Q1 2024 Black Stone Minerals LP Earnings Call

Participants

Mark Meaux; Director of Finance; Black Stone Minerals LP

Thomas Carter; Independent Director; Black Stone Minerals LP

Evan Kiefer; Chief Financial Officer, Senior Vice President, Treasurer of General Partner; Black Stone Minerals LP

Derrick Whitfield; Analyst; Stifel

John Mardini; Analyst; KeyBanc Capital Markets

Presentation

Operator

Good day and welcome to the Blackstone Minerals First Quarter Earnings Call. (Operator Instructions) Please be advised that today's conference is being recorded. If you require operator assistance, you can press star zero.
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 and 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 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. A 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; Adam Keefer, 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

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 we generated total production volumes for the first quarter of 40.3 BOE per day, a decrease of 2% from our fourth quarter '23 volumes.
Quarterly volumes for the quarter were 38,900 BOE per day. Oil volumes trended down in the Midland and Delaware basins, but more particularly partially offset by an increase in the resilient Bakken area and despite ongoing natural gas challenges, natural gas volumes increased from the fourth quarter in the Fayetteville Gulf Coast plants may severity 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, strategic advantage that continues to consistently add long-term value to Blackstone, and you can assume cold.
With that, let me just turn to focus on the Haynesville Bolger, which has a significant as everyone knows a significant long-term growth engine for Blackstone in the Shelby Trough, we announced in December that one of our operators invoke a quote, unquote timeout under that provision, a 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, paying XTO eight on pine way milestone Exco than others.
And in addition, in Louisiana, we have Chesapeake, Southwestern ComStock and others. So we've got a great portfolio of operators. So the operator that declared a time now, however, is currently drilling three wells and is expected to continue levels of activity there. This should suggest that either the operator is no longer in time now and back on the clock under our joint exploration agreements 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.
And once completed on this growing up, we continue to work closely with our operators in all of these areas. And we do not anticipate have a material impact on our volumes in the 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 and pressures in excess of [10,000].
In addition to our interest with existing operators, Blackstone 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 graph, 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 expand in response to lower natural gas prices. Some of our operators have been involved in some curtailments, but we do not as we said, we do not. We expect this to be meaningfully challenging to our volumes as these challenging commodity price persists, we continue to focus on our long-term strategy while employing prudent balance sheet management. Our focus for several years is considered a rep can ship has been centered around organic initiatives to develop are existing asset base that has and a significant long term adder to our production.
Starting in the fourth fourth quarter of 23. We expanded those efforts, including targeted grassroot acquisitions program that are aimed to supplement our existing and expanding footprint in Gulf Coast and Shelby Trough area These efforts have allowed us to weather a lot of different sites. And in 2022, we mentioned that we expected to grow production through 23 with a targeted exit rate close to 40,000 BOE. or per a., and we're able to execute on those expectations.
Now in 24, we have set our plan to grow the distributions back to the high water level bar by 2026 through projection 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 through our development program in these Gulf Coast regions, we've added over $50 million worth of non-producing assets since, September of '23. And this is just a fraction of what we intend to do and going forward.
Overall, 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 towards with our key operators, 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, everyone. As Tom pointed out, we had a positive first quarter. We generated 38,100 BOE per day of mineral and royalty production for the first quarter, which was down 2% from last quarter and 40,300 BOE per day in total production volumes. 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 are 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 1.22 times coverage for the quarter. Due to the challenges of 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 interests 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 commitment at $375 million. Yesterday, we also announced updated production guidance reflects the challenges that we're seeing in the natural gas price 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% between 38,500 BOE per day and 40,500 BOE per day.
As Tom mentioned, payphone 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 compared comparing that to an average price of Henry Hub of $2.24 per MMBTU for the first quarter, we benefited from a realized gain of approximately $14 million. We have 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 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 watermark. This environment provides a very unique opportunity to be selectively acquisitive to the benefit of our unitholders in the next year and beyond as we continue to execute on those plans.
And so with that, we'll open the call up for questions.

Question and Answer Session

Operator

(Operator Instructions)
Derrick Whitfield with Stifel.

Derrick Whitfield

Good morning all, and thanks for your time.
For my first question, I'm going 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 dependent and not as material as some might think. What is your assumption on curtailments in your guidance?

Evan Kiefer

Yes, Eric, this is Kevin. 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 drilling wells for the next quarter as well as what A-Power has indicated as well. What we're really looking at is average pricing in the third quarter's, call it on average $2.50, the fourth quarter is closer to $3. And I think where we started to move on those levels will be a little bit more interested in turning that well, those wells online and giving the production as opposed to right now are closer to $2 in the second quarter.
So our current guidance update to really contemplate curtailments through the second quarter into the third and then assuming that 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

Makes sense. And then maybe shifting over to acquisition activity, and 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?

Thomas 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 acres 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 script and towards the late '25 and beyond that, those acquisitions made today will have significantly higher return on investments for Blackstone 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 debt beyond what you guys have committed to today? Any color you can offer there?

Thomas Carter

Yep, meaning, how much do we expect to spend?

Derrick Whitfield

Or how much more could you spend given the competitive landscape this year?

Thomas Carter

I wouldn't answer that this way. I think we expect and have budgeted the spend. I paid a multiple of what we spent so far and that depends on price, but we've got a pretty robust program going on and we're probably is active right now as we've been since '23.

Derrick Whitfield

That's terrific color.
And certainly look forward to updates from you guys in the future.

Thomas Carter

We get a little bit more. We'll say more about it.
Thank you.

Operator

(Operator Instructions)
John Mardini, KeyBanc Capital Markets.

John Mardini

Hi, good morning.

Thomas Carter

Morning, John.

Mark Meaux

First question is on distribution. You will be trimmed 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 and hedges in place?

Evan Kiefer

Yes, John, that's a great question. And 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 could fall in the future and a lot of that is really going to be dependent on how long the low gas environment continues. Do we see this 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 percent.

John Mardini

Okay. That's helpful. It's actually all we had. We appreciate your the color.

Evan Kiefer

Great. Thank you, John.

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.

Thomas 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. We're pretty excited about the next four or five years. And what we see coming down the road and are trying to position Blackstone to be in the best position to really performed 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 and thank you for your participation. You may disconnect at this time.