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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM10-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, 2021
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period _______________ to _______________
Commission File Number: 001-37362
Black Stone Minerals, L.P.
(Exact name of registrant as specified in its charter)
 
Delaware 47-1846692
(State or other jurisdiction of
incorporation or organization)
 (I.R.S. Employer
Identification No.)
   
1001 Fannin Street, Suite 2020 77002
Houston,Texas
(Address of principal executive offices) (Zip code)
(713) 445-3200
(Registrant’s telephone number, including area code)
 
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Units Representing Limited Partner InterestsBSMNew York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes  No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes  No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. 
Large accelerated filer Accelerated filer
Non-accelerated filer(Do not check if a smaller reporting company)Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes  No 
As of October 29, 2021, there were 208,665,648 common units and 14,711,219 Series B cumulative convertible preferred units of the registrant outstanding.



TABLE OF CONTENTS
 
  Page
 
 
 
 
 
 




ii


PART I – FINANCIAL INFORMATION

Item 1. Financial Statements 


BLACK STONE MINERALS, L.P. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands)
 September 30, 2021December 31, 2020
ASSETS  
CURRENT ASSETS  
Cash and cash equivalents$3,264 $1,796 
Accounts receivable88,301 61,908 
Commodity derivative assets 1,149 
Prepaid expenses and other current assets1,503 1,668 
TOTAL CURRENT ASSETS93,068 66,521 
PROPERTY AND EQUIPMENT  
Oil and natural gas properties, at cost, using the successful efforts method of accounting, includes unproved properties of $947,538 and $937,464 at September 30, 2021 and December 31, 2020, respectively
3,000,406 3,157,818 
Accumulated depreciation, depletion, amortization, and impairment(1,855,218)(1,987,332)
Oil and natural gas properties, net1,145,188 1,170,486 
Other property and equipment, net of accumulated depreciation of $12,778 and $12,292 at September 30, 2021 and December 31, 2020, respectively
1,238 1,650 
NET PROPERTY AND EQUIPMENT1,146,426 1,172,136 
DEFERRED CHARGES AND OTHER LONG-TERM ASSETS7,170 5,321 
TOTAL ASSETS$1,246,664 $1,243,978 
LIABILITIES, MEZZANINE EQUITY, AND EQUITY 
CURRENT LIABILITIES 
Accounts payable$2,206 $3,407 
Accrued liabilities13,246 15,568 
Commodity derivative liabilities114,451 19,318 
Other current liabilities1,635 1,654 
TOTAL CURRENT LIABILITIES131,538 39,947 
LONG–TERM LIABILITIES 
Credit facility99,000 121,000 
Accrued incentive compensation565 766 
Commodity derivative liabilities14,481 1,848 
Asset retirement obligations12,412 17,377 
Other long-term liabilities3,223 4,073 
TOTAL LIABILITIES261,219 185,011 
COMMITMENTS AND CONTINGENCIES (Note 7)
MEZZANINE EQUITY  
Partners' equity – Series B cumulative convertible preferred units, 14,711 units outstanding at September 30, 2021 and December 31, 2020
298,361 298,361 
EQUITY 
Partners' equity – general partner interest  
Partners' equity – common units, 208,660 and 206,749 units outstanding at September 30, 2021 and December 31, 2020, respectively
687,084 760,606 
TOTAL EQUITY687,084 760,606 
TOTAL LIABILITIES, MEZZANINE EQUITY, AND EQUITY$1,246,664 $1,243,978 
The accompanying notes are an integral part of these unaudited consolidated financial statements.
1



BLACK STONE MINERALS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per unit amounts)
Three Months Ended September 30,Nine Months Ended September 30,
 2021202020212020
REVENUE  
Oil and condensate sales$61,916 $34,335 $160,028 $111,845 
Natural gas and natural gas liquids sales73,167 29,107 172,537 96,060 
Lease bonus and other income2,305 1,386 12,195 7,669 
Revenue from contracts with customers137,388 64,828 344,760 215,574 
Gain (loss) on commodity derivative instruments(77,561)(21,086)(164,923)49,751 
TOTAL REVENUE59,827 43,742 179,837 265,325 
OPERATING (INCOME) EXPENSE  
Lease operating expense3,303 3,160 9,804 10,280 
Production costs and ad valorem taxes14,331 9,905 35,469 31,836 
Exploration expense5 4 1,080 28 
Depreciation, depletion, and amortization14,925 19,823 46,353 62,198 
Impairment of oil and natural gas properties   51,031 
General and administrative12,320 9,381 37,359 32,738 
Accretion of asset retirement obligations273 286 863 836 
(Gain) loss on sale of assets, net(2,850)(24,045)(2,850)(24,045)
TOTAL OPERATING EXPENSE42,307 18,514 128,078 164,902 
INCOME (LOSS) FROM OPERATIONS17,520 25,228 51,759 100,423 
OTHER INCOME (EXPENSE) 
Interest and investment income 1  35 
Interest expense(1,359)(1,664)(4,197)(9,055)
Other income (expense)17 168 231 71 
TOTAL OTHER EXPENSE(1,342)(1,495)(3,966)(8,949)
NET INCOME (LOSS)16,178 23,733 47,793 91,474 
Distributions on Series B cumulative convertible preferred units(5,250)(5,250)(15,750)(15,750)
NET INCOME (LOSS) ATTRIBUTABLE TO THE GENERAL PARTNER AND COMMON UNITS$10,928 $18,483 $32,043 $75,724 
ALLOCATION OF NET INCOME (LOSS):   
General partner interest$ $ $ $ 
Common units10,928 18,483 32,043 75,724 
 $10,928 $18,483 $32,043 $75,724 
NET INCOME (LOSS) ATTRIBUTABLE TO LIMITED PARTNERS PER COMMON UNIT:  
Per common unit (basic)$0.05 $0.09 $0.15 $0.37 
Per common unit (diluted)$0.05 $0.09 $0.15 $0.37 
WEIGHTED AVERAGE COMMON UNITS OUTSTANDING:
Weighted average common units outstanding (basic)208,653 206,732 208,018 206,690 
Weighted average common units outstanding (diluted)208,653 206,732 208,018 206,690 
 The accompanying notes are an integral part of these unaudited consolidated financial statements.
2



BLACK STONE MINERALS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY
(Unaudited)
(In thousands)
Common unitsPartners' equity — common unitsTotal equity
BALANCE AT DECEMBER 31, 2020206,749 $760,606 $760,606 
Repurchases of common units(223)(1,957)(1,957)
Restricted units granted, net of forfeitures1,016 — — 
Equity–based compensation— 5,353 5,353 
Distributions— (36,272)(36,272)
Charges to partners' equity for accrued distribution equivalent rights— (237)(237)
Distributions on Series B cumulative convertible preferred units— (5,250)(5,250)
Net income (loss)— 16,186 16,186 
BALANCE AT MARCH 31, 2021207,542 $738,429 $738,429 
Issuance of common units for property acquisitions1,088 10,766 10,766 
Restricted units granted, net of forfeitures7 — — 
Equity–based compensation— 2,820 2,820 
Distributions— (36,321)(36,321)
Charges to partners' equity for accrued distribution equivalent rights— (180)(180)
Distributions on Series B cumulative convertible preferred units— (5,250)(5,250)
Net income (loss)— 15,429 15,429 
BALANCE AT JUNE 30, 2021208,637 $725,693 $725,693 
Restricted units granted, net of forfeitures23 — — 
Equity–based compensation— 2,903 2,903 
Distributions— (52,165)(52,165)
Charges to partners' equity for accrued distribution equivalent rights— (275)(275)
Distributions on Series B cumulative convertible preferred units— (5,250)(5,250)
Net income (loss)— 16,178 16,178 
BALANCE AT SEPTEMBER 30, 2021208,660 $687,084 $687,084 
The accompanying notes are an integral part of these unaudited consolidated financial statements.
3



BLACK STONE MINERALS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY
(Unaudited)
(In thousands)
 
Common unitsPartners' equity — common unitsTotal equity
BALANCE AT DECEMBER 31, 2019205,960 $798,443 $798,443 
Repurchases of common units(503)(5,029)(5,029)
Restricted units granted, net of forfeitures1,238 — — 
Equity–based compensation— 1,159 1,159 
Distributions— (61,641)(61,641)
Charges to partners' equity for accrued distribution equivalent rights— (68)(68)
Distributions on Series B cumulative convertible preferred units— (5,250)(5,250)
Net income (loss)— 76,112 76,112 
BALANCE AT MARCH 31, 2020206,695 $803,726 $803,726 
Repurchases of common units (6)(6)
Restricted units granted, net of forfeitures14 — — 
Equity–based compensation— 2,292 2,292 
Distributions— (16,679)(16,679)
Charges to partners' equity for accrued distribution equivalent rights— (31)(31)
Distributions on Series B cumulative convertible preferred units— (5,250)(5,250)
Net income (loss)— (8,371)(8,371)
BALANCE AT JUNE 30, 2020206,709 $775,681 $775,681 
Restricted units granted, net of forfeitures29 — — 
Equity–based compensation— 1,613 1,613 
Distributions— (31,011)(31,011)
Charges to partners' equity for accrued distribution equivalent rights— (133)(133)
Distributions on Series B cumulative convertible preferred units— (5,250)(5,250)
Net income (loss)— 23,733 23,733 
BALANCE AT SEPTEMBER 30, 2020206,738 $764,633 $764,633 
The accompanying notes are an integral part of these unaudited consolidated financial statements.
4



BLACK STONE MINERALS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Nine Months Ended September 30,
 20212020
CASH FLOWS FROM OPERATING ACTIVITIES  
Net income (loss)$47,793 $91,474 
Adjustments to reconcile net income (loss) to net cash provided by operating activities: 
Depreciation, depletion, and amortization46,353 62,198 
Impairment of oil and natural gas properties 51,031 
Accretion of asset retirement obligations863 836 
Amortization of deferred charges1,232 781 
(Gain) loss on commodity derivative instruments164,923 (49,751)
Net cash (paid) received on settlement of commodity derivative instruments(56,008)66,794 
Equity-based compensation9,705 1,405 
Exploratory dry hole expense1,049  
(Gain) loss on sale of assets, net(2,850)(24,045)
Changes in operating assets and liabilities:
Accounts receivable(26,066)29,844 
Prepaid expenses and other current assets165 (630)
Accounts payable, accrued liabilities, and other(3,546)(8,353)
Settlement of asset retirement obligations(187)(170)
NET CASH PROVIDED BY OPERATING ACTIVITIES183,426 221,414 
CASH FLOWS FROM INVESTING ACTIVITIES  
Acquisitions of oil and natural gas properties(10,064)(28)
Additions to oil and natural gas properties(3,972)(4,223)
Additions to oil and natural gas properties leasehold costs(98)(782)
Purchases of other property and equipment(74)(15)
Proceeds from the sale of oil and natural gas properties317 151,513 
Proceeds from farmouts of oil and natural gas properties 4,175 
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES(13,891)150,640 
CASH FLOWS FROM FINANCING ACTIVITIES  
Distributions to common unitholders(124,758)(109,331)
Distributions to Series B cumulative convertible preferred unitholders(15,750)(15,750)
Repurchases of common units(1,957)(5,035)
Borrowings under credit facility144,000 124,000 
Repayments under credit facility(166,000)(371,000)
Debt issuance costs and other(3,602) 
NET CASH USED IN FINANCING ACTIVITIES(168,067)(377,116)
NET CHANGE IN CASH AND CASH EQUIVALENTS1,468 (5,062)
CASH AND CASH EQUIVALENTS – beginning of the period1,796 8,119 
CASH AND CASH EQUIVALENTS – end of the period$3,264 $3,057 
SUPPLEMENTAL DISCLOSURE  
Interest paid$2,941 $8,371 
 The accompanying notes are an integral part of these unaudited consolidated financial statements.
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BLACK STONE MINERALS, L.P. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1 - BUSINESS AND BASIS OF PRESENTATION
Description of the Business
Black Stone Minerals, L.P. (“BSM” or the “Partnership”) is a publicly traded Delaware limited partnership that owns oil and natural gas mineral interests, which make up the vast majority of the asset base. The Partnership's assets also include nonparticipating royalty interests and overriding royalty interests. These interests, which are substantially non-cost-bearing, are collectively referred to as “mineral and royalty interests.” The Partnership’s mineral and royalty interests are located in 41 states in the continental United States ("U.S."), including all of the major onshore producing basins. The Partnership also owns non-operated working interests in certain oil and natural gas properties. The Partnership's common units trade on the New York Stock Exchange under the symbol "BSM."
Basis of Presentation
The accompanying unaudited interim consolidated financial statements of the Partnership have been prepared in accordance with generally accepted accounting principles ("GAAP") in the United States and pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). These unaudited interim consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and, therefore, do not include all disclosures required for financial statements prepared in conformity with GAAP. Accordingly, the accompanying unaudited interim consolidated financial statements and related notes should be read in conjunction with the Partnership’s consolidated financial statements included in the Partnership’s Annual Report on Form 10-K for the year ended December 31, 2020 ("2020 Annual Report on Form 10-K").
The unaudited interim consolidated financial statements include the consolidated results of the Partnership. The results of operations for the nine months ended September 30, 2021 are not necessarily indicative of the results to be expected for the full year.
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. All intercompany balances and transactions have been eliminated.
The Partnership evaluates the significant terms of its investments to determine the method of accounting to be applied to each respective investment. Investments in which the Partnership has less than a 20% ownership interest and does not have control or exercise significant influence are accounted for using fair value or cost minus impairment if fair value is not readily determinable. Investments in which the Partnership exercises control are consolidated, and the noncontrolling interests of such investments, which are not attributable directly or indirectly to the Partnership, are presented as a separate component of net income (loss) and equity.
The unaudited interim consolidated financial statements include undivided interests in oil and natural gas property rights. The Partnership accounts for its share of oil and natural gas property rights by reporting its proportionate share of assets, liabilities, revenues, costs, and cash flows within the relevant lines on the accompanying unaudited interim consolidated balance sheets, statements of operations, and statements of cash flows.
Segment Reporting
The Partnership operates in a single operating and reportable segment. Operating segments are defined as components of an enterprise for which separate financial information is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and assess performance. The Partnership’s chief executive officer has been determined to be the chief operating decision maker and allocates resources and assesses performance based upon financial information at the consolidated level.
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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Significant Accounting Policies
Significant accounting policies are disclosed in the Partnership’s 2020 Annual Report on Form 10-K. There have been no changes in such policies or the application of such policies during the nine months ended September 30, 2021.
Accounts Receivable

The following table presents information about the Partnership's accounts receivable:
September 30, 2021December 31, 2020
(in thousands)
Accounts receivable:
Revenues from contracts with customers$83,861 $58,181 
Other4,440 3,727 
Total accounts receivable$88,301 $61,908 

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BLACK STONE MINERALS, L.P. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3 - OIL AND NATURAL GAS PROPERTIES    
Acquisitions
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 second quarter of 2021, the Partnership closed an acquisition of mineral and royalty acreage in the northern Midland Basin for total consideration of $20.8 million. The purchase price consisted of $10.0 million in cash and $10.8 million in common units of the Partnership. The cash consideration was funded with borrowings under the Credit Facility (as defined in Note 6 - Credit Facility) and funds from operating activities. The transaction was accounted for as a business combination with the assets acquired recorded at their estimated fair values as of the acquisition date. The assets acquired consisted of $4.9 million of proved oil and natural gas properties, $15.6 million of unproved oil and natural gas properties, and $0.3 million of net working capital. Acquisition related costs of $0.3 million were expensed and included in the General and administrative line of the consolidated statement of operations for the nine months ended September 30, 2021.
Divestitures
In the third quarter of 2021, the Partnership closed on the divestiture of its wholly owned subsidiary, TLW Investments, L.L.C. ("TLW"), effective September 1, 2021 for total proceeds of $0.2 million. TLW holds non-operating working interests and overriding royalty interests primarily located in Oklahoma and Texas. TLW's assets and liabilities consisted of oil and natural gas properties with a net book value of $3.0 million and asset retirement obligations with a book value of $5.7 million at the time of sale. The Partnership recognized a $2.9 million gain associated with the divestiture included in the (Gain) loss on sale of assets, net line item of the consolidated statement of operations for the three and nine months ended September 30, 2021.
In the third quarter of 2020, the Partnership closed two separate divestitures of certain mineral and royalty properties in the Permian Basin for total proceeds, after closing adjustments, of $150.6 million. One of these transactions, effective May 1, 2020, involved the sale of the Partnership's mineral and royalty interest in specific tracts in Midland County, Texas for net proceeds of approximately $54.5 million. The other transaction, effective July 1, 2020, involved the sale of an undivided interest across parts of the Partnership's Delaware Basin and Midland Basin positions for net proceeds of approximately $96.1 million. The total book value of the assets divested through these transactions was $126.6 million at the time of sale. The Partnership recognized a $24.0 million gain associated with the divestitures included in the (Gain) loss on sale of assets, net line item of the consolidated statement of operations for the three and nine months ended September 30, 2020.
Farmout Agreements
In 2017, the Partnership entered into two farmout arrangements designed to reduce its working interest capital expenditures and thereby significantly lower its capital spending other than for mineral and royalty interest acquisitions. Under these agreements, the Partnership conveyed its rights to participate in certain non-operated working interest opportunities to external capital providers while retaining value from these interests in the form of additional royalty income or retained economic interests.
Canaan Farmout
In February 2017, the Partnership entered into a farmout agreement (the "First Canaan Farmout") with Canaan Resource Partners ("Canaan") covering certain Haynesville and Bossier shale acreage in San Augustine County, Texas jointly owned with and operated by XTO Energy Inc. ("XTO"), a subsidiary of Exxon Mobil Corporation. The Partnership had an approximate 50% working interest in the acreage. Under the terms of the First Canaan Farmout, Canaan funded 80% of the Partnership's drilling and completion costs and was assigned 80% of the Partnership's working interests in covered wells (40% working interest on an 8/8ths basis) as the wells were drilled. The Partnership received an ORRI before payout and an increased ORRI after payout on all wells drilled under the First Canaan Farmout.
Canaan's rights and obligations to participate in future wells in the contract area were terminated in the second quarter of 2021 in conjunction with Canaan and the Partnership entering into a new farmout agreement as discussed below. Canaan participated in a total of 37 wells under the First Canaan Farmout.
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BLACK STONE MINERALS, L.P. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

In 2019, XTO suspended its development activities in the area due to low natural gas prices. In March 2021, BSM and XTO reached an agreement to partition the jointly owned working interests in the San Augustine County development area. Under the partition agreement, BSM and XTO exchanged working interests in certain existing and proposed drilling units, resulting in each company holding 100% of the working interests in their respective partitioned units.
In May 2021, BSM and Aethon Energy ("Aethon") entered into an agreement to develop certain of the Partnership's undeveloped acreage in San Augustine County, including the working interests resulting from the partition agreement discussed above. The agreement provides for minimum well commitments by Aethon in exchange for reduced royalty rates and exclusive access to BSM's mineral and leasehold acreage in the contract area. The agreement calls for a minimum of five wells to be drilled in the initial program year, which began in the third quarter of 2021, increasing to a minimum of 12 wells per year beginning with the fourth program year. The Partnership's development agreement with Aethon and related drilling commitments covering its San Augustine County acreage is independent of the development agreement and associated commitments covering Angelina County discussed below.
On May 25, 2021, the Partnership and Canaan entered into a new farmout agreement (the "Second Canaan Farmout"). The Second Canaan Farmout supersedes and replaces the First Canaan Farmout with respect to the area in San Augustine County covered by the Aethon development agreement. The Second Canaan Farmout covers part of the Partnership's share of working interests under active development by Aethon in San Augustine County, Texas and continues until May 2031, unless earlier terminated in accordance to the terms of the agreement. Canaan will earn 80% of the Partnership's working interest in the partitioned acreage from XTO (up to a maximum of 40% on an 8/8ths basis) and 50% of the Partnership's working interest in other areas (up to a maximum of 12.5% on an 8/8ths basis) in wells drilled and operated by Aethon in accordance with the development agreement. Canaan is obligated to fund the development of all wells drilled by Aethon in the initial program year and thereafter, Canaan has certain rights and options to continue funding the Partnership's working interest for the duration of the Second Canaan Farmout. As of September 30, 2021, no wells have been spud in the contract area subject to the Second Canaan Farmout. The Partnership will receive an ORRI before payout and an increased ORRI after payout on all wells drilled under the Second Canaan Farmout.
Pivotal Farmout
In November 2017, the Partnership entered into a farmout agreement (the "First Pivotal Farmout") with Pivotal Petroleum Partners (“Pivotal”), a portfolio company of Tailwater Capital, LLC. The farmout agreement covered substantially all of the Partnership's remaining working interests in wells operated by XTO and BPX Energy in the Shelby Trough area of East Texas targeting the Haynesville and Bossier shale acreage (after giving effect to the Canaan Farmout), until November 2025. Under the terms of the First Pivotal Farmout, Pivotal was obligated to fund the development of up to 80 wells, in designated well groups, across several development areas and then had options to continue funding the Partnership's working interest across those areas for the duration of the farmout agreement. Once Pivotal achieved a specified payout for a designated well group, the Partnership would obtain a majority of the original working interest in such well group.
Pivotal’s rights and obligations to participate in future wells in the contract area were terminated in the fourth quarter of 2020 in conjunction with Pivotal and the Partnership entering into a new farmout agreement as discussed below. Pivotal participated in a total of 68 wells under the First Pivotal Farmout.
In the second quarter of 2020, the Partnership entered into a development agreement with Aethon to develop certain portions of the area forfeited by BPX Energy in Angelina County, Texas. The agreement provides for minimum well commitments by Aethon in exchange for reduced royalty rates and exclusive access to our mineral and leasehold acreage in the contract area. The agreement calls for a minimum of four wells to be drilled in the initial program year, which began in the third quarter of 2020, increasing to a minimum of 15 wells per year beginning with the third program year. In November 2020, the Partnership entered into a new farmout agreement (the "Second Pivotal Farmout") with Pivotal. The Second Pivotal Farmout supersedes and replaces the First Pivotal Farmout with respect to the area covered by the Aethon development agreement. The Second Pivotal Farmout covers the Partnership's share of working interest under active development by Aethon in Angelina County, Texas and continues until April 2028, unless earlier terminated in accordance to the terms of the agreement. Pivotal will earn 100% of the Partnership's working interest (ranging from approximately 12.5% to 25% on an 8/8ths basis) in wells drilled and operated by Aethon in accordance with the development agreement. Pivotal is obligated to fund the development of all wells drilled by Aethon in the initial program year and thereafter, Pivotal has certain rights and options to continue funding the Partnership's working interests for the duration of the Second Pivotal Farmout. Once Pivotal achieves a specified payout for
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BLACK STONE MINERALS, L.P. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

a designated well group, the Partnership will obtain a majority of the original working interest in such well group. As of September 30, 2021, a total of six wells have been spud in the contract area subject to the Second Pivotal Farmout.
From the inception of the farmout agreements through September 30, 2021, the Partnership has received $90.2 million and $119.2 million from Canaan and Pivotal, respectively, under the agreements. When such reimbursements are received prior to assigning the wells to Canaan and Pivotal, the Partnership records the amounts as increases to Oil and natural gas properties and Other long-term liabilities. When working interests in farmout wells are assigned to Canaan and Pivotal, the Partnership's Oil and natural gas properties and Other long-term liabilities are reduced by the reimbursed capital costs. As of September 30, 2021 and December 31, 2020, $0.1 million was included in the Other long-term liabilities line item of the consolidated balance sheets for reimbursements received associated with farmed-out working interests not yet assigned to Canaan and Pivotal.
Impairment of Oil and Natural Gas Properties
Proved and unproved oil and natural gas properties are reviewed for impairment when events and circumstances indicate a possible decline in the recoverability of the carrying value of those properties. When assessing producing properties for impairment, the Partnership compares the expected undiscounted projected future cash flows of the producing properties to the carrying amount of the producing properties to determine recoverability. When the carrying amount exceeds its estimated undiscounted future cash flows, the carrying amount is written down to its fair value, which is measured as the present value of the projected future cash flows of such properties.
There was a collapse in oil prices during the first quarter of 2020 due to geopolitical events that increased supply at the same time demand weakened due to the impact of the COVID-19 pandemic. The Partnership determined these events and circumstances indicated a possible decline in the recoverability of the carrying value of certain proved properties and recoverability testing determined that certain depletable units consisting of mature oil producing properties were impaired. The Partnership recognized no impairment of oil and natural gas properties for the three and nine months ended September 30, 2021 and the three months ended September 30, 2020. The Partnership recognized $51.0 million of impairment of oil and natural gas properties for the nine months ended September 30, 2020. See Note 5 - Fair Value Measurements for further discussion.
NOTE 4 - COMMODITY DERIVATIVE FINANCIAL INSTRUMENTS
The Partnership’s ongoing operations expose it to changes in the market price for oil and natural gas. To mitigate the inherent commodity price risk associated with its operations, the Partnership uses oil and natural gas commodity derivative financial instruments. From time to time, such instruments may include variable-to-fixed-price swaps, costless collars, fixed-price contracts and other contractual arrangements. The Partnership enters into oil and natural gas derivative contracts that contain netting arrangements with each counterparty. The Partnership does not enter into derivative instruments for speculative purposes.
As of September 30, 2021, the Partnership’s open derivative contracts consisted of fixed-price swap contracts. A fixed-price swap contract between the Partnership and the counterparty specifies a fixed commodity price and a future settlement date. The Partnership has not designated any of its contracts as fair value or cash flow hedges. Accordingly, the changes in the fair value of the contracts are included in the consolidated statement of operations in the period of the change. All derivative gains and losses from the Partnership’s derivative contracts have been recognized in revenue in the Partnership's accompanying consolidated statements of operations. Derivative instruments that have not yet been settled in cash are reflected as either derivative assets or liabilities in the Partnership’s accompanying consolidated balance sheets as of September 30, 2021 and December 31, 2020. See Note 5 - Fair Value Measurements for further discussion.    
The Partnership's derivative contracts expose it to credit risk in the event of nonperformance by counterparties that may adversely impact the fair value of the Partnership's commodity derivative assets. While the Partnership does not require its derivative contract counterparties to post collateral, the Partnership does evaluate the credit standing of such counterparties as deemed appropriate. This evaluation includes reviewing a counterparty’s credit rating and latest financial information. As of September 30, 2021, the Partnership had seven counterparties, all of which are rated Baa1 or better by Moody’s and six are lenders under the Credit Facility.
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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

The tables below summarize the fair values and classifications of the Partnership’s derivative instruments, as well as the gross recognized derivative assets, liabilities, and amounts offset in the consolidated balance sheets as of each date:
September 30, 2021
ClassificationBalance Sheet LocationGross
Fair Value
Effect of Counterparty NettingNet Carrying Value on Balance Sheet
  (in thousands)
Assets:
    
Current asset
Commodity derivative assets$ $ $ 
Long-term asset
Deferred charges and other long-term assets   
 Total assets
 $ $ $ 
Liabilities:
    
Current liability
Commodity derivative liabilities$114,451 $ $114,451 
Long-term liability
Commodity derivative liabilities14,481  14,481 
Total liabilities
 $128,932 $ $128,932 
December 31, 2020
ClassificationBalance Sheet LocationGross
Fair Value
Effect of Counterparty NettingNet Carrying Value on Balance Sheet
  (in thousands)
Assets:
    
Current asset
Commodity derivative assets$6,362 $(5,213)$1,149 
Long-term asset
Deferred charges and other long-term assets   
 Total assets
 $6,362 $(5,213)$1,149 
Liabilities:
    
Current liability
Commodity derivative liabilities$24,531 $(5,213)$19,318 
Long-term liability
Commodity derivative liabilities1,848  1,848 
Total liabilities
 $26,379 $(5,213)$21,166 
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BLACK STONE MINERALS, L.P. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Changes in the fair values of the Partnership’s derivative instruments (both assets and liabilities) are presented on a net basis in the accompanying consolidated statements of operations and consolidated statements of cash flows and consist of the following for the periods presented:
 Three Months Ended September 30,Nine Months Ended September 30,
Derivatives not designated as hedging instruments2021202020212020
(in thousands)
Beginning fair value of commodity derivative instruments$(85,511)$40,552 $(20,017)$15,221 
Gain (loss) on oil derivative instruments(10,227)(5,864)(69,296)50,300 
Gain (loss) on natural gas derivative instruments(67,334)(15,222)(95,627)(549)
Net cash paid (received) on settlements of oil derivative instruments20,811 (13,954)41,223 (42,270)
Net cash paid (received) on settlements of natural gas derivative instruments13,329 (7,334)14,785 (24,524)
Net change in fair value of commodity derivative instruments(43,421)(42,374)(108,915)(17,043)
Ending fair value of commodity derivative instruments$(128,932)$(1,822)$(128,932)$(1,822)
The Partnership had the following open derivative contracts for oil as of September 30, 2021:
 Weighted Average Price (Per Bbl)Range (Per Bbl)
Period and Type of ContractVolume (Bbl)LowHigh
Oil Swap Contracts:    
2021    
Third Quarter220,000 $38.97 $32.64 $46.50 
Fourth Quarter660,000 38.97 32.64 46.50 
2022
First Quarter480,000 $60.14 $55.29 $65.50 
Second Quarter480,000 60.14 55.29 65.50 
Third Quarter480,000 60.14 55.29 65.50 
Fourth Quarter480,000 60.14 55.29 65.50 

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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, 2021:
 Weighted Average Price (Per MMBtu)Range (Per MMBtu)
Period and Type of ContractVolume (MMBtu)LowHigh
Natural Gas Swap Contracts:    
2021    
Fourth Quarter10,120,000 $2.69 $2.52 $3.08 
2022
First Quarter7,920,000 $2.98 $2.80 $3.15 
Second Quarter8,000,000 2.99 2.80 3.15 
Third Quarter8,080,000 2.99 2.80 3.15 
Fourth Quarter8,080,000 2.99 2.80 3.15 
2023
First Quarter1,800,000 $3.28 $3.28 $3.29 
Second Quarter1,820,000 3.28 3.28 3.29 
Third Quarter1,840,000 3.28 3.28 3.29 
Fourth Quarter1,840,000 3.28 3.28 3.29 

NOTE 5 - FAIR VALUE MEASUREMENTS
Fair value is defined as the amount at which an asset (or liability) could be bought (or incurred) or sold (or settled) in an orderly transaction between market participants at the measurement date. Further, ASC 820, Fair Value Measurement, establishes a framework for measuring fair value, establishes a fair value hierarchy based on the quality of inputs used to measure fair value, and includes certain disclosure requirements. Fair value estimates are based on either (i) actual market data or (ii) assumptions that other market participants would use in pricing an asset or liability, including estimates of risk.
ASC 820 establishes a three-level valuation hierarchy for disclosure of fair value measurements. The valuation hierarchy categorizes assets and liabilities measured at fair value into one of three different levels depending on the observability of the inputs employed in the measurement. The three levels are defined as follows:
Level 1—Unadjusted quoted prices for identical assets or liabilities in active markets.
Level 2—Quoted prices for similar assets or liabilities in non-active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
Level 3—Inputs that are unobservable and significant to the fair value measurement (including the Partnership’s own assumptions in determining fair value).
A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The Partnership’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.
The carrying value of the Partnership's cash and cash equivalents, receivables, and payables approximate fair value due to the short-term nature of the instruments. The estimated carrying value of all debt as of September 30, 2021 and December 31, 2020 approximated the fair value due to variable market rates of interest. These debt fair values, which are Level 3 measurements, were estimated based on the Partnership’s incremental borrowing rates for similar types of borrowing arrangements, when quoted market prices were not available. The estimated fair values of the Partnership’s financial instruments are not necessarily indicative of the amounts that would be realized in a current market exchange.
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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Assets and Liabilities Measured at Fair Value on a Recurring Basis
The Partnership estimated the fair value of commodity derivative financial instruments using the market approach via a model that uses inputs that are observable in the market or can be derived from, or corroborated by, observable data. See Note 4 - Commodity Derivative Financial Instruments for further discussion.
The following table presents information about the Partnership’s assets and liabilities measured at fair value on a recurring basis: 
 Fair Value Measurements UsingEffect of Counterparty NettingTotal
 Level 1Level 2Level 3
 (in thousands)
As of September 30, 2021     
Financial Assets     
Commodity derivative instruments$ $ $ $ $ 
Financial Liabilities     
Commodity derivative instruments$ $128,932 $ $ $128,932 
As of December 31, 2020     
Financial Assets     
Commodity derivative instruments$ $6,362 $ $(5,213)$1,149 
Financial Liabilities     
Commodity derivative instruments$ $26,379 $ $(5,213)$21,166 
Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis
Nonfinancial assets and liabilities measured at fair value on a non-recurring basis include certain nonfinancial assets and liabilities as may be acquired in a business combination and measurements of oil and natural gas property values for assessment of impairment.
The determination of the fair values of proved and unproved properties acquired in business combinations are estimated by discounting projected future cash flows. The factors used to determine fair value include estimates of economic reserves, future operating and development costs, future commodity prices, timing of future production, and a risk-adjusted discount rate. The Partnership has designated these measurements as Level 3. The Partnership’s fair value assessments for recent acquisitions are included in Note 3 - Oil and Natural Gas Properties.
Oil and natural gas properties are measured at fair value on a non-recurring basis using the income approach when assessing for impairment. The factors used to determine fair value include estimates of proved reserves, future commodity prices, timing of future production, operating costs, future capital expenditures, and a risk-adjusted discount rate. The Partnership estimated the fair value of the impaired properties using published forward commodity price curves as of the measurement date of March 31, 2020, considering locational and quality differentials based on a review of historical realizations, and using an annual discount rate of 8%.
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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

The following table presents information about the non-recurring fair value measurements of the impaired properties:
Fair Value Measurements UsingImpairment
Level 1Level 2Level 3
(in thousands)
Three Months Ended September 30, 2021
Impaired oil and natural gas properties$ $ $ $ 
Three Months Ended September 30, 2020
Impaired oil and natural gas properties$ $ $ $ 
Nine Months Ended September 30, 2021
Impaired oil and natural gas properties$ $ $ $ 
Nine Months Ended September 30, 2020
Impaired oil and natural gas properties$ $ $2,044 $51,031 
The Partnership’s estimates of fair value have been determined at discrete points in time based on relevant market data. These estimates involve uncertainty, particularly in the current volatile market, and cannot be determined with precision. Changes to these estimates, particularly related to economic reserves, future commodity prices, and timing of future production could result in additional impairment charges in the future. There were no significant changes in valuation techniques or related inputs as of September 30, 2021 or December 31, 2020.
NOTE 6 - CREDIT FACILITY
The Partnership maintains a senior secured revolving credit agreement, as amended (the “Credit Facility”). The Credit Facility has an aggregate maximum credit amount of $1.0 billion and terminates on November 1, 2024. The commitment of the lenders equals the lesser of the aggregate maximum credit amount and the borrowing base. The amount of the borrowing base is redetermined semi-annually, usually in October and April, and is derived from the value of the Partnership’s oil and natural gas properties as determined by the lender syndicate using pricing assumptions that often differ from the current market for future prices. The Partnership and the lenders (at the direction of two-thirds of the lenders) each have discretion to request a borrowing base redetermination one time between scheduled redeterminations. The Partnership also has the right to request a redetermination following the acquisition of oil and natural gas properties in excess of 10% of the value of the borrowing base immediately prior to such acquisition. Effective November 3, 2020, the borrowing base redetermination reduced the borrowing base from $430.0 million to $400.0 million. The April and October 2021 borrowing base redeterminations reaffirmed the borrowing base at $400.0 million. The next semi-annual redetermination is scheduled for April 2022.
Outstanding borrowings under the Credit Facility bear interest at a floating rate elected by the Partnership equal to an alternative base rate (which is equal to the greatest of the Prime Rate, the Federal Funds effective rate plus 0.50%, or 1-month LIBOR plus 1.00%) or LIBOR, in each case, plus the applicable margin. As of December 31, 2020, the applicable margin for the alternative base rate ranged from 1.00% to 2.00% and the applicable margin for LIBOR ranged from 2.00% to 3.00%, depending on the borrowings outstanding in relation to the borrowing base. As of September 30, 2021, the alternative base rate margin ranged from 1.50% to 2.50% and the LIBOR margin ranged from 2.50% to 3.50%.
The weighted-average interest rate of the Credit Facility was 2.59% and 2.40% as of September 30, 2021 and December 31, 2020, respectively. 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. In addition, a commitment fee is payable at the end of each calendar quarter based on either a rate of 0.375% if the borrowing base utilization percentage is less than 50%, or 0.500% per annum if the borrowing base utilization percentage is equal to or greater than 50%. The Credit Facility is secured by substantially all of the Partnership’s oil and natural gas production and assets.
The Credit Facility contains various limitations on future borrowings, leases, hedging, and sales of assets. Additionally, the Credit Facility requires the Partnership to maintain a current ratio of not less than 1.0:1.0 and a ratio of total debt to EBITDAX (Earnings before Interest, Taxes, Depreciation, Amortization, and Exploration) of not more than 3.5:1.0. Distributions are not permitted if there is a default under the Credit Facility (including the failure to satisfy one of the financial covenants), if the availability under the Credit Facility is less than 10% of the lenders' commitments, or if total debt to EBITDAX is greater than 3.0. As of September 30, 2021, the Partnership was in compliance with all financial covenants in the Credit Facility.
15


BLACK STONE MINERALS, L.P. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

The aggregate principal balance outstanding was $99.0 million and $121.0 million at September 30, 2021 and December 31, 2020, respectively. The unused portion of the available borrowings under the Credit Facility were $301.0 million and $279.0 million at September 30, 2021 and December 31, 2020, respectively.
On March 5, 2021, the U.K. Financial Conduct Authority announced that it intends to stop persuading or compelling banks to submit LIBOR rates after December 31, 2021 for the 1-week and 2-month U.S. dollar settings and after June 30, 2023 for the remaining U.S. dollar settings. Our Credit Facility includes provisions to determine a replacement rate for LIBOR if necessary during its term, based on the secured overnight financing rate published by the Federal Reserve Bank of New York (“SOFR”). We currently do not expect the transition from LIBOR to have a material impact on us.
NOTE 7 - COMMITMENTS AND CONTINGENCIES
Environmental Matters
The Partnership’s business includes activities that are subject to U.S. federal, state, and local environmental regulations with regard to air, land, and water quality and other environmental matters.
The Partnership does not consider the potential remediation costs that could result from issues identified in any environmental site assessments to be significant to the consolidated financial statements, and no provision for potential remediation costs has been recorded.
Litigation
From time to time, the Partnership is involved in legal actions and claims arising in the ordinary course of business. The Partnership believes existing claims as of September 30, 2021 will be resolved without material adverse effect on the Partnership’s financial condition or operations. 
NOTE 8 - INCENTIVE COMPENSATION
The table below summarizes incentive compensation expense recorded in the General and administrative line item of the consolidated statements of operations for the periods presented:
 Three Months Ended September 30,Nine Months Ended September 30,
2021202020212020
 (in thousands)
Cash—short and long-term incentive plans$2,118 $634 $5,232 $2,103 
Equity-based compensation—restricted common units1,073 1,138 3,059 3,549 
Equity-based compensation—restricted performance units1
1,762 295