Black Stone Minerals(BSM) - 2022 Q1 - Quarterly Report

PART I – FINANCIAL INFORMATION This section presents the unaudited consolidated financial statements and management's discussion and analysis for the quarter ended March 31, 2022 Item 1. Financial Statements (Unaudited) This section presents the unaudited consolidated financial statements for Black Stone Minerals, L.P. and its subsidiaries for the quarter ended March 31, 2022, including balance sheets, statements of operations, equity, and cash flows, along with detailed notes explaining business operations, accounting policies, property transactions, derivative instruments, fair value measurements, credit facility, commitments, incentive compensation, preferred units, earnings per unit, common units, and subsequent events Consolidated Balance Sheets This section provides a snapshot of the company's financial position, detailing assets, liabilities, and equity at specific points in time | ASSETS / LIABILITIES, MEZZANINE EQUITY, AND EQUITY | March 31, 2022 (in thousands) | December 31, 2021 (in thousands) | | :------------------------------------------------- | :---------------------------- | :------------------------------- | | TOTAL ASSETS | $1,238,569 | $1,247,921 | | TOTAL LIABILITIES | $240,420 | $184,292 | | MEZZANINE EQUITY | $298,361 | $298,361 | | TOTAL EQUITY | $699,788 | $765,268 | | TOTAL LIABILITIES, MEZZANINE EQUITY, AND EQUITY| $1,238,569 | $1,247,921 | - Total assets decreased by approximately $9.35 million from December 31, 2021, to March 31, 2022[10] - Total liabilities increased significantly by approximately $56.13 million, primarily driven by a rise in commodity derivative liabilities[10] Consolidated Statements of Operations This section details the company's financial performance over a period, including revenues, expenses, and net income or loss | Metric (in thousands, except per unit amounts) | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :--------------------------------------------- | :-------------------------------- | :-------------------------------- | | TOTAL REVENUE | $36,424 | $61,568 | | INCOME (LOSS) FROM OPERATIONS | $(5,748) | $17,213 | | NET INCOME (LOSS) | $(7,002) | $16,186 | | NET INCOME (LOSS) ATTRIBUTABLE TO THE GENERAL PARTNER AND COMMON UNITS | $(12,252) | $10,936 | | Per common unit (basic) | $(0.06) | $0.05 | | Per common unit (diluted) | $(0.06) | $0.05 | - Total revenue decreased by 40.8% from $61.57 million in Q1 2021 to $36.42 million in Q1 2022, primarily due to a significant increase in losses on commodity derivative instruments[14] - The company reported a net loss of $7.00 million in Q1 2022, a substantial decline from a net income of $16.19 million in Q1 2021[14] Consolidated Statements of Equity This section outlines changes in the company's equity, reflecting transactions with owners and comprehensive income | Metric (in thousands) | March 31, 2022 | December 31, 2021 | | :-------------------- | :------------- | :---------------- | | Total equity | $699,788 | $765,268 | | Common units outstanding | 209,392 | 208,666 | - Total equity decreased by $65.48 million from December 31, 2021, to March 31, 2022, primarily due to distributions and net loss[17] - Common units outstanding increased from 208,666 to 209,392, despite repurchases, due to restricted units granted[17] Consolidated Statements of Cash Flows This section summarizes the cash inflows and outflows from operating, investing, and financing activities over a period | Cash Flow Activity (in thousands) | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | NET CASH PROVIDED BY OPERATING ACTIVITIES | $82,576 | $55,686 | | NET CASH USED IN INVESTING ACTIVITIES | $(96) | $(214) |\ | NET CASH USED IN FINANCING ACTIVITIES | $(84,703) | $(53,479) |\ | NET CHANGE IN CASH AND CASH EQUIVALENTS | $(2,223) | $1,993 |\ | CASH AND CASH EQUIVALENTS – end of the period | $6,653 | $3,789 | - Net cash provided by operating activities increased by $26.89 million, from $55.69 million in Q1 2021 to $82.58 million in Q1 2022[20] - Net cash used in financing activities increased by $31.22 million, from $53.48 million in Q1 2021 to $84.70 million in Q1 2022, primarily due to higher distributions and credit facility repayments[20] Notes to Unaudited Consolidated Financial Statements This section provides detailed explanations and disclosures supporting the unaudited consolidated financial statements NOTE 1 - BUSINESS AND BASIS OF PRESENTATION Black Stone Minerals, L.P. (BSM) is a publicly traded Delaware limited partnership primarily owning non-cost-bearing oil and natural gas mineral and royalty interests across 41 U.S. states, including major onshore basins. The company also holds non-operated working interests. Financial statements are prepared in accordance with GAAP and SEC rules, consolidating all controlled investments and reporting proportionate shares of undivided interests in oil and natural gas property rights. BSM operates as a single reportable segment - BSM's primary business involves owning and managing oil and natural gas mineral interests, which are substantially non-cost-bearing mineral and royalty interests[23] - The Partnership's mineral and royalty interests span 41 states in the continental U.S., covering all major onshore producing basins[23] - BSM operates in a single operating and reportable segment, with the CEO acting as the chief operating decision maker[29] NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES There have been no changes to Black Stone Minerals, L.P.'s significant accounting policies or their application during the three months ended March 31, 2022, as previously disclosed in the 2021 Annual Report on Form 10-K. Accounts receivable primarily consist of revenues from contracts with customers - No changes in significant accounting policies or their application occurred during the three months ended March 31, 2022[32] | Accounts receivable (in thousands) | March 31, 2022 | December 31, 2021 | | :--------------------------------- | :------------- | :---------------- | | Revenues from contracts with customers | $94,691 | $93,005 | | Other | $4,772 | $4,137 | | Total accounts receivable | $99,463 | $97,142 | NOTE 3 - OIL AND NATURAL GAS PROPERTIES This note details BSM's activities related to oil and natural gas properties, including acquisitions, divestitures, and farmout agreements. In May 2021, BSM acquired mineral and royalty acreage in the Midland Basin for $20.8 million. The company divested TLW Investments, L.L.C. in Q3 2021 for $0.2 million. BSM has entered into farmout agreements in the Shelby Trough (San Augustine and Angelina Counties) to reduce capital expenditures, retaining value through overriding royalty interests. No impairment of oil and natural gas properties was recognized for the three months ended March 31, 2022 and 2021 - In May 2021, BSM acquired mineral and royalty acreage in the northern Midland Basin for $20.8 million, consisting of cash and common units[35] - BSM divested its wholly owned subsidiary, TLW Investments, L.L.C., in Q3 2021 for $0.2 million[36] - Farmout agreements in San Augustine and Angelina Counties (Shelby Trough) with partners like Aethon, Canaan, Azul, and JWM are designed to fund working interest development and provide BSM with overriding royalty interests[43][44][49] - No impairment of oil and natural gas properties was recognized for the three months ended March 31, 2022, or 2021[51] NOTE 4 - COMMODITY DERIVATIVE FINANCIAL INSTRUMENTS Black Stone Minerals uses commodity derivative financial instruments, primarily fixed-price swap contracts, to mitigate exposure to oil and natural gas price volatility, not for speculative purposes. These contracts are not designated as hedges, so fair value changes are recognized in the consolidated statement of operations. Derivative liabilities significantly increased from December 31, 2021, to March 31, 2022, driven by unrealized losses due to changes in forward commodity price curves. The Partnership manages credit risk by evaluating counterparties, all of whom are rated Baa1 or better - BSM uses oil and natural gas commodity derivative financial instruments, such as fixed-price swap contracts, to mitigate price risk, not for speculation[52][53] | Derivative Liabilities (in thousands) | March 31, 2022 | December 31, 2021 | | :------------------------------------ | :------------- | :---------------- | | Current commodity derivative liabilities | $138,028 | $51,544 | | Long-term commodity derivative liabilities | $4,293 | $2,001 | | Total liabilities | $142,321 | $53,545 | | Net Change in Fair Value of Commodity Derivative Instruments (in thousands) | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :------------------------------------------------------------------------ | :-------------------------------- | :-------------------------------- | | Beginning fair value | $(53,545) | $(20,017) | | Gain (loss) on oil derivative instruments | $(48,842) | $(24,854) | | Gain (loss) on natural gas derivative instruments | $(71,178) | $(3,028) | | Net cash paid (received) on settlements of oil derivative instruments | $15,892 | $4,502 | | Net cash paid (received) on settlements of natural gas derivative instruments | $15,352 | $21 |\ | Net change in fair value | $(88,776) | $(23,359) |\ | Ending fair value | $(142,321) | $(43,376) | - The Partnership recognized $31.2 million in realized losses and $88.8 million in unrealized losses from commodity contracts in Q1 2022, compared to $4.5 million and $23.4 million, respectively, in Q1 2021[161] NOTE 5 - FAIR VALUE MEASUREMENTS Fair value measurements are categorized into a three-level hierarchy based on input observability. BSM's commodity derivative financial instruments are measured at fair value on a recurring basis using Level 2 inputs (observable market data). Nonfinancial assets like oil and natural gas properties are measured at fair value on a non-recurring basis using Level 3 inputs (unobservable, significant assumptions) for business combinations and impairment assessments. The carrying values of cash, receivables, payables, and debt approximate fair value - Fair value measurements are categorized into Level 1 (quoted prices in active markets), Level 2 (observable inputs), and Level 3 (unobservable inputs)[65][66] - Commodity derivative financial instruments are measured at fair value on a recurring basis using Level 2 inputs[71][72] - Oil and natural gas properties are measured at fair value on a non-recurring basis using Level 3 inputs for acquisitions and impairment assessments[74][75] NOTE 6 - CREDIT FACILITY Black Stone Minerals maintains a $1.0 billion senior secured revolving credit facility, terminating November 1, 2024, with a borrowing base reaffirmed at $400.0 million in October 2021 and April 2022. Outstanding borrowings were $69.0 million at March 31, 2022, with a weighted-average interest rate of 2.94%. The facility includes financial covenants (current ratio ≥ 1.0:1.0, total debt to EBITDAX ≤ 3.5:1.0) and restrictions on distributions. The Partnership was in compliance with all covenants as of March 31, 2022. The facility includes provisions for transitioning from LIBOR to SOFR, which is not expected to have a material impact - The Credit Facility has an aggregate maximum credit amount of $1.0 billion and terminates on November 1, 2024[79] - The borrowing base was reaffirmed at $400.0 million in October 2021 and April 2022[79] - Outstanding borrowings were $69.0 million at March 31, 2022, with a weighted-average interest rate of 2.94%[81][83] - The Partnership was in compliance with all financial covenants (current ratio ≥ 1.0:1.0 and total debt to EBITDAX ≤ 3.5:1.0) as of March 31, 2022[82] NOTE 7 - COMMITMENTS AND CONTINGENCIES Black Stone Minerals is subject to U.S. federal, state, and local environmental regulations. The Partnership does not consider potential remediation costs from environmental issues to be significant and has not recorded a provision for them. The company is also involved in routine litigation and claims, but management believes existing claims will be resolved without a material adverse effect on financial condition or operations - The Partnership's business is subject to U.S. federal, state, and local environmental regulations[85] - Potential environmental remediation costs are not considered significant, and no provision has been recorded[86] - Management believes current legal actions and claims will not have a material adverse effect on the Partnership's financial condition or operations[89] NOTE 8 - INCENTIVE COMPENSATION Total incentive compensation expense for the three months ended March 31, 2022, was $5.547 million, an increase from $4.847 million in the prior year. This includes cash, equity-based compensation (restricted common units and performance units), and Board of Directors incentive plan expenses. The Board approved Aspirational Awards in Q1 2022, including performance cash and equity awards tied to a 2025 production target and net debt to EBITDA ratio. As of March 31, 2022, no expense was recognized for these awards as achievement of performance conditions was not yet probable | Incentive Compensation Expense (in thousands) | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :-------------------------------------------- | :-------------------------------- | :-------------------------------- | | Cash—short and long-term incentive plans | $996 | $1,385 | | Equity-based compensation—restricted common units | $927 | $949 | | Equity-based compensation—restricted performance units | $3,093 | $2,161 | | Board of Directors incentive plan | $531 | $352 | | Total incentive compensation expense | $5,547 | $4,847 | - Aspirational Awards, approved in Q1 2022, include performance cash awards ($4.7 million) and performance equity awards ($16.9 million for 1,463,202 performance units) tied to a 2025 production target and net debt to EBITDA ratio[90] - No expense for Aspirational Awards was recognized as of March 31, 2022, because the achievement of performance conditions was not yet probable[90] NOTE 9 - PREFERRED UNITS Black Stone Minerals has 14,711,219 Series B cumulative convertible preferred units outstanding, issued in November 2017 for approximately $300.0 million. These units are entitled to a 7% annual distribution, payable quarterly, and are convertible into common units on a one-for-one basis. The carrying value was $298.4 million as of March 31, 2022, and December 31, 2021, and they are classified as mezzanine equity due to redemption provisions outside the Partnership's control - 14,711,219 Series B cumulative convertible preferred units were issued in November 2017 for approximately $300.0 million[91] - These preferred units are entitled to a 7% annual distribution, payable quarterly, and are convertible into common units on a one-for-one basis[92] - The carrying value of Series B preferred units was $298.4 million as of March 31, 2022, and December 31, 2021, classified as mezzanine equity[93][95] NOTE 10 - EARNINGS PER UNIT Black Stone Minerals calculates earnings per unit (EPU) using the two-class method, including restricted common units as participating securities. Net income (loss) is allocated to the general partner and common unitholders pro rata after preferred unit distributions. Diluted EPU considers Series B cumulative convertible preferred units on an as-converted basis and restricted performance unit awards. For Q1 2022, both basic and diluted EPU were $(0.06), compared to $0.05 in Q1 2021 - The Partnership applies the two-class method for calculating earnings per unit (EPU), including restricted common units as participating securities[96] | EPU Metric (in thousands, except per unit amounts) | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :------------------------------------------------- | :-------------------------------- | :-------------------------------- | | NET INCOME (LOSS) ATTRIBUTABLE TO THE GENERAL PARTNER AND COMMON UNITS | $(12,252) | $10,936 | | Per common unit (basic) | $(0.06) | $0.05 | | Per common unit (diluted) | $(0.06) | $0.05 | | Weighted average common units outstanding (basic) | 209,323 | 207,442 | | Weighted average common units outstanding (diluted) | 209,323 | 207,442 | - Potentially dilutive securities, such as Series B preferred units (14,969 thousand units), were anti-dilutive for the periods presented and thus excluded from diluted EPU calculation[99] NOTE 11 - COMMON UNITS Common unitholders participate in distributions and have voting rights, though voting is restricted for persons or groups owning 15% or more of any class of units, with certain exceptions. Distributions are paid quarterly, first to Series B preferred unitholders, then to common unitholders. Distributions declared and paid per common unit increased to $0.2700 in Q1 2022 from $0.1750 in Q1 2021. The Board authorized a $75.0 million common unit repurchase program in November 2018, but no repurchases were made under this program in Q1 2022, with $4.2 million repurchased since inception - Common unitholders have distribution and voting rights, with voting restrictions for large ownership stakes (15% or more) subject to exceptions[102][103] - Quarterly distributions are prioritized for Series B cumulative convertible preferred units (7% per annum) before common units[104] | Distributions per common unit | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :---------------------------- | :-------------------------------- | :-------------------------------- | | Distributions declared and paid per common unit | $0.2700 | $0.1750 | - The Partnership has a $75.0 million common unit repurchase program, under which $4.2 million has been repurchased since inception, but no repurchases were made in Q1 2022[106] NOTE 12 - SUBSEQUENT EVENTS On April 25, 2022, the Board approved a distribution of $0.40 per common unit for the three months ended March 31, 2022, payable on May 20, 2022, to unitholders of record on May 13, 2022 - The Board approved a distribution of $0.40 per common unit for Q1 2022 on April 25, 2022[107] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on Black Stone Minerals' financial condition and operational results, including an overview of its business strategy, recent developments in key drilling areas, and the broader business environment. It details how the company evaluates its performance using operational and financial measures, discusses the impact of commodity prices and hedging, and reconciles non-GAAP financial measures. The analysis also covers the results of operations for Q1 2022 compared to Q1 2021, focusing on revenue, expenses, liquidity, and capital resources Cautionary Note Regarding Forward-Looking Statements This section advises readers about the inherent uncertainties and risks associated with forward-looking statements in the report - The report contains forward-looking statements identified by words like 'believe,' 'expect,' 'anticipate,' and 'plan,' which are based on current expectations and beliefs[110] - Actual results may differ materially due to significant risks and uncertainties, including the COVID-19 pandemic, the conflict in Ukraine, volatility of commodity prices, production levels, and general economic conditions[110][112] - Readers are cautioned not to place undue reliance on these statements, and the company undertakes no obligation to update or revise them[114] Overview This section provides a high-level summary of Black Stone Minerals' business, strategic objectives, and asset base - Black Stone Minerals is one of the largest owners and managers of oil and natural gas mineral interests in the U.S[115] - The principal business involves maximizing the value of existing mineral and royalty assets through active management and expanding the asset base via acquisitions[115] - As of March 31, 2022, mineral and royalty interests were located in 41 states, including over 70,000 producing wells, providing stable production and reserves[116] Recent Developments This section highlights key operational updates and drilling activities in the company's primary asset areas - In the Shelby Trough, Aethon has turned six wells to sales (four in April 2022) and commenced operations on four additional wells in Angelina County, while drilling two and completing two in San Augustine County[118] - XTO Energy has resumed drilling three wells on Shelby Trough acreage in San Augustine County, originally spud in 2019[118] - In the Austin Chalk, agreements with multiple operators are in place, with seven wells using modern completion technology now producing and five more being drilled or completed[119] Business Environment This section describes the external factors influencing the company's operations, including commodity prices and market trends - The COVID-19 pandemic's operational impact is minimal, with flexible work arrangements and health safety measures in place[120][121] | Benchmark Prices | Q1 2022 ($) | Q1 2021 ($) | | :--------------- | :---------- | :---------- | | WTI spot oil price ($/Bbl) | 100.53 | 59.19 | | Henry Hub spot natural gas ($/MMBtu) | 5.46 | 2.52 | - U.S. LNG exports averaged 11.5 Bcf per day in Q1 2022, an 18% increase from 2021, with forecasts for continued high demand[126] | U.S. Rotary Rig Count | Q1 2022 | Q1 2021 | | :-------------------- | :------ | :------ | | Oil | 531 | 324 | | Natural gas | 137 | 92 | | Other | 2 | 1 | | Total | 670 | 417 | - Natural gas inventories are estimated to conclude the injection season in October 2022 at 3.5 Tcf, 4% lower than the previous five-year average[131] How We Evaluate Our Operations This section explains the key operational and financial metrics management uses to assess the company's performance - Management assesses performance using production volumes, commodity prices (including derivative effects), Adjusted EBITDA, and Distributable cash flow[134] - Realized commodity prices are influenced by global/regional supply/demand, product quality (API gravity, impurities), and location differentials (transportation costs)[136][137][138][139][140][141] - The Partnership uses derivative instruments (fixed-price swap contracts) to mitigate commodity price volatility, hedging up to 90% of available volumes for the first 24 months[143][147] | Non-GAAP Financial Measures (in thousands) | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :----------------------------------------- | :-------------------------------- | :-------------------------------- | | Net income (loss) | $(7,002) | $16,186 | | Adjustments to reconcile to Adjusted EBITDA: | | | | Depreciation, depletion, and amortization | 10,917 | 15,632 | | Interest expense | 1,209 | 1,210 | | Income tax expense (benefit) | 103 | (157) | | Accretion of asset retirement obligations | 202 | 292 | | Equity–based compensation | 4,551 | 3,462 | | Unrealized (gain) loss on commodity derivative instruments | 88,776 | 23,359 | | Adjusted EBITDA | $98,756 | $59,984 | | Adjustments to reconcile to Distributable cash flow: | | | | Change in deferred revenue | (9) | (9) |\ | Cash interest expense | (862) | (953) |\ | Preferred unit distributions | (5,250) | (5,250) |\ | Distributable cash flow | $92,635 | $53,772 | Results of Operations This section analyzes the company's financial performance for the period, comparing revenues and expenses to the prior year | Metric (in thousands, except per unit amounts) | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | Variance ($) | Variance (%) | | :--------------------------------------------- | :-------------------------------- | :-------------------------------- | :----------- | :----------- | | Production: | | | | | | Oil and condensate (MBbls) | 831 | 829 | 2 | 0.2% | | Natural gas (MMcf) | 12,759 | 14,911 | (2,152) | (14.4)% | | Equivalents (MBoe) | 2,958 | 3,314 | (356) | (10.7)% | | Equivalents/day (MBoe) | 32.9 | 36.8 | (3.9) | (10.6)% | | Realized prices, without derivatives: | | | | | | Oil and condensate ($/Bbl) | $91.25 | $53.29 | $37.96 | 71.2% | | Natural gas ($/Mcf) | $5.94 | $2.88 | $3.06 | 106.3% | | Equivalents ($/Boe) | $51.25 | $26.27 | $24.98 | 95.1% | | Revenue: | | | | | | Oil and condensate sales | $75,831 | $44,176 | $31,655 | 71.7% | | Natural gas and natural gas liquids sales | $75,754 | $42,889 | $32,865 | 76.6% | | Lease bonus and other income | $4,859 | $2,385 | $2,474 | 103.7% | | Revenue from contracts with customers | $156,444 | $89,450 | $66,994 | 74.9% | | Gain (loss) on commodity derivative instruments | $(120,020) | $(27,882) | $(92,138) | 330.5% | | Total revenue | $36,424 | $61,568 | $(25,144)| (40.8)% | | Operating expenses: | | | | | | Lease operating expense | $3,161 | $2,664 | $497 | 18.7% | | Production costs and ad valorem taxes | $13,949 | $11,842 | $2,107 | 17.8% | | Exploration expense | $180 | $1,073 | $(893) | (83.2)% | | Depreciation, depletion, and amortization | $10,917 | $15,632 | $(4,715) | (30.2)% | | General and administrative | $13,763 | $12,852 | $911 | 7.1% | | Other expense: | | | | | | Interest expense | $1,209 | $1,210 | $(1) | (0.1)% | - Total revenue decreased by 40.8% primarily due to increased unrealized losses from commodity derivative instruments, despite higher oil and natural gas sales and lease bonus income[158] - Oil and condensate sales increased by 71.7% due to higher realized commodity prices, while natural gas and NGL sales increased by 76.6% due to higher prices, partially offset by lower production volumes[156][160] - Operating expenses saw increases in lease operating expense (18.7%) and production costs/ad valorem taxes (17.8%), while depreciation, depletion, and amortization decreased by 30.2%[163][164][166] Liquidity and Capital Resources This section discusses the company's ability to meet its short-term and long-term financial obligations and fund its operations - Primary liquidity sources are cash from operations, Credit Facility borrowings, and equity/debt issuances; primary uses are distributions, debt reduction, and acquisitions[171] - As of March 31, 2022, outstanding borrowings under the Credit Facility were $69.0 million[171] | Cash Flows (in thousands) | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | Change ($) | | :------------------------ | :-------------------------------- | :-------------------------------- | :--------- | | Operating activities | $82,576 | $55,686 | $26,890 | | Investing activities | $(96) | $(214) | $118 | | Financing activities | $(84,703) | $(53,479) | $(31,224) | - The 2022 capital expenditure budget for non-operated working interests is approximately $4.5 million, net of farmout reimbursements, with $0.1 million invested in Q1 2022[178] - The Credit Facility's borrowing base was reaffirmed at $400.0 million in April 2022, and the Partnership was in compliance with all debt covenants as of March 31, 2022[182][185] Contractual Obligations This section outlines the company's significant contractual commitments and payment obligations - There have been no material changes to contractual obligations previously disclosed in the 2021 Annual Report on Form 10-K as of March 31, 2022[188] Critical Accounting Policies and Related Estimates This section describes the accounting policies that require significant judgment and estimation by management - No significant changes to critical accounting policies and related estimates were made as of March 31, 2022, compared to those disclosed in the 2021 Annual Report on Form 10-K[189] Item 3. Quantitative and Qualitative Disclosures About Market Risk Black Stone Minerals is exposed to commodity price risk for oil, natural gas, and NGLs, which it mitigates using commodity derivative instruments. A hypothetical 10% reduction in SEC commodity pricing would result in an approximate 1% reduction of proved reserve volumes. The company also faces counterparty credit risk from derivative contracts and operators, which is managed through credit evaluations, with all six derivative counterparties rated Baa1 or better. Interest rate risk exists on its floating-rate Credit Facility, where a 1% interest rate increase would result in a $0.2 million increase in interest expense for Q1 2022 - Major market risk exposure is the pricing of oil, natural gas, and NGLs, which is mitigated using commodity derivative instruments[190] - A 10% reduction in SEC commodity pricing would lead to an approximate 1% reduction in proved reserve volumes[191] - Credit risk from derivative counterparties is managed by evaluating credit standing; all six counterparties are rated Baa1 or better by Moody's[192] - A 1% increase in the interest rate on the $69.0 million outstanding Credit Facility debt would increase interest expense by $0.2 million for Q1 2022[194] Item 4. Controls and Procedures Black Stone Minerals' management, including the principal executive and financial officers, evaluated the effectiveness of its disclosure controls and procedures as of March 31, 2022, concluding they were effective in providing reasonable assurance for timely and accurate financial reporting. There were no material changes in internal control over financial reporting during the quarter ended March 31, 2022 - Disclosure controls and procedures were evaluated and deemed effective as of March 31, 2022, providing reasonable assurance for timely and accurate reporting[196] - No material changes in internal control over financial reporting occurred during the quarter ended March 31, 2022[197] PART II – OTHER INFORMATION This section includes additional disclosures not covered in the financial information, such as legal proceedings and risk factors Item 1. Legal Proceedings Black Stone Minerals is routinely involved in legal actions and claims arising from its business activities. Management believes that none of the pending litigation, disputes, or claims as of March 31, 2022, if decided adversely, will have a material adverse effect on the Partnership's financial condition, cash flows, or results of operations - The Partnership is involved in routine litigation and claims in the ordinary course of business[200] - Management believes that existing claims will be resolved without a material adverse effect on the Partnership's financial condition, cash flows, or results of operations[200] Item 1A. Risk Factors Readers should consider the risk factors detailed in Black Stone Minerals' 2021 Annual Report on Form 10-K. There have been no material changes to these risk factors, except for any updates provided within this Quarterly Report on Form 10-Q. The company acknowledges that additional unknown or immaterial risks could adversely affect its business - Readers should refer to the 'Risk Factors' section in the 2021 Annual Report on Form 10-K[201] - No material changes to risk factors have occurred, except as updated in this report[201] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Black Stone Minerals reported no unregistered sales of equity securities during the period. The company's common unit repurchases for the three months ended March 31, 2022, were solely for satisfying tax withholding obligations upon the vesting of restricted common units, totaling 261,520 units. No repurchases were made under the publicly announced $75.0 million repurchase program during this quarter - No unregistered sales of equity securities occurred during the period[202] | Period | Total Number of Common Units Purchased | Average Price Paid Per Unit | | :------------------------- | :------------------------------------- | :-------------------------- | | January 1 - January 31, 2022 | 101,081 | $11.17 | | February 1 - February 28, 2022 | 160,439 | $11.61 | - Common units purchased were for satisfying tax withholding obligations upon the vesting of restricted common units[204] - No repurchases were made under the $75.0 million publicly announced repurchase program during the three months ended March 31, 2022[106][205] Item 5. Other Information This section indicates that there is no other information to report for the period - No other information is reported in this section[206] Item 6. Exhibits This section lists all exhibits filed or furnished with the Quarterly Report on Form 10-Q, including various certificates of limited partnership, amendments to the partnership agreement, a registration rights agreement, long-term incentive award agreements, and certifications from the Chief Executive Officer and Chief Financial Officer as required by the Sarbanes-Oxley Act - The exhibits include organizational documents (Certificates of Limited Partnership, Amendments to Agreement of Limited Partnership), a Registration Rights Agreement, and LTI Award Grant Notices[208] - Certifications from the CEO and CFO (pursuant to Sections 302 and 906 of Sarbanes-Oxley Act) are also included[208] - Inline XBRL documents (Instance, Schema, Calculation, Label, Presentation, Definition Linkbase Documents) and the Cover Page Interactive Data File are furnished[208] Signatures This section contains the required signatures for the Quarterly Report on Form 10-Q, confirming that the report has been duly caused to be signed on behalf of Black Stone Minerals, L.P. by its general partner, Black Stone Minerals GP, L.L.C. The report is signed by Thomas L. Carter, Jr., Chief Executive Officer and Chairman, and Jeffrey P. Wood, President and Chief Financial Officer, both dated May 3, 2022 - The report is signed by Thomas L. Carter, Jr., Chief Executive Officer and Chairman (Principal Executive Officer)[213] - The report is also signed by Jeffrey P. Wood, President and Chief Financial Officer (Principal Financial Officer)[213] - Both signatures are dated May 3, 2022[212]