Black Stone Minerals Q2 2024 Earnings Report

Black Stone Minerals EPS Results

• Actual EPS: $0.29
• Consensus EPS: $0.37
• Beat/Miss: Missed by -$0.08
• One Year Ago EPS: $0.35

Black Stone Minerals Revenue Results

• Actual Revenue: $109.62 million
• Expected Revenue: $124.24 million
• Beat/Miss: Missed by -$14.62 million
• YoY Revenue Growth: N/A

Black Stone Minerals Announcement Details

• Quarter: Q2 2024
• Date: 8/5/2024
• Time: After Market Closes
• Conference Call Date: Tuesday, August 6, 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 Q2 2024 Earnings Call Transcript

Key Takeaways

• Q2 production was flat at 40,400 BOE per day, driving $68 million net income and $100 million adjusted EBITDA, with 67% of revenues from oil and condensate.
• The quarterly distribution was maintained at $0.375 per unit (annualized $1.50) with 1.17x coverage, with excess cash deployed into growth opportunities.
• Since September 2023, the company has invested approximately $65 million in mineral and royalty acquisitions, including $26.5 million in Q2, to extend its development runway.
• Blackstone Minerals remains debt-free on its $375 million revolver with over $61 million cash and has hedged more than 60% of its 2024 gas volumes at $3.55/MMBtu, generating a ~$12 million realized gain.
• In the Shelby Trough and Gulf Coast, eight new wells came online averaging 25–30 MMcf/d initial rates, adding to over 15 Tcf of undeveloped inventory, with further wells scheduled in H2.

Presentation

[Operator]

Good day, everyone, and welcome to today's Black Stone Minerals Q2 earnings call. At this time, all participants are in a listen-only mode. Later, you'll have the opportunity to ask questions during the question-and-answer session. You may register to ask a question at any time by pressing star one on your telephone keypad. You may withdraw yourself from the queue by pressing star two. Please note, this call may be recorded. I'll be standing by should you need any assistance. It is now my pleasure to turn the conference over to Mr. 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 Black Stone Minerals' second 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, Taylor DeWalch, 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 turn the call over to Tom.

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

Good morning, and thank you all for joining us today. In the second quarter, we continued to see solid results from our unique asset base, and we remain focused on our organic growth strategy, along with targeted acquisitions to further enhance our existing long runway of high-interest development opportunities. Total production for the quarter was in line with the first quarter at 40,400 BOE per day, which generated $68 million of net income and just over $100 million of adjusted EBITDA. 67% of our oil and gas revenues in the quarter came from oil and condensate production. We maintained our distribution at $0.375 per unit, with excess coverage utilized on growth opportunities. With our clean balance sheet, commercial strategy, and asset mix, we're uniquely positioned to remain focused on the long-term decision-making opportunities.

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

Strong oil production and revenues from multiple basins, as well as a constructive natural gas outlook, remain the foundation of a very positive future for the company. On the acquisitions front, as we discussed previously, starting in the fourth quarter of 2023, we expanded our commercial initiatives to include a targeted grassroots acquisition program to enhance our existing asset position and to elongate our runway of development opportunities. During the quarter, we added another $26.5 million in minerals and royalty acquisitions and have acquired about $65 million in minerals and royalty interest in these areas since September of 2023. We continue to see creative opportunities to add to our position, which will ultimately add value for our shareholders.

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

In East Texas and Louisiana, we continue to work with multiple operators to promote development on our acreage while monitoring the current environment and preparing for the anticipated improvement in the natural gas market. We also remain focused on the Shelby Trough operations and our extensive undeveloped inventory, totaling over 15 Tcf of gas, a Gulf Coast resource with multiple successful recent well results. Another 8 wells on our minerals were brought online in the second quarter in this area, with initial rates in the range of 25 million -30 million cu ft per day, and several more wells are scheduled to come online in the second half of the year after being drilled in the first half of the year.

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

Overall, it was a strong quarter, and we maintain our strategic objective of working with the operators to achieve full field development across all of our assets. We continue looking toward the future by advancing our commercial initiatives and growing production and returning the distribution to the high watermark, previously set. With that, I'll turn it over to Taylor to walk through the financial details of the quarter.

[Taylor DeWalch, Senior VP, CFO and Treasurer at Black Stone Minerals]

Thanks, Tom. Good morning, everyone. As Tom pointed out, we had a very solid second quarter. Mineral and royalty production was 38.2 thousand BOE per day, and total production volumes were just over 40,000 BOE per day, both of which are about flat from last quarter. We saw an increase in our oil volumes, which helped offset the continued downturn in the gas market. We maintain our updated full-year guidance from the first quarter, continuing to thoughtfully review current market dynamics. As Tom previously mentioned, net income was $68.3 million for the quarter, with adjusted EBITDA being $100.2 million. We previously announced that our distribution for the quarter is $0.375 per unit, or $1.50 on an annualized basis.

[Taylor DeWalch, Senior VP, CFO and Treasurer at Black Stone Minerals]

Distributable cash flow for the quarter was $92.5 million, which represents 1.17x coverage for the quarter. Our board elected to keep the distribution flat from the previous quarter so that we can continue to use the excess coverage to pursue attractive mineral and royalty acquisitions. We continue to have a strong balance sheet that gives us flexibility through these dynamic market cycles. Total commitments under the credit facility remain at $375 million, and there are currently no outstanding borrowings on the revolver. As of the end of last week, we had just over $61 million in cash. We are well hedged for the remainder of the year. Our 2024 natural gas hedges are at approximately $3.55 per MMBtu.

[Taylor DeWalch, Senior VP, CFO and Treasurer at Black Stone Minerals]

Comparing that to an average price at Henry Hub of about $2 per MMBtu for the second quarter, we've benefited with a realized gain of approximately $12 million. We have over 60% of our expected volumes hedged for the remainder of 2024 that will help insulate our cash flows from near-term price volatility. We have continued to add to our hedge portfolio for 2025, and we'll maintain our strategy of adding on hedges for 2026. Again, we had another solid quarter, and we'll continue to focus on generating long-term value for our shareholders. With that, we'll open the call for questions.

[Operator]

Thank you. At this time, if you'd like to ask a question, please press the star and one on your telephone keypad. You may remove yourself from queue at any time by pressing star two. Again, that is star one to ask a question. We'll pause for a moment to allow questioners to queue. And our first question will come from Tim Rezvan with KeyBanc.

[Tim Rezvan, Managing Director at KeyBank]

Good morning, folks, and thank you for taking my questions. My first question, in the release, you gave some comments on Aethon, but I was hoping to maybe get a little more color. You mentioned in the release a delayed initial production from some wells in the second quarter. Can you clarify what that means? Is that deferred till, or are they choking back production? And then if you could kind of give broader comments on if Aethon has sort of formally come out of it, this timeout that they entered in December. Thank you.

[Taylor DeWalch, Senior VP, CFO and Treasurer at Black Stone Minerals]

Thanks, Tim. I appreciate the question. I guess, this is Taylor. I'll take a quick pass at just your first part of that question on the delayed production, to clarify what we said in the release. So we had previously announced that there was a number of wells that the first production date was just gonna be delayed a little bit. And so the comment there in the release is specific to those wells that were previously announced. And we're excited to see those wells go ahead and come online. Like we mentioned, eight of the 10 and anticipate the other two coming online in the second half of the year.

[Tim Rezvan, Managing Director at KeyBank]

Okay. So that, that's the IP rate you gave suggests those are, you know, the typical, you know, fully producing rates. Okay. And, and then can you clarify on the timeout part of that question? Are they officially out? Do you get notification? How does that process work?

[Carrie Clark, Senior VP, Chief Commercial Officer at Black Stone Minerals]

Tim, this is Carrie Clark. Yeah, I think not to, we can't really speak to that, not withholding any information, but I think what was put in the press release is we're still talking with Aethon, as far as a formal declaration of, "Coming out of timeout." That's not really something that we can speak to definitively right now. But, you know, can say that they did start three new wells in February, and those wells, I think, have just come online. We have not seen initial production rates yet, but we're still talking with them on how best to move forward holistically.

[Tim Rezvan, Managing Director at KeyBank]

Okay, I understand. I appreciate that. And then as my follow-up, in the release, you know, you continue to highlight mineral acquisitions in this emerging but not yet disclosed Gulf Coast area. And I'm curious kind of what is precluding you from, you know, discussing it more openly? Is there a critical mass of acreage you want to acquire? Are you waiting to get some sort of formal agreement with an operator? I realize you can't give color, but I was wondering if you could give a little more detail on what the guideposts are to evolve that process. Thank you.

[Carrie Clark, Senior VP, Chief Commercial Officer at Black Stone Minerals]

Sure. Yeah. I mean, we're, you know, as is pretty standard, we're not speaking in a great amount of detail, publicly or formally about that acquisition program, but we've shared quite a bit of information about it. We're just still trying to maintain, you know, we're trying to assimilate a position that's accretive to the position that we already have, that lines up with the science and some technical work that we've done over the last year, and it's, you know, that's, I think pretty much covers it as far as the acquisition program.

[Tim Rezvan, Managing Director at KeyBank]

Okay. All right. I understand you can't say too much. Thanks.

[Taylor DeWalch, Senior VP, CFO and Treasurer at Black Stone Minerals]

Thanks, Tim.

[Operator]

Thank you. Again, as a quick reminder, if you'd like to ask a question, please press star one now. It looks like we have no additional questions at this time. I'd like to pass it now back to speakers for any closing remarks.

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

Okay. Thank you all very much for joining us for the 2Q 2024 earnings call, and we look forward to speaking with you at the next quarter. Thank you so much.

[Operator]

Thank you, ladies and gentlemen. This concludes today's presentation. You may now disconnect.

Participants

Executives

• Carrie Clark, Senior VP, Chief Commercial Officer
• Mark Meaux, Director of Finance
• Taylor DeWalch, Senior VP, CFO and Treasurer
• Tom Carter, Chairman, CEO and President

Analysts

• Tim Rezvan, Managing Director at KeyBank