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Operator
Ladies and gentlemen, today's conference is scheduled to begin momentarily. Until then, your lines will again be placed on music hold. Thank you for your patience. Thank you. Ladies and gentlemen, thank you for standing by and welcome to the Blackstone Minerals fourth quarter 2020 earnings conference call. At this time, all participants are in a listen only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today, Evan Kiefer, Vice President of Finance and Investor Relations. Thank you, and please go ahead.
Evan Kiefer
Thank you, Samantha. Good morning to everyone, and thank you for joining us either by phone or online for the Blackstone Minerals fourth quarter and full year 2020 earnings conference call. Today's call is being recorded and will be available on our website along with the earnings release, which was issued yesterday afternoon. 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 the actual results to differ materially from the results expressed or implied in our forward-looking statements. For 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 in our 10-K, which we filed later today. 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 blackstoneminerals.com. Joining me on the call from the company are Tom Carter, Chairman and CEO, Jeff Wood, President and Chief Financial Officer, Steve Putman, Senior Vice President and General Counsel, and Garrett Grimion, Vice President in Engineering and Geology. And now, I'll turn the call over to Tom.
Samantha
Thank you, Evan. Morning, everyone, on the call. Thanks for joining us. We're coming off a difficult week of severe winter storms, and I hope that everybody made it through relatively safely, and they're Water pipes are getting fixed and they have electricity and all those other things we take for granted. I'll begin the call this morning with a quick recap of 2020. The entire oil and gas industry has undergone a period of extreme change and volatility over the past year. While it's not an environment any of us expected or hoped for, we did what was necessary in response to the unprecedented challenges brought about by the pandemic. Our first strategic priority was to further strengthen our liquidity and balance sheet position. We moved very early on in the year with aggressive actions to reduce our costs and reduce our debt. Over the course of the year, we paid down a total of $273 million of outstanding borrowings under our credit facility, funded by the proceeds from two asset sales we completed in July and from retained cash flows. As of December 31, our total debt balance was down to $121 million and was further reduced to below $100 million prior to paying out our fourth quarter distribution today. As a result, we are in a very strong financial position entering 2021 with liquidity of over $250 million under our current borrowing base. It's important to view this deleveraging through the lens of the second and third quarters of 2020. The uncertainty around commodity prices and global economic realities was huge, and the goal was to be around for the recovery. Our other major strategic priority, which we have discussed on previous earnings calls, was to drive greater activity on our existing acreage. The acquisition market was slow in 2020, as sellers did not want to part with assets at low prices. Buyers were dealing with high costs of capital, and limited new capital availability and or unwillingness to take on additional debt. From a future production standpoint, bringing new capital onto our existing land position is equivalent to an acquisition that we don't have to pay for. So we focus our efforts on attracting producers to some of our significant acreage positions outside of major shale plays. As we announced, Earlier in 2020, we struck a deal with Athon Energy to resume development of our Shelby Trough Haynesville Bossier acreage in Angelina County after BP exited in 2019. Athon has successfully drilled the vertical section of the initial two program wells and has reached total depth on one of these ladder was just in the past week. So far, those wells have been on time and on budget, and we remain optimistic around ATHON's plans and ability to execute in this area. As a reminder, our development program with ATHON calls for four wells in the first program year, increasing to 15 wells annually by the third program year. And this is an important factor to recognize as you consider the efforts it takes to spool these plays back up to their peaks of prior years. The other significant piece of our Shelby Trough acreage is just east in St Augustine County and we continue to make progress attracting capital to that area as well. We entered into an incentive agreement with XTO in 2020 to complete its existing duct inventory in the area, and as of last month, all 13 of those wells have been turned to sales. We are also working with them to reach a mutually beneficial agreement that will help facilitate us bringing another operator into St. Augustine. We hope to have a positive news report on that front in the near future and are optimistic about that effort. The other area we feel holds tremendous undeveloped potential is the Austin Chalk Play in East Texas. we have seen success with operators using modern fracking completion techniques to significantly improve well performance. We're currently working with existing operators on that acreage to test and develop the area as well as new entrants on unleashed acreage. In fact, earlier this month, we entered into an agreement with a large publicly traded operator to drill, test, and complete wells in the Austin Chalk Formation on some of our East Texas acreage. If successful, The operator has the option to expand his drilling program over significant acreage owned and controlled by us. Overall, we hold over 200,000 net acres in the East Texas Austin chalk play that we believe are prospective for enhanced fracking. These acres are in areas that have been productive in prior generations. If results across the acreage deliver a similar uplift to what we've seen in neighboring parts of the chalk, it would create a significant new wedge of long-term production and revenue to Blackstone. We are still in the early stages of trying to drive forward these development deals. but they are important in this atmosphere of overall upstream activity. We're working with producers to provide incentives for them to put our acreage at the top of their drilling inventory because producers in general are being more selective in where they deploy capital. We've seen the impact of that across our acreage. As of year end, there were 38 rigs active on our acreage, and the count has grown to 50 rigs by the end of January. This is above the 29 rigs operating on us at the end of the third quarter, but it's down sharply from activity levels we saw a year ago. There was a similar story in terms of net well ads on our acres. We added two net wells in the fourth quarter, primarily in the Permian and the Haynesville, which was up from the third quarter, but more full well lower than what we saw in the fourth quarter of 2019. We try to base our near-term forecast on activity where we have a line of sight. Jeff will go into more detail about our 21 guidance, but we have fully incorporated the lower level of current rig activity into that guidance and hope it will prove to be conservative as things continue to recover. To be specific, our long-term thesis is to maximize royalty production in a responsible way and to create distribution growth for our unit holders. And in fact, we were able to announce an increase in our distribution this year. We have maintained a substantial coverage ratio to our distribution over the past year as we diverted retained cash flow towards debt repayment. With our significant progress on that front, the board felt it comfortable to pay out a higher percentage of our free cash flow. So one of the great results of our balance sheet efforts is the ability to return more cash to our unit holders. We set the annualized run rate distribution of 70 cents per unit at a level we believe is sustainable throughout 2021. We look forward to updating you on our strategic initiatives throughout the year. With that, I'm going to turn the call over to Jeff.
Evan
All right. Well, thank you, Tom, and good morning to everyone. Results for the fourth quarter of 2020 came in a bit above our expectations, and that was driven by outperformance in the Louisiana Hainesville and the Boston Three Forks. We generated 32,000 BOE per day of mineral and royalty production in the fourth quarter, and that was a 3% increase from last quarter. And we had 39,000 BOE per day in total production volumes. That's also up 3% from the third quarter. Total production for the full year was 41.6 in BOE per day, which was at the upper end of our revised guidance range. Realized prices for oil and gas continued to improve in the fourth quarter. You'll remember we had unusually wide oil differentials in the third quarter, and those normalized this quarter to result in an average realized oil price of $40.20 per barrel. Gas differentials also benefited from improving NGL prices during the quarter, resulting in our realized gas price averaging $2.68 per MMVTU. That was slightly higher than the average Henry Hub price. Even with the improving price environment, our hedge portfolio generated $14.6 million in cash settlements to our favor during the fourth quarter. Expenses came in a little better than our expectations, with LOE and production costs below our guidance levels. Tom mentioned the efforts that we took in the beginning of 2020 to lower our G&A expenses. Total G&A costs were $10.2 million for the quarter and were $43 million for the full year. That number is a decrease of 32% over our 2019 G&A levels. We reported $72.3 million of adjusted EBITDA and $65.9 million of distributable cash flow for the fourth quarter. Both of those metrics were up over 10% relative to the third quarter. Even with the distribution increase to 17.5 cents per unit, or 70 cents per unit annualized, we generated distribution coverage of 1.8 times which allowed us to repay $26 million of debt during the fourth quarter. As part of our release yesterday afternoon, we gave guidance for 2021. As Tom said, we based this guidance on producer feedback, known permits, and other data that we've got a good line of sight on. It does not include any contributions from acquisitions we may make during the year, and in areas like the chalk, we only include limited contributions from producers with clear drilling plans. Our royalty volume estimate represents a 13% decline from 2020 volumes. That's reflecting declines in our relatively mature Bakken and Eagleford positions, a full year impact to the Permian asset sales, and a lower level of drilling activity outside the major shale plays. We also expect our Shelby Trough production to trend lower in 21 from existing PD fee declines before the expected ramp up in activity from our new development deals. Adding to that, some existing Shelby Trough wells took frack hits and will require some work over activity before returning to previous production levels, and that also negatively impacts our 21 forecast. We expect working interest volumes to decline by about 25 percent. That, of course, is by design, as we intentionally stopped investing in that part of the business in 2017. And as a result, we expect royalty volumes to increase to about 83 percent of total production volumes in 2021. We're estimating lease bonus for the year of around $10 million, That reflects overall leasing activity that's consistent with 2020 levels and also reflects our decision to forego lease bonus in certain situations in favor of more robust drilling commitments from our operators. We expect lease operating expenses and production costs to be in line with 2020 levels. We also expect total G&A expenses to be comparable to the reduced levels of 2020, but to be composed of lower cash G&A costs and slightly higher non-cash costs. This outlook for 21 supports the 70 cent per unit distribution run rate beginning with the fourth quarter distribution being paid today. We anticipate the distribution coverage will come down a bit over the course of the year due to the lower production volumes and lower realized oil prices after taking into account our hedge portfolio. As Tom said, one of the benefits of having such a clean balance sheet is the ability to increase our payout ratio and return more of our cash to our unit holders. As Tom mentioned in his opening remarks, we're coming off a very challenging week here in Texas, and we hope all of you in the area made it through intact. And with that, Samantha, we will open it up for questions.
Operator
Ladies and gentlemen, as a reminder, if you would like to ask an audio question, please press star, then the number one on your telephone keypad. Again, that is star one to ask a question. Your first question comes from the line of Brian Downey.
Brian Downey
Good morning. Thanks for taking the questions. A question on the guidance. I'm curious first how you see the production trajectory during the year, particularly on the gas side. You know, with the recent duct completions and the Shelby trough development agreement, as you alluded to those volumes rebounding, how should we think about, you know, the cadence of those rebounding volumes versus PDP declines as we go through 21?
Evan
Yeah, Brian. Hey, this is Jeff. Thanks for the question. And I think you've Frankly, you sort of answered it. I mean, we would expect that over the course of the year, primarily driven by gas volumes, that those would trend down. And really, for the factors that you cited there, right, we had a pretty good uptick in volumes from the XTO ducts, all 13 of those that got completed by the end of January. So we're seeing the volume impact of those early in the year, and those will trend down. and again, I think that will trend down in advance of the new levels of activity coming in that Shelby Trough area from Athon and hopefully others. But yeah, I would call it just sort of a general decline primarily led by gas through the course of the year.
Samantha
I'll just add to that. When you think about 2021 in the context of 2020 and 2019 and 2018 and going forward, you have to understand that we've brought in a whole new set of capital providers out there and they are Ramping those programs back up and they were at very high levels before BP left the area and XTO slowed down and it does take time for those things to school back up but we are very happy with what's happening there and 2021 will be a transition year from the prior tenants, if you will, to activity by the new tenants.
Brian Downey
And I guess just to clarify, how should we think about, you know, first quarter volumes relative to sort of where 4Q volumes were? I know there's some – understandably some weather noise there as well, but is that the full effect of those ducks? Is that more early 2021? You want to take it?
Evan Kiefer
Yeah, so this is Evan. Thinking of kind of around where Q1 is, really kind of our start rate is where we've been kind of guiding everyone kind of around Q4 and kind of assuming that we're going to see kind of that mid-30 production level starting off.
Brian Downey
Got it. And then I guess my follow-up question on the leasing and development agreement side, you clearly had some nice successes. In the Shelby trough on the gas side in 2020, you mentioned that East Texas often chalk in your remarks as the commodity macro outlook has improved. Are there any other areas where early discussions we could hear of maybe some incremental leasing or development agreements as we go through this year?
Evan
Well, this is Jeff. I mean, I would say we're pushing on every front we can given the improving commodity price environment. Obviously, some of those early deals that we struck in 20 were in just a completely different overall look, especially outlook on gas. So I'd say we're focused on the St. Augustine side of the Shelby trough. There are numerous areas across the Austin Chalk that we're working just given the size of our acreage position there. And then, look, there's others, Wilcox, Louisiana, Hainesville, that we're doing everything we can to try to move up an operator's capital stack as we go through. And, you know, it's not just in Texas, as Gary just mentioned. We did have success with a major operator on the Louisiana, Hainesville side in structuring an incentive deal that brought capital onto the Louisiana acreage. And as I mentioned in my prepared remarks, that's one of the areas that sort of outperformed in the fourth quarter. So, you know, we would hope to continue to see those opportunities, and they should be a little easier to come by in a more constructive gas environment.
Samantha
And keep in mind, when we're talking about East Texas versus some of the other Bakken and Permian areas, Those are areas of very high acreage concentrations for us with substantial ownership as opposed to lower nets in some of the other plays. And we have so much acreage there that those are highly impactful as they develop up for us. And we're going to be working those very hard.
Bakken
Great. I appreciate the call.
Operator
Your next question comes from the line of Derek Whitfield with Stiefel.
Derek Whitfield
Good morning, all. Congrats on the Austin Shock Agreement. Thanks, Derek. Regarding your 2021 guidance, could you offer any color on line of sight activity, including net permits and net ducts, and then also speak to the degree of weather impacts and hits factored into your guidance? Clearly the last part is more specific to Q1, just to clarify.
Evan
Yeah, I may let Evan take a shot at your first one. I mean, we did, so as XTO was completing those 13 wells, there were just some existing PDP that had some brackets, and we think probably overall that's in the range of 700 to 800 BOE a day off of 21 production guidance in total and that would be sort of front loaded in the early part of the year. In terms of, you know, permitting and rig activity and those other things that tend to drive our forecast, you know, we have seen those step up. I think Tom mentioned this in some of his opening remarks. I mean, we had, you know, 38 rigs on us at the end of the year. That had moved up to 50 by the end of January. And while that's a big improvement from what we saw in the second and third quarters, it's still sort of half of where we were a year ago. And it was a similar story in terms of permits, where the trend is definitely moving in the right direction, but it's quite a bit lower. Evan, I don't know if there's other color you'd want to give. But, I mean, that's the kind of stuff that we tend to look at on a play-by-play basis to drive the forecast.
Evan Kiefer
Yeah, and that's exactly correct. So we'll go and look at any existing permits on our acreage. And whenever we're saying, you know, line of sight, we typically just rely on the data that we have a good visibility on. So we're not factoring any future permits that will be permitted throughout the year. unless an operator has told us otherwise. So we're focused purely on what we currently see out there, and that's what we're expecting to be drilled throughout the year. And then kind of your other comment as far as the weather, we're still kind of working through trying to figure out what the overall impact is. Obviously, we've seen the impact in the Permian from what we've seen out there as well as kind of any other areas that could see any of these freeze-overs. So we're trying to kind of work through and see what the overall impact of that could be.
Derek Whitfield
That makes sense. And with my follow-up, I wanted to drill down on your comments regarding you guys working with XTO on a mutually beneficial agreement that will help you guys attract another operator to develop the St. Augustine acreage Could you offer any color on how that might take shape and the degree of interest you're seeing in this area?
Evan
Yeah, well, look, we've got interest in the area, right? The issue is I think that XTO, Exxon at the moment just has, you know, A, a lot on their plate, and B, maybe other areas that they're focused on. So, you know, we jointly own sort of that core piece in St. Augustine County that we call the Brent Miller area. So to the extent that we can just work something out where they can develop a piece on their own timeline and maybe we could get a piece out to a different operator that may want to do something on a little more aggressive timeline, then hopefully that would work with both. But I think it'd be tough to say anything more right now just given we're in discussions with those guys about working something that hopefully benefits both of us. I would.
Samantha
add when Jeff says we are joint owners with them out there. Just to clarify because of the question, he's talking about from a working interest standpoint because we own the minerals under a lot of that acreage as do they, but we're talking about the working interest side and that's an outgrowth of the evolution of that play and we had a working interest out there which we had farmed out but what we are doing is looking to take our working interest on specific areas and bring another operator in there so and actually double down on who's developing out there but beyond that we hope to be able to say more later
Evan
And Derek, that's just one area that we share the working interest with XTO. We've got a ton of additional open acreage in St. Augustine. So the idea is just can we put together a larger program to attract somebody in there.
Samantha
And underscore, we're not saying that we're going to start taking working interest. We're internally with our own capital. But it does give us the ability to bring a partner in to work on the area.
Derek Whitfield
Understood. Thanks for your clarification on the working interest comments. Thanks again. Very helpful, guys. Thanks, Jordan.
Operator
Your next question comes from the line of Pierce Hammond with Simmons Energy.
Pierce Hammond
Yeah, good morning, and thanks for taking my questions. Jeff, I wanted to start off, just want to get your thoughts on gas hedging. Do you prefer to keep a certain hedge percentage in front of you for the next 12 months? Just want to understand how you're thinking about that right now.
Evan
Yeah, we have historically just tried to be pretty programmatic about that, Pierce. I mean, I guess every time you choose to put a hedge on one day versus another, you're making a mini call on price, but we but we try to just do it systematically. And so, you know, what I would expect is in keeping with prior years that we would look to, in pretty short order, start to establish some 22 hedge positions on both oil and gas, and then just ramp those up over the course of the year to where, you know, as we're coming into 22, that we would be in that traditional kind of 70, 80 plus percent
Pierce Hammond
Okay, perfect. Thank you. And then my follow-up, I'm just curious if you could provide some more color on the Austin chalk. Congrats on that agreement. And, you know, what does the producer see there? Is it really good gassy wells? What, you know, are these fairly deep wells, expensive wells? Just curious, you know, what the Austin chalk looks like for you and what the producer is seeing.
Austin
Hey, Pierce. This is Garrett. So it's a pretty good combination of condensate and gas. The older wells in the area were completely unstimulated. We've recently had some good data points on multistage frac wells. And what we're seeing on the first well that was very successful is you know, over 300 producing days, the well made 300,000 barrels and two BCF compared to the direct offset, which was unstimulated at about 50,000 barrels and one BCF. So we're kind of hoping we have a getting field redevelopment lookalike area over here. And we're certainly pushing to try to get future development and some more new wells this year.
Pierce Hammond
Great. Thanks for the caller.
Operator
Again, ladies and gentlemen, if you would like to ask an audio question, please press star, then the number one on your telephone keypad. Your next question comes from the line of Leo Mariani with KeyBank.
spk00
Hey, guys. Just wanted to get a sense and a little bit more color potentially on your 21 guidance. Just made some comments about it already, but just wanted to clarify. I mean, it sounds like you're kind of assuming 2020 levels are in Permian. I think that was one of your comments. And then just additionally, you had some Hainesville activity to start the year, but sounds like you're expecting that to trail off, you know, quite a bit as we get into 2Q21 and 3Q21. Just wanted to kind of verify that's what you guys are sort of framing up, and is there any way to roughly quantify maybe the number of net kind of Hainesville, you know, turning lines you'd expect here in 2021?
Evan Kiefer
Yeah, so the way we're looking at the gas production is that you're right in that we have the 13 ducts that were completed here in January. That is offset a little bit by several wells that were taken offline just for workovers due to crack hits. But then kind of continuing that activity out in the Shelby Trough, that's going to be the 8-ton wells. They've already drilled the first two through the vertical sections. They're currently in the horizontals. and whenever those come online later in the year, that's where we're going to start to see a little bit more of a kind of the ramp up in those volumes, but that's going to be later in the year. So we are seeing, you know, a decline in the gas volumes throughout the year and then kind of holding steady towards the end. Beyond that, there is some agreements that we've done out in Louisiana side that's going to help bolster some of that production going forward as well.
spk00
Okay, great. I just also wanted to ask a kind of a, you know, bit of a strategic question for you folks here. You obviously have done a great job in kind of cleaning up the balance sheet to the point where your leverage is pretty de minimis at the end of the day here. We're clearly in a, you know, slightly different A and D market than we were A couple months ago, certainly looks like things have kind of loosened up and deals are starting to happen. You know, what's the appetite at Blackstone to potentially get a little bit more active there? I know there's a big push to get people to, you know, lease existing minerals, but is there also kind of a second component here where you guys may try to get a little bit more active now that things are maybe more open in 21?
Evan
Leo, I'll start. This is Jeff. Sure. I think the appetite's always there. It's really just been a function of the market. I think what we saw in late 19 and all of 20 is that the sellers, many of whom had acquired their assets in a different commodity environment and more active M&A environment, more expensive M&A environment, frankly, you know, we're not looking to part with those assets in a cheaper... less expensive, less active M&A environment. And so you had a bit of a mismatch between sellers and buyers who had had their cost of capital beat up pretty hard. And I think we're seeing that continue a bit. I mean, now that prices have rebounded pretty significantly, we've seen prices move a lot. We've seen our equity values recover somewhat. So I still think there's a bit of a disconnect probably between what a seller is going to want to see and what at least a public buyer is willing and able to pay given access to capital. So in short, I think the appetite is there, but that deal is going to have to make sense for us on a long-term both distribution and NAV accretion basis. If we can find those deals, we would love to do them and we'll be looking, but in the meantime, Anytime that we can get new streams of cash flows out of our existing assets, that's just a huge win for us and our unit holders.
Jeff
Okay. Thank you for the call.
Operator
Your next question comes from the line of Harry Halbach with Raymond James.
Harry Halbach
Hi. Congratulations on y'all's enhanced shareholder return policies. In regards to the $75 million buyback program, I was kind of wondering, what is your philosophy around implementing that? Is there a certain next 12-month equity yield being targeted? Or just kind of tell me how you all are thinking about that.
Evan
Yeah, I think that's just, you know, that's there for us to be opportunistic. I think the focus is more to now that the balance sheet is really pretty bulletproof to the focus is really to put as much cash as we can into our unit holders' pockets, and that probably takes priority over share repurchases in the near term. Now, you know, if there's another giant dislocation in the market and it looks even more compelling, then we're going to revisit that. But I think in the near term, you know, again, the focus is going to be can we increase that payout ratio and put more money in our shareholders' hands?
Harry Halbach
Thanks for the color. And then just a quick another question. What is y'all's federal acreage exposure across your portfolio and in the Permian specifically? No, y'all's Permian position is heavily weighted toward Texas, so I wouldn't think it would be much. We just wanted some additional detail.
Evan
Yeah. Yeah. This is Jeff. I'll start and others may want to take it. Look, we definitely have areas where there's federal exposure. So the balance of this whole Biden administration is probably as one of the larger owners of minerals on private lands, you know, restrictions on public moves more activity to us. So that's a net positive. The negative is that there are areas where we have acreage where there's also federal ownership which could make things more difficult. You know, we don't, for example, in the Permian, New Mexico is not a big position for us, which is more federally owned than the Texas side. So, overall, we don't think, I mean, in going through the 21 guidance and the longer forecast internally, we don't think that that's a huge impediment to Blackstone, and maybe it's a bit of a push from the positives of driving more capital on a private acreage, which we're obviously a huge owner of.
Jeff
Great. Thanks. Appreciate you all taking my questions. Thanks, Harry.
Operator
We have reached our allotted time for questions and answers. I would like to turn the call back over to management for any additional or closing remarks.
Samantha
Well, great to speak with you all today. It's been a long year. It's been a long week. The sky is blue today. It's 70 degrees in Houston. We're looking forward to a great year, and we hope you all have one yourselves. We'll talk to you next quarter.
Operator
Ladies and gentlemen, this does conclude today's conference call. You may now disconnect your lines.
spk10
Thank you. Thank you. you Thank you. Thank you. Thank you.
Operator
Ladies and gentlemen, thank you for standing by and welcome to the Blackstone Minerals fourth quarter 2020 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today, Evan Kiefer, Vice President of Finance and Investor Relations. Thank you, and please go ahead.
Evan Kiefer
Thank you, Samantha. Good morning to everyone, and thank you for joining us either by phone or online for the Blackstone Minerals fourth quarter and full year 2020 earnings conference call. Today's call is being recorded and will be available on our website along with the earnings release, which was issued yesterday afternoon. 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 the actual results to differ materially from the results expressed or implied in our forward-looking statements. For 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 in our 10-K, which will be filed later today. 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 blackstoneminerals.com. Joining me on the call from the company are Tom Carter, Chairman and CEO, Jeff Wood, President and Chief Financial Officer, Steve Putman, Senior Vice President and General Counsel, and Garrett Grimeon, Vice President and Engineering and Geology. And now, I'll turn the call over to Tom.
Samantha
Thank you, Evan. Morning, everyone, on the call. Thanks for joining us. We're coming off a difficult week of severe winter storms, and I hope that everybody made it through relatively safely, and they're Water pipes are getting fixed and they have electricity and all those other things we take for granted. I'll begin the call this morning with a quick recap of 2020. The entire oil and gas industry has undergone a period of extreme change and volatility over the past year. While it's not an environment any of us expected or hoped for, we did what was necessary in response to the unprecedented challenges brought about by the pandemic. Our first strategic priority was to further strengthen our liquidity and balance sheet position. We moved very early on in the year with aggressive actions to reduce our costs and reduce our debt. Over the course of the year, we paid down a total of $273 million of outstanding borrowings under our credit facility, funded by the proceeds from two asset sales we completed in July and from retained cash flows. As of December 31, our total debt balance was down to $121 million and was further reduced to below $100 million prior to paying out our fourth quarter distribution today. As a result, we are in a very strong financial position entering 2021 with liquidity of over $250 million under our current borrowing base. It's important to view this deleveraging through the lens of the second and third quarters of 2020. The uncertainty around commodity prices and global economic realities was huge, and the goal was to be around for the recovery. Our other major strategic priority, which we have discussed on previous earnings calls, was to drive greater activity on our existing acreage. The acquisition market was slow in 2020 as sellers did not want to part with assets at low prices. Buyers were dealing with high costs of capital, and limited new capital availability and or unwillingness to take on additional debt. From a future production standpoint, bringing new capital onto our existing land position is equivalent to an acquisition that we don't have to pay for. So we focus our efforts on attracting producers to some of our significant acreage positions outside of major shale plays. As we announced Earlier in 2020, we struck a deal with Athon Energy to resume development of our Shelby Trough Haynesville Bossier acreage in Angelina County after BP exited in 2019. Athon has successfully drilled the vertical section of the initial two program wells and has reached total depth on one of these ladder was just in the past week. So far, those wells have been on time and on budget, and we remain optimistic around ATHON's plans and ability to execute in this area. As a reminder, our development program with ATHON calls for four wells in the first program year, increasing to 15 wells annually by the third program year, And this is an important factor to recognize as you consider the efforts it takes to spool these plays back up to their peaks of prior years. The other significant piece of our Shelby Trough acreage is just east in St. Augustine County, and we continue to make progress attracting capital to that area as well. We entered into an incentive agreement with XTO in 2020 to complete its existing duct inventory in the area, and as of last month, all 13 of those wells have been turned to sales. We are also working with them to reach a mutually beneficial agreement that will help facilitate us bringing another operator into St. Augustine. We hope to have a positive news report on that front in the near future and are optimistic about that effort. The other area we feel holds tremendous undeveloped potential is the Austin Chalk Play in East Texas. We have seen success with operators using modern fracking completion techniques to significantly improve well performance. We're currently working with existing operators on that acreage to test and develop the area as well as new entrants on unleashed acreage. In fact, earlier this month, we entered into an agreement with a large publicly traded operator to drill, test, and complete wells in the Austin Chalk Formation on some of our East Texas acreage. If successful, the operator has the option to expand his drilling program over significant acreage owned and controlled by us. Overall, we hold over 200,000 net acres in the East Texas Austin Chalk Play that we believe are prospective for enhanced fracking. These acres are in areas that have been productive In prior generations, if results across the acreage deliver a similar uplift to what we've seen in neighboring parts of the chalk, it would create a significant new wedge of long-term production and revenue to Blackstone. We are still in the early stages of trying to drive forward these development deals. but they are important in this atmosphere of overall upstream activity. We're working with producers to provide incentives for them to put our acreage at the top of their drilling inventory because producers in general are being more selective in where they deploy capital. We've seen the impact of that across our acreage. As of year end, there were 38 rigs active on our acreage, and the count has grown to 50 rigs by the end of January. This is above the 29 rigs operating on us at the end of the third quarter, but it's down sharply from activity levels we saw a year ago. It was a similar story in terms of net well ads on our acres. We added two net wells in the fourth quarter, primarily in the Permian and the Hainesville, which was up from the third quarter, but more full well lower than what we saw in the fourth quarter of 2019. We try to base our near-term forecast on activity where we have a line of sight. Jeff will go into more detail about our 21 guidance, but we have fully incorporated the lower level of current rig activity into that guidance and hope it will prove to be conservative as things continue to recover. To be specific, our long-term thesis is to maximize royalty production in a responsible way and to create distribution growth for our unit holders. And in fact, we were able to announce an increase in our distribution this year. We have maintained a substantial coverage ratio to our distribution over the past year as we diverted retained cash flow towards debt repayment. With our significant progress on that front, the board felt it comfortable to pay out a higher percentage of our free cash flow. So one of the great results of our balance sheet efforts is the ability to return more cash to our unit holders. We set the annualized run rate distribution of 70 cents per unit at a level we believe is sustainable throughout 2021. We look forward to updating you on our strategic initiatives throughout the year. With that, I'm going to turn the call over to Jeff.
Evan
All right. Well, thank you, Tom, and good morning to everyone. Results for the fourth quarter of 2020 came in a bit above our expectations, and that was driven by outperformance in the Louisiana Hainesville and the Boston Three Forks. We generated 32,000 BOE per day of mineral and royalty production in the fourth quarter, and that was a 3% increase from last quarter. And we had 39,000 BOE per day in total production volumes. That's also up 3% from the third quarter. Total production for the full year was 41.6 in BOE per day, which was at the upper end of our revised guidance range. Realized prices for oil and gas continued to improve in the fourth quarter. You'll remember we had unusually wide oil differentials in the third quarter, and those normalized this quarter to result in an average realized oil price of $40.20 per barrel. Gas differentials also benefited from improving NGL prices during the quarter, resulting in our realized gas price averaging $2.68 per mm BTU. That was slightly higher than the average Henry Hub price. Even with the improving price environment, our hedge portfolio generated $14.6 million in cash settlements to our favor during the fourth quarter. Expenses came in a little better than our expectations, with LOE and production costs below our guidance levels. Tom mentioned the efforts that we took in the beginning of 2020 to lower our G&A expenses. Total G&A costs were $10.2 million for the quarter and were $43 million for the full year. That number is a decrease of 32% over our 2019 G&A levels. We reported $72.3 million of adjusted EBITDA and $65.9 million of distributable cash flow for the fourth quarter. Both of those metrics were up over 10% relative to the third quarter. Even with the distribution increase to 17.5 cents per unit or 70 cents per unit annualized, we generated distribution coverage of 1.8 times which allowed us to repay $26 million of debt during the fourth quarter. As part of our release yesterday afternoon, we gave guidance for 2021. As Tom said, we based this guidance on producer feedback, known permits, and other data that we've got a good line of sight on. It does not include any contributions from acquisitions we may make during the year, and in areas like the chalk, we only include limited contributions from producers with clear drilling plans. Our royalty volume estimate represents a 13% decline from 2020 volumes. That's reflecting declines in our relatively mature Bakken and Eagleford positions, a full-year impact to the Permian asset sales, and a lower level of drilling activity outside the major shale plays. We also expect our Shelby trough production to trend lower in 2021 from existing PD fee declines before the expected ramp-up in activity from our new development deals. Adding to that, some existing Shelby trough wells took frack hits and will require some work over activity before returning to previous production levels, and that also negatively impacts our 21 forecast. We expect working interest volumes to decline by about 25%. That, of course, is by design, as we intentionally stopped investing in that part of the business in 2017. And as a result, we expect royalty volumes to increase to about 83% of total production volumes in 2021. We're estimating lease bonus for the year of around $10 million, That reflects overall leasing activity that's consistent with 2020 levels and also reflects our decision to forego lease bonus in certain situations in favor of more robust drilling commitments from our operators. We expect lease operating expenses and production costs to be in line with 2020 levels. We also expect total G&A expenses to be comparable to the reduced levels of 2020, but to be composed of lower cash G&A costs and slightly higher non-cash costs. This outlook for 21 supports the 70 cent per unit distribution run rate beginning with the fourth quarter distribution being paid today. We anticipate the distribution coverage will come down a bit over the course of the year due to the lower production volumes and lower realized oil prices after taking into account our hedge portfolio. As Tom said, one of the benefits of having such a clean balance sheet is the ability to increase our payout ratio and return more of our cash to our unit holders. As Tom mentioned in his opening remarks, we're coming off a very challenging week here in Texas, and we hope all of you in the area made it through intact. And with that, Samantha, we will open it up for questions.
Operator
Ladies and gentlemen, as a reminder, if you would like to ask an audio question, please press star, then the number one on your telephone keypad. Again, that is star one to ask a question. Your first question comes from the line of Brian Downey.
Brian Downey
Good morning. Thanks for taking the question. The question on the guidance, I'm curious first how you see the production trajectory during the year, particularly on the gas side. You know, with the recent duct completions and the Shelby Trough development agreement, as you alluded to those volumes rebounding, how should we think about, you know, the cadence of those rebounding volumes versus PDP declines as we go through 21?
Evan
Yeah, Brian. Hey, this is Jeff. Thanks for the question. And I think you've Frankly, you sort of answered it. I mean, we would expect that over the course of the year, primarily driven by gas volumes, that those would trend down. And really, for the factors that you cited there, right, we had a pretty good uptick in volumes from the XTO ducts, all 13 of those that got completed by the end of January. So we're seeing the volume impact of those early in the year, and those will trend down. and again, I think that will trend down in advance of the new levels of activity coming in that Shelby Trough area from Athon and hopefully others. But yeah, I would call it just sort of a general decline primarily led by gas through the course of the year.
Samantha
I'll just add to that. When you think about 2021 in the context of 2020 and 2019 and 2018 and going forward, you have to Understand that we've brought in a whole new set of capital providers out there and they are Ramping those programs back up and they were at very high levels before BP left the area and XTO slowed down and it does take time for those things to school back up but we are very happy with what's happening there and 2021 will be a transition year from the prior tenants, if you will, to activity by the new tenants.
Brian Downey
And I guess just to clarify, how should we think about, you know, first quarter volumes relative to sort of where 4Q volumes were? I know there's some, understandably, some weather noise there as well, but is that the full effect of those ducks? Is that more early 2021? You want to take it?
Evan Kiefer
Yeah, so this is Evan. Thinking kind of around where Q1 is, really kind of our start rate is where we've been kind of guiding everyone kind of around Q4 and kind of assuming that we're going to see kind of that mid-30 production level starting off.
Brian Downey
Got it. And then I guess my follow-up question, on the leasing and development agreement side, you clearly had some nice successes. And Shelby Troff on the gas side in 2020, you mentioned that East Texas, Austin Chalk in your remarks, the commodity macro outlook has improved. Are there any other areas where early discussions we could hear of maybe some incremental leasing or development agreements as we go through this year?
Evan
Well, this is Jeff. I mean, I would say we're pushing on every front we can, given the improving commodity price environment. Obviously, some of those early deals that we struck in 20 were in just a completely different overall look, especially outlook on gas. So I'd say we're focused on the St. Augustine side of the Shelby trough. There are numerous areas across the Austin Chalk that we're working, just given the size of our acreage position there. And then, look, there's others, Wilcox, Louisiana Haynesville, that we're doing everything we can to try to move up in operators' capital stack as we go through. And, you know, it's not just in Texas, as Gary just mentioned. We did have success with a major operator on the Louisiana Haynesville side in structuring an incentive deal that brought capital onto the Louisiana acreage. And as I mentioned in my prepared remarks, that's one of the areas that sort of outperformed in the fourth quarter. So, you know, we would hope to continue to see those opportunities, and they should be a little easier to come by in a more constructive gas environment.
Samantha
And keep in mind, when we're talking about East Texas versus some of the other Bakken and Permian areas, Those are areas of very high acreage concentrations for us with substantial ownership as opposed to lower nets in some of the other plays. And we have so much acreage there that those are highly impactful as they develop for us. And we're going to be working those very hard.
Bakken
Great. I appreciate the call.
Operator
Your next question comes from the line of Derek Whitfield with Stiefel.
Derek Whitfield
Good morning, all. Congrats on the Austin Shock Agreement. Thanks, Derek. Regarding your 2021 guidance, could you offer any color on line-of-sight activity, including net permits and net ducts, and then also speak to the degree of weather impacts and hits factored into your guidance? I may include the last part more specific to Q1, just to clarify.
Evan
Yeah, I may let Evan take a shot at your first one. I mean, we did, so as XTO was completing those 13 wells, there were just some existing PDP that had some brackets, and we think probably overall that's in the range of 700 to 800 BOE a day off of 21 production guidance in total and that would be sort of front loaded in the early part of the year. In terms of, you know, permitting and rig activity and those other things that tend to drive our forecast, you know, we have seen those step up. I think Tom mentioned this in some of his opening remarks. I mean, we had, you know, 38 rigs on us at the end of the year. That had moved up to 50 by the end of January. And while that's a big improvement from what we saw in the second and third quarters, it's still sort of half of where we were a year ago. And it was a similar story in terms of permits, where the trend is definitely moving in the right direction, but it's quite a bit lower. Evan, I don't know if there's other color you'd want to give. But, I mean, that's the kind of stuff that we tend to look at on a play-by-play basis to drive the forecast.
Evan Kiefer
Yeah, and that's exactly correct. So we'll go and look at any existing permits on our acreage. And whenever we're saying, you know, line of sight, we typically just rely on the data that we have a good visibility on. So we're not factoring any future permits that will be permitted throughout the year. unless an operator has told us otherwise. So we're focused purely on what we currently see out there, and that's what we're expecting to be drilled throughout the year. And then kind of your other comment as far as the weather, we're still kind of working through trying to figure out what the overall impact is. Obviously, we've seen the impact in the Permian from what we've seen out there as well as kind of any other areas they could see any of these freezeovers. So we're trying to kind of work through and see what the overall impact of that could be.
Derek Whitfield
That makes sense. And with my follow-up, I wanted to drill down on your comments regarding you guys working with XTO on a mutually beneficial agreement that will help you guys attract another operator to develop the St. Augustine acreage Could you offer any color on how that might take shape and the degree of interest you're seeing in this area?
Evan
Yeah, well, look, we've got interest in the area, right? The issue is I think that XTO, Exxon at the moment just has, you know, A, a lot on their plate, and B, maybe other areas that they're focused on. So, you know, we jointly own sort of that core piece in St. Augustine County that we call the Brent Miller area. So to the extent that we can just work something out where they can develop a piece on their own timeline and maybe we could get a piece out to a different operator that may want to do something on a little more aggressive timeline, then hopefully that would work with both. But I think it'd be tough to say anything more right now just given we're in discussions with those guys about working something that hopefully benefits both of us.
Samantha
I would agree. add when Jeff says we are joint owners with them out there. Just to clarify because of the question, he's talking about from a working interest standpoint because we own the minerals under a lot of that acreage, as do they, but we're talking about the working interest side and that's an outgrowth of the evolution of that play, and we had a working interest out there which we had farmed out. But what we are doing is looking to take our working interest on specific areas and bring another operator in there, and actually double down on who's developing out there. But beyond that, we hope to be able to say more later.
Evan
And Derek, that's just one area that we share the working interest with XTO. We've got a ton of additional open acreage in St. Augustine. So the idea is just can we put together a larger program to attract somebody in there.
Samantha
And underscore, we're not saying that we're going to start taking working interest. We're internally with our own capital. But it does give us the ability to bring a partner in to work on the area.
Derek Whitfield
Understood. Thanks for your clarification on the working interest comments. Thanks again. Very helpful, guys. Thanks, Jordan.
Operator
Your next question comes from the line of Pierce Hammond with Simmons Energy.
Pierce Hammond
Yeah, good morning, and thanks for taking my questions. Jeff, I wanted to start off, just want to get your thoughts on gas hedging. Do you prefer to keep a certain hedge percentage in front of you for the next 12 months? Just want to understand how you're thinking about that right now.
Evan
Yeah, we have historically just tried to be pretty programmatic about that, Pierce. I mean, I guess every time you choose to put a hedge on one day versus another, you're making a mini call on price, but we but we try to just do it systematically. And so, you know, what I would expect is in keeping with prior years that we would look to, in pretty short order, start to establish some 22 hedge positions on both oil and gas, and then just ramp those up over the course of the year to where, you know, as we're coming into 22, that we would be in that traditional kind of 70, 80 plus percent
Pierce Hammond
Okay, perfect. Thank you. And then my follow-up, I'm just curious if you could provide some more color on the Austin Chalk. Congrats on that agreement. And, you know, what does the producer see there? Is it really good gassy wells? What, you know, are these fairly deep wells, expensive wells? Just curious, you know, what the Austin Chalk looks like for you and what the producer is seeing.
Austin
Hey, Pierce. This is Garrett. So it's a pretty good combination of condensate and gas. The older wells in the area were completely unstimulated. We've recently had some good data points on multistage frac wells. And what we're seeing on the first well that was very successful is you know, over 300 producing days, the well made 300,000 barrels and two BCF compared to the direct offset, which was unstimulated at about 50,000 barrels and one BCF. So we're kind of hoping we have a getting field redevelopment lookalike area over here. And we're certainly pushing to try to get future development and some more new wells this year.
Pierce Hammond
Great. Thanks for the caller.
Operator
Again, ladies and gentlemen, if you would like to ask an audio question, please press star, then the number one on your telephone keypad. Your next question comes from the line of Leo Mariani with KeyBank.
spk00
Hey, guys. Just wanted to get a sense and a little bit more color potentially on your 21 guidance. Just made some comments about it already, but just wanted to clarify. I mean, it sounds like you're kind of assuming 2020 levels are in Permian. I think that was one of your comments. And then just additionally, you had some Hainesville activity to start the year, but sounds like you're expecting that to trail off, you know, quite a bit as we get into 2Q21 and 3Q21. Just wanted to kind of verify that's what you guys are sort of framing up, and is there any way to roughly quantify maybe the number of net kind of Hainesville, you know, turning lines you'd expect here in 2021?
Evan Kiefer
Yeah, so the way we're looking at the gas production is that you're right in that we have the 13 ducts that were completed here in January. That is offset a little bit by several wells that were taken offline just for workovers due to frack hits. But then kind of continuing that activity out in the Shelby Trough, that's going to be the Athon wells. They've already drilled the first two through the vertical sections. They're currently in the horizontals. And whenever those come online later in the year, that's where we're going to start to see a little bit more of a kind of the ramp up in those volumes, but that's going to be later in the year. So we are seeing, you know, a decline in the gas volumes throughout the year and then kind of holding steady towards the end. Beyond that, there is some agreements that we've done out in Louisiana side that's going to help bolster some of that production going forward as well.
spk00
Okay, great. I just also wanted to ask a kind of a bit of a strategic question for you folks here. You obviously have done a great job in kind of cleaning up the balance sheet to the point where your leverage is pretty de minimis at the end of the day here. We're clearly in a slightly different A&D market than we were a couple months ago. It certainly looks like things have kind of loosened up and deals are starting to happen. What's the appetite at Blackstone to potentially get a little bit more active there? I know there's a big push to get people to lease existing minerals, but is there also kind of a second component here where you guys may try to get a little bit more active now that things are maybe more open in 2021?
Evan
Leah, I'll start. This is Jeff. Sure, I think the appetite's always there. It's really just been a function of the market. I think what we saw in late 19 and all of 20 is that sellers, many of whom had acquired their assets in a different commodity environment and more active M&A environment, more expensive M&A environment, frankly, were not looking to part with those assets in a cheaper way less expensive, less active M&A environment. And so you had a bit of a mismatch between sellers and buyers who had had their cost of capital beat up pretty hard. And I think we're seeing that continue a bit. I mean, now that prices have rebounded pretty significantly, we've seen prices move a lot. We've seen our equity values recover somewhat. So I still think there's a bit of a disconnect probably between what a seller is going to want to see and what at least a public buyer is willing and able to pay given access to capital. So in short, I think the appetite is there, but that deal is going to have to make sense for us on a long-term both accretion and, you know, both distribution and NAV accretion basis. If we can find those deals, we would love to do them and we'll be looking. But in the meantime... You know, any time that we can get new streams of cash flows out of our existing assets, that's just a huge win for us and our unit holders.
Jeff
Okay. Thanks for the call.
Operator
Your next question comes from the line of Harry Halbach with Raymond James.
Harry Halbach
Hi. Congratulations on y'all's enhanced shareholder return policies. In regards to the $75 million buyback program, I was kind of wondering, what is your philosophy around implementing that? Is there a certain next 12-month equity yield being targeted? Or just kind of tell me how you all are thinking about that.
Evan
Yeah, I think that's just, you know, that's there for us to be opportunistic. I think the focus is more to now that the balance sheet is really pretty bulletproof to say, the focus is really to put as much cash as we can into our unit holders' pockets, and that probably takes priority over share repurchases in the near term. Now, if there's another giant dislocation in the market and it looks even more compelling, then we're going to revisit that. But I think in the near term, again, the focus is going to be can we increase that payout ratio and put more money in our shareholders' hands?
Harry Halbach
Thanks for the color. And then just a quick another question. What is y'all's federal acreage exposure across your portfolio and in the Permian specifically? No, y'all's Permian position is heavily weighted toward Texas, so I wouldn't think it would be much. We just wanted some additional detail.
Evan
Yeah. This is Jeff. I'll start and others may want to take it. Look, we definitely have areas where there's federal exposure. So the balance of this whole Biden administration is probably as one of the larger owners of minerals on private lands, you know, restrictions on public moves more activity to us. So that's a net positive. The negative is there are areas where we have acreage where there's also federal ownership which could make things more difficult. You know, we don't, for example, in the Permian, New Mexico is not a big position for us, which is more federally owned than the Texas side. So overall, we don't think, I mean, in going through the 21 guidance and the longer forecast internally, we don't think that that's a huge impediment to Blackstone, and maybe it's a bit of a push from the positives of driving more capital on a private acreage, which we're obviously a huge owner of.
Jeff
Great, thanks, appreciate you all taking my questions. Thanks, Harry.
Operator
We have reached our allotted time for questions and answers. I would like to turn the call back over to management for any additional or closing remarks.
Samantha
Well, great to speak with you all today. It's been a long year, it's been a long week. The sky is blue today. It's 70 degrees in Houston. We're looking forward to a great year, and we hope you all have one yourselves. We'll talk to you next quarter.
Operator
Ladies and gentlemen, this does conclude today's conference call. You may now disconnect your line.
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