11.9%-Yielding Black Stone Minerals Stock Up 12% in 2023
May 31, 2023
The Future Bodes Well for BSM Stockholders
As of this writing, shares of Black Stone Minerals LP (NYSE:BSM) are up by 21% year-to-date, and industry tailwinds point to even bigger gains over the coming quarters. Management has said the company’s development programs and new drilling activity have positioned it to drive up its royalties.
That’s impressive, considering the partnership has already reported record fourth-quarter and full-year 2022 financial results.
Oil currently trades around $70.00 per barrel, which is well below its March 2022 high of $130.00, but there are more than enough positive factors that could propel oil prices back into the triple digits.
The Organization of the Petroleum Exporting Countries Plus (OPEC+) has reduced its oil output by about 1.2 million barrels per day. Saudi Arabia’s energy minister has hinted that additional production cuts are on the way.
Goldman Sachs Group Inc (NYSE:GS) recently raised its 2023 price forecast for Brent crude oil from $90.00 to $95 per barrel. The bank also raised its 2024 forecast from $97.00 to $100.00. (Source: “Goldman Sachs Raises Oil Price Forecast Following OPEC+ Cut,” OilPrice.com, April 3, 2023.)
In contrast, natural gas prices are bearish for the short term, down from their August 2022 high of $10.02 per million British thermal units (MMBTu) to around $2.48 per MMBTu. The long-term outlook for natural gas prices is bullish, though.
While most Americans probably don’t think of natural gas outside of stoves and barbecues, it’s the largest source of electricity in the U.S. and a major source of heating around the world.
The Energy Information Administration (EIA) expects that an increase of U.S. exports of liquefied natural gas (LNG) through 2050 will raise the domestic price of natural gas. Industry analysts forecast that natural gas will average $3.23 per MMBTu in 2023 before rising to $3.71 per MMBTu in 2024. The 2024 estimate represents more than a 50% increase from the current level. (Source: “Higher LNG Exports to Drive Up US Natgas Prices, EIA Projects,” Reuters, May 24, 2023.)
The EIA recently said that overall U.S. gas exports, both via pipeline and as LNG, will become the biggest component of U.S. natural gas demand by the early 2030s. Right now, U.S. LNG export facilities have an operating capacity of 11.4 billion cubic feet per day (bcfd), with a further 7.3 bcfd under construction and another 18.3 bcfd of capacity approved to be built.
All this is good news for Black Stone Minerals, the largest pure-play oil and natural gas mineral and royalty owners in the U.S. (Source: “Piper Sandler – 22nd Annual Energy Conference: March 2022” Black Stone Minerals LP, last accessed May 29, 2023.)
As a mineral and royalty company, Black Stone has exposure to oil and gas, but without the hassle of operating costs or capital spending. And thanks to its scale, the company has opportunities to partner with operators to initiate or accelerate drilling and directly benefit from technological advancements that increase production.
There are plenty of oil and gas reserves to keep Black Stone Minerals LP’s customers happy. At the end of 2022, the company’s estimated proved oil and natural gas reserves were 64.1 million barrels of oil equivalent (MMBoe), an increase of seven percent from 59.8 MMBoe at the end of 2021. The partnership’s diverse asset base is concentrated in the Permian, Haynesville, and Bakken basins.
Black Stone Minerals LP Reports Record 2022 & Strong Q1 2023 Results
Thanks to increasing operational activity, Black Stone Minerals was able to report record fourth-quarter and full-year 2022 financial results.
Its mineral and royalty production increased in the fourth quarter by seven percent to 42.1 thousand barrels of oil equivalent (MBoe) per day, which is the highest quarterly mineral and royalty production the company has ever reported. (Source: “Black Stone Minerals, L.P. Announces Record Fourth Quarter and Full Year 2022 Results; Provides Guidance for 2023,” Black Stone Minerals LP, February 21, 2023.)
In the fourth quarter, the partnership’s net income went up by 8.7% quarter-over-quarter and 36.5% year-over-year to a record high of $183.2 million. Its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) hit a record $131.7 million in the fourth quarter. Meanwhile, the company’s distributable cash flow went up by eight percent quarter-over-quarter to a record $125.3 million.
These quarterly results represent a high mark in Black Stone Minerals LP’s mineral and royalty production, net income, adjusted EBITDA, and distributable cash flow since the partnership went public in 2015.
Then, despite headwinds and weaker natural gas prices, Black Stone Minerals kicked off 2023 with strong first-quarter results. Its mineral and royalty production went down in the first quarter by eight percent to 36.8 MBoe per day. Its total production in the quarter was 39.3 MBoe per day. (Source: “Black Stone Minerals, L.P. Reports First Quarter Results,” Black Stone Minerals LP, May 1, 2023.)
The partnership reported net income of $134.4 million for the first quarter of 2023, compared to a net loss of $7.0 million in the same prior-year period. The company’s distributable cash flow in the first quarter of 2023 was $104.1 million. Impressively, the partnership ended the first quarter with zero debt and $66.0 million in cash.
Black Stone Minerals Stock’s Quarterly Dividend Up 19% Year-Over-Year
Black Stone Minerals LP has a long history of returning cash to shareholders. Over the last 20 years, its stock has returned about $3.8 billion to investors through distributions.
As an energy company, Black Stone Minerals LP pays a quarterly distribution that fluctuates based on oil and gas prices. The partnership has been rewarding buy-and-hold investors by raising BSM stock’s quarterly dividends for seven of the last eight quarters.
In April, management announced a dividend of $0.475 per unit, which it paid on May 19. That was a 5.6% increase over BSM stock’s November 2022 payout and a 19% increase over its May 2022 payout. (Source: “BSM Dividend History,” Nasdaq, last accessed May 29, 2023.)
Black Stone Minerals stock’s new distribution works out to a current yield of 11.9%, which is more than double the current inflation rate of 4.9%.
As might be expected, Black Stone Minerals stock’s distribution tumbled during the COVID-19 pandemic—from $0.37 to $0.08 per unit. The stock’s dividends have since recovered and surpassed their pre-pandemic level to $0.475 per unit. Notably, the company didn’t suspend its payouts during the pandemic.
There’s every reason to believe the partnership will raise its dividend in the near term; its quarterly distribution coverage ratio in the first quarter was only about one percent.
Thomas L. Carter, Jr, Black Stone Minerals LP’s chairman and CEO, said, “As we continue to focus on growth in our existing assets, Black Stone is able to maintain the highest distribution level since going public.” (Source: Ibid.)
In addition to rewarding investors with ultra-high-yield dividends, BSM stock has been providing them with large share-price gains.
Last November, Black Stone Minerals stock hit an all-time high of $86.65. It has pulled back a little since then, but—as of this writing—the stock is up by 12% year-over-year and six percent over the last three months.
Chart courtesy of StockCharts.com
The Lowdown on Black Stone Minerals LP
As mentioned earlier, Black Stone Minerals is the largest pure-play oil and gas mineral and royalty owner in the U.S. Because of its massive geographic diversity, the company has been able to generate serious cash flow, report strong financial results, and hike BSM stock’s ultra-high-yield dividends.
Thanks to its high cash flow, Black Stone Minerals LP was able to reduce its outstanding debt from $394.0 million in the fourth quarter of 2019 to zero in the first quarter of 2023. The partnership was even able to slash its debt during the COVID-19 pandemic—from $388.0 million in the first quarter of 2020 to $121.0 million at the end of that year. Few companies can lay claim to that.
Going forward, look for the company to benefit from the sustained recovery in natural gas prices and the ongoing high demand for oil. Moreover, the extensive inventory in Black Stone Minerals LP’s mineral portfolio should allow the partnership to generate organic volume growth without needing additional capital for acquisitions.
This should help Black Stone Minerals stock continue delivering solid share-price returns and high-yield dividends to investors.
