Black Stone Minerals (BSM) Earnings Transcript

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DATE

Tuesday, Feb. 24, 2026 at 10 a.m. ET

CALL PARTICIPANTS

• Executive Chairman — Tom Carter
• Co-Chief Executive Officer and President — H. Taylor DeWalch
• Co-Chief Executive Officer and President — Fowler Carter
• Senior Vice President, Chief Financial Officer, and Treasurer — Chris Bonner
• Senior Vice President and General Counsel — Steve Putman

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TAKEAWAYS

• Royalty Production -- 30,900 BOE per day, down 11% sequentially from the prior quarter.
• Total Production -- 32,100 BOE per day, which met the high end of the updated guidance range.
• Net Income -- $72.2 million for the quarter.
• Adjusted EBITDA -- $76.7 million for the quarter, with seismic acquisition costs excluded from this measure.
• Distributable Cash Flow -- $66.8 million, covering the distribution at 1.05x for the period.
• Quarterly Distribution -- $0.30 per unit declared, annualizing to $1.20.
• Oil and Condensate Revenue Mix -- 51% of oil and gas revenue derived from oil and condensate production in the quarter.
• Development Agreements -- Recently executed with Aethon Energy and Catena Resources, placing approximately 500,000 gross acres under development with escalating drilling commitments to 37 gross wells per year by 2031, resulting in a total of 50 gross wells including Aethon.
• Operational Activity -- Aethon brought online several new wells in the Shelby Trough with combined initial rates of 25-30 MMcf per day, with another five wells to come online early in the year and 18 more planned throughout the coming year.
• Capital Investment -- About $240 million invested in mineral and royalty acreage additions across the Shelby Trough and Haynesville expansion area since 2023.
• Seismic Surveys -- Two proprietary 3D seismic surveys underway in the Shelby Trough and Haynesville expansion, covering about 360,000 gross acres, with the vast majority of costs expected in the current year and anticipated completion by early next year; the company retains data ownership and may pursue licensing opportunities.
• G&A Expense Trends -- Strategic increase in general and administrative expenses planned for the current year to support heightened development activities.
• Guidance and Growth Trajectory -- Overall production guidance maintained as flat year over year, but management projects material growth from the fourth quarter baseline to year-end, driven by new wells and development agreements.
• Permian Basin Development -- High-interest activities from Cotera and new Southern Delaware development anticipated to bring volumes on later in the current and following year, with additional leasing expected to support further activity into the future.
• Commodity Price Strategy -- Management expresses confidence in maintaining the current distribution based on minimum development commitments and the support of established hedges for natural gas prices.

SUMMARY

Management highlighted substantial progress on commercial milestones, including significant acreage contracted for future development and a marked increase in planned drilling activity through major new agreements with Aethon Energy and Catena Resources. The company is deploying capital into seismic data acquisition, positioning its proprietary information as a potential revenue source while supporting the targeted development of its mineral interests. Management expects sequential production increases throughout the current year, particularly from the Shelby Trough and Haynesville expansion areas, facilitated by incremental well additions and proactive asset management. Operational expansion into the Permian Basin and further expansion opportunities in the Western Haynesville were explicitly outlined as new growth vectors. Adjusted EBITDA and distributable cash flow metrics now exclude seismic acquisition costs, aligning the company’s stated financial presentation with investment timing and internal capital allocation practices.

• Black Stone Minerals, L.P. anticipates leveraging its strategic location near LNG facilities to capitalize on projected long-term natural gas demand from power generation and exports.
• The company’s acquisition pipeline remains active, with a recent letter of intent signed to pursue new mineral interests in the Gulf Coast region outside its core focus areas.
• Management emphasized a disciplined capital approach amid current commodity price dynamics, stating: "we are confident that we can continue to fund the distribution and grow throughout the year based on those minimums."

INDUSTRY GLOSSARY

• Shelby Trough: A prolific sub-basin of the Haynesville shale in East Texas, focused on natural gas development by Black Stone Minerals, L.P.
• BOE (Barrels of Oil Equivalent): A unit of measure used to aggregate oil and natural gas resources, based on energy equivalency.
• MMcf (Million Cubic Feet): Measurement unit for natural gas production and reserves.
• 3D Seismic Survey: An advanced geophysical imaging technique producing three-dimensional models of the subsurface to improve exploration and development.

Full Conference Call Transcript

Joining me on the call from the company are Tom Carter, Executive Chairman; H. Taylor DeWalch, Co-CEO and President; Fowler Carter, Co-CEO and President; Steve Putman, Senior Vice President and General Counsel; and Chris Bonner, Senior Vice President, Chief Financial Officer, and Treasurer. I will now turn the call over to Fowler.

Fowler Carter: Thank you, Natalie. Good morning, everyone, and thank you for joining us on our fourth quarter earnings call. If you look at our earnings release from last night, you will see that we had a great 2025 despite headwinds from production and oil prices. During the year, we achieved significant commercial milestones that will benefit our future production for years to come. We successfully signed development agreements with Aethon Energy and Catena Resources. These deals place approximately 500,000 gross acres into development, with minimum drilling commitments ramping up to 37 gross wells per year by 2031 from those programs, and including Aethon, a total of 50 gross wells over the same period.

Aethon also recently brought several new wells online in the Shelby Trough at about 25 to 30 MMcf per day, with another five wells expected to come online in the first quarter. An additional 18 wells are expected to be drilled throughout 2026. Also in 2026, we expect that Aethon will spud more than its minimum six-well commitment, and Catena plans to drill its initial wells, including a pilot well. We are also seeing increased activity from others in the Shelby Trough as the industry moves towards available inventory to meet the growing natural gas demand.

In addition to these developments, we are building another new opportunity in our Haynesville expansion area that we believe will add significant inventory and scale to the current development. Based on existing subsurface analysis, we believe we can continue to expand the Shelby Trough Haynesville Basin towards the Western Haynesville. With our continued focus on increasing production from existing assets and driving long-term value for our unitholders, we have also entered into a LOI with a reputable operator with experience in the Haynesville on a meaningful amount of acreage in the Gulf Coast region outside of our recent focus areas. Our acquisition program remains on track as well.

Since launching the program in 2023, we have invested about $240 million to add accretive mineral and royalty acreage across the Shelby Trough and Haynesville expansion area. We remain confident that the combination of these commercial initiatives will lead to significant growth and value for our unitholders. With that, I will hand the call over to H. Taylor DeWalch.

H. Taylor DeWalch: Adding on to Fowler's commentary, we are excited about the increased activity and the ramp in production that we expect throughout 2026. We ended 2025 and began 2026 at about 32,000 BOE per day, but we see that materially growing throughout 2026. So while production guidance is roughly flat year over year, we see solid growth from fourth quarter 2025 to fourth quarter 2026. Our full investor presentation showed that 2026 is anticipated to be just the beginning of new activity in the Shelby Trough. We expect significant increases in natural gas production and distributions to Black Stone Minerals, L.P. unitholders over the coming years.

Because we have one substantial industry-leading inventory on our acreage in Shelby Trough and Haynesville expansion, and two advantageous proximity to the Gulf Coast and key demand centers, we are optimistic about the long-term growth for our unitholders. The team has done a phenomenal job the last several years delineating and marketing the Haynesville expansion area and securing the development agreements. We are now preparing to manage the growth and activities through these development agreements with our operating partners. As noted in our release last night, we are strategically increasing G&A in 2026 to support this increase in activity.

We remain focused on disciplined capital management and our comprehensive commercial strategy, including grassroots acquisitions, high-interest development agreements, new development opportunities, and proactive asset management across all basins. These efforts support our goal of delivering near-term and long-term value for Black Stone Minerals, L.P. unitholders. I will now turn the call over to Chris to walk through the financial details for the quarter and full year.

Chris Bonner: Thanks, Taylor, and good morning, everyone. In the fourth quarter, royalty production was 30,900 BOE per day, a decrease of 11% from the prior quarter. Total production for the quarter was 32,100 BOE per day, and we completed the year at the high end of the updated guidance. As discussed in the release last night, our updated guidance last year reflected lower natural gas-directed drilling activity and volume levels in the Shelby Trough over the last couple of years. We expect 2026 to be a turning point with new and increased development in the Shelby Trough and Haynesville expansion areas along with high-interest projects in the Permian Basin and ongoing development across our broader assets.

We continue to monitor increasing activity levels in the Haynesville and commodity price dynamics as we look towards 2026 production and distribution. The partnership is also in the process of shooting two substantial 3D seismic surveys in the Shelby Trough and Haynesville expansion area covering about 360,000 gross acres. While initiating and funding these surveys is not typical for Black Stone Minerals, L.P., we believe it allows us to control the timing, pace, and focus of the data highlighting our minerals and supporting their development under our contracted agreements. Most of the remaining costs for these surveys are expected to be incurred in 2026 with completion targeted for early 2027.

They are subject to partial reimbursement with reported costs reflecting Black Stone Minerals, L.P.'s share while the partnership retains full ownership of the data. Over time, the proprietary nature of these surveys may provide opportunities to license the data to industry, potentially generating additional revenue. Together with these supplemental seismic purchases, these assets are expected to enhance subsurface evaluation, further unlock the value of our mineral and royalty acreage, and accelerate development of that acreage. To better reflect how we view these investments, we have updated the presentation of adjusted EBITDA and distributable cash flow to exclude seismic acquisition costs. Turning to the quarter's financial results.

Net income was $72.2 million for the fourth quarter, with adjusted EBITDA of $76.7 million. 51% of oil and gas revenue in the quarter came from oil and condensate production. As previously announced, we declared a distribution of $0.30 per unit for the quarter, or $1.20 on an annualized basis. Distributable cash flow for the quarter was $66.8 million, which represents 1.05x coverage for the period. As Fowler and Taylor mentioned earlier, the partnership's outlook remains strong, anchored by long-term contracted development in our high-interest Shelby Trough acreage, as well as our core legacy assets across the U.S. With growing demand from LNG and electric power generation, the outlook for natural gas is increasingly constructive over the next decade.

Our significant assets near Gulf Coast LNG facilities position Black Stone Minerals, L.P. to benefit from the substantial call on gas supply, which we expect to increase over the coming years. In conclusion, we had a successful 2025 on many fronts, setting the partnership up for a great 2026 and beyond. We remain confident that our existing acreage positions across numerous basins, coupled with our commercial strategy and the expanded Shelby Trough, will provide a strong foundation to deliver sustainable long-term value for unitholders. With that, I would like to open up the call for questions.

Operator: Thank you. We will now begin the question-and-answer session. Your first question today comes from the line of Derrick Whitfield from Texas Capital. Your line is open.

Derrick Whitfield: Good morning, and thanks for your time. Morning, Derrick. Regarding guidance for the year, while I realize some of this is beyond your control, how should we think about the cadence of production from fourth quarter levels throughout 2026 based on the known developments?

H. Taylor DeWalch: Yes, Derrick. This is Taylor, and I will start out with that. I think when we look back to 2025, kind of midyear, and then along with our investor presentation, we really pointed to where we thought production was headed based on the last couple of years of activity in the Shelby Trough and the decreased activity there. Where we end 2025 is where we think we are going to start 2026, which is what we have alluded to in the release last night and mentioned in our script this morning. That is where that puts us for the full year reflected in the guidance. Again, we think we are going to be increasing materially throughout the course of 2026.

And most of that is attributable to new development agreements, as well as Permian production in those high-interest developments out West.

Derrick Whitfield: And, Taylor, would you expect it to stall out at the fourth quarter and maybe first quarter level for first quarter and then step up each quarter progressively, or would there be more lumpiness than what I just suggested?

H. Taylor DeWalch: No, I think that is right. You will see it start to step up. As we have mentioned, we have some wells coming on here in the beginning of the year, specifically related to Aethon, and then we see activity increasing throughout the year.

Derrick Whitfield: Great. And for my follow-up, in your commentary, you referenced efforts to build new opportunities to further expand your asset base and add new development agreements in both the Shelby Trough and Haynesville expansion area. Looking ahead, how would you characterize the pipeline of potential new development agreements? Are these conversations primarily with new operators in the basin or extensions with existing operators? And how should we think about the cadence and acreage scope of incremental agreements over the next 12 to 18 months?

Fowler Carter: Derrick, I would tell you that we certainly do not discriminate against existing partners or newcomers. We welcome all parties, and while we enjoy the partnerships that are established, we are happy to continue to diversify our new developments with new partners or strengthen existing contracts with established partners.

Derrick Whitfield: Great. Thanks for your time, guys.

Chris Bonner: Thanks, Derrick.

Operator: As a reminder, it is star one to ask a question. Your next question comes from the line of Tim Rezvan from KeyBanc Capital Markets.

Timothy A. Rezvan: Good morning, guys. Thank you for taking my questions. Changing gears to the Permian, we saw comments in the release about leasing outside of the Cotera development area. We also saw guidance for liquids down a bit in 2026 versus our expectations. Can you talk about what you are pursuing in the Permian and the scale and the priority of that given everything that is going on in the Haynesville?

H. Taylor DeWalch: Yes, sure, Tim. This is Taylor, and I will start there. We are excited to see activity in the Permian in two different buckets, if you will. We have high-interest activity from Cotera, then we mentioned another large-scale high-interest development that is happening in the Southern Delaware. That is a bit more proactive asset management, if you will, along with quite a bit of leasing throughout 2025 that we think points to increased activity across 2026 and 2027. If you look at the timing of some of this and when we see those volumes coming on, we will see some of the Cotera wells continue to come on over the course of 2026.

Some of the other activity really is probably later on in 2026 and more materially in 2027, so you will start to see those volumes a little bit later on. We are excited about what is going on and excited about others in the industry and their excitement around the Barnett, where we have also seen leasing pick up. There is a lot to be excited about in the Permian right now.

Chris Bonner: The only thing I would add there is we know about these high-interest developments that we can model. When we are looking at where price is right now in the Permian, we are being thoughtful on the broader development there and not wanting to get ahead of ourselves when it comes to forecasting the broader Permian volumes.

Timothy A. Rezvan: Okay. I appreciate the context. My next question, if we look at the Henry Hub strip this year, it is below $3.50 for a lot of the year into the winter. You have talked about maybe a flattish start to the year growing. Do you feel comfortable you can fund your $0.30 distribution through distributable cash flow without leaning on liquidity for the next step? First quarter will be a big aberration, we know, with $5 Henry Hub. But as we look to the summer, how confident are you that you can fund that without leaning on liquidity?

H. Taylor DeWalch: Good question, and maybe I will start off, and Chris can jump in. Following up on what Chris just said, we have taken a stance on being really thoughtful about where we see commodity prices and activity levels and where we think we have some solid development that is going to happen. We are confident in that development based on our agreements and our minimum commitments there, along with the ongoing activity and wells coming online. I would say we are confident that we can continue to fund the distribution and grow throughout the year based on those minimums.

Chris Bonner: Yes, I would concur with that assessment and also note that we do have strong hedges in place for natural gas throughout the year.

Timothy A. Rezvan: Okay. Just wanted to push on that. If I could sneak one more in, I appreciate the prepared comments on the seismic. We saw that adjustment with your adjusted EBITDA in the fourth quarter. Should we assume that the $30 million of exploration expense is all seismic? Is there a cadence to that? Is that a one-time expense? And do you expect to continue to adjust that out for adjusted EBITDA? Thanks.

Chris Bonner: Yes, I can answer that. It is expensed throughout the year. We do expect more of it to hit when the shoot is actually taking place in the middle of the year. It is the majority of the seismic that we forecasted. It is about 90-plus percent of the total. And we do expect the majority of the costs related to these two specific shoots to be completed in early 2027, but primarily expensed in 2026, and we do not anticipate additional significant seismic costs within this development area.

H. Taylor DeWalch: I might just add on and take that a little bit further. Tim, the size of the seismic is certainly something pretty unique for a company like us to do. When you look back over the last couple of years, we have taken a stance of putting analysis and geology first, and we are convicted in the rock in the Shelby Trough and the Haynesville expansion. The seismic shoots are another data point for us to further that story and build a foundation for our operators to come in and start to develop.

As Chris mentioned in his prepared remarks, these are proprietary shoots, so we own them and look forward to potentially licensing those to industry and generating revenue off of them. There are a couple of different ways we are thinking about the seismic, but we are excited to get those shot later this year and keep developing the Shelby Trough and the Haynesville expansion.

Timothy A. Rezvan: I think it makes a lot of sense, so I appreciate the insight on that. That is all I had. Thank you.

Operator: And there being no further questions, I will now turn the call back over to H. Taylor DeWalch for some final closing comments.

H. Taylor DeWalch: Thank you. Thank you all for joining us this morning, and we look forward to speaking with you all again next quarter.

Operator: This concludes today's conference call. Thank you for your participation. You may now disconnect.

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