Black Stone Minerals, L.P. Reports Second Quarter Results
August 03, 2020 at 17:00 PM EDT
Black Stone Minerals, L.P. (NYSE: BSM) ("Black Stone Minerals," "Black Stone," or "the Company") today announces its financial and operating results for the second quarter of 2020.
Thomas L. Carter, Jr., Black Stone Minerals’ Chief Executive Officer and Chairman commented, “We have taken decisive action to strengthen our balance sheet even further in light of the depressed commodity price environment and dramatic reduction in drilling activity. After closing the two asset sales in July, we have reduced our total debt balance by 58% since the start of the year. We also remain focused on maximizing the value of our existing asset base, as evidenced by our recent development agreements with Aethon and XTO. With the debt reduction, lower cost structure following the G&A reductions last quarter, and development opportunities across the portfolio, Black Stone is well positioned to weather the current industry downturn.”
Quarterly Financial and Operating Results
Black Stone Minerals reported mineral and royalty volume was 34.0 MBoe/d (74% natural gas) for the second quarter of 2020, compared to 39.7 MBoe/d for the comparable period in 2019. Royalty production for the first quarter of 2020 was 36.7 MBoe/d.
Working interest production for the second quarter of 2020 was 8.6 MBoe/d, and represents decreases of 16% and 30%, respectively, from the levels generated in the quarters ended March 31, 2020 and June 30, 2019. The decline in working interest volumes is consistent with the Company's decision to farm out its working-interest participation to third-party capital providers.
Total reported production averaged 42.6 MBoe/d (80% mineral and royalty, 78% natural gas) for the second quarter of 2020. Total production was 52.2 MBoe/d and 46.9 MBoe/d for the quarters ended June 30, 2019 and March 31, 2020, respectively.
Realized Prices, Revenues, and Net Income
The Company’s average realized price per Boe, excluding the effect of derivative settlements, was $14.37 for the quarter ended June 30, 2020. This is a decrease of 31% from $20.81 per Boe for the first quarter of 2020 and a 47% decrease compared to $26.90 for the second quarter of 2019.
Black Stone reported oil and gas revenue of $55.7 million (46% oil and condensate) for the second quarter of 2020, a decrease of 37% from $88.7 million in the first quarter of 2020. Oil and gas revenue in the second quarter of 2019 was $127.7 million.
The Company reported a loss on commodity derivative instruments of $19.2 million for the second quarter of 2020, composed of a $36.5 million gain from realized settlements and a non-cash $55.7 million unrealized loss due to the change in value of Black Stone’s derivative positions during the quarter. Black Stone reported gains on commodity derivative instruments of $90.0 million and $29.2 million for the quarters ended March 31, 2020 and June 30, 2019, respectively.
Lease bonus and other income was $2.0 million for the second quarter of 2020, primarily related to leasing activity in the Permian Basin. Lease bonus and other income for the quarters ended March 31, 2020 and June 30, 2019 was $4.3 million and $6.7 million, respectively.
There was no impairment for the quarters ended June 30, 2020 and June 30, 2019. There was a $51.0 million impairment for the quarter ended March 31, 2020.
The Company reported net income (loss) of $(8.4) million for the quarter ended June 30, 2020, compared to net income of $76.1 million in the preceding quarter. For the quarter ended June 30, 2019, net income was $95.1 million.
Adjusted EBITDA and Distributable Cash Flow
Adjusted EBITDA for the second quarter of 2020 was $72.4 million, which compares to $71.1 million in the first quarter of 2020 and $108.3 million in the second quarter of 2019. Distributable cash flow for the quarter ended June 30, 2020 was $64.4 million. For the quarters ended March 31, 2020 and June 30, 2019, distributable cash flow was $66.2 million and $98.0 million, respectively.
Financial Position and Activities
As of June 30, 2020, Black Stone Minerals had $1.6 million in cash and $323.0 million outstanding under its credit facility. The ratio of total debt at June 30, 2020 to trailing twelve-month Adjusted EBITDA was 1.0x.
During July 2020, the Company paid down $170 million of outstanding borrowings under its credit facility from the net proceeds of the two asset sales and internally-generated cash flow. As of July 31, 2020, $153.0 million was outstanding under the credit facility and the Company had $1.6 million in cash. Black Stone is in compliance with all financial covenants associated with its credit facility.
During the first quarter, the borrowing base of Black Stone's credit facility was decreased to $460 million as part of its regularly scheduled borrowing base redetermination. In connection with the closing of the two asset sales in July, the borrowing base was reduced by an additional $30 million to $430 million.
During the second 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.
Second Quarter 2020 Distributions
As previously announced, the Board approved a cash distribution of $0.15 for each common unit attributable to the second quarter of 2020. This represents an increase of 88% from the first quarter distribution of $0.08 per common unit. The quarterly distribution coverage ratio attributable to the second quarter of 2020 was approximately 2.1x. Distributions will be payable on August 21, 2020 to unitholders of record as of the close of business on August 14, 2020.
For the quarter ended June 30, 2020, Black Stone added 236 gross wells across its acreage position. On a net basis, representing the sum of the Company's fractional ownership in the gross, Black Stone added 2.93 wells.
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.
On June 11, 2020, Black Stone announced it has entered into a new incentive agreement with XTO Energy Inc. (“XTO”) with respect to certain drilled but uncompleted wells (“DUCs”) in the Company’s Shelby Trough acreage in San Augustine County, Texas. The agreement allows for royalty relief on 13 existing DUCs if XTO completes and turns the wells to sales by March 31, 2021.
In addition to the agreement covering the DUCs, Black Stone is actively evaluating alternatives to encourage further development activity in the Shelby Trough in San Augustine 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 2020 Guidance
Given the dramatic impact on the energy industry caused by the COVID-19 pandemic, Black Stone is lowering its production and lease bonus guidance for 2020 relative to the expectations announced earlier this year, as well as updating certain other items of its original guidance as shown in the table below. This guidance is subject to further revision given the ongoing uncertainty around the recovery in energy demand and the timing and extent of upstream operators resuming development activity.
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 July 31, 2020 is summarized in the following tables:
More detailed information about the Company's existing hedging program can be found in the Quarterly Report on Form 10-Q for the second quarter of 2020, which is expected to be filed on or around August 4, 2020.
Black Stone Minerals will host a conference call and webcast for investors and analysts to discuss its results for the second quarter of 2020 on Tuesday, August 4, 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 5654166. A recording of the conference call will be available on Black Stone's website through September 3, 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.
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 following table shows the Company’s production, revenues, pricing, and expenses for the periods presented:
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, and non-cash equity-based compensation. 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.
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.