Black Stone Minerals Q1 2024 Earnings Call Transcript

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May 7, 2024

Key Takeaways

  • Posted a strong Q1 with net income of $63.9 M and adjusted EBITDA of $104.1 M, underscoring robust profitability.
  • Lowered 2024 production guidance by ~4% to between 38,500 and 40,500 BOE/day due to continued curtailments and delays in bringing new wells online.
  • Reduced the quarterly distribution to $0.375/unit (1.22× coverage), electing to reinvest excess cash flow into growth and acquisition initiatives.
  • Secured hedges on over 60% of 2024 volumes at ~$3.55/MMBtu, contributing a ~$14 M realized gain in Q1 and cushioning near-term cash flow volatility.
  • Acquired more than $50 M of non-producing mineral and royalty interests since September 2023 and plans a significantly expanded acquisition program through year-end.
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Earnings Conference Call
Black Stone Minerals Q1 2024
00:00 / 00:00

There are 5 speakers on the call.

Operator

Good day, and welcome to the Blackstone Minerals First Quarter Earnings Call. Please be advised that today's conference is being recorded. I'd now like to turn the call over to Mark Moe, Director of Finance. Please go ahead.

Speaker 1

Thank you. Good morning to everyone. Thank you for joining us either by phone or online for Blackstone Minerals' Q1 2024 Earnings Conference Call. Today's call is being recorded and will be available on our website along with the earnings release, which was issued last night. Before we start, I'd like to advise you that we will be making forward looking statements during this call about our plans, expectations and assumptions regarding our future performance.

Speaker 1

These statements involve risks that may cause our actual results to differ materially from the results expressed or implied in our forward looking statements. For a discussion of these risks, you should refer to the cautionary information about forward looking statements in our press release from yesterday and the Risk Factors section of our 2023 10 ks. We may refer to certain non GAAP financial measures that we believe are useful in evaluating our performance. Reconciliation of those measures to the most directly comparable GAAP measure and other information about these non GAAP metrics are described in our earnings press release from yesterday, which can be found on our website at www.blackstoneminerals.com. Joining me on the call from the company are Tom Carter, Chairman, CEO and President Evan Keefer, Senior Vice President, Chief Financial Officer and Treasurer Cary Clark, Senior Vice President, Chief Commercial Officer and Steve Putman, Senior Vice President and General Counsel.

Speaker 1

I'll now call turn the call over to Tom.

Speaker 2

Thank you, Mark. Good morning, everyone, and thank you for joining us this morning to discuss the quarter. We posted a good first quarter with net income of $63,900,000 and adjusted EBITDA of $104,100,000 dollars We generated total production volumes for the Q1 of 40.3 BOE per day, a decrease 2% from our Q4 'twenty three volumes. Royalty volumes for the quarter were 38,900 BOE per day. Oil volumes trended down in the Midland and Delaware basins, but were partially offset by an increase in the resilient Bakken area.

Speaker 2

And despite ongoing natural gas challenges, natural gas volumes increased from the Q4 in the Fayetteville, Gulf Coast, Glance, Mesa Verity and other trends. Factors like these continue to illustrate the benefit of a diversified portfolio where we continue to see additions in non core plays that contribute to new production year over year. Our unique asset mix is a strategic advantage that continues to consistently add long term value to Blackstone and its unitholders. With that, let me just turn to focus on the HaynesvilleBossier, which is a significant as everyone knows, a significant long term growth engine for Blackstone. In the Shelby Trough, we announced in December that one of our operators invoked a time out under the provision of our joint exploration agreement, which would allow them to cease activity for a period of time.

Speaker 2

We have a good group of operators in the Shelby Trough being XTO, Aethon, Pinewave, Milestone, Exco and others. And in addition, in Louisiana, we have Chesapeake, Southwestern, Comstock and others. So we've got a great portfolio of operators. The operator that declared a time out, however, is currently drilling 3 wells and is expected to continue levels of activity there. This should suggest that either the operator is no longer in time out and back on the clock under our joint exploration agreement or alternatively that these operations will not qualify for contractual minimums under our contract.

Speaker 2

This just underscores the strength of the structure of our joint exploration agreements with respect to activity in various different environments, price environments on our properties. One second here, I'm just scrolling up. We continue to work closely with our operators in all of these areas. And we do not anticipate a material impact in our volumes in Haynesville through 'twenty four, 'twenty five, even though a lot of the operators are slowing down in response to the low price environment. We believe that there are positive results continually being added in the basin and we're very encouraged by performance on new wells in the area ranging anywhere from 25,000,000 to 30,000,000 cubic feet a day and pressures in excess of £10,000.

Speaker 2

In addition to our interest with existing operators, Blackstone has an additional existing 170,000 plus net acres of undeveloped inventory in the Shelby Trough with an estimated 15 Tcf of resource in the ground. We look forward to that acreage coming in juxtaposition to what we are a believer in and that is natural gas demand increases coming into 'twenty six and beyond with the LNG export markets firming up and expanding. In response to lower natural gas prices, some of our operators have been involved in some curtailment, but we do not as we said, we do not expect this to be meaningfully challenging to our volumes. As these challenging commodity price persists, we continue to focus on our long term strategy while employing prudent balance sheet management. Our focus for several years has been centered around organic initiatives to develop our existing asset base that has been a significant long term adder to our production.

Speaker 2

Starting in the Q4 of 'twenty three, we expanded those efforts including targeted grassroot acquisitions program that are aimed to supplement our existing and expanding footprint in the Gulf Coast and Shelby Drought areas. These efforts have allowed us to weather a lot of different cycles. In 2022, we mentioned that we expected to grow production through 'twenty three with a targeted exit rate close of 40,000 Boe per day and we're able to execute on those expectations. Now in 'twenty four, we have set our plan to grow the distribution back to the high water level mark by 2026 through projection growth alongside liquefied natural gas demand that is expected to drive higher natural gas portfolio and acquired acreage and add meaningfully to our development program in these Gulf Coast regions. We've added over $50,000,000 worth of non producing assets since September of 'twenty three, and this is just a fraction of what we intend to do going forward.

Speaker 2

Overall, it's a strong quarter and despite a challenging commodity price environment, we're encouraged by the long term natural gas outlook. We continue to make progress working towards with our key operators and strategic initiatives to grow and bringing additional operators into our Shelby Trough area. With that, I'll ask Evan to take over.

Speaker 3

Thank you, Tom, and good morning to everyone. As Tom pointed out, we had a positive Q1. We generated 38,100 BOE per day of mineral and royalty production for the Q1, which was down 2% from last quarter and 40,300 BOE per day in total production volume. This resulted in our net income of $63,900,000 and adjusted EBITDA for the Q1 of 104,100,000 dollars We previously announced that we are reducing our distribution to $0.375 per unit or $1.50 on an annualized basis. As reported yesterday, distributable cash flow for the quarter was $96,400,000 which represents 1.22 times coverage for the quarter.

Speaker 3

Due to the challenges with natural gas prices, production curtailments and delays in turning wells on production, our Board elected to reduce the distribution and utilize the excess coverage in the Q1 towards growth opportunity. We continue to have a very strong balance sheet that gives us a lot of flexibility through these dynamic market cycles. As Tom mentioned, we have acquired approximately $50,000,000 of non producing mineral and royalty interest and utilizing that excess cash from the Q1 to supplement these acquisitions, we continue to have no outstanding borrowings on our revolver. As of last week, we had approximately $89,000,000 of cash and that's prior to the payment of the distribution later this month. The borrowing base for our revolving credit facility was reaffirmed at $580,000,000 while we elected to hold commitments at $375,000,000 Yesterday, we also announced updated production guidance that reflects the challenges that we're seeing in the natural gas price environment today.

Speaker 3

In response to production curtailments and a continued slowdown in bringing new production online, we're lowering our 2024 production guidance range for the full year by approximately 4% to between 38,500 BOE per day 40,500 BOE per day. As Tom mentioned, Aethon has started curtailing a number of properties in the Shelby Trough and has indicated plans to delay the initial production on additional properties until later this year when prices are expected to improve. Now off the heels of 2023 where we had natural gas hedges at over $5 per MMBtu, our 2024 natural gas hedge position is at approximately $3.55 per MMBtu. Comparing that to an average price at Henry Hub of $2.24 per MMBtu for the Q1, we benefited from a realized gain of approximately $14,000,000 We have over 60% of our expected volume hedged for the remainder of 2024 that will help insulate our cash flows from any continued near term pricing volatility. We have continued to add to that hedge position for 2025 both for crude and natural gas will continue to grow throughout the remainder of the year.

Speaker 3

Overall, we had a positive quarter despite some headwinds created by the continued lower gas environment, but we remain focused on our commercial strategy of growing production and returning the distribution to its previous high watermark. This environment provides a very unique opportunity to be selectively acquisitive to the benefit of our unitholders in the next year and beyond as we continue to execute on those plans. And so with that, we'll open the call up to questions.

Operator

We'll go first to Derrick Whitfield with Stifel.

Speaker 4

Good morning, all, and thanks for your time.

Speaker 3

Good morning, Derrick.

Speaker 4

For my first question, I wanted to focus on your 2024 guidance. With your lower guidance, could you help frame how you're thinking about the cadence of production throughout the year? And while fully priced it's dependent and not as material as some might think. What is your assumption on curtailments in your guidance?

Speaker 3

Yes, Derek. This is Evan and I'll start with that. One of the things we're looking at not only just from public guidance whether it's Chesapeake has come out and said that they intend on delaying wells for through the next quarter as well as what Eason has indicated as well. What we're really looking at is average pricing in the 3rd quarters, call it on average $2.50 The 4th quarter is closer to $3 And I think whenever you start to move up to those levels, there'll be a little bit more interest in turning that well those wells online and getting the production as opposed to right now are closer to $2 in the second quarter. So our current guidance update really contemplate curtailments through the Q2 into the 3rd and then assuming at that level that they start to come back online really kind of targeting that Q3 into the second half of the year.

Speaker 4

That makes sense. And then maybe shifting over to acquisition activity, you've been active in acquiring over $50,000,000 in minerals since last September as you guys have noted. While I know you guys would prefer not to disclose the location at this time, could you at least help frame the opportunity as to whether it's oil or gas, kind of the competitive environment that you're seeing and the depth of the opportunity beyond what's been disclosed?

Speaker 2

I'll answer that. The unlike a lot of people in the industry where mineral acquisitions are going on in the Permian and the acquisition of a royalty acre in the Permian is extremely expensive. We are focusing higher acquisitions on other areas that are not nearly as expensive, but that are contiguous to and around significant positions that we already have in other areas. And while I'm not trying to say too much about where that is, it doesn't take a lot of imagination to figure out where that might be. And we think with what we see in the Strip in late 'twenty five and beyond that those acquisitions made today will have significantly higher return on investments for Blackstone than trying to wade in where everybody else is.

Speaker 2

So I hope that answers your question.

Speaker 4

It does. And then just in terms of the depth beyond what you guys have committed to, to date, any color you could offer there?

Speaker 2

Depth, meaning how much do we expect to spend?

Speaker 4

Or how much more could you spend given the competitive landscape you see?

Speaker 2

I would answer that this way. I think we expect and have budgeted to spend a multiple of what we've spent so far and that depends on price. But we've got a pretty robust program going on and we're probably as active right now as we've been since 2023.

Speaker 4

That's terrific color and certainly look forward to updates from you guys in the future.

Speaker 2

As soon as we get a little bit more, we'll say more about it. Thank you.

Operator

We'll go next to John Mardini with KeyBanc Capital Markets.

Speaker 4

Hi, good morning. Good morning, John. So,

Speaker 1

our first question is on distribution. You trimmed it in 1Q and had more than enough coverage to pay for it. Are you looking to maintain this $0.375 distribution going forward, just given the current gastric and hedges in place?

Speaker 3

Yes, John, that's a great question. And with the higher coverage that we had in the Q1 that was really elected to help support some of the acquisition efforts. Now given the production delays and curtailments, we do expect that coverage could fall in the future. And a lot of this is really going to be dependent on how long the low gas environment continues. Do we see the strength kind of continue in the second half of the year as the strip would indicate?

Speaker 3

And so we do like setting a distribution level that is achievable and expect to maintain it. But as always, there's some openness as to where the strip in the current environment persists.

Speaker 4

Okay, that's helpful. It's actually all we had. We appreciate the color there.

Speaker 3

Great. Thank you, John.

Operator

And at this time, it appears we have no further questions. I'd like to turn the floor back over to Mr. Tom Carter for any additional or closing comments.

Speaker 2

All right. Well, thank you all for joining us today. I just summarized by saying we're in one of the many sort of bumpy roads that we run into in our industry, but we're pretty excited about the next 4 or 5 years and what we see coming down the road and are trying to position Blackstone to be in the best position to really perform through there. And thank you very much for joining us today.

Operator

Thank you. Once again, ladies and gentlemen, that will conclude today's call. Thank you for your participation. You may disconnect at this time.

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