Welcome to the Q2 2017 Black Stone Minerals LP Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would like to introduce your host for today's conference, Brent Collins, Vice President of Investor Relations. You may begin.

Thank you, Tiana. Good morning to everyone and thank you for joining us either by phone or online for Black Stone Minerals Second Quarter 2017 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 factor section of our 10-Q which will be filed tomorrow. 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; Jeff Wood, Senior Vice President and CFO; Halbrook Dorn, Senior Vice President of Business Development; Brock Morris, Senior Vice President of Engineering and Geology; and Steve Putman, Senior Vice President and General Counsel. I'll now turn the call over to Tom.

Good morning and thank you all for joining us today. Black Stone had a very solid quarter in the second quarter of 2017, led by record production volumes and strong lease bonus numbers. Production averaged over 37,000 BOE per day for the quarter which is a sequential increase of 5% and sets a new quarterly record for the partnership. Both mineral and royalty volumes and working interest volumes grew from last quarter, with the growth coming from assets in the Haynesville Shale, the Permian and the Eagle Ford Shale. The number of wells added on our mineral asset base continues to grow nicely, averaging 88 gross well additions per month in the second quarter. Consistent with what we saw in the first quarter, the Permian Basin and the Bakken/Three Forks were the areas where we saw the most activity in the quarter in terms of these new well additions. From a net revenue interest standpoint, the additions in the quarter came from the Haynesville, Eagle Ford, Bakken/Three Forks and the Permian. Lease bonus for the quarter was $11.4 million and was mainly driven by the leasing in the Bakken/Three Forks, the Permian and the Austin Chalk. We've accomplished a lot in the first half of 2017. You'll recall that in the first quarter of 2017, we entered into a farmout arrangement, covering 80% of our working interest exposure in the XTO-operated Haynesville program from 2017 forward which significantly reduces future CapEx obligations for Black Stone. On the acquisition front, we've been successful adding to our portfolio in the Delaware basin and in the Haynesville/Bossier play. We completed approximately $125 million of acquisitions in the first 6 months of 2017, roughly half of which were financed issuing equity directly to the sellers. I'd note that we continue to be acquisitive and…

Alright, thank you Tom and good morning, everyone. As Tom pointed out, we had a very good quarter. We reported average daily production of 37.3 thousand BOE per day and that's an increase of 5% over our reported first quarter production which you'll recall, was also a very good quarter. The Haynesville Shale continues to be a major driver of our production growth. In that area, XTO brought on 2 wells in the second quarter, where we have an approximate 50% working interest and that brings the total number of wells brought online in 2017 in that specific development area to 9. Overall, we saw very strong production growth in the first half of '17. And while we expect to see continued growth, we do think it will moderate a bit in the back half of 2017, due in part to some expected delays in new completions in the Shelby Trough. Elsewhere, I would also point out that we saw volume growth in the Permian and in the Eagle Ford in the second quarter. Lease bonus and other income was $11.4 million for the second quarter and has totaled $25 million through the first half of '17. That compares to the $16.5 million we've recorded in the first half of last year. We're seeing leasing activity in established, well-known resource plays like the Bakken/Three Forks and the Permian, as well as in areas that have traditionally seen more conventional development like the Austin Chalk and the Canyon Lime. Unlike some of our competitors whose acreage is mostly leased out, we have a significant amount of unleased resource in our portfolio which drives our lease bonus and the potential for new development areas. We like in this to embedded cost free dropdowns that are present throughout our asset base. Lease bonuses…

[Operator Instructions]. Our first question comes from Nick Raza from Citi.

Just had a really quick question on the lower CapEx and deferment as part of XTO program, what sort of impact will that have in terms of production? Can you sort of speak to that?

Well, I think you see it a bit, Nick, was just the fact that as we said with our revised production guidance that while we've experienced, we think really tremendous growth in the first half of 2017, we expect that to moderate a bit in the back half. So this is just normal course of business of well timing. We don't think it will have a huge impact and obviously, we think it will still be above our original guidance levels and hence the reason why we put out the higher revised production guidance.

And then, I guess in terms of the acquisition that I think is currently pending. Is there sort of a guidance in terms of accretion or any sort of additional color on that?

Nick, this is Halbrook Dorn. We expect that pending acquisition to be accretive to our next 12 month's production and cash flow. But, I mean, it is a smaller transaction; 500,000 units and $5 million or $7 million in cash. So it's not going to move the needle so to speak. And Nick, I would just say again that's -- those are bolt-on acquisitions that really complement the large development agreement that we highlighted last quarter, with a major operator there in the Shelby Trough. So it's really all just complementing and bulking up our position around that development agreement.

And I would -- this is Tom, I'd just add that strategically we're focusing pretty hard on the pivot, if you will, of increasing Haynesville/Bossier volumes with royalty volumes as we constrain our working interest volumes, so that we don't lose production, but we increase our royalty as a percentage of our total production in that area.

And then, just one last quick question. In terms of sort of stepping out beyond the Permian and the Haynesville, could you just provide us with any initial views on that? Assuming that there is still opportunity up in the Marcellus, Utica, I mean, have you folks look at those? Any comments around that would be helpful.

From an acquisition perspective? As always, we're somewhat agnostic to specific plays and return-driven and we're looking at opportunities in the Marcellus, Utica, as well as other plays throughout the Lower 48.

Our next question comes from Kashy Harrison of Simmons.

Tom, you've issued units directly to the sellers on a large portion of acquisitions year-to-date, just curious if this is a strategy that you expect to continue moving forward this year and into next year as well?

Well, we would hope so. That's one of the reasons for being in the public space, is being able to use our units as currency and being able to use those units as a currency without selling equity per se with meaningful discounts is something that we're comfortable with. And also, as one continues to make acquisitions in the mineral space, when you're looking at owners of minerals that are legacy owners, a lot of times they're reluctant to sell minerals, but in these cases, they looked at this more as a diversification and a continuance of being in the mineral space, but diversifying their holdings into a broader footprint with Black Stone. So it was really something that worked well for both parties.

Jeff, the lease bonus guidance, it implies a pretty steep decline in second half activity, just curious, is this more conserve -- is this just more a function of conservatism or are you seeing early indications of that much of a dramatic decrease in leasing activity?

Kashy, it's mostly conservatism. I mean that lease bonus stuff can be pretty chunky and so -- and it's frankly, while we think we can look at a pretty consistently over a longer time period when you start to think about quarter to quarter or over the course of half a year, it's just a hard thing to predict and so we'd rather stay conservative. We've seen great activity on the lease bonus front year-to-date which is a real testament to the folks in our land group. It's mostly conservatism, but it's very tough to get it too much before a view on that.

I would just add that our leasing activity is highly correlated to the sentiment surrounding commodity prices and discretionary capital budgets by our operators. And you've seen a bunch of operators announce that they are reducing CapEx going forward. So we're just preparing for that.

I would also add, though, that if you look over time, typically the larger percentage of your bonus income comes in the second half of the year and that has to do with companies that have got budgets that they haven't spent, wanting to put those budgets to work before the budgets expire. So we'll see what happens.

And then, just the last quick one from me. Holbrook, are there any areas where you've seen leasing activity that just surprise you to the upside, maybe in an area that you weren't anticipating just heading into this year?

Yes, I think the Bakken has been a real pleasant surprise. We had a lot of acreage that actually peeled off older leases, the deep rise such as the Three Forks and when that play really down back in '15 and we frankly have been leasing at a higher average dollar per net acre recently than we ever did back in the heyday of 2012 through 2014. And that's, I think, partly driven by some of these tracks are needed to fill in units, but also people are getting more constructive on their Bakken completions and Three Forks completions.

Just out of curiosity, what counties in North Dakota are you referring to?

Yes. We've got a pretty -- we've got a great Bakken footprint and a lot of it is right down the gut of the Nesson Anticline. So you can say Dunn, McKenzie, Williams, you name it.

[Operator Instructions]. And I'm not showing any further questions. I would now like to turn the call back to Tom Carter, President and CEO, for any further remarks.

Well, thanks everyone for joining us today and your interest in our company and we look forward to talking with you next quarter. Thanks so much.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone have a wonderful day.