Brigham Minerals, Inc. Class A

Good morning, and thank you for attending today's Brigham Minerals fourth quarter 2021 earnings conference call. My name is Austin, and I'll be the moderator for today. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. If you'd like to ask a question, please press star one on your telephone keypad. I would now like to pass the conference over to our host, Jacob Sexton with Brigham Minerals, Jacob, go ahead.

Thank you, operator, and good morning, everyone. Welcome to the Brigham Minerals fourth quarter and year-end 2021 earnings conference call. Joining us today are Bud Brigham, founder and executive chairman, Rob Rosa, founder and chief executive officer, and Blake Williams, chief financial officer. Before we begin, I would like to remind you that our remarks, including the answers to your questions, contain forward-looking statements, and we refer you to our earnings release for a detailed discussion of these forward-looking statements and the associated risks. In addition, during this call, we make references to certain non-GAAP financial measures. Reconciliations to applicable GAAP measures can also be found in our earnings release. We have a new investor presentation titled Fourth Quarter 2021 Investor Presentation available for download on our website, www.brighamminerals.com. We recommend downloading the presentation in the event we refer to it during the conference call. Lastly, as a reminder, today's call is being webcast and is accessible through the audio link on our IR website. I would like to now turn the call over to Bud Brigham, Founder and Executive Chairman.

Bud Brigham Thank you, Jacob, and thanks to everyone for joining us on our fourth quarter and year-end 2021 earnings conference call. First and foremost, I want to thank the entire Brigham Minerals team for their tremendous effort during 2021. I will briefly summarize some of the accomplishments that they've made possible. First, related to our full year 2021 operating results, we will have distributed over $1.50 per share to our stockholders with the fourth quarter 2021 dividend announced last night. Of course, that amount is inclusive of both our base dividend, which we introduced in the second quarter of 2021, and our variable dividend. In addition, yesterday we announced we will be increasing our first quarter 2022 base dividend by 14% to $0.16 per share per quarter or 64 cents per share over the year. As always, our dividends are subject to further Board approval. Second, during 2021, we deployed approximately $150 million in acquisition capital and executed upon our largest deal to date, totaling approximately $93 million in the DJ Basin. Third, we also initiated our portfolio optimization efforts and have closed four transactions to date totaling $21 million, with our most recent divestiture closing in January of this year for $7 million related to the sale of merged assets. Our divestments continue to complement our retained cash flow, and as a result, we internally funded all of our fourth quarter ground-gain mineral acquisitions. Fourth and last, we have grown our activity wells and inventory during the year by approximately 65% to 12.9 net locations, which represents a company record and sets us up for a very strong 2022. When you look back in its totality, 2021 checked an enormous number of boxes, and I'm extremely proud of our team and want to thank each of them for their efforts. Importantly, These efforts are supported by the significant tailwinds with respect to the macro and the improvement in commodity pricing that we've seen across the entire energy structure, oil, NGLs, and natural gas. On our year-end 2020 conference call in February of last year, I indicated that supermajor activity, or the lack thereof, particularly the lack of long lead time, high capex, major international projects, as well as the independence unprecedented E&P capital discipline, and the monetary intervention by governments, all combined to put us on the precipice of a market capable of generating substantial returns for those optimally positioned. That has happened. Further, on our November conference call, I spoke to questions from both Stiefel and RBC regarding my introductory comments in which I indicated that the current cycle is different from any cycle that I've experienced during my 36-year career. I want to clearly indicate that I still believe we are in the early stages of an energy super cycle, a more extended cycle in some ways similar to that of the 1970s. The messaging we are hearing from the supermajors and independents has not changed over the current earnings season. Supermajors have indicated that they have the ability to increase Permian volumes, but on a corporate-wide basis, their volumes are flat to sometimes lower. Independents have continued to point to constrained 2022 capital spend. Further, demand is increasing, and the IEA has finally come to grips with demand in excess of 100 million barrels per day. OPEC is unable to fulfill their increasing production quotas, and they look to be 700 to 900,000 barrels short of their guidance. Much will fall on the shoulders of U.S. shale. However, here in the U.S., the duct inventory levels are alarming. Since the peak of duct inventories in the summer of 2020, Ducks across all basins have decreased 50% from 8,900 to 4,500, and Permian ducks have decreased 60% from 3,600 to less than 1,400. If you continue to forecast the average drawdown in Permian ducks of 125 per month since the summer of 2020 and project that same pace into the future, we have less than one year of Permian duck inventory on the books. The shells are bare. That and the other factors compounded together tell us very clearly that prices are headed higher. As I said, much is expected of U.S. Shell, particularly the Permian Basin. And U.S. Shell can deliver over time, but it will require a significant acceleration in activity. Very fortunately, Brigham is positioned to capture significant value at the right place and the right time, over both the longer term but also in the near term with the previously mentioned company record 12.9 net activity wells currently in inventory. Again, I want to thank all our employees for their efforts. And with that, I will turn the call over to Rob.