Good morning, ladies and gentlemen, and welcome to the Blackstone Minerals First Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will follow at that time. As a reminder, this conference call is being recorded. I would now like to turn the conference over to your host, Mr.
Evan Kiefer, Vice President of Finance and Investor Relations.
Thank you, Ashley, and good morning to everyone. Thank you for joining us either by phone or online for the Blackstone Minerals' Q1 2021 earnings conference call. Today's call is being recorded and will be available on our website along with the earnings release, which was issued yesterday afternoon. Before we start, we'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 our forward looking statements in our press release from yesterday in the Risk Factors section of our 2020 10 ks. We may refer to certain non GAAP financial measures that we believe are useful in evaluating our performance. Reconciliation of those measures To the most directly comparable GAAP measure and other information about these non GAAP metrics are described in our earnings press release, which can be found on our website at blackstoneminerals.com. Joining me on the call today from the company are Tom Carter, Chairman and CEO Jeff Wood, President and Chief Financial Officer Steve Putman, Senior Vice President and General Counsel Garrett Grimion, Vice President of Engineering and Geology and Thad Montgomery, Head of Land. Now I'll turn the call over to Tom.
Thank you, Evan, and good morning to you all. Thanks for joining us. We've got a lot of matters to report to you all this morning. So I'll start. We reported 36.8 MBOE per day for the Q1 of 'twenty one yesterday.
Of that amount, the Big 5 Our Shelby Trough HaynesvilleBossier, Midland Delaware, Louisiana HaynesvilleBossier, Bakken and then what we generally refer to as other, which basically consists of diverse non resource plays. Of that 36.8 MBOE per day, 5.7 MBOE per day was working interest primarily in the Shelby Trough. Before the year 2020 and the pandemic and other economic exigencies that took such a toll on the world economy, we exited 2019 in the high 45 MBOE plus per day with about 7 of that being in working interest. Both BP and XTO had been super active in the Shelby Trough. The Permian was on fire.
The Bakken was very busy and the general rig count was robust. We all know that show came to an abrupt halt. Both BP and XTO have severely cut back or have ceased drilling on our acreage in the Shelby Trough. We monetized the minority interest in our Permian acreage But with that all that said, remember that we were in the high 26 MBOE per day range in 2015 when we went We made great strides growing volumes up to the big event in 2020. And we are hard at work to spool back up our production in the coming years.
To that end, we have been heavily focused on our high interest legacy lands. As you saw in our earnings release last night, we have made tremendous progress in striking new deals that we expect will drive additional development activity on our core acreage positions in East Texas. It has always been a fundamental strategy of ours to attract capital to our existing acreage through creative deal making with producers. When the pandemic struck and general upstream activity levels started to decline last Our team stepped up its efforts on that front even more and we are clearly seeing the results of all that hard work. I'll start with our Haynesville and Bossier acreage in Shelby Trough, which is primarily concentrated in Angelina and San Agustin County section.
Activity levels are ramping up under our development agreement with Aethon Energy and Angelina. You'll remember, We signed that agreement in the Q2 of last year, which calls for 4 wells to be drilled in the 1st program year, increasing to an annual well count of 15 by the 3rd program year. Aethon has successfully drilled the first two wells under that program and is expected to complete them in the Q2. Aethon has been among the most Active Haynesville operators in recent years and their technical expertise has been apparent in the early stages of this development program. That's one of the reasons we're excited to expand our relationship with Aethon through a second Separate development agreement covering the majority of our undeveloped Shelby Trough acreage in San Augustine County.
We finalized that deal yesterday and it's similar in structure to what is in place and working well in Angelina County. The new agreement provides for minimum well commitments by Aethon in exchange for royalty incentive and exclusive access to our minerals and leasehold Acreage in the contract area. The agreement covers over 60,000 gross acres, calls for a minimum of 5 wells to be drilled in the initial program year, which will begin in the Q3 of this year, increasing to a minimum of 12 wells per year starting in the 4th program year. The San Agustin deal with 8 Paton includes acreage within the Brent Miller area that initially kicked off the Shelby Trough development. In March of this year, we reached an agreement with XTO Energy, the operator, to partition jointly owned working interest in the Brent Miller Development Area.
Under the partition agreement, Blackstone and XTO exchanged working interest in certain and proposed drilling units, resulting in each company holding 100 percent of the working interest in their respective partitioned units. Our Partitioned working interest under that deal are included in the development agreement with ATHON. Between the two deals, as the program ramps up over the next 5 years, we could see at least 27 wells Drilled annually by a proven operator on our high net acreage position in the Shelby Trough. It should be noted that Blackstone owns significant royalty And mineral interest under both Aethon and XTO lands. Thus, if and when XTO comes back to the area, the rig counts on our minerals could expand further.
With over 500 potential locations across the area, we look forward to working with Aethon for years to come. Indeed, the long term Gulf Coast natgasmarketlngsetcetera have A very significant bearing on these lands' future. On the last call, we spoke about the potential across our Austin Chalk Acreage in East Texas. Again, this is an area where we enjoy high concentration of ownership both in terms of geologic coverage Across the play and in terms of very high net ownership in these acres, the Austin Chalk has been a prolific play across Texas and Louisiana for decades, including Giddings, Brooklyn, Masters Creek, Burberry Beals, etcetera, and historically has developed From vertical wells and then substantially unstimulated horizontal wells, of accessing the formation's natural fracture systems. Recently, however, operators across the play in Texas have begun developing the chalk using high intensity multistage completions, which have resulted in dramatic improvements in well performance.
I'll speak to just a few of the examples of this. First, EOG and SM Energy are highlighting their results from new Austin Chalk Wells in Webb County in West Texas. EOG has drilled 17 wells to date in the Austin Chalk Dorado play and plans another 15 wells in 2021. New generation EOG Chalk wells show an ERDUR uplift of approximately 2.7 times Relative to the older vintage wells in the same area, EOG calls this the lowest cost dry gas play in North America And with after tax returns of around 80% at current gas prices, competes with any of their premium oil plays. Similarly, SM Energy drilled 9 wells as part of an Austin Chalk delineation program in Webb County 2020 and plans an additional 20 in 2021.
Sorry for all the 20s. SM is reporting production results in the Chalk Wells that are 3.5x to 4x better than the previous wells and exceeds those of the modern Eagle Ford and Delaware Basin wells. SM quotes breakeven prices for its new generation chalk wells of $13 to $28 a barrel. As we move closer to our core Austin Chalk Acreage, Magnolia Oil and Gas has conducted the most significant program of high completions in the formation, which includes over 400,000 net acres in the getting steel area in South Central Texas And focused in Grimes County and other counties, a few counties west of our Brooklyn And area of high concentration. Magnolia has drilled over 30 wells with at least 90 days of production data.
Magnolia's higher intensity completion in the regions are yielding results of over 2 times prior generation wells. It's very significant, we believe, that all of these Austin Chalk redevelopment plays are being conducted In areas that produced economically in prior cycles of the Chalk. Said differently and importantly, we believe, we currently view this Our current view is that this is not an exploratory play. It's an application of evolve technology improvement areas that is causing undrained reservoir quality rocks to produce at better rates and EURs than before. Finally, we have a very strong data point on our own Austin Chalk Acreage in Tyler County, Texas.
The Hancock 1H well was drilled and completed in the Brooklyn field as a high intensity multistage well by Navidad Operating Company. Using the 1st 12 months production as a comparison, Hancock produced 303 MBO And 1.9 Bcf of high BTU natural gas compared to its closest offset well on strike, which produced 75 MBO and 1.2 Bcf of gas. This represents over a 2 times uplift on a BOE basis for that time period. NaviDOT has already spudded their second well west of the Hancock location under a development agreement deal with Blackstone that I'll discuss in just a moment. Earlier this year, we signed up our initial development deal with a large publicly traded Operator, to drill, test and complete wells in the Austin Chalk formation on some of our East Texas acreage further to the east of Tyler County and primarily in Newton County.
If successful, the operator has the option to expand its drilling program over a significant acreage position owned and controlled by us. Yesterday, we announced 2 additional development deals covering a portion of East Texas off The first involves a consortium of existing operators on our acreage. Encouraged by NaviDodge's success with the Hancock well, 2 other operators in the field have joined with NaviDodge to drill new wells on their acreage to test this concept. These operators will participate in 3 test wells targeting the Austin Chalk. Assuming the test well program is successful, We anticipate separate agreements with each of these operators to further develop the acreage.
The second agreement that we just announced is with a large private independent operator and drilling and completing multiple Austin Chalk wells on our company acreage in East Texas Also beginning this year, if those wells are successful, the operator has the option to expand the Austin Chalk development program on additional Blackstone acreage. In total, the test and development agreements we have entered into thus far in 2021 will help delineate Over 200,000 Blackstone Acres in the Brooklyn field area of the Austin Chalk, which has over 300 plus existing Austin Chalk producing wells from prior generations and unlock the potential for several 100 infill wells in that field on Blackstone acreage. We are very encouraged by our operator enthusiasts to redevelop our acreage and expand this play. It's hard to find needle moving projects for a company of our size in the mineral business. But if the Austin Chalk acreage responds to the higher intensity completions, the way it has in the other areas we previously mentioned and the Hancock well, which is on our acreage, It could represent a meaningful new production wedge for Blackstone for a long time to come.
Indeed, this development in the Austin Chalk will make us one of The Big 5 and helped Blackstone increase its daily production to historic highs over time. None of this has come easy over the past year. We've achieved some of our biggest wins in our company's history in the midst of a most difficult environment in decades. These development deals take great collaboration among our land, engineering, geology, business development and finance Groups and I want to recognize all of their efforts to position Blackstone for future growth. I can't say enough I won't go into it, but there have been countless hours of negotiation and evaluation efforts put into this project.
We look forward to updating you on these strategic initiatives throughout the coming year. With that, I'll turn the call over to Jeff. All right.
Well, thank you, Tom, and good morning, everyone. Well, in the midst of all this recent activity, we did actually release Q1 earnings last night. So at the risk of being a bit anticlimactic, I'll just point out a few notable items for the quarter. We reported total production of 36.8 MBOE per day. Mineral and royalty volumes were relatively flat, while working interest volumes declined by 17%.
Of course, that's by design as we stop funding that business in 2017. We estimate the Q1 volumes, primarily on the natural gas side, were negatively impacted by about 1.6 MBOE per day by the winter storms that swept through Texas in February. Our realized prices before hedges for oil and gas improved meaningfully in the Q1 and gas differentials improved due both to the period of high gas prices during that February storm and due to the increase in NGL prices. As most of you are aware, we have always been active hedgers Of our commodity risk, those hedges benefited us greatly last year when prices cratered, but also tempered the impact of the dramatic rise in prices for us during the Q1. Our LOE and production costs were slightly below our guidance levels, so that's good news.
Total G and A cost did tick up a bit in the quarter due to higher legal and professional fees and due to higher non cash G and A due to the increase in our unit price during the Q1, which drives up the mark to market on our outstanding long term performance units. Overall, we generated $60,000,000 of adjusted EBITDA and $53,800,000 of distributable cash flow for the Q1. That results in distribution coverage of about 1.5 times on our announced distribution of $0.175 per unit or $0.70 per unit annualized for the quarter. That excess cash flow allowed us to repay another $10,000,000 of outstanding debt during the quarter. Now we had good news on other fronts as well After the end of the quarter, we finalized an extension of our existing revolving credit facility last week.
We added 2 years to the maturity date of that facility, which is now November of 2024. We've always maintained a conservative balance sheet even through difficult cycles and have great relationship with our lenders. And that's paid dividends through this extension process. It's been a very difficult bank market over the past year. So we're really happy to get this extension done with relatively minor modifications to the terms of the facility, and we appreciate the continued support from our long term lending relationships.
Finally, we entered into an agreement yesterday to acquire mineral and royalty properties in the Northern Midland Basin for $20,700,000 of consideration in a mix of cash and Blackstone stock. We expect that acquisition to close during the Q2. And while it's modest in size for us, generating about 200 BOE per day of mostly oily production, It's in a great area with active producers on the acreage. It does feel like the acquisition market is picking up a little steam after a long period of being disrupted due to the pandemic, and we're excited to start playing some offense in that area again. And with that, Ashley, we're going to open the call for questions.
And your first question comes from Leo Mariani with KeyBanc.
Hey, guys. I was hoping to
get Maybe a little bit more color. I know it's maybe a tough question to answer on what the potential success case could look like. You've got this new deal here on the Chalk with this consortium that's going to drill 3 wells and you certainly pointed out there could be Individual deals struck for these 3 companies, if there is success. Could you maybe just try to frame up Roughly kind of what the land area is that might be split up between these Three companies and I guess if these wells are successful, I mean, could we see something like each company have a rig there next year? And maybe what's kind of your rough interest in that area?
So for example, if I just made up a number, 10 wells were drilled, many net wells would that be to Blackstone?
This is Tom. I'll take a shot at that With Thad here who's been really working on this, but we among the 3 Deals actually one well, one of the deals has 3 different operators. One of the deals has one operator and another one is 1. So we would expect 8 to 12 wells on the deals that we have done in the next 12 months, assuming There is some level of success. That number would go up It could be well north of that.
And in addition to that, there are Several other areas where we have large acreage positions that we are working on other deals that we have not completed yet. So we're not done Adding to that cycle yet, in terms of the consortium, There are over 100 plus existing units In and or operated by those 3 operators. And the test well program is being Conducted in a somewhat diverse position across those 3 operators in such a manner that it will help delineate the play. Then once that happens, each operator We'll go on a continuous development cycle if they want to keep up with the play with some 3 to 5 wells a year. So the number of acres and the amount of interest that we have in those If the play is successful, could ramp up into very meaningful volumes.
It's going to take a couple of years. It just does. And but as I said earlier, it's an area that does produce. It's not a rank wildcat. In many respects, with all the attention over the last 5 plus years on resource plays, I kind of look at the Chalk play as the original resource play.
And it's had at least 3 cycles Development, I'm turning 70 years old and I was this year and I was driving past Chalk Wells in the Giddings field when I was in college at the University of Texas. So it's sort of like the gift that keeps on giving.
Okay. That's very helpful color. And I guess maybe just a high level, is most all this activity focused on the oily window In the CHOC, at this point in terms of all these deals you guys have?
The core the deals that we mentioned today Significant acreage in the oil heat window that we are also working
on
and we have a lot of acreage Immediately down dip to the rich gas window that we know Is perspective for gassier, chalk wells that we will be working on as well. And I think that has Some similarities to Dorado in terms of deliverabilities. I would add that it is deeper than Dorado, but Fortunately for us, we have just a whole lot of acreage Sitting in this play, and it could be extremely meaningful for us. It's going to be a very interesting year.
All right. I guess, certainly noticed that you guys made an acquisition here. It seems like It's been a while since Blackstone had bought something. I think you guys obviously point out it's not a huge deal, but can you maybe talk about your appetite for incremental M and A In this environment?
Hey, Leo, this is Jeff. Yes, thanks for that question. It has been a while. I mean, Our view was during most of 2020, there were a lot of things going on, none of it good, well, just generally, but certainly not For the acquisition environment, right? So we had a stock price where we didn't really feel like the Equity was a usable acquisition currency and I think Stellars still had maybe higher expectations than the environment warranted.
And so with prices recovering, with commodity prices recovering, with equity prices recovering, and frankly, with sellers Sitting on those assets for another 12 to 18 months, we think that environment is just getting much more constructive. So while this was not a huge deal for us by any means, it's the kind of deal we really like doing. This was A negotiated process, not an auction process. It involved relationships that we've had for years. And it was for a seller who was willing or perhaps excited to take back Equity in Blackstone, and I think that's just going to have to be the model going forward.
We have done a tremendous amount of work to get the balance sheet where we want it. So we're not going to put that at risk again. And this was something that was we thought of reasonable price Midland Basin and one that was not at all harmful to the balance sheet. So we're excited about this and excited about the opportunities to come. Definitely think it's a more constructive acquisition environment.
Okay, thanks.
Your next question comes from Brian Downey with Citigroup.
Good morning. Thanks for taking my questions.
Solid set of new development agreements. Aside from the 200 BOE per day that Jeff mentioned on the Northern Midland acquisition, do you foresee any of those agreements Contributing the second half twenty twenty one production volumes or is that more of a TBD impact to next year? I know you mentioned The 8 to 12 wells over the next year, but curious on potential timing there.
Yes. Brian, this is Jeff. I think it's I mean, maybe just some trickling in from those initial wells in the back half of this year when you talk about The deals between Austin Chalk plus Shelby Trough, but no, it's much more of a ramp. So as Tom said, look, we're Very excited about the area. This is not some brand new exploratory play.
We know that the resource is there. We don't have a ton of data points on our acreage specifically, but we've got a lot of others in the chalk As you look across the trend that these high intensity completions will work. But we are absolutely at the very, very early stages of the Test and then build up phase of this. So it's much more kind of setting the stage for Future growth in production volumes versus anything that we should expect to see that's material in the second half of this year.
Great. And then in the release, you cited increased producer activity across your acreage. I'm curious how you're seeing that translate into base production levels, How current activity levels as we're sitting in early May might have compared to your expectations when you set your initial guidance for 2021?
Yes. So a couple of things going on there, Brian. I think the comment just is reflective of general rig activity. The biggest step up in rig activity over the past couple of quarters has obviously been in the Permian, but we've seen some stability or increases in other areas as well. I will tell you that what we're we are kind of feeling the impact early in the year in terms of new well adds from the lack of permitting and drilling activity that we saw in mid-twenty 20.
So that always kind of lags and that's impacting us in the Q1. And so as this activity picks up, we think it will be beneficial to volumes as we go through. We're not at a point that we're ready to make any adjustments to that original guidance. We typically do that mid year. So I think we'll probably stick to that timing.
Okay.
I appreciate the comments.
Thanks, Ron.
Your next question comes from Derrick Whitfield with Stifel.
Good morning all. Congrats on your agreements.
Thank you.
With regard to the Haynesville updates, do the Aethon agreements announced to date fully unlock the potential of your Shelby acreage Shelby Trough acreage within your control?
Yes. The short answer to that, Derek, is yes, right? So we had Two operators, BP, Angelina, XTO operating in St. Augustine. As Tom mentioned, XTO still has a meaningful position there On acreage that they hold in that original what we call the Brent Miller area, which really kind of kicked off the entire program as we look back to kind of 2015.
So we certainly hope that XTO will restart development in that area at some point, but that's up to them. But yes, other than that, kind of Aethon has stepped in to the other acreage that was formerly operated by BP and some of it that It was operated by XTO. So it's a very large position, which is why we're excited that we've got somebody very well capitalized and really, really good Technically around Haynesville to help unlock all that.
Fantastic. And then as my follow-up regarding your Austin Chalk agreements, Could you speak broadly what has been conveyed in the participation and development agreements to drive activity? Meaning, if I were to quote this 12 gross wells that you guys noted in your prepared comments, what would be your net exposure to those 12 gross wells?
Yes, Derek. I mean, look, the incentives that we put in place for these operators Sort of vary, but as we mentioned, it's royalty incentives in the early wells, especially in the test phase. And then it's a matter of charging reduced or very lessened upfront bonus payments. So The model for us is get the molecules out of the ground. So for something like this, where it's not the heart of the Permian, We need to work with producers and the benefit of having such huge high net acreage positions, and I know I've talked about this before, is that we are relevant In those producer discussions, as mineral owner, right, which is pretty unusual.
You have a broad scattered low net interest. It doesn't matter what you do with a given producer, but since ours is so extensive, we can't. So anyway, short answer to your question is that We want people we want producers to spend their 1st dollar in the ground, not on lease bonus, and we will offer incentives in terms of royalty relief, especially for the upfront test wells.
Okay, understood. Thanks guys. Very helpful.
In terms of net exposure and I'm going to say some numbers here that I hope you guys will help me with. But If you look at our historic well count, net well counts, which is if you add up all of the net revenue points that we have in all the wells that we Drilled on our acreage. Over the boom and bust cycle that we've been through in the last couple of years, You've seen numbers range from 3 up to 6 and back down to 2 net wells Per year drilled in all the different basins when you that's 100 percent, 100 net revenue points in a given well, you just add them up. So that's the kind of Volume of net revenue points that we've been seeing. If you take a very broad brush look At the potential for the Chalk deals that we've done, there's probably upwards of 40 to 50 net wells on that acreage.
So that's assuming success. And you can drill that out over 5 years, you can drill it out over 10 years, either way, it's meaningful.
Thanks for the added color.
Thanks, Terry.
And your next question comes from Harry Habak with Raymond James.
Good morning, guys. Good morning. I was just wondering if I could get some additional color on the Midland deal, what counties is in and who are the operators?
Yes, it's Northern Howard primarily and then there's a number of operators, participants, A big one. SM. SM. SM. Yes.
It bleeds into Gordon just a little bit.
Great. Thanks. And then I guess another question on M and A. What's kind of your appetite for going The Permian, would that be your assuming you can get them to take equity or would that just be your primary focus?
No, no, no. We've always been Relatively agnostic to basin, other than those things that we just maybe feel like we don't have as deep an understanding on, right? For example, we haven't done a big Appalachian deal in part just because of the concerns and understanding the full picture around takeaway capacity, just as an example. But look, what we look for are deals that are accretive to our NAV That have solid IRRs and what we think will return solid ROIs to our investors. And so, Yes.
Short answer is no. We're absolutely not limited to the Permian. One of the benefits we think to being a Very large diverse mineral holders that gives us the ability to look at a lot of different deals in a lot of different areas and really just Try to pick and choose those that we think are going to provide the greatest returns. So, look at the end of the day, you kind of got to Go where the rigs are, so that's been largely Permian over the past few years. But anytime we can find an opportunity where we think we've got a direct line of sight on development, We're more than happy to look at that.
Great. Thanks. And then if I just squeeze one more in, you guys kind of mentioned LOE 20% below the quarterly run rate implied in the oil change. You guys expect LOE to kind of pick up in the coming quarters? Do you think this is somewhat a fair run rate?
No. I know we're a little below guidance on LOE for the quarter, it can get a little bit lumpy at some sometimes they're just workover activity, etcetera. But No, we wouldn't expect any big tick ups and we'll be back next quarter and that's one of those things that if it continues to trend this way, We'll probably adjust guidance down a little bit on LOE.
Great. Appreciate you all taking my questions and congrats on that great quarter.
Thank you, Eric.
Your next question comes from Pierce Hammond with Simmons Energy.
Good morning and thanks for taking my question and congrats on all the news. Just a quick update, Jeff, on your thoughts on hedging. Notice You've layered on some looks like some good hedges for oil for next year for 2022 and just your thoughts on natural gas.
Good morning, Pierce. Thanks for that. And yes, look, we're just going to continue to be systematic around hedging. We don't Typically try to time any of these markets. So I think just in normal course, as we go on through the quarter, We would like to continue to add oil and natural gas hedges.
We haven't put on a gas position for 2022, so that would be something in the normal course of business that we would do in the near term. So yes, no change to hedging philosophy, as I said in my remarks, right, we huge, huge help to us last year,
A little bit of the other
side of that coin this year, but we just generally like the additional stability.
Okay. Thanks so much, Jeff.
Thanks, Pierce.
And at this time, there are no further questions. I will now hand the call back for closing remarks.
Well, we thank you all for joining the Blackstone call today. And we're excited about this quarter and we're going to Keep working hard and we'll talk to you in the next quarter.
That concludes today's conference. Thank you for your participation. You may now disconnect.