Falcon Minerals Corporation (FLMN) Q2 2019 Earnings Call Transcript

FLMN earnings call for the period ending June 30, 2019.

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Aug 5, 2019 at 9:24PM
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Falcon Minerals Corporation (NASDAQ:FLMN)
Q2 2019 Earnings Call
Aug 05, 2019, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Good morning, and welcome to 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 Begley -- Investor Relations

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 contains words such as expects, 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'd also 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 Lombardi hotel in New York on August 8th; the EnerCom Oil and Gas Conference at the Westin Downtown in Denver on August 12th and 13th; and the City MLP, and Energy Infrastructure Conference at the Encore in Las Vegas on August 14th and 15th. With that, I'll turn the call over to our CEO Daniel Herz, for his remarks. Daniel?

Daniel Herz -- President and Chief Executive Officer

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's going to have on our business, and how we communicate the financial aspects of the business to our stakeholders in 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 Karnes' 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 stand-alone growth, we have become a leader in consolidating minerals in the Eagle Ford shale. And I look forward to providing further details in to the accretive organic acquisitions we continue to execute upon, which I expect will further drive value and dividend growth for years to come.

Demosthenes 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 return, 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 offline for part of the quarter, as well as, certain prior period adjustments. Excluding these two factors, our oil contribution would have been in line and consistent 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 prorated, excuse me, for a partial third-quarter 2018.

So a full 12-month dividend and dividend yield would have been even higher. As we will discuss, there is clear visibility to greater than 20% production in cash flow growth over the next 12 months. So now over to the medium term. To properly understand the excitement we at Falcon have 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 Eagle Ford shale. In fact, today, approximately 50% of ConocoPhillips, BP Devon, and EOG's Eagle Ford rigs are running under our properties. That's 50%. ConocoPhillips has announced they have added a 7th rig, which should further drive production growth in 2020.

They have even indicated they may add an 8th 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 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 spud. 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 12 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 DUCs. These DUCs are up 110% since our last quarter's earnings call.

Now while our gross wells are important, and their help will guide us 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 in the context our history this year. For the first quarter, we reported that our operators had turned in the 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 the line 36 gross wells with an average NRI of 1.14%, which equates to 0.41 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 increasing 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 in the line, 0.78 net wells turned in the 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 that 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 in the line. Moving now to the long term for Falcon Minerals. Our asset base is in the highest returning unconventional play in United States today for our operators, and that region commands a premium to WTI oil prices.

As important, we have approximately 3,000 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 Eagle Ford shale. As I previously discussed, Conoco is spoken extensively about their Eagle Ford shale development.

As we consider those comments in the long-term growth profile for Falcon's base business, we are very pleased by Conoco's discussion of several more years of growth before reaching plateau 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 Eagle Ford, while remaining mindful of retaining a strong balance sheet.

We have continued 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 and 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?

Bryan Gunderson -- Chief Financial Officer

Thanks, Daniel, and thank you to everyone on the phone for joining the call. I'm excited to be part of the Falcon team, and I am 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, and 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 offline for a portion of the 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 quarters 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 of Falcon's 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 of 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 nonrecurring cost 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 noncontrolling 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 bases in our assets that Falcon recognized as part of the transaction with Royal Resources in 2018, and a portion of net income attributable to noncontrolling interest not currently taxed by Falcon Corp. We expect to benefit from the depletion allowance for at least several years in the future. As of the end of the second quarter, Falcon had $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-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, debt has remained essentially flat while at the same time, we have expanded our Eagle Ford position through accretive acquisitions. This morning, we announced the 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 noncontrolling interests, less interest expense and pro forma cash income taxes. Our guidance outlook is described in our earnings release, continue the rolling six months forecast of production, and related operating cost that we began in the first quarter of 2019. We currently expect average daily net production to be in the range of 5,000 to 5,500 boe for the second half of 2019, and we expect oil contribution to be approximately 51% to 55% of total net production.

It is 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 spud in July. With that, I will now turn the call back over to Daniel.

Daniel Herz -- President and Chief Executive Officer

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

Questions & Answers:


Operator

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

Jeff Grampp -- Northland Capital Markets -- Analyst

Good morning, guys.

Daniel Herz -- President and Chief Executive Officer

Good morning, Jeff.

Jeff Grampp -- Northland Capital Markets -- Analyst

Daniel, I was hoping to get a little bit more clarity or granularity, if you will, on the -- that 20% 12-month production growth that you put in the release here this morning. Should we interpret that to mean kind of 2Q '20 relative to 2Q '19? Or is this based on may be second half '20 to second half '19? Just kind of wanted to make sure we were interpreting the comment properly.

Daniel Herz -- President and Chief Executive Officer

Sure. Thank you for the question, Jeff. The -- remember, we only give rolling six-month formal guidance but the general is greater than 20%, which I think your modeling, and others modeling will show based on our line of sight and NRI, and net well disclosure will show first half '20 as compared to first half '19 of 20% or more growth.

Jeff Grampp -- Northland Capital Markets -- Analyst

Got it. Got it. Very helpful. And for my follow up, on the acquisition front, another nice quarter, $10 million or so, like you had talked about in the past.

Was curious kind of where these assets are in terms of their life cycle when you guys are acquiring them? Like are you guys buying these assets? And it looks like there's some production. I don't know if that's anything you can 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 giving on these? And then on the production side, if there's any commentary you can provide with that? Thanks.

Daniel Herz -- President and Chief Executive Officer

It's a great question. And you know, you have struck at the core of what I love, which is the acquisitions and the great acquisitions that we're capable of doing. So we target generally assets in a package of assets over time 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 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 of that said, the acquisitions we've done, I believe you will 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 have not embedded really much of that in our guidance.

So all of that should be upside to the guidance we've put forward.

Jeff Grampp -- Northland Capital Markets -- Analyst

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

Daniel Herz -- President and Chief Executive Officer

Thanks, Jeff.

Operator

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

Kyle May -- Capital One Securities -- Analyst

Hey, good morning, guys.

Daniel Herz -- President and Chief Executive Officer

Good morning, Kyle.

Kyle May -- Capital One Securities -- Analyst

I was wondering if we could start with the well that you mentioned that was taken offline 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?

Daniel Herz -- President and Chief Executive Officer

It was not a Hooks Ranch well. The well -- we -- and I discussed this in 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 it's still -- it was in its flush 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, an adjustment up on the natural gas side from the Marcellus, and then an adjustment down on the oil side from prior period in Eagle Ford.

When you put that all together, it 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 periods and then, you have to true-up that prior period. And that's what we are 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.

Kyle May -- Capital One Securities -- Analyst

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?

Daniel Herz -- President and Chief Executive Officer

So as I mentioned, one of the wells is already drilled to total depth. We have decided to take a conservative approach as to when they'll come online. And I mean I'm hopeful we will see some production this year. That's my hope.

I would, for conservative sake, assume early 2020. And if you want, you could say, February 2020. But whether it's January, February, March, it's in that time frame from our perspective. I'm hopeful for November, December, but we'll leave it to you, everybody, to model it generally.

Most importantly, we tried to take a conservative approach for our second-half guidance.

Kyle May -- Capital One Securities -- Analyst

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

Daniel Herz -- President and Chief Executive Officer

Thanks, Kyle.

Operator

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

Betty Jiang -- Credit Suisse -- Analyst

Good morning. Can you talk about how do the backlog of the line-of-sight wells today compare to what you were seeing last year? I know it's up from the first-quarter level, but any specifics on what really gives the comfort that that backlog will get in lined in the second half?

Daniel Herz -- President and Chief Executive Officer

Hi, Betty, nice to talk to you. Nice to talk to you, as always. So it's a very good question. In fact, we were running some analytics around this, this very point just last week.

And I mean 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 those line-of-sight wells really move into full production as we move through the second half of the year. And so it puts us in an optimistic mood quite frankly, and then 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. Now 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 call, so we are 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 and the activity, but also what I alluded to on the last call but have given more specificity to you on this call, which is our net revenue interest in those wells, and our net wells. 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.

Betty Jiang -- Credit Suisse -- Analyst

Yeah. No, that's helpful. Thanks for that. And then can we just get a bit more color on this accrual process? And how much of the production and revenue is live? Like should we look at it as the current quarter financials is more reflective of the prior-quarter activity? And that you mentioned earlier there was an oil production adjustment down in second quarter.

So just trying to understand what would cause something like that.

Daniel Herz -- President and Chief Executive Officer

Yeah. No, I would not do that. Our -- we think, this is typically -- this is nonmaterial. 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 -- and I think we've described this in the past, the way we 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 month's 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 it's up, sometimes that's down. It's not usually a material factor.

Betty Jiang -- Credit Suisse -- Analyst

Go it. That --

Daniel Herz -- President and Chief Executive Officer

And frankly, I think we have done a very good job, and Steve Pilatzke, our chief accounting officer, has been fantastic with this.

Betty Jiang -- Credit Suisse -- Analyst

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

Daniel Herz -- President and Chief Executive Officer

Yes, with a slight nuance, if you don't mind, which is, if we, for example, from certain operators see wells come online that are higher NRI wells in 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.

Betty Jiang -- Credit Suisse -- Analyst

Yeah. Yeah. No, I understand that. Great.

Thank you.

Daniel Herz -- President and Chief Executive Officer

OK. Thanks, Betty.

Operator

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

Joe Allman -- Robert W. Baird and Company -- Analyst

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

Daniel Herz -- President and Chief Executive Officer

Good morning, Joe.

Joe Allman -- Robert W. Baird and Company -- Analyst

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

Daniel Herz -- President and Chief Executive Officer

Thank you, Joe. So obviously, we aren't the operator of that well. We don't -- and we don't have specific information at this point as to what brought it down. What we do have specific information, and most importantly, that well has remained to 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 embed this 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'd certainly been trying to and have embedded that as we move forward.

Joe Allman -- Robert W. Baird and Company -- Analyst

OK. That'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 into 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 Eagle Ford?

Daniel Herz -- President and Chief Executive Officer

It's, again, I don't view it in the totality as material. It's just a quarterly 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 up for a prior period or estimation for that portion of the month that we had estimated.

Joe Allman -- Robert W. Baird and Company -- Analyst

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

Daniel Herz -- President and Chief Executive Officer

It's literally -- it's really 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 on an ongoing and over a six-month, 12-month 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.

Joe Allman -- Robert W. Baird and Company -- Analyst

So what I'm hearing is that --

Daniel Herz -- President and Chief Executive Officer

Go on.

Joe Allman -- Robert W. Baird and Company -- Analyst

So what I'm hearing is I mean really for 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?

Daniel Herz -- President and Chief Executive Officer

I think it's all three. I mean it really is to me, it's all three. If you put them all together, that's what skews it. If you had removed it, 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.

Joe Allman -- Robert W. Baird and Company -- Analyst

Got it. OK. Very helpful. Thank you.

Daniel Herz -- President and Chief Executive Officer

Thanks. Appreciate it, Joe.

Operator

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

Welles Fitzpatrick -- SunTrust Robinson Humphrey -- Analyst

Hey, good morning.

Daniel Herz -- President and Chief Executive Officer

Good morning, Welles.

Welles Fitzpatrick -- SunTrust Robinson Humphrey -- Analyst

Most of mine have been asked. But if you kind of -- you hinted at expanding beyond the Eagle Ford in size in the prepared comments. Can you talk to whether you are actively looking at packages and other basins, and management? What those parameters might be, whether it's gas, oil, developed, undeveloped, etc.?

Daniel Herz -- President and Chief Executive Officer

Sure. Appreciate the question. No. 1, we are very satisfied, pleased with our asset based, and the visibility of growth we have within our asset base.

And so we're not going to do any acquisition that isn't materially accretive to our shareholders on an NAV per share basis, on a free cash flow per share basis. So we have a very high hurdle to the extent we were going to do an acquisition. And we generally -- I mean, we generally would expect it to have a pretty material impact upwards if we were to do something outside of our -- the basin. What we're clearly focused on, if we were to do something, would be the core of the core of the top oil-weighted basin.

And to me, that's the Eagle Ford shale and the Permian, Midland, and Delaware. Other basins may be OK, but those are clearly by far the two best basins in the U.S., and its potential that we could look elsewhere but that -- really not. Those are the two places we're focused. The core, we need to have top operators, clear line of site of development.

One thing that I just really think is critical in differentiating Falcon is our operators in their size, and commitment to the development of our play. When we're -- we would be -- I would be remiss if we didn't notice what was going on in the oil market last week, this week, the general markets. Our operators, they're like operating the Queen Mary. They're not shifting on dime.

They're not moving rigs up and down on a dime. They're not moving frack crews in up and down on a dime or when oil goes from $55 to $65 or $65 to $55. They have a plan, and they're executing on their plan on a multi-year basis. And we at Falcon happened to benefit from being in the way of that plan in a very positive way with nice NRI acreage that they're developing, and we'll develop over the next several years.

So we don't take that for granted to the extent there's a deal that will bring our fans out of their seats, cheering from the rafters, we'll do it. But I -- hard to see an opportunity that could be that great, but you never know.

Welles Fitzpatrick -- SunTrust Robinson Humphrey -- Analyst

Yeah. No, that makes total sense. I appreciate the detail. Thank you.

Daniel Herz -- President and Chief Executive Officer

Thanks, Welles.

Operator

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

Tim Howard -- Stifel Financial Corp. -- Analyst

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

Daniel Herz -- President and Chief Executive Officer

Thanks, Tim. I'm specifically pleased with your second question, because I was hopeful that Bryan would be able to jump in here. And so I'm going to start there, and as ask Bryan to jump in.

Bryan Gunderson -- Chief Financial Officer

Yeah. Thanks for the question, Tim. So the way that it functions is essentially on a trailing 365-day basis. Any dividends paid in excess of $0.50 are categorized as extraordinary dividends.

Those extraordinary dividends in this case since we've distributed our dividend at $0.62 over time. Over the last 365 days, the $0.12 would be characterized as an extraordinary dividend, and that's why you're seeing the warrant price go from $11.50 down to the $11.38 that we disclosed. So we will keep -- continue to monitor that, and continue to disclose that number as the warrant price goes down.

Daniel Herz -- President and Chief Executive Officer

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 can solve it yourself. If you simply take our oil volumes and normalize them toward our guidance range, you can see what that number would equate to on a -- what our total production would equate to on a 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 numbers stand for. But I think you can easily solve that just by back solving to the guidance range on the oil.

Tim Howard -- Stifel Financial Corp. -- Analyst

Sounds good. Thank you.

Daniel Herz -- President and Chief Executive Officer

Thanks, Tim.

Operator

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

Jeffrey Campbell -- Tuohy Brothers -- Analyst

Good morning, Daniel.

Daniel Herz -- President and Chief Executive Officer

Good morning.

Jeffrey Campbell -- Tuohy Brothers -- Analyst

I know you guys are coming out next week, so I don't want to use up all questions today. So I'll -- and there's been a lot of good ones asked already. So I'll just ask 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?

Daniel Herz -- President and Chief Executive Officer

A very good question. But I just want to point out because I think what may underlie the question is some confusion, which is it bad for us that they're 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 5,400 feet of lateral length.

And so when they're crossing into that other unit, that's actually high NRI unit for us at 3.65%. So we're actually picking up another approximately 5,000 feet of lateral length on the higher NRI unit that offsets Hooks. So to us, it's a very good thing. They're maximizing resource development across our positions.

It's 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.

Jeffrey Campbell -- Tuohy Brothers -- Analyst

OK, good. Yeah, actually the positive uplift was not lost on me. I just wanted to get that out there and have you.

Daniel Herz -- President and Chief Executive Officer

You know I have realized as I was speaking I was probably the only negative person thinking, but I am a downside person, as you know, Jeff.

Jeffrey Campbell -- Tuohy Brothers -- Analyst

Now you are ending up with a higher percentage -- a lower percentage of a much bigger well. So it seems like a pretty natural offset so. But I appreciate that color. And we'll see you next week.

Daniel Herz -- President and Chief Executive Officer

Sounds good.

Operator

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

Daniel Herz -- President and Chief Executive Officer

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

Operator

[Operator signoff]

Duration: 56 minutes

Call participants:

Brian Begley -- Investor Relations

Daniel Herz -- President and Chief Executive Officer

Bryan Gunderson -- Chief Financial Officer

Jeff Grampp -- Northland Capital Markets -- Analyst

Kyle May -- Capital One Securities -- Analyst

Betty Jiang -- Credit Suisse -- Analyst

Joe Allman -- Robert W. Baird and Company -- Analyst

Welles Fitzpatrick -- SunTrust Robinson Humphrey -- Analyst

Tim Howard -- Stifel Financial Corp. -- Analyst

Jeffrey Campbell -- Tuohy Brothers -- Analyst

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