Good day, ladies and gentlemen and welcome to the Fourth Quarter 2018 Black Stone Minerals LP Earnings Conference Call. At this time, all participants are in a listen-only mode. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to introduce your host for today’s conference, Brent Collins, Vice President of Investor Relations. Sir, please begin.

Thank you, Norma. Good morning to everyone and thank you for joining us either by phone or online for Black Stone Minerals’ fourth quarter and full year 2018 earnings conference call. Today’s call is being recorded and will be available on our website along with earnings release, which was issued yesterday afternoon. Before we start, I would 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 in our 10-K, 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 measure 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. The company officials on the call this morning are Tom Carter, Chairman and CEO; Jeff Wood, President and CFO; Holbrook 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 will now turn the call over to Tom.

Good morning and thank you for joining us today. Black Stone capped off a great year with a strong fourth quarter. We set a new quarterly record for minerals and royalty production as well as total production. Our core minerals and royalty business is performing quite well. Quarterly mineral production grew 9% in the fourth quarter compared to the third quarter of 2018. For the full year, mineral and royalty production grew 45% in 2018 over 2017, much of that came from incremental drilling activity on our existing acreage. Even excluding the contribution from the Noble assets, we purchased at the end of ‘17, which was largest in our history, our mineral and royalty production grew by impressive 31% from ‘17 to ‘18. The strong performance on our mineral and royalty business more than offset the planned decline in our working interest program. The last of our direct investments in the Shelby Trough through Haynesville program occurred in mid ‘18. We successfully farmed out the working interest participation in that program and will benefit from the ongoing development of our minerals without having to invest significant drilling capital. You can see this in our production split between royalty and working interest volumes. Royalty volumes as a percent of total production increased from 65% in the fourth quarter of ‘17 to 72% in the fourth quarter of ‘18. The strong performance on our minerals and royalty program is further demonstrated by our reserve numbers. Even though we are no longer replacing our working interest reserves, our total proved reserves were up 3% to 69.9 MMBoe bolstered by a 9% growth in our royalty reserves over the previous year. We had approximately 1,500 new wells drilled on our properties last year, representing about a 50% increase over the prior year on both…

Okay, thank you and good morning, everyone. As Tom mentioned, the fourth quarter capped off a remarkable year for Black Stone. Before getting into some of the detailed financial results for the quarter and some of our comments around our outlook for ‘19, I just want to highlight a few of the accomplishments for 2018 that we have got perspective on that full year. Production for ‘18 averaged 46,300 Boe per day, which was above our revised guidance level of 44,500 Boe to 45,500 Boe per day. Compared to 2017 levels, total production increased in 2018 by 25%. That’s hard to achieve for a company of our scale and that was driven by both organic growth and a number of successful acquisitions. We accomplished that even as working interest volumes declined by 5% over the year, as a result of our decision to stop investing in working interest opportunities. Filling that void was a 45% year-over-year increase in mineral and royalty production. Royalty volumes represented about 70% of total production in 2018 and that’s up from about 60% in 2017. We expect this trend of growing royalty volumes and shrinking working interest volumes to continue into 2019 and I will touch on that more in a few minutes. Finally, on the production front, our product mix was weighted more toward oil in 2018 as a result of increasing volumes in the Permian and the Bakken. The big increase in production, combined with a more constructive commodity environment resulted in total oil and gas revenues in 2018 of $559 million. That’s a 55% increase over 2017 levels. Adjusted EBITDA rose by 35% to $419 million and our cash available for distribution also increased by 35% to $368 million. Now, focusing in on the fourth quarter, the story was very much the…

Thank you. [Operator Instructions] Our first question comes from Brent Koaches of Raymond James. Your line is open.

Hey, good morning. Thanks for taking my question. Just thinking from a high level, a lot of focus recently has been on E&P operators slowing down activity in kind of managing their capital outspend. Can you guys maybe just comment on how you’re looking at – I guess, the state of affairs in the E&P world and kind of what that means for your outlook?

Brent, this is Jeff. I’ll start with that and see if others have comments. In general, we haven’t seen a slowdown in activity at this point and I think what’s important there is just being in the right spot. A lot of that operator capital when it’s cut down is taken away from more fringe areas, and frankly, we’re really happy with our core positions in all four of our major basins. And so fortunately, we have not really seen an impact from that greater capital discipline from operators to-date. And again, I think that’s just where our acreage is really where you want to be in those top plays, so, we’ve managed to avoid any impact of that to-date.

Okay, and then just on a follow-up, I noticed that you guys are going to be doing some seismic shoots in the Shelby Trough area. Can you maybe just give us some detail on kind of the areas that you’re going to be looking at, maybe what the timing is on results?

Yes, this is Brock Morris. So, in our program with both of our operators there, they are considering some seismic in 2019 as they expand their development programs. And as we have a working interest in that area, we may be participating in some of that. Now that ultimately gets farmed out, but it shows up as being capital that we’ll spend this year. It’s a relatively small amount though.

I would add that in large programs like the Haynesville and others, it is an option when these seismic shoots are done, whether we participate in them or not. And we look at that as a long-term investment in the lands, because it gives us a better idea of what’s going to be going on from a technical standpoint, both in the existing play and other plays in the future and we just think – when you have big blocks of land like that having better knowledge of your properties is better than less knowledge.

Sure. Well that makes sense. That’s it for me. Thanks. Thanks for taking the question and congrats on a great year.

Thank you, Brent.

Thank you. [Operator Instructions] Our next question comes from Philip Stuart of Scotia Howard Weil. Your line is open.

Good morning, guys. Congrats on another good quarter.

Thank you. Good morning.

I’m wondering if – I was – I appreciate the comments on the E&P activity that you guys are seeing on your mineral and royalty acreage, just kind of curious how you see the mineral and royalty production trending throughout 2019, obviously, you’re expecting 12% growth, I guess at the midpoint point year-over-year, it looks like 4Q ‘18 volumes are kind of in line with the midpoint of full-year ‘19 guidance. So, just kind of curious if you’ll see that kind of holding steady throughout the year or if there are any noticeable kind of production trends that you’re seeing in the mineral and royalty production?

Yes, Phil, no, this is Jeff. I appreciate those comments. I mean, I think what we’re – maybe a few things just on guidance, especially relevant to 4Q. As I mentioned in my remarks, we had some operators that had held some production in suspense and that happens all the time for various reasons. And so we had sort of an abnormally large suspense release in the fourth quarter that we just don’t have a lot of visibility to until we get paid by the operator and so that that bumped up 4Q production by about probably 3,000 BOE per day of our overall total. So, as you mentioned, we’re expecting royalty volumes overall to increase about 12% over the year. Somewhat, we’ve – it’s been a bit of a victim of our own success in the fact that our ‘19 guidance is relatively flat to ‘18. One, I think we’ve just seen a faster acceleration of royalty production growth than we had originally anticipated, which is all great news. And then, of course, look, we fully turned off that capital spigot on the working interest volumes. So, we’re fighting I think at the midpoint of our guidance something like a 25%, 26% decline in our overall working interest volumes, again, that’s by design. So, we feel pretty fortunate to that increase in royalty volumes, fully makes up for that planned decline in working interest volumes. But, overall, I would think that, that royalty growth through the course of the year is relatively consistent, and again, what it is, it’s just fighting a pretty big decline on the working interest side.

I appreciate the color there, that makes a lot of sense. I mean, obviously, the ability to grow the mineral and royalty production certainly highlights the quality of the underlying acreage there. I guess, one more for me, as we think about distribution growth going forward, should we still think about the 1.1 times coverage ratio is kind of the governor on any future potential distribution growth analysis. I guess, kind of looking at running sensitivities on how distribution growth could increase or decrease kind of given different commodity price scenarios?

Yes, this is Tom. I’ll take a shot at that. And once again, putting that question in the context of distributable cash flow with a looking forward 12% projected guidance and growth in royalty volumes, but a significant decline in working interest and also a significant decline in the CapEx that is associated with that. We are in a little bit of a transition cycle here and we continue to see a baseline 3% to 5% growth rate in our thoughts on distributions over the coming years. With respect to coverage, there’s been quite a bit of discussion and comments in our space around variable versus fixed distributions and coverage et cetera, et cetera, ranging from fully variable with no coverage to kind of the other extreme, which might be us, which is relatively high coverage and a consistent distribution. I would tell you this that if – as our ability to distribute grows, we do not have a problem contracting coverage, okay, but we like to see it on a long runway. We are not yet of a mind that we want to be variable on a quarter-to-quarter basis, and that’s just – that is our preference. I’m not saying one is more right than the other, but that’s kind of where we see it. And also I think we would have a bias to a higher coverage ratio in the current environment, where the capital markets for E&P and energy companies are not what anybody wants them to be. And so maybe, we use a little bit more of our internally generated cash flow through higher coverage ratio to continue to be acquisitive. And – but that’s in the context of still having a yield on our share price in the 8% range, which is pretty robust. So, I hope that answers that question. I mean, we’re not in a hurry to go fully variable at all and we have a bias towards higher coverage than lower, but we also like growing our distribution over time.

Yes, I know, I think that makes a ton of sense, especially, given the volatile commodity environment that we’re all dealing with. I appreciate the time guys. That’s all from me.

Thanks, Philip.

Thank you. [Operator Instructions] And at this time, I have no other callers in the queue for questions. I’d like to turn the call back over to Mr. Tom Carter for closing comments.

Well, we thank you all again for joining today and we’re excited about 2019. And we look forward to speaking with you again at the next quarter. Thank you.

Ladies and gentlemen, thank you for your participation in today’s conference. You may disconnect. Everyone have a wonderful day.