Good morning and welcome to the Black Stone Minerals Second Quarter 2022 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] And finally, I would like to advise all participants that this call is being recorded. Thank you. I would like to hand over to Mr. Evan Kiefer, Vice President, Finance and Investor Relations.

Thank you, and good morning to everyone. Thank you for joining us either by phone or online for the Black Stone Minerals second quarter 2022 earnings conference call. Today's call is being recorded and will be available on our website along with the earnings release, which was issued last night. 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 in our 2021 10-K. We may refer to certain non-GAAP financial measures that we believe are useful in evaluating our performance. A 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 also be found on our website at blackstoneminerals.com. Joining me on the call from the company are Tom Carter, Chairman and CEO; Jeff Wood, President and Chief Financial Officer; Steve Putman, Senior Vice President and General Counsel; Carrie Clark, Senior Vice President Land and Commercial; Garrett Gremillion, Vice President of Engineering and Geology; and Thad Montgomery, Vice President of Land. I'll now turn the call over to Tom.

Thanks, Evan. Good morning to you all and thanks for joining our second quarter 2022 financial and operating results call. We generated over $112 million of adjusted EBITDA in the second quarter, which is an increase of 14% over the prior quarter that resulted in distributable cash flow for the quarter of $107 million. That's the highest level of cash flow in a quarter for Black Stone as a public company. And on the back of that record financial performance we were able to continue to increase the distribution to the unitholders. Last week, we announced a $0.42 per unit distribution with respect to the second quarter, which is 5% over the last quarter's distribution and 68% higher than what we paid out for the second quarter last year. We had a lot of tailwinds from commodity prices in the second quarter with crude averaging over $100 and natural gas averaging around $7. Overall, our realized prices were up 32% for the quarter. That was helpful for a quarter with relatively low production volumes, especially compared to what we see coming in 2023 and beyond. With that, let's talk about our core plays, production trends and inventory. We feel pretty good about our production outlook. As many know, our total production volumes, royalty and working interest peaked in 2019 at just over 50,000 Boe per day. Today we're at around 34,000 Boe per day. That decline is a result of a number of factors. First, in 2017, we farmed out all of our working interest in the Haynesville/Bossier Shelby Trough play in East Texas. At the end of 2018, our working interest volumes there averaged 12,000 Boe to 15,000 Boe per day from a $50 million-plus annual capital spend we were investing in the Shelby Trough prior to the farm…

All right. Well, thank you, and good morning, everyone. I'm going to keep my comments brief this morning as Tom really covered the important stuff of production, both for this quarter and of course our expectations for future growth in those volumes. I do want to make a quick word just on price realizations, and our outlook around that. Realizations for the second quarter were consistent with last quarter, at almost 100% of average WTI prices for crude, and 120% of average Henry Hub prices for our gas. That is before the impact of commodity hedges. And I'll note that, even though as Tom mentioned, we reported record highs for adjusted EBITDA and DCF this quarter, those amounts were constrained by our hedges that should be no surprise. The positive news around that is those hedges roll at the end of the year, and the swap prices for our gas hedges increased by over 50% going from 2022 to 2023. And our oil hedge swap prices are up almost 30% for next year. So at current strip prices, and our existing hedges in place for both 2022 and 2023, realized prices would increase by 11% next year, despite the backwardation in the current curves. So even, if production levels stayed flat from 2022 to 2023, which of course is not our expectation that would imply over $50 million of incremental distributable cash flow next year. Now as you might expect in this environment, we do get a lot of questions around our hedging philosophy and our hedging practices. And I'll just say, during our entire history as a public company, we have hedged a certain percentage of our near-term forecasted production volumes. Typically, that's around 70% one year out and 50% or less, two years out. We designed that hedging…

Thank you all speakers. [Operator Instructions] Your first question comes from the line of Brian Fitzgerald [ph] private investor. Your line is now open. Q – Unidentified Analyst: Hi. Thank you for a very good quarter. Great, results. Could you add more commentary on the East Chalk, and the operators in the area now that you set up a royalty program -- favorable royalty program to induce drilling?

Sure, Brian, I'll start on that and -- this is Jeff -- and others can chime in. Look, we're very excited about the chalk. This is honestly two years of a lot of hard work by the team. As we said in prior calls, we had an existing group of really three main operators in the core of that field. And so we've just done a number of things. We have worked with those existing operators, to try to accelerate their activity, on existing leases. And we have brought in new players, to start new development activity around it. So I think as we mentioned, we've had 19 wells spud, around that area over the past year plus and 11 wells producing now. We see that area is getting better and better delineated all the time. And what we're excited about, is with this new completion technology, we're absolutely seeing a nice fair way of acreage, where we're seeing consistent and very strong results. As Tom mentioned, the most recent well out here came in just an absolute barn burner at 2000-plus barrels a day and almost 12 million cubic feet of gas a day. So yes, look we're excited about this. It's been a ton of hard work and we think that as we look into 2023 and beyond, it's going to be a real area of growth for us.

Thank you.

Thank you, Brian.

[Operator Instructions] And your next question comes from the line of Trafford Lamar of Raymond James. Your line is open.

Hey, guys. Thanks for taking my call. My first question kind of revolves around the distribution coverage. I know in the first quarter you are about 1.1x and then this quarter was closer to 1.2. Just looking at the second half of the year on like a modeling basis what could – could we expect an average of that or closer to 1.2 or revert back to 1.1? I just want to get your thoughts on that. Thanks.

Sure Trafford. This is Jeff. I'll start on that as well. Yes. So look we have sort of said on some of these past calls that we expect distribution to come down, payout ratios to come up over time just given the fact that the balance sheet is so clean and we are prioritizing returning our excess cash to investors. Second quarter was a little unusual. Obviously, there's some backwardation in price curves through Q3 and Q4 before the uptick in hedges kick in for 2023. So really we ran a little higher coverage than we would anticipate going forward this quarter at 1.21 times really just to sort of balance it out through the rest of the year. So – but there's been no change in philosophy here. I think we will continue to prioritize returning cash to investors over things like buybacks for the moment. And so you should see that coverage ratio come down as we go forward through the year.

Okay. Perfect. Great. Thank you for that. And then my second question revolves around hedges. I just want to get your thoughts on maybe 2023 and onwards if – the possibility of collars. Have you all talked about that versus swaps? I know you've all been strictly swaps in 2022 and then right now for 2023. I just wanted to get your thoughts on that.

Yes. So we look at collars and swaps for every time we go to put on trades. We've seen those swap levels as attractive. So collars will be something that we continue to look at. I think the last time we had them was maybe in 2019 that we had used some collars and we've been pretty simple with the swaps since then. So I think most likely what you'll see is the hedge program will continue to be dominated by swaps, but if we see some areas that really make sense to maybe preserve a little more upside and still get nice downside protection through a collar we may do that. But again, we like to stay pretty simple with this. We're not trying to do anything other than provide stability in the distribution and what we found is that swaps tend to do that most effectively.

Okay. Perfect. Thank you all.

Thank you.

Thank you. Your next question comes from the line of William Sams from the Marlin Sams Fund. Your line is open.

Hi. Congratulations on a great year for you. I never dreamed the dividend would go up quite that much. What percent do you hedge on your oil and gas production?

William -- yeah. Thank you for the question, William. It really depends. I mean historically what we've done is we will look to systematically layer in hedges that give us something like 70% coverage for one year forward. And then, we will typically hedge some level of our expected volumes two years forward from the current time that we put on a hedge. So again, sort of call it in that one-year forward range up to 70%. And two-year forward in the 30% to 50% range. And then, we would just periodically layer those hedges on.

Okay. That's answers my question.

I'd add a comment on that on the hedging. If you just -- if you think about that in the context of the comment around inventory of 20-plus years, we are systematically covering 12 months out. So in terms of a total resource base, we're substantially unhedged.

Okay.

Thank you, William.

Thanks.

There are no further questions at this time. I would like to turn the call back over to CEO and Chairman Mr. Tom Carter.

Well thank you all for joining today. We're excited about what's going on, on our assets. And we look forward to talking with you next quarter.

This now concludes the presentation. You may now disconnect.