Ladies and gentlemen, thank you for standing by. Welcome to the Black Stone Minerals Q3 2022 Earnings Release. At this time, all lines are currently in a listen-only mode. There will be a question-and-answer session at the end of the presentation. [Operator Instructions] As a reminder, this call is being recorded. I would now like to turn the conference over to Evan Kiefer, Vice President of Finance and Investor Relations. Please go ahead.

Thank you, and good morning to everyone. Thank you for joining us either by phone or online for the Black Stone Minerals third 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 our cautionary information about forward-looking statements in our press release from yesterday and the Risk Factors section in our 2021 10-K. We 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 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, and good morning, and thank you all for joining us. We have a lot of good news to report. We generated total production volumes for the quarter of 40,000 Boe per day, an increase of 19% over our second quarter volumes. All that increase was from royalty volumes, which were up 23% to 37,300 Boe per day. Our base production is trending up as development activity remains robust across our acreage and as our target development programs with operators in the Shelby Trough, Haynesville and East Texas, Austin Chalk continue taking shape, while growing and moving forward. Production from the quarter exceeded expectations due to certain operators, particularly in Louisiana Haynesville, bringing new wells on line at more aggressive initial flow rates to take advantage of higher natural gas prices. The first payment we receive on newly drilled wells often covers multiple months of early production, so this can have a meaningful impact on our revenues as production and prices hit significant peaks at the same time. We saw that in the third quarter and expect to see similar revenue impacts continue in the future quarters as well. With the higher level of activity, we now expect that our total production for the year will come in at or above the midpoint of our original ‘22 guidance of 35,500 Boe per day. That implies fourth quarter production levels of around 36,000 Boe per day or better with potential for further upside from there. Activity levels are ramping up overall as evidenced by the increasing rig count, both across the industry and on our acreage in particular. At the end of the third quarter, we had 92 rigs running on our acreage. That's a 14% increase from 81 at the end of the second quarter and is well above…

All right. Well, thank you and good morning everyone. As Tom mentioned, royalty production was up 23% to 37,300 Boe per day for the third quarter. All of that increase was driven by higher gas volumes and primarily from producers on our acreage in the Louisiana Haynesville. In addition, the price environment remained robust. Our realized prices were down from the second quarter, but remained very healthy at over $95 per barrel for oil and over $8 per MCF for natural gas. Oil differentials improved from last quarter, while gas -- while our realized gas prices were down as differentials widened and NGL prices fell. The production gains, however, more than offset the downturn in realized prices and we rerecorded $218 million in oil and gas revenues and that’s up 6% from last quarter. With the strong production trends for the third quarter, we now expect total production for the year to come in at or above our original guidance level at the midpoint of our original guidance level of 34,000 to 37,000 BOE per day. Prior to this, we are expecting to come in at the low end of that range, so this is a nice recovery in volumes for us. Expenses this quarter were generally in line with last quarter and with our 2022 guidance. We now expect lease operating expenses for the full year to be at the high end of our guidance range of $10 million to $12 million, and production costs as a percentage of oil and gas revenues to be below the guidance range of 10% to 12%. We also expect cash G&A to be in line with our original guidance range of $33 million to $34 million and for non-cash G&A to be at the high end of the range of $13 million…

Thank you. [Operator Instructions] We'll take our first question from Derrick Whitfield with Stifel.

Good morning all, and congrats on a strong quarter and update. My first question, I wanted to focus on a subtlety in your production strength commentary for Q3. In your release and prepared comments, you noted strength was due to several high rate new wells, the majority of which were located in the Louisiana Haynesville. In reviewing Q3 activity updates, we were candidly most encouraged by the non-incremental turning lines in the Shelby Trough area, which should arguably drive Q4 volumes, if not Q3, given the profile of these longer lateral, modern completions. Is that a fair read in terms of how we are thinking about production impact into Q4?

Yes. I think, there is two things there, Derrick. This is Jeff. One, look, absolutely as we mentioned in the prepared remarks, we are very encouraged about all of the activity from Aethon. They are drilling great wells out there and continuing to ramp up activity. So, we've chosen the right partner in the right area. And that's a program that we think is going to benefit production volumes for years. I mean, that's a decade plus program out there, if things work out the right way. So yes, we are -- we remain very encouraged by that, but we knew that was coming. So, that was fully in the forecast. And while the timing moves around a little bit, I don't think that was a huge move out from our original guidance. What kind of surprised us for the quarter, if you will, were some of these just massive wells that came on in the Louisiana side of the Haynesville. And look, we just -- we try to track permits and everything else, but these were frankly, some wells that we were not fully expecting. And as, we saw a research report come out just yesterday on Southwestern, for example, and these guys are just bringing these wells on at much higher production rates. For example, Southwestern is up 20% on their peak 30 day rates, going well above 30 MMCF a day. So, the combination of when we get initial payments for those wells and that will typically have several months of production, and when those wells are being pulled that hard, it can really create a difference. So I think, there's the underlying growth that we have fully kind of baked into the forecast from the Shelby trough. And then the little bit of a surprise was just the size of some of these wells coming on in Louisiana.

That's great. And maybe shifting over to the Austin Chalk for my follow-up. Based on permits from the seven operators that are engaged in the trend that you noted and the release, what's your current expectation for activity over the next 6 to 12 months relative to current activity?

I would say that we will see -- over the next 12 months, we're hoping for 20 -- high-20s, low-30s over the next 12 months. There's some variables in that. There's some continuing restructuring of areas with new operators and existing operators, and exactly where that comes out, it is a little bit unknown. But we definitely see the trend up. And more importantly, we think that there will be more activity in what we call the core of the play. There's been a fair amount of activity on the extremes of the play, trying to delineate the limits of the play. But we think a lot of that's going to turn into the main fairway of the play where the results have been very good.

That's terrific. Very helpful. Thanks guys.

Thanks Derrick.

[Operator Instructions] It appears we have no further questions. I will now turn the call back over to the presenters for any closing remarks. Please go ahead.

Well, we thank you all for joining us today. And we look forward to speaking with you next quarter and hope to continue the trend we're on. Thank you.

This does conclude today's program. Thank you for your participation. You may now disconnect.