Quarterly / Earnings Reports | Second Quarter (2Q) Update | Financial Results | Hedging | Capital Markets | 2020 Guidance

Black Stone Minerals Second Quarter 2020 Results

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

Highlights

• Total mineral and royalty production for the second quarter of 2020 equaled 34.0 MBoe/d, a decrease of 7.3% over the prior quarter; total production, including working interest volumes, was 42.6 MBoe/d for the quarter.
• Net income (loss) and Adjusted EBITDA for the quarter totaled $(8.4) million and $72.4 million, respectively.
• Distributable cash flow was $64.4 million for the second quarter, resulting in distribution coverage for all units of 2.1x based on the announced cash distribution of $0.15 per unit.
• Closed two previously announced mineral and royalty divestitures in July 2020, resulting in total proceeds, after closing adjustments, of $150.1 million.
• Total debt at the end of the second quarter was $323 million; total debt to trailing twelve-month Adjusted EBITDA was 1.0x at quarter-end. As of July 31, 2020, total debt had been reduced to $153 million.
• Entered into a development agreement with Aethon Energy with respect to Black Stone's undeveloped mineral and leasehold acreage in the Shelby Trough in Angelina County, Texas
• Entered into a new incentive agreement with XTO Energy, Inc ("XTO") whereby XTO is expected to complete and turn to sales the 13 existing drilled but uncompleted wells on Black Stone's San Augustine Shelby Trough acreage.
• Increased distribution to $0.15 per common unit with respect to the second quarter of 2020.
• Continued to conduct business in 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, “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

Production

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.

Activity Update

Well Additions

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.

Hedges