Black Stone Minerals LP

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.

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.

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.