Black Stone Minerals, L.P. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; unaudited. Black Stone Minerals owns oil and natural gas mineral and royalty interests across 41 U.S. states, plus non-operated working interests. Its common units trade as BSM on the NYSE.
Financial and operating results
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Total revenue | $174.6 million | $36.4 million |
| Revenue from customer contracts | $122.3 million | $156.4 million |
| Net income (loss) | $134.4 million | $(7.0) million |
| Net income (loss) attributable to common units | $129.2 million | $(12.3) million |
| Basic / diluted earnings per common unit | $0.62 / $0.60 | $(0.06) / $(0.06) |
| Adjusted EBITDA (non-GAAP) | $109.9 million | $98.8 million |
| Distributable cash flow (non-GAAP) | $104.1 million | $92.6 million |
| Cash from operating activities | $137.2 million | $82.6 million |
Production was 3.535 million Boe, up 19.5%; average production was 39.3 MBoe/day. Oil and condensate volumes declined 4.6% to 793 MBbl, while natural gas volumes rose 28.9% to 16,452 MMcf. Realized prices excluding derivatives fell: oil to $76.81/Bbl from $91.25, and natural gas to $3.49/Mcf from $5.94. Total revenue rose sharply because the quarter included a $52.3 million derivative gain versus a $120.0 million derivative loss in Q1 2022; customer-contract revenue itself declined 21.8%.
Operating expenses were $39.4 million versus $42.2 million. The filing does not present a defined operating-margin measure. Cash used in investing was $2.0 million; cash used in financing was $120.4 million, including $99.6 million of common-unit distributions and $5.3 million of preferred-unit distributions. Cash and equivalents were $19.2 million at quarter-end, compared with $4.3 million at year-end 2022.
At March 31, 2023, the Partnership had no credit-facility borrowings, versus $10.0 million at December 31, 2022, and reported $375 million of unused borrowing availability. The borrowing base was reaffirmed at $550 million in April 2023, with lender commitments of $375 million; facility maturity is October 31, 2027. The Partnership reported compliance with its financial covenants.
Material changes and notable items
- Despite lower commodity prices and lower customer-contract revenue, reported net income and total revenue improved substantially because derivative results swung from a large loss to a gain. Of the Q1 2023 derivative gain, $13.3 million was realized and $39.0 million was unrealized.
- Adjusted EBITDA increased 11.3% and distributable cash flow increased 12.4% year over year. Operating cash flow increased by $54.6 million, primarily reflecting better cash settlements on commodity derivatives.
- Common-unit distributions declared and paid were $0.475 per unit, versus $0.270 a year earlier. After quarter-end, the board approved another $0.475-per-unit distribution for Q1, payable May 19, 2023. Common distributions are discretionary and subject to available cash, reserves, preferred distributions, and credit-facility restrictions.
- Q1 working-interest capital spending was $1.9 million. The 2023 development-capital budget is approximately $7.9 million net of farmout reimbursements, primarily for workovers and recompletions.
- Development updates: Aethon had turned 16 Angelina County wells to sales and begun operations on 10 more; in San Augustine County, four wells were producing and nine awaited completion. XTO had resumed drilling in San Augustine County, with one well awaiting completion. In the Austin Chalk, 22 modern-completion wells were producing and six were being drilled or completed.
Outlook, risks and contingencies
The filing provides no formal earnings or production guidance. Management noted uncertainty in commodity markets: Q1 benchmark WTI and Henry Hub prices were below prior-year levels, with natural gas weakness attributed in part to reduced demand and warmer weather. The Partnership uses derivatives to partially mitigate price volatility, but results remain materially exposed to commodity prices and to drilling decisions and financing capacity of third-party operators. At March 31, 2023, it had hedged 67% of available 2023 oil hedge volumes and 64% of available 2023 natural gas hedge volumes; corresponding 2024 percentages were 22% and 41%.
Key risks include commodity-price volatility, production levels and operator activity, the ability to replace reserves, pipeline and service availability, regulatory and environmental requirements, and counterparty/customer credit risk. Derivative counterparties were rated Baa1 or better by Moody’s, but the Partnership does not require them to post collateral. A 10% reduction to SEC commodity pricing implied an approximately 1% reduction in proved reserve volumes in the sensitivity disclosed. Management said pending litigation and environmental matters were not expected to have a material adverse effect; no environmental remediation provision was recorded. The filing reported no material change to previously disclosed risk factors.
The Series B preferred units carry a 7% annual distribution rate, with a rate readjustment beginning November 28, 2023, and potential redemption rights beginning that date. The filing also notes a 2025 aspirational employee award tied to production and leverage targets; management had not deemed achievement probable at quarter-end, and no related expense was recognized.
Important facts for investors to verify
- How much of reported earnings and cash generation reflects recurring production economics versus realized and unrealized derivative movements.
- Whether production growth, particularly in Haynesville/Bossier and the Shelby Trough, continues as operators complete and bring wells online.
- Current hedge positions, future realized prices, and exposure to natural-gas price and demand changes.
- Cash available for distributions after preferred-unit obligations, capital spending, and any changes in borrowing-base availability or covenant headroom.
- The Series B preferred distribution-rate adjustment and redemption terms taking effect from November 28, 2023.
- Management reported disclosure controls were effective as of March 31, 2023; investors may also review subsequent filings for developments in operations, financing, or risks.