Black Stone Minerals Q1 2023 Earnings Call Transcript

Quartr
Provided by Quartr
May 2, 2023

There are 8 speakers on the call.

Operator

Good day, everyone, and welcome to today's Blackstone Minerals First Quarter 2023 Earnings Release. At this time, all participants are in a listen only mode. Later, you will have the opportunity to ask questions during the question and answer session. Please note this call will be recorded and I will be standing by if you should need any assistance. It is now my pleasure to turn the conference over to Mr.

Operator

Steve Putman, Senior Vice President and General Counsel. Please go ahead.

Speaker 1

Thanks, Todd, and good morning to everyone. Thanks for joining us either by phone or online for Blackstone's Q1 2023 earnings conference call. Today's call is being recorded and will be available on our website along with the earnings release that was issued last night. Before we start, I'd like to advise you that we 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.

Speaker 1

For a discussion of these risks, you should refer to the cautionary information about forward looking statements in our press release from yesterday in the Risk Factors section of our 2022 10 ks and our 10 Q will be filed later. 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 and CEO Evan Kiefer, Interim Chief Financial Officer and Treasurer Cary Clark, Senior Vice President, Land and Commercial Garrett Grimione, Vice President of Engineering and Geology and Thad Montgomery, Vice President of Land. I'll now turn the call over to Tom.

Speaker 2

Thanks, Steve. Good morning to you all and thank you for joining us today to discuss our Q1 'twenty three results. We posted a strong quarter And despite headwinds in the current pricing environment, we continue to see success in our development programs with Aethon and various operators in the Chalk, Among others, we generated total production volumes for the quarter of 39,300 BOE per day, a decrease of 8% from our 4th quarter volumes. Primary driver of that reduced oil volumes in the Permian. 4th quarter 2022 volumes were unusually high due to first time payments from several major operators that spanned multiple months that were collected in that period.

Speaker 2

Royalty volumes came in at 36,800 BOE And 24% above the Q1 of 2022. We continue to see strong production in the HaynesvilleBossier, both Louisiana and in the Shelby Trough at East Texas. Aethon continues to ramp up production in the Shelby Trough and had 5 rigs on location at the end of the quarter and is To date, 20 wells have been turned to sales in the Shelby Trough under our development agreements with Aethon, 6 new wells since the beginning of the year and another 19 are in various stages of drilling and or completion. In addition, 21 NewGen Multi stage completions completion wells have been turned to sales in our concentrated acreage position in the East Texas Austin Chalk with potential for an additional 14 wells this year. It is exciting to see the positive momentum from the organic initiatives that we focused on over the last couple of years and we continue to work putting in place new long term development deals to further accelerate production on our acreage minimal capital requirements.

Speaker 2

This strategy has created incentives to continue developing through the commodity cycles and we have expect it to add long term value to Blackstone and its unitholders. We saw a decrease in rigs operating on our In the Q1, we generated the Q1 with 78 rigs running currently running on our acreage as of March 31. The decrease was driven largely from the Permian where we had a higher than average number of rigs in the 4th quarter. Blackstone's Average is approximately 10% to 15% of the U. S.

Speaker 2

Rigs drilling on our acreage and expect that to continue going forward. Despite the lower rig count in the Q1, permitted activity in the Q1 remained in line with the Q4 with over 400 horizontal permits added on our acreage. Realized prices for the Q1 were approximately $77 Per

Speaker 3

barrel and

Speaker 2

$3.50 per MMBtu. While both crude and natural gas were down in the quarter, we saw the benefit of our hedge portfolio bringing in over $13,000,000 for the quarter with hedged natural gas prices over $5 per MMBtu. We reported adjusted EBITDA of $109,000,000 and distributable cash flow of $104,000,000 for the Q1, both up 11% to 12% from the Q1 of 2022. Despite some challenges with natural gas prices, We're confident in our guidance and we're able to maintain the highest distribution Blackstone has had as a public company at $0.475 per unit for the Q1. Overall, it was a great start to the year and we continue to work on our new and suggesting operators to continue driving activity on our acreage.

Speaker 2

With that, I'll turn it over to Evan to walk through the details of the quarter.

Speaker 3

Thank you, Tom, and good morning to everyone. After several record setting quarters, oil and gas volumes came in lower for the Q1. Our royalty volumes for the Q1, as Tom mentioned, totaled 36 8000 Boe per day, which was down 8% relative to the 4th quarter. And total production for the quarter was 39 300,000 BOE per day. We received the benefit of several new payments coming in from volumes that span multiple periods in the Haynesville and Permian in the Q4 of 2022.

Speaker 3

As a result, the 1st quarter oil volumes were down primarily in the Permian, whereas we just mentioned that there were several first time payments from multiple operators that was collected over that period. While this is temporary in nature, the benefit of a large diversified mineral position is that this does occur from time to time, although it is difficult predicting it going forward. And speaking of the Permian, we saw a decrease of in rig activity on our acreage in the first quarter, which was down from 108 rigs at the end of the year. The decrease in rig activity was primarily driven by a significant number of rigs added on our Permian acreage in December, where we saw that move off in the Q1. As you would expect, we see these ebbs and flows as operators move on and off our acreage as part of their normal development plans and We expect to see the benefit of that drilling activity later this year.

Speaker 3

We also saw a rig reduction in the Haynesville in response to lower gas prices, which was contemplated in our full year guidance. These ebbs and flows in development activity for mineral owners is just one of the highlight or just highlights the importance of the organic initiatives that we have been focusing on over the last couple of years. As Tom mentioned, Aethon has recently turned to sale 6 new wells and is expected to meet their minimum well commitments this year. We've also made headway in the Austin Chalk where we have 21 new generation, multistage generation wells online to date and are expecting potential for 14 more this year. These are just two areas of our portfolio where we see 10 to 20 years of future development activity and we're excited to see continued momentum from the operators there.

Speaker 3

Realized prices per BOE for the Q1 were approximately $33 per barrel, which was a decrease of 35% relative to the $51 per barrel seen in the Q4. This just highlights the importance of our hedge program that is designed to provide some stability to our cash flows and provide downside protection in periods of high volatility. Our hedges brought in $13,300,000 of realized hedge gains in the Q1 For the average strike price for natural gas is over $5 per MMBtu and approximately $80 per barrel for crude oil. These hedges will continue to provide support for our cash flows this year and it's in the challenged pricing environment we currently face. We continue to add to our 2024 hedge position with an average strike price for natural gas at $3.64 per MMBtu and crude at $69.79 per barrel.

Speaker 3

We will continue to build the 2024 position targeting approximately 70 plus percent our estimated volumes throughout the remainder of the year. For the Q1, we reported $109,900,000 of adjusted EBITDA and distributable cash flow for the quarter of $104,100,000 This is down 17% from last quarter, But our financial results benefited from a solid quarter of lease bonus and almost $4,000,000 as well as reduced cash operating costs of $3,000,000 compared to the 4th quarter. Our total debt balance was $0 at the end of the quarter And we currently have $66,000,000 of cash on the balance sheet today, prior to the distribution payment later this month. The borrowing base for our revolving credit facility was reaffirmed at $550,000,000 with $375,000,000 of commitments in April. Given the undrawn revolver and cash generated in the quarter, our Board of Directors supported maintaining the existing distribution of $0.475 per unit, which translates to 1.04 times coverage for the quarter.

Speaker 3

And with that, we'll go ahead and open the call for questions.

Operator

Our first question will come from Derrick Whitfield with Stifel.

Speaker 3

Good morning, all.

Speaker 4

Good morning, Mike.

Speaker 3

Hey, good morning, Derek.

Speaker 5

For my first question, I wanted to focus on your 2023 guidance, Assuming the midpoint of the guide that you laid out in Q4, the implied trajectory for the balance of 2023 would be 2,000 barrels per day up on oil and $40,000,000 to $50,000,000 down on gas. Is that an accurate depiction of your projections based on wells in process or is it just simply too early to update guidance?

Speaker 3

Yes. Thanks, Derek. This is Evan and thanks for the question. Typically in the past, we've always updated our guidance in the middle of the year. And I think just really right now with where the gas price environment is, we're Still looking to see where rig counts and everything settles out in really the Louisiana Haynesville side before we update that guidance.

Speaker 3

Right now, we got off to a strong start on the gas volumes, particularly with the existing contracts with ASAN and everything in place with the Shelby Trough. And so, we're really just planning on waiting until the 2Q update whenever we'll put out Revised guidance numbers for everyone.

Speaker 5

Terrific. That makes sense. And then as my follow-up and maybe leaning in on the gas side, With regard to your higher NRI development with Vaceon and Exxon, are you

Speaker 3

Yes. So really focusing on the Shelby Trough With Aethon and even XPO as you mentioned, we don't see any change in the current development pace or completion schedules There, with the development agreements we have in place, there are criteria that requires them to drill and complete those wells. So as you probably remember several years ago, we did have wells that were spud and then waited several years actually to be turned to sales. And so We've incorporated that knowledge into the current agreement that limits the amount of time from spud to overall completion in the Shelby Trough. And so we do not expect Any major delays due to completion timing or changing of operations in the area?

Speaker 5

Thanks. That's very helpful.

Operator

Thank you. Our next question comes from Tim Rezvan with KeyBanc Capital Markets.

Speaker 6

Good morning, everybody. Thank you for taking my questions. I'd like to first ask about, I guess, Evan's final prepared comments on the distribution. You have the balance sheet flexibility to kind of have pay out essentially 100% of distributable cash flow and you We're near that level in the Q2. But the gas price environment is sort of challenged in the near term.

Speaker 6

So how do you think about or how should investors Think about a payout ratio kind of going forward. I mean, you could keep that $0.475 and draw on the balance sheet, but maybe it doesn't seem optimal. How are you thinking about that distribution longer term and the payout?

Speaker 3

Yes, Tim, thanks. And this is Evan again. That's a great question and something that we look at a lot internally. And so Right now at a 1.04 times coverage and really just with where the balance sheet is today, we do feel Comfortable maintaining a little bit lower coverage in the near term. Something that we always look for as we establish our distribution policy and what we look for Forward is something that we can have a stable to slightly growing distribution as we look at our forecast.

Speaker 3

And so I recognize that right now there is some challenges on the natural gas side as well as potential volumes resulting in those lower prices. And as we continue to look at our forecast going forward, we'll Revise and look at what we think the appropriate level is quarter to quarter. But whenever we set out that number and held that Flat for the Q4 in this latest distribution. We were still expecting to have decent coverage going forward And that's where we'll continue to look at that and potentially adjust as necessary if things change in the future. But really with the Aethon development agreements and even the Austin Shock where we Expect to see ramping up production for the second half of the year, we still see growing volumes potentially from those areas that may mitigate some of the risks and the others and that gives us confidence in the current guidance that we have outstanding.

Speaker 6

Okay. That's helpful. And I guess we'll stay tuned on The new royalty production. For my second question, I'd like to dig into the chalk a bit more. Some pretty constructive Comments on visibility provided.

Speaker 6

So how should we Can you generalize kind of the oil cuts of these chalk wells coming on? I know it's variable across the play. And when we could really start seeing that impact total production. Do you think that's more a 3Q event? Should we look this quarter?

Speaker 6

When does the chalk really become a big wedge in total production for you all?

Speaker 7

Hey, Tim, this is Garrett Cremie on. Thanks for the question. So certainly Q3, Q4, we expect volumes to start ramping up Heavily, more heavily in that area. Within the play, we have seen a good number of Areas tested across that four county area, operators seem to be starting to concentrate Some of their future development in the existing field where we see 14 plus wells per year over 200 Locations and oil cuts tend, as you say, like to vary across, but at the same time, healthy enough to be very economic in the current environment.

Speaker 6

Okay. And do you have any context on kind of what sort of oil you've seen as a percent of production in that area?

Speaker 7

You can get anywhere from 100 to 175 barrels per million within some of the areas that they drill. Some of the recent wells that have come online, The Middle Earth 2H and 1H, you've got current rates of 1700 barrels a day and 8,500,000 cubic feet a day For the 2H and then for the 1H, 400 barrels a day at about 2,300,000 barrels a day.

Speaker 6

Okay. Appreciate the color. Thank you.

Operator

Our next question comes from Trafert Lamar with Raymond James.

Speaker 4

Hey guys, thanks for taking my question. Kind of circling back to the payout ratio and potentially lowering that going forward. Expanding on that, how do you all kind of think about buybacks With a lower payout ratio given you guys have $75,000,000 authorized and obviously no debt on the balance sheet. Just want to get some color from you on that.

Speaker 2

This is Tom. I'll Take a stab at that. Buybacks are something that we have looked at and we will continue to look at it. We don't have any current aggressive plans in that area. We do have a preferred security that is in place That could see some focus as we go through the year.

Speaker 2

And I would just answer that question with we have absolutely cleaned up our balance sheet tremendously And that scenario that you're mentioning is certainly something that's available to us and that we're keeping a sharp eye

Speaker 4

Perfect. Appreciate the color on that. And then one quick one real quick. On the lease bonus, I noticed you had a pretty good step up And you mentioned both Wolfcamp and HaynesvilleBossier. Regarding the HaynesvilleBossier, I'm assuming that is not That lease bonus activity wasn't related to ATHEON, is that correct?

Speaker 4

That was my 3rd party operator bonus?

Speaker 3

That is correct. It's a 3rd party.

Speaker 4

Okay, awesome. Perfect.

Speaker 2

All right. Thank you, guys.

Speaker 6

Thank you.

Operator

Our next question will come from Tim Rezvan with KeyBanc Capital Markets.

Speaker 6

Thanks for letting me back in. I did want to follow-up on that preferred. I believe in Q1 2024, The rate steps up on that. It's more of a kind of floating rate and certainly in a much different interest rate environment than we were a couple of years ago. How do you think of it?

Speaker 6

Is that just something you will just deal with? Or I guess I'm trying to get a little more color on kind of how you think about the capital structure and possibly using free cash flow to whittle that down or just kind of retire that completely?

Speaker 2

This is Tom again. We have not made any Firm decisions around what we're going to do relative to the preferred As it becomes redeemable in the 4th quarter, But we're looking at it very closely. And as I said just a moment ago, Our balance sheet has been cleaned up significantly. Our distribution is at its highest level And we are very closely looking at that issue and we'll be making some decisions as The year progresses around that.

Speaker 6

Okay, fair enough. I'll stay tuned. Thank you.

Operator

Thank you.

Speaker 2

All right. Well, I don't think there are any other questions. So We just thank you all for joining us on the call today and we

Operator

Thank you. This does conclude today's call. We appreciate your participation. You may disconnect at any time.

Remove Ads
Powered by Quartr
Earnings Conference Call
Black Stone Minerals Q1 2023
00:00 / 00:00
Remove Ads