Black Stone Minerals (BSM) Valuation Update - Feb 20

[dan_s]

At the time of this post BSM was trading at $14.99 per unit (it is an MLP). Annualized dividends of $1.90 is a yield of 12.67%.

I have updated my forecast/valuation model for the Company's strong Q4 results and their detailed guidance for 2024. I am using the mid-point of their 2024 production guidance (41,000 Boepd) even though BSM usually beats their guidance.

My current valuation is lowered by $0.25 to $17.50 because I have lowered my HH natural gas price forecast to $2.00 for Q1 and Q2. BSM has ~60% of their 2024 natural gas hedged at $3.55 and they produce a lot of NGLs. BSM reports natural gas and NGLs on a combined basis, so I really don't know the split, but the Company's 2023 realized gas price of $4.35/mcf tells me that their NGL production is significant.

Heading into 2024, BSM has a Super Strong balance sheet with over $100 million of cash. Based on my forecast, 2024 operating cash flow will be approximately $1.77 per unit, so they might lower their quarterly cash distributions if ngas prices remain under $2.00 for several quarters. I don't expect that to happen and BSM clearly has a large enough cash balance to maintain the current distribution of $0.475/quarter.

My updated forecast model has been posted to the EPG website.