Black Stone Minerals(US:BSM)2020-02-25 19:58Financial Data and Key Metrics Changes - The company reported a decrease in total debt to $394 million at year-end, down by over $40 million from mid-year, with a debt-to-EBITDA ratio of 1x [13][24] - Royalty volumes increased by 14% from 2018, generating $400 million of adjusted EBITDA for the year [18] - The distribution for the fourth quarter was decreased to $0.30 per share, with a target payout of $1 per share for 2020 to allow for debt reduction [15][50] Business Line Data and Key Metrics Changes - The company added 19.3 net wells in 2019, slightly down from 21 wells in 2018, with a notable increase in the Midland/Delaware program [6] - The Shelby Trough saw 3.5 net wells added, higher than the 2.8 in 2018, but activity slowed in the second half of 2019 due to declining natural gas prices [7] - Working interest volumes are expected to decline by about 25% in 2020, with royalty volumes projected to increase to almost 80% of total production [21] Market Data and Key Metrics Changes - The rig count dropped by 27% since the end of 2018, reflecting a broader industry trend of operators moderating activity [14] - The company saw approximately 1,875 permits added on its acreage in 2019, a 5% increase from 2018, with over half in the Midland/Delaware [9] Company Strategy and Development Direction - The company is focusing on balance sheet strength and has become more selective in acquisitions, prioritizing debt reduction with excess cash flow [10][24] - Discussions are ongoing regarding the development of the Shelby Trough, with a cautious approach to negotiations due to current market conditions [11] - The company plans to reduce G&A costs significantly, including a 20% reduction in headcount and lower executive compensation [16][23] Management's Comments on Operating Environment and Future Outlook - Management acknowledged the tough industry environment, with natural gas prices remaining low and operators trying to live within cash flow [14] - The company remains hopeful for a recovery in gas prices, which could lead to increased drilling activity in the future [12] - The guidance for 2020 reflects a cautious outlook, with expectations of declines in production volumes but a focus on maintaining healthy coverage ratios [20][24] Other Important Information - The company plans to maintain a conservative approach to its balance sheet amid potential challenges in the industry [36] - A one-time charge of about $5 million is expected due to G&A reductions, which will be recorded in the first quarter of 2020 [23] Q&A Session Summary Question: Regarding royalty production outlook and net well addition - Management indicated that the forecast does not assume any net wells in the Shelby Trough, with expectations for a decline in activity in the Haynesville [26][27] Question: Market interest and motivation to release acreage - The company plans to put some acreage into play while keeping certain parts out to maintain exposure to potential upside when gas markets recover [29] Question: Management of credit facility and leverage - Management intends to maintain a conservative approach to debt levels, focusing on coverage ratios and potential impacts from market conditions [34][36] Question: Dividend coverage expectations - Management is comfortable with a coverage range of 1.2 to 1.3 times, with a focus on maintaining this level moving forward [37] Question: Production cadence and expected declines - Management expects declines to be more pronounced in the first half of the year, with a potential stabilization in the latter half [38] Question: Working interest investment strategy - The company has shifted to a more permanent stance on withholding investment in working interest wells, focusing on promoting royalty volumes instead [39] Question: Hedging strategy for 2021 - Management has not yet established hedges for 2021 due to challenging market conditions but intends to do so opportunistically [42]