Black Stone Minerals LP

Previous wording

A significant portion of Shelby Trough development in recent years has been performed by Aethon Energy (“Aethon”) under the two Joint Exploration Agreements (“JEAs”) between us and Aethon. The JEAs outline Aethon’s development obligations and other rights and obligations of each party related to our core mineral positions in San Augustine and Angelina counties in East Texas.

Current wording

A significant portion of Shelby Trough development in recent years has been performed by Aethon Energy (“Aethon”) under the two Joint Exploration Agreements (“JEAs”) between us and Aethon. In the first half of 2024, revenues from Aethon's operations in the Shelby Trough made up 6% of our total revenues. The JEAs outline Aethon’s development obligations and other rights and obligations of each party related to our core mineral positions in San Augustine and Angelina counties in East Texas.

Previous wording

In December 2023, we received notice that Aethon was exercising the “time-out” provisions under these JEAs. When natural gas prices fall below specified thresholds, Aethon may elect to temporarily suspend its drilling obligations for up to nine consecutive months and a maximum of 18 total months in any 48-month period. Aethon has not previously invoked the time-out provisions under the JEAs. We continue working closely with Aethon to finalize development plans going forward and assess the effect of the temporary suspension of drilling obligations, and we are analyzing the potential impacts to us on an ongoing basis.

Current wording

Under the JEAs, Aethon may elect to temporarily suspend its drilling obligations for up to nine consecutive months and a maximum of 18 total months in any 48-month period when natural gas prices fall below specified thresholds. When the "time-out" provision is invoked, the current program year under each agreement is paused during the suspension period such that the program year may extend beyond 12 calendar months. In December 2023, we received notice that Aethon was exercising the time-out provisions under the JEAs in San Augustine and Angelina, implying a maximum resumption date in September 2024. Aethon drilled three wells in the first quarter of 2024 in San Augustine county despite the invocation of the time-out and has brought 16 total wells online in the first half of 2024. During the second quarter, we continued working with Aethon to firm up future development plans in light of Aethon's previously announced invocation of a time-out.

Previous wording

Oil and natural gas prices have been historically volatile based upon the dynamics of supply and demand. To manage the variability in cash flows associated with the projected sale of our oil and natural gas production, we use various derivative instruments, which have recently consisted of fixed-price swap contracts and costless collar contracts.

Current wording

Oil and natural gas prices have been historically volatile based upon the dynamics of supply and demand. To manage the variability in cash flows associated with the projected sale of our oil and natural gas production, we use various derivative instruments, which have recently consisted of fixed-price swap contracts.

Previous wording

Oil prices increased from the prior period ended March 31, 2023 as a result of heightened geopolitical risk related to the attacks targeting commercial ships transiting the Red Sea shipping channel and general elevated tensions around the region. In addition, the recent extension of OPEC+ voluntary production cuts add to upward price pressure at a time of the year when oil demand typically increases because of the spring and summer driving seasons in the Northern Hemisphere. Natural gas prices decreased from the prior period ended March 31, 2023 as a result of a large surplus of storage inventory. The United States started the winter heating season with a surplus and a mild winter led to below average consumption further increasing the surplus of storage inventory. Given the dynamic nature of these events, along with the volatile geopolitical conflicts in Ukraine, we cannot reasonably estimate how long these market conditions will persist. While we use derivative instruments to partially mitigate the impact of commodity price volatility, our revenues and operating results depend significantly upon the prevailing prices for oil and natural gas.

Current wording

Oil prices increased from the prior period ended June 30, 2023 as a result of heightened geopolitical risk related to the attacks targeting commercial ships transiting the Red Sea shipping channel and general elevated tensions around the region. In addition, the recent extension of OPEC+ voluntary production cuts add to upward price pressure at a time of the year when oil demand typically increases because of the spring and summer driving seasons in the Northern Hemisphere. Natural gas prices increased during the second quarter of 2024 because of less natural gas-directed drilling and production curtailments due to low natural gas prices in the first quarter of 2024 as a result of a large surplus of storage inventory. The United States started the winter heating season with a surplus and a mild winter led to below average consumption, further increasing the surplus of storage inventory. Given the dynamic nature of these events, along with the volatile geopolitical conflicts in Ukraine, we cannot reasonably estimate how long these market conditions will persist. While we use derivative instruments to partially mitigate the impact of commodity price volatility, our revenues and operating results depend significantly upon the prevailing prices for oil and natural gas.

Previous wording

Historically, natural gas supply and demand fluctuates on a seasonal basis. From April to October, when the weather is warmer and natural gas demand is lower, natural gas storage levels generally increase. From November to March, storage levels typically decline as utility companies draw natural gas from storage to meet increased heating demand due to colder weather. In order to maintain sufficient storage levels for increased seasonal demand, a portion of natural gas production during the summer months must be used for storage injection. The portion of production used for storage varies from year to year depending on the demand from the previous winter and the demand for electricity used for cooling during the summer months. The EIA expects inventories will rise to 4.1 Tcf at the end of October 2024, which would be 10% higher than the five-year average.

Current wording

Historically, natural gas supply and demand fluctuates on a seasonal basis. From April to October, when the weather is warmer and natural gas demand is lower, natural gas storage levels generally increase. From November to March, storage levels typically decline as utility companies draw natural gas from storage to meet increased heating demand due to colder weather. In order to maintain sufficient storage levels for increased seasonal demand, a portion of natural gas production during the summer months must be used for storage injection. The portion of production used for storage varies from year to year depending on the demand from the previous winter and the demand for electricity used for cooling during the summer months. The EIA expects inventories will rise to 4.0 Tcf at the end of October 2024, which would be 6% higher than the five-year average.

Previous wording

We are allowed, but not required, to hedge, using collars and swaps with a term of no more than four years, up to 90% of our expected future volumes for the first 24 months, 70% for months 25 through 36, and 50% for months 37 through 48. As of March 31, 2024, we had hedged 72% and 71% of our available oil and condensate hedge volumes for 2024 and 2025, respectively. As of March 31, 2024, we had also hedged 69% and 60% of our available natural gas hedge volumes for 2024 and 2025, respectively.

Current wording

We are allowed, but not required, to hedge, using swaps and collars with a term of no more than four years, up to 90% of our expected future volumes for the first 24 months, 70% for months 25 through 36, and 50% for months 37 through 48. As of June 30, 2024, we had hedged 72% and 71% of our available oil and condensate hedge volumes for 2024 and 2025, respectively. As of June 30, 2024, we had also hedged 69% and 66% of our available natural gas hedge volumes for 2024 and 2025, respectively.

Previous wording

Total revenue for the quarter ended March 31, 2024 decreased compared to the quarter ended March 31, 2023. The decrease in total revenue in the first quarter of 2024 is primarily due to a loss on our commodity derivative instruments compared to a gain in the corresponding prior period and a decrease in natural gas and NGL sales which was partially offset by an increase in oil and condensate sales.

Current wording

Total revenue for the quarter ended June 30, 2024 decreased compared to the quarter ended June 30, 2023. The decrease in total revenue in the second quarter of 2024 is primarily due to a loss on our commodity derivative instruments compared to a gain in the corresponding prior period and a decrease in natural gas and NGL sales, which were partially offset by an increase in oil and condensate sales.

Previous wording

Oil and condensate sales. Oil and condensate sales increased for the quarter ended March 31, 2024 as compared to the corresponding period in 2023 primarily due to higher production volumes. The increase in oil and condensate production was driven by higher mineral and royalty production in the Permian Basin. Our mineral and royalty interest oil and condensate volumes accounted for 94% and 92% of total oil and condensate volumes for quarters ended March 31, 2024 and 2023, respectively.

Current wording

Oil and condensate sales. Oil and condensate sales increased for the quarter ended June 30, 2024 as compared to the corresponding period in 2023 primarily due to higher production volumes and realized commodity prices. The increase in oil and condensate production was driven by higher mineral and royalty production in the Permian Basin. Our mineral and royalty interest oil and condensate volumes accounted for 95% and 93% of total oil and condensate volumes for quarters ended June 30, 2024 and 2023, respectively.

Previous wording

Natural gas and natural gas liquids sales. Natural gas and NGL sales decreased for the quarter ended March 31, 2024 as compared to the corresponding prior period. The decrease was due to lower realized commodity prices between the comparative periods. Mineral and royalty interest production accounted for 95% and 94% of our natural gas volumes for the quarters ended March 31, 2024 and 2023, respectively.

Current wording

Natural gas and natural gas liquids sales. Natural gas and NGL sales decreased for the quarter ended June 30, 2024 as compared to the corresponding prior period. The decrease was due to lower realized commodity prices between the comparative periods partially offset by an increase in production volumes. The increase in production volumes was driven by an increase in royalty interest production volumes, primarily within the Haynesville/Bossier play, including 29 new wells coming online from the Aethon development program in the Shelby Trough subsequent to the second quarter of 2023. Mineral and royalty interest production accounted for 94% and 93% of our natural gas volumes for the quarters ended June 30, 2024 and 2023, respectively.

Previous wording

Gain (loss) on commodity derivative instruments. Cash settlements we receive represent realized gains, while cash settlements we pay represent realized losses related to our commodity derivative instruments. In addition to cash settlements, we also recognize fair value changes on our commodity derivative instruments in each reporting period. The changes in fair value result from new positions and settlements that may occur during each reporting period, as well as the relationships between contract prices and the associated forward curves. During the first quarter of 2024, we recognized a loss from our commodity derivative instruments compared to a gain in the same period in 2023. For the three months ended March 31, 2024, we recognized $13.8 million of realized gains and $25.1 million of unrealized losses from our oil and natural gas commodity contracts, compared to $13.3 million of realized gains and $39.0 million of unrealized gains in the same period in 2023. The unrealized losses on our commodity contracts during the first quarter of 2024 were primarily driven by changes in the forward commodity price curves for oil and the unrealized gains in the same period in 2023 were driven by changes in the forward commodity price curves for natural gas.

Current wording

Gain (loss) on commodity derivative instruments. Cash settlements we receive represent realized gains, while cash settlements we pay represent realized losses related to our commodity derivative instruments. In addition to cash settlements, we also recognize fair value changes on our commodity derivative instruments in each reporting period. The changes in fair value result from new positions and settlements that may occur during each reporting period, as well as the relationships between contract prices and the associated forward curves. During the second quarter of 2024, we recognized a loss from our commodity derivative instruments compared to a gain in the same period in 2023. For the three months ended June 30, 2024, we recognized $11.8 million of realized gains and $17.4 million of unrealized losses from our oil and natural gas commodity contracts, compared to $28.2 million of realized gains and $16.9 million of unrealized losses in the same period in 2023. The unrealized losses on our commodity contracts during the second quarters of 2024 and 2023 were primarily driven by changes in the forward commodity price curves for natural gas.

Previous wording

Lease bonus and other income. When we lease our mineral interests, we generally receive an upfront cash payment, or a lease bonus. Lease bonus revenue can vary substantively between periods because it is derived from individual transactions with operators, some of which may be significant. Lease bonus and other income for the first quarter of 2024 was lower than the same period in 2023. Leasing activity in the Austin Chalk play and proceeds from surface use waivers on our mineral acreage supporting solar development in Texas made up the majority of lease bonus and other income for the first quarter of 2024, while the majority of the first quarter 2023 activity came from leasing activity in the Haynesville/Bossier play and the Permian Basin.

Current wording

Lease bonus and other income. When we lease our mineral interests, we generally receive an upfront cash payment, or a lease bonus. Lease bonus revenue can vary substantively between periods because it is derived from individual transactions with operators, some of which may be significant. Lease bonus and other income for the second quarter of 2024 was higher than the same period in 2023. Leasing activity in the Permian Basin made up the majority of lease bonus and other income for the second quarter of 2024, while the majority of the second quarter 2023 activity came from leasing activity in the Bakken/Three Forks and Haynesville/Bossier plays.

Previous wording

Production costs and ad valorem taxes. Production taxes include statutory amounts deducted from our production revenues by various state taxing entities. Depending on the regulations of the states where the production originates, these taxes may be based on a percentage of the realized value or a fixed amount per production unit. This category also includes the costs to process and transport our production to applicable sales points. Ad valorem taxes are jurisdictional taxes levied on the value of oil and natural gas minerals and reserves. Rates, methods of calculating property values, and timing of payments vary between taxing authorities. For the quarter ended March 31, 2024, production costs and ad valorem taxes increased as compared to the quarter ended March 31, 2023, primarily due to severance tax refunds received in the first quarter of 2023 with no similar activity recorded in the first quarter of 2024.

Current wording

Production costs and ad valorem taxes. Production taxes include statutory amounts deducted from our production revenues by various state taxing entities. Depending on the regulations of the states where the production originates, these taxes may be based on a percentage of the realized value or a fixed amount per production unit. This category also includes the costs to process and transport our production to applicable sales points. Ad valorem taxes are jurisdictional taxes levied on the value of oil and natural gas minerals and reserves. Rates, methods of calculating property values, and timing of payments vary between taxing authorities. For the quarter ended June 30, 2024, production costs and ad valorem taxes increased as compared to the quarter ended June 30, 2023, primarily due to higher production taxes stemming from increased production volumes.

Previous wording

General and administrative. General and administrative expenses are costs not directly associated with the production of oil and natural gas and include expenses such as the cost of employee salaries and related benefits, office expenses, and fees for professional services. For the quarter ended March 31, 2024, general and administrative expenses increased as compared to the same period in 2023, primarily due to higher professional costs related to outside legal fees, consulting costs for internal projects, and the timing of annual tax services performed.

Current wording

General and administrative. General and administrative expenses are costs not directly associated with the production of oil and natural gas and include expenses such as the cost of employee salaries and related benefits, office expenses, and fees for professional services. For the quarter ended June 30, 2024, general and administrative expenses increased as compared to the same period in 2023, primarily due to an increase in cash compensation driven by an increase in salaries as well as a separation payment related to the departure of a senior executive.

Previous wording

Interest expense. Interest expense was lower in the first quarter of 2024 relative to the corresponding period in 2023, due to lower average outstanding borrowings under our Credit Facility. Interest expense for both periods primarily consisted of commitment fees and amortization of debt issuance costs.

Current wording

Interest expense. Interest expense in the second quarter of 2024 was consistent with the corresponding period in 2023 with minimal average outstanding borrowings under our Credit Facility during each period. Interest expense for both periods primarily consisted of commitment fees and amortization of debt issuance costs.

Previous wording

Operating Activities. Our operating cash flows are dependent, in large part, on our production, realized commodity prices, derivative settlements, lease bonus revenue, and operating expenses. Cash flows provided by operating activities decreased for the three months ended March 31, 2024 as compared to the same period of 2023. The decrease was primarily due to reduced natural gas and NGL sales due to lower realized commodity prices in the three months ended March 31, 2024 compared to the same period of 2023.

Current wording

Operating Activities. Our operating cash flows are dependent, in large part, on our production, realized commodity prices, derivative settlements, lease bonus revenue, and operating expenses. Cash flows provided by operating activities decreased for the six months ended June 30, 2024 as compared to the same period of 2023. The decrease was primarily due to reduced natural gas and NGL sales due to lower realized commodity prices partially offset by higher oil sales. The overall decrease was also due to a reduction in cash received on the settlement of commodity derivatives in the six months ended June 30, 2024 compared to the same period of 2023.

Previous wording

Investing Activities. Net cash used in investing activities in the three months ended March 31, 2024 increased as compared to the same period of 2023. The increase was primarily due to acquisitions of oil and natural gas properties in the three months ended March 31, 2024 as compared to no acquisition activity in the corresponding prior period.

Current wording

Investing Activities. Net cash used in investing activities in the six months ended June 30, 2024 increased as compared to the same period of 2023. The increase was primarily due to acquisitions of oil and natural gas properties in the six months ended June 30, 2024 as compared to no acquisition activity in the corresponding prior period.

Previous wording

Financing Activities. Cash flows used in financing activities decreased for the three months ended March 31, 2024 as compared to the same period of 2023. The decrease was primarily due to net repayments on our Credit Facility for the three months ended March 31, 2023 compared to no net repayments for the three months ended March 31, 2024.

Current wording

Financing Activities. Cash flows used in financing activities decreased for the six months ended June 30, 2024 as compared to the same period of 2023. The decrease was primarily due to lower distributions paid to unitholders and no net repayments on our Credit Facility for the six months ended June 30, 2024 compared to net repayments for the six months ended June 30, 2023.

Previous wording

Our 2024 capital expenditure budget associated with our non-operated working interests is expected to be approximately $2.3 million, net of farmout reimbursements, of which $0.3 million has been invested in the three months ended March 31, 2024. The majority of this capital is anticipated to be spent on workovers and recompletions on existing wells in which we own a working interest. Through March 31, 2024, we have also spent $0.7 million acquiring leases in areas around our drilling programs.

Current wording

Our 2024 capital expenditure budget associated with our non-operated working interests is expected to be approximately $2.3 million, net of farmout reimbursements, of which $0.4 million has been invested in the six months ended June 30, 2024. The majority of this capital is anticipated to be spent on workovers and recompletions on existing wells in which we own a working interest. Through June 30, 2024, we have also spent $1.8 million acquiring leases in areas around our drilling programs.

Previous wording

During the three months ended March 31, 2024, we acquired mineral and royalty interests that consisted of substantially all unproved oil and natural gas properties from various sellers for cash consideration of $23.0 million, including capitalized direct transaction costs. These acquisitions were primarily located in the Gulf Coast land region and were funded with cash from operating activities. Our current commercial strategy includes the continuation of meaningful, targeted mineral and royalty acquisitions to complement our existing positions.

Current wording

During the six months ended June 30, 2024, we acquired mineral and royalty interests that consisted of primarily unproved oil and natural gas properties from various sellers for an aggregate of $50.5 million, including capitalized direct transaction costs. The consideration paid consisted of $49.5 million in cash that was funded from operating activities and $1.0 million in equity that was funded through the issuance of common units of the Partnership based on the fair values of the common units issued on the acquisition dates. These acquisitions were considered asset acquisitions and were primarily located in the Gulf Coast land region. Our current commercial strategy includes the continuation of meaningful, targeted mineral and royalty acquisitions to complement our existing positions.