Good day, ladies and gentlemen, and welcome to the Black Stone Minerals’ Third Quarter 2016 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. [Operator Instructions]. As a reminder, this conference call is being recorded. I would now like to turn the conference over to Brent Collins, Vice President of Investor Relations. Please proceed sir.

Thank you, Takia. Good morning to everyone, and thank you for joining us by phone or online for Black Stone Minerals' third quarter 2016 earnings conference call. Today's call is being recorded and will be available on our website along with the earnings release, which was issued yesterday afternoon. Before we start, I'd like to advise you that we will be making forward-looking statements during this call about our plans, expectations and assumptions regarding our future performance. These statements involve risks that may cause our actual results to differ materially from the results expressed or implied in our forward-looking statements. For a discussion of these risks, you should refer to the cautionary information about forward-looking statements in our press release from yesterday and the Risk Factors section of our 10-K that was filed earlier this year and our Form 10-Q, which will be filed later today. We may refer to certain non-GAAP financial measures that we believe are useful in evaluating our performance. Reconciliation of those measures to the most directly comparable GAAP measures and other information about these non-GAAP metrics are described in our earnings press release from yesterday, which can be found on our website at blackstoneminerals.com. Company officials on the call this morning are Tom Carter, Chairman, President and CEO; Marc Carroll, Senior Vice President and CFO; Holbrook Dorn, Senior Vice President of Business Development; Brock Morris, Senior Vice President of Engineering and Geology; Steve Putman, Senior Vice President and General Counsel; Jeff Wood, our incoming Senior Vice President and CFO is also on the call this morning. And with that, I'll turn the call over to Tom.

Thanks, Brent, and good morning to everyone. Black Stone had a good third quarter. We had a strong quarter on production front, with quarterly production of 35,000 Boe per day. Minerals and royalty volumes grew by 3% on a sequential basis, and we had a very robust quarter for our working interest volumes with production growth driven by activity in Haynesville and the Bakken. You'll recall that we raised our guidance for production last quarter from 31,000 to 32,000 Boe per day for the full-year. At this point, we are confident that we will come in near or at the high-end of our range with a potential to come in even a little bit better than our revised expectations. Our quarter was also good from a lease bonus standpoint. The $9.6 million we reported for the quarter was comprised primarily of leases in the Midland Basin and the Marcellus/ Utica play, as well as some leases in the Mid-Continent that our perspective for the Woodford and the Marmaton. We continue to look at a lot of acquisitions. In the third quarter we did a small deal in the Permian for $8.3 million that added approximately 640 acres in the Midland Basin. That is perspective for the lower Spraberry and Wolfcamp A and B intervals. Our business is performing well and there continues to both permitting and drilling activity across our minerals and royalty assets. We are also seeing very good results in our working interest program in the Haynesville shale. So high quality portfolio of assets and a strong balance sheet that will allow us opportunistically to add to our base. Black Stone is well positioned to continue growing production and cash flow that will support a growing distribution for unitholders over time. As we've previously announced, Marc Carroll will be retiring from Black Stone Minerals at the end of this week, and this will be his last earnings call with us. I want to express my sincere thanks to Marc for his many years of service, and wish him the best in his future endeavors. Marc has already been working with Jeff, our incoming CFO, and we expect a seamless transition of the role. With that, Marc, take it away.

Thanks Tom. Good morning, everyone. Black Stone's core business is performing very well, as Tom mentioned. We reported average daily production in the third quarter of 35,000 Boe per day, which is a new record for the Partnership. We had growth in both mineral and the royalty and in the working interest volumes. And total production was up 11% from last quarter and 20% from a year ago. The third quarter included a couple of thousand Boe per day that related to outperformance on existing wells, relative to our prior expectations, as well as certain non-recurring items such as collection of suspended revenue. Taking these items into account, our normalized run rate was probably closer to 33,000 Boe per day for the quarter, which is still a record. We're clearly performing well against the production guidance that we put out last quarter. And as Tom said a few minutes ago, we’re confident that we’ll come in at the high end of the range. Realized prices for the quarter excluding derivatives were $42.15 per barrel for oil and $2.95 per Mcf for gas. Our realization percentages improved from the depth that we saw last quarter and are back in line with normal levels for the Partnership. We had a hedging gain of $7.8 million for the third quarter, consistent of $5.3 million in cash, primarily related to several hedges, and $2.5 million non-cash reflecting the change in value of the hedge book between the quarters. As of today, we’ve hedged about 95% of our PDP volumes through the end of ‘17 at an average oil price of about $55 per barrel and an average gas price of almost $3.15 per MMBtu. Lease bonus is very solid at $9.6 million for the quarter. Bulk of this activity was for leases that we…

Thank you. [Operator Instructions]. One moment for questions please. And our first question comes from the line of Jason Smith with Bank of America. Your line is now open.

Hi, good morning, guys. Congrats on the results. And Marc, best of luck. And Jeff, welcome. So just - my first question is just to hit the high-end of guidance for the year would imply, I think, a pretty decent sized decline from 3Q. So just wanted to check as though why we should expect production to decline at a time when it seems like - as you guys mentioned, most of your companies are ramping activity not slowing activity?

Hi Jason, this is Brock. I think you're right. I think we do feel like we are going to come in, as Tom mentioned, at or even maybe above the high-end of our range. And Marc referred to, what we think, our underlying run rate is when you correct Q3 for some one-time thing. So we don't expect a big decline but any decline is really the result of a slight postponement in some of the Haynesville completions in our Brent Miller area just due to some operational conveniences as some of those completions are going to come in a couple of months later than we had originally projected.

Got it. Thanks. And Marc, I think you said Holbrook up for the lay up here. So Holbrook just curious for some - I guess some color around the deals you're looking at?

Yes, we are seeing a lot of opportunities out there. I'll tell you the space remains very competitive. There is a lot of volume in terms of transactions in the Permian as you would probably expect, as well as in the Mid-Con specifically the Stack, and to a lesser extent, the Scoop. We are also seeing some off-the-beaten-path opportunities that you probably wouldn’t see in a more robust environment, and we'll continue to pursue those, more tend to likes of a diversified mineral package, which is really write-down in the middle of our fairway in terms of what we like to buy. That said, there is no shortage of deal flow. We're just trying to find the best opportunities.

Thanks. And last one from me is the working interest program seems to be increasing as a percent of overall production. I know it's a bit early but obviously with company starting to ramp activity, as we look towards 2017, how should we think about that part of the business both, I guess, as a percentage of production and on a year-over-year basis thinking about CapEx?

This is Tom. Let me answer that. We will be coming out with some guidance around our working interest program both in near-term and intermediate-term within the next quarter or so. But I think that the takeaway is that we do not intend to increase on a permanent basis our working interest program as a percentage of volumes over time, and in fact we are pretty - the Board is pretty dedicated to reducing that component of our business, and we are looking at what is the - what are the best ways to monetize some of those assets for the benefit of the unitholders, and at the same time, be able to have long-term stable and growing distributions to all classes of unitholders. We remain dedicated to being a mineral company and not turning into a working interest company, and we will have some definite outlook on that in the near future.

Thanks Tom, and I appreciate the answers, everyone.

Thank you. [Operator Instructions]. Our next question comes from Nick Raza [ph] with Citi. Your line is now open.

Thank you, guys. Just a couple of add-on questions. In terms of the acquisition that you made, is there associated production number with that acreage - the mineral royalty asset package, excuse me, in the Permian?

There is - I mean, it's not going to be overly impactful to the entire company because it's a fairly small acquisition but we think we've bought that on a very attractive kind of next 12 months yield. There was one section with five to seven wells that were in the process of being completed, so it's - there should be some decent volumes associated with that.

Okay. And are these Delaware or Midland?

So this was in Midland County.

And just to sort of ask a few questions about what Tom just stated in terms of monetizing your working interest. I mean, if we were to see something to be done, would this be all the Haynesville acreage that you have a significant chunk of working interest in, or would it be other areas?

Well, the Haynesville right now is a very robust piece of our working interest activity, but also remember that it's also a very large royalty fees too, because every well that we have a working interest in, we also have a meaningful royalty in. So monetization of that would affect the working interest volumes and not the royalty volumes if that's - so yes, Haynesville will be part of it. Right now that's the biggest piece of it. But the big takeaway is that we are all about reducing from a certain point our working interest volumes into a more modest percentage of our total volumes over time.

Okay. Thanks for the color. Appreciate that. And I guess the last question I wanted to ask was about Marcellus and Utica. In terms of just activity - I mean, there is a lot of talk around the industry about what the infrastructure will look like in a couple of years, pipeline delays, et cetera. On your particular acreage, what do you see in terms of activity? Has it sort of decreased, increased, stayed the same?

Yes, the Marcellus/Utica for us is a smaller part of our overall company. It has steadily increased over time. I would say the more recent lease transactions that we’re refinancing in this Q were related to stuff up in Northern Pennsylvania in Potter County, near - really on the Potter-Tioga county line, where Shell and JKLM are actively developing the Utica.

Okay.

So we would expect those volumes to come in - we’re not expecting near-term development so to speak. We could be surprised, but our Marcellus has been outperforming our projections in general. But that's not a large driver of our overall volumes today.

Thanks guys. That's all I had.

Thank you. [Operator Instructions].

Okay. If there are no more questions, we thank you very much for joining us today and we'll talk to you in about 90 days.