Black Stone Minerals, L.P. Q2 FY2025 earnings call

• Over the last 2 years, the team's work led to development agreement with Revenant and marketing efforts in Shelby Trough; subsurface evaluation shows expansion of Shelby Trough towards Western Haynesville. • Added $31 million in minerals and royalty acquisitions during the quarter, with total acquisitions since September 2023 at about $172 million. • Declared a $0.30 per unit distribution for the quarter; reduction driven by slower natural gas production growth in 2025, but outlook for 2026 and beyond with development agreements. • Robust oil portfolio across multiple basins provides a solid foundation for the long term.

Mineral royalty production was 33,200 BOE per day in the second quarter, with total production volumes at 34,600 BOE per day. Net income for the second quarter was $120 million, and adjusted EBITDA was $84.2 million. 55% of oil and gas revenue in the quarter came from oil and condensate production.

• Revised 2025 production guidance: full year expected to average between 33,000 and 35,000 BOE per day. • Forecast 2026 production growth of an incremental 3,000 to 5,000 BOE per day over 2025 revised guidance. • Expect increased activity and strong demand outlook to provide a clear path to future distribution increases.

• Forward-looking statements involve risks that may cause actual results to differ materially from those expressed; refer to cautionary information in press release from yesterday and Risk Factors section of 2024 10-K.

Q: For my first one, we have been surprised as well by the subdued activity response in the first half to higher natural gas prices. But with the recent pickup in gas-directed rigs, I wanted to ask if you could provide any color on any green shoots you're seeing in terms of activity increasing on your acreage and how you see this in the Revenant agreement starting in '26 and the Permian development coming online, setting up the production trajectory next year?

A: Sure, John. Thanks for the question. I think the -- overall, we are seeing the same thing a lot of folks are seeing with some subdued activity. I think some of that's probably borne from the response we saw in '24 versus 2025. Of course, across the Haynesville and Bossier, we've seen some wells coming online kind of spread out throughout the basin. I think for us, we're most focused on the activity and the development agreements that we called out in our earnings release and talked about on the call a little bit earlier. So we're excited to see Revenant get to work with their first wells being spud likely at the beginning of 2026. And those 6 wells that they're obligated to drill throughout 2026 as well as the ongoing activity from some of the other operators that we mentioned throughout the Shelby Trough and then also our agreements on some of the other acreage that we have line of sight to throughout the Haynesville and the Bossier. So excited about the activity that we see here in kind of the coming quarters and more to come from that.

Q: I wanted to take a little different tact on one of the first questions. Tom, you and the team have a pretty unique lens into broader Haynesville activity. We've seen the rig count increase steadily throughout the year and production is up about over Bcf a day from the recent trough. So we're trying to understand how to square that with the kind of updated production guide, which suggests even potentially another leg down in the back half of the year. So did something change further in your agreement with Aethon? Or -- I was wondering if you could help kind of understand why your acreage is not really participating in this uplift we're seeing.

A: Well, I'll be glad to answer that. Let's start with late '23. That is -- was a low stand, a recent low stand in gas prices and Aethon called for a time-out, which allowed them to slow down their drilling activity. That event takes about 18 to 24 months to show up in production volume declines, and that's what we saw in late '24 and '25. We have restructured our agreement with Aethon from mid-20s wells per year to high teens per year. But in addition to that, we also carved back some strategically important and close-in development acreage that we have packaged with other acreage and are working to place with another operator. And when you add all these things up from having Aethon as really a primary operator with drilling expectations of around mid-20s per year going to high teens and then you layer Revenant on top of that with a buildup to 20-plus per year. And then you add on top of that another operator coming in with maybe 20 wells per year, it takes time to spool that activity up because you've got infrastructure issues, you've got all sorts of things. And these are projects that take 20-plus years to fully develop. And so we're very excited about -- yes, there is a little bit less coming from Aethon, but that's been by design. We are trying to have 4 or 5 active operators out there and a cumulative set of contractually required wells that are well north of the mid-20s that Aethon had 1.5 years ago. So we are constantly reshuffling and restructuring to add operators and capital and well count out there. And we see some really potentially staggering number of wells in '28, '29 and '30. And it's just going to take a while for it to build up.