10.6%-Yielding Black Stone Minerals Stock Has 18% Upside
Why BSM Stock Is Attractive These Days
The energy industry continues to be one of the most compelling sectors on Wall Street. By all accounts, 2024 could be another excellent year for oil and natural gas companies like Black Stone Minerals LP (NYSE:BSM).
Record-high demand for oil—on the heels of Saudi Arabia making voluntary production cuts and other Organization of the Petroleum Exporting Countries Plus (OPEC+) members’ lowering their output targets—have been tightening the global oil supply.
According to the U.S. Energy Information Administration (EIA), OPEC+ members will decrease their crude oil production by 300,000 barrels per day in 2024, compared to this year. (Source: “Short-Term Energy Outlook,” U.S. Energy Information Administration, October 11, 2023.)
That has led the EIA to significantly boost its expectations for oil prices in 2024. On October 11, the agency increased its 2024 forecast for Brent crude oil by $6.69 from its September 12 forecast to $94.91 and increased its forecast for West Texas Intermediate oil by $7.69 to $90.91 per barrel.
That’s going to lead to pain at the pumps and higher utility bills, but it’s good news for Black Stone Minerals LP, the largest pure-play oil and gas mineral and royalty owner in the U.S.
The Houston, Texas-based company has more than 20 million mineral and royalty acres with interests in 41 states (as of March 2022, when it last published a corporate presentation online). (Source: “Piper Sandler – 22nd Annual Energy Conference: March 2022,” Black Stone Minerals LP, last accessed October 26, 2023.)
The partnership holds positions in 60 productive basins, and its highest-concentration positions are in the Permian, Haynesville, and Bakken areas.
As a minerals company, Black Stone Minerals LP has exposure to oil and gas 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 their technological advancements.
There are plenty of oil and gas reserves to keep the partnership’s customers happy. Black Stone Minerals LP’s estimated proved oil and natural gas reserves at the end of 2022 were 64.1 million barrels of oil equivalent (MMBoe), an increase of seven percent from 59.8 MMBoe at year-end 2021.
5 Consecutive Quarters of Distributable Cash Flow Above $100 Million
For the second quarter ended June 2023, Black Stone reported net income of $78.4 million, or $0.35 per share. That’s down from $131.7 million, or $0.59 per share, in the same period last year. (Source: “Black Stone Minerals, L.P. Reports Second Quarter Results,” Black Stone Minerals LP, July 31, 2023.)
Why the big drop? During the second quarter of 2022, West Texas Intermediate oil was trading for more than $100.00 per barrel. In the second quarter of 2023, it hovered around $71.00 per barrel.
The partnership’s adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) in the quarter were $109.2 million. Its distributable cash flow in the second quarter was $103.6 million, making this the fifth consecutive quarter in which its distributable cash flow was above $100.00 million.
The company ended the second quarter with $81.4 million in cash and no debt.
Commenting on the results, Thomas L. Carter, Jr., Black Stone Minerals LP’s CEO and chairman, said, “We continue to execute on our plans for the year and are starting to see increased volumes in the Shelby Trough as Aethon continues to ramp up production consistent with our development agreements.” (Source: Ibid.)
He continued, “While prices pulled back in the second quarter, we continue working with operators to drive additional drilling activity on our acreage and maintain a strong balance sheet to create long-term value to our unitholders through various commodity cycles.”
Black Stone Minerals LP Hiked Quarterly Distribution 13%
Black Stone Minerals LP has a long history of returning cash to equity holders. Over the last 20 years, it has returned about $3.8 billion to investors through distributions.
In October, Black Stone Minerals’ board declared a dividend of $0.475 per unit, up by 13% from the $0.42 it declared in October 2022. (Source: “BSM Dividend History,” Nasdaq, last accessed October 26, 2023.)
That works out to a dividend yield of 10.64%.
As an energy stock, Black Stone stock’s quarterly distribution fluctuates based on energy supply, demand, and price. Overall, it’s been rewarding dividend hogs, having raised its dividends for seven of the last 10 quarters.
In addition to its growing, high-yield dividends, Black Stone Minerals LP has been rewarding investors with big share-price gains. As of this writing, BSM stock is trading at record-high levels, up by :
- 13% over the last three months
- 15.5% year-to-date
- 17.5% year-over-year
Chart courtesy of StockCharts.com
The Lowdown on Black Stone Minerals Stock
Black Stone Minerals LP 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 pay growing, high-yield dividends.
In fact, thanks to its sizeable cash flow, the partnership was 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, Black Stone Minerals was able to slash its outstanding debt from $388.0 million in the first quarter of 2020 to $121.0 million by the end of that year.
Look for Black Stone Minerals LP to benefit from a sustained recovery in the natural gas market and the ongoing demand for oil. This should help the company continue generating solid returns on capital and help BSM stock return high-yield dividends to investors.