8-K: Black Stone Minerals Reports Strong Q4 2023 Results, Provides 2024 Guidance

Black Stone Minerals announced its fourth quarter and full year 2023 financial results, highlighting a strong quarter with increased distributions and no outstanding debt, while also providing guidance for 2024.

Summary

• Black Stone Minerals reported a net income of $147.6 million for the fourth quarter of 2023.
• Adjusted EBITDA for the quarter was $125.5 million, and distributable cash flow was $119.1 million.
• The company's mineral and royalty production averaged 38.9 MBoe/d in Q4 2023, with total production at 41.1 MBoe/d.
• Full year 2023 net income was $422.5 million, and adjusted EBITDA was $474.7 million.
• Mineral and royalty volumes increased by 9% year-over-year to average 37.4 MBoe/d for 2023.
• The company increased cash distributions by 9% from $1.745 per unit in 2022 to $1.90 per unit in 2023.
• Black Stone Minerals eliminated all outstanding debt during 2023 and had $102.9 million in cash as of February 16, 2024.
• The company's proved reserves at year-end 2023 were 64.5 MMBoe, a 1% increase from 2022, with 70% being natural gas.
• The standardized measure of discounted future net cash flows was $1,019.5 million at the end of 2023, down from $1,665.0 million at the end of 2022.
• The company announced a distribution of $0.475 per unit for the fourth quarter of 2023, with a distribution coverage of 1.19x.
• Black Stone Minerals had 63 rigs operating on its acreage as of December 31, 2023, a decrease from 108 rigs at the end of 2022.
• The company acquired an additional $14.6 million in non-producing mineral and royalty interests in 2023.
• For 2024, Black Stone Minerals expects mineral and royalty production to be between 39 and 40 MBoe/d and total production to be between 40 and 42 MBoe/d.

Sentiment

Score: 6

Explanation: The document presents a mixed picture. While the company achieved strong results in terms of debt reduction and increased distributions, there are concerns about declining realized prices, reduced production, and the impact of lower natural gas prices. The invocation of time-out provisions by Aethon also adds uncertainty. The overall sentiment is cautiously optimistic, but with clear challenges ahead.

Positives

• The company reported a strong net income of $147.6 million for the fourth quarter of 2023.
• Black Stone Minerals successfully eliminated all outstanding debt during 2023.
• The company increased cash distributions by 9% year-over-year.
• Mineral and royalty volumes increased by 9% in 2023 compared to the previous year.
• The company's distributable cash flow remained above $100 million for the seventh consecutive quarter.
• Proved reserves increased by 1% year-over-year.
• The company has a strong cash position of $102.9 million as of February 16, 2024.
• Black Stone Minerals expects royalty production to increase by approximately 4% in 2024.

Negatives

• The company's average realized price per Boe decreased by 31% compared to the fourth quarter of 2022.
• Mineral and royalty production decreased by 3% compared to the previous quarter.
• Distributable cash flow decreased by 4% compared to the third quarter of 2023.
• Rig activity on the company's acreage decreased by 17% compared to the previous quarter and 42% compared to the end of 2022.
• The standardized measure of discounted future net cash flows decreased from $1,665.0 million at the end of 2022 to $1,019.5 million at the end of 2023.
• Working interest production is expected to decline in 2024.

Risks

• The company faces headwinds in 2024 due to depressed natural gas prices.
• Aethon has invoked time-out provisions under joint exploration agreements, which may impact drilling obligations.
• The company's working interest production is expected to decline in 2024.
• There is a risk of volatility in realized oil and natural gas prices.
• The company is exposed to risks related to the level of drilling activity by its operators.
• The company is exposed to risks related to overall supply and demand for oil and natural gas.

Future Outlook

Black Stone Minerals expects royalty production to increase by approximately 4% in 2024, primarily due to Aethon turning on-line wells in the Shelby Trough and continued development in the Austin Chalk, partially offset by an expected moderation of activity in Louisiana Haynesville. Working interest production is expected to decline in 2024. The company anticipates slightly higher general and administrative expenses in 2024 due to inflationary costs and selective hires.

Management Comments

• Thomas L. Carter, Jr., Black Stone Minerals Chairman, Chief Executive Officer, and President, commented, 'We finished the year with a strong quarter.'
• He also stated, 'We were able to maintain our highest distribution without any outstanding debt despite a challenging natural gas market.'
• He added, 'We expect headwinds in 2024 as natural gas prices remain depressed, but we remain encouraged by the long-term prospects for liquefied natural gas export growth and an asset base with significant inventory life that will benefit unitholders through the next decade.'

Industry Context

The announcement comes amid a challenging natural gas market, with depressed prices impacting the company's realized prices. However, Black Stone Minerals is focusing on long-term growth prospects, particularly in liquefied natural gas exports. The company's strategic acquisitions and development efforts in areas like the Austin Chalk and Shelby Trough are aimed at capitalizing on these opportunities. The decrease in rig activity reflects a broader trend in the industry, with companies adjusting their drilling plans in response to market conditions.

Comparison to Industry Standards

• Black Stone Minerals' production of 39.8 MBoe/d for 2023 is comparable to other mineral and royalty companies of similar size, such as Viper Energy Partners (VNOM) which reported an average of 40.5 MBoe/d in Q3 2023.
• The company's focus on mineral and royalty interests aligns with the business model of companies like Kimbell Royalty Partners (KRP), which also primarily focuses on acquiring and managing mineral and royalty assets.
• The 9% increase in cash distributions is a positive sign for investors, and is in line with the trend of returning capital to shareholders seen in the broader energy sector.
• The elimination of debt is a significant achievement, and puts Black Stone Minerals in a stronger financial position compared to some of its peers that carry significant debt loads.
• The decrease in rig activity is consistent with the industry-wide trend of reduced drilling in response to lower natural gas prices, as seen in the reports of companies like Southwestern Energy (SWN) and Chesapeake Energy (CHK).

Stakeholder Impact

• Shareholders will benefit from the increased cash distributions and the company's strong financial position.
• Employees may be impacted by the company's cost-cutting measures and selective hiring.
• Customers may be affected by the company's production levels and pricing strategies.
• Suppliers may be impacted by the company's reduced drilling activity.
• Creditors will benefit from the company's debt elimination and strong cash position.

Next Steps

• Black Stone Minerals will host a conference call on February 20, 2024, to discuss the results.
• The company's next regularly scheduled borrowing base redetermination is set for April 2024.
• The company will continue working closely with Aethon to finalize development plans.
• Black Stone Minerals will continue to pursue strategic, targeted mineral and royalty acquisitions.

Key Dates

Keywords

Black Stone Minerals, Mineral Rights, Royalty Interests, Oil and Gas, Production, EBITDA, Distributable Cash Flow, Reserves, Natural Gas, Hedge, Permian, Haynesville, Austin Chalk, Shelby Trough