Black Stone Minerals LP (BSM) Valuation Update - Aug 7

[dan_s]

At the time of this post BSM was trading at $14.65.

BSM is a mineral/royalties company in our High Yield Income Portfolio. Despite better than expected Q2 results my valuation declines by $0.10 to $17.00 per unit due to lower natural gas prices. I know, 10 cents is a "rounding error".
> BSM has pristine balance sheet, interest & investment income actually exceeds the Company's interest expense.
> Production mix is "gassy": Approximately 73% natural gas and NGLs.
> Oil sales were ~58% of Q2 revenues despite being only 27% of their production on a Boepd basis.
> ~65% of the Company's 2H 2024 natural gas is hedged at $3.55/MMBtu, which is why their realized Q2 natural gas + NGL price was $3.24/mcfe.

BSM is a Master Limited Partnership, so it pays unitholders "cash distributions" per quarter that are partially tax deferred (just lower your basis for income tax purposes).

BSM has lowered their distributions from $1.90 in 2023 to $1.50 ($0.375/quarter) in 2024. Annualized yield is now ~10.24%.
I see very low risk of them cutting distribution again because they carry a large cash balance, and they have zero near-term debt problems. IMO the risk is to the upside for higher cash distributions after 2024.

If you are long-term bullish on natural gas price, look at BSM this way. If natural gas prices get back to a reasonable price over $3.50 some day, you get paid nice dividends waiting for "Some Day" to arrive.