What changed in this filing

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Item 1. Financial Statements

2021-05-04 compared with 2020-11-03 · 126 added, 231 removed, 406 unchanged (47% of the section changed)

4 unchanged sentences

(In thousands)

September 30, 2020 December 31, 2019

March 31, 2021 December 31, 2020

CURRENT ASSETS

5 unchanged sentences

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

Oil and natural gas properties, at cost, using the successful efforts method of accounting, includes unproved properties of $ 937,464 at March 31, 2021 and December 31, 2020

3,164,065 3,157,818

1 unchanged sentence

Oil and natural gas properties, net 1,154,198 1,170,486

Other property and equipment, net of accumulated depreciation of $ 12,132 and $ 11,622 at September 30, 2020 and December 31, 2019, respectively

Other property and equipment, net of accumulated depreciation of $ 12,453 and $ 12,292 at March 31, 2021 and December 31, 2020, respectively

NET PROPERTY AND EQUIPMENT 1,155,690 1,172,136

17 unchanged sentences

MEZZANINE EQUITY

Partners' equity – Series B cumulative convertible preferred units, 14,711 units outstanding at September 30, 2020 and December 31, 2019

Partners' equity – Series B cumulative convertible preferred units, 14,711 units outstanding at March 31, 2021 and December 31, 2020

298,361 298,361

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

Partners' equity – common units, 207,542 and 206,749 units outstanding at March 31, 2021 and December 31, 2020, respectively

738,429 760,606

6 unchanged sentences

(In thousands, except per unit amounts)

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

Three Months Ended March 31,

Oil and condensate sales $ 44,176 $ 52,093

12 unchanged sentences

Accretion of asset retirement obligations 292 272

(Gain) loss on sale of assets, net ( 24,045 ) — ( 24,045 ) —

TOTAL OPERATING EXPENSE 44,355 102,545

7 unchanged sentences

Distributions on Series B cumulative convertible preferred units ( 5,250 ) ( 5,250 )

NET INCOME (LOSS) ATTRIBUTABLE TO THE GENERAL PARTNER AND COMMON AND SUBORDINATED UNITS $ 18,483 $ 64,997 $ 75,724 $ 158,601

NET INCOME (LOSS) ATTRIBUTABLE TO THE GENERAL PARTNER AND COMMON UNITS $ 10,936 $ 70,862

ALLOCATION OF NET INCOME (LOSS):

1 unchanged sentence

Common units 10,936 70,862

Subordinated units — — — 23,993

$ 10,936 $ 70,862

NET INCOME (LOSS) ATTRIBUTABLE TO LIMITED PARTNERS PER COMMON AND SUBORDINATED UNIT:

NET INCOME (LOSS) ATTRIBUTABLE TO LIMITED PARTNERS PER COMMON UNIT:

Per common unit (basic) $ 0.05 $ 0.34

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) $ 0.05 $ 0.34

WEIGHTED AVERAGE COMMON UNITS OUTSTANDING:

Weighted average common units outstanding (basic) 207,442 206,631

Weighted average common units outstanding (diluted) 207,442 206,631

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.

13 unchanged sentences

BALANCE AT MARCH 31, 2021 207,542 $ 738,429 $ 738,429

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.

BLACK STONE MINERALS, L.P.

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EQUITY

(In thousands)

Common units Subordinated units Partners' equity — common units Partners' equity — subordinated units Total equity

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 )

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 1,238 — —

5 unchanged sentences

BALANCE AT MARCH 31, 2020 206,695 $ 803,726 $ 803,726

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.

3 unchanged sentences

(In thousands)

Nine Months Ended September 30,

Three Months Ended March 31,

CASH FLOWS FROM OPERATING ACTIVITIES

9 unchanged sentences

Exploratory dry hole expense 1,049 —

(Gain) loss on sale of assets, net ( 24,045 ) —

Changes in operating assets and liabilities:

13 unchanged sentences

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 common unitholders ( 36,272 ) ( 61,641 )

Distributions to Series B cumulative convertible preferred unitholders ( 5,250 ) ( 5,250 )

Distribution equivalents paid — ( 2,982 )

Repurchases of common units ( 1,957 ) ( 5,029 )

16 unchanged sentences

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.

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 ("U.S."), including all of the major onshore producing basins.

The Partnership also owns non-operated working interests in certain oil and natural gas properties.

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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.

The results of operations for the three months ended March 31, 2021 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.

15 unchanged sentences

Significant accounting policies are disclosed in the Partnership’s 2020 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.

There have been no changes in such policies or the application of such policies during the three months ended March 31, 2021.

Accounts Receivable

The following table presents information about the Partnership's accounts receivable:

September 30, 2020 December 31, 2019

March 31, 2021 December 31, 2020

(in thousands)

3 unchanged sentences

Total accounts receivable $ 59,288 $ 61,908

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.

BLACK STONE MINERALS, L.P.

AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3 - OIL AND NATURAL GAS PROPERTIES

3 unchanged sentences

The total book value of the assets divested through these transactions was $ 126.6 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 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.

The Partnership recognized a $ 24.0 million gain associated with the divestitures in the third quarter of 2020.

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.

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.

("XTO"), a subsidiary of Exxon Mobil Corporation.

The Partnership has an approximate 50 % working interest in the acreage and is the largest mineral owner.

1 unchanged sentence

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.

The Partnership receives an ORRI before payout and an increased ORRI after payout on all wells drilled under the agreement .

BLACK STONE MINERALS, L.P.

AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Canaan has participated in a total of 37 wells under the farmout agreement through March 31, 2021, 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.

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 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.

In November 2017, the Partnership entered into a farmout agreement (the "First Pivotal Farmout") 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 in wells operated by XTO Energy and BPX Energy 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 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.

As of March 31, 2021, a total of 68 wells have been spud in the contract area subject to the First Pivotal Farmout.

The Partnership's development agreement with BPX Energy terminated in 2019 with respect to the majority of the Partnership's acreage covered by the agreement.

As such, Pivotal retains minimal rights or obligations related to the farmout for that area that remains subject to the First Pivotal Farmout.

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.

1 unchanged sentence

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.

In November 2020, the Partnership entered into a new farmout agreement (the "Second Pivotal Farmout") with Pivotal.

The Second Pivotal Farmout supersedes and replaces the First Pivotal Farmout with respect to the area covered by the Aethon development agreement.

The Second Pivotal Farmout covers the Partnership's share of working interest under active development by Aethon in Angelina County, Texas and continues until April 2028, unless earlier terminated in accordance to the terms of the agreement.

Pivotal will earn 100 % of the Partnership's working interest (ranging from approximately 12.5 % to 25 % on an 8/8ths basis) in wells drilled and operated by Aethon in accordance with the development agreement.

Pivotal is obligated to fund the development of all wells drilled by Aethon in the initial program year and thereafter, Pivotal has certain rights and options to continue funding the Partnership's working interests for the duration of the Second Pivotal Farmout.

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 March 31, 2021, a total of two wells have been spud in the contract area subject to the Second Pivotal Farmout.

From the inception of the farmout agreements through March 31, 2021, the Partnership has received $ 90.2 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

As of March 31, 2021 and December 31, 2020, $ 0.1 million 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.

XTO Completions Agreement

In June 2020, the Partnership entered into a new incentive agreement with XTO with respect to certain drilled but uncompleted wells ("DUCs") in the Shelby Trough.

The agreement allowed for royalty relief on 13 existing DUCs if XTO completed and turned the wells to sales by March 31, 2021.

As of January 18, 2021, XTO had turned all 13 DUCs to sales.

BLACK STONE MINERALS, L.P.

1 unchanged sentence

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

the projected future cash flows of such properties.

Impairment of Oil and Natural Gas Properties

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 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.

The Partnership recognized no impairment of oil and natural gas properties for the three months ended March 31, 2021 and $ 51.0 million of impairment of oil and natural gas properties for the three months ended March 31, 2020.

See Note 5 - Fair Value Measurements for further discussion.

5 unchanged sentences

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.

As of March 31, 2021, the Partnership’s open derivative contracts consisted of fixed-price swap 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.

1 unchanged sentence

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.

2 unchanged sentences

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.

As of March 31, 2021, the Partnership had seven counterparties, all of which are rated Baa1 or better by Moody’s and are lenders under the Credit Facility.

BLACK STONE MINERALS, L.P.

2 unchanged sentences

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

March 31, 2021

Classification Balance Sheet Location Gross

28 unchanged sentences

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,

Three Months Ended March 31,

Derivatives not designated as hedging instruments 2021 2020

10 unchanged sentences

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

The Partnership had the following open derivative contracts for oil as of September 30, 2020:

The Partnership had the following open derivative contracts for oil as of March 31, 2021:

Weighted Average Price (Per Bbl) Range (Per Bbl)

1 unchanged sentence

Oil Swap Contracts:

Third Quarter 210,000 $ 57.32 $ 54.92 $ 58.65

Fourth Quarter 630,000 57.32 54.92 58.65

First Quarter 220,000 $ 38.97 $ 32.64 $ 46.50

2 unchanged sentences

Fourth Quarter 660,000 38.97 32.64 46.50

Weighted Average

Floor Price (Per Bbl) Weighted Average

Ceiling Price (Per Bbl)

Period and Type of Contract Volume (Bbl)

Oil Collar Contracts:

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:

Fourth Quarter 10,120,000 $ 2.69 $ 2.55 $ 2.74

First Quarter 150,000 $ 55.47 $ 55.29 $ 56.10

2 unchanged sentences

Fourth Quarter 150,000 55.47 55.29 56.10

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:

The Partnership had the following open derivative contracts for natural gas as of March 31, 2021:

Weighted Average Price (Per MMBtu) Range (Per MMBtu)

1 unchanged sentence

Natural Gas Swap Contracts:

First Quarter 900,000 $ 3.08 $ 3.08 $ 3.08

Second Quarter 10,010,000 $ 2.69 $ 2.52 $ 3.08

13 unchanged sentences

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.

BLACK STONE MINERALS, L.P.

AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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.

The estimated carrying value of all debt as of March 31, 2021 and December 31, 2020 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.

1 unchanged sentence

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.

The Partnership estimated the fair value of commodity derivative financial 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.

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:

2 unchanged sentences

(in thousands)

As of September 30, 2020

As of March 31, 2021

Financial Assets

23 unchanged sentences

(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

Three Months Ended March 31, 2021

Impaired oil and natural gas properties $ — $ — $ — $ —

Nine Months Ended September 30, 2019

Three Months Ended March 31, 2020

Impaired oil and natural gas properties $ — $ — $ 2,044 $ 51,031

2 unchanged sentences

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.

There were no significant changes in valuation techniques or related inputs as of March 31, 2021 or December 31, 2020.

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 Credit Facility has an aggregate maximum credit amount of $ 1.0 billion.

The commitment of the lenders equals the lesser of the aggregate maximum credit amount and the borrowing base.

1 unchanged sentence

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.

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

Effective November 3, 2020, the borrowing base redetermination reduced the borrowing base from $ 430.0 million to $ 400.0 million, and effective April 30, 2021, the borrowing base was reaffirmed at $ 400.0 million and the term of the Credit Facility was extended through November 1, 2024.

Please see Item 5 of Part II of this quarterly report for a more detailed description of the amendment to the Credit Facility effective April 30, 2021.

The next semi-annual redetermination is scheduled for October 2021.

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.

As of March 31, 2021 and December 31, 2020, the applicable margin for the alternative base rate ranged from 1.00 % to 2.00 % and the applicable margin for LIBOR ranged from 2.00 % to 3.00 %, depending on the borrowings outstanding in relation to the borrowing base.

Effective April 30, 2021, the LIBOR margin was increased to between 2.50 % and 3.50 % and the alternative base rate margin was increased to between 1.50 % and 2.50 %.

The weighted-average interest rate of the Credit Facility was 2.37 % and 2.40 % as of March 31, 2021 and December 31, 2020, 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 %.

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 % per annum 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.

1 unchanged sentence

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.

As of March 31, 2021, the Partnership was in compliance with all financial covenants in the Credit Facility.

BLACK STONE MINERALS, L.P.

1 unchanged sentence

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.

The aggregate principal balance outstanding was $ 111.0 million and $ 121.0 million at March 31, 2021 and December 31, 2020, respectively.

The unused portion of the available borrowings under the Credit Facility were $ 289.0 million and $ 279.0 million at March 31, 2021 and December 31, 2020, respectively.

On March 5, 2021, the U.K.

Financial Conduct Authority announced that it intends to stop persuading or compelling banks to submit LIBOR rates after December 31, 2021 for the 1-week and 2-month U.S.

dollar settings and after June 30, 2023 for the remaining U.S.

dollar settings.

Our Credit Facility includes provisions to determine a replacement rate for LIBOR if necessary during its term, based on the secured overnight financing rate published by the Federal Reserve Bank of New York (“SOFR”).

We currently do not expect the transition from LIBOR to have a material impact on us.

NOTE 7 - COMMITMENTS AND CONTINGENCIES

3 unchanged sentences

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.

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.

The Partnership believes existing claims as of March 31, 2021 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

Three Months Ended March 31,

(in thousands)

7 unchanged sentences

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.

BLACK STONE MINERALS, L.P.

AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Downward cost revisions recognized in the three months ended March 31, 2020 are due to the decrease in the Partnership's common unit price period over period.

NOTE 9 - PREFERRED UNITS

2 unchanged sentences

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.

BLACK STONE MINERALS, L.P.

AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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 had a carrying value of $ 298.4 million, including accrued distributions of $ 5.3 million, as of March 31, 2021 and December 31, 2020.

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.

4 unchanged sentences

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.

Net income (loss) attributable to the Partnership is allocated to the Partnership’s general partner and the common 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.

1 unchanged sentence

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.

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

The following table sets forth the computation of basic and diluted earnings per common unit:

Three Months Ended March 31,

(in thousands, except per unit amounts)

1 unchanged sentence

Distributions on Series B cumulative convertible preferred units ( 5,250 ) ( 5,250 )

NET INCOME (LOSS) ATTRIBUTABLE TO THE GENERAL PARTNER AND COMMON AND SUBORDINATED UNITS 18,483 64,997 75,724 158,601

NET INCOME (LOSS) ATTRIBUTABLE TO THE GENERAL PARTNER AND COMMON UNITS 10,936 70,862

ALLOCATION OF NET INCOME (LOSS):

1 unchanged sentence

Common units 10,936 70,862

Subordinated units — — — 23,993

$ 10,936 $ 70,862

NET INCOME (LOSS) ATTRIBUTABLE TO LIMITED PARTNERS PER COMMON UNIT:

Per common unit (basic) $ 0.05 $ 0.34

Per common unit (diluted) 0.05 0.34

WEIGHTED AVERAGE COMMON UNITS OUTSTANDING:

Weighted average common units outstanding (basic) 207,442 206,631

206,732 205,957 206,690 155,513

Effect of dilutive securities

Weighted average common units outstanding (diluted) 207,442 206,631

206,732 205,957 206,690 155,513

Weighted average subordinated units outstanding:

Weighted average subordinated units outstanding (basic)

Effect of dilutive securities

Weighted average subordinated units outstanding (diluted)

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

BLACK STONE MINERALS, L.P.

2 unchanged sentences

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

Three Months Ended March 31,

(in thousands)

3 unchanged sentences

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.

NOTE 11 - COMMON UNITS

The common units represent limited partner interests in the Partnership.

The holders of common units are entitled to participate in distributions and exercise the rights and privileges provided to limited partners holding common units under the partnership agreement.

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, 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 partnership agreement generally provides that any distributions are paid each quarter in the following manner:

1 unchanged sentence

• 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

BLACK STONE MINERALS, L.P.

AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

The following table provides information about the Partnership's per unit distributions to common unitholders:

Three Months Ended March 31,

Distributions declared and paid per common unit $ 0.1750 $ 0.3000

Common Unit Repurchase Program

1 unchanged sentence

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 Partnership made no repurchases under this program for the three months ended March 31, 2021.

As of March 31, 2021, 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.

1 unchanged sentence

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.

On April 21, 2021, the Board approved a distribution for the three months ended March 31, 2021 of $ 0.175 per common unit.

Distributions will be payable on May 21, 2021 to unitholders of record at the close of business on May 14, 2021.

On April 30, 2021, the Partnership amended its Credit Facility.

Please see Item 5 of Part II of this quarterly report for a description of the amendment.

In April 2021, the Partnership entered into an agreement with several operators to test and develop areas of the Austin Chalk in East Texas where the Partnership has significant acreage positions.

Under the terms of the agreement, the operators will participate in three test wells targeting the Austin Chalk formation.

In April 2021, the Partnership entered into an agreement with a large, private independent operator ("Operator") to drill and complete multiple Austin Chalk wells on the Partnership's acreage within East Texas in 2021.

If the initial wells are successful, the Operator has the option to expand the Austin Chalk development program on additional acreage owned by the Partnership.

In May 2021, the Partnership entered into an agreement with Aethon to develop certain of the Partnership's undeveloped acreage in San Augustine County.

The agreement provides for minimum well commitments by Aethon in exchange for reduced royalty rates and exclusive access to the Partnership's mineral and leasehold acreage in the contract area.

The agreement calls for a minimum of five wells to be drilled in the initial program year, which begins in the third quarter of 2021, increasing to a minimum of 12 wells per year beginning with the fourth program year.

The Partnership's development agreement with Aethon and related drilling commitments covering its San Augustine County acreage is independent of the development agreement and associated commitments covering Angelina County.

In May 2021, the Partnership entered into an agreement to acquire mineral and royalty acreage in the northern Midland Basin for total consideration of $ 20.7 million.

The purchase price will consist of $ 10.0 million in cash and $ 10.7 million in common units of the Partnership.

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 1. Financial Statements