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Sitio Royalties Corp. (NYSE:STR) Q1 2024 Earnings Call Transcript May 9, 2024

Sitio Royalties Corp. isn't one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good morning, and welcome to the Sitio Royalties Q1 2024 Earnings Call. My name is Carla, and I'll be the operator for this call today [Operator Instructions]. I'd now like to hand over to Ross Wong, Vice President of Finance and Investor Relations, to begin. Ross, please go ahead.

Ross Wong: Thanks operator and good morning, everyone. Welcome to the Sitio Royalties first quarter and full year 2023 earnings call. If you don't already have a copy of our recent press release and updated investor presentation, please visit our Web site at www.sitio.com or you will find them in our Investor Relations section. With me today to discuss first quarter 2024 financial and operating results is Chris Conoscenti, our Chief Executive Officer; Carrie Osicka, our Chief Financial Officer; and other members of executive leadership team. Before we start, I would like to remind you that our discussion today may contain forward-looking statements and non-GAAP measures. Please refer to our earnings press release, investor presentation and publicly filed documents for additional information regarding such forward-looking statements and non-GAAP measures. And with that, I'll turn the call over to Chris.

Chris Conoscenti: Thanks, Ross. Good morning, everyone, and thank you for joining Sitio's first quarter 2024 earnings call. We're off to a great start to the year with robust operator activity on our acreage, the recent closing of the DJ Basin acquisition and the commencement of share repurchases in March. This quarter was a clear demonstration of the strength of our business model, which is designed to be diversified across regions, operators and commodities, and focused on the returns expected from our acquisition underwriting. I want to thank our team at Sitio, which is driven by our belief in building shareholder value by creating a differentiated company focused on high rate of return investments and innovating the business of managing a large and complex asset base.

The robust activity I referred to came from multiple regions, primarily Delaware, Eagle Ford, and DJ, and multiple operators, both public and private, which turned in line 14.3 pro forma net wells in the first quarter resulting in a 3.7% quarterly proforma production growth rate. Our first quarter pro forma production was a company record high of 37,970 BOEs per day, 51% of which was oil. Additionally, approximately 40% of all newly producing wells in the quarter came online in March, so we expect to see positive impacts from this in our second quarter production. We ended the first quarter with 52.9 pro forma net line of sight wells, which supports our outlook for near term activity. We will continue to monitor operator activity, the macro environment and industry trends, and we'll update our 2024 guidance accordingly if our outlook differs materially from our previously issued guidance.

On the M&A front, the DJ Basin acquisition closed on April 4 and the acquired assets produced over 2,600 BOEs per day and had asset level cash flow of $8.5 million during the first quarter. These assets had consistent operator activity throughout the quarter with an estimated 1.2 net wells turn in line all from Chevron, Oxy and Civitas. Since the DJ Basin acquisition closed on April 4, our first quarter reported financials do not include any impacts from these assets. However, our financials will have 88 days of contribution from these assets in the second quarter. Our minerals M&A pipeline remains strong and we are evaluating acquisition opportunities of all sizes and across all of our regions with a continued focus on rate of return. With that, I'll now turn the call over to Carrie to provide an update on our quarterly financial results and return of capital.

Carrie Osicka: Thanks, Chris, and good morning, everyone. We reported first quarter pro forma discretionary cash flow of $118 million and pro forma adjusted EBITDA of $144 million which includes Q1 cash flow from the DJ Basin acquisition. Our board approved total return of capital equal to 65% of pro forma first quarter DCF, which on a per share basis is equal to $0.49 per share in total, comprised of a dividend of $0.41 per share of Class A common stock and share repurchases of $13 million or $0.08 per share. As a reminder, our return of capital framework provides a minimum dividend equal to 35% of DCF and allocates at least 30% of DCF to additional cash dividends, share repurchases or a mix of both. We started buying back shares in March and throughout the month we repurchased over 545,000 shares of Class A common stock at an average price of $23.77, which represents all of the share buybacks we executed in the first quarter.

In April, we continued buying back shares in the open market and also privately negotiated a block trade in which we repurchased approximately two million shares from two of our largest Class C holders that are not affiliated with our financial sponsors. We're optimistic about the outlook for the rest of 2024 and look forward to continuing to execute on our strategy and create long term shareholder value through accretive acquisitions, proactively managing our minerals and fostering a culture of continuous innovation. That concludes our prepared remarks. Operator, please open up the call for questions.

Operator: [Operator Instructions] Our first question comes from Neal Dingmann from Truist Securities.

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