Black Stone Minerals, L.P. — FY2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021; comparisons are primarily with FY2020. Black Stone Minerals is a publicly traded partnership that owns oil and natural gas mineral and royalty interests, plus non-operated working interests. Its largely non-cost-bearing assets span 41 states and include interests in more than 70,000 producing wells.
Financial and operating performance
| Metric | FY2021 | FY2020 |
|---|---|---|
| Total revenue, including commodity derivatives | $359.3 million | $342.8 million |
| Revenue from customer contracts | $505.7 million | $296.6 million |
| Net income | $182.0 million | $121.8 million |
| Adjusted EBITDA (non-GAAP) | $292.5 million | $281.3 million |
| Distributable cash flow (non-GAAP) | $267.4 million | $255.4 million |
| Cash from operating activities | $256.9 million | $281.8 million |
| Production | 13.887 million Boe; 38.0 MBoe/d | 15.219 million Boe; 41.6 MBoe/d |
| Credit facility borrowings at year-end | $89.0 million | $121.0 million |
- Oil and condensate sales were $235.8 million, up 58.6%; natural gas and NGL sales were $255.7 million, up 84.0%. Higher realized prices more than offset lower volumes. Realized oil price rose 69.5% to $64.67/Bbl and natural gas price rose 103.9% to $4.16/Mcf.
- Commodity derivatives produced a $146.5 million loss in FY2021 versus a $46.1 million gain in FY2020, including $112.9 million of realized losses and $33.5 million of unrealized losses. Consequently, total revenue increased only 4.8% despite substantial growth in customer-contract revenue.
- Average daily production fell 8.7%, with oil and condensate volumes down 6.4% and natural gas volumes down 9.6%. The filing attributes declines to factors including prior Permian divestitures, natural production declines, and reduced working-interest production in Haynesville/Bossier.
- Cash from operations declined mainly because of net cash paid on derivative settlements, partly offset by higher commodity sales. Investing activities used $14.3 million, including acquisition spending; financing activities used $235.5 million, principally reflecting distributions and net debt repayment.
- Year-end cash was $8.9 million; current assets were $108.0 million and current liabilities $77.1 million. The company reported $97.1 million in receivables, including $93.0 million of accrued customer-contract revenue.
- The $1.0 billion senior secured revolving facility had a $400 million borrowing base and $311 million of unused availability at year-end. Its maturity is November 2024. The partnership reported compliance with its debt covenants.
- Year-end proved reserves were 59.824 million Boe, up from 55.987 million Boe; 94.4% were proved developed. The standardized measure of discounted future net cash flows was $972.1 million, versus $493.5 million in 2020; this reserve-based estimate is not a measure of current market value or expected cash flow.
Material changes and notable items
- FY2021 net income rose 49.4%, reflecting stronger realized commodity prices, lower depletion and no repeat of the $51.0 million property impairment recorded in 2020. Lower 2021 cash from operations illustrates that accounting earnings and cash generation moved differently, in part because of derivative settlements.
- The partnership acquired northern Midland Basin mineral and royalty acreage for $20.8 million, funded with $10.0 million cash and $10.8 million in common units. It also divested its TLW subsidiary for $0.2 million, recording a $2.9 million gain, primarily associated with liabilities transferred.
- New San Augustine County farmout agreements with Canaan and Azul provide funding for specified working-interest development in exchange for portions of those interests; Black Stone retains overriding royalty interests. Aethon’s development agreements include minimum well commitments. These arrangements seek to limit working-interest capital requirements while encouraging drilling.
- Common-unit distributions declared and paid totaled $0.85 per unit in 2021, up from $0.68 in 2020. The Board approved a $0.27-per-common-unit distribution for Q4 2021, payable February 23, 2022. Series B preferred units receive priority distributions at a 7% annual rate; $21.0 million was distributed to preferred holders in 2021.
Outlook, commentary, risks and contingencies
- Management said commodity prices recovered in 2021 and operators resumed drilling, but characterized market conditions as uncertain. The filing does not provide formal production or earnings guidance. The 2022 budget for non-operated working-interest capital expenditures is approximately $4.5 million, net of farmout reimbursements, mainly for workovers and recompletions.
- Operations and revenue depend substantially on unaffiliated operators’ drilling, financing, and production decisions. Shelby Trough concentration is notable: three operators generated 16% of 2021 royalty revenue and 40% of working-interest revenue there; the filing said only one had an active drilling program on that acreage.
- Commodity-price volatility, production declines, reserve-estimation uncertainty, operator and customer credit, borrowing-base redeterminations, and dependence on access to capital could adversely affect cash flow and distributions. XTO Energy accounted for 19% of 2021 oil and natural gas revenue.
- Distributions are not guaranteed and are determined by the Board after preferred-unit obligations, debt service, reserves, and other cash needs. Credit-agreement limits can restrict distributions, including if availability falls below specified thresholds or debt-to-EBITDAX exceeds 3.0.
- Environmental and regulatory risks include potential changes to methane and greenhouse-gas rules, hydraulic-fracturing and produced-water disposal restrictions, induced seismicity, permitting, and climate-related litigation or demand shifts. The partnership may also face exposure as a working-interest owner if operators fail to meet environmental obligations.
- The filing reports no belief that ordinary-course legal matters or identified environmental remediation issues would have a material adverse effect; no material remediation provision was recorded. Ernst & Young gave unqualified opinions on the financial statements and internal control over financial reporting.
Important facts for investors to verify
- Review derivative contract volumes, prices, settlements, and subsequent hedges; hedge accounting is not applied, so fair-value changes affect reported earnings.
- Assess whether production growth and operator drilling can offset natural declines, particularly in the Shelby Trough and Haynesville/Bossier, and track Aethon’s well commitments and farmout economics.
- Monitor the April 2022 borrowing-base redetermination, covenant headroom, facility availability, interest costs, and the November 2024 maturity.
- Evaluate the sustainability of common-unit distributions after preferred distributions, debt service, capital needs, and Board-established reserves; distributions may be changed or suspended.
- Check reserve revisions and development progress against the assumptions underlying the 59.824 million Boe estimate and $972.1 million standardized measure.