Black Stone Minerals, L.P. 10-K

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED UNITHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES Our common units are listed on the NYSE under the symbol “BSM.” As of February 18, 2022, there were 209,118,081 common units outstanding held by 429 holders of record. Because many of our common units are held by brokers and other institutions on behalf of unitholders, we are unable to estimate the total number of unitholders represented by these holders of record. As of February 18, 2022, we also had outstanding 14,711,219 Series B cumulative convertible preferred units. There is no established public market in which the Series B cumulative convertible preferred units are traded. Common Unit Performance Graph The graph below compares the cumulative five-year total return to unitholders on our common units as compared to the cumulative five-year total returns on the S&P 500 index, the S&P Oil & Gas Exploration & Production index, and the Alerian MLP index. The graph assumes that the value of the investment in our common units was $100.00 on December 30, 2016. Cumulative return is computed assuming reinvestment of distributions. We are changing our industry index from the Alerian MLP index to the S&P Oil & Gas Exploration & Production index for the year ended December 31, 2021. The Alerian MLP index was initially selected because it indexed a representative sample of master limited partnerships, but it has become a midstream-focused index over time and no longer presents a meaningful comparison. This year, we are presenting both indices in accordance with SEC rules, which require that if a company selects a different index from that used in the immediately preceding fiscal year, the company’s unit performance must be compared against both the newly selected index and previous index in the year of change. 47 Comparison of Cumulative Total Return Assumes Initial Investment of $100 As of December 31, 2016 2017 2018 2019 2020 2021 Black Stone Minerals, L.P. $ 100.00 $ 102.30 $ 94.46 $ 84.24 $ 47.31 $ 77.60 S&P 500 Index 100.00 121.83 116.49 153.17 181.35 233.41 S&P Oil & Gas E&P Index 100.00 90.53 65.09 58.93 37.76 62.89 Alerian MLP Index 100.00 93.48 81.87 87.24 62.21 87.20 The information in this Annual Report appearing under the heading “Common Unit Performance Graph” is being furnished pursuant to Item 201(e) of Regulation S-K and shall not be deemed to be “soliciting material” or to be “filed” with the SEC or subject to Regulation 14A or 14C, other than as provided in Item 201(e) of Regulation S-K, or to the liabilities of Section 18 of the Exchange Act. Securities Authorized for Issuance under Equity Compensation Plans See the information incorporated by reference under “Part III, Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Unitholder Matters” regarding securities authorized for issuance under our equity compensation plans. Recent Sales of Unregistered Securities None. Purchases of Equity Securities by the Issuer and Affiliated Purchasers None. Cash Distribution Policy Our 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 amount of cash to be distributed each quarter will be determined by the Board following the end of that quarter after a review of our cash generated from operations for such quarter. We expect that we will distribute a substantial majority of the cash generated from our operations each quarter. The cash generated from operations for each quarter will generally equal our Adjusted EBITDA for the quarter, less cash needed for debt service, other contractual obligations, fixed charges, and reserves for future operating or capital needs that the Board may determine are appropriate. It is our intent, for at least the next several years, to finance most of our acquisitions and working interest capital needs with cash generated from operations, borrowings under our Credit Facility, our executed farmout agreements, and, in certain circumstances, proceeds from future equity and debt issuances. We may also borrow to make distributions to our unitholders where, for example, we believe that the distribution level is sustainable over the long term, but short-term factors may cause cash generated from operations to be insufficient to pay distributions at the then-current distribution levels on our common units. The Board can change the amount of the quarterly distributions, if any, at any time and from time to time. Our partnership agreement does not require us to pay cash distributions on a quarterly or other basis on our common units. Please read Part I, Item 1A. “Risk Factors — Risks Inherent in an Investment in Us — The Board may modify or revoke our cash distribution policy at any time at its discretion. Our partnership agreement does not require us to pay any distributions at all on our common units. If we make distributions, our Series B cumulative convertible preferred unitholders have priority with respect to rights to share in those distributions over our common unitholders for so long as our Series B cumulative convertible preferred units are outstanding.” For a description of the relative rights and privileges of our Series B cumulative convertible preferred units to distributions, please read "Series B Cumulative Convertible Preferred Units" below. 48 Limitations on Cash Distributions and Our Ability to Change Our Cash Distribution Policy There is no guarantee that we will make cash distributions to our unitholders. Our cash distribution policy may be changed at any time by the Board and is subject to certain restrictions, including the following: • Our common unitholders have no contractual or other legal right to receive cash distributions from us on a quarterly or other basis, and if distributions are paid, common unitholders will receive distributions only to the extent the distribution amount exceeds distributions that are required to be paid to our Series B cumulative convertible preferred unitholders. • Among other covenants, our Credit Facility requires we maintain a ratio of total debt to EBITDAX of 3.50:1.00 or less and a current ratio of 1.00:1.00 or greater. Our Credit Facility restricts our distributions if there is a default under our Credit Facility, if the availability under our Credit Facility is less than 10% of the lender's commitments, or if total debt to EBITDAX is greater than 3.0. If we are unable to comply with these financial covenants or if we breach any other covenant under our Credit Facility or any future debt agreements, we could be prohibited from making distributions notwithstanding our stated distribution policy. • Our general partner has the authority to establish cash reserves for the prudent conduct of our business, and the establishment of, or increase in, those reserves could result in a reduction in cash distributions to our unitholders. Our partnership agreement does not limit the amount of cash reserves that our general partner may establish. Any decision to establish cash reserves made by our general partner will be binding on our unitholders. • Under Section 17-607 of the Delaware Act, we may not make a distribution if the distribution would cause our liabilities to exceed the fair value of our assets. • We may lack sufficient cash to pay distributions to our unitholders due to shortfalls in cash generated from operations attributable to a number of operational, commercial, or other factors as well as increases in our operating or general and administrative expenses, principal and interest payments on our outstanding debt, working-capital requirements, and anticipated cash needs. We expect to continue to distribute a substantial majority of our cash from operations to our unitholders on a quarterly basis, after, among other things, the establishment of cash reserves. To fund our growth, we may eventually need capital in excess of the amounts we may retain in our business or borrow under our Credit Facility. To the extent efforts to access capital externally are unsuccessful, our ability to grow could be significantly impaired. Any distributions paid on our common units with respect to a quarter will be paid within 60 days after the end of such quarter. 49 Subordinated Units The limited partners of BSM’s Predecessor acquired all of our subordinated units in connection with our IPO. The subordination period under the partnership agreement ended on the first business day after we 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 our common units. This test was met upon the payment of the distribution for the first quarter of 2019. Accordingly, 96,328,836 subordinated units converted into 96,328,836 common units on May 24, 2019 and common units are no longer entitled to arrearages. Series B Cumulative Convertible Preferred Units The holders of our Series B cumulative convertible preferred units receive cumulative quarterly distributions in an amount equal to 7.0% of the face amount of the preferred units per annum (the “Distribution Rate”), provided that the Distribution Rate will be adjusted as follows: commencing on November 28, 2023 and readjusting every two years thereafter (each, a “Readjustment Date”), the rate will equal the greater of (i) the Distribution Rate in effect immediately prior to the relevant Readjustment Date and (ii) the 10-year Treasury Rate as of such Readjustment Date plus 5.5% per annum; provided, however, that for any quarter in which quarterly distributions are accrued but unpaid, the then-Distribution Rate shall be increased by 2.0% per annum for such quarter. We cannot pay any distributions on any junior securities, including any of our common units, prior to paying the quarterly distribution payable to the preferred units, including any previously accrued and unpaid distributions. ITEM 6. RESERVED 50