Black Stone Minerals, L.P. (BSM) Q1 2026 Earnings Report, Transcript and Summary

Hello, everyone. Thank you for joining us, and welcome to Black Stone Minerals First Quarter 2026 Earnings Conference Call. [Operator Instructions] I will now hand the conference over to Natalie Liddell, Vice President, Corporate Planning. Natalie, please go ahead.

Thank you. Good morning to everyone. Thank you for joining us for Black Stone Minerals first quarter 2026 earnings conference call. Today's call is being recorded and will be available on our website along with the earnings release, which was issued last night. Before we start, I'd like to advise you that we will be making forward-looking statements during this call about our plans, expectations and assumptions regarding our future performance. These statements involve risks that may cause our actual results to differ materially from the results expressed or implied in our forward-looking statements. For a discussion of these risks, you should refer to the cautionary information about forward-looking statements in our press release from yesterday and the Risk Factors section of our 2025 10-K. We may refer to certain non-GAAP financial measures that we believe are useful in evaluating our performance. Reconciliation of these measures to the most directly comparable GAAP measure and other information about these non-GAAP metrics are described in our earnings press release from yesterday, which can be found on our website at www.blackstoneminerals.com. Joining me on the call from the company are Tom Carter, Executive Chairman; 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'll now turn the call over to Taylor.

Thanks, Natalie. Good morning, everybody, and thank you for joining us. As detailed in our earnings release last night, we delivered a strong first quarter, highlighted by higher production across our mineral position. Our performance was driven by increased natural gas activity in the Louisiana Haynesville and Shelby Trough, along with strong oil production in the Permian. Looking ahead, we view 2026 as a year of production growth compared to 2025 as development across our core areas continues to ramp, and we maintain our production guidance outlined in February. Our multiple development agreements in the Haynesville and Bossier expansion play are progressing well, and we remain positioned for meaningful production growth over time. We are seeing continued delineation and also increased activity across the broader Shelby Trough, which reinforces confidence in our long-term inventory profile and growth outlook. This outlook is bolstered by our constructive view on the long-term natural gas backdrop. We are witnessing the industry react to the structural demand growth, which is supported by accelerating LNG export growth, increasing power demand, including data center-driven load growth and continued strength in U.S. industrial activity. These demand drivers continue to highlight the Gulf Coast as a key market for natural gas, where we maintain a significant acreage position and development agreements with direct proximity to premium demand centers. Additionally, we continue to closely monitor the potential long-term implications of supply disruptions in the Middle East and how that could add incremental demand for secure U.S. molecules. We believe each of these drivers, coupled with premier natural gas assets in close proximity to the Gulf Coast and infrastructure projects to transport those molecules positions us well to benefit from the structural demand over time and provide significant value to our unitholders. With that, I'll turn it over to Fowler to walk through additional details on the commercial front.

Thanks, Taylor. Well, it was a great quarter, and we executed across our commercial initiatives, building on the momentum established last year, including continued activity under our Haynesville expansion acquisition program. During the quarter, we acquired an additional $12 million of mineral and royalty acreage. This brings total development -- excuse me, total deployment under the program since its inception in '23 to more than $250 million, further strengthening our positioning across the Haynesville and expanding Shelby Trough area. Operators under our development agreements in the Shelby Trough continued to advance multiple programs during the period. Adamas spud 4 wells during the quarter and turned online 7 wells. This included the Congo wells in Southern San Augustine County, which continued to push the historical extent of the Shelby Trough and delivered strong initial results, reaching 30 MMcf per day. Additionally, Caturus is preparing for their initial activity to begin in June with a pilot hole and several commitment wells. Revenant also spud 2 wells during the quarter. And as mentioned in the press release last night, one of those wells experienced a loss of well control incident. We are assessing the potential impact on their first year development program. More broadly, we have continued to see an increase in activity within the legacy Shelby Trough area and the emerging Haynesville/Bossier expansion resource play, connecting the Shelby Trough to the Western Haynesville. Currently, there are 13 active rigs across Angelina, Nacogdoches and San Augustine counties under Adamas, Apex, EXCO and Rockliff. Expanse is also actively drilling in the Southern Anderson County area, while Comstock continues drilling throughout the Western Haynesville. Across the broader portfolio, we also saw strong leasing activity and remain encouraged by continued interest in the Permian. Building on that activity, we progressed the opportunity highlighted last quarter in our Shelby Trough expansion area, which includes another approximately 300,000 gross mineral acres. We are currently marketing this project to experienced Haynesville operators to secure an additional development agreement, which we believe would be comparable in scale to our other programs and provide meaningful incremental production growth over time. With that, I will turn the call over to Chris to cover the financial results.

Thanks, Fowler, and good morning. As highlighted earlier, we saw strong production in the first quarter with mineral and royalty production of 35.9 MBoe per day, which is up 16% from the prior quarter. Total production was 37.0 MBoe per day. The period was also marked by significant commodity price volatility. Natural gas pricing was impacted by extreme weather-driven swings, including Winter Storm Fern, which created regional pricing dislocations and temporarily pressured our realizations relative to Henry Hub in February before conditions moderated in March. Oil pricing meanwhile reflected broader geopolitical developments that intensified later in the quarter to remain ongoing. As we navigate this environment, we are actively managing our hedge position as part of our broader risk management approach and monitoring pricing and operator activity across the portfolio. Turning to the quarter's financial results. Net income was $13.3 million for the quarter with adjusted EBITDA of $87 million. 54% of our oil and gas revenue in the quarter came from natural gas and natural gas liquids. As previously announced, we declared a distribution of $0.30 for the quarter or $1.20 on an annualized basis. Distributable cash flow for the quarter was $76.5 million, which represents 1.2x coverage for the period. In the first quarter, we continued to execute across the business, positioning the partnership well for the balance of 2026 and remain confident that our diversified portfolio across multiple basins, together with our commercial strategy and the extended Shelby Trough supports our ability to deliver sustainable long-term value for unitholders. With that, we'll open it up for questions.

[Operator Instructions] Your first question comes from the line of Tim Rezvan with KeyBanc Capital Markets.

For my first question, I was hoping you could provide maybe a little more context on what exactly the outcome is with the loss of well control incident from one of a Revenant's wells. Does that well, once you get, like abandoned? Or is there still a hope of salvaging it? And then when you talked about assessing the potential impact, can you talk about what that means? Does that mean some sort of like deferral or delay? Just any more context would be helpful.

Tim, this is Fowler. I'll tackle that. Right now, it just happened. So the truth is we don't know. There is an investigation currently ongoing. Right now, I'd say there is potential for going back into that well and there may be potential for not going back into that well. We just don't know yet. It is too early to tell. And that's really it, man. I'm really sorry, I can't give you more color. But as we get information back, we will be updating folks.

Okay. Okay. I guess we'll stay tuned on that. And then as a follow-up, you had a very strong start to the year on the production front, and you laid out a pretty granular kind of cadence for your partnerships and their activity. So I know you're not a company that adjust guidance on a quarterly basis and you sort of reiterated it. But can you give us a little more color on maybe what the shape of 2026 production will look like? Does this Revenant potentially temper your enthusiasm on the outlook? I'm just trying to get a little more color on that.

Sorry. I wouldn't say our enthusiasm is tempered in any way, shape or form. But again, since this just happened, we are actively discussing these things and what that profile will look like this year. And as you said, Tim, we don't adjust guidance quarter-to-quarter, but we will get back to you once we have something firmly in place and can understand the situation more clearly. Without putting anything of real substance out there, it might be a bit of a speed bump. But over, I'm going to say, a 2-year period, you won't see any difference.

Yes. Tim, this is Taylor. I'll just add to that a little bit. I think when we look back at our original guidance, which contemplated quite a bit of production growth kind of throughout the year, even if it was flat compared to 2025, certainly, starting out the year with a pretty nice production number helps. And as we think about the rest of the year, I would go back to, kind of, what we thought from just a production growth standpoint, given we're getting these development programs off the ground and excited about what that means for production, especially as it looks to the end of 2026 and going into 2027. I think the other piece of the equation that we're really trying to understand right now is, kind of, operators' reaction to pricing right now with, kind of, geopolitical events going on in the commodity strip. So I think more to come on that. Certainly, trying to guide within a pretty volatile environment can be difficult, but we're excited about where we think we're headed for the rest of the year.

[Operator Instructions] Our next question comes from the line of Derrick Whitfield with Texas Capital.

With the change in ownership at Aethon and now Adamas Energy, could you speak to what changes, if any, you're seeing in behavior around the desire to grow?

Derrick, this is Taylor. I'll jump in first and just say, I think that given our contractual commitments there, we certainly have at least some expectations on their cadence of operations and excited about them continue to move forward in developing the area. I think to be determined on excess growth beyond the commitments, that's a conversation we're having, and we'll continue to, kind of, update as that becomes available. But overall, excited about the transaction and the team and continuing to move forward with our contract.

Great. And then with respect to the well control incident, and it feels like the market today is treating this as an issue that impacts a swath of your acreage. As I understand, this is more isolated in nature, is that a fair characterization?

Yes. Yes. Thanks, Derrick. What I would say is when you look at that area and where the well is, it's fully surrounded by development by the likes of Adamas, EXCO and historically others. So I think that the area is pretty well delineated from a subsurface standpoint. And we certainly look forward to kind of further development in that overall area.

Great. And maybe just one last, if I could. So as you guys think about the broader expansion from Shelby Trough to Western Haynesville, could you speak to midstream egress for this region and if it's adequate to meet the needs of where you think growth is headed?

Good question. There's certainly plenty of -- there's quite a bit of infrastructure out there. But as you think about the area growing by potentially several more gross Bcf a day over the coming years, there's a number of other midstream projects that I think are in the queue and probably more to come on exactly what those projects look like. But I'd say there's existing plus additional infrastructure kind of underway.

There are no further questions at this time. I will now turn the call back to Taylor for closing remarks.

Thanks so much. Once again, thanks, everybody, for joining us this morning. It was a great quarter and look forward to the rest of 2026. Talk to you all again soon. Thanks.

This concludes today's call. Thank you for attending. You may now disconnect.