Q1 2021 Black Stone Minerals LP Earnings Call
Mhm.
Good morning, ladies and gentlemen, and welcome to the Black Stone minerals first quarter 2021 earnings conference call. At this time all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will follow at that time, if anyone should require assistance. During the conference. Please press Star then zero on your touch.
Joe on telephone as a reminder, this conference call is being recorded I would now like to turn the conference over to your host Mr. Evan Keefer, Vice President of Finance and Investor Relations.
Thank you Ashley and good morning, everyone. Thank you for joining us either by phone or online for the Black Stone minerals first quarter 2021 earnings Conference call. Today's call is being recorded and will be available on our website along with the earnings release, which was issued yesterday afternoon.
Before we start we'd like to advise you the we'll 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 statements for a discussion of these risks you should refer to the cautionary information about our forward looking statements in our press release from yesterday and the risk factors section of our 2020 10-K.
We may refer to certain non-GAAP financial measures that we believe are useful in evaluating our performance reconciliation of those measures to the most directly comparable GAAP measure and other information about these non-GAAP metrics are described in our earnings press release.
Which can be found on our website at black stone minerals dotcom join.
Joining me on the call today from the company are Tom Carter, Chairman and CEO, Jeff Wood, President and Chief Financial Officer, Steve Putman, Senior Vice President and General Counsel, Gary <unk>, Vice President of Engineering, and geology, and bad Montgomery head of land now I'll turn the call over to Tom.
Thank you, Kevin and good morning to you all and thanks for joining us.
We've got a lot of.
Matters to report for all of this morning, So I'll start we reported.
<unk> 36.8 Boe.
Bo per day for the first quarter of 'twenty one yesterday.
Of that amount of the big five of our Shelby trough Haynesville Bossier Midland.
The Midland Delaware lose.
Louisiana, Haynesville Bossier Bakken and then what we generally refer to as other which is basically which basically consists of diverse non resource plays.
Of that $36 eight Boe per day, five seven BOE per day was working interest primarily in the Shelby trough.
Before the year of 2020, and the pandemic and other economic engine sees the took such a toll on the world economy.
We exited 2019 in the high 45 in the OE plus per day with about seven of that being in working interest.
The BP and <unk> had been super active in the Shelby trough. The Permian was on fire. The Bakken was very busy as a general rig count was robust.
We all know that show came to an abrupt halt both BP and <unk> have severely cut back or of cease drilling on our acreage on the Shelby trough, we monetize the minority interest in our Permian acreage to clean up our balance sheet in such uncertain times, the Bakken has slowed and rig counts plummeted.
But with that all of that said remember that we were in the high of 26.
And the BOE per day range of 2015, when we went public we made great strides.
Growing volume up to the big event in 2020, and we are hard at work to spool back up our production in the coming years.
That and we have been heavily focused on our high interest legacy lands.
As you saw on our earnings release last night, we have made tremendous progress on striking new deals that we expect will drive additional development activity on our core acreage positions in East Texas.
It has always been of fundamental strategy of ours to attract outside capital to our existing acreage through creative deal, making with producers when the pandemic struck and general upstream activity levels started to decline last year. Our team stepped up its efforts on that front, even more and we are clearly seeing the results of all of that.
Hard work.
I'll start with our Haynesville and Bossier acreage in Shelby trough, which is primarily concentrated in Angelina in San Augustine County steps.
At the activity levels are ramping up under our development agreement with Asos on energy and actually Youll remember, we sign on that agreement in the second quarter of last year, which calls for four wells to be drilled in the first program year, increasing to an annual well count of 15 by the third program year.
<unk> has successfully drilled the first two wells under that program and inspected and is expected to complete them in the second quarter.
Hey, Don has been among the most active haynesville operators in recent years and their technical expertise has been apparent in the early stages of this development.
That's one of the reasons, we're excited to expand our relationship.
With eight or on through a second separate development agreement covering the majority of our undeveloped Shelby trough acreage in San Augustine County.
We finalize that deal yesterday, and it's similar in structure to what is in place and working well in Angelina County, the new agreement provides for minimum well commitments of about eight on in exchange for royalty incentive and exclusive access to our minerals and leasehold acreage on the contract area.
The agreement covers over 60000 gross acres calls for a minimum of five wells to be drilled in the initial program here, which will begin in the third quarter of this year, increasing to a minimum of 12 wells per year, starting in the fourth program here.
The San Augustine deal with eight on includes acreage within the Brent Miller area that initially kicked off the Shelby trough development.
In March of this year, we reached an agreement with <unk> energy of the operator to partition.
Partition jointly on working interest in the Brent Miller development area under the partition agreement Blackstone and <unk> exchanged working interest in certain and proposed drilling units.
Resulting in each company holding of 100% of the working interest in their respective partitioned units.
Our.
Partition working interest under the deal.
Are included in the development of agreement with Asos.
Between the two deals of the program ramps up over the next five years, we could see at least 27.
Wells drilled annually by a proven operator on our high net acreage position in the Shelby trough.
Should be noted that Blackstone honed significant royalty and mineral interest under both asos and ex CEO Lance.
If and when <unk> comes back to the area the rig counts on our minerals could expand further.
With over 500 potential locations across the area, we look forward to.
Working with <unk> on for years to come and indeed, the long term Gulf coast, Nat gas market Lng's et cetera.
Very significant bearing on these lands futures on.
On the last call, we spoke about the potential across our Austin chalk acreage in the East, Texas again. This is an area, where we enjoy high concentration of ownership both in terms of geologic coverage across the play and in terms of very high net ownership of these acres the.
Austin Chalk has been a prolific play across Texas and Louisiana for decades.
Including getting Brooklyn.
The Masters Creek Burr ferry deals et cetera in a store.
And historically has developed.
From vertical wells, and then substantially under stimulated horizontal wells.
Accessing the formation of natural fracture systems.
<unk>, however operators across the play in Texas have begun developing the chalk using high intensity multi stage completions, which have resulted in dramatic improvements in well performance.
I'll speak to just a few of the examples of this.
First EOG and SM energy are highlighting the results from new Austin Chalk wells in Webb County, and southwest Texas.
<unk> drilled 17 wells to date in the Austin Chalk Dorado play and plans. Another 15 wells in 2021, new generation EOG chalk wells show of E. R. B U R uplift of approximately two seven times relative to the older vintage wells in the same area.
Calls as the lowest cost dry gas play in North America, and without the tax returns of around 80% at current gas prices competes with any of their premium oil players. Similarly, SM energy drilled nine wells as part of on Austin Chalk Delineation program in Webb County in 2020.
<unk> plans on additional 2020 'twenty, one sorry for all of the twenties.
Sam is reporting production results on the chalk wells that are three five to four times better than the previous wells and exceed those of the monitored Eagle Ford and Delaware Basin Wells SCM close breakeven prices for its new generation chalk wells.
13% to $28 a barrel.
As we move closer to our core Austin chalk acreage Magnolia oil and gas has conducted the most significant program of high intensity completions in the formation, which includes over 400000 net acres in the Giddings field area in South Central Texas.
And focused in Grimes County, and other counties.
Q counties West of our Brooklyn.
The area an area of high concentration Magna.
Magnolia has drilled over 30 wells with at least 90 days of production data.
No. He is higher intensity completion in the regions are yielding results of over two times.
The prior generation wells.
It is very significant we believe that all of these Austin chalk redevelopment plays.
Are being conducted in areas that produce economically in prior cycles of the chalk.
Said differently and importantly, we believe we currently view this.
Our current view is that this is not an exploratory play it's an application of evolve technology and proven areas that is causing undrained reservoir quality rocks to produce at better rates in the EUR than before.
Finally, we are of very strong data point on our own Austin chalk acreage in Tyler County, Texas The <unk>.
Hancock, one H well was drilled and completed in the Brooklyn. The deal is of high intensity multi stage well on Navidad operating companies using the first 12 months production is a comparison of the Hancock produced 303 mbo.
And one nine Bcf of high Btu natural gas compared to its closest offset well on strike, which produced 75 mbo and one two bcf of gas. This represents over a two times uplift on a Boe basis for that time period now.
<unk> has already spud the second well west of the Hancock low patient under development agreement deal with Blackstone that I'll discuss in just a moment.
Earlier this year, we signed up our initial development deal with a large publicly traded operator to drill test and complete wells in the Austin Chalk formation on some of our East, Texas acreage further to the east of Tyler County, and primarily of Newton County.
If successful the operator has the option to expand its drilling program over a significant acreage position own and control of us.
Yesterday, we announced two additional development deals covering a portion of the east, Texas Austin chalk.
The first involves the consortium of existing operators on our acreage.
Encouraged by the <unk> success with the Hancock well to other operators in the field of joined with <unk> the drilled new wells on their acreage to test. This concept. These operators who will participate in three test wells targeting the Austin chalk assuming the test well program is successful we anticipate.
Separate agreements with each of these operators to further develop the acreage.
The second agreement that we just announced is with a large private independent operator, and drilling and completing multiple Austin chalk wells on our company acreage in East, Texas also beginning this year. If those wells are successful the operator has the option to expand the Austin chalk development programs for additional black.
So on average.
In total the.
The test and development agreements, we have entered into thus far in 2021 will help delineate over 200000 Blackstone acres in the Brooklyn deal area of the Austin chalk.
Which has over 300.
Plus existing Austin chalk producing wells from prior generations and unlock the potential for several hundred infill wells in that field on Blackstone acreage we.
We are very encouraged by our operator enthusiasm to redevelop our acreage and expand this play.
It's hard to find a needle moving projects for a company of our size of the mineral business, but if the Austin chalk acreage response to the higher intensity completions the <unk>.
It has in the other areas, we previously mentioned and the Hancock, well, which is on on our acreage.
It could represent a meaningful new production wedge for Blackstone for a long time to come and indeed this development in the Austin chalk the things one of the big five and helped Blackstone increases daily production too.
The historic highs over time.
None of this has come easy over the past year we've.
We've achieved some of our biggest wins on our company's history in the midst of the most difficult environment in decades.
These development deals take great collaboration on among our land engineering geology business development of finance groups and I want to recognize all of their efforts to position Blackstone for future growth.
Can't say enough.
And won't go into it but there have been countless hours of negotiation.
Evaluation efforts put into this project, we look forward to updating you on the strategic initiatives throughout the coming year.
With that I'll turn the call over to Jeff.
Well, thank you Tom and good morning, everyone.
Well in the midst of all of this recent activity. We did actually released first quarter earnings last night, so at the <unk>.
The risk of being a bit of anti climactic I'll just point out a few notable items for the quarter we.
We reported total production of $36 eight Boe per day mineral and royalty volumes were relatively flat, while working interest volumes declined by 17% and of course, that's by design as we stopped funding that business in 2017.
The estimate the first quarter volumes, primarily on the natural gas side for negatively impacted by about one six <unk> per day by the winter storms that swept through Texas in February.
Our realized prices before hedges for oil and gas improved meaningfully in the first quarter and gas differentials improve due both to the period of high gas prices during the February storm and due to the increase in NGL prices.
As most of you are aware, we have always been active hedgers of our commodity risk those hedges benefited us greatly last year when price is greater but also tempered the impact of the dramatic rise in prices for us during the first quarter.
Our low production costs were slightly below our guidance levels. So thats good news.
The total G&A cost did tick up a bit in the quarter due to higher legal and professional fees and due to higher noncash G&A due to the increased our unit price during the first quarter, which drives up the mark to market on our outstanding long term performance unit.
Overall, we generated $60 million of adjusted EBITDA, and $53 8 million of distributable cash flow for the first quarter that resulted in distribution coverage of about one five times on our announced distribution of $17.05 per unit for <unk> 17, or <unk> 70 per unit annualized for the quarter.
That excess cash flow allowed us to repay another $10 million of outstanding debt during the quarter.
And we had good news on other fronts as well after the end of the quarter.
We finalized an extension of our existing revolver credit revolving credit facility last week. We added two years for the maturity date of that facility, which is now November of 2024.
We've always maintained a conservative balance sheet, even through difficult cycles and have great relationship with our lenders and Thats paid dividends through this extension project process, it's been a very difficult bank market over the past year.
So we're really happy to get this extension done with relatively minor modifications to the terms of the facility.
And we appreciate the continued support from our long term lending relationships.
Finally, we entered into an agreement yesterday.
The two acquired mineral and royalty properties in the northern Midland Basin for $27 million of consideration and the mix of cash and Blackstone stock.
We expect that acquisition to close during the second quarter and while it's modest in size for us generating about 200 Boe per day of most of the oily production. It's.
And of Great area with active producers on the acreage. It does feel like the acquisition market is picking up a little of steam after a long period of being disrupted due to the pandemic and we're excited to start playing some offense on that area again.
And with that actually we're going to open the call for questions.
At this time, if you would like to ask a question. Please press Star then the number one on your telephone keypad.
And so the first question comes from Leo Mariani with Keybanc.
Hey, guys I was hoping to get.
Maybe a little bit more color on analyst day.
To be of tough question to answer on what the potential of success case.
The book like.
And you've got this new deal here on the chalk with its consortium thats going to drill three wells and you certainly pointed out but could be individual deals are struck for the three companies.
If there is success could you maybe just try to frame up roughly kind of what the land aerie is that might be quote unquote split up between the three companies in I guess, if these wells are successful I mean could we see something like each company have a rig there next year.
And maybe what's kind of your rough interest.
In that area. So for example, if I just made up of number of 10 wells were drilled how many net wells would that be the Blackstone.
This is Tom I'll take a shot at that with that here who has been really.
Work on all of this but.
We.
Among the three.
Deals.
One.
Well one of the deals has three different operators.
One of the deals has with one operator and another one is one so we would expect eight to 12.
Wells on the deals that we have done in the next 12 months, assuming there is some level of success.
That that number would go up.
In development.
In the subsequent years.
So.
It could be.
It could be.
Be well north of that and in addition to that there are.
Several other areas, where we have large acreage positions that we are working on other deals that we have not completed yet so we're not done adding to that.
Cycle, yet in terms of.
Of the consortium.
There are.
Over 100 plus existing units.
And or operated by those three operators.
And.
The test well program as being.
Conducted in a somewhat diverse of diverse position across those three operators in such a manner that it will help delineate the play.
Then.
Once that happens each operator will go on a continuous development cycle.
If they want to keep up with the play.
With some.
Three to five wells per year so.
The number of acres in the <unk>.
Mount of interest that we have in those plays if the play is.
Successful could ramp up into very meaningful volumes, it's going to take a couple of years. It just does.
But.
The.
As I said earlier it is.
An area that our debt does produce it's not us.
It's not a rank wildcat in many respects.
With all of the attention over the last five plus years on resource plays.
I kind of look at the chalk play as the original resource play.
And it has had at least three cycles of development.
Turning 70 years old and I was this year and I was driving past chalk wells in the Giddings field. When I was on college at the University of Texas. So it just it's sort of like the gift that keeps on giving.
Okay. That's that's very helpful color on I guess, maybe just.
High level, it's the most all of this activity focused on the oily window.
The chalk alright at this point in terms of all of these deals you guys have.
The core of the deals that we mentioned the day are and the rich gas window.
And we do have some significant acreage in the oil window that we're also working on and we have a lot of acreage.
Immediately down dip to the rich gas window that we know is perspective for gas here.
<unk> wells that we will be working on as well and I think that as some similarities to dorado.
In terms of deliverability, I would add that it is deeper than dorado, but.
Fortunately for us.
We have.
Just a whole lot of acreage.
Sitting in this play.
And.
It could be extremely meaningful for us, it's going to be a very interesting year.
Alright, and I guess that certainly noticed that you guys that made the acquisition here. It seems like it's been awhile since Blackstone I had bought something and you guys. Obviously pointed out on a huge deal but can you maybe talk about your appetite for incremental M&A in this environment.
Hey, Leo this is Jeff yes. Thanks for that question. It has been a while I mean.
Our view was during most of 2020, there are a lot of things going on none of it good well just generally but certainly not for for the acquisition environment right. So we had we had stock.
The stock price, where we didn't really feel like the the equity was of usable acquisition currency and I think sellers.
Still had maybe maybe higher expectations than the environment.
Warranty and so with prices recovering with equity when commodity prices recovering with the equity prices recovering.
And frankly with sellers sitting on those assets for another 12 to 18 months.
We think that environment is just getting much more constructive so.
So while this was not a huge deal for us by any means it's the kind of deal we really like doing this was the negotiated process not on <unk>.
Option process. It involves relationships that we've had for years.
And it was for a seller who was.
Willing or perhaps excited to take back.
Equity in Blackstone and I think that's just going to have to be.
The model going forward.
We have done a tremendous amount of work to get the balance sheet, where we want it. So we're not kind of put that at risk again, and this was something that.
We thought of reasonable price.
The Midland Basin, and one that was.
Not at all harmful to the balance sheet. So we're excited about this and excited about the opportunities to come.
Definitely think it's a more constructive acquisition environment.
Okay. Thanks.
Your next question comes from Brian Downey with Citigroup.
Good morning, Thanks for taking my questions. The solid set of of new development agreements aside from the 200 BOE per day that the Jeff mentioned on the Northern Midland acquisition do you foresee any of those agreements potentially contributing in the second half 2021 production volumes or is that more of a TBD impacts for next year I know you mention.
The the eight to 12 wells over the next year, but curious on potential timing there.
Yes, Brian This is Jeff I think it's.
I mean, maybe just some some trickling in from those initial wells in the back half of this year when you talk about.
The deals between Austin chalk plus Shelby trough, but now it's much more of a ramp so.
As Tom said look were.
Very excited about the area of this is not some.
Brand, new exploratory play we know that the resources there.
We don't have a ton of cash.
Data points.
Our acreage specifically, but we've got a lot of others in the chalk is as you look across the trend that these high intensity completions will work.
But we are absolutely at the very very early stages of the test and then buildup phase of this so it's much more kind of setting the.
The stage for.
Future growth in production volumes versus anything that we should expect to see that's material on the second half of this year.
Great and then in the release you cited increased producer activity across your acreage I'm curious, how youre seeing that translate in the base production levels, how current activity levels as we're sitting in the in early may might've compared to your expectations. When you set your initial guidance for 2021.
Yes, so a couple of things going on there Brian.
The comment just is reflective of general rig activity.
The biggest step up in rig activity of our past couple of quarters, obviously been in the Permian, but we've seen some stability or for increases in other areas.
As well I will tell you that what we are.
We are kind of feeling the impact early in the year in terms of new well adds from the lack of permitting and drilling activity that we saw in mid 2020, so that always kind of lags and thats.
Impacting us in the first quarter and so this activity picks up we think it will be beneficial to to volumes as we go through we're not at a point that we're ready to make any adjustments to that original guidance. We typically do that midyear. So I think we'll probably stick to that timing.
Okay I appreciate the comments.
Thanks, Ron.
Your next question comes from Derrick Whitfield with Stifel.
Yes.
Good morning, all congrats on your agreements.
Thank you.
With regard to the Haynesville updates due to the eighth on agreements announced to date fully unlock the potential of your of Shelby acreage Shelby trough acreage within your control.
Yes, the short answer to that Derek is yes, right. So we had two operators.
BP operating Angelina SCO operating in San Augustine.
As Tom mentioned <unk> still has a meaningful position there on.
The acreage that they hold in that original what we call the Brent Miller area, which really kind of kicked off the entire program as we look back to kind of <unk>.
So we certainly hope that the.
<unk> will restart development in that area at some point, but that's up to them.
But yes other than that kind of Exxon has stepped in to the other acreage that was formerly operated by BP and some of it that was was operated by <unk>. So it is a very large position in which is why we're excited that we've got somebody very well capitalized and really really good technically around the haynesville to help unlock all of that.
Fantastic and then as my follow up regarding your Austin chalk agreements could you speak broadly what has been conveyed in the participation in development agreements to drive activity.
Meaning if I were to close those 12 gross wells that you guys noted in your prepared comments.
What would be your net exposure to those 12 gross wells.
Yes, Derrick I mean look the incentives that we put in place for these.
Operators sort of.
Sort of barrier, but as we mentioned.
Its royalty incentives and the early wells, especially on the test phase.
And then it's a matter of charging.
Reduced or or or.
Lessened upfront bonus payments, so that the model for us is to get the molecules out of the ground so for something like this where.
It's not the the heart of the Permian.
We need to work with producers and the benefit of having such huge high net acreage positions and I know I've talked about this before is that we are relevant and those producer of discussions.
As the mineral owner right, which is pretty unusual.
Broad scattered low net interest it doesn't matter what you did with the given producer but since ours is so extensive of can so.
Anyway, the short answer to your question is that where we want people we want the producers to spend their first dollar on the ground out on lease bonus and we will offer incentives in terms of royalty relief.
Especially for the upfront test wells.
Okay understood. Thanks, guys very helpful.
Yes.
And in terms of net exposure.
Going to I'm going to say some numbers here that I hope the gas will help me, but if you look at our historic well count net well counts, which is if you add up all of the net revenue points that we have in all of the wells, we have drilled on our acreage over of the boom and bust cycle that we've been through.
In the last couple of years, you've seen numbers range from three to six and back down to two net wells.
Per year drilled in all of the different basins. When you that's 100% of 100 net revenue point sort of given well we use of add them up so thats the kind of.
Volume of net revenue points that we've been seeing.
If you take a very broad brush look at the potential for the deals that we've done.
There's probably upwards of 40 to 50 net wells on.
On that acreage so.
That's assuming success and you can drill that out over five years, you can drill it out over 10 years either way.
It's meaningful.
Thanks for the out of color.
Thanks Terry.
And again for any questions. Please press Star then the number one on your telephone keypad.
And your next question comes from Harry <unk> with Raymond James.
Good morning, guys.
<unk>.
Good morning, I was just wondering if I could get some additional color on the middling deal now what count each of in and where the operators.
Yes.
Northern Howard.
Primarily and then there is a number of operators marched since a big one.
Yes.
Leads into Gordon just the Asia.
Yes.
Great. Thanks, and then.
Just another question on M&A.
What's kind of your appetite for going outside the Permian would that be assuming you can get them to take equity or would that just for your primary focus.
We've always been relatively agnostic to basin other than those things that we just made me feel like we don't have as deepen understanding on price. For example, we haven't done a big Appalachian deal and part of just because of the.
The concerns and understanding the full picture around takeaway capacity just just as an example.
But look what we look for our deals that are accretive to our NAV.
That have solid irr's and what we think will return solid rois to our investors and so.
Yes short answer is no we're absolutely not limited to the Permian one of the benefits, we think to being of.
The very large diverse mineral holders of that gives us the ability to to look at a lot of different deals on a lot of different areas and really just.
Try to pick and choose those that we think of it are going to provide the greatest returns so.
Look at the end of the day, you kind of got to go where the rigs are so thats been largely.
Permian over the past few years, but anytime we can find an opportunity where we think we've got a direct line of sight on development.
We're more than happy to look at debt.
Great. Thanks, and then the paint squeeze one more in price kind of mentioned low.
20% below the quarterly run rate in pioneer on guidance, you guys expect to elevate the kind of pickup in the coming quarters.
I wanted to pay our run rate.
No I know, we're a little below guidance on on <unk>.
Low <unk> for the quarter.
It can get a little bit lumpy at some sometimes theyre, just workover activity et cetera, but.
No we wouldn't expect any big tick ups and we'll be back next quarter and Thats one of those things that if it if it <unk>.
Continues the trend this way and we will we will.
Probably just guidance down a little bit on that low.
Yes.
Great I appreciate you all taking my questions and congrats on that great quarter.
Gary.
Your next question comes from Pearce Hammond with Simmons energy.
Good morning, and thanks for taking my question and congrats on all of the news.
Just a quick update Jeff on your thoughts on hedging notice you layered on some of it looks like some good hedges for oil for next year for 2022, and just your thoughts on on natural gas.
Good morning Pearce.
Thanks for that yes.
We're just going to continue to be systematic around hedging we don't typically try to time any of these any of these markets. So I think just in normal course.
As we go on through the quarter, we would look to continue to add oil and natural gas hedges, we havent put on our gas position for 'twenty, two so that would be something.
<unk>.
In the normal course of business that we would do in the near term.
So yes.
No change to the hedging philosophy as I said in my remarks right.
Huge huge help to us last year.
A little bit on the other side of that coin this year, but just generally like the additional stability.
Okay. Thanks, so much Jeff.
Thanks for years.
Okay.
And at this time there are no further questions I will now hand, the call back for closing remarks.
Well, we thank you all for joining the Blackstone call today.
And we're excited about this quarter and we're going to keep keep working hard and we'll talk to you on the next quarter.
That concludes today's conference. Thank you for your participation you may now disconnect.