Why BSM Stock Is Bullish
It looks like 2024 is shaping up to be another great year for the energy sector, including oil and gas exploration and production companies like Black Stone Minerals LP (NYSE:BSM).
The price of crude oil, in particular West Texas Intermediate (WTI) crude oil, has been on a tear in 2024, rising by 17% to about $84.00 per barrel.
Crude oil futures climbed on the first day of the second quarter of this year after it was reported that the Iranian consulate in Syria was hit by an Israeli missile. Iran has promised to retaliate, raising the chances that the war in Gaza could escalate into a wider Middle Eastern conflict. For its part, Israel has said the targeted building wasn’t a consulate or embassy, but a military building disguised as a civilian building.
Crude oil prices have also edged higher on speculation that economic growth in the U.S. and China, the world’s two biggest economies, could boost demand.
The U.S. economy remains resilient, and China’s manufacturing activity in March increased for the first time in six months. China, the world’s largest importer of crude oil, is the one equation missing from oil prices moving higher. (Source: “China’s March Factory Activity Expands for First Time in Six Months,” Reuters, March 31, 2024.)
With more than 20 million mineral and royalty acres and interests in 41 states, Black Stone Minerals is one of the biggest pure-play oil and gas mineral and royalty owners in the U.S. (Source: “KeyBanc Capital Markets Minerals Spotlight: March 2024,” Black Stone Minerals LP, last accessed March 2, 2024.)
Its positions are held in all of the major U.S. basins, but its highest-concentration positions are in the Permian, Haynesville, and Bakken basins.
As a mineral and royalty company, it has exposure to oil and gas but without the hassle of operating costs or capital spending requirements. And thanks to its scale, Black Stone Minerals has opportunities to partner with operators to initiate or accelerate drilling. It also directly benefits from operators’ technology advancements, which helps increase recovery and well economics.
There are plenty of oil and gas reserves to keep Black Stone Minerals LP’s customers happy. The company’s estimated proved oil and natural gas reserves at the end of 2023 were 64.5 million barrels of oil equivalent (MMboe), up by one percent from 64.1 MMboe at the end of 2022 and up by 7.8% from 59.8 MMboe at the end of 2021. (Sources: “Black Stone Minerals, L.P. Announces Fourth Quarter and Full Year 2023 Results; Provides Guidance for 2024,” Black Stone Minerals LP, February 19, 2024.)
Black Stone Minerals LP Capped Off 2023 With Strong Q4 Results
For the fourth quarter of 2023, Black Stone Minerals announced that its mineral and royalty production equaled 38.9 thousand barrels (Mboe) per day, down by three percent over the production in the prior quarter. Its fourth-quarter net income came in at $147.6 million, or $0.65 per diluted share. (Source: Ibid.)
The partnership’s distributable cash flow for the fourth quarter was $119.1 million, representing Black Stone Minerals’ seventh consecutive quarter of distributable cash flow above $100.0 million. It ended the quarter with zero debt and $102.9 million in cash.
In full year 2023, the company’s mineral royalty volumes increased by nine percent to an average of 37.4 Mboe/d. Its full-year net income was $422.5 million, or $1.88 per share, while its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) climbed to $474.7 million.
Commenting on the results, Black Stone Minerals LP’s chairman and CEO, Thomas L. Carter, Jr., said, “We finished the year with a strong quarter. We were able to maintain our highest distribution without any outstanding debt despite a challenging natural gas market.” (Source: Ibid.)
Commenting on the future, he said, “We expect headwinds in 2024 as natural gas prices remain depressed, but we remain encouraged by the long-term prospects for liquefied natural gas export growth and an asset base with significant inventory life that will benefit unitholders through the next decade.”
Black Stone Minerals Stock’s Distribution Increased by 9% in 2023
As an energy company, Black Stone Minerals LP’s quarterly dividends fluctuate based on price, supply, and demand metrics.
Overall, though, BSM stock has been rewarding dividend hogs with growing distributions. In 2023, the partnership raised its annualized cash distribution by nine percent to $1.90 per unit, from $1.54 per unit in 2022. (Source: “BSM Dividend History,” Nasdaq, last accessed last March 2, 2024.)
As of this writing, the company provides a quarterly distribution of $0.475 per unit, for a yield of 11.99%.
Black Stone Minerals LP has a long history of returning cash to equity holders. Over the last 25 years, it has returned about $4.7 billion to investors through distributions.
In addition to its growing, ultra-high-yield dividends, Black Stone Minerals stock has been rewarding investors with large share-price gains. On November 6, 2023, BSM stock hit a record high of $18.55 per share.
It has retraced a little since then and is, as of this writing, trading at $16.43. That means Black Stone Minerals stock is up by 6.4% year-to-date and 17.5% year-over-year
Although the energy sector can be volatile, Wall Street analysts expect Black Stone Minerals LP’s unit price to hit fresh highs over the coming quarters. They’ve provided a 12-month share-price target of $20.00. This points to upside of more than 20%.
Chart courtesy of StockCharts.com
The Lowdown on Black Stone Minerals LP
As mentioned earlier, Black Stone Minerals is one of the largest pure-play oil and gas mineral and royalty owners in the U.S.
Because of its massive geographic diversity, the company has been able to generate serious cash flow, report wonderful financial results, and return significant value to shareholders through its ultra-high-yield distributions.
Thanks to its high cash flow, Black Stone Minerals LP has been able to reduce its outstanding debt from $394.0 million in the fourth quarter of 2019 to zero at the start of 2023. Even during the COVID-19 pandemic, the partnership was able to reduce its outstanding debt from $388.0 million in the first quarter of 2020 to $121.0 million by the end of the year.
The company has gone from strength to strength since then.
Going forward, Black Stone Minerals LP expects its mineral and royalty production and interests to improve in 2024. This should help BSM stock continue delivering solid returns on capital and high-yield dividends to investors.