Black Stone Minerals(BSM) - 2020 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company withdrew its production and distribution guidance for 2020 due to market uncertainty [8] - Total debt at the end of Q1 was $388 million, reduced to $350 million as of the call date, maintaining a leverage ratio of 1 times trailing EBITDA [11] - The borrowing base was set at $460 million, reflecting the impact of weak commodity prices [10] Business Line Data and Key Metrics Changes - The company added 480,000 barrels per quarter of crude oil hedges at an average price of $36.18 per barrel and 7.3 Bcf per quarter of natural gas hedges at an average price of $2.60 per Mcf, representing about 40% of reported Q1 production [9] Market Data and Key Metrics Changes - U.S. rig counts are down by more than 50%, and global CapEx in the energy sector is down over 30% [12][13] - The company noted a significant decline in active rigs, particularly in the Bakken, where only one rig was running at the end of Q1 [33] Company Strategy and Development Direction - The company is focusing on debt reduction and maintaining a strong balance sheet while preparing for potential market recovery [17] - A deal was signed with Aethon to restart development in the Shelby Trough, which is expected to lead to significant drilling activity [16] - The company aims to take advantage of the optimistic view on natural gas prices to pursue new development opportunities [15] Management's Comments on Operating Environment and Future Outlook - Management acknowledged the challenging environment due to simultaneous supply and demand shocks and the uncertainty surrounding producer activity [12][13] - The company is preparing for a potentially rough period in the oil patch while hoping for a speedy recovery [13] Other Important Information - The company reduced its common unit distribution to $0.08 per unit for the quarter to retain cash flow for debt reduction [15] - Management emphasized the importance of maintaining a strong credit position and liquidity to weather the current storm [10][17] Q&A Session Summary Question: What is needed to start paying out more cash flow? - Management indicated that there is no defined debt metric currently, and they will refine metrics based on production volumes and commodity prices before increasing distributions [19][20] Question: Can you provide details on the Aethon deal? - The company owns approximately 50% of the mineral rights in the area, with a commitment for a minimum of four wells in the first year, potentially increasing to 15 wells per year by the third year [21] Question: What is the interest level in dry gas plays like Haynesville? - Management noted a rebound in interest for dry gas plays due to the collapse in oil prices and a relatively optimistic view on gas [24][25] Question: What is the strategy for 2021 hedging? - The company plans to be methodical in its hedging strategy, focusing on risk removal and ensuring cash flow certainty [26][27] Question: What is the expected impact of production shut-ins? - Management indicated uncertainty regarding the level of volumes impacted by production shut-ins, with a cautious approach to prepare for potential declines [29] Question: Will the credit facility percentage decline as the year progresses? - The company expects to continue paying down debt aggressively and is focused on maintaining a sufficient cushion against the borrowing base [30][31] Question: What will guide the increase in distributable cash flow? - Management stated that reducing debt balances as a percentage of the borrowing base will be crucial before increasing distributions [34]