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Black Stone Minerals, L.P. Reports Third Quarter Results

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Black Stone Minerals, L.P. (NYSE:BSM) ("Black Stone Minerals," "Black Stone," or "the Company") today announces its financial and operating results for the third quarter of 2020.

Highlights

  • Total mineral and royalty production for the third quarter of 2020 equaled 31.1 MBoe/d, a decrease of 8.6% over the prior quarter; total production, including working interest volumes, was 37.9 MBoe/d for the quarter.
  • Net income and Adjusted EBITDA for the quarter totaled $23.7 million and $65.5 million, respectively.
  • Distributable cash flow was $58.8 million for the third quarter, resulting in distribution coverage for all units of 1.9x based on the announced cash distribution of $0.15 per unit.
  • Completed the previously-announced asset sales in July 2020 for total cash proceeds of $150 million; recognized a gain of $24.0 million associated with the sales.
  • Total debt at the end of the third quarter was $147 million; total debt to trailing twelve-month Adjusted EBITDA was 0.5x at quarter-end. As of October 30, 2020, total debt had been reduced to $124 million.
  • Announced distribution of $0.15 per common unit with respect to the third quarter of 2020.

Management Commentary

Thomas L. Carter, Jr., Black Stone Minerals' Chief Executive Officer and Chairman commented, "We continued to focus on our core principles of balance sheet strength and active property management during the third quarter. In light of the challenging environment, we substantially reduced our debt levels during the quarter with proceeds from the recent asset sales and retained free cash flow. We are also taking advantage of the relative strength in natural gas prices to aggressively market our extensive acreage positions across the Haynesville Shale and Austin Chalk formations."

Quarterly Financial and Operating Results

Production

Black Stone Minerals reported mineral and royalty volume was 31.1 MBoe/d (69% natural gas) for the third quarter of 2020, compared to 37.5 MBoe/d for the comparable period in 2019. Royalty production for the second quarter of 2020 was 34.0 MBoe/d.

Working interest production for the third quarter of 2020 was 6.9 MBoe/d, and represents decreases of 21% and 40%, respectively, from the levels generated in the quarters ended June 30, 2020 and September 30, 2019. The continued decline in working interest volumes is consistent with the Company's decision in 2017 to farm out its working-interest participation to third-party capital providers.

Total reported production averaged 37.9 MBoe/d (82% mineral and royalty, 73% natural gas) for the third quarter of 2020. Total production was 49.0 MBoe/d and 42.6 MBoe/d for the quarters ended September 30, 2019 and June 30, 2020, respectively.

Realized Prices, Revenues, and Net Income

The Company's average realized price per Boe, excluding the effect of derivative settlements, was $18.18 for the quarter ended September 30, 2020. This is an increase of 27% from $14.37 per Boe for the second quarter of 2020 and a 25% decrease compared to $24.30 for the third quarter of 2019. Realized natural gas prices in the third quarter of 2020 were 97% of the average Henry Hub benchmark price for the quarter, which was consistent with the second quarter of 2020. Realized oil prices for the third quarter of 2020 were 88% of the average West Texas Intermediate ("WTI") benchmark price, a decrease from 106% of WTI in the second quarter of 2020.

Black Stone reported oil and gas revenue of $63.4 million (54% oil and condensate) for the third quarter of 2020, an increase of 14% from $55.7 million in the second quarter of 2020. Oil and gas revenue in the third quarter of 2019 was $109.6 million.

The Company reported a loss on commodity derivative instruments of $21.1 million for the third quarter of 2020, composed of a $21.3 million gain from realized settlements and a non-cash $42.4 million unrealized loss due to the change in value of Black Stone's derivative positions during the quarter. Black Stone reported a loss of $19.2 million and a gain of $24.3 million on commodity derivative instruments for the quarters ended June 30, 2020 and September 30, 2019, respectively.

Lease bonus and other income was $1.4 million for the third quarter of 2020, primarily related to leasing activity in the Haynesville/Bossier play as well as certain surface leases in Polk County, Texas. Lease bonus and other income for the quarters ended June 30, 2020 and September 30, 2019 was $2.0 million and $3.5 million, respectively.

There was no impairment for the quarters ended September 30, 2020 and September 30, 2019.

The Company reported net income of $23.7 million for the quarter ended September 30, 2020, compared to a loss of $8.4 million in the preceding quarter. For the quarter ended September 30, 2019, net income was $70.2 million.

Adjusted EBITDA and Distributable Cash Flow

Adjusted EBITDA for the third quarter of 2020 was $65.5 million, which compares to $72.4 million in the second quarter of 2020 and $96.2 million in the third quarter of 2019. The decrease relative to the prior quarter is primarily attributable to the wider oil differentials discussed above, which are not offset by Black Stone's commodity hedges to WTI prices. Distributable cash flow for the quarter ended September 30, 2020 was $58.8 million. For the quarters ended June 30, 2020 and September 30, 2019, distributable cash flow was $64.4 million and $85.8 million, respectively.

Financial Position and Activities

As of September 30, 2020, Black Stone Minerals had $3.1 million in cash and $147.0 million outstanding under its credit facility. The ratio of total debt at September 30, 2020 to trailing twelve-month Adjusted EBITDA was 0.5x.

During the third quarter of 2020, the Company paid down $176.0 million of outstanding borrowings under its credit facility from the net proceeds of two asset sales and internally-generated cash flow. As of October 30, 2020, $124 million was outstanding under the credit facility and the Company had $2.0 million in cash.

Black Stone and its lenders are currently finalizing the regularly scheduled Fall borrowing base redetermination under the credit facility. The Company expects the borrowing base to be reduced to $400 million from its previous level of $430 million. As part of the redetermination process, Black Stone agreed to increase the interest rate on the credit facility by 25 basis points to LIBOR plus a margin of 2.0 to 3.0 percent.  Black Stone is in compliance with all financial covenants associated with its credit facility.

During the third quarter of 2020, the Company made no repurchases of units under the Board-approved $75 million unit repurchase program and issued no units under its at-the-market offering program.

Third Quarter 2020 Distributions

As previously announced, the Board approved a cash distribution of $0.15 for each common unit attributable to the third quarter of 2020. The quarterly distribution coverage ratio attributable to the third quarter of 2020 was approximately 1.9. Distributions will be payable on November 20, 2020 to unitholders of record as of the close of business on November 13, 2020.

Activity Update

Rig Activity

As of September 30, 2020, Black Stone had 29 rigs operating across its acreage position. This is consistent with rig activity on the Company's acreage as of June 30, 2020 and is below the 97 rigs operating on the Company's acreage as of September 30, 2019.

Shelby Trough Update

On May 5, 2020, Black Stone entered into a development agreement with affiliates of Aethon Energy ("Aethon") with respect to the Company's undeveloped Shelby Trough Haynesville and Bossier shale acreage in Angelina County, Texas. The agreement provides for minimum well commitments by Aethon in exchange for reduced royalty rates and exclusive access to Black Stone's mineral and leasehold acreage in the contract area. The agreement calls for a minimum of four wells to be drilled in the initial program year, which begins in the third quarter of 2020, increasing to a minimum of 15 wells per year beginning with the third program year. Aethon plans to drill the first wells under the development agreement in the fourth quarter of 2020.

Black Stone continues to evaluate alternatives to encourage further development activity in the Shelby Trough in San Augustine county through a combination of working with XTO and utilizing the Company's available acreage position and contractual rights to bring in a second operating partner.

Update to Hedge Position

Black Stone has commodity derivative contracts in place covering portions of its anticipated production for 2020 and 2021. The Company's hedge position as of October 30, 2020 is summarized in the following tables:

Oil Hedge Position

 

Oil Swap

Oil Swap Price

 

Oil Costless

Collars

Collar Floor

Collar Ceiling

 

MBbl

$/Bbl

 

MBbl

$/Bbl

$/Bbl

3Q20

210

$57.32

 

70

$56.43

$67.14

4Q20

630

$57.32

 

210

$56.43

$67.14

1Q21

480

$36.18

 

 

 

 

2Q21

480

$36.18

 

 

 

 

3Q21

480

$36.18

 

 

 

 

4Q21

480

$36.18

 

 

 

 

Natural Gas Hedge Position

 

Gas Swap

Gas Swap Price

 

BBtu

$/MMbtu

4Q20

10,120

$2.69

1Q21

9,900

$2.69

2Q21

10,010

$2.69

3Q21

10,120

$2.69

4Q21

10,120

$2.69

More detailed information about the Company's existing hedging program can be found in the Quarterly Report on Form 10-Q for the third quarter of 2020, which is expected to be filed on or around November 3, 2020.

Conference Call

Black Stone Minerals will host a conference call and webcast for investors and analysts to discuss its results for the third quarter of 2020 on Tuesday, November 3, 2020 at 9:00 a.m. Central Time. Black Stone recommends participants who do not anticipate asking questions to listen to the call via the live broadcast available at http://investor.blackstoneminerals.com. Analysts and investors who wish to ask questions should dial (877) 447-4732 and use conference code 4129508. A recording of the conference call will be available on Black Stone's website through December 4, 2020.

About Black Stone Minerals, L.P.

Black Stone Minerals is one of the largest owners of oil and natural gas mineral interests in the United States. The Company owns mineral interests and royalty interests in 41 states in the continental United States. Black Stone believes its large, diversified asset base and long-lived, non-cost-bearing mineral and royalty interests provide for stable to growing production and reserves over time, allowing the majority of generated cash flow to be distributed to unitholders.

Forward-Looking Statements

This news release includes forward-looking statements. All statements, other than statements of historical facts, included in this news release that address activities, events or developments that the Company expects, believes or anticipates will or may occur in the future are forward-looking statements. Terminology such as "will," "may," "should," "expect," "anticipate," "plan," "project," "intend," "estimate," "believe," "target," "continue," "potential," the negative of such terms, or other comparable terminology often identify forward-looking statements. Except as required by law, Black Stone Minerals undertakes no obligation and does not intend to update these forward-looking statements to reflect events or circumstances occurring after this news release. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this news release. All forward-looking statements are qualified in their entirety by these cautionary statements. These forward-looking statements involve risks and uncertainties, many of which are beyond the control of Black Stone Minerals, which may cause the Company's actual results to differ materially from those implied or expressed by the forward-looking statements. Important factors that could cause actual results to differ materially from those in the forward-looking statements include, but are not limited to, those summarized below:

  • the Company's ability to execute its business strategies;
  • the scope and duration of the COVID-19 pandemic and actions taken by governmental authorities and other parties in response to the pandemic;
  • the volatility of realized oil and natural gas prices;
  • the level of production on the Company's properties;
  • overall supply and demand for oil and natural gas, as well as regional supply and demand factors, delays, or interruptions of production;
  • the Company's ability to replace its oil and natural gas reserves;
  • the Company's ability to identify, complete, and integrate acquisitions;
  • general economic, business, or industry conditions;
  • competition in the oil and natural gas industry; and
  • the level of drilling activity by the Company's operators, particularly in areas such as the Shelby Trough where the Company has concentrated acreage positions.

BLACK STONE MINERALS, L.P. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(In thousands, except per unit amounts)

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

2020

 

2019

 

2020

 

2019

 

 

 

 

 

 

 

 

REVENUE

 

 

 

 

 

 

 

Oil and condensate sales

$

34,335

 

 

$

68,255

 

 

$

111,845

 

 

$

200,031

 

Natural gas and natural gas liquids sales

29,107

 

 

41,340

 

 

96,060

 

 

156,622

 

Lease bonus and other income

1,386

 

 

3,484

 

 

7,669

 

 

15,846

 

Revenue from contracts with customers

64,828

 

 

113,079

 

 

215,574

 

 

372,499

 

Gain (loss) on commodity derivative instruments

(21,086)

 

 

24,290

 

 

49,751

 

 

12,294

 

TOTAL REVENUE

43,742

 

 

137,369

 

 

265,325

 

 

384,793

 

OPERATING (INCOME) EXPENSE

 

 

 

 

 

 

 

Lease operating expense

3,160

 

 

4,356

 

 

10,280

 

 

13,497

 

Production costs and ad valorem taxes

9,905

 

 

15,877

 

 

31,836

 

 

44,919

 

Exploration expense

4

 

 

64

 

 

28

 

 

372

 

Depreciation, depletion, and amortization

19,823

 

 

27,375

 

 

62,198

 

 

84,933

 

Impairment of oil and natural gas properties

 

 

 

 

51,031

 

 

 

General and administrative

9,381

 

 

14,189

 

 

32,738

 

 

49,750

 

Accretion of asset retirement obligations

286

 

 

275

 

 

836

 

 

829

 

(Gain) loss on sale of assets, net

(24,045)

 

 

 

 

(24,045)

 

 

 

TOTAL OPERATING EXPENSE

18,514

 

 

62,136

 

 

164,902

 

 

194,300

 

INCOME (LOSS) FROM OPERATIONS

25,228

 

 

75,233

 

 

100,423

 

 

190,493

 

OTHER INCOME (EXPENSE)

 

 

 

 

 

 

 

Interest and investment income

1

 

 

44

 

 

35

 

 

137

 

Interest expense

(1,664)

 

 

(5,395)

 

 

(9,055)

 

 

(16,572)

 

Other income (expense)

168

 

 

365

 

 

71

 

 

293

 

TOTAL OTHER EXPENSE

(1,495)

 

 

(4,986)

 

 

(8,949)

 

 

(16,142)

 

NET INCOME (LOSS)

23,733

 

 

70,247

 

 

91,474

 

 

174,351

 

Distributions on Series B cumulative convertible preferred units

(5,250)

 

 

(5,250)

 

 

(15,750)

 

 

(15,750)

 

NET INCOME (LOSS) ATTRIBUTABLE TO THE GENERAL PARTNER AND COMMON AND SUBORDINATED UNITS

$

18,483

 

 

$

64,997

 

 

$

75,724

 

 

$

158,601

 

ALLOCATION OF NET INCOME (LOSS):

 

 

 

 

 

 

 

General partner interest

$

 

 

$

 

 

$

 

 

$

 

Common units

18,483

 

 

64,997

 

 

75,724

 

 

134,608

 

Subordinated units

 

 

 

 

 

 

23,993

 

 

$

18,483

 

 

$

64,997

 

 

$

75,724

 

 

$

158,601

 

NET INCOME (LOSS) ATTRIBUTABLE TO LIMITED PARTNERS PER COMMON AND SUBORDINATED UNIT:

 

 

 

 

 

 

 

Per common unit (basic)

$

0.09

 

 

$

0.32

 

 

$

0.37

 

 

$

0.87

 

Weighted average common units outstanding (basic)

206,732

 

 

205,957

 

 

206,690

 

 

155,513

 

Per subordinated unit (basic)

$

 

 

$

 

 

$

 

 

$

0.48

 

Weighted average subordinated units outstanding (basic)

 

 

 

 

 

 

50,458

 

Per common unit (diluted)

$

0.09

 

 

$

0.32

 

 

$

0.37

 

 

$

0.87

 

Weighted average common units outstanding (diluted)

206,732

 

 

205,957

 

 

206,690

 

 

155,513

 

Per subordinated unit (diluted)

$

 

 

$

 

 

$

 

 

$

0.48

 

Weighted average subordinated units outstanding (diluted)

 

 

 

 

 

 

50,458

 

The following table shows the Company's production, revenues, pricing, and expenses for the periods presented:

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

 

2020

 

2019

 

2020

 

2019

 

 

 

 

 

 

 

 

 

 

 

(Unaudited)

(Dollars in thousands, except for realized prices and per Boe data)

Production:

 

 

 

 

 

 

 

 

Oil and condensate (MBbls)

 

953

 

 

1,207

 

 

2,980

 

 

3,631

 

Natural gas (MMcf)1

 

15,220

 

 

19,816

 

 

51,922

 

 

59,025

 

Equivalents (MBoe)

 

3,490

 

 

4,510

 

 

11,634

 

 

13,469

 

Equivalents/day (MBoe)

 

37.9

 

 

49.0

 

 

42.5

 

 

49.3

 

Realized prices, without derivatives:

 

 

 

 

 

 

 

 

Oil and condensate ($/Bbl)

 

$

36.03

 

 

$

56.55

 

 

$

37.53

 

 

$

55.09

 

Natural gas ($/Mcf)1

 

1.91

 

 

2.09

 

 

1.85

 

 

2.65

 

Equivalents ($/Boe)

 

$

18.18

 

 

$

24.30

 

 

$

17.87

 

 

$

26.48

 

Revenue:

 

 

 

 

 

 

 

 

Oil and condensate sales

 

$

34,335

 

 

$

68,255

 

 

$

111,845

 

 

$

200,031

 

Natural gas and natural gas liquids sales1

 

29,107

 

 

41,340

 

 

96,060

 

 

156,622

 

Lease bonus and other income

 

1,386

 

 

3,484

 

 

7,669

 

 

15,846

 

Revenue from contracts with customers

 

64,828

 

 

113,079

 

 

215,574

 

 

372,499

 

Gain (loss) on commodity derivative instruments

 

(21,086)

 

 

24,290

 

 

49,751

 

 

12,294

 

Total revenue

 

$

43,742

 

 

$

137,369

 

 

$

265,325

 

 

$

384,793

 

Operating expenses:

 

 

 

 

 

 

 

 

Lease operating expense

 

$

3,160

 

 

$

4,356

 

 

$

10,280

 

 

$

13,497

 

Production costs and ad valorem taxes

 

9,905

 

 

15,877

 

 

31,836

 

 

44,919

 

Exploration expense

 

4

 

 

64

 

 

28

 

 

372

 

Depreciation, depletion, and amortization

 

19,823

 

 

27,375

 

 

62,198

 

 

84,933

 

Impairment of oil and natural gas properties

 

 

 

 

 

51,031

 

 

 

General and administrative

 

9,381

 

 

14,189

 

 

32,738

 

 

49,750

 

Other expense:

 

 

 

 

 

 

 

 

Interest expense

 

1,664

 

 

5,395

 

 

9,055

 

 

16,572

 

Per Boe:

 

 

 

 

 

 

 

 

Lease operating expense (per working interest Boe)

 

$

4.99

 

 

$

4.11

 

 

$

4.38

 

 

$

3.98

 

Production costs and ad valorem taxes

 

2.84

 

 

3.52

 

 

2.74

 

 

3.33

 

Depreciation, depletion, and amortization

 

5.68

 

 

6.07

 

 

5.35

 

 

6.31

 

General and administrative

 

2.69

 

 

3.15

 

 

2.81

 

 

3.69

 

1

As a mineral-and-royalty-interest owner, Black Stone Minerals is often provided insufficient and inconsistent data on natural gas liquid ("NGL") volumes by its operators. As a result, the Company is unable to reliably determine the total volumes of NGLs associated with the production of natural gas on its acreage. Accordingly, no NGL volumes are included in reported production; however, revenue attributable to NGLs is included in natural gas revenue and the calculation of realized prices for natural gas.

Non-GAAP Financial Measures

Adjusted EBITDA and Distributable cash flow are supplemental non-GAAP financial measures used by Black Stone's management and external users of the Company's financial statements such as investors, research analysts, and others, to assess the financial performance of its assets and its ability to sustain distributions over the long term without regard to financing methods, capital structure, or historical cost basis.

The Company defines Adjusted EBITDA as net income (loss) before interest expense, income taxes, and depreciation, depletion, and amortization adjusted for impairment of oil and natural gas properties, accretion of asset retirement obligations, unrealized gains and losses on commodity derivative instruments, non-cash equity-based compensation, and gains and losses on sales of assets. Black Stone defines Distributable cash flow as Adjusted EBITDA plus or minus amounts for certain non-cash operating activities, estimated replacement capital expenditures during the subordination period, cash interest expense, distributions to preferred unitholders, and restructuring changes. Gains and losses on sales of assets were previously included in Adjusted EBITDA and excluded from Distributable cash flows. Black Stone believes this change to remove gains and losses on sales of assets from the definition of Adjusted EBITDA more closely conforms with peer company practice.

Adjusted EBITDA and Distributable cash flow should not be considered an alternative to, or more meaningful than, net income (loss), income (loss) from operations, cash flows from operating activities, or any other measure of financial performance presented in accordance with generally accepted accounting principles ("GAAP") in the United States as measures of the Company's financial performance.

Adjusted EBITDA and Distributable cash flow have important limitations as analytical tools because they exclude some but not all items that affect net income (loss), the most directly comparable GAAP financial measure. The Company's computation of Adjusted EBITDA and Distributable cash flow may differ from computations of similarly titled measures of other companies.

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

 

2020

 

2019

 

2020

 

2019

 

 

 

 

 

 

 

 

 

 

 

(Unaudited)

(In thousands, except per unit amounts)

Net income (loss)

 

$

23,733

 

 

$

70,247

 

 

$

91,474

 

 

$

174,351

 

Adjustments to reconcile to Adjusted EBITDA:

 

 

 

 

 

 

 

 

Depreciation, depletion, and amortization

 

19,823

 

 

27,375

 

 

62,198

 

 

84,933

 

Impairment of oil and natural gas properties

 

 

 

 

 

51,031

 

 

 

Interest expense

 

1,664

 

 

5,395

 

 

9,055

 

 

16,572

 

Income tax expense (benefit)

 

(155)

 

 

(353)

 

 

7

 

 

(187)

 

Accretion of asset retirement obligations

 

286

 

 

275

 

 

836

 

 

829

 

Equity–based compensation

 

1,825

 

 

3,867

 

 

1,405

 

 

16,906

 

Unrealized (gain) loss on commodity derivative instruments

 

42,374

 

 

(10,644)

 

 

17,043

 

 

6,026

 

(Gain) loss on sale of assets, net

 

(24,045)

 

 

 

 

(24,045)

 

 

 

Adjusted EBITDA

 

65,505

 

 

96,162

 

 

209,004

 

 

299,430

 

Adjustments to reconcile to Distributable cash flow:

 

 

 

 

 

 

 

 

Change in deferred revenue

 

(6)

 

 

37

 

 

(315)

 

 

27

 

Cash interest expense

 

(1,401)

 

 

(5,132)

 

 

(8,273)

 

 

(15,793)

 

Estimated replacement capital expenditures1

 

 

 

 

 

 

 

(2,750)

 

Preferred unit distributions

 

(5,250)

 

 

(5,250)

 

 

(15,750)

 

 

(15,750)

 

Restructuring charges

 

 

 

 

 

4,815

 

 

 

Distributable cash flow

 

$

58,848

 

 

$

85,817

 

 

$

189,481

 

 

$

265,164

 

 

 

 

 

 

 

 

 

 

Total units outstanding2

 

206,749

 

 

205,960

 

 

 

 

 

Distributable cash flow per unit

 

$

0.285

 

 

$

0.417

 

 

 

 

 

1

The board established a replacement capital expenditure estimate of $11.0 million for the period of April 1, 2018 to March 31, 2019. Due to the expiration of the subordination period, we do not intend to establish a replacement capital expenditure estimate for periods subsequent to March 31, 2019.

2

The distribution attributable to the three months ended September 30, 2020 is estimated using 206,748,889 common units as of October 30, 2020; the exact amount of the distribution attributable to the three months ended September 30, 2020 will be determined based on units outstanding as of the record date of November 13, 2020. Distributions attributable to the three months ended September 30, 2019 were calculated using 205,959,790 common units as of the record date of November 14, 2019.

 

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