Black Stone Minerals, L.P. — FY2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020. This is an annual report, not a standalone fourth-quarter filing; quarterly figures are noted where relevant. The partnership owns mineral and royalty interests across 41 U.S. states and also holds non-operated working interests. Its financial statements received an unqualified audit opinion, and the auditor also gave an unqualified opinion on internal controls over financial reporting.
Key financial and operating metrics
| Metric | 2020 | 2019 |
|---|---|---|
| Total revenue | $342.8 million | $487.8 million |
| Net income | $121.8 million | $214.4 million |
| Net income attributable to common and subordinated units | $100.8 million | $193.4 million |
| Basic earnings per common unit | $0.49 | $1.01 |
| Operating income / operating margin | $132.1 million / 38.5% | $235.2 million / 48.2% |
| Operating cash flow | $281.8 million | $412.7 million |
| Adjusted EBITDA / distributable cash flow | $281.3 million / $255.4 million | $399.5 million / $355.4 million |
| Production | 15.219 million Boe; 41.6 MBoe/d | 17.716 million Boe; 48.5 MBoe/d |
| Year-end credit facility borrowings | $121.0 million | $394.0 million |
| Cash and cash equivalents | $1.8 million | $8.1 million |
| Current assets / current liabilities | $66.5 million / $39.9 million | $102.3 million / $29.8 million |
| Cash distributions declared per common unit | $0.68 | $1.48 |
Oil and condensate sales were $148.6 million and natural gas and NGL sales were $138.9 million. Realized prices, before derivatives, averaged $38.16 per barrel for oil and $2.04 per Mcf for natural gas. Production costs and ad valorem taxes were $2.86 per Boe. The filing does not provide a clear consolidated gross-margin measure.
Material changes versus 2019
- Revenue fell 29.7%, reflecting lower realized commodity prices, reduced production, and lower lease bonus income. Production declined 14.1%; realized oil and gas prices fell 30.9% and 20.6%, respectively.
- Net income declined 43.2%. Operating cash flow decreased $130.9 million, while distributable cash flow fell $100.0 million.
- Commodity derivatives contributed a $46.1 million gain in 2020, versus a $5.0 million loss in 2019. The 2020 result included $81.3 million of realized gains and $35.2 million of unrealized losses.
- The partnership recorded a $51.0 million impairment of oil and gas properties, compared with none in 2019, and $4.8 million of workforce restructuring charges. G&A expense nevertheless decreased 32.2%.
- Proceeds of $150.6 million from Permian asset sales were used to reduce debt; the sales generated a $24.0 million accounting gain. No acquisitions were made in 2020.
- Proved reserves decreased from 68.5 million Boe to 56.0 million Boe. Reserves were 97.1% proved developed, compared with 88.9% in 2019.
Liquidity, debt, distributions, and outlook
- Operating cash flow was $281.8 million. Investing activities provided $151.2 million, primarily due to asset-sale proceeds; financing activities used $439.4 million, including net credit-facility repayments. Year-end cash was $1.8 million.
- The revolving credit facility had a $400 million borrowing base at year-end, $121 million outstanding, and $279 million of unused borrowing availability. It matures November 1, 2022. The partnership was compliant with its financial covenants at year-end; the next borrowing-base redetermination was scheduled for April 2021.
- Credit covenants require total debt to EBITDAX of no more than 3.5:1 and a current ratio of at least 1.0:1. Distributions are restricted in specified default or borrowing-base circumstances.
- Common-unit distributions were reduced during 2020. The Board declared $0.15 per common unit for the fourth quarter, paid February 23, 2021; the annual total declared was $0.68 per unit. Series B preferred units receive priority distributions at a 7% annual rate; $21 million was distributed to preferred holders in 2020.
- Management budgeted approximately $5 million of 2021 non-operated working-interest capital expenditures, net of farmout reimbursements. Most was expected to support Austin Chalk test wells; the remainder was for workovers. The filing provides no formal earnings or distribution guidance.
- Management cited EIA forecasts of average WTI prices of about $49.70 per barrel in 2021 and $49.81 in 2022, and Henry Hub gas prices of $3.01 and $3.27 per MMBtu, respectively. These are external forecasts, not company guidance. At year-end, hedges covered 98% of available 2021 oil volumes and 80% of available gas volumes.
Management commentary, risks, and unusual items
- COVID-19, lower commodity prices, and reduced operator drilling and completion activity pressured volumes and revenue; some production was temporarily shut in. Management said most shut-in production had returned, but activity remained below pre-pandemic levels.
- The borrowing base fell from $650 million to $400 million during 2020, reflecting market conditions and asset sales. Management warned that further low prices could prompt additional impairments or borrowing-base reductions.
- The Shelby Trough is a concentration risk: two operators generated 13% of royalty revenue and 54% of working-interest revenue in 2020. XTO completed all 13 DUCs covered by its incentive agreement by January 18, 2021. Aethon’s development agreement includes minimum well commitments in Angelina County.
- Other material risks include commodity-price volatility, reliance on third-party operators, reserve-estimation uncertainty, environmental and climate regulation, hydraulic-fracturing and disposal-well restrictions, access to capital, and the possibility that cash generation will not support common-unit distributions.
- The partnership’s reserves and impairment estimates depend on assumptions about prices, production, costs, and development. Applying a 10% discount to reserve-report commodity prices would reduce estimated proved reserve volumes by approximately 4%.
- Legal claims arising in the ordinary course were not expected by management to have a material adverse effect. No material off-balance-sheet arrangements were reported.
Most important facts for investors to verify
- Whether production, realized prices, and operator drilling activity recover, particularly in the Shelby Trough and Austin Chalk areas.
- Results of the April 2021 borrowing-base redetermination and continued compliance with credit-facility covenants.
- Hedge volumes, settlement outcomes, and the effect of derivative fair-value changes on reported revenue and cash flow.
- Whether proved reserves, impairment assumptions, and development plans remain supportable under actual commodity prices and operator activity.
- The sustainability of common-unit distributions after preferred-unit priority payments, debt service, and required investment.