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spk00: Good day and welcome to the Blackstone Minerals first quarter earnings call. At this time, all participants are in a listen-only mode. Later, there will be a question and answer session. You may queue for a question at any time by pressing the star key followed by the number one on your telephone keypad. Please be advised that today's conference is being recorded. If you require operator assistance, you can press star zero. I'd now like to turn the call over to Mark Moe, Director of Finance. Please go ahead.
spk02: Thank you. Good morning to everyone. Thank you for joining us either by phone or online for Blackstone Minerals' first quarter 2024 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 will be making forward-looking statements during this call about our plans, expectations, and assumptions regarding our future performances. 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 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 of our 2023 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 from yesterday, which can be found on our website at www.blackstoneminerals.com. Joining me on the call from the company are Tom Carter, Chairman, CEO, and President, Evan Keeper, Senior Vice President, Chief Financial Officer and Treasurer, Carrie Clark, Senior Vice President, Chief Commercial Officer, and Steve Putnam, Senior Vice President and General Counsel. I'll now turn the call over to Tom.
spk05: Thank you, Mark. Good morning, everyone, and thank you for joining us this morning to discuss the quarter. We posted a good first quarter with net income of $63.9 million and adjusted EBITDA of $104.1 million. We generated total production volumes for the first quarter of 40.3 VOE per day, a decrease of 2% from our fourth quarter 23 volumes. Growth volumes for the quarter were 38.9 thousand VOE per day. Oil volumes trended down in the Midland and Delaware basins, but were partially offset by an increase in the resilient Bakken area And despite the ongoing natural gas challenges, natural gas volumes increased from the fourth quarter in the Fayetteville, Gulf Coast, Lance, Mesa Verde, and other trends. Factors like these continue to illustrate the benefit of a diversified portfolio where we continue to see additions and non-core plays that contribute to new production year over year. Our unique asset mix is a strategic advantage that continues to consistently add long-term value. the blackstone and its unit holders with that let me just turn to uh focus on the haynesville bozer which is a significant as everyone knows a significant long-term growth engine for blackstone in the shelby trough we announced in december that one of our operators uh invoked a quote-unquote timeout under the provision provision of our joint exploration agreement, which would allow them to cease activity for a period of time. We have a good group of operators in the Shelby Trough, being XTO, Athon, Pine Wave, Milestone, Exco, and others. And in addition, in Louisiana, we have Chesapeake, Southwestern, Comstock and others. So we've got a great portfolio of operators. The operator that declared a timeout, however, is currently drilling three wells and is expected to continue levels of activity there. This suggests that either the operator is no longer in timeout and back on the clock under our joint exploration agreement, or alternatively that these operations will not qualify for contractual minimums under our contract. This just underscores the strength of the structure of our joint exploration agreements with respect to activity in various different environments, price environments on our properties. One second here. I'm just scrolling up. We continue to work closely with our operators in all of these areas. And we do not anticipate a material impact in our volumes in Hainesville through 24 and 25, even though a lot of the operators are slowing down in response to the low price environment. We believe that there are positive results continually being added in the basin and we're very encouraged by performance on new wells in the area ranging anywhere from 25 to 30 million cubic feet a day and pressures in excess of In addition to our interest with existing operators, Blackstone has an additional existing 170,000 plus net acres of undeveloped inventory in the Shelby Trough with an estimated 15 TCF of resource in the ground. We look forward to that acreage coming in juxtaposition to what we are a believer in, and that is natural gas demand increases coming into 26 and beyond, with the LNG export markets firming up and expanding. In response to lower natural gas prices, some of our operators have been involved in some curtailment, but we do not, as we said, we do not expect this to be meaningfully challenging to our volumes. As these challenging commodity prices persist, we continue to focus on our long-term strategy while employing prudent balance sheet management. Our focus for several years has been centered around organic initiatives to develop our existing asset base that has been a Starting in the fourth quarter of 23, we expanded those efforts, including targeted grassroot acquisitions programs that are aimed to supplement our existing and expanding footprint in the Gulf Coast and Shelby Trough areas. These efforts have allowed us to weather a lot of different cycles. In 2022, we mentioned that we expected to grow production through 23 with a targeted exit rate close of 40,000 VOE per year, and we're able to execute on those expectations. Now in 24, we have set our plan to grow the distribution back to the high water level mark by 2026 through projection growth alongside liquefied natural gas demand that is expected to drive higher natural gas prices. We intend to capitalize on our existing portfolio and acquired acreage and add meaningfully to our development program in these Gulf Coast regions. We've added over $50 million worth of nonproducing assets since September of 23, and this is just a fraction of what we intend to do going forward overall it's a strong quarter and despite a challenging commodity price environment we're encouraged by the long-term natural gas outlook we continue to make progress working towards with our key operators and strategic initiatives to grow and bringing additional operators into our shelby trough area with that I'll ask Edmund to take over.
spk01: Thank you, Tom, and good morning to everyone. As Tom pointed out, we had a positive first quarter. We generated 38.1 thousand BOE per day of mineral and royalty production for the first quarter, which was down 2 percent from last quarter and 40.3 thousand BOE per day in total production volume. This resulted in our net income of $63.9 million and adjusted EBITDA for the first quarter of $104.1 million. We previously announced that we were reducing our distribution to 37.5 cents per unit, or $1.50 on an annualized basis. As reported yesterday, distributable cash flow for the quarter was $96.4 million, which represents 1.22 times coverage for the quarter. Due to the challenges with natural gas prices, production curtailments, and delays in turning wells on production, our board elected to reduce the distribution and utilize the excess coverage in the first quarter towards growth opportunities. We continue to have a very strong balance sheet that gives us a lot of flexibility through these dynamic market cycles. As Tom mentioned, we have acquired approximately $50 million of non-producing mineral and royalty interest. And utilizing that excess cash from the first quarter to supplement these acquisitions, we continue to have no outstanding borrowings on our revolver. As of last week, we had approximately $89 million of cash, and that's prior to the payment of the distribution later this month. The borrowing base for our revolving credit facility was reaffirmed at $580 million, while we elected to hold commitments at $375 million. Yesterday, we also announced updated production guidance that reflects the challenges that we're seeing in the natural gas environment today. In response to production curtailments and a continued slowdown in bringing new production online, we're lowering our 2024 production guidance range for the full year by approximately 4% to between 38.5 thousand DOE per day and 40.5 thousand DOE per day. As Tom mentioned, Athon has started curtailing a number of properties in the Shelby Trough and has indicated plans to delay the initial production on additional properties until later this year when prices are expected to improve. Now, off the heels of 2023, where we had natural gas hedges at over $5 per MMVTU, our 2024 natural gas hedge position is at approximately $3.55 per MMVTU. Comparing that to an average price at Henry Hub of $2.24 for MMBTU for the first quarter, we've benefited from a realized gain of approximately $14 million. We have over 60% of our expected volume hedged for the remainder of 2024 that will help insulate our cash flows from any continued near-term pricing volatility. We have continued to add to that hedge position for 2025, both for crude and natural gas, and will continue so throughout the remainder of the year. Overall, we had a positive quarter despite some headwinds created by the continued lower gas environment, but we remain focused on our commercial strategy of growing production and returning the distribution to its previous high water marks. This environment provides a very unique opportunity to be selectively acquisitive to the benefit of our unit holders in the next year and beyond as we continue to execute on those plans. And so with that, we'll open the call up to questions.
spk00: Thank you. At this time, if you would like to ask a question, please press star 1 on your telephone keypad. If at any point you find your question has been answered, you may remove yourself by pressing star 2. Once again, that is star one to ask a question and star two to remove yourself. We'll go first to Derek Whitfield with Stiefel.
spk04: Good morning, all, and thanks for your time. Good morning, Derek. For my first question, I wanted to focus on your 2024 guidance. With your lower guidance, could you help frame how you're thinking about the cadence of production throughout the year? And while Cooley Price is dependent and not as material as some might think, what is your assumption on curtailment in your guidance?
spk01: Yeah, Derek, this is Evan, and I'll start with that. You know, one of the things we're looking at, not only just from public guidance, whether it's, you know, Chesapeake has come out and said that they intend on delaying wells through the next quarter, as well as what APHA has indicated as well. You know, what we're really looking at is, you know, average pricing in the third quarters, call it on average $2.50, the fourth quarter is closer to $3.00. And I think whenever you start to move up to those levels, they'll be a little bit more interested in turning those wells online and getting the production as opposed to, you know, right now we're closer to $2 in the second quarter. So, you know, our current guidance update really contemplates curtailments through the second quarter into the third and then assuming at that level that they start to come back online, really kind of targeting that third quarter into the second half of the year.
spk04: That makes sense. And then maybe shifting over to acquisition activity, you've been active in acquiring over $50 million in minerals since last September, as you guys have noted. While I know you guys would prefer not to disclose the location at this time, could you at least help frame the opportunity as to whether it's oil or gas, kind of the competitive environment that you're seeing, and the depth of the opportunity beyond what's been disclosed? I'll answer that.
spk05: Unlike a lot of people in the industry where mineral acquisitions are going on in the Permian and the acquisition of a royalty acre in the Permian is extremely expensive, we are focusing our acquisitions on other areas that are not nearly as expensive but that are contiguous to and around significant positions that we already have in other areas. And while I'm not trying to say too much about where that is, it doesn't take a lot of imagination to figure out where that might be. And we think with what we see in the strip in late 25 and beyond, that those acquisitions made today will have significantly higher return on investments for Blackstone than trying to wade in where everybody else is. So I hope that answers your question.
spk04: It does. And then just in terms of the depth beyond what you guys have committed to today, any color you could offer there? Depth meaning how much do we expect to spend? Or how much more could you spend given the competitive landscape you see?
spk05: I would answer that this way. I think we expect and have budgeted to spend a multiple of what we've spent so far. And that depends on price. But we've got a pretty robust program going on and we're probably as active right now as we've been since 23.
spk04: That's terrific color and certainly look forward to updates from you guys in the future. As soon as we get a little bit more, we'll say more about it.
spk05: Thank you.
spk00: As a reminder for our listening audience, that is star one if you would like to enter the queue again, star one. We'll go next to John Mardini with KeyBank Capital Markets.
spk03: Hi, good morning. Good morning, John. Our first question is on distribution. You trimmed it in one queue and had more than enough coverage to pay for it. Are you looking to maintain this 37.5 cent distribution going forward, just given the current gastric and hedges in place?
spk01: Yeah, John, that's a great question. And, you know, with the higher coverage that we had in the first quarter that was really elected to help support some of the acquisition efforts. Now, you know, given the production delays and curtailment, we do expect that coverage could, you know, fall in the future. And, you know, a lot of it is really going to be dependent on how long the low gas environment continues. Do we see the strength kind of continue in the second half of the year as the strip would indicate? And so, you know, we do like setting a distribution level that is achievable and expect to maintain it. But as always, there's, um, some openness as to where the strip in the current environment persists.
spk03: Okay. That's helpful. That's actually all we had. We appreciate the color there. Great. Thank you, John.
spk00: And at this time, it appears we have no further questions. I'd like to turn the floor back over to Mr. Tom Carter for any additional or closing comments.
spk05: All right. Thank you all for joining us today. I just summarize by saying we're in one of the many sort of bumpy roads that we run into in our industry, but we're pretty excited about the next four or five years and what we see coming down the road and are trying to position Blackstone to be in the best position to really perform through there. And thank you very much for joining us today.
spk00: Thank you. Once again ladies and gentlemen that will conclude today's call. Thank you for your participation. You may disconnect at this time.
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