Falcon Minerals Corporation (FLMN) Q3 2019 Earnings Call Transcript

Falcon Minerals Corporation (FLMN)
Q3 2019 Earnings Call
Nov 08, 2019, 9:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning. Welcome to the Falcon Minerals third-quarter 2019 earnings results call and webcast. 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 third-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 this context, forward-looking statements often address our expected future business and financial performance and financial conditions and also contain 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. 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 provided a reconciliation to non-GAAP measures that 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 Stephens investment conference at the Omni Hotel in Nashville on November 13, and the Capital One Securities energy conference at Hotel Zaza in Houston on December 12. With that, I'll turn the call over to our CEO, Daniel Herz, for his remarks. Daniel?

Daniel Herz -- Chief Executive Officer

Thanks, Brian. Welcome, everyone, and thank you for joining the Falcon Minerals Corporation third-quarter 2019 earnings call. I'm joined by a number of members of the Falcon management team; as well as by Bryan Gunderson, our chief financial officer, who will give the financial report following my brief remarks. I'm pleased to report that despite the instability in the energy environment over the last quarter, we at Falcon had a very stable third quarter.

The actions of our company is simple. We own minerals in the core of the core of top energy plays. We embody that with our 256,000 gross unit acres across the Karnes' trough in the Eagle Ford shale. Furthermore, with over 90% of our value coming from ConocoPhillips, BP/Devon and EOG, we have world-class operators who are executing on their multiyear development plans, which do not shift easily.

In fact, these operators have discussed adding rigs in the Eagle Ford. This core of the core top operator model provides a distinct advantage for us at Falcon, as we have seen activity levels remain extremely high across our position. Simply put, we do not need to buy minerals and growth and lever up our balance sheet or issue equity for growth. Our assets will grow organically.

In fact, one conservative research analyst forecast 16% growth for us for 2020 as compared to 2019. This growth, coupled with our approximate 10% yield, implies over a 25% total return potential from the current trading price, which I believe is a compelling value proposition for investors, all without the need for acquisitions. Now let's get into the specifics related to the stability of the business and the upcoming expected growth. Our production in the third quarter was flat relative to the second quarter of 2019, with 4,825 barrels of oil equivalent per day produced, with approximately 50% of our companywide production coming from oil or about 83% of revenue.

In fact, our oil production was up approximately 10% as compared to the second quarter of 2019. Our operators averaged seven rigs running across our position during the third quarter and are currently running the same number of rigs today. That is up from five rigs during the first quarter and down from nine rigs running during the second quarter. Many of you will remember that I have said over the course of the year, we forecast seven to eight rigs running on average, which is what we continue to see and expect.

The key aspect here is the overall thematic current and future activity across our position. With arguably the best returning wells in the United States and the most stable operators, we are in a very strong position. Of course, as many of you know, both Conoco and BP have recently stated that they each may add another rig to the Eagle Ford in 2020, which we consider further upside. We are very pleased with our line of sight wells.

We have approximately 207 gross line of sight wells or 2.82 net line of sight wells. This is an increase of 16% since our last quarterly conference call. Based on historical average time for each producer from permitting a well to turning it in line, we would expect all of these wells to be online within the next nine months. Even if we add three more months for additional conservatism, that would still equate to 2.82 net wells turned in line over the next year.

The 2.82 net wells would be greater than a 50% increase in net wells expected to be turned in line as compared to 2019. This should equate to meaningful growth from current production levels, which should drive cash flow and dividends in 2020. In our earnings release this quarter, we have expanded our disclosure with respect to line of sight wells. We have provided the number of gross and net wells in each respective line of sight category to help better understand and model the production trajectory of our business and related timing.

To that end, of our 207 gross wells, 32 of those wells or 0.36 net wells have been completed and are waiting to be turned in line. Additionally, of the 207 gross wells, 118 wells or 1.69 net wells are waiting on completion. That leaves 57 gross wells of the 207 total gross wells or 0.78 net wells that have been permitted and are waiting to be drilled. Based on this detail, combined with our specific knowledge and historic timing of operators turning wells in line, we have provided guidance for the average of the next two quarters.

Importantly, I'll repeat this, importantly, to note that that does not mean necessarily that individual numbers during any quarter will not be outside of that range. But rather, our expectation is that the average over the next two quarters will be within that range. Our fourth-quarter 2019 and first-quarter 2020 average production guidance range is 5,000 to 5,500 BOE per day, with oil contributing between 50% to 55% and assumes the Hooks Ranch wells are turned in line during February, which is based upon our current knowledge of timing. Finally, because of this advantaged asset base and upcoming growth, we approached acquisitions this quarter extremely conservatively.

With landowners and other sellers, we find that price expectations are slow to change, and we will not dilute the great business we have, nor will we put material leverage on our business. In conclusion, we are in a position where we have significant stability from our core of the core assets and top-tier operators with substantial growth now immediately in front of us. We generate substantial free cash flow, which we are returning to our shareholders, and we do this while maintaining a pristine balance sheet. With that, I'll now turn the call over to Bryan for our financial review.

Bryan Gunderson -- Chief Financial Officer

Thanks, Daniel, and thanks to everyone on the phone for joining the call. As Daniel mentioned, Falcon's foundation is built on world-class assets that are operated by the premier operators in the United States. Falcon's business benefits from high margins, embedded growth, low operating costs, 0 capital expenditures, low leverage and premium pricing. These factors allow Falcon to return free cash flow through a reliable quarterly dividend and for shareholders to benefit directly from our unique value proposition.

Our assets generated $15.9 million in royalty revenue during the period. Of that $15.9 million in revenue, Falcon will return approximately $11.6 million back to its shareholders through the form of a quarterly dividend, payable on December 3, 2019, for shareholders of record on November 20, 2019. As has been previous -- as has been mentioned in previous quarters, a key strength of Falcon's Eagle Ford position is our ability to realize premium prices for our barrels at a premium to benchmark WTI. This premium was evidenced by Falcon's net oil realization for the quarter, which was $3.57, above the average WTI price during the quarter.

Our net realized price for oil during the third quarter was $60.02 per barrel compared to WTI, which averaged approximately $56.45. Our average realized price for natural gas was $2.15 per Mcf, and our NGL realizations averaged $10.57 per barrel. Total cash operating costs were $8.28 per BOE, consistent with the prior quarter. Looking at the component pieces, ad valorem and production taxes were approximately 5.6% of revenue for the quarter or $2.01 per BOE.

Marketing and transportation expense was $1.32 per BOE for the quarter. Cash G&A expense was approximately $2.2 million for the third quarter or $4.95 per BOE. This cash G&A excludes approximately $1 million of noncash stock compensation expense recognized in the period. Adjusted EBITDA for the third quarter was $12.3 million.

Falcon's third-quarter GAAP net income was $2.9 million on a stand-alone basis,and $6.4 million, including noncontrolling interests. GAAP income tax expense was $1.1 million for the quarter due to a step-up in our basis in the asset -- in our assets that Falcon recognized as part of the transaction with Royal Resources in 2018. Our effective tax rate is approximately 15% for the third quarter versus a federal income tax rate of 21%. We expect to benefit from this depletion allowance for at least several years in the future.

At the end of the third quarter, Falcon had $38 million outstanding on its revolving credit facility and $2.6 million of cash on hand, resulting in a total liquidity of approximately $70 million at the end of the period. Our net debt-to-LTM EBITDA ratio as of the end of the third quarter was 0.55 times. Yesterday, after the market closed, we announced a dividend of $0.135 per share for the third quarter. Pro forma free cash flow per share was approximately $0.14 for the period.

We define pro forma free cash flow and adjusted EBITDA inclusive of noncontrolling interests less interest expense and pro forma cash tax -- pro forma cash income taxes. Our estimated pro forma free cash flow for the third quarter of 2019 did not include an estimate for pro forma cash taxes. There were two factors that contributed to this. One, Falcon's taxable income decreased due to a decrease in revenue, coupled with production and the associated depletion remaining static; and two, an approximately $500,000 deduction for stock-based comp that vested during the third quarter.

Moving to the guidance outlook. As described in our earnings release, we've continued the rolling six-month forecast of production and related operating costs that we began in the first quarter of 2019. As Daniel mentioned, we currently expect average daily net production to be in the range of 5,000 to 5,500 BOE for Q4 '19 and Q1 '20 and we expect oil contribution to be approximately 50% to 55% of total net production. One other thing to note on our guidance range, we've adjusted our G&A guidance to $1 range rather than the dollar per barrel number or the dollar per BOE number that we have shown in previous quarters.

We anticipate cash G&A to average in the range of $4.5 million to $5 million over the two-quarter guidance period. With that, I will now turn it back over to Daniel.

Daniel Herz -- Chief Executive Officer

Thanks, Bryan. Bree, why don't we open the call up for questions?

Questions & Answers:

Operator

[Operator instructions] Our first question will come from Kyle May with Capital One. Please go ahead.

Kyle May -- Capital One Securities -- Analyst

Good morning, guys. I wanted to start with your six-month production guidance, and I appreciate the comments that you had mentioned sometimes the actual quarter may fall outside of the range. So given the number of moving pieces and then Hooks Ranch coming on in the first quarter, can you kind of help us understand the cadence of growth that you're expecting in the fourth quarter and then the first quarter?

Daniel Herz -- Chief Executive Officer

Sure. Thanks, Kyle, it's Daniel. So we have tried to put forward a conservative guidance range here and really did want to highlight the timing of Hooks Ranch as we understand it in the first quarter. And of course, just mathematically, if it comes on mid-first quarter, that should create elevated second-quarter levels.

And as I'm sure you've deduced from our net line of sight wells, we're also pretty excited about higher NRI wells that have been permitted, which should further buoy second-half 2020 production. So we see production rising and then rising meaningfully in early '20 and hopefully remaining at a high level throughout the whole year. I just would point out, I guess, as an example, BP -- or excuse me, Devon, BP's partner, mentioned on their call a couple of days ago, that they would be bringing online 25 to 27 wells in the fourth quarter. Those wells would be across our position.

That's one example of the type of production that should very much help us in the fourth quarter as we then move into the first quarter and the Hooks wells coming online.

Kyle May -- Capital One Securities -- Analyst

OK, got it. And then on the M&A front, you had mentioned taking a more rigorous approach to acquisitions. Can you talk a little bit more about what you're seeing and how you've changed your approach?

Daniel Herz -- Chief Executive Officer

Sure. Thank you for the question. So we see every deal. It's -- or at least we have, it is something the team, who I consider to be the best-in-class, takes with them every day and every night, is we do not miss deals.

That said, in this environment, and with the asset base that we have and the operators we have and the clear growth that's immediately in front of us, it seems for us inappropriate to dilute that with acquisitions. And we couple that with the reality that it takes three months for landowners to get their checks from the current month's production. So their pricing and the change in pricing expectations when they sell typically lags by a couple of months. For us, when you have a great asset, like we have, with great operators who are prosecuting a multiyear development plan, you don't need to go out and make acquisitions to drive EBITDA and drive production.

That's the fundamental view that we're looking at as we sit here today. Now Kyle, I've known you a long time. We know a lot of our investors a long time. To the extent and at the right time when we see great opportunities, both small and large, we will act on those opportunities.

And as we'd like to say, we would expect those opportunities to be ones that bring our fans out of their seats cheering and driving our share price and free cash flow per share and every metric higher materially.

Kyle May -- Capital One Securities -- Analyst

OK. Got it. That's helpful. All right.

Thanks, Daniel. I'll turn it back.

Operator

Our next question will come from Welles Fitzpatrick with SunTrust Please go ahead.

Welles Fitzpatrick -- SunTrust Robinson Humphrey -- Analyst

Good morning. You talked about this a little bit just now. Obviously, acquisitions have slowed as you guys are taking a little bit of a pause to let these landowners catch up. When you guys do get back to it, have there been any shifts in leaving the kind of core of the core of the core that you're in now to explore other parts of the Eagle Ford or even other parts of the Lower 48?

Daniel Herz -- Chief Executive Officer

Thank you for the question. Just again, I want to emphasize the point, we think we have a unique asset base, period, in that we have a highly undeveloped asset base with high NRI wells coming online and to come online over the coming years. So that's something that one shouldn't go out and buy $50 million deals, $100,000 deals, $100 million deals, when you have something great. That's our fundamental view, unless what you're buying materially increases your value.

As far as leaving the core of the core, our experience really is owning only best-in-class assets in best-in-class plays is the right approach. And so we have organically bought in our backyard in the core of the core of the Eagle Ford. And we have looked outside of the Eagle Ford, but only in the core of the core and only of top oil-weighted plays. And we'll continue to look at that.

And to the extent that changes, which I don't expect it to, we certainly will let you know and let the market know.

Welles Fitzpatrick -- SunTrust Robinson Humphrey -- Analyst

OK. No, that makes sense. And looking at the historic wells that the operator has drilled in Karnes vis-à-vis Hooks Ranch, it seems like kind of three to four months from TD to first production is about average. And honestly, I'm having trouble finding even one example that is longer than five months.

That seems to kind of shade these wells to maybe coming on in early 1Q. Is that -- is that a fair interpretation? Or is that maybe a little bit too aggressive, given -- maybe I'm missing something like the flowback period?

Daniel Herz -- Chief Executive Officer

You are not. And so we track, and Bryan was nice enough to just hand me the page, we track each operator and average time from permit to sales and then from spud and total depth and completion, etc., each area. And we actually -- we consider continuing to revise our disclosure given the simplicity of our business and our asset base is providing more and more transparency. And I think you've really picked up on something insightful here is that if you simply go through the Conoco average timing, you would see sooner rather than later.

We, of course, have more detailed knowledge that leads us to what I said was February in our numbers. But again, I also said that we've taken a conservative approach because we'd like to meet or exceed expectations as we move forward. So I think you're right, but we've also tried to layer on some conservatism to that.

Welles Fitzpatrick -- SunTrust Robinson Humphrey -- Analyst

OK. Now that's great looking forward to. Thanks so much.

Operator

Thank you. Our next question will come from Jeff Gramp with Northland Capital Markets. Please go ahead.

Jeff Gramp -- Northland Capital Markets -- Analyst

Just hoping to maybe pick up on the last topic in regards to kind of how you guys are tracking time lines by operator to TD and completion, etc. Have you guys been seeing that time line change at all maybe relative to empiricals over the last, I don't know, year or so? And I guess thinking in the context of operators going to larger multiwell projects and maybe extending the lumpiness of production. Just kind of curious if you guys are seeing that play out? And any of the data you guys are looking at?

Daniel Herz -- Chief Executive Officer

So we look at every week, updating and tracking that timing -- in that average timing and I mean so, one, if you look at BP/Devon, as Devon put it, they are now building momentum in the Eagle Ford, and they expect fourth-quarter production to grow as compared to third-quarter production. BP/Devon should, and we've seen them move BP a lot faster than the previous owner BHP. That's number one. Number two, Conoco.

Conoco -- well, I'll say, number two, EOG. EOG continues, and we were just marveling at their capability and constant improving capability, and they had mentioned on their earnings call drilling a well in 2.5 days, which was a record for them. So we continue to see their timing compress. And then number three, Conoco, of course, is just fantastic.

They spent years honing their capabilities in the Eagle Ford. And while they improve on their timing, it's really their constant improvement in efficiency and enhancing reserves that really stands out. So while the first year we've seen timing compressed, the third, we've just seen continued enhanced results. Bryan, yes?

Bryan Gunderson -- Chief Financial Officer

Yes. And thanks for the question. The one other thing I would add, just to echo Daniel is, we do look at it itself on a week-to-week basis. We do track it very, very closely from a permit to spud, spud to completion and completion to connection, all the different pieces of it.

And I would just add to it by saying we make sure that all of those pieces are included in our financial forecast on a week-to-week basis. And that's what underpins our guidance range.

Jeff Gramp -- Northland Capital Markets -- Analyst

OK, great, great. Helpful stuff. For my follow-up, curious to kind of talk on the completion cadence side of things. During the quarter, it looked like, I think it was 27 gross, 0.14 net wells were put online, which I think is a little bit slower than what you guys were looking at in the first half.

And commentary and what we see in the line of sight wells, things continue to accelerate, yet the completion cadence is a little bit slower in 3Q, which I guess seems a little bit counterintuitive. So maybe can you guys talk about that dynamic, and maybe there was some kind of one-off occurrences, I guess, in the quarter? Just maybe help us better understand how we should think about getting these line of sight wells turned online.

Daniel Herz -- Chief Executive Officer

Yes. And so the fact is, it was a little bit light as far as 27 gross wells, as you said, in 0.14, and I'm trying to be sympathetic to the quarterly timing, but the fact is BP, as an example, BP/Devon has a huge operation in completion timing, as I mentioned, 25 gross wells they're turning in line in the fourth quarter. That could have easily come on in the third quarter. We're going to get the benefit of that production within weeks of the third quarter.

And so we were very satisfied with third-quarter production. And certainly, it tees us up very well to an earlier question for fourth quarter. It's not -- it really -- it's simply episodic. It's not a function of activity or completion or completion timing.

Our operators have a -- our operators have multiyear plans that they're executing on. It's not like the Permian or other plays where you have small operators that -- or medium-sized operators that may change their timing. These operators have plans that have been developed years ahead of time, which they're executing upon. And so we're very pleased with that.

I guess I'd also point out, Jeff, and it's something I considered putting in my remarks, which really bodes well for us, is that third quarter was low on the net wells. And frankly, all of 2019 will have been low at around 1.75 net wells for the year. That's the lowest net well number over the last five-plus years in quite a long time. And that's just bad luck.

We've had lots of gross activity. Our gross wells are as good as they've been in five-plus years. It's just we had low NRI units hit. Now as I really was alluding to you earlier on, we are reverting back to the norm.

We average across our current production 1.33%. That is NRI across the existing wells. We've gone back to that normal NRI level, plus then we have this 85% plus undeveloped position in Hooks Ranch where we have a 22.5% NRI. So we're -- we think we're extremely well positioned over the next six months and over the next 12 months and really well beyond that with a fantastic asset base.

Jeff Gramp -- Northland Capital Markets -- Analyst

All right. Helpful color, Daniel. I appreciate the time. Great.

Operator

Our next question will come from Betty Jiang with Credit Suisse. Please go ahead.

Betty Jiang -- Credit Suisse -- Analyst

Thanks. Good morning. I actually have a follow-up to the prior question. So understanding that Hooks Ranch is a big driver for production growth in 1Q.

But given the net activity that you're currently seeing on the portfolio, do you think the base production will be able to grow outside of Hooks over the next couple of quarters?

Daniel Herz -- Chief Executive Officer

The base production will grow outside of Hooks. And we have that -- I have that exact chart. And the answer is, yes. And it's really driven -- although Hooks is obviously similar to Viper Spanish Trail, a great position for us, but we happen to have a handful of other higher NRI pads coming online over the coming months.that don't get as much attention as the Hooks, but certainly help add meaningful production growth over the coming two quarters.

Betty Jiang -- Credit Suisse -- Analyst

Can you give a bit more color on these pads in terms of size and NRIs?

Daniel Herz -- Chief Executive Officer

Sure, we have two -- I'll give you the two big ones. We have two five-well pads with NRIs that range from , let's say, 3.5% to, let's say, 5%. I'll just kind of also say, and I alluded to this earlier, we also have a number of wells, call it, a handful of wells with NRIs in the 3% to 90% range that have been permitted. That we expect to come online in the second half of 2020.

Which if you just -- and I know, Betty, you're very much mathematically driven, Bryan forgive me for handling the math here. But of course, if Hooks comes on in the middle of the first quarter, that will give us a partial quarter contribution, should meaningfully elevate production above current levels with those other wells, too. Will -- that should -- because it will only be a partial first quarter, those production levels should remain at that nice, high elevated level in the second quarter. And then the fact that we have these higher NRI wells already permitted that should come online in the second half, that puts us in a position, which should keep us at an elevated level as we move through the second half of 2020.

Betty Jiang -- Credit Suisse -- Analyst

Got it. No, that's helpful. And then my follow-up just on the rig count. The third-quarter average was seven rigs and I believe the rig count was a bit higher than that at the time of last call.

Can you give us an update on where it is running right now?

Daniel Herz -- Chief Executive Officer

Yes. Today it's seven, last week was eight. And it's in -- Bryan and I were talking about this before the call. It's not the greatest indicator because it does fluctuate week to week.

The most important thing, and Betty, we've talked about this for a year and I know a number of people, who are on this call, are listening, we've all talked about it. Averaging seven to eight rigs across our vast position in the Karnes Trough is the right way to model this. The -- it is not a commentary on our position, whether we're at seven or eight or 11, one should assume seven or eight. And you can really break it down by very clearly what operators, ConocoPhillips, Conoco is a large percentage of our value, the largest, EOG and BP/Devon, what they're saying.

And each of them are saying, we're going to be at least at the current rig activity and Conoco and BP/Devon each may add one additional rig they've said in 2020. So if that's over 90% of the value of our company, which it is on an NAV basis, we think that puts us in an extremely favorable position.

Betty Jiang -- Credit Suisse -- Analyst

Right. Thank you for that. Very helpful.

Operator

Our next question will come from Joe Allman with Baird.

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

Thank you. Good morning, everybody. So my question is about Hooks Ranch, but it's actually kind of a general question as well. So if Hooks Ranch wells come online in the first-quarter '20, my understanding is you won't necessarily get the production data real time, right? So could you just remind us of the methodology to account for the production for the quarter in which the production occurs, especially when you've got big swings in production from these -- for example, these wells coming on at Hooks Ranch?

Daniel Herz -- Chief Executive Officer

Thanks, Joe. That's a very important point. I'm going to let Bryan answer, but just generally point out that with Hooks Ranch, we actually receive that data within 30 days of production. So it gives us a major advantage and effectively, should allow us to report actual production data for the first quarter, when we report first-quarter results.

But Bryan, maybe you have something more specific you want --

Bryan Gunderson -- Chief Financial Officer

No, I mean I think that covers it. As Daniel mentioned in his earlier remarks, I mean,Q1 would be a partial contribution from the Hooks Ranch in the sense that we are modeling it as of February -- a February start. So as Daniel mentioned, we do get that -- we do get those numbers more quickly than elsewhere. And so we anticipate being able to include as much possible in our 1Q numbers.

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

That's helpful. And so for the operators from whom you don't get the data as quickly, just remind us, you would include that -- the production data within the quarter in which it starts or in which it produces. Would you just add some level -- make your best estimate based on your modeling, but also kind of add a little bit level of conservatism in there. Is that how you guys do it?

Daniel Herz -- Chief Executive Officer

So we know we have a very strict methodology from an accounting standpoint that takes for any production that we don't have actual cash receipts on, we take the trailing three-month period average for that production. Importantly to note here is that we have -- I'm sorry, I lost my train of thought. Importantly to note, we have actual results when we report a quarter for two -- usually for two of the three months of that quarter, and then for Hooks, as an example, all of the third month. So what really it equates to, Joe, is only a portion of that third month that we're accruing for.

So it's a pretty small percentage. And Steve Pilatzke, our Chief Accounting Officer, who is here with us, we look at it and look back on a quarterly basis. We've been within a very, very small difference each quarter because the vast, vast majority of our results are actual and not accrued.

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

That's very helpful. Thank you.

Operator

Our next question will come from Jeffrey Campbell with Tuohy Brothers. Please go ahead.

Jeffrey Campbell -- Tuohy Brothers Investment -- Analyst

Good morning. First question I wanted to ask about the spread between the Eagle Ford oil and the total oil production. I was just wondering, was that due to Appalachian volumes. It seems like maybe they were a little bit more meaningful this quarter.

Daniel Herz -- Chief Executive Officer

Bryan?

Bryan Gunderson -- Chief Financial Officer

Yes, I mean is the question about the spread on the oil prices?

Jeffrey Campbell -- Tuohy Brothers Investment -- Analyst

No, the spread on the oil percentage. In the press release, you noted that the oil production was 50% in total, but the Eagle Ford production was 56%. So it sounded like --

Bryan Gunderson -- Chief Financial Officer

Yes, I mean part of that -- I mean part of that is the wells that we had that were offline in 2Q are back online. The well we had off-line in Q2 is back off-line -- I mean back online, that's driving that percentage back up to something that we see as being a more normalized level at 50%.

Jeffrey Campbell -- Tuohy Brothers Investment -- Analyst

OK, great. And the other thing I'd wanted to just make an observation on and just see what you think about is, I thought bearing in mind that you tied in line fewer wells and that they were at a significantly lower NRI in the third quarter versus the second quarter. It seems to suggest some pretty positive things about Falcon's decline rate.

Daniel Herz -- Chief Executive Officer

Yes, we agree with that. As far as our business and the strength of our business, this quarter really exemplifies that. To your point on the low NRI, but positioned with so many wells, 207 gross wells is a lot in line of sight. And on top of that, the net wells, and we can't exclude any well when we think about the net wells, at the 2.82 level.

I would point out, and one of my colleagues and I were doing this before the call, is that if we look at pricing just a year ago, and it's hard to conceive of, but imagine pricing goes back up on the oil and NGL side, our free cash flow for the quarter would have been almost $0.20 per share. So we think there's not only a great base here, but there is great growth from line of sight wells, plus asymmetric upside relative to commodity prices.

Jeffrey Campbell -- Tuohy Brothers Investment -- Analyst

Those are good points. Thanks very much.

Operator

And we'll take our next question from Jonathan Evans with SG Capital. Please go ahead.

Jonathan Evans -- SG Capital -- Analyst

Just two questions. First of all, just to make sure you didn't include the Hooks Ranch in the guide for the next two quarters, right? Is that correct?

Daniel Herz -- Chief Executive Officer

No, Hooks Ranch is included in the -- for the partial period, we would assume, and expect Hooks to be online.

Jonathan Evans -- SG Capital -- Analyst

OK. And then the other question, Daniel, I'll just have for you is you seem obviously frustrated that The Street doesn't understand maybe this asset base that well, etc., or the power of it. I guess instead of taking the $10 million and make an acquisition each quarter, which you've obviously stopped, why don't you take that $10 million and start buying back the stock, especially if you're at trough production, and you think this big acceleration is coming on?

Daniel Herz -- Chief Executive Officer

Yes, Jonathan, it's a -- I appreciate that question. It's a good question. I hope my tone doesn't come across as frustrated. I understand the markets -- the way I think I understand the way the market looks at us and looks at energy more broadly, I think the reality is we offer those who are paying attention a great investment opportunity.

As far as buying back stock, we really looked at the stopping activity and acquisitions as potentially the first step toward that. Now we will evaluate whether that makes sense to buy back stock. And we certainly don't want to do anything that leverages up our balance sheet. But we are cognizant of the fact that we think we're trading below our fair market value.

And so in the past, companies we've run, we have not been hesitant to do that, but that's something we'll continue to discuss and debate as a board, and we'll certainly let you and all of our shareholders know if that's something we decide to do.

Jonathan Evans -- SG Capital -- Analyst

Great. Thanks for your time.

Daniel Herz -- Chief Executive Officer

Thanks, Jonathan.

Operator

And there appeared to be no further questions at this time. So I'll turn the floor back to Daniel Herz for any additional or closing remarks.

Daniel Herz -- Chief Executive Officer

Great. Thank you all for joining the call. We look forward to hopefully seeing you at conferences coming up or speaking to you on the next earnings call. Bye-bye.

Operator

[Operator signoff]

Duration: 46 minutes

Call participants:

Brian Begley -- Investor Relations

Daniel Herz -- Chief Executive Officer

Bryan Gunderson -- Chief Financial Officer

Kyle May -- Capital One Securities -- Analyst

Welles Fitzpatrick -- SunTrust Robinson Humphrey -- Analyst

Jeff Gramp -- Northland Capital Markets -- Analyst

Betty Jiang -- Credit Suisse -- Analyst

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

Jeffrey Campbell -- Tuohy Brothers Investment -- Analyst

Jonathan Evans -- SG Capital -- Analyst

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