Black Stone Minerals LP

Thank you for standing by and welcome to the Blackstone Minerals fourth quarter and full year 2025 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question during this time, simply press star followed by the number one in your telephone keypad. If you would like to withdraw your question, again, press star one. Thank you. I'd now like to turn the call over to Natalie Liddell, Vice President, Corporate Planning. You may begin.

Thank you. Good morning, everyone. Thank you for joining us for the Blackstone Minerals fourth quarter and full year 2025 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 performance. These statements involve risks that may cause our forward-looking 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 in our 2025 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. Join me on the call from the company are Tom Carter, Executive Chairman, Taylor DeWalch, Co-CEO and President, Fowler Carter, Co-CEO and President, Steve Putman, Senior Vice President and General Counsel, Chris Bonner, Senior Vice President, Chief Financial Officer, and Treasurer. I'll now turn the call over to Feller.

Thank you, Natalie. Good morning, everyone, and thank you for joining us on our fourth quarter earnings call. If you look at our earnings released from last night, you'll see that we had a great 2025, despite headwinds from production and oil prices. During the year, we achieved significant commercial milestones that will benefit our future production for years to come. We successfully signed development agreements with Revenant Energy and Cadres Energy. These deals place approximately 500,000 gross acres into development, with minimum drilling commitments ramping up to 37 gross wells per year by 2031 from those programs, and including Athon, a total of 50 gross wells over the same period. AFON also recently brought several new wells online in the Shelby Trough at about 25 to 30 MMCF a day, with another five wells expected to come online in the first quarter. An additional 18 wells are expected to be drilled throughout 2026. Also in 2026, we expect that Revenant will spend more than its minimum six-well commitment, and Catarist plans to drill its initial wells, including a pilot well. We are also seeing increased activity from others in the Shelby Trough as the industry moves towards available inventory to meet the growing natural gas demand. In addition to these developments, we are building another new opportunity in our Hainesville expansion area that we believe will add significant inventory and scale to the current development. Based on existing subsurface analysis, we believe we can continue to expand the Shelby Trough and Hainesville Basin towards the western Hainesville. With our continued focus of increasing production from existing assets and driving long-term value for our unit holders, we have also entered into a LOI with a reputable operator with experience in the Hainesville on a meaningful amount of acreage in the Gulf Coast region outside of our recent focus areas. Our acquisition program remains on track as well. Since launching the program in 23, we've invested about $240 million to add accretive mineral and royalty acreage across the Shelby Trough and Haynesville expansion area. We remain confident that the combination of these commercial initiatives will lead to significant growth and value for our unit holders. With that, I will hand the call over to Taylor.

Thanks, Fowler. Good morning, everyone. Adding on to Fowler's commentary, we're excited about the increased activity and the rampant production that we expect throughout 2026. We ended 2025 and began 2026 at about 32,000 VOE per day, but we see that materially growing throughout 2026. So, while production guidance is roughly flat year over year, we see solid growth from fourth quarter 2025 to fourth quarter 2026. Our fall investor presentation showed that 2026 is anticipated to be just the beginning of new activity in the Shelby Trough. We expect significant increases in natural gas production and distributions for BSM unit holders over the coming years. Because we have one, substantial industry-leading inventory on our acreage in the Shelby Trough and Hainesville expansion, and two, advantageous proximity to the Gulf Coast and key demand centers, we are optimistic about the long-term growth for our unit holders. The team has done a phenomenal job the last several years delineating and marketing the Hainesville expansion area and securing the development agreements. We are now preparing to manage the growth activity through these development agreements with our operating partners. As noted in our release last night, we are strategically increasing G&A in 2026 to support this increase in activity. We remain focused on discipline capital management and our comprehensive commercial strategy, including grassroots acquisitions high-interest development agreements, new development opportunities, and proactive asset management across all basins. Those efforts support our goal of delivering near-term and long-term value for Blackstone's unit holders. With that, I'll handle the call. Over to Chris to walk through the financial details for the quarter and full year.

Thanks, Taylor, and good morning, everyone. In the fourth quarter, my own royalty production was 30.9 thousand BOE per day, a decrease of 11 percent from the prior quarter. Total production for the quarter was 32.1 thousand buoys per day, and we completed the year at the high end of the updated guidance. As discussed in the release last night, our updated guidance last year reflected lower natural gas directed drilling activity and volume levels in the Shelby Trough over the last couple of years. We expect 2026 to be a turning point with new and increased development in the Shelby Trough and Hainesville expansion areas, along with high interest projects in the Permian Basin and ongoing development across our broader assets. We continue to monitor increasing activity levels in the Haynesville and commodity price dynamics as we look towards 2026 production and distribution. The partnership is also in the process of shooting two substantial 3D seismic surveys in the Shelby Trough and Haynesville expansion area, covering about 360,000 gross acres. While initiating and funding these surveys is not typical for Blackstone, we believe it allows us to control the timing, pace, and focus of the data, highlighting our minerals, and supporting their development under our contracted agreements. Most of the remaining costs of these surveys are expected to be incurred in 2026, with completion targeted for early 2027. They are subject to partial reimbursement, with reported costs reflecting Blackstone's share, while the partnership retains full ownership of the data. Over time, the proprietary nature of these surveys may provide opportunities to license the data to industry, potentially generating additional revenue. Together with these supplemental seismic purchases, these assets are expected to enhance subsurface valuation further unlock the value of our minority acreage and accelerate development of that acreage. To better reflect how we view these investments, we've updated the presentation of adjusted EBITDA and distributed cash flow to exclude seismic acquisition costs. Turning to the quarter's financial results, net income was $72.2 million for the fourth quarter, with adjusted EBITDA at $76.7 million. 51% of oil and gas revenue in the quarter came from oil and condensate production. As previously announced, we declared a distribution of 30 cents per unit for the quarter for $1.20 on an annualized basis. Distributable cash flow for the quarter was 66.8 million, which represents 1.05 times coverage for the period. As Fowler and Taylor mentioned earlier, the partnerships outlook remains strong, anchored by long-term contracted development in our high-interest Shelby Trough acreage, as well as our core legacy assets across the U.S. With growing demand from LNG and electric power generation, the outlook for natural gas is increasingly constructive over the next decade. Our significant assets near Gulf Coast LNG facilities position Blackstone to benefit from the substantial call on gas supply, which we expect to increase over the coming years. In conclusion, we had a successful 2025 on many fronts, setting the partnership up for a great 2026 and beyond. We remain confident that our existing acreage positions across numerous stations, coupled with our commercial strategy and the expanded Chilly Trough, will provide a strong foundation to deliver sustainable long-term value for unit holders. With that, I'd like to open up the call for questions.

Thank you. We will now begin the question and answer session. If you'd like to ask a question, please press star 1 in your telephone keypad. If you'd like to withdraw your question, simply press star 1 again. Your first question today comes from the line of Derek Whitfield from Texas Capital. Your line is open.

Good morning, guys, and thanks for your time. Good morning, Derek. Regarding guidance for the year, while I realize some of this is beyond your control, how should we think about the cadence of production from 4Q levels throughout 2026 based on the known developments?

Yeah, Derek, this is Taylor, and I'll start out with that. I mean, I think when we look back to 2025 kind of mid-year and then along with kind of our investor presentation, we really pointed to where we thought production was headed based on the last couple of years kind of activity in the Shelby trough and the decreased activity there. And so where are we in 2025 is where we think we're going to start 2026, which is what we've kind of alluded to in the release last night and mentioned in our script this morning. And then I think that where that puts us for the full year is reflected in the guidance. So again, we think we're going to be increasing materially throughout the course of 2026. And most of that is attributable to new development agreements as well as Permian production and those high interest developments out west.

And Taylor, would you expect it to kind of stall out at the kind of Q1 to maybe Q4 level for Q1 and then kind of step up each quarter progressively, or would there be more lumpiness than what I just suggested?

No, I think that's right. You'll see it start to step up. As we've mentioned, we've got some wells coming on here in the beginning of the year, specifically related to ATHON, and then we see activity increasing throughout the year.

Great. And for my follow-up, in your commentary, you reference efforts to build new opportunities to further expand your asset base and add new development agreements. both the Shelby Trough and Hainesville expansion area. I guess looking ahead, how would you characterize the pipeline of potential new development agreements? Are these conversations primarily with new operators in the basin or extensions with existing operators? And how should we think about the cadence and acreage scope of incremental agreements over the next 12 to 18 months? Eric, I would tell you that

We certainly don't discriminate against existing partners or newcomers. We welcome all parties. And while we enjoy the partnerships that are established, we are happy to continue to diversify our new developments with new partners or strengthen existing contracts with established partners.

Great. Thanks for your time, guys.

Thanks, Derek.

As a reminder, it is start one to ask a question. Your next question comes from a line of Tim Resmond from KeyBank Capital Markets. Your line is open.

Good morning, guys. Thank you for taking my questions. Changing gears to the Permian, we saw comments in the release about leasing outside of the Cotera development area. We also saw guidance for liquids down a bit in 2026 versus our expectations. Can you talk about kind of what you're pursuing in the Permian and kind of how, you know, just kind of the scale and the priority of that, given everything that's going on in the Hainesville?

That's sure, Tim. This is Taylor, and I'll start there. You know, I think we're excited to see activity in the Permian kind of in two different folds, if you will. We've got high-interest activity from Cotera, and then we mentioned another large-scale kind of high-interest development that's happening in the southern Delaware area. So that's a bit more proactive asset management, if you will, along with quite a bit of leasing throughout 2025 that we think points to increased activity across 26 and 27. I think if you look at the timing of some of this and when we see those volumes coming on, certainly we'll see some of the Cotera wells continue to come on over the course of 26. Some of the other activity I think really is probably later on in 26 and more materially in 2027. So I think you'll start to see those volumes a little bit later on. But no, we're excited about what's going on. Certainly excited about some of the other folks in the industry and their excitement around the Barnett, which we've also seen leasing pick up. So I think there's a lot to be excited about in the Permian right now.

Yeah, the only thing I'd add there is So we know about these high-interest developments that we can model. When we're looking at where pricing is right now in the Permian, we're being thoughtful on just the broader development there and not wanting to get ahead of ourselves when it comes to forecasting the broader Permian volumes.

Okay. Okay. I appreciate the context. My next question, if we look at the Henry Hub Strip this year, it's below 350 for a lot of the year into kind of the winter. and you've talked about sort of maybe a flattish start to the year, growing. Do you feel comfortable you can fund your 30-cent distribution through distributable cash flow without sort of leaning on liquidity for the next step? I mean, 1Q will be a big aberration, we know, with $5 Henry Hub. But as we look to the summer, how confident are you that you can sort of fund that without leaning on liquidity?

Yeah, good question. And maybe I'll start off, and Chris, if you want to jump in. But, you know, I think it really – Just sort of following up on what Chris just said we've taken a stance on being really thoughtful about where we see commodity prices and activity levels. And where we think that we've got you know some pretty solid development that's going to happen and we're confident in that development, based on our agreements and our minimum commitments there so along with the sort of ongoing activity and wells coming online. So I would say that we're confident that we can continue to fund the distribution and growth throughout the year based on those minimums.

Yeah, I would just concur with that assessment and then also note that we do have strong hedges in place for natural gas throughout the year.

Okay. Okay. I just wanted to push on that. And if I could sneak one more in. I appreciate the prepared comments on the seismic. We saw that adjustment with your adjusted EBITDA in the fourth quarter. Should we assume that that $30 million of exploration expense is all seismic? Is there a cadence to that? Is that a one-time expense? And do you expect to continue to kind of adjust that out for adjusted EBITDA? Thanks.

Yes, I can answer that. So it is expense throughout the year. We do expect more of it to hit when the shoot is actually taking place in the middle of the year. And it is the majority of the seismic that we forecasted. It's about $90. plus percent of the total and we do expect the majority of the costs related to these two specific shoots to be completed in in early 27 but primarily expense in 26 and we don't anticipate additional significant seismic costs within this development area yeah i might just add on to and just take that uh question a little bit further uh tim you know

The seismic shoot is certainly something I think pretty unique for a company like us to do. But I think when you look back at the last couple of years, we have taken a stance of putting subsurface analysis and geology first, and we're pretty convicted in the rock, in the Shelby Trough and the Hainesville expansion. And I think these seismic shoots are just another data point for us to further that story and really build a foundation for our operators to come in and start to develop. And I think as Chris also mentioned in his prepared remarks, these are proprietary shoots, so we own them and look forward to at some point also potentially turning those licenses to industry and generating revenue off of them. So a couple of different ways we're thinking about the seismic. Excited to get those shot later this year and just keep on developing the Shelby trough and the Hainesville expansion.

You know, I think it makes a lot of sense, so I appreciate the insight on that. That's all I had. Thank you. Thanks.

And there being no further questions, I will now turn the call back over to Taylor DeWalsh for some final closing comments.

Thank you. Thank you all for joining us this morning and look forward to speaking with you all again next quarter.

This concludes today's conference call thank you for your participation you may now disconnect.