Business context and reporting period
Black Stone Minerals, L.P. reported the three months ended March 31, 2015. The financial statements present its accounting predecessor, Black Stone Minerals Company, L.P., before the partnership’s May 2015 IPO. The business owns mineral, royalty and certain non-operated working interests across U.S. oil and gas basins; it generally relies on third-party operators for development and production.
On May 6, 2015, the partnership completed its IPO of 22.5 million common units at $19.00 per unit, receiving approximately $391.6 million net of offering costs. It used the proceeds to repay substantially all credit-facility borrowings. This occurred after quarter-end.
Financial performance and condition
| Metric | Q1 2015 | Q1 2014 / prior date |
|---|---|---|
| Total revenue | $91.1 million | $127.4 million |
| Income from operations | $20.2 million | $73.2 million |
| Net income | $17.3 million | $69.9 million |
| Net income attributable to limited partners | $14.4 million; $0.09 per unit | $66.0 million; $0.40 per unit |
| Cash from operating activities | $74.4 million | $74.2 million |
| Cash used in investing activities | $13.2 million | $38.0 million |
| Cash used in financing activities | $67.6 million | $48.3 million |
| Cash and cash equivalents | $8.4 million | $14.8 million at Dec. 31, 2014 |
| Credit-facility debt | $389.0 million | $394.0 million at Dec. 31, 2014 |
Production rose 14.8% to 2.625 million Boe, while realized equivalent price fell to $25.83 per Boe from $51.55. Oil and condensate sales were $36.2 million and natural gas/NGL sales were $31.6 million. Commodity derivative gains were $19.6 million, versus a $6.0 million loss a year earlier; lease bonus and other income fell to $3.6 million from $15.6 million.
Operating expenses included $13.5 million of oil and gas property impairment, with no impairment in Q1 2014, and $27.9 million of depreciation, depletion and amortization. Management-reported non-GAAP Adjusted EBITDA was $60.9 million versus $104.0 million; cash generated from operations available for common-unit distributions and reinvestment was $55.2 million versus $94.3 million. These measures are not substitutes for GAAP results.
At March 31, 2015, current assets were $108.6 million and current liabilities $96.0 million; total assets were $1.274 billion. The borrowing base was reduced from $700 million to $600 million effective April 10; at quarter-end, unused availability was $311 million. The partnership reported compliance with credit covenants. After the IPO debt repayment, the filing does not provide a clear post-transaction debt balance.
Material changes versus the prior comparable period
- Revenue declined 28.5%, primarily reflecting lower commodity prices and lower lease-bonus income, partly offset by higher production and derivative gains. WTI and Henry Hub first-quarter average benchmarks were $47.72/Bbl and $2.65/MMBtu, compared with $101.57/Bbl and $4.48/MMBtu.
- Net income fell to $17.3 million from $69.9 million; limited-partner earnings per unit declined to $0.09 from $0.40.
- Production increased, including higher volumes from new wells in the Bakken/Three Forks, Eagle Ford, Haynesville/Bossier and Wilcox areas.
- Operating cash flow was broadly unchanged, supported by improved cash settlements on commodity derivatives, offset by lower cash collections from oil, gas and lease bonuses. Investing cash use was lower, with no acquisitions closed in Q1 2015.
- The preferred-unit balance declined following automatic conversion of $39.2 million of preferred units into common units during the quarter.
Outlook, commentary, risks and contingencies
The 2015 drilling capital budget was $40.1 million; approximately $13.6 million was spent in Q1. Management said the April borrowing-base reduction was not expected to adversely affect liquidity. The partnership intended to fund distributions, acquisitions and working-interest needs through operating cash, credit-facility borrowings and, where appropriate, future capital issuance. Distributions are subject to available cash, reserves, preferred distributions and credit-agreement restrictions; there is no obligation or guarantee to pay them.
Management uses collars and swaps to reduce commodity-price exposure and reported that, as of March 31, hedges covered nearly all production eligible under the credit agreement for the remainder of 2015 and 2016. Hedging limits upside as well as downside and introduces counterparty exposure. Key risks include volatile oil and gas prices, reduced drilling by third-party operators, production and reserve changes, lease-bonus timing, access to services and transportation, regulation, and operators’ ability to finance development. Management identified no material off-balance-sheet arrangements or material change in previously disclosed risk factors. Routine litigation and environmental matters were not expected to have a material adverse effect; no provision for potential environmental remediation was recorded.
Important facts an investor should verify
- Post-IPO debt, available borrowing capacity and covenant headroom after the $391.6 million net proceeds were applied.
- Whether weaker commodity prices and lower operator drilling activity affect production, reserve estimates, impairment charges and future cash generation.
- The amount, duration and settlement exposure of oil and gas hedges, including counterparty concentration and limits on hedging.
- Whether operating cash and liquidity support distributions and the planned capital program, especially given the borrowing-base reduction.
- The timing and variability of lease bonuses, which materially affected the year-over-year revenue comparison.
- Incremental public-company costs and the comparability of predecessor-period results with results after the IPO.