reflect the occurrence of unanticipated events. Additionally, in our earnings release, we have provided a reconciliation to the non-GAAP measures we refer to in our public disclosures such as adjusted EBITDA and pro forma free cash flow. Lastly, the company will be attending several investor conferences over the next few weeks, including the Tuohy Brothers Energy Conference at The Lombardy Hotel in New York on August 8th. The EnerCom Oil & Gas Conference at The Westin Downtown in Denver on August 12th and 13th and the Citi MLP and Energy Infrastructure Conference at the Encore in LasVegas, on August 14th and 15th. With that, I'll turn the call over to our CEO, Daniel Herz, for his remarks. Daniel?

Thanks, Brian. Welcome, everyone, and thank you for joining the Falcon Minerals Corporation Second Quarter 2019 Earnings Call. I would like to welcome Bryan Gunderson, our new Chief Financial Officer. For those of you who don’t already know Bryan, he joins us after having served in various financial positions at Nine Point Energy, General Electric and Lehman Brothers. I’ve known Bryan for almost a decade and I’m excited about the positive impact he’ going to have on our business and how we communicate the financial aspects of the business towards stakeholders and all of those who follow us. Welcome Bryan. You may recall on our last earnings call, I said that I believe we are – we were well positioned to deliver value in the short, medium and long term. I plan to convey that message again in my remarks today with even more specificity. Falcon Minerals is a unique company with margins in excess of 80%, zero capital expenditures, visible free cash flow growth for years to come and a fully dedicated and aligned management team focused on driving returns for Falcon Minerals shareholders. This growth results from the robust development across our core position in the current trough of the Eagle Ford Shale driven by world class operators ConocoPhillips, BP Devon and EOG as well as the organic acquisitions we have completed to date. In addition to our standalone growth, we have become a leader in consolidating minerals in the Eagle Ford Shale, and I look forward to providing further details into the accretive organic acquisitions we continue to execute upon, which I expect will further drive value and dividend growth for years to come. The [Indiscernible] of Athens famously noted, small opportunities are often the beginning of great enterprises. Now first, delivering value in the short term. We announced this morning a quarterly dividend of $0.15 for the second quarter of 2019. This second quarter dividend continues to provide shareholders with significant returns even through the trough production period we have previously discussed. Of note, during the second quarter, we had a high net revenue interest well in the Eagle Ford off line for part of the quarter, as well as certain prior period adjustments. Excluding these two factors, our oil contribution would have been in line inconsistent with prior periods, between 51% and 55% which is what we expect going forward. In less than a year, as a public minerals company, we will have paid out dividends of $0.62 which represents a yield of approximately 8% based on Friday's closing stock price. As a reminder, the first dividend we paid was pro forma, was pro-rated excuse me for a partial third quarter 2018, so a full 12 month dividend in dividend yield would have been even higher. As we will discuss, there is clear visibility to greater than 20% production and cash flow growth over the next 12 months. So now to the medium term, to properly understand the excitement we at Falcon had for growth over the next 12 months, I think it is important that we get into some of the details of what is going to drive that growth. First, in the broadest of terms, our operators ConocoPhillips, BP Devon and EOG have all continued to publicly state their plans to significantly develop our position in the Eagle Ford Shale. In fact today, approximately 50% of ConocoPhillips, BP Devon, and EOGs Eagle Ford rigs are running on our properties. That's 50%. ConocoPhillips has announced they have added a seventh rig, which should further drive production growth in 2020. They have even indicated they may add an eighth rig next year in order to reach optimal and sustained development. BP Devon has stated that they have doubled their rigs running across our position, since closing BP's acquisition from BHP. Finally, EOG continues to methodically develop their Eagle Ford position as well as their Austin Chalk position across our properties. These are the type of operators we appreciate and want driving our business, and I imagine all shareholders would want driving their minerals business. Now let's speak more specifically about what is happening across our position that is going to drive medium term growth. First, I'm pleased to report that all four Hooks Ranch permitted wells have been spotted, and in fact one well has been drilled to total depth, and all are on their way to production. As a reminder, we have a 22.5% net revenue interest in the Hooks Ranch lease, so those wells will have a significant positive impact on our production when they come online. Please note we have not included any Hooks Ranch production in our six month guidance, as we wanted to provide what I hope will prove to be a conservative forecast. Next, we currently have 11 rigs running on our properties and we're as high as twelve rigs just last week. During the second quarter of 2019, we averaged nine rigs running on our properties, which was up from an average of five rigs running during the first quarter. Furthermore, we have approximately 179 gross line-of-sight wells across our position, up approximately 19% from 150 at the time of our last earnings call. In fact, of the 179 line-of-sight wells, we have over 100 gross wells that are waiting on completion, otherwise known as ducks. These ducks are up 110% since our last quarter's earnings call. Now while gross wells are important and a helpful guide as to where production may generally head, it is important to further understand our average net revenue interest or NRI in those gross wells, which leads to our net wells. Let's first put into context our history this year. For the first quarter we reported that our operators had turned in-to-line 28 gross wells with an average NRI of 0.42% which equates to 0.12 net wells during the quarter. Subsequently, as is typical, we were informed that an additional 22 gross wells were brought online for a total of 50 gross wells in the first quarter, brought online for a total of 0.37 net wells during the first quarter. For the second quarter, we are currently aware that our operators had turned in-to-line 36 gross wells with an average NRI of 1.14% which equates to point 4 1 net wells during the second quarter. As is typical, we expect both the gross and the net wells turned in-line during the second quarter to rise. We believe that this increase in wells and other factors should further increase our second quarter production and revenue relative to what has been accrued and reported, which would be reflected in the third quarter reported results. So, to try and simply put this into context, during the first half of 2019, we had approximately 0.78 net wells turned into line, 0.78 net wells turned into line. We have 2.44 net line-of-sight wells, which should clearly drive growth in the second half of 2019 and greater than 20% production growth in 2020. To summarize, what gets us excited is the 179 line-of-sight wells, the 11 rigs running on our property, the greater than 100 wells waiting on completion, and most importantly, the fact that the average NRI of the line-of-sight wells is 1.36% with over three times line-of-sight net wells relative to the total net first half wells turned into line. Moving now to the long term for Falcon Minerals. Our asset base is in the highest returning unconventional play in the United States today for our operators, and that region commands a premium to WTI oil prices. As important, we have approximately 3000 premium undeveloped locations, which represents an inventory life of approximately 15 years. Of course, we have many more locations, which we do not categorize as premium locations as they do not exceed 100% returns to our operators. But as technological advances continue, I expect we will continue to see that inventory expand given the massive resources contained in the Eagle Ford Shale. As I previously discussed, Conoco has spoken extensively about their Eagle Ford Shale development, as we consider those comments in the long term growth profile for Falcons based business, we are very pleased by Conoco’s discussion of several more years of growth before reaching plateau [ph] production. Even more satisfying to us is the significant growth we at Falcon expect even once they reach plateau production as our position is significantly undeveloped and has an overall high net revenue interest. I am very pleased with the progress we have made on the acquisition front. We have now acquired this year over $20 million of minerals in our backyard in Eagle Ford. Those acquisitions have been accretive to our net asset value per share, and I expect will further drive production and cash flow growth over the next 12 months and beyond. We are by far the largest acquisition player focused on the Eagle Ford today. As other mineral companies are focused in other areas, we have been able to acquire core minerals at extremely favorable valuations with clear visibility on future development. We are going to continue to actively and aggressively pursue such acquisitions in the Eagle Ford, while remaining mindful of retaining a strong balance sheet. We continue to see opportunities to grow in other top tier oil weighted basins but we will only execute on those opportunities if they are meaningfully accretive to our shareholders over the short, medium and long term. As you have heard, we are very satisfied with our base business in the organic growth profile we have. We see a significant pipeline of potential acquisitions over the coming several years, and I do expect Falcon to be a leader in the mineral business in the Eagle Ford, and potentially beyond. In conclusion, I am very pleased with how Falcon Minerals is performing and is positioned to benefit over the short, medium and long term from the accelerated development and commitment of ConocoPhillips, EOG and BP Devon, as well as our execution of inorganic growth efforts. I will now hand the call over to our Chief Financial Officer, Bryan Gunderson for the financial report. Bryan?

Thanks Daniel. And thank you to everyone on the phone for joining the call. So excited to be part of the Falcon team, and I'm especially excited about the unique business model we have. As you already know, Falcon is a business that benefits from high margins, embedded growth zero capital expenditures, low leverage, premium pricing to world class operators developing our assets. These factors allow Falcon to return free cash flow through a quarterly dividend and for shareholders to benefit directly from our unique value proposition. Turning to our financial results for the quarter ending June 30th, 2019. Our assets generated $18.2 million in revenue during the period. Net production for the second quarter was 4,825 boe per day and 5,302 boe per day on average over the first half of 2019. Our oil volumes were 46% of production in the second quarter and 49% in the first six months of 2019. During the second quarter, one of our largest net revenue interest oil heavy Wells was off line for a portion of that period and has since been brought back online. This, coupled with the other factor Daniel mentioned caused a decrease in Falcon's oil production as a percentage of total production. As has been said in previous quarters, we continue to expect oil volumes in the same proportion that we have laid out in our historical guidance range of 53% to 55% of total production. For this quarter, we've expanded that range to 51% to 55% to reflect the quarter-to-quarter dynamics including our Marcellus gas contribution. Looking back at the last three quarter actuals, our oil volumes as a percent of production have ranged between 51% and 55%. As has been discussed in previous quarters, a key strength found in the Eagle Ford position is our ability to realize prices for our oil barrels at a premium to benchmark WTI. This premium was evidenced by Falcon's net oil realization for the quarter, which was approximately $4 a barrel above the average WTI price during the period. Our net realized price for oil during the second quarter was $63.84 per barrel compared to WTI, which averaged around $59.78 per barrel. Our average realized price for natural gas was $2.52 per mcf and our NGL realizations averaged $17.45 per barrel. Total cash operating costs were $8.61 per boe consistent with prior quarters. Looking at the component pieces, production and ad valorem taxes were approximately 5% of revenue for the quarter or $2.10 per boe and marketing and transportation expense was $1.29 per boe for the quarter, Cash G&A expense was approximately $2.3 million for the second quarter or $5.22 per boe. The $2.3 million of cash G&A includes approximately $285,000 of non-recurring costs included during the second quarter. Accordingly, our second quarter recurring cash G&A was approximately $2 million. This compares to approximately $2.5 million of G&A expense in the prior quarter. Adjusted EBITDA for the second quarter was $14.5 million and GAAP net income was $8.9 million including non-controlling interests. At the Falcon corporate level, income tax expense was $1.4 million for the quarter, which includes estimated current cash income taxes of approximately 400,000. Our effective tax rate is approximately 13.5% for the second quarter versus a federal statutory income tax rate of 21%. This is primarily due to a step up in tax basis in our assets that Falcon recognized as part of the transaction with Royal Resources in 2018, and a portion of net income attributable to non-controlling interest not currently taxed by Falcon Corp.[ph]. We expect to benefit from this depreciate -- depletion allowance for at least several years in the future. As of the end of the second quarter, Falcon ha $36.5 million outstanding on its revolving credit facility and $2.9 million in cash on hand resulting in a total liquidity of approximately $71 million at the end of the period. Our net debt -- net debt to LTM EBITDA was a ratio of 0.46 times. As we have stated previously, our focus is to maintain a flexible capital structure that is centered around modest leverage, without the burden of ongoing capital spending or high operating costs. Since Falcon was launched just under a year ago, Dan [ph] has remained essentially flat, while at the same time we've expanded our Eagle Ford position through accretive acquisitions. This morning, we announced a dividend of $0.15 per share for the second quarter, which reflects a payout ratio of approximately 98%. Pro forma free cash flow per share was approximately $0.16 per share for the period. We define pro forma free cash flow as adjusted EBITDA inclusive of non-controlling interests, less interest expense and pro forma cash income taxes. Our guidance outlook as described in our earnings release continues the rolling six month forecast of production related operating costs that we began in the first quarter of 2019. We currently expect average daily net production to be in the range of 5000 to 5500 boe for the second half of 2019 and we expect oil contribution to be approximately 51% to 55% of total net production. It's important to reiterate that this production range does not include any contribution or any benefit from any future Hooks ranch wells yet to be turned in line, included in the four wells that were spun in July. With that I will now turn the call back over to Daniel.

Thanks Bryan. Keith, let's open the call up for questions.

[Operator Instructions] We’ll take our first question from Jeff Grampp with Northland Capital Markets. Please go ahead.

Good morning guys.

Good morning, Jeff.

Daniel, was hoping to get a little bit more clarity or granularity if you will on the 20% 12-month production growth that you put in the release here this morning Should we interpret that to mean kind of to keep 2Q relative to 2Q 2019 or is this based on maybe second half 2020 to second 2019 just kind of want to make sure we were interpreting that comment properly.

Sure. Thank you for the question Jeff. Remember, we only give rolling six month formal guidance, but the general is greater than 20% which I think you're modeling and others modeling will show, based on our line-of-sight and our eye, and net well disclosure will show first half -- first half 2020 as compared to first half 2019 of 20% or more growth.

Got it, got it. Very helpful. And for my follow up, on the acquisition front, you know another nice quarter 10 million bucks or so like you had talked about in the past. Was curious you know kind of where these assets are in terms of their life cycle when you guys are acquiring them, like or you guys find these assets, and it looks like there is some production that is fascinating you could talk about in more specificity but are there rigs actively on these assets or do you guys have some kind of insight as to when a rig could be coming or just kind of wondering from a growth perspective when you guys are kind of getting on these and then on the production side if there is any commentary you can provide with that? Thanks.

It’s a great question. And you know you’ve got stroking at the core of what I love which is the acquisitions and the great acquisitions that we are capable of doing. So, we target generally assets in a package of assets. Overtime, that are 30% developed, 70% undeveloped. Now, that's not a perfect rule of thumb. But that's the basket we're generally targeting, 30% developed, 70% undeveloped, the way we approach acquisitions. And one of the great benefits of the Eagle Ford is the line of sight around operators, and so we use predictive analytics which I talked about in the past my other great love, to have a highly informed perspective as to when development is going to take place on certain units by certain operators. Now, we then do not use any of the benefit of those predictive analytics in doing our valuation work, rather we push out the timing of the development to the midpoint in the inventory life of this specific operator, so as to take a much more conservative approach in our valuations. So, with all that said, the acquisitions we've done, I believe you'll begin to start seeing a meaningful impact of production over a relatively short period of time. We have had -- we have not a lot of contribution currently coming from those acquisitions, but you're going to see a significant ramp-up I think over the coming 12 months. We've not embedded really much of that in our guidance. So, all that should be upside to the guidance we put forward.

Got it. Great detail. I appreciate it, Daniel.

Thanks Jeff.

Our next question is from Kyle May with CapitalOne Securities. Please go ahead.

Hey, good morning, guys.

Good morning, Kyle.

I was wondering if we could start with the well that you mentioned that was taken off line in the second quarter. Can you give us a little bit more color about the well? Was it maybe a Hooks Ranch Well or anything else that you can tell us about it?

It was not a Hooks Ranch well. The well -- we've discussed in the past quarters. Hooks Ranch, we obviously have a very high NRI at 22.5%, but we have other high NRI wells. This was a relatively high NRI well that came online late in 2018, so its still – it's was – it's in its flesh life. It was down for a good portion of the second quarter. It's back up online and it has an impact. And that's one of three factors. It really was a confluence of all three factors working together; one being a high oil well with a high NRI, down for a good portion of the quarter. Number two, in adjustment up on the natural gas side from the Marcellus and then in adjustment down on the oil side from prior period in Eagle Ford. When you put that altogether it's skewed the numbers to look out of place for the quarter. Just as a reminder, every mineral company and many other non-mineral companies, but every mineral company takes a methodology, very similar to ours if not the exact same as ours in accruing for a portion of the revenue based on the average of the prior period. And then you have to true up that prior. And that's what we're dealing with, with respect to the oil -- the natural and the natural gas. Those two factors coupled with the high NRI oil well created this confluence of factors.

Got it. That's helpful. And then, your production guidance for the back half of the year as you mentioned does not include any contribution from the new Hooks Ranch wells that have been spud. When do you expect to see production from those new wells?

So, as I mentioned, one of the wells is already drilled the total depth. We have decided to take a conservative approach as to when they'll come online. And I mean, I'm hopeful we'll see some production this year. That's my hope. I would for conservative sake, assuming early 2020. And if you want you could say February 2020. But whether it's January, February, March, it's in that timeframe from our perspective. I'm hopeful for November, December, but we'll leave it you, everybody to model it generally. Most importantly, we tried to take a conservative approach for our second half guidance.

Got it. That's very helpful. That's all from me. Thank you.

Thanks, Kyle.

We'll take our next from Betty Jiang with Credit Suisse. Please go ahead.

Good morning. Can you talk about how do the backlog of the line of sight wells today compared to what you were saying last year. I know, it's up from the first quarter level. But any specifics on what really gives the comfort [ph] at that backlog will get in line in the second half?

Hi, Betty. Nice to talk you -- nice to you as always. So, its very good question, in fact, we were running some analytics around this very point just last week. And it is typical to see as we've observed in our analytics line of sight wells rise from the first quarter to the second quarter. And then see the line of sight wells really moving the full production as we move through the second half of the year. And so, it puts us in an optimistic mood quite frankly and we think we've kind of layered in a number of conservative factors because of that, as well as the average time of wells from spud in total depth to being turned in line. We really see production and wells moving into production as we move through the second half of the year. So, what we're seeing at 179, as a reminder, we were at 150 when we were on the last earnings calls. So we're up almost 20% quarter-over-quarter from call-to-call similar type trajectory in number of wells last year both in August, as well as compared to the first quarter. And most importantly, isn't just the gross wells in the activity, but also what I alluded to you on the last call, but it has given even more specificity to you on this call which is our net revenue interest in those wells and our net well. So, we've now moved back to our average NRI. So not only do we have a big pipeline of line of sight wells at 179 and over 100 I think – 107 wells that are drilled but not completed, those wells are higher or more average NRI wells which leads and should lead to higher production as we move through this year and then bring our Hooks wells on early next year. I hope that's helpful.

Yes. That's helpful. Thanks for that. And can we just get a bit color on this accrual process and how much of the production and revenues is lived? Should we look at it as the current quarter financial is more reflective of the prior quarter activity? And you mentioned earlier there was an oil production adjustment down in second quarters? Just trying to understand what could cause something like that?

Yes. No. I would not do that. We think this is typically this is non-material. It's just when you look at it from a specific oil natural gas NGL contribution basis. It was skewed this quarter. But the way in I think describe this in the past -- the way the account is quite -- I think quite simple, or it's become simple to me. We basically have actual data and actual receipts for April and for May and for a portion of June. And for the portion that we don't have of June we take the average of the prior three months actuals. So, if you think of it we have more than we have about 75% to 80% of production is actual. And then, we're simply adjusting for what might be different relative to the prior period. Sometimes, its up, sometimes that's down, it's not usually a material factor.

Got it.

And frankly, I think we've done a very good job, and Steve Pilatzke, our Chief Accounting Officer has been fantastic with this.

Got it. So, as activity pick up in the second half, we should see directly translating into the production and showing up in a four quarter financials?

Yes. With a slight new nuance, if you don't mind which is if we for example, from certain operators see wells come online that are higher NRI wells and say, September, we may not have those receipts. And so, we would be under accruing and you wouldn't see the benefit. We've factored that into our guidance to try to be conservative. But that would be the one case. You should see production rise as we put into our guidance, but that would be the one caveat to what you're saying if you follow.

Yes. No. I understand that. Great. Thank you.

Thanks Betty.

Our next question is from Joe Allman with Baird. Please go ahead.

Thank you. Good morning everybody and thanks for your comments.

Good morning, Joe.

Hey, Daniel, let's get back to that off-line well in the Eagle Ford shale. What's the reason for that well being off-line for a good portion of the second quarter? And what's a lesson for Falcon to incorporate into your analytics?

Thank you, Joe. So, obviously we aren't the operator of that well. We don't have specific information at this point as to what brought it down, but we do have specific information and most importantly that well has remained you full operational level and is in very good shape and that's all very good news from our perspective. As far as the lesson and we certainly try to embed that within our guidance and we embedded in every acquisition we look at and that's a downtime – that's downtime for our wells and for issues that may come up from time to time. So we certainly been trying to and have embedded that as we move forward.

Okay. It's very helpful. Thanks Daniel. And then, I think you mentioned two other issues that affected second quarter. So, one is a prior period adjustment downward in the Eagle Ford and my impression is that most of the prior period adjustments were upward, but – so, could you describe this prior period adjustment that's downward in the Eagle Ford?

It's again I don't view it in the totality as material. It's just a quarterly new nuance which sometimes it goes up, sometimes it goes down. We – I mean, I really don't know how to give you more specificity other than we were truing not for a prior period or estimation for that portion of the month that we had estimated.

Got you. And then lastly, on the prior period adjustment upward which was on the gas side. So, when we look at your production, it was down but can you just described in a little bit more detail through what happened there in the Marcellus that caused that prior period adjustments be upward to somewhat skew the gas weighting higher?

Yes. It's literally – it's fairly the same thing and I don't mean to be overly vague with it. But it just happens to stand out a little bit this quarter and I just wanted to highlight it on an ongoing and over a six-month, 12 months basis. It's not going to make much of a difference. But basically it's the same thing. We under -- except in reverse in that we under accrued for that portion of natural gas in the Marcellus and we saw production rise from relative to what we had accrued for the Marcellus on the gas side.

Just – so I'm hearing is that…

Go ahead.

So, I'm hearing is that, I mean, really the big reason for the production and for the oil and gas weighting is really this well on the Eagle Ford. That's really the big factor. There's little bit of minor stuff with prior period adjustments, but it's really that well that was down for a good portion of the second quarter. Is that fair?

I think it's all three. I mean, really as to me it's all three if you put them all together that's what skewed it. If you had removed that, this is the most important thing. If you remove those factors we would have been in our guidance range for our production contribution from oil. That's it.

Got it. Okay. All right. Very helpful. Thank you.

Thanks. Appreciate it, Joe.

We'll take our next question from Welles Fitzpatrick with SunTrust. Please go ahead.

Hey, good morning.

Good morning, Welles.

Those might have been asked. But if you kind of -- you hinted at expanding beyond the Eagle Ford in size in the period comments. Can you talk whether you're actively looking at packages in other basins and what those parameters might me, whether its gas oil develop et cetera?

Sure. Appreciate the question. Number one, we are very satisfied, pleased with our asset base and visibility of growth we have within our asset base. And so we're not going to do any acquisition that isn't materially accretive our shareholders on an NAV per share basis, on a free cash flow per share basis. So we've high hurdle to the extent we were going to do in acquisition. And we generally would expect it to have pretty material impact upwards if we were do something outside of our basin. What we're clearly focused on, if we were do something would be the core of the core of the top oil rated basin, and to me that's the Eagle Ford share and the Permian, Midland and Delaware. Other basins maybe okay, but those are clearly by far of the two basins in the U.S. And it's potential that we could look elsewhere, but that really not. Those are two places we're focused. The core, we need to have top operators, clear line of sight of development. One thing that I just really thing is critical in differentiating Falcon is our operators and their size and commitment to the development of our play. We would be – I would remiss if we didn’t notice what was going on in the oil market last week, the general markets, our operators, they are like operating the Queen Mary. They're not shifting on dime. They're moving rigs up and down on a dime. They're not moving frac crews in an up and down on a dime when oil goes from 55 to 65 or 65 to 55. They have the plan and they're executing on that plan on a multiyear basis. And we at Falcon happened to benefit from being in the way of the plan in a very positive way with nice NRI acreage that they're developing and will develop over the next several years. So, we don't take that for granted. To the extent there is a deal that will bring our fans out of their seats, cheering from the rafters, we'll do it. But its hard to seeing that opportunity that could be that great. But you never know.

Yes. That makes total sense. I appreciate the details. Thank you.

Thanks. Welles.

Our next question is from Tim Howard with Stifel. Please go ahead.

Hi. Thanks for taking my questions. Just two quick ones. Could you provide a normalized 2Q production number without the few moving parts there? And then also could you remind us of the warrant adjustment that down from 11.50 [ph] I think – just kind of how that works going forward? Thanks.

Thanks, Tim. I am specifically pleased with your second question. Because I was hopeful the Bryan would be able to jump in here. And so, I'm going to stop there and ask Bryan to jump in.

Yes. Thanks for the question. So, the way that it functions is essentially on a trailing 365-day basis. Any dividends paid in an excess of $0.50 are categorized as extraordinary dividends. Those extraordinary dividends, in this case as we distributed a dividend that's $0.62 over time over the last 365 days, the $0.12 would be characterized as a extraordinary dividend and that's why you're seeing the warrant price go from 11.50 down to 11.38 that we disclosed. So, we will continue to monitor that, and continue to disclose that number as the warrant price goes down.

Great. So, Tim, as far as your first question -- nice job, Bryan. The first question, the way I would think about it, and we're not – we don't want to get into providing a pro forma production number, but you solve that yourself if you simply take our oil volumes and normalize towards our guidance range, you can see what that number would equate to and what our total production would equate to Boe basis or Boe per day basis. So, you could back into that. But we don't want to get into doing that math. We'd rather just let the numbers stand for what the number stand for. But I think you can easily solve that. But just by back solving to the guidance range on the oil.

Sounds good. Thank you.

Thanks Tim.

Thank you. Our next question comes from Jeffrey Campbell with Tuohy Brothers. Please go ahead.

Good morning, Daniel.

Good morning.

I thought you guys coming on next week, so I don't want to use up all my questions today. So, I'll -- and there's been a lot of good ones asked already. So I'll just add one and that is how many more future Hooks Ranch locations are likely to cross into the lower NRI leases in order to create longer horizontal wells?

A very good question. But I just want to point out, because I think what may under why the question is some confusion, which is it bad for us that they are crossing the line into the lower NRI location? And the answer is absolutely not. It's very good for us, because as a reminder, our Hooks locations assume 5400 feet of lateral length. And so, when they're crossing into that other unit, that's actually a high NRI unit for us, that's 3.65%. So we're actually picking up another approximately 5,000 feet of lateral length on a higher NRI unit that offset Hooks. So to us it's a very good thing. They're maximizing resource development across our positions is very positive for us. So, as far as the number of locations that exists. I mean, I'll just speak to the totality of Hooks. We see another roughly 85 undeveloped locations and that includes the current wells being drilled.

Okay, good. Actually the positive uplift was not lost on there. I just want to get that out there and have you – provide some color?

No. I've realized as I was speaking. I am probably the only negative person thinking. But I'm downside person as you know Jeff.

No. You're ending up with the higher percentage, a lower percentage of a much bigger well. So it seems like a pretty natural offsets. But I appreciate that color. And we'll see you next week.

Sounds good.

And this will concludes today's Q&A session. I'll now return the floor to Daniel Herz for any additional or closing remarks.

Thanks, Keith, and thank you everyone. We appreciate you joining the call. We look forward seeing you at the upcoming conferences or otherwise speaking to you. Speak you soon. Bye-bye.

This will conclude today's Falcon Minerals' second quarter 2019 earnings conference Call. Please disconnect your lines at this time and have a wonderful day.