UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended September 30, 2020 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 | --- | --- | |----------------------------------------------------------------------------|------------------------------------------| | | | | For the transition period _____________ ...

Black Stone Minerals, L.P. (NYSE:BSM) Q3 2020 Earnings Conference Call November 3, 2020 10:00 AM ET Company Participants Evan Kiefer - Director of Investor Relations Tom Carter - Chairman & Chief Executive Officer Jeff Wood - President & Chief Financial Officer Conference Call Participants Pearce Hammond - Simmons Energy Harry Halbach - Raymond James Andrew Carreon - University of Notre Dame Derrick Whitfield - Stifel Operator Ladies and gentlemen, thank you for standing by and welcome to the Third Quarter ...

PART I – FINANCIAL INFORMATION [Financial Statements (Unaudited)](index=4&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) The unaudited consolidated financial statements for the period ended June 30, 2020, show total assets decreased to **$1.44 billion**, a net loss of **$8.4 million**, and **$158.0 million** in net cash from operations - Total assets decreased to **$1.44 billion** as of June 30, 2020, from **$1.55 billion** at December 31, 2019, primarily due to a reduction in the value of oil and natural gas properties[12](index=12&type=chunk) - The company reported a net loss of **$8.4 million** for the second quarter of 2020, a significant downturn from the **$95.1 million** net income in the same period of 2019[15](index=15&type=chunk) - Net cash from operating activities for the first six months of 2020 was **$158.0 million**, down from **$201.0 million** in the comparable 2019 period, mainly due to lower commodity prices[25](index=25&type=chunk) [Consolidated Balance Sheets](index=4&type=section&id=Consolidated%20Balance%20Sheets) As of June 30, 2020, total assets decreased to **$1.44 billion** from **$1.55 billion** at year-end 2019, while total liabilities decreased to **$364.8 million** from **$448.4 million** Consolidated Balance Sheet Highlights (in thousands of US dollars) | Metric | June 30, 2020 | Dec 31, 2019 | | :--- | :--- | :--- | | Cash and cash equivalents | $1,600 | $8,119 | | Assets held for sale | $126,491 | $— | | Net Property and Equipment | $1,211,171 | $1,434,228 | | **Total Assets** | **$1,438,838** | **$1,545,208** | | Credit Facility | $323,000 | $394,000 | | **Total Liabilities** | **$364,796** | **$448,404** | | **Total Equity** | **$775,681** | **$798,443** | [Consolidated Statements of Operations](index=5&type=section&id=Consolidated%20Statements%20of%20Operations) For Q2 2020, total revenue was **$38.5 million** and net loss was **$8.4 million**, a significant decline from Q2 2019's **$163.6 million** revenue and **$95.1 million** net income Statement of Operations Highlights (Three Months Ended June 30, in thousands of US dollars) | Metric | 2020 | 2019 | | :--- | :--- | :--- | | Total Revenue | $38,529 | $163,618 | | Income (Loss) from Operations | $(5,314) | $100,666 | | Net Income (Loss) | $(8,371) | $95,087 | | Net Income (Loss) Attributable to Common Units | $(13,621) | $89,837 | | Per common unit (basic) | $(0.07) | $0.45 | - For the six months ended June 30, 2020, the company recognized a **$51.0 million** impairment of oil and natural gas properties, a charge not present in the same period of 2019[15](index=15&type=chunk) [Consolidated Statements of Equity](index=6&type=section&id=Consolidated%20Statements%20of%20Equity) Total equity decreased from **$798.4 million** at year-end 2019 to **$775.7 million** as of June 30, 2020, influenced by **$78.3 million** in distributions and the net loss - Total equity stood at **$775.7 million** as of June 30, 2020, down from **$803.7 million** at March 31, 2020[18](index=18&type=chunk) - On May 24, 2019, all outstanding subordinated units were converted into common units, simplifying the equity structure[21](index=21&type=chunk)[108](index=108&type=chunk) [Consolidated Statements of Cash Flows](index=8&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) For the six months ended June 30, 2020, net cash from operations was **$158.0 million**, investing activities provided **$0.4 million**, and financing activities used **$164.9 million** Cash Flow Summary (Six Months Ended June 30, in thousands of US dollars) | Cash Flow Activity | 2020 | 2019 | | :--- | :--- | :--- | | Net Cash Provided by Operating Activities | $157,969 | $200,976 | | Net Cash Provided by (Used in) Investing Activities | $367 | $(46,013) | | Net Cash Used in Financing Activities | $(164,855) | $(156,471) | | **Net Change in Cash** | **$(6,519)** | **$(1,508)** | [Notes to Unaudited Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Unaudited%20Consolidated%20Financial%20Statements) Key disclosures include the **$150.1 million** sale of Permian Basin assets, a **$51.0 million** impairment charge, and a reduction of the credit facility's borrowing base to **$460.0 million** - In June 2020, the Partnership entered into agreements to sell certain Permian Basin mineral and royalty properties for total proceeds of **$150.1 million**, which closed in July 2020[39](index=39&type=chunk) - A **$51.0 million** impairment of oil and natural gas properties was recognized for the six months ended June 30, 2020, due to the collapse in oil prices during the first quarter[53](index=53&type=chunk)[54](index=54&type=chunk) - The credit facility borrowing base was reduced from **$650.0 million** to **$460.0 million** effective May 1, 2020, and further reduced to **$430.0 million** effective July 21, 2020, following asset sales[83](index=83&type=chunk) - A distribution of **$0.15** per common unit for Q2 2020 was approved and scheduled for payment in August 2020[113](index=113&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A)](index=23&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) The MD&A discusses Q2 2020 revenue decrease due to lower commodity prices and COVID-19, detailing **$150.1 million** in asset sales, new development agreements, and a **$51.0 million** impairment charge [Recent Developments](index=26&type=section&id=Recent%20Developments) Key events include the **$150.1 million** sale of Permian Basin assets, a **$51.0 million** impairment due to COVID-19, and new development agreements in the Shelby Trough - Closed two asset sales in the Permian Basin for total proceeds of **$150.1 million**, which were used to reduce outstanding borrowings; the divested properties produced approximately **1,800 Boe per day**[124](index=124&type=chunk)[125](index=125&type=chunk) - The COVID-19 pandemic and sharp decline in oil prices led to a **$51.0 million** impairment charge and a reduction in the credit facility's borrowing base[128](index=128&type=chunk) - Entered into a new development agreement with Aethon Energy for undeveloped Shelby Trough acreage and an incentive agreement with XTO Energy for **13** drilled but uncompleted (DUC) wells in the same area[129](index=129&type=chunk)[130](index=130&type=chunk) [Business Environment](index=27&type=section&id=Business%20Environment) The business environment was highly volatile due to COVID-19, with WTI oil prices dropping to **$20.51/Barrel** and the U.S. rotary rig count falling to **265** Benchmark Price and Rig Count Trends | Metric | June 30, 2020 | March 31, 2020 | June 30, 2019 | | :--- | :--- | :--- | :--- | | WTI spot oil price (US dollars per Barrel) | $39.27 | $20.51 | $58.20 | | Henry Hub spot natural gas (US dollars per Million British Thermal Units) | $1.76 | $1.71 | $2.42 | | Total U.S. Rotary Rig Count | 265 | 728 | 967 | [How We Evaluate Our Operations](index=28&type=section&id=How%20We%20Evaluate%20Our%20Operations) Management evaluates performance using key metrics like Adjusted EBITDA (**$72.4 million**) and Distributable Cash Flow (**$64.4 million**), employing derivatives to mitigate commodity price volatility Non-GAAP Financial Measures (Three Months Ended June 30, in thousands of US dollars) | Metric | 2020 | 2019 | | :--- | :--- | :--- | | Net income (loss) | $(8,371) | $95,087 | | Adjusted EBITDA | $72,390 | $108,336 | | Distributable cash flow | $64,429 | $97,988 | - As of June 30, 2020, the company had hedged all of its available oil and condensate hedge volumes and **83%** of its available natural gas hedge volumes for the remainder of 2020[157](index=157&type=chunk) [Results of Operations](index=32&type=section&id=Results%20of%20Operations) For Q2 2020, total revenue fell **76.5%** to **$38.5 million** due to lower realized oil prices and production volumes, resulting in a net loss Q2 2020 vs. Q2 2019 Performance | Metric (Three Months Ended June 30) | 2020 | 2019 | % Change | | :--- | :--- | :--- | :--- | | Total Production (Thousand Barrels of Oil Equivalent per day) | 42.6 | 52.2 | (18.4)% | | Realized Oil Price (US dollars per Barrel) | $29.42 | $56.30 | (47.7)% | | Total Revenue (in thousands of US dollars) | $38,529 | $163,618 | (76.5)% | - For the six months ended June 30, 2020, total revenue decreased **10.4%** to **$221.6 million**, cushioned by a **$70.8 million** gain on commodity derivative instruments, compared to a **$12.0 million** loss in the prior-year period[184](index=184&type=chunk)[185](index=185&type=chunk) - General and administrative expenses for the six months ended June 30, 2020 decreased by **$12.2 million** (**34.3%**) compared to 2019, primarily due to lower equity-based compensation and workforce reductions[184](index=184&type=chunk)[196](index=196&type=chunk) [Liquidity and Capital Resources](index=38&type=section&id=Liquidity%20and%20Capital%20Resources) Primary liquidity sources are cash from operations and the credit facility, with **$323.0 million** outstanding as of June 30, 2020, reduced to **$153.0 million** post-asset sales, and a **$430.0 million** borrowing base - As of July 31, 2020, after applying proceeds from asset sales, outstanding borrowings under the Credit Facility were reduced to **$153.0 million**[199](index=199&type=chunk) - The credit facility borrowing base was reduced to **$430.0 million** effective July 21, 2020, providing liquidity but reflecting a lower asset valuation by lenders[199](index=199&type=chunk)[209](index=209&type=chunk) - The 2020 total development capital expenditure budget is expected to be approximately **$3.5 million**, net of farmout reimbursements, indicating minimal capital spending[207](index=207&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=40&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risk is commodity price volatility for oil, natural gas, and NGLs, mitigated by derivatives, with a hypothetical **10%** price reduction leading to a **4.3%** decrease in proved reserve volumes - The company's major market risk exposure is the pricing of oil, natural gas, and NGLs; this risk is managed through the use of commodity derivative instruments[219](index=219&type=chunk) - A hypothetical **10%** reduction in SEC commodity pricing as of June 30, 2020, would result in an approximate **4.3%** reduction of proved reserve volumes[223](index=223&type=chunk) - As of June 30, 2020, a **1%** increase in interest rates on the **$323.0 million** of outstanding debt would have increased interest expense by **$1.6 million** for the six-month period[226](index=226&type=chunk) [Controls and Procedures](index=42&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective as of June 30, 2020, with no material changes to internal control over financial reporting during the quarter - The principal executive officer and principal financial officer concluded that disclosure controls and procedures were effective as of June 30, 2020[227](index=227&type=chunk) - No material changes in internal control over financial reporting occurred during the quarter ended June 30, 2020[228](index=228&type=chunk) PART II – OTHER INFORMATION [Legal Proceedings](index=43&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in routine litigation, which management believes will not materially adversely affect its financial condition or operations - Management does not expect pending litigation, which arises in the ordinary course of business, to have a material adverse effect on its financial condition, cash flows, or results of operations[231](index=231&type=chunk) [Risk Factors](index=43&type=section&id=Item%201A.%20Risk%20Factors) Updated risk factors primarily focus on the significant adverse effects of the COVID-19 pandemic and sharp decline in commodity prices, including reduced demand, potential impairments, and borrowing base reductions - The COVID-19 pandemic and the significant decline in commodity prices in the first half of 2020 have adversely affected the business, with the ultimate effect remaining highly uncertain[233](index=233&type=chunk) - The challenging price environment led to a **$51.0 million** impairment charge and a reduction in the credit facility's borrowing base, with the risk of further reductions if low prices persist[236](index=236&type=chunk) - The company's ability to hedge future production could be limited by declines in production or production forecasts resulting from the low commodity price environment[238](index=238&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=44&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company reported no unregistered sales of equity securities and no purchases of its equity securities by the issuer or its affiliates during the period - There were no unregistered sales of equity securities or issuer purchases of equity securities during the reporting period[241](index=241&type=chunk)[242](index=242&type=chunk) [Other Information](index=44&type=section&id=Item%205.%20Other%20Information) There was no other information to report for the period - None[243](index=243&type=chunk) [Exhibits](index=45&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the 10-Q report, including amendments to the partnership agreement, credit agreement, and certifications by the CEO and CFO as required by the Sarbanes-Oxley Act - Lists various corporate governance documents, credit agreements, and officer certifications filed as exhibits with the report[245](index=245&type=chunk) [Signatures](index=47&type=section&id=Signatures) - The report was duly signed on August 4, 2020, by Thomas L. Carter, Jr. (Chief Executive Officer) and Jeffrey P. Wood (President and Chief Financial Officer)[249](index=249&type=chunk)[251](index=251&type=chunk)[252](index=252&type=chunk)

Financial Data and Key Metrics Changes - The company reported adjusted EBITDA of $72.4 million for Q2 2020, slightly up from Q1 [18] - Distributable cash flow for the quarter was $64.4 million, down slightly from the previous quarter, with a payout ratio of approximately 2.1 times at the announced distribution of $0.15 per unit [18] - Total debt was reduced by over $230 million or 60% from the end of Q1, bringing outstanding debt down to $153 million as of July 31 [12][18] Business Line Data and Key Metrics Changes - The company generated 34,000 BOE per day of mineral and royalty production in Q2, down 7% from the previous quarter, and total production volumes were 42.6 MBOE per day [16] - The company added 2.9 net wells during Q2, a decrease of 25% from the previous quarter, with the majority of the decrease occurring in the Midland and Delaware basins [9][10] Market Data and Key Metrics Changes - There was a 40% to 50% decrease in permitting activity, new well additions, and active rigs across the company's acreage compared to the previous quarter [9] - The company had 29 drilling rigs operating at the end of Q2, down from 50 at the end of Q1 and about 100 a year ago [10] Company Strategy and Development Direction - The company has focused on reducing internal costs, significantly lowering outstanding debt, and driving new activity on existing acreage in response to lower commodity prices and reduced producer activity [8] - A new development agreement was signed with Aethon Energy for the Shelby Trough, with the first well expected to be spud in October [13] - The company is optimistic about future natural gas prices, with expectations from major equity research firms indicating prices above the strip for 2021 [12] Management's Comments on Operating Environment and Future Outlook - Management noted a challenging environment with significant reductions in rig activity and production, but expressed optimism about future development and cash flow returns to unitholders [15] - The company expects continued production declines through the rest of the year, with revised guidance indicating production levels in the mid 30,000 BOE per day range for the latter half of 2020 [19][20] Other Important Information - The company lowered its lease bonus guidance from $20 million to $30 million to under $10 million for the year due to reduced operator willingness to pay large upfront bonuses [21] - G&A expenses are on track to meet or reduce original guidance of $39 million to $43 million, with total G&A through the first half of 2021 at $23.4 million [22] Q&A Session Summary Question: Level of shut-ins in Q2 - Management modeled about 30% shut-ins, primarily concentrated in the Bakken [23][24] Question: Plans for cash payout closer to 100% - The company aims to balance returns for investors with debt repayment, indicating a cautious approach to increasing payout ratios [24] Question: Direction of natural gas volumes in the next year - The Aethon program is expected to ramp up in 2021, with positive developments anticipated in gas volumes [26][27] Question: Reason for slower development in San Augustine - Development pace is influenced by contractual relations with operators, with potential for bringing in additional operators soon [32] Question: Metrics for assessing balance sheet health - The company considers absolute debt levels, borrowing base cushion, and leverage ratios, maintaining a conservative approach in the current environment [39]

Financial Data and Key Metrics Changes - The company withdrew its production and distribution guidance for 2020 due to market uncertainty [8] - Total debt at the end of Q1 was $388 million, reduced to $350 million as of the call date, maintaining a leverage ratio of 1 times trailing EBITDA [11] - The borrowing base was set at $460 million, reflecting the impact of weak commodity prices [10] Business Line Data and Key Metrics Changes - The company added 480,000 barrels per quarter of crude oil hedges at an average price of $36.18 per barrel and 7.3 Bcf per quarter of natural gas hedges at an average price of $2.60 per Mcf, representing about 40% of reported Q1 production [9] Market Data and Key Metrics Changes - U.S. rig counts are down by more than 50%, and global CapEx in the energy sector is down over 30% [12][13] - The company noted a significant decline in active rigs, particularly in the Bakken, where only one rig was running at the end of Q1 [33] Company Strategy and Development Direction - The company is focusing on debt reduction and maintaining a strong balance sheet while preparing for potential market recovery [17] - A deal was signed with Aethon to restart development in the Shelby Trough, which is expected to lead to significant drilling activity [16] - The company aims to take advantage of the optimistic view on natural gas prices to pursue new development opportunities [15] Management's Comments on Operating Environment and Future Outlook - Management acknowledged the challenging environment due to simultaneous supply and demand shocks and the uncertainty surrounding producer activity [12][13] - The company is preparing for a potentially rough period in the oil patch while hoping for a speedy recovery [13] Other Important Information - The company reduced its common unit distribution to $0.08 per unit for the quarter to retain cash flow for debt reduction [15] - Management emphasized the importance of maintaining a strong credit position and liquidity to weather the current storm [10][17] Q&A Session Summary Question: What is needed to start paying out more cash flow? - Management indicated that there is no defined debt metric currently, and they will refine metrics based on production volumes and commodity prices before increasing distributions [19][20] Question: Can you provide details on the Aethon deal? - The company owns approximately 50% of the mineral rights in the area, with a commitment for a minimum of four wells in the first year, potentially increasing to 15 wells per year by the third year [21] Question: What is the interest level in dry gas plays like Haynesville? - Management noted a rebound in interest for dry gas plays due to the collapse in oil prices and a relatively optimistic view on gas [24][25] Question: What is the strategy for 2021 hedging? - The company plans to be methodical in its hedging strategy, focusing on risk removal and ensuring cash flow certainty [26][27] Question: What is the expected impact of production shut-ins? - Management indicated uncertainty regarding the level of volumes impacted by production shut-ins, with a cautious approach to prepare for potential declines [29] Question: Will the credit facility percentage decline as the year progresses? - The company expects to continue paying down debt aggressively and is focused on maintaining a sufficient cushion against the borrowing base [30][31] Question: What will guide the increase in distributable cash flow? - Management stated that reducing debt balances as a percentage of the borrowing base will be crucial before increasing distributions [34]

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended March 31, 2020 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 | --- | --- | --- | --- | --- | --- | |----------------------------------------------------------------------------|-------|-------|-----------|-----------------------------------|------- ...

[Part I](index=9&type=section&id=PART%20I) This section provides an overview of the company's business, properties, estimated reserves, regulatory environment, key risk factors, and legal disclosures [Business and Properties](index=9&type=section&id=ITEMS%201%20AND%202.%20BUSINESS%20AND%20PROPERTIES) The company is a leading owner of U.S. oil and natural gas mineral interests, actively managing and acquiring assets to maximize value - The company's principal business is maximizing the value of its existing mineral and royalty assets through active management and expanding its asset base via acquisitions[79](index=79&type=chunk) Asset and Reserve Overview (as of Dec 31, 2019) | Metric | Value | | :--- | :--- | | Mineral Interests (Gross Acres) | ~16.8 million | | NPRIs (Gross Acres) | 1.8 million | | ORRIs (Gross Acres) | 1.7 million | | Producing Wells | ~69,000 | | Total Estimated Proved Reserves | 68,543 MBoe | | Proved Developed Reserves % | 88.9% | | Reserve Composition | 25% Oil, 75% Natural Gas | - The company has entered into two significant farmout agreements with Canaan Resource Partners and Pivotal Petroleum Partners to reduce working interest capital expenditures in the Haynesville/Bossier shale, retaining value through royalty income and economic interests[96](index=96&type=chunk)[97](index=97&type=chunk)[98](index=98&type=chunk) - For 2019, working interest production represented **25% of total production volumes**. The 2020 capital expenditure budget for non-operated working interests is approximately **$5 million**, mainly for workovers[93](index=93&type=chunk)[94](index=94&type=chunk) [Our Properties and Production](index=13&type=section&id=Our%20Properties%20and%20Production) The company's assets are diversified across six major U.S. geographical regions, with significant contributions from Gulf Coast and Southwestern U.S. in acreage and production Average Daily Production by Interest Type (Boe/d) | Interest Type | 2019 | 2018 | 2017 | | :--- | :--- | :--- | :--- | | Mineral and Royalty Interests | 36,447 | 32,078 | 24,061 | | Working Interests | 12,092 | 14,223 | 12,950 | | **Total** | **48,539** | **46,301** | **37,011** | - The most material resource plays, including Bakken/Three Forks, Haynesville/Bossier, Permian-Midland, Permian-Delaware, and Eagle Ford, accounted for **75% of the company's aggregate production** for the year ended December 31, 2019[111](index=111&type=chunk) Average Daily Production from Material Plays (Boe/d) - 2019 | Resource Play | Mineral & Royalty Interests | Working Interests | | :--- | :--- | :--- | | Haynesville/Bossier | 15,091 | 9,364 | | Bakken/Three Forks | 4,150 | 541 | | Permian-Delaware | 2,932 | 52 | | Permian-Midland | 2,621 | — | | Eagle Ford | 1,631 | 12 | [Estimated Proved Reserves](index=16&type=section&id=Estimated%20Proved%20Reserves) As of December 31, 2019, total proved reserves were 68,543 MBoe, with proved undeveloped reserves increasing to 7,598 MBoe, primarily in the Haynesville/Bossier play Estimated Proved Reserves by Year (MBoe) | Reserve Category | Dec 31, 2019 | Dec 31, 2018 | Dec 31, 2017 | | :--- | :--- | :--- | :--- | | Proved Developed | 60,945 | 63,939 | 56,727 | | Proved Undeveloped | 7,598 | 5,965 | 11,218 | | **Total Proved** | **68,543** | **69,904** | **67,945** | - Reserve estimates as of December 31, 2019 were based on an average WTI spot oil price of **$55.85 per barrel** and an average Henry Hub price of **$2.58 per MMBTU**[131](index=131&type=chunk) Changes in Proved Undeveloped Reserves (PUDs) in 2019 (MBoe) | Category | Volume (MBoe) | | :--- | :--- | | PUDs at Dec 31, 2018 | 5,965 | | Extensions and discoveries | 3,366 | | Revisions of previous estimates | (548) | | Transfers to proved developed | (1,185) | | **PUDs at Dec 31, 2019** | **7,598** | [Environmental Matters and Regulation](index=23&type=section&id=Environmental%20Matters%20and%20Regulation) The company's operations are subject to extensive federal, state, and local environmental laws, with increasing scrutiny on climate change and hydraulic fracturing posing significant risks - Operations are subject to stringent environmental laws (RCRA, CERCLA, CWA, CAA) which can impose substantial penalties and liabilities for non-compliance, potentially impacting production on company properties[152](index=152&type=chunk)[153](index=153&type=chunk)[154](index=154&type=chunk) - The company faces risks related to climate change, including potential new regulations on GHG emissions, litigation from local governments, and financial risks as investors and lenders shift away from fossil fuels[163](index=163&type=chunk)[166](index=166&type=chunk)[167](index=167&type=chunk) - Hydraulic fracturing, a key production technique used by operators, is facing increased public controversy and regulation at state and local levels, particularly concerning water use, induced seismicity, and fluid disclosure. New restrictions could increase costs and delay or prohibit drilling[170](index=170&type=chunk)[172](index=172&type=chunk)[173](index=173&type=chunk) [Risk Factors](index=29&type=section&id=ITEM%201A.%20RISK%20FACTORS) The company faces significant risks from volatile commodity prices, dependence on unaffiliated operators, acquisition challenges, reserve estimate uncertainties, and regulatory changes - The company's financial condition is highly sensitive to **volatile oil and natural gas prices**, which are influenced by factors beyond its control, such as global supply/demand, political conditions, and economic activity[192](index=192&type=chunk)[193](index=193&type=chunk) - A significant portion of 2019 revenue was concentrated with two operators in the Shelby Trough area of the Haynesville play. A slowdown or cessation of drilling activity by these operators poses a **material risk to revenue and cash flow**[216](index=216&type=chunk)[217](index=217&type=chunk) - The credit facility contains restrictive covenants, including a borrowing base determined by lenders that is subject to redetermination. A decrease in the borrowing base due to lower commodity prices or reserve values could force debt repayment and restrict distributions[263](index=263&type=chunk)[265](index=265&type=chunk) - Tax risks for unitholders are significant, including the potential for the partnership to be treated as a corporation for tax purposes, changes in tax law, and the requirement for unitholders to pay taxes on their share of taxable income even if no cash distributions are received[317](index=317&type=chunk)[321](index=321&type=chunk)[331](index=331&type=chunk) [Unresolved Staff Comments](index=56&type=section&id=ITEM%201B.%20UNRESOLVED%20STAFF%20COMMENTS) The company reports that there are no unresolved staff comments from the SEC - None[353](index=353&type=chunk) [Legal Proceedings](index=56&type=section&id=ITEM%203.%20LEGAL%20PROCEEDINGS) The company states that while it may be involved in various legal claims in the normal course of business, it does not believe their resolution will have a material adverse impact on its financial condition or results of operations - The company is not involved in any legal proceedings that are expected to have a **material adverse impact** on its financial condition or operations[354](index=354&type=chunk) [Mine Safety Disclosures](index=56&type=section&id=ITEM%204.%20MINE%20SAFETY%20DISCLOSURES) This section is not applicable to the company - Not applicable[355](index=355&type=chunk) [Part II](index=57&type=section&id=PART%20II) This section details the market for common equity, selected financial data, management's discussion and analysis, market risk disclosures, and the consolidated financial statements [Market for Common Equity, Unitholder Matters, and Issuer Purchases](index=57&type=section&id=ITEM%205.%20MARKET%20FOR%20REGISTRANT%27S%20COMMON%20EQUITY%2C%20RELATED%20UNITHOLDER%20MATTERS%2C%20AND%20ISSUER%20PURCHASES%20OF%20EQUITY%20SECURITIES) The company's common units trade on the NYSE, with cash distributions prioritized for Series B preferred unitholders and a common unit repurchase program in place - The Board determines the quarterly cash distribution after reviewing cash generated from operations, with distributions to Series B preferred unitholders having priority. The policy is discretionary and subject to restrictions from the credit facility[367](index=367&type=chunk)[368](index=368&type=chunk)[372](index=372&type=chunk) - The subordination period ended in Q1 2019, leading to the conversion of **96,328,836 subordinated units** into common units on May 24, 2019[380](index=380&type=chunk) - A common unit repurchase program of up to **$75.0 million** was authorized in November 2018. As of December 31, 2019, a total of **$4.2 million** in common units had been repurchased since the program's inception[366](index=366&type=chunk)[394](index=394&type=chunk) [Selected Financial Data](index=61&type=section&id=ITEM%206.%20SELECTED%20FINANCIAL%20DATA) For 2019, total revenue was $487.8 million and net income was $214.4 million, both decreases from 2018, while long-term debt decreased and cash distributions per common unit increased Selected Financial Data (in thousands, except per unit amounts) | Metric | 2019 | 2018 | 2017 | | :--- | :--- | :--- | :--- | | Total revenue | $487,821 | $609,568 | $429,659 | | Net income (loss) | $214,368 | $295,560 | $157,153 | | Long-term debt | $394,000 | $410,000 | $388,000 | | Total assets | $1,545,208 | $1,750,124 | $1,576,451 | | Cash distributions declared per common unit | $1.48 | $1.33 | $1.20 | [Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A)](index=62&type=section&id=ITEM%207.%20MANAGEMENT%27S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) In 2019, total revenue decreased by 20% due to lower commodity prices despite increased production, with net income falling and liquidity maintained through operations and a credit facility - Recent developments include significant steps to reduce general and administrative expenses through workforce reductions and lower executive compensation, resulting in an expected one-time charge of approximately **$5 million** in Q1 2020[389](index=389&type=chunk) - Drilling activity has slowed in the key Shelby Trough area, with XTO Energy postponing activity and BPX Energy releasing over **100,000 gross acres**. The company expects to place this acreage with new operators in 2020[391](index=391&type=chunk) 2019 vs. 2018 Operational and Financial Comparison | Metric | 2019 | 2018 | % Change | | :--- | :--- | :--- | :--- | | Total Production (MBoe) | 17,716 | 16,899 | 4.8% | | Avg. Realized Oil Price ($/Bbl) | $55.20 | $62.53 | (11.7)% | | Avg. Realized Gas Price ($/Mcf) | $2.57 | $3.47 | (25.9)% | | Total Revenue | $487.8M | $609.6M | (20.0)% | | Net Income | $214.4M | $295.6M | (27.5)% | | Adjusted EBITDA | $399.5M | $419.4M | (4.8)% | - The company's primary sources of liquidity are cash from operations and its **$1.0 billion credit facility**, which had a borrowing base of **$650.0 million** and **$394.0 million** outstanding as of Dec 31, 2019[442](index=442&type=chunk)[456](index=456&type=chunk)[459](index=459&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=76&type=section&id=ITEM%207A.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) The company manages commodity price volatility through derivative instruments and is exposed to interest rate risk on its variable-rate credit facility, with counterparty risk managed through highly-rated institutions - The major market risk is **commodity price volatility**. The company uses derivative instruments to reduce this exposure and has not designated them as hedges for accounting purposes[496](index=496&type=chunk) - As of December 31, 2019, the company had hedged **82.6% of its available oil and condensate hedge volumes** and **61.9% of its available natural gas hedge volumes** for 2020[419](index=419&type=chunk) - The company has interest rate risk on its **$394.0 million of outstanding debt**. A hypothetical **1% increase in interest rates** would have increased 2019 interest expense by **$3.9 million**[501](index=501&type=chunk) [Financial Statements and Supplementary Data](index=77&type=section&id=ITEM%208.%20FINANCIAL%20STATEMENTS%20AND%20SUPPLEMENTARY%20DATA) This section includes the company's audited consolidated financial statements for 2019, along with the independent auditor's report and unaudited supplemental oil and natural gas disclosures - This section includes the consolidated financial statements and supplementary data, which begin on page F-1 of the report[502](index=502&type=chunk) [Consolidated Financial Statements](index=90&type=section&id=Consolidated%20Financial%20Statements) The consolidated financial statements present the financial position of Black Stone Minerals, L.P. as of December 31, 2019 and 2018, and the results of its operations and cash flows for the three years ended December 31, 2019 Key Financial Statement Data (Year Ended Dec 31, 2019) | Metric | Amount (in thousands) | | :--- | :--- | | **Balance Sheet** | | | Total Assets | $1,545,208 | | Total Liabilities | $448,404 | | Total Equity | $798,443 | | **Statement of Operations** | | | Total Revenue | $487,821 | | Net Income | $214,368 | | **Statement of Cash Flows** | | | Net Cash from Operating Activities | $412,720 | | Net Cash used in Investing Activities | ($48,623) | | Net Cash used in Financing Activities | ($361,392) | [Notes to Consolidated Financial Statements](index=101&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) The notes provide detailed disclosures on accounting policies, acquisitions, derivative instruments, debt, equity, and other financial matters, including credit facility covenants and unit conversions - The company follows the **successful efforts method** of accounting for its oil and natural gas properties. DD&A is calculated using the units-of-production method based on proved reserves[607](index=607&type=chunk)[610](index=610&type=chunk) - In 2019, the company completed multiple acquisitions of mineral and royalty interests for total consideration of **$44.0 million**, funded by cash and common units[650](index=650&type=chunk)[651](index=651&type=chunk) - As of Dec 31, 2019, the company had open oil swap contracts for 2020 covering **2,520,000 Bbl** at a weighted average price of **$57.32/Bbl** and natural gas swap contracts covering **40,260,000 MMBtu** at a weighted average price of **$2.69/MMBtu**[690](index=690&type=chunk) - The credit facility requires maintaining a total debt to EBITDAX ratio of **3.5:1.0 or less** and a current ratio of **1.0:1.0 or greater**. The company was in compliance with all covenants as of Dec 31, 2019[715](index=715&type=chunk) [Changes in and Disagreements with Accountants](index=77&type=section&id=ITEM%209.%20CHANGES%20IN%20AND%20DISAGREEMENTS%20WITH%20ACCOUNTANTS%20ON%20ACCOUNTING%20AND%20FINANCIAL%20DISCLOSURE) The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None[503](index=503&type=chunk) [Controls and Procedures](index=77&type=section&id=ITEM%209A.%20CONTROLS%20AND%20PROCEDURES) Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of December 31, 2019 - The principal executive officer and principal financial officer concluded that disclosure controls and procedures were effective as of December 31, 2019[504](index=504&type=chunk) - Management assessed internal control over financial reporting using the COSO framework and concluded it was effective as of December 31, 2019[508](index=508&type=chunk) - There were no changes in internal control over financial reporting during the fourth quarter of 2019 that have materially affected, or are reasonably likely to materially affect, internal controls[510](index=510&type=chunk) [Other Information](index=78&type=section&id=ITEM%209B.%20OTHER%20INFORMATION) The company reports no other information for this item - None[511](index=511&type=chunk) [Part III](index=79&type=section&id=PART%20III) This section incorporates information regarding directors, executive officers, corporate governance, executive compensation, security ownership, related transactions, and accounting fees by reference [Directors, Executive Officers, and Corporate Governance](index=79&type=section&id=ITEM%2010.%20DIRECTORS%2C%20EXECUTIVE%20OFFICERS%20AND%20CORPORATE%20GOVERNANCE) Information regarding directors, executive officers, and corporate governance is incorporated by reference from the company's 2020 Annual Meeting proxy statement - Information for this item is incorporated by reference from the 2020 Proxy Statement[514](index=514&type=chunk) [Executive Compensation](index=79&type=section&id=ITEM%2011.%20EXECUTIVE%20COMPENSATION) Information regarding executive compensation is incorporated by reference from the company's 2020 Annual Meeting proxy statement - Information for this item is incorporated by reference from the 2020 Proxy Statement[516](index=516&type=chunk) [Security Ownership and Related Unitholder Matters](index=79&type=section&id=ITEM%2012.%20SECURITY%20OWNERSHIP%20OF%20CERTAIN%20BENEFICIAL%20OWNERS%20AND%20MANAGEMENT%20AND%20RELATED%20UNITHOLDER%20MATTERS) Information regarding security ownership of certain beneficial owners, management, and related unitholder matters is incorporated by reference from the company's 2020 Annual Meeting proxy statement - Information for this item is incorporated by reference from the 2020 Proxy Statement[516](index=516&type=chunk) [Certain Relationships, Related Transactions, and Director Independence](index=79&type=section&id=ITEM%2013.%20CERTAIN%20RELATIONSHIPS%20AND%20RELATED%20TRANSACTIONS%2C%20AND%20DIRECTOR%20INDEPENDENCE) Information regarding certain relationships, related transactions, and director independence is incorporated by reference from the company's 2020 Annual Meeting proxy statement - Information for this item is incorporated by reference from the 2020 Proxy Statement[517](index=517&type=chunk) [Principal Accounting Fees and Services](index=79&type=section&id=ITEM%2014.%20PRINCIPAL%20ACCOUNTING%20FEES%20AND%20SERVICES) Information regarding principal accounting fees and services is incorporated by reference from the company's 2020 Annual Meeting proxy statement - Information for this item is incorporated by reference from the 2020 Proxy Statement[518](index=518&type=chunk) [Part IV](index=80&type=section&id=PART%20IV) This section lists the financial statements, financial statement schedules, and exhibits filed as part of the Annual Report [Exhibits and Financial Statement Schedules](index=80&type=section&id=ITEM%2015.%20EXHIBITS%20AND%20FINANCIAL%20STATEMENT%20SCHEDULES) This section lists the financial statements, financial statement schedules, and exhibits filed as part of the Annual Report, including key agreements and certifications - This section provides a list of all exhibits filed with or incorporated by reference into the Form 10-K[523](index=523&type=chunk)

Financial Data and Key Metrics Changes - The company reported a decrease in total debt to $394 million at year-end, down by over $40 million from mid-year, with a debt-to-EBITDA ratio of 1x [13][24] - Royalty volumes increased by 14% from 2018, generating $400 million of adjusted EBITDA for the year [18] - The distribution for the fourth quarter was decreased to $0.30 per share, with a target payout of $1 per share for 2020 to allow for debt reduction [15][50] Business Line Data and Key Metrics Changes - The company added 19.3 net wells in 2019, slightly down from 21 wells in 2018, with a notable increase in the Midland/Delaware program [6] - The Shelby Trough saw 3.5 net wells added, higher than the 2.8 in 2018, but activity slowed in the second half of 2019 due to declining natural gas prices [7] - Working interest volumes are expected to decline by about 25% in 2020, with royalty volumes projected to increase to almost 80% of total production [21] Market Data and Key Metrics Changes - The rig count dropped by 27% since the end of 2018, reflecting a broader industry trend of operators moderating activity [14] - The company saw approximately 1,875 permits added on its acreage in 2019, a 5% increase from 2018, with over half in the Midland/Delaware [9] Company Strategy and Development Direction - The company is focusing on balance sheet strength and has become more selective in acquisitions, prioritizing debt reduction with excess cash flow [10][24] - Discussions are ongoing regarding the development of the Shelby Trough, with a cautious approach to negotiations due to current market conditions [11] - The company plans to reduce G&A costs significantly, including a 20% reduction in headcount and lower executive compensation [16][23] Management's Comments on Operating Environment and Future Outlook - Management acknowledged the tough industry environment, with natural gas prices remaining low and operators trying to live within cash flow [14] - The company remains hopeful for a recovery in gas prices, which could lead to increased drilling activity in the future [12] - The guidance for 2020 reflects a cautious outlook, with expectations of declines in production volumes but a focus on maintaining healthy coverage ratios [20][24] Other Important Information - The company plans to maintain a conservative approach to its balance sheet amid potential challenges in the industry [36] - A one-time charge of about $5 million is expected due to G&A reductions, which will be recorded in the first quarter of 2020 [23] Q&A Session Summary Question: Regarding royalty production outlook and net well addition - Management indicated that the forecast does not assume any net wells in the Shelby Trough, with expectations for a decline in activity in the Haynesville [26][27] Question: Market interest and motivation to release acreage - The company plans to put some acreage into play while keeping certain parts out to maintain exposure to potential upside when gas markets recover [29] Question: Management of credit facility and leverage - Management intends to maintain a conservative approach to debt levels, focusing on coverage ratios and potential impacts from market conditions [34][36] Question: Dividend coverage expectations - Management is comfortable with a coverage range of 1.2 to 1.3 times, with a focus on maintaining this level moving forward [37] Question: Production cadence and expected declines - Management expects declines to be more pronounced in the first half of the year, with a potential stabilization in the latter half [38] Question: Working interest investment strategy - The company has shifted to a more permanent stance on withholding investment in working interest wells, focusing on promoting royalty volumes instead [39] Question: Hedging strategy for 2021 - Management has not yet established hedges for 2021 due to challenging market conditions but intends to do so opportunistically [42]

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended September 30, 2019 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 | --- | --- | |----------------------------------------------------------------------------|------------------------------------------| | | | | For the transition period _____________ ...

The Oil & Gas Conference 2019 August 13, 2019 www.blackstoneminerals.com | NYSE: BSM Forward-Looking Statements This presentation contains "forward-looking statements" within the meaning of the securities laws. All statements, other than statements of historical fact, included in this presentation that address activities, events, or developments that Black Stone Minerals, L.P. ("Black Stone Minerals," "Black Stone," "the Partnership," or "BSM") expects, believes, or anticipates will or may occur in the futu ...