BSM Black Stone Minerals

Evan Kiefer VP, Finance and IR
Tom Carter Chairman and CEO
Jeff Wood President and CFO
Brian Downey Citigroup
Pearce Hammond Piper Sandler
Call transcript
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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. [Operator Instructions] Please be advised that today’s conference is being recorded. now today, hand Mr. would to conference I speaker your Instructions] like the to over [Operator Evan Kiefer. ahead, go Please sir.

Evan Kiefer

online Stone Thank earnings with you, conference will us last or be joining issued Thank call. release, you the and good being our night. morning which either to Today’s call available by was recorded XXXX on second the quarter Minerals everyone. is for for earnings Black and phone along website

forward-looking you we our this or statements differ I’d expressed involve implied results making to cause we’ll Before to expectations future regarding actual from may our statements during advise about assumptions that in plans, start, These our risks our call that the statements. materially results be like and performance. forward-looking

evaluating of cautionary refer risks, non-GAAP to the in these that forward-looking statements Risk refer should XXXX we non-GAAP our yesterday, found these the information measure may believe about to information our press of A measures our can XX-K. in from discussion website earnings release yesterday be the our you our and which at other press We Factors comparable to certain For from also of most our release and directly measures about a financial those are on are section GAAP in described metrics useful reconciliation performance.

Tom. Senior President I’ll and Joining call Garrett Vice me Putman, and on and Carrie turn Jeff and President of Wood, CEO; are Chairman Land and to the Engineering Geology. the President Financial Gremillion, President Carter, from Legal; Clark, call Steve over Vice the today General Tom & Chief Officer; Vice now Company Senior Counsel;

Tom Carter

XX% and grind but to was plays remarkable above XX.X had XX thanks both, on reported more everyone by per well. rigs commodity Thank activity day. also X% X.X year fronts. middle last us well discuss to quarter of an The year, Austin relative holding day unit. you, for should increase That’s and a we XXXX. of increase increases the X% across to slower quarter continues up interest greater Operator environment, quarter to EBITDA the of increase rebound million, volumes quarter price major XX% on returns volumes royalty in and quarter. of to recovery royalty morning well, prices second strong as also to quarter fundamentals the to industry the increase stable but Midland Delaware of very and is the the of in per from in rather outside and was per on which of end financial second areas for simple higher in rest MBoe from the saw XXXX. to are shale seen to saw drilling held The MBoe since cash double our the from It $XX.X levels. since quarter contributed is last base middle many to second in we of this quarter call, Working and is Evan. prices for total pre-pandemic properties reflect of which producers it our over We a slightly financial MBoe. distribution across the positive last volumes year. of adjusted equates the increase nice higher quarter. last for for development The due outlook price We of to $X.XX of capital prove a at Distributable of an ‘XX. $X.XX discipline Good second from and last health rig joining for level focus best core from acreage XX.X what second unit reported from quarter activity Of efforts performance our the continues. the which last Improved operational operating the last of quarter count We that, in the and the promise growth. an to the per increased long-term $XX.X Chalk good and leasing what than mainly a increase if and last our the as the That’s currently million, of XX% production was exercise than their flow quarter. at justify

in big break quarter realizations In us the also way events of the in repaid second onetime those to flow items debt. higher right cash a taken We expected the the including lease we’ve proceeds terms past, number quarter, for than gas from had of a and and bonus.

distribution second Given the additional low that of return flow quarters which the in $X.XX, under a debt in unit is an is absent to the XX% distributions, currently our as recommend our $X.XX which to Board cash total the million in plan well. clear disruption said I of here our quarter. that unit for per very special quarter, be or $X.XX total, of distribution last business I balance, want of elected increase and is as per any third to from for of investors significant fourth in positive, form $XXX the resulting a to

On April see our partner. again is what Aethon were Angelina in entered of Aethon in to the to program discussed and happy up that signed commenced majority net ahead wells gearing BP’s in San our Shelby also from Trough under contemplates were quarter. the in And early and the Development four to development a robust another drilled we’re The in we we under those encouraged In up required separate of seen a them area, Texas. deals We -- seeing to first by ramps for which them. program second and level County number Aethon agreement the here with high up new of operations schedule large is permits puts their agreement of there this with agreement. activity out X to producers relative under were optimistic and around summary, in activity new Aethon County. turned pre-XXXX In in big around BP early play, up with positions with deals that mid-XXXX Augustine drilling has the the results, Shelby there. whales new XTO robust We prior our Trough wells ramping up call, pick East area. sales from to minimum in last wells acreage initial into combined two some were has

programs little several the development Moving of we underway in to have Texas. trend test Austin the south, Chalk a East

coverage this the discussed high play in we’ve last As very the those areas. call, and broad net geographic on an we have ownerships where area across is

have this We successful of year, have completions wells Attracting multistage major the high-intensity other acreage two existing capital currently a always to for in Chalk. proven of remainder focus been area has and our development which and the involve areas drilling others planned all several for us. that of of

continue to be We going on forward that. will

a land front Carrie operators use greater University development part across will progress of with Texas surface contribution and Clark happy look tremendous comes we’re to favor activity. to Stone. to to lot from and on and Difficulty] that at million the Carrie’s the made working has solar proceeds interests, of manages in of be to the on heading waivers We’ve working encourage mineral of System. that We of acres surface legal the on team. her and our Carrie which our to Carrie acreage. development effort, [Technical with And lands, a initiatives. experience with yesterday that forward efforts from university started Black by mineral part with the key other X.X very has us welcome us As managed

that and Solar do part rights, clean own must installation credits. way, from also proceeds the to developers of plan our project, approximately must from facilitating and We a million mineral project. footprint portion purchase development both to as not secure by solar proceeds received waivers surface the so obtain waiver those their credits. use in emission a the disrupt in supporting but reducing energy of such carbon through That $X.X rigs we’re owner XXXX

purchase Angelina further look forward we credit’s COX in existing the meaningfully production Trough additional offset emissions our this step, direct for goals. finding our County. XXXX in This to and is to the ways but expect modest with We will to a Shelby from use creative and first work environmental

general As another over see, can industry conditions encouraging see quarter. was development couple the to improve to we’ve undertaken pay both tough off. that to see start continue years of the and It’s you past work to busy it

and into quarter for flow mind were that, it All that heading With that I’ll returning We of this with accomplish to goal further great cash this in able goal of is Jeff. our unitholders. over potential to to a greater turn XXXX. see

Jeff Wood

and everyone. Okay. good Thank morning, Tom, you,

story flexibility by market The back that stand to we higher of are of going and to metrics to at gas for XX% for generated that trend portfolio was year for very the flow meaningful over, the cash prices of WTI holding went last XX%. our gas saw averaging $XX.X gave they still of the Production year, Hub. hedges per We around number a below second benefited for average We amounts in we lot quarter for combination uptick quarter. price cash But put to led and did XXXX in XXXX, flow which while That prices place cash cash XXX% a a side oil. hedge we’ve healthier. of during gains EBITDA gas, per of increase fronts. $XX hedge gains spiked quarter production our price, by quarter and to course, a mid-last Tom from Hub plus payments, on a since realizations to resulting related were We XX% rebounded Henry our in That oil. from last current little quarter the XXXX February the the distributable our big us we commodity hedge adjusted or year, this see strong move for of production. quarter bright quarter, first for our first million quarter received held bit As per some while distribution Overall, higher further prices This checks XX% in realizations. realized due Mcf prices, is is second distributable and hedge bonus seen That’s from repayment. a lease and Henry further a and NGL we to XXXX in our and differentials, improved had debt flow to of and barrel $X.XX just and reserve from on versus from differential prices much into stronger up. expected were Oil add $X increases over higher levels. in than continue strong differentials better unit. outpacing

base for nonrecurring, and held As sustainable as per flows remaining Tom $X.XX or to as a reserve We we quarter. discussed, reflect unit the paid $X.XX distribution per unit. to increased view per unit out the distribution the another $X.XX cash special we in we

another us Our closed of full to $X.XX distribution as under portion cash on amount Midland revolver. $X.XX was The debt just and per outstanding second of unit held we repay the $XX well million distribution fund quarter, million the acquisition, as allowed in the of the times reserve for in coverage the second on our our quarter which $XX X.X per unit. times base X.X

balance, million of debt-to-EBITDA past Friday, ratio under this debt we’ve X.Xx. million. balance debt quarter million ended a time debt, and the $XX our That’s total and that of first to been just $XXX the Speaking of as XXXX, was total of further $XX we with down of since second

Production earnings yesterday a to original drilling We to advance ramp-up half also guidance our the trend count the activity in from the flatten under new of our the through into such anticipated their ‘XX, in of as in XXXX the beyond release lower driven significant operators expectation. Bakken in PDP the sight. Trough half declines by guidance through the through volumes the in existing of lower Gulf XXXX Despite of plays quarter, provided gas is second new increase afternoon. Production has part which incorporated trend by and and we mature updated declines Shelby in for discipline. any exceeded in in have first the from revised we second deals. natural year, the as we volumes not that remainder have do maintain guidance Coast Therefore, expected of those rig the line development anticipate capital

quarter form slightly half the to of volume original often relative see changes unidentified we adds of new what first However, the percentage we expected lease a wells as move guidance. include prices, of is we lower due will and through up Other higher acreage, the for range to our revenue, costs drove a the bonus, our given with higher the of had, the open and costs for some G&A. in that’s questions. our original big that beat do Delfin, estimated and small cash line fixed that year that, a just production in across guidance the And to part component


coming [Operator And from in Thank Instructions] question you, from Downey Mr. our Citigroup. Jeff. Brian here’s first

Brian Downey

low at and You your per the announced $X.XX to only of increase noted balance unit, your end base July. the to million $XX distribution debt of

off particularly thinking potential that cash? less roll payout year, once about where A&D currently and of coverage Given next balance the those you how are hedges into distribution versus attractive other uses or sheet sits,

Jeff Wood

is this position now, a a that. big of early of I we’ve the ‘XX really said through we’d massive in is we payouts. ‘XX to with increasing be start in time prioritize mean, the reduction benefits Jeff. and long that went I that think Brian, look, I’ll one for debt

bit, can down So, part four distribution. potential increasing felt you going right? cash I you ‘XX we the even think as could as then least we your that of that today think can you although do still healthy, I can do than it in of mentioned, prices distribution sort debt, sustainability coverage X.Xx about excess flow, save and hedge pay you but there’s prioritize are Look, increase can this, acquisitions, you You special think or buybacks we we for distributions. increase. the things higher with And a started with is at $X.XX that of to as at for pretty where

on expect down distribution. that as planned in come we just bit I half back a that coming will of naturally production year, So, in coverage would this anticipate the that $X.XX

course, would approve the down coverage ‘XX, of But pay debt I think maintain little just XX% off we Board’s as levels. But to then that, would get as things you mentioned, the the and that got we change. Of the of is lower to than a come past, will we see we’ll idea that if have bit. in into coverage because levels

Brian Downey

mineral the a then use runway surface you highlighted much makes found there your us utilizing any for initiatives, remind similar sustainability development, interesting. quarters? new types of and I acreage which separate perhaps your could that That quantifying on is well? How potential sense. you surface And topic, And initiative you own waivers as be supporting mineral used notable of over coming itself could if proceeds amount if acreage

Tom Carter

I’ll Brian, take a shot that. Carter. this at Tom is

them. different this First, this farm, substantial as surface dominant growing you own In that mineral rigs is of or part imagine, but multiple of a to surface we a in means ways to and a all to of drilling if may of would any in and you nascent, I there at there’s on show that to acreage obviously, bunch has solar which well at Texas us know, not efforts other and the estate, lot the cause. case, longer lot up access are amount part a leased don’t that can estate you say of around the are estates, responsibility can and go would of any our a right of been minerals, if that drill the may the a disruption looking of this, is we particular

can the -- where use that’s do into the we arrays secure come they’re out and before So, there. upon mineral so put rights waivers but play, We we estate they sites folks we be. interrupt drilling going know where folks that. drill surface solar And use those these to our by seek pre-agreed usually to occur, that

It’s more estate opportunity these effectively work being the owners every able and to to lands If that for operators you there’s an think competitive together, these facilitate and put can all mineral day. surface farms. estate so together getting the I build together more they that put to

on that out operators get lot don’t and much want too as In robust fence much, too it other as and to encourage could lessees area production long addition and looking any may I as I we as gas -- I don’t of also everybody just at, that, this some our seek to addressing things this good, new business economics drilling we as but our behooves for as the a researching, our are oil over but far is that prices This are there business. own commodity of are of for and we issue to to their my skis this be or the credits are and of buying of on seek to at in runway ways progressive be a by it long-term think types carbon mitigate sequestration. be other we’re can to want to

started. to getting an tip see So in an hat as future knowledge this. effort factor this just important was of we’re the for all we This our just us to in that the


And Pearce our Sandler. Mr. of from Hammond is next Piper question

Pearce Hammond

half first My than production production, to better first pertains expected.

relative weaker little a to looks half expectations. our Second

Just first first you’re stronger that then think half production accounted the the do curious second for change seems for maybe like half? abrupt the half? what a It to conservative an just in do accounted the being that, you in of And you second bit what think half? from

Jeff Wood

sight of in Yeah, to when real we things is production try on that really out put the a we we as and said have on. guidance, tried line we rely look, Jeff. I right, This prepared comments,

Frankly, from plays mentioned serendipity those asset half we our the and Gulf some consistently so year. that here expect mature of that to to base, across in that continue happening I see over of first certainly and Coast that but Bakken, we saw been forever, it’s in expectations. lot declines That like in the pretty the our happen And quarters. of there happens outperform the can’t just a is recent

general, in think can’t to when we that I things try things give guidance our So, happen good tend lot a of acreage we even bench some though see, because across forecast quarter. have conservative we a we every just have to we not

continue here we good our hope of levels the that is this put look, with the what I think an we fund should we towards little distribution are conservative think be eye would that for news I half that And revised guidance and being able So means but to a $X.XX base second year, that may see for probably side the the may further additional be that year. flexibility or still production first of of and a we the debt things. distribution the realized of level to give But that it the but that some look half if terms on frankly, conservative things yes, in paydown little we obviously, outperform, us in whatever. rather be outperformance given we’d

Pearce Hammond

on then are things Texas clearly, the with pace, it have guys in operators. progress at like various made the And moving seems my a good. which faster follow-up, congrats is you all And bit East of a

new up curious, up you to and of some just getting spooled see declines? point those show all of this that back inflection do activity I’m So when really to starts offset when that’s production,

Jeff Wood

pretty area, for BP coming royalty right? production between and so that and profile net flat turn XTO PDP which BP a this and That I year Shelby then our were were stopped so those third high working between XX-plus was we well, but the context you was us, the wells over XTO out Pearce, existing a of you quick. of for cover wells when interest just as to mean, pretty only ‘XX. and for and started acreage a of or others, year I story know on a drilling, because Trough know and

inflection decline So get by encouraged drilled mentioned, of BP PDP, it those existing we’re for wells you early just round and early that last were of and results. you’re while XTO. big curve as and big by round very in we’re programs about. And to point high well, that the sort is last that of to really ramped talking It a provide up that Aethon’s takes on

of So and ‘XX, steep PDP, in some those of in the relatively big decline I course, inflection to be second inflection And to expecting -- point think, of part we’ve of about other will declines a have Austin in that ownership that that are or that driver the this either already going -- wells excited the is we’re got around existing you, is required half fact to Aethon’s they’re I given point the based versus based agreement, there. only be four that Chalk, in of performance spud course, really to extent on five play. of of results, going ‘XX big activity we’re the first. well be their spud of But just running been on there optimistic the over tell course ahead that that that and year we’re under will the our

Tom Carter

moving of XX Chalk our the to take out, a XX at contractual we’re wells up And are wells ramping the our we optimistic that in to where we which in wells initiatives, year. pan a Shelby the year Bossier. year to situations you out of our portion about, from XX if could there Haynesville initiatives see upwards Trough collective see if up full to you And a compliance, XX could

growing you shoes, you we’ll put will, two could if into be up roll quickly. those together, pretty it back those So, but things


Instructions] [Operator

Tom Carter

us, Well, Thanks look we it next with to thank looks joining like matters quarter. that’s so for we all and always, and discussing you the as forward questions, you much.


today’s for conference. your participation. Thank you And concludes this

may You Thank all so disconnect. much. now you