BSM - Black Stone Minerals And The Hard Truth Behind The Aethon 'Time-Out'

2024-02-08 05:12:23 ET

Summary

• Aethon's decision to pause production in the Haynesville shale could result in a sharp decline in natural gas volumes in 2025.
• The characteristics of Haynesville wells show an exponential decline in production rates, which could impact BSM's revenue.
• Black Stone Minerals' financial strength and revenue from oil and condensate sales provide some cushion, but a distribution cut is possible if replacement activity is not found.
• Thus far, management has stated that this will not impact 2024 results but has not addressed how it will make up this production starting in 2025.

Thesis

Black Stone Minerals ( BSM ) was handed a lump of coal for Christmas. On Christmas Eve, one of its largest natural gas producers, Aethon, announced that it was exercising a "time-out" clause in its drilling contracts with BSM in the Haynesville shale. In response, BSM announced that this would not meaningfully impact 2024 financials thanks to a pipeline of 30 wells that are already in progress. The company expects these wells will be completed on schedule regardless of the time-out....

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