What changed in this filing

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Item 1. Financial Statements

2023-10-31 compared with 2023-08-01 · 92 added, 59 removed, 485 unchanged (24% of the section changed)

4 unchanged sentences

(In thousands)

June 30, 2023 December 31, 2022

September 30, 2023 December 31, 2022

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 $ 897,836 and $ 909,344 at June 30, 2023 and December 31, 2022, respectively

Oil and natural gas properties, at cost, using the successful efforts method of accounting, includes unproved properties of $ 898,768 and $ 909,344 at September 30, 2023 and December 31, 2022, respectively

3,008,650 3,003,907

1 unchanged sentence

Oil and natural gas properties, net 1,058,324 1,086,988

Other property and equipment, net of accumulated depreciation of $ 13,807 and $ 13,461 at June 30, 2023 and December 31, 2022, respectively

Other property and equipment, net of accumulated depreciation of $ 13,988 and $ 13,461 at September 30, 2023 and December 31, 2022, respectively

NET PROPERTY AND EQUIPMENT 1,059,414 1,088,247

17 unchanged sentences

MEZZANINE EQUITY

Partners' equity – Series B cumulative convertible preferred units, 14,711 units outstanding at June 30, 2023 and December 31, 2022, respectively

Partners' equity – Series B cumulative convertible preferred units, 14,711 units outstanding at September 30, 2023 and December 31, 2022

298,361 298,361

Partners' equity – general partner interest — —

Partners' equity – common units, 209,968 and 209,407 units outstanding at June 30, 2023 and December 31, 2022, respectively

Partners' equity – common units, 209,986 and 209,407 units outstanding at September 30, 2023 and December 31, 2022, respectively

875,022 911,451

6 unchanged sentences

(In thousands, except per unit amounts)

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

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

2023 2022 2023 2022

55 unchanged sentences

BALANCE AT JUNE 30, 2023 209,968 $ 914,880

Restricted units granted, net of forfeitures 18 —

Equity–based compensation — 3,530

Distributions — ( 99,744 )

Charges to partners' equity for accrued distribution equivalent rights — ( 461 )

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

Net income (loss) — 62,067

BALANCE AT SEPTEMBER 30, 2023 209,986 $ 875,022

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

15 unchanged sentences

BALANCE AT JUNE 30, 2022 209,399 $ 744,327

Restricted units granted, net of forfeitures 3 —

Equity–based compensation — 4,084

Distributions — ( 87,949 )

Charges to partners' equity for accrued distribution equivalent rights — ( 460 )

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

Net income (loss) — 168,475

BALANCE AT SEPTEMBER 30, 2022 209,402 $ 823,227

The accompanying notes are an integral part of these unaudited consolidated financial statements.

3 unchanged sentences

(In thousands)

Six Months Ended June 30,

Nine Months Ended September 30,

CASH FLOWS FROM OPERATING ACTIVITIES

15 unchanged sentences

CASH FLOWS FROM INVESTING ACTIVITIES

Acquisitions of oil and natural gas properties ( 932 ) ( 132 )

Additions to oil and natural gas properties ( 3,720 ) ( 11,811 )

35 unchanged sentences

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

The results of operations for the six months ended June 30, 2023 are not necessarily indicative of the results to be expected for the full year.

The results of operations for the nine months ended September 30, 2023 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 2022 Annual Report on Form 10-K.

There have been no changes in such policies or the application of such policies during the six months ended June 30, 2023.

There have been no changes in such policies or the application of such policies during the nine months ended September 30, 2023.

Accounts Receivable

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

June 30, 2023 December 31, 2022

September 30, 2023 December 31, 2022

(in thousands)

4 unchanged sentences

NOTE 3 - OIL AND NATURAL GAS PROPERTIES

Acquisitions and divestitures

The Partnership had no material acquisition or divestiture activity during 2022 or the six months ended June 30, 2023.

The Partnership had no material divestiture activity during 2022 or the nine months ended September 30, 2023.

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.

In the third quarter of 2023, the Partnership acquired mineral and royalty acreage in East Texas from various sellers for aggregate cash consideration of $ 0.9 million.

These acquisitions were considered asset acquisitions and were funded with cash from operating activities.

The Partnership had no material acquisition activity during the nine months ended September 30, 2022.

Farmout Agreements

1 unchanged sentence

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.

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.

San Augustine Farmout

6 unchanged sentences

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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 May 2021, the Partnership entered into a 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").

3 unchanged sentences

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 June 30, 2023, 15 wells have been spud by Aethon in the contract area subject to the Canaan, Azul, and JWM Farmouts.

As of September 30, 2023, 17 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:

14 unchanged sentences

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, 10 wells to be drilled in the second program year, and, beginning with the third program year, 15 wells per year beginning thereafter.

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

In November 2020, the Partnership entered into a 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.

2 unchanged sentences

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 June 30, 2023, 34 wells have been spud by Aethon in the contract area subject to the Pivotal Farmout.

As of September 30, 2023, 45 wells have been spud by Aethon in the contract area subject to the Pivotal Farmout.

BLACK STONE MINERALS, L.P.

5 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.

The Partnership did not recognize any impairment of oil and natural gas properties for the three and six months ended June 30, 2023 and 2022, respectively.

The Partnership did not recognize any impairment of oil and natural gas properties for the three and nine months ended September 30, 2023 and 2022.

See Note 5 - Fair Value Measurements for further discussion.

7 unchanged sentences

The Partnership does not enter into derivative instruments for speculative purposes.

As of June 30, 2023, the Partnership’s open derivative contracts consisted of fixed-price swap contracts.

As of September 30, 2023, 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 June 30, 2023 and December 31, 2022.

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 June 30, 2023, the Partnership had seven counterparties, all of which are rated Baa1 or better by Moody’s and are lenders under the Credit Facility.

As of September 30, 2023, 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:

June 30, 2023

September 30, 2023

Classification Balance Sheet Location Gross

31 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 June 30, Six Months Ended June 30,

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

Derivatives not designated as hedging instruments 2023 2022 2023 2022

7 unchanged sentences

Ending fair value of commodity derivative instruments $ ( 65 ) $ ( 43,073 ) $ ( 65 ) $ ( 43,073 )

The Partnership had the following open derivative contracts for oil as of June 30, 2023:

The Partnership had the following open derivative contracts for oil as of September 30, 2023:

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

1 unchanged sentence

Oil Swap Contracts:

Second Quarter 180,000 $ 80.80 $ 73.00 $ 89.50

Third Quarter 180,000 $ 80.80 $ 73.00 $ 89.50

4 unchanged sentences

Fourth Quarter 450,000 68.98 67.00 72.82

The Partnership had the following open derivative contracts for natural gas as of June 30, 2023:

BLACK STONE MINERALS, L.P.

AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

The Partnership had the following open derivative contracts for natural gas as of September 30, 2023:

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

1 unchanged sentence

Natural Gas Swap Contracts:

Fourth Quarter 8,280,000 5.15 3.28 6.59

First Quarter 10,010,000 $ 3.57 $ 3.48 $ 3.76

Second Quarter 10,010,000 3.57 3.48 3.76

Third Quarter 10,120,000 3.57 3.48 3.76

Fourth Quarter 10,120,000 3.57 3.48 3.76

The Partnership entered into the following derivative contracts for oil subsequent to September 30, 2023:

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

Period and Type of Contract Volume (Bbl) Low High

Oil Swap Contracts:

First Quarter 120,000 $ 80.71 $ 80.35 $ 81.00

2 unchanged sentences

Fourth Quarter 120,000 80.71 80.35 81.00

BLACK STONE MINERALS, L.P.

AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5 - FAIR VALUE MEASUREMENTS

11 unchanged sentences

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 June 30, 2023 and December 31, 2022 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 carrying value of all debt as of September 30, 2023 and December 31, 2022 approximated the fair value due to variable market rates of interest.

These debt fair values, which are Level 3

BLACK STONE MINERALS, L.P.

AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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.

2 unchanged sentences

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 June 30, 2023

As of September 30, 2023

Financial Assets

12 unchanged sentences

The Partnership has designated these measurements as Level 3.

The Partnership had no business combinations for the six months ended June 30, 2023 or the year ended December 31, 2022.

The Partnership had no business combinations for the nine months ended September 30, 2023 or the year ended December 31, 2022.

See Note 3 - Oil and Natural Gas Properties.

4 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 June 30, 2023 or December 31, 2022.

There were no assets measured at fair value on a non-recurring basis for the six months ended June 30, 2023 or the year ended December 31, 2022.

There were no significant changes in valuation techniques or related inputs as of September 30, 2023 or December 31, 2022.

There were no assets measured at fair value on a non-recurring basis for the nine months ended September 30, 2023 or the year ended December 31, 2022.

BLACK STONE MINERALS, L.P.

10 unchanged sentences

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

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

In October 2022, the Partnership revised and amended the Credit Facility to extend the maturity date from November 1, 2024 to October 31, 2027.

1 unchanged sentence

The April 2023 borrowing base redetermination reaffirmed the borrowing base at $ 550.0 million with cash commitments at $ 375.0 million.

The next semi-annual redetermination is scheduled for October 2023.

The October 2023 borrowing base redetermination increased the borrowing base to $ 580.0 million with no change to the cash commitments.

The next semi-annual redetermination is scheduled for April 2024.

In October 2022, the Credit Facility was amended to replace the LIBOR rate with the secured overnight financing rate published by the Federal Reserve Bank of New York ("SOFR").

Outstanding borrowings under the Credit Facility bear interest at a floating rate elected by the Partnership equal to a base rate (which is a rate per annum equal to the highest of (a) the Prime Rate in effect on such day, (b) the Federal Funds Rate in effect on such day plus 0.50 %, and (c) Adjusted Term SOFR for a one month tenor in effect on such day plus 1.00 %) or Adjusted Term SOFR, in each case, plus the applicable margin.

As of December 31, 2022 and June 30, 2023, the applicable margin for the alternative base rate ranged from 1.50 % to 2.50 % and the Adjusted Term SOFR margin 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 7.30 % during the quarter ended June 30, 2023 and the weighted-average interest rate was 6.92 % as of December 31, 2022.

As of December 31, 2022 and September 30, 2023, the applicable margin for the alternative base rate ranged from 1.50 % to 2.50 % and the Adjusted Term SOFR margin 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 7.33 % during the nine months ended September 30, 2023 and 6.92 % as of December 31, 2022.

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 June 30, 2023, the Partnership was in compliance with all financial covenants in the Credit Facility.

The aggregate principal balance outstanding was zero and $ 10.0 million at June 30, 2023 and December 31, 2022, respectively.

The unused portion of the available borrowings under the Credit Facility were $ 375.0 million and $ 365.0 million at June 30, 2023 and December 31, 2022, respectively.

As of September 30, 2023, the Partnership was in compliance with all financial covenants in the Credit Facility.

The aggregate principal balance outstanding was zero and $ 10.0 million at September 30, 2023 and December 31, 2022, respectively.

The unused portion of the available borrowings under the Credit Facility were $ 375.0 million and $ 365.0 million at September 30, 2023 and December 31, 2022, respectively.

NOTE 7 - COMMITMENTS AND CONTINGENCIES

7 unchanged sentences

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 June 30, 2023 will be resolved without material adverse effect on the Partnership’s financial condition or operations.

The Partnership believes existing claims as of September 30, 2023 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 June 30, Six Months Ended June 30,

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

2023 2022 2023 2022

6 unchanged sentences

$ 5,080 $ 5,956 $ 11,648 $ 16,190

For the six months ended June 30, 2023, the Partnership repurchased 357,761 common units at an average price of $ 15.36 per unit for the purpose of satisfying tax withholding obligations upon the vesting of certain long-term incentive equity awards held by our executive officers and certain other employees.

For the nine months ended September 30, 2023, the Partnership repurchased 357,761 common units at an average price of $ 15.36 per unit for the purpose of satisfying tax withholding obligations upon the vesting of certain long-term incentive equity awards held by our executive officers and certain other employees.

Specifically, when an employee's equity award vests, the Partnership withholds a portion of the shares to cover the employee's tax liability.

7 unchanged sentences

Total compensation expense to be recognized over the life of the Aspirational Awards consists of $ 5.7 million for the performance cash awards and $ 14.9 million for the performance equity awards ( 1,244,945 performance units with a weighted-average grant date fair value of $ 11.93 per unit).

As of June 30, 2023, the Partnership determined achievement of the performance condition was not yet probable and no expense was recognized.

As of September 30, 2023, the Partnership determined achievement of the performance condition was not yet probable and no expense was recognized.

NOTE 9 - PREFERRED UNITS

13 unchanged sentences

Thereafter, the Partnership may redeem the Series B cumulative convertible preferred units at par within a 90 day period on each second anniversary following November 28, 2023.

The Series B cumulative convertible preferred units had a carrying value of $ 298.4 million, including accrued distributions of $ 5.3 million, as of June 30, 2023 and December 31, 2022.

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, 2023 and December 31, 2022.

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.

12 unchanged sentences

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

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

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

2023 2022 2023 2022

18 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 June 30, Six Months Ended June 30,

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

2023 2022 2023 2022

2 unchanged sentences

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

14,969 — — 14,969

NOTE 11 - COMMON UNITS

10 unchanged sentences

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

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

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

2023 2022 2023 2022

1 unchanged sentence

NOTE 12 - SUBSEQUENT EVENTS

On July 25, 2023, the Board approved a distribution for the three months ended June 30, 2023 of $ 0.475 per common unit.

Distributions will be payable on August 18, 2023 to unitholders of record at the close of business on August 11, 2023.

On October 18, 2023, the Board approved a distribution for the three months ended September 30, 2023 of $ 0.475 per common unit.

Distributions will be payable on November 16, 2023 to unitholders of record at the close of business on November 9, 2023.

On October 30, 2023, the Board authorized a $ 150 million unit repurchase program, terminating its existing $ 75 million program authorized in 2018.

The unit repurchase program authorized the Partnership to make repurchases on a discretionary basis as determined by management, subject to market condition, applicable legal requirements, available liquidity, and other appropriate factors.

All or a portion of any repurchases may be made under a Rule 10b5-1 plan, which would permit common units to be repurchased when the Partnership might otherwise be precluded from doing so under applicable laws.

The repurchase program does not obligate the Partnership to acquire any particular number of common units and may be modified or suspended at any time and could be terminated prior to completion.

The Partnership will periodically report the number of common units repurchased.

The program will be funded from the Partnership’s cash on hand or through borrowings under the credit facility.

Any repurchased units will be canceled.

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