Black Stone Minerals, L.P. (BSM) on Q2 2021 Results - Earnings Call Transcript
Operator: Good day and thank year for standing by. Welcome to the Black Stone Minerals Second Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your speaker today, Mr. Evan Kiefer. Please go ahead, sir. Evan Kiefer: Thank you, and good morning to everyone. Thank you for joining us either by phone or online for the Black Stone Minerals second quarter 2021 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. Tom Carter: Thank you, Evan. Good morning to everyone on the call, and thanks for joining us to discuss what was a very strong quarter on both, the operational and financial fronts. We reported 38.2 MBoe per day for the second quarter of ‘21. Of that, royalty volumes increased by 5% from last quarter to a total of 32.5 MBoe per day. Working interest volumes held stable to last quarter at 5.7 MBoe. The increase in royalty volumes was mainly due to the Midland and Delaware properties but we also saw nice increases outside of our major shale plays as well, but seen a remarkable rebound in commodity prices since the middle of last year and are currently well above pre-pandemic price levels. Operator activity continues to grind higher as well. We had 64 rigs operating across our acreage at the end of the second quarter. That’s up slightly from last quarter and is more than double what we saw in the middle of last year. The slower recovery and rig count relative to prices reflect producers holding to their promise to exercise greater capital discipline and focus on returns rather than simple production growth. It should prove good for the long-term health of the industry if it continues. The higher price environment, increase in drilling activity and leasing efforts in the Austin Chalk contributed to our best financial performance since 2019. We reported adjusted EBITDA for the second quarter of $78.4 million, which is an increase of 31% from last quarter and 8% from the second quarter of 2020. Distributable cash flow for the second quarter was $72.1 million, which equates to $0.35 per unit. That’s also an increase of over 30% from the last quarter. Improved fundamentals and positive outlook across many of the core areas of development justify an increase in the base level of our distribution to $0.20 per unit for the rest of this year, which is a 14% increase from last quarter. We also had a number of items break to the right way for us in the second quarter, including higher than expected gas realizations and a big quarter in terms of lease bonus. Jeff Wood: Okay. Thank you, Tom, and good morning, everyone. As Tom went over, we had a very strong quarter on a number of fronts. Production rebounded from the first quarter, and of course, commodity prices were much healthier. We saw big gains from WTI and Henry Hub prices, and further benefited from improved differentials, resulting in a 21% uptick in realized prices from last quarter. Oil differentials continue to move up. That’s a trend we’ve seen since mid-last year, while our gas differential spiked to 127% of Henry Hub. That was due to stronger NGL prices and higher than expected realizations on checks we received in the second quarter related to February production. This combination of gains in production and price, plus a strong quarter of lease bonus payments, led to our adjusted EBITDA and distributable cash flow outpacing the first quarter amounts by over 30%. But metrics were held back a little bit by our 2021 hedges that we put in place last year, which they are below current market levels. The bright side of the hedge story is that we stand to see meaningful increases in cash flow going into 2022, just from better hedge realizations. We did add to our 2022 hedge portfolio during the quarter at prices averaging around $3 per Mcf for gas, and $62 per barrel for oil. Overall, our average hedge price for 2022 versus this year is 11% higher for gas and 54% higher for oil. Operator: Thank you, Jeff. And here’s our first question coming in from Mr. Brian Downey from Citigroup. Brian Downey: You announced the increase to your base distribution to $0.20 per unit, and noted your low debt balance of only $81 million at the end of July. Given where the balance sheet currently sits, how are you thinking about distribution payout or coverage into next year, particularly once those less attractive hedges roll off versus A&D and other potential uses of that cash? Jeff Wood: Brian, this is Jeff. I’ll start with that. I mean, look, I think we’ve said for a long time now, one of the big benefits of the massive debt reduction that we went through in ‘20 and early ‘21 is that we’d be in a position to really prioritize increasing payouts. So, we started that a bit, although we still even with the special distribution at 1.4x coverage felt pretty healthy, but I think part of this, as we think about the sustainability of that $0.20 and then as you mentioned, potential for going higher than that in ‘22 as hedge prices increase. Look, there’s sort of four things you can do with your excess cash flow, right? You can pay down debt, you can save it for acquisitions, you can do buybacks or you could increase distributions. And I think where we are at least today is to prioritize increasing distribution. So, I would expect that as we anticipate production coming down a bit in the back half of this year, that coverage will just naturally come in on that $0.20 planned distribution. Of course, the Board’s got to approve that, and we’ll see if things change. But the idea is to pay off that 20% coverage will come down a little bit. But then as we get into ‘22, I would think that we would maintain lower levels of coverage than we have in the past, just as you mentioned, because of the debt levels. Brian Downey: That makes sense. And then a separate topic, you highlighted your new sustainability initiative and surface use waivers supporting mineral development, which I found interesting. How much runway is there on utilizing your mineral acreage for similar types of initiatives, perhaps quantifying potential proceeds over the coming quarters? And if you could remind us if you own any notable amount of surface acreage itself that could be used as well? Tom Carter: Brian, this is Tom Carter. I’ll take a shot at that. First, I would say that our efforts around this part of the growing part of responsibility of all of us is nascent, and we are looking at multiple different ways to go at this, and there are a lot of them. In this particular case, as you may or may not know, we don’t own any substantial amount of surface acreage any longer but in Texas and in a lot of other estates, the mineral estate is the dominant estate, which means that there’s a right to drill a well to access the minerals, and you can obviously, if you can imagine, if a bunch of drilling rigs show up on surface that has been leased to a solar farm, the disruption that would cause. So, these folks seek surface use waivers by the mineral estate before they put those arrays out there. And we -- that’s where we come into play, and we do interrupt our rights to use that. We usually secure pre-agreed upon drill sites so that drilling can occur, but the solar folks know where they’re going to be. If you put all that together, I think there’s an opportunity for the mineral estate and the surface estate owners to work together to facilitate operators being able to put these lands together so that they can effectively build these farms. It’s getting more and more competitive every day. Operator: And our next question is from Mr. Pearce Hammond of Piper Sandler. Pearce Hammond: My first pertains to production, first half production better than expected. Second half looks a little weaker relative to our expectations. Just curious what accounted for that, what do you think accounted for that stronger production in the first half? And then do you think maybe you’re being conservative in the second half? It just seems like a bit of an abrupt change from the first half to the second half? Jeff Wood: This is Jeff. Yeah, look, as I said in the prepared comments, right, we really tried and when we put out production guidance, we try to rely on things that we have a real line of sight on. And so there is a lot of serendipity that happens across our asset base, and we certainly saw that in the first half of the year. Frankly, some of those mature plays that I mentioned that we expect to see declines from like in the Gulf Coast and in the Bakken, just continue to outperform our expectations. That can’t happen forever, but it’s been pretty consistently happening here over recent quarters. So, I think in general, we have a conservative bench when we give guidance just because we try not to forecast a lot of things that we can’t see, even though we tend to have some good things happen across our acreage every quarter. So look, the hope would be that we are being a little conservative but I think the good news here is that we put this $0.20 base distribution with an eye towards our revised guidance and what that means for production levels for the second half of the year. And I think we should still be able to fund that distribution level and obviously, if we continue to see some things outperform, that may give us further flexibility in terms of additional debt paydown or whatever. But yes, we realized that it may look a little conservative given the outperformance in the first half of the year, but frankly, we’d probably rather be on that side of things. Pearce Hammond: And then my follow-up, congrats on all the progress you guys have made in East Texas with the various operators. And clearly, it seems like things are moving at a bit of a faster pace, which is good. So I’m just curious, back to production, when do you see that inflection point when all of this new activity that’s getting spooled up starts to really show up and offset some of those declines? Jeff Wood: Pearce, I know you know this because you cover the story so well, but just context for others, right? I mean, between BP and XTO and that Shelby Trough area, which between royalty and working interest was only a third of our production as we were coming out of ‘18. That was a 30-plus wells a year on pretty high net acreage for us, and when BP and XTO stopped drilling, the PDP profile of those existing wells were flat for a year or so and then started to turn over pretty quick. So we’re in that sort of high decline curve on the existing last big round of PDP, last big round of wells that were drilled by BP and XTO. And well, as you mentioned, we’re very encouraged by Aethon’s early results. It is early and it just takes a while for those programs to get ramped up and to really provide that inflection point that you’re talking about. So I think, we’re expecting that in ‘22, that inflection point and that relatively steep decline in the existing PDP, of course, is a big driver to some of those declines in second half of ‘21 versus first. But I will tell you, based on only well results, based on the fact that they’re running ahead of their required performance under the agreement, we’re really optimistic about Aethon’s activity there. And of course, the other big part of that inflection point is going to be -- we’ve got four to five wells that are going to be -- that have either already been spud or will be spud over the course of this year in the Austin Chalk, and we’re excited there just given the extent of our ownership around that play. Tom Carter: And if you take our contractual situations out there at full compliance, you could see upwards of 30 wells a year moving up to from where we are to 30 wells a year in the Shelby Trough portion of the Haynesville Bossier. And if our initiatives, our collective initiatives in the Chalk pan out, which we’re optimistic about, we could see that ramping up to 20 to 30 wells a year. So, you put those two things together, we’ll be growing into those shoes, if you will, but it could roll back up pretty quickly. Operator: Tom Carter: Well, it looks like that’s all the questions, and as always, we thank you for joining us, and we look forward to discussing matters with you next quarter. Thanks so much. Operator: And this concludes today’s conference. Thank you for your participation. You may now all disconnect. Thank you so much.
Black Stone Minerals, L.P. (NYSE: BSM) Overview: Stability and Growth in the Energy Sector
- Black Stone Minerals, L.P. (NYSE:BSM) maintains a stable consensus price target, with Wells Fargo setting a higher outlook.
- The company announces a consistent cash distribution of $0.375 per common unit for Q1 2025, reflecting a stable financial strategy.
- BSM is featured in the Dividend Power strategy as a top pick for February 2025, indicating confidence in its earnings and dividend yields.
Black Stone Minerals, L.P. (NYSE:BSM) is a prominent player in the energy sector, focusing on the ownership and management of oil and natural gas mineral interests across the United States. Established in 1876, BSM holds mineral interests in approximately 16.8 million gross acres, making it a significant entity in the industry. The company also manages various royalty interests, contributing to its robust portfolio.
The consensus price target for BSM's stock has shown stability over the past year. Last month, the average price target was $15, slightly decreasing from the previous quarter's $15.5. This consistency suggests a stable performance outlook for BSM, despite broader market fluctuations. Wells Fargo, however, has set a higher price target of $18, indicating a more optimistic view of the stock's future performance.
BSM's consistent cash distribution of $0.375 per common unit for the first quarter of 2025, as approved by the Board of Directors, reflects the company's stable financial strategy. This distribution level has been maintained across previous quarters, underscoring BSM's commitment to providing steady returns to its investors. The company's upcoming earnings call will offer further insights into its financial health and future prospects.
The Dividend Power strategy, which includes BSM among its top picks for February 2025, highlights the company's strong earnings and dividend yields. This strategy aims to build a resilient portfolio capable of enduring market fluctuations. BSM's inclusion in this strategy, alongside other notable stocks, suggests confidence in its ability to deliver consistent returns.
BSM's recent earnings calls, including the Q4 2024 and Q3 2024 discussions, have provided valuable insights into the company's performance and future outlook. Key participants, such as Thomas Carter, Chairman, President, and CEO, have shared their perspectives on BSM's strategic direction. These calls, along with the consistent price target set by Wells Fargo, offer a comprehensive view of BSM's position in the energy sector.
Black Stone Minerals, L.P. (NYSE: BSM) Overview: Stability and Growth in the Energy Sector
- Black Stone Minerals, L.P. (NYSE:BSM) maintains a stable consensus price target, with Wells Fargo setting a higher outlook.
- The company announces a consistent cash distribution of $0.375 per common unit for Q1 2025, reflecting a stable financial strategy.
- BSM is featured in the Dividend Power strategy as a top pick for February 2025, indicating confidence in its earnings and dividend yields.
Black Stone Minerals, L.P. (NYSE:BSM) is a prominent player in the energy sector, focusing on the ownership and management of oil and natural gas mineral interests across the United States. Established in 1876, BSM holds mineral interests in approximately 16.8 million gross acres, making it a significant entity in the industry. The company also manages various royalty interests, contributing to its robust portfolio.
The consensus price target for BSM's stock has shown stability over the past year. Last month, the average price target was $15, slightly decreasing from the previous quarter's $15.5. This consistency suggests a stable performance outlook for BSM, despite broader market fluctuations. Wells Fargo, however, has set a higher price target of $18, indicating a more optimistic view of the stock's future performance.
BSM's consistent cash distribution of $0.375 per common unit for the first quarter of 2025, as approved by the Board of Directors, reflects the company's stable financial strategy. This distribution level has been maintained across previous quarters, underscoring BSM's commitment to providing steady returns to its investors. The company's upcoming earnings call will offer further insights into its financial health and future prospects.
The Dividend Power strategy, which includes BSM among its top picks for February 2025, highlights the company's strong earnings and dividend yields. This strategy aims to build a resilient portfolio capable of enduring market fluctuations. BSM's inclusion in this strategy, alongside other notable stocks, suggests confidence in its ability to deliver consistent returns.
BSM's recent earnings calls, including the Q4 2024 and Q3 2024 discussions, have provided valuable insights into the company's performance and future outlook. Key participants, such as Thomas Carter, Chairman, President, and CEO, have shared their perspectives on BSM's strategic direction. These calls, along with the consistent price target set by Wells Fargo, offer a comprehensive view of BSM's position in the energy sector.
