Gas drilling cut, strong oil production cushions
- BSM is a royalty owner, so operators pay most drilling costs while BSM collects a share of production revenue.
- A well control incident led Revenant to reduce its 2026 drilling commitment from six to four wells.
- Strong oil production helped drive a 7 percent distribution increase in the second quarter.
- Management is close to signing a new development agreement with another Haynesville operator.
- The balance sheet looks stronger than the stock valuation setup, so the price paid matters.
A gas ramp with a real hitch
The bull case is simple. BSM owns mineral and royalty interests across many U.S. basins. Its best growth setup is in the Haynesville and Shelby Trough, where long-term drilling deals could turn undeveloped acreage into rising gas royalties. Management expects to sign a new Haynesville operator agreement soon.
The bear case is now more concrete. A well control incident forced Revenant to amend its joint exploration agreement. The first-year drilling commitment fell from six to four wells, and 40,000 gross acres were released. This shows the real risk of relying on other companies to execute.
This creates a mixed setup. The gas growth timeline is delayed, but strong oil production and pricing outperformance cushioned the blow and drove a 7 percent distribution increase in the second quarter. The next few quarters will reveal if BSM can secure a new partner for the released acreage.
Paid when others drill
BSM owns mineral and royalty rights. It leases those rights to exploration and production companies. Those operators drill, complete, and run the wells. BSM then gets royalties, which are a cut of the oil and gas sales.
That model can be very cash generative because many royalty interests are non-cost-bearing. This means BSM does not pay the main well costs. It also earns lease bonus payments when it signs leases.
The weak point is control. BSM can sign agreements and shape incentives, but it cannot force perfect field execution. When an operator slows drilling or has a safety event, BSM feels it through lower volumes and lower royalty checks. The recent Revenant amendment is a direct example of this risk.
BSM also buys more mineral interests to grow. From September 2023 through June 2026, it completed $299.7 million of mineral and royalty acquisitions. These were mainly around the expanding Shelby Trough area.
What BSM gets paid on
Natural gas and NGL royalties
This is the main long-term growth lane. The Haynesville and Shelby Trough are the key basins to watch, though near-term volumes face operator delays.
Oil and condensate royalties
Oil still matters a lot to revenue. In the second quarter of 2026, oil and condensate accounted for 65 percent of oil and gas revenues.
Lease bonus and other income
Lease bonuses are upfront payments when BSM leases mineral rights. They move around by quarter because they depend on deal timing and operator interest.
Mineral acquisitions
BSM keeps adding mineral and royalty interests to grow the base. Recent buying has focused mainly on the expanding Shelby Trough area.
3D seismic data
BSM is funding large 3D seismic surveys in the Shelby Trough and Haynesville expansion area. This could attract drilling, but it adds capital risk to a normally capital-light model.
Estimated revenue mix
Mix is based on second quarter 2026 revenue trends and management commentary, estimating oil and condensate at 60 percent, natural gas at 35 percent, and lease bonuses making up the rest.
What could break the plan
Revenant drilling delay
High impact · High oddsRevenant is tied to a core Shelby Trough growth program. A well control incident forced an amendment that reduced the first-year drilling commitment to four wells and released 40,000 gross acres. A longer delay would push the expected gas ramp further out.
Operator dependence
High impact · Medium oddsBSM does not operate the wells that drive most of its production. Operators decide how fast to drill and what capital to spend. If partners slow down, BSM royalty income will lag the acreage story.
Natural gas price weakness
High impact · Medium oddsMost of the BSM production volume comes from natural gas. Lower gas prices can reduce royalty revenue and make operators less eager to drill.
Permian timing risk
Medium impact · Medium oddsThe Permian helps support oil and liquids cash flow. Management has sounded careful on broader Permian development because of pricing. A slower Permian would leave more pressure on the gas ramp.
Seismic spending does not pay off
Medium impact · Medium oddsBSM is funding two large 3D seismic surveys. That is not typical for its capital-light royalty model. The risk is that the surveys do not lead to enough new drilling or data value to justify the spending.
In one breath
What does Black Stone Minerals do?
Black Stone owns mineral and royalty interests in oil and gas properties. It leases those rights to operators and gets paid when oil, gas, or natural gas liquids are produced.
Why is the Haynesville important for BSM?
The Haynesville and Shelby Trough are the center of the BSM long-term natural gas growth plan. Development deals put hundreds of thousands of gross acres into active development.
What is the Revenant issue?
Revenant had a loss of well control incident in April 2026. This forced an amendment to their agreement, reducing the first-year drilling commitment to four wells and releasing 40,000 gross acres.
Is BSM more exposed to oil or natural gas?
Production volumes are weighted more toward natural gas, but revenue swings with prices. In the second quarter of 2026, oil and condensate accounted for 65 percent of oil and gas revenues.
