Black Stone Minerals (BSM) Valuation Update - May 19

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dan_s
Posts: 34805
Joined: Fri Apr 23, 2010 8:22 am

Black Stone Minerals (BSM) Valuation Update - May 19

Post by dan_s »

Today my goal is to finish updating all of the forecast/valuation models for the companies in our High Yield Income Portfolio.
I have already updated the models for BSM, KRP, VNOM, CTRA, FANG, PDCE, PXD and AM
You can view them directly from our website or download them to Excel.
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Black Stone Minerals LP is the only Master Limited Partnership (MLP) in our High Yield Income Portfolio. There is nothing stopping you from owning MLPs in an IRA account, but to get the maximum tax benefits of an MLP it is best to own them in a taxable account. Why? Because most MLPs defer a high percentage of the taxes on their cash distributions.

At the time of this post BSM was trading at $16.65 per unit. I am lowering my valuation by $1 to $18.50 per unit.
> BSM has paid off all of their interest-bearing debt and they have a rock-solid balance sheet.
> Quarterly distributions are $0.475 ($1.90/year) for annualized yield of $11.4%, some of which is tax deferred.
> On a Boe basis their production mix was 22.4% crude oil and 77.6% natural gas & NGLs, which they report on a combined basis.
> Due to lower gas prices, ~51% of their total revenues came from oil sales in Q1.
> ~50% of their 2023 natural gas is hedged at $5.15/MMBtu.
> The only reason for lowering my valuation is that a lot of the company's upside is in the Haynesville and the operators drilling on BSM's minerals have dropped several rigs. I now expect BSM's production to drift a bit lower in Q2 and Q3.
> If natural gas prices do rebound to over $3.00/MMBtu in 2024, BSM should be able to hold their quarterly dividends at $0.475.
> The long-term outlook for BSM is VERY GOOD.
Dan Steffens
Energy Prospectus Group
ChuckGeb
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Joined: Thu Nov 21, 2013 2:46 pm

Re: Black Stone Minerals (BSM) Valuation Update - May 19

Post by ChuckGeb »

Any thoughts on why it has moved higher by almost 10% in last 5 days?
dan_s
Posts: 34805
Joined: Fri Apr 23, 2010 8:22 am

Re: Black Stone Minerals (BSM) Valuation Update - May 19

Post by dan_s »

Of the four minerals companies, it is the most heavily weighted to natural gas and it has some very good hedges in place. 11% dividend yield may be another reason. BSM is virtually debt free, so a yield that high and risk this low is very attractive.
Dan Steffens
Energy Prospectus Group
ChuckGeb
Posts: 974
Joined: Thu Nov 21, 2013 2:46 pm

Re: Black Stone Minerals (BSM) Valuation Update - May 19

Post by ChuckGeb »

I think their development agreement with Aetheon and another company is keeping their Haynesville drilling up. Also I wouldn't be surprised if they have minerals in the same general area of E Texas where CRK has been drilling the monster gas wells.
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