Black Stone Minerals , L.P. (NYSE: NYSE:BSM) announced its financial results for the first quarter, showcasing resilience with a net income of $63.9 million and adjusted EBITDA of $104.1 million.
Despite a slight 2% dip in production volumes and a challenging natural gas market, the company is optimistic about its future, focusing on organic growth and strategic acquisitions. Black Stone has already invested over $50 million in non-producing assets and plans to maintain its distribution at $0.375 per unit while gearing up for a significant increase in acquisition spending.
Key Takeaways
- Black Stone Minerals reported a net income of $63.9 million with adjusted EBITDA at $104.1 million.
- Total production volumes saw a 2% decrease from the previous quarter, settling at 40.3 MBoe/d.
- The company has invested over $50 million in non-producing assets, indicating a focus on growth through acquisitions.
- Distributions have been reduced to $0.375 per unit, with intentions to sustain this level in the future.
- Black Stone anticipates a production curtailment in Q2, with recovery expected in Q3 and the latter half of the year.
Company Outlook
- Black Stone Minerals projects a temporary production curtailment in the second quarter due to market conditions.
- Production is expected to ramp up in the third quarter and continue to grow in the second half of the year.
- The company plans to maintain the current distribution level, although this may hinge on the duration of the low natural gas price environment.
Bearish Highlights
- A decrease in production volumes by 2% from the last quarter reflects some operational challenges.
- The natural gas market poses difficulties, potentially affecting future distributions and operations.
Bullish Highlights
- Black Stone is actively pursuing acquisitions in less expensive, strategic areas contiguous to their existing positions.
- The company's acquisition strategy is expected to yield higher returns on investment compared to industry peers focusing on the more costly Permian region.
Misses
- The company did not mention any specific financial or production targets missed during the quarter.
Q&A Highlights
- Tom Carter emphasized the company's strategic acquisition approach, targeting areas that offer better value than the Permian Basin.
- Black Stone intends to significantly increase its acquisition spending, suggesting confidence in their long-term strategy.
- The company's distribution strategy is cautious, reflecting a conservative approach in the current gas price environment.
In conclusion, Black Stone Minerals remains steadfast in its strategy to drive growth through targeted acquisitions and organic initiatives. The company is preparing for short-term market challenges but stands optimistic about its positioning for future success. Investors and market watchers will be closely monitoring Black Stone's performance in the upcoming quarters as it navigates the natural gas landscape and strives to deliver on its strategic growth plans.
InvestingPro Insights
Black Stone Minerals (NYSE: BSM) not only delivered a solid financial performance in the first quarter but also presents several intriguing factors for investors considering the stock. With a market capitalization of $3.5 billion and a P/E ratio of 10.63, the company reflects a valuation that could appeal to value-oriented investors. Notably, the adjusted P/E ratio for the last twelve months as of Q4 2023 stands at an even more attractive 8.72.
The InvestingPro Tips highlight Black Stone Minerals' strong financial health and shareholder-friendly policies. The company holds more cash than debt, which is a reassuring sign of financial stability. Moreover, Black Stone has a track record of rewarding investors, having raised its dividend for 3 consecutive years and maintained dividend payments for 10 consecutive years. This consistency is further underscored by the impressive gross profit margin of 86.01% for the last twelve months as of Q4 2023, indicating efficient operations and cost management.
While analysts have revised their earnings expectations downwards for the upcoming period, Black Stone's ability to generate significant dividends for shareholders, coupled with low price volatility, suggests a potentially stable investment.
The stock's dividend yield as of the latest data is 8.98%, which is substantial in the current investment climate. Moreover, investors should note that the company's cash flows can sufficiently cover interest payments, adding another layer of financial security.
For those interested in further insights and additional InvestingPro Tips, there are 11 more tips available on Black Stone Minerals at InvestingPro. Use coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, and enrich your investment strategy with comprehensive analytics and real-time data.
InvestingPro Data Metrics:
- Market Cap (Adjusted): $3.5 billion USD
- P/E Ratio (Adjusted) LTM Q4 2023: 8.72
- Gross Profit Margin LTM Q4 2023: 86.01%
In light of these insights, Black Stone Minerals appears to be navigating the current market conditions with a strong balance sheet and a commitment to shareholder returns, positioning itself as a potentially resilient investment in the natural gas sector.
Full transcript - Black Stone Minerals (BSM) Q1 2024:
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. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions]. I'd now like to turn the call over to Mark Meaux, Director of Finance. Please go ahead.
Mark Meaux: 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 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.
Tom Carter: 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 MBoe/d, a decrease of 2% from our fourth quarter of '23 volumes. Royalty volumes for the quarter were 38.9 MBoe/d. Oil volumes trended down in the Midland and Delaware Basins but were 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, 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 has a strategic advantage that continues to consistently add long-term value to Black Stone and its unit holders. With that, let me just 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 “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, Pine Wave, Milestone, XCO, 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 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 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 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 24, 25, 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 million to 30 million cubic feet a day in pressures in excess of [indiscernible]. In addition to our interest 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 juxtaposition to what we are a believer in, and that is 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, 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. Starting in the fourth quarter of 2023, we expanded those efforts, including targeted grassroot acquisitions programs 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 '23 with a targeted exit rate close of 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 highwater 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 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 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: Thank you, Tom, and good morning to everyone. As Tom pointed out, we had a positive first quarter. We generated 38.1 MBoe/d of mineral and royalty production for the first quarter, which was down 2% from last quarter and 40.3 MBoe/d 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 1.22x coverage for the quarter. 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 interest 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 that we're seeing in the natural gas 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 38.5000 DOE per day and 40.5000 DOE 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 first quarter, we've benefited from a realized gain of approximately $14 million. We had 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, 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. This environment provides a very unique opportunity to be selectively acquisitive to the benefit of our unit holders 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. [Operator Instructions] We'll go first to Derrick Whitfield with Stifel.
Derrick Whitfield: 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 curtailment in your guidance?
Evan Kiefer: 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 Avon has indicated as well. What we're really looking at is, average pricing in the third quarters, call it on average $2.50, the fourth quarter is closer to $3. And I think whenever you start to move up those levels, they'll be a little bit more interested in turning those wells online and getting the production as opposed to, right now we're closer to $2.00 in the second quarter. So our current guidance update really contemplates curtailment through the second quarter into the third, and then assuming at that level that they start to come back online, really kind of targeting that third quarter into the second half of the year.
Derrick Whitfield: 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?
Tom Carter: 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: It does. And then just in terms of the depth beyond what you guys have committed to today, any color you could offer there?
Tom Carter: Depth meaning how much do we expect to spend?
Derrick Whitfield: Or how much more could you spend given the competitive landscape you're seeing?
Tom Carter: 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 '23.
Derrick Whitfield: That's terrific color, and I certainly look forward to updates from you guys in the future.
Tom Carter: As soon as we get a little bit more, we'll say more about it.
Operator: [Operator Instructions] We'll go next to Jon Mardini with KeyBanc Capital Markets.
Jon Mardini: 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 gas strip and hedges in place?
Evan Kiefer: Yes. Jon, 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. 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? 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.
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.
Tom Carter: All right. Well, thank you all for joining us today. I'll 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 four or five 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. 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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