Black Stone Minerals, L.P. 2026 Q2 Earnings Call

Thank you for joining us either by phone or online for Black Stone Minerals second 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'll 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 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, and thank you for joining us. We made meaningful progress during the second quarter as we continue to execute our differentiated strategy. We advanced development activity across our Shelby Trough and Haynesville expansion position, remained active with mineral acquisitions, and continued creating value across our broader portfolio through leasing, marketing, and asset management efforts. We also announced a 7% increase in our quarterly distribution, reflecting the strength of our business and our commitment to delivering sustainable returns to unitholders. More broadly, activity across our core areas is moving in the right direction. Adamas continues to execute on its development program, Revenant progressed activity during the quarter, and Caturus has now begun operations on acreage covered by its agreement. We also see increasing operator activity throughout the Haynesville.

At the same time, strong oil production from the Permian Basin, coupled with higher oil pricing, contributed meaningfully to our results during the quarter and further highlights the benefit of Black Stone Minerals' diversified portfolio. As we've stated previously, we believe 2026 represents an important inflection point for the partnership. While production dipped from the first quarter, we are encouraged by the activity underway across our acreage and remain focused on converting that activity into sustainable production, cash flow, and long-term value creation for our unitholders. With that, I'll turn it over to Fowler to discuss our commercial and operational activity.

Thanks, Taylor. We continued to make progress across our commercial initiatives during the second quarter, while further strengthening our position in the Shelby Trough and Haynesville expansion area. Our acquisition program remained active with about $40 million of mineral and royalty acquisitions completed during the quarter. Since launching our acquisition program nearly three years ago, we have deployed almost $300 million, primarily focused on acreage within or adjacent to our core development areas. We continue to see opportunities that complement our existing position and increase our exposure to future development activity. Beyond acquisitions, our leasing and asset management efforts generated meaningful value during the first half of the year. Strong leasing activity produced approximately $13 million of lease bonus and other income, significantly exceeding our expectations at the start of this year.

We also benefited from an initiative launched late last year to review deduct-free lease provisions, resulting in approximately $6.5 million of refunds collected to date. As Taylor mentioned earlier, development across our Shelby Trough and Haynesville expansion position continued to advance during the quarter. Adamas operated two rigs on our acreage at quarter end and turned four wells to sales in July. We expect another eight wells to come online during the remainder of 2026, and Adamas plans to drill 17 wells under the new program year that began in July. Revenant continued its development program during the quarter and spud two additional wells despite a reduction in its first-year drilling commitment following the previously disclosed well control incident.

Activity is also beginning to emerge under our agreement with Caturus, which currently has a pilot well underway in Cherokee County and expects to commence development drilling during the second half of 2026. In addition, we continue to have fruitful discussions with a prospective operator regarding a new development that could further expand our contracted development footprint across the Shelby Trough and Haynesville expansion area. On a broader basis, activity across the Haynesville increased during the quarter. We continue to see operators evaluating and pursuing opportunities throughout the play, and the number of active rigs on our Haynesville and Shelby Trough acreage increased significantly during the quarter.

We remain encouraged by the level of industry interest across our acreage footprint and the opportunities we see to further expand development activity over time. Strong results from Expand's Bobby Yancey well in Houston County and drilling activity in Anderson County further support our subsurface thesis of the connection between the Shelby Trough and Western Haynesville, and reinforce the long-term development potential of our Haynesville expansion acreage. Outside of the Shelby Trough, Blue Arrow continues to advance development in the Southern Delaware Basin. Three wells were turned to sales during the quarter, with the remaining 22 wells in the program expected online during the second half of 2026 and into 2027. We also saw strong contributions from our Permian and Bakken acreage during the quarter, benefiting from solid production and higher oil prices.

Overall, we are pleased with the progress across our commercial initiatives and believe the activity we are seeing today continues to support our longer-term production growth outlook. With that, I'll turn it over to Chris to cover the financial results.

Thanks, Fowler, and good morning. Mineral and royalty production during the quarter averaged 32.5 MBOE per day, while total production averaged 33.5 MBOE per day. Production declined from the first quarter, primarily due to lower natural gas mineral royalty volumes in the Haynesville. As Taylor mentioned, production trends do not always move in a straight line as development activity progresses. The wells come online at different points throughout the year, and we remain confident in the overall trajectory of the business towards growing production and distributions. Commodity prices remained supportive during the quarter, particularly for oil. Our average realized price, excluding the impact of derivative settlements, increased 7% from last quarter to $37.82 per BOE. Higher oil pricing and production helped offset the impact of lower gas volumes and contributed to strong cash flow generation during the period. As a result, net income for the quarter was approximately $106 million.

Adjusted EBITDA totaled $91 million, and distributable cash flow was $80 million. Oil and condensate accounted for 65% of our oil and gas revenues. As previously announced, we declared a distribution of $0.32 per unit for the quarter, or $1.28 on an annualized basis. Strong production from our oil-weighted assets and improved commodity pricing supported our results, allowing us to increase the distribution while maintaining 1.18 times coverage for the quarter. This balanced approach supports both continued investment in accretive growth opportunities and our goal of delivering sustainable distribution growth over time. As Taylor and Fowler discussed, we continue to see encouraging results across our core acreage, from development programs in the Shelby Trough and Haynesville expansion area to opportunities across the broader portfolio.

We believe our diversified asset base, disciplined commercial strategy, growing development footprint, and strategic position near Gulf Coast demand centers support our ability to deliver sustainable long-term value for unitholders. With that, we'll open it up for questions.