10-K: Black Stone Minerals Reports Strong 2023 Results Amid Volatile Energy Market

Black Stone Minerals, L.P., one of the largest owners of oil and gas mineral interests in the U.S., reported its full-year 2023 results, highlighting a significant increase in proved reserves and a strong financial position despite a challenging commodity price environment.

Summary

• Black Stone Minerals, L.P. (BSM) reported its financial results for the year ended December 31, 2023.
• The company's primary business is maximizing the value of its portfolio of mineral and royalty assets through active management.
• BSM owns mineral interests in approximately 16.8 million gross acres across 41 states, with an average 43.5% ownership interest.
• As of December 31, 2023, BSM's total estimated proved oil and natural gas reserves were 64,474 MBoe, with 89% being proved developed reserves.
• The company's estimated proved reserves were 30% oil and 70% natural gas.
• For the year ended December 31, 2023, 26% of production and 59% of oil and gas revenues were related to oil and condensate, while natural gas and NGLs were 74% of production and 41% of revenues.
• Total revenue for 2023 decreased to $592.2 million from $663.6 million in 2022, primarily due to lower realized commodity prices, partially offset by increased production and gains on commodity derivatives.
• Net income for 2023 was $422.5 million, down from $476.5 million in 2022.
• Adjusted EBITDA for 2023 was $474.7 million, compared to $466.4 million in 2022.
• Distributable cash flow for 2023 was $451.2 million, compared to $441.1 million in 2022.
• The company had no outstanding borrowings under its credit facility as of December 31, 2023, with a borrowing base of $580.0 million.
• In December 2023, Aethon Energy exercised time-out provisions under joint exploration agreements with BSM in Angelina and San Augustine counties, Texas, allowing for a temporary suspension of drilling obligations due to low natural gas prices.

Sentiment

Score: 6

Explanation: While the company maintains a strong financial position and a large asset base, the decrease in revenue and net income, coupled with the volatility in commodity prices and the uncertainty surrounding the Aethon Energy time-out, warrant a neutral to slightly positive sentiment.

Positives

• Black Stone Minerals has a large, diversified asset base with interests in major onshore producing basins.
• The company's estimated proved reserves increased year-over-year.
• The company has a strong financial position with no outstanding debt under its credit facility.
• The company has an active management strategy focused on maximizing the value of its assets.
• The company has a diversified customer base, with no single customer accounting for more than 10% of oil and gas revenues in 2023.
• The company has implemented a unit repurchase program, demonstrating a commitment to returning value to unitholders.

Negatives

• Total revenue decreased in 2023 compared to 2022 due to lower realized commodity prices.
• Net income decreased in 2023 compared to 2022.
• The company is exposed to the volatility of oil and natural gas prices.
• The company has limited control over the timing of drilling and development activities on its acreage.
• Aethon Energy exercised time-out provisions under joint exploration agreements, potentially impacting future production.
• The company faces competition from other companies with potentially greater financial resources.

Risks

• The volatility of oil and natural gas prices could adversely affect the company's financial condition and results of operations.
• The company may not be able to replace its oil and natural gas reserves.
• The company has limited control over operators' activities on its acreage.
• The company's credit facility has restrictions and covenants that may limit its financial flexibility.
• Acquisitions of additional mineral and royalty interests present substantial risks.
• The company faces environmental, legal, and regulatory risks, including those related to climate change and hydraulic fracturing.
• The company is subject to cybersecurity threats and data breaches.
• Changes in tax laws could adversely affect the company's tax treatment and cash distributions.
• The company may be required to repay distributions to unitholders under certain circumstances.

Future Outlook

The company expects to continue its strategy of maximizing the value of its existing portfolio through active management and opportunistic acquisitions. The 2024 capital expenditure budget for non-operated working interests is approximately $2.3 million. The company will continue to monitor the production from its assets and the commodity price environment, and will, from time to time, add additional hedges within the percentages described above related to such production.

Industry Context

Black Stone Minerals' results reflect the broader trends in the U.S. oil and gas industry, which experienced significant price volatility in 2023. The company's focus on mineral and royalty interests provides a differentiated business model compared to traditional exploration and production companies, offering exposure to production growth without the same level of capital intensity. The company's performance is influenced by the drilling and completion activities of its operators, particularly in active resource plays like the Haynesville/Bossier and Permian Basin.

Comparison to Industry Standards

• Black Stone Minerals' proved reserves of 64,474 MBoe are significant within the mineral and royalty interest space. For example, Viper Energy Partners LP (VNOM) reported proved reserves of 103,003 MBoe as of December 31, 2022, while Brigham Minerals, Inc. (MNRL) reported 95,700 Mboe of proved reserves as of December 31, 2022.
• The company's debt-free status is a positive outlier compared to many E&P companies that carry significant debt to fund operations. For example, as of their most recent quarterly reports, Diamondback Energy (FANG) had approximately $6.5 billion in long-term debt, while Pioneer Natural Resources (PXD) had around $4.7 billion.
• Black Stone Minerals' focus on distributions aligns with the industry trend of returning cash to shareholders. The company's distribution yield is competitive within the sector.
• The company's 2023 production mix of 74% natural gas is higher than many of its peers, reflecting its significant exposure to the Haynesville/Bossier play. For comparison, EQT Corporation, a major natural gas producer, had a production mix that was over 95% natural gas in 2023.

Legal Proceedings

• Although we may, from time to time, be involved in various legal claims arising out of our operations in the normal course of business, we do not believe that the resolution of these matters will have a material adverse impact on our financial condition or results of operations.

Stakeholder Impact

• Shareholders: Potential impact from commodity price volatility, changes in production levels, and the Aethon Energy time-out.
• Employees: No significant changes mentioned in the document.
• Customers: No significant impact mentioned in the document.
• Suppliers: No significant impact mentioned in the document.
• Creditors: No significant impact mentioned in the document, as the company has no outstanding debt under its credit facility.

Next Steps

• The next semi-annual borrowing base redetermination under the credit facility is scheduled for April 2024.
• The company will continue to monitor the production from its assets and the commodity price environment.
• The company will assess the impact of the Aethon Energy time-out on future development plans.
• The company will continue to evaluate opportunistic acquisitions to complement its existing acreage positions.

Key Dates

Keywords

oil and gas, mineral interests, royalty interests, exploration, production, reserves, Haynesville, Bossier, Permian Basin, Bakken, Three Forks, Eagle Ford, Austin Chalk, Shelby Trough, acquisitions, farmout agreements, commodity prices, hedging, distributions, capital expenditures, credit facility