Business Context and Reporting Period
This Form 8-K, dated November 22, 2017, reports material events for Black Stone Minerals, L.P. (the "Partnership"). The filing details the entry into a definitive agreement to acquire mineral assets from Noble Energy Inc. and affiliates, and the concurrent execution of a private placement of Series B Preferred Units to fund the transaction. The closing of these transactions occurred on November 28, 2017.
Key Financial Metrics and Transaction Details
- Acquisition Cost: Approximately $335 million in cash for the "Noble Acquisition."
- Assets Acquired: Approximately 1.1 million gross (140,000 net) mineral acres, 380,000 gross acres of non-participating royalty interests, and 600,000 gross acres of overriding royalty interests across 20 states (concentrated in Texas, Oklahoma, and North Dakota).
- Financing Structure:
- Approximately $300 million raised via a private placement of 14,711,219 Series B Cumulative Convertible Preferred Units at $20.3926 per unit.
- Approximately $35 million funded through borrowings under the Partnership's revolving credit facility.
- Preferred Unit Terms:
- Distribution Rate: 7.0% per annum cumulative quarterly distributions.
- Seniority: Senior to Common Units and subordinated units regarding distributions and liquidation rights (junior only to existing Series A Preferred Units).
- Conversion: Convertible to Common Units on a one-for-one basis after the second anniversary of closing, subject to anti-dilution adjustments.
- Redemption: Partnership may redeem units starting on the sixth anniversary at 105% of the issue price plus accrued distributions.
Material Changes Versus Prior Period
This filing represents a significant expansion of the Partnership's asset base through the acquisition of interests from Noble Energy Inc. and affiliates. The transaction fundamentally alters the capital structure by introducing a new class of senior preferred equity (Series B Preferred Units) with a 7.0% distribution obligation. The filing does not provide comparative revenue, profit, or cash flow metrics for the prior period as it is a current report focused on specific transactional events rather than periodic financial performance.
Guidance, Outlook, Risks, and Unusual Items
- Registration Rights: The Partnership entered into a Registration Rights Agreement requiring the filing of a registration statement for the resale of Preferred Units and underlying Common Units. Failure to meet specific deadlines (e.g., November 28, 2019, for conversion units) may trigger liquidated damages.
- Distribution Rate Adjustments: The 7.0% distribution rate is subject to adjustment every two years starting on the sixth anniversary based on the 10-year Treasury Rate plus 5.5%. Additionally, the rate increases by 2.0% per annum for any quarter where distributions are accrued but unpaid after the second anniversary.
- Credit Facility Impact: If the Partnership fails to amend its revolving credit facility to exclude Preferred Units from the definition of "Disqualified Capital Stock" by January 31, 2018, the distribution rate will increase by 0.25% per annum (and 0.50% per annum if not amended by September 30, 2018).
- Change of Control: Specific provisions dictate automatic conversion or redemption rights for Preferred Unit holders in the event of a change of control, potentially involving premium calculations based on the issue price.
Investor Verification Checklist
- Verify the exact composition and quality of the 1.1 million gross mineral acres acquired from Noble Energy, specifically the net acreage and production profiles in Texas, Oklahoma, and North Dakota.
- Confirm the impact of the new 7.0% preferred distribution obligation on the Partnership's ability to pay distributions to Common Unit holders.
- Review the terms of the revolving credit facility to ensure the "Disqualified Capital Stock" amendment is executed by January 31, 2018, to avoid increased distribution costs.
- Assess the liquidity implications of the $35 million drawdown on the credit facility and the remaining borrowing capacity.
- Examine the Registration Rights Agreement for specific timelines and potential dilution risks associated with the resale of Preferred Units and conversion units.