Business Context and Reporting Period
Company: Black Stone Minerals, L.P. (BSM)
Filing Type: Form 10-Q (Unaudited)
Reporting Period: Three months ended March 31, 2026
Business Overview: BSM is a publicly traded Delaware limited partnership owning oil and natural gas mineral and royalty interests across 41 U.S. states. The company operates in a single segment, generating revenue from hydrocarbon sales and lease bonuses. As of March 31, 2026, the partnership held 212,499,331 common units and 14,711,219 Series B cumulative convertible preferred units.
Key Financial Metrics
| Metric (in thousands, except per unit) | Q1 2026 | Q1 2025 |
|---|---|---|
| Total Revenue | $59,359 | $59,252 |
| Net Income | $13,272 | $15,948 |
| Net Income Attributable to Common Units | $5,906 | $8,582 |
| Earnings Per Common Unit (Diluted) | $0.03 | $0.04 |
| Adjusted EBITDA | $86,982 | $86,996 |
| Distributable Cash Flow | $76,516 | $78,506 |
| Operating Cash Flow | $62,560 | $64,835 |
| Free Cash Flow (Operating - Investing) | $50,571 | $51,768 |
| Cash and Cash Equivalents (Ending) | $11,612 | $2,424 |
| Total Debt (Credit Facility) | $187,000 | $154,000 |
| Available Borrowing Capacity | $188,000 | $221,000 |
Material Changes vs. Prior Period
- Revenue Composition: While total revenue remained flat ($59.4M vs $59.3M), the composition shifted significantly. Oil and condensate sales increased 8.0% to $54.1M, and natural gas sales rose 8.9% to $63.4M due to higher production volumes and realized prices. However, these gains were offset by a $64.6M net loss on commodity derivative instruments (compared to a $56.0M loss in Q1 2025), driven by changes in forward price curves.
- Profitability: Net income decreased 16.8% to $13.3M, primarily due to higher interest expense ($3.4M vs $1.4M) resulting from increased average borrowings and the derivative losses mentioned above.
- Production Volumes: Total production increased 4.3% to 3,329 MBoe. Oil production rose 9.6% (785 MBbls), while natural gas production increased 2.8% (15,266 MMcf).
- Liquidity: Cash and cash equivalents increased significantly to $11.6M from $1.5M at year-end 2025, driven by strong operating cash flows and net borrowings of $33M during the quarter.
- Capital Allocation: The company paid $63.7M in distributions to common unitholders ($0.30/unit) and $7.4M to preferred unitholders. Acquisitions totaled $11.5M, primarily in East Texas.
Outlook, Risks, and Management Commentary
- Commodity Hedging: As of March 31, 2026, BSM has hedged a portion of expected future volumes for the remainder of 2026 and 2027 using fixed-price swap contracts. Oil swaps cover approximately 2.4M barrels in 2026 and 1.56M barrels in 2027. Natural gas swaps cover approximately 38.5M MMBtu in 2026 and 29.2M MMBtu in 2027.
- Development Activity:
- Shelby Trough: Adamas Energy is on track with 4 wells spud in Q1 2026. Revenant Energy spud two wells, though one experienced a loss of well control incident in April 2026, the impact of which is being assessed. Caturus Energy is expected to begin activity in H2 2026.
- Permian Basin: Coterra Energy turned 17 gross wells to sales in Q1. A separate development of 25 gross wells is expected online in H2 2026/H1 2027.
- Debt Covenants: The company is in compliance with all financial covenants under its $1.0 billion Credit Facility, which has a borrowing base of $580.0 million. The next redetermination is scheduled for October 2026.
- Risks: Key risks include volatility in oil and natural gas prices, the ability of operators to meet drilling commitments, and potential credit risk from counterparties to derivative contracts. Geopolitical events (e.g., conflict in Iran) have recently impacted oil prices.
- Dividends: The Board approved a distribution of $0.30 per common unit for Q1 2026, payable May 15, 2026.
Investor Verification Checklist
- Derivative Impact: Verify the sensitivity of future earnings to commodity price movements given the $64.6M unrealized/realized derivative loss in Q1 2026.
- Operator Performance: Monitor the resolution of the Revenant Energy well control incident and its potential impact on 2026 drilling commitments in the Shelby Trough.
- Debt Utilization: Track the utilization of the Credit Facility, which increased to $187M, and ensure compliance with the 3.5:1 Debt-to-EBITDAX covenant.
- Preferred Unit Obligations: Confirm the sustainability of the 9.8% distribution rate on Series B preferred units ($7.4M quarterly) relative to Distributable Cash Flow.
- Acquisition Strategy: Assess the accretive nature of the $11.5M East Texas acquisitions and the broader $251M acquisition program since late 2023.