What changed in this filing

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Item 1. Financial Statements

2022-05-03 compared with 2021-11-02 · 119 added, 189 removed, 409 unchanged (43% of the section changed)

4 unchanged sentences

(In thousands)

September 30, 2021 December 31, 2020

March 31, 2022 December 31, 2021

CURRENT ASSETS

1 unchanged sentence

Accounts receivable 99,463 97,142

Commodity derivative assets — 1,149

Prepaid expenses and other current assets 1,866 1,956

1 unchanged sentence

PROPERTY AND EQUIPMENT

Oil and natural gas properties, at cost, using the successful efforts method of accounting, includes unproved properties of $ 947,538 and $ 937,464 at September 30, 2021 and December 31, 2020, respectively

Oil and natural gas properties, at cost, using the successful efforts method of accounting, includes unproved properties of $ 937,395 and $ 937,395 at March 31, 2022 and December 31, 2021, respectively

3,003,776 3,001,627

1 unchanged sentence

Oil and natural gas properties, net 1,123,283 1,131,896

Other property and equipment, net of accumulated depreciation of $ 12,778 and $ 12,292 at September 30, 2021 and December 31, 2020, respectively

Other property and equipment, net of accumulated depreciation of $ 13,000 and $ 12,931 at March 31, 2022 and December 31, 2021, respectively

NET PROPERTY AND EQUIPMENT 1,124,545 1,133,336

17 unchanged sentences

MEZZANINE EQUITY

Partners' equity – Series B cumulative convertible preferred units, 14,711 units outstanding at September 30, 2021 and December 31, 2020

Partners' equity – Series B cumulative convertible preferred units, 14,711 units outstanding at March 31, 2022 and December 31, 2021, respectively

298,361 298,361

Partners' equity – general partner interest — —

Partners' equity – common units, 208,660 and 206,749 units outstanding at September 30, 2021 and December 31, 2020, respectively

Partners' equity – common units, 209,392 and 208,666 units outstanding at March 31, 2022 and December 31, 2021, respectively

699,788 765,268

6 unchanged sentences

(In thousands, except per unit amounts)

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

2021 2020 2021 2020

Three Months Ended March 31,

Oil and condensate sales $ 75,831 $ 44,176

9 unchanged sentences

Depreciation, depletion, and amortization 10,917 15,632

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

General and administrative 13,763 12,852

Accretion of asset retirement obligations 202 292

(Gain) loss on sale of assets, net ( 2,850 ) ( 24,045 ) ( 2,850 ) ( 24,045 )

TOTAL OPERATING EXPENSE 42,172 44,355

1 unchanged sentence

OTHER INCOME (EXPENSE)

Interest and investment income — 1 — 35

Interest expense ( 1,209 ) ( 1,210 )

29 unchanged sentences

BALANCE AT MARCH 31, 2022 209,392 $ 699,788 $ 699,788

Issuance of common units for property acquisitions 1,088 10,766 10,766

Restricted units granted, net of forfeitures 7 — —

Equity–based compensation — 2,820 2,820

Distributions — ( 36,321 ) ( 36,321 )

Charges to partners' equity for accrued distribution equivalent rights — ( 180 ) ( 180 )

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

Net income (loss) — 15,429 15,429

BALANCE AT JUNE 30, 2021 208,637 $ 725,693 $ 725,693

Restricted units granted, net of forfeitures 23 — —

Equity–based compensation — 2,903 2,903

Distributions — ( 52,165 ) ( 52,165 )

Charges to partners' equity for accrued distribution equivalent rights — ( 275 ) ( 275 )

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

Net income (loss) — 16,178 16,178

BALANCE AT SEPTEMBER 30, 2021 208,660 $ 687,084 $ 687,084

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 Partners' equity — common units Total equity

8 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.

3 unchanged sentences

(In thousands)

Nine Months Ended September 30,

Three Months Ended March 31,

CASH FLOWS FROM OPERATING ACTIVITIES

2 unchanged sentences

Depreciation, depletion, and amortization 10,917 15,632

Impairment of oil and natural gas properties — 51,031

Accretion of asset retirement obligations 202 292

4 unchanged sentences

Exploratory dry hole expense — 1,049

(Gain) loss on sale of assets, net ( 2,850 ) ( 24,045 )

Changes in operating assets and liabilities:

5 unchanged sentences

CASH FLOWS FROM INVESTING ACTIVITIES

Acquisitions of oil and natural gas properties ( 10,064 ) ( 28 )

Additions to oil and natural gas properties ( 3,658 ) ( 191 )

1 unchanged sentence

Purchases of other property and equipment ( 31 ) ( 2 )

Proceeds from the sale of oil and natural gas properties 317 151,513

Proceeds from farmouts of oil and natural gas properties 3,593 —

NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES ( 13,891 ) 150,640

NET CASH USED IN INVESTING ACTIVITIES ( 96 ) ( 214 )

CASH FLOWS FROM FINANCING ACTIVITIES

4 unchanged sentences

Repayments under credit facility ( 78,000 ) ( 49,000 )

Debt issuance costs and other ( 3,602 ) —

NET CASH USED IN FINANCING ACTIVITIES ( 84,703 ) ( 53,479 )

22 unchanged sentences

The unaudited interim consolidated financial statements include the consolidated results of the Partnership.

The results of operations for the nine months ended September 30, 2021 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, 2022 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 2021 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, 2021.

There have been no changes in such policies or the application of such policies during the three months ended March 31, 2022.

Accounts Receivable

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

September 30, 2021 December 31, 2020

March 31, 2022 December 31, 2021

(in thousands)

3 unchanged sentences

Total accounts receivable $ 99,463 $ 97,142

BLACK STONE MINERALS, L.P.

AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3 - OIL AND NATURAL GAS PROPERTIES

1 unchanged sentence

Acquisitions that consist of all or substantially all unproved oil and natural gas properties are generally considered asset acquisitions and are recorded at cost.

In the second quarter of 2021, the Partnership closed an acquisition of mineral and royalty acreage in the northern Midland Basin for total consideration of $ 20.8 million.

In May 2021, the Partnership closed an acquisition of mineral and royalty acreage in the northern Midland Basin for total consideration of $ 20.8 million.

The purchase price consisted of $ 10.0 million in cash and $ 10.8 million in common units of the Partnership.

2 unchanged sentences

The assets acquired consisted of $ 4.9 million of proved oil and natural gas properties, $ 15.6 million of unproved oil and natural gas properties, and $ 0.3 million of net working capital.

Acquisition related costs of $ 0.3 million were expensed and included in the General and administrative line of the consolidated statement of operations for the nine months ended September 30, 2021.

In the third quarter of 2021, the Partnership closed on the divestiture of its wholly owned subsidiary, TLW Investments, L.L.C.

2 unchanged sentences

TLW's assets and liabilities consisted of oil and natural gas properties with a net book value of $ 3.0 million and asset retirement obligations with a book value of $ 5.7 million at the time of sale.

The Partnership recognized a $ 2.9 million gain associated with the divestiture 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, 2021.

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 $ 150.6 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 $ 96.1 million.

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.

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 mineral and royalty interest acquisitions.

The Partnership has entered into farmout arrangements designed to reduce its working interest capital expenditures and thereby significantly lower its capital spending other than for mineral and royalty interest 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.

Canaan Farmout

In February 2017, the Partnership entered into a farmout agreement (the "First Canaan Farmout") with Canaan Resource Partners ("Canaan") covering certain Haynesville and Bossier shale acreage in San Augustine County, Texas jointly owned with and operated by XTO Energy Inc.

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

The Partnership had an approximate 50 % working interest in the acreage.

Under the terms of the First Canaan Farmout, Canaan funded 80 % of the Partnership's drilling and completion costs and was assigned 80 % of the Partnership's working interests in covered wells ( 40 % working interest on an 8/8ths basis) as the wells were drilled.

The Partnership received an ORRI before payout and an increased ORRI after payout on all wells drilled under the First Canaan Farmout .

Canaan's rights and obligations to participate in future wells in the contract area were terminated in the second quarter of 2021 in conjunction with Canaan and the Partnership entering into a new farmout agreement as discussed below.

Canaan participated in a total of 37 wells under the First Canaan Farmout.

In 2017, the Partnership entered into farmout arrangements with Canaan Resource Partners ("Canaan") and Pivotal Petroleum Partners ("Pivotal") in the Shelby Trough area of East Texas where the Partnership owns a concentrated, relatively high-interest royalty position.

This area was under active development by XTO Energy Inc.

("XTO") in San Augustine County, Texas and BPX Energy in Angelina County, Texas through 2019.

These farmout agreements were superseded and replaced by the new farmout agreements discussed below.

BLACK STONE MINERALS, L.P.

1 unchanged sentence

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

In 2019, XTO suspended its development activities in the area due to low natural gas prices.

In March 2021, BSM and XTO reached an agreement to partition the jointly owned working interests in the San Augustine County development area.

San Augustine Farmout

In March 2021, BSM and XTO reached an agreement to partition jointly owned working interests in the Brent Miller development area in San Augustine County.

Under the partition agreement, BSM and XTO exchanged working interests in certain existing and proposed drilling units, resulting in each company holding 100 % of the working interests in their respective partitioned units.

1 unchanged sentence

The agreement provides for minimum well commitments by Aethon in exchange for reduced royalty rates and exclusive access to BSM'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 began in the third quarter of 2021, increasing to a minimum of 12 wells per year beginning with the fourth program year.

The agreement calls for a minimum of five wells to be drilled in the initial program year, which began in the third quarter of 2021, increasing to a minimum of twelve 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 discussed below.

On May 25, 2021, the Partnership and Canaan entered into a new farmout agreement (the "Second Canaan Farmout").

The Second Canaan Farmout supersedes and replaces the First Canaan Farmout with respect to the area in San Augustine County covered by the Aethon development agreement.

The Second Canaan Farmout covers part of the Partnership's share of working interests under active development by Aethon in San Augustine County, Texas and continues until May 2031, unless earlier terminated in accordance to the terms of the agreement.

Canaan will earn 80 % of the Partnership's working interest in the partitioned acreage from XTO (up to a maximum of 40 % on an 8/8ths basis) and 50 % of the Partnership's working interest in other areas (up to a maximum of 12.5 % on an 8/8ths basis) in wells drilled and operated by Aethon in accordance with the development agreement.

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

As of September 30, 2021, no wells have been spud in the contract area subject to the Second Canaan Farmout.

The Partnership will receive an ORRI before payout and an increased ORRI after payout on all wells drilled under the Second Canaan Farmout.

Pivotal Farmout

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 covered substantially all of the Partnership's remaining working interests in wells operated by XTO 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.

Under the terms of the First Pivotal Farmout, Pivotal was obligated to fund the development of up to 80 wells, in designated well groups, across several development areas and then had options to continue funding the Partnership's working interest across those areas for the duration of the farmout agreement.

Once Pivotal achieved a specified payout for a designated well group, the Partnership would obtain a majority of the original working interest in such well group.

Pivotal’s rights and obligations to participate in future wells in the contract area were terminated in the fourth quarter of 2020 in conjunction with Pivotal and the Partnership entering into a new farmout agreement as discussed below.

Pivotal participated in a total of 68 wells under the First Pivotal Farmout.

In the second quarter of 2020, the Partnership entered into a development agreement with 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.

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

In May 2021, the Partnership entered into a new farmout agreement (the "Canaan Farmout") with Canaan and in December 2021, the Partnership entered into a farmout agreement (the "Azul Farmout") with Azul-SA, LLC ("Azul").

In April 2022, the Partnership amended the Canaan Farmout and entered into a farmout agreement (the "JWM Farmout") with JWM Oil & Gas LLC ("JWM").

These agreements cover all of the Partnership's share of working interests under active development by Aethon in San Augustine County, Texas and continue for a ten year period, unless earlier terminated in accordance with the terms of the agreements.

Canaan, Azul, and JWM will each earn a percentage of the Partnership's working interest in wells drilled and operated by Aethon within the contract area subject to the agreements.

Canaan, Azul, and JWM are obligated to fund the development of wells drilled by Aethon in the initial program year, and thereafter, have certain rights and options to continue funding the Partnership's working interest for the duration of each farmout agreement.

The Partnership will receive an overriding royalty interest ("ORRI") before payout and an increased ORRI after payout on all wells drilled under the farmout agreements.

As of March 31, 2022, four wells have been spud by Aethon in the contract area subject to the Canaan, Azul, and JWM Farmouts.

The following tables present the working interests each farmout partner will earn within the contract area under the San Augustine farmout agreements:

Brent Miller Area

Farmout Partner % of Partnership's Working Interest Maximum % on an 8/8ths basis

Canaan 64.0 % 32.0 %

Azul 20.0 % 10.0 %

JWM 16.0 % 8.0 %

Total 100.0 % 50.0 %

Farmout Partner % of Partnership's Working Interest Maximum % on an 8/8ths basis

Canaan 40.0 % 10.0 %

Azul 50.0 % 12.5 %

JWM 10.0 % 2.5 %

Total 100.0 % 25.0 %

BLACK STONE MINERALS, L.P.

1 unchanged sentence

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

a designated well group, the Partnership will obtain a majority of the original working interest in such well group.

As of September 30, 2021, a total of six wells have been spud in the contract area subject to the Second Pivotal Farmout.

From the inception of the farmout agreements through September 30, 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, 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.

Angelina Farmout

In May 2020, the Partnership entered into a development agreement with 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 the Partnership's 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 fifteen wells per year beginning with the third program year.

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

The 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 within the contract area subject to the 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 March 31, 2022, ten wells have been spud by Aethon in the contract area subject to the Pivotal Farmout.

Impairment of Oil and Natural Gas Properties

2 unchanged sentences

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.

The Partnership recognized no impairment of oil and natural gas properties for the three and nine months ended September 30, 2021 and the three months ended September 30, 2020.

The Partnership recognized $ 51.0 million of impairment of oil and natural gas properties for the nine months ended September 30, 2020.

The Partnership recognized no impairment of oil and natural gas properties for the three months ended March 31, 2022 and 2021, respectively.

See Note 5 - Fair Value Measurements for further discussion.

3 unchanged sentences

From time to time, such instruments may include variable-to-fixed-price swaps, costless collars, fixed-price contracts and other contractual arrangements.

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 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, 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.

As of March 31, 2022, the Partnership’s open derivative contracts consisted of fixed-price swap contracts.

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, 2021 and December 31, 2020.

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

As of March 31, 2022, the Partnership had six 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, 2021

March 31, 2022

Classification Balance Sheet Location Gross

19 unchanged sentences

Deferred charges and other long-term assets — — —

$ 6,362 $ ( 5,213 ) $ 1,149

Current liability

8 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 2022 2021

7 unchanged sentences

Ending fair value of commodity derivative instruments $ ( 142,321 ) $ ( 43,376 )

The Partnership had the following open derivative contracts for oil as of September 30, 2021:

The Partnership had the following open derivative contracts for oil as of March 31, 2022:

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

1 unchanged sentence

Oil Swap Contracts:

Third Quarter 220,000 $ 38.97 $ 32.64 $ 46.50

Fourth Quarter 660,000 38.97 32.64 46.50

First Quarter 220,000 $ 66.47 $ 55.29 $ 83.91

2 unchanged sentences

Fourth Quarter 660,000 66.47 55.29 83.91

First Quarter 180,000 $ 80.40 $ 78.00 $ 82.80

BLACK STONE MINERALS, L.P.

1 unchanged sentence

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

The Partnership had the following open derivative contracts for natural gas as of September 30, 2021:

The Partnership had the following open derivative contracts for natural gas as of March 31, 2022:

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

1 unchanged sentence

Natural Gas Swap Contracts:

Second Quarter 8,910,000 $ 3.12 $ 2.80 $ 4.30

Third Quarter 9,000,000 3.12 2.80 4.30

Fourth Quarter 9,000,000 3.12 2.80 4.30

3 unchanged sentences

Fourth Quarter 1,840,000 3.28 3.28 3.29

The Partnership entered into the following derivative contracts for natural gas subsequent to March 31, 2022:

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

Period and Type of Contract Volume (MMBtu) Low High

Natural Gas Swap Contracts:

First Quarter 1,800,000 $ 5.04 $ 5.03 $ 5.05

14 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.

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, 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.

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.

BLACK STONE MINERALS, L.P.

1 unchanged sentence

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 March 31, 2022 and December 31, 2021 approximated the fair value due to variable market rates of interest.

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

5 unchanged sentences

(in thousands)

As of September 30, 2021

As of March 31, 2022

Financial Assets

15 unchanged sentences

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 %.

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, 2021

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

Three Months Ended September 30, 2020

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

Nine Months Ended September 30, 2021

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

Nine Months Ended September 30, 2020

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

The Partnership’s estimates of fair value have been determined at discrete points in time based on relevant market data.

1 unchanged sentence

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, 2021 or December 31, 2020.

There were no significant changes in valuation techniques or related inputs as of March 31, 2022 or December 31, 2021.

BLACK STONE MINERALS, L.P.

AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 6 - CREDIT FACILITY

5 unchanged sentences

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.

The April and October 2021 borrowing base redeterminations reaffirmed the borrowing base at $ 400.0 million.

The next semi-annual redetermination is scheduled for April 2022.

The October 2021 and April 2022 borrowing base redeterminations reaffirmed the borrowing base at $ 400.0 million.

The next semi-annual redetermination is scheduled for October 2022.

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.

As of 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.

As of September 30, 2021, the alternative base rate margin ranged from 1.50 % to 2.50 % and the LIBOR margin ranged from 2.50 % to 3.50 %.

The weighted-average interest rate of the Credit Facility was 2.59 % and 2.40 % as of September 30, 2021 and December 31, 2020, respectively.

As of December 31, 2021 and March 31, 2022, the applicable margin for the alternative base rate ranged from 1.50 % to 2.50 % and the applicable margin for LIBOR ranged from 2.50 % to 3.50 %, depending on the borrowings outstanding in relation to the borrowing base.

The weighted-average interest rate of the Credit Facility was 2.94 % and 2.61 % as of March 31, 2022 and December 31, 2021, 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.

4 unchanged sentences

Distributions are not permitted if there is a default under the Credit Facility (including the failure to satisfy one of the financial covenants), if the availability under the Credit Facility is less than 10 % of the lenders' commitments, or if total debt to EBITDAX is greater than 3.0 .

As of September 30, 2021, the Partnership was in compliance with all financial covenants in the Credit Facility.

BLACK STONE MINERALS, L.P.

AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

The aggregate principal balance outstanding was $ 99.0 million and $ 121.0 million at September 30, 2021 and December 31, 2020, respectively.

The unused portion of the available borrowings under the Credit Facility were $ 301.0 million and $ 279.0 million at September 30, 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”).

As of March 31, 2022, the Partnership was in compliance with all financial covenants in the Credit Facility.

The aggregate principal balance outstanding was $ 69.0 million and $ 89.0 million at March 31, 2022 and December 31, 2021, respectively.

The unused portion of the available borrowings under the Credit Facility were $ 331.0 million and $ 311.0 million at March 31, 2022 and December 31, 2021, respectively.

The 1-week and 2-month U.S.

dollar LIBOR settings ceased to be published after December 31, 2021 and the U.K.

Financial Conduct Authority intends to stop persuading or compelling banks to submit LIBOR rates for the remaining U.S.

dollar settings after June 30, 2023.

Our Credit Facility uses the 1-month LIBOR setting and 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.

4 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.

BLACK STONE MINERALS, L.P.

AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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, 2021 will be resolved without material adverse effect on the Partnership’s financial condition or operations.

The Partnership believes existing claims as of March 31, 2022 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,

2021 2020 2021 2020

Three Months Ended March 31,

(in thousands)

2 unchanged sentences

Equity-based compensation—restricted performance units 3,093 2,161

1,762 295 5,620 ( 3,264 )

Board of Directors incentive plan 531 352

1 unchanged sentence

$ 5,547 $ 4,847

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.

In the first quarter of 2022, the board of directors of the Partnership's general partner (the "Board") approved a grant of awards to all employees dependent on the achievement of an aspirational production target to be measured in the fourth quarter of 2025 (the "Aspirational Awards").

The Aspirational Awards include performance cash awards and performance equity awards in the form of restricted performance units.

To the extent earned, each performance unit represents the right to receive one common unit.

The performance cash awards and performance units are eligible to become earned at the end of the requisite service period on December 31, 2025 if the minimum performance metrics are achieved.

The minimum performance metrics are at least 42 Mboe per day of average daily royalty production in either the fourth quarter or the month of December of 2025 while maintaining a net debt to EBITDA ratio less than or equal to 1.0 on December 31, 2025.

Average daily royalty production does not include production attributable to acquisitions consummated during the performance period.

Compensation expense related to the Aspirational Awards will be recorded over the service period when achievement of the performance condition is probable.

Total compensation expense to be recognized over the life of the Aspirational Awards consists of $ 4.7 million for the performance cash awards and $ 16.9 million for the performance equity awards ( 1,463,202 performance units with a weighted-average grant date fair value of $ 11.55 per unit).

As of March 31, 2022, the Partnership determined achievement of the performance condition was not yet probable and no expense was recognized.

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.

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 March 31, 2022 and December 31, 2021.

The Series B cumulative convertible preferred units are

BLACK STONE MINERALS, L.P.

1 unchanged sentence

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

unpaid accumulated distributions on the applicable Series B cumulative convertible preferred units through the most recent declaration date.

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, 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.

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

8 unchanged sentences

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

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

2021 2020 2021 2020

Three Months Ended March 31,

(in thousands, except per unit amounts)

13 unchanged sentences

Weighted average common units outstanding (diluted) 209,323 207,442

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,

2021 2020 2021 2020

Three Months Ended March 31,

(in thousands)

Potentially dilutive securities (common units):

Series B cumulative convertible preferred units on an

as-converted basis

Series B cumulative convertible preferred units on an as-converted basis

14,969 14,969

BLACK STONE MINERALS, L.P.

AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 11 - COMMON UNITS

1 unchanged sentence

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 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 IPO, their transferees, persons who acquired such units with the prior approval of 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:

2 unchanged sentences

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

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

2021 2020 2021 2020

Three Months Ended March 31,

Distributions declared and paid per common unit $ 0.2700 $ 0.1750

2 unchanged sentences

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, 2021.

As of September 30, 2021, 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, 2022.

As of March 31, 2022, 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 27, 2021, the Board approved a distribution for the three months ended September 30, 2021 of $ 0.25 per common unit.

Distributions will be payable on November 19, 2021 to unitholders of record at the close of business on November 12, 2021.

On April 25, 2022, the Board approved a distribution for the three months ended March 31, 2022 of $ 0.40 per common unit.

Distributions will be payable on May 20, 2022 to unitholders of record at the close of business on May 13, 2022.

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