Earnings call: Black Stone Minerals reports Q3 2024 earnings

Black Stone Minerals , L.P. (NYSE: NYSE:BSM) reported its third-quarter earnings for 2024, maintaining a consistent distribution despite a decrease in production due to natural gas market volatility. The company's net income stood at $92.7 million, with adjusted EBITDA at $86.4 million. Black Stone Minerals continued its mineral acquisition strategy, adding $15 million in assets during the quarter and planning to pursue more accretive opportunities. The earnings call also highlighted successful well developments in East Texas and Louisiana, with expectations of further activity and development in these regions.

Key Takeaways

• Black Stone Minerals maintained its quarterly distribution at $0.375 per unit despite decreased production.
• Q3 net income was $92.7 million; adjusted EBITDA was $86.4 million.
• The company added $15 million in minerals and royalty assets during the quarter.
• Successful well developments in East Texas and Louisiana with initial production rates up to 25 million cubic feet per day.
• The company's credit facility was reaffirmed at $580 million, with no outstanding borrowings on the revolver.

Company Outlook

• Black Stone Minerals remains confident in its acreage position and is focused on enhancing development opportunities through targeted acquisitions.
• The company has acquired approximately $80 million in minerals and royalty interest since Q4 2023.
• Plans to continue pursuing accretive opportunities to drive long-term shareholder value.

Bearish Highlights

• Production volumes decreased from the last quarter due to natural gas market volatility.

Bullish Highlights

• Black Stone Minerals maintained its distribution, reflecting confidence in its financial strength and future prospects.
• The company has a solid balance sheet and ample liquidity, providing flexibility in dynamic market cycles.
• Over 60% of expected gas and oil volumes are hedged for the remainder of 2024, offering protection against near-term price volatility.

Misses

• Mineral and royalty production was down slightly to 35,300 BOE per day, with total production at 37,400 BOE per day.

Q&A Highlights

• In response to Timothy Rezvan from KeyBanc Capital Markets, Taylor DeWalch discussed the company's ongoing activity and partnership with Aethon and the commitment to developing the Shelby Trough.
• The company's acquisition cadence in the Gulf Coast area was questioned, with DeWalch indicating a comfortable pace but an openness to assessing opportunities on a continual basis.

Black Stone Minerals' third-quarter earnings reflect a company navigating the challenges of a volatile natural gas market while maintaining a strategic focus on growth and development. The company's strong financial position and proactive hedging strategy have allowed it to sustain distributions and continue its acquisition program. With ongoing developments in East Texas and Louisiana and a commitment to working with operators for long-term development, Black Stone Minerals aims to enhance shareholder value and capitalize on anticipated improvements in the natural gas market.

InvestingPro Insights

Black Stone Minerals' (NYSE: BSM) recent earnings report aligns with several key metrics and insights from InvestingPro. The company's ability to maintain its quarterly distribution at $0.375 per unit, despite production challenges, is reflected in InvestingPro's data, which shows a significant dividend yield of 10.06%. This high yield is supported by an InvestingPro Tip indicating that BSM "Pays a significant dividend to shareholders" and "Has maintained dividend payments for 10 consecutive years."

The company's financial strength is further underscored by its impressive gross profit margin of 85.23% for the last twelve months as of Q3 2024. This aligns with the InvestingPro Tip highlighting BSM's "Impressive gross profit margins." Such robust margins provide the company with financial flexibility to pursue its mineral acquisition strategy and maintain distributions even in a volatile natural gas market.

Despite the challenges in production volumes, Black Stone Minerals' P/E ratio of 9.14 suggests that the stock may be undervalued relative to its earnings. This could be attractive to value investors, especially considering the company's ongoing development activities and strategic acquisitions.

InvestingPro offers additional tips that could provide further insights into BSM's financial health and market position. Investors interested in a more comprehensive analysis can explore 7 more tips available on InvestingPro, which could offer valuable perspectives on the company's future prospects and investment potential.

Full transcript - Black Stone Minerals (BSM) Q3 2024:

Operator: Hello, everyone, and thank you for joining us today for this Black Stone Minerals Q3 2024 Earnings Conference Call. As a reminder, all phone participants are in a listen-only mode, but later you will have the opportunity to ask questions during our question-and-answer session. Today's session is also being recorded. And to get us started with opening remarks and introductions, I'm pleased to turn the floor to Director of Finance, Mr. Mark Meaux. Please go ahead, sir.

Mark Meaux: Thank you, operator. Good morning to everyone. Thank you for joining us either by phone or online for Black Stone Minerals third 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.

Thomas Carter: Thanks, Mark. Good morning, and thanks for joining us today. We had a successful third quarter and as previously announced, maintained our consistent distribution despite a decrease in production from last quarter, driven by volatility in the natural gas area throughout the year. During the quarter, we progressed our mineral acquisition program, and we continue working with our partners for long-term development. We remain confident in the outlook across our acreage position and are focused on our targeted acquisition strategy to further enhance our existing long runway of high interest development opportunities. On the acquisition front, we continue to expand our asset footprint through the targeted grassroots acquisition program we've previously discussed throughout the year. During the quarter, we added about $15 million in minerals and royalty assets along with a substantial lease, all of which further build a contiguous asset for an operator for long-term development. Thus far, we have acquired about $80 million in minerals and royalty interest since the fourth quarter of 2023 and plan to continue pursuing accretive opportunities, which will ultimately drive long-term value for our shareholders. In East Texas and Louisiana, we continue to work with multiple operators to promote development on our acreage while we also monitor the current commodity environment and prepare the anticipated improvements in the natural gas market. And Shelby Trough and other three wells were brought online by Aethon in the third quarter with initial production rates in the 20 million to 25 million cubic feet per day range. We recently signed amendments to our existing joint exploration agreement and are currently looking at them operating one rig and fracking multiple wells in Angelina County. On the Louisiana side of the play, Comstock recently turned online multiple wells in the Toledo Bend area for about 25 million cubic feet per day. And we are excited about the ongoing activity in this area as we work with multiple operators to promote near-term development. Overall, it was a successful quarter, and we will continue to maintain our strategic objective of working with operators to achieve full development across all of our assets with the goal of accretive production growth through this active asset management and targeted acquisitions. With that, I'll turn it over to Taylor to walk through the financial details of the quarter.

Taylor DeWalch: Thanks, Tom, and good morning, everyone. As Tom pointed out, we had a successful quarter despite continued commodity price volatility. Mineral and royalty production was 35,300 BOE per day in the third quarter, and total production volumes were 37,400 BOE per day, both of which were down a bit from last quarter. We maintained our updated guidance for the first quarter and continue to softly review current market dynamics. Net income was $92.7 million for the third quarter, with adjusted EBITDA being $86.4 million. 63% of oil and gas revenue in the quarter came from oil and condensate production. We maintained our distribution at $0.375 per unit for the quarter or $1.50 on an annualized basis. Distributable cash flow for the quarter was $78.6 million, which represents approximately 1x coverage for the quarter. Our solid balance sheet and ample liquidity gives us flexibility through these dynamic market cycles and provides the opportunity to focus on commercial opportunities in the short and long-term. We appreciate working with our banking partners. And as of November 1, our credit facility was reaffirmed at $580 million with total commitments remaining at $375 million, and there are currently no outstanding borrowings on our revolver. As of the end of last week, we had approximately $43 million of cash. We are well hedged for the remainder of the year. Our 2024 natural gas hedges are at approximately $3.55 per MMBtu. In comparing that to an average price entry of $2.16 for the third quarter, we benefited with a gas settlement of approximately $15 million. We have over 60% of our expected gas and oil volumes hedged for the remainder of 2024 that will help insulate our cash flows for near-term price volatility. We also have attractive hedges in place for 2025, and we'll maintain our strategy of adding on additional hedges for 2026. Again, we had a successful quarter, and we'll continue to focus on generating long-term value for our shareholders. With that, I'd like to open the call for questions.

Operator: Gentlemen. Thank you. [Operator Instructions] We will hear from Tim Rezvan at KeyBanc Capital Markets.

Timothy Rezvan: Good morning, folks, and thank you for taking my question. I'd like to start first with the Aethon update that you provided. I know you kind of put some factual sort of terms around there. Can you step back and give us kind of an idea on how you see activity level sort of trending going forward? I think the market consternation was on how 2025 volumes would book. If you could kind of just sort of step picture and say what is this amendment kind of what sort of visibility you have over the next couple of years on activity? Thank you.

Taylor DeWalch: Thanks, Tim. This is Taylor. I'll just say just start off and first off, I just want to say I appreciate your report last night this morning. So just generally speaking, I think taking a step back and looking at the entire macro picture, we're certainly being thoughtful in thinking about natural gas activity across the entire basin. And we continue to work with our operators across all of Louisiana, Andes Texas, as mentioned in Tom's remarks a little bit earlier. As it relates to Aethon, we continue to work with them as well. And certainly, appreciate the activity in the current rate that they're running in the area, and we'll continue to work with all of our partners. So I hope that answers your question.

Timothy Rezvan: So is that a way of saying you think there's going to be one dedicated rig on the area of interest?

Taylor DeWalch: I'd say as far as exact rig activity, what I would say about Aethon activity just in the whole is that we continue to see them being active in the area and – as we've seen historically, they're going to maintain a level of commitment that they've been working, and we're going to continue to work with them in developing the Shelby Trough.

Timothy Rezvan: Okay. Appreciate that. And then like you pivot to the Gulf Coast area, another kind of measured quarter of acquisitions, about $15 million, and you've talked about the progression. – Is this cadence of acquisitions, is that reflective of your ability to get deals done? Or are you trying to be measured back the spending? Like theoretically, could you spend $50 million or $100 million if something came up next quarter? Just trying to understand kind of – it sounds like there's a big opportunity set, but just trying to understand the measured spending to date and maybe where you think you could take that. Thanks.

Taylor DeWalch: Yes. Thanks, Tim. That's a good question. And what I'd say is we're continuing to be thoughtful in the current market and our ability to acquire additional minerals in this area in the Gulf Coast that we're looking at. I'd say that we've reached a cadence that we feel pretty comfortable about. But we continue to look on a quarterly, monthly basis at what opportunities there are and assess those on an individual basis.

Timothy Rezvan: Thank you.

Operator: [Operator Instructions] Gentlemen, we have no signals from our phone audience. I'll turn it back to you for any additional or closing remarks.

Taylor DeWalch: Okay. Well, thank you all. We don't have any additional questions. And again, we thank you for joining us today and we look forward to talking with you next quarter.

Operator: Ladies and gentlemen, this does conclude today's Black Stone Minerals conference call, and we thank you all for your participation. You may now disconnect your lines.

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