Black Stone Minerals, L.P. Q2 FY2024 Earnings Call

Good day, everyone, and welcome to today's Black Stone Minerals Q2 Earnings Call. Please note this call may be recorded. It is now my pleasure to turn the conference over to Mr. 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 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. 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.

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 in 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. Strong oil production and revenues with 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 grassroot 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 metals and royalty interest in these areas since September of '23. We continue to see accretive opportunities to add to our position, which will ultimately add value for our shareholders. 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 on 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 to 30 million cubic feet 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. Overall, it was a strong quarter, and we've maintained our strategic objective of working with the operators to achieve full field development across all 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.

Thanks, Tom, and good morning, everyone. As Tom pointed out, we had a very solid second quarter. Mineral and royalty production was 38,200 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 for the first quarter and continue 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. 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 remained 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, comparing that to an average price at Henry Hub of about $2 per MMBtu for the second quarter; we benefited from a realized gain of approximately $12 million. We have over 60% of our expected volumes hedged for the remainder of 2024 that will help inflate 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 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.

And our first question will come from Tim Rezvan with KeyBanc.

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 a deferred till or are they choking back production? And then if you could give broader comments on if Aethon has sort of formally come out of this timeout that they entered in December.

Thank you for the question, Tim. This is Taylor, and I'll address the first part regarding the delayed production. To clarify what we mentioned in the release, we had earlier indicated that several wells would experience a slight delay in their initial production dates. The comment in the release pertains specifically to those previously mentioned wells, and we are looking forward to seeing them come online. As stated, we expect 8 of the 10 wells to begin production soon, with the remaining 2 anticipated to come online in the second half of the year.

Okay. So the IP rates you provided indicate those are the typical fully producing rates. Can you clarify on the timeout part of that question? Are they officially out? Do you receive notification? How does that process work?

Tim, this is Carrie Clark. I can't provide specific details about that, but the press release indicates that we are still in discussions with Aethon regarding a formal announcement about ending the timeout. That's not something we can confirm definitively at this moment. However, I can mention that they installed three new wells in February, which I believe have just come online. We haven't observed the new initial production rate yet, but we're continuing to communicate with them about the best way to proceed overall.

Okay. Okay. I understand. I appreciate that. And then as my follow-up, in the release, you continue to highlight mineral acquisitions in this emerging but not yet disclosed Gulf Coast area. I was curious kind of what is precluding you from 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 know 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.

Sure. We’re not providing extensive details publicly about the acquisition program we've discussed previously. Our goal is to ensure that any new position we integrate enhances what we already have and aligns with the scientific and technical work we've conducted over the past year. That summarizes our approach to the acquisition program.

It looks like we have no additional questions at this time. I would like to return it to the speakers for any closing remarks.

Okay. Thank you all very much for joining us for the 2Q ‘24 earnings call, and we look forward to speaking with you at the next quarter. Thank you so much.

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