Black Stone Minerals, L.P. — Q2 2023 Form 10-Q
Period: Quarter and six months ended June 30, 2023. Financial amounts below are in millions, except per-unit data and production metrics. Black Stone Minerals owns mineral and royalty interests across 41 U.S. states and also holds non-operated working interests.
Financial performance and operating metrics
- Q2 revenue: $117.0 million, down 35% year over year. Revenue from oil, natural gas and NGL sales fell as realized prices declined; derivative results improved year over year but only partly offset the decrease.
- Q2 earnings: Net income was $78.4 million versus $131.8 million; net income attributable to common units was $73.1 million, or $0.35 per unit, versus $126.5 million, or $0.60 per unit.
- First-half revenue and earnings: Total revenue was $291.6 million versus $216.8 million, and net income was $212.8 million versus $124.8 million. The revenue increase was driven by a $63.6 million derivative gain, compared with a $147.4 million derivative loss in the prior-year period; sales revenue declined.
- First-half per-unit earnings: $0.96 basic and $0.95 diluted, versus $0.55 for both measures in 2022.
- Production and realized prices: Q2 production averaged 36.2 thousand BOE/day, up 8.1%; oil and condensate volumes fell 5.9%, while natural gas volumes rose 13.8%. Realized prices excluding derivatives declined 30.6% for oil and 67.1% for natural gas. First-half production averaged 37.7 thousand BOE/day, up 13.6%.
- Expenses and cash generation: Q2 operating expenses were $38.2 million and operating income was $78.8 million. First-half operating cash flow was $270.4 million, versus $160.1 million; Adjusted EBITDA was $219.2 million versus $211.6 million, and distributable cash flow was $207.7 million versus $199.2 million.
- Cash, debt and liquidity: Cash was $46.7 million at June 30, up from $4.3 million at year-end. No credit-facility borrowings were outstanding; $375 million of commitments were unused. The $550 million borrowing base was reaffirmed in April, and the facility matures October 31, 2027. The partnership reported compliance with its covenants.
- Distributions: Common-unit distributions declared and paid were $0.475 per unit for Q2, versus $0.40 a year earlier. A $0.475 Q2 distribution was approved July 25, payable August 18, 2023. First-half cash distributions were $199.3 million to common unitholders and $10.5 million to preferred holders.
Material changes and management commentary
- Lower commodity prices weighed on sales: Q2 revenue from customer contracts decreased 49.1%, while total revenue also reflected a derivative gain rather than the prior-year derivative loss. For the first half, derivative gains reversed the prior-year loss and lifted reported total revenue despite lower sales.
- Natural gas volume growth was associated with Haynesville/Bossier development, including Aethon activity in the Shelby Trough. Aethon had five rigs on the acreage; the filing reported 16 Angelina County wells and six San Augustine County wells turned to sales. XTO turned four additional wells to sales in Q2.
- Management cited lower natural gas prices amid increased production, mild winter weather and elevated storage. It referenced EIA expectations for higher prices in the second half of 2023, but provided no formal company revenue or earnings guidance. The 2023 non-operated working-interest capital budget was approximately $4.9 million, net of farmout reimbursements; $2.5 million had been spent through June.
Risks, contingencies and unusual items
- Commodity prices and operator drilling decisions remain key uncertainties. Derivatives partially mitigate price exposure but can also create significant period-to-period earnings volatility; open contracts were fixed-price swaps. At June 30, hedges covered 74% of available 2023 oil and 67% of available 2023 gas hedge volumes, and 62% and 82%, respectively, for 2024.
- Other disclosed risks include operator financing or performance, production and reserve replacement, transportation capacity, environmental and regulatory requirements, and counterparty/customer credit risk. Derivative counterparties were seven facility lenders, each rated Baa1 or better by Moody’s.
- The Series B preferred units carry a 7% annual distribution. Their distribution rate is scheduled for readjustment beginning November 28, 2023; the partnership may redeem eligible amounts during a 90-day window beginning that date at $21.41 per unit. The units had a $298.4 million carrying value.
- The partnership reported no material property impairment, no material acquisition or divestiture activity, and no litigation expected by management to materially affect financial condition or operations. Environmental remediation provisions were not recorded.
Investor verification priorities
- Separate operating performance from derivative gains and losses, including cash settlements versus unrealized fair-value changes.
- Track realized commodity prices, production trends and operator drilling/completion progress, particularly in the Shelby Trough and Austin Chalk.
- Assess distributable cash flow against common and preferred distributions, and confirm the cash and borrowing-base position after the October 2023 redetermination.
- Review the preferred-unit distribution-rate reset and redemption terms ahead of November 28, 2023.
- Confirm the assumptions underlying management’s capital budget and any future outlook; the filing provides no formal company earnings or revenue guidance.