Black Stone Minerals, L.P. (NYSE: BSM) ("Black Stone Minerals,"
"Black Stone," or "the Partnership") today announces its financial
and operating results for the third quarter of 2018 as well as
notable recent events.
Highlights
- Reported total quarterly production of
48.3 Mboe/d in the third quarter of 2018, an increase of 8% over
the second quarter of 2018.
- Reported oil and gas revenues of $145.8
million, lease bonus and other income of $12.4 million, and net
income of $60.8 million for the quarter.
- Generated Adjusted EBITDA of $114.2
million, a 14% increase from the amount reported for the second
quarter of 2018 and a 47% increase over the amount reported for the
comparable period in 2017.
- Previously announced distributions to
common and subordinated units attributable to the third quarter of
2018 of $0.37 per unit or $1.48 annualized, a 10% increase over the
prior quarter.
- Reported distributable cash flow of
$100.8 million, resulting in distribution coverage for all units of
1.3x at the increased distribution level.
- Approved a $75 million common unit
repurchase program.
- Acquired $73.5 million in mineral and
royalty assets for cash and equity during the third quarter.
- Effective October 31, 2018, secured a
$75 million increase in the credit facility borrowing base to a
total of $675 million.
Management Commentary
Thomas L. Carter, Jr., Black Stone Minerals’ Chief Executive
Officer and Chairman, commented, "Black Stone had a very strong
third quarter. We set a new record for quarterly production, driven
by robust drilling activity across our portfolio and meaningful
contributions from our recent acquisitions. In total, our royalty
production volumes are up more than 50% from the third quarter of
last year. On the strength of these results, we announced last week
that we are increasing the distribution to common and subordinated
unitholders by nearly 10% to an annualized rate of $1.48 per unit
while maintaining distribution coverage of 1.3 times. We're clearly
executing very well as a company, yet the solid operational
performance we've achieved this year has not been reflected in our
unit price. Accordingly, the Board has authorized a common unit
repurchase program that will allow us to take advantage of the
dislocation in value that we believe exists in our common units. We
continue to believe that Black Stone represents a tremendous
opportunity for long-term investors who want exposure to diverse,
actively managed mineral and royalty assets."
Quarterly Financial and Operating Results
Production
Black Stone reported average production of 48.3 MBoe/d (68%
mineral and royalty, 72% natural gas) for the third quarter of
2018. This represents an increase of 8% from the second quarter of
2018 and is a 31% increase over average production of 37.0 MBoe/d
for the corresponding period in 2017. Oil production for the period
grew 5% from levels reported in the second quarter of 2018, while
natural gas production increased by 9% from the second quarter of
2018.
Realized Prices, Revenues, and Net Income
The Partnership’s average realized price per Boe, excluding the
effect of derivative settlements, was $32.81 for the quarter ended
September 30, 2018. This represents a 2% increase from the
preceding quarter and is 29% higher than the $25.36 per Boe
reported for the quarter ended September 30, 2017.
Black Stone reported oil and gas revenues of $145.8 million (57%
oil and condensate) for the third quarter of 2018, an increase of
11% from $131.1 million in the second quarter of 2018. This
increase in oil and gas revenue was driven primarily by an increase
in reported production volumes. Oil and gas revenue in the third
quarter of 2017 was $86.4 million.
The Partnership recognized a loss on commodity derivative
instruments of $18.5 million in the third quarter of 2018, composed
of $9.8 million in payments to counterparties for settlements and
an $8.7 million unrealized loss that reflects the change in value
of the Partnership’s derivative positions during the quarter. Black
Stone reported losses on commodity derivative instruments of $33.3
million and $9.3 million, respectively, for the quarters ended June
30, 2018 and September 30, 2017.
Black Stone recognized $12.4 million in lease bonus and other
income in the third quarter of 2018, led by leasing activity
focused on the Austin Chalk, with additional leases granted in the
Marmaton/Cleveland play in the Mid-Continent and the Louisiana
portion of the Haynesville/Bossier trend. The Partnership reported
$11.6 million and $12.0 million in lease bonus and other income for
the second quarter of 2018 and third quarter of 2017,
respectively.
The Partnership reported net income of $60.8 million, which
includes the non-cash derivative loss described above, for the
quarter ended September 30, 2018, compared to net income of $28.7
million in the preceding quarter. Net income for the third quarter
of 2017 was $22.0 million.
Adjusted EBITDA and Distributable Cash Flow
Black Stone reported new quarterly records as a public company
for both Adjusted EBITDA and distributable cash flow in the third
quarter of 2018. Adjusted EBITDA was $114.2 million for the third
quarter of 2018, compared to $100.3 million in the second quarter
of 2018 and $77.7 million for the corresponding quarter in 2017.
Distributable cash flow for the third quarter of 2018 was $100.8
million, a 16% increase from the $87.2 million in the second
quarter of 2018 and an increase of 46% from the $69.1 million
reported in the third quarter of 2017. The Partnership expects to
distribute approximately $76 million to common and subordinated
unitholders with respect to the third quarter with the balance
retained for the continued growth of the business.
Financial Position
As of September 30, 2018, the Partnership had $4.4 million in
cash and $402.0 million outstanding under its credit facility.
Subsequent to quarter-end, Black Stone's borrowing base was
increased by $75 million to $675 million as part of its regularly
scheduled borrowing base redetermination. Additionally, the
Partnership's bank group approved a twenty-five basis point
reduction in the interest rate pricing grid associated with Black
Stone's credit facility.
As of November 2, 2018, the Partnership had $377.0 million
outstanding under the credit facility and $7.6 million in cash,
providing over $305 million in available liquidity. Black Stone
Minerals is in compliance with all financial covenants associated
with its credit facility.
Hedge Position
Black Stone has commodity derivative contracts in place covering
portions of its anticipated production for the remainder of 2018 as
well as 2019 and 2020.
For the balance of 2018, approximately 71% of expected oil
volumes are hedged at prices averaging $55.18 per barrel and
approximately 72% of expected gas volumes are hedged at prices
averaging $3.01 per Mcf through the use of swaps and costless
collars. The Partnership's current hedge position for the remainder
of 2018, 2019 and 2020 is summarized in the following tables:
Oil Hedge Position
Oil
Costless Oil Swap Oil Swap Price Collars Collar Floor Collar
Ceiling MBbl $/Bbl MBbl $/Bbl $/Bbl 4Q18 854 $55.18 1Q19 645 $58.66
60 $65.00 $74.00 2Q19 645 $58.66 60 $65.00 $74.00 3Q19 645 $58.20
60 $65.00 $74.00 4Q19 645 $58.20 60 $65.00 $74.00 1Q20 210 $55.00
$70.85 2Q20 210 $55.00 $70.85 3Q20 210 $55.00 $70.85 4Q20 210
$55.00 $70.85 Gas Hedge Position
Gas Swap Gas Swap MMcf
$/MMcf 4Q18 13,630 $3.01 1Q19 9,000 $2.86 2Q19 9,060 $2.86 3Q19
9,120 $2.86 4Q19 9,120 $2.86
More detailed information about the Partnership's existing
hedging program can be found in the Quarterly Report on Form 10-Q
for the third quarter of 2018, which is expected to be filed on
November 6, 2018.
Acquisitions
Black Stone acquired $73.5 million of properties in the third
quarter of 2018, of which $22.5 million was acquired through the
issuance of Black Stone Minerals common units directly to sellers.
Approximately 60% of the acquisitions made during the quarter
related to interests in the Permian Basin, with continued
consolidation of positions in East Texas making up the next largest
component of the acquisition program. During the quarter, the
Partnership also acquired $10.8 million of assets that complement
the purchase of mineral and royalty properties acquired from Noble
Energy in late 2017.
Year to date, Black Stone has closed on the acquisition of
approximately $132 million of mineral and royalty assets.
Development Capital Expenditures
The Partnership invested $8.4 million in development capital
during the third quarter of 2018, net of $37.6 million in
reimbursements from farmout partners. As a result of the previously
disclosed farmouts, substantially all capital expenditures made by
Black Stone to drill and complete Haynesville/Bossier wells in the
Shelby Trough area of East Texas will be reimbursed by those
partners. The majority of net development capital for the quarter
relates to the drilling of the PepperJack B#1 well.
Through the first nine months of 2018, the Partnership invested
a total of $41.1 million in net development capital expenditures.
Black Stone spent $29.2 million in the first nine months of 2018,
net of farmout reimbursements, on working interest participation
capital related primarily to Haynesville/Bossier wells in the
Shelby Trough which were spud prior to the farmouts. Remaining
capital expenditures related to pre-farmout wells are expected to
be negligible.
Distributions
As previously reported, the Board of Directors of the general
partner (the "Board") has approved cash distributions attributable
to the third quarter of 2018 of $0.37 per unit for both common and
subordinated units. This represents an approximate 10% increase to
the distribution for common and subordinated unitholders from the
previous quarter. The quarterly distribution coverage ratio
attributable to the third quarter of 2018 was approximately 1.3x
for all units. Distributions will be payable on November 21, 2018
to unitholders of record on November 14, 2018.
PepperJack Prospect Update
Late in the third quarter of 2018, Black Stone entered into an
exploration agreement with a consortium of private exploration and
production companies (the "Development Partners") to further
delineate the PepperJack prospect targeting the Lower Wilcox
formation in East Texas. Key provisions of the agreement
include:
- The Development Partners have
reimbursed Black Stone for 100% of the drilling costs and will pay
75% of the testing and completion costs for the PepperJack A#1 well
in exchange for a 75% working interest in that well;
- Black Stone received cash for lease
options covering Black Stone minerals and leases as well as an
overriding royalty interest in the PepperJack prospect area;
- The Development Partners will begin
completion operations on PepperJack A#1 well in the fourth quarter
of 2018, with Black Stone participating as a 25% working interest
owner;
- The Development Partners may elect to
conduct a 3-D seismic survey covering the PepperJack prospect area
following a successful completion of the PepperJack A#1 well, with
the majority of Black Stone's pro rata costs related to such a
survey to be carried by the Development Partners; and
- Following interpretation of the 3-D
seismic survey, the Development Partners can elect to begin a
continuous development program within the PepperJack prospect area
requiring a set number of wells per year. If the consortium elects
not to develop the prospect, Black Stone is free to market the
prospect (except for the PepperJack A#1 well to be retained by the
owners thereof) to other operators.
Mr. Carter commented, "We've been talking about the potential of
the lower part of the Wilcox formation for a number of years. We
have a fair amount of high-net interest areas in the play. This
agreement is another important step in getting that acreage tested,
and if successful, quickly moving those assets into development by
third-party operators."
Unit Repurchase Program
Subsequent to quarter-end, the Board authorized a $75 million
unit repurchase program.
Regarding the unit repurchase program, Mr. Carter remarked,
"Since our IPO, Black Stone has significantly increased its
production and cash flow, while contemporaneously reducing its
retained working interest exposure. We've also steadily increased
our distribution to unitholders over that time frame, including the
10% increase we announced for the most recent quarter. The
performance of our equity over the last year has not matched our
operational and financial performance. While we expect to continue
to find attractive acquisition opportunities, this program gives us
another avenue to enhance value for our unitholders."
The unit repurchase program authorizes the Partnership to make
repurchases on a discretionary basis as determined by management,
subject to market conditions, applicable legal requirements,
available liquidity, and other appropriate factors. All or a
portion of any repurchases may be made under a Rule 10b5-1 plan,
which would permit common units to be repurchased when the
Partnership might otherwise be precluded from doing so under
applicable laws. The repurchase program does not obligate the
Partnership to acquire any particular amount of common units and
may be modified or suspended at any time and could be terminated
prior to completion. The Partnership will periodically report the
number of common units repurchased. The program will be funded from
the Partnership's cash on hand or through borrowings under the
credit facility. Any repurchased units will be canceled.
Conference Call
Black Stone Minerals will host a conference call and webcast for
investors and analysts to discuss its results for the third quarter
of 2018 on Tuesday, November 6, 2018 at 9:00 a.m. Central Time. To
join the call, participants should dial (877) 447-4732 and use
conference code 6485996. A live broadcast of the call will also be
available at http://investor.blackstoneminerals.com. A
recording of the conference call will be available at that site
through December 7, 2018.
About Black Stone Minerals, L.P.
Black Stone Minerals is one of the largest owners of oil and
natural gas mineral interests in the United States. The Partnership
owns mineral interests and royalty interests in 41 states and 64
onshore basins in the continental United States. The Partnership
also owns and selectively participates as a non-operating working
interest partner in established development programs, primarily on
its mineral and royalty holdings. The Partnership expects that its
large, diversified asset base and long-lived, non-cost-bearing
mineral and royalty interests will result in production and reserve
growth, as well as increasing quarterly distributions to its
unitholders.
Forward-Looking Statements
This news release includes forward-looking statements. All
statements, other than statements of historical facts, included in
this news release that address activities, events, or developments
that the Partnership expects, believes, or anticipates will or may
occur in the future are forward-looking statements. Terminology
such as "will," "may," "should," "expect," "anticipate," "plan,"
"project," "intend," "estimate," "believe," "target," "continue,"
"potential," the negative of such terms, or other comparable
terminology often identify forward-looking statements. Except as
required by law, Black Stone Minerals undertakes no obligation, and
does not intend, to update these forward-looking statements to
reflect events or circumstances occurring after this news release.
You are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date of this
news release. All forward-looking statements are qualified in their
entirety by these cautionary statements. These forward-looking
statements involve risks and uncertainties, many of which are
beyond the control of Black Stone Minerals, which may cause the
Partnership’s actual results to differ materially from those
implied or expressed by the forward-looking statements.
Important factors that could cause actual results to differ
materially from those in the forward-looking statements include,
but are not limited to, those summarized below:
- the Partnership’s ability to execute
its business strategies;
- the volatility of realized oil and
natural gas prices;
- the level of production on the
Partnership’s properties;
- regional supply and demand factors,
delays, or interruptions of production;
- the Partnership’s ability to replace
its oil and natural gas reserves; and
- the Partnership’s ability to identify,
complete, and integrate acquisitions.
For an important discussion of risks and uncertainties that may
impact our operations, see our annual and quarterly filings with
the Securities and Exchange Commission, which are available on our
website.
Information for Non-U.S. Investors
This press release is intended to be a qualified notice under
Treasury Regulation Section 1.1446-4(b). Although a portion of
Black Stone Minerals’ income may not be effectively connected
income and may be subject to alternative withholding procedures,
brokers and nominees should treat 100% of Black Stone Minerals’
distributions to non-U.S. investors as being attributable to income
that is effectively connected with a United States trade or
business. Accordingly, Black Stone Minerals’ distributions to
non-U.S. investors are subject to federal income tax withholding at
the highest marginal rate, currently 37.0% for individuals.
BLACK STONE MINERALS, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(In thousands, except per unit amounts) Three
Months Ended Nine Months Ended September 30,
September 30, 2018 2017
2018 2017 REVENUE Oil and
condensate sales $ 82,712 $ 41,361 $ 232,920 $ 119,097 Natural gas
and natural gas liquids sales 63,080 45,047 170,179 142,651 Lease
bonus and other income 12,440 12,044 28,616
37,082 Revenue from contracts with customers 158,232 98,452
431,715 298,830 Gain (loss) on commodity derivative instruments
(18,514 ) (9,341 ) (68,194 ) 35,387 TOTAL REVENUE 139,718
89,111 363,521 334,217 OPERATING
(INCOME) EXPENSE Lease operating expense 4,229 4,569 12,767 12,906
Production costs and ad valorem taxes 17,641 11,549 46,939 35,314
Exploration expense 34 8 6,782 616 Depreciation, depletion, and
amortization
29,273
29,204
88,135
84,483 General and administrative 22,083 17,305 60,416 51,998
Accretion of asset retirement obligations 278 260 820 760 (Gain)
loss on sale of assets, net — — (2 ) (931 ) TOTAL
OPERATING EXPENSE
73,538
62,895
215,857
185,146 INCOME (LOSS) FROM OPERATIONS 68,271 26,216
149,755 149,071 OTHER INCOME (EXPENSE) Interest and investment
income 53 (9 ) 123 30 Interest expense (5,518 ) (4,172 ) (15,319 )
(11,660 ) Other income (expense) 60 (1 ) (1,046 ) 352
TOTAL OTHER EXPENSE (5,405 ) (4,182 ) (16,242 ) (11,278 ) NET
INCOME (LOSS)
60,775
22,034
131,422
137,793 Net (income) loss attributable to noncontrolling interests
(22 ) 20 (1 ) 27 Distributions on Series A redeemable preferred
units — (666 ) (25 ) (2,452 ) Distributions on Series B cumulative
convertible preferred units (5,250 ) — (15,750 ) —
NET INCOME (LOSS) ATTRIBUTABLE TO THE GENERAL PARTNER AND COMMON
AND SUBORDINATED UNITS $
55,503
$ 21,388 $
115,646
$ 135,368 ALLOCATION OF NET INCOME (LOSS): General
partner interest $ — $ — $ — $ — Common units
29,188
16,371
71,037
83,989 Subordinated units
26,315
5,017
44,609
51,379 $
55,503
$ 21,388 $
115,646
$ 135,368 NET INCOME (LOSS) ATTRIBUTABLE TO LIMITED
PARTNERS PER COMMON AND SUBORDINATED UNIT: Per common unit (basic)
$
0.27
$ 0.16 $
0.67
$ 0.86 Weighted average common units outstanding
(basic) 106,706 101,623 105,254 97,777
Per subordinated unit (basic) $
0.27
$ 0.05 $
0.46
$ 0.54 Weighted average subordinated units
outstanding (basic) 96,329 95,388 96,021
95,269 Per common unit (diluted) $
0.27
$ 0.16 $
0.67
$ 0.86 Weighted average common units outstanding
(diluted) 106,706 101,623 105,254 97,777
Per subordinated unit (diluted) $
0.27
$ 0.05 $
0.46
$ 0.54 Weighted average subordinated units
outstanding (diluted) 96,329 95,388 96,021
95,269 DISTRIBUTIONS DECLARED AND PAID: Per common unit $
0.3375 $ 0.3125 $ 0.9625 $ 0.8875 Per
subordinated unit $ 0.3375 $ 0.2088 $ 0.7550 $
0.5763
The following table shows the Partnership’s production,
revenues, realized prices, and expenses for the periods
presented.
Three Months Ended September 30,
Nine Months Ended September 30, 2018
2017 2018 2017
(Unaudited) (Dollars in thousands, except for realized
prices and per Boe data) Production: Oil and condensate
(MBbls) 1,251 911 3,623 2,597 Natural gas (MMcf)1 19,153
14,974 52,205 44,459 Equivalents (MBoe) 4,443 3,407
12,324 10,007 Equivalents/day (MBoe) 48.3 37.0 45.1 36.7
Revenue: Oil and condensate sales $ 82,712 $ 41,361 $
232,920 $ 119,097 Natural gas and natural gas liquids sales1 63,080
45,047 170,179 142,651 Lease bonus and other income 12,440
12,044 28,616 37,082 Revenue from contracts
with customers 158,232 98,452 431,715 298,830 Gain (loss) on
commodity derivative instruments (18,514 ) (9,341 ) (68,194 )
35,387 Total revenue $ 139,718 $ 89,111 $ 363,521 $ 334,217
Realized prices: Oil and condensate ($/Bbl) $ 66.12 $ 45.39
$ 64.29 $ 45.87 Natural gas ($/Mcf)1 3.29 3.01 3.26
3.21 Equivalents ($/Boe) $ 32.81 $ 25.36 $ 32.71 $
26.16
Operating expenses: Lease operating expense $ 4,229 $
4,569 $ 12,767 $ 12,906 Production costs and ad valorem taxes
17,641 11,549 46,939 35,314 Exploration expense 34 8 6,782 616
Depreciation, depletion, and amortization
29,273
29,204
88,135
84,483 General and administrative 22,083 17,305 60,416 51,998
Per Boe: Lease operating expense (per working interest Boe)
$ 2.99 $ 3.19 $ 3.27 $ 3.06 Production costs and ad valorem taxes
3.97 3.39 3.81 3.53 Depreciation, depletion, and amortization
6.59
8.57
7.15
8.44 General and administrative 4.97 5.08 4.90 5.20
1 As a mineral-and-royalty-interest owner, Black Stone Minerals
is often provided insufficient and inconsistent data on natural gas
liquid ("NGL") volumes by its operators. As a result, the
Partnership is unable to reliably determine the total volumes of
NGLs associated with the production of natural gas on its acreage.
Accordingly, no NGL volumes are included in our reported
production; however, revenue attributable to NGLs is included in
natural gas revenue and the calculation of realized prices for
natural gas.
Non-GAAP Financial Measures
Adjusted EBITDA and distributable cash flow are supplemental
non-GAAP financial measures used by our management and external
users of our financial statements such as investors, research
analysts, and others, to assess the financial performance of our
assets and our ability to sustain distributions over the long term
without regard to financing methods, capital structure, or
historical cost basis.
We define Adjusted EBITDA as net income (loss) before interest
expense, income taxes, and depreciation, depletion, and
amortization adjusted for impairment of oil and natural gas
properties, accretion of asset retirement obligations, unrealized
gains and losses on commodity derivative instruments, and non-cash
equity-based compensation. We define distributable cash flow as
Adjusted EBITDA plus or minus amounts for certain non-cash
operating activities, estimated replacement capital expenditures,
cash interest expense, and distributions to noncontrolling
interests and preferred unitholders.
Adjusted EBITDA and distributable cash flow should not be
considered an alternative to, or more meaningful than, net income
(loss), income (loss) from operations, cash flows from operating
activities, or any other measure of financial performance presented
in accordance with generally accepted accounting principles
(“GAAP”) in the United States as measures of our financial
performance.
Adjusted EBITDA and distributable cash flow have important
limitations as analytical tools because they exclude some but not
all items that affect net income (loss), the most directly
comparable GAAP financial measure. Our computation of Adjusted
EBITDA and distributable cash flow may differ from computations of
similarly titled measures of other companies.
Three Months Ended September 30,
Nine Months Ended September 30, 2018
2017 2018 2017
(Unaudited) (In thousands, except per unit amounts)
Net income $
60,775
$ 22,034 $
131,422
$ 137,793 Adjustments to reconcile to Adjusted EBITDA:
Depreciation, depletion, and amortization
29,273
29,204
88,135
84,483 Interest expense 5,518 4,172 15,319 11,660 Income tax
expense (2 ) — 1,059 — Accretion of asset retirement obligations
278 260 820 760 Equity–based compensation 9,596 7,675 24,947 18,614
Unrealized (gain) loss on commodity derivative instruments 8,718
14,320 47,733 (23,048 ) Adjusted EBITDA
114,156 77,665 309,435 230,262 Adjustments to reconcile to
distributable cash flow: Deferred revenue (1 ) (701 ) 1,300 (1,670
) Cash interest expense (5,287 ) (3,946 ) (14,571 ) (10,999 )
(Gain) loss on sale of assets, net — — (2 ) (931 ) Estimated
replacement capital expenditures1 (2,750 ) (3,250 ) (8,750 )
(10,250 ) Cash paid to noncontrolling interests (47 ) (24 ) (161 )
(90 ) Preferred unit distributions (5,250 ) (666 ) (15,775 ) (2,452
) Distributable cash flow $ 100,821 $ 69,078 $
271,476 $ 203,870 Total units outstanding2
204,794 198,786 Distributable cash flow per unit $ 0.492 $ 0.347
Common unit price as of November 2, 2018 $ 16.88 Implied
distributable cash flow yield 11.7 %
1 On June 8, 2017, the Board approved a replacement capital
expenditure estimate of $13.0 million for the period of April 1,
2017 to March 31, 2018. On April 27, 2018, the Board approved a
replacement capital expenditure estimate of $11.0 million for the
period of April 1, 2018 to March 31, 2019.
2 The distribution attributable to the three months ended
September 30, 2018 is estimated using 108,465,215 common units and
96,328,836 subordinated units as of October 31, 2018; the
exact amount of the distribution attributable to the three months
ended September 30, 2018 will be determined based on units
outstanding as of the record date of November 14, 2018.
Distributions attributable to the three months ended September 30,
2017 were calculated using 103,398,042 common units and 95,388,424
subordinated units as of the record date of November 17, 2017.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20181105006009/en/
Black Stone Minerals, L.P.Brent Collins, 713-445-3200Vice
President, Investor Relationsinvestorrelations@blackstoneminerals.com
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