Black Stone Minerals, L.P. 10-Q

Item 1. Financial Statements BLACK STONE MINERALS, L.P. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited) (In thousands) September 30, 2020 December 31, 2019 ASSETS CURRENT ASSETS Cash and cash equivalents $ 3,057 $ 8,119 Accounts receivable 48,497 78,214 Commodity derivative assets 8,569 14,790 Prepaid expenses and other current assets 1,798 1,168 TOTAL CURRENT ASSETS 61,921 102,291 PROPERTY AND EQUIPMENT Oil and natural gas properties, at cost, using the successful efforts method of accounting, includes unproved properties of $ 947,229 and $ 1,073,447 at September 30, 2020 and December 31, 2019, respectively 3,158,203 3,302,340 Accumulated depreciation, depletion, amortization, and impairment ( 1,967,661 ) ( 1,870,412 ) Oil and natural gas properties, net 1,190,542 1,431,928 Other property and equipment, net of accumulated depreciation of $ 12,132 and $ 11,622 at September 30, 2020 and December 31, 2019, respectively 1,805 2,300 NET PROPERTY AND EQUIPMENT 1,192,347 1,434,228 DEFERRED CHARGES AND OTHER LONG-TERM ASSETS 5,748 8,689 TOTAL ASSETS $ 1,260,016 $ 1,545,208 LIABILITIES, MEZZANINE EQUITY, AND EQUITY CURRENT LIABILITIES Accounts payable $ 3,537 $ 5,309 Accrued liabilities 12,476 22,702 Commodity derivative liabilities 3,662 159 Other current liabilities 1,623 1,633 TOTAL CURRENT LIABILITIES 21,298 29,803 LONG–TERM LIABILITIES Credit facility 147,000 394,000 Accrued incentive compensation 668 2,110 Commodity derivative liabilities 6,729 18 Asset retirement obligations 16,972 15,653 Other long-term liabilities 4,355 6,820 TOTAL LIABILITIES 197,022 448,404 COMMITMENTS AND CONTINGENCIES (Note 7) MEZZANINE EQUITY Partners' equity – Series B cumulative convertible preferred units, 14,711 units outstanding at September 30, 2020 and December 31, 2019 298,361 298,361 EQUITY Partners' equity – general partner interest — — Partners' equity – common units, 206,738 and 205,960 units outstanding at September 30, 2020 and December 31, 2019, respectively 764,633 798,443 TOTAL EQUITY 764,633 798,443 TOTAL LIABILITIES, MEZZANINE EQUITY, AND EQUITY $ 1,260,016 $ 1,545,208 The accompanying notes are an integral part of these unaudited consolidated financial statements. 1 BLACK STONE MINERALS, L.P. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (In thousands, except per unit amounts) Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 REVENUE Oil and condensate sales $ 34,335 $ 68,255 $ 111,845 $ 200,031 Natural gas and natural gas liquids sales 29,107 41,340 96,060 156,622 Lease bonus and other income 1,386 3,484 7,669 15,846 Revenue from contracts with customers 64,828 113,079 215,574 372,499 Gain (loss) on commodity derivative instruments ( 21,086 ) 24,290 49,751 12,294 TOTAL REVENUE 43,742 137,369 265,325 384,793 OPERATING (INCOME) EXPENSE Lease operating expense 3,160 4,356 10,280 13,497 Production costs and ad valorem taxes 9,905 15,877 31,836 44,919 Exploration expense 4 64 28 372 Depreciation, depletion, and amortization 19,823 27,375 62,198 84,933 Impairment of oil and natural gas properties — — 51,031 — General and administrative 9,381 14,189 32,738 49,750 Accretion of asset retirement obligations 286 275 836 829 (Gain) loss on sale of assets, net ( 24,045 ) — ( 24,045 ) — TOTAL OPERATING EXPENSE 18,514 62,136 164,902 194,300 INCOME (LOSS) FROM OPERATIONS 25,228 75,233 100,423 190,493 OTHER INCOME (EXPENSE) Interest and investment income 1 44 35 137 Interest expense ( 1,664 ) ( 5,395 ) ( 9,055 ) ( 16,572 ) Other income (expense) 168 365 71 293 TOTAL OTHER EXPENSE ( 1,495 ) ( 4,986 ) ( 8,949 ) ( 16,142 ) NET INCOME (LOSS) 23,733 70,247 91,474 174,351 Distributions on Series B cumulative convertible preferred units ( 5,250 ) ( 5,250 ) ( 15,750 ) ( 15,750 ) NET INCOME (LOSS) ATTRIBUTABLE TO THE GENERAL PARTNER AND COMMON AND SUBORDINATED UNITS $ 18,483 $ 64,997 $ 75,724 $ 158,601 ALLOCATION OF NET INCOME (LOSS): General partner interest $ — $ — $ — $ — Common units 18,483 64,997 75,724 134,608 Subordinated units — — — 23,993 $ 18,483 $ 64,997 $ 75,724 $ 158,601 NET INCOME (LOSS) ATTRIBUTABLE TO LIMITED PARTNERS PER COMMON AND SUBORDINATED UNIT: Per common unit (basic) $ 0.09 $ 0.32 $ 0.37 $ 0.87 Weighted average common units outstanding (basic) 206,732 205,957 206,690 155,513 Per subordinated unit (basic) $ — $ — $ — $ 0.48 Weighted average subordinated units outstanding (basic) — — — 50,458 Per common unit (diluted) $ 0.09 $ 0.32 $ 0.37 $ 0.87 Weighted average common units outstanding (diluted) 206,732 205,957 206,690 155,513 Per subordinated unit (diluted) $ — $ — $ — $ 0.48 Weighted average subordinated units outstanding (diluted) — — — 50,458 The accompanying notes are an integral part of these unaudited consolidated financial statements. 2 BLACK STONE MINERALS, L.P. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EQUITY (Unaudited) (In thousands) Common units Partners' equity — common units Total equity BALANCE AT DECEMBER 31, 2019 205,960 $ 798,443 $ 798,443 Repurchases of common units ( 503 ) ( 5,029 ) ( 5,029 ) Restricted units granted, net of forfeitures 1,238 — — Equity–based compensation — 1,159 1,159 Distributions — ( 61,641 ) ( 61,641 ) Charges to partners' equity for accrued distribution equivalent rights — ( 68 ) ( 68 ) Distributions on Series B cumulative convertible preferred units — ( 5,250 ) ( 5,250 ) Net income (loss) — 76,112 76,112 BALANCE AT MARCH 31, 2020 206,695 $ 803,726 $ 803,726 Repurchases of common units — ( 6 ) ( 6 ) Restricted units granted, net of forfeitures 14 — — Equity–based compensation — 2,292 2,292 Distributions — ( 16,679 ) ( 16,679 ) Charges to partners' equity for accrued distribution equivalent rights — ( 31 ) ( 31 ) Distributions on Series B cumulative convertible preferred units — ( 5,250 ) ( 5,250 ) Net income (loss) — ( 8,371 ) ( 8,371 ) BALANCE AT JUNE 30, 2020 206,709 $ 775,681 $ 775,681 Restricted units granted, net of forfeitures 29 — — Equity–based compensation — 1,613 1,613 Distributions — ( 31,011 ) ( 31,011 ) Charges to partners' equity for accrued distribution equivalent rights — ( 133 ) ( 133 ) Distributions on Series B cumulative convertible preferred units — ( 5,250 ) ( 5,250 ) Net income (loss) — 23,733 23,733 BALANCE AT SEPTEMBER 30, 2020 206,738 $ 764,633 $ 764,633 The accompanying notes are an integral part of these unaudited consolidated financial statements. 3 BLACK STONE MINERALS, L.P. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EQUITY (Unaudited) (In thousands) Common units Subordinated units Partners' equity — common units Partners' equity — subordinated units Total equity BALANCE AT DECEMBER 31, 2018 108,363 96,329 $ 714,823 $ 189,440 $ 904,263 Repurchases of common units ( 588 ) — ( 10,110 ) — ( 10,110 ) Issuance of common units, net of offering costs — — ( 43 ) — ( 43 ) Issuance of common units for property acquisitions 57 — 943 — 943 Restricted units granted, net of forfeitures 1,545 — — — — Equity–based compensation — — 13,669 — 13,669 Distributions — — ( 40,275 ) ( 35,642 ) ( 75,917 ) Charges to partners' equity for accrued distribution equivalent rights — — ( 1,044 ) — ( 1,044 ) Distributions on Series B cumulative convertible preferred units — — ( 5,250 ) — ( 5,250 ) Net income (loss) — — 7,155 1,862 9,017 BALANCE AT MARCH 31, 2019 109,377 96,329 $ 679,868 $ 155,660 $ 835,528 Conversion of subordinated units 96,329 ( 96,329 ) 142,149 ( 142,149 ) — Repurchases of common units ( 377 ) — ( 6,164 ) — ( 6,164 ) Restricted units granted, net of forfeitures 627 — — — — Equity–based compensation — — 3,332 — 3,332 Distributions — — ( 40,471 ) ( 35,642 ) ( 76,113 ) Charges to partners' equity for accrued distribution equivalent rights — — ( 766 ) — ( 766 ) Distributions on Series B cumulative convertible preferred units — — ( 5,250 ) — ( 5,250 ) Net income (loss) — — 72,956 22,131 95,087 BALANCE AT JUNE 30, 2019 205,956 — $ 845,654 $ — $ 845,654 Restricted units granted, net of forfeitures ( 4 ) — — — — Equity–based compensation — — 3,385 — 3,385 Distributions — — ( 76,204 ) — ( 76,204 ) Charges to partners' equity for accrued distribution equivalent rights — — ( 511 ) — ( 511 ) Distributions on Series B cumulative convertible preferred units — — ( 5,250 ) — ( 5,250 ) Net income (loss) — — 70,247 — 70,247 BALANCE AT SEPTEMBER 30, 2019 205,952 — $ 837,321 $ — $ 837,321 The accompanying notes are an integral part of these unaudited consolidated financial statements. 4 BLACK STONE MINERALS, L.P. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands) Nine Months Ended September 30, 2020 2019 CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) $ 91,474 $ 174,351 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation, depletion, and amortization 62,198 84,933 Impairment of oil and natural gas properties 51,031 — Accretion of asset retirement obligations 836 829 Amortization of deferred charges 781 779 (Gain) loss on commodity derivative instruments ( 49,751 ) ( 12,294 ) Net cash (paid) received on settlement of commodity derivative instruments 66,794 18,320 Equity-based compensation 1,405 16,906 Exploratory dry hole expense — 3 (Gain) loss on sale of assets, net ( 24,045 ) — Changes in operating assets and liabilities: Accounts receivable 29,844 28,454 Prepaid expenses and other current assets ( 630 ) ( 471 ) Accounts payable, accrued liabilities, and other ( 8,353 ) ( 5,172 ) Settlement of asset retirement obligations ( 170 ) ( 328 ) NET CASH PROVIDED BY OPERATING ACTIVITIES 221,414 306,310 CASH FLOWS FROM INVESTING ACTIVITIES Acquisitions of oil and natural gas properties ( 28 ) ( 42,969 ) Additions to oil and natural gas properties ( 4,223 ) ( 63,606 ) Additions to oil and natural gas properties leasehold costs ( 782 ) ( 933 ) Purchases of other property and equipment ( 15 ) ( 2,452 ) Proceeds from the sale of oil and natural gas properties 151,513 550 Proceeds from farmouts of oil and natural gas properties 4,175 60,577 NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 150,640 ( 48,833 ) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issuance of common units, net of offering costs — ( 43 ) Distributions to common and subordinated unitholders ( 109,331 ) ( 228,234 ) Distributions to Series B cumulative convertible preferred unitholders ( 15,750 ) ( 15,750 ) Distribution equivalents paid — ( 2,982 ) Repurchases of common units ( 5,035 ) ( 16,916 ) Borrowings under credit facility 124,000 252,500 Repayments under credit facility ( 371,000 ) ( 249,500 ) NET CASH USED IN FINANCING ACTIVITIES ( 377,116 ) ( 260,925 ) NET CHANGE IN CASH AND CASH EQUIVALENTS ( 5,062 ) ( 3,448 ) CASH AND CASH EQUIVALENTS – beginning of the period 8,119 5,414 CASH AND CASH EQUIVALENTS – end of the period $ 3,057 $ 1,966 SUPPLEMENTAL DISCLOSURE Interest paid $ 8,371 $ 15,854 The accompanying notes are an integral part of these unaudited consolidated financial statements. 5 BLACK STONE MINERALS, L.P. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - BUSINESS AND BASIS OF PRESENTATION Description of the Business Black Stone Minerals, L.P. (“BSM” or the “Partnership”) is a publicly traded Delaware limited partnership that owns oil and natural gas mineral interests, which make up the vast majority of the asset base. The Partnership's assets also include nonparticipating royalty interests and overriding royalty interests. These interests, which are substantially non-cost-bearing, are collectively referred to as “mineral and royalty interests.” The Partnership’s mineral and royalty interests are located in 41 states in the continental United States, including all of the major onshore producing basins. The Partnership also owns non-operated working interests in certain oil and natural gas properties. The Partnership's common units trade on the New York Stock Exchange under the symbol "BSM." Basis of Presentation The accompanying unaudited interim consolidated financial statements of the Partnership have been prepared in accordance with generally accepted accounting principles ("GAAP") in the United States and pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). These unaudited interim consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and, therefore, do not include all disclosures required for financial statements prepared in conformity with GAAP. Accordingly, the accompanying unaudited interim consolidated financial statements and related notes should be read in conjunction with the Partnership’s consolidated financial statements included in the Partnership’s Annual Report on Form 10-K for the year ended December 31, 2019 ("2019 Annual Report on Form 10-K"). The unaudited interim consolidated financial statements include the consolidated results of the Partnership. The results of operations for the nine months ended September 30, 2020 are not necessarily indicative of the results to be expected for the full year. In the opinion of management, all adjustments, which are of a normal and recurring nature, necessary for the fair presentation of the financial results for all periods presented have been reflected. All intercompany balances and transactions have been eliminated. The Partnership evaluates the significant terms of its investments to determine the method of accounting to be applied to each respective investment. Investments in which the Partnership has less than a 20 % ownership interest and does not have control or exercise significant influence are accounted for using fair value or cost minus impairment if fair value is not readily determinable. Investments in which the Partnership exercises control are consolidated, and the noncontrolling interests of such investments, which are not attributable directly or indirectly to the Partnership, are presented as a separate component of net income (loss) and equity. The unaudited interim consolidated financial statements include undivided interests in oil and natural gas property rights. The Partnership accounts for its share of oil and natural gas property rights by reporting its proportionate share of assets, liabilities, revenues, costs, and cash flows within the relevant lines on the accompanying unaudited interim consolidated balance sheets, statements of operations, and statements of cash flows. Segment Reporting The Partnership operates in a single operating and reportable segment. Operating segments are defined as components of an enterprise for which separate financial information is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and assess performance. The Partnership’s chief executive officer has been determined to be the chief operating decision maker and allocates resources and assesses performance based upon financial information at the consolidated level. 6 BLACK STONE MINERALS, L.P. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Significant Accounting Policies Significant accounting policies are disclosed in the Partnership’s 2019 Annual Report on Form 10-K. There have been no changes in such policies or the application of such policies during the nine months ended September 30, 2020. Accounts Receivable The following table presents information about the Partnership's accounts receivable: September 30, 2020 December 31, 2019 (in thousands) Accounts receivable: Revenues from contracts with customers $ 41,627 $ 71,022 Other 6,870 7,192 Total accounts receivable $ 48,497 $ 78,214 Recent Accounting Pronouncements On January 1, 2020, the Partnership adopted Accounting Standards Update ("ASU") 2018-13, Fair Value Measurements (Topic 820), which removed, modified, and added certain required disclosures on fair value measurements. The adoption of this update had no impact on the Partnership's financial position, results of operations, or liquidity. 7 BLACK STONE MINERALS, L.P. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS NOTE 3 - OIL AND NATURAL GAS PROPERTIES Divestitures In the third quarter of 2020, the Partnership closed two separate divestitures of certain mineral and royalty properties in the Permian Basin for total proceeds, after closing adjustments, of $ 150.2 million. One of these transactions, effective May 1, 2020, involved the sale of the Partnership's mineral and royalty interest in specific tracts in Midland County, Texas for net proceeds of approximately $ 54.5 million. The other transaction, effective July 1, 2020, involved the sale of an undivided interest across parts of the Partnership's Delaware Basin and Midland Basin positions for net proceeds of approximately $ 95.7 million. The total book value of the assets divested through these transactions was $ 126.2 million at the time of sale. The Partnership recognized a $ 24.0 million gain associated with the divestitures included in the (Gain) loss on sale of assets, net line item of the consolidated statement of operations for the three and nine months ended September 30, 2020. Acquisitions Acquisitions of proved oil and natural gas properties and working interests are generally considered business combinations and are recorded at their estimated fair value as of the acquisition date. Acquisitions that consist of all or substantially all unproved oil and natural gas properties are generally considered asset acquisitions and are recorded at cost. 2020 Acquisitions The Partnership had no acquisition activity during the nine months ended September 30, 2020. 2019 Acquisitions During the year ended December 31, 2019, the Partnership closed on multiple acquisitions of mineral and royalty interests for total consideration of $ 44.0 million. Acquisitions that were considered business combinations were primarily located in the Permian Basin. These acquisitions were funded with borrowings under the Credit Facility (as defined in Note 6 - Credit Facility) and funds from operating activities. Acquisition related costs of less than $ 0.1 million were expensed and included in the General and administrative line item of the consolidated statement of operations for the year ended December 31, 2019. The following table summarizes these acquisitions: Assets Acquired Consideration Paid Proved Unproved Net Working Capital Total Fair Value Cash (in thousands) February $ 173 $ 8,437 $ 1 $ 8,611 $ 8,611 March 24 — — 24 24 June 527 3,268 — 3,795 3,795 Total fair value $ 724 $ 11,705 $ 1 $ 12,430 $ 12,430 In addition, during 2019, the Partnership acquired mineral and royalty interests that were considered asset acquisitions from various sellers for an aggregate of $ 31.6 million. These acquisitions were primarily located in East Texas and the Permian Basin. The cash portion of the consideration paid for these acquisitions of $ 30.7 million was funded with borrowings under the Credit Facility and funds from operating activities, and $ 0.9 million was funded through the issuance of common units of the Partnership based on the fair values of the common units issued on the acquisition dates. Farmout Agreements In 2017, the Partnership entered into two farmout arrangements designed to reduce its working interest capital expenditures and thereby significantly lower its capital spending other than for royalty and mineral acquisitions. Under these agreements, the Partnership conveyed its rights to participate in certain non-operated working interest opportunities to external capital providers while retaining value from these interests in the form of additional royalty income or retained economic interests. 8 BLACK STONE MINERALS, L.P. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS Canaan Farmout In February 2017, the Partnership entered into a farmout agreement with Canaan Resource Partners ("Canaan") which covers certain Haynesville and Bossier shale acreage in San Augustine County, Texas operated by XTO Energy Inc., a subsidiary of Exxon Mobil Corporation. The Partnership has an approximate 50 % working interest in the acreage and is the largest mineral owner. During the first three phases of the farmout agreement, Canaan commits on a phase-by-phase basis and funds 80 % of the Partnership's drilling and completion costs and is assigned 80 % of the Partnership's working interests in such wells ( 40 % working interest on an 8/8ths basis) as the wells are drilled. After the third phase, Canaan can earn 40 % of the Partnership’s working interest ( 20 % working interest on an 8/8ths basis) in additional wells drilled in the area by continuing to fund 40 % of the Partnership's costs for those wells on a well-by-well basis. The Partnership receives an overriding royalty interest (“ORRI”) before payout and an increased ORRI after payout on all wells drilled under the agreement . Canaan has participated in a total of 37 wells under the farmout agreement through September 30, 2020 covering two election phases. In 2019, XTO Energy Inc. suspended its development activities in the area due to low natural gas prices. Canaan has the right to elect to continue its participation in a third phase covering up to 20 future wells drilled under the farmout agreement should XTO Energy Inc. resume drilling activity. Pivotal Farmout In November 2017, the Partnership entered into a farmout agreement with Pivotal Petroleum Partners (“Pivotal”), a portfolio company of Tailwater Capital, LLC. The farmout agreement covers substantially all of the Partnership's remaining working interests under active development in the Shelby Trough area of East Texas, targeting the Haynesville and Bossier shale acreage (after giving effect to the Canaan Farmout), until November 2025. Pivotal will earn the Partnership's remaining working interest in wells operated by XTO Energy Inc. in San Augustine County, Texas not covered by the Canaan Farmout ( 10 % working interest on an 8/8th basis), as well as 100 % of the Partnership's working interests (ranging from approximately 12.5 % to 25 % on an 8/8ths basis) in wells operated by BPX Energy in San Augustine and Angelina counties, Texas. Initially, Pivotal is obligated to fund the development of up to 80 wells, in designated well groups, across several development areas and then has options to continue funding the Partnership's working interest across those areas for the duration of the farmout agreement. Once Pivotal achieves a specified payout for a designated well group, the Partnership will obtain a majority of the original working interest in such well group. As of September 30, 2020, a total of 68 wells have been drilled in the contract area. The Partnership's development agreement with BPX Energy terminated in 2019 with respect to the majority of the Partnership's acreage covered by the farmout agreement with Pivotal. As such, Pivotal retains minimal rights or obligations related to the farmout for that area. In the second quarter of 2020, the Partnership entered into a development agreement with Aethon Energy ("Aethon") to develop certain portions of the area forfeited by BPX Energy in Angelina County, Texas. The agreement provides for minimum well commitments by Aethon in exchange for reduced royalty rates and exclusive access to our mineral and leasehold acreage in the contract area. The agreement calls for a minimum of four wells to be drilled in the initial program year, which began in the third quarter of 2020, increasing to a minimum of 15 wells per year beginning with the third program year. The Partnership expects to enter into a new farmout agreement with Pivotal to incorporate the Aethon development agreement on similar terms as in the original Pivotal farmout agreement. From the inception of the farmout agreements through September 30, 2020, the Partnership has received $ 90.3 million and $ 119.2 million from Canaan and Pivotal, respectively, under the agreements. When such reimbursements are received prior to assigning the wells to Canaan and Pivotal, the Partnership records the amounts as increases to Oil and natural gas properties and Other long-term liabilities. When working interests in farmout wells are assigned to Canaan and Pivotal, the Partnership's Oil and natural gas properties and Other long-term liabilities are reduced by the reimbursed capital costs. As of September 30, 2020 and December 31, 2019, $ 0.1 million and $ 1.7 million, respectively, was included in the Other long-term liabilities line item of the consolidated balance sheets for reimbursements received associated with farmed-out working interests not yet assigned to Canaan and Pivotal. Impairment of Oil and Natural Gas Properties Proved and unproved oil and natural gas properties are reviewed for impairment when events and circumstances indicate a possible decline in the recoverability of the carrying value of those properties. When assessing producing properties for impairment, the Partnership compares the expected undiscounted projected future cash flows of the producing properties to the carrying amount of the producing properties to determine recoverability. When the carrying amount exceeds its estimated undiscounted future cash flows, the carrying amount is written down to its fair value, which is measured as the present value of 9 BLACK STONE MINERALS, L.P. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS the projected future cash flows of such properties. There was a collapse in oil prices during the first quarter of 2020 due to geopolitical events that increased supply at the same time demand weakened due to the impact of the COVID-19 pandemic. The Partnership determined these events and circumstances indicated a possible decline in the recoverability of the carrying value of certain proved properties and recoverability testing determined that certain depletable units consisting of mature oil producing properties were impaired as of March 31, 2020. The Partnership recognized no impairment of oil and natural gas properties for the three months ended September 30, 2020 and $ 51.0 million of impairment of oil and natural gas properties for the nine months ended September 30, 2020. No impairment of oil and natural gas properties was recognized during 2019. See Note 5 - Fair Value Measurements for further discussion. NOTE 4 - COMMODITY DERIVATIVE FINANCIAL INSTRUMENTS The Partnership’s ongoing operations expose it to changes in the market price for oil and natural gas. To mitigate the inherent commodity price risk associated with its operations, the Partnership uses oil and natural gas commodity derivative financial instruments. From time to time, such instruments may include variable-to-fixed-price swaps, costless collars, fixed-price contracts and other contractual arrangements. The Partnership enters into oil and natural gas derivative contracts that contain netting arrangements with each counterparty. The Partnership does not enter into derivative instruments for speculative purposes. As of September 30, 2020, the Partnership’s open derivative contracts consisted of fixed-price swap contracts and costless collar contracts. A fixed-price swap contract between the Partnership and the counterparty specifies a fixed commodity price and a future settlement date. A costless collar contract between the Partnership and the counterparty specifies a floor and a ceiling commodity price and a future settlement date. The Partnership has not designated any of its contracts as fair value or cash flow hedges. Accordingly, the changes in the fair value of the contracts are included in the consolidated statement of operations in the period of the change. All derivative gains and losses from the Partnership’s derivative contracts have been recognized in revenue in the Partnership's accompanying consolidated statements of operations. Derivative instruments that have not yet been settled in cash are reflected as either derivative assets or liabilities in the Partnership’s accompanying consolidated balance sheets as of September 30, 2020 and December 31, 2019. See Note 5 - Fair Value Measurements for further discussion. The Partnership's derivative contracts expose it to credit risk in the event of nonperformance by counterparties that may adversely impact the fair value of the Partnership's commodity derivative assets. While the Partnership does not require its derivative contract counterparties to post collateral, the Partnership does evaluate the credit standing of such counterparties as deemed appropriate. This evaluation includes reviewing a counterparty’s credit rating and latest financial information. As of September 30, 2020, the Partnership had nine counterparties, all of which are rated Baa1 or better by Moody’s and are lenders under the Credit Facility. 10 BLACK STONE MINERALS, L.P. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS The tables below summarize the fair values and classifications of the Partnership’s derivative instruments, as well as the gross recognized derivative assets, liabilities, and amounts offset in the consolidated balance sheets as of each date: September 30, 2020 Classification Balance Sheet Location Gross Fair Value Effect of Counterparty Netting Net Carrying Value on Balance Sheet (in thousands) Assets: Current asset Commodity derivative assets $ 19,935 $ ( 11,366 ) $ 8,569 Long-term asset Deferred charges and other long-term assets — — — Total assets $ 19,935 $ ( 11,366 ) $ 8,569 Liabilities: Current liability Commodity derivative liabilities $ 15,028 $ ( 11,366 ) $ 3,662 Long-term liability Commodity derivative liabilities 6,729 — 6,729 Total liabilities $ 21,757 $ ( 11,366 ) $ 10,391 December 31, 2019 Classification Balance Sheet Location Gross Fair Value Effect of Counterparty Netting Net Carrying Value on Balance Sheet (in thousands) Assets: Current asset Commodity derivative assets $ 19,028 $ ( 4,238 ) $ 14,790 Long-term asset Deferred charges and other long-term assets 713 ( 105 ) 608 Total assets $ 19,741 $ ( 4,343 ) $ 15,398 Liabilities: Current liability Commodity derivative liabilities $ 4,397 $ ( 4,238 ) $ 159 Long-term liability Commodity derivative liabilities 123 ( 105 ) 18 Total liabilities $ 4,520 $ ( 4,343 ) $ 177 Changes in the fair values of the Partnership’s derivative instruments (both assets and liabilities) are presented on a net basis in the accompanying consolidated statements of operations and consolidated statements of cash flows and consist of the following for the periods presented: Three Months Ended September 30, Nine Months Ended September 30, Derivatives not designated as hedging instruments 2020 2019 2020 2019 (in thousands) Beginning fair value of commodity derivative instruments $ 40,552 $ 31,368 $ 15,221 $ 48,038 Gain (loss) on oil derivative instruments ( 5,864 ) 18,132 50,300 ( 13,224 ) Gain (loss) on natural gas derivative instruments ( 15,222 ) 6,158 ( 549 ) 25,518 Net cash paid (received) on settlements of oil derivative instruments ( 13,954 ) ( 2,938 ) ( 42,270 ) ( 5,748 ) Net cash paid (received) on settlements of natural gas derivative instruments ( 7,334 ) ( 10,708 ) ( 24,524 ) ( 12,572 ) Net change in fair value of commodity derivative instruments ( 42,374 ) 10,644 ( 17,043 ) ( 6,026 ) Ending fair value of commodity derivative instruments $ ( 1,822 ) $ 42,012 $ ( 1,822 ) $ 42,012 11 BLACK STONE MINERALS, L.P. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS The Partnership had the following open derivative contracts for oil as of September 30, 2020: Weighted Average Price (Per Bbl) Range (Per Bbl) Period and Type of Contract Volume (Bbl) Low High Oil Swap Contracts: 2020 Third Quarter 210,000 $ 57.32 $ 54.92 $ 58.65 Fourth Quarter 630,000 57.32 54.92 58.65 2021 First Quarter 480,000 $ 36.18 $ 32.64 $ 37.92 Second Quarter 480,000 36.18 32.64 37.92 Third Quarter 480,000 36.18 32.64 37.92 Fourth Quarter 480,000 36.18 32.64 37.92 Weighted Average Floor Price (Per Bbl) Weighted Average Ceiling Price (Per Bbl) Period and Type of Contract Volume (Bbl) Oil Collar Contracts: 2020 Third Quarter 70,000 $ 56.43 $ 67.14 Fourth Quarter 210,000 56.43 67.14 The Partnership had the following open derivative contracts for natural gas as of September 30, 2020: Weighted Average Price (Per MMBtu) Range (Per MMBtu) Period and Type of Contract Volume (MMBtu) Low High Natural Gas Swap Contracts: 2020 Fourth Quarter 10,120,000 $ 2.69 $ 2.55 $ 2.74 2021 First Quarter 9,000,000 $ 2.65 $ 2.52 $ 2.85 Second Quarter 9,100,000 2.65 2.52 2.85 Third Quarter 9,200,000 2.65 2.52 2.85 Fourth Quarter 9,200,000 2.65 2.52 2.85 12 BLACK STONE MINERALS, L.P. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS The Partnership entered into the following derivative contracts for natural gas subsequent to September 30, 2020: Weighted Average Price (Per MMBtu) Range (Per MMBtu) Period and Type of Contract Volume (MMBtu) Low High Natural Gas Swap Contracts: 2021 First Quarter 900,000 $ 3.08 $ 3.08 $ 3.08 Second Quarter 910,000 3.08 3.08 3.08 Third Quarter 920,000 3.08 3.08 3.08 Fourth Quarter 920,000 3.08 3.08 3.08 NOTE 5 - FAIR VALUE MEASUREMENTS Fair value is defined as the amount at which an asset (or liability) could be bought (or incurred) or sold (or settled) in an orderly transaction between market participants at the measurement date. Further, ASC 820, Fair Value Measurement , establishes a framework for measuring fair value, establishes a fair value hierarchy based on the quality of inputs used to measure fair value, and includes certain disclosure requirements. Fair value estimates are based on either (i) actual market data or (ii) assumptions that other market participants would use in pricing an asset or liability, including estimates of risk. ASC 820 establishes a three-level valuation hierarchy for disclosure of fair value measurements. The valuation hierarchy categorizes assets and liabilities measured at fair value into one of three different levels depending on the observability of the inputs employed in the measurement. The three levels are defined as follows: Level 1 —Unadjusted quoted prices for identical assets or liabilities in active markets. Level 2 —Quoted prices for similar assets or liabilities in non-active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. Level 3 —Inputs that are unobservable and significant to the fair value measurement (including the Partnership’s own assumptions in determining fair value). A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The Partnership’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability. The carrying value of the Partnership's cash and cash equivalents, receivables, and payables approximate fair value due to the short-term nature of the instruments. The estimated carrying value of all debt as of September 30, 2020 and December 31, 2019 approximated the fair value due to variable market rates of interest. These debt fair values, which are Level 3 measurements, were estimated based on the Partnership’s incremental borrowing rates for similar types of borrowing arrangements, when quoted market prices were not available. The estimated fair values of the Partnership’s financial instruments are not necessarily indicative of the amounts that would be realized in a current market exchange. Assets and Liabilities Measured at Fair Value on a Recurring Basis The Partnership estimated the fair value of derivative instruments using the market approach via a model that uses inputs that are observable in the market or can be derived from, or corroborated by, observable data. See Note 4 - Commodity Derivative Financial Instruments for further discussion. 13 BLACK STONE MINERALS, L.P. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS The following table presents information about the Partnership’s assets and liabilities measured at fair value on a recurring basis: Fair Value Measurements Using Effect of Counterparty Netting Total Level 1 Level 2 Level 3 (in thousands) As of September 30, 2020 Financial Assets Commodity derivative instruments $ — $ 19,935 $ — $ ( 11,366 ) $ 8,569 Financial Liabilities Commodity derivative instruments $ — $ 21,757 $ — $ ( 11,366 ) $ 10,391 As of December 31, 2019 Financial Assets Commodity derivative instruments $ — $ 19,741 $ — $ ( 4,343 ) $ 15,398 Financial Liabilities Commodity derivative instruments $ — $ 4,520 $ — $ ( 4,343 ) $ 177 Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis Nonfinancial assets and liabilities measured at fair value on a non-recurring basis include certain nonfinancial assets and liabilities as may be acquired in a business combination and measurements of oil and natural gas property values for assessment of impairment. The determination of the fair values of proved and unproved properties acquired in business combinations are estimated by discounting projected future cash flows. The factors used to determine fair value include estimates of economic reserves, future operating and development costs, future commodity prices, timing of future production, and a risk-adjusted discount rate. The Partnership has designated these measurements as Level 3. The Partnership’s fair value assessments for recent acquisitions are included in Note 3 - Oil and Natural Gas Properties. Oil and natural gas properties are measured at fair value on a non-recurring basis using the income approach when assessing for impairment. The factors used to determine fair value include estimates of proved reserves, future commodity prices, timing of future production, operating costs, future capital expenditures, and a risk-adjusted discount rate. The Partnership estimated the fair value of the impaired properties using published forward commodity price curves as of the measurement date of March 31, 2020, considering locational and quality differentials based on a review of historical realizations, and using an annual discount rate of 8 %. 14 BLACK STONE MINERALS, L.P. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS The following table presents information about the non-recurring fair value measurements of the impaired properties: Fair Value Measurements Using Impairment Level 1 Level 2 Level 3 (in thousands) Three Months Ended September 30, 2020 Impaired oil and natural gas properties $ — $ — $ — $ — Three Months Ended September 30, 2019 Impaired oil and natural gas properties $ — $ — $ — $ — Nine Months Ended September 30, 2020 Impaired oil and natural gas properties $ — $ — $ 2,044 $ 51,031 Nine Months Ended September 30, 2019 Impaired oil and natural gas properties $ — $ — $ — $ — The Partnership’s estimates of fair value have been determined at discrete points in time based on relevant market data. These estimates involve uncertainty, particularly in the current volatile market, and cannot be determined with precision. Changes to these estimates, particularly related to economic reserves, future commodity prices, and timing of future production could result in additional impairment charges in the future. There were no significant changes in valuation techniques or related inputs as of September 30, 2020 or December 31, 2019. NOTE 6 - CREDIT FACILITY The Partnership maintains a senior secured revolving credit agreement, as amended (the “Credit Facility”). The Credit Facility has an aggregate maximum credit amount of $ 1.0 billion and terminates on November 1, 2022. The commitment of the lenders equals the lesser of the aggregate maximum credit amount and the borrowing base. The amount of the borrowing base is redetermined semi-annually, usually in October and April, and is derived from the value of the Partnership’s oil and natural gas properties as determined by the lender syndicate using pricing assumptions that often differ from the current market for future prices. The Partnership and the lenders (at the direction of two-thirds of the lenders) each have discretion to request a borrowing base redetermination one time between scheduled redeterminations. 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. Effective July 21, 2020, in connection with the closing of the Partnership's two asset sales in the Permian Basin, the borrowing base was further reduced to $ 430.0 million. Effective November 3, 2020, the most recent borrowing base redetermination reduced the borrowing base to $ 400.0 million. Outstanding borrowings under the Credit Facility bear interest at a floating rate elected by the Partnership 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. The applicable margin for the alternative base rate ranges from 0.75 % to 1.75 % and the applicable margin for LIBOR ranges from 1.75 % to 2.75 %, depending on the borrowings outstanding in relation to the borrowing base. Effective November 3, 2020, the LIBOR margin was increased to between 2.00 % and 3.00 % and the alternative base rate margin was increased to between 1.00 % and 2.00 %. The weighted-average interest rate of the Credit Facility was 2.15 % and 4.05 % as of September 30, 2020 and December 31, 2019, respectively. Accrued interest is payable at the end of each calendar quarter or at the end of each interest period, unless the interest period is longer than 90 days, in which case interest is payable at the end of every 90 -day period. In addition, a commitment fee is payable at the end of each calendar quarter based on either a rate of 0.375 % if the borrowing base utilization percentage is less than 50 %, or 0.500 % if the borrowing base utilization percentage is equal to or greater than 50 %. The Credit Facility is secured by substantially all of the Partnership’s oil and natural gas production and assets. The Credit Facility contains various limitations on future borrowings, leases, hedging, and sales of assets. Additionally, the Credit Facility requires the Partnership to maintain a current ratio of not less than 1.0 :1.0 and a ratio of total debt to EBITDAX (Earnings before Interest, Taxes, Depreciation, Amortization, and Exploration) of not more than 3.5 :1.0. As of September 30, 2020, the Partnership was in compliance with all financial covenants in the Credit Facility. 15 BLACK STONE MINERALS, L.P. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS The aggregate principal balance outstanding was $ 147.0 million and $ 394.0 million at September 30, 2020 and December 31, 2019, respectively. The unused portion of the available borrowings under the Credit Facility were $ 283.0 million and $ 256.0 million at September 30, 2020 and December 31, 2019, respectively. NOTE 7 - COMMITMENTS AND CONTINGENCIES Environmental Matters The Partnership’s business includes activities that are subject to U.S. federal, state, and local environmental regulations with regard to air, land, and water quality and other environmental matters. The Partnership does not consider the potential remediation costs that could result from issues identified in any environmental site assessments to be significant to the consolidated financial statements, and no provision for potential remediation costs has been recorded. Put Option Related to Noble Acquisition By acquiring 100 % of the issued and outstanding securities of Samedan Royalty, LLC, now NAMP Holdings, LLC, on November 28, 2017 from Noble Energy US Holdings, LLC, the Partnership acquired a 100 % interest in Comin-Temin, LLC, now NAMP GP, LLC ("Holdings"), Comin 1989 Partnership LLLP, now NAMP 1, LP ("Comin"), and Temin 1987 Partnership LLLP, now NAMP 2, LP ("Temin"). Pursuant to certain co-ownership agreements, various co-owners hold undivided beneficial ownership interests in 45.33 % and 42.63 % of the mineral interests obtained by the Partnership through the acquisition of Holdings and Temin, respectively as of September 30, 2020. Based on the terms of the co-ownership agreements, the co-owners each have an unconditional option to require Comin or Temin, as applicable, to purchase their beneficial ownership interest in these mineral interests, as applicable, at any time within 30 days of receiving such repurchase notice. The purchase price of the beneficial ownership interest shall be based on an evaluation performed by Comin or Temin, as applicable, in good faith. As of September 30, 2020, the Partnership had not received notice from any co-owners to exercise their repurchase option, and as such, no liability was recorded. On August 14, 2020, the Partnership notified the co-owners that it expected to terminate the co-ownership agreement effective December 31, 2020. Litigation From time to time, the Partnership is involved in legal actions and claims arising in the ordinary course of business. The Partnership believes existing claims as of September 30, 2020 will be resolved without material adverse effect on the Partnership’s financial condition or operations. NOTE 8 - INCENTIVE COMPENSATION The table below summarizes incentive compensation expense recorded in the General and administrative line item of the consolidated statements of operations for the periods presented: Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 (in thousands) Cash—short and long-term incentive plans $ 634 $ 1,092 $ 2,103 $ 4,336 Equity-based compensation—restricted common units 1,138 2,552 3,549 8,162 Equity-based compensation—restricted performance units 1 295 727 ( 3,264 ) 6,984 Board of Directors incentive plan 392 587 1,120 1,760 Total incentive compensation expense $ 2,459 $ 4,958 $ 3,508 $ 21,242 1 Compensation expense related to the restricted performance awards is determined using the measurement-date (i.e., the last day of each reporting period date) fair value of the Partnership's common units. Downward cost revisions recognized in the nine months ended September 30, 2020 are due to the decrease in the Partnership's common unit price period over period. 16 BLACK STONE MINERALS, L.P. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS NOTE 9 - PREFERRED UNITS Series B Cumulative Convertible Preferred Units On November 28, 2017, the Partnership issued and sold in a private placement 14,711,219 Series B cumulative convertible preferred units representing limited partner interests in the Partnership for a cash purchase price of $ 20.3926 per Series B cumulative convertible preferred unit, resulting in total proceeds of approximately $ 300.0 million. The Series B cumulative convertible preferred units are entitled to an annual distribution of 7 %, payable on a quarterly basis in arrears. The Series B cumulative convertible preferred units may be converted by each holder at its option, in whole or in part, into common units on a one-for-one basis at the purchase price of $ 20.3926 , adjusted to give effect to any accrued but unpaid accumulated distributions on the applicable Series B cumulative convertible preferred units through the most recent declaration date. However, the Partnership shall not be obligated to honor any request for such conversion if such request does not involve an underlying value of common units of at least $ 10.0 million based on the closing trading price of common units on the trading day immediately preceding the conversion notice date, or such lesser amount to the extent such exercise covers all of a holder's Series B cumulative convertible preferred units. The Series B cumulative convertible preferred units had a carrying value of $ 298.4 million, including accrued distributions of $ 5.3 million, as of September 30, 2020 and December 31, 2019. The Series B cumulative convertible preferred units are classified as mezzanine equity on the consolidated balance sheets since certain provisions of redemption are outside the control of the Partnership. NOTE 10 - EARNINGS PER UNIT The Partnership applies the two-class method for purposes of calculating earnings per unit (“EPU”). The holders of the Partnership’s restricted common units have all the rights of a unitholder, including non-forfeitable distribution rights. As participating securities, the restricted common units are included in the calculation of basic earnings per unit. For the periods presented, the amount of earnings allocated to these participating units was not material. Net income (loss) attributable to the Partnership is allocated to the Partnership’s general partner and the common and subordinated unitholders in proportion to their pro rata ownership after giving effect to distributions, if any, declared during the period. The Partnership assesses the Series B cumulative convertible preferred units on an as-converted basis for the purpose of calculating diluted EPU. The Partnership’s restricted performance unit awards are contingently issuable units that are considered in the calculation of diluted EPU. The Partnership assesses the number of units that would be issuable, if any, under the terms of the arrangement if the end of the reporting period were the end of the contingency period. 17 BLACK STONE MINERALS, L.P. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS The following table sets forth the computation of basic and diluted earnings per common and subordinated unit: Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 (in thousands, except per unit amounts) NET INCOME (LOSS) $ 23,733 $ 70,247 $ 91,474 $ 174,351 Distributions on Series B cumulative convertible preferred units ( 5,250 ) ( 5,250 ) ( 15,750 ) ( 15,750 ) NET INCOME (LOSS) ATTRIBUTABLE TO THE GENERAL PARTNER AND COMMON AND SUBORDINATED UNITS 18,483 64,997 75,724 158,601 ALLOCATION OF NET INCOME (LOSS): General partner interest $ — $ — $ — $ — Common units 18,483 64,997 75,724 134,608 Subordinated units — — — 23,993 $ 18,483 $ 64,997 $ 75,724 $ 158,601 Weighted average common units outstanding: Weighted average common units outstanding (basic) 206,732 205,957 206,690 155,513 Effect of dilutive securities — — — — Weighted average common units outstanding (diluted) 206,732 205,957 206,690 155,513 Weighted average subordinated units outstanding: Weighted average subordinated units outstanding (basic) — — — 50,458 Effect of dilutive securities — — — — Weighted average subordinated units outstanding (diluted) — — — 50,458 NET INCOME (LOSS) ATTRIBUTABLE TO LIMITED PARTNERS PER COMMON AND SUBORDINATED UNIT: Per common unit (basic) $ 0.09 $ 0.32 $ 0.37 $ 0.87 Per subordinated unit (basic) — — — 0.48 Per common unit (diluted) 0.09 0.32 0.37 0.87 Per subordinated unit (diluted) — — — 0.48 18 BLACK STONE MINERALS, L.P. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS The following units of potentially dilutive securities were excluded from the computation of diluted weighted average units outstanding because their inclusion would be anti-dilutive: Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 (in thousands) Potentially dilutive securities (common units): Series B cumulative convertible preferred units on an as-converted basis 14,969 14,969 14,969 14,969 NOTE 11 - COMMON AND SUBORDINATED UNITS Common and Subordinated Units The common units and subordinated units represent limited partner interests in the Partnership. The partnership agreement restricts unitholders’ voting rights by providing that any units held by a person or group that owns 15 % or more of any class of units then outstanding, other than the limited partners in Black Stone Minerals Company, L.P. prior to the initial public offering of BSM, their transferees, persons who acquired such units with the prior approval of the board of directors of the Partnership's general partner (the "Board"), holders of Series B cumulative convertible preferred units in connection with any vote, consent or approval of the Series B cumulative convertible preferred units as a separate class, and persons who own 15 % or more of any class as a result of any redemption or purchase of any other person's units or similar action by the Partnership or any conversion of the Series B cumulative convertible preferred units at the Partnership's option or in connection with a change of control, may not vote on any matter. The holders of common units are and, prior to the end of the subordination period (as defined in the partnership agreement), the subordinated units were, entitled to participate in distributions and exercise the rights and privileges provided to limited partners holding common units and subordinated units, respectively, under the partnership agreement. The subordination period under the partnership agreement ended on the first business day after the Partnership earned and paid an aggregate amount of at least $ 1.35 (the annualized minimum quarterly distribution applicable for quarterly periods ending March 31, 2019 and thereafter) multiplied by the total number of outstanding common and subordinated units for a period of four consecutive, non-overlapping quarters ending on or after March 31, 2019, and there were no outstanding arrearages on the common units. This test was met upon the payment of the distribution for the first quarter of 2019. Accordingly, each outstanding subordinated unit converted into one common unit on May 24, 2019 and the priority right of the common unitholders ceased to exist. The partnership agreement generally provides that any distributions are paid each quarter in the following manner: • first , to the holders of the Series B cumulative convertible preferred units in an amount equal to 7 % per annum, subject to certain adjustments; and • second , to the holders of common units. The following table provides information about the Partnership's per unit distributions to common and subordinated unitholders: Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 DISTRIBUTIONS DECLARED AND PAID: Per common unit $ 0.1500 $ 0.3700 $ 0.5300 $ 1.1100 Per subordinated unit — — — 0.7400 19 BLACK STONE MINERALS, L.P. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS Common Unit Repurchase Program On November 5, 2018, the Board authorized the repurchase of up to $ 75.0 million in common units. The repurchase program authorizes the Partnership to make repurchases on a discretionary basis as determined by management, subject to market conditions, applicable legal requirements, available liquidity, and other appropriate factors. The Partnership made no repurchases under this program for the nine months ended September 30, 2020. As of September 30, 2020, the Partnership has repurchased $ 4.2 million in common units under the repurchase program since inception. The repurchase program is funded from the Partnership's cash on hand or availability on the Credit Facility. Any repurchased units are canceled. NOTE 12 - SUBSEQUENT EVENTS On October 21, 2020, the Board approved a distribution for the three months ended September 30, 2020 of $ 0.15 per common unit. Distributions will be payable on November 20, 2020 to unitholders of record at the close of business on November 13, 2020. Effective November 3, 2020, the borrowing base of the Credit Facility was reduced to $ 400.0 million from $ 430.0 million and the applicable margin rates were increased, as discussed in Note 6 - Credit Facility. 20