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

Thank you. Good morning to everyone. Thank you for joining us either by phone or online for 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. 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 turn the call over to Tom.

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 $63.5 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 '23 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. Despite the ongoing natural gas challenges, natural gas volumes increased from the fourth quarter in the Fayetteville, Gulf Coast, Lance Mesa Verde and other tranches. Factors like these continue to illustrate the benefit of a diversified portfolio, where we continue to see additions in noncore 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 and its unitholders. Now let me turn to focus on the Haynesville/Bossier, which is, as everyone knows, a significant long-term growth engine for Black Stone. 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. We have a good group of operators in the Shelby Trough, including XTO, Aethon, Pine Wave, Milestone, Exco and others. Additionally, 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 three wells and is expected to continue levels of activity there. This suggests that either the operator is no longer on time out and back on the clock under our joint exploration agreement, or alternatively, these operations will 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 environments—price environments on our properties. We continue to work closely with our operators in all of these areas. We do not anticipate a material impact on our volumes in Haynesville through '24 to '25, even though many operators are slowing down in response to the low price environment. We believe 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 million to 30 million cubic feet a day in pressures in excess of 10,000 psi. In addition to our interests with existing operators, Black Stone 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 as we believe in natural gas demand increases coming into '26 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. However, as we said, we do not expect this to be meaningfully challenging to our volumes. As 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. Starting in the fourth quarter of '23, we expanded those efforts, including a targeted grassroots acquisitions program aimed at supplementing 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 '23 with a targeted exit rate closed 40,000 BOE per day, and we're able to execute on those expectations. Now in '24, 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. 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 nonproducing assets since September '23, and this is just a fraction of what we intend to do going forward. Overall, it's a strong quarter. Despite a challenging commodity price environment, we're encouraged by the long-term natural gas outlook. We continue to make progress working with our key operators and strategic initiatives to grow and bring in additional operators into our Shelby Trough area. With that, I'll ask Evan to take over.

Thank you, Tom, and good morning to everyone. As Tom pointed out, we had a positive first quarter. We generated 38,100 BOE per day of mineral and royalty production for the first quarter, which was down 2% from last quarter and 40,300 BOE per day in total production volume. This resulted in our net income of $63.9 million and adjusted EBITDA for the first quarter of $104.1 million. We previously announced that we reduced 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 1.22x coverage for the quarter. Due to the challenges of 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 nonproducing 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. Yesterday, we also announced updated production guidance that reflects the challenges we are seeing in the natural gas price environment today. In response to production curtailments and a continued slowdown in bringing new production online, we are 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. Coming 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 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, which 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 to 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 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. So with that, we'll open the call up to questions.

We'll go first to Derrick Whitfield with 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 dependent and not as material as some might think, what is your assumption on curtailments in your guidance?

Yes, Derrick, 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 through the next quarter as well as what Aethon has indicated. What we're really looking at is that average pricing in the third quarter is, call it, on average, $2.50. The fourth quarter is closer to $3. And I think whenever you start to move up those levels, there'll be a little bit more interest in turning those wells online and getting the production as opposed to right now, we're closer to $2 in the second quarter. So our current guidance update really contemplates curtailments through the second quarter into the third and then assuming at that level that they start to come back online, really targeting that third quarter into the second half of the year.

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 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?

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. 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. We think with what we see strip in late '25 and beyond that those acquisitions made today will have significantly higher returns on investments for Blackstone than trying to wade in where everybody else is. So I hope that answers your question.

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

Yes, meaning how much do we expect to spend?

Or how much more could you spend given the competitive landscape you're seeing?

I would answer that this way. I think we expect and have budgeted to spend a multiple of what we spent so far. 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 '23.

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

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

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

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 gas market hedges in place?

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

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

Great. Thank you, John.

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.

All right. Well, thank you all for joining us today. I just summarize by saying we're in one of the many bumps that we encounter in our industry, but we're pretty excited about the next four or five years and what we see coming down the road, and we are trying to position Black Stone to be in the best position to perform in that time. Thank you very much for joining us today.

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