Black Stone Minerals LP

good day and thank you for standing by welcome to the blackstone minerals second quarter 2021 earnings conference call at this time all participants are in a listen only mode after the speaker's 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 and if you require any further assistance please press star 0. i would now like To hand the conference over to your speaker today, Mr. Evan Kiefer, please go ahead, sir.

Thank you, and good morning to everyone. Thank you for joining us either by phone or online for the Blackstone Minerals second 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 last night. Before we start, I'd like to advise you that we'll be making forward-looking statements during this call about our plans, expectations, and assumptions regarding our future performance. These statements involve risks that may cause our actual results to differ materially from the results expressed or implied in our forward-looking statements. For a discussion of these risks, you should refer to the cautionary information about forward-looking statements in our press release from yesterday and the risk factors section from our 2020 10-K. We may refer to certain non-GAAP financial measures that we believe are useful in evaluating our performance. A 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 from yesterday, which can also 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, Carrie Clark, Senior Vice President, Land and Legal, and Garrett Grimion, Vice President of Engineering and Geology. I'll now turn the call over to Tom.

Thank you, Evan. Good morning to everyone on the call, and thanks for joining us to discuss what was a very strong quarter on both the operational and financial fronts. We reported 38.2 thousand BOE per day for the second quarter of 21. Of that, royalty volumes increased by 5 percent from last quarter to a total of 32.5. Working interest volumes held stable to last quarter at 5.7 in BOE. The increase in royalty volumes was mainly due to the Midland and Delaware properties, but we also saw nice increases outside of our major shale plays as well. We've seen a remarkable rebound in commodity prices since the middle of last year and are currently well above pre-pandemic price levels. Operator activity continues to grind higher as well. We had 64 rigs operating across our acreage at the end of the second quarter. That's up slightly from last quarter, and it's more than double what we saw in the middle of last year. The slower recovery in rig count relative to prices reflects producers holding to their promise to exercise greater capital discipline and focus on returns rather than simple production growth, and should prove good for the long-term health of the industry if it continues. The higher price environment, increase in drilling activity, and leasing efforts in the Austin Chalk contribute to our best financial performance since 2019. We reported adjusted EBITDA for the second quarter of $78.4 million, which is an increase of 31% from last quarter and 8% from the second quarter of 2020. Distributable cash flow for the second quarter was $72.1 million, which equates to $0.35 per unit. That's also an increase of over 30% from the last quarter. The improved fundamentals and positive outlook across many of the core areas of development justify an increase in the base level of our distribution to $0.20 per unit for the rest of this year, which is 14% 14% increase from last quarter. We also had a number of items break to the right way for us in the second quarter, including higher than expected gas realizations in a big quarter in terms of lease bonus. In the past, we've taken the proceeds from those one-time cash flow events and repaid debt. Given our very low debt balance, which is currently under $100 million in total, our board elected to return that additional cash flow to our investors in the form of a special distribution of $0.05 per unit for the second quarter, resulting in a total distribution of $0.25, which is an increase of 43% from last quarter. I want to be clear that absent any disruption in the business or significant positives, the plan here is to recommend distributions, as I said, of $0.20 per unit for the third and fourth quarters as well. On the last call, we discussed a number of new deals with producers around some large, high net acreage positions in East Texas. The majority of those deals were signed up early in the second quarter. In our Shelby trough play, Athon has turned to sales the initial two wells under their development program in Angelina County. We were encouraged by the early results, and Athon has commenced drilling another four wells in the area, which puts them ahead of schedule relative to what is required under our agreement. We were seeing big wells out there from BP's operations prior to mid-2019, and we're happy to see that robust activity, robust activity commenced to pick up again with our new partner. Athon is also gearing up for new Shelby trough development in Augustine County under a separate agreement we entered into in April with them. That agreement contemplates a minimum of five wells drilled in the first program year and ramps up from there. In summary, we're optimistic around ATON ramping up to pre-2020 levels seen with BP and XTO combined in this area. Moving a little south, we have several programs underway to test the development of the Austin chalk trend in East Texas. As we've discussed on the last call, this is an area where we have broad geographic coverage across the play, and very high net ownerships in those areas. We have two wells currently drilling and several others planned for the remainder of this year, all of which involve high-intensity multi-stage completions that have proven successful in other areas of the chalk. Attracting development capital to our existing acres has always been a major area of focus for us, and we will continue to be going forward on that. As part of the effort, we're very happy to welcome Kerry Clark to our team. Kerry started with us yesterday and comes to us from heading land and legal efforts at University Lands, which manages surface and mineral interest across 2.1 million acres managed by the University of Texas system. Kerry has a lot of experience working with operators to encourage greater activity, and that will be a key part of Kerry's contribution to Blackstone. We look forward to working with her on that and other initiatives. We've made tremendous progress on the development front, but as one of the largest mineral owners in the country, we also recognize the need to be a leader in the space in terms of environmental responsibility. We're evaluating a number of ways to work with the producer community to reduce our collective emissions footprint. We have also created a modest, program to purchase carbon offsets with the proceeds from the surface use waivers in favor of solar development on our mineral acreage. Solar developers must secure surface rights but must also obtain a waiver from the mineral owner as part of the project so that rigs do not disrupt their project. We received approximately $1.1 million in proceeds from such waivers in 2021. and plan to use a portion of those proceeds to purchase carbon credits. That way, we're both supporting clean energy development by facilitating solar installation and reducing our own emission footprints through the credits. We expect that the credits purchased for use in 2021 will meaningfully offset the direct CO2 emissions from our existing production in the Shelby Trough in Angelina County. This is a first and modest step but we look forward to finding additional creative ways to work with the producers to further our environmental goals. As you can see, it was another busy quarter. It is encouraging to see that both general industry conditions continue to improve and to see the tough development work we've undertaken over the past couple of years start to pay off. All of this is with the goal in mind of returning greater cash flow to our unit holders. We were able to accomplish that this quarter and see great potential to further that goal heading into 2022. With that, I'll turn it over to Jeff.