Black Stone Minerals 3rd Quarter 2026 Earnings Conference Call - BLACK STONE MINERALS LP

Financial Performance:

• Mineral and royalty production averaged 34.5 MBU/d; total production averaged 35.6 MBU/d.
• Mineral royalty production increased 6% QoQ, driven by higher natural gas volumes (Hainesville-Bossier) and oil volumes (Permian).
• Q3 2026 net income: $52 million (includes $30 million non-cash unrealized derivative loss).
• Adjusted EBITDA: $104 million; Distributable Cash Flow (DCF): $93 million.
• Declared quarterly distribution of $0.35/unit ($1.40 annualized), maintaining 1.25x DCF coverage.
• Oil and condensate accounted for nearly two-thirds of oil and gas revenues; realized prices remained supportive.
• Credit facility drawdown is slightly over 50%; existing facility deemed sufficient for the ongoing acquisition program.

Guidance and Future Outlook:

• Raised distribution for the second consecutive quarter, citing strong cash flow and continued progress toward natural gas growth.
• Expect steady natural gas production ramp in 2027 from Atomos, Revenant, and Cataris programs; oil volumes expected to grow from Blue Arrow and Permian/Bakken activity.
• Revenant first production expected by year-end 2026; Cataris first wells in H1 2027; Atomos continuing to bring wells online.
• Long-term goal: Significant production growth and distribution increases driven by development agreements and unleased portfolio exploration.
• Anticipated demand growth from LNG exports, power generation, and industrial uses supports the Shelby Trough strategy.
• Balanced approach to balancing distributions and growth investment to preserve financial flexibility over the next 12+ months.

Business Segments and Product Lines:

• Shelby Trough Strategy: Expanded Cataris agreement adds 730,000 gross acres, bringing total contracted acreage (Cataris, Atomos, Revenant) to ~1.4 million gross acres.
• Acquisition Program: Approximately 60% of expanded Shelby Trough acreage will be legacy holdings; 40% from targeted acquisitions (over halfway through acquisition phase).
• Active Partners: Exco, Apex, Rockcliff, and BPX have 10 combined wells drilling or awaiting completion on company acreage.
• New Developments: Revenant first production (EOY 2026); Cataris split first two wells; Atomos continuing ramp.
• Traditional Leases: ~50,000 gross acres under active traditional leases in the Shelby Trough with strong leasing activity.

Market and Competitive Landscape:

• High operator interest in the Shelby Trough and Hainesville-Bossier play validated through a competitive marketing process for the Cataris expansion.
• Market trends indicate increased drilling permit filings and activity; operators are working through backlogs, suggesting sustained future activity.
• Midstream capacity projects (e.g., Williams-Momentum deal, Venture Global LNG facilities) are underway to mitigate potential takeaway constraints as volumes scale.
• Company maintains a unique strategy combining active portfolio management with high-interest development agreements and a significant unleased position.

Risks and Challenges:

• Commodity Price Sensitivity: Oil production growth in Permian/Bakken remains somewhat price-sensitive regarding operator capex budgets.
• Midstream Constraints: Potential takeaway capacity constraints exist, though management expects new infrastructure projects to mitigate this long-term.
• Execution Risk: Progress depends on successful operator drilling and completion schedules for newly contracted acreage.
• Forward-Looking Statements: Actual results may differ due to risks associated with commodity markets, development timelines, and regulatory environments (standard forward-looking risk disclosures).

Management Commentary and Tone:

• Tone was confident and positive, emphasizing the "strength of Blackstone's unique and differentiated strategy."
• Management highlighted successful execution in advancing the Shelby Trough strategy and the flexibility to balance growth with shareholder returns.
• Co-CEOs Taylor DeWalch and Fowler Carter stressed that the balance sheet remains clean and flexible to capitalize on the elevated oil price cycle.
• Management expressed excitement regarding the scale of the Shelby Trough opportunity and the pipeline of new projects.

Analyst Questions and Answers:

• Cataris Expansion Drivers: Fowler Carter confirmed the expansion reflects successful data collection and broad area potential, though specific well data details were not disclosed to protect competitive positioning.
• Production Guidance: Chris Bonner clarified a steady ramp in gas volumes in 2027 and continued oil growth, with Permian/Bakken activity dependent on pricing but expected to remain strong.
• Takeaway Capacity: Taylor DeWalch assured that midstream capacity projects are well underway and large-scale constraints are not anticipated as the supply curve grows.
• Acquisition Appetite: Management confirmed being over halfway through the acquisition program, with no end date set yet, to achieve desired scale for operator incentives.
• Capital Structure: Board intends to maintain a flexible balance sheet, weighing capital allocation between acquisitions, preferred stock redemptions, and distributions over the next year.
• Distribution Policy: Distribution remains tactical but currently supported; the 35-cent level is expected to be maintained based on current forecasts, with flexibility to adjust as conditions evolve.

Other Key Points:

• The Cataris agreement amendment represents a strategic move to bring a broader portion of the mineral position into a contracted development program.
• Non-GAAP financial measures (Adjusted EBITDA, DCF) were used to evaluate performance, with reconciliations available in the Q3 earnings release.
• The company continues to actively market acreage globally, generating current lease bonus revenues while securing future drilling opportunities.