Quarterly / Earnings Reports | First Quarter (1Q) Update | Hedging | Capital Markets | 2020 Guidance

Black Stone Minerals First Quarter 2020 Results

Share Print Bookmark    |    Monday,May 04,2020

Black Stone Minerals LP announces its financial and operating results for the first quarter of 2020.

Highlights:

• Total mineral and royalty production for the first quarter of 2020 equaled 36.7 MBoe/d, an increase of 4.5% over the prior quarter; total production, including working interest volumes, were 46.9 MBoe/d for the quarter.
• Net income and Adjusted EBITDA for the quarter totaled $76.1 million and $71.1 million, respectively.
• Distributable cash flow was $66.2 million for the first quarter, resulting in distribution coverage for all units of 4.0x based on the announced cash distribution of $0.08 per unit.
• General and administrative expenses totaled $11.9 million, including $4.8 million of restructuring charges recorded in the first quarter related to staff reductions. Management expects full-year G&A expense to be at or below its guidance range of $39 million to $43 million, excluding the restructuring charge.
• Total debt at the end of the first quarter was $388 million; total debt to trailing twelve-month Adjusted EBITDA was 1.0x at quarter-end. As of May 1, 2020, total debt had been reduced to $352 million.
• Successfully transitioned all work flows to a remote work environment as part of the Company’s response to the COVID-19 pandemic.

Thomas L. Carter, Jr., Black Stone Minerals’ Chief Executive Officer and Chairman commented, “Over the past several months, we have taken a number of decisive steps to protect our free cash flows and our balance sheet in a very difficult environment. We are seeing the cash savings from our cost reduction measures and continue to benefit from our extensive hedge portfolio. By retaining a higher percentage of our cash flows during this challenging time, we expect to meaningfully reduce our outstanding borrowings as we strive to understand the longer-term implications for the global economy from unprecedented events. When that picture is more clear and should circumstances merit, we look to make more robust distributions.

“Our balanced product mix is adding stability to our cash flows as well.” Mr. Carter continued. “The more constructive view on natural gas prices into next year, as reflected in current forward prices, makes the natural gas development opportunities across our portfolio more attractive.”

“Finally, I would like to express my sincere thanks to our employees, who safely and effectively transitioned to a remote work environment and have continued to excel in carrying out their responsibilities,” stated Mr. Carter.

COVID-19 Response

The COVID-19 pandemic has adversely affected the global economy, disrupted global supply chains and created significant volatility in the financial markets. The pandemic has also negatively impacted the oil and natural gas business environment and has significantly reduced demand for and prices of oil, natural gas and natural gas liquids. In light of the challenging business environment and uncertainty caused by the pandemic, the Board of Directors of the Company’s general partner (the “Board”) approved a reduction in the quarterly distribution for the first quarter of 2020 to increase the amount of retained free cash flow for debt reduction and balance sheet protection. To protect the health and well-being of the Company’s workforce in the wake of COVID-19, Black Stone has implemented remote work arrangements for all of its employees. The Company does not expect these arrangements to impact its ability to maintain operations. The Company will continue to prioritize the health and safety of its workforce when employees return to the office through frequent cleaning of common spaces, appropriate social distancing measures, and other best practices as recommended by state and local officials.

Financials & Ops Highlights

Production

Black Stone Minerals reported average production of 46.9 MBoe/d (78% mineral and royalty, 73% natural gas) for the first quarter of 2020. Total production was 46.8 MBoe/d and 46.2 MBoe/d for the quarters ended March 31, 2019 and December 31, 2019, respectively.

Mineral and royalty volume was 36.7 MBoe/d (68% natural gas) for the first quarter of 2020, compared to 33.5 MBoe/d for the comparable period in 2019. Royalty production for the fourth quarter of 2019 was 35.1 MBoe/d.

Working interest production for the first quarter of 2020 was 10.2 MBoe/d, and represents decreases of 8% and 23%, respectively, from the levels generated in the quarters ended December 31, 2019 and March 31, 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.

Realized Prices, Revenues, and Net Income

The Company’s average realized price per Boe, excluding the effect of derivative settlements, was $20.81 for the quarter ended March 31, 2020. This is a decrease of 17% from $25.02 per Boe for the fourth quarter of 2019 and a 27% decrease compared to $28.34 for the first quarter of 2019.

Black Stone reported oil and gas revenue of $88.7 million (59% oil and condensate) for the first quarter of 2020, a decrease of 17% from $106.3 million in the fourth quarter of 2019. Oil and gas revenue in the first quarter of 2019 was $119.3 million.

The Company reported a gain on commodity derivative instruments of $90.0 million for the first quarter of 2020, composed of a $9.0 million gain from realized settlements and a non-cash $81.1 million unrealized gain due to the change in value of Black Stone’s derivative positions during the quarter. Black Stone reported losses on commodity derivative instruments of $17.2 million and $41.2 million for the quarters ended December 31, 2019 and March 31, 2019, respectively.

Lease bonus and other income was $4.3 million for the first quarter of 2020, primarily related to leasing activity in the Permian Basin, Green River Basin, and Bakken/Three Forks. Lease bonus and other income for the quarters ended December 31, 2019 and March 31, 2019 was $14.0 million and $5.6 million, respectively.

Management identified $51.0 million of impairments to oil and gas properties for the quarter ended March 31, 2020, primarily due to the reduction in market value of certain long-lived crude oil properties resulting from the lower commodity prices as of March 31, 2020. There were no impairments for the quarters ended December 31, 2019 and March 31, 2019.

The Company reported net income of $76.1 million for the quarter ended March 31, 2020, compared to net income of $40.0 million in the preceding quarter. For the quarter ended March 31, 2019, net income was $9.0 million.

Adjusted EBITDA and Distributable Cash Flow

Adjusted EBITDA for the first quarter of 2020 was $71.1 million, which compares to $100.0 million in the fourth quarter of 2019 and $94.9 million in the first quarter of 2019. Distributable cash flow for the quarter ended March 31, 2020 was $66.2 million. For the quarters ended December 31, 2019 and March 31, 2019, distributable cash flow was $90.2 million and $81.4 million, respectively.

Financial Position and Activities

As of March 31, 2020, Black Stone Minerals had $3.0 million in cash and $388.0 million outstanding under its credit facility. The ratio of total debt at March 31, 2020 to trailing twelve-month Adjusted EBITDA was 1.0x.

Subsequent to quarter-end, Black Stone's borrowing base was decreased to $460 million as part of its regularly scheduled borrowing base redetermination. The decrease in the borrowing base reflects lower commodity price assumptions for future periods, particularly for crude oil, being factored into underwriting assumptions by the Company’s lenders, as well as more conservative advance rates on the Company’s proved reserves. The Company's next regularly scheduled borrowing base redetermination is set for October 2020. Black Stone is in compliance with all financial covenants associated with its credit facility.

As of May 1, 2020, $352.0 million was outstanding under the credit facility and the Company had $3.2 million in cash.

During the first 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.

First Quarter 2020 Distributions

As previously announced, the Board approved a cash distribution of $0.08 for each common unit attributable to the first quarter of 2020. The quarterly distribution coverage ratio attributable to the first quarter of 2020 was approximately 4.0x. Distributions will be payable on May 21, 2020 to unitholders of record as of the close of business on May 14, 2020.

Withdrawal of 2020 Guidance

Given the broad uncertainty in the energy industry caused by the COVID-19 pandemic, and in particular the upstream sector’s evolving view on the extent to which development activity will be scaled-back and existing production may be shut-in, Black Stone is withdrawing the 2020 production and distribution guidance it originally issued on February 24, 2020. Black Stone will only update the original guidance at a later date if it believes market conditions have stabilized sufficiently to provide reliable guidance.

Hedging Updates

Black Stone has commodity derivative contracts in place covering portions of its anticipated production for 2020 and 2021, including derivative contracts put in place after the end of the first quarter. The Company's hedge position as of May 1, 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 first quarter of 2020, which is expected to be filed on or around May 5, 2020.