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

Explicit Guidance:

• No specific quantitative financial guidance (revenue, EPS, capex, opex) for future periods was provided.
• Distribution: Declared distribution increased to $0.35 per unit for Q3 2026 (annualized $1.40), reflecting a "second consecutive quarterly distribution increase" with a maintained coverage ratio of 1.25x.
• Distribution Strategy: Management expects to maintain a strategy of balancing distributions and growth investment to preserve financial flexibility, with the forecast for future distribution growth dependent on continued production and cash flow realization.
• Credit Facilities: Existing credit facilities are deemed sufficient to meet needs for the ongoing acquisition program.

Business-Segment Outlook:

• Shelby Trough (Natural Gas): Significant production growth expected to drive cash flow; development programs (Adanis, Revenant, Cataris) positioned to ramp up volumes.
  • Revenant: First production expected by end of 2026.
  • Cataris: First two development wells under original agreement splitting, with production expected in H1 2027.
  • Adanis: Continued ramp-up of wells online in 2027.
• Shelby Trough (Oil): Oil volumes expected to continue growing in 2027, driven by high-interest development with Blue Arrow and broader Permian/Bakken activity.
• Acreage Composition: Upon conclusion of the planned acquisition program, approximately 60% of expanded Shelby Trough net mineral acreage will originate from legacy holdings and 40% from the acquisition program.
• Contracted Acreage: Total area covered by Adonis, Revenant, and Cataris agreements stands at approx. 1.4 million gross acres; plus ~50,000 gross acres under traditional leases in active areas.
• Drilling Activity: Exco, Apex, Rockcliff, and BPX currently have 10 combined wells drilling or awaiting completion; additional permit filings suggest increased drilling activity in the coming months.
• Acquisition Program: Currently "more than halfway through" the planned program; intent to continue "bolting on" acquisitions to incentivize operators and achieve desired scale.

Market and Competitive Outlook:

• Demand Drivers: Expected natural gas demand growth driven by LNG exports, power generation, and industrial uses, with proximity to Gulf Coast demand centers reinforcing this opportunity.
• Pricing/Costs: Commodity prices (specifically oil) remained supportive in Q3 2026; realized prices expected to remain in line with current levels, though oil volumes remain price-sensitive regarding operator capex budgets.
• Competitive Position: Strong industry interest in the expanded Shelby Trough/Hainesville-Bossier play confirmed confidence in long-term potential; successful competitive marketing process for Cataris expansion.
• Takeaway Capacity: Anticipated supply curve volumes from the Shelby Trough require additional midstream capacity; projects (e.g., Williams/Momentum deal) are "well underway" to serve the LNG corridor and other facilities, with no expected large-scale takeaway constraints.

Macro / Industry Outlook:

• Economic/Commodity Cycle: Management is monitoring commodity market conditions for their impact on operator activity.
• Capex Sensitivity: Operator drilling activity, particularly in the Permian and Bakken, is noted to be somewhat price-sensitive regarding future capex budgets, though current activity is expected to remain a strong driver.
• Regulatory/Infrastructure: No specific regulatory headwinds mentioned; infrastructure projects (midstream pipelines) are viewed as critical enablers for scaling production.

Strategic Initiatives:

• Cataris Agreement Expansion: Amendment and expansion of the Cataris agreement adds 730,000 gross acres to the contracted development program, moving more acreage toward delineation and production.
• Acquisition Program: Continuing targeted acquisitions to enhance the overall development opportunity and build a portfolio of programs; focus on "bolting on" to existing legacy acreage.
• Leasing: Active marketing and leasing across the broader portfolio to generate immediate lease bonus revenues and create future drilling opportunities.

Risks and Headwinds to Outlook:

• Operator Activity: Future volume growth (especially in oil) depends on operator decisions regarding capital budgets, which are sensitive to commodity price fluctuations.
• Takeaway Constraints: Potential delays in midstream capacity projects could theoretically limit the pace of development, though management believes projects are sufficient to avoid large-scale constraints.
• Commodity Prices: Volatility in oil and gas prices remains a primary driver for operator activity levels and realized pricing.
• Acquisition Execution: Continued ability to identify and close accretive acquisition targets to reach the intended scale of the program.
• Forward-Looking Caveats: As per standard disclaimer, actual results may differ materially due to risks including but not limited to those detailed in the 2025 10-K and earnings release.

Management Tone on the Future:

• Confidence Level: High confidence in the "significant growth in natural gas production and cash flow" over the coming years; view of the Shelby Trough as having "substantial growth opportunities."
• Strategy: Emphasis on "continued execution" and "financial flexibility," balancing distribution growth with investment in development.
• Direction: Positive trajectory regarding production ramp-up in 2027 and the ability to support distribution growth over time.
• Hedges: Statements are qualified by the need to "monitor commodity market conditions" and "balance distributions and investment."

Miscellaneous:

• Redemption Window: The preferred security redemption window is scheduled to open in approximately one year.
• Capital Structure: Current balance sheet is described as "clean" with credit facilities at roughly half utilization; capital deployment options under review include acquisitions and preferred redemption over the next 12 months.