BSM

Black Stone Minerals, L.P. (BSM) - Q2 2024 10-Q Summary

Business Context and Reporting Period

This report covers the quarterly period ended June 30, 2024. Black Stone Minerals, L.P. is a publicly traded Delaware limited partnership and one of the largest owners of oil and natural gas mineral interests in the United States. The Partnership operates in a single segment, owning mineral and royalty interests across 41 states, including major onshore basins. As of June 30, 2024, there were 210,689,203 common units and 14,711,219 Series B cumulative convertible preferred units outstanding.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Decline: Total revenue decreased 6.3% in Q2 2024 and 26.2% YTD compared to 2023. This was primarily driven by a $16.8 million loss on commodity derivative instruments in Q2 2024 (versus an $11.3 million gain in Q2 2023) and lower natural gas realized prices.
• Production Growth: Despite revenue declines, production volumes increased. Oil and condensate production rose 12.6% in Q2 and 14.5% YTD. Natural gas production increased 11.5% in Q2 and 5.5% YTD, driven by new wells in the Shelby Trough and Permian Basin.
• Commodity Prices: Realized oil prices increased to $77.53/Bbl in Q2 2024 (from $72.76 in Q2 2023). Realized natural gas prices decreased to $2.23/Mcf (from $2.84 in Q2 2023).
• Acquisitions: The Partnership acquired mineral and royalty interests for $50.5 million in the first half of 2024, primarily in the Gulf Coast region. This contrasts with no material acquisition activity in the same period of 2023.
• Operating Expenses: General and administrative expenses increased 13.0% in Q2 2024, largely due to higher cash compensation and a separation payment for a senior executive.

Outlook, Risks, and Management Commentary

• Hedging Strategy: As of June 30, 2024, the Partnership had hedged 72% of available oil volumes for 2024 and 71% for 2025. Natural gas hedges covered 69% of 2024 volumes and 66% of 2025 volumes. The unrealized losses on derivatives were driven by changes in forward commodity price curves.
• Shelby Trough Development: Operator Aethon Energy invoked a "time-out" provision in December 2023 due to low natural gas prices, pausing drilling obligations with a maximum resumption date of September 2024. Despite this, Aethon brought 16 wells online in the first half of 2024.
• Liquidity: The Partnership maintains a $1.0 billion credit facility with a borrowing base of $580.0 million. There was no debt outstanding at period end, and the Partnership remains in compliance with all financial covenants.
• Risks: Key risks include volatility in oil and natural gas prices, the ability of operators to secure capital for development, and the impact of the "time-out" provisions on future production growth in the Shelby Trough.
• Subsequent Events: On July 24, 2024, the Board approved a distribution of $0.375 per common unit for Q2 2024, payable August 16, 2024.

Investor Verification Checklist

• Derivative Impact: Verify the magnitude of unrealized losses on commodity derivatives ($17.4 million in Q2) and their effect on GAAP net income versus Adjusted EBITDA.
• Production vs. Revenue: Confirm the divergence between rising production volumes (oil +12.6%, gas +11.5%) and falling total revenue due to price declines and hedging losses.
• Shelby Trough Status: Monitor the resumption of drilling by Aethon Energy post-September 2024 to assess future production growth potential.
• Preferred Unit Obligations: Note the 9.8% distribution rate on Series B preferred units, which must be paid before common unit distributions.
• Capital Allocation: Review the $50.5 million in acquisitions made YTD 2024 and the $150 million share repurchase program (no repurchases made YTD 2024).