Black Stone Minerals, L.P. — Q2 2021 Form 10-Q
Business context and period: Unaudited results for the quarter and six months ended June 30, 2021. The Partnership owns mineral and royalty interests across 41 states and certain non-operated working interests; it operates as one reportable segment. Unless noted, amounts are in millions.
Financial results and liquidity
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue from customer contracts | $117.9 | $57.7 | $207.4 | $150.7 |
| Total revenue, including derivative gains/(losses) | $58.4 | $38.5 | $120.0 | $221.6 |
| Operating income/(loss) | $17.0 | $(5.3) | $34.2 | $75.2 |
| Net income/(loss) | $15.4 | $(8.4) | $31.6 | $67.7 |
| Net income/(loss) attributable to common units | $10.2 | $(13.6) | $21.1 | $57.2 |
| Basic and diluted earnings per common unit | $0.05 | $(0.07) | $0.10 | $0.28 |
| Adjusted EBITDA | $78.4 | $72.4 | $138.3 | $143.5 |
| Distributable cash flow | $72.1 | $64.4 | $125.9 | $130.6 |
Cash flow and balance sheet: Six-month operating cash flow was $125.6 million, versus $158.0 million a year earlier. Investing used $12.8 million; financing used $113.6 million. Cash was $1.0 million at June 30, 2021. Credit-facility debt was $96.0 million, down from $121.0 million at year-end 2020; the borrowing base was $400 million, with $304 million of unused availability. The Partnership reported compliance with debt covenants. Current liabilities were $95.1 million, including $80.0 million of current commodity derivative liabilities.
Production and margins: Q2 production was 3.47 million Boe, down 10.5% year over year; first-half production was 6.79 million Boe, down 16.7%. Q2 realized prices before derivatives rose 121% to $31.79/Boe. The filing does not provide a single operating-margin percentage; reported operating income was $17.0 million on $58.4 million of total revenue, which includes derivative results.
Material changes versus comparable periods
- Q2 customer-contract revenue more than doubled, as higher oil and natural gas prices and lease bonus income outweighed lower volumes. However, derivative losses increased to $59.5 million from $19.2 million a year earlier.
- For the first half, total revenue fell 45.8% because the Partnership recorded $87.4 million of derivative losses, compared with $70.8 million of derivative gains in the prior-year period. Underlying customer-contract revenue increased 37.6%.
- First-half operating cash flow declined by $32.4 million, primarily because derivative settlements shifted from net cash received to net cash paid.
- No property impairment was recorded in the first half of 2021, compared with $51.0 million in the first half of 2020. Interest expense declined as average borrowings fell.
Outlook, commentary, and risks
- The Board approved a Q2 common-unit distribution of $0.25: a $0.20 base distribution management expects to be sustainable through year-end 2021, plus a $0.05 special distribution reflecting positive, non-recurring items. The preferred units carry a 7% annual distribution.
- The Partnership acquired northern Midland Basin mineral and royalty acreage for $20.8 million, paid with $10.0 million cash and $10.8 million in common units.
- Management cited about $5.6 million of additional Q2 natural gas revenue from February storm-related price differentials exceeding original projections. Q2 lease bonus and other income also benefited from Austin Chalk leasing and solar-related surface-use waivers.
- Open swaps generated $87.4 million of first-half derivative losses, including $65.5 million of unrealized losses. At June 30, net derivative liabilities were $85.5 million. Hedging partly mitigates commodity-price exposure but can materially affect reported results and cash settlements.
- Development activity depends on third-party operators. Aethon’s Angelina County program had brought two wells to sales and begun work on four more; its San Augustine County program was scheduled to begin in Q3, with a five-well minimum for the initial program year. Austin Chalk test and development programs were underway or planned.
- Key uncertainties include commodity prices and demand, COVID-19 developments, operator drilling and access to capital, production volumes, transportation capacity, regulation, and borrowing-base redeterminations. The next borrowing-base review was scheduled for October 2021. Management said LIBOR transition was not expected to have a material impact.
- The Partnership reported no material off-balance-sheet arrangements or material changes to previously disclosed contractual obligations. Management considered pending litigation and environmental matters not expected to materially affect results; no environmental remediation provision was recorded.
Important facts for investors to verify
- How production trends and operator drilling activity develop, particularly in the Permian and Haynesville/Bossier areas.
- Whether derivative settlements, unrealized marks, and hedge coverage materially affect cash generation as commodity prices change.
- Whether the $0.20 base distribution is sustained and how future special distributions are determined.
- Results of the October 2021 borrowing-base redetermination and continued covenant compliance.
- Execution, well performance, and commitments under the Aethon, Canaan, Pivotal, and Austin Chalk programs.