Sitio Royalties Corp. (STR) is a leading mineral and royalty company that has built a diversified portfolio of high-quality assets across premier onshore U.S. basins. The company's strategic focus on accretive acquisitions and proactive asset management has enabled it to generate robust cash flows and deliver consistent returns to shareholders.
For the full year 2023, Sitio reported annual revenue of $593.4 million, annual net income of -$16.6 million, annual operating cash flow of $465.4 million, and annual free cash flow of $294.9 million. In the first quarter of 2024, the company continued its strong operational and financial performance, reporting pro forma discretionary cash flow of $118 million and pro forma adjusted EBITDA of $144 million.
Business Overview
Sitio Royalties Corp. was formed in 2016 and has since grown to become a leading mineral and royalty company. The company's strategy is centered around acquiring high-quality mineral and royalty interests across premier onshore U.S. basins, including the Permian, Eagle Ford, DJ, and Williston. As of March 31, 2024, Sitio owned mineral and royalty interests representing approximately 252,000 net royalty acres (NRAs).Sitio's business model is designed to be diversified across regions, operators, and commodities, which helps mitigate risk and provides the company with a stable and predictable cash flow stream. The company does not engage in any upstream activities, such as drilling and completing oil and gas wells, and instead focuses on acquiring and managing its portfolio of mineral and royalty interests.
Operational Highlights
In the first quarter of 2024, Sitio's average net daily production was 35,349 BOE/d, consisting of 18,263 Bbls/d of oil, 55,117 Mcf/d of natural gas, and 7,900 Bbls/d of NGLs. This represents a 3.7% increase in production compared to the prior quarter, driven by robust operator activity on the company's acreage.Sitio's operators turned-in-line 14.3 pro forma net wells during the first quarter, with approximately 40% of these wells coming online in March. This strong well activity, combined with the company's line-of-sight inventory of 52.9 pro forma net wells, provides Sitio with good visibility into near-term production growth.
In April 2024, Sitio closed the acquisition of a mineral and royalty position in the DJ Basin, which added over 2,600 BOE/d of production and $8.5 million in asset-level cash flow during the first quarter. This acquisition further diversifies Sitio's portfolio and enhances its exposure to the high-quality DJ Basin.
Financial Highlights
Sitio's financial performance in the first quarter of 2024 was strong, with the company reporting pro forma discretionary cash flow of $118 million and pro forma adjusted EBITDA of $144 million. These results demonstrate the company's ability to generate significant cash flow from its diversified asset base.The company's balance sheet remains healthy, with $11.7 million in cash and $590.0 million of available borrowing capacity under its revolving credit facility as of March 31, 2024. Sitio's leverage ratio, as measured by net debt to pro forma adjusted EBITDA, was 1.7x at the end of the first quarter.
Return of Capital
Sitio's Board of Directors approved a total return of capital equal to 65% of the company's pro forma first quarter discretionary cash flow. This translates to a dividend of $0.41 per share of Class A common stock and $13 million in share repurchases, or $0.08 per share.The company's return of capital framework, which allocates a minimum of 35% of discretionary cash flow to dividends and at least 30% to additional cash dividends or share repurchases, demonstrates Sitio's commitment to returning capital to shareholders. In the first quarter, Sitio repurchased over 545,000 shares of Class A common stock at an average price of $23.77 per share.
Outlook and Guidance
Sitio remains optimistic about the outlook for the remainder of 2024, citing the strong operator activity on its acreage and the accretive DJ Basin acquisition. The company will continue to monitor industry trends and update its guidance if its outlook differs materially from its previous projections.Risks and Challenges
As with any energy-related business, Sitio is exposed to commodity price volatility, which can impact its revenue and cash flow. The company also faces risks related to the financial condition and operational performance of its operators, as well as potential changes in regulatory and legislative environments.