Black Stone Minerals, L.P. — Q1 2022 Form 10-Q
Business context and reporting period. This unaudited filing covers the three months ended March 31, 2022. Black Stone Minerals owns mineral and royalty interests across 41 U.S. states, as well as non-operated working interests. Its royalty interests are substantially non-cost-bearing.
Financial results and liquidity
| Metric | Q1 2022 | Q1 2021 or comparison |
|---|---|---|
| Revenue from customer contracts | $156.4 million | $89.5 million; up 74.9% |
| Commodity derivative gain (loss) | $(120.0) million | $(27.9) million |
| Total revenue | $36.4 million | $61.6 million; down 40.8% |
| Net income (loss) | $(7.0) million | $16.2 million |
| Net income (loss) attributable to common units | $(12.3) million; $(0.06) per unit | $10.9 million; $0.05 per unit |
| Operating cash flow | $82.6 million | $55.7 million |
| Adjusted EBITDA (non-GAAP) | $98.8 million | $60.0 million |
| Distributable cash flow (non-GAAP) | $92.6 million | $53.8 million |
Oil and condensate sales were $75.8 million and natural gas and NGL sales were $75.8 million. Realized prices excluding derivatives rose 71.2% for oil and 106.3% for natural gas, while equivalent production declined 10.7% to 2.958 million Boe (32.9 MBoe/day). Natural gas production fell 14.4%; oil volumes were essentially flat.
Operating expenses were $42.2 million, including $10.9 million of depreciation, depletion and amortization, $13.8 million of general and administrative expense, and $13.9 million of production costs and ad valorem taxes. Interest expense was $1.2 million. The reported loss reflects substantial derivative losses despite higher physical sales revenue; the filing identifies $31.2 million of realized derivative losses and $88.8 million of unrealized losses in the quarter.
At March 31, cash was $6.7 million, current assets were $108.0 million, and total assets were $1.239 billion. Credit-facility debt was $69.0 million, down from $89.0 million at year-end. The $400 million borrowing base left $331.0 million available. The Partnership reported compliance with its debt covenants; the facility matures November 1, 2024. Current liabilities included $138.0 million of commodity derivative liabilities, with total derivative liabilities of $142.3 million.
Cash used in financing was $84.7 million, including $56.5 million of common-unit distributions, $5.3 million of preferred-unit distributions, and net credit-facility repayments of $20.0 million. Cash at quarter-end was $6.7 million, down $2.2 million from year-end. Q1 common distributions paid were $0.27 per unit; after quarter-end, the board declared $0.40 per common unit, payable May 20, 2022.
Material changes versus prior period
- Contract revenue increased with higher realized commodity prices and lease bonus income, but total revenue declined because derivative losses were much larger.
- Production declined 10.7% on an equivalent basis, principally as natural decline in Shelby Trough wells exceeded new development activity.
- Operating cash flow increased by $26.9 million, while financing cash outflows increased by $31.2 million, mainly reflecting higher distributions and repayments.
- Common-unit distributions paid increased from $0.175 to $0.27 per unit. The subsequent declaration raised the distribution to $0.40 per unit.
Outlook, management commentary and risks
- No full-year revenue or earnings guidance is provided. The 2022 non-operated working-interest capital budget is approximately $4.5 million net of farmout reimbursements; $0.1 million had been invested through March 31.
- Management reported development activity in the Shelby Trough and Austin Chalk. Aethon had turned six Angelina County wells to sales, including four in April, and had additional wells drilling or awaiting completion. Austin Chalk redevelopment included seven modern-completion wells producing and five being drilled or completed.
- Q1 commodity benchmarks were elevated amid recovering demand, constrained supply and uncertainty related to Russia’s invasion of Ukraine. Management cautioned that commodity prices and market conditions remain uncertain, and that results depend significantly on prices and operator activity.
- Open derivatives were fixed-price swaps. At March 31, 2022, the Partnership had hedged 92% of available oil and condensate hedge volumes and 72% of available natural gas hedge volumes for 2022. Swaps mitigate some downside but also limit participation in higher prices; fair-value changes are recognized in current earnings.
- Other principal risks include production declines, operator access to capital, commodity and transportation-market changes, regulatory and environmental matters, and counterparty or customer credit risk. Management reported no material expected environmental remediation costs and believed pending legal claims would not materially affect results.
- The Partnership’s Series B preferred units carry a 7% annual distribution and are convertible under specified terms. The filing also describes incentive awards tied to a 2025 production and leverage target; management had not deemed achievement probable as of March 31, 2022, so no expense was recorded for those awards.
Important facts for investors to verify
- How much of the $88.8 million unrealized derivative loss may reverse as forward prices and contracts change, and the cash settlement burden of the hedge book.
- Whether production stabilizes as Shelby Trough and Austin Chalk development progresses, and whether operator drilling commitments are met.
- Whether operating cash flow and distributable cash flow can support the increased $0.40 quarterly common-unit distribution through changing prices and production.
- Borrowing-base availability and covenant headroom at future redeterminations, including the scheduled October 2022 review.
- The effect of lower production, commodity-price volatility, and changes in the value or recoverability of oil and gas properties on future results and reserves.