Black Stone Minerals, L.P. (BSM) stock intrinsic value fair value estimate & owner earnings analysis

Black Stone Minerals owns mineral and royalty interests under about 20 million gross acres in 41 U.S. states' producing regions, with 70,000-plus producing wells operated by others (plus small non-operated working interests). It collects a share of oil and gas revenue without paying drilling costs, which is why almost none of its cash flow is consumed by capital spending (development capex was under $1 million in 2025). About 74% of production and 48% of revenue is natural gas and NGLs, concentrated in the East Texas Haynesville/Bossier and Shelby Trough area. How we measured earnings: owner earnings are operating cash flow, less working-capital swings, less unit-based compensation, less maintenance capital spending. On this basis owner earnings per unit were about $1.04 (2017), $1.01, $1.33, $1.19, $1.23, $1.98 (2022), $2.03, $1.63 and $1.33 (2025). We count the roughly 14.7 million Series B convertible preferred units as if converted, so every year is on the same per-unit basis; the reported 2024-2025 unit counts leave them out. Purchases of new mineral acreage (about $107 million in 2025 and $109 million in 2024) are treated as discretionary growth, not a cost of standing still, so the decline this asset base suffers is carried in the forecast rather than in the earnings level. Our reference level is $1.33, the median of 2019-2025, a period after the 2017-2018 acquisition and heavy-spending phase, spanning commodity lows in 2020 and highs in 2022-2023. It equals the 2025 result. 2025 owner earnings fell about 18% from 2024 ($1.63 to $1.33); we assume year one at about 6% below the reference level, no more optimistic than that trend. The central issue is depletion. Production fell from 39.8 MBoe/d (2023) to 38.5 (2024) to 34.6 (2025), driven by lower Haynesville/Bossier and Austin Chalk volumes. Revenue is also exposed to oil and gas prices, which we do not forecast; hedge settlements are inside cash flow. Debt is modest ($154 million at year-end 2025 against roughly $310 million of operating cash flow), so leverage is not the main risk. Base case (about $10 per unit): owner earnings decline 6% a year for ten years, close to the two-year production trend, and then 8% a year afterwards, because nothing we can evidence replaces those barrels. We credit no acquisitions (they have not been made steadily through the downturn; none were made in 2020-2023) and no price recovery. Bear case (about $6.50): the 2025 pace of decline (about 10% a year) continues indefinitely and earnings sit at the lower 2020-2021 level of about $1.20, the risk being that operators drill less on Black Stone's acreage. Bull case (about $14): the decline slows to about 2% a year for ten years and 5% thereafter, supported by things already in place: 35 wells in progress as proved undeveloped locations, and the 220,000-gross-acre Caturus development agreement in the Shelby Trough (about 2 gross wells in 2026, ramping to about 12), plus 17.7 million undeveloped mineral acres. These are small relative to the base, so we credit them only in the bull case. What would make this wrong: a sustained rise in operator activity on Black Stone acreage would make the decline shallower than we assume; a further ~10% annual fall in volumes, or a prolonged low gas price (realized gas was $2.51/Mcf in 2024 and $3.41 in 2025), would make it worse. Distributions can also fall faster than cash flow if preferred units convert. The margin-of-safety price is about $5.50 per unit, well below even the bear case, reflecting commodity-price exposure, an asset that depletes, and dependence on other companies' drilling decisions.