What changed in this filing

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Item 2. Management’s Discussion and Analysis

2020-08-04 compared with 2020-05-05 · 166 added, 68 removed, 301 unchanged (44% of the section changed)

13 unchanged sentences

• the scope and duration of the COVID-19 pandemic and actions taken by governmental authorities and other parties in response to the pandemic;

• the volatility of realized oil and natural gas prices, including the sharp decline in oil prices that occurred in the first quarter of 2020;

• the volatility of realized oil and natural gas prices, including the sharp decline in oil prices that occurred in March and April of 2020;

• the level of production on our properties;

25 unchanged sentences

We believe our large, diversified asset base and long-lived, non-cost-bearing mineral and royalty interests provide for stable to growing production and reserves over time, allowing the majority of generated cash flow to be distributed to unitholders.

As of March 31, 2020, our mineral and royalty interests were located in 41 states in the continental United States, including all of the major onshore producing basins.

As of June 30, 2020, our mineral and royalty interests were located in 41 states in the continental United States, including all of the major onshore producing basins.

These non-cost-bearing interests include ownership in approximately 69,000 producing wells.

3 unchanged sentences

Recent Developments

In July 2020, we closed our two previously announced transactions to sell certain mineral and royalty properties in the Permian Basin for total proceeds, after closing adjustments, of $150.1 million.

The proceeds were used to reduce outstanding borrowings under our Credit Facility.

One of these transactions, effective May 1, 2020, involved the sale of our mineral and royalty interests in specific tracts in Midland County, Texas to a private buyer for gross proceeds of approximately $55 million.

The other transaction, effective July 1, 2020, involved the sale of an undivided interest across parts of our Delaware Basin and Midland Basin positions to Pegasus Resources, LLC, a portfolio company of EnCap Investments, for gross proceeds of approximately $100 million.

We estimate the production associated with the properties sold, in total, to be approximately 1,800 Boe per day.

COVID-19 Pandemic and Commodity Prices

3 unchanged sentences

We do not expect these arrangements to impact our ability to maintain operations.

The impact of the COVID-19 pandemic and geopolitical events that increased the supply of low-priced oil have also negatively affected the oil and natural gas business environment, significantly reducing prices of oil, natural gas, and natural gas liquids ("NGLs").

We will continue to prioritize the health and safety of our workforce when employees return to the office through frequent cleaning of common spaces, appropriate social distancing measures, and other best practices as recommended by state and local officials.

The impact of the COVID-19 pandemic has negatively affected the oil and natural gas business environment, significantly reducing prices of oil, natural gas, and natural gas liquids ("NGLs").

While we use derivative instruments to partially mitigate the impact of commodity price volatility, our revenues and operating results depend significantly upon the prevailing prices for oil and natural gas.

The current price environment has caused some of our operators' wells to become uneconomic, which has resulted, or may result in the future, in suspension of production from those wells or a significant reduction in or no royalty revenues from existing production.

The current price environment has caused some of our operators' wells to become uneconomic, which has resulted, and may continue to result, in suspension of production from those wells or a significant reduction in or no royalty revenues from existing production.

Some operators may also attempt to shut in producing wells and avoid lease termination or payment of shut-in royalties by claiming force majeure, if provided for in the applicable lease.

Because these shut-ins have happened so recently, and no operator has, to our knowledge claimed force majeure, we have not been able to quantify their impact on our future revenues.

The current price environment also caused us to determine that certain depletable units consisting of mature oil producing properties were impaired.

Therefore, we recognized impairment of oil and natural gas properties of $51.0 million for three months ended March 31, 2020.

The current price environment, including the sharp decline in oil prices that began in March 2020, also caused us to determine that certain depletable units consisting of mature oil producing properties were impaired as of March 31, 2020.

Therefore, we recognized impairment of oil and natural gas properties of $51.0 million in the first quarter of 2020.

Additionally, the borrowing base under the Credit Facility, which takes into consideration the estimated loan value of our oil and natural gas properties, was reduced from $650.0 million to $460.0 million, effective May 1, 2020.

Effective July 21, 2020, in connection with the closing of our two asset sales in the Permian Basin, the borrowing base was further reduced to $430.0 million.

In a prolonged period of low commodity prices, we may be required to impair additional properties and the borrowing base under our Credit Facility could be further reduced.

In light of the challenging business environment and uncertainty caused by the pandemic, the board of directors of our general partner (the "Board") also approved a reduction in the quarterly distribution for the first quarter of 2020 to increase the amount of retained free cash flow for debt reduction and balance sheet protection.

The Board approved an increase in the quarterly distribution for the second quarter of 2020 but the distribution remains below 2019 levels.

Shelby Trough Update

2 unchanged sentences

The agreement calls for a minimum of four wells to be drilled in the initial program year, which begins in the third quarter of 2020, increasing to a minimum of 15 wells per year beginning with the third program year.

On June 10, 2020, we entered into a new incentive agreement with XTO Energy Inc.

("XTO") with respect to certain drilled but uncompleted wells ("DUCs") in our Shelby Trough acreage in San Augustine County, Texas.

The agreement allows for royalty relief on 13 existing DUCs if XTO completes and turns the wells to sales by March 31, 2021, and complements the

recent development agreement with Aethon covering our Shelby Trough acreage in Angelina County towards our goal of reviving volume growth from the area.

Common Unit Repurchase Program

4 unchanged sentences

We will periodically report the number of common units repurchased.

We made no repurchases under this program for the three months ended March 31, 2020.

As of March 31, 2020, we have repurchased $4.2 million in common units under the repurchase program since inception.

We made no repurchases under this program for the six months ended June 30, 2020.

As of June 30, 2020, we have repurchased $4.2 million in common units under the repurchase program since inception.

The repurchase program is funded from our cash on hand or availability under the Credit Facility.

4 unchanged sentences

The COVID-19 pandemic and related economic repercussions have resulted in a significant reduction in demand for and prices of oil, natural gas and NGLs.

The effect of this was amplified late in the quarter when the Organization of Petroleum Exporting Countries and its broader partners ("OPEC+") were unable to reach an agreement on production levels for oil, at which point Saudi Arabia and Russia initiated efforts to aggressively increase production.

While OPEC+ agreed in April 2020 to cut production, downward pressure on commodity prices has remained and could continue for the foreseeable future.

In addition, concerns over the saturation of storage capacity for oil has further depressed prices.We expect these market conditions to result in a decline in drilling activity as operators revise their capital budgets downward and adjust their operations, including shutting in currently producing wells, in response to lower commodity prices.

In the first quarter of 2020 and into the second quarter of 2020, oil prices fell sharply and dramatically, due in part to significantly decreased demand as a result of the COVID-19 pandemic and the announcement by Saudi Arabia of a significant increase in its maximum oil production capacity as well as the announcement by Russia that previously agreed upon oil production cuts between members of the Organization of the Petroleum Exporting Countries and its broader partners (“OPEC+”) would expire on April 1, 2020, and the ensuing expiration thereof.

Agreed-upon production cuts by OPEC+ along with declining U.S.

production have helped to correct the supply and demand imbalance;

however, these reductions are not expected to be enough in the near-term to offset the significant inventory build caused by demand destruction from the COVID-19 pandemic in the first half of 2020.

We expect these market conditions to result in a continued decline in drilling activity as operators revise their capital budgets downward and adjust their operations, including shutting in producing wells, in response to lower commodity prices.

Given the dynamic nature of these events, we cannot reasonably estimate the period of time that the COVID-19 pandemic and related market conditions will persist.

4 unchanged sentences

Benchmark Prices 1

April 24, 2020 March 31, 2020 March 31, 2019

June 30, 2020 March 31, 2020 June 30, 2019 March 31, 2019

WTI spot oil price ($/Bbl) $ 39.27 $ 20.51 $ 58.20 $ 60.19

4 unchanged sentences

Rotary Rig Count 1

April 24, 2020 March 31, 2020 March 31, 2019

June 30, 2020 March 31, 2020 June 30, 2019 March 31, 2019

Oil 188 624 793 816

Natural gas 75 102 173 190

Other 2 2 1 —

Total 265 728 967 1,006

10 unchanged sentences

The portion of production used for storage varies from year to year depending on the demand from the previous winter and the demand for electricity used for cooling during the summer months.

The EIA estimates that natural gas inventories concluded the withdrawal season on March 31, 2020 at almost 2.0 Tcf, or 17% higher than the previous five-year average.

The EIA estimates that natural gas inventories will conclude the injection season on October 31, 2020 at 4.0 Tcf, or 8% higher than the previous five-year average.

The following table shows natural gas storage volumes by region as of each date presented:

April 24, 2020 March 31, 2020 March 31, 2019

June 30, 2020 March 31, 2020 June 30, 2019 March 31, 2019

East 639 382 526 210

47 unchanged sentences

If commodity prices decline in the future, our hedging contracts will partially mitigate the effect of lower prices on our future revenue.

Our open oil and natural gas derivative contracts as of March 31, 2020 are detailed in Note 4 - Commodity Derivative Financial Instruments to our unaudited consolidated financial statements included elsewhere in this Quarterly Report.

Our open oil and natural gas derivative contracts as of June 30, 2020 are detailed in Note 4 - Commodity Derivative Financial Instruments to our unaudited consolidated financial statements included elsewhere in this Quarterly Report.

Pursuant to the terms of our Credit Facility, we are allowed to hedge certain percentages of expected future monthly production volumes equal to the lesser of (i) internally forecasted production and (ii) the average of reported production for the most recent three months.

We are allowed to hedge up to 90% of such volumes for the first 24 months, 70% for months 25 through 36, and 50% for months 37 through 48.

As of March 31, 2020, we have hedged 91% of our available oil and condensate hedge volumes and 75% of our available natural gas hedge volumes for 2020.

As of June 30, 2020, we have hedged all of our available oil and condensate hedge volumes and 83% of our available natural gas hedge volumes for 2020.

As of June 30, 2020, we have also hedged 70% of our available oil and condensate hedge volumes and 57% of our available natural gas hedge volumes for 2021.

We intend to continuously monitor the production from our assets and the commodity price environment, and will, from time to time, add additional hedges within the percentages described above related to such production for the following 12 to 30 months.

8 unchanged sentences

The following table presents a reconciliation of net income (loss), the most directly comparable GAAP financial measure, to Adjusted EBITDA and Distributable cash flow for the periods indicated:

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2020 2019 2020 2019

(in thousands)

13 unchanged sentences

Estimated replacement capital expenditures 1

— — — (2,750)

Preferred unit distributions (5,250) (5,250) (10,500) (10,500)

5 unchanged sentences

Results of Operations

Three Months Ended March 31, 2020 Compared to Three Months Ended March 31, 2019

Three Months Ended June 30, 2020 Compared to Three Months Ended June 30, 2019

The following table shows our production, revenues, pricing, and expenses for the periods presented:

Three Months Ended March 31,

Three Months Ended June 30,

2020 2019 Variance

23 unchanged sentences

Depreciation, depletion, and amortization 19,193 29,725 (10,532) (35.4) %

Impairment of oil and natural gas properties 51,031 — 51,031 NM 2

General and administrative 11,501 14,347 (2,846) (19.8) %

6 unchanged sentences

2 Not meaningful.

Total revenue for the quarter ended March 31, 2020 increased compared to the quarter ended March 31, 2019.

The increase in total revenue from the corresponding period is primarily due to a gain on our commodity derivative instruments in the first quarter of 2020, compared to a loss in the first quarter of 2019.

The overall increase in total revenue was partially offset by a decrease in oil and condensate sales and natural gas and NGL sales as a result of lower realized commodity prices and a decrease in lease bonus and other income.

Total revenue for the quarter ended June 30, 2020 decreased compared to the quarter ended June 30, 2019.

The decrease in total revenue from the corresponding period is due to a loss on our commodity derivative instruments in the second quarter of 2020 compared to a gain in the second quarter of 2019, a decrease in oil and condensate sales and natural gas and NGL sales as a result of lower realized commodity prices and lower production volumes, and a decrease in lease bonus and other income.

Oil and condensate sales.

Oil and condensate sales decreased for the quarter ended March 31, 2020 as compared to the corresponding period in 2019 due to lower realized commodity prices, partially offset by higher production volumes.

mineral and royalty interest oil and condensate volumes increased 4% in the first quarter of 2020 relative to the corresponding period in 2019 , primarily driven by production increases in the Permian Basin.

Our mineral and royalty interest oil and condensate volumes accounted for 92% of total oil and condensate volumes for the quarters ended March 31, 2020 and 2019.

Oil and condensate sales decreased for the quarter ended June 30, 2020 as compared to the corresponding period in 2019 due to lower realized commodity prices and lower production volumes.

The decrease in oil and condensate production was primarily driven by production volume decreases in the Permian Basin and Bakken/Three Forks.

Our mineral and royalty interest oil and condensate volumes accounted for 93% of total oil and condensate volumes for both quarters ended June 30, 2020 and 2019.

Natural gas and natural gas liquids sales.

Natural gas and NGL sales decreased for the quarter ended March 31, 2020 as compared to the corresponding prior period due to lower realized commodity prices.

Mineral and royalty interest production accounted for 73% and 64% of our natural gas volumes for the quarters ended March 31, 2020 and 2019, respectively.

Natural gas and NGL sales decreased for the quarter ended June 30, 2020 as compared to the corresponding prior period due to lower realized commodity prices and lower production volumes.

The decrease in natural gas and NGL production was primarily driven by production volume decreases in the Haynesville/Bossier play.

Mineral and royalty interest production accounted for 76% and 70% of our natural gas volumes for the quarters ended June 30, 2020 and 2019, respectively.

Gain (loss) on commodity derivative instruments.

During the first quarter of 2020, we recognized a gain from our commodity derivative instruments compared to a loss in the same period in 2019.

During the second quarter of 2020, we recognized a loss from our commodity derivative instruments compared to a gain in the same period in 2019.

Cash settlements we receive represent realized gains, while cash settlements we pay represent realized losses related to our commodity derivative instruments.

1 unchanged sentence

The changes in fair value result from new positions and settlements that may occur during each reporting period, as well as the relationships between contract prices and the associated forward curves.

For the three months ended March 31, 2020, we recognized $9.0 million of realized gains and $81.1 million of unrealized gains from our oil and natural gas commodity contracts, compared to $1.7 million of realized gains and $42.9 million of unrealized losses in the same period in 2019.

The unrealized gains on our commodity contracts during the first quarter of 2020 and the unrealized losses in the same period in 2019 were primarily driven by changes in the forward commodity price curves for oil during each period.

For the three months ended June 30, 2020, we recognized $36.6 million of realized gains and $55.7 million of unrealized losses from our oil and natural gas commodity contracts, compared to $2.9 million of realized gains and $26.3 million of unrealized gains in the same period in 2019.

The unrealized losses on our commodity contracts during the second quarter of 2020 was primarily driven by changes in the forward commodity price curve for oil.

The unrealized gains in the same period in 2019 were primarily driven by changes in the forward commodity price curve for natural gas.

Lease bonus and other income.

1 unchanged sentence

Lease bonus revenue can vary substantively between periods because it is derived from individual transactions with operators, some of which may be significant.

Lease bonus and other income for the first quarter of 2020 was lower than the same period in 2019.

Leasing activity in the Permian Basin, Green River Basin, and Bakken/Three Forks made up the majority of lease bonus revenue in the first quarter of 2020, while a substantial portion of first quarter 2019 activity came from the Permian Basin, Woodbine, and Haynesville Shale.

Lease bonus and other income for the second quarter of 2020 was lower than the same period in 2019.

Leasing activity in the Permian Basin made up the majority of lease bonus revenue in the second quarter of 2020, while a substantial portion of second quarter 2019 activity came from the Permian Basin and the Wilcox.

Operating Expenses

1 unchanged sentence

Lease operating expense includes recurring expenses associated with our non-operated working interests necessary to produce hydrocarbons from our oil and natural gas wells, as well as certain nonrecurring expenses, such as well repairs.

Lease operating expense decreased for the quarter ended March 31, 2020 as compared to the same period in 2019, primarily due to lower nonrecurring service-related expenses, including workovers, on wells in which we own a non-operating working interest.

Lease operating expense decreased for the quarter ended June 30, 2020 as compared to the same period in 2019, primarily due to lower nonrecurring service-related expenses, including workovers, as well as a decrease in variable costs as a result of lower production from our non-operating working interest properties.

Production costs and ad valorem taxes .

4 unchanged sentences

Rates, methods of calculating property values, and timing of payments vary between taxing authorities.

For the quarter ended March 31, 2020, production costs and ad valorem taxes decreased as compared to the quarter ended March 31, 2019, primarily as a result of lower commodity prices.

For the quarter ended June 30, 2020, production costs and ad valorem taxes decreased as compared to the quarter ended June 30, 2019, primarily as a result of lower commodity prices and lower production volumes.

Exploration expense .

Exploration expense typically consists of dry-hole expenses, delay rentals, and geological and geophysical costs, including seismic costs, and is expensed as incurred under the successful efforts method of accounting.

Exploration expense was minimal for each of the three months ended March 31, 2020 and 2019.

Exploration expense was minimal for each of the three months ended June 30, 2020 and 2019.

Depreciation, depletion, and amortization .

2 unchanged sentences

We adjust our depletion rates semi-annually based upon mid-year and year-end reserve reports, except when circumstances indicate that there has been a significant change in reserves or costs.

Depreciation, depletion, and amortization decreased for the quarter ended March 31, 2020 as compared to the same period in 2019, primarily due to a reduction in cost basis with a lower corresponding reduction in proved developed producing reserve quantities.

The reduction in cost basis is primarily due to depreciation, depletion, and amortization recorded during the prior twelve months.

Depreciation, depletion, and amortization decreased for the quarter ended June 30, 2020 as compared to the same period in 2019, primarily due to lower production volumes and a reduction in cost basis with a lower corresponding reduction in proved developed producing reserve quantities.

The reduction in cost basis is primarily due to depreciation, depletion, and amortization recorded during the prior twelve months as well as oil and natural gas property impairments recorded in the first quarter of 2020.

General and administrative .

General and administrative expenses are costs not directly associated with the production of oil and natural gas and include expenses such as the cost of employee salaries and related benefits, office expenses, and fees for professional services.

For the quarter ended June 30, 2020, general and administrative expenses decreased as compared to the same period in 2019, primarily due to a $3.0 million decrease in cash compensation and a $1.0 million decrease in equity-based compensation resulting from the broad workforce reduction in the first quarter of 2020.

The overall decrease was partially offset by a $1.1 million increase in allowance, recorded in the second quarter of 2020, against an outstanding long-term receivable.

Interest expense .

Interest expense was lower in the second quarter of 2020 relative to the corresponding period in 2019, due to lower interest rates and lower average outstanding borrowings under our Credit Facility.

Six Months Ended June 30, 2020 Compared to Six Months Ended June 30, 2019

The following table shows our production, revenues, pricing, and expenses for the periods presented:

Six Months Ended June 30,

2020 2019 Variance

(Dollars in thousands, except for realized prices)

Oil and condensate (MBbls) 2,027 2,424 (397) (16.4) %

Natural gas (MMcf) 1

36,702 39,209 (2,507) (6.4) %

Equivalents (MBoe) 8,144 8,959 (815) (9.1) %

Equivalents/day (MBoe) 44.7 49.5 (4.8) (9.7) %

Realized prices, without derivatives:

Oil and condensate ($/Bbl) $ 38.24 $ 54.37 $ (16.13) (29.7) %

Natural gas ($/Mcf) 1

1.82 2.94 (1.12) (38.1) %

Equivalents ($/Boe) $ 17.74 $ 27.58 $ (9.84) (35.7) %

Oil and condensate sales $ 77,510 $ 131,776 $ (54,266) (41.2) %

Natural gas and natural gas liquids sales 1

66,953 115,282 (48,329) (41.9) %

Lease bonus and other income 6,283 12,362 (6,079) (49.2) %

Revenue from contracts with customers 150,746 259,420 (108,674) (41.9) %

Gain (loss) on commodity derivative instruments 70,837 (11,996) 82,833 690.5 %

Total revenue $ 221,583 $ 247,424 $ (25,841) (10.4) %

Operating expenses:

Lease operating expense $ 7,120 $ 9,141 $ (2,021) (22.1) %

Production costs and ad valorem taxes 21,931 29,042 (7,111) (24.5) %

Exploration expense 24 308 (284) (92.2) %

Depreciation, depletion, and amortization 42,375 57,558 (15,183) (26.4) %

Impairment of oil and natural gas properties 51,031 — 51,031 NM 2

General and administrative 23,357 35,561 (12,204) (34.3) %

Other expense:

Interest expense 7,391 11,177 (3,786) (33.9) %

1 As a mineral and royalty interest owner, we are often provided insufficient and inconsistent data on NGL volumes by our operators.

As a result, we are unable to reliably determine the total volumes of NGLs associated with the production of natural gas on our acreage.

Accordingly, no NGL volumes are included in our reported production;

however, revenue attributable to NGLs is included in our natural gas revenue and our calculation of realized prices for natural gas.

2 Not meaningful.

Total revenue for the six months ended June 30, 2020 decreased compared to the corresponding prior period.

The decrease in total revenue is primarily due to a decrease in oil and condensate sales and natural gas and NGL sales as a result of lower realized commodity prices and lower production volumes, and a decrease in lease bonus and other income.

The overall decrease in total revenue was partially offset by a gain from our commodity derivative instruments for the six months ended June 30, 2020, compared to a loss in the same period in 2019.

Oil and condensate sales.

Oil and condensate sales during the six months ended June 30, 2020 decreased compared to the corresponding prior period due to lower realized commodity prices and lower production volumes.

The decrease in oil and condensate production was primarily driven by lower production volumes in the Bakken/Three Forks.

Our mineral and royalty

interest oil and condensate volumes accounted for 92% and 93% of total oil and condensate volumes for the six months ended June 30, 2020 and 2019, respectively.

Natural gas and natural gas liquids sales.

Natural gas and NGL sales during the six months ended June 30, 2020 decreased compared to the corresponding prior period due to lower realized commodity prices and lower production volumes.

The decrease in natural gas and NGL production was primarily driven by lower volumes in the Haynesville/Bossier play.

Mineral and royalty interest production accounted for 74% and 67% of our natural gas volumes for the six months ended June 30, 2020 and 2019, respectively.

Gain (loss) on commodity derivative instruments.

During the six months ended June 30, 2020, we recognized a gain from our commodity derivative instruments compared to a loss in the same period in 2019.

In the six months ended June 30, 2020, we recognized $45.5 million of realized gains and $25.3 million of unrealized gains from our oil and natural gas commodity contracts, compared to $4.7 million of realized gains and $16.7 million of unrealized losses in the same period in 2019.

The unrealized gains on our commodity contracts during the six months ended June 30, 2020 were primarily driven by changes in the forward commodity price curves for oil.

The unrealized losses on our commodity contracts during the corresponding period in 2019 were primarily driven by changes in the forward commodity price curves for oil, partially offset by changes in the forward commodity price curves for natural gas.

Lease bonus and other income.

Lease bonus and other income for the six months ended June 30, 2020 was lower than the same period in 2019.

Leasing activity in the Permian Basin, Green River Basin, and Bakken/Three Forks made up the majority of lease bonus revenue in the six months ended June 30, 2020, while a substantial portion of the activity in the corresponding prior period came from the Permian Basin, as well as the Bakken/Three Forks, Wilcox, and Woodbine trends.

Operating and Other Expenses

Lease operating expense .

Lease operating expense decreased for the six months ended June 30, 2020 as compared to the same period in 2019, primarily due to lower nonrecurring service-related expenses, including workovers, as well as a decrease in variable costs as a result of lower production from our non-operating working interest properties.

Production costs and ad valorem taxes .

For the six months ended June 30, 2020, production costs and ad valorem taxes decreased as compared to the six months ended June 30, 2019, primarily as a result of lower commodity prices and lower production volumes.

Exploration expense .

Exploration expense for the six months ended June 30, 2020 was minimal.

Exploration expense for the six months ended June 30, 2019 primarily related to costs incurred to acquire 3-D seismic information related to our mineral and royalty interests from a third-party service provider.

Depreciation, depletion, and amortization .

Depreciation, depletion, and amortization decreased for the six months ended June 30, 2020 as compared to the same period in 2019, primarily due to lower production volumes and a reduction in cost basis with a lower corresponding reduction in proved developed producing reserve quantities.

Impairment of oil and natural gas properties .

1 unchanged sentence

Management periodically conducts an in-depth evaluation of the cost of property acquisitions, successful exploratory wells, development activity, unproved leasehold, and mineral interests to identify impairments.

Impairments totaled $51.0 million for the quarter ended March 31, 2020 primarily

due to declines in future expected realizable net cash flows as a result of lower commodity prices as of March 31, 2020.

There were no impairments for the quarter ended March 31, 2019.

Impairments totaled $51.0 million for the six months ended June 30, 2020, primarily due to declines in future expected realizable net cash flows as a result of lower commodity prices as of the measurement date of March 31, 2020.

There were no impairments for the six months ended June 30, 2019.

General and administrative .

For the quarter ended March 31, 2020, general and administrative expenses decreased as compared to the same period in 2019, primarily due to lower costs associated with our incentive compensation plans.

This change was driven by $4.7 million of downward cost revisions recognized in the first quarter of 2020 for performance-based incentive awards due to the decrease in our common unit price period over period compared with $5.6 million of costs recognized for performance-based incentive awards in the first quarter of 2019.

Incentive compensation costs in the first quarter of 2019 also included incentive compensation awarded in connection with our initial public offering.

The overall decrease was partially offset by $4.8 million of restructuring charges associated with broad workforce reductions in the first quarter of 2020.

For the six months ended June 30, 2020, general and administrative expenses decreased as compared to the same period in 2019, primarily due to a $4.8 million decrease in cash compensation and a $13.0 million decrease in equity-based compensation.

The decrease in cash compensation is primarily resulting from the broad workforce reductions in the first quarter of 2020.

The decrease in equity-based compensation is due in part to these same workforce reductions but also due to downward cost revisions recognized in the six months ended June 30, 2020 for performance-based incentive awards due to the decrease in our common unit price period over period.

The overall decrease was partially offset by $4.8 million of restructuring charges in the first quarter of 2020 associated with the workforce reductions and a $1.1 million increase in allowance, recorded in the second quarter of 2020, against an outstanding long-term receivable.

Interest expense .

Interest expense was lower in the first quarter of 2020 relative to the corresponding period in 2019, due to lower interest rates and lower average outstanding borrowings under our Credit Facility.

Interest expense was lower in the six months ended June 30, 2020 than in the prior period primarily due to lower interest rates and lower average outstanding borrowings under our Credit Facility.

Liquidity and Capital Resources

Our primary sources of liquidity are cash generated from operations, borrowings under our Credit Facility, and proceeds from the issuance of equity and debt.

Our primary sources of liquidity are cash generated from operations, borrowings under our Credit Facility, proceeds from the issuance of equity and debt, and proceeds from asset sales.

Our primary uses of cash are for distributions to our unitholders, reducing outstanding borrowings under our Credit Facility, and for investing in our business, specifically the acquisition of mineral and royalty interests and our selective participation on a non-operated working interest basis in the development of our oil and natural gas properties.

As of March 31, 2020, we had outstanding borrowings of $ 388.0 million under the Credit Facility, and on May 1, 2020, the borrowing base under our Credit Facility was reduced to $ 460.0 million.

As of June 30, 2020, we had outstanding borrowings of $ 323.0 million under the Credit Facility.

In July 2020, we closed two separate transactions to sell certain mineral and royalty properties in the Permian Basin for total proceeds, after closing adjustments, of $150.1 million.

Proceeds from the asset sales were used to reduce outstanding borrowings under our Credit Facility and as of July 31, 2020, we had outstanding borrowings of $153.0 million under the Credit Facility.

In connection with the closing of these asset sales, the borrowing base under the Credit Facility was reduced from $ 460.0 million to $ 430.0 million, effective July 21, 2020.

The Board has adopted a policy pursuant to which, at a minimum, distributions will be paid on each common unit for each quarter to the extent we have sufficient cash generated from our operations after establishment of cash reserves, if any, and after we have made the required distributions to the holders of our outstanding preferred units.

2 unchanged sentences

In light of the challenging business environment and uncertainty caused by the pandemic, the Board approved a reduction in the quarterly distribution for the first quarter of 2020 to increase the amount of retained free cash flow for debt reduction and balance sheet protection.

The Board approved an increase in the quarterly distribution for the second quarter of 2020 but the distribution remains below 2019 levels.

If our borrowings exceed our borrowing base, our ability to pay cash distributions to our unitholders will be limited.

We intend to finance our future acquisitions with cash generated from operations, borrowings from our Credit Facility, and proceeds from any future issuances of equity and debt.

We intend to finance our future acquisitions with cash generated from operations, borrowings from our Credit Facility, proceeds from any future issuances of equity and debt, and proceeds from asset sales.

Over the long-term, we intend to finance our working interest capital needs with our executed farmout agreements and internally-generated cash flows, although at times we may fund a portion of these expenditures through other financing sources such as borrowings under our Credit Facility.

3 unchanged sentences

The following table shows our cash flows for the periods presented:

Three Months Ended March 31,

Six Months Ended June 30,

2020 2019 Change

5 unchanged sentences

Our operating cash flows are dependent, in large part, on our production, realized commodity prices, derivative settlements, lease bonus revenue, and operating expenses.

Cash flows provided by operating activities decreased in the first quarter of 2020 as compared to the same period of 2019.

The decrease was primarily due to decreased oil and condensate sales and natural gas and NGL sales driven by lower realized commodity prices for the three months ended March 31, 2020 compared to the same period of 2019.

Cash flows provided by operating activities decreased for the six months ended June 30, 2020 as compared to the same period of 2019.

The decrease was primarily due to decreased oil and condensate sales and natural gas and NGL sales driven by lower realized commodity prices and lower production for the six months ended June 30, 2020 compared to the same period of 2019.

The overall decrease was partially offset by higher net cash received on settlement of commodity derivative instruments.

Investing Activities .

Net cash was provided by investing activities in the first quarter of 2020 as compared to net cash used in investing activities in the same period of 2019.

The change was primarily due to reduced oil and natural gas property acquisitions and expenditures and the receipt of proceeds from the sale of oil and natural gas properties in the first quarter of 2020.

Net cash was provided by investing activities in the six months ended June 30, 2020 as compared to net cash used in investing activities in the same period of 2019.

The change was primarily due to reduced oil and natural gas property acquisitions and expenditures, net of farmout reimbursements, and higher proceeds from the sale of oil and natural gas properties in the six months ended June 30, 2020.

Financing Activities .

Cash flows used in financing activities increased in the first quarter of 2020 as compared to the same period of 2019.

The increase was primarily due to net repayments under our Credit Facility in the first quarter of 2020 as compared to net borrowings in the first quarter of 2019.

Cash flows used in financing activities increased for the six months ended June 30, 2020 as compared to the same period of 2019.

The increase was primarily due to net repayments under our Credit Facility in the six months ended June 30, 2020 as compared to net borrowings in the corresponding prior period.

The overall increase was partially offset by lower distributions to common and subordinated unitholders and decreased repurchases of common units.

Development Capital Expenditures

Our 2020 total development capital expenditure budget associated with our non-operated working interests is expected to be approximately $5.0 million, net of farmout reimbursements, of which a nominal amount has been invested in the three months ended March 31, 2020.

Our 2020 total development capital expenditure budget associated with our non-operated working interests is expected to be approximately $3.5 million, net of farmout reimbursements, of which $0.9 million has been invested in the six months ended June 30, 2020.

The majority of this capital will be spent for workovers on existing wells in which we own a working interest.

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Our Credit Facility terminates on November 1, 2022.

As of March 31, 2020, we had outstanding borrowings of $ 388.0 million at a weighted-average interest rate of 3.22 %.

As of June 30, 2020, we had outstanding borrowings of $ 323.0 million at a weighted-average interest rate of 2.43 %.

The borrowing base is redetermined semi-annually, typically in April and October of each year, by the administrative agent, taking into consideration the estimated loan value of our oil and natural gas properties consistent with the administrative agent’s normal lending criteria.

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We also have the right to request a redetermination following acquisition of oil and natural gas properties in excess of 10% of the value of the borrowing base immediately prior to such acquisition.

Effective October 23, 2019 the borrowing base redetermination reduced the borrowing base from $ 675.0 million to $ 650.0 million and, effective May 1, 2020, the borrowing base was further reduced to $ 460.0 million.

The borrowing base is also adjusted if we terminate our hedge positions or sell oil and natural gas property interests that have a combined value exceeding 5% of the current borrowing base.

In these circumstances, the borrowing base will be adjusted by the value attributed to the terminated hedge positions or the oil and natural gas property interests sold in the most recent borrowing base.

Effective October 23, 2019 the borrowing base redetermination reduced the borrowing base from $ 675.0 million to $ 650.0 million, effective May 1, 2020, the borrowing base was reduced to $ 460.0 million.

Effective July 21, 2020, in connection with the closing of our two asset sales in the Permian Basin, the borrowing base was further reduced to $ 430.0 million.

The next borrowing base redetermination is expected in the fall of 2020.

If operators continue to shut-in production and commodity prices remain at current levels, our borrowing base could be further reduced.

Outstanding borrowings under the Credit Facility bear interest at a floating rate elected by us equal to an alternative base rate (which is equal to the greatest of the Prime Rate, the Federal Funds effective rate plus 0.50 %, or 1-month LIBOR plus 1.00 %) or LIBOR, in each case, plus the applicable margin.

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We are obligated to pay a quarterly commitment fee ranging from a 0.375 % to 0.500 % annualized rate on the unused portion of the borrowing base, depending on the amount of the borrowings outstanding in relation to the borrowing base.

Principal may be optionally repaid from time to time without premium or penalty, other than customary LIBOR breakage, and is required to be paid (a) if the amount outstanding exceeds the borrowing base, whether due to a borrowing base redetermination or otherwise, in some cases subject to a cure period, or (b) at the maturity date.

redetermination or otherwise, in some cases subject to a cure period, or (b) at the maturity date.

Our Credit Facility is secured by substantially all of our oil and natural gas production and assets.

Our credit agreement contains various affirmative, negative, and financial maintenance covenants.

These covenants, among other things, limit additional indebtedness, additional liens, sales of assets, mergers and consolidations, dividends and distributions, transactions with affiliates, and entering into certain derivative agreements, as well as require the maintenance of

certain financial ratios.

The credit agreement contains two financial covenants:

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There are no cure periods for events of default due to non-payment of principal and breaches of negative and financial covenants, but non-payment of interest and breaches of certain affirmative covenants are subject to customary cure periods.

As of March 31, 2020, we were in compliance with all debt covenants.

As of June 30, 2020, we were in compliance with all debt covenants.

On July 27, 2017, the U.K.

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Contractual Obligations

As of March 31, 2020, there have been no material changes to our contractual obligations previously disclosed in our 2019 Annual Report on Form 10-K.

As of June 30, 2020, there have been no material changes to our contractual obligations previously disclosed in our 2019 Annual Report on Form 10-K.

Off-Balance Sheet Arrangements

As of March 31, 2020, we did not have any material off-balance sheet arrangements.

As of June 30, 2020, we did not have any material off-balance sheet arrangements.

Critical Accounting Policies and Related Estimates

As of March 31, 2020, there have been no significant changes to our critical accounting policies and related estimates previously disclosed in our 2019 Annual Report on Form 10-K.

As of June 30, 2020, there have been no significant changes to our critical accounting policies and related estimates previously disclosed in our 2019 Annual Report on Form 10-K.

New and Revised Financial Accounting Standards

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis