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

Hello, everyone. Thank you for joining us and welcome to the Blackstone Minerals third quarter 2026 earnings conference call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star 1 again. I will now hand the conference over to Natalie Liddell, Vice President, Corporate Planning. Natalie, please go ahead. Good morning, everyone. Thank you for joining us by phone or online for Blackstone Minerals Third Quarter 2026 Earnings Conference Call. Today's call is being recorded and will be available on our website, along with the earnings release 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 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-thinking statements in our press release from yesterday and the risk factors section of our 2025 10K. We may refer to certain non-GAAP financial measures that we believe are useful in evaluating our performance. Reconciliation of these 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 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 Taylor. Thanks, Natalie. Good morning, and thank you all for joining us. We had a strong third quarter with growth in both oil and natural gas production. Higher volumes, together with continued support from elevated oil prices, contributed to increased cash flow compared to the second quarter. With these results and continued progress toward natural gas production growth, we raised our distribution for the second consecutive quarter while maintaining through coverage. As we look ahead, we continue to monitor commodity market conditions and what they may mean for operator activity and our production outlook. We also took an important step in advancing our Shelby Trough strategy with the amendment and expansion of our cataract agreement. It brings a broader portion of our position into a contracted development program and moves us closer to realizing the production potential of our mineral inventory. These successful results from the third quarter highlight the strength of Blackstone's unique and differentiated strategy. We are both actively managing the portfolio across the lower 48 through current leasing while also promoting significant growth through our development agreements on high-interest acreage. The combination of these strategies along with a significant unleased position across the country that we continue to explore provides a solid foundation with substantial growth opportunities as we look to 2027 our focus is on continued execution under our existing agreements as these development programs progress and grow together with ongoing activity across our broader portfolio we expect these programs to drive higher production and support distribution growth over time as we evaluate that progress will balance distributions, and investment in growth in a way that preserves our financial flexibility. With that, I'll turn it over to Fowler to discuss how we are advancing our growth strategy and what the progress across these programs means for Blackstone. Thanks, Taylor. A key focus of our growth strategy is advancing development of our substantial legacy of mineral position in the expanded Shelby Trough. Targeted acquisitions and development agreements help us turn that inventory into natural gas production and cash flow together these efforts go beyond any single transaction to build a portfolio of development programs that we expect to contribute to production growth over time at the conclusion of our planned acquisition program we expect approximately 60 percent of our expanded shelby trough net mineral acreage to come from our legacy holdings and approximately 40 from the acquisition program this reflects how targeted additions build on our existing acreage position and enhance the overall development opportunity our expanded cataract agreement reflects our strategy of working with operators to move more of our acreage towards delineation development and ultimately production strong industry interest during the marketing process reinforced our confidence in the long-term potential of the position this amendment combined with our other high interest development agreements brings the total area covered by our cadres adamus and revenant agreements to approximately 1.4 million gross acres additionally we have approximately 50 000 gross acres under traditional leases and active areas throughout the shelby trough We are seeing development activity continue to build across this acreage. Atomos is bringing additional wells online, Revenant's first production is expected by year end, and Cataris has split its first two development wells under the original agreement, with production expected in the first half of 27. Across our broader Shelby Trough position, Exco, Apex, Rockcliff and BPX currently have 10 combined wells drilling or awaiting completion on our acreage and additional drilling permit filings suggest increased drilling activity in the coming months. We continue to actively market acreage, and work with operators throughout our mineral portfolio to put more of our position into play. Strong leasing activity and higher least bonus revenues reflect those efforts generating revenue today while creating opportunities for future drilling and production at the core of our growth outlook are our shelby trough development programs with these agreements now in place and development advancing we expect significant growth in natural gas production and cash flow we believe this expected growth together with opportunities elsewhere in our mineral portfolio provides a strong foundation for are growing returns to unit holders in the years ahead. With that, I'm gonna turn the call over to Chris to cover the financial results. Thanks, Valor, and good morning. Mineral and royalty production during the third quarter averaged 34 and a half MBU per day, while total production averaged 35.6 MBU a per day. Mineral royalty production increased 6% from the second quarter, driven by both higher natural gas volumes from the Hainesville-Bossier and higher oil volumes from the Permian. Commodity prices remained supportive in the quarter particularly for oil our average realized price excluding the impact of derivative settlements was roughly in line with last quarter higher production contributed to stronger oil and gas revenues in cash flow with oil and condensate accounting for nearly two-thirds of our oil and gas revenues net income was approximately 52 million dollars for the quarter which included a non-cash unrealized rate of loss of about 30 million adjusted EBITDA was 104 million and distributable cash flow was 93 million as previously announced we declared a distribution of 35 cents per unit for the quarter or 1.40 on an annualized basis stronger cash flow supported our second consecutive quarterly distribution increase while allowing us to maintain 1.25 times coverage for the quarters maintaining that balance allows us to pursue accretive growth opportunities while supporting our objective of sustainable distribution growth as taylor and fowler discussed programs under our development agreements including the expansion of our cataract program is positioning more of our acreage to help meet anticipated natural gas demand growth from lng exports power generation and industrial uses our proximity to gulf coast demand centers reinforces that opportunity our focus remains on advancing development with the goal of growing production cash flow and distributions for unit holders with that we'll open it up for questions We will now begin the question and answer session. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of John Annis with Texas Capital Bank. John, your line is open. Please go ahead. Hey, good morning, all, and thanks for taking my questions. My first one is on the expanded Catalyst agreement. What did the pilot work or subsurface data show that gave both parties the confidence to expand the contract area by 730,000 gross acres. Hey, John. Hi, John, Fowler here. Catarus collected a lot of data on that well, and as we've said, we're excited to expand the contract here with them, and we're not gonna jump in front of them on comments to that. But I think the expansion of the contract speaks to answer the question. That makes sense. my follow-up production showed some nice growth sequentially can you walk us through kind of the main drivers of that growth and how we should think about volumes over the next couple quarters as the remaining adonis and blue arrow wells come online yeah i can start with that so uh looking at the the shelby trough adamus continues to turn wells on and we expect that to continue um and then are looking forward as we mentioned to the first revenant wells coming on and cataracts wells in early 27 so generally on the gas side we expect that to just be a steady ramp as we go into next year on the oil side uh certainly encouraged by the high interest development with blue arrow and think that that will continue to show uh growth in oil volumes and then we've also just seen broadly across the permian and balkan more wells coming online as operators work through ducks i think there it is a little bit more price sensitive and we'll see what operators decide to do with our capex budgets going into next year but we're certainly expecting that to continue to be a strong uh driver of our of our volumes and revenue got it if i could sneak one last one in maybe more on the macro side with several operators advancing programs across the shelby trough are you guys seeing any constraint around takeaway capacity services or anything else that could limit the pace of development as activity scales yeah thanks john this is taylor um i'll touch on that i think when we look at takeaway capacity on the shelby trough that's been a conversation that's been had uh between us the operators and potential uh midstream gatherers and long haul uh pipes for quite some time now trying to get ready ahead of the volumes coming online from the Shelby trough. I think we're all excited about the potential of the size and volumes that we're, we're All forecasting to come out of that area. But over the long haul, we need some additional capacity. And I'd say those projects are well underway. Especially I think if we specifically call out the deal between Williams and momentum, I certainly think there's capital being injected into that area and we're excited to have some more capacity that goes south towards the LNG corridor and other demand centers, towards some of the other LNG facilities such as Venture Global and other projects underway. So I think that those projects are well on the way and we shouldn't see any takeaway or large scale takeaway constraints as we move forward the supply curve. I appreciate the time. I'll turn it back. Thanks, Sean. Your next question comes from the line of Tim Resvan with KeyBank Capital Markets. Tim, your line is open. Please go ahead. Good morning, folks. Thank you for taking our questions. We appreciated the detailed update about your operating agreements and the release. So I just wanted to ask, kind of with that Catalyst expansion, where do you stand with resource capture at this point? You've spent about $335 million. have a number of agreements lined up are you done is there more to do just kind of trying to understand your appetite at this point tim i think the best way to answer that is stay tuned that's all i'm gonna say yeah i think tim this is taylor i'll just uh add on to that a little bit too i mean i think we continue to move forward with our acquisition program we've talked about in the past that uh you know i think мы said a couple quarters ago that we're about halfway through it so we're more than halfway through at this point but we're still seeing opportunities to continue to bolt on to get to the type of scale that you know we really desire in order to place the acreage into these development agreements to also help incentivize the operators so you know we're we're over halfway through and continue to move forward with acquisitions in that area one other comment I might just make and this goes back to one of the previous questions as well on Cateris is, you know, we had a pretty strong competitive marketing process on these expanded areas. So I don't think that it's tied to any specific well, but more thinking about the broader area and just general excitement on the expanding Shelby trough in Hainesville-Bossier play. And that covering, like Fowler said in his prepared remarks well over a million gross acres that we've not got now have in these contracted agreements okay i think i understand your body language pretty clearly on on that um you know if we think about the capital structure at this point it looks like you're about a little over half drawn on on your credit facilities i think the next three determinations in the spring um how should we think about sources of capital for any you know incremental uh acquisitions i I know you have the preferred that's sort of out there. So how do you think about capital structure to support this growth that is clearly underway? Yeah, I'll maybe just touch on it quickly, Tim, and then Chris can jump in as well. But I think one of the keys for us is to stay flexible from a balance sheet perspective. I think we've continued to do that. I think when we look at the current cycle that we're in, we think about how do we utilize this elevated oil price cycle to make the business better and we think we can do that through both you know two consecutive quarters of distributions but also focusing on maintaining a clean balance sheet and then growing the business for the long haul that's really what we've been focused on and I think that our agreements and continuing to bring in new agreements continues to kind of fortify that strategy and as we think about the sort of financial flexibility You know there are other uses of capital that are out there from an acquisition or preferred standpoint The redemption window comes up about a year from now So I think we'll continue to weigh those different uses of Capital as we progress over the next 12 months Yeah, I think the only thing I'll add to that is we do feel that Our existing credit facility is sufficient to meet our needs when it comes to the acquisition program Okay, that's just good context and if I could just sneak one more in um you know you surprised us with the distribution increase this quarter and it looks like you know ample ample coverage for that payment in the past you know the board has tried to maintain a fixed distribution you know despite volatile gas markets but is your expectation to try to keep that 35 cent distribution or is the board maybe going to be more more tactical as as best prices at the flow thanks thanks tim no i think our strategy around the distribution stays the same um we raised it because we felt comfortable about where our forecast stands which is what we've signaled to uh to you guys in the past uh so we're happy to be able to recommend and get the approval for the distribution growth uh and like i said we continue to look out to the forecast for just maintaining uh kind of flexibility related to all of our financials Okay. All right. I appreciate all the comments. Thank you. Thanks, Tim. We have reached the end of the Q&A session. I will now turn the call back to Taylor DeWalch, Co-Chief Executive Officer and President, for closing remarks. Thank you all for joining us this morning. Really excited to both announce continued growth in the Shelby trough, as well as strong quarterly results, and look forward to speaking to you all again next quarter. This concludes today's call. Thank you for attending. You may now disconnect.