Black Stone Minerals LP (BSM) 2025 Q3 法說會逐字稿

Thank you for standing by. My name is Van, and I will be your conference operator today. At this time, I would like to welcome everyone to Blackstone Minerals third quarter 2025 earnings conference call. (Operator Instructions)

Thank you. I will now turn the call over to Mark Moe, Director of Finance. You may now begin, sir.

Thank you. Good morning to everyone.

Thank you for joining us either by phone or online for Blackstone Minerals third quarter 2025 earnings conference call. Today's call is being recorded and will be available on our website along with the earnings release which was issued last night. Before we start, I'd like to advise you that we will be making forward-looking statements during this call about our plans, expectations, and assumptions regarding our future performance. These statements involve risks that may cause our actual results to differ materially from the results expressed or implied in our forward-looking statements. For a discussion of these risks, you should refer to the cautionary information about forward-looking statements in our press release from yesterday and the risk factors section of our 2024 10k.

We may refer to certain non-GAAP financial measures that we believe are useful in evaluating our performance. Reconciliation of those measures to the most directly comparable GAAP measure and other information about these non-GAAP metrics are described in our earnings press release from yesterday which can be found on our website at www.blackstoneminerals.com. Joining me on the call from the company are Tom Carter, Chairman, CEO, and President; Taylor DeWalch, Senior Vice President, Chief Financial Officer and Treasurer; Steve Putman, Senior Vice President and General Counsel; Fowler Carter, Senior Vice President, Corporate Development; and Chris Bonner, Vice President, Chief Accounting Officer. I'll now turn the call over to Tom.

Thank you very much, Mark. Good morning and thank you all for joining us on the third quarter earnings call.

Before we discuss our financial and operating results, I'd like to congratulate Fowler Carter, Taylor DeWalch, and Chris Bonner on their announced upcoming promotions. I'm excited for and confident in their leadership as we look to the continued growth and success of Blackstone for many years to come. Looking forward to my new role as executive chair as well, and we will continue to provide strategic guidance to the management and lead the board. Thank you to all of our employees who continue to work very hard day in and day out to drive Blackstone's success and position us for an exciting future.

We continue to pursue acquisitions through the Haynesville expansion around Shelby Trough, and we're looking forward to revenant development getting underway in early 2026. We also continue to work towards solidifying another development agreement covering 220,000 gross acres in between Aethon's development in the Shelby Trough and expands development in the Western Haynesville.

Unscripted, I also add, we are working on yet another package that we hope to assemble and market in the not-too-distant future. The recently announced expand energy horizontal well and successful pilot well, in addition to the ongoing development throughout the Western Haynesville, provide even further confidence in the Hainesville expansion play and long runway of inventory.

As mentioned previously, we expect these development agreements to ultimately drive over 50 wells drilled in the expanded Shelby Trough per year, providing significant gas growth for the partnership in a constructive outlook for demand in the region. And this is in conjunction with ongoing great opportunities coming up in other areas in our properties. We remain focused on this significant growth opportunity that results in the increasing production and distribution outlook for years ahead.

With that, I'll hand it over to Fowler to walk through the operational updates.

Thank you, Tom, Dad, and good morning to everyone. During the quarter, we progressed our commercial initiatives across the expanded Shelby Trough, including working with Revenant Energy on their inaugural development program beginning early next year. Our marketing efforts on an additional 220,000 gross acres is progressing well with a framework agreement that would add the equivalent of 12 additional wells annually to our acreage by 2030.

We expect these new developments coupled with our existing agreements to more than double the current annual drilling rate in the expanded Shelby Trough in the next five years. There is also the opportunity for our operating partners to exceed their annual well commitments, and we are excited about the multiple decades of development inventory in this play.

Our grassroots acquisition program also continues to progress well. We added $20 million in mineral and royalty acquisitions during the quarter, bringing our total acquisitions since September 2023 to roughly $193 million. We have a line of sight to an additional acquisition opportunities in the near term, which we expect to enhance our existing asset position in the Shelby Trough and to add long-term value for our unit holders. While 2025 development activity has slowed across the US, we are optimistic looking ahead to 2026 given our existing and pending development agreements across our high interest acreage in the Shelby Trough.

Turning to the Permian, the large project we were monitoring remains on track to add meaningful oil volumes to our production base. We're also tracking several new projects on our high interest acreage there that are expected to add additional liquid volumes in the next 12 to18 months. We believe that these projects, in addition to our agreements in the Shelby Trough, provide Blackstone a path to increase production and in turn higher distribution.

With all of that, I'll turn it over to Taylor to walk through the financial details of the quarter.

Thanks, Fowler. Good morning, everyone. We had a successful third quarter with mineral and royalty production of 34,700 BOE per day, an increase of 5% over the prior quarter. The increase in production quarter over quarter was driven by strong volumes in the Permian Basin. Total production volumes were 36,300 BOE per day. While we currently sit near the high end of the range, production guidance for 2025 is unchanged at 33,000 to 35,000 BOE per day. We continue to monitor activity levels and commodity price dynamics as we look towards the fourth quarter of 2025 and full year 2026 production and distributions.

Net income was $91.7 million for the third quarter with adjusted EBITDA at $86.3 million. 57% of oil and gas revenue in the quarter came from oil and condensate production. As previously announced, we declared a distribution of $0.30 per unit for the quarter or $1.20 on an annualized basis. Distributable cash flow for the quarter was $76.8 million which represents 1.21 times coverage for the period. The excess coverage was used to partially fund acquisitions and maintain a solid financial and leveraged position.

As Tom mentioned earlier, the partnership's outlook remains strong, anchored by long-term contract development in our high interest, Shelby Trough acreage, as well as our core legacy assets across the US. In addition, with increasing demand from LNG and power, the outlook for natural gas is increasingly constructive over the next decade. With significant assets in close proximity to LNG facilities, Blackstone is in a prime position to benefit from the looming call on gas supply.

In conclusion, we had a solid quarter bolstered by strong oil volumes from our Permian assets, which ultimately produced robust coverage of the announced distribution. Going forward, we remain confident that our existing acreage positions, coupled with our commercial strategy and the expanded Shelby Trough will provide a strong foundation to deliver sustainable long-term value for unit holders.

With that, we'd like to open the call for questions.

(Operator Instructions)

John Annis, Texas Capital.

Hey, good morning all and congratulations to everyone on their new roles.

For my first question on the acres currently being marketed in the KLX area, I think on the September update call, you mentioned that you were on the one-yard line with getting a deal across. I was hoping if you could provide a quick update on where those discussions currently sit. And secondly, if you've seen any increased interest in potential commitments to the development following expands entry into the Western Haynesville? And then maybe just building off of Tom's remark that you're also working on assembling another package, is there any additional color that you could share at this time?

Well, I'll start with the one-yard line comment. We were at the one-yard line and now we're at the half-yard line, so it's progressed and we expect to hopefully have that wrapped up here in the next couple of weeks. But we'll let you all know how that goes and we'll announce that information accordingly.

Remind me your second part of your question before we go on to the expanded area that Dad mentioned.

Yeah, just if you've been seeing any increased interest in potential commitments just following expands announcement in their entry into the Western Haynesville.

We say interest remains robust across this whole area and increased commitment. What I'm comfortable saying about that is that our operating partners have the ability to flex up above and beyond their minimum annual commitments and so you can certainly see some relative outperformance there.

Now is there any color that you could offer on the package that you're working on assembling that you mentioned in the prepared remarks?

I'm going to let Dad take that one because he's real excited about it.

If you look at the Shelby Trough in the Western Haynesville, and now the expand well, the Yancey Well which is about 20% to 30% further to the east than any of the wells that have been drilled so far moving back into almost North Central Houston County, and then you go into Trinity County, Cherokee County, Angelina County, Polk County, Tyler County, San Augustine County, Sabine County, there is so much inventory potential out there that really hasn't even been scratched yet and folks keep putting blocks together and we've done a lot of homework on the subsurface all the way across to the Western Haynesville and everything that keeps happening thus far, has been positive to more positive than what one could expect. We see some very interesting geologic things happening as you move further west from the traditional Shelby Trough where there is significant expansion between the base of the Knoll lines and the top of the Smackover. And that phenomenon is what's been driving the moving eastward into the Western Haynesville.

I think I said this last time, these packages of shale that are commercial are thicker in that expanded area and we have existing acreage that we think is deeper than the traditional work that's been done in the Shelby Trough, but that is not inconsistent with what's been going on in the Western Haynesville and it's in our inventory and we're working it hard and looking forward to taking it out to capital development in the future.

I appreciate all the color. For my follow-up, with the strong volume growth this quarter, how should we think about volumes trending in the fourth quarter into 2026 with the wells that are expected to be turned in line from Aethon and the Permian development project? And then maybe more broadly just how would you compare what you're seeing in terms of gas directed activity across your acreage relative to earlier in the year?

Thanks John. So, like I said in my prepared remarks, I mean we didn't update for your guidance, at this point, so we're still being pretty thoughtful about the activity that's going on across our assets, whether it's Aethon or larger developments out in the Permian. I'd say we started to get excited is to see Aethon volumes coming online and then kind of throughout the fourth quarter into the beginning of next year along with the large development in the Permian, which is Cotera, and seeing their well start to come online recently, but more completely as we think about kind of the beginning of next year. Overall, I think it's going to be an interesting several months, winter season to watch activity levels, especially in the natural gas-focused basins and to see how that plays into a full year '26 volumes.

I would add also, recently we put out a multi-year forecast which is somewhat unusual for a publicly traded company, and I would just encourage the marketplace to not focus so much on the next 6 to 12 months, but to focus on the next five years because, as I said earlier, this is a massive reservoir and it takes time to spool it up and evaluate it and spool it up and we really are excited about the slow, methodic, thoughtful early stages of some of these new transactions that we've done. But every one of those, with success, will grow in well counts by two to threefold, as well as layering new projects in there.

When you talk about share value and share activity, that's a real good question because I don't know how much the average person wants to get out in front of the market. But if what we're seeing is valid and as I said before, if the natural gas markets are as everybody seems to think they're going to be, i.e., less volatile and more secure in the future, the time to buy our shares is now, not two years from now.

Terrific. Thanks for the time.

Tim Rezvan, KeyBanc Capital Markets.

Good morning, folks, and congrats everybody on the new roles and Tom on your transition.

Some of my questions were addressed by the prior analysts, but I wanted to ask, you mentioned more Permian production coming. As a two-stream reporter, we've noticed that the natural gas differentials have weakened, I'm guessing that's due to exposure to Waha. And as you think about, I know that Haynesville is sort of the longer-term story, but a lot of producers are getting beaten up by the challenges at Waha that may not resolve until 2027. So, can you talk about anything you're doing? I know you've been plain vanilla hedgers in the past. Do you intend to just ride this out or is there anything you can do because gas is still over 70% of your production. Just curious on that.

Yeah, thanks, Tim. Mr. Taylor, I'd say like you said, our hedging strategy remains consistent the way that we've been thinking about it, and I think when you think about our natural gas volumes, so much of that is coming from the Haynesville, and from the Shelby Trough, where we've got good exposure to Henry Hub, I think, relative to, as you mentioned, kind of some of the dynamics that are going on with Waha and the Permian. And I think when we think about Waha and we think about just general Permian production, really what gets us excited is to see the ongoing development on high interest acreage and then ongoing development across the full suite of assets because we touched in the investor presentation in September. We're really well aligned with the top operators in the Permian, and so we continue to see robust activity from those folks.

And then also just going back to some of these a little bit more bespoke, high interest developments that we have in the Permian, so excited to see those volumes come online. So, overall, continuing to maintain our consistent strategies, we're thinking about pricing and activity levels.

Okay, so from a modeling perspective, do you think that on a two-stream basis, being at a discount to benchmark Henry Hub, is that going to be the reality? Over the next year if Waha sort of stays where it is. That's what I'm trying to get at.

Yeah, that's like I said that's what we're thinking about it and that's what we've got a robust hedge strategy.

Okay. I'll leave it there. Thank you.

(Operator Instructions)

All right, if there are no more questions, we sure thank you all for joining us today, and we look forward to speaking with you soon.

Ladies and gentlemen, that concludes today's call.

Thank you all for joining. You may now disconnect.