Black Stone Minerals, L.P. — Q2 2022 Form 10-Q
Business context and period. Black Stone Minerals owns mineral and royalty interests across 41 states and certain non-operated working interests. This unaudited filing covers the quarter and six months ended June 30, 2022; comparisons are with the corresponding 2021 periods. The Partnership operates as one reportable segment.
Financial performance
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue from customer contracts | $207.7 million | $117.9 million | $364.2 million | $207.4 million |
| Total revenue, including commodity derivatives | $180.4 million | $58.4 million | $216.8 million | $120.0 million |
| Net income | $131.8 million | $15.4 million | $124.8 million | $31.6 million |
| Net income attributable to general partner and common units | $126.5 million | $10.2 million | $114.3 million | $21.1 million |
| Basic / diluted earnings per common unit | $0.60 / $0.59 | $0.05 / $0.05 | $0.55 / $0.55 | $0.10 / $0.10 |
| Adjusted EBITDA (non-GAAP) | $112.8 million | $78.4 million | $211.6 million | $138.3 million |
| Distributable cash flow (non-GAAP) | $106.6 million | $72.1 million | $199.2 million | $125.9 million |
For the six-month period, operating cash flow was $160.1 million versus $125.6 million; investing cash flow was a $0.1 million outflow versus a $12.8 million outflow; and financing cash flow was a $156.7 million outflow versus a $113.6 million outflow. Cash was $12.2 million at June 30, 2022.
Total assets were $1.273 billion and total liabilities were $230.0 million. Credit Facility borrowings were $86.0 million, with $314.0 million of unused availability against a $400.0 million borrowing base. The facility’s weighted-average interest rate was 4.12%; the Partnership reported covenant compliance. Preferred units carried $298.4 million in mezzanine equity and receive a 7% annual distribution.
Material changes and operating trends
- Q2 total revenue increased 209% year over year; six-month total revenue increased 81%. Higher realized commodity prices drove the increase, while production volumes and lease bonus income declined.
- Q2 oil and condensate production rose 4.5%, while natural gas production fell 17.7% and total equivalent production fell 12.2%. For the six months, equivalent production declined 11.5%.
- Realized prices excluding derivatives increased substantially: Q2 oil rose 67% and natural gas 139%; six-month oil rose 69% and natural gas 124%.
- Commodity derivative losses reduced reported revenue: $27.3 million in Q2 2022 versus $59.5 million in Q2 2021, and $147.4 million for the first half versus $87.4 million in 2021. First-half cash settlements paid were $93.7 million. At quarter-end, net derivative liabilities were $109.5 million.
- Production costs and ad valorem taxes increased with commodity prices and higher tax estimates. DD&A declined, primarily with lower natural gas production. Management attributed lower gas volumes mainly to natural declines in the Shelby Trough outpacing new development.
Outlook, commentary, and risks
- No specific full-year revenue or earnings guidance was provided. The 2022 non-operated working-interest capital budget was approximately $4.5 million net of farmout reimbursements; $0.1 million had been invested in the first half.
- Management reported development activity by Aethon in the Shelby Trough and continued Austin Chalk redevelopment. Results from Austin Chalk wells varied, though management said the play was becoming better delineated.
- At June 30, the Partnership had hedged 88% of available 2022 oil volumes and 76% of available 2022 natural gas volumes. It cautioned that hedges only partially mitigate commodity-price volatility; open contracts were fixed-price swaps. Additional natural gas swaps for 2023 were entered into after quarter-end.
- Key exposures include volatile commodity prices, declining production if operator drilling does not offset natural declines, operator financing and activity, pipeline and LNG export capacity, and inflation, higher interest rates, and recession risk. The Freeport LNG outage and the Ukraine conflict were cited as sources of market uncertainty.
- Common-unit distributions are not guaranteed and may be changed by the Board. The Board approved a $0.42-per-unit Q2 distribution payable August 19, 2022; $0.40 per unit was reported as declared and paid for Q2 in the distribution table. Environmental remediation provisions were not recorded as management did not consider potential costs significant; management expected existing litigation to be resolved without material adverse effect.
Important facts for investors to verify
- Review derivative contract volumes, strike prices, settlements, and the effect of the $109.5 million net derivative liability on future cash flows and reported earnings.
- Track whether operator drilling—particularly in the Shelby Trough—reverses declining natural gas and total production.
- Confirm the October 2022 borrowing-base redetermination, borrowing costs, covenant headroom, and distribution capacity.
- Reconcile declared, paid, and subsequent distributions, and assess cash coverage after preferred distributions and capital needs.
- Assess non-GAAP Adjusted EBITDA and distributable cash flow alongside GAAP earnings and operating cash flow; these measures have limitations and may not be comparable across issuers.