Black Stone Minerals LP Stock

Hello, everyone. Thank you for joining us, and welcome to the Black Stone Minerals Second 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.

Good morning. 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 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 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 and Bakken, coupled with higher oil pricing contributed meaningfully to our results during the quarter and further highlights the benefit of Black Stone's 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 continue 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 3 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.

These efforts highlight the value of actively managing our mineral and royalty portfolio. 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, Taylor, and good morning. Mineral 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 and royalty volumes in the Haynesville. As Taylor mentioned, production trends do not always move in a straight line as development activity progresses and 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 1.18x 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.

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

This is Jon on for Tim. So we were surprised to see the distribution increase this quarter, but you showed you had a lot of coverage on that $0.32 distribution. Just given Black Stone's tradition of trying to maintain a fixed distribution, what's driving your confidence in being able to fund that bigger payout going forward? Is it visibility on stronger oil volumes that we saw? Is it your outlook on gas activity ramping? Or is it something else?

Jon, this is Taylor. Yes, I think you hit the nail on the head. I think it's a little bit of all of the above. Certainly, I think that -- we do try to increase distributions when we have confidence that we're going to be able to maintain that distribution, and that's where we sit today. When we look out to the forecast, we're certainly excited about the kind of coming ramp in production that we've alluded to via our development agreements as long as the strong results to date this year from our oil assets. So I'd say it's a little bit of both and certainly have confidence in the 7% increase this quarter.

Okay. Just to tail off that, and you discussed this a little in your prepared remarks. Can you just give an update on where you stand with any future Haynesville agreements? Are you -- you sound like you're looking to formally bring in any other operators as Adamas, Revenant and Caturus are kind of in the steady state?

Yes, I'll just touch on that real quickly. I mean we've talked about in the past that we're marketing some additional acreage that we're excited about in the Shelby Trough continuing to expand on the success we've had to date with operators. That marketing has gone really well, and we're getting close to being able to disclose more information as it relates to formally signing up another agreement with another Haynesville operator.

Okay. That's great. And sorry, if I could just sneak one more in. Just on leverage, it's inched up from 0 in 2024 to a little bit over half a turn now with $300 million of preferred still on the balance sheet. Just looking at the next window to address the preferreds coming in a little over a year. How are you thinking about the capital structure longer term, just given the payments on those preferreds?

Sure. And maybe more broadly, just thinking about how we allocate our capital, we've certainly been spending most of our time and resources thinking about the expanding Shelby Trough, and we're excited about our bolt-on acquisition program that we've been executing on for a while now. So we still look at it as we've got a peer-leading leverage that's a place that we'd like to be. As we look out to the future, certainly taking into consideration the agreement that we have with Apollo right now on the preferred. But as we get into the next open window, we're certainly continuing to evaluate kind of uses of our capital and how the preferred fits into that.

And I would just add that we're continuing to advance our acquisition program in the Shelby Trough. So that's where we've been using our debt recently. And as that progresses and we look into next year, we'll evaluate our options with the preferred and what makes the most sense.

[Operator Instructions] Your next question comes from the line of John Annis with Texas Capital.

For my first one maybe starting with production. Can you walk us through the drivers of the stronger-than-expected oil volumes and the decline in Haynesville gas volumes during the quarter? And how you're thinking about the production trajectory carrying into the second half?

Yes, I can start with that. So looking at the oil production, we have seen some price-driven activity, particularly operators turning DUCs to sales. And so we certainly have benefited from that. On the gas side, our gas has -- we have some higher interest positions within the Shelby Trough. And so depending on the timing of when some of those wells come on, that makes our production a bit lumpy. We've also just seen variability in activity. But with the recent increase in rig counts on us, we are confident that, that activity is going to turn into higher production. And then as our development programs advance under our contracted agreements. We're also encouraged by our medium- to long-term outlook on gas there.

Yes. I might just add -- thanks, Chris. I might just add in too, John, that when you look at our portfolio, it's great to be in a place where we've got the diversity of oil and gas assets. And I think we've seen that play into the first part of this year and the strong results and also the significant leasing that's been going on across the Permian, the Bakken and elsewhere. I mean one place to really be thinking about it is the Woodford Barnett as that's getting more attention. We've certainly seen more leasing there on us.

And I think as we're really driving a lot of resource expansion in the Haynesville and certainly spending a lot of time focusing on development agreements there. It's worth noting that we're participating in resource expansion in some of the other plays. And I think that's benefiting us in leasing dollars today, but ultimately, production and activity down the line.

I appreciate all that color. Maybe for my follow-up, we've seen a significant increase in activity across your 3 County Shelby Trough area, which I think stands at roughly 19 rigs today. What do you think is driving that acceleration despite the softer gas type? And how much of that activity reflects operators maybe delineating acreage today to support future development commitments?

Yes, John, good question. I mean I think it's a little bit of both. I think there are some operators that are certainly seeing some nice returns in the current environment as well as the incentives to delineate and certainly stick to their commitments under our development agreements. So we've seen the same. I think there's clearly an industry pull towards the Shelby Trough as inventory is dwindling in the legacy Haynesville, and I think that's a dynamic we're going to continue to see.

Certainly, we're excited about the trajectory of the activity and where that puts us kind of as we go over the next couple of years, but really into '29 and '30 as the industry is looking for natural gas inventory to supply the coming wave of demand. And we think we're really well positioned for that where our assets sit in proximity to the Gulf Coast, of course, as well as increasing power demand.

So I do think there's just a continued increase of activity towards the Shelby Trough and the expanding Haynesville, and our acreage is really well positioned to grab that market share and take advantage of it.

We have reached the end of our question-and-answer session. I will now turn the call back to Taylor for closing remarks.

Thanks, everybody, for joining us this morning. As we've talked about, we're really excited to continue our solid execution of our differentiated strategy across our diverse portfolio. We continue to really stay confident in our trajectory and trying to return as much value to our unitholders as we can. So we look forward to speaking with all of you again next quarter. Thanks.

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

Hello, everyone. Thank you for joining us, and welcome to Blackstone 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 Blackstone 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. Outperformance 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 Power 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 Augustin County, which continued to push the historical extent of the Shelby Trough and delivered strong initial results, reaching 30 MMcf per day.

Additionally, [ Catalyze ] 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 inactivity 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. Expand 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 resident's wells. Does that well, 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? This is revenue 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 swap of your acreage. As I understand this is more isolated in nature, is that a fair characterization?

Yes. Yes. Thanks, Derek. 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.

Thank you for standing by, and welcome to the Black Stone Minerals Fourth Quarter and Full Year 2025 Earnings Conference Call. [Operator Instructions]

I'd now like to turn the call over to Natalie Liddell, Vice President, Corporate Planning.

You may begin.

Thank you. Good morning, everyone. Thank you for joining us for the Black Stone Minerals Fourth Quarter and Full Year 2025 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 forward-looking -- 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 in our 2025 10-K. 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 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; Chris Bonner, Senior Vice President, Chief Financial Officer and Treasurer.

I'll now turn the call over to Fowler.

Thank you, Natalie. Good morning, everyone, and thank you for joining us on our fourth quarter earnings call. If you look at our earnings release from last night, you'll see that we had a great 2025 despite headwinds from production and oil prices. During the year, we achieved significant commercial milestones that will benefit our future production for years to come. We successfully signed development agreements with Revenant Energy and Caturus Energy. These deals place approximately 500,000 gross acres into development with minimum drilling commitments ramping up to 37 gross wells per year by 2031 from those programs and including Aethon, a total of 50 gross wells over the same period. Aethon also recently brought several new wells online in the Shelby Trough at about 25 to 30 MMcf a day with another 5 wells expected to come online in the first quarter.

An additional 18 wells are expected to be drilled throughout 2026. Also in 2026, we expect that Revenant will spud more than its minimum 6-well commitment and Caturus plans to drill its initial wells, including a pilot well. We are also seeing increased activity from others in the Shelby Trough as the industry moves towards available inventory to meet the growing natural gas demand. In addition to these developments, we are building another new opportunity in our Haynesville expansion area that we believe will add significant inventory and scale to the current development. Based on existing subsurface analysis, we believe we can continue to expand the Shelby Trough and Haynesville Basin towards the Western Haynesville.

With our continued focus of increasing production from existing assets and driving long-term value for our unitholders, we have also entered into an LOI with a reputable operator with experience in the Haynesville on a meaningful amount of acreage in the Gulf Coast region outside of our recent focus areas. Our acquisition program remains on track as well. Since launching the program in '23, we've invested about $240 million to add accretive mineral and royalty acreage across the Shelby Trough and Haynesville expansion area. We remain confident that the combination of these commercial initiatives will lead to significant growth and value for our unitholders.

With that, I will hand the call over to Taylor.

Thanks, Fowler. Good morning, everyone. Adding on to Fowler's commentary, we're excited about the increased activity and the ramp in production that we expect throughout 2026. We ended 2025 and begin 2026 at about [ 32,000 BOE ] per day, but we see that materially growing throughout 2026. So while production guidance is roughly flat year-over-year, we see solid growth from fourth quarter 2025 to fourth quarter 2026. Our fall investor presentation showed that 2026 is anticipated to be just the beginning of new activity in the Shelby Trough. We expect significant increases in natural gas production and distributions for BSM unitholders over the coming years. Because we have one substantial industry-leading inventory on our acreage in the Shelby Trough and Haynesville expansion and two, advantageous proximity to the Gulf Coast and key demand centers, we are optimistic about the long-term growth for our unitholders.

The team has done a phenomenal job the last several years delineating and marketing the Haynesville expansion area and securing the development agreements. We are now preparing to manage the growth in activity through these development agreements with our operating partners. As noted in our release last night, we are strategically increasing G&A in 2026 to support this increase in activity. We remain focused on disciplined capital management and our comprehensive commercial strategy, including grassroots acquisitions, high interest development agreements, new development opportunities and proactive asset management across all basins. Those efforts support our goal of delivering near-term and long-term value for Black Stone's unitholders.

With that, I'll handle the call over to Chris to walk through the financial details for the quarter and full year.

Thanks, Taylor, and good morning, everyone. In the fourth quarter, mineral and royalty production was [ 30,900 ] BOE per day, a decrease of 11% from the prior quarter. Total production for the quarter was [ 32,100 ] BOE per day, and we completed the year at the high end of the updated guidance. As discussed in the release last night, our updated guidance last year reflected lower natural gas directed drilling activity and volume levels in the Shelby Trough over the last couple of years. We expect 2026 to be a turning point with new and increased development in the Shelby Trough and Haynesville expansion areas, along with high interest projects in the Permian Basin and ongoing development across our broader assets. We continue to monitor increasing activity levels in the Haynesville and commodity price dynamics as we look towards 2026 production and distribution.

The partnership is also in the process of shooting two substantial 3D seismic surveys in the Shelby Trough and Haynesville expansion area, covering about 360,000 gross acres. While initiating and funding these surveys is not typical for Black Stone, we believe it allows us to control the timing, pace and focus of the data, highlighting our minerals and supporting their development under our contracted agreements. Most of the remaining costs for these surveys are expected to be incurred in 2026 with completion targeted for early 2027. They are subject to partial reimbursement with reported costs reflecting Black Stone's share while the partnership retains full ownership of the data. Over time, the proprietary nature of these surveys may provide opportunities to license the data to industry, potentially generating additional revenue.

Together with these supplemental seismic purchases, these assets are expected to enhance subsurface evaluation, further unlock the value of our mineral and royalty acreage and accelerate development of that acreage. To better reflect how we view these investments, we've updated the presentation of adjusted EBITDA and distributable cash flow to exclude seismic acquisition costs. Turning to the quarter's financial results. Net income was $72.2 million for the fourth quarter with adjusted EBITDA of $76.7 million. 51% of oil and gas revenue in the quarter came from oil and condensate production. As previously announced, we declared a distribution of $0.30 per unit for the quarter or $1.20 on an annualized basis.

Distributable cash flow for the quarter was $66.8 million, which represents 1.05x coverage for the period. As Fowler and Taylor mentioned earlier, the partnership's outlook remains strong, anchored by long-term contracted development in our high-interest Shelby Trough acreage as well as our core legacy assets across the U.S. With growing demand from LNG and electric power generation, the outlook for natural gas is increasingly constructive over the next decade. Our significant assets near Gulf Coast LNG facilities position Black Stone to benefit from the substantial call on gas supply, which we expect to increase over the coming years.

In conclusion, we had a successful 2025 on many fronts, setting the partnership up for a great 2026 and beyond. We remain confident that our existing acreage positions across numerous basins, coupled with our commercial strategy and the expanded Shelby Trough will provide a strong foundation to deliver sustainable long-term value for unitholders.

With that, I'd like to open up the call for questions.

[Operator Instructions] Your first question today comes from the line of Derrick Whitfield from Texas Capital.

Regarding guidance for the year, while I realize some of this is beyond your control, how should we think about the cadence of production from 4Q levels throughout 2026 based on the known developments?

Yes, Derrick, this is Taylor, and I'll start out with that. I mean I think when we look back to 2025 kind of midyear and then along with kind of our investor presentation, we really pointed to where we thought production was headed based on the last couple of years kind of activity in the Shelby Trough and the decreased activity there. And so where we end 2025 is where we think we're going to start 2026, which is what we've kind of alluded to in the release last night and mentioned in our script this morning. And then I think that where that puts us for the full year is reflected kind of in the guidance. So again, we think we're going to be increasing materially throughout the course of 2026. And most of that is attributable to kind of new development agreements as well as Permian production and those high interest developments out West.

And Taylor, would you expect it to kind of stall out at the kind of Q1 -- maybe Q4 level for Q1 and then kind of step up each quarter progressively? Or would there be more lumpiness than what I just suggested?

No, I think that's right. You'll see it start to step up. We've -- as we've mentioned, we've got some wells coming on here in the beginning of the year, specifically related to Aethon and then we see activity increasing throughout the year.

Great. And for my follow-up, in your commentary, you referenced efforts to build new opportunities to further expand your asset base and add new development agreements in both the Shelby Trough and Haynesville expansion area. I guess looking ahead, how would you characterize the pipeline of potential new development agreements? Are these conversations primarily with new operators in the basin or extensions with existing operators? And how should we think about the cadence and acreage scope of incremental agreements over the next 12 to 18 months?

Derrick, I would tell you that we certainly don't discriminate against existing partners or newcomers. We welcome all parties. And while we enjoy the partnerships that are established, we are happy to continue to diversify our new developments with new partners or strengthen existing contracts with established partners.

Your next question comes from the line of Tim Rezvan from KeyBanc Capital Markets.

Changing gears to the Permian. We saw comments in the release about leasing outside of the Coterra development area. We also saw guidance for liquids down a bit in 2026 versus our expectations. So can you talk about kind of what you're pursuing in the Permian and kind of how -- just kind of the scale and the priority of that given everything that's going on in the Haynesville?

Sure, Tim. This is Taylor, and I'll start there. I think we're excited to see activity in the Permian kind of in two different folds, if you will. We've got high interest activity from Coterra, and then we mentioned another large-scale kind of high interest development that's happening in the Southern Delaware. So that's a bit more proactive asset management, if you will, along with quite a bit of leasing throughout 2025 that we think points to increased activity across '26 and '27. I think if you look at the timing of some of this and when we see those volumes coming on, certainly, we'll see some of the Coterra wells continue to come on over the course of '26.

Some of the other activity, I think, really is probably later on in '26 and more materially in 2027. So I think you'll start to see those volumes a little bit later on. But no, we're excited about what's going on. Certainly excited about some of the other folks in the industry and their excitement around the Barnett, which we've also seen leasing pick up. So I think there's a lot to be excited about in the Permian right now.

Yes. The only thing I'd add there is -- so we know about these high interest developments that we can model. When we're looking at where pricing is right now in the Permian, we're being thoughtful on just the broader development there and not wanting to get ahead of ourselves when it comes to forecasting the broader Permian volumes.

Okay. Okay. I appreciate the context. My next question, if we look at the Henry Hub strip this year, it's below $3.50 for a lot of the year into kind of the winter. And you've talked about sort of maybe a flattish start to the year growing. Do you feel comfortable you can fund your $0.30 distribution through distributable cash flow without sort of leaning on liquidity for the next -- I mean, 1Q will be a big aberration we know with $5 Henry Hub. But as we look to the summer, how confident are you that you can sort of fund that without leaning on liquidity?

Yes. Good question. And maybe I'll start off and Chris, if you want to jump in. But I think it really just sort of following up on what Chris just said, we've taken a stance on being really thoughtful about where we see commodity prices and activity levels and where we think that we've got some pretty solid development that's going to happen, and we're confident in that development based on our agreements and our minimum commitments there. So along with the sort of ongoing activity and wells coming online. So I would say that we're confident that we can continue to fund the distribution and grow throughout the year based on those minimums.

Yes. I would just concur with that assessment and then also note that we do have strong hedges in place for natural gas throughout the year.

Okay. Okay. I just wanted to push on that. And if I could sneak one more in. I appreciate the prepared comments on the seismic, we saw that adjustment with your adjusted EBITDA in the fourth quarter. Should we assume that, that $30 million of exploration expense is all seismic? Is there a cadence to that? Is that a onetime expense? And do you expect to continue to kind of adjust that out for adjusted EBITDA?

Yes, I can answer that. So it is expense throughout the year. We do expect more of it to hit when the shoot is actually taking place in the middle of the year. And it is the majority of the seismic that we forecasted. It's about 90-plus percent of the total. And we do expect the majority of the costs related to these two specific shoots to be completed in early '27, but primarily expensed in '26. And we don't anticipate additional significant seismic costs within this development area.

Yes. I might just add on too and just take that question a little bit further, Tim. The seismic shoot is certainly something, I think, pretty unique for a company like us to do. But I think when you look back at the last couple of years, we have taken a stance of putting subsurface analysis and geology first, and we're pretty convicted in the Rock in the Shelby Trough and the Haynesville expansion. And I think these seismic shoots are just another data point for us to further that story and really build the foundation for our operators to come in and start to develop.

And I think as Chris also mentioned in his prepared remarks, these are proprietary shoots. So we own them and look forward to, at some point, also potentially turning those licenses to industry and generating revenue off of them. So a couple of different ways we're thinking about the seismic. But excited to get those shot later this year and just keep on developing the Shelby Trough and the Haynesville expansion.

And there being no further questions, I will now turn the call back over to Taylor DeWalch for some final closing comments.

Thank you all for joining us this morning and look forward to speaking with you all again next quarter.

This concludes today's conference call. Thank you for your participation. You may now disconnect.

Thank you for standing by. My name is Van and I will be your conference operator today. At this time, I would like to welcome everyone to Black Stone Minerals Third Quarter 2025 Earnings Conference Call. [Operator Instructions]

I will now turn the call over to Mark Meaux, Director of Finance. You may now begin, sir.

Thank you. Good morning to everyone. Thank you for joining us either by phone or online for Black Stone Minerals Third Quarter 2025 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 2024 10-K.

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 from yesterday, which can be found on our website at www.blackstoneminerals.com.

Joining me on the call from the company are Tom Carter, Chairman, CEO and President; Taylor DeWalch, Senior Vice President, Chief Financial Officer and Treasurer; Steve Putman, Senior Vice President and General Counsel; Fowler Carter, Senior Vice President, Corporate Development; and Chris Bonner, Vice President and Chief Accounting Officer. I'll now turn the call over to Tom.

Thank you very much, Mark. Good morning, and thank you all for joining us on the third quarter earnings call. Before we discuss our financial and operating results, I'd like to congratulate Fowler Carter, Taylor DeWalch; and Chris Bonner on their announced upcoming promotions. I'm excited for and confident in their leadership as we look to the continued growth and success of Black Stone for many years to come.

Looking forward to my new role as Executive Chair as well and will continue to provide strategic guidance to the management and lead the board. Thank you to all of our employees who continue to work very hard day in and day out to drive Black Stone's success and position us for an exciting future.

We continue to pursue acquisitions through the Haynesville expansion around Shelby Trough, and we're looking forward to Revenant's development getting underway in early 2026. We also continue to work towards solidifying another development agreement covering 220,000 gross acres in between Aethon's development in the Shelby Trough and expand's development in the Western Haynesville.

Unscripted, I also add, we are working on yet another package that we hope to assemble and market in the not-too-distant future. The recently announced expand energy horizontal well and successful pilot well in addition to the ongoing development throughout the Western Haynesville provide even further confidence in the Haynesville expansion play and long runway of inventory.

As mentioned previously, we expect these development agreements to ultimately drive over 50 wells drilled in the expanded Shelby trial per year providing significant gas growth for the partnership and a constructive outlook for demand in the region. And this is in conjunction with ongoing great opportunities coming up in other areas in our properties. We remain focused on the significant growth opportunity that result in the increasing production and distribution outlook for years ahead.

With that, I'll hand it over to Fowler to walk through the operational updates.

Thank you, Tom, [indiscernible], and good morning to everyone. During the quarter, we progressed our commercial initiatives across the expanded Shelby Trough, including working with Revenant Energy on their inaugural development program beginning early next year. Our marketing efforts on an additional 220,000 gross acres is progressing well with a framework agreement that would add the equivalent of 12 additional wells annually to our acreage by 2030.

We expect these new developments, coupled with our existing agreements to more than double the current annual drilling rate in the expanded Shelby Trough in the next 5 years. There is also the opportunity for our operating partners to exceed their annual well commitments, and we are excited about the multiple decades of development inventory in this play.

Our grass-roots acquisition program also continues to progress well. We added $20 million in mineral and royalty acquisitions during the quarter bringing our total acquisitions since September 2023 to roughly $193 million. We have line of sight to an additional accretive acquisition opportunities in the near term which we expect to enhance our existing asset position in the Shelby Trough and to add long-term value for our unitholders. While 2025 development activity has slowed across the U.S., we are optimistic looking ahead to 2026 given our existing and pending development agreements across our high-interest acreage in the Shelby Trough.

Turning to the Permian. The large project we were monitoring remains on track to add meaningful oil volumes to our production base. We are also tracking several new projects on our high-interest acreage there that are expected to add additional liquids volumes in the next 12 to 18 months. We believe that these projects, in addition to our agreements in the Shelby Trough, provide Black Stone a path to increase production and, in turn, higher distributions.

With all of that, I'll turn it over to Taylor to walk through the financial details of the quarter.

Thanks, Fowler, and good morning, everyone. We had a successful third quarter with mineral and royalty production of 34,700 BOE per, an increase of 5% over the prior quarter. The increase in production quarter-over-quarter was driven by strong volumes in the Permian Basin. Total production volumes were 36, 300 BOE per day. While we currently sit here at the high end of the range, production guidance for 2025 is unchanged at 33,000 to 35,000 BOE per day. We continue to monitor activity levels and commodity price dynamics as we look towards the fourth quarter of 2025 and full year 2026 production and distributions.

Net income was $91.7 million for the third quarter with adjusted EBITDA at $86.3 million. 57% oil and gas revenue in the quarter came from oil and condensate production. As previously announced, we declared a distribution of $0.30 per unit for the quarter, or $1.20 on an annualized basis. Distributable cash flow for the quarter was $76.8 million, which represents 1.21x coverage for the period. The excess coverage was used to partially fund acquisitions and maintain a solid financial and leverage position.

As Tom mentioned earlier, the partnership's outlook remains strong, anchored by long-term contract development in our high-interest Shelby Trough acreage as well as our core legacy assets across the U.S. In addition, with increasing demand from LNG and power, the outlook for natural gas is increasingly constructive over the next decade. With significant assets in close proximity to LNG facilities, Black Stone is in a prime position to benefit from the looming call on gas supply.

In conclusion, we had a solid quarter, bolstered by strong oil volumes from our Permian assets which ultimately produced robust coverage of the announced distribution. Going forward, we remain confident that our existing acreage positions, coupled with our commercial strategy and the expanded Shelby Trough will provide a strong foundation to deliver sustainable long-term value for unitholders.

With that, we'd like to open the call for questions.

[Operator Instructions] Our first question comes from the line of John Annis from Texas Capital.

Congratulations to everyone on their new roles. For my first question, on the acreage currently being marketed in the KLX area, I think on the September update call, you mentioned that you were on the 1 yard line with getting a deal across. I was hoping if you could provide a quick update on where those discussions currently sit?

And secondly, if you've seen any increased interest in potential commitment to the development following expand's entry into the Western Haynesville. And then maybe just building off of Tom's remarks that you're also working on assembling another package. Is there any additional color that you could share at this time?

Well, I'll start with the 1 yard line comment. We were at the 1 yard line and now we're at the half yard line. So it's progressed, and we expect to hopefully have that wrapped up here in the next couple of weeks. But we'll let you all know how that goes, and we'll announce that information accordingly.

Remind me your second part of your question before we go on to the expanded area that [indiscernible] mentioned.

Yes. Just if you've been seeing any increased interest in potential commitments just following expands announcement and their entry into the Western Haynesville?

We say interest remains robust across this whole area and increased commitments. What I'm comfortable saying about that is that our operating partners have the ability to flex up above and beyond their minimum annual commitments. And so you can certainly see some relative outperformance there.

Terrific. Is there any color that you could offer on the package that you're working on assembling that you mentioned in the prepared remarks?

I'm going to let [indiscernible] take that one because he's really excited about it.

If you look at the Shelby Trough in the Western Haynesville and now the expand well, the Yancey well, which is about 20% to 30% further to the east than any of the wells that have been drilled so far moving back into almost North Central Houston County. And then you go into Trinity County, Cherokee County, Angelina County, Polk County, Tyler County, San Augustine County, Sabine County. There is so much inventory potential out there that really hasn't even been scratched yet, and folks keep putting blocks together. And we've done a lot of homework on the subsurface all the way across to the Western Haynesville and everything that keeps happening thus far has been positive to more positive than what one could expect.

We see some very, very interesting geologic things happening as you move further west from the traditional Shelby Trough, where there is significant expansion between the base of the Knowles Lime and the top of the Cotton Valley if I'm saying that -- Smackover -- excuse me, Cotton Valley also. Smackover and that phenomenon is what's been driving moving Eastward into the Western Haynesville.

So I think I said this last time, these packages of shale that are commercial are thicker in that expanded area. And we have existing acreage that we think is deeper than the traditional work that's been done in the Shelby Trough, but that is not inconsistent with what's been going on in the Western Haynesville. And it's in our inventory, and we're working it hard and looking forward to taking it out to capital development in the future.

I appreciate all the color. For my follow-up, with the strong volume growth this quarter, how should we think about volumes trending in the fourth quarter and into 2026 with the wells that are expected to be turned in line from Aethon and the Permian development project? And then maybe more broadly, just how would you compare what you're seeing in terms of gas-directed activity across your acreage relative to earlier in the year.

Yes. Thanks, John. So like I said in my prepared remarks, I mean, we didn't update full year guidance at this point. So we're still being pretty thoughtful about the activity that's going on across our assets, whether it's Aethon or larger developments out in the Permian, I'd say where we start to get excited is to see Aethon volumes coming online and then kind of throughout the fourth quarter into the beginning of next year, along with the large development in the Permian, which is Coterra and seeing their wells start to come online recently, but more completely as we think about kind of the beginning of next year.

So overall, I think it's going to be an interesting several months kind of winter season to watch activity levels, especially in the natural gas-focused basins and to see how that plays into full year '26 volumes.

I would add also, recently, we put out a multiyear forecast, which is somewhat unusual for a publicly-traded company. And I would just encourage the marketplace to not focus so much on the next 6 to 12 months, but to focus on the next 5 years because as I said earlier, this is a massive reservoir, and it takes time to spool it up -- and evaluate it and spool it up. And we really are excited about the slow, methodic, thoughtful, early stages of some of these new transactions that we've done.

But every one of those with success will grow in well counts by two to threefold as well as layering new projects in there. I just -- when you talk about share value and share activity, that's a real good question because I don't know how much the average person wants to get out in front of the market. But if what we're seeing is valid and as I said before, if the natural gas markets are as everybody seems to think they're going to be, i.e., less volatile and more secure in the future. The time to buy our shares is now not 2 years from now.

Our next question comes from the line of Tim Rezvan from KeyBanc Capital Markets.

Congrats everybody on the new roles and Tom, on your transition. Some of my questions were addressed by the prior analysts. But I wanted to ask, you mentioned more Permian production coming. As a 2-stream reporter, we've noticed that your natural gas differentials have weakened. I'm guessing that's due to exposure to Waha.

And as you think about -- I know the Haynesville is sort of the longer-term story, but a lot of producers are getting beaten up by the challenges at Waha that may not resolve until 2027. So can you talk about anything you're doing? I know you've been plain vanilla hedges in the past. Do you intend to just sort of ride this out? Or is there anything you can do because gas is still over 70% of your production. Just curious on that.

Yes. Thanks, Tim. This is Taylor. I'd say, like you said, I mean, our hedging strategy remains consistent the way that we've been thinking about it. And I think when you think about our natural gas volumes so much of that is coming from the Haynesville and from the Shelby Trough, where we've got good exposure to Henry Hub, I think relative to -- as you mentioned, kind of some of the dynamics that are going on with Waha and the Permian.

I think when we think about Waha and we think about just general Permian production, really what gets us excited is to see the ongoing development on high-interest acreage and then ongoing development across the full suite of assets. I guess we touched on in the investor presentation in September, we're really well aligned with the top operators in the Permian. And so we continue to see robust activity from those folks.

And then also just going back to some of these a little bit more bespoke high interest development that we have in the Permian. So excited to see those volumes come online. So overall, continuing to maintain our consistent strategy as we're thinking about pricing and activity levels.

Okay. So from a modeling perspective, do you think that on a 2-stream basis being at a discount to the benchmark Henry Hub is that going to be the reality over the next year if Waha sort of stays where it is? That's what I'm trying to get at.

Yes. I mean that's -- like I said, that's what we're thinking about it, and that's what we've got a robust hedge strategy.

[Operator Instructions]

All right. If there are no more questions, we sure thank you all for joining us today, and we look forward to speaking with you soon.

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.