Falcon Minerals Corporation (FLMN) Q4 2019 Earnings Call Transcript

Falcon Minerals Corporation (FLMN)
Q4 2019 Earnings Call
Mar 10, 2020, 9:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good day, ladies and gentlemen, and welcome to the Falcon Minerals' fourth-quarter earnings conference call. [Operator instructions] At this time, it is my pleasure to turn the floor over to your host for today, Bryan Gunderson, chief financial officer. Sir, the floor is yours.

Bryan Gunderson -- Chief Financial Officer

Good morning, everyone. And thank you for joining today's call to discuss Falcon Minerals' fourth-quarter 2019 results. Before we begin, I would like to remind everyone that during this call, we will make certain forward-looking statements. Forward-looking statements often address our expected future business, financial performance and financial conditions, and also contain words like 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 would also like to caution you not to place undue reliance on these forward-looking statements, which reflect management's analysis only as 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. With that, I will turn the call over to Falcon's president and chief executive officer, Daniel Herz for his remarks. Daniel?

Daniel Herz -- President and Chief Executive Officer

Thanks, Bryan. Welcome, everybody, and thank you for joining the Falcon Minerals' Corporation fourth-quarter 2019 earnings call. Bryan Gunderson, our chief financial officer, who you just heard from, will give the financial report following my remarks, and we will then take questions. As anybody who is familiar with the energy business is very aware, our industry is subject to periods of high volatility.

We are in such a period now. The entire world is now dealing with a serious, uncertain and rapidly changing situation with respect to COVID-19 and the resulting impact on economic activity and energy consumption. Additionally, we are facing supply side issues following the breakdown of OPEC+ late last week. We are certainly impacted by this.

But believe that our top-tier acreage, the high-quality of our operators, the strength of our balance sheet and our ability to run our business with no capital expenditures required will enable us to get through this difficult period successfully. The human toll of the coronavirus is, of course, even more important than the economic consequences. And all of us at Falcon, want to express our concern and best wishes for all people personally impacted by COVID-19. I want to now begin today's discussion by addressing our company's strengths, especially in light of the current energy environment.

While we are in a challenging period for energy generally, this is exactly when Falcon Minerals should outperform due to the following strengths: one, a strong balance sheet with $42.5 million of debt outstanding at year-end; two, over 90% of our net asset value is in mineral rights with the very top operators, and those operators, ConocoPhillips, BP, Devon and EOG are all executing multiyear development plans across our position; three, significant production growth, which is already online in the first quarter and clear line of sight to even more growth in the second half of 2020; four, high operating margins with no capital expenditures, which generate significant free cash flow; finally, number five, we have been extremely disciplined with our acquisition strategy because we know how valuable our base business is and do not want to dilute that great base position with less attractive assets at high valuation. That discipline has proven to be correct given the significant fall in commodity prices and pullback in activity in other plays. This very well may afford us opportunities to grow our business in other core areas at much more favorable valuations than have just recently been paid. Now I would like to focus on the details of what will drive our business in 2020, and supports our guidance range of 5,300 and to 6,100 barrels of oil equivalent per day or BOE per day.

On January 24, 2020, we provided an investor deck that sets forth all of the drivers of our guidance range, including line-of-sight wells. One of our biggest advantages at Falcon, is that our world-class operators are dedicated to their multiyear development plans. They have maintained seven rigs on average running across our properties in the fourth quarter, the same as the third quarter of 2019, and that has increased, so that they are currently running eight rigs across our position. Furthermore, we have experienced nearly 100% permit to turn in line conversion ratio over time.

That means that when one of our operators permit a well, it is nearly certain they will turn it into line. The key question is the timing of turning that permit into production. We at Falcon spend a tremendous amount of time analyzing our operator's historical timing from each phase of development that is permit, spudded, drilled to total debt and completed and waiting to be turned in line, and how long each operator has historically taken from each phase to turn wells in line. Please note, we have provided a subset of this timing information in our investor deck posted last night.

Additionally, we have strong relationships with our operators who, oftentimes, provide even further insight into the timing. Our operators' timing from the time they permit until the time they turn wells into line averages from under 200 days to about 300 days. So when we announced on January 24 that we had 3.52 net line of site wells, and our guidance was solely based on those wells, that implied and included significant conservatism. Because given the average time to develop by our operators, it is highly likely, even in this environment, that we will have additional net wells brought online this year that were not yet permitted at the time.

As we mentioned in our earnings release, we have already had, in 2020, 1.20 of the 3.52 net wells brought online. Our operator's size, scale, organizational planning and balance sheets is a major strength of ours and should provide clear differentiation relative to other businesses. Given the 1.20 net wells turned in line in January and February, we expect, in the first quarter of 2020, production growth of greater than 20% from the fourth quarter of 2019. Our Hooks Ranch wells came online on February 7 and favorable initial production has been observed.

Furthermore, given the partial-quarter contribution from the Hooks Ranch wells, and the fact the second quarter of 2020 will benefit from a full period of production, we currently expect the second quarter to remain at similar levels of production to the first quarter. As exciting as the Hooks wells coming online is, there is even more to come in the second half of 2020. We noted in our January investor presentation that we expect 2.01 net wells, again, that are all line-of-sight wells, to come online in the second half of 2020. Those net wells include a number of high net revenue interest locations, including a handful of 10% net revenue interest units that have already begun being drilled.

That should drive even further growth in production in the back half of the year. So even with the broad energy challenges, we are set up for a solid 2020. Let's now move on to how all of this production growth will translate into free cash flow, while taking into account the current oil price environment. Using 2020 strip pricing of approximately $35 per barrel, at the midpoint of our guidance range of 5,700 BOE per day, we generate approximately $0.40 of free cash flow per share, that's a $35 oil.

We generate $0.40 of free cash flow per share, or a 14.8% free cash flow yield based on yesterday's trading price. With respect to the fourth quarter of 2019, we had 73 gross wells and 0.59 net wells turned in line. This resulted in production of 4,027 BOE per day for the quarter, of which approximately 50% was oil. For all of 2019, Falcon had 194 gross wells and 1.54 net wells turned in line, which generated full-year production of 4,861 BOE per day, which also is 50% oil.

Our four-year average net wells turned in line has been 2.60. So although gross activity remained robust in 2019, we had the bad fortune of lower net revenue interest locations developed. With 3.52 net wells in our line of sight this year, of which 75% have either been turned in line already or have development activity, we expect to be well above the four-year average and over double the 2019 net wells turned in line. Now with respect to our organic acquisition effort, as I mentioned on last quarter's earnings call, we deliberately slowed down our acquisition effort, given the clear downward pressure on oil prices and the time it takes for sellers, to adjust their price expectations.

As a result, in the third quarter, we did three small acquisitions for a total of approximately $875,000, acquiring seven net-net acres for about $125,000 per net-net acre. During the fourth quarter, we made seven acquisitions, acquiring 18 net-net royalty acres for a total of $1.8 million or $100,000 per net-net acre. Now finally, I will briefly address where we are strategically. Obviously, this is a very challenging environment.

We are actively looking at all avenues to stabilize and then reinvigorate our stock price. We remain, first and foremost, firmly committed to maintaining a strong balance sheet, and we'll continue to benefit from our positive cash flowing business. As always, we will be monitoring all aspects of our business and the market on a daily basis and update you as appropriate. With that, I will turn the call over to Bryan for the financial report.

Bryan?

Bryan Gunderson -- Chief Financial Officer

Thanks, Daniel. Production for the fourth quarter was 4,027 BOE per day. Our oil volumes were 50% of total production, and 58% of total Eagle Ford volumes for the period. Our assets generated $13.1 million in royalty revenue during the period, of that $13.1 million in revenue, Falcon returned approximately $11.6 million back to its shareholders through the form of a quarterly dividend paid on March 9, 2020 to shareholders of record on February 25, 2020, which is inclusive of the amounts paid to noncontrolling interests.

80% of dividends paid to Class A shareholders during 2019 were classified as nondividend distributions, and therefore, represent a reduction of basis rather than dividend income. Falcon generates nondividend distributions due to the company's high payout ratio, coupled with the increased depletion that results from the step-up in tax basis of Falcon Minerals interest that occurred as part of the transaction with Royal Resources in 2018. Falcon expects that greater than 50% of dividends paid to Class A shareholders during 2020 will be classified as nondividend distributions in 2020. Again, Falcon's nondividend distributions will not constitute taxable dividend income, rather, they will generally result in a nontaxable reduction to the tax basis of shareholders' common stock.

The reduced tax basis will increase shareholders' capital gain, or decrease their capital loss when they sell their shares. Our net realized price for oil during the fourth quarter was $55.88 per barrel. Our average realized price for natural gas was $2.34 per Mcf, and our NGL realizations averaged $16.86 per barrel. Realized oil prices tightened quarter over quarter as we saw positive basin differentials compress during the fourth quarter.

The total cash operating costs were $4.3 million. Looking at the component pieces, ad valorem and production taxes were approximately $1.3 million for the quarter. This is inclusive of a $0.6 million increase compared to the prior quarter, largely due to an increase in ad valorem taxes assessed to Falcon compared to estimates. This increase was partially offset by a decrease in production taxes tied to lower production.

Marketing and transportation expense was approximately $0.5 million for the quarter. Cash G&A expense was approximately $2.5 million for the fourth quarter. This cash G&A excludes approximately $0.7 million of noncash stock compensation expense recognized in the period. The increase from prior quarter was due primarily, to an increase in professional fees associated with the annual audit.

Adjusted EBITDA for the fourth quarter was $8.9 million. Falcon's fourth-quarter GAAP net income was $2.3 million on a stand-alone basis and $4.4 million including noncontrolling interest. GAAP income tax expense was zero for the quarter due to a step-up in basis in our assets that Falcon recognized as part of the transaction with Royal Resources in 2018. Our effective tax rate is approximately 0% for the fourth quarter versus a federal income tax rate of 21%.

We expect to benefit from this increased depletion allowance for at least several years in the future. At the end of the fourth quarter, Falcon had $42.5 million outstanding on its revolving credit facility and $2.5 million of cash on hand, resulting in a total liquidity of approximately $50 million at the end of the fourth quarter. Our net debt-to-LTM EBITDA ratio as of the end of the fourth quarter was 0.76 times. The company paid a fourth quarter dividend of $0.135 per share.

Pro forma free cash flow per share was approximately $0.10 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 estimate for pro forma free cash flow for the fourth-quarter 2019 did not include an estimate for pro forma cash taxes. Falcon's taxable income was minimal due to a decrease in revenue, production and associated depletion.

As Daniel mentioned, we currently expect average daily net production to be in the range of 5,300 to 6,100 BOE for the full-year 2020, and we expect oil contribution to be approximately 50% to 55% of total production. With that, I will now turn the call back over to Daniel.

Daniel Herz -- President and Chief Executive Officer

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

Questions & Answers:

Operator

Certainly. [Operator instructions] We'll go first to Lee Cooperman at Omega Family Office.

Lee Cooperman -- Omega Family Office -- Analyst

Yeah, thank you. I just want to make sure I understood. You said a $35 oil at the midpoint of your production guidance, you expect a dividend of $0.40. What are you selling oil for currently?

Daniel Herz -- President and Chief Executive Officer

Good morning, Lee.

Lee Cooperman -- Omega Family Office -- Analyst

Good morning. Good morning.

Daniel Herz -- President and Chief Executive Officer

So we received a modest discount to Louisiana light sweet crude, which is a premium to WTI. It's one of our advantages, but that does put us generally with that discount and where LLS trades, right about where WTI is today, so call that $33. We've certainly, obviously, averaged well above that for only first two months of the first quarter.

Lee Cooperman -- Omega Family Office -- Analyst

Good. Secondly --

Daniel Herz -- President and Chief Executive Officer

So that's why --

Lee Cooperman -- Omega Family Office -- Analyst

I'm sorry, go ahead.

Daniel Herz -- President and Chief Executive Officer

No, no, no. Go ahead.

Lee Cooperman -- Omega Family Office -- Analyst

So you -- clearly, in the last quarter, pay a dividend in excess of your cash flow, the balance sheet is starting to move in the wrong direction. Normally, at this price, I would be boosting you to buy back stock, given the unfavorable environment for energy and the uncertainty, I would say, I would focus on improving the balance sheet. And I would discourage you from paying a distribution in excess of cash flow, I would focus on reducing your debt and keeping liquidity very high. That would be my only observation.

Daniel Herz -- President and Chief Executive Officer

Thank you, Lee. I guess, it's not a question, but I will respond anyways. And we agree with you at Falcon in maintaining a pristine balance sheet. With $42.5 million in under one times leverage, I think, we're well-positioned, but we'll continue to improve that as we move forward.

Lee Cooperman -- Omega Family Office -- Analyst

Well, good luck. And thank you for your reports.

Daniel Herz -- President and Chief Executive Officer

Thank you, Lee.

Operator

We'll move next to Derrick Whitfield at Stifel.

Daniel Herz -- President and Chief Executive Officer

Derrick?

Derrick Whitfield -- Stifel Financial Corp. -- Analyst

Yes, hello.

Operator

Yes, your line is open.

Derrick Whitfield -- Stifel Financial Corp. -- Analyst

Hello. Can you hear me?

Daniel Herz -- President and Chief Executive Officer

Yes.

Derrick Whitfield -- Stifel Financial Corp. -- Analyst

All right. Sorry, guys. Good morning, all. Regarding your comment on the potential addition of line-of-sight wells for 2020, could you help frame the amount you would expect to add if operator activity remains static with your comments on Page 5 of the presentation?

Daniel Herz -- President and Chief Executive Officer

Yes. So I think, most importantly, our guidance is based solely on our line-of-sight wells of 3.52 net wells. So most importantly, everything that we included in our numbers has already been at least permitted. In fact, as I mentioned, 75% of our line-of-sight wells have been either turned in line already or have existing development activity already in the first or second week of March of the year.

So we're well on our way to fully moving through that. We've had additional wells permitted since the January 24 release of that, and we'll continue to see those. But most importantly, we, especially given the environment, want to remain conservative. And so, basing our forecast off the 3.52 net wells.

Looking at production in the second quarter, as a stable level relative to the first quarter seems pretty clear. And then having high NRI wells, which will lead to high net wells in the second half where there's already development activity on those locations, should really further buoy the second half of the year. And I certainly don't want to be overly optimistic, but we are positioned pretty well for a solid 2020.

Derrick Whitfield -- Stifel Financial Corp. -- Analyst

Sure, that makes sense. It sounds like there could be a little bit of upside in the line-of-sight forecast. But as my follow-up, perhaps, for you, Daniel. Regarding your M&A comments on growing minerals outside of your focus area, could you elaborate on that comment and share your views on the broader M&A environment if this period of depressed prices persist for an extended period?

Daniel Herz -- President and Chief Executive Officer

Yes. But I guess, I want to say one other thing that really I appreciate you saying on the previous question that there is upside to that. I think, most importantly what we want to get across is that, our business at Falcon is different than most other businesses given we're in the highest returning basin in the U.S. and the highest area of that basin with probably the three best operators in the United States from a balance sheet perspective, from an organizational planning perspective and one that has demonstrated, over long periods of time, their prosecution of their plays.

So when oil prices have periods of volatility like we're currently experiencing, we should have continued favorable development across our position. We've even seen that through the 2015, 2016 periods with this asset base. But as far as the M&A environment over a prolonged period, and our background has been in acquisitions and consolidating businesses, we took a very conservative approach as we developed, I think, a best-in-class team at Falcon with a very small group of highly capable individuals at this company who are capable of reviewing and evaluating the best assets in the best basins. We were very deliberate in not moving too quickly because we felt the uncertainty, especially in 2019, of M&A landscape or of the oil landscape, which we thought would then materialize in more favorable pricing, coupled with the significant assets that have been accumulated by private equity firms in core basins like the Permian.

And so, I think, we have a very valuable asset in the Karnes trough of the Eagle Ford. We also have what I think will prove to be a very valuable structure as a publicly traded minerals business, and that may position us over time to be a consolidator of minerals in other core areas. But for now, we're going to, as I think Lee was saying, focus on our balance sheet, focus on returning capital, and then, ultimately, reinvigorating our stock price because we certainly feel undervalued today given the strengths of our business.

Derrick Whitfield -- Stifel Financial Corp. -- Analyst

Understood. That's helpful. Thanks for your detailed response.

Daniel Herz -- President and Chief Executive Officer

Thank you, Derrick.

Operator

We'll move next to Welles Fitzpatrick at SunTrust.

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

I think you guys hit on this a little bit in the prepared comments, but can you go a little bit deeper on your thoughts on permit to spud conversion in this environment. Obviously, you have some of the best capitalized operators in the business, But are there any kind of preliminary indications? Are there any historical case studies that you can kind of point to as to how resilient those permits might be?

Daniel Herz -- President and Chief Executive Officer

I love the word resilient. I was thinking about it this morning, I had been thinking about it when I prepared my remarks. I think, I mean, we have spent a lot of time on the data analytics side, looking back over the last almost 10 years this asset base has been together. And as I mentioned in my prepared remarks, we have seen nearly 100% permit-to-conversion ratio over time.

And so, our studies indicate, whether it's 90%, whether it's 95%, we see very, very high permit-to-conversion ratio because oftentimes, in most of the time, our operators don't permit a well until they have clear line of sight on the rig coming on. And so, it's simply a function of time from permit to spud and then spud to total depth and then total depth to completion and turned in line. So I think it's fair to assume that we may see a push out in timing from our 200 days to 300 days permit to turned in line. But it isn't about whether we'll be converting those permits, it's about the timing of those.

And with 75% of our net wells already in line or in development, we're in a very strong position to deliver a solid 2020 even at $35 oil.

Welles Fitzpatrick -- SunTrust Robinson Humphrey -- Analyst

OK, OK. No, that makes total sense. And then kind of an odd ball one, but, obviously, oil is down, but gas is down pretty hard, too. Any thoughts to going down dip during this dark season for gas?

Daniel Herz -- President and Chief Executive Officer

We're going to mind our own shop right now. I think that type of move is not a bad move for others and makes a lot of sense. But for us, right now, we're going to continue to manage expenses down and keep them well. We're going to be very prudent with any acquisitions, if we do any.

We're going to mind our balance sheet. And I think we're going to benefit from the development activity of our operators, and I think you'll see us rewarded over the short term for that type of activity. And then we'll be, I think, proactive in being getting back on track to be a major consolidator of minerals.

Welles Fitzpatrick -- SunTrust Robinson Humphrey -- Analyst

Perfect. Perfect. That makes sense. Thanks, guys.

Daniel Herz -- President and Chief Executive Officer

Thank you.

Operator

We will move next to Jeffrey Campbell at Tuohy Brothers.

Jeffrey Campbell -- Tuohy Brothers Investment Research -- Analyst

Good morning. Daniel, earlier, you provided the suggestion that M&A in other basins might materialize due to the current oil price volatility and the stress that it's engendering. With equity pretty beaten up throughout the E&P and mineral space, and with your specific priority for balance sheet resilience, so just wondering what sort of acquisition could be viable in 2020.

Daniel Herz -- President and Chief Executive Officer

Yeah. I don't even want to -- hey, Jeff, nice to talk to you. I don't want to speculate given the just volatility of the market, it's not even worth it to guess tomorrow versus today. So we do, as a reminder, have a very strong balance sheet.

We are in a very good position with respect to -- I mean, every stress case that we have, and you all can run with respect to our balance sheet, we're just going to continue that strength and continue to benefit from our operators' development. But I'm not going to speculate on what may or may not transpire over the coming months and quarters.

Jeffrey Campbell -- Tuohy Brothers Investment Research -- Analyst

OK. So we'll think of those as kind of a high-level comment at this time. I was just wondering, can you give us some color on in the last -- earlier in the fourth quarter, we were told that there were some high NRI wells that were delayed in their tie in line. I was just wondering, if those things come online? And are they performing up to expectations?

Daniel Herz -- President and Chief Executive Officer

I'm going to let Bryan answer your question. Bryan, please?

Bryan Gunderson -- Chief Financial Officer

Yeah. So just to give you some color from Q3 to Q4, we had reported 4,825 BOE per day in Q3. A portion of that was a benefit from a prior-period adjustment. In Q4, we saw a little bit of a base decline as well because of the low net well count turned in line in Q3 then, obviously, the impact from the offset fracks that we outlined in January investor presentation and the timing of the high NRI wells that we laid out in our January investor presentation.

The December trajectory has been upward, and those are now back operating, so.

Jeffrey Campbell -- Tuohy Brothers Investment Research -- Analyst

OK. So to the point of the high NRI wells, are they performing up to your expectations?

Daniel Herz -- President and Chief Executive Officer

Yes. The high NRI wells are back online. In fact, all of those transitory items had subsided and have subsided as we entered 2020. Thank you, Jeff.

Jeffrey Campbell -- Tuohy Brothers Investment Research -- Analyst

Sure. And a last quick one. Is there any further development at Hooks Ranch anticipated during 2020 at this time?

Daniel Herz -- President and Chief Executive Officer

Not in any of our numbers, no.

Jeffrey Campbell -- Tuohy Brothers Investment Research -- Analyst

OK, great. Thank you.

Daniel Herz -- President and Chief Executive Officer

Thanks, Jeff.

Operator

[Operator instructions] We will go next to Gail Nicholson at Stephens.

Gail Nicholson -- Stephens Inc. -- Analyst

Hi. Good morning, guys. In regards to guidance, you guys just based that on the line of sight wells, but I was just curious how you guys are factoring or thinking about potential refrack opportunities and/or EOR across the asset base?

Daniel Herz -- President and Chief Executive Officer

Thank you, Gail, always nice to talk to you. I know Bryan feels the same way. We have not factored into any of our numbers, refracks or enhanced oil recovery. We very much have benefited from refracks on our positions, including from ConocoPhillips.

As they develop some of our higher NRI locations, they have refracked, and we've also experienced that from EOG. All of that is upside to our numbers, and we would like to just benefit from that upside and overachieve.

Gail Nicholson -- Stephens Inc. -- Analyst

I like the overachievement. With the volatility in the commodity price environment, have you guys rethought or reconsidered a future hedging strategy at all?

Daniel Herz -- President and Chief Executive Officer

It's a really good question. I thought about it on Saturday and Sunday, but it felt like it might be a little bit post mature, if that's a word. Yes, it's something we've considered constantly. We have consistently felt, given our very low operating expense and low operating expense per barrel, providing both the upside, as well as the downside is fair to our shareholders.

I am certainly at these levels, I'm not an advocate to hedge. Even though prices very well may go lower, they probably will go lower. Our balance sheet is solid. We, obviously, have more than twice as much liquidity as we do drawn, so we're in fine shape.

Our operating expenses are low, we'll generate positive free cash flow above like $10 a barrel. So the answer is, yes, thought a lot about it. No, not currently contemplating hedging.

Gail Nicholson -- Stephens Inc. -- Analyst

OK, great. Thank you so much.

Daniel Herz -- President and Chief Executive Officer

Thanks.

Operator

We'll go next to Jon Evans at SG Capital.

Jon Evans -- SG Capital Management -- Analyst

Daniel, I'm just curious, have you guys thought about making any SG&A cuts, etc., some of your brethren that are bigger, have made some substantial cuts? And I'm just curious, it doesn't seem you're going to be able to grow besides organically in the near term to medium term because of the price of the equity. So any thoughts there?

Daniel Herz -- President and Chief Executive Officer

Yeah. Thanks. Appreciate the question, Jon. It's always nice to talk to you as well, and I think Bryan shares that view.

Bryan Gunderson -- Chief Financial Officer

Yes.

Daniel Herz -- President and Chief Executive Officer

Good. So the answer is, we're very focused on expenses. We have our eye on some very clear administrative type costs that we, regardless of commodity prices that we want to prune out. We are very different from our brethren with respect to our organizational structure.

And as a reminder, I had the responsibility of reducing staff in running an E&P business, hundreds and hundreds of people, as well as cutting G&A and administrative costs. In building Falcon employee by employee, we designed this company and have a total of 11 employees dedicated to this business, which is half of our next closest competitor or peer who's about 20 or 21. And about a quarter of another peer of ours, who is about the same size. And I know Blackstone Minerals, who is, obviously, much larger, had a significant reduction, but they also have a large working interest portfolio and have been in 48 states.

I know the folks over there, very, very good people, and that's very tough, obviously. But having been through this environment, not just in 2014, '15, but also '08, '09 and then even back in 2000, 2001, we very, very much designed our company to only have people and really who are doers and be understaffed, but we do have certain administrative costs, for example, Mike Downs was pointing out yesterday in our budget and then maybe even our guidance, we have an estimated expense for acquisitions and looking at acquisitions, legal, engineering, third-party staff, etc., of almost $0.5 million, we're certainly not spending that. That's one of the kind of handful of items that we would expect to prune on the G&A side.

Jon Evans -- SG Capital Management -- Analyst

Great. Thank you for the answer. I appreciate it.

Daniel Herz -- President and Chief Executive Officer

Sure. I hope that provides enough color and bolt. You can be sure, we are committed to running as lean as one can possibly run.

Operator

And with no other questions holding, I will turn the conference back to management for any additional or closing comments.

Daniel Herz -- President and Chief Executive Officer

Thank you. It's nice to speak to everybody. During these challenging periods, we at Falcon wish everybody well. We certainly are satisfied with our business, the strength and stability of our business, how we've designed our business to withstand this type of environment and really even be strong through it.

So I look forward to speaking to you on another day and another period when everybody is doing better. But in the meantime, Bryan, myself and we all at Falcon wish everybody well. We are available to the extent anybody would like to speak any further. So with that, we'll speak to you soon.

Operator

[Operator signoff]

Duration: 42 minutes

Call participants:

Bryan Gunderson -- Chief Financial Officer

Daniel Herz -- President and Chief Executive Officer

Lee Cooperman -- Omega Family Office -- Analyst

Derrick Whitfield -- Stifel Financial Corp. -- Analyst

Welles Fitzpatrick -- SunTrust Robinson Humphrey -- Analyst

Jeffrey Campbell -- Tuohy Brothers Investment Research -- Analyst

Gail Nicholson -- Stephens Inc. -- Analyst

Jon Evans -- SG Capital Management -- Analyst

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