Black Stone Minerals LP

Good morning, ladies and gentlemen, and welcome to the Blackstone Minerals first quarter 2021 earnings conference call. At this time, all participants are in listen-only mode. Later, we will conduct a question and answer session, and the instructions will follow at that time. If anyone should require assistance during the conference, please press star then zero on your touchstone telephone. As a reminder, this conference call is being recorded. I would now like to turn the conference over to your host, Mr. Evan Kiefer. Vice President at Finance and Investor Relations.

Thank you, Ashley, and good morning to everyone. Thank you for joining us either by phone or online for the Blackstone Minerals First Quarter 2021 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, we'd like to advise you that we will be making forward-looking statements during this call about our plans, expectations, and assumptions regarding our future performance. These statements involve risks that may cause our actual results to differ materially from the results expressed or implied in our forward-looking statements. For a discussion of these risks, you should refer to the cautionary information about our forward-looking statements in our press release from yesterday in the risk factor section of our 2020 10-K. 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 gap measure and other information about these non-gap metrics are described in our earnings press release, which can be found on our website at blackstoneminerals.com. Joining me on the call today from the company are Tom Carter, Chairman and CEO, Jeff Wood, President and Chief Financial Officer, Steve Putman, Senior Vice President, General Counsel, Garrett Grimeon, Vice President of Engineering and Geology, and Thad Montgomery, Head of Lands. Now I'll turn the call over to Tom. Thank you, Evan, and good morning to you all.

Thanks for joining us. We've got a lot of matters to report to you all this morning, so I'll start. We reported 36.8 MBOE per day for the first quarter of 21 yesterday. Of that amount, the big five are Shelby, Trough, Haynesville, Bossier, Midland, Delaware, Louisiana, Haynesville, Bossier, Bakken, and then what we generally refer to as other, which basically consists of diverse non-resource plates. Of that 36.8 MBOE per day, 5.7 MBOE per day was working interest, primarily in the Shelby Draw. Before the year 2020 and the pandemic and other economic exigencies that took such a toll on the world economy, We exited 2019 in the high 45 MBOE plus per day, with about seven of that being in working interest. Both BP and XTO had been super active in the Shelby Trough. The Permian was on fire. The Bakken was very busy, and the general rig count was robust. We all know that show came to an abrupt halt. Both BP and XTO have severely cut back or have ceased drilling on our acreage in the Shelby Trough. We monetized the minority interest in our Permian Acres to clean up our balance sheet in such uncertain times. The Bakken has slowed and rigged counts plummeted. But with that, all that said, remember that we were in the high 26 MBOE per day range in 2015 when we went public. We made great strides, growing volumes up to the big event in 2020. and we are hard at work to spool back up our production in the coming years. To that end, we have been heavily focused on our high-interest legacy lands. As you saw in our earnings release last night, we have made tremendous progress in striking new deals that we expect will drive additional development activity on our core acreage positions in East Texas. It has always been a fundamental strategy of ours to attract outside capital to our existing acreage through creative deal-making with producers. When the pandemic struck and general upstream activity levels started to decline last year, our team stepped up its efforts on that front even more, and we are clearly seeing the results of all that hard work. I'll start with our Hainesville and Bossier acreage in Shelby Trough, which is primarily concentrated in Angelina and St. Augustine counties, Texas. Activity levels are ramping up under our development agreement with Athon Energy and Angelina. You'll remember we signed that agreement in the second quarter of last year, which calls for four wells to be drilled in the first program year, increasing to an annual well count of 15 by the third program year. Athon has successfully drilled the first two wells under that program and is expected to complete them in the second quarter. Athon has been among the most active Hainesville operators in recent years, and their technical expertise has been apparent in the early stages of this development program. That's one of the reasons we're excited to expand our relationship with Athon through a second separate development agreement covering the majority of our undeveloped Shelby Trough acreage in San Augustine County. We finalized that deal yesterday, and it's similar in structure to what is in place and working well in Angelina County. The new agreement provides for minimum well commitments by ATHON in exchange for royalty incentive and exclusive access to our minerals and leasehold acreage in the contract area. The agreement covers over 60,000 gross acres, calls for a minimum of five wells to be drilled in the initial program year, which will begin in the third quarter of this year, increasing to a minimum of 12 wells per year starting in the fourth program year. The St. Augustine deal with 8 Python includes acreage within the Brent Miller area that initially kicked off the Shelby Trough development. In March of this year, we reached an agreement with XTO Energy, the operator, to partition jointly-owned working interests in the Brent Miller development area. Under the partition agreement, Blackstone, and XTO exchanged working interest in certain and proposed drilling units, resulting in each company holding 100% of the working interest in their respective partitioned units. Our partitioned working interest under that deal are included in the development agreement with ATHOC. Between the two deals, as the program ramps up over the next five years, we could see at least 27 wells drilled annually by a proven operator on our high net acreage position in the Shelby Trough. It should be noted that Blackstone owns significant royalty and mineral interest under both ATHON and XTO lands. Thus, if and when XTO comes back to the area, the rig counts on our minerals could expand further. With over 500 potential locations across the area, we look forward to working with ATHON for years to come Indeed, the long-term Gulf Coast nat gas market, LNGs, et cetera, have a very significant bearing on these lands' futures. On the last call, we spoke about the potential across our Austin chalk acreage in East Texas. Again, this is an area where we enjoy high concentration of ownership, both in terms of geologic coverage across the play and in terms of very high net ownership in these acres. The Austin Chalk has been a prolific play across Texas and Louisiana for decades, including Giddings, Brooklyn, Masters Creek, Burr, Ferry, Beals, et cetera, and historically has developed from vertical wells and then substantially unstimulated horizontal wells of accessing the formation's natural fracture system. Recently, however, operators across the play in Texas have begun developing the chalk using high-intensity multi-stage completions, which have resulted in dramatic improvements in well performance. I'll speak to just a few of the examples of this. First, EOG and SM Energy are highlighting their results from new Austin Chalk wells in Webb County in southwest Texas. EOG has drilled 17 wells to date in the Austin Chalk Dorado play. and plans another 15 wells in 2021. The new generation EOG chalk wells show an EUR uplift of approximately 2.7 times relative to the older vintage wells in the same area. EOG calls this the lowest cost dry gas play in North America, and with Africa tax returns of around 80% at current gas prices, competes with any of their premium oil players. SM Energy drilled nine wells as part of an Austin chalk delineation program in Webb County in 2020 and plans an additional 20 in 2021. Sorry for all the 20s. SM is reporting production results in the chalk wells that are three and a half to four times better than the previous wells and exceeds those of the modern Eagle Ford and Delaware Basin wells. SM quotes break-even prices for its new generation chalk wells of $13 to $28 a barrel. As we move closer to our core Austin chalk acreage, Magnolia Oil and Gas has conducted the most significant program of high intensity completions in the formation, which includes over 400,000 net acres in the Giddingsfield area in south central Texas, and focused in Grimes County and other counties, a few counties west of our Brooklyn area and area of high concentration. Magnolia has drilled over 30 wells with at least 90 days of production data. Magnolia's higher intensity completion in the regions are yielding results of over two times prior generation wells. It's very significant, we believe, that all of these Austin chalk redevelopment plays are being conducted in areas that produced economically in prior cycles of the chalk. Said differently, And importantly, we believe, we currently view this, our current view is that this is not an exploratory play. It's an application of evolved technology in proven areas that is causing undrained reservoir quality rocks to produce at better rates and EURs than before. Finally, we have a very strong data point on our own Austin Chalk Acreage in Tyler County, Texas. The Hancock 1H well was drilled and completed in the Brooklyn field as a high-intensity, multistage well by Navidad Operating Company. Using the first 12 months' production as a comparison, Hancock produced 303 MBO and 1.9 BCF of high BTU natural gas compared to its closest offset well on strike, which produced 75 MBO, and 1.2 BCF of gas. This represents over a two times uplift on a BOE basis for that time period. Navidad has already spotted their second well west of the Hancock location under a development agreement deal with Blackstone that I'll discuss in just a moment. Earlier this year, we signed up our initial development deal with a large publicly traded operator to drill, test, and complete wells in the Austin Chalk Formation on some of our East Texas acreage further to the east of Tyler County and primarily in Newton County. If successful, the operator has the option to expand its drilling program over a significant acreage position owned and controlled by us. Yesterday, we announced two additional development deals covering a portion of East Texas Austin Chalk. The first involves a consortium of existing operators on our acreage Encouraged by Navidad's success with the Hancock well, two other operators in the field have joined with Navidad to drill new wells on their acreage to test this concept. These operators will participate in three test wells targeting the Austin Chalk. Assuming the test well program is successful, we anticipate separate agreements with each of these operators to further develop the acreage. The second agreement that we just announced with a large private independent operator and drilling and completing multiple Austin Chalk wells on our company acreage in East Texas also, beginning this year. If those wells are successful, the operator has the option to expand the Austin Chalk development program on additional Blackstone acreage. In total, the test and development agreements we have entered into thus far in 2021 will help delineate over 200,000 blackstone acres in the Brooklyn field area of the Austin Chalk, which has over 300-plus existing Austin Chalk producing wells from prior generations and unlocked the potential for several hundred infill wells in that field on blackstone acreage. We are very encouraged by our operator enthusiasm to redevelop our acreage and expand this place. It's hard to find needle-moving projects for a company of our size in the mineral business, but if the Austin Chalk acreage responds to the higher intensity completions, the way it has in the other areas we previously mentioned, and the Hancock well, which is on our acreage, it could represent a meaningful new production wedge for Blackstone for a long time to come. Indeed, this development in the Austin Chalk could make this one of the big five and help Blackstone increase its daily production to historic highs over time. None of this has come easy over the past year. We've achieved some of our biggest wins in our company's history in the midst of a most difficult environment in decades. These development deals take great collaboration among our land, engineering, geology, business development, and finance groups, and I want to recognize all of their efforts to position Blackstone for future growth. I can't say enough and won't go into it, but there have been countless hours of negotiation and evaluation efforts put into this project. We look forward to updating you on these strategic initiatives throughout the coming year. With that, I'll turn the call over to Jeff.