Black Stone Minerals Q1 2024 Earnings Report

Black Stone Minerals EPS Results

• Actual EPS: $0.27
• Consensus EPS: $0.35
• Beat/Miss: Missed by -$0.08
• One Year Ago EPS: N/A

Black Stone Minerals Revenue Results

• Actual Revenue: $105.49 million
• Expected Revenue: $119.50 million
• Beat/Miss: Missed by -$14.01 million
• YoY Revenue Growth: N/A

Black Stone Minerals Announcement Details

• Quarter: Q1 2024
• Date: 5/6/2024
• Time: N/A
• Conference Call Date: Tuesday, May 7, 2024
• Conference Call Time: 10:00AM ET

Black Stone Minerals (NYSE:BSM) L.P. (NYSE: BSM) is a publicly traded limited partnership that acquires and manages oil and natural gas mineral interests and producing royalty interests across the United States. The company’s business model centers on holding fractional ownership in subsurface mineral estates, which allows it to earn royalty income from hydrocarbon production without taking on the capital expenditures or operating risks associated with exploration and development.

Founded in 1876 and headquartered in Houston, Texas, Black Stone Minerals has built a diversified portfolio spanning key U.S. onshore plays. Its acreage touches major basins such as the Permian, Eagle Ford, Bakken and Anadarko, and the partnership also maintains non-operated royalty positions in federal waters of the Gulf of Mexico. This geographic breadth provides exposure to a variety of commodity price environments and drilling technologies.

The partnership’s strategy involves leasing mineral interests to exploration and production companies in exchange for lease bonus payments and ongoing royalties based on production volumes and prices. By structuring agreements with established operators, Black Stone Minerals captures value from drilling activity and subsurface advancements while preserving capital and limiting operational responsibilities.

Led by President and Chief Executive Officer Bradley J. Pierce, Black Stone Minerals leverages a dedicated team of geoscientists, land professionals and financial specialists to evaluate new acquisitions and optimize existing assets. The partnership continues to pursue selective mineral interest purchases and organic leasing opportunities to enhance its acreage footprint and maintain a steady stream of royalty revenues.

Black Stone Minerals Q1 2024 Earnings Call Transcript

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.

Presentation

[Operator]

Good day, and welcome to the Black Stone Minerals first quarter earnings call. At this time, all participants are in a listen-only mode. Later, there will be a question-and-answer session. You may queue for a question at any time by pressing the star key, followed by the number one on your telephone keypad. Please be advised that today's conference is being recorded. If you require operator assistance, you can press star zero. I'd now like to turn the call over to Mark Meaux, Director of Finance. Please go ahead.

[Mark Meaux, Director of Finance at Black Stone Minerals]

Thank you. Good morning to everyone. Thank you for joining us, either by phone or online, for the Black Stone Minerals first quarter 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. 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-K. We may refer to certain non-GAAP financial measures that we believe are useful in evaluating our performance.

[Mark Meaux, Director of Finance at Black Stone Minerals]

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 Kiefer, Senior Vice President, Chief Financial Officer, and Treasurer. Carrie Clark, Senior Vice President, Chief Commercial Officer. And Steve Putman, Senior Vice President and General Counsel. I'll now call to... I'll now turn the call over to Tom.

[Tom Carter, Chairman, CEO and President at Black Stone Minerals]

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 $63.9 million and adjusted EBITDA of $104.1 million. We generated total production volumes for the first quarter of 40.3 BOE per day, a decrease of 2% from our fourth quarter 2023 volumes. Gas volumes for the quarter were 38.9 thousand BOE per day. Oil volumes trended down in the Midland and Delaware basins, but were particularly, partially offset by an increase in the resilient Bakken area. And despite the ongoing natural gas challenges, natural gas volumes increased from the fourth quarter in the Fayetteville, Gulf Coast, Lance, Mesaverde, and other trends.

[Tom Carter, Chairman, CEO and President at Black Stone Minerals]

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 Black Stone Minerals and its unitholders. With that, let me just turn to focus on the Haynesville/Bossier, which is a significant, as everyone knows, a significant long-term growth engine for Black Stone Minerals. In the Shelby Trough, we announced in December that one of our operators invoked a, quote, unquote, "timeout" under the provision of our joint exploration agreement, which would allow them to cease activity for a period of time. We have a good group of operators in the Shelby Trough, being XTO, Aethon, Pinewave, Milestone, EXCO, and others.

[Tom Carter, Chairman, CEO and President at Black Stone Minerals]

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 timeout, however, is currently drilling three wells and is expected to continue levels of activity there. This suggests that either the operator is no longer in timeout and back on the clock under our joint exploration agreement, or alternatively, that these operations would not qualify for contractual minimums under our contract. 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.

[Tom Carter, Chairman, CEO and President at Black Stone Minerals]

And we do not anticipate a material impact in our volumes in Haynesville through 2024 and 2025, 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 to 30 million cubic feet a day in pressures in excess of 10,000 pounds. In addition to our interest with existing operators, Black Stone Minerals has an additional existing 170,000+ net acres of undeveloped inventory in the Shelby Trough, with an estimated 15 TCF of resource in the ground.

[Tom Carter, Chairman, CEO and President at Black Stone Minerals]

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 2026 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 prices persist, 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.

[Tom Carter, Chairman, CEO and President at Black Stone Minerals]

Starting in the fourth quarter of 2023, we expanded those efforts, including targeted grassroots acquisitions program that are aimed to supplement our existing and expanding footprint in the Gulf Coast and Shelby Trough areas. These efforts have allowed us to weather a lot of different cycles. In 2022, we mentioned that we expected to grow production through 2023, with a targeted exit rate close to 40,000 BOE per day, and we're able to execute on those expectations. Now, in 2024, we have set our plan to grow the distribution back to the high water level mark by 2026, through production growth alongside liquefied natural gas demand, that is expected to drive higher natural gas prices.

[Tom Carter, Chairman, CEO and President at Black Stone Minerals]

We intend to capitalize on our existing portfolio and acquired acreage and add meaningfully to our development program in these Gulf Coast regions. We've added over $50 million worth of non-producing assets since September of 2023, and this is just a fraction of what we intend to do going forward. 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.

[Evan Kiefer, Senior Vice President, CFO and Treasurer at Black Stone Minerals]

Thank you, Tom, and good morning to everyone. As Tom pointed out, we had a positive first quarter. We generated 38.1 thousand BOE per day of mineral and royalty production for the first quarter, which was down 2% from last quarter, and 40.3 thousand BOE per day in total production volume. This resulted in our net income of $63.9 million and adjusted EBITDA for the first quarter of $104.1 million. We previously announced that we were 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 $96.4 million, which represents 1.22 times coverage for the quarter.

[Evan Kiefer, Senior Vice President, CFO and Treasurer at Black Stone Minerals]

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 first quarter towards growth opportunities. 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 million of non-producing mineral and royalty interests, and utilizing that excess cash from the first quarter to supplement these acquisitions, we continue to have no outstanding borrowings on our revolver. As of last week, we had approximately $89 million 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 million, while we elected to hold commitments at $375 million.

[Evan Kiefer, Senior Vice President, CFO and Treasurer at Black Stone Minerals]

Yesterday, we also announced updated production guidance that reflects the challenges that we're seeing in the natural gas price environment today. 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 and 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.

[Evan Kiefer, Senior Vice President, CFO and Treasurer at Black Stone Minerals]

Comparing that to an average price at Henry Hub of $2.24 per MMBtu for the first quarter, we benefited from a realized gain of approximately $14 million. We have over 60% of our expected volumes 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, and will continue so throughout the remainder of the year. 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-water mark.

[Evan Kiefer, Senior Vice President, CFO and Treasurer at Black Stone Minerals]

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]

Thank you. At this time, if you would like to ask a question, please press star one on your telephone keypad. If at any point you find your question has been answered, you may remove yourself by pressing star two. Once again, that is star one to ask a question, and star two to remove yourself. We'll go first to Derek Whitfield with Stifel.

[Derrick Whitfield, Managing Director and Senior Analyst at Stifel]

Good morning, all, and thanks for your time.

[Evan Kiefer, Senior Vice President, CFO and Treasurer at Black Stone Minerals]

Good morning, Derek.

[Derrick Whitfield, Managing Director and Senior Analyst at Stifel]

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 clearly price is dependent and not as material as some might think, what is your assumption on curtailments in your guidance?

[Evan Kiefer, Senior Vice President, CFO and Treasurer at Black Stone Minerals]

Yeah, Derek, this is Evan, and I'll, I'll start with that. You know, one of the things we're looking at, not only just from public guidance, whether it's, you know, Chesapeake has come out and said that they intend on delaying wells for through the next quarter, as well as what Aethon has indicated as well. You know, what we're really looking at is, you know, average pricing in the third quarter is, call it, on average, $2.50. The fourth quarter is closer to $3. And I, I think whenever you start to move up those levels, they'll be a little bit more interested in turning that well, those wells online and, and getting the production, as opposed to, you know, right now we're closer to $2 in the second quarter.

[Evan Kiefer, Senior Vice President, CFO and Treasurer at Black Stone Minerals]

You know, our current guidance update, it really contemplates curtailments through the second quarter into the third, and then, assuming at that level that they, they start to come back online, really kind of targeting that third quarter into the, the second half of the year.

[Derrick Whitfield, Managing Director and Senior Analyst at Stifel]

That makes sense. And then maybe shifting over to acquisition activity. You've been active in acquiring over $50 million in minerals since last September, as you guys have noted. While I know you, 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?

[Tom Carter, Chairman, CEO and President at Black Stone Minerals]

I'll answer that. 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 our 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 2025 and beyond, that those acquisitions made today will have significantly higher return on investments for Black Stone than trying to wade in where everybody else is. So I hope that answers your question.

[Derrick Whitfield, Managing Director and Senior Analyst at Stifel]

It, 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?

[Tom Carter, Chairman, CEO and President at Black Stone Minerals]

Depth, meaning in how, how much do we expect to spend?

[Derrick Whitfield, Managing Director and Senior Analyst at Stifel]

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

[Tom Carter, Chairman, CEO and President at Black Stone Minerals]

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.

[Derrick Whitfield, Managing Director and Senior Analyst at Stifel]

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

[Tom Carter, Chairman, CEO and President at Black Stone Minerals]

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

[Derrick Whitfield, Managing Director and Senior Analyst at Stifel]

Thank you.

[Operator]

As a reminder for our listening audience, that is star one. If you would like to enter the queue again, star one. We'll go next to John Mardini with KeyBanc Capital Markets.

[John Mardini, Vice President at Jefferies]

Hi, good morning.

[Evan Kiefer, Senior Vice President, CFO and Treasurer at Black Stone Minerals]

Good morning, John.

[John Mardini, Vice President at Jefferies]

So my first question is on distribution. You trimmed it in one Q 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 gas strip and hedges in place?

[Evan Kiefer, Senior Vice President, CFO and Treasurer at Black Stone Minerals]

Yeah, John, that's a great question. And, you know, with the higher coverage that we had in the first quarter, that was really elected to help support some of the acquisition efforts. Now, you know, given the production delays and curtailments, we do expect that coverage to fall in the future. And, you know, 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? And so, you know, 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.

[John Mardini, Vice President at Jefferies]

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

[Evan Kiefer, Senior Vice President, CFO and Treasurer at Black Stone Minerals]

Great. Thank you, John.

[Operator]

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.

[Tom Carter, Chairman, CEO and President at Black Stone Minerals]

All right. Well, thank you all for joining us today. I just summarize 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 Black Stone to be in the best position to really perform through there. 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.

Participants

Executives

• Evan Kiefer, Senior Vice President, CFO and Treasurer
• Mark Meaux, Director of Finance
• Tom Carter, Chairman, CEO and President

Analysts

• Derrick Whitfield, Managing Director and Senior Analyst at Stifel
• John Mardini, Vice President at Jefferies