Black Stone Minerals(BSM) - 2022 Q2 - Quarterly Report

PART I – FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) This section presents Black Stone Minerals, L.P.'s unaudited consolidated financial statements as of June 30, 2022, reflecting significant revenue and net income growth driven by higher commodity prices and a slight increase in total assets to $1.27 billion Consolidated Balance Sheets Consolidated Balance Sheet Highlights (thousands of dollars) | Account | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Total Current Assets | $155,500 | $107,974 | | Net Property and Equipment | $1,109,878 | $1,133,336 | | Total Assets | $1,272,693 | $1,247,921 | | Total Current Liabilities | $124,817 | $77,140 | | Total Liabilities | $230,005 | $184,292 | | Total Equity | $744,327 | $765,268 | | Total Liabilities, Mezzanine Equity, and Equity | $1,272,693 | $1,247,921 | Consolidated Statements of Operations Consolidated Statements of Operations Highlights (thousands of dollars, except per unit) | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Total Revenue | $180,372 | $58,442 | $216,796 | $120,010 | | Income from Operations | $133,067 | $17,026 | $127,319 | $34,239 | | Net Income | $131,788 | $15,429 | $124,786 | $31,615 | | Net Income Attributable to Common Units | $126,538 | $10,179 | $114,286 | $21,115 | | Net Income Per Common Unit (basic) | $0.60 | $0.05 | $0.55 | $0.10 | | Net Income Per Common Unit (diluted) | $0.59 | $0.05 | $0.55 | $0.10 | Consolidated Statements of Cash Flows Consolidated Cash Flow Highlights (thousands of dollars) | Cash Flow Activity | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | | Net Cash Provided by Operating Activities | $160,139 | $125,579 | | Net Cash Used in Investing Activities | ($145) | ($12,754) | | Net Cash Used in Financing Activities | ($156,712) | ($113,578) | | Net Change in Cash and Cash Equivalents | $3,282 | ($753) | | Cash and Cash Equivalents - End of Period | $12,158 | $1,043 | Notes to Unaudited Consolidated Financial Statements - The Partnership's primary business is owning and managing oil and natural gas mineral and royalty interests across 41 states in the continental U.S.[25] - The Partnership entered into farmout agreements with Canaan, Azul, and JWM to fund development of its working interests in San Augustine County, Texas, retaining overriding royalty interests[46] - As of June 30, 2022, the Partnership held open fixed-price swap contracts for oil and natural gas, with a net fair value liability of $107.2 million, to mitigate commodity price risk[55][56][63] - The Partnership's credit facility has a borrowing base of $400.0 million, with $86.0 million outstanding as of June 30, 2022, maturing in November 2024[82][86] - On July 25, 2022, the Board approved a distribution of $0.42 per common unit for the second quarter of 2022[111] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the significant increase in revenue and profitability for the second quarter and first half of 2022, driven by strong commodity prices, while highlighting development activities and strong liquidity with $314.0 million unused borrowing capacity Overview and Recent Developments - The company's principal business is maximizing the value of its mineral and royalty assets through active management and acquisitions[119] - Development activity is progressing in the Shelby Trough, with Aethon turning eight wells to sales in Angelina County and commencing operations on six additional wells; Aethon is also actively drilling and completing wells in San Augustine County[122] - In the Austin Chalk play, seven operators are actively engaged in redevelopment, with four rigs running; twelve wells with modern completions are producing, and an additional six are being drilled or completed[123] Results of Operations Q2 2022 vs Q2 2021 Performance | Metric | Q2 2022 | Q2 2021 | % Change | | :--- | :--- | :--- | :--- | | Total Production (MBoe/d) | 33.5 | 38.2 | (12.3)% | | Natural Gas Production (MMcf) | 12,895 | 15,676 | (17.7)% | | Realized Oil Price ($/Bbl) | $104.89 | $62.72 | 67.2% | | Realized Natural Gas Price ($/Mcf) | $8.62 | $3.60 | 139.4% | | Total Revenue ($ thousands) | $180,372 | $58,442 | 208.6% | - The increase in Q2 2022 revenue was primarily due to significantly higher realized commodity prices for both oil and natural gas, which more than offset a 17.7% decrease in natural gas production volumes[161][162][164] - For the six months ended June 30, 2022, total revenue increased 80.6% to $216.8 million compared to the prior year, driven by higher commodity prices, partially offset by a $60.0 million increase in losses on commodity derivative instruments[175][176] Liquidity and Capital Resources - Primary sources of liquidity are cash from operations and borrowings under the Credit Facility; as of June 30, 2022, the company had $86.0 million in borrowings outstanding[188] - Cash from operating activities increased to $160.1 million for the first six months of 2022, up from $125.6 million in the same period of 2021, mainly due to higher commodity prices[192][196] - The 2022 capital expenditure budget for non-operated working interests is approximately $4.5 million, net of farmout reimbursements[195] - The Credit Facility has a borrowing base of $400.0 million, providing $314.0 million of unused borrowing capacity as of June 30, 2022[86][199] Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is commodity price volatility, mitigated by derivatives, alongside counterparty credit risk and interest rate risk on its $86.0 million variable-rate credit facility - The company's major market risk exposure is the pricing of oil, natural gas, and NGLs; it uses commodity derivative instruments to reduce exposure to price volatility[207] - As of June 30, 2022, the company had seven derivative counterparties, all rated Baa1 or better by Moody's and are lenders under the Credit Facility, mitigating counterparty risk[209] - The company is exposed to interest rate risk on its $86.0 million of outstanding borrowings under its Credit Facility; a 1% increase in interest rates would have increased interest expense by $0.4 million for the first six months of 2022[211] Controls and Procedures Management concluded the company's disclosure controls and procedures were effective as of June 30, 2022, with no material changes to internal control over financial reporting during the quarter - The principal executive officer and principal financial officer concluded that the company's disclosure controls and procedures were effective as of June 30, 2022[213] - No changes occurred in the company's internal control over financial reporting during the quarter ended June 30, 2022, that have materially affected, or are reasonably likely to materially affect, internal controls[214] PART II – OTHER INFORMATION Legal Proceedings The company is involved in routine litigation, but management anticipates no material adverse effect on its financial condition or operations from these pending matters - The Partnership is involved in routine litigation from time to time, but management does not expect any pending claims to have a material adverse effect on its financial condition or operations[217] Risk Factors This section highlights a new risk factor concerning rising inflation, which could lead to higher interest rates and a recession, potentially impacting cash generation and distributions - A new risk factor has been identified related to rising inflation, which could lead to increased interest rates and a recession[219] - An economic slowdown or recession could result in decreased drilling activity by operators and reduced demand for oil and natural gas, which would adversely affect cash flow and distributions[222] Unregistered Sales of Equity Securities and Use of Proceeds During the reporting period, the company had no unregistered sales or repurchases of its equity securities - There were no unregistered sales of equity securities or repurchases of equity securities by the issuer during the period[223][224] Other Information No other information was reported for the period - No information was reported under this item[225] Exhibits This section lists all exhibits filed with the Quarterly Report on Form 10-Q, including required officer certifications - A list of exhibits filed with the report is provided, including officer certifications pursuant to the Sarbanes-Oxley Act of 2002[227]