Q3 2020 Black Stone Minerals LP Earnings Call
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I'd now like to hand, the conference over to your Speaker today, Eric <unk> director of Investor Relations. Sir Please begin.
Thank you.
Good morning, everyone and thank you for joining us either by phone or online for the Blackstone minerals third quarter 2020 earnings Conference call. Today's call is being recorded and will be available on our website with the earnings release that was issued yesterday afternoon.
Before we start I'd like to advise you that we will be making forward looking statements. During this call about our plans expectations and assumptions regarding our future performance.
These statements involve risks that may cause our actual results to differ materially from the results expressed or implied in our forward looking statement.
A discussion of these risks you should refer to the cautionary information about forward looking statements in our press release from yesterday and the risk factor section from our 10-Q will be filed later today.
We may refer to certain non-GAAP financial measures that we believe are useful in evaluating our performance a reconciliation of these measures to the most directly comparable GAAP measures and other information about these non-GAAP metrics are described in our earnings press release from yesterday, which can be found on our website at Blackstone minerals Dot com.
Joining me on the call from the company are Tom Carter, Chairman and CEO.
He was president and Chief Financial Officer, Steve Putman, Senior Vice President and General Counsel and Gary Grammy on director of Engineering and geology.
Turn the call over to Tom Thanks.
Thanks, and good morning, everybody on election day.
I'm going to kick off the call by focusing on some positive results in the third quarter coming off or debt reduction efforts as most of you know in July we closed two asset sales, we announced during the second quarter. It was brought up in total cash proceeds of 150 million, which we used to reduce outstanding balances under our revolver.
We also continued to pay down debt with retained cash flow given the strong distribution coverage, we maintained through this year.
In total we've lowered our borrowings by 176 million during the third quarter.
We ended the quarter with under $150 million of total debt, which represents the leverage ratio just around <unk> 0.5 times, our trailing 12 months adjusted EBITDA.
Even with a reduced borrowing base, which we expect will be commonplace across the industry. We ended the quarter with over $250 million of liquidity.
We also remain focused on moving our gas weighted properties into development.
Our redevelopment.
Hey, bond will kick off this drilling program on our Shelby trough Haynesville acreage and Angelina County this month.
As one of the most experienced operators in the Haynesville. We're very excited to begin what we hope will be a long term partnership with lights on in this area.
Moving east understand honesty County.
We continue to have a constructive dialogue with Axio energy.
We're currently working through their DUC inventory in the area and we remain engaged with them more broadly to restart development in that portion of the Shelby trough, either with X T O or by bringing in additional operators on this part of the acreage or both.
We also continue to advance efforts to facilitate new Austin chalk development, including additional wells on our acreage test the efficacy of modern completion techniques in this play.
We have tens of thousands actually hundreds of thousands of acres in the channel. So the step up in well performance could move the needle for us in the long run.
We've accomplished these things against a very difficult backdrop.
Macro environment remains challenging oil prices continue to struggle is code concerns limit demand an additional supplies come online from areas like Libya. This.
This is Kevin activity levels are down across our across Europe as of September thirtyth.
There were 29 rigs active on our acreage. This is consistent with what we saw last quarter, but it's down sharply from activity levels that we saw a year ago.
In addition, the balance sheet of many operators are screened and we as we go through the fall borrowing base Redetermination season Bank in equity markets remain closed for most of the companies.
This plus a renewed focus on cash returns instead of simply production growth has limited new drilling capital across the lower 48, which obviously impacts our production levels.
We are living in uncertain times, it's unclear, how long and to what extent demand for oil and gas will be constrained due to colder.
We don't know for sure what will happen Tonight, and what long term impacts of potential change in administration could have on the regulatory environment.
In the oil and gas industry overall.
Given all the uncertainties, we are glad to have taken actions that we have thus far this year with lower cost structure much lower debt balance has an extensive inventory of gas focused development opportunities. We believe Blackstone is positioned to remain healthy and continue to pay a strong distribution through this downturn.
I would also add that we continue to be very focused long term on re growing our production base and we're working on that every minute of every day overall I'm very pleased with the progress we have made in a number of important area.
With that I'll turn the call over to Jeff.
Okay. Thank you Tom and good morning, everyone. As you saw in the release last night, we generated 31.1 thousand Boe per day of mineral and royalty production for the third quarter.
That's down 9% from last quarter.
And our total production volumes for the quarter were 37.9 Mboe per day there.
The production declines were in line with our revised guidance for the year. They were driven by all the macro factors that Tom just discussed.
In addition, we were negatively impacted by some existing Shelby trough wells that were temporarily shut in well Exzeo works through completing its DUC inventory.
We estimate the impact of those shut ins to be over 2000 Boe per day for the third quarter, all of which is in dry gas volumes.
Realized prices for oil and gas were up in the third quarter from the load that we saw last quarter.
Despite that we did take a bit of a hit in the third quarter on our oil revenues because a wider differentials to average W.T.I. prices on checks that we processed during the quarter and that's primarily on our Permian volumes.
Once again this quarter, our robust hedge portfolio provided a lot of cushion to the low price environment.
We recognized $21.3 million in cash hedge settlements to our favor.
<unk> expenses were generally in line with our expectations with GE in a continuing to trend down cash DNA was down to $7.6 million in the quarter and total DNA was under $10 million.
We reported 65 and a half million dollars of adjusted EBITDA and 58.8 million of distributable cash flow for the third quarter.
Well both of these metrics were down relative to last quarter, we still reported healthy distribution coverage of 1.9 times based on our announced distribution of 15 cents per unit.
As Tom mentioned, our balance sheet is in great shape, we ended the quarter with $147 million of debt outstanding after closing the two assets sales in July and continuing to use our excess coverage for debt repayments.
Just for context, we started the year with almost $400 million of debt. So that's a reduction of over 60% through the end of the third quarter.
That gives us a tremendous amount of flexibility and security as we navigate through this downturn.
Yesterday, we finalized our fall borrowing base Redetermination borrowing base was lowered from 430 million to $400 million and as part of that process. We agreed to increase the interest rate spread on the facility by 25 basis points to LIBOR, plus 200 to 300 basis points, depending on our utilization.
That change just reflects a much tighter bank market today, given some of the difficult situation to banks are facing across the upstream energy lending universe.
This revised pricing grid is actually the same as what we where we were originally under the facility before the bank group agreed to lower it by 25 basis points in mid 2018 in a much stronger markets.
There were no other changes to the terms of the credit facility as part of our borrowing base redetermination over.
Overall, the bank group remains very constructive and of course, they're very appreciative of all the moves we've made this year to strengthen our credit profile.
Once again I just want to thank our employees for staying focused while we continue to work remotely as Tom mentioned, everyone is working very hard to push projects forward in this challenging environment with the hope and expectation that the efforts we make during this downturn are going to create long term value for our unitholders. Once this market recovers and we do believe.
But it will recover there is already some optimism and natural gas, but 21 forward prices over $3 them MBT you.
And the recent under investment in oil projects, both domestically and abroad combined with the lessening influence of OPEC is setting the stage for an oil rally once demand recovers. The truck of course is to make sure you're still around when it happens and we feel very comfortable that we have done that here at Blackstone.
With that normal we're going to go ahead and open the call for questions.
Thank you Evan.
That's a question you don't need to press star one on your telephone.
A question. Please press the pound King please standby, while we compile the <unk> roster.
Our first question comes from Pearce Hammond of Simmons energy.
Honestly.
Yeah, Good morning, and thanks for taking my questions you mentioned in the earnings release thinking with that with the improvement in natural gas prices that you're looking to sell assets or divest some assets in the haynesville and Austin chalk and I'm. Just curious how much are you talking about there is a sizable the reason I'm asking the balance sheets.
Its shape, so just trying to understand what is driving the need for divestitures.
Hey, Pearce this is Jeff yes.
I think the press release and they didn't convey this the right way I apologize that the press releases, it's just meant to convey that with the uptick in natural gas prices, we're seeing more traction and getting our existing assets into play in the chalk and in the Haynesville. So it's just that was just meant to say hey, we are continuing to have really.
Good and productive discussions with with existing and potential new operators in those plays I completely agree with you and you know the balance sheet is in great shape, we don't really feel that this is.
A spot where we would need to divest additional assets. So it's ed that was meant to be [laughter] meant to be more of a of a growth comment than a divesture comment.
Okay perfect. Thanks for the clarification and then my follow up how.
How should we think about Q4 production and are there any guardrails you can provide around 2021 production.
Well, here's what I'd say is that I think we're still comfortable with the updated guidance, we put out in mid year, which I think kind of puts us in the implies a mid thirtys or kind of EMEA, we per day level for Fourq, you and then as normal course.
Oh come out with a 21 guidance in February when we have our next.
Conference call, but you know, it's just going to be a a balance of things and a lot of that.
Overall market factors are going to impact it as well, but what I'd say is you know we are you know eight on starting up its program that will accelerate through 21, we're hoping to get some other things in play, but we're facing some headwinds both from you know.
Continuing to to not fund the working interest volumes. So we would expect to continue to see those gas volumes decline and then you know we're still going to be coming off of a of a very large production wedge in the Shelby trough that while the eight on and the and the equity or debt volumes will will start to replace that.
Yeah, we're probably going to see in the 20 and into 21 as you.
Just a bit of a resetting recovery period for that part of the portfolio. Yes. This is Tom I'll just add.
Ed and support what Jeff was saying and that's probably the subject that you're talking about is something that we're we're probably most focused on.
Every everything and anything in the company and when you really look at where we were in 17, 18, 19, and what the industry ran into in late 19 and 20.
And the contraction in activities.
We are.
Acutely focused right now on Spooling those volumes back up and it just takes time, but I'm very pleased with the progress our teams are making on getting.
Core properties moving into drilling.
Drilling queues and it will take a while for it to small backup power.
I promise you Weve got our eye on that Paul.
Perfect. Thank you very much.
Next year.
Ladies and gentlemen that star one to ask a question. Our next question comes back.
With Raymond James Your line is open.
Good morning, guys I was just kind of wondering you know.
Kept that distribution plan like 15 cents and now that your leverage is that like a half Karen utilization rates around 31%. When are you guys thinking about potentially increasing that payout ratio a little bit more and.
I guess what kind of.
What kind of metrics are you looking for in order to do that.
Harry This is Jeff I'll I'll start thanks for the question.
Look we have always.
A lot of our core investors really value stability and a decent amount of foresight into the distribution. So we.
We wanted to set that.
15 cents a quarter 60 cents a year level, it's something that we thought was very sustainable you know across a pretty wide range of markets and frankly, what we have done.
A really nice job paying down a lot of debt retaining some cash flow for either further debt repayment or to do other things right, whether its small acquisition opportunities or share repurchases. What have you I think you know we'd see that as a continued benefit.
I My outlook and look this is this is something that's going to be determined by the board every quarter. That's I think we're comfortable with increasing that payout ratio, but we probably just need to see a little more visibility on the way the world's going to go and as Tom mentioned right. We are we've got a whole bunch of stuff in play right now that we think is.
Going to over the medium and longer term a school.
For those volumes back up but you know in the meantime in the near term, we're going to be at a point of transition and I think that we just again value some stability in that distribution and wanted to set it at a level that we were very comfortable with sustaining.
And we'll just evaluate it quarter by quarter after that.
Okay Alright.
Just to add to coverage.
Has been extraordinarily high for the obvious reason of pay.
Debt down and.
We feel pretty comfortable where we are in that arena now so.
But production volumes have come down too so we'll.
We will be looking into 21 with the board here pretty soon and.
We're interested in increasing distributions if we can do so conservatively and.
Logically.
Great. Thanks, and then my second question is any update on where your base decline sits right now and what we expected to be kind of next year.
I don't think Theres any updates may as Weve long said, you know that the base decline across the asset base is in the high Twentys low you know 30 ish percent.
That may be coming down just a.
Tad with some of the roll off that we've seen already.
But it's still in that neighborhood.
One interesting statistic that I wont comment too much on but you just plug it in when we went public.
In 2015, which was in some respects.
The real beginning of the.
Of the shale boom the explosion.
Our production volumes were in the 24 25000 Boe per day range and they Pete.
In 19 close to 50000, and obviously those shale volumes have.
So.
Some.
Interesting decline curves and when you turn the Capex all things come down but.
Uh huh.
We're we're feeling like we're in a.
We're hitting a stability period, and one where we can start growing volume.
Great appreciate all the color guys.
Okay. Thank you.
And our next question comes from Andrew Caribbean with University of.
Your line is open.
Hi, Tom and Jeff Thanks for making the time for my question.
I'm curious if you look at.
The share price today.
And some of the other.
Players in the <unk> that are publicly listed minerals businesses.
Even with kind.
Kind of how crazy environment has been.
Thank you.
You could paint a lot of scenarios.
This being a really really attractive.
And pricing environment.
Or just that the assets are extremely cheap.
I'm curious on the on the.
On the acquisition front.
On the private side are you seeing opportunities, where you could actually acquire either larger mineral packages from private equity or or smaller packages that would be accretive to where you could.
So where you can just buy back around shares.
Hi, Good morning, Andrew and thanks for being on the call that this is Jeff I'll start yeah, I'll I'll tell you I think that there's still just a disconnect out there. We are we're probably seeing a few more assets come to market, but in kind of the small to larger package sizes.
As well.
But I'll tell you with all the work that we've done to get the balance sheet in really good shape and as you mentioned with the share price of the public guys, including us having taken a real hit over the past year or so and we would just have to look at everything as it long term accretive to our in a b.
Our unit right and I just today, if you think about it whether its the private equity guys or even some some of the smaller aggregators a lot of these positions were put together in different overall.
Commodity price and production environment.
And what we've seen at least today is that there is still a pretty wide Gulf between what those sellers would expect.
Anchored of course by what they pay for them and the kind of price that we would need to pay to make it long term value accretive. So we're not we're really not interested in and rushing out and re levering up in a meaningful way in the course of this environment and frankly, we're not.
Branch did and using our equity as an acquisition currency right now so I'll just tell you that I'm sure Tom will review second.
Second this is that really so much of our efforts have been to try to do what we can to put some of these massive acreage positions that we have in house today that are not in development and get those things in development to the extent that we can create cash flow streams from.
Existing unleased acreage, that's like doing a series of acquisitions that we don't actually have to pay for so that's really where the focus of the company has been look I think that if things continue like this that whether it's using some excess coverage or whatever that there might be some opportunities but.
Yeah, I think there's just going to need to be some more religion on the seller side before that.
No that that's really helpful. And then and then maybe just one more question on the Austin chalk acreage or or even.
Maybe an update on.
The Pepper Jack plan I know, it's been some time since that's been brought up but I kind of recall that that was a.
Possible.
Kind of more conventional type.
Wet gas play.
Just curious.
I know you guys are working really hard to be active on on putting those into play for operators, but with.
With this kind of pricing environment, and you mentioned kind of the bank markets being close to MP.
How those conversations are going for for players like maybe in Tyler, Texas that.
Only have a few wells that are actually modern completion.
Are these something that you're expecting to be able to get at.
Something that maybe is a little less.
Our little more speculative.
Out there.
In development.
Well this is Tom let me, let me take a stab at the Austin chalk.
We are pretty excited about what we're see in what was the old the what I would call. The core part of the old Brooklyn field, which had some very good production.
Since the nineties.
Through the last decade.
And literally we have hundreds of hundreds of older units that are a thousand to 2000 acres of size with mature wells on them that were not.
Drilled and completed with modern technology and.
There have been a few very bright spots, but a few operators going into those old units and drilling wells that show.
Virgin reservoir pressures, an extremely good production rates and Goody you ours the problem with the area is that.
The.
The way the the capital markets are and the way the industry is right now.
If people don't have to do something I would rather wait okay and that's just the way the industry is right now we are working.
With all of our operators to help them find ways to not wait and move forward in development because of the scope of our position out there and if that play is low.
Like the.
The plays in the Giddings field to the West where there is some redevelopment going on it could be a very substantial long term growth.
Growth area for us.
Without getting too specific I'm very optimistic that in the first half 21, we will see some additional activity up there.
With respect to temper, Jack I think thats.
That's a ways off I mean, I thought a lot about pepper, Jack and that that play.
Yes.
The problem with.
The part of the play where we were active is we don't have enough conventional three D seismic down there to really tell us what's going on.
And I don't I don't see that getting traction imminently, but it's we've got a long list of core areas with large.
Gross and net acreage positions that were going to just keep banging on and try to bring capital in to our acreage.
Really appreciate the color Tom and Jeff. Thank you for the time.
Thank you and our next question comes from Derek.
Stifel. Your line is open.
Hi, good morning, all.
Morning.
Perhaps for for Tom maybe sustain where you just send it effectively and really drilling down on the first question Gionee regarding your comments on taking advantage of the relative strength in natural gas prices to mark.
Market share aggressively market yours extensive acreage positions.
With regard to the Haynesville, specifically are there areas outside of Shelby trough, where you have enough interide to drive activity.
Our next area of rank in terms of net revenue points would be Louisiana.
And we are a bit leaner there, but we are in some areas. We have some concentration and as a matter of fact, we have.
Just recently made some trades in Louisiana.
In sent.
Some of our key operators to drill four or five wells pretty soon.
That weren't in the queue.
To be drilled and so yes, we're working that part of the play as well and it is it's a meaningful opportunity for.
That's great and then as my follow up with regard to the 2000 barrels of equivalent volumes that were shut in with XT did offset completions Doug.
Does that carry over into Q4 or is it really clean up in Q4.
Derek This is Jeff now that will carry over into into Q4.
They're going to they will be replaced.
At least 13 wells and they'll be completing those kind of through the.
Wait there were so the.
The the ended the first quarter of next year. So we'll continue to see some of those offset locations shut in as their fracking as well. So I would think that we'll see some impact in the fourth quarter and some impact in the first quarter 21, but when they come on yes, I mean, it's obviously for a good reason those wells are going to be strong.
Strong wells and there will be 13 of them. So.
Well being shut in and fun.
It will pick back up yes.
Alright, guys. Thanks, that's very helpful Great update.
Thanks Derek.
And I'm currently showing no weather.
Well listen the queue at this time I would like to turn the call back over to Mr., Tom Carter for any further remarks.
Well.
We thank you all for joining us today.
[music].
Well it's been.
A long year.
We're not done with it yet we've got a long day in front of us here today and.
We're looking forward to moving into 2021, and we will keep working to add volumes.
AD revenues to add distributions and financial strength for Blackstone and we look forward to the next 10 years.
Ladies and gentlemen, thank you for your participation. This concludes the conference call. You may now disconnect everyone have a wonderful day.
[music].