Black Stone Minerals, L.P. (NYSE:BSM) is one of the largest owners and managers of oil and natural gas mineral interests in the United States. The company's principal business is maximizing the value of its existing portfolio of mineral and royalty assets through active management. With a diversified asset base spanning 41 states and ownership in approximately 68,000 producing wells, Black Stone Minerals is well-positioned to weather the volatility of the oil and gas industry.
For the full year 2023, Black Stone Minerals reported annual net income of $422,549,000, annual revenue of $409,982,000, annual operating cash flow of $521,251,000, and annual free cash flow of $501,438,000. In the first quarter of 2024, the company generated net income of $63,927,000 and adjusted EBITDA of $104,117,000.
Black Stone Minerals' unique asset mix is a strategic advantage that continues to consistently add long-term value for its unitholders. The company's mineral and royalty interests, which make up the vast majority of its asset base, are substantially non-cost-bearing, providing stable production and reserves over time. This allows the majority of generated cash flow to be distributed to unitholders.
Business Overview
Black Stone Minerals' operations are focused on maximizing the value of its extensive portfolio of mineral and royalty interests, which are located in 41 states across the major onshore producing basins in the United States. The company also owns non-operated working interests in certain oil and natural gas properties.Black Stone Minerals' mineral and royalty interests are a key differentiator, as they provide the company with exposure to production without the associated operating costs. This allows Black Stone Minerals to generate consistent cash flow that can be returned to unitholders through distributions. The company's non-operated working interests complement its mineral and royalty portfolio, providing additional upside potential.
Shelby Trough Development Update
A significant portion of Black Stone Minerals' recent growth has been driven by development in the Shelby Trough area of East Texas, where the company has joint exploration agreements (JEAs) with operators like Aethon Energy. In December 2023, Black Stone Minerals received notice that Aethon was exercising the "time-out" provisions under these JEAs, which allow the operator to temporarily suspend drilling obligations when natural gas prices fall below specified thresholds.Black Stone Minerals continues to work closely with its operators in the Shelby Trough. The company has a robust inventory of over 170,000 net acres of undeveloped land in the Shelby Trough, with an estimated 15 Tcf of resource potential. As natural gas demand is expected to increase in the coming years, driven by growth in the LNG export market, Black Stone Minerals is well-positioned to benefit from the development of this acreage.
Austin Chalk Update
In addition to its Shelby Trough assets, Black Stone Minerals has also entered into agreements with multiple operators to drill wells in the Austin Chalk formation in East Texas, where the company has significant acreage positions. The results of a test program in the Brookeland Field have demonstrated that modern completion technology has the potential to improve production rates and increase reserves compared to vintage, unstimulated wells in the Austin Chalk.Acquisitions and Capital Allocation
Alongside its focus on organic initiatives to develop its existing asset base, Black Stone Minerals has also been actively pursuing targeted acquisitions to supplement its portfolio. Since September 2023, the company has acquired over $50 million worth of non-producing mineral and royalty interests, primarily in the Gulf Coast region.Black Stone Minerals' strong balance sheet and liquidity position provide the flexibility to continue this acquisition strategy, with the company budgeting to spend a multiple of what it has spent so far. The company's disciplined approach to capital allocation, which includes a focus on maintaining a strong balance sheet and returning capital to unitholders through distributions, is a key part of its long-term strategy.
Financial Performance and Guidance
In the first quarter of 2024, Black Stone Minerals reported net income of $63,927,000 and adjusted EBITDA of $104,117,000. The company's total production for the quarter was 40,300 BOE/d, with royalty volumes accounting for 38,900 BOE/d.Due to the challenges posed by lower natural gas prices, including production curtailments and delays in bringing new wells online, Black Stone Minerals has updated its 2024 production guidance to a range of 38,500 BOE/d to 40,500 BOE/d, a decrease of approximately 4% from its previous guidance. The company has also reduced its quarterly distribution to $0.375 per unit, or $1.50 on an annualized basis, to maintain a prudent balance sheet and support its acquisition efforts.
Despite the near-term headwinds, Black Stone Minerals remains focused on its long-term strategy of growing production and returning the distribution to its previous high watermark by 2026. The company's diversified asset base, strong balance sheet, and active hedging program provide a solid foundation to weather the current market environment.
Liquidity and Capital Structure
As of March 31, 2024, Black Stone Minerals had no outstanding borrowings under its $580 million revolving credit facility, with approximately $89 million in cash on hand prior to the payment of its latest distribution. The company's strong liquidity position and conservative leverage profile give it the flexibility to continue pursuing strategic acquisitions and development opportunities.Black Stone Minerals' capital allocation priorities include maintaining a strong balance sheet, funding organic growth initiatives, and returning capital to unitholders through distributions. The company's distribution policy is to pay quarterly distributions to the extent it has sufficient cash generated from operations, after establishing any necessary cash reserves.
Risks and Challenges
Like other oil and gas companies, Black Stone Minerals is exposed to the inherent volatility of commodity prices, which can impact its revenue and cash flow. The company mitigates this risk through the use of derivative instruments, but it cannot fully insulate itself from price fluctuations.Additionally, Black Stone Minerals' operations are subject to various regulatory and environmental risks, as well as the potential for operational disruptions or accidents. The company's ability to maintain and grow its production is also dependent on the successful exploration and development efforts of its operators.